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TABLE OF CONTENTS1
TUDOU HOLDINGS LIMITED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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As filed with the Securities and Exchange Commission on April 24, 2012.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
YOUKU INC.
(Exact name of registrant as specified in its charter)
N/A
(Translation of registrant name into English)
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Cayman Islands
(State or other jurisdiction of
incorporation or organization)
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7389
(Primary Standard Industrial
Classification Code Number)
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N/A
(I.R.S. Employer
Identification Number)
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11/F, SinoSteel Plaza
8 Haidian Street
Haidian District
Beijing 100080
People's Republic of China
(86-10) 5885-1881
(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
(212) 750-6474
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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Copies of all communications to:
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Z. Julie Gao, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
c/o 42/F, Edinburgh Tower, The Landmark
15 Queen's Road, Central
Hong Kong
Phone: +852 3740 4700
Facsimile: +852 3740 4727
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Michael V. Gisser, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
30th Floor, China World Office 2
1 Jianguomenwai Avenue
Beijing 100004
People's Republic of China
Phone: +86 (10) 6535 5500
Facsimile: +86 (10) 6535 5577
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David T. Zhang, Esq.
Jesse Sheley, Esq.
Benjamin Su, Esq.
Kirkland & Ellis International LLP
c/o 26th Floor, Gloucester Tower
The Landmark
15 Queen's Road Central
Hong Kong
Phone: +852 3761 3300
Facsimile: +852 3761 3301
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Allen C. Wang, Esq.
Latham & Watkins LLP
Unit 2318, China World Office 2
1 Jianguomenwai Avenue
Beijing 100004
People's Republic of China
Phone: +86 (10) 5965 7000
Facsimile: +86 (10) 5965 7001
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Approximate date of commencement of proposed sale of the securities to the public:
As soon as practicable after the effective date of this registration statement.
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.
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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.
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If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
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Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
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Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities
to be Registered(1)
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Amount to be
Registered(2)
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Proposed Maximum
Offering Price per
Unit
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Proposed Maximum
Aggregate Offering
Price(3)
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Amount of
Registration Fee
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Class A ordinary shares, par value US$0.00001 per share
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863,078,895
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N/A
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US$1,046,799,553.28
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US$119,963.23
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(1)
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This
registration statement relates to Class A ordinary shares, par value US$0.00001 per share (the "Youku Class A shares"), of
Youku Inc. ("Youku," or the "registrant"), an exempted company with limited liability incorporated under the laws of the Cayman Islands, to be issued to holders of Class A ordinary
shares and Class B ordinary shares, par value US$0.0001 per share (the "Tudou shares"), of Tudou Holdings Limited ("Tudou"), an exempted company with limited liability incorporated under the
laws of the Cayman Islands, pursuant to the agreement and plan of merger, dated March 11, 2012 (the "Merger Agreement"), by and among Youku, Tudou and Two Merger Sub Inc., an exempted
company with limited liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Youku. A separate registration statement on Form F-6 has previously
been filed (Registration No. 333-170709) for the registration of the registrant's American depositary shares, each representing eighteen Youku Class A shares (the "Youku
ADSs"), to be delivered in connection with the proposed Merger (as defined herein).
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(2)
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Represents
the proposed maximum number of Youku Class A shares expected to be offered and sold in the U.S. registered offering and a portion of the
Youku Class A shares that are to be offered and sold outside of the United States in the Regulation S offering that may be resold from time to time in the United States or to U.S.
persons.
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(3)
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Estimated
solely for the purpose of calculating the registration fee. The registration fee is required by Section 6(b) of the Securities Act of 1933,
as amended ("the Securities Act") and computed pursuant to Rules 457(f) and 457(c) under the Securities Act. Pursuant to Rule 457(f) under the Securities Act, the proposed maximum
aggregate offering price of the Youku Class A shares is equal to 120,252,677, the Aggregate Tudou Share Sum (as defined below), divided by four (being the number of Class B ordinary
shares of Tudou represented by each of Tudou's American depositary shares (the "Tudou ADS"), and then multiplied by US$34.82, the average of the high and low prices of the Tudou ADSs trading on the
NASDAQ Global Market on April 20, 2012. The "Aggregate Tudou Share Sum" means the estimated maximum number of Tudou shares which Youku will acquire from Tudou shareholders and Tudou ADS holders
in exchange for Youku Class A shares and Youku ADSs, respectively, in the Merger, which includes (1) Tudou shares currently held by Tudou shareholders, (2) Tudou shares underlying
outstanding Tudou ADS, and (3) Tudou shares underlying Tudou share options which may be exercised prior to the completion of the Merger.
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, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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The information in this preliminary joint proxy statement/prospectus is not complete and may be changed.
Youku Inc. may not sell these securities until the registration statement filed with the Securities and Exchange Commission, in which this preliminary joint proxy statement/prospectus is
included, is declared effective. This preliminary joint proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale of these securities is not permitted.
SUBJECT TO COMPLETION
Youku Inc.
and
Tudou Holdings Limited
PRELIMINARY JOINT PROXY STATEMENT
Youku Inc.
PRELIMINARY PROSPECTUS
Dear Shareholder:
Youku Inc.
("Youku"), Tudou Holdings Limited ("Tudou") and Two Merger Sub Inc. ("Merger Sub"), a wholly owned subsidiary of Youku, have entered into an agreement and plan
of merger (the "Merger Agreement") dated March 11, 2012 (such Merger Agreement being in the form attached as Appendix A to this joint proxy statement/prospectus). Pursuant to the Merger
Agreement and a plan of merger attached as Annex A to the Merger Agreement (the "Plan of Merger"), Merger Sub will merge with and into Tudou (the "Merger"), with Tudou continuing as the
surviving entity and as a wholly owned subsidiary of Youku. Following the Merger, Youku Inc. will be renamed as "Youku Tudou Inc.," and Tudou will cease to be a publicly traded company.
If
the Merger is completed, the merger consideration that Tudou shareholders and Tudou ADS holders will respectively receive in the Merger is as follows:
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each outstanding Class A ordinary share of Tudou, par value US$0.0001 per share ("Tudou Class A share"), and
each outstanding Class B ordinary share of Tudou, par value US$0.0001 per share ("Tudou Class B share" and, together with Tudou Class A shares, the "Tudou shares"), will be
cancelled in consideration of the right to receive 7.177 (the "Share Exchange Ratio") Youku Class A ordinary shares, par value US$0.00001 per share ("Youku Class A shares") (such number
of Youku Class A shares, the "Per Share Merger Consideration"); and
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each outstanding Tudou American depositary share representing four Tudou Class B shares ("Tudou ADS") will be
surrendered in consideration of the right to receive 1.595 (the "ADS Exchange Ratio") Youku American depositary shares, each representing 18 Youku Class A shares ("Youku ADS") (such number of
Youku ADSs, the "Per ADS Merger Consideration" and together with the Per Share Merger Consideration, the "Merger Consideration");
provided
that,
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each Tudou share issued and outstanding that is (1) issued to the depositary and reserved for future grants under
Tudou's share incentive plan or (2) repurchased and held by Tudou in treasury either in the form of Tudou shares or Tudou ADSs (collectively, the "Excluded Tudou Shares") shall automatically be
cancelled, shall no longer be issued or outstanding and shall cease to exist, and no consideration shall be delivered or deliverable in exchange; and
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Tudou shareholders who have validly exercised their right to dissent from the Merger pursuant to Section 238 of the
Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) (the "Cayman Companies Law") and have not effectively withdrawn or lost their appraisal rights shall not be entitled
to receive the consideration with respect to Tudou shares owned by such persons ("Dissenter Shares") and will instead receive the appraised or agreed value under the Cayman Companies Law.
The
Youku ADSs are listed on the New York Stock Exchange (the "NYSE") under the stock symbol "YOKU." The Tudou ADSs are listed on the NASDAQ Global Market (the "NASDAQ") under the stock
symbol "TUDO." The closing price of a Youku ADS on the NYSE and a Tudou ADS on the NASDAQ was US$21.82 and US$32.63, respectively, on April 23, 2012, the trading day immediately preceding the
date of this joint proxy statement/prospectus, and US$25.01 and US$15.39, respectively, on March 9, 2012, the trading day immediately preceding the public announcement of the proposed Merger.
The
Merger cannot be completed unless the issuance of Youku Class A shares, including Youku Class A shares underlying Youku ADSs, as consideration for the Merger (the
"Share Issuance") is authorized and approved by a resolution passed by an affirmative vote of Youku shareholders representing a majority of the aggregate voting power and an affirmative vote by
holders of a majority of the total outstanding Youku Class A shares, in each case, at a shareholders meeting of Youku. In addition, the change of Youku's legal name from "Youku Inc." to
"Youku Tudou Inc." (the "Name Change") cannot be completed unless authorized and approved by a special resolution passed by an affirmative vote of a majority of at least two-thirds
of such shareholders of Youku as, being entitled to do so, vote in person or by proxy as a single class at a shareholders meeting of Youku. An annual general meeting of Youku will be held at
, Hong Kong
on , 2012 at (Hong Kong time) (the "Youku AGM"), where Youku shareholders will vote upon the resolutions to
authorize and approve the Share
Issuance and the Name Change.
Youku's board of directors (the "Youku Board") unanimously recommends that holders of Youku shares and Youku ADSs vote "FOR" the resolutions to
authorize and approve the Share Issuance and the Name Change.
In
addition, the Merger cannot be completed unless the shareholders of Tudou authorize and approve the Merger Agreement, the Plan of Merger and the Merger by a special resolution passed
by an affirmative vote of a majority of at least two-thirds of such shareholders of Tudou, as being entitled to do so, vote in person or by proxy as a single class at a shareholders
meeting of Tudou. An annual general meeting of Tudou will be held at ,
on , 2012 at (local time) (the "Tudou AGM"), where Tudou
shareholders will vote upon
the resolution to authorize and approve the Merger Agreement, the Plan of Merger and the Merger.
Tudou's board of directors (the "Tudou Board") unanimously recommends that
holders of Tudou shares and Tudou ADSs vote "FOR" the resolutions to authorize and approve the Merger Agreement, the Plan of Merger and the Merger.
This
joint proxy statement/prospectus provides the shareholders and ADS holders of Youku and Tudou with detailed information about the shareholder meetings and the Merger. You can also
obtain information from publicly available documents filed with or furnished to the Securities and Exchange Commission (the "SEC") by Youku and Tudou. We encourage you to read this entire document
carefully before voting.
In particular, you should carefully consider the section entitled "Risk Factors" beginning on page 53.
We
look forward to the successful completion of the Merger.
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Very sincerely yours,
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Youku Inc.
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Tudou Holdings Limited
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By:
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By:
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Name:
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Victor Wing Cheung Koo
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Name:
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Gary Wei Wang
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Title:
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Chairman of the Board of Directors and Chief Executive Officer
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Title:
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Chairman of the Board of Directors and Chief Executive Officer
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Neither the SEC nor any state securities regulator has approved or disapproved of the Merger, passed upon the merits or fairness of the Merger or passed upon the
adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offence.
This
joint proxy statement/prospectus is dated , 2012.
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THE JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES ADDITIONAL INFORMATION
The joint proxy statement/prospectus incorporates important business and financial information about Youku from documents that Youku
has filed with or furnished to the SEC, but that have not been included in this joint proxy statement/prospectus. Please see "Where You Can Find More Information" and "Incorporation of Certain
Documents by Reference" on pages 252 and 253, respectively, for more details. This joint proxy statement/prospectus also refers to information about Tudou from documents that Tudou has
filed with or furnished to the SEC, but that have not been included in or delivered with this proxy statement/prospectus.
You
can obtain any of the documents filed with or furnished to the SEC by Youku or Tudou at no cost from the SEC's website at www.sec.gov. You may also request copies of these documents,
including documents incorporated by reference into this joint proxy statement/prospectus, at no cost by contacting either Youku or Tudou.
Youku
will provide you with copies of the documents it has filed with the SEC relating to Youku, without charge, upon written request to:
Ryan
Cheung
Corporate Finance Director
Youku Inc.
11/F, SinoSteel Plaza
8 Haidian Street
Haidian District, Beijing 100080
People's Republic of China
Tel: (+86 10) 5885-1881 x6090
Email: ryan.cheung@youku.com
Tudou
will provide you with copies of the documents it has filed with the SEC relating to Tudou, without charge, upon written request to:
Michael
Fu
Investor Relations Director
Tudou Holdings Limited
Building No. 6, X2 Creative Park
1238 Xietu Road, Xuhui District, Shanghai 200032
People's Republic of China
Tel: (+86 21) 5170-2375
Email: mfu@tudou.com
In order for you to receive timely delivery of the documents in advance of the relevant shareholder meeting, you must request the documents no later than five
business days prior to the relevant shareholder meeting, or , 2012.
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ABOUT THE JOINT PROXY STATEMENT/PROSPECTUS
This document, which forms part of a registration statement on Form F-4 filed with the SEC by Youku (File
No. 333- ), constitutes a prospectus of Youku under Section 5 of the Securities Act with respect to the Youku Class A shares to be issued to
Tudou
shareholders and the Youku ADSs to be issued to Tudou ADS holders in the Merger pursuant to the Merger Agreement. This document is also (1) a notice of meeting and a proxy statement under
Cayman Islands law with respect to the Youku AGM, at which Youku shareholders will be asked to consider and vote upon proposals to approve the Share Issuance and the Name Change, and (2) a
notice of meeting and a proxy statement under Cayman Islands law with respect to the Tudou AGM, at which Tudou shareholders will be asked to consider and vote upon a proposal to authorize and approve
the Merger Agreement, the Plan of Merger, the Merger and certain related proposals.
No
person has been authorized to provide you with information that is different from what is contained in, or incorporated by reference into, this joint proxy statement/prospectus, and,
if given or made, such information must not be relied upon as having been authorized. This joint proxy statement/prospectus does not constitute an offer to sell, or the solicitation of an offer to
buy, any securities, or the solicitation of a proxy, in any circumstances in which such offer or solicitation is unlawful. The distribution or possession of the joint proxy statement/prospectus in or
from certain jurisdictions may be restricted by law. You should inform yourself about and observe any such restrictions, and neither Youku nor Tudou accepts any liability in relation to any such
restrictions.
Neither
the distribution of this joint proxy statement/prospectus nor the issuance by Youku of Youku Class A shares or Youku ADSs in connection with the Merger shall, under any
circumstances, create any implication that there has been no change in the affairs of Youku or Tudou since the date of this joint proxy statement/prospectus or that the information contained in this
joint proxy statement/prospectus is correct as of any time subsequent to its date.
Information
contained in this joint proxy statement/prospectus regarding Youku has been provided by Youku and information contained in this joint proxy statement/prospectus regarding
Tudou has been provided by Tudou.
Unless
otherwise indicated and except where the context otherwise requires, references in this joint proxy statement/prospectus to:
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"China" or "PRC" refer to People's Republic of China, excluding, for the purpose of this joint proxy statement/prospectus
only, Taiwan, Hong Kong and Macau;
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"Tudou" refer to Tudou Holdings Limited, an exempted company with limited liability organized under the laws of the Cayman
Islands, and, unless the context otherwise requires, its subsidiaries and consolidated affiliated entities;
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"Youku" refer to Youku Inc., an exempted company with limited liability organized under the laws of the Cayman
Islands, and, unless the context otherwise requires, its subsidiaries and consolidated affiliated entities; and
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all references to "RMB" or "Renminbi" are to the legal currency of China, and all references to "$," "dollars," "US$" and
"U.S. dollars" are to the legal currency of the United States.
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Youku Inc.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2012
Dear Shareholder:
NOTICE
IS HEREBY GIVEN that an annual general meeting (the "Youku AGM") of Youku Inc. ("Youku") will be held
at , Hong
Kong on , 2012, beginning at
(Hong Kong time).
Only
holders of Class A ordinary shares of Youku, par value US$0.00001 per share ("Youku Class A shares") and holders of Class B ordinary shares of Youku, par value
US$0.00001 per share ("Youku Class B shares" and, together with the Youku Class A shares, the "Youku shares") of record on the close of business
on , 2012 (New York City
time) (the "Youku share record date") or their proxy holders are entitled to vote at the Youku AGM or any adjournment or postponements thereof. The chairman of Youku's board of directors has
undertaken to demand poll voting at the Youku AGM. Accordingly, voting at the Youku AGM will take place by poll voting, with each Youku Class A shareholder having one vote for each Youku
Class A share and each Youku Class B shareholder having three votes for each Youku Class B share held as of the close of business on the Youku share record date. At the meeting,
you will be asked to consider and vote upon the following resolutions:
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RESOLVED
, as an ordinary resolution:
THAT
the issuance of Youku Class A shares, including Youku Class A shares underlying Youku American depositary shares (the "Share
Issuance"), that constitute the consideration for the merger (the "Merger") pursuant to the agreement and plan of merger (the "Merger Agreement") dated March 11, 2012, by and among Youku, Tudou
Holdings Limited ("Tudou"), an exempted company with limited liability incorporated under the laws of the Cayman Islands, and Two Merger Sub Inc. ("Merger Sub"), an exempted company with
limited liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Youku, be and hereby is authorized and approved;
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RESOLVED
, as a special resolution:
THAT
the change of Youku's legal name (the "Name Change") from "Youku Inc." to "Youku Tudou Inc." upon the effectiveness of the Merger, be
and hereby is authorized and approved; and
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RESOLVED
, as an ordinary resolution:
THAT
, in the event that there are insufficient proxies received at the time of the Youku AGM to authorize and approve the Share Issuance and the Name
Change proposed at the Youku AGM, the chairman of the Youku AGM be instructed to adjourn the Youku AGM in order to allow Youku to solicit additional proxies in favor of the authorization and approval
of the Share Issuance and the Name Change.
Youku
has filed with the U.S. Securities and Exchange Commission (the "SEC") a registration statement on Form F-4, which includes a preliminary prospectus of Youku
relating to the Share Issuance and which also functions as a joint proxy statement of Youku and Tudou under Cayman Islands law (the "Joint Proxy Statement/Prospectus"). The Merger Agreement is in the
form attached as Appendix A to the Joint Proxy Statement/Prospectus, which will be produced and made available for inspection at the Youku AGM. Pursuant to the Merger Agreement, Merger Sub will
be merged with and into Tudou, with Tudou continuing as the surviving entity and as a wholly owned subsidiary of Youku.
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The
Joint Proxy Statement/Prospectus can be viewed free of charge on the SEC's website at www.sec.gov. A physical copy of the Joint Proxy Statement/Prospectus can be mailed to you
without charge upon written request to Youku Inc., 11/F, SinoSteel Plaza, 8 Haidian Street, Beijing 100080, People's Republic of China, or by contacting Ryan Cheung, Corporate Finance Director,
Youku Inc., by telephone at (+8610) 5885-1881 x6090, or email at ryan.cheung@youku.com. We urge you to read the entire Joint Proxy Statement/Prospectus carefully.
If
you own Youku ADSs on the close of business on , 2012 (New York City time) (the "Youku ADS record date"), you cannot vote on your ADSs at the Youku AGM
directly, but
you may instruct Citibank, N.A. (the "Youku depositary"), as depositary under a deposit agreement, dated as of December 8, 2010, by and among Youku, the Youku depositary and all holders and
beneficial owners of Youku ADSs issued thereunder (the "Youku Deposit Agreement"), as the holder of Youku Class A shares underlying Youku ADSs, how to vote the Youku Class A shares
underlying your ADSs. The Youku depositary must receive such instructions no later than a.m. (New York City time)
on , 2012 in
order to vote the underlying Youku Class A shares at the Youku AGM. Alternatively, you may vote at the Youku AGM if you surrender your Youku ADSs to the Youku depositary, certify that you have
not given, and will not give, directly or indirectly, voting instructions to the Youku depositary as to the Youku ADSs presented for cancellation, pay the Youku depositary's fees required for such
surrender, provide instructions for the registration of the corresponding Youku Class A shares before a.m. (New York City time)
on , 2012, and become a
holder of Youku Class A shares by the close of business on , 2012 (New York City time). In addition, if you hold your ADSs through a financial
intermediary such as a broker, you
must rely on the procedures of the financial intermediary through which you hold your Youku ADSs if you wish to vote at the Youku AGM.
After
careful consideration, Youku's board of directors has unanimously (1) approved the Merger Agreement, the Plan of Merger, the Merger and the other transactions contemplated
by the Merger Agreement, (2) directed that the Share Issuance and the Name Change be submitted to Youku shareholders for authorization and approval, and (3) recommended that Youku
shareholders authorize and approve the Share Issuance and the Name Change.
Accordingly, the Youku Board recommends that Youku shareholders vote "FOR" the resolutions to
authorize and approve the Share Issuance and the Name Change.
The
Share Issuance must be authorized and approved by an affirmative vote by holders of Youku shares representing a majority of the aggregate voting power and an affirmative vote by
holders of a majority of the total outstanding Youku Class A shares. The Name Change must be authorized and approved by an affirmative vote of a majority of at least two-thirds of
such shareholders of Youku as, being entitled to do so, vote in person or by proxy as a single class at the Youku AGM.
Regardless
of the number of Youku shares that you own, your vote is very important. Even if you plan to attend the Youku AGM in person, we request that you submit your proxy in
accordance with the instructions set forth on the proxy card as promptly as possible. You should simply indicate on your proxy card how you want to vote, sign and date the proxy card, and mail the
proxy card in the enclosed return envelope as soon as possible to ensure that it will be received by Youku no later than a.m.
on , 2012 (New York City Time) so
that your Youku shares will be represented and may be voted at the Youku AGM. If you receive more than one proxy card because you own Youku shares that are registered in different names, please vote
all of your Youku shares shown on all of your proxy cards in accordance with the instructions set forth on the proxy card.
Completing
the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the Youku AGM and vote your Youku shares in person.
Please note, however, that if your Youku shares are held of record by a broker, bank or other nominee and you wish to vote at the Youku AGM in person, you must obtain from the record holder a proxy
issued in your name. If you submit your proxy card without indicating how you wish to vote, the Youku shares represented by your proxy card will be voted FOR the resolution to authorize and approve
the Share Issuance and the Name Change, and FOR the resolution that, in the event that there are insufficient
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proxies
received at the time of the Youku AGM to authorize and approve the Share Issuance and the Name Change proposed at the Youku AGM, the chairman of the Youku AGM be instructed to adjourn the
Youku AGM in order to allow Youku to solicit additional proxies in favor of the authorization and approval of the Share Issuance and the Name Change, unless you appoint a person other than the
chairman of the meeting as proxy, in which case the Youku shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines. Further, if holders of Youku ADSs
do not give voting instructions to the Youku depositary, they will be deemed to have instructed the Youku depositary to give a discretionary proxy to a person designated by Youku (the "Youku
Designee") under the Youku Deposit Agreement, unless Youku informs the Youku depositary that (1) Youku does not wish such discretionary proxy to be given, (2) substantial opposition
exists in respect of the contemplated Share Issuance and the Name Change, or (3) the rights of holders of Youku shares may be materially adversely affected by the contemplated Share Issuance
and the Name Change. It is Youku's intention that the Youku Designee vote all such unvoted Youku Class A shares FOR the resolutions to authorize and approve the Share Issuance and the Name
Change and FOR any resolution to adjourn the Youku AGM.
If
you have any questions or need assistance in voting your Youku shares or Youku ADSs, please contact Ryan Cheung, Corporate Finance Director, Youku Inc., by telephone at
(+8610) 5885-1881 x6090, or email at ryan.cheung@youku.com.
Notes:
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1.
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In
the case of joint holders, the vote of the senior holder who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes
of the joint holders and for this purpose seniority shall be determined by the order in which the names stand in the register of members of Youku.
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2.
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The
instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a
corporation, either under seal or under the hand of an officer or attorney duly authorized.
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A
proxy need not be a member (registered shareholder) of Youku.
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The
chairman of the meeting may at his discretion direct that a proxy card shall be deemed to have been duly deposited. A proxy card that is not deposited in
the manner permitted shall be invalid.
-
5.
-
Votes
given in accordance with the terms of a proxy card shall be valid notwithstanding the previous death or insanity of the principal or revocation of the
proxy or of the authority under which the proxy was executed, or the transfer of the Youku share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or
transfer was received by Youku at Youku Inc., 11/F, SinoSteel Plaza, 8 Haidian Street, Beijing 100080, People's Republic of China, before the commencement of the general meeting, or adjourned
meeting at which it is sought to use the proxy.
By
Order of the Board of Directors,
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Name:
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Victor Wing Cheung Koo
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Title:
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Chairman of the Board of Directors and Chief Executive Officer
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, 2012
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Tudou Holdings Limited
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2012
Dear Shareholder:
NOTICE
IS HEREBY GIVEN that an annual general meeting (the "Tudou AGM") of Tudou Holdings Limited ("Tudou") will be held on , 2012, beginning
at local time
at , People's Republic of China.
Only
holders of ordinary shares of Tudou, par value US$0.0001 per share ("Tudou shares"), of record on the close of business on , 2012 (New York
City time) (the "Tudou
share record date") or their proxy holders are entitled to vote at the Tudou AGM or any adjournment or postponements thereof. At the meeting, you will be asked to consider and vote upon the following
resolutions:
-
-
RESOLVED
, as a special resolution:
THAT
(1) the agreement and plan of merger (the "Merger Agreement"), dated March 11, 2012, by and among Tudou, Youku Inc. ("Youku"), an exempted company with limited liability
incorporated under the laws of the Cayman Islands, and Two Merger Sub Inc. ("Merger Sub"), an exempted company with limited liability incorporated under the laws of the Cayman Islands and a
wholly owned subsidiary of Youku, (2) the plan of merger by and among Tudou, Youku and Merger Sub (the "Plan of Merger") (such Merger Agreement being in the form attached as Appendix A
to the Joint Proxy Statement/Prospectus (as defined below) and such Plan of Merger being in the form attached as Annex A to the Merger Agreement, and each of which will also be produced and
made available for inspection at the Tudou AGM), pursuant to which Merger Sub will merge with and into Tudou (the "Merger"), and (3) the Merger be and hereby are authorized and approved;
-
-
RESOLVED
, as an ordinary resolution:
THAT,
Messrs. Gary Wei Wang, Hany Nada, David M. Hand, Ted Tak-Tai Lee and Conor Chia-hung Yang (the "Tudou Directors") be and hereby are re-elected as the
directors of Tudou (the "Re-election of Tudou Directors"); and
-
-
RESOLVED
, as an ordinary resolution:
THAT,
in the event that there are insufficient proxies received at the time of the Tudou AGM to authorize and approve the Merger Agreement, the Plan of Merger and the Merger or approve the
Re-election of Tudou Directors proposed at the Tudou AGM, the chairman of the Tudou AGM be instructed to adjourn the Tudou AGM in order to allow Tudou to solicit additional proxies in
favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger and the approval of the Re-election of Tudou Directors.
Youku
has filed with the U.S. Securities and Exchange Commission (the "SEC") a registration statement on Form F-4, which includes a prospectus of Youku relating to
Youku shares and Youku ADSs to be offered as consideration in the Merger and which also functions as a joint proxy statement of Youku and Tudou under Cayman Islands law (the "Joint Proxy
Statement/Prospectus"). The Merger Agreement is in the form attached as Appendix A to the Joint Proxy Statement/Prospectus, which will be produced and made available for inspection at the Tudou
AGM. The Joint Proxy Statement/Prospectus can be viewed free of charge on the SEC's website at www.sec.gov. A physical copy of the Joint Proxy Statement/Prospectus can be mailed to you without charge
upon written request to Investor
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Relations,
Tudou Holdings Limited, Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's Republic of China, or by contacting Michael Fu, Investor
Relations Director, Tudou Holdings Limited, by telephone at (+86 21) 5170-2375 or by email at mfu@tudou.com. We urge you to read the entire Joint Proxy Statement/Prospectus
carefully.
If
you own Tudou ADSs on the close of business on , 2012 (New York City time) (the "Tudou ADS record date"), you cannot vote at the Tudou AGM
directly, but you may
instruct the Bank of New York Mellon (the "Tudou depositary"), as depositary under the deposit agreement, dated as of August 16, 2011, by and among Tudou, the Tudou depositary and all holders
and beneficial owners of Tudou ADSs issued thereunder (the "Tudou Deposit Agreement"), as the holder of the Tudou shares underlying the ADSs, how to vote the Tudou shares underlying your ADSs. The
Tudou depositary must receive such instructions no later than a.m. New York City time
on , 2012 in order to vote the underlying Tudou shares at the Tudou AGM.
Alternatively, you may vote at the Tudou AGM if you surrender your Tudou ADSs to the Tudou depositary, pay the Tudou depositary's fees required for such surrender, provide instructions for the
registration of the corresponding Tudou shares before a.m. New York City time
on , 2012, and become a holder of Tudou shares by the close of business on
, 2012 (New York City time). In addition, if you hold your ADSs through a financial intermediary such as a broker, you must rely on the
procedures of the financial intermediary through
which you hold your Tudou ADSs if you wish to vote at the Tudou AGM.
After
careful consideration, Tudou's board of directors has unanimously approved the Merger Agreement and recommends that you vote (1) "FOR" the resolution to authorize and
approve the Merger Agreement, the Plan of Merger, and the Merger (2) "FOR" the resolution to approve the Re-election of Tudou Directors, and (3) "FOR" the resolution to
instruct the chairman of the Tudou AGM to adjourn the Tudou AGM in order to allow Tudou to solicit additional proxies in favor of the authorization and approval of the Merger Agreement, the Plan of
Merger and the Merger and the approval of the Re-election of Tudou Directors in the event that there are insufficient proxies received to authorize and approve the Merger Agreement, the
Plan of Merger and the Merger or to approve the Re-election of Tudou Directors.
In
order for the Merger to be completed, the Merger Agreement, the Plan of Merger and the Merger must be authorized and approved by a special resolution of Tudou passed by an affirmative
vote of a majority of at least two-thirds of such shareholders of Tudou as, being entitled to do so, vote in person or by proxy as a single class at the Tudou AGM.
The
Re-election of Tudou Directors must be approved by an ordinary resolution of Tudou passed by a majority of the votes cast by such shareholders of Tudou as, being entitled
to do so, vote in person or by proxy as a single class at the Tudou AGM.
Regardless
of the number of Tudou shares that you own, your vote is very important. Even if you plan to attend the Tudou AGM in person, we request that you submit your proxy in
accordance with the instructions set forth on the proxy card as promptly as possible. You should simply indicate on your proxy card how you want to vote, sign and date the proxy card, and mail the
proxy card in the enclosed return envelope as soon as possible but in any event so that it is received by Tudou no later than a.m.
on , 2012 (New York City time).
If you receive more than one proxy card because you own Tudou shares that are registered in different names, please vote all of your Tudou shares shown on all of your proxy cards in accordance with
the instructions set forth on the proxy card.
Completing
the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the Tudou AGM and vote your Tudou shares in person.
Please note, however, that if your Tudou shares are held of record by a broker, bank or other nominee and you wish to vote at the Tudou AGM in person, you must obtain from the record holder a proxy
issued in your name. If you submit your proxy card without indicating how you wish to vote, the Tudou shares represented by your proxy card will be voted (1) "FOR" the resolution to authorize
and approve the Merger Agreement, the Plan of Merger, and the Merger (2) "FOR" the resolution to approve the Re-election of Tudou Directors, and (3) "FOR" the resolution to
instruct the chairman of the Tudou
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AGM
to adjourn the Tudou AGM in order to allow Tudou to solicit additional proxies in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger and the
approval of the Re-election of Tudou Directors in the event that there are insufficient proxies received to authorize and approve the Merger Agreement, the Plan of Merger and the Merger or
to approve the Re-election of Tudou Directors, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Tudou shares represented by your proxy card
will be voted (or not submitted for voting) as your proxy determines. Furthermore, if banks, brokers or other nominee holders of Tudou ADSs do not timely receive specific voting instructions from the
beneficial owners of Tudou ADSs, they may, under the terms of Tudou Deposit Agreement, be deemed to have instructed the Tudou depositary to give a discretionary proxy to a person designated by Tudou
(the "Tudou Designee"). Unless Tudou notifies the Tudou depositary that this provision will
not apply, the Tudou Designee will receive a proxy from the Tudou depositary and will vote all such uninstructed Tudou Class B shares underlying Tudou ADSs FOR the authorization and approval of
the Merger Agreement, the Plan of Merger and the Merger, FOR the approval of the Re-election of Tudou Directors and FOR any adjournment of the Tudou AGM.
Shareholders
who continue to hold their Tudou shares in their own name until the consummation of the Merger will have the right to seek appraisal and payment of the fair value of their
Tudou shares if the Merger is completed, but only if they deliver to Tudou, before the vote is taken on the resolution to authorize and approve the Merger Agreement, the Plan of Merger and the Merger,
a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Cayman Companies Law for the exercise of appraisal rights, which is attached
as Appendix E to the Joint Proxy Statement/Prospectus. The fair value of your Tudou shares as determined under that statute could be more than, the same as, or less than the merger
consideration you would receive pursuant to the Merger Agreement if you did not exercise appraisal rights with respect to your Tudou shares.
TUDOU ADS HOLDERS WILL NOT HAVE THE RIGHT TO SEEK APPRAISAL AND PAYMENT OF THE FAIR VALUE OF THE TUDOU SHARES UNDERLYING THEIR TUDOU ADSs. THE TUDOU DEPOSITARY
WILL NOT ATTEMPT TO EXERCISE ANY APPRAISAL RIGHTS WITH RESPECT TO ANY OF THE TUDOU SHARES THAT IT HOLDS, EVEN IF A TUDOU ADS HOLDER REQUESTS THE TUDOU DEPOSITARY TO DO SO. TUDOU ADS HOLDERS WISHING TO
EXERCISE APPRAISAL RIGHTS MUST SURRENDER THEIR TUDOU ADSs TO THE TUDOU DEPOSITARY, PAY THE TUDOU DEPOSITARY'S FEES REQUIRED FOR SUCH SURRENDER, PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE
CORRESPONDING TUDOU SHARES BEFORE A.M. NEW YORK CITY TIME ON ,
2012, AND BECOME HOLDERS OF TUDOU SHARES BY THE CLOSE OF BUSINESS ON , 2012 (NEW
YORK CITY TIME). THEREAFTER, SUCH FORMER TUDOU ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING APPRAISAL RIGHTS WITH RESPECT TO THE TUDOU SHARES UNDER SECTION 238 OF
THE CAYMAN COMPANIES LAW.
PLEASE
DO NOT SEND YOUR SHARE CERTIFICATES OR ADSs AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR SHARE CERTIFICATES OR ADSs.
If
you have any questions or need assistance in voting your Tudou shares or Tudou ADSs, you can contact Michael Fu, Investor Relations Director, Tudou Holdings Limited, by
telephone at (+86 21) 5170-2375, or email at mfu@tudou.com.
Notes:
-
1.
-
In
the case of joint holders the vote of the senior holder who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes
of the joint holders and for this purpose seniority shall be determined by the order in which the names stand in the register of members of Tudou.
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-
2.
-
The
instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a
corporation, either under seal or under the hand of an officer or attorney duly authorized.
-
3.
-
A
proxy need not be a member (registered shareholder) of Tudou.
-
4.
-
The
chairman of the meeting may at his discretion direct that a proxy card shall be deemed to have been duly deposited. A proxy card that is not deposited in
the manner permitted shall be invalid.
-
5.
-
Votes
given in accordance with the terms of a proxy card shall be valid notwithstanding the previous death or insanity of the principal or revocation of the
proxy or of the authority under which the proxy was executed, or the transfer of the Tudou share in respect of which the proxy is given unless notice in writing of such death, insanity, revocation or
transfer was received by Tudou at Investor Relations, Tudou Holdings Limited, Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's Republic of China
before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy.
By
Order of the Board of Directors,
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Name:
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Gary Wei Wang
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Title:
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Chairman of the Board of Directors and Chief Executive Officer
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, 2012
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Table of Contents
TABLE OF CONTENTS
i
Table of Contents
ii
Table of Contents
iii
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iv
Table of Contents
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE ANNUAL GENERAL
MEETINGS OF YOUKU AND TUDOU
The following are some questions that you may have regarding the Merger, Youku AGM and/or Tudou AGM and brief
answers to those questions. Youku and Tudou urge you to read carefully the entire joint proxy statement/prospectus because the information in this section does not provide all the information that
might be important to you with respect to the Merger, Youku AGM and Tudou AGM. Additional important information is also contained in the documents incorporated by reference into this joint proxy
statement/prospectus. Please see "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference" on pages 252 and 253,
respectively.
-
Q:
-
What is this document?
-
A:
-
Youku
has agreed to acquire all of the outstanding Tudou shares and Tudou ADSs pursuant to the terms of the Merger Agreement and the Plan of Merger that are
described in this joint proxy statement/prospectus. A copy of the Merger Agreement is attached to this joint proxy statement/prospectus as Appendix A, and the form of the Plan of Merger is
attached as Annex A to the Merger Agreement. In order to complete the Merger, Youku shareholders must vote to authorize and approve the Share Issuance, and Tudou shareholders must vote to
authorize and approve the Merger Agreement, the Plan of Merger and the Merger. Youku and Tudou are holding their respective annual general meetings of shareholders to obtain these required shareholder
approvals. This joint proxy statement/prospectus contains important information about Youku, Tudou, the Merger, the Youku AGM, the Tudou AGM and other background information so that you can make an
informed investment decision, and you should read this information carefully.
This
joint proxy statement/prospectus is (1) a proxy statement for Youku under Cayman Islands law because the Youku Board is soliciting proxies from Youku shareholders, (2) a proxy
statement for Tudou under Cayman Islands law because the Tudou Board is soliciting proxies from Tudou shareholders, and (3) a prospectus of Youku with respect to the Youku shares to be issued
to Tudou shareholders and the Youku ADSs to be issued to Tudou ADS holders in the Merger pursuant to the Merger Agreement.
-
Q:
-
Why did I receive the proxy card?
-
A:
-
You
received a proxy card and were directed to this document because (1) you owned Youku shares as of the Youku share record date or Youku ADSs as of
the Youku ADS record date and/or (2) you owned Tudou shares as of the Tudou share record date or Tudou ADSs as of the Tudou ADS record date.
If
you are a Youku shareholder, the proxy card for the Youku AGM which was mailed to you allows you to vote your Youku shares without attending the Youku AGM in person, and if you are a Youku ADS
holder, the ADS Voting instruction card which was mailed to you allows you to vote your Youku ADSs without needing to convert your Youku ADSs into Youku shares and attending the Youku AGM in person.
If
you are a Tudou shareholder, the proxy card for the Tudou AGM which was mailed to you allows you to vote your Tudou shares without attending the Tudou AGM in person, and if you are a Tudou ADS
holder, the ADS Voting instruction card which was mailed to you allows you to vote your Tudou ADSs without needing to convert your Tudou ADSs into Tudou shares and attending the Tudou AGM in person.
1
Table of Contents
Questions and Answers Relating to the Merger
-
Q:
-
What is the Merger?
-
A:
-
Once
the closing conditions under the Merger Agreement have been satisfied or waived, Merger Sub will merge with and into Tudou, with Tudou continuing as the
surviving company after the Merger and as a wholly-owned subsidiary of Youku. As a result of the Merger, the Tudou ADSs will no longer be listed on the NASDAQ, Tudou will cease to be a publicly-traded
company, the Tudou ADSs and the underlying Tudou shares will be deregistered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Tudou ADS program will terminate.
-
Q:
-
What will a holder of Tudou shares or Tudou ADSs receive in the Merger?
-
A:
-
As
described in more detail under "The Merger Agreement and Plan of MergerMerger Consideration," at the effective time of the Merger,
(1) each outstanding Tudou share will be converted into the right to receive 7.177 Youku Class A shares, and (2) each outstanding Tudou ADS will be converted into the right to
receive 1.595 Youku ADS; provided that the Excluded Tudou Shares shall automatically be cancelled and shall cease to exist, and no consideration shall be delivered or deliverable in exchange therefor,
and the Dissenter Shares will be cancelled for the appraised or agreed value under the Cayman Companies Law.
If
Tudou shareholders validly exercise and have not effectively withdrawn or lost their appraisal rights under Section 238 of the Cayman Companies Law with respect to the Merger, such Tudou
shareholders would not receive the Merger Consideration as set forth in the Merger Agreement in the event that the
Merger is consummated, and would instead receive the value of each Tudou share appraised or agreed pursuant to the Cayman Companies Law. For more information on appraisal rights, please see the
question "Am I entitled to appraisal rights?" below and its answer. Youku shareholders and ADS holders are not entitled to appraisal rights.
-
Q:
-
If the Merger is completed, will the Youku ADSs to be delivered under the Merger Agreement be "listed" for
trading?
-
A:
-
Yes.
Youku ADSs are listed on the NYSE under the symbol "YOKU." It is a condition to completion of the Merger that the Youku ADSs to be delivered to Tudou
ADS holders in connection with the Merger be approved for listing on the NYSE, subject to official notice of issuance.
-
Q:
-
When do you expect the Merger to be completed?
-
A:
-
Youku
and Tudou are working toward completing the Merger as quickly as possible and currently expect the Merger to close in the third quarter of 2012. In
order to complete the Merger, Youku must obtain shareholder authorization and approval of the Share Issuance at the Youku AGM, Tudou must obtain shareholder authorization and approval of the Merger
Agreement, the Plan of Merger and the Merger at the Tudou AGM, and the other closing conditions under the Merger Agreement must be satisfied or waived in accordance with the terms of the Merger
Agreement.
-
Q:
-
Are there any risks in the Merger that I should consider?
-
A:
-
Yes.
There are risks associated with all business combinations, including the Merger. These risks are discussed in more detail in the section entitled "Risk
Factors" beginning on page 53.
-
Q:
-
What happens if the Merger is not completed?
-
A:
-
If
the Merger is not completed for any reason, including but not limited to Tudou shareholders not authorizing and approving the Merger Agreement, the Plan
of Merger and the Merger or Youku
2
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shareholders
not authorizing and approving the Share Issuance, then Tudou shareholders and ADS holders will not receive any payment for their respective Tudou shares and Tudou ADSs pursuant to the
Merger Agreement nor will any holders of Tudou share options receive Youku share options pursuant to the Merger Agreement. In addition, Tudou will remain a publicly traded company. The Tudou ADSs will
continue to be listed and traded on the NASDAQ, provided that Tudou continues to meet the NASDAQ's listing requirements. In addition, Tudou will remain subject to SEC reporting obligations. Therefore,
Tudou shareholders and ADS holders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of Tudou shares and Tudou ADSs.
Under
specified circumstances in which the Merger Agreement is terminated, Tudou may be required to pay Youku a termination fee of US$100.0 million, which is the sole and exclusive remedy of
Youku related parties against Tudou related parties for any loss or damage incurred as a result of any matters forming the basis for termination of the Merger Agreement. Under specified circumstances
in which the Merger Agreement is terminated, Youku may be required to pay Tudou a termination fee of US$100.0 million. In the event that the Merger Agreement is terminated by Youku or Tudou due
to Youku's shareholders not having authorized and approved the Share Issuance, Youku may be required to pay Tudou a termination fee of US$10.0 million. Tudou's receipt of either the
US$100.0 million termination fee or the US$10.0 million termination fee, as applicable, is the sole and exclusive remedy of Tudou related parties against Youku related parties for any
loss or damage incurred as a result of any matters forming the basis for termination of the Merger Agreement. For more information, see "The Merger Agreement and Plan of MergerTermination
Fee" beginning on page 151.
-
Q:
-
Can the value of the Merger Consideration to be received by holders of Tudou shares or Tudou ADSs change between now and the time the
Merger is completed?
-
A:
-
The
value of the Per Share Merger Consideration to be delivered to Tudou shareholders and the Per ADS Merger Consideration to be delivered to Tudou ADS
holders, respectively, under the Merger Agreement will fluctuate based on the trading price for Youku ADSs on the NYSE. Regardless of the trading price of Youku's ADSs on the NYSE on the effective
date of the Merger, Tudou shareholders will receive 7.177 Youku Class A shares for each Tudou share that they own and Tudou ADS holders will receive 1.595 Youku ADS for each Tudou ADS that they
own as of the effective date of the Merger. The market value of the Youku Class A shares and Youku ADSs that Tudou shareholders and Tudou ADS holders will respectively receive in the Merger
will increase or decrease as the trading price of Youku ADSs increases or decreases, and may be different at the time the Merger is completed than it was at the time the Merger Agreement was signed or
will be at the time of the Tudou AGM or the time of the Youku AGM. Please see the section headed "Risk Factors" for more information on the risks involved in investing in Youku shares and Youku ADSs.
As
of April 23, 2012, the closing price of Youku ADSs on the NYSE was US$21.82 per ADS. Tudou shareholders are urged to obtain current trading prices for Youku ADSs on the website of the NYSE
at http://www.nyse.com/ before voting. This website is not incorporated by reference in this joint proxy statement/prospectus.
-
Q:
-
What are the material tax consequences of the Merger to Tudou shareholders and Tudou ADS
holders?
-
A:
-
Please
see "The MergerMaterial U.S. Federal Income Tax Consequences of the Merger" beginning on page 125 for a summary of the material
U.S. federal income tax consequences of the Merger, "The MergerMaterial PRC Income Tax Consequences of the Merger" beginning on page 129 for a summary of the material PRC income
tax consequences of the Merger, and "The
3
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MergerMaterial
Cayman Islands Tax Consequences of the Merger" beginning on page 130 for a summary of the material Cayman Islands tax consequences of the Merger. You are urged to
consult with your own tax advisor for a full understanding of how the Merger will affect your U.S. federal, state, local, foreign and other taxes.
-
Q:
-
How will Tudou's share options be treated in the Merger?
-
A:
-
Each
Tudou share option that is outstanding immediately prior to the effective time, whether vested or unvested, shall, at the effective time of the Merger,
be assumed by Youku and be replaced by Youku with a Youku share option. Each such Youku share option shall be exercisable for that number of whole Youku Class A shares (rounded down to the
nearest whole share) equal to the product of (x) the total number of Tudou shares subject to such Tudou share option and (y) 7.177, at an exercise price per Youku Class A share
(rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of the Tudou share option by (y) 7.177. Each such Youku share option
shall continue to have, and shall be subject to, the same terms and conditions as applied to the Tudou share option immediately prior to the effective time (but taking into account any changes thereto
provided for in the Tudou share incentive plan, any award agreement, or any other contract or agreement, including by reason of the Merger Agreement or the transactions contemplated thereby). In
addition, Tudou may consider the immediate vesting upon the closing of the Merger of the Tudou share options held by certain directors and officers of Tudou, including Mr. Gary Wei Wang,
chairman of the Tudou Board and Tudou's chief executive officer, in which case such Tudou share options shall become fully vested and exercisable upon the closing of the Merger.
For
more information on the treatment of Tudou share options in the Merger, see "The Merger Agreement and Plan of MergerTreatment of Tudou Share Options."
-
Q:
-
After the Merger is completed, how will I receive the Merger Consideration for my Tudou
shares?
-
A:
-
Within
five business days after the effective time of the Merger, an exchange agent appointed by Youku (subjet to Tudou's prior approval) will mail to each
registered holder of the Tudou shares (other than the Tudou depositary and holders of Excluded Tudou Shares and Dissenter Shares) (1) a form of letter of transmittal specifying how the delivery
of the Merger Consideration to registered holders of the Tudou shares will be effected and (2) instructions for effecting the surrender of share certificates in exchange for the applicable
Merger Consideration. Upon surrender of a share certificate or a declaration of loss or non-receipt, each registered holder of Tudou shares will receive the Per Share Merger Consideration
for each Tudou share cancelled multipled by the number of Tudou shares held by such holder.
-
Q:
-
After the Merger is completed, how will I receive the Merger Consideration for my Tudou
ADSs?
-
A:
-
Within
five business days after the effective time of the Merger, the surviving company and the exchange agent will mail to the Tudou depositary (1) a
form of letter of transmittal specifying how the delivery of the Merger Consideration to the Tudou depositary will be effected and (2) instructions for effecting the surrender of all
certificates representing shares in the form of Tudou ADSs. The Tudou depositary will be entitled to receive the Per ADS Merger Consideration, without interest, for each Tudou ADS that has been issued
(other than those Tudou ADSs issued to the Tudou depositary and reserved for future grants under the Tudou share incentive plan) (the "Aggregate ADS Payment"), provided that the Tudou depositary will
be required to surrender such certificates it holds to the exchange agent, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and the
certificates so surrendered will forthwith be cancelled.
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Within
five business days following the payment of the Aggregate ADS Payment, the surviving company and the exchange agent will cause the Tudou depositary to mail to each registered holder of Tudou
ADSs (other than holders of Excluded Tudou Shares) (1) a form of letter of transmittal specifying how the delivery of the Merger Consideration to the registered holders of the Tudou ADSs will
be effected and (2) instructions for effecting the surrender of ADRs evidencing Tudou ADSs. Each holder registered on the ADS register at the effective time shall be entitled to receive the Per
ADS Merger Consideration for each Tudou ADS multiplied by the number of Tudou ADSs held by such holder, provided that each holder of an ADR shall be required to surrender such ADR to the Tudou
depositary together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and the ADRs so surrendered shall forthwith be cancelled pursuant to the
deposit agreement, dated as of August 16, 2011 (the "Tudou Deposit Agreement"), by and among Tudou, The Bank of New York Mellon (the "Tudou depositary"), and all holders and beneficial owners
of Tudou ADSs issued thereunder. Each ADR in respect of such cancelled Tudou ADS shall be deemed at any time after the effective time to represent only the right to receive the Per ADS Merger
Consideration. The Tudou Deposit Agreement provides that in the event of the cancellation of the Tudou ADSs the
holder thereof will pay to the Tudou depositary a cancellation fee of up to 5¢ per Tudou ADS canceled, and the registered holders of Tudou ADSs shall pay the ADS cancellation fee for each
Tudou ADS that Youku acquires from him or her in the Merger
If
your Tudou ADSs are held in "street name" by your broker, bank or other nominee, you will not be required to take any action to receive the Per ADS Merger Consideration as the Tudou depositary will
arrange for the surrender of the Tudou ADSs and the remittance of the Per ADS Merger Consideration with The Depository Trust Company (the clearance and settlement system for the Tudou ADSs) for
distribution to your broker, bank or other nominee on your behalf. If you have any questions concerning the receipt of the Per ADS Merger Consideration, please contact your broker, bank or other
nominee.
-
Q:
-
When will I receive the Merger Consideration for my Tudou shares or Tudou ADSs?
-
A:
-
Assuming
the Merger is completed, registered holders of Tudou shares will receive the Per Share Merger Consideration as soon as practicable following their
compliance with the instructions set forth in the letter of transmittal received from the exchange agent, including the surrender of share certificates.
Assuming
the Merger is completed, registered holders of Tudou ADSs will receive the Per ADS Merger Consideration as soon as practicable following their compliance with the instructions set forth in
the letter of transmittal received from the Tudou depositary, including the surrender of ADRs evidencing Tudou ADSs.
-
Q:
-
Will I receive fractional interests in Youku Class A shares or Youku ADSs for my Tudou shares or Tudou
ADSs?
-
A:
-
No
fractional Youku Class A shares or Youku ADSs will be issued as Merger Consideration. The exchange agent will receive Youku Class A shares
and the Tudou depositary will receive Youku ADS that are not used for exchange in the Merger because of the existence of fractional Youku Class A shares or Youku ADSs, and the exchange agent or
the Tudou depositary will sell such securities on behalf of the holders of fractional Youku ADSs on the NYSE and pass on the proceeds due and payable to such holders of the Tudou ADSs in cash.
If
you are a beneficial owner of Tudou ADSs and your Tudou ADSs are held in "street name" by a broker, bank or other nominee, you should consult with your broker, bank or other nominee as to whether
or not you may receive fractional interests in Youku ADSs.
5
Table of Contents
-
Q:
-
Will I have to pay brokerage commissions or depositary fees for my Tudou shares or Tudou
ADSs?
-
A:
-
You
will not have to pay brokerage commissions as a result of the exchange of your Tudou shares for Youku Class A shares in the Merger if your Tudou
shares are registered in your name in the Tudou share register. The Tudou Deposit Agreement provides that in the event of the cancellation of the Tudou ADSs the holder thereof will pay to the Tudou
depositary a cancellation fee of up to 5¢ per Tudou ADS canceled, and the registered holders of Tudou ADSs shall pay such ADS cancellation fee for each Tudou ADS that Youku acquires from
him or her in the Merger. If your Tudou ADSs are held through a bank, broker or other nominee, you should consult with them as to whether or not they charge any transaction fee or service charges in
connection with the Merger.
-
Q:
-
What is an American depositary share (ADS) and American depositary receipt (ADR)?
-
A:
-
An
American depositary share ("ADS") is an ownership interest in the securities of a non-U.S. company deposited at a custodian bank, as agent of
the depositary. ADS holders hold their ADSs either directly or indirectly through a broker or other financial institution. If you hold ADSs directly, either represented by ADSs in
book-entry form on the depositary's direct registration system or represented by American depositary receipts ("ADRs") that you hold in certificated form, you are an ADR holder. Citibank,
N.A. is the depositary of Youku's ADS program, and the Bank of New York Mellon is the depositary of Tudou's ADS program.
Each
Youku ADS represents 18 Youku Class A shares and each Tudou ADS represents four Tudou Class B shares. For a comparison of the material differences between the rights of Tudou ADS
holders and the rights of Youku ADS holders under the respective deposit agreement, please see "Comparison of Rights of Holders of Youku Securities and Tudou SecuritiesComparison of
Rights of Youku and Tudou American Depositary Share Holders" beginning on page 238.
Questions and Answers Relating to the Youku AGM
-
Q:
-
When and where will the Youku AGM be held?
-
A:
-
The
Youku AGM will take place on , 2012, beginning at Hong Kong time
at .
-
Q:
-
What matters will be voted on at the Youku AGM?
-
A:
-
Youku
shareholders will be asked to consider and vote on the following matters:
-
-
as an ordinary resolution to be approved by the holders of Youku shares representing a majority of the aggregate voting
power of Youku and by the holders of a majority of the total outstanding Youku Class A shares, to authorize and approve the Share Issuance that constitutes the consideration for the Merger
pursuant to the Merger Agreement;
-
-
as a special resolution, to authorize and approve the Name Change of Youku's legal name from "Youku Inc." to "Youku
Tudou Inc." upon the effectiveness of the Merger; and
-
-
as an ordinary resolution, that in the event there are insufficient proxies received at the time of the Youku AGM to
authorize and approve the Share Issuance and the Name Change proposed at the Youku AGM, the chairman of the Youku AGM be instructed to adjourn the Youku AGM in order to allow Youku to solicit
additional proxies in favor of the authorization and approval of the Share Issuance and the Name Change.
6
Table of Contents
-
Q:
-
What vote of Youku shareholders is required to approve the Share Issuance and the Name
Change?
-
A:
-
The
Share Issuance cannot be completed unless it is authorized and approved by a resolution passed by an affirmative vote by holders of Youku shares
representing a majority of the aggregate voting power and an affirmative vote by holders of a majority of the total outstanding Youku Class A shares, in each case, at a shareholders meeting of
Youku. The Name Change cannot be completed unless it is authorized and approved by a special resolution passed by an affirmative vote of a majority of at least two-thirds of such
shareholders of Youku as, being entitled to do so, vote in person or by proxy as a single class at a shareholders meeting of Youku.
As
an inducement for Tudou to enter into the Merger Agreement, certain principal shareholders of Youku entered into voting agreements to vote all Youku shares and Youku ADSs beneficially owned by them
in favor of, among other things, the resolution to authorize and approve the Share Issuance. As of April 17, 2012, an aggregate of 409,581,285 Youku Class A shares and 645,023,149 Youku
Class B shares, constituting approximately 50.9% of the total outstanding Youku shares, approximately 69.1% of the aggregate voting power of Youku shares and 29.0% of the aggregate voting power
of Youku Class A shares, are subject to these voting agreements. Please see "The Voting AgreementVoting Agreements between Tudou and Certain Youku Shareholders" for more
information.
In
addition, as of April 17, 2012, excluding Youku share options granted to them, Youku directors and executive officers who are not subject to the voting agreements as a group beneficially
owned an aggregate of 18,250,000 Youku Class B ordinary shares, constituting approximately 1.6% of the total outstanding Youku shares and approximately 0.9% of the aggregate voting power of
Youku shares. They did not own any Youku Class A shares. Youku expects that the directors and executive officers of
Youku not subject to the Tudou Voting Agreement will vote all of the Youku shares they beneficially own in favor of the resolutions to authorize and approve the Share Issuance and Name Change because
they believe that the Share Issuance and the Name Change are in the best interests of Youku. None of the directors or executive officers of Youku has made a recommendation with respect to the proposed
transaction other than as set forth in this joint proxy statement/prospectus.
-
Q:
-
Who is entitled to vote at the Youku AGM?
-
A:
-
The
Youku share record date is , 2012 (New York City time) and the Youku ADS record date is , 2012 (New York
City time).
Holders of Youku shares on the Youku share record date are entitled to vote at the Youku AGM. Holders of Youku shares may appoint a proxy holder to vote on their behalf. Holders of Youku ADSs on the
Youku ADS record date may instruct the Youku depositary how to vote the Youku shares underlying their ADSs. Shareholders entered in the register of members of Youku at the close of business on
, 2012 (New York City time) will receive the proxy card directly from Youku, and Youku ADS holders will receive the voting instruction card from the Youku depositary.
-
Q:
-
Who is entitled to participate in the Youku AGM?
-
A:
-
Only
Youku shareholders registered in the register of members of Youku as of the Youku share record date or their proxy holders are entitled to participate
in the Youku AGM or any adjournment thereof. Youku ADS holders themselves may not participate in the Youku AGM. Youku ADS holders who wish to attend the Youku AGM must surrender their Youku ADSs to
the Youku depository, pay the Youku depository fees required for such surrender and provide instruction for the registration of the corresponding Youku shares prior to , 2012, and
become registered as a Youku shareholder in Youku's register of members prior to , 2012, the Youku share record date.
7
Table of Contents
-
Q:
-
What constitutes a quorum for the Youku AGM?
-
A:
-
At
least one Youku shareholder holding not less than an aggregate of one-third of all voting share capital of Youku in issue present in person or
by proxy and entitled to vote constitutes a quorum. In addition, the quorum for meetings of the holders of Youku Class A shares requires at least one holder of Youku Class A shares
holding or representing by proxy at least one-third of the issued Youku Class A shares that are entitled to vote on the Youku share record date.
-
Q:
-
How do I vote if my Youku shares are registered in my name?
-
A:
-
If
Youku shares are registered in your name (that is, you do not hold ADSs) as of the Youku share record date, you should simply indicate on your proxy card
how you want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event at least 48 hours before the time of the Youku AGM so
that your Youku shares will be represented and may be voted at the Youku AGM.
Alternatively,
you can attend the Youku AGM and vote in person. If you decide to sign and send in your proxy card, and do not indicate how you want to vote, the Youku shares represented by your proxy
will be voted FOR the resolution to authorize and approve the Share Issuance and Name Change, and FOR the resolution that, in the event that there are insufficient proxies received at the time of the
Youku AGM to authorize and approve the Share Issuance and the Name Change, the chairman of the Youku AGM be instructed to adjourn the Youku AGM in order to allow Youku to solicit additional proxies in
favor of the approval of the Share Issuance and Name Change, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Youku shares represented by your proxy card
will be voted (or not submitted for voting) as your proxy determines. If your Youku shares are held by your broker, bank or other nominee, please see below for additional information.
-
Q:
-
How do I vote if I hold Youku ADSs?
-
A:
-
Voting
at the Youku AGM will be by poll. If you own Youku ADSs as of the close of business on , 2012 (New York City time), you cannot attend
or vote at the Youku AGM directly, but you may instruct the Youku depositary (as the holder of the Youku shares underlying your ADSs) how to vote the shares underlying your Youku ADSs by completing
and signing the Youku ADS voting instruction card and returning it in accordance with the instructions printed on it. The Youku depositary must receive the voting instruction card no later than
a.m. (New York City time) on , 2012. The Youku depositary shall endeavor, in so far as practicable,
to vote or cause to be voted the shares represented by your
Youku ADSs in accordance with your voting instructions. If the Youku depositary timely receives valid voting instructions from a Youku ADS holder which fails to specify the manner in which the Youku
depositary is to vote the shares represented by Youku ADSs held by such Youku ADS holder, such Youku ADS holder will be deemed to have instructed the Youku depositary to vote in favor of the items set
forth in the voting instructions.
Alternatively,
you may vote at the Youku AGM if you surrender your Youku ADSs prior to , 2012 (New York City time), the Youku ADS record date, and become a holder of Youku shares by the
close of business on , 2012 (New York City time), the Youku share record date. If you hold your Youku ADSs through a financial intermediary such as a broker, you must rely on the
procedures of the financial intermediary through which you hold your Youku ADSs if you wish to vote. If your Youku ADSs are held by your broker, bank or other nominee, see below. If you wish to
surrender your Youku ADSs, you need to make arrangements to deliver your Youku ADSs to the Youku depositary for cancellation prior to the close of business in New York City on ,
2012,
the Youku ADS record date, together with (1) delivery instructions for the corresponding Youku shares (name and address of person who will be the registered holder of
8
Table of Contents
Youku
shares) and (2) payment of the ADS cancellation fees (5¢ per Youku ADS to be cancelled) and related expenses and taxes (such as stamp taxes and stock transfer taxes). If you
hold your Youku ADSs in a brokerage, bank or nominee account, please contact your broker, bank or nominee to find out what actions you need to take to instruct the broker, bank or nominee to cancel
the Youku ADSs on your behalf.
If
you request the cancellation of your Youku ADSs between the Youku ADS record date and the Youku share record date, you will be asked to certify that (1) you were a holder of the Youku ADSs
being cancelled as of the Youku ADS record date and you have not given, and will not give, directly or indirectly, voting instructions to the Youku depositary as to the Youku ADSs presented for
cancellation, or (2) you were not a holder of the Youku ADSs being cancelled as of the Youku ADS record date and you will not vote the Youku Class A shares at the Youku AGM.
In
the event that the Youku depositary receives voting instructions from holders of Youku ADSs that exceed the number of corresponding Youku Class A shares held on deposit as of the Youku share
record date, the Youku depositary will prorate the voting instructions received and vote the Youku Class A shares held as of the Youku share record date in accordance with such prorated voting
instructions.
-
Q:
-
What will happen if I abstain from voting or fail to vote at the Youku AGM in person or by
proxy?
-
A:
-
Youku
shareholders who abstain from voting or who fail to cast their vote in person or by proxy will not have their votes counted. Youku ADS holders who
abstain from voting or who fail to provide specific voting instructions to Citibank, N.A. (the "Youku depositary") by a.m. (New York City time)
on , 2012 will be
deemed to have instructed the Youku depositary under the deposit agreement, dated as of December 8, 2010 (the "Youku Deposit Agreement"), among Youku, the Youku depositary and all holders from
time to time of Youku ADSs, to give a discretionary proxy to a person designated by Youku (the "Youku Designee") under the Youku Deposit Agreement, unless Youku informs the Youku depositary that
(1) Youku does not wish such discretionary proxy to be given, (2) substantial opposition exists in respect of the contemplated Share Issuance and the Name Change, or (3) the
rights of holders of Youku shares may be materially adversely affected by the contemplated Share Issuance and the Name Change. It is Youku's intention that the Youku Designee vote all such unvoted
Youku Class A shares FOR the resolutions to authorize and approve the Share Issuance and the Name Change and FOR any resolution to adjourn the Youku AGM.
-
Q:
-
If my Youku ADSs are held in a brokerage account, will my broker vote my Youku ADSs on my
behalf?
-
A:
-
It
is important that you promptly follow the directions provided by your broker, bank or other nominee regarding how to instruct it to vote your Youku ADSs.
If you timely provide your broker, bank or other nominee with voting instructions, they will vote the Youku Class A shares underlying your Youku ADSs on your behalf based on such voting
instructions. If you do not timely instruct your broker, bank or other nominee how to vote the Youku Class A shares underlying your Youku ADSs, you will be deemed to have instructed the Youku
depositary under the Youku Deposit Agreement to give a discretionary proxy to the Youku Designee. It is Youku's intention that the Youku Designee vote all such unvoted Youku Class A shares FOR
the resolutions to authorize and approve the Share Issuance and the Name Change and FOR any resolution to adjourn the Youku AGM.
9
Table of Contents
-
Q:
-
Can I change my vote for the Youku AGM?
-
A:
-
If
your Youku shares are registered in your name, you may change your vote in one of three ways:
-
-
first, you may revoke a proxy by written notice of revocation given to the chairman of the Youku AGM before the Youku AGM
commences. Any written notice revoking a proxy should be sent to Youku Inc., 11/F, SinoSteel Plaza, 8 Haidian Street, Haidian District, Beijing 100080, People's Republic of China;
-
-
second, you may complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked
to Youku to ensure that it will be received by Youku no later than a.m. on , 2012 (New York City Time) prior to the Youku AGM;
or
-
-
third, you may attend the Youku AGM and vote in person. Attendance, by itself, will not revoke a proxy. It will only be
revoked if the shareholder actually votes at the Youku AGM.
Holders
of Youku ADSs may revoke their voting instructions by notification to the Youku depositary in writing at any time prior to a.m. New York City time
on ,
2012. A holder of Youku ADSs can do this in one of two ways:
-
-
first, a holder of Youku ADSs can revoke its voting instructions by written notice of revocation timely delivered to the
Youku depositary; or
-
-
second, a holder of Youku ADSs can complete, date and submit a new ADS voting instruction card to the Youku depositary
bearing a later date than the ADS voting instruction card sought to be revoked.
If
you hold your Youku ADSs through a broker, bank or nominee and you have instructed your broker, bank or nominee to give ADS voting instructions to the Youku depositary, you must follow the
directions of your broker, bank or nominee to change those instructions.
-
Q:
-
What should I do if I receive more than one set of voting materials for the Youku
AGM?
-
A:
-
You
may receive more than one set of voting materials, including multiple copies of the joint proxy statement or multiple proxy cards or Youku ADS voting
instruction cards. For example, if you hold your Youku ADSs in more than one brokerage account, you will receive a separate ADS voting instruction card for each brokerage account in which you hold
ADSs. If you are a Youku shareholder of record and/or a Youku ADS holder and your Youku shares and/or ADSs, respectively, are registered in more than one name, you will receive more than one proxy
card. Please submit each proxy card that you receive.
-
Q:
-
Will any proxy solicitor be used in connection with the Youku AGM?
-
A:
-
Youku
will ask banks, brokers and other custodians, nominees and fiduciaries to forward Youku's proxy solicitation materials to the beneficial owners of
Youku shares or Youku ADSs held of record by such nominee holders. Youku will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy
solicitation materials to the beneficial owners and in obtaining voting instructions from those owners. In addition, proxies may be solicited by mail, in person, by telephone, by Internet or by
facsimile by certain of Youku's officers, directors and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed for reasonable
out-of-pocket expenses. Youku will pay all expenses of filing, printing and mailing this joint proxy statement/prospectus.
10
Table of Contents
-
Q:
-
Do any of Youku's directors or executive officers have interests with respect to the matters submitted for Youku shareholders' vote
that may differ from, or be in addition to, those of other Youku shareholders generally?
-
A:
-
Youku's
directors and executive officers do not have agreements or arrangements that provide them with interests with respect to the Share Issuance or the
Name Change that may differ from, or be in addition to, the interests of other Youku shareholders generally.
-
Q:
-
Does the Youku Board recommend the authorization and approval of the Share Issuance and the Name
Change?
-
A:
-
Yes.
The Youku Board has approved and adopted the Merger Agreement and recommends that you vote FOR the resolutions to authorize and approve the Share
Issuance and the Name Change and FOR the resolution that, in the event that there are insufficient proxies received at the time of the Youku AGM to authorize and approve the Share Issuance and the
Name Change proposed at the Youku AGM, the chairman of the Youku AGM be instructed to adjourn the Youku AGM in order to allow Youku to solicit additional proxies in favor of the authorization and
approval of the Share Issuance and the Name Change.
For
additional information regarding the factors and reasons considered by the Youku Board in approving the Merger, please see "The MergerBackground of the Merger" beginning on
page 97, "The MergerReasons for the Merger and Recommendation of the Youku Board" beginning on page 102.
Questions and Answers Relating to the Tudou AGM
-
Q:
-
When and where will the Tudou AGM be held?
-
A:
-
The
Tudou AGM will take place on , 2012, beginning at local time
at .
-
Q:
-
What matters will be voted on at the Tudou AGM?
-
A:
-
Tudou
shareholders will be asked to consider and vote on the following matters:
-
-
as a special resolution, to authorize and approve the Merger Agreement, the Plan of Merger and the Merger;
-
-
as an ordinary resolution, to approve that Messrs. Gary Wei Wang, Hany Nada, David M. Hand, Ted Tak-Tai
Lee and Conor Chia-hung Yang (the "Tudou Directors") be re-elected as the directors of Tudou (the "Re-election of Tudou Directors"); and
-
-
as an ordinary resolution, that in the event that there are insufficient proxies received at the time of the Tudou AGM to
authorize and approve the Merger Agreement, the Plan of Merger and the Merger or approve the Re-election of Tudou Directors, the chairman of the Tudou AGM be instructed to adjourn the
Tudou AGM in order to allow Tudou to solicit additional proxies in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger and the approval of the
Re-election of Tudou Directors.
-
Q:
-
What vote of Tudou shareholders is required to authorize and approve the Merger Agreement, the Plan of Merger and the
Merger?
-
A:
-
In
order for the Merger to be completed, the Merger Agreement, the Plan of Merger and the Merger must be authorized and approved by a special resolution of
Tudou passed by an affirmative vote of a majority of at least two-thirds of such shareholders of Tudou as, being entitled to do so, vote in person or by proxy as a single class at the
Tudou AGM.
11
Table of Contents
As
an inducement for Youku to enter into the Merger Agreement, certain principal shareholders of Tudou entered into voting agreements to vote all Tudou shares and Tudou ADSs beneficially owned by them
in favor of the resolutions to approve and authorize the Merger Agreement, the Plan of Merger and the Merger. As of April 17, 2012, an aggregate of 64,977,879 Tudou shares, constituting
approximately 55.8% of the total outstanding shares of Tudou and 65.3% of the voting power of Tudou, are subject to these voting agreements. Please see "The Voting AgreementVoting
Agreements between Youku and Certain Tudou Shareholders" for more information.
As
of April 17, 2012, excluding Tudou share options granted to them, all of Tudou directors and executive officers that beneficially owned Tudou shares were subject to the voting
agreements described in the above paragraph.
-
Q:
-
What vote of Tudou shareholders is required to approve the Re-election of Tudou
Directors?
-
A:
-
The
Re-election of Tudou Directors must be approved by an ordinary resolution of Tudou passed by a majority of the votes cast by such
shareholders of Tudou as, being entitled to do so, vote in person or by proxy as a single class at the Tudou AGM.
-
Q:
-
Who is entitled to vote at the Tudou AGM?
-
A:
-
The
Tudou share record date is , 2012 (New York City time) and the Tudou ADS record date is , 2012 (New York
City time).
Holders of Tudou shares on the share record date are entitled to vote at the Tudou AGM. Holders of Tudou shares may appoint a proxy holder to vote on their behalf. Holders of Tudou ADSs may instruct
the Tudou depositary how to vote the Tudou shares underlying their Tudou ADSs. Shareholders entered in the register of members of Tudou at the close of business
on , 2012 (New York City
time) will receive the proxy card directly from Tudou, and Tudou ADS holders will receive the voting instruction card from the Tudou depositary.
-
Q:
-
Who is entitled to participate in the Tudou AGM?
-
A:
-
Only
Tudou shareholders registered in the register of members of Tudou as of the Tudou share record date or their proxy holders are entitled to participate
in the Tudou AGM or any adjournment thereof. Tudou ADS holders themselves may not participate in the Tudou AGM. Tudou ADS holders who wish to attend the Tudou AGM must surrender their Tudou ADSs to
the Tudou depository, pay the Tudou depository fees required for such surrender and provide instruction for the registration of the corresponding Tudou shares prior to , 2012, and
become registered as a Tudou shareholder in Tudou's register of members prior to , 2012, the Tudou share record date.
-
Q:
-
What constitutes a quorum for the Tudou AGM?
-
A:
-
Two
or more shareholders on record holding not less than an aggregate of one-third of all voting share capital of Tudou in issue present in
person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative or proxy and entitled to vote will constitute a quorum.
-
Q:
-
How do I vote if my Tudou shares are registered in my name?
-
A:
-
If
Tudou shares are registered in your name (that is, you do not hold ADSs) as of the Tudou share record date, you should simply indicate on your proxy card
how you want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event at least 48 hours before the time of the Tudou AGM so
that your Tudou shares will be represented and may be voted at the Tudou AGM. Alternatively, you can attend the Tudou AGM and vote in
12
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person.
If you decide to sign and send in your proxy card, and do not indicate how you want to vote, the Tudou shares represented by your proxy will be voted (1) FOR the resolution to authorize
and approve the Merger Agreement, the Plan of Merger and the Merger, (2) FOR the resolution to approve the Re-election of Tudou Directors, and (3) FOR the resolution that in
the event that there are insufficient proxies received at the time of the Tudou AGM to authorize and approve the Merger Agreement, the Plan of Merger and the Merger or to approve the
Re-election of Tudou Directors, the chairman of the Tudou AGM be instructed to adjourn the Tudou AGM in order to allow Tudou to solicit additional proxies in favor of the authorization and
approval of the Merger Agreement, the Plan of Merger and the Merger and the approval of the Re-election of Tudou Directors, unless you appoint a person other than the chairman of the
meeting as proxy, in which case the Tudou shares represented by your proxy card will be voted (or
not submitted for voting) as your proxy determines. If your Tudou shares are held by your broker, bank or other nominee, please see below for additional information.
-
Q:
-
How do I vote if I hold Tudou ADSs?
-
A:
-
If
you own Tudou ADSs as of the close of business on , 2012 (New York City time), you cannot attend or vote at the Tudou AGM directly, but you
may instruct the Tudou depositary (as the holder of the Tudou shares underlying your ADSs) how to vote the shares underlying your Tudou ADSs by completing and signing the Tudou ADS voting instruction
card and returning it in accordance with the instructions printed on it. The Tudou depositary must receive the voting instruction card no later than a.m. New York City time on
, 2012. The Tudou depositary shall endeavor, in so far as practicable, to vote or cause to be voted the shares represented by your Tudou ADSs in accordance with your voting
instructions. If the Tudou depositary timely receives valid voting instructions from a Tudou ADS holder which fails to specify the manner in which the Tudou depositary is to vote the shares
represented by Tudou ADSs held by such Tudou ADS holder, such Tudou ADS holder will be deemed to have instructed the Tudou depositary to vote in favor of the items set forth in the voting
instructions.
Alternatively,
you may vote at the Tudou AGM if you surrender your Tudou ADSs prior to , 2012 (New York City time), the Tudou ADS record date, and become a holder of Tudou shares by the
close of business on , 2012 (New York City time), the Tudou share record date. If you hold your Tudou ADSs through a financial intermediary such as a broker, you must rely on the
procedures of the financial intermediary through which you hold your Tudou ADSs if you wish to vote. If your Tudou ADSs are held by your broker, bank or other nominee, see below. If you wish to
surrender your Tudou ADSs, you need to make arrangements to deliver your Tudou ADSs to the Tudou depositary for cancellation prior to the close of business in New York City on ,
2012,
the Tudou ADS record date, together with (1) delivery instructions for the corresponding Tudou shares (name and address of person who will be the registered holder of Tudou shares) and
(2) payment of the ADS cancellation fees (up to 5¢ per Tudou ADS to be cancelled) and related expenses and taxes (such as stamp taxes and stock transfer taxes). If you hold your
Tudou ADSs in a brokerage, bank or nominee account, please contact your broker, bank or nominee to find out what actions you need to take to instruct the broker, bank or nominee to cancel the Tudou
ADSs on your behalf. Upon cancellation of the Tudou ADSs, the depositary bank will arrange for the principal Hong Kong office of The Hongkong and Shanghai Banking Corporation Limited, the custodian
holding the Tudou shares, to transfer registration of the Tudou shares to you.
13
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-
Q:
-
What will happen if I abstain from voting or fail to vote at the Tudou AGM in person or by
proxy?
-
A:
-
Tudou
shareholders who abstain from voting or fail to cast their vote in person or by proxy will not have their votes counted. Tudou ADS holders who abstain
from voting or who fail to provide specific voting instructions to the Tudou depositary by a.m. (New York City time)
on , 2012 may, under the terms of the Tudou
Deposit Agreement, be deemed to have instructed the Tudou depositary to give a discretionary proxy to a person designated by Tudou (the "Tudou Designee"). Unless Tudou notifies the Tudou depositary
that this provision will not apply, the Tudou Designee will receive a proxy from the Tudou depositary and will vote all such uninstructed Tudou Class B shares FOR the authorization and approval
of the Merger Agreement, the Plan of Merger and the Merger, FOR the approval of the Re-election of Tudou Directors and FOR any adjournment of the Tudou AGM.
-
Q:
-
If my Tudou ADSs are held in a brokerage account, will my broker vote my Tudou ADSs on my
behalf?
-
A:
-
It
is important that you promptly follow the directions provided by your broker, bank or other nominee regarding how to instruct it to vote your Tudou ADSs.
If you timely provide your broker, bank or other nominee with voting instructions, such entity will vote the Tudou Class B shares underlying your Tudou ADSs on your behalf based on such voting
instructions. If you do not timely instruct your bank, broker or other nominee how to vote the Tudou Class B shares underlying your Tudou ADSs, you may, under the terms of Tudou Deposit
Agreement, be deemed to have instructed the Tudou depositary to give a discretionary proxy to the Tudou Designee. Unless Tudou notifies the Tudou depositary that this provision will not apply, the
Tudou Designee will receive a proxy from the Tudou depositary and will vote all such uninstructed Tudou Class B shares FOR the authorization and approval of the Merger Agreement, the Plan of
Merger and the Merger, FOR the approval of the Re-election of Tudou Directors and FOR any adjournment of the Tudou AGM.
-
Q:
-
Can I change my vote for the Tudou AGM?
-
A:
-
If
your Tudou shares are registered in your name, you may change your vote in one of three ways:
-
-
first, you may revoke a proxy by written notice of revocation given to the chairman of the Tudou AGM before the Tudou AGM
commences. Any written notice revoking a proxy should be sent to Tudou Holdings Limited, Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's Republic of
China;
-
-
second, you may complete, date and submit a new proxy card bearing a later date than the proxy card sought to be revoked
to Tudou to ensure that it will be received by Youku no later than a.m.
on , 2012 (New York City Time) prior to the Tudou AGM; or
-
-
third, you may attend the Tudou AGM and vote in person. Attendance, by itself, will not revoke a proxy. It will only be
revoked if the shareholder actually votes at the Tudou AGM.
Holders
of Tudou ADSs may revoke their voting instructions by notification to the Tudou depositary in writing at any time prior to a.m. New York City time
on ,
2012. A holder of Tudou ADSs can do this in one of two ways:
-
-
first, a holder of Tudou ADSs can revoke its voting instructions by written notice of revocation timely delivered to the
Tudou depositary; or
14
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-
-
second, a holder of Tudou ADSs can complete, date and submit a new ADS voting instruction card to the Tudou depositary
bearing a later date than the ADS voting instruction card sought to be revoked.
If
you hold your Tudou ADSs through a broker, bank or nominee and you have instructed your broker, bank or nominee to give ADS voting instructions to the Tudou depositary, you must follow the
directions of your broker, bank or nominee to change those instructions.
-
Q:
-
What should I do if I receive more than one set of voting materials for Tudou AGM?
-
A:
-
You
may receive more than one set of voting materials, including multiple copies of the joint proxy statement or multiple proxy cards or ADS voting
instruction cards. For example, if you hold your Tudou ADSs in more than one brokerage account, you will receive a separate ADS voting instruction card for each brokerage account in which you hold
ADSs. If you are a Tudou shareholder of record and/or a Tudou ADS holder and your Tudou shares and/or ADSs, respectively, are registered in more than one name, you will receive more than one proxy
card. Please submit each proxy card that you receive.
-
Q:
-
If I hold certificated Tudou Shares or if I hold ADRs, should I send in my share certificates and/or ADRs
now?
-
A:
-
No.
Promptly after the Merger is completed, each Tudou shareholder of record as of the time of the Merger will be sent written instructions for exchanging
their share certificates for the Per Share Merger Consideration. Please do not send your share certificates now. Similarly, you should not send the ADRs that represent your Tudou ADSs to the Tudou
depositary at this time. Promptly after the Merger is completed, the Tudou depositary will call for the surrender of all Tudou ADRs for delivery of the Per ADS Merger Consideration. Tudou ADR owners
will be receiving a notice from the Tudou depositary relating to the foregoing.
All
holders of uncertificated Tudou shares and Tudou ADSs held in book-form entry will automatically receive their Per Share Merger Consideration or Per ADS Merger Consideration as soon as
practicable after the Merger is completed without any further action required on the part of such holders. An ADS cancellation fee payable to the Tudou depositary will be deducted from the registered
ADS holders' account.
-
Q:
-
Am I entitled to appraisal rights as a Tudou shares or ADSs holder?
-
A:
-
Shareholders
registered in Tudou's register of members as the holders of Tudou shares as of the Tudou share record date who dissent from the Merger will have
the right to seek appraisal and payment of the fair value of their Tudou shares if the Merger is completed, but only if they deliver to Tudou, before the vote is taken on the resolution to authorize
and approve the Merger Agreement, the Plan of Merger and the Merger, a written objection to the Merger and they subsequently comply with all procedures and requirements of Section 238 of the
Cayman Companies Law for the exercise of appraisal rights. The fair value of your Tudou shares as determined under that statute could be more than, the same as, or less than the Per Share Merger
Consideration you would receive pursuant to the Merger Agreement if you do not exercise appraisal rights with respect to your shares.
Tudou
ADS holders will not have the right to seek appraisal and payment of the fair value of the shares underlying their ADSs. The Tudou depositary will not attempt to perfect any appraisal rights
with respect to any of the Tudou shares that it holds, even if an ADS holder requests it to do so. Tudou ADS holders wishing to exercise appraisal rights must surrender their ADSs to the Tudou
depositary, pay the Tudou depositary's fees required for such surrender, provide instructions for the registration of the corresponding Tudou shares before a.m. New York
City
time on
15
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,
2012 and become registered holders of Tudou shares by the close of business on , 2012 (New York City time) the Tudou share record date. Thereafter, such
former ADS holders must comply
with the procedures and requirements for exercising dissenter and appraisal rights with respect to the Tudou shares under Section 238 of the Cayman Companies Law.
We
encourage you to read the information set forth in this joint proxy statement/prospectus carefully and to consult your own Cayman Islands legal counsel if you desire to exercise your appraisal
rights. Please see "The MergerAppraisal Rights" beginning on page 130 as well as "Appendix ESection 238 of the Cayman Companies Law" to this joint proxy
statement/prospectus for additional information.
-
Q:
-
If I own Tudou ADSs and seek to perfect appraisal rights, how do I convert my ADSs to Tudou shares, and when is the deadline for
completing the conversion of Tudou ADSs to Tudou shares?
-
A:
-
If
you own Tudou ADSs and wish to exercise appraisal rights, you must surrender your ADSs at the Tudou depositary's office at 101 Barclay Street, New
York, New York 10286; Attention: ADR Division. Upon your payment of the Tudou ADS cancellation fee to the Tudou depositary and any other applicable expenses, taxes or charges, such as stamp taxes or
stock transfer taxes or fees, the Tudou depositary will arrange for the principal Hong Kong office of The Hongkong and Shanghai Banking Corporation Limited, the custodian holding the Tudou shares, to
transfer the Tudou shares and any other deposited securities underlying the ADSs to such ADS holder or a person designated by such ADS holder.
The
deadline for surrendering Tudou ADSs to the Tudou depositary for these purposes is the close of business on , 2012 (New York City time).
You
must become a registered holder of your Tudou shares and lodge a written notice of objection to the plan of Merger with Tudou prior to the Tudou AGM.
-
Q:
-
Will any proxy solicitor be used in connection with the Tudou AGM?
-
A:
-
Tudou
will ask banks, brokers and other custodians, nominees and fiduciaries to forward Tudou's proxy solicitation materials to the beneficial owners of
Tudou shares or Tudou ADSs held of record by such nominee holders. Tudou will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy
solicitation materials to the beneficial owners and in obtaining voting instructions from those owners. In addition, proxies may be solicited by mail, in person, by telephone, by Internet or by
facsimile by certain of Tudou's officers, directors and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed for reasonable
out-of-pocket expenses. Tudou will pay all expenses of filing, printing and mailing this joint proxy statement/prospectus.
-
Q:
-
Do any of Tudou's directors or executive officers have interests in the Merger that may differ from, or be in addition to, those of
other Tudou shareholders generally?
-
A:
-
Some
of Tudou's directors and executive officers have agreements and arrangements which may result in their having interests in the Merger that may be
different from, or in addition to, the interests of Tudou's shareholders generally, including but not limited to treatment of Tudou share options in the Merger and board representation rights on the
Youku Board for Mr. Gary Wei Wang, chairman of the Tudou Board and Tudou's chief executive officer, and an individual appointed by GGV II Delaware L.L.C., one of the principal shareholders of
Tudou. The Tudou Board was aware of these agreements and arrangements during its deliberations of the merits of the Merger and in determining to recommend that Tudou shareholders vote to authorize and
approve the Merger. Please see "The MergerInterests of Tudou's Directors and Executive Officers in the Merger" beginning on page 122 for more information.
16
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-
Q:
-
Does the Tudou Board recommend the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger and the
Re-election of the Tudou Directors?
-
A:
-
Yes.
The Tudou Board has authorized and approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger and
recommends that you vote:
-
-
FOR the special resolution to authorize and approve the Merger Agreement, the Plan of Merger and the Merger;
-
-
FOR the ordinary resolution to approve the Re-election of Tudou Directors; and
-
-
FOR the ordinary resolution that in the event that there are insufficient proxies received at the time of the Tudou AGM to
authorize and approve the Merger Agreement, the Plan of Merger and the Merger or approve the Re-election of Tudou Directors, the chairman of the Tudou AGM be instructed to adjourn the
Tudou AGM in order to allow Tudou to solicit additional proxies in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger and the approval of the
Re-election of Tudou Directors.
For
additional information regarding the factors and reasons considered by the Tudou Board in approving the Merger, please see "The MergerBackground of the Merger" beginning on
page 97, "The MergerReasons for the Merger and Recommendation of the Tudou Board" beginning on page 105.
Other Questions
Q: What do I need to do now as a holder of Youku shares/ADSs and/or Tudou shares/ADSs?
-
A:
-
You
are urged to carefully read this joint proxy statement/prospectus, including its appendices and the other documents referred to or incorporated by
reference into this joint proxy statement/prospectus and to consider how the Merger affects you as a Youku shareholder/ADS holder and/or a Tudou shareholder/ADS holder. You may also want to review the
documents referenced under "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference" on pages 252 and 253, respectively, and consult with your accounting, legal and
tax advisors. Once you have considered all relevant information, you are encouraged to vote by proxy so that (1) your Youku shares and/or the Youku shares underlying your Youku ADSs are
represented at the Youku AGM, and/or (2) the Tudou shares and/or the Tudou shares underlying your Tudou ADSs are represented at the Tudou AGM. You can vote your Youku shares and/or the Youku
shares underlying your Youku ADSs by marking your choices on the Youku proxy card or the Youku ADS voting instruction card, respectively, and then signing, dating and mailing it in the return
envelope. You can vote your Tudou shares and/or the Tudou shares underlying your Tudou ADSs by marking your choices on the Tudou proxy card or the Tudou ADS voting instruction card, respectively, and
then signing, dating and mailing it in the return envelope.
-
Q:
-
Who can help answer my questions?
-
A:
-
If
you have any further questions about the Merger or if you need copies of this joint proxy statement/prospectus or the proxy card, you can contact
representatives from the investor relation departments of Youku and Tudou as follows:
Ryan
Cheung
Corporate Finance Director
Youku Inc.
11/F, SinoSteel Plaza
8 Haidian Street
Haidian District
17
Table of Contents
Beijing
100080
People's Republic of China
Tel: (+86 10) 5885-1881 x6090
Email: ryan.cheung@youku.com
Michael
Fu
Investor Relations Director
Tudou Holdings Limited
Building No. 6, X2 Creative Park,
1238 Xietu Road, Xuhui District
Shanghai 200032,
People's Republic of China
Tel: (+86 21) 5170-2375
Email: mfu@tudou.com
-
Q:
-
Where can I find more information about the companies involved in the Merger?
-
A:
-
You
can find more information about Youku, Tudou and Merger Sub in "SummaryThe Companies" beginning on page 19 of this joint proxy
statement/prospectus, and in the documents described under "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference" on pages 252 and 253, respectively.
18
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SUMMARY
This summary, together with the section titled "Questions and Answers about the Merger and the Annual General
Meetings of Youku and Tudou," summarizes the material information in this joint proxy statement/prospectus. However, it may not contain all of the information that may be important to your
consideration of the proposed Merger. To understand the Merger fully and for a more complete description of the legal terms of the Merger, you should carefully read this entire joint proxy
statement/prospectus and the other documents to which this joint proxy statement/prospectus refers, including the appendixes that are attached to this joint proxy statement/prospectus and incorporated
by reference into this joint proxy statement/prospectus. Please see also "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference" on pages 252 and 253,
respectively. Page references included parenthetically in this summary direct you to the more complete description found elsewhere in this joint proxy statement/prospectus.
The Companies
Youku Inc.
Youku is the leading Internet television company in China and its Internet television platform enables users to search, view and share
video content across multiple devices. Youku was incorporated under the laws of the Cayman Islands and carries out its operation through its subsidiaries and consolidated affiliated entities in China.
For
a description of Youku's operation and business in China, please see "Item 4. Information on the CompanyA. History and Development of the Company" on
page 31 of Youku's annual report on Form 20-F for the year ended December 31, 2011, as filed with the SEC on April 10, 2012 (the "Youku 2011 20-F")
and incorporated by reference to the registration statement on Form F-4 of which this joint proxy statement/prospectus is a part.
Youku
principal executive offices are located at 11/F, SinoSteel Plaza, 8 Haidian Street, Beijing, 100080, People's Republic of China. Its telephone number at this address is +86
10 5885-1881. Youku's registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman,
KY1-1104, Cayman Islands. Youku also has three branches in Shanghai, Guangzhou and Xi'an, China and one representative office in Chengde, China. Youku's 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.
Youku's
American depositary shares, each representing 18 Class A ordinary shares, par value US$0.00001 per share of Youku, are listed on the NYSE under the symbol "YOKU."
Tudou Holdings Limited
Tudou has been conducting the business of online video sharing and advertising in China and provides an online platform for Chinese
Internet users to upload, watch and share videos via the Internet. Tudou was incorporated under the laws of the Cayman Islands and carries out its operation through its subsidiaries and consolidated
affiliated entities in China.
Tudou's
principal executive offices are located at Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's Republic of China. Its telephone
number at this address is (+86 21) 5170-2355 and the fax number is (+86 21) 5170-2366. Tudou's registered office in the Cayman Islands is located at
the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
Tudou's
American depositary shares ("Tudou ADSs"), each representing four Class B ordinary shares, par value US$0.0001 per share of Tudou, are listed on the NASDAQ Global Select
Market, or NASDAQ, under the symbol "TUDO."
19
Table of Contents
Two Merger Sub Inc.
Two Merger Sub Inc., or Merger Sub, was incorporated on March 1, 2012 under the laws of the Cayman Islands as an exempted
company with limited liability. Merger Sub is a direct and wholly owned subsidiary of Youku, which was formed solely for the purpose of effecting the Merger. Merger Sub has not conducted any business
operations other than incidental to its formation and in connection with the transactions contemplated by the Merger Agreement.
Merger
Sub's business offices are located at 11/F, SinoSteel Plaza, 8 Haidian Street, Haidian District, Beijing 100080, People's Republic of China, and its telephone number is +86 10
5885-1881. Merger Sub's registered office in the Cayman Islands is located at the office of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman
KYI-1104, Cayman Islands.
Risk Factors (page 53)
An investment in Youku shares and Youku ADSs involves risks, some of which are related to the Merger. In considering the proposed
Merger, you should carefully consider the information about these risks set forth under "Risk Factors" beginning on page 53, together with the other information included or incorporated by reference
in this joint proxy statement/prospectus. These risks include, without limitation, the following:
-
-
The market price of the Youku ADSs may decline following the completion of the Merger or during the period of time between
the Tudou AGM and the dates on which Tudou shareholders and Tudou ADS holders actually receive Youku Class A shares and Youku ADSs pursuant to the Merger Agreement;
-
-
Youku and Tudou may not achieve the expected benefits of the proposed Merger;
-
-
Youku and Tudou will incur transaction and integration costs in connection with the Merger;
-
-
Failure to timely complete the proposed Merger could disrupt Youku's and Tudou's business plans and operations; and
-
-
The market price of the Youku ADSs after the Merger may be affected by factors different from those affecting the price of
Tudou ADSs.
The Annual General Meeting of Youku Shareholders (page 88)
Youku will hold the Youku AGM at , Hong
Kong on , 2012, beginning
at (Hong Kong time).
The
purposes of the Youku AGM are to consider and, if thought fit, to pass the following resolutions:
-
-
as an ordinary resolution to be approved by the holders of Youku shares representing a majority of the aggregate voting
power of Youku and by the holders of a majority of the total outstanding Youku Class A shares, to authorize and approve the Share Issuance that constitutes the considerations for the Merger
pursuant to the Merger Agreement;
-
-
as a special resolution, to authorize and approve the Name Change of Youku's legal name from "Youku Inc." to "Youku
Tudou Inc." upon the effectiveness of the Merger; and
-
-
as an ordinary resolution, that in the event there are insufficient proxies received at the time of the Youku AGM to
authorize and approve the Share Issuance and the Name Change proposed at the Youku AGM, the chairman of the Youku AGM be instructed to adjourn the Youku AGM in order to allow Youku to solicit
additional proxies in favor of the authorization and approval of the Share Issuance and the Name Change.
After
the closing of the Merger, the current total voting power of Youku Class B shares will be reduced significantly. Youku Class B shares are primarily held by
shareholders affiliated with Youku's
20
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management.
Youku is considering proposals to amend and restate Youku's currently effective memorandum and articles of association to reflect, among other things, a change to the voting power of each
Youku Class B share from three votes to four votes on all matters subject to a vote at Youku's shareholders meetings, as well as certain other revisions to Article 6(c) of Youku's
memorandum and articles of association. These proposals are subject to approval by Youku's board and shareholders.
Vote Required at the Youku AGM; Tudou Voting Agreements
The Share Issuance must be authorized and approved by a resolution passed by an affirmative vote by holders of Youku shares
representing a majority of the aggregate voting power and an affirmative vote by holders of a majority of the total outstanding Youku Class A shares, in each case, at a shareholders meeting of
Youku. The Name Change must be authorized and approved by an affirmative vote of a majority of at least two-thirds of such shareholders of Youku as, being entitled to do so, vote in person
or by proxy as a single class at a shareholders meeting of Youku. As of April 17, 2012, there were 2,072,617,783 Youku shares issued and outstanding and entitled to vote.
As
an inducement for Tudou to enter into the Merger Agreement, certain principal shareholders of Youku, including Victor Wing Cheung Koo, Brookside Capital Partners Fund, L.P.,
Maverick Fund USA, Ltd., Sutter Hill Ventures and certain of their affiliates (the "Youku Voting Shareholders"), entered into voting agreements with and in favor of Tudou on March 11,
2012 (the "Tudou Voting Agreements") contemporaneously with the execution and delivery of the Merger Agreement. As of April 17, 2012, an aggregate of 409,581,285 Youku Class A shares and
645,023,149 Youku Class B shares, constituting approximately 50.9% of the total outstanding Youku shares, approximately 69.1% of the aggregate voting power of Youku shares and 29.1% of the
aggregate voting power of Youku Class A shares, are subject to the Tudou Voting Agreements. Under the Tudou Voting Agreements, the Youku Voting Shareholders have agreed, among other things, to
vote all Youku shares and Youku ADSs beneficially owned by them in favor of the resolution to authorize and approve the Share Issuance and the Name Change. Please see "The Voting
AgreementVoting Agreements between Tudou and Certain Youku Shareholders" for more information.
In
addition, as of April 17, 2012, excluding Youku share options granted to them, Youku directors and executive officers who are not subject to the Tudou Voting Agreements as a
group beneficially owned an aggregate of 18,250,000 Youku Class B ordinary shares, constituting approximately 1.6% of the total outstanding Youku shares and approximately 0.9% of the aggregate
voting power of Youku shares. They did not own any Youku Class A shares. Youku currently expects that the directors and executive officers of Youku not subject to the Tudou Voting Agreement
will vote all of the Youku shares they beneficially own in favor of the resolutions to authorize and approve the Share Issuance and Name Change because they believe that the Share Issuance and the
Name Change are in the best interests of Youku. None of the directors or executive officers of Youku has made a recommendation with respect to the proposed transaction other than as set forth in this
joint proxy statement/prospectus.
Members
of the Youku Board and Youku's executive officers do not have agreements and arrangements that provide them with interests in the Merger that may differ from, or be in addition
to, the interests of other Youku shareholders.
Youku Shareholders and ADS Holders Entitled to Vote; Voting Material
Only Youku shareholders entered in the register of members of Youku at the close of business
on , 2012 (New York City
time), the Youku share record date, will receive the proxy card directly from Youku. Youku shareholders registered in the register of members of Youku as of the Youku share record date or their proxy
holders are entitled to vote and may participate in the Youku AGM or any adjournment thereof. Youku shareholders wanting to vote by proxy should simply indicate on their proxy card how they want to
vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event at least 48 hours before the time of the Youku AGM.
21
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Holders
of Youku ADSs cannot attend or vote at the Youku AGM directly, but holders of Youku ADSs as of the close of business
on , 2012 (New York City time), may instruct
the Youku depositary how to vote the shares underlying the ADSs by completing and signing an ADS voting instruction card provided by the Youku depositary and returning it in accordance with the
instructions printed on it. Youku depositary must receive the ADS voting instruction card no later than 10:00 a.m. New York City time
on , 2012. The Youku depositary shall
endeavor, in so far as practicable, to vote or cause to be voted the shares represented by Youku ADSs in accordance with your voting instructions. If banks, brokers or other nominee holders of Youku
ADSs do not timely receive specific voting instructions from the beneficial owner of Youku ADSs, they will be deemed to have instructed the Youku depositary to give a discretionary proxy to the Youku
Designee under the Youku Deposit Agreement, unless Youku informs the Youku depositary that (1) Youku does not wish such discretionary proxy to be given, (2) substantial opposition exists
in respect of the contemplated Share Issuance and the Name Change, or (3) the rights of holders of Youku shares may be materially adversely affected by the contemplated Share Issuance and the
Name Change. It is Youku's intention that the Youku Designee vote all such unvoted Youku Class A shares FOR the resolutions to authorize and approve the Share Issuance and the Name Change and
FOR any resolution to adjourn the Youku AGM.
Holders
of Youku ADSs may vote at the Youku AGM if they cancel their ADSs and become a holder of Youku shares by the close of business
on , 2012 (New York City time).
Youku ADS holders wanting to cancel their ADSs need to make arrangements to deliver their ADSs to the Youku depositary for cancellation prior to the close of business in New York City on
, 2012 and complete certain other procedures required by the Youku depositary. Persons who hold Youku ADSs
in a brokerage, bank or nominee account, must contact their broker, bank or
nominee to find out what actions they need to take to instruct the broker, bank or nominee to cancel the ADSs on their behalf.
Persons
holding Youku ADSs in a brokerage, bank or nominee account should consult with their broker, bank or nominee to obtain directions on how to provide such broker, bank or nominee
with instructions on how to vote their Youku ADSs.
Youku
ADS holders who request the cancellation of their Youku ADSs between the Youku ADS record date and the Youku share record date will be asked to certify that such Youku ADS holders
(1) were a holder of the Youku ADSs being cancelled as of the Youku ADS record date and have not given, and will not give, directly or indirectly, voting instructions to the Youku depositary as
to the Youku ADSs presented for cancellation, or (2) were not a holder of the Youku ADSs being cancelled as of the Youku ADS record date and will not vote the Youku Class A shares at the
Youku AGM.
In
the event that the Youku depositary receives voting instructions from holders of Youku ADSs that exceed the number of corresponding Youku Class A shares held on deposit as of
the Youku share record date, the Youku depositary will prorate the voting instructions received and vote the Youku Class A shares held as of the Youku share record date in accordance with such
prorated voting instructions.
The Annual General Meeting of Tudou Shareholders (page 93)
Tudou will hold the Tudou AGM on , 2012,
beginning at (local time) at , People's Republic
of China. The purposes of the Tudou AGM are to consider and, if thought fit, to pass the following resolutions:
-
-
as a special resolution, to authorize and approve the Merger Agreement, the Plan of Merger and the Merger;
-
-
as an ordinary resolution, to approve the Re-election of Tudou Directors; and
22
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-
-
as an ordinary resolution, that in the event that there are insufficient proxies received at the time of the Tudou AGM to
authorize and approve the Merger Agreement, the Plan of Merger and the Merger or approve the Re-election of Tudou Directors, the chairman of the Tudou AGM be instructed to adjourn the
Tudou AGM in order to allow Tudou to solicit additional proxies in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger and the approval of the
Re-election of Tudou Directors.
Vote Required at the Tudou AGM; Youku Voting Agreements
In order for the Merger to be completed, the Merger Agreement, the Plan of Merger and the Merger must be authorized and approved by a
special resolution of Tudou passed by an affirmative vote of a majority of at least two-thirds of such shareholders of Tudou as, being entitled to do so, vote in person or by proxy as a
single class at the Tudou AGM. As of April 17, 2012, there were 115,452,677 Tudou shares issued and outstanding and entitled to vote.
As
an inducement for Youku to enter into the Merger Agreement, certain principal shareholders of Tudou, including Gary Wei Wang and certain of his affiliates, Crescent P.E., Ltd.,
Crescent Peak Ltd., Crescent Peak II Limited, GGV II Delaware L.L.C., IDG Technology Venture Investment III, L.P., IDG Technology Venture Investment IV, L.P. and
Sennett Investments (Mauritius) Pte Ltd. (the "Tudou Voting Shareholders") entered into voting agreements with and in favor of Youku on March 11, 2012 (the "Youku Voting Agreements")
contemporaneously with the execution and delivery of the Merger Agreement. As of April 17, 2012, an aggregate of 64,977,879 Tudou shares, constituting approximately 55.8% of the total
outstanding shares of Tudou and 65.3% of the voting power of Tudou, are subject to the Youku Voting Agreements. Under the Youku Voting Agreements, the Tudou Voting Shareholders have agreed, among
other things, to vote all Tudou shares and Tudou ADSs beneficially owned by them in favor of the resolutions to authorize and approve the Merger Agreement, the Plan of Merger and the Merger. Please
see "The Voting AgreementVoting Agreements between Youku and Certain Tudou Shareholders" for more information.
As
of April 17, 2012, excluding Tudou share options granted to them, all of Tudou directors and executive officers that beneficially owned Tudou shares were subject to the
Youku Voting Agreements.
Tudou Shareholders and ADS Holders Entitled to Vote; Voting Material
Each Tudou share carries one vote. As of April 17, 2012, there were 115,452,677 Tudou shares issued and outstanding and entitled
to be voted at the Tudou AGM. Only Tudou shareholders entered in the register of members of Tudou at the close of business
on , 2012 (New York City time), the Tudou share record date,
will receive the proxy card directly from Tudou. Tudou shareholders registered in the register of members of Tudou as of the close of business on the Tudou share record date or their proxy holders are
entitled to vote, with each Tudou share carrying one vote, and may participate in the Tudou AGM or any adjournment thereof, unless they sell their Tudou shares
before , 2012. Tudou
shareholders wanting to vote by proxy should simply indicate on their proxy card how they want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible
but in any event at least 48 hours before the time of the Tudou AGM.
Holders
of Tudou ADSs as of the close of business on , 2012 (New York City time) cannot attend or vote at the Tudou
AGM directly, but may instruct the Tudou depositary how
to vote the shares underlying the ADSs by completing and signing an ADS voting instruction card provided by the Tudou depositary and returning it in accordance with the instructions printed on it as
soon as possible. The Tudou depositary must receive the ADS voting instruction card no later than 10:00 a.m. New York City time
on , 2012. The Tudou depositary shall endeavor, in
so far as practicable, to vote or cause to be voted the Tudou shares represented by Tudou ADSs in accordance with your voting instructions. If banks, brokers or other nominee holders of Tudou ADSs do
not timely receive specific voting instructions from the beneficial owners of Tudou ADSs, they may, under the
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terms
of Tudou Deposit Agreement, be deemed to have instructed the Tudou depositary to give a discretionary proxy to the Tudou Designee. Unless Tudou notifies the Tudou depositary that this provision
will not apply, the Tudou Designee will receive a proxy from the Tudou depositary and will vote all such uninstructed Tudou Class B shares underlying Tudou ADSs FOR the authorization and
approval of the Merger Agreement, the Plan of Merger and the Merger, FOR the approval of the Re-election of Tudou Directors and FOR any adjournment of the Tudou AGM.
Holders
of Tudou ADSs may vote at the Tudou AGM if they cancel their ADSs and become a holder of Tudou shares by the close of business
on , 2012 (New York City time).
Tudou ADS holders wanting to cancel their ADSs need to make arrangements to deliver their ADSs to the Tudou depositary for cancellation prior to the close of business in New York City on
, 2012 and complete certain other procedures required by the Tudou depositary.
Persons
holding Tudou ADSs in a brokerage, bank or nominee account should consult with their broker, bank or nominee to obtain directions on how to provide such broker, bank or nominee
with instructions on how to vote their Tudou ADSs.
The Merger Agreement and Plan of Merger (page 134)
On March 11, 2012, Youku, Merger Sub and Tudou entered into the Merger Agreement, which provides for the merger of Merger Sub
with and into Tudou, with Tudou continuing as the surviving company and as a wholly owned subsidiary of Youku. Upon completion of the Merger, Tudou will cease to be a publicly traded company, and
Tudou shareholders will cease to have any direct rights in Tudou as a shareholder or an ADS holder.
Copies
of the Merger Agreement and the Plan of Merger are attached as Appendix A to this joint proxy statement/prospectus. Both Youku and Tudou encourage you to read the entire
Merger Agreement and Plan of Merger carefully because they are the principal legal documents governing the Merger.
Merger Consideration (page 134)
The Merger Consideration that Tudou shareholders and Tudou ADS holders will receive in the Merger is described in more detail in "The
Merger Agreement, the Plan of Merger and the MergerMerger Consideration" on page 134. In summary, if the Merger is completed:
-
1.
-
other
than as provided in paragraph (2) immediately below, each Tudou Class A share and each Tudou Class B share issued and outstanding
immediately prior to the effective time of the Merger (other than the Excluded Tudou Shares and Dissenter Shares) shall be cancelled in exchange for the right to receive 7.177 Youku Class A
shares; and
-
2.
-
each
Tudou ADS shall be surrendered in exchange for the right to receive 1.595 Youku ADS.
Youku
anticipates that, following the Merger, the Tudou ADS holders and Tudou shareholders prior to the Merger will own approximately 28.5% of Youku's outstanding share capital on a
fully diluted basis.
The
value of the Merger Consideration will fluctuate based on the trading price for Youku ADSs. Regardless of the trading price of Youku's ADSs on the NYSE on the effective date of the
Merger, Tudou shareholders will receive 7.177 Youku Class A shares for each Tudou share they own and Tudou ADS holders will receive 1.595 Youku ADS for each Tudou ADS they own. The market value
of the Youku shares and Youku ADSs that Tudou shareholders and Tudou ADS holders, respectively, will receive in the Merger will increase or decrease as the trading price of Youku ADSs increases or
decreases, and may be different at the time the Merger is completed than it was at the time the Merger Agreement was signed or will be at the time of the Tudou AGM to approve the Merger or the time of
the Youku AGM to approve the Share Issuance and Name Change. The market price of Youku ADSs could be lower at any time prior to the completion of the Merger or at any time thereafter than
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it
was at the date of the Merger Agreement. As of April 23, 2012, the closing price of Youku ADSs on the NYSE was US$21.82 per ADS. Tudou shareholders are urged to obtain current trading prices
for Youku ADSs on the website of the New York Stock Exchange at http://www.nyse.com/. This website is not incorporated by reference in this joint proxy statement/prospectus.
Treatment of Tudou Share Options (page 136)
Each option to purchase Tudou shares granted pursuant to Tudou's share incentive plan ("Tudou share option") that is outstanding
immediately prior to the effective time, whether vested or unvested, shall, at the effective time of the Merger, be assumed by Youku and be replaced by Youku with an option to purchase Youku
Class A shares granted under Youku's share incentive plans ("Youku share option"). Each such Youku share option shall be exercisable for that number of whole Youku Class A shares
(rounded down to the nearest whole share) equal to the product of (1) the total number of Tudou shares subject to such Tudou share option and (2) 7.177, at an exercise price per Youku
Class A share (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of the Tudou share option by (y) 7.177. Each such
Youku share option shall continue to have, and shall be subject to, the same terms and conditions as applied to the Tudou share option immediately prior to the effective time (but taking into account
any changes thereto provided for in the Tudou share incentive plan, any award agreement, or any other contract or agreement, including by reason of the Merger Agreement or the transactions
contemplated thereby). In addition, Tudou may consider the immediate vesting upon the closing of the Merger of the Tudou share options held by certain directors and officers of Tudou, including
Mr. Gary Wei Wang, chairman of the Tudou Board and Tudou's chief executive officer, in which case such Tudou share options shall become fully vested and exercisable upon the closing of the
Merger.
Reasons for the Merger and Recommendation of the Youku Board (page 102)
The Youku Board, in consultation with Youku's management and legal and financial advisors, evaluated the proposed Merger, including the
terms and conditions of the Merger Agreement. On March 8, 2012, the Youku Board unanimously (1) approved the Merger Agreement, the Plan of Merger, the Merger and the other transactions
contemplated by the Merger Agreement, (2) directed that the Share Issuance and the Name Change be submitted to Youku shareholders for authorization and approval, and (3) recommended that
Youku shareholders authorize and approve the Share Issuance and the Name Change. Accordingly, the Youku Board recommends that Youku shareholders vote "FOR" the resolutions to authorize and approve the
Share Issuance and the Name Change. For a summary of the material factors considered by the Youku Board in reaching its decision to authorize and adopt the Merger Agreement, the Plan of Merger and The
Merger, please see "The MergerReasons for the Merger and Recommendation of the Youku Board" beginning on page 102.
Reasons for the Merger and Recommendation of the Tudou Board (page 105)
The Tudou Board, acting with the advice and assistance of Tudou's management and financial and legal advisors, evaluated the proposed
Merger, including the terms and conditions of the Merger Agreement. On March 10, 2012, the Tudou Board (1) determined that the Merger Agreement, the Plan of Merger and the Merger are
advisable, fair to and in the best interests of Tudou and its shareholders, (2) authorized and approved the Merger Agreement, the Plan of Merger and the Merger; (3) directed that the
Merger Agreement, the Plan of Merger and the Merger be submitted to Tudou shareholders for authorization and approval; and (4) recommended that Tudou shareholders authorize and approve the
Merger Agreement, the Plan of Merger and the Merger by way of special resolution. Accordingly, the Tudou Board recommends that Tudou shareholders vote "FOR" the resolution to authorize and approve the
Merger Agreement, the Plan of Merger and the Merger. For a summary of the material factors considered by the Tudou Board in reaching its decision to authorize and adopt the Merger
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Agreement,
the Plan of Merger and The Merger, please see "The MergerReasons for the Merger and Recommendation of the Tudou Board" beginning on page 105.
Opinion of Allen & Company LLC as Financial Advisor to Youku (page 106)
In connection with the Merger, Allen & Company LLC ("Allen & Company") delivered a written opinion, dated
March 11, 2012, to the Youku Board as to the fairness, from a financial point of view and as of the date of the opinion, to Youku of the 7.177x Share Exchange Ratio. The full text of
Allen & Company's written opinion, dated March 11, 2012, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is
attached to this joint proxy statement/prospectus as Appendix C.
Allen & Company's opinion was intended for the benefit and use of the Youku Board (in its
capacity as such) in connection with its evaluation of the Share Exchange Ratio from a financial point of view to Youku and does not address any other aspect of the Merger. Allen & Company's
opinion does not constitute a recommendation as to what course of action the Youku Board or Youku should pursue in connection with the Merger, or otherwise address the merits of the underlying
decision by Youku to engage in the Merger, including in comparison to other strategies or transactions that might be available to Youku or in which Youku might engage. The opinion does not constitute
advice or a recommendation to any security holder as to how such security holder should vote or act on any matter relating to the Merger or otherwise.
Opinion of Morgan Stanley Asia Limited as Financial Advisor to Tudou (page 113)
Tudou retained Morgan Stanley Asia Limited ("Morgan Stanley"), to act as its financial advisor in connection with the Merger. On
March 8, 2012, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, to the Tudou Board that as of such date and, based upon and subject to the assumptions,
qualifications and limitations set forth in the opinion, the Share Exchange Ratio and the ADS Exchange Ratio pursuant to the Merger Agreement were fair, from a financial point of view, to the holders
of Tudou shares and the holders of Tudou ADSs, respectively. The full text of Morgan Stanley's written fairness opinion dated March 10, 2012, is attached as Appendix D to this joint
proxy statement/prospectus.
Morgan Stanley's opinion is directed to the Tudou Board and addresses only the fairness from a financial point of view of the Share Exchange Ratio
and the ADS Exchange Ratio pursuant to the Merger Agreement to the holders of Tudou shares and Tudou ADSs, respectively, as of the date of the opinion. It does not address any other aspects of the
Merger and does not constitute a recommendation to any holder of ordinary shares or ADSs of Tudou or Youku as to how to vote at the shareholder meetings.
Conditions to the Completion of the Merger (page 149)
The completion of the transactions contemplated by the Merger Agreement, including the Merger, is subject to the satisfaction of the
following conditions:
-
-
the Merger Agreement, the Plan of Merger and the Merger being authorized and approved by Tudou shareholders, and the Share
Issuance being authorized and approved by Youku shareholders;
-
-
the registration statement on Form F-4 (of which this joint proxy statement/prospectus is a part)
having become effective under the Securities Act, and not having become the subject of any stop order, or any proceedings to seek a stop order, to suspend the effectiveness of the
Form F-4;
-
-
the Youku ADSs issuable as Merger Consideration pursuant to the Merger Agreement having been approved for listing on the
NYSE, subject to official notice of issuance; and
-
-
no governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, executive order, decree, injunction or other order which (1) is in effect and (2) has the effect of making the Merger illegal or otherwise prohibiting or preventing
consummation of the Merger.
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The
obligations of Youku and Merger Sub to consummate the Merger are also subject to the satisfaction, or waiver by Youku, of the following conditions, among
others:
-
-
(1) certain representations and warranties of Tudou in the Merger Agreement being true and correct in all material
respects as of the date of the Merger Agreement and as of the closing date as if made on and as of such date and time, (2) certain representations and warranties of Tudou in the Merger
Agreement being true and correct in all but immaterial respects as of the date of the Merger Agreement and as of the closing date as if made on and as of such date and time, and (3) subject to
certain exceptions, certain representations and warranties of Tudou set forth in the Merger Agreement being true and correct interpreted without giving effect to certain materiality qualifiers;
-
-
Tudou having performed or complied in all material respects with all covenants and agreements required to be performed or
complied with by it under the Merger Agreement prior to or at the time of closing;
-
-
since the date of the Merger Agreement, there not having been a material adverse effect on Tudou and the Tudou
Subsidiaries;
-
-
all nominee shareholders of the variable interest entities of Tudou having transferred, free of any third-party rights,
claims or liens (except for certain permitted liens), all of their respective equity interests in each such variable interest entity to the person(s) designated by Youku; and
-
-
Tudou shareholders holding more than 10% of the outstanding Tudou shares not having validly served a written objection
under Section 238 of the Cayman Companies Law.
The
obligations of Tudou to consummate the Merger are subject to the satisfaction, or waiver by Tudou, of the following conditions, among
others:
-
-
(1) certain representations and warranties of Youku and Merger Sub in the Merger Agreement being true and correct in all
material respects as of the date of the Merger Agreement and as of the closing date as if made on and as of such date and time, (2) certain representations and warranties of Youku and Merger
Sub in the Merger Agreement being true and correct in all but immaterial respects as of the date of the Merger Agreement and as of the closing date as if made on and as of such date and time, and
(3) subject to certain exceptions, certain representations and warranties of Youku and Merger Sub set forth in the Merger Agreement being true and correct interpreted without giving effect to
certain materiality qualifiers;
-
-
Youku and Merger Sub having performed or complied in all material respects with all covenants and agreements required to
be performed or complied with by them under the Merger Agreement prior to or at the time of closing; and
-
-
since the date of the Merger Agreement, there not having been a material adverse effect on Youku and the Youku
Subsidiaries.
Youku
and Tudou cannot assure you that all of the conditions to complete the Merger will be satisfied or waived.
Termination of the Merger Agreement (page 150)
The Merger Agreement may be terminated by either or both of Youku and Tudou, as described in more detail in "The Merger Agreement and
Plan of MergerTermination of the Merger Agreement."
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Tudou is required to pay Youku a termination fee of US$100.0 million if the Merger Agreement is terminated by Youku
because:
-
-
the representations and warranties of Tudou shall not be true and correct or Tudou shall have breached or failed to
perform any of its covenants or agreements contained in the Merger Agreement; or
-
-
all of the closing conditions to the completion of the Merger or to the obligations of Youku and Merger Sub to consummate
the Merger are otherwise satisfied, Youku has confirmed by notice to Tudou that all conditions to its obligation to consummate the Merger have been satisfied or that it will waive any such unsatisfied
conditions, and Tudou fails to consummate the Merger within three business days following the date the closing should have occurred as set forth in the Merger Agreement.
Youku
is required to pay Tudou a termination fee of US$100.0 million if the Merger Agreement is terminated by Tudou because:
-
-
the representations and warranties of Youku or Merger Sub shall not be true and correct or Youku or Merger Sub shall have
breached or failed to perform any of their covenants or agreements contained in the Merger Agreement; or
-
-
all of the closing conditions to the completion of the Merger or to the obligations of Tudou to consummate the Merger are
otherwise satisfied, Tudou has confirmed by notice to Youku that all conditions to its obligation to consummate the Merger have been satisfied or that it will waive any such unsatisfied conditions,
and Youku or Merger Sub fails to consummate the Merger within three business days following the date the closing should have occurred as set forth in the Merger Agreement.
In
addition, in the event that the Merger Agreement is terminated by Youku or Tudou due to Youku's shareholders not having authorized and approved the Share Issuance, Youku shall pay
Tudou a termination fee of US$10.0 million.
Fees and Expenses (page 152)
Whether or not the Merger is completed, all costs and expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses except as otherwise provided in the Merger Agreement.
Listing of Youku ADSs (page 144)
Youku ADSs currently trade on the NYSE under the symbol "YOKU." It is a condition to completion of the Merger that the Youku ADSs to be
delivered to Tudou ADS holders in connection with the Merger be approved for listing on the NYSE, subject to official notice of issuance. Youku will use its reasonable best efforts to cause any Youku
ADSs to be issued in connection with the Merger to be approved for listing on the NYSE.
Delisting of Tudou ADSs (page 144)
Tudou ADSs currently trade on the NASDAQ under the symbol "TUDO." If the Merger is completed, all of the Tudou ADSs will be
de-listed from the NASDAQ, and the Tudou ADSs and the underlying Tudou shares will be deregistered under the Exchange Act.
Acquisition Proposals Relating to Tudou (page 145)
Tudou will not, nor will it permit any of its subsidiaries or consolidated affiliated entities (collectively, the "Tudou Subsidiaries")
to, nor will it authorize or permit any officer, director or
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employee
or any advisor or representative of Tudou or any of the Tudou Subsidiaries to, directly or indirectly, (1) solicit, initiate or encourage any inquiry or the making of any proposal or
offer or any other effort or attempt that constitutes, or may reasonably be expected to lead to, any acquisition proposal, (2) engage in, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with respect to Tudou or any of the Tudou Subsidiaries, or take any other action to facilitate, any acquisition
proposal, or (3) enter into any letter of intent, agreement or agreement in principle with respect to an acquisition proposal.
Prior
to obtaining the required Tudou shareholder approval of the Merger Agreement and the Merger, the Tudou Board may change their recommendation to Tudou shareholders that they approve
the Merger Agreement and the Merger if the Tudou Board has determined in good faith, after consultation with its financial advisor and outside legal advisor, that failure to effect a change of
recommendation would constitute a breach of the directors' fiduciary duties under applicable law; provided, however, that prior to taking such action or announcing the intention to do so,
(1) the Tudou Board has given Youku at least five business days' prior written notice of its intention to take such action and a description of the reasons for taking such action,
(2) Tudou has negotiated, and has caused its representatives to negotiate, in good faith with Youku during such notice period to enable Youku to revise the terms of the Merger Agreement in such
a manner that would obviate the need for taking such action, and (3) following the end of such notice period, the Tudou Board shall have considered in good faith any revisions to the Merger
Agreement proposed in writing by Youku in a manner that would form a binding contract if accepted by Tudou, and shall have determined in good faith, after consultation with its financial
advisor and outside legal advisor, that failure to effect a change of recommendation would constitute a breach of the directors' fiduciary duties under applicable law.
Competing Proposals Relating to Youku (page 145)
Until the earlier of the effective time of the Merger or the termination of the Merger Agreement, Youku will not, nor will it permit
any of its subsidiaries or consolidated affiliated entities (collectively, the "Youku Subsidiaries") to, nor will it authorize or permit any representatives of Youku or any of the Youku Subsidiaries
to, directly or indirectly, (1) solicit, initiate or encourage any inquiry or the making of any proposal or offer or any other effort or attempt that constitutes, or may reasonably be expected
to lead to, any competing proposal, (2) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public
information with respect to Youku or any of the Youku Subsidiaries, or take any other action to facilitate, any competing proposal, or (3) enter into any letter of intent, agreement or
agreement in principle with respect to any competing proposal.
Prior
to the time the vote of Youku shareholders to authorize and approve the Share Issuance and the Name Change, but not after, the Youku Board may change its recommendation that
shareholders of Youku vote in favor of the Share Issuance and the Name Change if the Youku Board has determined in good faith, after consultation with its financial advisor and outside legal advisor,
that failure to take such action would constitute a breach of the directors' fiduciary duties under applicable law; provided, however, that prior to taking such action or announcing the intention to
do so, (1) the Youku Board has given Tudou at least five business days' prior written notice of its intention to take such action and a description of the reasons for taking such action,
(2) Youku has negotiated, and has caused its representatives to negotiate, in good faith with Tudou during such notice period to enable Tudou to revise the terms of the Merger Agreement in such
a manner that would obviate the need for taking such action and (3) following the end of such notice period, the Youku Board shall have considered in good faith any revisions to the Merger
Agreement proposed in writing by Tudou in a manner that would form a binding contract if accepted by Youku, and shall have determined in good faith, after consultation with its financial
advisor and outside legal advisor, that failure to change its
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recommendation
that shareholders of Youku vote in favor of the Share Issuance and Name Change would constitute a breach of the directors' fiduciary duties under applicable law.
Appraisal Rights (page 130)
Tudou shareholders who dissent from the Merger will have the right to seek appraisal and payment of the fair value of their Tudou
shares if the Merger is completed, but only if they deliver to Tudou, before the vote is taken on the resolution to authorize and approve the Merger Agreement, the Plan of Merger and the Merger, a
written objection to the Merger and they subsequently comply with all procedures and requirements of Section 238 of the Cayman Companies Law for the exercise of appraisal rights. The fair value
of Tudou shares as determined under that statute could be more than, the same as, or less than the Per Share Merger Consideration such Tudou shareholder would receive pursuant to the Merger Agreement
if such Tudou shareholder did not exercise appraisal rights with respect to his or her shares.
Tudou
ADS holders will not have the right to seek appraisal and payment of the fair value of the shares underlying their ADSs. The Tudou depositary will not attempt to perfect any
appraisal rights with respect to any of the Tudou shares that it holds, even if an ADS holder requests the Tudou depositary to do so. Tudou ADS holders wishing to exercise appraisal rights must
surrender their ADSs at the Tudou depositary's office, pay certain fees and complete certain procedures required by the Tudou depositary under the Tudou Deposit Agreement, and become registered
holders of Tudou shares by the close of business on , 2012 (New York City time). Thereafter, such former Tudou ADS holders must comply with the procedures
and requirements for
exercising dissenter and appraisal rights with respect to the Tudou shares under Section 238 of the Cayman Companies Law.
Youku
shareholders and ADS holders are not entitled to appraisal rights.
For
more information, please see "The MergerAppraisal Rights" beginning on page 130.
Board Representation Rights (page 147)
Prior to the effective time of the Merger, Youku shall organize a meeting of the Youku Board for the purpose of appointing to the Youku
Board as a director (1) Mr. Gary Wei Wang, who, subject to the paragraph below, shall be entitled to serve as a director on the Youku Board for a term of one year, and
(2) Mr. Jixun Foo, who, subject to the paragraph below, shall be entitled to serve as a director on the Youku Board until his resignation or the designation of his successor by GGV II
Delaware L.L.C. The Youku Board shall cause any successor so designated by GGV II Delaware L.L.C. to be appointed to the Youku Board as a director.
Notwithstanding
anything in the preceding paragraph to the contrary, at such time after the effective time of the Merger as Crescent Peak, Ltd, Crescent Peak II Limited, Crescent
P.E., Ltd., Gary Wei Wang , First Easy Group Limited (a company ultimately owned by Mr. Gary Wei Wang's family trust), and GGV II Delaware L.L.C. (collectively, the "Tudou Principal
Shareholders") beneficially own, in the aggregate, less than 5% of the total issued and outstanding Youku shares on a fully diluted basis for the first time, (1) the board representation rights
discussed in the preceding paragraph shall immediately terminate and upon the request of the Youku Board, Mr. Gary Wei Wang and/or Mr. Jixun Foo shall tender his respective resignation
from the Youku Board and (2) Youku may remove Mr. Wang and/or Mr. Foo from the Youku Board pursuant to its then effective articles of association.
For
more information, please see "The Merger Agreement and Plan of MergerBoard Representation Rights" beginning on page 147.
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Interests of Tudou's Directors and Executive Officers in the Merger (page 122)
In considering the recommendation of the Tudou Board that Tudou shareholders vote for the authorization and approval of the Merger
Agreement, the Plan of Merger and the Merger, Tudou shareholders should be aware that certain members of the Tudou Board and certain executive officers of Tudou have agreements and arrangements that
may result in their having interests in the Merger different from, or in addition to, the interests of other Tudou shareholders generally. These interests include, but are not limited to, treatment of
Tudou share options in the Merger and board representation rights on the Youku Board for Mr. Gary Wei Wang. See certain directors and executive officers of Tudou including Mr. Gary Wei
Wang, and an individual appointed by GGV II Delaware L.L.C., one of the principal shareholders of Tudou. The Tudou Board was aware of these agreements and arrangements during its deliberations of the
merits of the Merger and in determining to recommend that Tudou shareholders vote to authorize and approve the Merger Agreement, the Plan of Merger and the Merger.
Please
see "The MergerInterests of Tudou's Directors and Executive Officers in the Merger" beginning on page 122 for more information.
Lock-up Restriction for Tudou Voting Shareholders
In the Youku Voting Agreements, each Tudou Voting Shareholder has agreed to comply with restrictions on the disposition and encumbrance
of the Youku shares or Youku ADSs received by it for 180 days following the closing of the Merger.
No Regulatory Approvals Necessary to Complete the Merger
No further regulatory filings or approvals will be required for the completion of the Merger other than the filing of the Plan of
Merger (and supporting documents as specified in the Cayman Companies Law) with the Cayman Islands Registrar of Companies and, in the event the Merger becomes effective, a copy of the certificate of
merger being given to the shareholders and creditors of Tudou and Merger Sub as at the time of the filing of the Plan of Merger and notice of merger being published in the Cayman Islands Gazette.
Accounting Treatment (page 124)
The merger will be accounted for by Youku as a business combination using the acquisition method of accounting under accounting
principles generally accepted in the United States, or U.S. GAAP.
For
more detail on the accounting treatment of the Merger, please see "Unaudited Pro Forma Condensed Combined Financial InformationNotes to Unaudited Pro Forma Condensed
Combined Financial Statements" beginning on page 46.
Material Tax Consequences of the Merger
Material U.S. Federal Income Tax Consequences (page 125)
The Merger is intended to qualify as a reorganization under section 368(a) of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code") for U.S. federal income tax purposes. Assuming that the Merger qualifies as a reorganization under section 368(a) of the Internal Revenue Code and neither Youku
nor Tudou is or has been a "passive foreign investment company" for U.S. federal income tax purposes (a "PFIC"), Tudou shareholders will not recognize gain or loss on the exchange of their Tudou
shares for Youku Class A shares and Tudou ADS holders will not recognize gain or loss on the exchange of their Tudou ADSs for Youku ADSs, although gain or loss may be recognized upon the
receipt of cash in lieu of fractional Youku Class A shares or Youku ADSs.
31
Table of Contents
Youku
and Tudou cannot assure Tudou shareholders and Tudou ADS holders that the Internal Revenue Service (the "IRS") will agree with the treatment of the Merger as a reorganization under
section 368(a) of the Internal Revenue Code. Tax matters are complicated, and the tax consequences of the Merger to each Tudou shareholder or each Tudou ADS holder will depend on the facts of
each holder's situation. Tudou shareholders and Tudou ADS holders are urged to read the discussion under "The MergerMaterial U.S. Federal Income Tax Consequences" and to consult their tax
advisors for a full understanding of the tax consequences of their participation in the Merger.
Material PRC Income Tax Consequences (page 129)
Tudou does not believe that it would be considered a resident enterprise under the PRC Enterprise Income Tax Law (the "EIT Law") or
that the gain, if any, recognized on the receipt of the Merger Consideration for Tudou shares or Tudou ADSs should otherwise be subject to PRC income tax to holders of such Tudou shares or Tudou ADSs
that are not PRC residents. If, however, the PRC tax authorities were to determine that Tudou should be considered a resident enterprise under the EIT Law or that the receipt of the Merger
Consideration for Tudou shares or Tudou ADSs should otherwise be subject to PRC income tax, then a gain recognized on the receipt of the Merger Consideration for Tudou shares or Tudou ADSs pursuant to
the Merger by Tudou shareholders or Tudou ADS holders, respectively, who are non-resident enterprises under the EIT Law could be treated as PRC-source income that would be
subject to PRC withholding tax at a rate of 10%, unless otherwise reduced pursuant to an applicable tax treaty. Youku's and Tudou's current understanding is that none of Youku, Merger Sub or Tudou
will be required to deduct or withhold any amount from the Merger Consideration under applicable PRC law. In the event that circumstances change and a deduction or withholding is required, each of the
surviving company, Tudou, Youku and the exchange agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to the Merger Agreement such amounts as it reasonably
determines is required to deduct and withhold with respect to the making of such payment under any applicable tax laws of the PRC. To the extent that amounts are so withheld and paid over to the
appropriate governmental entity by the surviving company, Tudou, Youku or the exchange agent, as the case may be, such withheld amounts shall be treated for all purposes of the Merger Agreement as
having been paid to the holder of Tudou shares or Tudou ADSs in respect to which such deduction and withholding was made by the surviving company or Youku, as the case may be. In the event that
deduction or withholding in respect of PRC tax is necessary, Youku and Tudou will revise this joint proxy statement/prospectus to describe the proposed deduction or withholding, and Youku will file
with the SEC an amendment to its registration statement on Form F-4, which will include the revised joint proxy statement/prospectus. You should consult your own tax advisor for a
full understanding of the tax consequences of the Merger to you, including any PRC tax consequences. Please see "Material PRC Income Tax Consequences of the Merger" beginning on page 129 for
additional information.
Material Cayman Islands Tax Consequences (page 130)
The Cayman Islands currently has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No
taxes, fees or charges will be payable to the Cayman Islands government in respect of the Merger or the receipt of Merger Consideration by Tudou shareholders or Tudou ADS holders under the terms of
the Merger Agreement. This is subject to the qualification that (1) Cayman Islands stamp duty may be payable if any original transaction documents are brought to or executed in the Cayman
Islands; and (2) registration fees will be payable to the Cayman Islands Registrar of Companies to register the Plan of Merger.
32
Table of Contents
Comparison of Rights of Holders of Youku Securities and Tudou Securities (page 228)
In the Merger, Tudou shareholders will receive Youku Class A shares and Tudou ADS holders will receive Youku ADSs. The rights of
Youku shareholders are governed by Cayman Islands law and the memorandum and articles of association of Youku, and the rights of Tudou shareholders are governed by Cayman Islands law and the
memorandum and articles of association of Tudou. Upon completion of the Merger, the rights of Tudou shareholders who become shareholders of Youku in the Merger will be governed by Cayman Islands law
and the memorandum and articles of association of Youku. There are certain differences between the rights of Tudou shareholders and the rights of Youku shareholders due to differences between the two
companies' memorandum and articles of association. For a discussion of these differences, please see "Comparison of Rights of Holders of Youku Securities and Tudou SecuritiesComparison of
Rights of Youku and Tudou Shareholders" beginning on page 228.
The
rights of Tudou ADS holders are governed by the Tudou Deposit Agreement, and the rights of Youku ADS holders are governed by the Youku Deposit Agreement. Upon completion of the
Merger, the rights of Tudou ADS holders who become Youku ADS holders in the Merger will be governed by the Youku Deposit Agreement. There are certain differences between the rights of Tudou ADS
holders and those of Youku ADS holders under the respective deposit agreement. For a comparison of the material differences, please see "Comparison of Rights of Holders of Youku Securities and Tudou
SecuritiesComparison of Rights of Youku and Tudou American Depositary Share holders" beginning on page 238.
Comparative Market Price and Dividend Information
The Youku ADSs are listed on the NYSE under the symbol "YOKU." The Tudou ADSs are currently listed on the NASDAQ under the symbol
"TUDO." The table below sets forth, for the periods indicated, the per ADS high and low closing sales prices for the Youku ADSs on the NYSE and the Tudou ADSs on the NASDAQ.
33
Table of Contents
Neither
Youku nor Tudou has declared or paid any dividends on its ordinary shares or ADSs since their initial public offerings in December 2010 and August 2011, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Youku ADSs
(in US$)
|
|
Tudou ADSs
(in US$)
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
Annual information since listing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
42.7
|
|
|
29.72
|
|
|
N/A
|
|
|
N/A
|
|
2011
|
|
|
67.27
|
|
|
14.31
|
|
|
26.88
|
|
|
10.00
|
|
Quarterly information for the past two years and subsequent quarters 2011, quarter ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
51.26
|
|
|
29.55
|
|
|
N/A
|
|
|
N/A
|
|
June 30
|
|
|
67.27
|
|
|
26.25
|
|
|
N/A
|
|
|
N/A
|
|
September 30
|
|
|
38.59
|
|
|
14.31
|
|
|
26.88
|
|
|
13.65
|
|
December 31
|
|
|
22.85
|
|
|
14.55
|
|
|
16.95
|
|
|
10.00
|
|
2012, quarter ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
31.85
|
|
|
15.57
|
|
|
42.50
|
|
|
9.57
|
|
Monthly information for the most recent six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2011
|
|
|
22.85
|
|
|
15.65
|
|
|
16.95
|
|
|
12.25
|
|
November 2011
|
|
|
21.63
|
|
|
14.55
|
|
|
15.80
|
|
|
11.38
|
|
December 2011
|
|
|
20.43
|
|
|
15.67
|
|
|
13.25
|
|
|
10.00
|
|
January 2012
|
|
|
23.55
|
|
|
15.57
|
|
|
13.99
|
|
|
9.57
|
|
February 2012
|
|
|
25.39
|
|
|
20.88
|
|
|
16.66
|
|
|
13.80
|
|
March 2012
|
|
|
31.85
|
|
|
21.99
|
|
|
42.50
|
|
|
12.00
|
|
April 2012 (though April 23)
|
|
|
24.78
|
|
|
21.48
|
|
|
34.95
|
|
|
29.27
|
|
The
following table presents the last reported closing sale price per ADS of the Youku ADS on the NYSE and of the Tudou ADSs on the NASDAQ (1) on March 9, 2012, the last
full trading day prior to the public announcement by Youku and Tudou of the execution of the Merger Agreement, and (2) April 23, 2012, the last trading day for which this information
could be calculated prior to the filing of Youku's registration statement on Form F-4, of which this joint proxy statement/prospectus is a part.
|
|
|
|
|
|
|
|
|
|
Youku
ADSs(1)
|
|
Tudou
ADSs(2)
|
|
|
|
(US$)
|
|
(US$)
|
|
March 9, 2012
|
|
|
25.01
|
|
|
15.39
|
|
April 23, 2012
|
|
|
21.82
|
|
|
32.63
|
|
-
(1)
-
Each
Youku ADS represents 18 Youku Class A shares.
-
(2)
-
Each
Tudou ADS represents 4 Tudou Class B shares.
Tudou
shareholders and ADS holders will not receive the Merger Consideration until after the proposed Merger is completed. There can be no assurance as to the trading prices of the Youku
ADSs at the time of the closing of the proposed Merger. The market prices of the Youku ADSs and Tudou ADSs are likely to fluctuate prior to consummation of the Merger and cannot be predicted. Youku
urges you to obtain current market information regarding the Youku ADSs and Tudou ADSs before you vote.
34
Table of Contents
Exchange Rates
Substantially all of Youku and Tudou's operations are conducted in China and all of their revenues are denominated in Renminbi. This
joint proxy statement/prospectus contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of RMB into U.S. dollars in this
joint proxy statement/prospectus is based on the certified exchange rate published by the Board of Governors of the Federal Reserve Bank. Unless otherwise noted, all translations from RMB to U.S.
dollars and from U.S. dollars to RMB in this joint proxy statement/prospectus were made at a rate of RMB6.2939 to US$1.00, the certified exchange rate in effect on December 31, 2011. Neither of
Youku or Tudou makes any 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 or at all. The
PRC government restricts the conversion of RMB into foreign currency and foreign currency into RMB for certain types of transactions. On April 20, 2012, the certified exchange rate was
RMB6.3080 to US$1.00.
The
following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. The source of these rates is the Federal Reserve
Statistical Release.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate
|
|
Period
|
|
Period End
|
|
Average
(1)
|
|
Low
|
|
High
|
|
|
|
(RMB Per US$1.00)
|
|
2007
|
|
|
7.2946
|
|
|
7.5806
|
|
|
7.8127
|
|
|
7.2946
|
|
2008
|
|
|
6.8225
|
|
|
6.9193
|
|
|
7.2946
|
|
|
6.7800
|
|
2009
|
|
|
6.8259
|
|
|
6.8295
|
|
|
6.8470
|
|
|
6.8176
|
|
2010
|
|
|
6.6000
|
|
|
6.7608
|
|
|
6.8270
|
|
|
6.6000
|
|
2011
|
|
|
6.2939
|
|
|
6.4630
|
|
|
6.6364
|
|
|
6.2939
|
|
October
|
|
|
6.3547
|
|
|
6.3710
|
|
|
6.3825
|
|
|
6.3534
|
|
November
|
|
|
6.3765
|
|
|
6.3564
|
|
|
6.3839
|
|
|
6.3400
|
|
December
|
|
|
6.2939
|
|
|
6.3482
|
|
|
6.3733
|
|
|
6.2939
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
6.3080
|
|
|
6.3119
|
|
|
6.3330
|
|
|
6.2940
|
|
February
|
|
|
6.2935
|
|
|
6.2997
|
|
|
6.3120
|
|
|
6.2935
|
|
March
|
|
|
6.2975
|
|
|
6.3125
|
|
|
6.3315
|
|
|
6.2975
|
|
April (through April 20, 2012)
|
|
|
6.3080
|
|
|
6.3052
|
|
|
6.3150
|
|
|
6.2975
|
|
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.
35
Table of Contents
SELECTED HISTORICAL FINANCIAL DATA OF YOUKU
The table below sets forth the selected historical consolidated statement of operations data of Youku for the five years ended
December 31, 2011 and the selected consolidated balance sheet data of Youku as of December 31, 2007, 2008, 2009, 2010 and 2011. The selected historical consolidated statement of
operations data of Youku for the five years ended December 31, 2011 and the selected consolidated balance sheet data as of December 31, 2007, 2008, 2009, 2010 and 2011 have been derived
from the audited historical consolidated financial statements of Youku. Youku's audited historical consolidated financial statements for the three years ended December 31, 2011 and as of
December 31, 2010 and 2011 are contained in the Youku 2011 20-F and are incorporated by reference into this joint proxy statement/prospectus.
You
should read the following selected historical financial information in conjunction with the audited historical consolidated financial statements of Youku and related notes and
"Item 5. Operating and Financial Review and Prospects," which are contained in the Youku 2011 20-F that Youku has previously filed with the SEC and which is incorporated in this
joint proxy statement/prospectus by reference. See "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference" on pages 252 and 253, respectively.
36
Table of Contents
The
historical consolidated financial data for Youku has been prepared in accordance with U.S. GAAP. The historical results of Youku do not necessarily indicate results expected
for any future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands, except for number of shares, ADSs, per share and per ADS information)
|
|
Selected Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
(1)
|
|
|
1,778
|
|
|
33,022
|
|
|
153,626
|
|
|
387,097
|
|
|
897,624
|
|
|
142,619
|
|
Cost of revenues
(2)
|
|
|
(46,148
|
)
|
|
(171,130
|
)
|
|
(216,708
|
)
|
|
(350,830
|
)
|
|
(697,337
|
)
|
|
(110,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit
|
|
|
(44,370
|
)
|
|
(138,108
|
)
|
|
(63,082
|
)
|
|
36,267
|
|
|
200,287
|
|
|
31,823
|
|
Operating expenses
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
(22,469
|
)
|
|
(35,086
|
)
|
|
(72,746
|
)
|
|
(130,238
|
)
|
|
(230,475
|
)
|
|
(36,619
|
)
|
Product development
|
|
|
(15,530
|
)
|
|
(15,398
|
)
|
|
(20,908
|
)
|
|
(31,287
|
)
|
|
(72,573
|
)
|
|
(11,531
|
)
|
General and administrative
|
|
|
(5,843
|
)
|
|
(14,367
|
)
|
|
(18,523
|
)
|
|
(28,957
|
)
|
|
(80,529
|
)
|
|
(12,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(43,842
|
)
|
|
(64,851
|
)
|
|
(112,177
|
)
|
|
(190,482
|
)
|
|
(383,577
|
)
|
|
(60,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(88,212
|
)
|
|
(202,959
|
)
|
|
(175,259
|
)
|
|
(154,215
|
)
|
|
(183,290
|
)
|
|
(29,122
|
)
|
Interest income
|
|
|
1,013
|
|
|
5,384
|
|
|
2,054
|
|
|
1,170
|
|
|
23,693
|
|
|
3,764
|
|
Interest expense
|
|
|
|
|
|
(4,240
|
)
|
|
(6,835
|
)
|
|
(7,440
|
)
|
|
(6,825
|
)
|
|
(1,084
|
)
|
Amortization of debt issuance costs
|
|
|
|
|
|
(2,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative financial liabilities and warrant liability
|
|
|
(2,422
|
)
|
|
(264
|
)
|
|
(2,313
|
)
|
|
(44,268
|
)
|
|
|
|
|
|
|
Others, net
|
|
|
(62
|
)
|
|
(1
|
)
|
|
67
|
|
|
69
|
|
|
(5,682
|
)
|
|
(903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(89,683
|
)
|
|
(204,460
|
)
|
|
(182,286
|
)
|
|
(204,684
|
)
|
|
(172,104
|
)
|
|
(27,345
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(89,683
|
)
|
|
(204,460
|
)
|
|
(182,286
|
)
|
|
(204,684
|
)
|
|
(172,104
|
)
|
|
(27,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.25
|
)
|
|
(0.56
|
)
|
|
(0.50
|
)
|
|
(0.44
|
)
|
|
(0.09
|
)
|
|
(0.01
|
)
|
Diluted
|
|
|
(0.25
|
)
|
|
(0.56
|
)
|
|
(0.50
|
)
|
|
(0.44
|
)
|
|
(0.09
|
)
|
|
(0.01
|
)
|
Net loss per ADS
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(4.42
|
)
|
|
(10.08
|
)
|
|
(8.98
|
)
|
|
(7.90
|
)
|
|
(1.55
|
)
|
|
(0.25
|
)
|
Diluted
|
|
|
(4.42
|
)
|
|
(10.08
|
)
|
|
(8.98
|
)
|
|
(7.90
|
)
|
|
(1.55
|
)
|
|
(0.25
|
)
|
Shares used in computation, basic and diluted:
|
|
|
365,011,250
|
|
|
365,134,375
|
|
|
365,432,916
|
|
|
466,340,541
|
|
|
1,992,923,515
|
|
|
1,992,923,515
|
|
ADSs used in computation, basic and diluted:
|
|
|
20,278,403
|
|
|
20,285,243
|
|
|
20,301,829
|
|
|
25,907,808
|
|
|
110,717,973
|
|
|
110,717,973
|
|
Selected non-GAAP Financial Data
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
(78,237
|
)
|
|
(172,371
|
)
|
|
(134,487
|
)
|
|
(99,514
|
)
|
|
(90,068
|
)
|
|
(14,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
|
(86,012
|
)
|
|
(200,531
|
)
|
|
(175,408
|
)
|
|
(148,426
|
)
|
|
(124,610
|
)
|
|
(19,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Net
revenues are presented net of commissions earned by third-party advertising agencies as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Commissions earned by third-party advertising agencies
|
|
|
|
|
|
6,379
|
|
|
37,866
|
|
|
86,602
|
|
|
180,644
|
|
|
28,701
|
|
37
Table of Contents
-
(2)
-
Including
share-based compensation expenses as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Allocation of Share-based Compensation Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
259
|
|
|
283
|
|
|
918
|
|
|
3,894
|
|
|
619
|
|
Sales and marketing
|
|
|
141
|
|
|
861
|
|
|
1,690
|
|
|
5,954
|
|
|
14,196
|
|
|
2,255
|
|
Product development
|
|
|
684
|
|
|
1,401
|
|
|
1,657
|
|
|
3,049
|
|
|
12,233
|
|
|
1,944
|
|
General and administrative
|
|
|
424
|
|
|
1,144
|
|
|
935
|
|
|
2,069
|
|
|
17,171
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,249
|
|
|
3,665
|
|
|
4,565
|
|
|
11,990
|
|
|
47,494
|
|
|
7,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(3)
-
Each
ADS represents 18 Youku Class A shares.
-
(4)
-
To
supplement Youku's consolidated financial results presented in accordance with U.S. GAAP, Youku uses the following measures defined
as non-GAAP financial measures in evaluating its business: adjusted net loss and adjusted EBITDA. Youku defines adjusted net loss as net loss excluding share-based compensation expenses
and change in fair value of derivative financial liabilities and warrant liability. Youku defines adjusted EBITDA as net loss before income taxes, interest expense, interest income, depreciation and
amortization (excluding amortization of purchased contents), further adjusted for change in fair value of derivative financial liabilities and warrant liability, share-based compensation expenses and
other non-operating items. Youku presents non-GAAP financial measures because they are used by its management to evaluate its operating performance. Youku also believes that
these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating its consolidated results of operations in the same manner as its
management and in comparing financial results across accounting periods and to those of its peer companies. The presentation of these non-GAAP financial measures is not intended to be
considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please
see the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Net loss
|
|
|
(89,683
|
)
|
|
(204,460
|
)
|
|
(182,286
|
)
|
|
(204,684
|
)
|
|
(172,104
|
)
|
|
(27,345
|
)
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share-based compensation expenses
|
|
|
1,249
|
|
|
3,665
|
|
|
4,565
|
|
|
11,990
|
|
|
47,494
|
|
|
7,546
|
|
change in fair value of derivative financial liabilities and warrant liability
|
|
|
2,422
|
|
|
264
|
|
|
2,313
|
|
|
44,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
|
(86,012
|
)
|
|
(200,531
|
)
|
|
(175,408
|
)
|
|
(148,426
|
)
|
|
(124,610
|
)
|
|
(19,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Net loss
|
|
|
(89,683
|
)
|
|
(204,460
|
)
|
|
(182,286
|
)
|
|
(204,684
|
)
|
|
(172,104
|
)
|
|
(27,345
|
)
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
4,240
|
|
|
6,835
|
|
|
7,440
|
|
|
6,825
|
|
|
1,084
|
|
Interest income
|
|
|
(1,013
|
)
|
|
(5,384
|
)
|
|
(2,054
|
)
|
|
(1,170
|
)
|
|
(23,693
|
)
|
|
(3,764
|
)
|
Depreciation and amortization (excluding amortization of acquired content)
|
|
|
8,726
|
|
|
26,923
|
|
|
36,207
|
|
|
42,711
|
|
|
45,728
|
|
|
7,265
|
|
Share-based compensation expenses
|
|
|
1,249
|
|
|
3,665
|
|
|
4,565
|
|
|
11,990
|
|
|
47,494
|
|
|
7,546
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
2,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative financial liabilities and warrant liability
|
|
|
2,422
|
|
|
264
|
|
|
2,313
|
|
|
44,268
|
|
|
|
|
|
|
|
Others, net
|
|
|
62
|
|
|
1
|
|
|
(67
|
)
|
|
(69
|
)
|
|
5,682
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
(78,237
|
)
|
|
(172,371
|
)
|
|
(134,487
|
)
|
|
(99,514
|
)
|
|
(90,068
|
)
|
|
(14,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of Youku's selected consolidated balance sheet data as of December 31, 2007, 2008, 2009, 2010 and
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Selected Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
157,755
|
|
|
88,915
|
|
|
301,608
|
|
|
1,811,423
|
|
|
2,292,538
|
|
|
364,248
|
|
Total current assets
|
|
|
172,933
|
|
|
228,600
|
|
|
384,322
|
|
|
2,063,085
|
|
|
4,147,780
|
|
|
659,017
|
|
Total assets
|
|
|
219,214
|
|
|
291,746
|
|
|
441,741
|
|
|
2,190,168
|
|
|
4,675,558
|
|
|
742,872
|
|
Total current liabilities
|
|
|
22,616
|
|
|
60,159
|
|
|
132,479
|
|
|
260,225
|
|
|
462,999
|
|
|
73,563
|
|
Total liabilities
|
|
|
22,616
|
|
|
92,115
|
|
|
146,754
|
|
|
278,680
|
|
|
470,381
|
|
|
74,736
|
|
Convertible redeemable preferred shares
|
|
|
302,769
|
|
|
507,614
|
|
|
780,599
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit)
|
|
|
(106,171
|
)
|
|
(307,983
|
)
|
|
(485,612
|
)
|
|
1,911,488
|
|
|
4,205,177
|
|
|
668,136
|
|
39
Table of Contents
SELECTED HISTORICAL FINANCIAL DATA OF TUDOU
The table below sets forth the selected historical consolidated statement of operations data of Tudou for the five years ended
December 31, 2011 and the selected consolidated balance sheet data of Tudou as of December 31, 2008, 2009, 2010 and 2011.
The
selected historical consolidated statements of operations data of Tudou for the three years ended December 31, 2011 and the selected consolidated balance sheet data as of
December 31, 2010 and 2011 have been derived from the audited historical consolidated financial statements of Tudou included elsewhere in this joint proxy statement/prospectus. The selected
historical consolidated statement of operations data of Tudou for the fiscal years ended December 31, 2007 and 2008 and the selected consolidated balance sheet data as of December 31,
2008 and 2009 have been derived from the audited
historical consolidated financial statements of Tudou not included in this joint proxy statement/prospectus.
You
should read the following selected historical financial information in conjunction with the audited historical consolidated financial statements of Tudou and related notes included
in this joint proxy statement/prospectus and "Operating and Financial Review and Prospects of Tudou" in this joint proxy statement/prospectus.
40
Table of Contents
The
selected historical consolidated financial data for Tudou has been prepared in accordance with U.S. GAAP. The historical results of Tudou do not necessarily indicate results
expected for any future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands, except share and per share data)
|
|
Selected Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
6,618
|
|
|
26,220
|
|
|
89,147
|
|
|
286,258
|
|
|
512,195
|
|
|
81,380
|
|
Cost of revenues
(1)
|
|
|
(72,,394
|
)
|
|
(143,332
|
)
|
|
(127,182
|
)
|
|
(226,399
|
)
|
|
(427,842
|
)
|
|
(67,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(65,777
|
)
|
|
(117,111
|
)
|
|
(38,035
|
)
|
|
59,8589
|
|
|
84,354
|
|
|
13,402
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
(1)
|
|
|
(12,997
|
)
|
|
(42,574
|
)
|
|
(73,435
|
)
|
|
(143,224
|
)
|
|
(286,848
|
)
|
|
(45,576
|
)
|
General and administrative expenses
(1)
|
|
|
(11,824
|
)
|
|
(37,781
|
)
|
|
(37,586
|
)
|
|
(104,911
|
)
|
|
(174,972
|
)
|
|
(27,800
|
)
|
Impairment of equipment
|
|
|
|
|
|
(8,736
|
)
|
|
(2,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(24,821
|
)
|
|
(89,091
|
)
|
|
(113,393
|
)
|
|
(248,136
|
)
|
|
(461,819
|
)
|
|
(73,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(90,598
|
)
|
|
(206,203
|
)
|
|
(151,428
|
)
|
|
(188,277
|
)
|
|
(377,466
|
)
|
|
(59,973
|
)
|
Finance income
|
|
|
2,545
|
|
|
3,573
|
|
|
3,104
|
|
|
331
|
|
|
428
|
|
|
68
|
|
Finance expenses
|
|
|
|
|
|
|
|
|
|
|
|
(12,851
|
)
|
|
(4,771
|
)
|
|
(758
|
)
|
Other income (expense), net
|
|
|
(21
|
)
|
|
(237
|
)
|
|
(63
|
)
|
|
1
|
|
|
(134
|
)
|
|
(21
|
)
|
Foreign exchange gain (loss)
|
|
|
(7,811
|
)
|
|
(9,772
|
)
|
|
3,610
|
|
|
(10,957
|
)
|
|
(15,486
|
)
|
|
(2,461
|
)
|
Beneficial conversion charge on convertible loan
|
|
|
|
|
|
|
|
|
|
|
|
(10,967
|
)
|
|
|
|
|
|
|
Fair value changes in warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(124,680
|
)
|
|
(113,733
|
)
|
|
(18,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(95,884
|
)
|
|
(212,639
|
)
|
|
(144,777
|
)
|
|
(347,400
|
)
|
|
(511,162
|
)
|
|
(81,215
|
)
|
Income taxes
|
|
|
(0.0
|
)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(95,884
|
)
|
|
(212,639
|
)
|
|
(144,777
|
)
|
|
(347,400
|
)
|
|
(511,162
|
)
|
|
(81,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
|
(85,192
|
)
|
|
(195,101
|
)
|
|
(145,086
|
)
|
|
(362,384
|
)
|
|
(526,047
|
)
|
|
(83,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per ordinary share basic and diluted
|
|
|
(7.10
|
)
|
|
(16.26
|
)
|
|
(12.09
|
)
|
|
(30.20
|
)
|
|
(10.51
|
)
|
|
(1.67
|
)
|
Weighted average number of ordinary shares used in computing loss per share, basic and diluted
|
|
|
12,000
|
|
|
12,000
|
|
|
12,000
|
|
|
12,000
|
|
|
50,069
|
|
|
50,069
|
|
Non-GAAP Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
(2)
|
|
|
(90,180
|
)
|
|
(201,321
|
)
|
|
(133,255
|
)
|
|
(107,176
|
)
|
|
(292,395
|
)
|
|
(46,457
|
)
|
-
*
-
Less
than RMB100.
-
(1)
-
These
items include share-based compensation expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Share-based compensation expenses included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,217
|
|
|
2,763
|
|
|
1,876
|
|
|
14,133
|
|
|
14,177
|
|
|
2,253
|
|
Sales and marketing expenses
|
|
|
2,066
|
|
|
3,918
|
|
|
3,492
|
|
|
31,025
|
|
|
39,475
|
|
|
6,272
|
|
General and administrative expenses
|
|
|
2,421
|
|
|
4,638
|
|
|
6,155
|
|
|
59,418
|
|
|
51,383
|
|
|
8,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,703
|
|
|
11,318
|
|
|
11,522
|
|
|
104,576
|
|
|
105,035
|
|
|
16,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(2)
-
Tudou
defines adjusted net loss, a non-GAAP financial measure, as net loss excluding share-based compensation expenses, beneficial
conversion charges on convertible loans and fair value changes in warrant liabilities. Tudou believes adjusted net loss is useful supplemental information for investors and other interested persons to
assess its operating performance without the effect of non-cash beneficial conversion charges on convertible loans and fair value changes in warrant liabilities, which will not likely be
recurring factors in its business in the future, and share-based compensation expenses, which have been and will
41
Table of Contents
continue
to be a significant recurring factor in its business. Tudou presents this non-GAAP financial measure because its management uses this measure to evaluate its operating
performance. Tudou believes that this non-GAAP financial measure provides useful information to investors and other interested persons because such information allows them to understand
and evaluate its consolidated results of operations in the same manner as its management and to make period over period comparison of its financial results. However, adjusted net loss has material
limitations as an analytical tool. One limitation of using non-GAAP adjusted net loss is that it does not include all items that impact its net loss for the period. In addition, because
adjusted net loss may not be calculated in the same manner by all companies, it may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations,
you should not consider adjusted net
loss in isolation from or as an alternative to net loss prepared in accordance with U.S. GAAP. For a reconciliation of adjusted net loss to net loss, please see the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Net loss
|
|
|
(95,884
|
)
|
|
(212,639
|
)
|
|
(144,777
|
)
|
|
(347,400
|
)
|
|
(511,162
|
)
|
|
(81,215
|
)
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expenses
|
|
|
5,703
|
|
|
11,318
|
|
|
11,522
|
|
|
104,576
|
|
|
105,035
|
|
|
16,688
|
|
Beneficial conversion charge on convertible loan
|
|
|
|
|
|
|
|
|
|
|
|
10,967
|
|
|
|
|
|
|
|
Fair value changes in warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
|
124,680
|
|
|
113,733
|
|
|
18,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
|
(90,180
|
)
|
|
(201,321
|
)
|
|
(133,255
|
)
|
|
(107,176
|
)
|
|
(292,395
|
)
|
|
(46,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of Tudou's selected consolidated balance sheet data as of December 31, 2008, 2009, 2010 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Selected Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
260,769
|
|
|
62,034
|
|
|
263,151
|
|
|
872,001
|
|
|
138,547
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
66,227
|
|
|
96,787
|
|
|
15,378
|
|
Short term investments
|
|
|
11,312
|
|
|
84,212
|
|
|
5,837
|
|
|
|
|
|
|
|
Total current assets
|
|
|
303,479
|
|
|
223,511
|
|
|
614,182
|
|
|
1,299,156
|
|
|
206,415
|
|
Total assets
|
|
|
339,699
|
|
|
263,003
|
|
|
698,742
|
|
|
1,692,492
|
|
|
268,910
|
|
Total current liabilities
|
|
|
51,865
|
|
|
119,946
|
|
|
418,359
|
|
|
478,392
|
|
|
76,009
|
|
Total liabilities
|
|
|
51,865
|
|
|
119,946
|
|
|
572,399
|
|
|
478,392
|
|
|
76,009
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred shares
|
|
|
5,909
|
|
|
6,757
|
|
|
7,381
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred shares
|
|
|
58,094
|
|
|
58,040
|
|
|
56,293
|
|
|
|
|
|
|
|
Series C redeemable convertible preferred shares
|
|
|
129,857
|
|
|
129,736
|
|
|
125,831
|
|
|
|
|
|
|
|
Series D redeemable convertible preferred shares
|
|
|
388,205
|
|
|
387,842
|
|
|
376,169
|
|
|
|
|
|
|
|
Series E redeemable convertible preferred shares
|
|
|
|
|
|
|
|
|
351,402
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(294,328
|
)
|
|
(439,414
|
)
|
|
(801,797
|
)
|
|
(1,327,844
|
)
|
|
(210,973
|
)
|
Total shareholders' equity/(deficit)
|
|
|
(294,231
|
)
|
|
(439,317
|
)
|
|
(790,733
|
)
|
|
1,214,100
|
|
|
192,901
|
|
Total liabilities and shareholders' equity/(deficit)
|
|
|
339,699
|
|
|
263,003
|
|
|
698,742
|
|
|
1,692,492
|
|
|
268,910
|
|
42
Table of Contents
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Youku will acquire all of the outstanding Tudou shares and share options to purchase ordinary shares of Tudou in a
stock-for-stock transaction announced on March 12, 2012. The accompanying unaudited pro forma condensed combined balance sheet (the "Pro Forma Balance Sheet") as of
December 31, 2011 combines the historical consolidated balance sheets of Youku and Tudou, giving effect to the Merger as if it had been completed on December 31, 2011. The accompanying
unaudited pro forma condensed combined statement of operations (the "Pro Forma Statement of Operations") for the year ended December 31, 2011 combines the historical consolidated statements of
operations of Youku and Tudou, giving effect to the Merger as if it had been completed on January 1, 2011.
The
accompanying unaudited pro forma condensed combined financial statements (the "Statements") and related notes were prepared using the acquisition method of accounting with Youku
considered the acquirer of Tudou. Accordingly, the purchase consideration to be paid in the Merger has been preliminarily allocated to the assets acquired and liabilities assumed of Tudou based upon
their estimated fair values as of December 31, 2011. Any amount of the purchase consideration that is in excess of the estimated fair values of the assets acquired and liabilities assumed will
be recorded as goodwill in Youku's balance sheet after the completion of the Merger. As of the date of this joint proxy statement/prospectus, Youku has not completed the detailed valuation work
necessary to arrive at the required estimates of the fair value of the Tudou assets to be acquired and the liabilities to be assumed and the related allocation of purchase price, nor has it identified
all adjustments necessary to conform Tudou's accounting policies to Youku's accounting policies. A third party firm has assisted Youku management in assessing the fair value of certain intangible
assets and fixed assets of Tudou. A final determination of the fair value of Tudou's assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Tudou that
exist as of the date of completion of the Merger and, therefore, cannot be made prior to that date. Additionally, the purchase consideration to be paid by Youku to complete the Merger will be
determined based on the trading price of Youku ADSs at the time of the completion of the Merger. Accordingly, the accompanying unaudited pro forma purchase price allocation is preliminary and is
subject to further adjustments as additional information becomes available and as additional analyses are performed. The preliminary unaudited pro forma purchase price allocation has been made solely
for the purpose of preparing the Statements presented below. Youku estimated the fair value of Tudou's assets and liabilities based on discussions with Tudou's management, due diligence review in
connection with the Merger, and information available to Youku in public filings. Until the Merger is completed, both companies are limited in their ability to share information with each other. Upon
completion of the Merger, valuation work will be performed. Increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments to the balance sheet and/or statements
of operations until the purchase price allocation is finalized. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation
included in the Statements.
Youku
expects to incur significant costs and achieve significant revenue and other synergies in connection with integrating the operations of Youku and Tudou. The Statements do not
reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies, or any revenue, tax, or other synergies expected to
result from the Merger. The Statements and related notes are being provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the
consolidated balance sheet of Youku would have been had the Merger occurred on the dates assumed, nor are they necessarily indicative of Youku's future consolidated results of operations or
consolidated balance sheet. The Statements are based upon currently available information and estimates and assumptions that Youku's management believe are reasonable as of the date of this joint
proxy statement/prospectus. Any of the factors underlying these estimates and assumptions may change or prove to be materially different, and the estimates and assumptions may not be representative of
facts existing at the closing date of the Merger.
43
Table of Contents
The
Statements have been developed from and should be read in conjunction with the audited historical consolidated financial statements of Youku and Tudou. Youku's audited historical
consolidated financial statements for the three years ended December 31, 2011 and as of December 31, 2010 and 2011 are contained in the Youku's 2011 20-F, which is
incorporated by reference into this joint proxy statement/prospectus. Tudou's audited historical consolidated financial statements for the three years ended December 31, 2011 and as of
December 31, 2010 and 2011 are included elsewhere in this joint proxy statement/prospectus. The historical consolidated financial statements of Tudou have been adjusted by condensing or
disaggregating certain line items in order to conform with Youku's financial statement presentation. The accompanying notes are an integral part of these unaudited pro forma condensed combined
financial statements.
Unaudited Pro Forma Condensed Combined Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2011
|
|
|
|
Historical
Youku
(Audited)
RMB
|
|
Historical
Tudou
(Audited)
RMB
|
|
Pro Forma
Adjustments
(Unaudited)
RMB
|
|
Pro Forma
Combined
(Unaudited)
RMB
|
|
Pro Forma
Combined
(Unaudited)
US$
(1)
|
|
|
|
(in thousands, except share and per share amounts)
|
|
Net revenues
|
|
|
897,624
|
|
|
512,195
|
|
|
60,418
|
(a)
|
|
1,470,237
|
|
|
233,597
|
|
Cost of revenues
|
|
|
(697,337
|
)
|
|
(427,842
|
)
|
|
(67,212)
|
(b)
|
|
(1,192,391
|
)
|
|
(189,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
200,287
|
|
|
84,353
|
|
|
(6,794
|
)
|
|
277,846
|
|
|
44,145
|
|
Product development expenses
|
|
|
(72,573
|
)
|
|
|
|
|
(44,103)
|
(c)
|
|
(116,676
|
)
|
|
(18,538
|
)
|
Sales and marketing expenses
|
|
|
(230,475
|
)
|
|
(286,848
|
)
|
|
54,389
|
(d)
|
|
(462,934
|
)
|
|
(73,553
|
)
|
General and administrative expenses
|
|
|
(80,529
|
)
|
|
(174,971
|
)
|
|
37,998
|
(e)
|
|
(217,502
|
)
|
|
(34,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(183,290
|
)
|
|
(377,466
|
)
|
|
41,490
|
|
|
(519,266
|
)
|
|
(82,504
|
)
|
Interest income
|
|
|
23,693
|
|
|
428
|
|
|
|
|
|
24,121
|
|
|
3,832
|
|
Interest expense
|
|
|
(6,825
|
)
|
|
(4,771
|
)
|
|
|
|
|
(11,596
|
)
|
|
(1,842
|
)
|
Change in fair value of warrant liability
|
|
|
|
|
|
(113,733
|
)
|
|
|
|
|
(113,733
|
)
|
|
(18,070
|
)
|
Others, net
|
|
|
(5,682
|
)
|
|
(15,620
|
)
|
|
|
|
|
(21,302
|
)
|
|
(3,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(172,104
|
)
|
|
(511,162
|
)
|
|
41,490
|
|
|
(641,776
|
)
|
|
(101,969
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(172,104
|
)
|
|
(511,162
|
)
|
|
41,490
|
|
|
(641,776
|
)
|
|
(101,969
|
)
|
Accretion and effect of foreign exchange movement on preferred shares
|
|
|
|
|
|
(14,885
|
)
|
|
|
|
|
(14,885
|
)
|
|
(2,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
|
(172,104
|
)
|
|
(526,047
|
)
|
|
41,490
|
|
|
(656,661
|
)
|
|
(104,334
|
)
|
Net loss per share, basic and diluted
|
|
|
(0.09
|
)
|
|
(10.51
|
)
|
|
|
|
|
(0.23
|
)
|
|
(0.04
|
)
|
Shares used in computation, basic and diluted
|
|
|
1,992,923,515
|
|
|
50,069,321
|
|
|
814,075,022
|
(f)
|
|
2,806,998,537
|
|
|
2,806,998,537
|
|
44
Table of Contents
Unaudited Pro Forma Condensed Combined Statement of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Historical
Youku
(Audited)
RMB
|
|
Historical
Tudou
(Audited)
RMB
|
|
Pro Forma
Adjustments
(Unaudited)
RMB
|
|
|
|
Pro Forma
Combined
(Unaudited)
RMB
|
|
Pro Forma
Combined
(Unaudited)
US$
(1)
|
|
|
|
(in thousands, except per share amounts)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2,292,538
|
|
|
872,000
|
|
|
(21,270
|
)
|
|
(g)
|
|
|
3,143,268
|
|
|
499,415
|
|
Restricted cash
|
|
|
|
|
|
96,787
|
|
|
|
|
|
|
|
|
96,787
|
|
|
15,378
|
|
Short-term investments
|
|
|
1,400,858
|
|
|
|
|
|
|
|
|
|
|
|
1,400,858
|
|
|
222,574
|
|
Accounts receivable, net
|
|
|
420,706
|
|
|
239,804
|
|
|
|
|
|
|
|
|
660,510
|
|
|
104,944
|
|
Content licensed
|
|
|
|
|
|
64,461
|
|
|
(64,461
|
)
|
|
(h)
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
16,078
|
|
|
|
|
|
64,461
|
|
|
(h)
|
|
|
80,539
|
|
|
12,796
|
|
Amounts due from related party
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
768
|
|
|
122
|
|
Capitalized content production costs
|
|
|
|
|
|
8,215
|
|
|
(8,215
|
)
|
|
(i)
|
|
|
|
|
|
|
|
Prepayments and other assets
|
|
|
16,832
|
|
|
17,889
|
|
|
|
|
|
|
|
|
34,721
|
|
|
5,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,147,780
|
|
|
1,299,156
|
|
|
(29,485
|
)
|
|
|
|
|
5,417,451
|
|
|
860,746
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
96,567
|
|
|
88,788
|
|
|
4,026
|
|
|
(j)
|
|
|
189,381
|
|
|
30,090
|
|
Long-term investment in related party
|
|
|
1,707
|
|
|
|
|
|
|
|
|
|
|
|
1,707
|
|
|
271
|
|
Content licensed
|
|
|
|
|
|
141,404
|
|
|
(141,404
|
)
|
|
(h)
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
211,978
|
|
|
6,183
|
|
|
1,389,713
|
|
|
(h)
|
|
|
1,607,874
|
|
|
255,466
|
|
Capitalized content production costs
|
|
|
7,782
|
|
|
|
|
|
10,100
|
|
|
(i)
|
|
|
17,882
|
|
|
2,841
|
|
Goodwill
|
|
|
|
|
|
|
|
|
5,198,508
|
|
|
(k)
|
|
|
5,198,508
|
|
|
825,960
|
|
Amounts due from related party
|
|
|
65,352
|
|
|
|
|
|
|
|
|
|
|
|
65,352
|
|
|
10,383
|
|
Prepayments and other assets
|
|
|
144,392
|
|
|
156,962
|
|
|
(10,000
|
)
|
|
(l)
|
|
|
291,354
|
|
|
46,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
527,778
|
|
|
393,337
|
|
|
6,450,943
|
|
|
|
|
|
7,372,058
|
|
|
1,171,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
4,675,558
|
|
|
1,692,493
|
|
|
6,421,458
|
|
|
|
|
|
12,789,509
|
|
|
2,032,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
57,276
|
|
|
126,643
|
|
|
|
|
|
|
|
|
183,919
|
|
|
29,222
|
|
Advances from customers
|
|
|
3,140
|
|
|
|
|
|
|
|
|
|
|
|
3,140
|
|
|
499
|
|
Amounts due to related party
|
|
|
2,794
|
|
|
|
|
|
|
|
|
|
|
|
2,794
|
|
|
444
|
|
Accrued expenses and other liabilities
|
|
|
390,607
|
|
|
268,405
|
|
|
|
|
|
|
|
|
659,012
|
|
|
104,706
|
|
Current portion of long-term debt
|
|
|
9,182
|
|
|
|
|
|
|
|
|
|
|
|
9,182
|
|
|
1,459
|
|
Short-term loan
|
|
|
|
|
|
83,344
|
|
|
|
|
|
|
|
|
83,344
|
|
|
13,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
462,999
|
|
|
478,392
|
|
|
|
|
|
|
|
|
941,391
|
|
|
149,572
|
|
Long-term debt
|
|
|
7,382
|
|
|
|
|
|
|
|
|
|
|
|
7,382
|
|
|
1,173
|
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
313,555
|
|
|
(m)
|
|
|
313,555
|
|
|
49,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
470,381
|
|
|
478,392
|
|
|
313,555
|
|
|
|
|
|
1,262,328
|
|
|
200,564
|
|
Total shareholders' equity
|
|
|
4,205,177
|
|
|
1,214,101
|
|
|
6,107,903
|
|
|
(n)
|
|
|
11,527,181
|
|
|
1,831,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
4,675,558
|
|
|
1,692,493
|
|
|
6,421,458
|
|
|
|
|
|
12,789,509
|
|
|
2,032,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
reporting currency of Youku is Renminbi, but for the convenience of the reader, the amounts presented throughout the Statements are in US
dollars. Unless otherwise noted, all conversions from RMB to US$ are made at a rate of RMB6.2939 to US$1.00, the effective noon buying rate as of December 30, 2011 in the City of New York for
cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted into US$ at
such rate.
45
Table of Contents
Notes To Unaudited Pro Forma Condensed Combined Financial Statements
Note 1. Description of The Transaction
On March 11, 2012, Youku and Tudou signed the Merger Agreement for Tudou to combine with Youku in a 100% stock-for-stock transaction. Under the terms of
the Merger Agreement, each Tudou Class A share and Class B share issued and outstanding immediately prior to the effective time of the Merger will be cancelled in exchange for the right
to receive 7.177 Youku Class A shares, and each Tudou ADS will be surrendered in exchange for the right to receive 1.595 Youku ADS, which will result in Youku shareholders and ADS holders
owning approximately 71.5% of the combined entity upon completion of the Merger and Tudou shareholders and ADS holders owning approximately 28.5%. Upon completion of the Merger, the combined entity
will be named "Youku Tudou Inc." Youku's ADSs will continue to be listed on the NYSE under the symbol "YOKU".
Note 2. Basis of Pro Forma Presentation
The Statements have been derived from the audited historical consolidated financial statements of Youku and Tudou. Certain financial statement line items included in Tudou's historical
presentation have been disaggregated or condensed to conform to corresponding financial statement line items included in Youku's historical presentation. These include: business taxes, share based
compensation
expenses, selling and general administrative expenses relating to product development, professional content licensed, and intangible assets related to purchased software.
Additionally,
based on Youku's review of Tudou's publicly disclosed summary of significant accounting policies and preliminary discussions with Tudou management, the nature and amount of
any adjustments to the historical financial statements of Tudou to conform its accounting policies to those of Youku are not expected to be material. Prior to and following the completion of the
Merger, further review of Tudou's accounting policies and financial statements may result in revisions to Tudou's policies and classifications to conform to those of Youku, which could have a material
impact on Youku's actual future financial condition and results of operations as compared to the Pro Forma Balance Sheet and Pro Forma Statement of Operations included in this joint proxy
statement/prospectus.
The
Merger is reflected in the Statements as an acquisition of Tudou by Youku using the acquisition method of accounting in accordance with business combination accounting guidance under
U.S. GAAP. Under these accounting standards, the total estimated purchase price will be calculated as described in Note 3 to the Statements, and the assets acquired and the liabilities
assumed will be measured at estimated fair value. For the purpose of measuring the estimated fair value of the assets acquired and liabilities assumed, Youku has applied the accounting guidance under
U.S. GAAP for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants as of the measurement date. The fair value measurements utilize estimates based on key assumptions in connection with the Merger, including historical and current market data. The
unaudited pro forma adjustments included in this joint proxy statement/prospectus are preliminary and will be revised at the effective time of the Merger as additional information becomes available
and as valuation work is performed. The final purchase price allocation will be determined after the completion of the Merger, and the final allocations may differ materially from those presented.
Note 3. Estimate of Consideration Expected To Be Transferred
Based on a Youku ADS price of US$24.78, the closing price of the Youku ADSs on the NYSE on
April 13, 2012 (the most recent practicable date), and the number of Tudou shares and Tudou share options to purchase Tudou shares outstanding at December 31, 2011, the total dollar
value of the
46
Table of Contents
Note 3. Estimate of Consideration Expected To Be Transferred (Continued)
merger
consideration to be delivered to all Tudou shareholders and ADS holders in the Merger would have been approximately RMB7.3 billion (US$1.2 billion). Changes in Youku ADS price, or
the number of Tudou shares and Tudou share options to purchase Tudou shares at the closing of the Merger could result in material differences in the purchase consideration and, thus, the purchase
price and related purchase price allocation.
The
following is a preliminary estimate of the total dollar value of the merger consideration to be delivered to all Tudou shareholders and ADS holders in the Merger:
|
|
|
|
|
|
|
|
|
|
RMB
|
|
US$
|
|
|
|
(In thousands)
|
|
To Tudou shareholders*
|
|
|
7,053,636
|
|
|
1,120,710
|
|
|
|
|
|
|
|
To holders of outstanding Tudou share options**
|
|
|
289,638
|
|
|
46,019
|
|
|
|
|
|
|
|
Total consideration
|
|
|
7,343,274
|
|
|
1,166,729
|
|
|
|
|
|
|
|
-
*
-
The
estimated fair value of Youku shares issued to Tudou shareholders is based on the closing price of Youku ADS on the NYSE on April 13, 2012.
-
**
-
Youku
will issue the replacement share options. These options have a preliminarily estimated fair value of RMB334.5 million (US$53.1 million),
RMB289.6 million (US$46.0 million) of which is attributable to pre-combination services and included as component of the consideration to be transferred in the Merger.
The
above estimate does not purport to represent the actual value of the total purchase consideration that will be received by Tudou's shareholders and ADS holders when the Merger is
completed. In accordance with U.S. GAAP, the fair value of equity securities issued as part of the Merger
Consideration will be measured on the acquisition date of the Merger at the then-current market price.
This
requirement will likely result in a per ADS value component different from the US$24.78 assumed in these Statements and that difference may be material. For example, an increase or
decrease of 10% in the price of Youku ADS on the acquisition date of the Merger from the price of Youku ADSs assumed in the Statement would increase or decrease the value of the purchase consideration
by approximately RMB734 million (US$117 million), which would be reflected in the Statements as an equivalent increase or decrease to goodwill.
The
allocation of the preliminary purchase price to the fair values of assets to be acquired and liabilities to be assumed in the Merger includes unaudited pro forma adjustments to
reflect the expected fair values of Tudou's assets and liabilities as of December 31, 2011. The allocation of the preliminary purchase price is as follows:
|
|
|
|
|
|
|
|
|
|
RMB
|
|
US$
|
|
|
|
(In thousands)
|
|
Total tangible assets acquired
|
|
|
1,462,230
|
|
|
232,325
|
|
Total intangible assets acquired
|
|
|
1,474,483
|
|
|
234,272
|
|
Goodwill
|
|
|
5,198,508
|
|
|
825,960
|
|
Total liabilities assumed
|
|
|
(791,947
|
)
|
|
(125,828
|
)
|
|
|
|
|
|
|
Total estimated purchase consideration
|
|
|
7,343,274
|
|
|
1,166,729
|
|
|
|
|
|
|
|
47
Table of Contents
Note 3. Estimate of Consideration Expected To Be Transferred (Continued)
No
assurances can be provided as to the actual purchase price to be paid by Youku, the fair value of the assets to be acquired or the liabilities to be assumed in the Merger, or as to
the final allocations of the purchase price. Any differences from those presented in the Statements could be material.
Note 4. Adjustments To Unaudited Pro Forma Condensed Combined Financial Statements
Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations
(a) Business taxes
The
historical net revenues of Tudou for the year ended December 31, 2011 were recorded net of business taxes. The adjustment of RMB60.4 million was to record Tudou's
business taxes in revenue and cost of revenues to conform to Youku's presentation.
(b) Cost of revenues
Adjustments
to cost of revenues for the year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
RMB
|
|
US$
|
|
|
|
(In thousands)
|
|
To adjust amortization expense for newly identified intangible assets
|
|
|
(10,267
|
)
|
|
(1,631
|
)
|
To adjust share-based compensation expense of assumed Tudou options
|
|
|
2,434
|
|
|
387
|
|
To reclassify business tax to cost of revenues
|
|
|
(60,418
|
)
|
|
(9,599
|
)
|
To reduce amortization expense to reflect the lower basis of acquired licensed contents
|
|
|
2,925
|
|
|
465
|
|
To increase amortization expense to reflect the higher basis of acquired capitalized content production costs
|
|
|
(1,886
|
)
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
(67,212
|
)
|
|
(10,677
|
)
|
|
|
|
|
|
|
(c) Product development expenses
Adjustments
to product development expenses for the year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
RMB
|
|
US$
|
|
|
|
(In thousands)
|
|
To adjust amortization expense for newly identified intangible assets
|
|
|
(4,671
|
)
|
|
(742
|
)
|
To adjust share-based compensation expense of assumed Tudou options
|
|
|
(1,072
|
)
|
|
(170
|
)
|
To reclassify certain sales and marketing expense to product development expenses to conform to Youku's presentation
|
|
|
(38,360
|
)
|
|
(6,095
|
)
|
|
|
|
|
|
|
|
|
|
(44,103
|
)
|
|
(7,007
|
)
|
|
|
|
|
|
|
48
Table of Contents
Note 4. Adjustments To Unaudited Pro Forma Condensed Combined Financial Statements (Continued)
(d) Sales and marketing expenses
Adjustments
to sales and marketing expenses for the year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
RMB
|
|
US$
|
|
|
|
(In thousands)
|
|
To adjust share-based compensation expense of assumed Tudou options
|
|
|
16,029
|
|
|
2,547
|
|
To reclassify certain sales and marketing expense to product development expenses to conform to Youku's presentation
|
|
|
38,360
|
|
|
6,095
|
|
|
|
|
|
|
|
|
|
|
54,389
|
|
|
8,642
|
|
|
|
|
|
|
|
(e) General and administrative expenses
Adjustments
to general and administrative expenses for the year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
RMB
|
|
US$
|
|
|
|
(In thousands)
|
|
To adjust amortization expense for newly identified intangible assets
|
|
|
(11,307
|
)
|
|
(1,797
|
)
|
To adjust share-based compensation expense of assumed Tudou options
|
|
|
49,305
|
|
|
7,834
|
|
|
|
|
|
|
|
|
|
|
37,998
|
|
|
6,037
|
|
|
|
|
|
|
|
(f) Shares outstanding
The
unaudited pro forma adjustment reflects the issuance of approximately 814.1 million Youku Class A shares at the effective time of the Merger.
The
unaudited pro forma weighted average number of basic shares outstanding is calculated by adding Youku's weighted average number of basic shares outstanding for the period and the
number of Youku shares expected to be issued to Tudou shareholders of approximately 814.1 million in the Merger. The unaudited pro forma weighted average number of diluted shares outstanding is
calculated by adding Youku's weighted average number of diluted shares outstanding for the period and the number of Youku Class A shares expected to be issued in the Merger. Each outstanding
option to acquire Tudou shares issued under any of Tudou's share incentive plans, whether or not then vested or exercisable, will be cancelled and terminated at the effective time of the Merger in
exchange for the right receive 7.177 Youku Class A shares.
(g) Cash and cash equivalents
The
unaudited pro forma adjustment reflects a decrease in cash of RMB21.3 million for the estimated transaction-related costs.
(h) Content licensed and intangible assets
The
unaudited pro forma adjustment amount represents the reclassification of content licensed to intangible assets to conform with Youku's presentation and RMB1,257 million
(US$200 million) to recognize the newly identified and the step-up to the preliminary estimated fair value of Tudou's identifiable intangible assets of approximately
RMB205.9 million (US$32.7 million) as of December 31,
49
Table of Contents
Note 4. Adjustments To Unaudited Pro Forma Condensed Combined Financial Statements (Continued)
2011.
The adjustment also reflects a reclassification of purchased software licenses included in intangible assets to fixed assets to conform with Youku's presentation. The newly identified intangible
assets primarily consist of domain name, trademarks and online video licenses of RMB1,145 million (US$182 million), technology of RMB32.7 million (US$5.2 million), customer
relationships of RMB37.7 million (US$6.0 million), and user-generated content of RMB30.8 million (US$4.9 million). The domain name, trademarks and online video
licenses are expected to be indefinite-lived intangible assets. The estimated fair value of the amortizable intangible assets is expected to be amortized on a straight-line basis over
estimated useful lives that generally range from 1 to 7 years, subject to the finalization of the purchase price allocation.
(i) Capitalized content production costs
To
record the increased fair value of capitalized content production costs and to reclassify content production costs to non-current assets to conform to Youku's presentation.
(j) Property and equipment
The
unaudited pro forma adjustment amount represents reclassification of purchased software licenses included in intangible assets to fixed assets to conform with Youku's presentation.
(k) Goodwill
Goodwill
reflects the preliminary estimate of the excess of the purchase price to be paid by Youku over the fair value of Tudou's identifiable assets to be acquired and liabilities to be
assumed in the Merger (Note 3).
(l) Other noncurrent assets
The
unaudited pro forma adjustment reflects RMB10 million (US$1.6 million) valuation reserve against Tudou's other receivable from Tudou's revenue sharing program.
Subsequent to the issuance of its consolidated financial statements, Tudou's management expects that the program will be terminated in the near future. Therefore, the deposit of revenue sharing
program of RMB10 million is not expected to be recoverable.
(m) Deferred income tax liabilities
The
unaudited pro forma adjustment reflects the change in net deferred income taxes arising from fair value adjustments to Tudou's assets to be acquired and liabilities to be assumed by
Youku in the Merger. Deferred income taxes arising from the estimated fair value adjustments related to Tudou's identifiable intangible assets have been calculated based on Tudou' statutory tax rate
of 25%.
(n) Shareholders' equity
The
unaudited pro forma adjustment reflects the expected issuance of approximately 814.1 million of Youku Class A shares at the effective time of the Merger (based upon the
number of outstanding shares of Tudou as of December 31, 2011).
In
addition, accumulated deficit increased by RMB21.3 million (US$3.4 million) for estimated transaction costs. No material transaction costs had been expensed or accrued
by either Youku or Tudou in the historical financial statements.
50
Table of Contents
Note 4. Adjustments To Unaudited Pro Forma Condensed Combined Financial Statements (Continued)
Furthermore,
the unaudited pro forma adjustment reflects a non-recurring item relating to the replacement of options to purchase Tudou Class B shares with
options to purchase Youku Class A shares. According to Accounting Standards Codification ("ASC") 805,
Business Combinations
("ASC805"), to
determine the portion of a replacement award that is part of the consideration transferred for the acquiree, the acquirer shall measure both the replacement awards granted by the acquirer and the
acquiree awards as of the acquisition date in accordance with ASC 718,
CompensationStock Compensation
. The portion of the
fair-value-based measure of the replacement award that is part of the consideration transferred in exchange for the acquiree equals the portion of the acquiree award that is attributable
to pre-combination service. Therefore, any difference between Youku's issued replacement award and Tudou's award attributable to pre-combination service is charged to Youku's
post-combination financial statements on the date of replacement, or the acquisition date. The net impact of the adjustment is nil on the unaudited pro forma balance sheet.
Note 5. Restructuring Costs Related To Post-Merger Activities
As part of combining the two companies, Youku expects to incur restructuring costs during the year commencing with the closing of the Merger. The restructuring costs will be primarily
comprised of costs associated with canceling or reducing Tudou's existing purchase commitments, equipment and services. The Statements do not reflect adjustments related to these restructuring costs
as the management of Youku and Tudou are not able to estimate the amount of these costs at this time. Certain liabilities associated with these restructuring activities may be recognized in the
purchase price allocation upon completion of the Merger in accordance with ASC 805, which specifies that an acquirer would recognize a liability for restructuring or exit activities associated with
the target company in a business combination only if the recognition criteria in ASC 420, Exit or Disposal Cost Obligations, are met by the acquirer at the acquisition date.
51
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HISTORICAL AND PRO FORMA PER SHARE DATA
The following table presents, for the year ended December 31, 2011, selected historical per share and per ADS data of Youku and
Tudou, as well as similar information reflecting the combination of Youku and Tudou as if the proposed Merger had occurred on January 1, 2011 and as a result was effective for the period
presented, which we refer to as "pro forma combined" information. The pro forma combined Tudou equivalent per ADS data presented below is calculated by multiplying the pro-forma
consolidated per share data by the ADS Exchange Ratio of 1.595 Youku ADS.
The
pro forma combined information is derived from the unaudited pro forma condensed combined financial information as set forth in "Unaudited Pro Forma Condensed Combined
Financial
Information" beginning on page 43 of this joint proxy statement/prospectus and is provided for informational purposes only and is not necessarily an indication of the results that would have
been achieved had the proposed Merger been completed as of the date indicated or that may be achieved by the combined company in the future. The December 31, 2011 selected comparative per share
and per ADS information of Youku and Tudou set forth below has been derived from the respective audited consolidated financial statements. You should read the information in this section along with
the historical consolidated financial statements of Youku and Tudou, respectively, and accompanying notes for the periods referred to above included in the documents described under "Where You Can
Find More Information" and "Incorporation of Certain Documents by Reference" on pages 252 and 253, respectively.
The
audited historical consolidated financial statements for Youku and Tudou have been prepared in accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2011
|
|
|
|
|
|
Per share
|
|
Per ADS
|
|
|
|
|
|
(Unaudited)
|
|
Basic loss per share/ADS
|
|
|
|
|
|
|
|
|
|
|
Youku historical
|
|
US$
|
|
|
|
(0.01
|
)
|
|
(0.25
|
)
|
Tudou historical
|
|
US$
|
|
|
|
(1.67
|
)
|
|
(6.68
|
)
|
Pro forma combined
|
|
US$
|
|
|
|
(0.04
|
)
|
|
(0.67
|
)
|
Pro forma combined Tudou equivalent
(1)
|
|
US$
|
|
|
|
(0.27
|
)
|
|
(1.07
|
)
|
Diluted loss per share/ADS
|
|
|
|
|
|
|
|
|
|
|
Youku historical
|
|
US$
|
|
|
|
(0.01
|
)
|
|
(0.25
|
)
|
Tudou historical
|
|
US$
|
|
|
|
(1.67
|
)
|
|
(6.68
|
)
|
Pro forma combined
|
|
US$
|
|
|
|
(0.04
|
)
|
|
(0.67
|
)
|
Pro forma combined Tudou equivalent
(1)
|
|
US$
|
|
|
|
(0.27
|
)
|
|
(1.07
|
)
|
Cash Dividends per share/ADS
|
|
|
|
|
|
|
|
|
|
|
Youku historical
|
|
US$
|
|
|
|
|
|
|
|
|
Tudou historical
|
|
US$
|
|
|
|
|
|
|
|
|
Pro forma combined
(2)
|
|
US$
|
|
|
|
|
|
|
|
|
Pro forma combined Tudou equivalent
(1)
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2011
|
|
|
|
|
|
Per share
|
|
Per ADS
|
|
|
|
|
|
(Unaudited)
|
|
Book value per share/ADS
|
|
|
|
|
|
|
|
|
|
|
Youku historical
|
|
US$
|
|
|
|
0.34
|
|
|
6.03
|
|
Tudou historical
|
|
US$
|
|
|
|
3.85
|
|
|
15.41
|
|
Pro forma combined
|
|
US$
|
|
|
|
0.65
|
|
|
11.74
|
|
Pro forma combined Tudou equivalent
(1)
|
|
US$
|
|
|
|
4.68
|
|
|
18.73
|
|
-
(1)
-
Tudou
equivalent figures are calculated by multiplying the pro forma consolidated per share data by the Share Exchange Ratio of 7.177 and per
ADS data by the ADS Exchange Ratio of 1.595 Youku ADS.
-
(2)
-
For
purposes of determining the pro forma combined dividend per ADS, Youku assumed that its dividend policy would not change because of the
Merger. As a result, the pro forma combined dividend per ADS amounts are identical to the Youku historical dividend per ADS amounts.
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RISK FACTORS
Investing in Youku shares or Youku ADSs involves risks, some of which are related to the Merger. In considering the proposed Merger,
you should carefully consider the following information about these risks, as well as the other information included in or incorporated by reference into this joint proxy statement/prospectus,
including Youku's annual report for the year ended December 31, 2011 and the extensive risk factors relating to the businesses of Youku described in the Youku annual report beginning on
page 5. The business of Youku as well as its financial condition or results of operations could be materially adversely affected by any of these risks, as well as other risks and uncertainties
not currently known to Youku or not currently deemed to be material.
Please
see "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference" on pages 252 and 253, respectively, for information on where you can find the
documents Youku has filed with or furnished to the SEC and which are incorporated into this joint proxy statement/prospectus by reference.
Risks Related to the Merger and the Combined Business
The market price of the Youku ADSs may decline following the completion of the Merger or during the period of time between the Tudou AGM and the date on which Tudou
shareholders and Tudou ADS holders actually receive Youku Class A shares and Youku ADSs pursuant to the Merger Agreement.
At the effective time of the Merger, (1) each outstanding Tudou share will be converted into the right to receive fixed
consideration consisting of 7.177 Youku Class A shares, and (2) each outstanding Tudou ADS will be converted into the right to receive fixed consideration consisting of 1.595 Youku ADS;
provided that the Excluded Tudou Shares shall automatically be cancelled and shall cease to exist, and no consideration shall be delivered or deliverable in exchange therefore, and the Dissenter
Shares will be cancelled for the appraised or agreed value under the Cayman Companies Law.
In
regards to the Youku Class A share and Youku ADS portion of the Merger Consideration to be delivered to Tudou shareholders and Tudou ADS holders, respectively, under the Merger
Agreement, the Share Exchange Ratio of 7.177 and the ADS Exchange Ratio of 1.595 are fixed and will not be adjusted to reflect changes in the market value of Youku ADSs.
The
market price of Youku ADSs may decline at any time following the completion of the Merger if, among other reasons:
-
-
the synergies expected by Youku and Tudou across a number of areas, including leveraging licensed content over a larger
user base and realizing efficiencies in bandwidth management and other common expenses, are not achieved;
-
-
the effect of the Merger with Tudou on the financial results of Youku is not consistent with the expectations of financial
analysts or investors; or
-
-
Tudou ADS holders sell a significant number of Youku ADSs after consummation of the Merger, or Tudou shareholders who
receive Youku Class A shares under the Merger Agreement later sell a significant number of Youku ADSs in the open market.
In
addition, the market price of the Youku ADSs may fluctuate or decline during the period of time between the Tudou AGM and the date on which Tudou shareholders and Tudou ADS holders
entitled to receive Youku Class A shares and Youku ADSs, respectively, pursuant to the Merger Agreement, actually receive Youku Class A shares and Youku ADSs. These fluctuations may be
caused by changes in the businesses, operations, financial results and prospects of Youku and Tudou, market expectations of the likelihood that the Merger will be completed and the timing of the
completion of the Merger, general market and economic conditions or other factors. At the time they cast their votes regarding the authorization and approval of the Merger Agreement, Tudou
shareholders and ADS
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holders
will not know the actual market value of the Youku Class A shares and Youku ADSs they will receive when the Merger is finally completed. The actual market value of the Youku
Class A shares and Youku ADSs, when received by Tudou shareholders and Tudou ADS holders, will depend on the market value of those Youku Class A shares and Youku ADSs on that date. This
market value may be less than the value of the Youku Class A shares and Youku ADSs at the time the Merger Agreement was signed or when the Tudou AGM is held.
Youku and Tudou may not achieve the expected benefits of the proposed Merger.
Youku and Tudou entered into the Merger Agreement with the expectation that the proposed Merger will result in various benefits. See
"The MergerReasons for the Merger and Recommendation of the Youku Board" and "The MergerReasons for the Merger and Recommendation of the Tudou Board." Some of those benefits
may not be achieved or, if achieved, may not be achieved in the time frame in which they are expected. Whether these anticipated benefits are realized depends on future events and circumstances, some
of which are beyond the parties' control. For example, Youku's future growth in revenues, earnings and cash flow will partly depend on future economic conditions and conditions in the Internet
television industry in China. In addition, the potential synergies that Youku and Tudou anticipate due to an integration of the two companies may not be realized.
Youku and Tudou will incur transaction and integration costs in connection with the Merger.
Youku and Tudou have incurred, and expect to continue to incur, significant costs in connection with the Merger. Youku will also incur
integration costs following the completion of the Merger as Tudou's operations are integrated with Youku's operations. The synergies expected to arise from the Merger across a number of areas,
including leveraging licensed content over a larger user base and realizing efficiencies in bandwidth management and other common expenses, may not be achieved in the near term or at all, and if
achieved, may not be sufficient to offset the costs associated with the Merger. Unanticipated costs, or the failure to achieve such expected improvement, may have an adverse impact on the results of
operations of the combined company following the completion of the Merger.
Failure to timely complete the proposed Merger could disrupt Youku's and Tudou's business plans and operations.
Although Youku and Tudou expect to complete the Merger promptly after receiving Tudou shareholder approval and Youku shareholder
approval at their respective AGMs, the transaction is subject to certain customary closing conditions. The companies' inability to complete the Merger on the expected schedule or at all would likely
disrupt their operations and require the companies to revise their respective business plans, and could otherwise have a material adverse effect on each company's business and on the trading price of
each company's ADSs. Moreover, if the Merger is not completed, both companies will be subject to several risks, including having to pay certain costs relating to the Merger, the possibility of one of
the parties needing to pay a significant termination fee to the other party, and the management teams of Youku and Tudou having their focus diverted from pursuing other opportunities that could be
beneficial to Youku or Tudou, in each case, without realizing any of the benefits that might have resulted had the Merger been completed.
Certain directors and executive officers of Tudou have agreements and arrangements that may result in their having interests in the Merger different from, or in addition to,
those of Tudou shareholders generally.
In considering the recommendation of the Tudou Board to Tudou shareholders to approve the Merger, Merger Agreement and Plan of Merger,
Tudou shareholders should be aware that certain members of the Tudou Board and certain executive officers of Tudou have agreements and
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arrangements
which may result in their having interests in the Merger different from, or in addition to, those of Tudou shareholders generally, including treatment of Tudou share options in the Merger
for certain directors and executive officers of Tudou including Mr. Gary Wei Wang and board representation rights on the Youku Board for Mr. Gary Wei Wang and an individual appointed by
GGV II Delaware L.L.C., one of the principal shareholders of Tudou. The Tudou Board was aware of these agreements and arrangements during its deliberations of the merits of the Merger and in
determining to recommend that Tudou shareholders approve the Merger, Merger Agreement and Plan of Merger. Please see "The MergerInterests of Tudou's Directors and Executive Officers in
the Merger" beginning on page 122 for more information.
The unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus is preliminary and the actual financial condition and
results of operations after the merger may differ materially.
The unaudited pro forma condensed combined financial information in this joint proxy statement/prospectus is presented for illustrative
purposes only and is not necessarily indicative of what Youku's actual financial condition or results of operations would have been had the Merger been completed on the dates indicated. The pro forma
condensed combined financial information reflects adjustments, which are based upon preliminary estimates, to record the Tudou identifiable assets acquired and liabilities assumed at fair value and
the resulting goodwill recognized. The purchase price allocation reflected in this joint proxy statement/prospectus is preliminary, and final allocation of the purchase price will be based upon the
actual purchase price and the fair value of the assets and liabilities of Youku as of the date of completion of the Merger. Accordingly, the final acquisition accounting adjustments may differ
materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. For more information, see "Unaudited Pro Forma Condensed Combined Financial Information" beginning on page
43.
Risks Related to Tudou
Tudou has a history of net losses and negative operating cash flow and may incur net losses and negative operating cash flow in the future.
Tudou incurred net losses of RMB144.8 million, RMB347.4 million and RMB511.2 million (US$81.2 million) in
2009, 2010 and 2011, respectively, and it may incur losses in the future. In addition, Tudou incurred negative cash flow from operations of RMB94.8 million and RMB98.8 million in 2009
and 2010, respectively. Although Tudou achieved positive cash flow from operations of RMB1.5 million (US$0.2 million) in 2011, it expects its expenses to increase as it expands its
operations, primarily in connection with leasing Internet bandwidth, acquiring premium licensed content, developing and producing content in-house, and undertaking sales and marketing
activities.
Tudou's
ability to achieve profitability and positive operating cash flow depends on the growth of the online video industry and the online advertising market, the acceptance of its
online video content by its users, the growth of its user base, its ability to control expenses, the expansion and effectiveness of its subscription fee-based and per-clip
based mobile video services, its ability to attract and retain advertisers and advertising agencies, and its ability to provide new advertising services to meet the demands of advertisers. Tudou may
not be able to achieve or sustain profitability or positive operating cash flow, and if Tudou achieves positive operating cash flow, those cash flows may not be enough to satisfy its capital
expenditures and other cash needs.
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Tudou is a relatively young company facing risks and uncertainties associated with operating in the rapidly developing and evolving online video industry. Its limited
operating history makes evaluating its business and prospects difficult.
Tudou launched its website in 2005. As a relatively early-stage company in the new and rapidly evolving Chinese online video industry,
it faces numerous risks and uncertainties. Some of these risks relate to its ability to:
-
-
attract a large audience by expanding its online video content library and enhancing its user experience;
-
-
raise its brand awareness and increase its user loyalty;
-
-
maintain and develop relationships with advertisers and advertising agencies;
-
-
acquire premium licensed content at a commercially acceptable costs;
-
-
offer innovative advertising services;
-
-
maintain and develop relationships with China Mobile and other telecommunication operators to build its mobile video
business;
-
-
attract and retain qualified personnel; and
-
-
successfully adapt its business model to changes in this new and rapidly evolving industry.
You
should consider Tudou's business and prospects in light of the risks and uncertainties it faces as a relatively early-stage company operating in a rapidly evolving market. Tudou may
not be successful in addressing the risks and uncertainties listed above, which may materially adversely affect its business prospects.
Tudou faces uncertainties regarding the growth of the online video industry and user acceptance of its online video content, which could adversely affect its revenues and
prospects.
The growth of the online video industry and online advertising services from which Tudou derives most of its revenues, as well as the
level of demand and market acceptance of its services, are subject to uncertainties and numerous other factors, some of which are beyond Tudou's control. These uncertainties and factors include but
are not limited to:
-
-
general economic conditions, particularly economic conditions adversely affecting consumer spending and spending on
advertising;
-
-
the growth of Internet usage and penetration in China, and the rate of any such growth;
-
-
government regulation of the Internet industry, particularly the online video industry;
-
-
competition between online video and traditional media formats, such as television;
-
-
the popularity and price of online advertising services that Tudou and its competitors launch and distribute; and
-
-
changes in user demographics, tastes and preferences.
A
decline in the popularity of online videos in general, or Tudou's website in particular, or a decline in its user base, will adversely affect its revenues and prospects.
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Tudou relies on online advertising sales for substantially all of its revenues. The online advertising market is subject to many challenges and uncertainties. If Tudou fails
to retain existing advertisers or attract new advertisers for its online advertising services, its business, results of operations and prospects could be seriously harmed.
In 2009, Tudou generated all, and in 2010 and 2011, it generated substantially all of its revenues from online advertising services.
The online advertising market continues to evolve in China. Many advertisers have limited experience with the Internet as an advertising medium, have not traditionally devoted significant advertising
expenditures to online advertising and may not find the Internet to be effective for promoting products and services.
Advertising
agencies also have limited experience in procuring online video advertising for advertisers. If the Internet does not become more widely accepted as a medium for advertising,
Tudou's ability to increase its revenues could be negatively affected.
Tudou's
ability to generate and maintain substantial advertising revenues depends on a number of factors, many of which are beyond its control, including but not limited
to:
-
-
the development and retention of a large user base with demographics attractive to advertisers;
-
-
the acceptance of online advertising as an effective way for advertisers to market their businesses;
-
-
the maintenance and enhancement of its brand;
-
-
increased competition, potential downward pressure on online advertising prices and limitations on its advertising space;
-
-
the development of independent and reliable means of measuring traffic and verifying the effectiveness of its online
advertising inventory;
-
-
the popularity of new content and content distribution channels that it develops;
-
-
its ability to access content that users want to view, including its ability to upload video clips; and
-
-
its ability to achieve continued success with innovative advertising services.
Advertisers
and advertising agencies will not do business with Tudou if they believe advertising spending on Tudou's website will not generate sales to end customers, or if Tudou does
not deliver advertisements in an appropriate and effective manner. In addition, third parties may develop certain technologies to block the display of advertisements and other marketing products on
Tudou's website, which may in turn cause Tudou to lose advertisers and adversely affect its operating results. Moreover, changes in government policy could restrict or curtail Tudou's online
advertising services. Failure to retain existing advertisers or attract new advertisers for Tudou's online marketing services could materially harm its business, results of operations and growth
prospects.
Tudou's business depends on a strong brand, and if it is not able to maintain and enhance its brand, or if it fails to protect its brand against unauthorized use by third
parties, its business and operating results may be harmed.
The brand "Tudou" is one of the most recognized online video brands in China according to iResearch, and Tudou's strong brand has
contributed significantly to the success and rapid growth of its business. Tudou also believes that maintaining and enhancing the "Tudou" brand is critical to increasing users and advertisers. As
Tudou's market becomes increasingly competitive,
maintaining and enhancing its brand will depend on its ability to retain a leading position in the online video industry in China.
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Historically,
Tudou developed its user base primarily by word-of-mouth and incurred limited brand promotion expenses. Positive user experience and media coverage
in recent years have significantly enhanced its reputation and brand. Tudou has also conducted marketing and brand promotion activities in recent years, but it cannot assure you that these activities
will achieve expected results. Tudou relies on trademark law, company brand name protection policies and agreements with its employees, advertisers, advertising agencies, business partners and others
to protect its brand. Despite such precautions, it may be unable to prevent third parties from using its brand without authorization.
Tudou
owns 54 registered trademarks in China and is applying for 42 additional trademarks in China. In addition, Tudou and Youku have jointly applied for 21 trademark registrations in
China. Tudou cannot assure you that such trademark applications will be accepted. As a result, it may be unable to prevent third parties from utilizing such brand names in relevant areas, which could
materially adversely impact its brand image. Moreover, if any third party successfully registers any trademark Tudou uses, that party may challenge Tudou's use of that trademark and brand name and
Tudou may face trademark infringement claims.
Tudou
regards its brand as critical to its success. Failure to maintain or enhance the recognition of the "Tudou" brand, or to protect the brand against unauthorized use by third
parties, would materially adversely affect its business and results of operations. In addition, any negative publicity about Tudou or its online video content and services, whether or not true, could
harm its brand image and adversely affect its business and operating results.
Tudou faces significant competition and may be unable to compete successfully against its competitors, which would materially adversely affect its business and results of
operations.
China's online video industry is competitive and Tudou faces competition from many independent online video websites, large Chinese
Internet companies and major TV websites. Prior to the completion of the Merger, Youku has been one of Tudou's major competitors. In addition, large Chinese Internet companies, including Shanda
Interactive Entertainment, SINA Corporation, Baidu, Inc., Sohu.com Inc., Tencent Holdings Limited, NetEase.com, Inc., Renren Inc. and/or their respective affiliates, have
launched online video websites. Some of China's major TV networks, such as China Central Television, or CCTV, Phoenix Satellite TV and Hunan Satellite TV, have also
launched online video websites. Moreover, Tudou potentially competes with software-based streaming video sites.
Tudou
competes with the foregoing entities on the basis of brand recognition, demographic composition of viewers, technology platform, ability to provide innovative advertising services
to advertisers and advertising agencies, relationships with advertisers and advertising agencies, and advertising prices. It also competes based on its ability to source creative
user-generated content, or UGC, acquire popular premium licensed content at reasonable costs and create quality content developed in-house.
Some
of Tudou's competitors have significantly greater financial resources, longer operating histories or more experience in attracting and retaining users and managing relationships
with advertisers and advertising agencies. They may compete with Tudou for users, advertisers, advertising agencies and strategic content partners in a variety of ways, including by investing in
content procurement and improving the features and functionality of their online video platforms. If any of Tudou's competitors provides a comparable or better user experience, Tudou's user traffic
could decline significantly. Any decline in traffic could weaken Tudou's brand and result in loss of advertisers, which would materially adversely affect its results of operations.
Tudou
also faces competition from other advertising media, such as television, radio, print media, billboards and other forms of outdoor media, for a share of advertisers' marketing
budgets. Large companies in China generally allocate, and will likely continue to allocate, most of their advertising budgets to traditional advertising media and only a small portion of their budgets
to online advertising
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and
other forms of advertising media. If these companies do not devote a larger portion of their advertising budgets to online advertising services provided by Tudou, Tudou's advertisers reduce the
amount they spend on online advertising or advertising agencies do not procure Tudou's services for advertisers, Tudou's results of operations and growth prospects could be adversely affected.
Tudou has been, and expects to continue to be, exposed to intellectual property infringement and other claims in China, including claims based on content posted on its
website, which could be time-consuming and costly to defend and may result in substantial damages or court orders that prevent it from providing its existing services.
Tudou's success depends on its ability to operate its business without infringing third-party rights, including third-party
intellectual property rights. Companies in the Internet, technology and media industries own and seek to obtain, patents, copyrights, trademarks and trade secrets, and are frequently involved in
litigation based on allegations of infringement or other violations of intellectual property rights or related legal rights. Patents issued or pending that are held by others may cover significant
aspects of Tudou's technologies, products, business methods or services. Tudou's platform is open to Internet users for uploading video clips. As a result, content posted by Tudou's users may expose
Tudou to allegations by third parties of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of third-party rights.
Pursuant
to Tudou's user agreement, users agree not to use Tudou's services in a way that is illegal or obscene or that would otherwise violate generally accepted codes of ethics.
Tudou's user agreement also requires that users have the right to, or the license to use, the content they upload to Tudou's website and users agree to be solely liable for all legal liabilities with
respect to such content. Although Tudou has established procedures to enable copyright owners to notify Tudou of alleged infringement and has implemented a video fingerprint system to identify
infringing content, given the volume of content uploaded, it is not commercially feasible to identify and remove all potentially infringing content uploaded by users.
Third
parties may take action and file claims against Tudou if they believe that certain content on its site violates their copyrights or other related legal rights. Tudou has been
subject to such claims in the PRC. It was subject to a total of 119, 201 and 332 lawsuits in China for alleged copyright infringement in 2009, 2010 and 2011, respectively. Approximately 67.6% of the
lawsuits filed from January 1, 2009 through December 31, 2011 were rejected by relevant PRC courts, withdrawn by the plaintiffs or settled by the parties. For those cases Tudou lost or
settled, it paid damages in an aggregate amount of approximately RMB0.3 million, RMB1.5 million and RMB1.5 million (US$0.3 million) in 2009, 2010 and 2011, respectively.
Although
Tudou has established screening processes in an attempt to filter out popular movie titles featured in Chinese cinema and is implementing a video fingerprint system to identify
infringing content, it may not successfully filter out all potentially infringing content uploaded by users. Therefore, Tudou anticipates that copyright infringement claims against it in the PRC will
continue to arise.
Although
Tudou's license agreements with licensors of premium licensed content require that the licensors have the legal right to license such content, Tudou cannot ensure that each
licensor has such authorization. If any purported licensor does not actually have authorization relating to the premium licensed content or right to license a work of authorship provided to Tudou,
Tudou may be subject to
claims of copyright infringement from third parties, and Tudou cannot assure that the relevant licensor will indemnify it for all losses it may incur from such claims.
Since
2005, relevant PRC government authorities have launched annual campaigns aimed to crack down on Internet copyright infringement and piracy, which normally last for three to four
months. In the past, government authorities shut down several websites engaging in copyright infringement and piracy during such campaigns. Given the large volume of content uploaded by its users,
Tudou cannot
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identify
and remove all potentially infringing content on its website, and it may be subject to penalties in such campaigns. In serious cases, PRC authorities could revoke the operating permits of the
websites engaging in illegal activities.
Tudou
may also face litigation or administrative actions in the PRC for defamation, negligence or other injuries resulting from the content it provides or the nature of its services.
Such litigation and administrative actions, regardless of merit, may be expensive and time-consuming and divert resources and management attention from Tudou's operations. Furthermore,
such litigation or administrative actions may adversely affect Tudou's brand image and reputation.
Tudou is exposed to intellectual property infringement and other claims in the United States or other jurisdictions
Although Tudou has not previously been subject to legal actions for copyright infringement in jurisdictions other than the PRC, it may
be subject to such actions in the future. These other jurisdictions may impose different protections for copyrights, and the claims may result in potentially larger damage awards than have been
imposed in the PRC. For example, although Tudou's operations are in the PRC and its site targets audiences in Asia, its site includes some English-language content and is accessible by users in the
U.S. and elsewhere. A U.S. court may determine that such court has jurisdiction over Tudou for claims for U.S. copyrights.
Although
U.S. copyright laws, including the Digital Millennium Copyright Act (17 U.S.C. § 512), or the DMCA, provide safeguards from claims for monetary relief for
copyright infringement for certain entities that host user-uploaded content and that comply with specified statutory requirements, and although Tudou has taken steps to comply with the
DMCA "safe harbor" requirements, a U.S. court could conclude that such court has jurisdiction and that Tudou is not eligible for safeguards provided by the DMCA for infringement claims that occurred
prior to its
implementation of steps to comply with the DMCA. In addition, for infringement claims arising after Tudou's implementation of efforts to comply with DMCA safeguards, a U.S. court could conclude that
Tudou has not complied with all the statutory requirements necessary to qualify for safe harbor status. As a result, Tudou could be subject to copyright infringement claims in the U.S.
In
December 2010, Tudou received a letter sent on behalf of certain American entertainment companies (Twentieth Century Fox Film Corporation, Universal City Studios LLLP,
Viacom Inc., Paramount Pictures Corporation and Warner Bros. Entertainment Inc.) of alleged copyright infringement issues arising from its website. This letter did not specify any
particular acts of infringement or monetary losses allegedly suffered. Tudou has entered into a copyright protection agreement with these entertainment companies to develop certain copyright
protection measures, including filtering.
In
addition, Tudou has adopted procedures designed to improve its copyright protection policy and procedures, including implementing a video fingerprint system to identify infringing
content on a real-time basis. Tudou has not made any provision in its audited consolidated financial statements for this U.S. copyright infringement matter. However, these entertainment
companies could file a claim against Tudou. Any resulting litigation could be time consuming, costly and uncertain as to outcome. If these content owners successfully assert a claim for
copyright infringement, the liability could materially affect Tudou's business, financial condition and results of operations.
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Maintaining copyright protection controls may be costly and Tudou's business may be placed at a competitive disadvantage.
Some online video sites provide links to and host content on their websites that may infringe copyright rights or third-party rights.
Tudou has developed a digital identification system that codes video clips based on audio and video components and can identify video clips with codes similar to those on its in-house "black list" of
content. After receiving notice from copyright owners and licensees, Tudou typically updates its black list by adding notified copyrighted content, and removes any UGC matching the listed items.
Tudou's copyright policies and user agreement prohibit users from illegally uploading copyright-protected content to its website. In addition, Tudou allocates a significant portion of its working
capital to pay royalties for licensed content.
However,
none of the foregoing procedures can eliminate the risk of infringing or illegal material being posted on Tudou's website. Tudou's revenues from online advertising services may
not be sufficient to offset the cost of acquiring legally licensed content. At the same time, Tudou's competitors may be able to derive revenues from illegal content that requires little or no royalty
payment. Tudou's business may be placed at a disadvantage compared with competitors that incur lower operating expenses by offering illegal content or not monitoring their websites for such content.
Tudou may not be able to adequately protect its intellectual property rights, and any failure to protect its intellectual property rights could adversely affect its revenues
and competitive position.
Tudou believes that trademarks, trade secrets, patents, copyrights and other intellectual property it uses are important to its
business. Tudou relies on a combination of trademark, copyright, patent and trade secret protection laws in China and other jurisdictions, as well as confidentiality procedures and contractual
provisions to protect its intellectual property. Tudou has invested significant resources in developing its intellectual property and acquiring licenses to use and distribute the intellectual property
of others for its online video site. Failure to maintain or protect these rights could harm Tudou's business. In addition, any unauthorized use of Tudou's intellectual property by third parties may
adversely affect its revenues and its reputation.
The
validity, enforceability and scope of protection available under intellectual property laws with respect to the Internet industry in China are uncertain and evolving. Implementation
and enforcement of PRC intellectual property-related laws have historically been deficient and ineffective. Accordingly, protection of intellectual property rights in China may not be as effective as
in the United States or other Western countries.
Furthermore,
policing unauthorized use of proprietary technology is difficult and expensive, and Tudou may need to resort to litigation to enforce or defend patents issued to it or its
other intellectual property or to determine the enforceability, scope and validity of its proprietary rights or those of others. Such litigation and an adverse determination in any such litigation
could result in substantial costs and diversion of resources and management attention.
If Tudou fails to innovate and provide high-quality online video content to attract users, it may not be able to generate sufficient user traffic to remain
competitive.
Tudou's success depends on providing online video content that enables users to have a high-quality online video viewing experience.
Tudou needs to closely track evolving user tastes and preferences for online video services to maintain and grow its user base and to sell advertising services. In order to attract and retain users
and compete effectively, Tudou must invest significant resources in Internet bandwidth and content and the features and functionality of its online video platform.
Historically,
Tudou has successfully encouraged its users to upload UGC that is attractive to its user base. However, it cannot assure you that it will succeed in motivating its users to
upload appealing
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UGC.
Furthermore, Tudou cannot assure you that its UGC support programs, such as talent development and training programs and monetary reward programs, will incentivize its UGC producers to upload
popular UGC. In addition to licensing UGC, Tudou licenses premium content from third parties. If Tudou is not able to license popular premium content at commercially reasonable prices, or its desired
premium content becomes exclusive to its competitors, the attractiveness of its website to users will diminish.
Tudou
also produces content in-house, and plans to invest significant resources in producing content. Since October 2010, Tudou has produced six series, including "Made for Internet"
drama series, micro-movies and variety shows, which have received over 200 million video views to date. However, user tastes and preferences change quickly. If Tudou is unable to anticipate
user preferences or industry changes, or if it is unable to select premium licensed content or produce in-house content to meet user tastes and preferences on a timely basis, it may lose users and its
operating results may suffer. Moreover, Tudou's competitors may be able to offer a video viewing experience that is better than what it offers, forcing Tudou to expend significant resources to remain
competitive.
Tudou depends on a limited number of advertisers for its revenues. Failure to maintain relationships with these advertisers may cause significant fluctuations or declines in
its revenues.
Tudou depends on a limited number of advertisers for a significant portion of its revenues. Its top 10 advertisers accounted for
approximately 29.6%, 21.8% and 22.1% of its net revenues in 2009, 2010 and 2011, respectively. Tudou does not maintain long-term contracts or exclusive arrangements with advertisers, and competition
for these advertisers is intense.
Tudou
cannot assure you that it can maintain its relationships with its advertisers. Tudou anticipates that its dependence on a limited number of advertisers will continue for the
foreseeable future. Tudou's failure to maintain relationships with these advertisers could materially adversely affect its business, financial condition, results of operations and prospects.
Tudou relies on advertising agencies for substantially all of its sales. Its failure to maintain and enhance relationships with advertising agencies could materially
adversely affect its margins. In addition, the consolidation of advertising agencies in China could increase the bargaining power of larger advertising agencies, which may adversely affect Tudou's net
revenues.
As is customary in the advertising industry in China, Tudou typically enters into advertising contracts with third-party advertising
agencies. In China's advertising industry, advertising agencies typically have longstanding relationships with the advertisers they represent. Tudou intends to utilize its advertising agencies'
relationships and network to increase its sales and expand its advertiser base. Tudou relies on third-party advertising agencies for substantially all of its sales to, and collection of payment from,
its advertisers.
In
addition, Tudou depends on a limited number of advertising agencies for a significant portion of its revenues. Its top 10 advertising customers, which consist primarily of advertising
agencies, accounted for approximately 52%, 46% and 41% of its net revenues for the years ended December 31, 2009, 2010 and 2011, respectively. Tudou does not have long-term or exclusive
arrangements with these agencies, and it cannot assure you that it will maintain favorable relationships with them. In addition, if a small number of large advertising agencies were to control the
online advertising market, these advertising agencies could demand higher agency fees, which could reduce Tudou's net revenues.
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The financial soundness and settlement pattern of advertisers and advertising agencies working with Tudou could affect Tudou's collection of accounts receivable, results of
operations and cash flows.
Tudou's business depends on its ability to successfully obtain payments for work performed. Tudou typically enters into advertising
contracts with third-party advertising agencies and collects payments from them. It occasionally enters into advertising contracts with and collects payments from advertisers.
Tudou
generally offers credit terms of 90 days; however, actual payment terms significantly depend on settlements from advertising agencies and advertisers, which remain subject
to their payment policies. As of December 31, 2009, 2010 and 2011, Tudou's accounts receivable balance net of allowance for doubtful accounts was RMB71.1 million, RMB243.0 million
and RMB239.8 million (US$38.1 million), respectively. The average turnover days for Tudou's accounts receivable were 139 days in 2009, 149 days in 2010 and 132 days in
2011.
The
financial soundness of advertising agencies and advertisers working with Tudou will affect Tudou's collection of accounts receivable. Failure to collect receivables in a timely
manner may adversely affect Tudou's cash flows, operations and business strategy, such as funding its expansion of Internet bandwidth capacity, procuring premium licensed content and enhancing its
technology platform. Since Tudou does not require collateral or other security from advertising agencies, it establishes a provision for doubtful accounts based upon estimates, historical experience
and other factors surrounding the credit risk of specific advertising agencies and advertisers.
In
2009, 2010 and 2011, Tudou recorded RMB3.5 million, RMB7.5 million and RMB44.2 million (US$7.0 million) as an allowance for doubtful accounts,
respectively. The significant increase in allowance for bad debts was primarily related to a deterioration in the financial condition of certain advertising agencies and advertisers and an increase in
long aged overdue receivables. However, actual losses on client receivables balances could differ from those that Tudou anticipates, and as a result, Tudou may need to adjust its allowance, which
could negatively affect its results of operations and financial condition.
Tudou
may not accurately assess the creditworthiness of advertising agencies and advertisers. Macroeconomic conditions, including turmoil in the global financial system, could also
result in financial difficulties for advertising agencies and advertisers, including limited access to credit markets, insolvency or bankruptcy. These circumstances could cause advertising agencies to
delay payments to Tudou, request modifications to their payment arrangements that could increase Tudou's receivables balances or default on their payment obligations to Tudou. Tudou does not expect
the age of its accounts receivable to significantly improve in the foreseeable future. Any inability of advertising agencies to pay Tudou may adversely affect its results of operations and cash flows.
Tudou depends primarily on China Mobile for revenues derived from its mobile video services, and any loss or deterioration of its relationship with China Mobile may severely
disrupt its mobile video services.
Tudou relies primarily on the wireless video platforms of China Mobile for mobile video services it distributes to China Mobile's
subscribers. Mobile phone users pay a monthly subscription fee or pay on a per-clip basis, and Tudou shares the fees with China Mobile. Although Tudou's agreement with China Mobile expired in November
2011, Tudou has been working with China Mobile under the same terms as in the agreement since that time. Tudou is in the process of renewing the agreement, but cannot ensure that it will be able to
renew it.
In
addition, Tudou may not enter into similar arrangements with other telecommunication operators during the term of the agreement with China Mobile pursuant to the exclusivity provision
under the agreement. Despite this exclusivity provision, Tudou entered into a cooperation agreement with a joint venture of China Unicom and a subsidiary of China Telecom in order to expand its mobile
video services business.
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Although
Tudou believes its cooperation models with China Unicom and China Telecom are different from its agreement with China Mobile, China Mobile might deem them as events of default
under its agreement with China Mobile. As a result, China Mobile could refuse to renew or terminate its cooperation agreement with Tudou and seek damages caused by any alleged breach.
Any
loss or deterioration of Tudou's relationship with China Mobile may severely disrupt Tudou's mobile video services business and the loss of this source of revenues, which Tudou
regards as an important component of its growth strategy. In addition, as China Mobile is not prohibited under Tudou's cooperation agreement from working with other mobile video providers, Tudou's
mobile video services may face competition and pricing pressure from other providers.
Higher Internet bandwidth costs may materially adversely affect Tudou's gross margins, business, financial condition and results of operations.
The procurement of Internet bandwidth has historically accounted for the majority of Tudou's cost of revenues. Tudou's Internet
bandwidth costs amounted to RMB74.4 million, RMB103.6 million and RMB180.2 million (US$28.6 million) in 2009, 2010 and 2011, respectively, representing 58.5%, 45.8% and
42.1% of its total cost of revenues in those respective years.
Tudou
leases Internet bandwidth from provincial subsidiaries of China Telecom and China Unicom, as well as independent third-parties that procure Internet bandwidth from
telecommunication operators. The provincial subsidiaries of China Telecom and China Unicom function as independent companies, and Tudou negotiates prices separately with them or with independent
third-party bandwidth vendors. Tudou expects the cost of Internet bandwidth to increase given the anticipated increase in its user traffic and its growing online video content library.
Tudou
cannot assure you that it will be able to lease sufficient bandwidth in a timely manner or on acceptable terms, if at all. Failure to do so may significantly impair the user
experience on Tudou's website and decrease the effectiveness of its website to users and advertisers. In addition, if China Telecom and China Unicom centralize the pricing of Internet bandwidth, lease
Internet bandwidth through competitive tender processes or otherwise increase Internet bandwidth leasing prices, Tudou's Internet bandwidth leasing costs may substantially increase, which could
significantly increase its cost of revenues and materially adversely affect its gross margins, financial condition and results of operations.
If Tudou is not able to obtain premium licensed content at commercially acceptable costs, its business, financial condition and results of operations will be materially and
adversely affected.
Tudou needs to license and acquire popular video content to deliver an engaging experience for its users and present attractive
advertising opportunities for advertisers. Tudou believes that popular premium licensed content will help increase its user base and overall traffic and is a critical factor in its future success.
From 2007 to 2009, Tudou obtained licenses for more than 830 TV drama series and 240 movies. In 2010, it significantly increased its content procurement and obtained licenses for more than 1,360 TV
drama series, 1,180 movies and 180 variety shows. In 2011, it obtained licenses for more than 660 TV drama series, 430 movies and 80 variety shows.
In
addition, through content access arrangements between Tudou and Leshi Internet Information & Technology (Beijing) Co. Ltd., or LeTV, Tudou's users have been able
to access a substantial portion of LeTV's extensive content portfolio of over 680 TV episodes and 650 movies since October 2011. Tudou expects that its investment in premium licensed content will
increase in the foreseeable future as it procures more premium licensed content and that its unit procurement costs, such as licensing fees for TV drama series and movies, will increase. If Tudou is
unable to procure premium licensed content at commercially acceptable costs, or generate sufficient revenues to outpace the increase in market prices for premium licensed content, its business,
financial condition and results of operations will be materially adversely affected.
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Tudou relies on proper operation and maintenance of its website and its network infrastructure. Any malfunction, capacity constraint or operation interruption for any
extended period may adversely affect Tudou's online video business.
The satisfactory performance, stability, security and availability of the Tudou.com site and Tudou's network infrastructure are
critical to maintaining its reputation and ability to attract and retain users and advertisers. Tudou's information system provides a database of user data, advertising records, premium licensed
content and other aspects of Tudou's business to assist management and help ensure effective communication among various departments and offices of Tudou. A key element of Tudou's business is to
generate a high volume of user traffic on its website. Accordingly, any failure to maintain the satisfactory performance, stability, security and availability of Tudou's website and technology
platform may significantly harm its reputation and ability to attract and maintain Internet users, which may affect its advertisers' interest in advertising their products and services on its site.
From
time to time, Tudou's users in certain locations have not been able to gain access to the Tudou.com site for periods lasting from several minutes to several hours, due to server
interruptions, power shutdowns, Internet connection problems or other reasons. Although Tudou has not experienced an extended period of interruption in the past, a prolonged interruption may occur in
the future. Any server interruptions, break-downs or system failures, whether attributable to events within or outside Tudou's control, that result in a sustained shutdown of all or a material portion
of Tudou's website, could reduce the attractiveness of its product offerings.
In
addition, any substantial increase in the volume of traffic on the Tudou.com site will require Tudou to increase its investment in bandwidth and expand and upgrade its technology
platform. Tudou may not be able to accurately project the rate or timing of such increases or timely expand and upgrade its systems and technology platform to accommodate such increases. Tudou's
network systems are also vulnerable to damage from computer viruses, fires, floods, earthquakes, power losses, telecommunication failures, computer hacking and similar events. Tudou does not maintain
insurance policies covering losses relating to its network systems or other assets. As a result, any capacity constraints or operation interruptions for any extended period may materially adversely
affect Tudou's revenues and results of operations.
Tudou depends on its key personnel for the success of its business, and losing their services would severely disrupt its business.
Tudou's future success depends upon the continued service of its key executives. If Tudou loses the services of key senior management
members or other key employees, it may not be able to locate qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely disrupt its business. In
addition, if any of these key executives or employees joins or forms a competing company, Tudou could lose advertisers, advertising agencies and content providers and incur additional expenses
to recruit and train personnel. Each of Tudou's executive officers has entered into an employment agreement and a confidentiality, non-competition and non-solicitation
agreement with Tudou. As Tudou believes is customary in its industry in China, it does not maintain key-man life insurance for any of its key executives.
Competition
for personnel in the online video and advertising industry is intense, and the availability of suitable and qualified candidates in China is limited. Competition for
qualified individuals could cause Tudou to offer higher compensation and other benefits to attract and retain them, which could materially adversely affect Tudou's financial condition and results of
operations. Tudou previously awarded share-based compensation, such as stock options, to its senior management and key employees. Some of the options have not yet vested. These retention awards may
cease to be effective to retain Tudou's current employees once they vest.
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If Tudou fails to keep up with rapid changes in certain technologies and their impact on user behavior, its future success may be adversely affected.
The industry in which Tudou operates is characterized by rapid technological change. Tudou's success will depend on its ability to
respond to rapidly changing technologies, to adapt its services to evolving industry standards and to improve the performance and reliability of its services. Tudou's failure to adapt to these changes
could harm its business. In addition, changes in user behavior resulting from technological changes may also adversely affect Tudou. For example, the number of people accessing the Internet through
devices other than personal computers, including mobile phones, hand-held devices and other content delivery methods has increased in recent years. With the introduction of 3G mobile
services by all three mobile carriers in China in 2009, Tudou expects this trend to continue.
If
Tudou is slow to adopt solutions and technologies compatible with new mobile networks or technologies, or if the solutions and technologies it adopts are not widely accepted and used
by users of non-PC communications devices, it may not be able to capture a significant share of this increasingly important market. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt its products, services or technology platform. If Tudou fails to
evolve with rapid
technological changes to remain competitive, its results of operations and prospects may be adversely affected.
Undetected programming errors or flaws or failure to maintain effective customer service could harm Tudou's reputation or decrease market acceptance of its video programs,
which would materially adversely affect its results of operations.
The video programs, including advertising video programs, on Tudou's website may contain errors or flaws that may only become apparent
after their release. From time to time, users have notified Tudou of programming flaws affecting their user experience, and Tudou may also detect programming flaws and errors when it monitors its
video advertisements. Tudou generally has been able to resolve these flaws and errors. However, it cannot assure you that it will be able to detect and resolve programming flaws and errors in a timely
manner. Undetected programming errors and defects, and any resulting unsatisfactory customer experience, could disrupt Tudou's operations, harm its reputation and cause its users and advertisers to
reduce their use of its services, any of which could materially adversely affect Tudou's results of operations.
If Tudou fails to effectively manage its growth, its business, financial condition, results of operations and prospects may be materially adversely affected.
Tudou has limited operational, administrative and financial resources, which may be inadequate to sustain its rapid growth. If Tudou's
user base continues to expand, it will need to increase its investment in Internet bandwidth and its technology platform, facilities and other areas of operations, including customer service and sales
and marketing. Tudou expects to procure more Internet bandwidth and premium licensed content to deliver an engaging experience for users and present attractive advertising opportunities for
advertisers.
Tudou's
success will depend on, among other things, its ability to effectively maintain relationships with key advertisers, advertising agencies, content partners, mobile network
operators and other strategic partners; to train, motivate and retain key employees and attract and integrate new employees; to develop and improve operational, financial, accounting and other
internal systems and controls; and to maintain adequate controls and procedures to ensure that its public disclosure under applicable laws, including U.S. securities laws, is complete and accurate.
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Tudou
has experienced rapid growth and expansion that has placed significant strain on its management personnel, systems and resources. Tudou anticipates that it will need to implement
new and upgraded operational and financial systems, procedures and controls, including the improvement of its accounting and other internal management systems, all of which require substantial
management efforts. Tudou will also need to expand, train, manage and motivate its workforce, and manage its relationships with advertisers, advertising agencies and content providers. These efforts
require substantial management effort and skills and Tudou may incur additional expenditures.
In
addition, acquisition of companies that have historical non-compliance issues may bring Tudou more risks. For example, Tudou Limited, a Hong Kong company that Tudou
acquired in February 2011, failed to conduct certain corporate actions in compliance with Hong Kong law, including making certain mandatory fund contributions for its three employees. Tudou has
performed a legal analysis of the acquisition with its local counsel and concluded that it is not likely that the relevant authority will penalize Tudou Limited. Tudou is not able to estimate the
amount of any financial penalty, which the relevant authority has sole discretion to determine. Tudou's inability to effectively manage its growth may adversely affect its business, financial
condition, results of operations and prospects.
In preparing its consolidated financial statements, Tudou identified material weaknesses and other control deficiencies in its internal control over financial reporting. If
it fails to achieve or maintain an effective internal control system over financial reporting, its ability to accurately and timely report its financial results or prevent fraud may be adversely
affected.
Prior to its initial public offering in August 2011, Tudou was a private company with limited accounting personnel and other resources
to address its internal controls and procedures over financial reporting. In the preparation and the external audit of its consolidated financial statements for 2008, 2009 and 2010 in connection with
its initial public offering, Tudou and its independent registered public accounting firm identified certain deficiencies in its internal control over financial reporting, including material weaknesses
and significant deficiency as defined in the standards established by the U.S. Public Company Accounting Oversight Board or a Auditing Standard No. 5.
The
material weaknesses were (1) the lack of sufficient resources with adequate U.S. GAAP knowledge and experience to identify, evaluate and conclude on certain accounting
matters independently and (2) the lack of effective controls designed and in place to ensure the completeness and accuracy of consolidated financial statements and disclosures in accordance
with U.S. GAAP, which resulted in errors mainly in recording and accounting for redeemable convertible preferred shares, share-based compensation, accrual for litigation losses, agency fees and
certain balance sheet line item reclassifications. The significant deficiency related to the lack of formally documented corporate accounting policies in certain areas and the setup of accounts in
accordance with U.S. GAAP.
During
the audit of its consolidated financial statements for the year ended December 31, 2011, Tudou and its independent registered public accounting firm determined that a
number of control deficiencies,
including the above-mentioned material weaknesses, continue to exist. Neither Tudou nor its independent registered public accounting firm undertook a comprehensive assessment of its internal controls
for purposes of identifying and reporting material weaknesses and other control deficiencies in its internal control over financial reporting. In light of the number of control deficiencies identified
as a result of the limited procedures performed, had Tudou performed a formal assessment of its internal control over financial reporting or had its independent registered public accounting firm
performed an audit of its internal control over financial reporting, additional control deficiencies may have been identified.
Following
the identification of the material weaknesses and other control deficiencies, Tudou has taken measures to remedy these deficiencies. However, the implementation of these
measures may not fully address these deficiencies in Tudou's internal control over financial reporting, and Tudou cannot
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conclude
that they have been fully remedied. Tudou's failure to correct these control deficiencies or its failure to discover and address any other control deficiencies could result in inaccuracies in
its financial statements and impair its ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, Tudou's business, financial
condition, results of operations and prospects may be materially adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders Tudou's ability to prevent
fraud.
Tudou's quarterly revenues and operating results are difficult to predict and could fall below investor expectations.
Tudou's quarterly revenues and operating results have fluctuated in the past and may continue to fluctuate significantly depending upon
a number of factors. In particular, Tudou's revenues may be affected by the seasonality of advertising spending in China. For instance, Tudou typically has slightly lower sales during the first
quarter of each year primarily due to the Chinese New Year holiday in that quarter. Other factors that may affect Tudou's financial results include, among
others:
-
-
global economic conditions;
-
-
changes in government policies or regulations, or their enforcement;
-
-
Tudou's ability to attract and retain advertisers; and
-
-
Tudou's ability to maintain and increase user traffic.
In
addition, Tudou expects that major non-cash items will affect its results of operations. Share-based compensation charges are the primary non-cash item that
impacts its financial results and Tudou expects to continue to incur these charges in the future. Determining the amount of Tudou's share-based compensation expense requires the input of highly
subjective assumptions, including the expected life of the share-based payment awards, estimated forfeitures and the price volatility of underlying shares. Some of these factors are beyond Tudou's
control, making its quarterly results difficult to predict. You should not rely on Tudou's results of operations for prior quarters as an indication of its future results.
Fluctuations in exchange rates have resulted in, and are expected to continue to result in, foreign exchange losses and to adversely affect Tudou's profitability.
Fluctuation in the value of the Renminbi may materially adversely affect Tudou's profitability. The value of the Renminbi against the
U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its
decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under this policy, the PRC government allowed the Renminbi to fluctuate within a narrow and managed band against
a basket of certain foreign currencies.
For
almost two years after reaching a high against the U.S. dollar in July 2008, the Renminbi traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008
high. As a consequence, the Renminbi fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government announced that it would
increase Renminbi exchange rate flexibility and since that time the Renminbi has appreciated against the U.S. dollar. There remains significant international pressure on the PRC government to adopt a
more flexible currency policy, which could result in greater fluctuation of the Renminbi against the U.S. dollar.
Tudou's
financial statements are expressed in Renminbi, and most of Tudou's assets, revenues, costs and expenses are denominated in Renminbi. Tudou principally relies on dividends and
other distributions paid to it by its subsidiaries in China. Tudou's results of operations will be affected by the
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foreign
exchange rate between U.S. dollars and Renminbi. To the extent Tudou holds assets denominated in U.S. dollars, any appreciation of the Renminbi against the U.S. dollar could result in a charge
to Tudou's income statement and a reduction in the value of its U.S. dollar denominated assets. On the other hand, a decline in the value of Renminbi against the U.S. dollar could reduce the U.S.
dollar equivalent amounts of Tudou's financial results.
Limited
hedging transactions are available in China to reduce Tudou's exposure to exchange rate fluctuations. Tudou has not entered into any forward contracts to hedge its exposure to
Renminbi-U.S. dollar exchange risk, although it bought Euros and Australian dollars in 2009 to diversify its foreign currency balances and to mitigate foreign exchange risk associated with
the U.S. dollar's depreciation against the Renminbi. While Tudou may enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited, and it may not be
able to successfully hedge its exposure at all. In addition, PRC exchange control regulations that restrict Tudou's ability to convert Renminbi into foreign currency may increase Tudou's currency
exchange risks.
Tudou's principal shareholders, directors and executive officers own a large percentage of its shares, allowing them to exercise substantial influence over matters subject
to Tudou shareholder approval, including the Merger Agreement, the Plan of Merger and the Merger to be voted upon at the Tudou AGM.
As of March 15, 2012, Tudou's executive officers, directors and principal shareholders holding 5% or more of the outstanding
Tudou shares, as well as their affiliates, own 56.4% of the total issued and outstanding Tudou shares and 64.7% of the aggregate voting power of Tudou. Accordingly, these executive officers, directors
and principal shareholders have substantial influence over the outcome of corporate actions requiring shareholder approval, including the Merger Agreement, the Plan of Merger and the Merger to be
voted upon at the Tudou AGM, as well as the election of directors, any other merger, consolidation or sale of all or substantially all of Tudou's assets or any other significant corporate transaction.
In addition, the interests of such parties may not align with those of Tudou's other shareholders. These shareholders may also delay or prevent a change of control or otherwise discourage a potential
acquirer from attempting to obtain control of Tudou, even if such a change of control would benefit Tudou's other shareholders.
As
an inducement for Youku to enter into the Merger Agreement, the Tudou Voting Shareholders entered into the Youku Voting Agreements contemporaneously with the execution and delivery of
the Merger Agreement. See "The Voting AgreementsVoting Agreements between Youku and Certain Tudou Shareholders" on page 154 of this joint proxy statement/prospectus for more information.
As of April 17, 2012, an aggregate of 64,977,879 Tudou shares, constituting approximately 55.8% of the total outstanding shares of Tudou and 65.3% of the voting power of Tudou, are subject to
the Youku Voting Agreements. Under the Youku Voting Agreements, the Tudou Voting Shareholders have agreed, among other things, to vote all Tudou shares and Tudou ADSs beneficially owned by them in
favor of the approval and authorization of the Merger, the Merger Agreement, the Plan of Merger and the other transactions contemplated by the Merger Agreement which are considered at any meeting of
the Tudou shareholders
In
addition, as of April 17, 2012, excluding Tudou share options granted to them, all of Tudou's directors and executive officers that beneficially owned Tudou shares were subject
to the Youku Voting Agreements. Tudou currently expects that all directors and executive officers of Tudou who beneficially own Tudou shares and are not subject to the Youku Voting Agreements will
vote all of the Tudou shares they beneficially own in favor of the Merger, the Merger Agreement and the Plan of Merger because they believe that the Merger, the Merger Agreement and the Plan of Merger
are in the best interests of Tudou. None of the directors or executive officers of Tudou has made a recommendation with respect to the proposed transaction other than as set forth in this joint proxy
statement/prospectus.
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Tudou may need additional capital, but it may be unable to raise capital in a timely manner or on acceptable terms, or at all. Furthermore, it may sell additional equity or
debt securities that may dilute its shareholders or include covenants that may restrict its operations or its ability to pay dividends.
To grow its business and remain competitive, Tudou may require additional capital. Tudou's ability to obtain additional capital is
subject to a variety of uncertainties, including:
-
-
its future financial condition, results of operations and cash flows;
-
-
general market conditions for capital raising activities by online video and other Internet companies; and
-
-
economic, political and other conditions in China and internationally.
Tudou
may be unable to obtain additional capital in a timely manner or on acceptable terms or at all. In addition, Tudou's capital needs and other business reasons could require it to
sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute its shareholders. The incurrence of indebtedness would
result in increased debt service obligations and could result in operating and financing covenants that would restrict Tudou's operations or its ability to pay dividends to its shareholders.
If Tudou grants employee share options, restricted shares or other equity incentives in the future, its net income could be adversely affected.
Tudou adopted a share incentive plan in 2006, as amended and restated in 2008, 2010 and 2011, respectively. It is required to account
for share-based compensation in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, topic 718, CompensationStock Compensation.
ASC 718 requires a company to recognize, as an expense, the fair value of share options and other equity incentives to employees based on the fair value of equity awards on the date of the
grant, recognizing the compensation expense over the period in which the recipient is required to provide service in exchange for the option award.
As
of December 31, 2011, options to purchase a total of 9,227,095 ordinary shares under Tudou's share incentive plan were outstanding. As a result, Tudou incurred share-based
compensation expenses of RMB11.5 million, RMB104.6 million and RMB105.0 million (US$16.7 million) in 2009, 2010 and 2011, respectively. If Tudou grants more options,
restricted shares or other equity incentives, it could incur significant compensation charges and its results of operations could be adversely affected.
Tudou is 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,
Tudou shareholders may have less protection for their shareholder rights than they would under U.S. law.
Tudou's corporate affairs are governed by its memorandum and articles of association, as amended and restated from time to time, the
Companies Law (as amended) of the
Cayman Islands 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 Tudou's
directors to Tudou 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 from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands.
The
rights of Tudou's shareholders and the fiduciary responsibilities of its 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
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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.
As
a result of all of the above, public shareholders may have more difficulty in protecting their interests in response to actions taken by management, members of the board of directors
or controlling shareholders than they would as shareholders of a U.S. public company.
Tudou shareholders may have difficulty enforcing judgments obtained against Tudou.
Tudou is a Cayman Islands company and substantially all of its assets are located outside of the United States. Tudou conducts
substantially all of its operations in the PRC. In addition, most of Tudou's directors and officers are nationals and residents of countries other than the United States. As a result, it may be
difficult for Tudou shareholders to effect service of process upon these persons in the United States. It may also be difficult for Tudou shareholders to enforce judgments obtained in U.S. courts
based on the civil liability provisions of the U.S. federal securities laws against Tudou and its 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.
The
courts of the Cayman Islands or the PRC may not recognize or enforce judgments of U.S. courts against Tudou or such persons predicated upon the civil liability provisions of the
securities laws of the United States or any state. Furthermore, Cayman Islands or PRC courts may not entertain original actions brought in the Cayman Islands or the PRC against Tudou or its directors
and officers predicated upon the securities laws of the United States or any state.
Tudou faces risks related to natural disasters and health epidemics in China, which could materially adversely affect its business and results of operations.
Tudou's business could be materially adversely affected by natural disasters or the outbreak of health epidemics in China. In the last
decade, the PRC has suffered health epidemics related to the outbreak of avian influenza and severe acute respiratory syndrome, or SARS. Any natural disasters or health epidemics in the PRC could
materially adversely affect Tudou's business and results of operations.
The regulation of the Internet industry is new and subject to interpretation in China, and Tudou's business could be adversely affected if it is deemed to have violated
applicable laws and regulations.
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.
Under
regulations issued by the State Administration of Radio, Film and Television, or the SARFT, transmission of audio and visual programs online requires a SARFT license. An applicant
for engaging in Internet audio-visual program services must be a state-owned entity or a state-controlled entity with full corporate capacity, and the business to be carried out by the applicant must
satisfy the overall planning and guidance catalog for Internet audio-visual program services determined by SARFT.
Neither
Tudou's PRC subsidiaries nor its consolidated affiliated entities in China are state-owned or state-controlled companies, and they may not be qualified applicants for carrying
out Internet audio-visual program services. However, Tudou obtained its new SARFT license in December 2011. Therefore, it is permitted to operate its online video business in China until December
2014, when its SARFT license will expire. However, Tudou cannot assure you that it will be able to renew its SARFT license in the future. Tudou's renewal application may be denied because it is not a
stated-owned or state-controlled company.
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If
Tudou fails to renew its SARFT license, it will no longer be eligible to engage in transmission of audio and visual programs through the Internet, which would materially adversely
affect its business. In this event, Tudou may be subject to penalties including administrative fines for operation without a SARFT license and the PRC government may order Tudou to cease transmission
of audio-visual programs through the Internet and Internet information services due to the lack of a SARFT license.
Tudou
may also be required to obtain an Internet news license from the State Council News Office, or SCNO, for the dissemination of news through its website. Tudou is applying for an
Internet news license. Tudou cannot assure you that it will be able to obtain one. Without a license for the dissemination of news video clips through the Internet, it may receive a warning notice
from the PRC government to remove all relevant videos and to cease dissemination of news video clips. It may also be subject to administrative fines from RMB10,000 to RMB30,000, and in severe cases,
as determined by the PRC government, it may be ordered to cease Internet information services. To date, Tudou has not received any warning notice or penalties from the relevant governmental authority
regarding its dissemination of news through its website.
Furthermore,
each film, TV series, TV animation or academic and documentary film broadcast online in China must obtain a prior permit from SARFT. Tudou cannot assure you that each video
clip of such a program on its website has obtained such a permit. Tudou may be subject to administrative penalties including warning, orders for rectification, fines and revocation of its SARFT
license. In addition, it may not legally allow users to view these video clips without such a permit, and may not be able to recoup licensing costs it has paid for the clips.
Although
Tudou currently does not produce and distribute public educational video clips on its online education channel, its website contains promotion videos for educational
institutions and educational information generated or placed on its website by users on its online education channel or other channels. Educational administrative authorities may require Tudou to
obtain approval for distributing promotional videos and educational information. Tudou does not have approval and cannot assure you that it will be able to obtain approval if required to do so.
Without approval to distribute educational videos through the Internet, Tudou may receive a warning notice from the PRC government to remove all relevant videos and cease dissemination of educational
video clips, and may also be subject to administrative fines and other penalties.
Unlike
for TV dramas and reality shows broadcast on TV stations, PRC law does not specifically require approval from SARFT or its local branch for production and distribution of
"Made-for-Internet" drama series and reality shows. However, in practice and on a case by case basis, SARFT or its local branch may regulate certain
"Made-for-Internet" drama series and reality shows in a similar manner as it regulates TV dramas and reality shows, based on quality, time-limits, production
standards and other factors. If SARFT or its local branch requires Tudou to obtain its approval for the production and distribution of "Made-for-Internet" drama series and
reality shows, Tudou cannot assure you that it will be able to obtain approval in a timely manner or at all. In this event, Tudou may be subject to penalties including administrative fines for
production and distribution of "Made-for-Internet" drama series and reality shows without required approval.
New
laws and regulations may be promulgated that will regulate Internet activities, including the online video industry. In addition, the evolving PRC regulatory system for the Internet
industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of a new department, the State Internet Information Office
(with the involvement of the State Council Information Office, the MIIT and the Ministry of Public Security). The primary role of this new agency is to facilitate policy-making and legislative
development in the Internet sector, to direct and coordinate with the relevant departments in connection with online content administration, and to deal with cross-ministry regulatory matters in
relation to the Internet industry.
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If
these new laws and regulations are promulgated or any other new Internet regulatory agencies are established, additional licenses may be required for Tudou's operations. Given their
uncertainties and complexities, Tudou cannot assure you that its operations comply with these laws and regulations, particularly those governing online video and advertising operations. If Tudou is
found to be in violation of any existing or future PRC laws or regulations, the relevant Chinese authorities will have broad discretion in dealing with such a violation, including, without limitation,
levying fines, requiring Tudou to rectify the violation in a timely manner, revoking its business license or other licenses or permits for operation, and requiring it to discontinue any portion or all
of its business. Any of these actions could cause Tudou's business to suffer.
Violation of PRC laws regulating advertisement may result in penalties.
PRC advertising laws and regulations require advertisers, advertising operators and advertising distributors, including online
advertising publishers such as Tudou, to ensure that the content of the advertisements they prepare or distribute are fair and accurate and comply with applicable law. Violation of these laws or
regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the
misleading information. For serious violations, the PRC government may force the violator to terminate its advertising operations or revoke its business license. Furthermore, advertisers, advertising
operators or advertising distributors may be subject to civil liability if they infringe on the right of third parties.
Under
PRC advertising laws and regulations, Tudou must monitor the advertising content uploaded on its website. In addition, where special government review is required for specific
categories of advertisements before posting, it must confirm that a review has been performed and approval has been obtained. Tudou's reputation could be harmed and its results of operations could be
adversely affected if advertisements shown on its website are provided to it by advertisers or advertising agencies
in violation of relevant PRC advertising laws and regulations, or if the supporting documentation and government approvals provided to it by advertisers or advertising agencies in connection with
advertising content are not complete.
Regulation and censorship of information disseminated over the Internet and wireless telecommunication networks in China may adversely affect Tudou's business, and Tudou may
be liable for information displayed on, retrieved from, or linked to its website.
China has enacted regulations governing telecommunication service providers, Internet and wireless access and the distribution of news
and other information. Under these regulations, Internet content providers, or ICPs, including Tudou, are prohibited from posting or displaying over the Internet or wireless networks content that,
among other things, violates PRC laws and regulations, including failure to obtain required licenses and permits for such content, impairs the national dignity of China, or is obscene, superstitious,
fraudulent or defamatory. When ICPs find that information falling within the above scope is transmitted on their website or is stored in their electronic bulletin service system, they must terminate
the transmission of the information or delete the information immediately, keep records and report the actions to relevant authorities.
Failure
to comply with these requirements could result in the revocation of the ICP license and other required licenses and the closure of the concerned websites. The website operator
may also be held liable for prohibited information displayed on, retrieved from or linked to such website. Telecommunications operators such as China Mobile, China Unicom and China Telecom also have
policies prohibiting or restricting the distribution of inappropriate content. Since December 2009, the Chinese government has been increasing its efforts to crack down on inappropriate content
disseminated over the Internet and wireless networks.
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As these regulations are relatively new and subject to interpretation by the relevant authorities, Tudou may not be able to determine the type of content that
could result in liability as an online and mobile video service operator. In addition, Tudou may not be able to control or restrict the content of other Internet content providers linked to or
accessible through its websites, or content generated or placed on its website by its users, despite its attempt to monitor such content. To the extent that regulatory authorities find any portion of
Tudou's content objectionable or requiring any license or permit that it has not obtained, they may require Tudou to limit or eliminate the dissemination of the information or otherwise curtail the
content on its website, and keep records and report to relevant authorities, which may reduce user traffic. In addition, Tudou may be subject to significant penalties for violations of regulations
arising from information displayed on, retrieved from or linked to its website, including a suspension or shutdown of its operations. Tudou's reputation among users, advertisers and advertising
agencies may also be adversely suffer, which would materially and adversely affect Tudou's financial condition and results of operations.
Governmental control of currency conversion may limit Tudou's ability to use its operating cash flows effectively and the ability of its PRC subsidiaries to obtain
financing.
Tudou generates substantially all of its operating cash flows in Renminbi, which is not a freely convertible currency with respect to
"capital account transactions," which principally includes investments and loans. Restrictions on currency conversion imposed by the PRC
government may limit Tudou's ability to use operating cash flows generated in Renminbi to fund its expenditures denominated in foreign currencies or its business activities outside China, if any.
Under China's foreign exchange regulations, Renminbi may be freely converted into foreign currency for payments relating to "current account transactions," which include dividend payments and payments
for the import of goods and services, by complying with certain procedural requirements. However, the PRC government could take measures to restrict access to foreign currencies for current account
transactions.
Conversion
of Renminbi into foreign currencies, and of foreign currencies into Renminbi, for payments relating to "capital account transactions" generally requires the approval of the
State Administration of Foreign Exchange, or the SAFE, and other relevant PRC governmental authorities. Restrictions on the convertibility of Renminbi for capital account transactions could affect the
ability of Tudou's PRC subsidiaries to make investments overseas or to obtain foreign currency through debt or equity financing, including by means of loans or capital contributions from Tudou. If
Tudou's PRC subsidiaries borrow foreign currency from Tudou or other foreign lenders, they must do so within approved limits that satisfy approval documentation and PRC
debt-to-equity ratio requirements. Furthermore, such loans must be registered with the SAFE or its local counterpart. In practice, completing the SAFE registration process can
be time consuming.
If
Tudou finances its PRC subsidiaries through additional capital contributions, the PRC Ministry of Commerce or its local counterpart must approve the amount of these capital
contributions. On August 29, 2008, the SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency- denominated capital into Renminbi by
restricting the use of the converted Renminbi. The notice requires that a foreign-invested company can only use Renminbi converted from the foreign currency-denominated capital within the business
scope approved by the applicable governmental authority and may not use such converted Renminbi for equity investments in the PRC unless specifically permitted in its business scope or under
applicable law.
In
addition, the 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 use of
such Renminbi may not change without approval from the SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used for purposes within the company's approved
business scope. Violations of Circular 142 may result in severe penalties, including substantial fines set forth in the Foreign Exchange Administration Regulations.
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Tudou
cannot assure you that it will be able to complete necessary government registrations or obtain necessary government approvals on a timely basis, if at all, with respect to loans
to its PRC subsidiaries or with respect to future capital contributions to its PRC subsidiaries. Failure to complete such registrations or obtain such approvals could limit Tudou's ability to
capitalize or otherwise fund its PRC
operations, which could materially adversely affect its liquidity and its ability to fund and expand its business.
Changes in China's economic, political or social conditions or government policies could materially adversely affect Tudou's business.
Substantially all of Tudou's assets and operations are located in China. Accordingly, Tudou's business, financial condition, results of
operations and prospects may be influenced to a significant degree by political, economic and social conditions in China.
The
Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of
foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state
ownership of productive assets, and the establishment of improved corporate governance in business enterprises, the government still owns a substantial portion of productive assets in China. In
addition, the Chinese government plays a significant role in regulating industrial development by imposing industrial policies. The Chinese government also exercises significant control over China's
economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or
companies.
While
the Chinese economy has grown significantly over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has
implemented measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may negatively affect Tudou. For example,
Tudou's financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese
government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may result in decreased economic activity in China, which may
adversely affect Tudou's business and operating results.
Uncertainties with respect to the PRC legal system could materially adversely affect Tudou.
Tudou conducts its business primarily through its subsidiaries and consolidated affiliated entities in China. Its operations in China
are governed by PRC laws and regulations. Tudou's PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to
wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have
limited precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing general economic matters.
The
overall effect of the legislation has been to significantly enhance 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 is rapidly evolving, the interpretation of many laws, regulations and rules is not always uniform and enforcement of these laws, regulations and
rules involves uncertainties, which may limit legal protections available to Tudou.
Even
if Tudou attempts to comply with relevant laws and regulations, it may not always be able to do so due to a lack of detailed implementation rules by relevant government authorities.
In addition, some government authorities (including local government authorities) may not consistently apply
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regulatory
requirements issued by themselves or other PRC government authorities, making strict compliance with all regulatory requirements impractical, or in some circumstances, impossible. For
example, Tudou may have to resort to administrative and court proceedings to enforce the legal protections that it enjoys by law or contract. However, since PRC administrative and court authorities
have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of
legal protection Tudou enjoys than in more developed legal systems.
These
uncertainties may impede Tudou's ability to enforce the contracts it has entered into with its business partners and advertising agencies. In addition, such uncertainties,
including the inability to enforce Tudou's contracts, together with any development or interpretation of PRC law adverse to Tudou, could materially adversely affect Tudou's business.
Furthermore,
intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other developed countries. Accordingly, Tudou cannot
predict the effect of future developments in the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of
local regulations by national laws. These uncertainties could limit the legal protections available to Tudou and other foreign investors, including Tudou shareholders and Tudou ADS holders. In
addition, any litigation in China may be protracted and result in substantial costs and diversion of Tudou's resources and management attention.
If the PRC government determines that the contractual arrangements that establish the structure for operating Tudou's businesses do not comply with applicable PRC laws and
regulations, Tudou could be subject to severe penalties.
Tudou is a Cayman Islands company and, as such, it is classified as a foreign enterprise under PRC laws. Tudou's PRC subsidiaries,
Reshuffle Technology (Shanghai) Co., Ltd., or Reshuffle Technology, Wohong Technology (Shanghai) Co., Ltd., or Wohong Technology, and Toodou (China)
Advertising Co., Ltd, or Toodou Advertising, are foreign-invested enterprises. Various regulations in China restrict or prevent foreign-invested entities from holding certain licenses
required to operate Internet-related and mobile value-added service businesses, including Internet information services, online advertising and mobile value-added services.
In
light of these restrictions, Tudou relies on Quan Toodou Network Science and Technology Co., Ltd., or Quan Toodou, and its wholly-owned subsidiary, Quan Toodou Cultural
Communication Co., Ltd., or Quan Toodou Cultural, to hold and maintain the licenses necessary to operate its website as well as online advertising and value-added telecommunications
services in China. Tudou also relies on Shanghai Suzao Network Science and Technology Co., Ltd., or Shanghai Suzao and Chengdu Gaishi Network Science and
Technology Co., Ltd., or Chengdu Gaishi to maintain its network infrastructure, which is necessary to its website operation. In addition, Tudou relies on Beijing Tixian Digital Science
and Technology Co., Ltd., or Beijing Tixian, to conduct animation related business.
Tudou
does not have any equity interest in its consolidated affiliated entities, namely, Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian, but receives their economic
benefits through contractual arrangements and certain corporate governance and shareholder rights arrangements. In addition, Tudou has entered into agreements with Quan Toodou, Shanghai Suzao, Chengdu
Gaishi, Beijing Tixian and each of their respective shareholders which allow it to substantially control Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian.
The
Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the Circular, issued by the Ministry of Industry
and Information Technology in July 2006, reiterated the regulations on foreign investment in value-added
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businesses, which require foreign investors to set up foreign-invested enterprises and obtain an ICP license to conduct Internet information services in China. Under the Circular, a
domestic company that holds an ICP license is prohibited from leasing, transferring or selling the ICP license to foreign investors in any form, and from providing any assistance, including providing
resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China.
Furthermore,
the relevant trademarks and domain names used in the value-added telecommunications business must be owned by the value-added telecommunications service provider itself or
by its shareholders. The Circular further requires each ICP license holder to have the necessary facilities for its approved operations and to maintain such facilities in the regions covered by its
license. In addition, value-added telecommunications service providers must maintain network and information security in accordance with PRC regulations. Due to a lack of interpretative materials from
the regulator, it is unclear what impact the Circular will have on Tudou or other Chinese Internet companies that have adopted the same or similar corporate and contractual structures as Tudou's.
In
addition, the Ministry of Commerce, or the MOFCOM, promulgated the Rules of MOFCOM on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors in August 2011, or the MOFCOM Security Review Rules, to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular No. 6. According to these circulars and rules, a security review is required for
mergers and acquisitions by foreign investors having "national defense and security" concerns and mergers and acquisitions by which foreign investors may acquire "de facto control" over domestic
enterprises that may trigger "national security" concerns.
When
deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to security review, the MOFCOM will look into the substance and actual
impact of the transaction. The MOFCOM Security Review Rules prohibit foreign investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect
investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation pursuant to which Tudou's online video business
would be subject to security review, and there is no requirement for foreign investors to those mergers and acquisitions already completed prior to the promulgation of Circular No. 6 to submit
such transactions to MOFCOM for security review.
Therefore,
other than for Beijing Tixian, Tudou does not think it needs to submit its existing contractual arrangements with its consolidated affiliated entities to MOFCOM for security
review as it had already obtained "de facto control" over its consolidated affiliated entities prior to the effectiveness of these circulars and rules. In addition, it is not clear whether Tudou is
required to submit its contractual arrangements with Beijing Tixian to MOFCOM for such security review. However, as these circulars and rules are relatively new and lack of clear statutory
interpretation on the implementation of the same, there is no assurance that MOFCOM will have the same view as Tudou when implementing these national security review related circulars and rules.
In
the opinion of Fangda Partners, Tudou's PRC counsel, (1) the ownership structure of Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian is in compliance with all
existing PRC laws and regulations and (2) each contract under Reshuffle Technology's contractual arrangements with Quan
Toodou, Shanghai Suzao, Chengdu Gaishi, Beijing Tixian and each of their respective shareholders establishing Tudou's corporate structure as described above is valid and binding and will not result in
any violation of PRC laws or regulations currently in effect. However, Tudou cannot assure you that it will not be found in violation of any current or future PRC laws and regulations.
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Tudou's
PRC counsel has also advised that there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Circular.
Accordingly, Tudou cannot assure you that the PRC regulatory authorities and courts will take a view that is consistent with the opinion of its PRC counsel. In addition, as part of the contractual
arrangements described above, Reshuffle Technology entered into an equity pledge agreement with the shareholders of Chengdu Gaishi, pursuant to which these shareholders pledged their respective equity
interests in Chengdu Gaishi for the benefit of Reshuffle Technology. According to the PRC Property Rights Law, such pledges will only be effective upon registration with the relevant local
administration for industry and commerce. As part of the dissolution process of Chengdu Gaishi, Chengdu Gaishi de-registered the equity pledge with the local administration for industry
and commerce in December 2011. Without registration of this equity pledge, Tudou cannot assure you that PRC courts will recognize such pledge if disputes arise regarding the pledged equity interest or
that Reshuffle Technology's interests as pledgee will prevail over those of third parties, if any.
If
Tudou is found to be in violation of any existing or future PRC laws or regulations, including the Circular, or fails to obtain or maintain any of the required permits or approvals,
the relevant regulatory authorities will have broad discretion in dealing with such violation, including levying fines, confiscating Tudou's income, revoking Reshuffle Technology, Quan Toodou,
Shanghai Suzao, Chengdu Gaishi or Beijing Tixian's business license or operating licenses, requiring Tudou to restructure the relevant ownership structure or operations and to discontinue all or any
portion of Tudou's business. Any of these actions could significantly disrupt Tudou's operations.
Tudou's contractual arrangements with Quan Toodou, Shanghai Suzao, Chengdu Gaishi, Beijing Tixian and their respective shareholders may not be as effective in providing
control over Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian as direct ownership of these companies.
Tudou operates its website and conducts its online video and advertising businesses as well as animation related businesses in China
through Quan Toodou and its subsidiaries, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian. Tudou's contractual arrangements with Quan Toodou, Shanghai Suzao, Chengdu Gaishi, Beijing Tixian and their
respective shareholders provide it with effective control over these companies. As a result of these contractual arrangements, Tudou is considered the primary beneficiary of Quan Toodou, Shanghai
Suzao, Chengdu Gaishi and Beijing
Tixian and accordingly, it consolidates the results of operations, assets and liabilities of Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian in Tudou's financial statements.
These
contractual arrangements may not be as effective in providing Tudou with control over Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian as direct ownership of these
companies. In addition, Quan Toodou, Shanghai Suzao, Chengdu Gaishi, Beijing Tixian, or their respective shareholders may breach the contractual arrangements. In any such event, Tudou would have to
rely on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system.
The shareholders, directors and officers of Tudou's consolidated affiliated entities may have potential conflicts of interest with Tudou, which may materially adversely
affect its business and financial condition.
Each of Tudou's consolidated affiliated entities is jointly owned by its several employees, including Gary Wei Wang, its founder,
chairman and chief executive officer. Conflicts of interest between these individuals' role as shareholders of its consolidated affiliated entities and their duties to Tudou may arise. In addition,
several of these individuals are directors and executive officers of Tudou's consolidated affiliated entities. PRC laws provide that a director or certain members of senior management owes a fiduciary
duty to the company he directs or manages. These individuals must act in good faith and in the best interests of the relevant consolidated affiliated entity and must not use their respective positions
for personal gain. These laws do not require these individuals to consider Tudou's
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best
interests when making decisions as a director or member of management of the relevant consolidated affiliated entities. Conflicts may arise between these individuals' fiduciary duties as
directors and officers of the consolidated affiliated entities and Tudou.
Tudou
cannot assure you that when conflicts of interest arise, these individuals will act in the best interests of Tudou or that conflicts of interest will be resolved in Tudou's favor.
Tudou does not currently have arrangements to address potential conflicts of interest between these individuals and Tudou and a conflict could result in these individuals as directors and officers of
Tudou violating fiduciary duties owed to it. In addition, these individuals may breach or cause Tudou's consolidated affiliated entities to breach or refuse to renew the existing contractual
arrangements that allow Tudou to effectively control its consolidated affiliated entities and receive economic benefits from them. If Tudou cannot resolve any conflicts of interest or disputes between
itself and the shareholders of its
consolidated affiliated entities, it will have to rely on legal proceedings, which could disrupt its business, and the outcome of any such legal proceedings would be uncertain.
The ineffectiveness of control over Quan Toodou that may result from a lawsuit initiated by the ex-wife of Mr. Gary Wei Wang, Tudou's founder, chairman
and chief executive officer, seeking the division of 76% of the equity interest in Quan Toodou held by Mr. Wang, could significantly disrupt Tudou's business, operations and financial
condition.
The shareholders of Tudou's consolidated affiliated entities may be involved in personal disputes with third parties that may adversely
affect their respective equity interests in the relevant consolidated affiliated entity and the validity or enforceability of Tudou's contractual arrangements with the relevant consolidated affiliated
entity and its shareholders. The ex-wife of Mr. Gary Wei Wang, Tudou's founder, chairman and chief executive officer who holds 95% of the equity interests in Quan Toodou, initiated
a lawsuit against him with a local court in Shanghai in late 2010. She claimed, among other things, for the division of 76% of the equity interests in Quan Toodou held by Mr. Wang, which she
alleged formed part of the community property during their marriage.
Tudou
relies on Quan Toodou and its subsidiaries to hold and maintain the licenses necessary to operate its website as well as online advertising and value-added telecommunications
services in China. Upon the plaintiff's application and as part of the conservatory measures in this lawsuit, the court issued an order, or the Asset Conservatory Notification, to impose restrictions
on the transfer, dividend distribution and other disposal of 38% of the equity interests in Quan Toodou held by Mr. Wang. This lawsuit was concluded through a settlement directed by the court
in June 2011 and, pursuant to a court ruling, Mr. Wang is entitled to the equity interests in any companies that are directly or indirectly held by him.
In
exchange, Mr. Wang agreed to pay the plaintiff out of his personal assets a cash amount before June 2012, which he has paid, and an additional cash amount in the event of an
initial public offering, merger, acquisition, reorganization or a similar transaction of Tudou within two years after such an event, an obligation which, according to Mr. Wang, he is willing
and will be able to perform. In the meantime, the court also issued an order releasing the conservatory measures imposed by the Assets Conservatory Notification. However, if Mr. Wang fails to
fully perform his obligations under the court ruling, Mr. Wang's personal assets, including the equity interests in the companies that are directly or indirectly held by him, may be subject to
the court's enforcement measures.
If
Mr. Wang does not fully perform his obligations for whatever reason, and if as a result of the court's enforcement measures on his equity interests in Quan Toodou,
Mr. Wang must transfer a portion or all of his equity interests in Quan Toodou to his ex-wife or such equity interests are required to be sold to any third party, the proceeds of
which to be paid to his ex-wife, the other existing shareholder of Quan Toodou will have a right of first refusal to purchase such equity interests from Mr. Wang. In this case, the
other existing shareholder will need to obtain financing sufficient to
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exercise
this right of first refusal. It is uncertain what the valuation of such equity interests would be at that time, and the court could have wide discretion in determining the valuation.
If
the other existing shareholder fails to obtain financing or otherwise fails to exercise the right of first refusal, and Mr. Wang's ex-wife or any other third party
obtains any equity interests in Quan Toodou without being subject to obligations similar to Mr. Wang's obligations under these existing contractual arrangements, Tudou may have to
re-negotiate with Mr. Wang's ex-wife or such other third party and request such person to become a party to the contractual arrangements with Quan Toodou. If such person
does not become a party to these contractual arrangements, with such person obtaining more than one-third of the equity interests in Quan Toodou, such person may have certain protective
rights, including the power to veto certain critical corporate actions of Quan Toodou, such as increases or decreases in registered capital, amendment of the articles of association, merger, division
or dissolution of Quan Toodou and change of company form of Quan Toodou.
In
addition, if such person does not become a party to these contractual arrangements after obtaining more than half of the equity interests in Quan Toodou, Tudou will not be able to
continue to consolidate Quan Toodou. For the years presented in this joint proxy statement/prospectus, almost 100% of Tudou's net revenues and approximately 8% to 54% of Tudou's costs were
attributable to Quan Toodou (excluding the impact of the service fees paid by Quan Toodou to Reshuffle Technology pursuant to the contractual arrangements, which were eliminated during the
consolidation), and Tudou expects that these costs may increase in the future. The ineffectiveness of control over Quan Toodou that may result from this lawsuit could significantly disrupt Tudou's
business and financial condition, and could negatively impact Tudou's ability to execute such corporate actions.
In
addition, under certain of Tudou's business agreements entered into by Quan Toodou, such as the collaboration agreements with China Mobile and Samsung, the counterparties will have
the right to terminate such agreements in the event of any significant changes in the shareholding structure or ownership of Quan Toodou. If the above litigation results in such significant changes,
the relevant counterparties may terminate their agreements with Tudou.
Contractual arrangements Tudou has entered into with Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian may be subject to scrutiny by the PRC tax authorities,
and a finding that Tudou or its affiliated entities owe additional taxes could reduce Tudou's net income.
As required by applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or
challenge by the PRC tax authorities. Tudou could face adverse tax consequences if the PRC tax authorities determine that any of the contractual arrangements between its subsidiary in China on the one
hand, and Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian on the other, does not represent an arm's-length price and adjust Quan Toodou, Shanghai Suzao, Chengdu Gaishi or Beijing
Tixian's 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 Quan Toodou, Shanghai Suzao, Chengdu Gaishi or
Beijing Tixian, which could in turn increase their respective tax liabilities. In addition, PRC tax authorities may impose late payment fees and other penalties on Tudou's affiliated entities for
underpaid taxes. Tudou's net income may be adversely affected if its affiliated entities' tax liabilities increase or if they are subject to late payment fees or other penalties.
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The M&A Rules and other related rules establish more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult
for Tudou to pursue growth through acquisitions in China.
On August 8, 2006, six PRC regulatory authorities, including the MOFCOM, the State-owned Assets Supervision and Administration
Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC, and the SAFE, jointly issued the Regulation on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006, as amended on June 22, 2009. The M&A Rules establish procedures and requirements that
could make some acquisitions of Chinese companies by foreign investors more time-consuming and complex, including requiring in some instances prior notification to or approval by the
MOFCOM.
Tudou
may grow its business in part by acquiring complementary businesses in China. Complying with the requirements of the M&A Rules to complete such transactions could be
time-consuming, and any required approval processes, including obtaining approval from
the MOFCOM, may delay or inhibit Tudou's ability to complete such transactions, which could affect Tudou's ability to expand its business and maintain its market share.
The
MOFCOM Security Review Rules effective from September 1, 2011 provide that a merger or acquisition of a domestic enterprise by foreign investors is subject to security review.
In addition, the principle of substance over form should be applied to such security review and foreign investors are prohibited from bypassing the security review requirement by structuring
transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. If the business of any PRC domestic target company that
Tudou plans to acquire falls into the ambit of security review under the MOFCOM Security Review Rules, Tudou may not be able to pass such security review process or successfully acquire such company
by either equity or asset acquisition or through a contractual arrangement.
Recent PRC regulations, particularly SAFE Circular No. 75 relating to acquisitions of PRC companies by foreign entities, may limit Tudou's ability to acquire PRC
companies and adversely affect the implementation of its strategy as well as its business and prospects.
On October 21, 2005, the SAFE issued the Circular on Several Issues concerning Foreign Exchange Administration for Domestic
Residents to Engage in Financing and in Return Investments via Overseas Special Purpose Companies, known as Circular No. 75, which became effective on November 1, 2005. Circular
No. 75 and related rules provide, among other things, that prior to establishing or acquiring direct or indirect interest of an offshore company, or the Offshore SPV, for the purpose of
financing that Offshore SPV with assets of, or equity interests in, an enterprise in the PRC, each PRC resident (whether a natural or legal person) holding a direct or indirect interest in the
Offshore SPV must complete prescribed registration procedures with the relevant local branch of the SAFE.
Such
PRC resident must amend his SAFE registration under certain circumstances, including upon any injection of equity interests in, or assets of, a PRC enterprise to the Offshore SPV as
well as any material change in the capital of the Offshore SPV, including by way of a transfer or swap of shares, merger or division, long-term equity or debt investment or the creation of
any security interests in favor of third parties. Circular No. 75 applies retroactively and to indirect shareholdings.
PRC
residents who have established or acquired direct or indirect interests in any Offshore SPVs that have made onshore investments in the PRC in the past are required to complete the
registration procedures by March 31, 2006. The SAFE subsequently issued relevant guidance to its local branches with respect to the operational procedures of the SAFE registration under
Circular No. 75.
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Tudou
has requested PRC residents that, to Tudou's knowledge, hold direct or indirect interests in Tudou to make necessary applications, filings and amendments as required under Circular
No. 75 and other related rules. However, Tudou may not know the identities of all the PRC residents holding direct or indirect interests in Tudou, and it cannot provide any assurances that
these PRC residents will comply with its request to make or obtain any applicable registrations or comply with other requirements required by Circular No. 75 or other related rules.
The
failure or inability of these PRC residents to make required registrations or to comply with other requirements under Circular No. 75 and other related rules may subject such
PRC residents or Tudou's PRC subsidiary to fines and legal sanctions and limit Tudou's ability to contribute additional capital into or provide loans to Tudou's PRC subsidiary and limit its PRC
subsidiary's ability to pay dividends or otherwise distribute profits to Tudou.
All employee participants in Tudou's share incentive plans who are PRC citizens may be required to register with the SAFE. Tudou may also face regulatory uncertainties that
could restrict its ability to adopt additional option plans for its directors and employees under PRC law.
In December 2006, the People's Bank of China promulgated the Administrative Measures for Individual Foreign Exchange, which set forth
requirements for foreign exchange transactions by PRC individuals under either the current account or the capital account. In January 2007, the SAFE issued the Implementation Rules of the
Administrative Measures for Individual Foreign Exchange, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen's participation in
the employee stock ownership plans or stock option plans of an overseas publicly-listed company.
In
February 2012, the SAFE promulgated the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of
Overseas-Listed Companies, or the Stock Option Rule, which terminated the Processing Guidance on Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership
Plans or Stock Option Plans of Overseas-Listed Companies issued by the SAFE in March 2007. Under the Stock Option Rule, PRC citizens who participate in any stock incentive plan including an employee
stock option plan of an overseas-listed company are required, through a qualified PRC domestic agent or PRC subsidiary of such overseas-listed company, to register their stock options with the SAFE
and complete certain other procedures.
Tudou
and its PRC citizen employees participating in its stock incentive plan are subject to the Stock Option Rule. Tudou is applying for registration of its stock incentive plan with
the local branch of the SAFE in Shanghai. Failure to comply with the Stock Option Rule and other relevant rules will subject Tudou or its PRC citizen employees participating in its stock incentive
plan to fines and other legal or administrative sanctions and result in restrictions on its option plans, including the grant of options under such plans to its employees, which could adversely affect
its operations.
The enforcement of labor contract law and an increase in labor costs in the PRC may adversely affect Tudou's business and its profitability.
China adopted a labor contract law and its implementation rules effective on January 1, 2008 and September 18, 2008,
respectively. The labor contract law and its implementation rules impose more stringent requirements on employers with regard to, among others, minimum wages, severance payments upon permitted
termination of employment by an employer and non-fixed term employment contracts, time limits for probation periods as well as the duration and the times that an employee can be placed on
a fixed term employment contract. Due to the limited period of effectiveness of the labor contract law and its implementation rules and the lack of clarity with respect to their implementation and
potential penalties and fines, it is uncertain how they will impact Tudou's employment policies and practices.
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Tudou's employment policies and practices may violate the labor contract law or its implementation rules and Tudou may be subject to related penalties, fines or
legal fees. Compliance with the labor contract law and its implementation rules may increase Tudou's operating expenses, in particular its personnel expenses, as the continued success of Tudou's
business depends significantly on its ability to attract and retain qualified personnel. In the event that Tudou decides to terminate some of its employees or otherwise change its employment or labor
practices, the labor contract law and its implementation rules may also limit its ability to effect those changes in a cost-effective or desirable manner, which could adversely affect its
business and results of operations.
Tudou may be classified as a "resident enterprise" for PRC enterprise income tax purposes, which could result in unfavorable tax consequences for it and its
non-PRC shareholders.
Under the PRC Enterprise Income Tax Law, or the EIT Law, and its implementation rules, an enterprise established outside of the PRC
with "de facto management bodies" within the PRC is considered a PRC resident enterprise and is subject to the enterprise income tax at the rate of 25% on its worldwide income. The rules implementing
the EIT law define the term "de facto management bodies" as "establishments that carry out substantial and overall management and control over, among other things, manufacturing and other operations,
personnel, accounting, properties of an enterprise."
The
State Administration for Taxation issued the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis
of De Facto Management Bodies, or SAT Circular 82, on April 22, 2009. SAT Circular 82 clarifies that dividends and other income paid by resident enterprises to shareholders that are
non-PRC resident enterprises will be considered to be PRC source income, and subject to PRC withholding tax, currently at a rate of 10% unless otherwise reduced or exempted by relevant tax
treaties. SAT Circular 82 also subjects such resident enterprises to reporting requirements with the PRC tax authorities. In addition, SAT Circular 82 provides certain specific criteria for
determining whether the "de facto management body" is located in China for an overseas incorporated enterprise controlled by PRC enterprises or PRC enterprise groups. However, it remains unclear how
the tax authorities will determine the location of "de facto management bodies" for overseas incorporated enterprises not controlled by PRC enterprises like Tudou.
Therefore,
it remains unclear whether the PRC tax authorities would require or permit Tudou's overseas registered entities to be treated as PRC resident enterprises. Tudou does not
currently consider itself to be a PRC resident enterprise. However, if the PRC tax authorities disagree with Tudou's assessment and determine that Tudou is a PRC resident enterprise, it may be subject
to the PRC enterprise income tax at 25% on its global income. In such cases, however, there is no guarantee that the preferential treatment of PRC tax residents will automatically apply to Tudou, such
as the withholding tax exemption on dividends between qualified PRC resident companies. In addition, dividends paid by Tudou to its shareholders that are non-PRC resident enterprises as
well as capital gains recognized by them with respect to the sale of Tudou's shares may be subject to PRC withholding tax under the EIT Law. This will impact Tudou's effective tax rate, will
materially adversely affect its net income and results of operations, and may require it to withhold tax on its shareholders that are non-PRC resident enterprises.
Dividends Tudou receives from its operating subsidiaries located in the PRC may be subject to PRC withholding tax.
The EIT Law provides that a maximum income tax rate of 20% may be applicable to dividends payable to non-PRC investors that
are "non-resident enterprises," to the extent such dividends are derived from sources within the PRC. The State Council has reduced such rate to 10%, in the absence of any applicable tax
treaties that may reduce such rate, through the implementation regulations. Tudou is a Cayman Islands holding company and substantially all of its income may be derived from dividends
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it
receives from its operating subsidiaries located in the PRC. China has not entered into any tax treaties with the Cayman Islands.
Pursuant
to the double taxation avoidance arrangement between the PRC and Hong Kong and subject to the approval of the local tax authorities, dividends paid to Star Manor Limited, or
Star Manor, and Tudou Limited by their respective PRC subsidiaries may be subject to PRC withholding tax at the preferential rate of 5% as long as Star Manor and Tudou Limited are each deemed a Hong
Kong resident enterprise under the EIT Law and directly hold 25% or more equity interest in their relevant PRC subsidiary. However, if the PRC tax authorities do not consider Star Manor or Tudou
Limited as the beneficial owner of any dividends paid from their respective PRC subsidiaries based on the "substance over form" principle under applicable tax rules and thus deny the claim for the
preferential withholding tax rate, dividends from such PRC subsidiaries to Star Manor and Tudou Limited would be subject to PRC withholding tax at a rate of 10% instead of 5%. If Tudou is required
under the EIT Law to pay withholding tax for any dividends it receives from its subsidiaries, the amount of dividends, if any, it may pay to Tudou shareholders and Tudou ADS holders may be materially
adversely affected.
Dividends payable by Tudou to its foreign investors and gains on the sale of Tudou ADSs or Tudou shares by its foreign investors may become subject to taxes under PRC tax
laws.
Under the EIT Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividends
payable to investors that are "non-resident enterprises," which do not have an establishment or place of business in the PRC or which have such establishment or place of business but have
income not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of
ADSs or shares by such investors is also subject to a PRC withholding tax, usually at a rate of 10% unless otherwise reduced or exempted by relevant tax treaties, if such gain is regarded as income
derived from sources within the PRC. It is unclear whether dividends paid on Tudou shares or Tudou ADSs, or any gain realized from the transfer of Tudou shares or Tudou ADSs, would be treated as
income derived from sources within the PRC and would as a result be subject to PRC withholding tax.
If
Tudou is considered a PRC "resident enterprise," then any dividends paid to overseas Tudou shareholders or Tudou ADS holders that are "non-resident enterprises" and any
gains realized by them from the transfer of Tudou ADSs or Tudou shares may be regarded as being derived from PRC sources and, as a result, would be subject to a 10% PRC withholding tax, unless
otherwise reduced or exempted by relevant tax treaties. Tudou is unclear whether, if it is considered a PRC "resident enterprise," holders of Tudou ADSs or Tudou shares would be able to claim the
benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to Tudou's non-PRC investors that are "non-resident
enterprises," or gains from the transfer of Tudou shares or Tudou ADSs by such investors are subject
to PRC tax, the value of an investment in Tudou shares or Tudou ADSs may be materially adversely affected.
Tudou faces uncertainty regarding PRC tax reporting obligations and the consequences of certain indirect transfers of the stock of its operating company.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident
Enterprises issued by the PRC State Administration for Taxation on December 10, 2009 and other related rules, where a foreign investor transfers equity interests in a PRC resident enterprise
indirectly by way of the sale of equity interests in an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (1) has an
effective tax rate less than 12.5% or (2) does not tax foreign income of its residents, the foreign
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investor
should report such Indirect Transfer to the competent tax authority of the PRC resident enterprise within 30 days of execution of the equity transfer agreement for such Indirect
Transfer.
The
PRC tax authority will examine the true nature of the Indirect Transfer, and if the tax authority considers that the foreign investor has adopted an abusive arrangement without a
reasonable commercial purpose in order to avoid PRC tax, they will disregard the existence of the overseas holding company that is used for tax planning purposes and re-characterize the
Indirect Transfer. As a result, gains derived from such Indirect Transfer could be subject to PRC withholding tax at the rate of up to 10%.
A newly adopted PRC tax pilot program may have an adverse impact on Tudou's results of operations and financial condition.
The PRC government recently adopted a PRC tax pilot program, which is initially being implemented in Shanghai and may be extended to
other cities. On November 16, 2011, the Ministry of Finance and the State Administration of Taxation jointly issued the Circular on the Pilot Program for the Collection of Value Added Tax in
Lieu of Business Tax, or Circular 110, and the Circular on the Pilot Program for the Collection of Value Added Tax in Lieu of Business Tax in the Transportation and Certain Modern Service Sectors in
Shanghai, or Circular 111. These circulars became effective on January 1, 2012. Pursuant to Circular 110 and Circular 111, starting from January 1,
2012, companies classified by Shanghai's local tax authorities as being engaged in certain services, including transportation services, research and development services, information technology
services and advertising services, are required to pay value added tax, or VAT, at a rate ranging from 6% to 17% in lieu of business tax. Advertising services provided by Tudou's Shanghai entities
have been subject to a 6% VAT in lieu of business tax since January 1, 2012. This program may negatively impact Tudou's results of operations.
Tudou relies on dividends paid by its subsidiaries for its cash needs, and any limitation on the ability of its subsidiaries to make payments to it could materially
adversely affect its ability to conduct its business.
Tudou conducts its business through its consolidated subsidiaries and consolidated affiliated entities incorporated in China. Tudou
relies on dividends paid by its consolidated subsidiaries for its cash needs, including the funds necessary to pay any dividends and other cash distributions to its shareholders, to service any debt
it may incur and to pay its operating expenses. The payment of dividends by entities established in China is subject to limitations. Regulations in China permit payment of dividends only out of
accumulated profits determined in accordance with accounting standards and regulations in China.
As
of December 31, 2011, Tudou's PRC subsidiaries had an aggregate accumulated deficit of RMB496.5 million (US$78.9 million) as determined under applicable PRC
accounting standards. Each of Tudou's PRC subsidiaries is also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserve
fund until the aggregate amount of such reserves reaches 50% of its respective registered capital, as well as to allocate a discretional portion of its after-tax profits to its staff
welfare and bonus fund. Such statutory reserves are not distributable as loans, advances or cash dividends.
Tudou
anticipates that in the foreseeable future its PRC subsidiaries will need to continue to set aside 10% of their respective after-tax profits to their statutory reserves
after they have become profitable and have made up historical losses. In addition, if any of Tudou's PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt
may restrict Tudou's ability to pay dividends or make other distributions to it. Any limitations on the ability of Tudou's PRC subsidiaries to transfer funds to it could materially adversely limit its
ability to grow, make investments
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or
acquisitions that could be beneficial to its business, pay dividends or otherwise fund and conduct its business.
Risks Related to an Investment in Youku Class A Shares and Youku ADSs
The Youku Class A shares and Youku ADSs to be received by Tudou shareholders and Tudou ADS holders, respectively, will have different rights from the Tudou shares and
Tudou ADSs.
At the effective time of the Merger, Tudou shareholders will become Youku shareholders, and Tudou ADS holders will become Youku ADS
holders. While both Youku and Tudou are incorporated in the Cayman Islands, there are certain differences between the rights of Tudou Class A shareholders and Tudou Class B shareholders
under Tudou's amended and restated memorandum and articles of association and the rights of Youku Class A shareholders and Youku Class B shareholders under Youku's amended and restated
memorandum and articles of association. For example, on all matters subject to a vote at general meetings of Youku and where a poll is requested, each Youku Class A share is entitled to one
vote and each Youku Class B share is entitled to three votes, and on all matters subject to a vote at general meetings of Tudou, each Tudou Class A share is entitled to four votes and
each Tudou Class B share is entitled to one vote. In addition, approval by the holders representing a majority of the aggregate voting power of Youku and also by the holders of a majority of
the total outstanding Youku Class A shares is generally required for the issuance of that number of Youku shares (or of securities convertible into or exercisable for a number of Youku shares)
which is equal to or in excess of 20% of the number of all Youku shares outstanding immediately prior to the issuance of such shares or securities on an as-converted basis, if
(1) such Youku shares are sold at a per share price less than the per share book or market value of the Youku shares or (2) such securities convertible into or exercisable for the Youku
shares have a per share conversion or exercise price less than the per share book or market value of the Youku shares. There is no such requirement under Tudou's amended and restated memorandum and
articles of association for shareholder approval for the issuance of Tudou shares above a certain threshold. For a summary of the material differences between Youku shareholder rights and Tudou
shareholder rights, see "Comparison of Rights of Holders of Youku Securities and Tudou SecuritiesComparison of Rights of Youku and Tudou Shareholders," beginning on page 228.
Similarly,
there are certain differences between the rights of Tudou ADS holders under the Tudou Deposit Agreement and the rights of Youku ADS holders under the Youku Deposit Agreement.
For example, there are differences in the fees that the Youku depositary and the Tudou depositary charge under various circumstances. For a summary of the material differences between the rights of
Youku ADS holders and the rights of Tudou ADS holders, see "Comparison of Rights of Holders of Youku Securities and Tudou SecuritiesComparison of Rights of Youku and Tudou American
Depositary Share Holders," beginning on page 238.
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FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the information incorporated by reference into this joint proxy statement/prospectus include
certain forward-looking statements. In addition, in the future Youku, Tudou, and others on their behalf may make statements that constitute forward-looking statements. Such forward-looking statements
can be identified by the use of forward-looking terminology such as "will," "believes," "intends," "plans," or "expects," or similar expressions, or by express or implied discussions regarding the
Merger, the future financial results or business prospects of Youku, Tudou or any of their respective subsidiaries or consolidated affiliated entities or the potential growth opportunities or expected
benefits from the Merger; or by discussions of strategies, plans, expectations or intentions. You should not place undue reliance on these statements.
Such
forward-looking statements reflect the current views of Youku and/or Tudou regarding future events, and involve known and unknown risks, uncertainties and other factors that may
cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. There can be no assurance that Youku, Tudou or any of
their respective subsidiaries or consolidated affiliated entities or service lines will achieve any particular financial results, or that the Merger will be completed or the expected benefits of the
Merger will be achieved in
a timely manner or at all. In particular, management's expectations could be affected by, among other things: the Internet television industry in China and user acceptance of online video content may
not grow as quickly as expected; failure to generate sufficient revenues to outpace the increase in market prices for professionally produced content; unexpected regulatory actions or delays or
government regulation generally; uncertainties regarding future demand for the services and products of Youku or Tudou; unforeseen adverse consequences of the proposed Merger, such as making it more
difficult to maintain relationships with key employees; and the impact that the foregoing factors could have on the values attributed to the assets and liabilities of Youku, Tudou and any of their
respective subsidiaries or consolidated affiliated entities as recorded on their consolidated balance sheets. Some of these factors are discussed in more detail under "Risk Factors" in this joint
proxy statement/prospectus, in the Youku 2011 20-F, including under "Item 3.D. Risk Factors," "Item 4. Information on the Company" and "Item 5. Operating and Financial
Review and Prospects," and in Tudou's annual report on Form 20-F for the year ended December 31, 2011, as filed with the SEC on March 30, 2012 (the "Tudou 2011
20-F"), including under "Item 3.C. Risk Factors." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described in this joint proxy statement/prospectus or in the documents incorporated herein by reference as anticipated, believed, estimated or expected.
Youku
and Tudou caution against placing undue reliance on forward-looking statements, which reflect their current beliefs and are based on information currently available to them as of
the date a forward-looking statement is made. Forward-looking statements set forth or incorporated by reference herein speak only as of the date of this joint proxy statement/prospectus or the date of
the document incorporated by reference into this joint proxy statement/prospectus, as the case may be, and will only be updated in this joint proxy statement/prospectus or the document incorporated by
reference into this joint proxy statement/prospectus, as the case may be, to the extent required by applicable federal securities law. Any corrections or revisions and other important assumptions and
factors that could cause actual results to differ materially from forward-looking statements, including discussions of significant risk factors, may appear in Youku's or Tudou's public filings with
the SEC, which are accessible at www.sec.gov, and which you are advised to consult. For additional information, please see the section entitled "Where You Can Find More Information" and "Incorporation
of Certain Documents by Reference" beginning on pages 252 and 253, respectively.
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THE ANNUAL GENERAL MEETING OF YOUKU SHAREHOLDERS
Date, Time and Place
Youku will hold the Youku AGM
at , Hong Kong
on , 2012, beginning at (Hong Kong time).
Matters to be Considered at the Youku AGM
The purposes of the Youku AGM are to consider and, if thought fit, to pass the following resolutions:
-
1.
-
as
an ordinary resolution to authorize and approve the Share Issuance that constitutes the consideration for the Merger pursuant to the Merger Agreement;
-
2.
-
as
a special resolution, to authorize and approve the Name Change of Youku's legal name from "Youku Inc." to "Youku Tudou Inc." upon the
effectiveness of the Merger; and
-
3.
-
as
an ordinary resolution, to authorize and approve that in the event there are insufficient proxies received at the time of the Youku AGM to authorize and
approve the Share Issuance and the Name Change proposed at the Youku AGM, the chairman of the Youku AGM be instructed to adjourn the Youku AGM in order to allow Youku to solicit additional proxies in
favor of the authorization and approval of the Share Issuance and the Name Change.
After
the closing of the Merger, the current total voting power of Youku Class B shares will be reduced significantly. Youku Class B shares are primarily held by
shareholders affiliated with Youku's management. Youku is considering proposals to amend and restate Youku's currently effective memorandum and articles of association to reflect, among other things,
a change to the voting power of each Youku Class B share from three votes to four votes on all matters subject to a vote at Youku's shareholders meetings, as well as certain other revisions to
Article 6(c) of Youku's memorandum and articles of association. These proposals are subject to approval by Youku's board and shareholders.
Recommendation of Youku's Board of Directors
After careful consideration, Youku's board of directors has unanimously approved the Merger Agreement and recommends that you vote
"FOR" the resolutions to authorize and approve the Share Issuance and the Name Change.
Record Date and Quorum
A quorum of Youku shareholders is necessary to have a valid shareholders' meeting. Pursuant to Youku's memorandum and articles of
association, at least one Youku shareholder holding not less than an aggregate of one-third of all voting share capital of Youku in issue present in person or by proxy and entitled to vote
constitutes a quorum for all purposes. In addition, the quorum for meetings of the holders of Youku Class A shares requires at least one holder of Youku Class A shares holding or
representing by proxy at least one-third of the issued Youku Class A shares that are entitled to vote on the Youku share record date. Upon written request to Youku depositary,
abstention shares underlying Youku ADSs will be included in the calculation of the number of Youku shares represented at the Youku AGM for purposes of determining whether a quorum has been achieved.
Youku
expects, as of the Youku share record date, there will be 1,413,055,890 Youku Class A shares and 659,561,893 Youku Class B ordinary shares entitled to
be voted at the Youku AGM.
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Vote Required; Voting Agreements between Tudou and Certain Youku Shareholders
The Share Issuance must be approved by an affirmative vote by holders of Youku shares representing a majority of the aggregate voting
power and an affirmative vote by holders of a majority of the total outstanding Youku Class A shares, in each case, at a shareholders meeting. The Name Change must be authorized and approved by
an affirmative vote of a majority of at least two-thirds of such shareholders of Youku as, being entitled to do so, vote in person or by proxy as a single class at a shareholders meeting
of Youku. As of April 17, 2012, there were 2,072,617,783 Youku shares issued and outstanding and entitled to vote.
As
an inducement for Tudou to enter into the Merger Agreement, certain principal shareholders of Youku, including Victor Wing Cheung Koo, Brookside Capital Partners Fund, L.P.,
Maverick Fund USA, Ltd., Sutter Hill Ventures and certain of their affiliates (the "Youku Voting Shareholders"), entered into voting agreements with and in favor of Tudou on March 11,
2012 (the "Tudou Voting Agreements") contemporaneously with the execution and delivery of the Merger Agreement. As of April 17, 2012, an aggregate of 409,581,285 Youku Class A shares and
645,023,149 Youku Class B shares, constituting approximately 50.9% of the total outstanding Youku shares, approximately 69.1% of the aggregate voting power of Youku shares and 29.0% of the
aggregate voting power of Youku Class A shares, are subject to the Tudou Voting Agreements. Under the Tudou Voting Agreements, the Youku Voting Shareholders have agreed, among other things, to
vote all Youku shares and Youku ADSs beneficially owned by them in favor of the resolutions to authorize and approve the Share Issuance and the Name Change. Please see "The Voting
AgreementVoting Agreements between Tudou and Certain Youku Shareholders" for more information.
In
addition, as of April 17, 2012, excluding Youku share options granted to them, Youku directors and executive officers who are not subject to the Tudou Voting Agreements as a
group beneficially owned an aggregate of 18,250,000 Youku Class B ordinary shares, constituting approximately 1.6% of the total outstanding Youku shares and approximately 0.9% of the aggregate
voting power of Youku shares. They did not own any Youku Class A shares. Youku currently expects that the directors and executive officers of Youku not subject to the Tudou Voting Agreement
will vote all of the Youku shares they beneficially own in favor of the resolutions to authorize and approve the Share Issuance and the Name Change because they believe that the Share Issuance and the
Name Change are in the best interests of Youku.
Members
of the Youku Board and Youku's executive officers do not have agreements and arrangements that provide them with interests with respect to the Share Issuance or Name Change that
may differ from, or be in addition to, the interests of other Youku shareholders generally.
Youku Shareholders and ADS Holders Entitled to Vote; Voting Materials
Only Youku shareholders entered in the register of members of Youku at the close of business on , 2012 (New York City
time), the Youku share record date, will receive the proxy card directly from Youku. Youku shareholders registered in the register of members of Youku as of the Youku share record date or their proxy
holders are entitled to vote and may participate in the Youku AGM or any adjournment thereof. Youku shareholders wanting to vote by proxy should simply indicate on their proxy card how they want to
vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event at least 48 hours before the time of the Youku AGM.
Holders
of Youku ADSs as of the close of business on , 2012 (New York City time), cannot attend or vote at the Youku AGM directly, but may instruct the Youku depositary
how to vote the shares underlying the ADSs by completing and signing an ADS voting instruction card provided by the Youku depositary and returning it in accordance with the instructions printed on it.
The Youku depositary must receive the ADS voting instruction card no later than 10:00 a.m. New York City time
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on ,
2012. The Youku depositary shall endeavor, in so far as practicable, to vote or cause to be voted the shares represented by Youku ADSs in accordance with your voting instructions.
Holders
of Youku ADSs may vote at the Youku AGM if they cancel their ADSs and become a holder of Youku shares by the close of business on , 2012 (New York City time).
Youku ADS holders wanting to cancel their ADSs need to make arrangements to deliver their ADSs to the Youku depositary for cancellation prior to the close of business in New York City on
, 2012 and complete certain other procedures required by the Youku depositary. Persons who hold Youku ADSs in a brokerage, bank or nominee account, must contact their broker, bank or
nominee to find out what actions they need to take to instruct the broker, bank or nominee to cancel the ADSs on their behalf.
Youku
ADS holders who request the cancellation of their Youku ADSs between the Youku ADS record date and the Youku share record date will be asked to certify that such Youku ADS holders
(1) were a holder of the Youku ADSs being cancelled as of the Youku ADS record date and have not given, and will not give, directly or indirectly, voting instructions to the Youku depositary as
to the Youku ADSs presented for cancellation, or (2) were not a holder of the Youku ADSs being cancelled as of the Youku ADS record date and will not vote the Youku Class A shares at the
Youku AGM.
In
the event that the Youku depositary receives voting instructions from holders of Youku ADSs that exceed the number of corresponding Youku Class A shares held on deposit as of
the Youku share record date, the Youku depositary will prorate the voting instructions received and vote the Youku Class A shares held as of the Youku share record date in accordance with such
prorated voting instructions.
Persons
holding Youku ADSs in a brokerage, bank or nominee account should consult with their broker, bank or nominee to obtain directions on how to provide such broker, bank or nominee
with instructions on how to vote their ADSs.
Each
Youku Class A share carries one vote, and each Youku Class B ordinary share carries three votes. Each Youku ADS represents 18 Youku Class A shares. As of
April 17, 2012, there were 1,413,055,890 Youku Class A shares and 659,561,893 Youku Class B ordinary shares issued and outstanding (including Youku shares represented by ADSs),
all of which are entitled to vote on the proposals at the Youku AGM, subject to the procedures described above. As of April 17, 2012, there were 115,145,432 Youku ADSs outstanding; subject to
the cancellation procedures described above, none of the holders of these ADSs may vote in person at the Youku AGM.
Persons
who have acquired Youku shares and whose names are entered in Youku's register of members before the close of business on , 2012 (New York City time) will
receive
the proxy form (including the voting material) before the Youku AGM, and persons who are Youku ADS holders as of the close of business on , 2012 (New York
City time) will receive the
ADS voting instruction card from the depositary before the Youku AGM. Youku shareholders who have acquired Youku shares after , 2012 may not attend the Youku AGM unless they
receive a
proxy from the person or entity who had sold them such Youku shares.
Proxy Holders for Registered Youku Shareholders
Youku shareholders registered in the register of members of Youku as of the Youku share record date who are unable to participate in
the Youku AGM may appoint as a representative another Youku shareholder, a third party or Youku as proxy holder by completing and returning the form of proxy in accordance with the instructions
printed thereon. With regard to the items listed on the agenda and without any explicit instructions to the contrary, Youku as proxy holder will vote in favor of the Share Issuance and Name Change
according to the recommendation of the Youku Board. If new proposals (other than those on the agenda) are put forth before the Youku AGM, Youku as proxy holder will vote in accordance with the
position of the Youku Board.
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Voting of Proxies and Failure to Vote; Discretionary Proxy of Youku Under Youku Deposit Agreement
All Youku shares represented by valid proxies will be voted at the Youku AGM in the manner specified by the holder. If a Youku
shareholder returns a properly signed proxy card but does not indicate how the Youku shareholder wants to vote, the Youku shares represented by that proxy card will be voted "FOR" the resolution to
authorize and approve the Share Issuance and Name Change, unless the Youku shareholder appoints a person other than the chairman of Youku AGM as proxy, in which case the Youku shares represented by
that proxy card will be voted (or not submitted for voting) as the proxy determines. Youku shareholders who fail to cast their vote in person or by proxy will not have their votes counted.
Banks,
brokers and other nominees who hold Youku ADSs in "street name" for their customers do not have discretionary authority to provide the Youku depositary with voting instructions on
how to vote the Youku shares underlying the Youku ADSs with respect to the Share Issuance and the Name Change; provided that if banks, brokers or other nominees do not timely receive specific voting
instructions from the beneficial owner of Youku ADSs, they will be deemed to have instructed the Youku depositary to give a discretionary proxy to a person designated by Youku, or a Youku Designee,
under the Youku depositary agreement, unless Youku informs the Youku depositary that (1) Youku does not wish such discretionary proxy to be given, (2) substantial opposition exists in
respect of the contemplated Share Issuance and the Name Change, or (3) the rights of holders of Youku shares may be materially adversely affected by the contemplated Share Issuance and the Name
Change. It is Youku's intention that the Youku Designee votes all such unvoted Youku Class A shares FOR the resolutions to authorize and approve the Share Issuance and the Name Change and FOR
any resolution to adjourn the Youku AGM.
Revocability of Proxies
Registered holders of Youku shares may revoke their proxies in one of three ways:
-
-
first, a registered Youku shareholder may revoke a proxy by written notice of revocation given to the chairman of the
Youku AGM before the Youku AGM commences. Any written notice revoking a proxy should be sent to Youku Inc., 11/F, SinoSteel Plaza, 8 Haidian Street, Haidian District, Beijing 100080, People's
Republic of China;
-
-
second, a registered Youku shareholder may complete, date and submit a new proxy card bearing a later date than the proxy
card sought to be revoked to Youku no less than 48 hours prior to the Youku AGM; or
-
-
third, a registered Youku shareholder may attend the Youku AGM and vote in person. Attendance, by itself, will not revoke
a proxy. It will only be revoked if the shareholder actually votes at the Youku AGM.
Holders
of Youku ADSs may revoke their voting instructions by notification to the Youku depositary in writing at any time prior to 10:00 a.m. New York City time on ,
2012. A holder of Youku ADSs can do this in one of two ways:
-
-
first, a holder of Youku ADSs can revoke its voting instructions by written notice of revocation timely delivered to the
Youku depositary; or
-
-
second, a holder of Youku ADSs can complete, date and submit a new ADS voting instruction card to the Youku depositary
bearing a later date than the ADS voting instruction card sought to be revoked.
If
you hold your Youku ADSs through a broker, bank or nominee and you have instructed your broker, bank or nominee to give ADS voting instructions to the Youku depositary, you must
follow the directions of your broker, bank or nominee to change those instructions.
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Whom to Call for Assistance
If you need assistance, including help in changing or revoking your proxy, you can contact Ryan Cheung, Corporate Finance Director,
Youku Inc., by telephone at (+8610) 5885-1881 x6090, email at ryan.cheung@youku.com, or mailing him at Youku Inc., 11/F, SinoSteel Plaza, 8 Haidian Street, Haidian District,
Beijing 100080, People's Republic of China.
Solicitation of Proxies
Youku will ask banks, brokers and other custodians, nominees and fiduciaries to forward Youku's proxy solicitation materials to the
beneficial owners of Youku Class A shares or Youku ADSs held of record by such nominee holders. Youku will reimburse these nominee holders for their customary clerical and mailing expenses
incurred in forwarding the proxy solicitation materials to the beneficial owners and in obtaining voting instructions from those owners. In addition, proxies may be solicited by mail, in person, by
telephone, by Internet or by facsimile by certain of Youku's officers, directors and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed
for reasonable out-of-pocket expenses. Youku will pay all expenses of filing, printing and mailing this joint proxy statement/prospectus to Youku shareholder and Youku ADS
holders.
Other Business
Youku is not currently aware of any business to be acted upon at the Youku AGM other than the matters discussed in the notice convening
the meeting.
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THE ANNUAL GENERAL MEETING OF TUDOU SHAREHOLDERS
Date, Time and Place
Tudou will hold the Tudou AGM on , 2012, beginning
at (local time) at Building No. 6, X2 Creative
Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's Republic of China.
Matters to be Considered at the Tudou AGM
The purposes of the Tudou AGM are to consider and, if thought fit, to pass the following resolutions:
-
1.
-
as
a special resolution, to authorize and approve the Merger Agreement, Plan of Merger and the Merger;
-
2.
-
as
an ordinary resolution, to approve the Re-election of Tudou Directors; and
-
3.
-
as
an ordinary resolution, that in the event that there are insufficient proxies received at the time of the Tudou AGM to authorize and approve the Merger
Agreement, the Plan of Merger and the Merger or approve the Re-election of Tudou Directors, the chairman of the Tudou AGM be instructed to adjourn the Tudou AGM in order to allow Tudou to
solicit additional proxies in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger and the approval of the Re-election of Tudou Directors.
Recommendation of Tudou's Board of Directors
After careful consideration, the Tudou Board has unanimously approved the Merger Agreement, the Plan of Merger and the Merger and
recommends that Tudou shareholders vote "FOR" the resolution to authorize and approve the Merger Agreement, the Plan of Merger and the Merger.
According
to Tudou's memorandum and articles of association, all directors of Tudou shall retire from office and be eligible for re-election at the Tudou AGM. The Tudou Board
consists of eight members. All directors retiring at the Tudou AGM except for Mr. Sam Yung King Lai, Mr. Suyang Zhang and Mr. Seow Woon Kwong have offered themselves for
re-election. Each
nominee, if elected, will, subject to Tudou's memorandum and articles of association, hold office until such time as he is removed from office by special resolution of Tudou's shareholders or he
voluntarily resigns from his office. The office of a director shall be vacated if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors, or dies
or is found to be or to have become of unsound mind or, without special leave of absence from the Tudou Board, is absent from three consecutive meetings of the Tudou Board and the Tudou Board resolves
that his office be vacated.
The
Tudou Board, at the recommendation of its corporate governance and nominating committee, has nominated the Tudou Directors for re-election at the Tudou AGM and recommends
that Tudou shareholders vote "FOR" the resolution to approve the Re-election of Tudou Directors.
Quorum
Two or more shareholders on record holding not less than an aggregate of one-third of all voting share capital of Tudou in
issue present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative or proxy and entitled to vote will constitute a quorum.
Vote Required; Voting Agreements between Youku and Certain Tudou Shareholders
In order for the Merger to be completed, the Merger Agreement, the Plan of Merger and the Merger must be authorized and approved by a
special resolution of Tudou passed by an affirmative vote of a majority of at least two-thirds of such shareholders of Tudou as, being entitled to do so, vote
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in
person or by proxy as a single class at the Tudou AGM. The Re-election of Tudou Directors must be approved by an ordinary resolution of Tudou passed by a majority of the votes cast
by such shareholders of Tudou as, being entitled to do so, vote in person or by proxy as a single class at the Tudou AGM. As of April 17, 2012, there were 115,452,677 Tudou shares issued and
outstanding and entitled to vote.
As
an inducement for Youku to enter into the Merger Agreement, the Tudou Voting Shareholders entered into voting agreements with and in favor of Youku on March 11, 2012 (the
"Youku Voting Agreements") contemporaneously with the execution and delivery of the Merger Agreement. As of April 17, 2012, an aggregate of 64,977,879 Tudou shares, constituting approximately
55.8% of the total outstanding shares of Tudou and 65.3% of the voting power of Tudou, are subject to the Youku Voting Agreements. Under the Youku Voting Agreements the Tudou Voting Shareholders have
agreed, among other things, to vote all Tudou shares and Tudou ADSs beneficially owned by them in favor of the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger.
Please see "The Voting AgreementVoting Agreements between Youku and Certain Tudou Shareholders" for more information.
As
of April 17, 2012, excluding Tudou share options granted to them, all of Tudou directors and executive officers that beneficially owned Tudou shares were subject to the Youku
Voting Agreements.
Tudou Shareholders and ADS Holders Entitled to Vote; Voting Materials
Only Tudou shareholders entered in the register of members of Tudou at the close of business on , 2012 (New York City
time), the Tudou share record date, will receive the final joint proxy statement/prospectus and proxy card directly from Tudou. Tudou shareholders registered in the register of members of Tudou as of
the Tudou share record date or their proxy holders are entitled to vote and may participate in the Tudou AGM or any adjournment thereof, unless they sell their Tudou shares before ,
2012. Tudou shareholders wanting to vote by proxy should simply indicate on their proxy card how they want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon
as possible but in any event at least 48 hours before the time of the Tudou AGM.
Holders
of Tudou ADSs as of the close of business on , 2012 (New York City time), cannot attend or vote at the Tudou AGM directly, but may instruct the Tudou depositary
how to vote the shares underlying the ADSs by completing and signing an ADS voting instruction card provided by the Tudou depositary and returning it in accordance with the instructions printed on it.
The Tudou depositary must receive the ADS voting instruction card no later than 10:00 a.m. New York City time on , 2012. The Tudou depositary shall endeavor, in so far as
practicable, to vote or cause to be voted the shares represented by Tudou ADSs in accordance with your voting instructions.
Holders
of Tudou ADSs may vote at the Tudou AGM if they cancel their ADSs and become a holder of Tudou shares by the close of business on , 2012 (New York City time).
Tudou ADS holders wanting to cancel their ADSs need to make arrangements to deliver their ADSs to the Tudou depositary for cancellation prior to the close of business in New York City on
, 2012 and complete certain other procedures required by the Tudou depositary. Persons who hold Tudou ADSs in a brokerage, bank or nominee account, must contact their broker, bank or
nominee to find out what actions they need to take to instruct the broker, bank or nominee to cancel the ADSs on their behalf.
Persons
holding Tudou ADSs in a brokerage, bank or nominee account should consult with their broker, bank or nominee to obtain directions on how to provide such broker, bank or nominee
with instructions on how to vote their ADSs.
Each
Tudou Class A share carries four votes and each Tudou Class B share carries one vote. Each Tudou ADS represents four Tudou Class B shares. As of
April 17, 2012, there were 115,452,677 Tudou shares issued and outstanding (including Tudou shares represented by ADSs), all of which are entitled to vote on the proposals at the Tudou AGM,
subject to the procedures described above. As of April 17,
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2012,
there were 12,716,406 Tudou ADSs outstanding; subject to the cancellation procedures described above, none of the holders of these ADSs may vote in person at the Tudou AGM.
Persons
who have acquired Tudou shares or ADSs after , 2012, but on or before , 2012, will receive the proxy form (including the voting material)
shortly
before the Tudou AGM. Tudou shareholders who have acquired Tudou shares after , 2012 may not attend the Tudou AGM unless they receive a proxy from the person or entity who had sold them
such Tudou shares. Tudou shareholders who have sold their Tudou shares before , 2012 are not entitled to vote or participate in the Tudou AGM.
Proxy Holders for Registered Tudou Shareholders
Tudou shareholders registered in the register of members of Tudou as of the Tudou share record date who are unable to participate in
the Tudou AGM may appoint as a representative another Tudou shareholder, a third party or Tudou as proxy holder by completing and returning the form of proxy in accordance with the instructions
printed thereon. With regard to the items listed on the agenda and without any explicit instructions to the contrary, Tudou as proxy holder
will vote in favor of the Merger according to the recommendation of the Tudou Board. If new proposals (other than those on the agenda) are put forth before the Tudou AGM, Tudou as proxy holder will
vote in accordance with the position of the Tudou Board.
Voting of Proxies and Failure to Vote; Discretionary Proxy of Tudou Under Tudou Deposit Agreement
All Tudou shares represented by valid proxies will be voted at the Tudou AGM in the manner specified by the holder. If a Tudou
shareholder returns a properly signed proxy card but does not indicate how the Tudou shareholder wants to vote, the Tudou shares represented by that proxy card will be voted (1) FOR the
resolution to authorize and approve the Merger Agreement, the Plan of Merger and the Merger, (2) FOR the resolution to approve the Re-election of Tudou Directors, and (3) FOR
the resolution that in the event that there are insufficient proxies received at the time of the Tudou AGM to authorize and approve the Merger Agreement, the Plan of Merger and the Merger or to
approve the Re-election of Tudou Directors, the chairman of the Tudou AGM be instructed to adjourn the Tudou AGM in order to allow Tudou to solicit additional proxies in favor of the
authorization and approval of the Merger Agreement, the Plan of Merger and the Merger and the approval of the Re-election of Tudou Directors, unless the Tudou shareholder appoints a person
other than the chairman of the Tudou AGM as proxy, in which case the Tudou shares represented by that proxy card will be voted (or not submitted for voting) as the proxy determines. Tudou shareholders
who fail to cast their vote in person or by proxy will not have their votes counted.
Banks,
brokers and other nominees who hold Tudou ADSs in "street name" for their customers do not have discretionary authority to provide the Tudou depositary with voting instructions on
how to vote the Tudou shares underlying the Tudou ADSs with respect to the authorization and approval of the Merger Agreement, the Plan of Merger and the Merger or the approval of the
Re-election of Tudou Directors; provided that if banks, brokers or other nominee holders of Tudou ADSs do not timely receive specific voting instructions from the beneficial owners of
Tudou ADSs, they may, under the terms of Tudou Deposit Agreement, be deemed to have instructed the Tudou depositary to give a discretionary proxy to the Tudou Designee. Unless Tudou notifies the Tudou
depositary that this provision will not apply, the Tudou Designee will receive a proxy from the Tudou depositary and will vote all such uninstructed Tudou Class B shares FOR the authorization
and approval of the Merger Agreement, the Plan of Merger and the Merger, FOR the approval of the Re-election of Tudou Directors and FOR any adjournment of the Tudou AGM.
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Revocability of Proxies
Registered holders of Tudou shares may revoke their proxies in one of three ways:
-
-
first, a registered Tudou shareholder may revoke a proxy by written notice of revocation given to the chairman of the
Tudou AGM before the Tudou AGM commences. Any written notice revoking a proxy should be sent to Tudou Holdings Limited, Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District,
Shanghai 200032, People's Republic of China;
-
-
second, a registered Tudou shareholder may complete, date and submit a new proxy card bearing a later date than the proxy
card sought to be revoked to Tudou no less than 48 hours prior to the Tudou AGM; or
-
-
third, a registered Tudou shareholder may attend the Tudou AGM and vote in person. Attendance, by itself, will not revoke
a proxy. It will only be revoked if the shareholder actually votes at the Tudou AGM.
Holders
of Tudou ADSs may revoke their voting instructions by notification to the Tudou depositary in writing at any time prior to 10:00 a.m. New York City time on ,
2012. A holder of Tudou ADSs can do this in one of two ways:
-
-
first, a holder of Tudou ADSs can revoke its voting instructions by written notice of revocation timely delivered to the
Tudou depositary; or
-
-
second, a holder of Tudou ADSs can complete, date and submit a new ADS voting instruction card to the Tudou depositary
bearing a later date than the ADS voting instruction card sought to be revoked.
If
you hold your Tudou ADSs through a broker, bank or nominee and you have instructed your broker, bank or nominee to give ADS voting instructions to the Tudou depositary, you must
follow the directions of your broker, bank or nominee to change those instructions.
Whom to Call for Assistance
If you need assistance, including help in changing or revoking your proxy, contact Michael Fu, Investor Relations Director,
Tudou Holdings Limited, by telephone at (+86 21) 5170-2375, email at mfu@tudou.com or mail at Tudou Holdings Limited, Building No. 6, X2 Creative Park, 1238 Xietu
Road, Xuhui District, Shanghai 200032, People's Republic of China.
Solicitation of Proxies
Tudou will ask banks, brokers and other custodians, nominees and fiduciaries to forward Tudou's proxy solicitation materials to the
beneficial owners of Tudou shares or Tudou ADSs held of record by such nominee holders. Tudou will reimburse these nominee holders for their customary clerical and mailing expenses incurred in
forwarding the proxy solicitation materials to the beneficial owners and in obtaining voting instructions from those owners. In addition, proxies may be solicited by mail, in person, by telephone, by
internet or by facsimile by certain of Tudou's officers, directors and employees. These persons will receive no additional compensation for solicitation of proxies but may be reimbursed for reasonable
out-of-pocket expenses. Tudou will pay all expenses of filing, printing and mailing this joint proxy statement/prospectus to Tudou shareholders and Tudou ADS holders.
Other Business
Tudou is not currently aware of any business to be acted upon at the Tudou AGM other than the matters discussed in the notice convening
the meeting.
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THE MERGER
Background of the Merger
The following is a summary of the meetings, negotiations, material contacts and discussions between Youku and Tudou that preceded the
execution of the Merger Agreement. These events occurred in China and Hong Kong and, as a result, China Standard Time is used for all dates and times given.
The
board of directors of each of Youku and Tudou, as part of its ongoing evaluation of the company's business strategy, regularly reviews and discusses with the senior management team
the company's
performance, prospects and overall strategic direction, and considers ways to strengthen the company's business and enhance long-term shareholder value. These reviews and discussions have
focused on, among other things, the business environment facing China's online video industry generally and each company's competitive position. In recent years, the board of directors of each company
also discussed potential opportunities for business combinations, acquisitions and other strategic alternatives. Both companies have had conversations in the past with various other parties regarding
potential strategic transactions, including possible business combinations. Youku periodically received financial advice from an international investment bank with respect to potential acquisitions. A
second investment bank also periodically advised Youku on PRC business and other issues relevant to acquisitions and associated post-acquisition integration.
Beginning
in 2009, and before the events leading up to the negotiation and execution of the Merger Agreement, Tudou engaged in numerous discussions with other companies regarding a
variety of possible business opportunities. These discussions ranged from possible commercial or strategic partnering arrangements to possible acquisitions by or of Tudou or other business combination
transactions. Tudou received, on occasion, unsolicited inquiries from third parties regarding possible business combinations or other strategic transaction opportunities. During this period, Credit
Suisse Securities (USA) LLC and China eCapital Corporation periodically provided Tudou with strategic advice with respect to strategic alternatives and possible acquisitions and business
combinations.
In
the context of these discussions, representatives of Youku and Tudou, from time to time between 2009 and 2011, engaged in informal discussions regarding the possibility of mutual
business opportunities, including a potential business combination transaction involving the two companies. All discussions during this period were preliminary in nature, did not lead to any specific
proposal or agreements and the discussions were ultimately discontinued.
In
November 2011, Morgan Stanley began providing strategic advice to Tudou in connection with the Tudou Board's consideration of various potential strategic alternatives. The Tudou Board
sought Morgan Stanley's financial advice due to its experience in and knowledge about advising clients on strategic alternatives in similar situations and its familiarity with the online video
industry in China. As Tudou believed that the industry was likely to undergo consolidation, Tudou determined to actively explore such opportunities.
In
early 2012, the Tudou Board continued to discuss and consider potential strategic alternatives that might be available to it, including a potential business combination with Youku and
other potential strategic combinations. Representatives of Morgan Stanley continued to advise the Tudou Board on the evaluation of the current business and future prospects of Tudou and the strategic
considerations involved in a combination between Tudou and Youku, as well as between Tudou and other competitors in China's online video industry. During this period, Tudou's senior management and the
Tudou Board also considered potential business combinations with certain of Tudou's competitors in the online video industry as well as strategic partnerships and joint ventures with, and acquisitions
of, other companies to expand Tudou's business. As a result of these discussions and its periodic review of potentially available transactions and acquisitions, Tudou believes it is generally aware of
the opportunities for strategic transactions and acquisitions involving companies in China's online video industry generally and Tudou in particular.
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In
February 2012, Youku and Tudou reengaged in discussions and outlined the structure and some of the key terms of a potential transaction that were largely consistent with the terms of
the Merger which were ultimately agreed upon. For the reasons discussed below under "Reasons for the Merger and Recommendation of the Youku Board" and "Reasons for the Merger
and Recommendation of the Tudou Board" beginning on pages 102 and 105, respectively, the Youku Board and the Tudou Board considered the proposed combination of Youku and Tudou to be more
attractive to Youku, Tudou and their respective shareholders than other potential strategic alternatives available to Youku and Tudou.
During
the first week of February 2012, Eric X. Li, a representative of Chengwei Capital, a principal pre-IPO investor in Youku, approached Mr. Jixun Foo, a
representative of GGV Capital, a principal pre-IPO investor in Tudou, to discuss the possibility of a potential combination of the companies. Mr. Foo indicated his willingness to
discuss it further, and the two agreed to meet.
On
February 15, 2012, Youku's board of directors convened a special meeting to review and assess potential transactions with other major industry players in China. During this
meeting, the Youku Board instructed Youku's management to proceed with discussion of a potential business combination transaction with Tudou as soon as practicable, subject to the Youku Board's
approval of terms and conditions of the transaction.
On
February 16, 2012, Mr. Victor Koo, the Chief Executive Officer of Youku, Mr. Dele Liu, the Senior Vice President and Chief Financial Officer of Youku, and
Mr. Li met Mr. Foo in Beijing. During the meeting, the parties had a preliminary discussion about the possibility of combining Youku and Tudou by way of a
stock-for-stock merger. Following the meeting, Mr. Foo informed Mr. Gary Wei Wang, the Chief Executive Officer of Tudou, regarding the meeting.
After
the meeting with Mr. Foo on February 16, 2012, Youku instructed its outside counsel, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden"), to prepare a
draft memorandum of understanding regarding certain major terms for the proposed business combination.
On
February 19, 2012, Youku delivered a preliminary, working draft memorandum of understanding to Mr. Foo, and on February 20, 2012, Youku delivered an updated
preliminary draft memorandum of understanding to Mr. Foo. Neither draft included a proposed exchange ratio.
On
February 22, 2012, Mr. Wang, Ms. Bin Yu, the Chief Financial Officer of Tudou, and Mr. Foo discussed the draft memorandum of understanding with
Kirkland & Ellis International LLP ("Kirkland & Ellis"), Tudou's outside legal counsel.
On
February 23, 2012, Tudou provided Youku with its high-level written comments on certain of the terms in Youku's February 20 draft memorandum of
understanding, but did not include a proposed exchange ratio or any other pricing information. From February 19 to February 24, 2012, representatives of Youku, including Mr. Li,
continued to discuss with Mr. Foo the terms of the proposed business combination. The draft memorandum of understanding was never finalized. On February 24, 2012, management and certain
directors and shareholder representatives of Youku and Tudou had a series of meetings in Hong Kong to discuss the proposed business combination. Representatives of Skadden and Kirkland & Ellis
were present during the final meeting of the day. The parties preliminarily discussed that as of the closing of the proposed business combination, all of Tudou's issued shares would be exchanged for
28.5% of Youku's shares on a fully diluted basis. The parties also discussed entering into a mutual confidentiality agreement, including "standstill" provisions, to permit Youku and Tudou to exchange
confidential information to facilitate their determination of whether to proceed with the proposed merger. Later that night, Skadden sent a draft mutual confidentiality agreement to Kirkland &
Ellis.
Later
on February 24, 2012, Mr. Liu informed a representative of Allen & Company of the potential merger. Youku subsequently engaged Allen & Company as its
financial advisor to evaluate, and to render to the Youku Board an opinion regarding, the exchange ratio to be provided for in the
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merger
from a financial point of view to Youku. Allen & Company previously acted as an underwriter in Youku's initial public offering and its follow-on offering.
In
the evening on February 24, 2012, following the meeting with Youku, representatives of Tudou met with representatives of Morgan Stanley and Kirkland & Ellis to discuss
the potential merger and related matters. Thereupon, Tudou retained Morgan Stanley as its financial advisor to provide advice and assistance in connection with the potential merger and to render an
opinion to the Tudou Board as to the fairness from a financial point of view.
On
the morning of February 25, 2012, the Youku Board held a special meeting to discuss the proposed merger. Members of Youku's management summarized the meetings between
representatives of Youku and Tudou, and provided an update on developments regarding the key terms of the proposal for the potential combination, including the proposed merger consideration to be paid
to Tudou shareholders.
Following a full discussion, the Youku Board authorized management to further negotiate the proposed merger with Tudou.
Also
on the morning of February 25, 2012, management and certain directors and shareholder representatives of each of Youku and Tudou, together with Skadden and Kirkland &
Ellis, met in Hong Kong to discuss a protocol for conducting mutual due diligence and a proposed work plan and transaction timeline. During the remainder of the day, Skadden and Kirkland &
Ellis negotiated the terms of the confidentiality agreement and that evening, Youku, Tudou and certain of their shareholders signed a mutual confidentiality agreement along the lines previously
discussed.
Also
on February 25, 2012, Youku decided that Youku's existing PRC legal advisor, TransAsia Lawyers, would continue its role as Youku's PRC legal advisor in connection with the
proposed merger, and determined to retain Conyers Dill & Pearman as Youku's Cayman Islands legal advisor in connection with the merger. Also on February 25, 2012, Tudou decided that
Tudou's existing PRC legal advisor, Fangda Partners, and existing Cayman Islands legal advisor, Maples and Calder, would continue their respective roles as Tudou's PRC legal advisor and Cayman Islands
legal advisor in connection with the proposed merger.
On
February 26, 2012, the Tudou Board held a special telephonic meeting to discuss the proposed merger. Representatives of Kirkland & Ellis and Maples and Calder
participated in the meeting. Mr. Wang and Mr. Foo reviewed with the Tudou Board the key terms of the proposal as well as an update on the competitive landscape of China's online video
industry, Tudou's competitors and its consolidation opportunities. Kirkland & Ellis and Maples and Calder each gave a presentation to the Tudou Board regarding the board's fiduciary duties
under Cayman Islands law in connection with any potential transaction with Youku. The Tudou Board and its advisors then discussed the merits of Youku's proposal and whether to undertake a sale process
involving other potential bidders, the strategic focus of potential counterparties and the likelihood of obtaining a higher price than Youku's proposal from another acquirer. The Tudou Board concluded
that, unless future developments made such actions advisable, a broad sale process would not be in the best interests of Tudou or its shareholders because such a process, among other things, would
potentially risk the withdrawal of Youku's proposal or an adverse change in such proposal, was likely to become known in the market and, given both the premium implied by Youku's proposed exchange
ratio and the expected future financial performance of Tudou if it were to continue to operate as a stand-alone company, would be unlikely to produce a competing proposal on terms better than Youku's
proposal. After a full discussion, the Tudou Board authorized directors Gary Wei Wang, Hany Nada and David Hand and Mr. Jixun Foo to continue negotiations with Youku and to develop the terms of
the proposal.
On
February 26, 2012, teams of Youku and Tudou employees, legal advisors and consultants began a due diligence review of Tudou and Youku, respectively, including remote and
on-site documentary due diligence and discussions with Tudou and Youku management. Between February 26, 2012 and the signing of the Merger Agreement, both Youku and Tudou continued
and completed their respective
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due
diligence investigations and conducted various meetings with Youku's and Tudou's management to discuss the respective business and financial conditions of the two companies.
On
February 28, 2012, Skadden delivered the initial draft of the Merger Agreement to Tudou and Kirkland & Ellis. Later that day, representatives of Tudou and
Kirkland & Ellis held a telephonic meeting, during which Kirkland & Ellis summarized the draft merger agreement, including, among other things, the lack of overall certainty of closing
provided by the draft merger agreement.
On
February 29, 2012, at the direction of Tudou, Kirkland & Ellis provided Skadden comments on the initial draft of the Merger Agreement. The revised draft of the merger
agreement, among other things, increased the certainty of the merger for Tudou relative to the initial draft of the merger agreement that had been provided.
Later
on February 29, 2012, Skadden and Kirkland & Ellis met in Shanghai to discuss, among other things, (1) the scope of the representations and warranties to be
made by Tudou and Youku, (2) Youku's right to terminate the Merger Agreement, (3) the availability of certain equitable remedies to each party and (4) treatment of the Tudou share
options.
On
March 1, 2012, at the direction of Tudou, Kirkland & Ellis provided Skadden responses to certain of the issues raised by Skadden during the meeting on the previous day.
On
March 2, 2012, Skadden provided a revised draft of the Merger Agreement to Kirkland & Ellis and Tudou. Later that day, representatives of Skadden and Kirkland &
Ellis met in Shanghai to discuss the draft Merger Agreement and the terms of the merger. The parties discussed, among other things, (1) the size of the termination fee, (2) the threshold
ownership of Youku shares required for certain Tudou shareholders to retain Youku Board representation rights, (3) the structure and authority of the members of the proposed transition
management committee, (4) the treatment of the Tudou share options, (5) the non-competition agreements relating to certain key employees of Tudou, and (6) the
percentages of the aggregate voting power and total outstanding shares that each of Youku and Tudou expected to agree to enter into voting agreements in connection with the proposed merger.
On
March 3, 2012, Kirkland & Ellis provided comments on the revised draft of the Merger Agreement to Skadden and Youku.
On
March 5, 2012, shareholder representatives of Youku and Tudou, Skadden and Kirkland & Ellis met in Shanghai to discuss the major outstanding issues relating to the draft
Merger Agreement. The parties discussed, among other things, the size of the reciprocal termination fee and the consequences under the Merger Agreement of Youku possibly failing to receive shareholder
approval for the proposed share issuance.
On
March 6, 2012, the Youku Board held a special meeting to discuss the status of negotiations regarding the proposed merger. Members of Youku's senior management and
representatives of Allen & Company also attended this meeting. The Youku Board reviewed with senior management the status of the negotiations and the terms of the merger and the Merger
Agreement, as well as the proposed calculation of the merger exchange ratio. Mr. Koo provided an update on the results of the due diligence conducted to date by Youku and its legal and
accounting advisors. Also at this meeting, Allen & Company reviewed with the Youku Board Allen & Company's preliminary financial analysis of the merger exchange ratio and informed the
Youku Board that, subject to final calculation of the merger exchange ratio and based on (and assuming no material changes in) the information available to Allen & Company as of that date,
Allen & Company believed it would be in a position to render to the Youku Board an opinion as to the fairness, from a financial point of view, to Youku of the merger exchange ratio.
Allen & Company subsequently delivered a financial presentation and written opinion, dated March 11, 2012, to the Youku Board, once the 7.177x Share Exchange Ratio was determined, to the
effect that, as of that date and based on and subject to the matters described in the opinion, the 7.177x Share Exchange Ratio was fair, from a financial point of view, to Youku. Following further
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discussion
of the strategic rationale for the transaction, the Youku Board agreed to reconvene on March 8, 2012 to determine whether to approve the merger.
Also
on March 6, 2012, Tudou provided Youku with its proposed calculation of the merger exchange ratio. Between March 6, 2012 and the signing of the Merger Agreement, Youku
and Tudou continued to discuss the precise calculation of the exchange ratio.
On
March 7, 2012, Skadden distributed to Kirkland & Ellis a revised draft Merger Agreement to reflect comments from Youku. Later that day, Skadden and Kirkland &
Ellis discussed the draft Merger Agreement addressing, among other things, the amount of the termination fee, the circumstances under which Youku and Merger Sub would be required to pay the
termination fee and the scope of the restriction on Youku relating to discussions or solicitations of competing proposals.
In
the morning of March 8, 2012, the Youku Board re-convened to discuss the proposed transaction. Mr. Koo updated the Youku Board on the results of the due
diligence conducted to date by both Youku and its legal and accounting advisors, as well the status of the negotiation of the terms of
the merger and the Merger Agreement. The Youku Board further discussed the reasons for the proposed merger, including the potential synergies arising from the proposed combination. After taking into
consideration the discussions with members of Youku's senior management, referring in part to prior discussions of these topics at prior meetings, and the anticipated receipt of the opinion of
Allen & Company as noted above, the Youku Board determined to proceed with the proposed merger and share issuance. See "Reasons for the Merger and Recommendation of the Youku
Board" beginning on page 102. Accordingly, the Youku Board unanimously approved the form of the Merger Agreement and the plan of merger presented to the Youku Board and the merger and other
transactions contemplated by the Merger Agreement and recommended that Youku shareholders approve the share issuance and the name change in connection with the merger. The Youku Board then directed
and authorized Youku's management to proceed to finalize and execute the definitive Merger Agreement based on the terms reviewed at the meeting.
Also
in the morning of March 8, 2012, the Tudou Board met telephonically to discuss the status of negotiations regarding the potential merger with Youku. Representatives of Morgan
Stanley, Kirkland & Ellis and Maples and Calder were present at this meeting. Together with Tudou's financial and legal advisors, the Tudou Board reviewed the chronology of events since the
previous Tudou Board meeting and the various work streams engaged in the proposed transaction, including the due diligence review, financial analysis and negotiations regarding the Merger Agreement.
Representatives of Maples and Calder again reviewed with the Tudou Board their fiduciary duties under Cayman Islands law in connection with the proposed transaction. Representatives of
Kirkland & Ellis also gave a presentation to the Tudou Board summarizing the key terms of the proposed Merger Agreement and ancillary agreements. Also at this meeting, representatives of Morgan
Stanley presented to the Tudou Board their financial analysis of a potential transaction between Tudou and Youku. Following the presentation, Morgan Stanley rendered its oral opinion, subsequently
confirmed in writing, to the Tudou Board that as of such date and, based upon and subject to the assumptions, qualifications and limitations set forth in the opinion, the exchange ratio pursuant to
the Merger Agreement was fair, from a financial point of view, to the holders of Tudou Class A shares and Tudou Class B shares and holders of Tudou ADSs. The fairness opinion of Morgan
Stanley is more fully described under the section "Opinion of Morgan Stanley Asia Limited as Financial Advisor to Tudou" beginning on page 113. Following the advisor presentations,
the Tudou Board and its advisors discussed the principal reasons for the merger, Tudou's prospects as a standalone company and the absence of any alternatives transactions that were known to the Tudou
Board or its advisors that would be reasonably likely to result in a value for Tudou shareholders in excess of the merger consideration. See "Reasons for the Merger and Recommendation of
the Tudou Board" beginning on page 105. The Tudou Board then authorized its advisors to negotiate and finalize the Merger Agreement.
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Later
on March 8, 2012, Kirkland & Ellis distributed comments on the revised draft Merger Agreement to Skadden. Later that day, Mr. Li and Mr. Foo agreed on
the remaining significant open matters, including the amount of the termination fee, the method of calculating the merger exchange ratio, the authority of Tudou's representative on the transition
management committee, the length and scope of
non-competition agreement for Mr. Wang and the scope of the restriction on Youku relating to discussions or solicitations of competing proposals.
Also
on March 8, 2012, senior management and corporate development and operations teams from both Youku and Tudou met to discuss the process of planning to integrate the two
companies' businesses post-closing.
During
March 9, 2012 and March 10, 2012, the parties finalized the merger exchange ratio, and Skadden and Kirkland & Ellis engaged in discussions and negotiations to
finalize the Merger Agreement.
On
March 10, 2012, the Tudou Board held another special telephonic meeting to review the proposed merger between Tudou and Youku on the terms set forth in the draft Merger
Agreement previously presented to the Tudou Board. Representatives of Maples and Calder provided a further overview of the Tudou Board's fiduciary duties under Cayman Islands law. In addition,
Kirkland & Ellis summarized the resolution of certain key issues under the Merger Agreement that had been discussed at the March 8 meeting of the Tudou Board. Representatives of Morgan
Stanley reviewed and updated their financial analysis of the merger. Thereafter, Morgan Stanley orally reconfirmed its opinion to the Tudou Board that as of such date and, based upon and subject to
the assumptions, qualifications and limitations set forth in the opinion, the exchange ratio pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of Tudou
Class A shares and Tudou Class B shares and holders of Tudou ADSs. In view of the knowledge of the Tudou Board of the industry as well as potential parties that would be interested in a
combination with Tudou and after discussion with Morgan Stanley, the Tudou Board also confirmed that Youku was the party best positioned to offer a business combination on the most favorable terms
available to Tudou and that seeking other indications of interest was not likely to result in a better transaction and could put the transaction with Youku at risk. After taking into consideration the
discussions with its financial advisor, outside counsel, and members of Tudou senior management, referring in part to prior discussions of these topics at prior meetings, the Tudou Board determined
that it was fair to, and in the best interests of, Tudou and its shareholders to proceed with the proposed merger. See "Reasons for the Merger and Recommendation of the Tudou Board"
beginning on page 105. Accordingly, the Tudou Board authorized and approved the Merger Agreement, the Plan of Merger and the Merger and the transactions contemplated by the Merger Agreement,
and recommended that the shareholders of Tudou authorize and approve the Merger, the Merger Agreement and the Plan of Merger. The Tudou Board then authorized its advisors to continue negotiating and
to finalize the Merger Agreement.
On
March 11, 2012, Youku and Tudou executed the Merger Agreement and related ancillary documents.
On
March 12, 2012, prior to the opening of the financial markets in New York City, Youku and Tudou issued a joint press release announcing the execution of the Merger Agreement.
Reasons for the Merger and Recommendation of the Youku Board
On March 8, 2011, the Youku Board unanimously (1) approved the Merger Agreement, the Plan of Merger and the Merger and
the other transactions contemplated by the Merger Agreement, (2) directed that the Share Issuance and the Name Change be submitted to Youku shareholders for authorization and approval, and
(3) recommended that Youku shareholders authorize and approve the Share Issuance and the Name Change.
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Accordingly, the Youku Board recommends that Youku shareholders vote "FOR" the resolutions to authorize and approve the Share Issuance and
the Name Change.
The
purpose of the Merger is to create a differentiated leader in the online video market in China with the largest user base, most comprehensive content library, most advanced bandwidth
infrastructure and strongest monetization capability within the sector. As described above under "Background of the Merger," the Youku Board, in evaluating the Merger and the Merger
Agreement, consulted with Youku's management and its legal and financial advisors and, in reaching its decision at its meeting on March 8, 2012 to authorize and approve the Merger Agreement,
the Plan of Merger and the Merger and to recommend that Youku shareholders authorize and approve the Share Issuance and the Name Change, considered a variety of factors weighing positively and
negatively in respect of the Merger. The discussion of the factors considered by the Youku Board in this sub-section is not intended to be exhaustive and only includes the material factors considered
by the Youku Board. In view of the large number of factors considered by the Youku Board in connection with the evaluation of the Merger Agreement and the Merger and the complexity of these matters,
the Youku Board did not consider it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching its determination, nor did
the Youku Board evaluate whether these factors were of equal importance. In addition, each director may have given different weight to the various factors and may have viewed some factors more
positively or negatively than others. This explanation of the Youku Board's reasons for the Merger and all other information presented in this sub-section is forward-looking in nature and, therefore,
should be read in light of the factors discussed under "Forward-Looking Statements."
In
addition to the strategic benefits of the Merger described in "Background of the Merger," in reaching its determination to approve the Merger Agreement, the Plan of
Merger and the Merger, the Youku Board also considered the following factors:
-
-
the Youku Board's belief that the combined company will have the reach and scale to bring its users high quality content
at high speeds;
-
-
the Youku Board's belief that trends in the online video industry favor consolidation, and, following the proposed Merger,
the combined company would be a clear and dominant leader in the industry;
-
-
the Youku Board's belief that it will see significant synergies across a number of areas including leveraging licensed
content over a larger user base and realizing efficiencies in bandwidth management and other common expenses;
-
-
the recommendation of Youku's management to proceed with the Merger;
-
-
the financial presentation and opinion, dated March 11, 2012, of Allen & Company to the Youku Board as to
the fairness, from a financial point of view and as of the date of the opinion, to Youku of the 7.177x Share Exchange Ratio, as more fully described below under the heading "Opinion of
Allen & Company LLC as Financial Advisor to Youku";
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-
the Youku Board's belief that the Name Change can help the combined company effectively retain the values and benefits
associated with the Tudou brand;
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-
the Youku Board's belief that the terms of the Merger Agreement and other documents to be executed in connection with the
consummation of the Merger were reasonable, including, among other things:
-
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the composition of the board of directors for the combined company will allow Youku to have control over the strategic
direction and key decisions of the combined company after the Merger;
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-
-
the limited conditions to the parties' obligations to complete the Merger and the probability that such conditions would
be satisfied;
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the fact that the termination date under the Merger Agreement allows for time that is expected to be sufficient to
complete the Merger;
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-
the ability of Youku to obtain a termination fee of $100.0 million from Tudou if the Merger is not consummated for
certain reasons;
-
-
the fact that Tudou's founder has agreed to enter into a three-year non-compete agreement; and
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-
the fact that all pre-IPO principal shareholders of Tudou have agreed to a 180-day lock-up
restriction after the consummation of the Merger;
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the likelihood that the Merger would be completed based on, among other things:
-
-
the likelihood and anticipated timing of completing the Merger in light of the scope of the conditions to completion,
including the absence of significant required regulatory approvals;
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-
Youku's ability to seek specific performance to prevent breaches of the Merger Agreement and to enforce specifically the
terms of the Merger Agreement; and
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the business reputation and capabilities of Tudou and its management, which the Youku Board believed supported the
conclusion that a transaction with Tudou could be completed in an orderly manner; and
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-
the information and advice previously provided to and reviewed by the Youku Board;
The
Youku Board also considered the following potentially negative factors associated with the Merger:
-
-
the risks and contingencies related to the announcement and pendency of the Merger, including the impact of the Merger on
Tudou's customers, employees, suppliers and relationships with other third parties;
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-
the risk of diverting Youku management focus, employee attention and resources from other strategic opportunities and from
operational matters while working to complete the Merger;
-
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the challenges of combining the businesses, policies, processes, systems, operations and workforces of Youku and Tudou and
realizing the anticipated cost savings and operating synergies, and the risk that potential benefits and synergies sought in the Merger may not be realized or may not be realized within the expected
time period;
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the risk that the parties may incur significant costs and unexpected delays in consummating the Merger;
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-
the fact that there can be no assurance that all conditions to the parties' obligations to complete the Merger (including
the condition that Youku's shareholders approve the Share Issuance) will be satisfied and, as a result, the Merger may not be consummated, and the possible effects on Youku should the parties fail to
complete the Merger;
-
-
the fact that, under the terms of the Merger Agreement, Youku must pay to Tudou a termination fee of
US$100.0 million if the Merger Agreement is terminated under certain circumstances; and
-
-
the fact that, pursuant to the Merger Agreement, Youku must generally conduct its business in the ordinary course and is
subject to a variety of other restrictions on the conduct of its business prior to the closing of the Merger or termination of the Merger Agreement, which may delay or prevent it from pursuing
business opportunities that may arise or preclude actions that would be advisable if Youku were to not enter into the Merger Agreement.
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Reasons for the Merger and Recommendation of the Tudou Board
At a special meeting of the Tudou Board on March 10, 2012, the Tudou Board unanimously determined that the Merger Agreement, the
Plan of Merger and the Merger are advisable, fair to and in the best interests of Tudou and its shareholders, and authorized and approved the Merger Agreement, the Plan of Merger and the Merger. At
the meeting, the Tudou Board further directed that the Merger Agreement, the Plan of Merger and the Merger be submitted to Tudou shareholders at a shareholder meeting for authorization and approval,
and recommended that Tudou shareholders authorize and approve the Merger Agreement, the Plan of Merger and the Merger by way of special resolution.
Accordingly, the Tudou Board recommends that Tudou shareholders vote "FOR" the resolution to authorize and approve the Merger Agreement, the Plan of Merger and
the Merger.
As
described above under "Background of the Merger," the Tudou Board, in evaluating the Merger and the Merger Agreement, consulted with Tudou management and its legal and
financial advisors and, in reaching its decision at its meeting on March 10, 2012 to authorize and approve the Merger Agreement, the Plan of Merger and the Merger, considered a variety of
factors weighing positively and negatively in respect of the Merger. The discussion of the factors considered by the Tudou Board in this sub-section is not intended to be exhaustive and only includes
the material factors considered by the Tudou Board. In view of the large number of factors considered by the Tudou Board in connection with the evaluation of the Merger Agreement and the Merger and
the complexity of these matters, the Tudou Board did not consider it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors considered in
reaching its determination, nor did the Tudou Board evaluate whether these factors were of equal importance. In addition, each director may have given different weight to the various factors and may
have viewed some factors more positively or negatively than others. This explanation of the Tudou Board's reasons for the Merger and all other information presented in this sub-section is
forward-looking in nature and, therefore, should be read in light of the factors discussed under "Forward-Looking Statements."
In
addition to the strategic benefits of the Merger described in "Background of the Merger," in reaching its determination to approve the Merger Agreement and the Merger,
the Tudou Board also considered the following factors:
-
-
the Tudou Board's knowledge of Tudou's business, financial condition, results of operations, prospects and competitive
position and its belief that the Merger is more favorable to Tudou shareholders than other alternatives reasonably available to Tudou and its shareholders, including the alternative of remaining a
publicly-traded company;
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-
the Tudou Board's recognition of the challenges in its efforts to increase shareholder value as an independent
publicly-traded company, including competition from companies with substantially greater resources than Tudou currently has;
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estimated forecasts of Tudou's future financial performance prepared by Tudou's management, together with management's
view of Tudou's financial condition, results of operations, business, prospects and competitive position;
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the limited trading volume of Tudou ADSs on the NASDAQ;
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the possibility that it could take a considerable period of time before the trading price of Tudou ADSs would reach and
sustain at least the implied per ADS merger consideration of US$39.89 (based on the ADS Exchange Ratio of 1.595) as of March 9, 2012, as adjusted for present value;
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-
the financial information and analyses presented by Morgan Stanley to the Tudou Board, and its opinion dated
March 10, 2012 to the Tudou Board to the effect that, as of March 10, 2012, based upon and subject to the assumptions, qualifications and limitations set forth in the opinion, the Share
Exchange Ratio and the ADS Exchange Ratio pursuant to the Merger Agreement was fair,
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from
a financial point of view, to the holders of Tudou shares and holders of Tudou ADSs, respectively. A copy of the written opinion that was delivered to the Tudou Board is included as
Appendix D to this
joint proxy statement/prospectus and is described under "Opinion of Morgan Stanley Asia Limited as Financial Advisor to Tudou," beginning on
page 113;
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-
the recommendation of Tudou's management to proceed with the Merger;
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the fact that Tudou shareholders will have ongoing equity participation in Youku following the Merger, and that Tudou
shareholders will participate in future earnings or growth, if any, and benefit from increases in the value of Youku shares following the Merger, if any;
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-
the information and advice previously provided to and reviewed by the Tudou Board;
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-
prior deliberations of the Tudou Board concerning the Merger and likelihood of alternative strategic transactions and
business strategies involving Tudou;
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-
the financial and other terms of the Merger, the Merger Agreement and related documents; and
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the likelihood and anticipated timing of completing the Merger in light of the scope of the conditions to completion,
including the absence of significant required regulatory approvals.
The
Tudou Board also considered the following potentially negative factors associated with the Merger:
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-
the restrictions on the conduct of Tudou's business prior to the completion of the Merger, which may delay or prevent
Tudou from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of Tudou pending completion of the Merger;
-
-
the possibility that a sale process open to all possible bidders might result in a higher sale price than the Merger
Consideration;
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-
the possibility that the Merger might not be consummated and the negative impact of a public announcement of the Merger on
Tudou's sales and operating results and Tudou's ability to attract and retain key management, marketing and technical personnel; and
-
-
the risks and costs to Tudou if the Merger does not close, including the diversion of management and employee attention,
potential employee attrition and the potential disruptive effect on business and customer relationships.
During
its consideration of the Merger with Youku, the Tudou Board was also aware that certain members of the Tudou Board and certain executive officers of Tudou have agreements and
arrangements which may result in their having interests in the Merger different from, or in addition to, those of Tudou shareholders generally, as described in "Interests of Tudou's
Directors and Executive Officers in the Merger" beginning on page 122.
Opinion of Allen & Company LLC as Financial Advisor to Youku
Youku engaged Allen & Company to render a written opinion to the Youku Board as more fully described below. On March 11,
2012, in connection with the execution of the Merger Agreement, Allen & Company delivered to the Youku Board a written opinion, dated March 11, 2012, to the effect that, as of that date
and based on and subject to the matters described in the opinion, the 7.177x Share Exchange Ratio was fair, from a financial point of view, to Youku.
The
full text of Allen & Company's written opinion, dated March 11, 2012, which describes the assumptions made, procedures followed, matters considered and limitations on
the review undertaken, is attached to this joint proxy statement/prospectus as Appendix C.
Allen & Company's opinion was intended for the benefit and use of the
Youku Board (in its capacity as such) in connection with its evaluation of the Share Exchange Ratio from a financial point of view to Youku and does not address
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any other aspect of the Merger. Allen & Company's opinion does not constitute a recommendation as to what course of action the Youku Board or Youku should pursue in connection with the Merger,
or otherwise address the merits of the underlying decision by Youku to engage in the Merger, including in comparison to other strategies or transactions that might be available to Youku or in which
Youku might engage. The opinion does not constitute advice or a recommendation to any security holder as to how such security holder should vote or act on any matter relating to the Merger or
otherwise.
Allen &
Company was not requested to, and it did not, recommend the specific consideration payable in the Merger. The type and amount of consideration payable in the Merger was
determined through negotiation between Youku and Tudou, and the decision to enter into the Merger Agreement was solely that of the Youku Board. Allen & Company's opinion and financial analysis
were only one of many factors considered by the Youku Board in its evaluation of the Merger and should not be viewed as determinative of the views of the Youku Board or management with respect to the
Merger or the Share Exchange Ratio. Allen & Company's opinion as expressed in its opinion letter reflected and gave effect to Allen & Company's general familiarity with Youku and Tudou
as well as information which it received during the course of its assignment, including information provided by Youku's and Tudou's managements in the course of discussions relating to the Merger as
more fully described below. In arriving at its opinion, Allen & Company neither conducted a physical inspection of the properties or facilities of Youku or Tudou nor made or obtained any
evaluations or appraisals of the assets or liabilities, contingent or otherwise, of Youku or Tudou, or conducted any analysis concerning the solvency of Youku or Tudou.
In
arriving at its opinion, Allen & Company, among other things:
-
-
reviewed the financial terms and conditions of the Merger Agreement;
-
-
reviewed certain publicly available historical business and financial information relating to Youku and Tudou, including
their respective public filings, market prices and trading volumes;
-
-
reviewed certain internal financial statements and other financial and operating data of Youku and Tudou provided by
Youku's and Tudou's managements;
-
-
reviewed certain internal financial projections relating to Youku for calendar year 2012 prepared by Youku's management
and certain publicly available financial projections relating to Youku for calendar years 2013 and 2014 discussed with Allen & Company by Youku's management;
-
-
reviewed certain internal financial projections relating to Tudou for calendar years 2012 through 2016 prepared by Tudou's
management;
-
-
reviewed certain information relating to potential strategic, financial and operational benefits anticipated by Youku's
management to result from the Merger;
-
-
held discussions with Youku's and Tudou's managements relating to the past and current operations and financial condition
and prospects of Youku and Tudou;
-
-
reviewed and analyzed certain publicly available information, including certain stock market data and financial
information, relating to selected companies with businesses which Allen & Company deemed relevant in evaluating Youku and Tudou;
-
-
reviewed and analyzed certain publicly available financial information relating to selected transactions which
Allen & Company deemed relevant in evaluating the Merger; and
-
-
conducted such other financial analyses and investigations as Allen & Company deemed necessary or appropriate for
the purposes of its opinion.
In
rendering its opinion, Allen & Company relied on and assumed, with Youku's consent and without independent verification, the accuracy and completeness of all of the financial,
legal, regulatory, tax, accounting and other information available to Allen & Company from public sources, provided to Allen & Company by Youku, Tudou or their respective representatives
or otherwise reviewed by
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Allen &
Company. With respect to financial projections and other information prepared by Youku's and Tudou's managements relating to Youku, Tudou and potential strategic, financial and
operational benefits anticipated by Youku's management to result from the Merger, Allen & Company was advised and assumed, with Youku's consent, that they were reasonably prepared in good faith
reflecting the best currently available estimates and judgments of Youku's and Tudou's managements, as the case may be, as to the future operating and financial performance of Youku and Tudou and such
strategic, financial and operational benefits. With respect to publicly available financial projections relating to Youku referred to above, with Youku's consent, Allen & Company assumed that
they were a reasonable basis upon which to evaluate the future operating and financial performance of Youku for the periods reflected therein and used such financial projections in performing
Allen & Company's analyses. In addition, Allen & Company assumed, with Youku's consent, that the financial results (including the strategic, financial and operational benefits) reflected
in the financial projections and other information utilized in Allen & Company's analyses would be realized in the amounts and at the times contemplated thereby. Allen & Company assumed
no responsibility for and expressed no view or opinion as to such financial projections and other information or the assumptions on which they were based. Allen & Company relied, without
independent verification and with Youku's consent, upon the assessments of Youku's management as to (1) industry trends and prospects in, and foreign ownership and other regulatory matters
relating to, the Chinese markets in which Youku and Tudou operate and their potential impact on Youku and Tudou; (2) Youku's and Tudou's existing technology and services and the validity of,
and risks associated with, Youku's and Tudou's future technology and services (including any potential or pending copyright infringement claims involving such existing and future technology and
services or other litigation involving Youku and Tudou); and (3) Youku's ability to retain key advertisers and partners of Tudou and to integrate the business of Tudou. Allen & Company
assumed, with Youku's consent, that there would be no developments with respect to any of the foregoing that would affect its analyses or opinion.
Allen &
Company's opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Allen & Company as
of, the date of its opinion. The credit, financial and stock markets have been experiencing unusual volatility and Allen & Company expressed no opinion or view as to any potential effects of
such volatility on Youku, Tudou or the Merger. It should be understood that subsequent developments may affect the conclusion expressed in Allen & Company's opinion and that Allen &
Company assumed no responsibility for advising any person of any change in any matter affecting its opinion or for updating or revising its opinion based
on circumstances or events occurring after the date of its opinion. In connection with its engagement, Allen & Company was not requested to, and it did not, participate in the negotiation or
structuring of the Merger. Allen & Company did not express any opinion as to the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation payable to any
officers, directors or employees of any party to the Merger, or any class of such persons or any other party, relative to the Exchange Ratio or otherwise. Allen & Company did not express any
opinion as to what the value of Youku Class A shares or Youku ADSs would be when issued in connection with the Merger or the prices at which Youku Class A shares, Youku ADSs or any other
securities of Youku or Tudou might trade or otherwise be transferable at any time.
In
addition, Allen & Company did not express any opinion as to any tax or other consequences that might result from the Merger, nor did Allen & Company's opinion address
any legal, regulatory, tax or accounting matters, as to which Allen & Company understood that Youku obtained such advice as it deemed necessary from qualified professionals. Allen &
Company assumed, with Youku's consent, that the Merger would qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended. Allen & Company also assumed, with Youku's consent, that the Merger would be consummated in accordance with the terms and conditions set forth in the Merger Agreement and that
all governmental, regulatory or other
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consents
necessary for the consummation of the Merger as contemplated by the Merger Agreement would be obtained without adverse effect on Youku, Tudou or the Merger.
Allen &
Company's opinion was limited to the fairness, from a financial point of view and as of the date of its opinion, to Youku of the 7.177x Share Exchange Ratio without taking
into account different attributes of Tudou Class A shares, Tudou Class B shares and Tudou ADSs, including with respect to control, voting, liquidity or other rights, restrictions or
aspects which might distinguish such securities. Allen & Company's opinion did not address any other aspect or implication of the Merger, including, without limitation, the form of securities
issuable in the Merger or any aspects or implications of any other agreement, arrangement or understanding entered into in connection with the Merger or otherwise. Except as described in this summary,
Youku imposed no other instructions or limitations on Allen & Company with respect to the investigations made or the procedures followed by it in rendering its opinion.
This
summary is not a complete description of Allen & Company's opinion or the financial analyses performed and factors considered by Allen & Company in connection with its
opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Allen & Company arrived at its ultimate
opinion based on the results of all analyses undertaken by it and assessed as a whole, and did not draw, in isolation, conclusions from or with
regard to any one factor or method of analysis for purposes of its opinion. Accordingly, Allen & Company believes that its analyses and this summary must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could
create a misleading or incomplete view of the processes underlying Allen & Company's analyses and opinion.
In
performing its analyses, Allen & Company considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date
of its opinion, many of which are beyond Youku's control. No company, business or transaction used in the analyses is identical to Youku, Tudou or the Merger, and an evaluation of the results of those
analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments or transactions analyzed.
The
assumptions and estimates contained in Allen & Company's analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the assumptions and estimates used in, and the results derived from, Allen &
Company's analyses are inherently subject to substantial uncertainty.
The
following is a summary of the material financial analyses performed in connection with Allen & Company's opinion dated March 11, 2012.
The
financial analyses summarized below include information presented in tabular format. In order to fully understand Allen & Company's financial analyses, the tables must be read together with the
text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description
of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Allen & Company's financial
analyses.
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Tudou Financial Analyses
Selected Public Companies Analysis.
Allen & Company reviewed financial and stock market information of Tudou and, among others,
Youku and the
following 22 selected publicly held companies of which 12 were U.S. Internet companies and 10 were Chinese Internet companies:
|
|
|
Selected U.S. Internet Companies
|
|
Selected Chinese Internet Companies
|
Angie's List,
Inc.
|
|
Alibaba.com
Limited
|
Bankrate,
Inc.
|
|
Baidu, Inc.
|
Groupon,
Inc.
|
|
Ctrip.com International,
Ltd.
|
HomeAway,
Inc.
|
|
Focus Media Holding
Limited
|
LinkedIn
Corporation
|
|
Leshi Internet Information
and Technology Corporation
|
Mercadolibre,
Inc.
|
|
Qihoo 360
Technology Co. Ltd.
|
Netflix,
Inc.
|
|
Renren Inc.
|
OpenTable,
Inc.
|
|
Sina Corporation
|
Pandora Media,
Inc.
|
|
Sohu.com Inc.
|
The Active Network,
Inc.
|
|
Tencent
Holdings Ltd.
|
Zillow, Inc.
|
|
|
Zynga Inc.
|
|
|
Allen &
Company reviewed, among other things, enterprise values of Youku and the selected companies, calculated as fully-diluted market value based on closing
stock prices on March 9, 2012, plus debt, less cash and other adjustments, as a multiple of calendar years 2012 and 2013 estimated revenue. The overall ranges of calendar years 2012 and 2013
estimated revenue multiples observed for Youku and the selected companies were 1.6x to 13.0x and 1.4x to 9.3x, respectively (with mean and median calendar year 2012 estimated revenue multiples of 6.8x
and 6.4x, respectively, and a mean and median calendar year 2013 estimated revenue multiple of 5.0x). Allen & Company then applied selected ranges of calendar years 2012 and 2013 estimated
revenue multiples derived from Youku and the selected
companies of 5.9x to 6.9x and 4.5x to 5.5x, respectively, to Tudou's calendar years 2012 and 2013 estimated revenue. Financial data of Youku and the selected companies were based on publicly available
research analysts' estimates, public filings and other publicly available information. Financial data of Tudou were based on internal estimates of Tudou's management. This analysis indicated the
following implied exchange ratio reference ranges based on the closing price of Youku ADSs on March 9, 2012, as compared to the 7.177x Share Exchange Ratio provided for in the Merger:
|
|
|
|
|
Implied Exchange Ratio Reference
Ranges Based On:
|
|
|
|
Share Exchange Ratio
|
CY2012E Revenue
|
|
CY2013E Revenue
|
6.186x - 7.108x
|
|
8.004x - 9.617x
|
|
7.177x
|
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Selected Transactions Analysis.
Allen & Company reviewed financial information for the following 15 transactions in the
Internet industry
publicly announced between April 30, 2007 and February 7, 2011:
|
|
|
|
|
Announcement Date
|
|
Acquiror
|
|
Target
|
02/07/2011
|
|
AOL Inc.
|
|
HuffingtonPost.com LLC
|
01/21/2011
|
|
Orange SA
|
|
Dailymotion SA
|
09/20/2010
|
|
Hellman & Friedman LLC
|
|
Internet
Brands, Inc.
|
05/18/2010
|
|
Yahoo! Inc.
|
|
Associated
Content, Inc.
|
11/09/2009
|
|
Google Inc.
|
|
AdMob
Google Inc.
|
09/01/2009
|
|
Silver Lake
Partners
|
|
Skype Inc.
|
08/05/2009
|
|
Google Inc.
|
|
On2
Technologies Inc.
|
07/22/2009
|
|
Apax Partners
Worldwide LLP
|
|
Bankrate,
Inc.
|
05/15/2008
|
|
CBS
Corporation
|
|
CNET Networks,
Inc.
|
03/13/2008
|
|
AOL Inc.
|
|
Bebo,
Inc.
|
02/22/2008
|
|
Lagardere
Active SAS
|
|
Doctissimo SA
|
12/18/2007
|
|
Naspers Ltd.
|
|
Tradus plc
|
08/01/2007
|
|
The Walt
Disney Company
|
|
Club Penguin
Entertainment, Inc.
|
06/26/2007
|
|
Axel Springer
AG
|
|
auFeminin.com
|
04/30/2007
|
|
Yahoo! Inc.
|
|
Right Media,
Inc.
|
Allen &
Company reviewed, among other things, transaction values, calculated as the purchase prices paid for the target companies in the selected transactions,
plus debt, less cash and other adjustments, as a multiple of such target companies' latest 12 months and, to the extent publicly available, one-year forward revenue as of the
announcement date of the relevant transaction. The overall ranges of latest 12 months and one-year forward revenue multiples observed for the selected transactions were 3.4x to
42.5x and 3.4x to 17.0x, respectively (with mean and median latest 12 months revenue multiples of 12.7x and 8.9x, respectively, and mean and median one-year forward revenue
multiples of 8.3x and 6.7x, respectively). Allen & Company then applied selected ranges of latest 12 months and one-year forward revenue multiples derived from the selected
transactions of 8.4x to 9.4x and 6.2x to 7.2x, respectively, to Tudou's calendar year 2011 revenue and calendar year 2012 estimated revenue. Financial data of the selected transactions were based on
publicly available information at the time of announcement of the relevant transaction. Financial data of Tudou were based on internal estimates of Tudou's management. This analysis indicated the
following implied exchange ratio reference ranges based on the closing price of Youku ADSs on March 9, 2012, as compared to the 7.177x Share Exchange Ratio provided for in the Merger:
|
|
|
|
|
Implied Exchange Ratio Reference Ranges Based On:
|
|
|
Latest 12 Months Revenue
|
|
One-Year Forward Revenue
|
|
Share Exchange Ratio
|
4.773x - 5.252x
|
|
6.425x - 7.347x
|
|
7.177x
|
Discounted Cash Flow Analysis.
Allen & Company performed a discounted cash flow analysis of Tudou to calculate the estimated
present value of
the standalone unlevered, after-tax free cash flows that Tudou was forecasted to generate during calendar years 2012 through 2016 based on internal estimates of Tudou's management.
Allen & Company calculated terminal values for Tudou by applying terminal value multiples of 10.0x to 12.0x to Tudou's calendar year 2016 estimated earnings before interest, taxes, depreciation
and amortization. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 12.0% to 14.0%. This analysis indicated the
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following
implied exchange ratio reference range based on the closing price of Youku ADSs on March 9, 2012, as compared to the 7.177x Share Exchange Ratio provided for in the Merger:
|
|
|
Implied Exchange Ratio Reference Range
|
|
Share Exchange Ratio
|
6.299x - 7.865x
|
|
7.177x
|
Youku Selected Public Company Multiples Analysis
Allen & Company reviewed financial and stock market information of Youku and, among others, Tudou and the selected companies
referred to above under "Tudou Financial AnalysesSelected Public Companies Analysis." Allen & Company reviewed, among other things, enterprise values of the selected companies as a
multiple of calendar years 2012 and 2013 estimated revenue. Allen & Company then compared these multiples derived for Tudou and the selected companies with corresponding multiples implied for
Youku based on the closing price of Youku ADSs on March 9, 2012. Financial data of Tudou and the selected companies were based on publicly available research analysts' estimates, public filings
and other publicly available information. Financial data of Youku were based both on internal estimates of Youku's management for calendar year 2012 and publicly available research analysts' consensus
estimates for calendar years 2012 and 2013. This analysis indicated the following overall implied high, mean, median and low multiples for Tudou and the selected companies, as compared to
corresponding multiples implied for Youku based on the closing price of Youku ADSs on March 9, 2012 and both internal estimates of Youku's management and publicly available research analysts'
consensus estimates for Youku:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Multiples for
Youku Based on Closing
Youku ADS Price on
March 9, 2012
|
|
|
|
Implied Multiples
for Tudou and Selected Companies
|
|
|
|
Consensus
Estimates
|
|
Management
Estimates
|
|
Enterprise Value as
Multiple of Revenue:
|
|
High
|
|
Mean
|
|
Median
|
|
Low
|
|
CY2012E
|
|
|
13.0x
|
|
|
6.5x
|
|
|
6.1x
|
|
|
1.6x
|
|
|
9.1x
|
|
|
8.0x
|
|
CY2013E
|
|
|
9.3x
|
|
|
4.9x
|
|
|
5.0x
|
|
|
1.4x
|
|
|
5.5x
|
|
|
|
|
Other Factors
Allen & Company also noted certain additional factors that were not considered part of Allen & Company's financial
analyses with respect to its opinion but were referenced for informational purposes, including, among other things, the following:
-
-
financial and stock market information of nine other selected publicly held Internet companies (Amazon.com,
Ancestry.com Inc., AOL Inc. Inc., eBay Inc., Google Inc., IAC/InterActiveCorp, priceline.com Incorporated, TripAdvisor, Inc. and Yahoo! Inc.),
including overall ranges of calendar years 2012 and 2013 estimated revenue multiples observed for the selected companies of 0.6x to 5.8x and 0.6x to 4.9x, respectively (with mean and median calendar
year 2012 estimated revenue multiples of 2.8x and 2.3x, respectively, and mean and median calendar year 2013 estimated revenue multiples of 2.4x to 2.1x, respectively); and
-
-
potential pro forma financial effects of the merger on Youku's calendar years 2012, 2013 and 2014 estimated earnings per
share ("EPS"), after giving effect to potential synergies anticipated by Youku's management to result from the Merger, based on internal estimates of Youku's management relating to Youku for calendar
year 2012, publicly available research analysts' consensus estimates relating to Youku for calendar years 2013 and 2014 and internal estimates of Tudou's management relating to Tudou, which indicated
that the Merger could be accretive to Youku's calendar year 2012 estimated EPS (by reducing the amount by which Youku's calendar year 2012 estimated EPS could be negative) and could be accretive to
Youku's calendar years 2013 and 2014 estimated EPS by approximately 259% and 97%, respectively. The actual results achieved by the combined company may vary from forecasted results and the variations
may be material.
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Miscellaneous
Youku has agreed to pay Allen & Company a customary fee upon delivery of Allen & Company's opinion. No portion of Allen's
fee is contingent upon either the conclusion expressed in Allen & Company's opinion or successful consummation of the Merger. Youku also has agreed to reimburse Allen & Company for its
reasonable expenses, including reasonable fees and expenses of its legal counsel, and to indemnify Allen & Company and related parties against certain liabilities, including liabilities under
the federal securities laws, relating to, or arising out of, its engagement.
Youku
selected Allen & Company to act as its financial advisor in connection with the Merger based on Allen & Company's reputation, experience and familiarity with Youku
and its business. Allen & Company, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and
acquisitions, private placements and related financings, bankruptcy reorganizations and similar recapitalizations, negotiated underwritings, secondary distributions of listed and unlisted securities,
and valuations for corporate and other purposes. Allen & Company in the past has provided and in the future may provide investment banking services to Youku, for which services Allen &
Company has received and may receive compensation, including, during the two-year period prior to date of its opinion, acting as placement agent in connection with a private
placement of Youku preferred shares and co-manager in connection with the initial public offering and a follow-on offering of Youku ADSs. In the ordinary course of business as a broker-dealer and
market maker, Allen & Company may have long or short positions, either on a discretionary or non-discretionary basis, for its own account or for those of its clients, in the debt and equity
securities, or related derivative securities, of Youku and Tudou. The issuance of Allen & Company's opinion was approved by Allen & Company's fairness opinion committee.
Opinion of Morgan Stanley Asia Limited as Financial Advisor to Tudou
Tudou retained Morgan Stanley to act as its financial advisor in connection with the Merger because of its qualifications, expertise
and reputation. On March 8, 2012, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, to the Tudou Board that as of such date and, based upon and subject to the
assumptions, qualifications and limitations set forth in the opinion, the Share Exchange Ratio and the ADS Exchange Ratio pursuant to the Merger Agreement was fair, from a financial point of view, to
the holders of Tudou shares and holders of Tudou ADSs, respectively.
The full text of Morgan Stanley's written fairness opinion dated March 10, 2012, is attached as Appendix D to this joint proxy statement/prospectus.
You should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Morgan Stanley in rendering
its opinion. This summary is qualified in its entirety by reference to the full text of such opinion. Morgan Stanley's opinion is directed to the Tudou Board and addresses only the fairness from a
financial point of view of the Share Exchange Ratio and ADS Exchange Ratio pursuant to the Merger Agreement to the holders of Tudou shares and the holders of Tudou ADSs, respectively, as of the date
of the opinion. It does not address any other aspects of the Merger and does not constitute a recommendation to any holder of ordinary shares or ADSs of Tudou or Youku as to how to vote at the
shareholder meetings.
In
arriving at its opinion, Morgan Stanley, among other things:
-
-
reviewed certain publicly available financial statements and other business and financial information of Tudou and Youku,
respectively;
-
-
reviewed certain internal financial statements and other public and private financial and operating data concerning Tudou
and Youku, respectively;
-
-
reviewed certain, limited financial forecasts prepared by the managements of Tudou and Youku, respectively;
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Table of Contents
-
-
reviewed information relating to certain strategic, financial and operational benefits anticipated from the Merger,
prepared by the managements of Tudou and Youku, respectively;
-
-
discussed the past and current operations and financial condition and the prospects of Tudou, including information
relating to certain strategic, financial and operational benefits anticipated from the Merger, with senior executives of Tudou and Youku, respectively;
-
-
reviewed the reported prices and trading activity for Tudou ADSs and Youku ADSs;
-
-
compared the financial performance of Tudou and Youku and the prices and trading activity of Tudou ADSs and Youku ADSs
with that of certain other publicly-traded companies comparable with Tudou and Youku, respectively, and their securities;
-
-
reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
-
-
participated in certain discussions on the Merger among representatives of Tudou and Youku and their financial and legal
advisors;
-
-
reviewed the draft Merger Agreement and certain related documents; and
-
-
reviewed such other information and considered such other factors as it deemed appropriate.
In
arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or
supplied or otherwise made available to Morgan Stanley or discussed with Morgan Stanley by Tudou and Youku and that formed a substantial basis for its opinion. Morgan Stanley has further relied upon
the assurances of the managements of Tudou and Youku that they are not aware of any facts or circumstances that would make such information inaccurate or misleading; and Morgan Stanley has not assumed
any responsibility or liability therefor. With respect to the limited financial forecasts prepared by the managements of Tudou and Youku, including information relating to certain strategic, financial
and operational benefits anticipated from the Merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the
respective managements of Tudou and Youku of the future financial performance of Tudou and Youku. Morgan Stanley expressed no view as to the sufficiency, adequacy or any other aspect of such financial
forecasts or the assumptions on which they were based.
In
addition, Morgan Stanley assumed that the Merger will be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms
or conditions, and that the definitive Merger Agreement would not differ in any material respect from the draft thereof furnished to Morgan Stanley. Morgan Stanley also assumed that the
representations and warranties made by Tudou and Youku in the Merger Agreement were and will be true and correct in all respects material to Morgan Stanley's analysis. Morgan Stanley assumed that in
connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed Merger, no delays, limitations, conditions or restrictions will be
imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed Merger. Morgan Stanley is not a legal, tax, or regulatory advisor. Morgan Stanley
is a financial advisor only and relied upon, without independent verification, the assessment of Youku and Tudou and their legal, tax or regulatory advisors with respect to legal, tax or regulatory
matters.
Morgan
Stanley relied upon, without independent verification, the assessment by the managements of Tudou and Youku of: (1) the strategic, financial and other benefits expected to
result from the Merger; (2) the timing and risks associated with the integration of Tudou and Youku; (3) their ability to retain key employees of Tudou and Youku, respectively and
(4) the validity of, and risks associated with, Tudou
and Youku's existing and future technologies, intellectual property, products, services and business models. Morgan Stanley also did not make any assessment with regard to the holding or
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Table of Contents
organizational
structure of Tudou or Youku, its validity or risk. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Tudou's
officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of Tudou shares and Tudou ADSs in the Merger or with respect to the
underlying decision by Tudou to engage in the Merger. Morgan Stanley's opinion did not address the relative merits of the Merger as compared to any other alternative business transaction, or other
alternatives, or whether or not such alternatives could be achieved or were available. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Tudou, nor was
it furnished with any such valuations or appraisals. Morgan Stanley's opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made
available to Morgan Stanley as of, the date of its opinion. Events occurring after the date of Morgan Stanley's opinion may affect the opinion and the assumptions used in preparing it, and Morgan
Stanley has not assumed any obligation to update, revise or reaffirm its opinion.
Morgan
Stanley's opinion did not in any manner address the prices at which Youku ADSs or Youku ordinary shares would trade following consummation of the Merger.
The
following is a summary of the material financial analyses used by Morgan Stanley in connection with providing its opinion to the Tudou Board. The financial analyses summarized below
include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses
and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley's fairness opinion.
In
connection with its analysis, Morgan Stanley calculated the implied consideration to be paid for each ADS of Tudou (the "ADS Consideration") by multiplying the ADS Exchange Ratio of
1.595x by the Youku ADS closing price of US$25.01 as of March 9, 2012 to arrive at the ADS Consideration of US$39.89. The analysis below refers to ADSs throughout as there is no existing market
for trading in the ordinary shares of Tudou or Youku.
Historical Trading Analysis
Morgan Stanley reviewed the historical trading ranges of Tudou and Youku ADSs for various periods ending on March 9, 2012, the
latest practicable date for which closing prices were available prior to the issue of its opinion.
Morgan
Stanley observed the following ADS prices and implied ADS exchange ratio ranges (implied ADS exchange ratios were calculated by, for any given period, (1) dividing the
lowest Tudou ADS price by the highest Youku ADS price to derive the lowest implied ADS exchange ratio, and
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Table of Contents
(2) dividing
the highest Tudou ADS price by the lowest Youku ADS price to derive the highest implied ADS exchange ratio):
|
|
|
|
|
|
|
|
Time Period
|
|
Low
|
|
High
|
|
Tudou
|
|
|
|
|
|
|
|
March 9, 2012
|
|
|
US$15.39
|
|
One Month
|
|
US$
|
12.00
|
|
US$
|
16.01
|
|
Three Month
|
|
US$
|
9.57
|
|
US$
|
16.66
|
|
Since Tudou Initial Public Offering ("IPO")*
|
|
US$
|
9.57
|
|
US$
|
29.00
|
|
Youku
|
|
|
|
|
|
|
|
March 9, 2012
|
|
|
US$25.01
|
|
One Month
|
|
US$
|
20.88
|
|
US$
|
26.02
|
|
Three Month
|
|
US$
|
15.57
|
|
US$
|
26.02
|
|
Since Tudou IPO
|
|
US$
|
14.31
|
|
US$
|
27.01
|
|
Implied ADS Exchange Ratio
|
|
|
|
|
|
|
|
March 9, 2012
|
|
|
0.62x
|
|
One Month
|
|
|
0.46x
|
|
|
0.77x
|
|
Three Month
|
|
|
0.37x
|
|
|
1.07x
|
|
Since Tudou IPO
|
|
|
0.35x
|
|
|
1.88x
|
|
-
*
-
The
period high includes the IPO price.
Morgan
Stanley noted that the ADS Consideration to be paid per Tudou ADS was US$39.89 (based on the ADS Exchange Ratio of 1.595x) as of March 9, 2012.
Historical ADS Exchange Ratio Analysis
Morgan Stanley also reviewed the historical implied ADS exchange ratios for certain additional periods ending on March 9, 2012.
Morgan Stanley observed the following implied ADS exchange ratios:
|
|
|
|
|
Time Period
|
|
Implied ADS
Exchange Ratio
|
|
March 9, 2012
|
|
|
0.62x
|
|
10-Day Average
|
|
|
0.56x
|
|
30-Day Average
|
|
|
0.62x
|
|
60-Day Average
|
|
|
0.62x
|
|
Since Tudou IPO:
|
|
|
|
|
Average
|
|
|
0.76x
|
|
High
|
|
|
1.30x
|
|
Low
|
|
|
0.48x
|
|
Morgan
Stanley noted that the ADS Consideration to be paid per Tudou ADS was US$39.89 (based on the ADS Exchange Ratio of 1.595x) as of March 9, 2012.
Comparable Companies Analysis
Morgan Stanley performed a comparable company analysis for each of Tudou and Youku, which attempted to provide an implied value for
Tudou and Youku by comparing them to similar companies. For purposes of its analysis, Morgan Stanley reviewed and compared certain publicly available and internal financial information, ratios and
available public market multiples
relating to Tudou and Youku, which were based on both equity research analyst projections ("Wall Street Projections") and projections and guidance provided by the respective managements of Tudou and
Youku ("Management
116
Table of Contents
Projections"),
to corresponding financial data for selected publicly traded companies. Morgan Stanley selected companies that have similar business characteristics to that of Tudou and Youku,
respectively.
Tudou Comparable Companies Analysis
The companies included in the Tudou comparable companies analysis were:
-
-
Alibaba.com Limited;
-
-
NetEase.com, Inc.;
-
-
Ctrip.com International, Ltd.;
-
-
Qihoo 360 Technology Co. Ltd.;
-
-
Renren Inc.; and
-
-
51job, Inc.
Morgan
Stanley then reviewed both public and internal financial information to compare the financial metrics of these companies to the following Tudou metrics based on both Wall Street
Projections and Tudou Management Projections:
-
-
aggregate value to 2011 historic revenue ("AV / 2011A Revenue"), where aggregate value means market equity value as of
March 9, 2012 plus the following balance sheet items: short-term debt, current maturities of long-term debt, and long-term debt, less cash, restricted cash, and short-term investments
("Aggregate Value"),
-
-
Aggregate Value to 2012 estimated revenue ("AV / 2012E Revenue"), and
-
-
Aggregate Value to 2013 estimated revenue ("AV / 2013E Revenue").
The
following table reflects the results of the analysis and the corresponding multiples for Tudou:
|
|
|
|
|
|
|
|
|
AV / 2011A
Revenue
|
|
AV / 2012E
Revenue
|
|
AV / 2013E
Revenue
|
Range Derived from Tudou Comparables
|
|
6.0x - 10.0x
|
|
4.0x - 7.0x
|
|
3.0x - 5.0x
|
Youku Comparable Companies Analysis
The companies included in the Youku comparable companies analysis were:
-
-
Alibaba.com Limited;
-
-
NetEase.com, Inc.;
-
-
Ctrip.com International, Ltd.;
-
-
Qihoo 360 Technology Co. Ltd.;
-
-
Renren Inc.;
-
-
51job, Inc.;
-
-
Baidu, Inc.; and
-
-
Tencent Holdings Limited.
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Table of Contents
Morgan Stanley then reviewed both public and internal financial information to compare the financial metrics of these companies to the following Youku metrics
based on both Wall Street Projections and Youku Management Projections:
-
-
AV / 2011A Revenue;
-
-
AV / 2012E Revenue; and
-
-
AV / 2013E Revenue.
The
following table reflects the results of the analysis and the corresponding multiples for Youku:
|
|
|
|
|
|
|
|
|
AV / 2011A
Revenue
|
|
AV / 2012E
Revenue
|
|
AV / 2013E
Revenue
|
Range Derived from Youku Comparables
|
|
7.0x - 11.0x
|
|
5.0x - 8.0x
|
|
4.0x - 6.0x
|
Implied Value per ADS and Exchange Ratio Ranges
Applying the above range of multiples derived from the comparable public companies analysis, Morgan Stanley calculated a range of
implied equity values per ADS of Tudou and per ADS of Youku for the AV / 2011A Revenue, AV / 2012E Revenue, and AV / 2013E Revenue metrics, based on each of the Wall Street Projections and Management
Projections. Based on such implied equity values, Morgan Stanley then calculated a range of implied ADS exchange ratios, as detailed in the following table:
|
|
|
|
|
|
|
|
|
AV / 2011A Revenue
|
|
AV / 2012E Revenue
|
|
AV / 2013E Revenue
|
Tudou
|
|
|
|
|
|
|
Wall Street Projections
|
|
N/A
|
|
US$23.18 - US$37.11
|
|
US$28.48 - US$44.39
|
Management Projections
|
|
US$20.64 - US$31.33
|
|
US$25.17 - US$40.59
|
|
US$31.57 - US$49.54
|
Youku
|
|
|
|
|
|
|
Wall Street Projections
|
|
N/A
|
|
US$15.87 - US$22.51
|
|
US$19.49 - US$26.83
|
Management Projections
|
|
US$12.99 - US$17.67
|
|
US$17.37 - US$24.91
|
|
US$22.33 - US$31.10
|
Implied ADS Exchange Ratio
|
|
|
|
|
|
|
Wall Street Projections
|
|
N/A
|
|
1.03x - 2.34x
|
|
1.06x - 2.28x
|
Management Projections
|
|
1.17x - 2.41x
|
|
1.01x - 2.34x
|
|
1.02x - 2.22x
|
Morgan
Stanley noted that the ADS Consideration to be paid per Tudou ADS was US$39.89 (based on the ADS Exchange Ratio of 1.595x) as of March 9, 2012.
No
company utilized in the comparable company analysis is identical to Tudou or Youku. In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Tudou and Youku, such as the impact of competition on the
businesses of Tudou and Youku, respectively, and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of Tudou and Youku or
the industry or in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable company data.
Precedent Transactions Analysis
Morgan Stanley also performed an analysis of selected precedent transactions, which attempted to provide an implied value for Tudou by
comparing it to other companies involved in business combinations.
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Table of Contents
Using
publicly available information, Morgan Stanley considered a set of announced or completed transactions that involved technology companies using only stock as consideration since
January 2002, with a deal value over US$200 million and with combined company pro forma ownership ranging from 20% to 49% ("Technology All Stock Transactions"). Morgan Stanley also considered a
set of announced or completed transactions that involved Internet companies since January 2007 with a deal value over US$200 million ("Internet Transactions").
Based
on an assessment of the Technology All Stock Transactions, Morgan Stanley derived and applied a premium to the unaffected Tudou ADS price 30 days prior to March 9,
2012 ranging from 15% to 30% which implied a per ADS price range from US$16.55 to US$18.71 for Tudou. Based on an assessment of the Internet Transactions, Morgan Stanley derived and applied a premium
to the unaffected Tudou
ADS price 30 days prior to March 9, 2012 ranging from 30% to 60% which implied a per ADS price range from US$18.71 to US$23.02 for Tudou.
Morgan
Stanley noted that the ADS Consideration of US$39.89 reflected a 159% premium to Tudou's ADS closing price of US$15.39 as of March 9, 2012, a 188% premium to Tudou's volume
weighted average price ("VWAP") of US$13.86 per ADS for the 30 days ending March 9, 2012, a 189% premium to Tudou's VWAP per ADS of US$13.80 for the 90 days ending March 9,
2012, and a 38% premium to Tudou's IPO price per ADS of US$29.00.
Morgan
Stanley also compared the following market metrics of the Internet Transactions:
-
-
Aggregate Value divided by 12-month trailing revenue ("AV / LTM Revenue"); and
-
-
Aggregate Value divided by 12-month forward revenue estimates ("AV / NTM Revenue"), which were based on Wall
Street Projections.
Based
on the foregoing comparison of the Internet Transactions, Morgan Stanley calculated an implied ADS exchange ratio ranging from 1.19x to 2.16x based on AV / LTM Revenue multiples
ranging from 3.0x to 5.0x, implying per ADS values ranging from US$12.63 to US$17.97 for Tudou and US$8.31 to US$10.65 for Youku. Morgan Stanley also calculated an implied ADS exchange ratio ranging
from 1.03x to 2.63x based on AV / NTM Revenue multiples ranging from 2.0x to 4.0x, implying per ADS values ranging from US$15.14 to US$25.65 for Tudou and US$9.77 to US$14.74 for Youku.
Morgan
Stanley noted that the ADS Consideration to be paid per Tudou ADS was US$39.89 (based on the ADS Exchange Ratio of 1.595x) as of March 9, 2012.
No
company or transaction utilized as a comparison in the analysis of selected precedent transactions is identical to Tudou and Youku or the Merger in business mix, timing and size.
Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of Tudou and Youku
and other factors that would affect the value of the companies to which it is being compared. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to
industry performance, global business, economic, market and financial conditions and other matters, many of which are beyond the control of Tudou and Youku, such as the impact of competition on Tudou,
Youku and the industry generally, industry growth and the absence of any adverse material change in the financial
conditions and prospects of Tudou, Youku or the industry or the financial markets in general. Mathematical analysis (such as determining the mean or median) is not, in itself, a meaningful method of
using precedent transactions data.
Discounted Cash Flow Analysis
As part of its analysis, and in order to estimate the present value of Tudou's and Youku's ADSs, respectively, Morgan Stanley performed
an illustrative discounted cash flow analysis for each company using Management Projections.
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Table of Contents
Morgan
Stanley calculated net present values of free cash flows for Tudou and Youku for the years 2012 through 2016 and calculated terminal values in the year 2016 based on a perpetual
growth rate range of 4.0% to 6.0%. These values were discounted at a discount rate ranging from 15.0% to 17.0%. These analyses resulted in a range of implied present values of US$25.82 to US$36.74 per
ADS for Tudou and US$20.75 to US$29.22 per ADS for Youku. Morgan Stanley then calculated an implied ADS exchange ratio range based on the implied present values per ADS of 0.88x to 1.77x.
Morgan
Stanley noted that the ADS Consideration to be paid per Tudou ADS was US$39.89 (based on the ADS Exchange Ratio of 1.595x) as of March 9, 2012.
Equity Research Price Target Analysis
Morgan Stanley reviewed the price targets estimated by selected equity research analysts of Tudou ADSs and Youku ADSs available as of
March 9, 2012. Morgan Stanley noted that the range of undiscounted price targets for Tudou ADSs was US$20.00 to US$29.70 with a median of US$20.50 and for Youku ADSs was US$15.00 to US$53.00
with a median of US$27.00. Morgan Stanley then calculated a range of implied ADS exchange ratio range based on these undiscounted price targets of 0.38x to 1.98x with a median of 0.76x.
Morgan
Stanley noted that the ADS Consideration to be paid per Tudou ADS was US$39.89 (based on the ADS Exchange Ratio of 1.595x) as of March 9, 2012.
Contribution Analysis
Morgan Stanley also performed a contribution analysis which reviewed the implied ownership of the combined company for the existing
group of Tudou shareholders and ADS holders based on certain financial metrics and historic operating metrics.
Morgan
Stanley computed the implied ownership for Tudou based on Management Projections for revenue, advertising revenue and gross profit through 2012. Morgan Stanley also computed the
implied ownership for Tudou based on historic monthly operating data including daily click views, monthly unique visitors, monthly page views and monthly time spent based on the average of the
last three months ending November 2011 from iResearch iUsertracker. Morgan Stanley also computed the implied ownership for Tudou based on cash available, defined as the aggregate of cash, restricted
cash and short-term investments, as of December 2011 based on historic management accounts.
The
computation showed, among other things, that based on Management Projections for revenue, advertising revenue and gross profit through 2012, implied ownership for Tudou was 31.5%,
30.2% and 25.6%, respectively. Based on historic monthly operating data including daily click views, monthly unique visitors, monthly page views and monthly time spent, implied ownership for
Tudou was 37.3%, 42.8%, 33.1% and 27.8%, respectively. Based on cash available, implied ownership for Tudou was 20.8%.
Morgan
Stanley noted that the ADS Exchange Ratio of 1.595 would result in pro forma ownership of the combined company for the existing group of Tudou shareholders and ADS holders equal
to approximately 28.5%.
Miscellaneous
In connection with the review of the Merger by the Tudou Board, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or
factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a
120
Table of Contents
whole,
would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other
analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above
should not be taken to be Morgan Stanley's view of the actual value of Tudou or Youku. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters. Many of these assumptions are beyond the control of Tudou or Youku. Any estimates contained in Morgan Stanley's analyses are not necessarily
indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.
Morgan
Stanley conducted the analyses described above solely as part of its analysis of the fairness of the Share Exchange Ratio and ADS Exchange Ratio pursuant to the Merger Agreement
from a financial point of view to the holders of Tudou shares and Tudou ADSs, respectively, and in connection with the delivery of its opinion to the Tudou Board. These analyses do not purport to be
appraisals or to reflect the prices at which ADSs of Tudou or Youku might actually trade.
The
Share Exchange Ratio and ADS Exchange Ratio were determined through arm's-length negotiations between Tudou and Youku and was approved by the Tudou Board. Morgan Stanley provided
advice to Tudou during these negotiations. Morgan Stanley did not, however, recommend any specific merger consideration to Tudou or that any specific exchange ratio constituted the only appropriate
exchange ratio for the Merger.
Morgan
Stanley's opinion and its presentation to the Tudou Board was one of many factors taken into consideration by the Tudou Board in deciding to authorize and approve the Merger
Agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Tudou Board with respect to the Share Exchange Ratio or the ADS Exchange Ratio or
of whether the Tudou Board would have been willing to agree to a different exchange ratio. Morgan Stanley's opinion was approved by a committee of Morgan Stanley investment banking and other
professionals in accordance with its customary practice.
Morgan
Stanley is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for
corporate and other purposes. In
the ordinary course of Morgan Stanley's securities underwriting, trading, brokerage, foreign exchange, commodities and derivatives trading, prime brokerage, investment management, financing and
financial advisory activities, Morgan Stanley or its affiliates may at any time hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for its
own account or the accounts of customers, in debt or equity securities or loans of Youku, Tudou or any other company or any currency or commodity that may be involved in this transaction or any
related derivative instrument.
Morgan
Stanley has provided Tudou with certain financial advisory services including the delivery of its financial opinion in connection with the Merger, and Tudou has agreed to pay
Morgan Stanley a customary fee as compensation for such services, a substantial portion of which is contingent upon the closing of the Merger. In addition, Tudou has agreed to reimburse Morgan Stanley
for certain of its expenses and to indemnify Morgan Stanley against certain liabilities arising out of its engagement.
121
Table of Contents
Effects of the Merger to Tudou
If the Merger is completed, Merger Sub will merge with and into Tudou, with Tudou continuing as the surviving company after the Merger.
Tudou would continue its operations as a privately held company owned solely by Youku, and as a result of the Merger, the Tudou ADSs will no longer be listed on the NASDAQ, Tudou will cease to be a
publicly traded company and the Tudou ADS program will terminate.
As
promptly as practicable following completion of the Merger, Youku will cause Tudou ADSs to be delisted from the NASDAQ and deregistered under the Exchange Act. Registration under the
Exchange Act may be terminated upon application to the SEC if the Tudou ADSs are neither listed on a national securities exchange nor held by 300 or more holders of record. As a result of such
deregistration, Tudou will no longer be required to file reports with the SEC or otherwise be subject to the United States federal securities laws applicable to public companies.
Lock-up Restriction for Tudou Voting Shareholders
In the Youku Voting Agreements, each Tudou Voting Shareholder, including Mr. Gary Wei Wang and certain principal shareholders of
Tudou which have appointed individuals who serve on the Tudou Board, has agreed to comply with restrictions on the disposition and encumbrance of the Youku shares or Youku ADSs received by it for
180 days following the closing of the Merger.
Interests of Tudou's Directors and Executive Officers in the Merger
In considering the recommendation of the Tudou Board that Tudou shareholders vote for the authorization and approval of the Merger
Agreement, the Plan of Merger and the Merger, Tudou shareholders should be aware that certain members of the Tudou Board and certain executive officers of Tudou have agreements and arrangements that
provide them with interests in the Merger that may differ from, or be in addition to, the interests of other Tudou shareholders generally. The Tudou Board was aware of these agreements and
arrangements during its deliberations of the merits of the Merger and in determining to recommend that Tudou shareholders vote for the authorization and approval of the Merger Agreement, the Plan of
Merger and the Merger. These interests are described below.
Treatment of Tudou Share Options
Certain directors and executive officers of Tudou hold Tudou share options, and the Merger Agreement provides that each Tudou share
option that is outstanding immediately prior to the effective time, whether vested or unvested, shall, at the effective time of the Merger, be assumed by Youku and be replaced by Youku with a Youku
share option. See "The Merger Agreement and Plan of MergerTreatment of Tudou Share Options" for more information.
Tudou
may consider the immediate vesting upon the closing of the Merger of the Tudou share options held by certain directors and officers of Tudou, including Mr. Gary Wei Wang,
chairman of the Tudou Board and Tudou's chief executive officer, in which case such Tudou share options shall become fully vested and exercisable upon the closing of the Merger.
The
following table shows, as of April 17, 2012, for each director and executive officer of Tudou, (1) the number of Tudou shares currently owned, (2) the number of
Tudou shares underlying vested Tudou share options and the number of Tudou shares underlying unvested Tudou share options that will vest within 60 days (not taking into account any accelerated
vested options upon the closing of the Merger), (3) the total number of Tudou shares beneficially owned and (4) the percentage of Tudou's outstanding shares beneficially owned. The
listed directors and executive officers have informed Tudou
122
Table of Contents
that
they currently intend to vote all of their Tudou shares "FOR" the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Tudou Shares
Currently Owned
|
|
Tudou Shares Underlying
Vested Tudou Share
Options and Tudou Shares
Underlying Unvested Tudou
Share Options Which Will
Vest Within 60 Days
|
|
Total Number of Tudou
Shares Beneficially Owned
|
|
Percentage of
Tudou's
Outstanding
Shares
Beneficially
Owned
|
|
Gary Wei Wang
|
|
|
8,913,333
|
|
|
1,057,500
|
(1)
|
|
9,970,833
|
|
|
8.6%
|
|
Suyang Zhang
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hany Nada
|
|
|
11,027,224
|
|
|
|
|
|
11,027,224
|
|
|
9.6%
|
|
Sam Yung King Lai
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
David M. Hand
|
|
|
14,215,278
|
|
|
|
|
|
14,215,278
|
|
|
12.3%
|
|
Seow Woon Kwong
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ted Tak-Tai Lee
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
Conor Chia-hung Yang
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bin Yu
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
The
calculations in the table above are based on 115,452,677 Tudou shares outstanding as of April 17, 2012. Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. In computing the number of Tudou shares beneficially owned by a person and the percentage ownership of that person, we have included Tudou shares that the person has the right
to acquire within 60 days after the date of this joint proxy statement/prospectus.
-
*
-
Less
than 1% of the total outstanding Tudou shares.
-
(1)
-
Mr.
Gary Wei Wang also owns options to purchase an additional 500,000 Tudou Class A shares.
Board Representation Rights
Pursuant to the Merger Agreement, prior to the effective time of the Merger, Youku shall organize a meeting of the Youku Board for the
purpose of appointing to the Youku Board as a director (1) Mr. Gary Wei Wang, chairman of the Tudou Board and Tudou's chief executive officer, who, subject to the paragraph below, shall
be entitled to serve as a director on the Youku Board for a term of one year, and (2) Mr. Jixun Foo, who, subject to the paragraph below, shall be entitled to serve as a director on the
Youku Board until his resignation or the designation of his successor by GGV II Delaware L.L.C., a principal shareholder of Tudou. The Youku Board shall cause any successor so designated by GGV II
Delaware L.L.C. to be appointed to the Youku Board as a director.
Notwithstanding
anything in the preceding paragraph to the contrary, at such time after the effective time of the Merger as the Tudou Principal Shareholders beneficially own, in the
aggregate, less than 5% of the total issued and outstanding Youku shares on a fully diluted basis for the first time, (1) the board representation rights discussed in the preceding paragraph
shall immediately terminate and upon the request of the Youku Board, Mr. Gary Wei Wang and/or Mr. Jixun Foo shall tender his respective resignation from the Youku Board and
(2) Youku may remove Mr. Wang and/or Mr. Foo from the Youku Board pursuant to its then effective articles of association.
Indemnification of Tudou Directors and Officers; Directors' and Officers' Insurance
Pursuant to the Merger Agreement, Youku and the surviving company agree to indemnify and hold harmless each individual who at the
effective time of the Merger is, or at any time prior to the effective time was, a director or officer of Tudou or the Tudou Subsidiaries against any costs, expenses and other liabilities incurred in
connection with any claim, suit or investigation arising out of or related to such individual's service as a director or officer of Tudou or the Tudou Subsidiaries. The
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memorandum
and articles of association of the surviving company will also contain provisions with respect to rights to indemnification that are at least as favorable to the directors, officers or
employees of Tudou as those contained in the memorandum and articles of association of Tudou as in effect as of the date of the Merger Agreement.
In
addition, for a period of six years after the effective time of the Merger, Youku shall cause the surviving company to maintain Tudou's and the Tudou Subsidiaries' existing policies
of directors' and officers' liability insurance for the benefit of those persons who are covered by such policies at the effective time, to the extent that such liability insurance can be maintained
at a cost to Youku not greater than 300 percent of the annual premium for Tudou directors' and officers' liability insurance as of the date of the Merger Agreement. If such insurance cannot be
so maintained or obtained at such costs, Youku shall maintain or obtain as much of such insurance as can be so maintained or obtained at an annual premium amount not in excess of 300 percent of
the annual premium for the current Tudou directors' and officers' liability insurance as of the date of the Merger Agreement. For more information, see "The Merger Agreement and Plan of
MergerDirectors' and Officers' Insurance; Indemnification" beginning on page 147.
Non-Competition Agreement between Mr. Gary Wei Wang and Youku
Youku and its principal PRC operating subsidiary entered into non-competition agreements with Mr. Gary Wei Wang, the
chairman and chief executive officer of Tudou, which will become effective as of and contingent upon the closing of the Merger.
The
non-competition agreements provide that Mr. Wang will not, for a three-year period beginning from the closing date of the Merger, directly or
indirectly engage in the PRC in, or have any interest in, any firm, corporation or business that engages in the PRC, in the business of providing online video services, Internet television services,
Internet protocol television services and online video aggregation or distribution. In addition, during the same period, Mr. Wang will not (1) either on his own behalf or on behalf of
any other person, solicit business within the scope of businesses described above from any customer, supplier or distributor of Youku or its affiliates, and (2) either on his own behalf or on
behalf of any other person, solicit, employ or engage as an employee or independent contractor any person who was an employee of Youku or any of its affiliates (including the surviving company and its
subsidiaries) during the one-year period prior to such solicitation, employment or engagement or otherwise induce any such person to terminate his employment with Youku or one of its
affiliates.
The
non-competition and non-solicitation restrictions do not prohibit Mr. Wang from serving as a director, officer or employee of Youku or its affiliates,
owning equity securities of Youku or owning no more than one percent of the outstanding equity securities of any corporation or other business entity that is publicly-traded.
Registration Rights Agreement
Youku has agreed to enter into a registration rights agreement with certain principal shareholders of Tudou, including Mr. Gary
Wei Wang, certain of his affiliates and GGV II Delaware L.LC., on or prior to the effective time of the Merger, to grant certain piggyback registration rights to such principal shareholders of Tudou
with respect to the Youku Class A shares to be owned by them after the closing of the Merger.
Accounting Treatment
The merger will be accounted for by Youku as a business combination using the acquisition method of accounting under U.S. GAAP.
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For
more detail on the accounting treatment of the Merger, please see "Unaudited Pro Forma Condensed Combined Financial InformationNotes to Unaudited Pro Forma Condensed
Combined Financial Statements" beginning on page 46.
Material U.S. Federal Income Tax Consequences of the Merger
Material U.S. Federal Income Tax Consequences
General
The following general discussion sets forth the anticipated material U.S. federal income tax consequences of the Merger to
U.S. Holders (as defined below) of Tudou shares or Tudou ADSs. This discussion also does not address the tax consequences of the Merger under non-U.S., state, local or other
tax laws or the tax consequences of transactions effectuated prior or subsequent to, or concurrently or in connection with, the Merger. The following discussion is based on existing
U.S. federal income tax law, including the provisions of the Internal Revenue Code, the Treasury Regulations thereunder, IRS rulings, judicial decisions and other administrative pronouncements,
all as in effect on the date of this joint proxy statement/prospectus. Neither Youku nor Tudou can provide any assurance that future legislative, administrative or judicial changes or interpretations
will not affect the accuracy of the statements or conclusions set forth below. Any future change in the U.S. federal income tax law or interpretation thereof could apply retroactively and could
affect the accuracy of the following discussion. In addition, Youku and Tudou do not presently anticipate seeking any advance income tax ruling from the IRS regarding the tax consequences of the
Merger or any transactions entered into concurrently or in connection with the Merger, and neither Youku nor Tudou can assure you that the IRS will agree with the conclusions expressed herein or that
the conclusion expressed herein will be sustained by a U.S. court if so challenged.
This
discussion is addressed only to (1) Tudou shareholders to the extent that they exchange Tudou shares for Youku Class A shares pursuant to the Merger and
(2) Tudou ADS holders to the extent that
they exchange Tudou ADSs for Youku ADSs pursuant to the Merger and therefore are treated for U.S. federal income tax purposes as receiving the Youku Class A shares represented by such Youku
ADSs. Further, this discussion addresses only those U.S. Holders that hold their Tudou shares or Tudou ADSs as a capital asset under the Internal Revenue Code (generally, property held for
investment).
This
discussion is not intended to be a complete analysis and does not address all potential tax consequences that may be relevant to you. Moreover, this discussion does not apply to you
if you are subject to special treatment under the Internal Revenue Code, including because you are:
-
-
a non-U.S. person or entity;
-
-
a tax-exempt organization or entity, a financial institution, a mutual fund or other regulated investment
company, a dealer or broker in securities or an insurance company;
-
-
a trader who elects to mark-to-market its securities;
-
-
a person who holds Tudou shares or Tudou ADSs as part of an integrated investment such as a straddle, hedge, constructive
sale, conversion transaction or other risk reduction transaction;
-
-
a person who holds Tudou shares or Tudou ADSs in an individual retirement or other tax-deferred account;
-
-
a person whose functional currency is not the U.S. dollar;
-
-
certain former citizens or residents of the United States subject to Section 877 of the Internal Revenue Code;
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-
-
an individual who received Tudou shares or Tudou ADSs, or who acquires Youku Class A shares or Youku ADSs, pursuant
to the exercise of employee stock options or otherwise as compensation or in connection with the performance of services;
-
-
a partnership or other flow-through entity (including an S corporation or a limited liability company treated
as a partnership for U.S. federal income tax purposes) and persons who hold an interest in such entities;
-
-
a person subject to the alternative minimum tax; or
-
-
a person who owns directly, indirectly, or constructively 5% or more of Tudou's shares or will own 5% or more of Youku's
shares pursuant to the Merger, including a "five percent transferee shareholder."
In
general, a "five-percent transferee shareholder" is a person who holds Tudou shares and will own directly, indirectly or constructively through attribution rules, at least
five percent of either the total voting power or total value of Youku Class A shares immediately after the Merger. The attribution rules for determining ownership are complex, and neither Youku
nor Tudou can offer any assurance that you will not be a five-percent transferee shareholder based on your particular facts and circumstances. If you believe you could become a
five-percent transferee shareholder of Youku, you are urged to consult your tax advisor about the special rules and time-sensitive tax procedures, including the requirement to
file a gain recognition agreement under section 367(a) of the Internal Revenue Code, that might apply regarding your ability to obtain non-recognition treatment in the
Merger. Further, this discussion does not address the tax consequences to you if you own or owned (directly, indirectly or constructively) 10% or more of voting Tudou shares. Such a shareholder may be
subject to adverse U.S. federal income tax
rules that cause income to be recognized as a result of the Merger and is urged to consult with its tax advisor regarding the application of such rules.
For
purposes of this discussion, the term "U.S. Holder" means a beneficial owner of Tudou shares or Tudou ADSs that is for U.S. federal income tax purposes (1) an
individual resident or citizen of the United States, (2) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created in or
organized under the laws of the United States or any political subdivision thereof, (3) an estate the income of which is subject to U.S. federal income tax without regard to its
source, or (4) a trust if (a) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the
authority to control all of the substantial decisions of such trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income
tax purposes.
You
are strongly urged to consult your tax advisor as to the U.S. federal income tax consequences of the Merger, including the income tax consequences arising from your own unique facts
and circumstances, and as to any estate, gift, state, local or non-U.S. tax consequences arising out of the Merger and the ownership and disposition of Youku ADSs and/or Youku
Class A shares.
Certain U.S. Federal Income Tax Consequences of the Merger
The following discussion as to the U.S. federal income tax consequences of the Merger assumes that the Merger will be consummated as
described in the Merger Agreement and Youku's registration statement on Form F-4, of which this joint proxy statement/prospectus is a part. The discussion is also based on certain
other assumptions, including the assumption that (1) the Merger will be treated as a "reorganization" for U.S. federal income tax purposes within the meaning of section 368(a) of the
Internal Revenue Code and (2) each of Youku and Tudou is not and has not been a PFIC. While Youku and Tudou intend that the Merger will be treated as a reorganization under
section 368(a) of the Internal Revenue Code, no assurance can be provided that the IRS will agree with this conclusion.
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Assuming
that the Merger is treated as a reorganization under section 368(a) of the Internal Revenue Code and that neither Youku nor Tudou is or has been a PFIC, if you receive
only (1) Youku Class A shares in exchange for Tudou shares pursuant to the Merger, or (2) Youku ADSs in exchange for your Tudou ADSs pursuant to the Merger, you will not recognize
gain or loss upon the exchange (except
with respect to cash received in lieu of a fractional interest in a Youku Class A share or Youku ADS). Accordingly, (1) the aggregate tax basis of the Youku Class A shares or
Youku ADSs you receive in the Merger will be the same as the aggregate tax basis of the Tudou shares or Tudou ADSs, respectively, you surrender in exchange therefor and (2) the holding period
of the Youku Class A shares or Youku ADSs you receive in the Merger will include the holding period of the Tudou shares or Tudou ADSs, respectively, you surrender in exchange therefor.
If
the Merger is treated as a reorganization under section 368(a) of the Internal Revenue Code and neither Youku nor Tudou is or has been a PFIC, any cash you receive in lieu of a
fractional Youku Class A share or Youku ADS will be treated as a deemed redemption, taxable as a sale of that interest for cash, provided the redemption is not essentially equivalent to a
dividend for U.S. federal income tax purposes. The amount of any capital gain or loss attributable to the deemed sale will be equal to the amount of cash received with respect to the fractional
interest less the ratable portion of the tax basis of the Tudou share or Tudou ADS surrendered that is allocated to the fractional interest. If you are an individual, any gain recognized will
generally be subject to reduced U.S. federal income tax rates (currently at a maximum 15% rate) if your holding period in the Tudou share or Tudou ADS is more than one year on the date of completion
of the Merger. The deductibility of capital losses is subject to limitations.
If
the IRS successfully challenged the qualification of the Merger as a reorganization under section 368(a) of the Internal Revenue Code, you would generally be required to
recognize gain or loss with respect to the Tudou shares and Tudou ADSs surrendered in the Merger equal to the difference between your adjusted tax basis in the surrendered shares or ADSs and the fair
market value, as of the effective time of the Merger, of the Youku Class A shares or Youku ADSs (including any fractional Youku Class A shares or Youku ADSs) received or to be received
in the Merger. Generally, in such event, your tax basis in the Youku Class A shares or Youku ADSs received by you would equal their fair market value as of the date of the Merger, and your
holding period for the Youku Class A shares or Youku ADSs would begin on the day after the Merger.
Neither
Youku nor Tudou expects to be classified as a PFIC. Because PFIC status is a fact-intensive determination made on an annual basis, no assurance can be given that
Youku or Tudou will not be classified as a PFIC. If Tudou is classified as a PFIC for any tax year during which you hold or have held Tudou shares or Tudou ADSs, under proposed U.S. Treasury
Regulations, special rules may apply to cause you to recognize gain with respect to the Merger absent application of the "PFIC for PFIC Exception" discussed below. A
non-United States corporation will generally be treated as a PFIC, for United States federal income tax purposes, if, in any particular taxable year, either (1) 75% or
more of its gross income for such year consists of certain types of "passive" income or (2) 50% or more of the quarterly average of its assets (as determined on the basis of fair market
value) during such year produce or are held for the production of passive income. Under the special rules:
-
a.
-
the
Merger may be treated as a taxable exchange even if such transaction qualifies as a "reorganization" for U.S. federal income tax purposes within
the meaning of section 368(a) of the Internal Revenue Code;
-
b.
-
any
gain on the exchange of Tudou shares or Tudou ADSs will be allocated ratably over your holding period;
-
c.
-
the
amount allocated to the current tax year and any year prior to the first year in which Tudou was classified as a PFIC will be taxed as ordinary income;
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d.
-
the
amount allocated to each other tax year will be subject to tax at the highest rate of tax in effect applicable to you; and
-
e.
-
an
interest charge applicable generally to underpayments of tax will be imposed on the tax attributable to each taxable year, other than the current taxable
year or any year prior to the first year in which Tudou was classified as a PFIC, for the period the tax was deferred
Generally,
if these special rules apply, your tax basis in the Youku Class A shares or Youku ADSs received by you would equal their fair market value as of the date of the Merger, and your
holding period for the Youku Class A shares or Youku ADSs would begin on the day after the Merger.
Notwithstanding
the foregoing, if (1) the Merger qualifies as a reorganization within the meaning of section 368(a) of the Internal Revenue Code, (2) Tudou was
classified as a PFIC for any tax year during which you hold or held Tudou shares or Tudou ADSs, and (3) Youku also qualifies as a PFIC for the tax year that includes the day after the effective
date of the Merger, then proposed U.S. Treasury Regulations generally provide that the special rules described above will not apply to the exchange of Tudou shares or Tudou ADSs for Youku
Class A shares or Youku ADSs, as applicable, pursuant to the Merger. For purposes of this discussion, this exception is referred to as the "PFIC-for-PFIC Exception." In
addition, to qualify for the PFIC-for-PFIC Exception, proposed U.S. Treasury Regulations require a U.S. Holder to report certain information to the IRS on
Form 8621 together with such U.S. Holder's U.S. federal income tax return for the tax year in which the Merger occurs. It is not expected that Youku will be classified as a PFIC
for the tax year that includes the day after the effective date of the Merger. Accordingly, it is anticipated that the PFIC-for-PFIC Exception
would not be available to U.S. Holders with respect to the Merger. You are urged to consult your tax advisor regarding the U.S. federal income tax consequences of the Merger in the event
either Youku or Tudou is treated as a PFIC.
Backup Withholding and Information Reporting
Cash payments received in lieu of a fractional Youku Class A share or Youku ADS may, under certain circumstances, be subject to
information reporting and backup withholding, currently at a 28% rate, unless you furnish a correct taxpayer identification number and make any other required certification on IRS
Form W-9 or you otherwise establish an exemption from information reporting and backup withholding. Backup withholding is not an additional tax. Amounts withheld as backup
withholding generally are allowed as a credit against your U.S. federal income tax liability, and you may be entitled to obtain a refund of any excess amounts withheld under the backup withholding
rules if you file an appropriate claim for refund with the IRS and furnish any required information in a timely manner. You are urged to consult your tax advisor regarding the application of the
information reporting and backup withholding rules.
Certain U.S. Federal Income Tax Consequences of Holding Youku Class A Shares and Youku ADSs
The Youku 20-F, which has been incorporated by reference into this joint proxy statement/ prospectus, contains a
description of certain U.S. federal income tax consequences related to holding Youku Class A shares and Youku ADSs. The description contained in the Youku 2011 20-F, however, is
only a summary and does not purport to be a complete analysis of all potential tax effects resulting from the ownership of Youku Class A shares or Youku ADSs (such as tax consequences for
holders who are subject to special treatment under U.S. federal income tax law). You are urged to consult your tax advisor regarding the U.S. federal, state, local and non-U.S. income and
other tax considerations of an investment in Youku ADSs and Youku Class A shares.
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Material PRC Income Tax Consequences of the Merger
Under the EIT Law, which took effect on January 1, 2008, enterprises established outside of China whose "de facto management
bodies" are located in the PRC are considered "resident enterprises," and thus will generally be subject to the enterprise income tax at the rate of 25% on their global income. On December 6,
2007, the State Council adopted the Regulation on the Implementation of PRC Enterprise Income Tax Law, effective as of January 1, 2008, which defines a "de facto management body" as an
establishment that has substantial management and control over the business, personnel, accounts and properties of an enterprise. Under the EIT Law and its implementation regulations, PRC enterprise
income tax at the rate of 10% is applicable to any gain recognized by a "non-resident enterprise" under the EIT Law to the extent such gain is derived from sources within the PRC, provided
that the "non-resident enterprise" (1) does not have an establishment or place of business in the PRC or (2) has an establishment or place of business in the PRC, but the
relevant income is not effectively connected with the establishment or place of business, unless otherwise reduced or exempted by relevant tax treaties.
The
EIT Law and its implementation rules are relatively new and ambiguities exist with respect to the interpretation of the provisions relating to resident enterprise issues. Although
Youku's offshore holding companies are not controlled by any PRC company or company group, Youku cannot assure you that it will not be deemed to be a PRC resident enterprise under the EIT Law and its
implementation rules. In addition, under the Circular on Strengthening the Administration of Enterprises Income Tax on Non-resident Enterprises' Equity Transfer Income ("Circular 698," Guo
Shui Han [2009] No. 698), issued by the State Administration of Taxation, which became effective retroactively as of January 1, 2008, and the Bulletin on Certain
Issues regarding Administration of Income Tax on Non-resident Enterprises ("Bulletin 24," Bulletin (2011) No. 24 of the State Administration of Taxation), which was issued by
the State Administration of Taxation and became effective as of April 1, 2011, if any non-resident enterprise transfers equity of a PRC resident enterprise, rather than purchasing
and transferring the stock of a PRC resident enterprise through a public security market (with the volume and price determined pursuant to the standard trading rules of the public security market
rather than being determined by the purchaser and seller by mutual agreement prior to the transaction), the non-resident enterprise may be subject to a 10% PRC enterprise income tax on the
gain from such equity transfer, unless the amount of the equity interest to be transferred and the transfer price were determined pursuant to the standard trading rules of a public security market,
rather than being determined by the purchaser and the seller by mutual agreement prior to the transaction, or unless otherwise reduced or exempted by relevant tax treaties. According to Circular 698
and Bulletin 24, where the non-resident enterprise indirectly holds and transfers equity of a PRC resident enterprise held through an offshore holding company, which was established
in a jurisdiction with either (1) an effective tax rate imposed on the gain from such equity transfer of less than 12.5% or (2) a tax exemption for the foreign-sourced income arising out
of such equity transfer, the non-resident enterprise shall be required to file with the relevant PRC taxation authorities certain information about the transfer. Where any such PRC
taxation authorities, upon review and examination of the documents submitted by the non-resident enterprise, deem such offshore holding company to be a vehicle incorporated for the purpose
of tax evasion and without reasonable commercial purposes, they have the power to re-classify the offshore share transfer transaction, deny the existence of the
offshore holding company that is used for tax planning purposes and impose a 10% income tax on the gain from such offshore share transfer after an examination by the State Administration of Taxation.
Tudou
does not believe that a gain recognized on the receipt of the Merger Consideration for Tudou ADSs or Tudou shares pursuant to the Merger by Tudou ADS holders or Tudou shareholders
who are non-resident enterprises should be subject to PRC income tax according to Circular 698. If, however, the PRC tax authorities were to determine that Tudou should be considered a
resident
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enterprise
under the EIT Law or that the receipt of the Merger Consideration for Tudou shares or Tudou ADSs should otherwise be subject to PRC income tax, then a gain recognized on the receipt of the
Merger Consideration for Tudou shares or Tudou ADSs pursuant to the Merger by Tudou shareholders or Tudou ADS holders, respectively, who are non-resident enterprises under the EIT Law
could be treated as PRC-source income that would be subject to PRC withholding tax at a rate of 10%, unless otherwise reduced pursuant to an applicable tax treaty.
Youku's
and Tudou's current understanding is that none of Youku, Merger Sub or Tudou will be required to deduct or withhold any amount from the Merger Consideration under applicable PRC
law. In the event that circumstances change and a deduction or withholding is required, each of the surviving company, Tudou, Youku and the exchange agent shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to the Merger Agreement such amounts as it reasonably determines is required to deduct and withhold with respect to the making of such payment under any
applicable tax laws of the PRC. To the extent that amounts are so withheld and paid over to the appropriate governmental entity by the surviving company, Tudou, Youku or the exchange agent, as the
case may be, such withheld amounts shall be treated for all purposes of the Merger Agreement as having been paid to the holder of Tudou shares or Tudou ADSs in respect to which such deduction and
withholding was made by the surviving company or Youku, as the case may be. In the event that deduction or withholding in respect of PRC tax is necessary, Youku and Tudou will revise this joint proxy
statement/prospectus to describe the proposed deduction or withholding, and Youku will file with the SEC an amendment to its registration statement on Form F-4, which will include
the revised joint proxy statement/prospectus.
You
should consult your own tax advisor for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences.
Material Cayman Islands Tax Consequences of the Merger
The Cayman Islands currently has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No
taxes, fees or charges will payable (either by direct assessment or withholding) to the Cayman Islands government or other taxing authority in the Cayman Islands under the laws of the Cayman Islands
in respect of the Merger or the receipt of the Merger Consideration by Tudou shareholders or Tudou ADS holders under the terms of the Merger Agreement. This is subject to the qualification that
(1) Cayman Islands stamp duty may be payable if any original transaction documents, including the Merger Agreement, are brought to or executed in the Cayman Islands; and (2) registration
fees will be payable to the Cayman Islands Registrar of Companies to register the Plan of Merger.
Appraisal Rights
The following is a brief summary of the rights of holders of the Tudou shares to object to the Merger and receive cash equal to the
appraised or agreed fair value of their Tudou shares ("appraisal rights"). This summary is not a complete statement of the law, and is qualified in its entirety by the complete text of
Section 238 of the Cayman Companies Law, a copy of which is attached as Appendix E to this joint proxy statement/prospectus. If you are contemplating the possibility of objecting to the
Merger, you should carefully review the text of Appendix E, particularly the procedural steps required to perfect appraisal rights. These procedures are complex and you should consult your
Cayman Islands legal counsel. If you do not fully and precisely satisfy the procedural requirements of the Cayman Companies Law, you will lose your appraisal rights.
Requirements for Exercising Appraisal Rights
A dissenting registered shareholder of Tudou is entitled to payment of the fair value of his or her Tudou shares upon dissenting to the
Merger.
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The exercise of your appraisal rights will preclude the exercise of any other rights by virtue of holding Tudou shares in connection with the Merger, other than
the right to seek relief on the grounds that the Merger is void or unlawful. To preserve your appraisal rights, the following procedures must be
followed:
-
-
you must give written notice of objection ("Notice of Objection") to Tudou prior to the Tudou AGM vote to authorize and
approve the Merger. The Notice of Objection must include a statement that you propose to demand payment for your Tudou shares if the Merger is authorized and approved at the Tudou AGM;
-
-
within twenty (20) days immediately following the date on which the vote of Tudou shareholders authorizing and
approving the Merger is passed, Tudou must give written notice of the authorization ("Approval Notice") to all Dissenting Shareholders who have served a Notice of Objection;
-
-
within twenty (20) days immediately following the date on which the Approval Notice is given (the "Dissent
Period"), the Dissenting Shareholder must give a written notice of his or her decision to dissent (a "Notice of Dissent") to Tudou stating his or her name and address, the number of Tudou shares with
respect to which he or she dissents and demanding payment of the fair value of his or her Tudou shares; and a Dissenting Shareholder must dissent in respect of all the Tudou shares which he or she
holds;
-
-
within seven (7) days immediately following (1) the date of expiration of the Dissent Period or
(2) the date on which the Plan of Merger is filed with the Registrar of Companies of the Cayman Islands, whichever is later, Tudou, as the surviving company, must make a written offer (a "Fair
Value Offer") to each Dissenting Shareholder to purchase its Tudou shares at a price determined by Tudou to be the fair value of such Tudou shares;
-
-
if, within 30 days immediately following the date of the Fair Value Offer, Tudou and the Dissenting Shareholder
fail to agree on a price at which Tudou will purchase the Dissenting Shareholder's shares, then, within twenty (20) days immediately following the date of the expiration of such
30-day period, Tudou must, and the Dissenting Shareholder may, file a petition with the Grand Court of the Cayman Islands (the "Grand Court") for a determination of the fair value
of the Tudou shares held by all Dissenting Shareholders who have served a Notice of Dissent and who have not agreed with Tudou as to fair value, the petition by Tudou must be accompanied by a verified
list containing the names and addresses of all registered Tudou shareholders who have filed a Notice of Dissent and who have not agreed with Tudou as to the fair value of the Tudou shares; and
-
-
if a petition is timely filed and served, the Grand Court will determine at a hearing at which Dissenting Shareholders are
entitled to participate in (1) the fair value of the Tudou shares held by those shareholders and (2) the costs of the proceeding and the allocation of such costs upon the parties.
All
notices and petitions must be executed by or for the shareholder of record, fully and correctly, as such shareholder's name appears on the register of members of Tudou. If the Tudou
shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, these notices must be executed by or for the fiduciary. If the Tudou shares are owned by or for more
than one person such notices and petitions must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the notices or petitions for a
shareholder of record; however, the agent must identify the record owner and expressly disclose that, in exercising the notice, he is acting as agent for the record owner. A person having a beneficial
interest in Tudou shares held of record in the name of another person, such as a broker or nominee, must act promptly to cause
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the
record holder to follow the steps summarized above and in a timely manner to perfect any appraisal rights attached to the Tudou shares.
If
you do not satisfy each of these requirements, you cannot exercise appraisal rights and will be bound by the terms of the Merger Agreement. Submitting a proxy card that does not
direct how the Tudou shares represented by that proxy are to be voted will give the proxy discretion to vote as it determines appropriate. In addition, failure to vote your Tudou shares, or a vote
against the proposal to authorize and approve the Merger Agreement, the Plan of Merger and the Merger, will not alone satisfy the notice requirement referred to above. You must send all notices to
Tudou Holdings Limited, Michael Fu, Investor Relations Director, Tudou Holdings Limited, Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032,
People's Republic of China.
If
you are considering dissenting, you should be aware that the fair value of your Tudou shares determined under Section 238 of the Cayman Companies Law could be more than, the
same as, or less than the 7.177 Youku Class A shares that you would otherwise receive for each Tudou share in the Merger.
In
addition, in any proceedings for determination of the fair value of the Tudou shares covered by a Notice of Dissent, Tudou and Youku intend to assert that the Per Share Merger
Consideration of 7.177 Youku Class A shares is equal to the fair value of each of your Tudou shares.
The provisions of Section 238 of the Cayman Companies Law are technical and complex. If you fail to comply strictly with the procedures set forth in
Section 238, you will lose your appraisal rights. You should consult your Cayman Islands legal counsel if you wish to exercise appraisal rights.
No
provision has been made to (1) grant Tudou's shareholders or ADS holders access to corporate files of Tudou and other parties to the proposed Merger or any of their respective
affiliates or (2) obtain counsel or appraisal services at the expense of Tudou or any other such party or affiliate.
Surrender of Tudou ADSs
Tudou ADS holders will not have the right to seek appraisal and payment of the fair value of the Tudou shares underlying their ADSs.
The Tudou depositary will not attempt to
perfect any appraisal rights with respect to any of the Tudou shares that it holds, even if the ADS holder requests the Tudou depositary to do so. Tudou ADS holders wishing to exercise appraisal
rights must surrender their ADSs to the Tudou depositary, pay the Tudou depositary's fees required for such surrender, provide instructions for the registration of the corresponding Tudou shares, and
certify that they have not given, and will not give, voting instructions as to the ADSs (or alternatively, they will not vote the shares) and become registered holders of Tudou shares by the close of
business on , 2012 (New York City time). Thereafter, such former Tudou ADS holders must comply with the
procedures and requirements for exercising dissenter and appraisal rights with
respect to their shares under Section 238 of the Cayman Companies Law.
The
Bank of New York Mellon is the depositary for the Tudou ADS program. If you own Tudou ADSs and wish to exercise appraisal rights, you must surrender your ADSs to the Tudou depositary
at its office at One Wall Street New York N.Y. 10286; Attention: ADR Division. Upon your payment to the Tudou depositary of the Tudou ADS cancellation fee, and any other expenses, taxes or charges,
such as stamp taxes or stock transfer taxes or fees, the Tudou depositary will arrange for the principal office of the Hong Kong and Shanghai Banking Corporation Limited, the custodian holding
the Tudou shares, to transfer the Tudou shares underlying the ADSs and any other deposited securities underlying the ADSs to such ADS holder or a person designated by such ADS holder. The deadline for
surrendering Tudou ADSs to the Tudou depositary for these purposes is the close of business on , 2012 (New
York City time).
If
your Tudou ADSs are held in "street name," you should consult with your broker or custodian.
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Effects on Tudou if the Merger is Not Completed
If the Merger is not completed for any reason, including but not limited to Tudou shareholders not authorizing and approving the Merger
Agreement, the Plan of Merger and the Merger or Youku shareholders not authorizing and approving the Share Issuance, Tudou shareholders and ADS holders will not receive any Merger Consideration nor
will the holders of any Tudou share options receive Youku share options pursuant to the Merger Agreement. In addition, Tudou will remain a public company. The Tudou ADSs will continue to be listed and
traded on the NASDAQ, provided that Tudou continues to meet the NASDAQ's listing requirements. In addition, Tudou will remain subject to SEC reporting obligations. Therefore, Tudou shareholders and
ADS holders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of Tudou shares and ADSs.
Under
specified circumstances in which the Merger Agreement is terminated, Tudou may be required to pay Youku a termination fee, or Youku may be required to pay Tudou a termination fee,
in each case, as described under the caption "The Merger Agreement and Plan of MergerTermination Fee" beginning on page 151.
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THE MERGER AGREEMENT AND PLAN OF MERGER
The following is a summary of the Merger Agreement, the Plan of Merger and of certain other key aspects of the
Merger. This summary does not purport to be a complete description of the terms and conditions of the Merger Agreement or the Plan of Merger and is qualified in its entirety by reference to the Merger
Agreement and the Plan of Merger, copies of which are attached as Appendix A to this joint proxy statement/prospectus and incorporated herein by reference. Youku shareholders and Tudou
shareholders are urged to read the Merger Agreement and the Plan of Merger in their entirety. In the event of any discrepancy between the terms of the Merger Agreement or the Plan of Merger and the
following summary, the Merger Agreement and the Plan of Merger will control.
Structure and Completion of the Merger
The Merger Agreement and the Plan of Merger provide for the merger of Merger Sub with and into Tudou upon the terms and subject to the
conditions of the Merger Agreement and in accordance with the Cayman Islands Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised). If the Merger is completed, Tudou will cease to be a
publicly-traded company and will continue its operations as a privately held company wholly owned by Youku.
The
closing of the Merger will occur within three business days after all of the closing conditions set forth in the Merger Agreement have been satisfied or waived (other than those
conditions that by their nature are to be satisfied at the closing, but subject to the fulfillment or waiver of those conditions at the closing). At the closing or as soon as practicable thereafter,
Youku, Merger Sub and Tudou will execute the Plan of Merger and file the Plan of Merger and other related documents with the Registrar of Companies of the Cayman Islands. The Merger will become
effective when the Plan of Merger has been registered by the Registrar of Companies of the Cayman Islands or at such other subsequent date or time thereafter within 90 days of the date of such
registration as Merger Sub and Tudou may agree and specify in the Plan of Merger in accordance with the Cayman Companies Law. Following completion of the Merger, Tudou will continue as the surviving
entity and the separate corporate existence of Merger Sub will cease.
Memorandum and Articles of Association; Directors and Officers of the Surviving Company
Upon completion of the Merger, the memorandum and articles of association of Merger Sub, as in effect at the effective time, will be
the memorandum and articles of association of the surviving company, except that, at the effective time, (1) Clause 1 of the memorandum of association shall be amended to state "The name
of the Company is Tudou Holdings Limited" and (2) the memorandum and articles of association shall be amended to refer to the name of the surviving company as "Tudou Holdings Limited."
The
directors of Merger Sub immediately prior to the effective time will become the directors of the surviving company and the officers of Tudou immediately prior to the effective time
will remain the officers of the surviving company.
Merger Consideration
At the effective time of the Merger, by virtue of the Merger and without any action on the part of Youku, Merger Sub or Tudou or any
other shareholders of Tudou:
-
1.
-
other
than as provided in paragraph (2) immediately below, each Tudou Class A share and each Tudou Class B share issued and outstanding
immediately prior to the effective time of the Merger (other than the Excluded Tudou Shares and Dissenter Shares), shall be cancelled in exchange for the right to receive 7.177 Youku Class A
shares (such number of Youku Class A shares, the "Per Share Merger Consideration"); and
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-
2.
-
each
Tudou ADS shall be cancelled in exchange for the right to receive 1.595 Youku ADS (such number of Youku ADSs, the "Per ADS Merger Consideration" and
together with the Per Share Merger Consideration, the "Merger Consideration."
No
fractional Youku shares or Youku ADSs will be issued to Tudou shareholders and ADS holders as part of the total Merger Consideration. The exchange agent will (1) receive all
Youku ADSs not used for share exchange in the Merger because of the existence of fractional Youku Class A shares or Youku ADSs and (2) sell such Youku ADSs on behalf of the holders of
fractional Youku Class A shares or Youku ADSs on the NYSE and pass on the proceeds due and payable to such holders of the Tudou shares and Tudou ADSs in cash.
As
of the effective time, all of the Tudou shares, including Tudou shares represented by Tudou ADSs, shall, by virtue of the Merger and without any action on the part of its holder,
automatically be cancelled, shall no longer be issued or outstanding and shall cease to exist, and the register of members of Tudou shall be amended accordingly. Each Tudou share (other than the
Excluded Tudou Shares and Dissenter Shares) shall thereafter represent only the right to receive the Per Share Merger Consideration, each Tudou share represented by a Tudou ADS, together with such
Tudou ADS, shall
thereafter represent only the right to receive the Per ADS Merger Consideration, without interest, and any Dissenter Shares shall thereafter represent only the right to receive any applicable payments
resulting from the procedure in Section 238 of the Cayman Companies Law, and which is described in more detail in the section headed "The MergerAppraisal Rights" and
"Appendix E: Section 238 of the Cayman Companies Law" in this joint proxy statement/prospectus.
Notwithstanding
the preceding paragraphs set forth under this sub-section headed "Merger Consideration," all Excluded Tudou Shares shall, by virtue of the Merger
and without any action on the part of its holder, automatically be cancelled, shall no longer be issued or outstanding and shall cease to exist, the register of members of Tudou will be amended
accordingly, and no consideration shall be delivered or deliverable in exchange therefor.
The
Per Share Merger Consideration will not be issued or delivered to any Tudou shareholder who is untraceable, unless such shareholder notifies the exchange agent of their contact
details prior to the effective time of the Merger. A Tudou shareholder will be deemed to be untraceable if (1) he has no registered address in the register of members maintained by Tudou,
(2) on the last two consecutive occasions on which a dividend has been paid by Tudou a check payable to such Tudou shareholder either (a) has been sent to such shareholder and has been
returned undelivered or has not been cashed, or (b) has not been sent to such shareholder because on an earlier occasion a check for a dividend so payable has been returned undelivered, and in
any such case no valid claim in respect thereof has been communicated in writing to Tudou, or (3) notice of a general meeting of Tudou shareholders has been sent to such shareholder and has
been returned undelivered.
At
the effective time of the Merger, each ordinary share, par value US$0.0001 per share, of Merger Sub issued and outstanding immediately prior to the effective time of the Merger will
be converted into one fully paid and nonassessable ordinary share, par value US$0.0001 per share, of the surviving company.
Please
see the section headed "Risk FactorsRisks Related to the Merger and the Combined BusinessThe market price of the Youku ADSs may decline following the
completion of the Merger or during the period of time between the Tudou AGM and the date on which Tudou shareholders and Tudou ADS holders actually receive Youku Class A shares and Youku ADSs
pursuant to the Merger Agreement."
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Treatment of Tudou Share Options
Each Tudou share option that is outstanding immediately prior to the effective time of the Merger, whether vested or unvested, shall,
at the effective time of the Merger, be assumed by Youku and be replaced by Youku with a Youku share option. Each such Youku share option shall be exercisable for that number of whole Youku
Class A shares (rounded down to the nearest whole share) equal to the product of (1) the total number of Tudou shares subject to such Tudou share option and (2) 7.177, at an
exercise price per Youku Class A share (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of the Tudou share option by
(y) 7.177. Each such Youku share option shall continue to have, and shall be subject to, the same terms and conditions as applied to the Tudou share option immediately prior to the effective
time (but taking into account any changes thereto provided for in the Tudou share incentive plan, any award agreement, or any other contract or agreement, including by reason of the Merger Agreement
or the transactions contemplated thereby).
Tudou
may consider the immediate vesting upon the closing of the Merger of the Tudou share options held by certain directors and officers of Tudou, including Mr. Gary Wei Wang,
chairman of the Tudou Board and Tudou's chief executive officer, in which case such Tudou share options shall become fully vested and exercisable upon the closing of the Merger.
Unless
otherwise determined by Youku, Tudou's share incentive plan shall terminate as of the effective time of the Merger. Tudou shall take all actions necessary to (1) effect the
measures contemplated in this sub-section headed "Treatment of Tudou Share Options," including but not limited to the adoption of any plan amendments, obtaining the approval
of the Tudou Board and/or obtaining the necessary employee or option holder consents and (2) ensure that from and after the effective time neither Youku nor the surviving company will be
required to issue Tudou shares, other share capital of the surviving company or any other consideration (other than as required by this sub-section headed "Treatment of Tudou
Share Options") to any person pursuant to or in settlement of Tudou share options or any other awards granted under Tudou's share incentive plan.
Exchange Procedures
Holders of Tudou shares
Within five business days after the effective time, the exchange agent will mail to each registered holder of the Tudou shares (other
than the Tudou depositary and holders of the Excluded Tudou Shares and Dissenter Shares) (1) a form of letter of transmittal specifying how the delivery of the Merger Consideration to
registered holders of the Tudou shares will be effected and (2) instructions for effecting the surrender of share certificates representing the Tudou shares in exchange for the applicable
Merger Consideration. Upon surrender of a share certificate or a declaration of loss or non-receipt and a completed letter of transmittal, each registered holder of Tudou shares will
receive an amount equal to (1) the number of Tudou shares held by such holder multiplied by (2) the Per Share Merger Consideration.
Holders of Tudou ADSs
Within five business days after the effective time of the Merger, the surviving company will mail to the Tudou depositary (1) a
form of letter of transmittal specifying how the delivery of the Merger Consideration to the Tudou depositary will be effected and (2) instructions for effecting the surrender of all
certificates representing Tudou ADSs. The Tudou depositary will be entitled to receive the Per ADS Merger Consideration, without interest, for each Tudou share held by the Tudou depositary in respect
of which a Tudou ADS has been issued (other than those Tudou ADSs represented by Tudou shares issued to the Tudou depositary and reserved for future grants under the Tudou share incentive plan) (the
"Aggregate ADS Payment"), provided that the Tudou depositary will be required to
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surrender
such certificates it holds to the surviving company, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and the certificates
so surrendered will forthwith be cancelled.
Within
five business days following the payment of the Aggregate ADS Payment, the Tudou depositary to mail to each registered holder of Tudou ADSs (other than holders of Excluded Tudou
Shares) (1) a form of letter of transmittal specifying how the delivery of the Merger Consideration to the registered holders of the Tudou ADSs will be effected and (2) instructions for
effecting the surrender of ADRs evidencing Tudou ADSs. Each holder registered on the register of ADRs of Tudou of such Tudou ADS cancelled at the effective time shall be entitled to receive the Per
ADS Merger Consideration for each
Tudou ADS cancelled at the effective time multiplied by the number of Tudou ADSs held by such holder, provided that each holder of an ADR shall be required to surrender such ADR to the Tudou
depositary together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and the ADRs so surrendered shall forthwith be cancelled pursuant to the
Tudou Deposit Agreement. Each ADR in respect of such cancelled Tudou ADS shall be deemed at any time after the effective time to represent only the right to receive the Per ADS Merger Consideration.
Withholding Rights
Each of the surviving company, Tudou, Youku and the exchange agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the Merger Agreement such amounts as it reasonably determines is required to deduct and withhold with respect to the making of such payment under any applicable tax laws
of the United States, PRC, or other applicable jurisdictions. To the extent that amounts are so withheld and paid over to the appropriate governmental entity by the surviving company, Tudou, Youku or
the exchange agent, as the case may be, such withheld amounts shall be treated for all purposes of the Merger Agreement as having been paid to (1) the holder of Tudou shares or Tudou ADSs in
respect to which such deduction and withholding was made by the surviving company or Youku, as the case may be, (2) Youku in respect of which such deduction and withholding was made by Tudou
with respect any termination fee paid by Tudou, and (3) Tudou in respect of which such deduction and withholding was made by Youku with respect to any no vote termination fee or termination fee
paid by Youku. See the sub-section headed "Termination Fees" for more information on termination fees.
Representations and Warranties
The Merger Agreement contains representations and warranties made by Tudou to Youku and Merger Sub as well as representations and
warranties made by Youku and Merger Sub to Tudou. The statements embodied in those representations and warranties were made for purposes of the Merger Agreement and are subject to important
qualifications and limitations agreed by the parties in connection with negotiating the terms of the Merger Agreement (including the disclosure schedules delivered by Tudou and Youku in connection
therewith but not reflected in the Merger Agreement). In addition, some of those representations and warranties are subject to a contractual standard of materiality different from that generally
applicable for the principal purposes of establishing the circumstances in which a party to the Merger Agreement may have the right not to close the Merger. Moreover, information concerning the
subject matter of the representations and warranties are made as of specified dates, which do not purport to be accurate as of the date of this joint proxy statement/prospectus, may have changed since
the date of the Merger Agreement, and
subsequent developments or new information qualifying a representation or warranty may have been included in this joint proxy statement/prospectus.
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As
used in this section headed "The Merger Agreement, the Plan of Merger and the Merger," "Tudou Subsidiaries" means Tudou's subsidiaries and consolidated affiliated entities and "Youku
Subsidiaries" means Youku's subsidiaries and consolidated affiliated entities.
The
representations and warranties made by Tudou to Youku and Merger Sub include representations and warranties relating to, among other
things:
-
-
corporate organization, existence, good standing of Tudou and the Tudou Subsidiaries and power and authority to carry on
Tudou's businesses;
-
-
Tudou's capitalization, information on Tudou's share options and share incentive plan, the absence of preemptive or other
similar rights or any debt securities that give its holders the right to vote with Tudou's shareholders and the absence of encumbrances on Tudou's ownership of equity interests in the Tudou
Subsidiaries;
-
-
Tudou's corporate power and authority to execute and deliver, to perform its obligations and to consummate the
transactions under the Merger Agreement, and the enforceability of the Merger Agreement against Tudou;
-
-
the Tudou Board's direction that the Merger Agreement, the Merger and Plan of Merger be submitted to Tudou shareholders
for their authorization and approval at a meeting to be held for that purpose, and the required vote of Tudou's shareholders to authorize and approve the Merger Agreement, the Merger and the Plan of
Merger and the transactions contemplated thereby;
-
-
filings with the SEC and compliance with applicable law concerning disclosure controls and procedures and internal control
over financial reporting;
-
-
accuracy of the information provided by Tudou in the registration statement on Form F-4, of which this
joint proxy statement/prospectus is a part;
-
-
absence of certain undisclosed liabilities;
-
-
the absence of a "Tudou Material Adverse Effect" (as defined below), the operation of Tudou and the Tudou Subsidiaries in
the ordinary course of business and the absence of certain other material changes or events since December 31, 2011;
-
-
governmental consents and approvals required for the execution and delivery by Tudou of the Merger Agreement or the
consummation by Tudou of the Merger;
-
-
the absence of violations of, default under, or material breach of, the governing documents of Tudou and the Tudou
Subsidiaries, applicable law regarding Tudou and the Tudou Subsidiaries and certain agreements of Tudou and the Tudou Subsidiaries as a result of Tudou entering into and performing under the Merger
Agreement and consummating the transactions contemplated by the Merger Agreement, including the Merger;
-
-
ownership and leasing of real property;
-
-
the absence of material legal proceedings and governmental orders against Tudou or the Tudou Subsidiaries;
-
-
licenses and permits and compliance with applicable law;
-
-
employee compensation and benefits matters;
-
-
collective bargaining and other labor matters;
-
-
the timely filing of all material tax returns, timely payment of taxes and other tax matters;
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-
-
material contracts, including the absence of any default under, or termination of, any material contract;
-
-
ownership of, and sufficiency of rights in, intellectual property;
-
-
insurance matters;
-
-
Tudou's control over the Tudou Subsidiaries that are PRC subsidiaries and other matters related to Tudou's variable
interest entities;
-
-
takeover statutes;
-
-
the absence of undisclosed related party transactions;
-
-
the receipt of an opinion of Morgan Stanley;
-
-
the absence of any undisclosed broker's or finder's fees;
-
-
acknowledgement by Tudou that, with respect to estimates, projections and other forward looking information, as well as
business plans, regarding Youku provided by Youku in connection with Tudou's due diligence investigation of Youku, none of Youku, the Youku Subsidiaries or any of their respective affiliates or
representatives has made or is making any representation or warranty with respect to such estimates, projections and other forward looking information or business plans; and
-
-
the absence of any other representations and warranties made by Tudou to Youku and Merger Sub (and Youku and Merger Sub
acknowledge such absence of any other representations and warranties made by Tudou to Youku and Merger Sub).
Many
of the representations and warranties in the Merger Agreement made by Tudou are qualified as to "materiality" or "Tudou Material Adverse Effect." For purposes of the Merger
Agreement, a "Tudou Material Adverse Effect" means any change, circumstance, event, effect or occurrence that, individually or in the aggregate with all other changes, circumstances, events, effects
or occurrences, (1) has had or would reasonably be expected to have a material adverse effect on the business, results of operations, assets or consolidated financial condition of Tudou and the
Tudou Subsidiaries, taken as a whole, or (2) would or would reasonably be expected to prevent or materially impair or delay the
consummation of the transactions contemplated by the Merger Agreement; provided that in no event shall any of the following, constitute, or be taken into account in determining whether a "Tudou
Material Adverse Effect" has occurred:
-
1.
-
changes
generally affecting (A) the industry in which Tudou and the Tudou Subsidiaries operate and (B) economic, credit or financial or capital
markets, in the United States or elsewhere in the world, including changes in interest or exchange rates; or
-
2.
-
(A)
changes in law or in generally accepted accounting principles or in accounting standards, (B) acts of war (whether or not declared), sabotage or
terrorism, or any escalation or worsening of any such acts of war (whether or not declared), sabotage or terrorism, (C) pandemics, earthquakes, hurricanes, tornadoes or other natural disasters
or similar force majeure events, (D) any change, circumstance, event, effect or occurrence attributable to any action taken by Tudou or the Tudou Subsidiaries that is expressly required by the
Merger Agreement or requested by the Transition Management Committee (as defined below in the sub-section headed "Transition Management Committee") or the failure by Tudou or
the Tudou Subsidiaries to take any action that is prohibited by the Merger Agreement or the Transition Management Committee (provided that any request by the Transition Management Committee shall have
been unanimously approved by the Transition Management Committee in writing), (E) any decline in the market price, or change in trading volume, of the share capital of Tudou or Tudou ADSs,
(F) any failure to meet any internal or public projections,
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forecasts,
or guidance, (G) any change, circumstance, event, effect or occurrence attributable to the consummation of the transactions contemplated by, or the announcement of the execution of,
the Merger Agreement, or (H) any change resulting, or any facts or circumstances relating to, Youku, Merger Sub or any of their respective affiliates (it being understood that the exceptions in
clauses (E) and (F) shall not prevent or otherwise affect a determination that the underlying cause of any such decline or failure referred to therein is a Tudou Material Adverse
Effect);
provided,
however, that any change, circumstance, effect, event or occurrence referred to in clauses (1) or (2)(A), (B) or (C) above shall be taken into account for purposes of
such clause only to the extent such change, circumstance, effect, event or occurrence does not adversely affect Tudou and the Tudou
Subsidiaries, taken as a whole, in a materially disproportionate manner as compared to other participants in the industry in which Tudou and the Tudou Subsidiaries operate.
Youku
and Merger Sub made certain representations and warranties to Tudou under the Merger Agreement. The representations and warranties Youku and Merger Sub made to Tudou under the
Merger Agreement relate to, among other things:
-
-
the due organization, existence and good standing of Youku, Merger Sub and Youku's Subsidiaries, Youku's ownership
interest in the Youku Subsidiaries and authority to carry on Youku's businesses;
-
-
capitalization of Youku, options granted under Youku's share incentive plans, share capital of the Youku Subsidiaries,
Youku ownership of Merger Sub and operations of Merger Sub;
-
-
Youku's and Merger Sub's corporate power and authority to execute and deliver the Merger Agreement and, subject to, in the
case of Youku, obtaining the required Youku shareholder vote, to consummate the transactions contemplated by the Merger Agreement, ability to carry out the obligations under the Merger Agreement and
the enforceability of the Merger Agreement against them;
-
-
the approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, by the Merger Sub
board of directors and the sole shareholder of Merger Sub;
-
-
the Youku Board's direction that the Share Issuance be submitted to Youku shareholders for their authorization and
approval at a meeting to be held for that purpose, and the required vote of Youku shareholders to authorize and approve the Share Issuance;
-
-
the accuracy of the information provided by Youku and the Youku Subsidiaries (including Merger Sub) for inclusion in the
registration statement on Form F-4, of which this joint proxy statement/prospectus is a part;
-
-
governmental consents and approvals;
-
-
the absence of violation of, default under, or material breach of, the (assuming the required Youku shareholder vote is
obtained) governing documents of Youku, Merger Sub or any of the Youku Subsidiaries, applicable law regarding Youku, Merger Sub and the Youku Subsidiaries, and certain agreements of Youku, Merger Sub
and the Youku Subsidiaries, as a result of Youku or Merger Sub entering into and performing under the Merger Agreement and consummating the transactions contemplated by the Merger Agreement, including
the Merger;
-
-
absence of a "Youku Material Adverse Effect" (as defined below) and operation of Youku in the ordinary course of business
since December 31, 2011;
-
-
filings with the SEC and compliance with applicable law concerning disclosure controls and procedures and internal control
over financial reporting;
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-
-
the absence of certain undisclosed liabilities;
-
-
the absence of material legal proceedings and governmental orders against Youku, Merger Sub and the Youku Subsidiaries;
-
-
licenses and permits and compliance with applicable law;
-
-
taxes and tax returns;
-
-
material contracts, including the absence of any default under, or termination of, any material contract;
-
-
intellectual property matters;
-
-
Youku Subsidiaries that are PRC subsidiaries;
-
-
absence of undisclosed related party transactions;
-
-
the receipt of an opinion of Allen & Company;
-
-
the absence of any undisclosed broker's or finder's fees;
-
-
acknowledgement by Youku and Merger Sub that, with respect to estimates, projections and other forward looking
information, as well as business plans, regarding Tudou provided by Tudou in connection with Youku's due diligence investigation of Tudou, none of Tudou, the Tudou Subsidiaries or any of their
respective affiliates or representatives has made or is making any representation or warranty with respect to such estimates, projections and other forward looking information or business plans; and
-
-
the absence of any other representations and warranties made by Youku and Merger Sub to Tudou (and Tudou acknowledges such
absence of any other representations and warranties made by Youku and Merger Sub to Tudou).
Many
of the representations and warranties in the Merger Agreement made by Youku and Merger Sub are qualified as to "materiality" or "Youku Material Adverse Effect." For purposes of the
Merger Agreement, a "Youku Material Adverse Effect" means any change, circumstance, event, effect or occurrence that, individually or in the aggregate, with all other changes, circumstances, events,
effects or occurrences, (1) has had or would reasonably be expected to have a material adverse effect on the business, results of operations, assets or consolidated financial condition of Youku
and the Youku Subsidiaries taken as a whole, or (2) would or would reasonably be expected to prevent or materially impair or delay the consummation of the transactions contemplated by the
Merger Agreement; provided, that in no event shall any of the following, constitute, or be taken into account in determining whether a "Youku Material Adverse Effect" has
occurred:
-
1.
-
changes
generally affecting (A) the industry in which Youku and the Youku Subsidiaries operate and (B) economic, credit or financial or capital
markets, in the United States or elsewhere in the world, including changes in interest or exchange rates; or
-
2.
-
(A)
changes in law or in generally accepted accounting principles or in accounting standards after March 11, 2012, (B) acts of war (whether or
not declared), sabotage or terrorism, or any escalation or worsening of any such acts of war (whether or not declared), sabotage or terrorism, (C) pandemics, earthquakes, hurricanes, tornadoes
or other natural disasters or similar force majeure events, (D) any decline in the market price, or change in trading volume, of the capital stock of Youku, (E) any action taken by Youku
or the Youku Subsidiaries that is required by the Merger Agreement or the failure by Youku or the Youku Subsidiaries to take any action that is prohibited by the Merger Agreement, or (F) any
change resulting or arising from the identity of, or any facts or circumstances relating to, Tudou or any of its affiliates;
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provided,
however, that any change, circumstance, effect, event or occurrence referred to in clauses (1) or (2)(A), (B) or (C) above shall be taken into account for purposes of
such clause only to the extent such change, circumstance, effect, event or occurrence does not adversely affect Youku and the Youku
Subsidiaries, taken as a whole, in a materially disproportionate manner as compared to other participants in the industry in which Youku and the Youku Subsidiaries operate, or does not arise out of a
Tudou Material Adverse Effect.
Conduct of Business Prior to Closing
Under the Merger Agreement, each of Tudou and Youku has agreed that, subject to certain exceptions in the Merger Agreement, from the
date of the Merger Agreement until the earlier of the effective time or the termination of the Merger Agreement, Tudou and the Tudou Subsidiaries and Youku and the Youku Subsidiaries will conduct
their respective operations in the ordinary and usual course of business consistent with past practice, keep available the service of their respective current officers and employees and preserve their
respective relationships with customers, advertisers, licensors, suppliers and others having business dealings with them.
Subject
to certain exceptions set forth in the Merger Agreement and the disclosure schedule Tudou delivered to Youku in connection with the Merger Agreement, from the date of the Merger
Agreement until the earlier of the effective time or the termination of the Merger Agreement, without the prior written consent of Youku, Tudou will not and will not permit the Tudou Subsidiaries or
direct equity holders of any of the Tudou Subsidiaries which are variable interest entities to, among other things:
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-
amend its memorandum and articles of association (or other similar governing instrument) or certain of Tudou's variable
interest entity agreements;
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authorize for issuance, issue, sell, pledge, transfer or otherwise dispose of any share capital or any securities
convertible into or exchangeable for any share capital or any equity equivalents, subject to certain exceptions;
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(1) split, combine, subdivide or reclassify any of its share capital, (2) declare, set aside, or pay any dividend
or other distribution in respect of its share capital, (3) enter into any agreement with respect to the voting of its share capital, (4) make any other actual, constructive or deemed
distribution in respect of its share capital or otherwise make any payments to shareholders in their capacity as such, or (5) redeem, repurchase or otherwise acquire any of its share capital or
any share capital of any of the Tudou Subsidiaries, subject to certain exceptions;
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place Tudou or any of the Tudou Subsidiaries into liquidation, dissolution, scheme of arrangement, merger, consolidation,
restructuring, recapitalization, redomiciliation or other reorganization (other than the Merger);
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alter through merger, liquidation, reorganization, restructuring or other fashion the corporate structure or ownership of
any of the Tudou Subsidiaries;
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except pursuant to an agreement existing on the date of the Merger Agreement, (1) incur, modify, renew or assume
any debt or issue any debt securities in an amount exceeding US$4.0 million in the aggregate, except for borrowings under existing lines of credit in the ordinary course of business,
(2) prepay any debt, borrowings or obligations in excess of US$1.0 million in the aggregate prior to their stated maturity, (3) assume, guarantee or otherwise become liable for
the obligations of any other person, except in the ordinary course of business consistent with past practice and in amounts not material to Tudou and the Tudou Subsidiaries, taken as a whole, except
for guarantees of obligations of wholly owned Tudou Subsidiaries, (4) make any loans, advances or capital contributions to, or investments in, any other person, other than to wholly owned Tudou
Subsidiaries, Tudou Subsidiaries which are variable interest entities in accordance with the applicable variable interest entity agreements
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and
for advances for travel and other expenses to officers, directors and employees made in the ordinary course of business consistent with past practice, (5) pledge or otherwise encumber
shares of capital stock of Tudou or the Tudou Subsidiaries, or (6) mortgage or pledge any of Tudou's material assets or create certain liens thereupon;
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except in the ordinary course of business or as may be required by law (1) enter into, adopt, amend, extend or
terminate any benefit or compensation agreement, trust, plan, fund, award or arrangement for the benefit or welfare of any director, officer or employee in any manner, subject to certain exceptions,
(2) increase in any manner the compensation or benefits payable or to become payable to any director, officer or employee, subject to certain exceptions, (3) grant or increase any
severance, termination or similar compensation or benefits payable to any director, officer or employee, subject to certain exceptions, or (4) accelerate the time of payment or vesting of, or
the lapsing of restrictions with respect to, or fund or otherwise secure the payment of, any compensation or benefits payable or to become payable to any director, officer or employee under any
benefit or compensation plan, agreement or arrangement;
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(1) dispose of, license, transfer or grant to any person any rights to Tudou's intellectual property other than consistent
with past licensing practice in the ordinary course of business, (2) abandon, permit to lapse or otherwise dispose of any of Tudou's intellectual property, (3) make any material change
in the ownership or right to register any of Tudou's intellectual property, or (4) enter into any contract with respect to or otherwise binding upon any of Tudou's intellectual property other
than, in the case of the foregoing clauses (1) to (4), in the ordinary course of business consistent with past licensing practice;
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acquire, sell, lease, transfer or otherwise dispose of any assets in an amount exceeding RMB1.0 million in the
aggregate, except in the ordinary course of business consistent with past practice;
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except as may be required as a result of a change in law or in generally accepted accounting principles, change any of the
accounting principles used by it;
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revalue in any material respect any of its assets, other than in the ordinary course of business consistent with past
practice;
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(1) acquire any corporation, partnership or other business organization or division thereof or any equity interest
therein, if such acquisition would be material to Tudou, or (2) authorize new capital expenditures, except as specifically budgeted in Tudou's current plan approved by the Tudou Board prior to
March 11, 2012 that was made available to Youku or that, in the aggregate, would not exceed US$4.0 million during any fiscal quarter;
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make or revoke any material tax election, or settle or compromise any material tax liability, or change any aspect of its
method of accounting for tax purposes in a material manner;
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pay, discharge or satisfy any material claims, liabilities or obligations, other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice;
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waive the benefits of, reduce the restriction periods or agree to modify in a manner adverse to Tudou or any of the Tudou
Subsidiaries any non-competition, confidentiality, standstill or similar agreement to which Tudou or any of the Tudou Subsidiaries is a party;
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settle or compromise any pending or threatened suit, action or claim relating to the transactions contemplated by the
Merger Agreement (other than responding to certain notices);
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(1) cancel, materially modify, terminate or grant a waiver of any rights under any of Tudou's material contracts in a
manner adverse to Tudou or any of the Tudou Subsidiaries, (2) enter into a new contract that (A) would be a material contract if in existence as of March 11, 2012 or
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(B) contains,
unless required by applicable law, a change of control provision in favor of the other party or parties thereto or would otherwise require a payment to or give rise to any rights
to such other party or parties in connection with the transactions contemplated by the Merger Agreement or (3) waive, release or otherwise assign any material rights or claims under any such
material contract or new contact of Tudou;
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enter into any new lines of business;
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grant any lien (other than certain permitted liens) in any of its assets, other than non-exclusive licenses
granted in the ordinary course of business; or
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take, propose to take, or agree in writing or otherwise to take any of the foregoing actions.
Subject
to certain exceptions set forth in the Merger Agreement and the disclosure schedule Youku delivered to Tudou in connection with the Merger Agreement, from the date of the Merger
Agreement until the earlier of the effective time or the termination of the Merger Agreement, without the prior written consent of Tudou (which shall not be unreasonably withheld), Youku will not and
will not permit the Youku Subsidiaries to, among other things:
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authorize for issuance, issue, sell, pledge, deliver, transfer or otherwise dispose of any share capital or any securities
convertible or exchangeable for any share capital or any equity equivalents, except for the issuance of Youku Class A shares (1) as required to be issued upon the exercise or settlement
of Youku share options, (2) in connection with the Share Issuance, and (3) in connection with any strategic investment or acquisition, which would result in, in the aggregate, an
issuance of 10% or less of the share capital of Youku that is issued and outstanding as of March 11, 2012;
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if any of the following will have a disproportionate adverse effect on holders of Tudou shares and/or Tudou ADSs relative
to current holders of Youku Class A Shares and/or Youku ADSs: (1) split, combine, subdivide or reclassify any of its share capital, (2) declare, set aside or pay any dividend or
other distribution in respect of its share capital, or (3) make any other actual, constructive or deemed distribution in respect of any of its share capital or otherwise make any payments to
shareholders in their capacity as such;
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place Youku into liquidation, dissolution, scheme of arrangement or redomiciliation; or
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take, propose to take, or agree in writing or otherwise to take any of the foregoing actions.
Listing of Youku ADSs
Youku will use its reasonable best efforts to cause any Youku ADSs to be issued in connection with the Merger to be approved for
listing on the NYSE.
Delisting of Tudou ADSs
Youku and Tudou shall use reasonable efforts to cause the Tudou ADSs to be de-listed from the NASDAQ and Tudou to be
deregistered under the Exchange Act as promptly as practicable after the effective time.
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Acquisition Proposals Relating to Tudou; Tudou Board Recommendation
Tudou will not, nor will it permit any of the Tudou Subsidiaries to, nor will it authorize or permit any officer, director or employee
or any advisor or representative of Tudou or any of the Tudou Subsidiaries to, directly or indirectly, (1) solicit, initiate or encourage any inquiry or the making of any proposal or offer or
any other effort or attempt that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal (as defined below), (2) engage in, continue or otherwise participate in any
discussions or negotiations regarding, or furnish to any person any non-public information with respect to Tudou or any of the Tudou Subsidiaries, or take any other action to facilitate,
any Acquisition Proposal, or (3) enter into any letter of intent, agreement or agreement in principle with respect to an Acquisition Proposal. Tudou will, and will cause the Tudou Subsidiaries
and affiliates and their respective representatives to, cease and terminate any existing activities, discussions or negotiations with any person conducted prior to March 11, 2012 with respect
to any possible Acquisition Proposal, shall promptly cause to be returned or destroyed all confidential information provided by or on behalf of Tudou or any of the Tudou Subsidiaries to such person
and shall notify each such person or its representatives that the Tudou Board no longer seeks or requests the making of any Acquisition Proposal, and withdraws any consent theretofore given to the
making of an Acquisition Proposal. For the purposes of the Merger Agreement, "Acquisition Proposal" means any proposal or offer made by any Person (other than Youku, Merger Sub or any affiliate
thereof) to purchase or otherwise acquire, directly or indirectly, in one transaction or a series of transactions,
(1) beneficial ownership of 10% or more of any class of share capital of Tudou pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, tender offer,
exchange offer or similar transaction or (2) any one or more assets or businesses of Tudou and the Tudou Subsidiaries that constitute 10% or more of the revenues or assets of Tudou and the
Tudou Subsidiaries, taken as a whole.
The
Tudou Board will not (1) fail to recommend that Tudou shareholders vote in favor of the Merger Agreement and the Merger or fail to include the Tudou Board recommendation in
this joint proxy statement/prospectus or (2) withhold, withdraw, qualify or modify, or publicly announce its intent to withhold, withdraw, qualify or modify, in a manner adverse to Youku or
Merger Sub, the Tudou Board's recommendation that Tudou shareholders vote in favor of the Merger Agreement and the Merger.
Notwithstanding
anything to the contrary in the Merger Agreement, prior to obtaining the required Tudou shareholder approval of the Merger Agreement, the Tudou Board may effect a change
of recommendation if the Tudou Board has determined in good faith, after consultation with its financial advisor and outside legal advisor, that failure to take such action would constitute a breach
of the directors' fiduciary duties under applicable law; provided, however, that prior to taking such action or announcing the intention to do so, (1) the Tudou Board has given Youku at least
five business days' prior written notice of its intention to take such action and a description of the reasons for taking such action, (2) Tudou has negotiated, and has caused its
representatives to negotiate, in good faith with Youku during such notice period to enable Youku to revise the terms of the Merger Agreement in such a manner that would obviate the need for taking
such action, and (3) following the end of such notice period, the Tudou Board shall have considered in good faith any revisions to the Merger Agreement proposed in writing by Youku in a manner
that would form a binding contract if accepted by Tudou, and shall have determined in good faith, after consultation with its financial advisor and outside legal counsel, that failure to effect
a change of recommendation would constitute a breach of the directors' fiduciary duties under applicable law.
Competing Proposals Relating to Youku; Youku Board Recommendation
Until the earlier of the effective time of the Merger or the termination of the Merger Agreement, Youku will not, nor will it permit
any of the Youku Subsidiaries to, nor will it authorize or permit any representatives of Youku or any of the Youku Subsidiaries to, directly or indirectly, (1) solicit, initiate
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or
encourage any inquiry or the making of any proposal or offer or any other effort or attempt that constitutes, or may reasonably be expected to lead to, any Competing Proposal (as defined below),
(2) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public information with respect to Youku or any of
the Youku Subsidiaries, or take any other action to facilitate, any Competing Proposal, or (3) enter into any letter of intent, agreement or agreement in principle with respect to any Competing
Proposal. Youku will, and will cause the Youku Subsidiaries and affiliates and their respective representatives to, cease and terminate any existing activities, discussions or negotiations with any
person conducted prior to March 11, 2012 with respect to any Competing Proposal. For the purposes of the Merger Agreement, "Competing Proposal" means any proposal or offer made by Youku to
purchase any person (other than Tudou or any of its affiliates), directly or indirectly, in one transaction or a series of transactions which results in the issuance of 10% or more of the share
capital of Youku (on a fully diluted basis) issued and outstanding as of March 11, 2012.
The
Youku Board will not (1) fail to recommend that shareholders of Youku vote in favor of the Share Issuance and the Name Change or fail to include such recommendation in this
joint proxy statement/prospectus or (2) withhold, withdraw, qualify or modify, or publicly announce its intent to withhold, withdraw, qualify or modify, in a manner adverse to Tudou, such
recommendation that shareholders of Youku vote in favor of the Share Issuance and the Name Change.
Notwithstanding
anything to the contrary in the Merger Agreement, prior to the time the required vote of Youku shareholders to authorize and approve the Share Issuance and the Name
Change is obtained, but not after, the Youku Board may change its recommendation that shareholders of Youku vote in favor of the Share Issuance and the Name Change if the Youku Board has determined in
good faith, after consultation with its financial advisor and outside legal counsel, that failure to take such action would constitute a breach of the directors' fiduciary duties under applicable law;
provided, however, that prior to taking such action or announcing the intention to do so, (1) the Youku Board has given Tudou at least five business days' prior written notice of its intention
to take such action and a description of the reasons for taking such action, (2) Youku has negotiated, and has caused its representatives to negotiate, in good faith with Tudou during such
notice period to enable Tudou to revise the terms of the Merger Agreement in such a manner that would obviate the need for taking such action and (3) following the end of such notice period,
the Youku Board shall have considered in good faith any revisions to the Merger Agreement proposed in writing by Tudou in a manner that would form a binding contract if accepted by Youku, and
shall have determined in good faith, after consultation with its financial advisor and outside legal counsel, that failure to change its recommendation that shareholders of Youku vote in favor of the
Share Issuance and the Name Change would constitute a breach of the directors' fiduciary duties under applicable law.
Shareholders' Meetings
Tudou Shareholders' Meeting
Tudou will take, in accordance with applicable law and its memorandum and articles of association, all actions necessary to
(1) cause an annual or extraordinary general meeting of its shareholders to be duly called and held as soon as practicable after the SEC declares effective Youku's registration statement on
Form F-4, of which this joint proxy statement/prospectus is a part, for the purpose of voting on the authorization and approval by way of special resolution of the Merger Agreement,
the Plan of Merger and the Merger and (2) subject to its fiduciary duties, solicit proxies from its shareholders to obtain the requisite vote for such authorization and approval. The Tudou
Board shall, subject to the conditions set forth in the sub-section headed "Acquisition Proposals Relating to Tudou; Tudou Board Recommendation," recommend authorization and
approval of the Merger Agreement, the Plan of Merger and the Merger by Tudou's shareholders.
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Youku Shareholders' Meeting
Youku will take, in accordance with applicable law and its memorandum and articles of association, all actions necessary to
(1) cause an annual general meeting of its shareholders to be duly called and held as soon as practicable after the SEC declares effective Youku's registration statement on
Form F-4, of which this joint proxy statement/prospectus is a part, for the purpose of voting on the authorization and approval of the Share Issuance and the Name Change and
(2) subject to its fiduciary duties, solicit proxies from its shareholders to obtain the requisite vote for such authorization and approval. The Youku Board shall, subject to the conditions set
forth in the sub-section headed "Competing Proposals Relating to Youku; Youku Board Recommendation," recommend authorization and approval of the Share Issuance and the Name
Change by Youku's shareholders.
Directors' and Officers' Insurance; Indemnification
For a period of six years after the effective time, Youku shall cause the surviving company to maintain Tudou's existing policies of
directors' and officers' liability insurance for the benefit of those persons who are covered by such policies at the effective time (or Youku may substitute therefor policies of at least the same
coverage with respect to matters occurring prior to the effective time), to the extent that such liability insurance can be maintained at a cost to Youku not greater than 300 percent of the
annual premium (such 300 percent threshold, the "Maximum Premium") for the Tudou directors' and officers' liability insurance as of the date of the Merger Agreement; provided that if such
insurance cannot be so maintained or obtained at such costs, Youku shall maintain or obtain as much of such insurance as can be so maintained or obtained at an annual premium amount not in excess of
the Maximum Premium.
Under
the Merger Agreement, each of Youku and the surviving company agrees that, from and after the effective time, it will indemnify and hold harmless each individual who at the
effective time is, or at any time prior to the effective time was, a director or officer of Tudou or the Tudou Subsidiaries (the "Indemnified Parties") against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or related to such Indemnified Parties' service as a director or officer of Tudou or the Tudou Subsidiaries or services performed by such persons at the
request of Tudou or the Tudou Subsidiaries at or prior to the effective time; provided that any such indemnification will be subject to any limitation imposed from time to time under applicable law.
The
memorandum and articles of association of the surviving company will contain provisions with respect to rights to indemnification, advancement of expenses and limitation on, or
exculpation from, liabilities for acts and omissions that are at least as favorable to the directors, officers or employees of Tudou as those contained in the memorandum and articles of association of
Tudou as in effect on March 11, 2012, except to the extent prohibited by the Cayman Companies Law or any other applicable law, which provisions will not be amended, repealed or otherwise
modified for a period of six years from the effective time in any manner that would adversely affect the rights of the Indemnified Parties, unless such modification is required by law.
Board Representation Rights
Prior to the effective time of the Merger, Youku shall organize a meeting of the Youku Board for the purpose of appointing to the Youku
Board as a director (1) Mr. Gary Wei Wang, who, subject to the paragraph below, shall be entitled to serve as a director on the Youku Board for a term of one year, and
(2) Mr. Jixun Foo, who, subject to the paragraph below, shall be entitled to serve as a director on the Youku Board until his resignation or the designation of his successor by GGV II
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Delaware
L.L.C. The Youku Board shall cause any successor so designated by GGV II Delaware L.L.C. to be appointed to the Youku Board as a director.
Notwithstanding
anything in the preceding paragraph to the contrary, at such time after the effective time of the Merger as the Tudou Principal Shareholders beneficially own, in the
aggregate, less than 5% of the total issued and outstanding Youku shares on a fully diluted basis for the first time, (1) all board representation rights discussed in the preceding paragraph
shall immediately terminate and upon the request of the Youku Board, Mr. Gary Wei Wang and/or Mr. Jixun Foo shall tender his respective resignation from the Youku Board and
(2) Youku may remove Mr. Wang and/or Mr. Foo from the Youku Board pursuant to its then effective articles of association.
Tudou Corporate Structure Matters
On or prior to the closing of the Merger, Tudou shall use reasonable best efforts to cause the nominee shareholders of each Tudou
Subsidiary which is a variable interest entity to transfer all equity interests in each such variable interest entity to persons designated by Youku, free of any third-party rights, claims or liens
(except for certain permitted liens), and revise certain variable interest entity agreements to reflect the change of the nominee shareholders of such variable interest entities.
Tudou
shall take all steps necessary and appropriate to cause the changes of directors, officers and governing documents for any of the Tudou Subsidiaries upon the reasonable request of
Youku on or prior to the closing of the Merger.
Non-Competition Agreements
Tudou shall cause each of Tudou's or the Tudou's Subsidiaries' employees hired after March 11, 2012 to enter into a customary
non-competition agreement with Youku or one of the Youku Subsidiaries with a non-competition term of at least one year; provided, that, for employees holding the position of
vice president or above, such term shall be at least two years.
Youku Memorandum and Articles of Association
Prior to the effective time of the Merger, Youku shall amend its memorandum and articles of association to provide that the name of
Youku shall be changed to "Youku Tudou Inc.," effective as of the effective time of the Merger.
Transition Management Committee
Until the earlier of the closing of the Merger and the termination of the Merger Agreement, Youku and Tudou shall form a
transition management committee consisting of one representative selected by each of Tudou and Youku (the "Transition Management Committee"). Each member of the Transition Management Committee will
report directly to the board of directors of the company that selected such person. The Transition Management Committee is intended to support the efforts of Youku, Tudou and Merger Sub in planning
and supporting implementation of the integration of the businesses of Youku and Tudou and their respective subsidiaries and variable interest entities. These responsibilities include, but shall not be
limited to, the following:
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facilitating Youku's access to information regarding the operations of Tudou and the Tudou Subsidiaries with the goal of
ensuring that Youku has sufficient visibility into Tudou's businesses and operations to permit the coordination of the parties' related operations on a timely basis in an effort to accelerate to the
earliest time practicable after the effective time the realization of synergies, operating efficiencies and other benefits expected to be realized by the parties as a result of the transactions
contemplated by the Merger Agreement;
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ensuring that the business and operations of Tudou are conducted in the best long term interests of Tudou;
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acting as a locus of discussion concerning matters relating to transition planning including, but not limited to, employee
matters and business matters; and
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coordinating the communications, public relations and investor relations strategy regarding the Merger and the other
transactions contemplated by the Merger Agreement.
Each
of Youku, Tudou and Merger Sub will cooperate with the Transition Management Committee to support and give effect to its efforts in the areas of its responsibility. Any action or
request by the Transition Management Committee shall be unanimously approved in writing by each member of the Transition Management Committee.
Conditions to the Completion of the Merger
The obligations of each party to consummate the transactions contemplated by the Merger Agreement, including the Merger, is subject to
the satisfaction of each of the following conditions:
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the Merger Agreement, the Plan of Merger and the Merger being authorized and approved by Tudou shareholders, and the Share
Issuance being authorized and approved by Youku shareholders;
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the registration statement on Form F-4 (of which this joint proxy statement/prospectus is a part)
having become effective under the Securities Act, and not having become the subject of any stop order, or any proceedings to seek a stop order, to suspend the effectiveness of the
Form F-4;
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the Youku ADSs issuable as Merger Consideration pursuant to the Merger Agreement having been approved for listing on the
NYSE, subject to official notice of issuance; and
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no governmental entity of competent jurisdiction having enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, executive order, decree, injunction or other order which (1) is in effect and (2) has the effect of making the Merger illegal or otherwise prohibiting or preventing
consummation of the Merger.
The
obligation of Youku and Merger Sub to consummate the Merger are also subject to the satisfaction, or waiver by Youku, of the following conditions, among
others:
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(1) certain representations and warranties of Tudou in the Merger Agreement being true and correct in all material
respects as of the date of the Merger Agreement and as of the closing date of the Merger as if made on and as of such date and time, (2) certain representations and warranties of Tudou in the
Merger Agreement being true and correct in all but immaterial respects as of the date of the Merger Agreement and as of the closing date as if made on and as of such date and time, and
(3) certain representations and warranties of Tudou set forth in the Merger Agreement being true and correct interpreted without giving effect to the words "materially" or "material" or to any
qualifications based on such terms or based on the defined term "Tudou Material Adverse Effect," except where the failure of such representations and warranties to be true and correct, in the
aggregate, would not constitute a Tudou Material Adverse Effect;
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Tudou having performed or complied in all material respects with all covenants and agreements required to be performed or
complied with by it under the Merger Agreement prior to or at the time of closing of the Merger;
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there not having been a Tudou Material Adverse Effect since the date of the Merger Agreement;
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all nominee shareholders of each Tudou Subsidiary which is a variable interest entity having transferred, free of any
third-party rights, claims or liens (except for certain permitted liens), all of their respective equity interests in each such variable interest entity to the person(s) designated by Youku; and
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Tudou shareholders holding no more than 10% of the outstanding Tudou shares having validly served a written objection
under Section 238(2) of the Cayman Companies Law.
The
obligation of Tudou to consummate the Merger is subject to the satisfaction, or waiver by Tudou, of the following conditions, among
others:
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(1) certain representations and warranties of Youku and Merger Sub in the Merger Agreement being true and correct in all
material respects as of the date of the Merger Agreement and as of the closing date of the Merger as if made on and as of such date and time, (2) certain representations and warranties of Youku
and Merger Sub in the Merger Agreement being true and correct in all but immaterial respects as of the date of the Merger Agreement and as of the closing date of the Merger as if made on and as of
such date and time, and (3) certain representations and warranties of Youku and Merger Sub set forth in the Merger Agreement being true and correct interpreted without giving effect to the
words "materially" or "material" or to any qualifications based on such terms or based on the defined term "Youku Material Adverse Effect," except where the failure of such representations and
warranties to be true and correct, in the aggregate, would not constitute a Youku Material Adverse Effect;
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each of Youku and Merger Sub having performed or complied in all material respects with all covenants and agreements
required to be performed or complied with by it under the Merger Agreement prior to or at the time of closing of the Merger; and
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there not having been a Youku Material Adverse Effect since the date of the Merger Agreement.
Termination of the Merger Agreement
The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the effective time, whether before or after
the required approval from the Youku shareholders and Tudou shareholders has been obtained:
by
mutual written consent of Tudou and Youku;
by
either Youku or Tudou, if:
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the Merger is not completed by August 31, 2012, provided that this termination right is not available to a party if
the failure of the Merger to have been completed on or before such date was primarily due to the breach or failure of such party to perform in a material respect any of its obligations under the
Merger Agreement;
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any law, injunction or order having the effect of restraining, enjoining or otherwise prohibiting completion of the Merger
becomes final and non-appealable; provided, that this termination right is not available to a party if the issuance of such final, non-appealable law, injunction or order was
primarily due to the breach or failure of such party to perform in a material respect any of its obligations under the Merger Agreement;
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Tudou's shareholders do not authorize and approve the Merger Agreement, the Merger and the Plan of Merger; or
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Youku's shareholders do not authorize and approve the Share Issuance; provided that this termination right is not
available to Youku if Youku has not paid to Tudou the No Vote
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by
Youku, if:
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the representations and warranties of Tudou shall not be true and correct or Tudou shall have breached or failed to
perform any of its covenants or agreements contained in the Merger Agreement, such that the corresponding condition to closing would not be satisfied and such breach or inaccuracy cannot be cured by
Tudou by August 31, 2012, or if curable, is not cured within thirty business days after receipt of written notice from Youku of such breach and stating Youku's intention to terminate the Merger
Agreement; provided, that this termination right is not available to Youku if it is then in material breach of any of its representations, warranties, covenants or other agreements under the Merger
Agreement, such that any condition to Tudou's obligation to close would not be satisfied; or
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(1) all of the closing conditions to the obligations of Youku and Merger Sub to consummate the Merger (including those
conditions that are conditions to all parties' obligations) are otherwise satisfied, (2) Youku has confirmed by notice to Tudou that all conditions to its obligation to consummate the Merger
have been satisfied or that it will waive any such unsatisfied conditions, and (3) Tudou fails to consummate the Merger within three business days following the date the closing should have
occurred as set forth in the Merger Agreement;
by
Tudou, if:
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Youku or Merger Sub has breached or failed to perform any of its covenants or agreements under the Merger Agreement, or
any representation or warranty made by Youku or Merger Sub under the Merger Agreement shall not be true and correct, such that the corresponding condition to closing would not be satisfied and such
breach or inaccuracy cannot be cured by August 31, 2012, or if curable, is not cured, within thirty business days after receipt of written notice from Tudou of such breach and stating Tudou's
intention to terminate the Merger Agreement; provided that this termination right is not available to Tudou if it is then in material breach of any of its representations, warranties, covenants or
agreements under the Merger Agreement such that any condition to Youku's obligation to close would not be satisfied; or
-
-
(1) all of the closing conditions to the obligations of Tudou to consummate the Merger (including those conditions that
are conditions to all parties' obligations) have been satisfied, (2) Tudou has confirmed by notice to Youku that all conditions to its obligation to consummate the Merger have been satisfied or
that it will waive any such unsatisfied conditions, and (3) Youku or Merger Sub fail to consummate the Merger within three business days following the date the closing should have occurred as
set forth in the Merger Agreement.
Effect of Termination
If the Merger Agreement is terminated, it will become void and of no effect with no liability on the part of any of Youku, Merger Sub
or Tudou (or of any of their representatives), except that certain provisions of the Merger Agreement (including the provision providing for a termination fee) will remain in full force and effect and
no party will be released from any liability arising from fraud.
Termination Fees
Tudou is required to pay Youku a termination fee of US$100.0 million (the "Tudou Termination Fee") if the Merger Agreement is
terminated by Youku because:
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-
the representations and warranties of Tudou shall not be true and correct or Tudou shall have breached or failed to
perform any of its covenants or agreements contained in the Merger
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Youku
is required to pay Tudou a termination fee of US$100.0 million (the "Youku Termination Fee") if the Merger Agreement is terminated by Tudou
because:
-
-
the representations and warranties of Youku or Merger Sub shall not be true and correct or Youku or Merger Sub shall have
breached or failed to perform any of their covenants or agreements contained in the Merger Agreement, as set forth in more detail in the sub-section headed "Termination of the
Merger Agreement," or
-
-
(1) all of the closing conditions to the obligations of Tudou to consummate the Merger (including those conditions that
are conditions to all parties' obligations) are satisfied, (2) Tudou has confirmed by notice to Youku that all conditions to its obligation to consummate the Merger have been satisfied or that
it is willing to waive any such unsatisfied conditions, and (3) Youku or Merger Sub fails to consummate the Merger within three business days following the date the closing should have occurred
as set forth in the Merger Agreement.
In
addition, in the event that the Merger Agreement is terminated by Youku or Tudou due to Youku's shareholders not having authorized and approved the Share Issuance at a shareholders'
meeting at which the Share Issuance is voted upon, Youku shall pay Tudou a termination fee of US$10.0 million (the "No Vote Termination Fee").
Fees and Expenses
Whether or not the Merger is completed, all costs and expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses except as otherwise provided in the Merger Agreement.
Amendment and Waiver
The Merger Agreement may be amended by action taken by Youku, Tudou and Merger Sub at any time before or after approval of the Merger
by the earlier of the required shareholder votes of either Youku or Tudou but, after any such approval, no amendment shall be made which requires the approval of such shareholders under applicable law
without such approval.
At
any time prior to the effective time of the Merger, each of Youku and Merger Sub, on the one hand, and Tudou, on the other hand, may (1) extend the time for the performance of
any of the obligations or other acts of the other party, (2) waive any inaccuracies in the representations and warranties of the other party contained in the Merger Agreement or in any
document, certificate or writing delivered pursuant thereto, or (3) waive compliance by the other party with any of the agreements or conditions contained in the Merger Agreement. The failure
of Youku and Merger Sub, on the one hand, or Tudou, on the other hand, to assert any of their or its rights under the Merger Agreement shall not constitute a waiver of such rights.
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Remedies
Tudou's receipt of the No Vote Termination Fee or Youku Termination Fee from Youku shall be the sole and exclusive remedy of Tudou
against the Youku Related Parties (as defined below) (other than the shareholders of Youku that are parties to voting agreements with Tudou pursuant to the terms of such agreements) for any loss
suffered as a result of any breach of any covenant or agreement or the failure of the Merger to be consummated, and upon payment of such amount, none of the Youku Related Parties (other than the
shareholders of Youku that are parties to voting agreements with Tudou pursuant to the terms of such agreements) shall have any further liability or obligation relating to or arising out of the Merger
Agreement or the transactions contemplated thereby. Under no circumstances will Tudou be entitled to monetary damages in excess of the amount of the No Vote Termination Fee or Youku Termination Fee,
as applicable. As used herein, "Youku Related Party" means Youku, Merger Sub, or any of their respective former, current and future general or limited partners, shareholders, managers, members,
agents, directors, officers, employees or affiliates.
Subject
to the paragraph below, Youku's receipt of the Tudou Termination Fee from Tudou shall be the sole and exclusive remedy of Youku and the Youku Subsidiaries against the Tudou
Related Parties (as
defined below) (other than the shareholders of Tudou that are parties to voting agreements with Youku pursuant to the terms of such agreements) for any loss suffered as a result of any breach of any
covenant or agreement or the failure of the Merger to be consummated, and upon payment of such amount, none of the Tudou Related Parties (other than the shareholders of Tudou that are parties to
voting agreements with Youku pursuant to the terms of such agreements) shall have any further liability or obligation relating to or arising out of the Merger Agreement or the transactions
contemplated thereby. Under no circumstances will Youku be entitled to monetary damages in excess of the amount of the Tudou Termination Fee. As used herein, "Tudou Related Parties" means Tudou and
the Tudou Subsidiaries and any of their respective former, current and future officers, employees, directors, partners, shareholders, management members or affiliates (excluding any Youku Related
Party).
Youku
and Merger Sub are entitled to an injunction or injunctions to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions of the Merger
Agreement, without the necessity of proving the inadequacy of money damages as a remedy, in addition to any other remedy to which they are entitled at law or in equity. Neither Youku nor Merger Sub
shall be required to provide any bond or other security in connection with an injunction or injunctions sought in accordance with the Merger Agreement to prevent breaches of the Merger Agreement and
to enforce specifically the terms and provisions of the Merger Agreement. While Youku and Merger Sub may pursue both a grant of specific performance and the payment of the Tudou Termination Fee, under
no circumstances shall Youku and Merger Sub be permitted or entitled to receive both a grant of specific performance and any money damages, including all or any portion of the Tudou Termination Fee.
Youku, Tudou and Merger Sub agree that Tudou shall under no circumstances be entitled to an injunction, specific performance or other equitable relief to prevent breaches of the Merger Agreement or to
otherwise enforce the terms thereof.
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THE VOTING AGREEMENTS
The following is a summary of the material provisions of the voting agreements between Youku and certain
shareholders of Tudou, and the voting agreements between Tudou and certain shareholders of Youku. This summary does not purport to be a complete description of the terms and conditions of the voting
agreements and is qualified in its entirety by reference to each voting agreement, copies of which are attached as Appendix B to this joint proxy statement/prospectus and incorporated herein by
reference. In the event of any discrepancy between the terms of the voting agreements and the following summary, the voting agreements will control.
Voting Agreements between Youku and Certain Tudou Shareholders
Overview
As an inducement for Youku to enter into the Merger Agreement, certain principal shareholders of Tudou, including Gary Wei Wang and
certain of his affiliates, Crescent P.E., Ltd., Crescent Peak, Ltd., Crescent Peak II Limited, GGV II Delaware L.L.C., IDG Technology Venture Investment III, L.P., IDG Technology
Venture Investment IV, L.P. and Sennett Investments (Mauritius) Pte Ltd. (the "Tudou Voting Shareholders") entered into voting agreements with and in favor of Youku on March 11,
2012 (the "Youku Voting Agreements") contemporaneously with the execution and delivery of the Merger Agreement. As of April 17, 2012, an aggregate of 64,977,879 Tudou shares, constituting
approximately 55.8% of the total outstanding shares of Tudou and 65.3% of the voting power of Tudou, are subject to the Youku Voting Agreements.
Each
Tudou Voting Shareholder has agreed to vote all Tudou shares and Tudou ADSs beneficially owned by it (whether at a shareholders' meeting or in an action by written consent)
(1) in favor of the authorization and approval of the Merger Agreement, the Plan of Merger, the Merger and the other transactions contemplated by the Merger Agreement; (2) in favor of
any related proposal that is necessary to consummate the Merger and the transactions contemplated by the Merger Agreement; (3) against any action, proposal, transaction or agreement that could
reasonably be expected to (a) result in a breach of any representation, warranty, covenant or other obligation or agreement of Tudou contained in the Merger Agreement or of such Tudou Voting
Shareholder contained in the applicable Youku Voting Agreement or (b) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in
any manner the voting rights of any class of shares of Tudou; (4) against any Acquisition Proposal and (5) against any change in the composition of the Tudou Board (other than such
changes contemplated by the Merger Agreement). Each of the Tudou Voting Shareholders has agreed to grant a proxy to Youku and any designee of Youku for and in such Tudou Voting Shareholder's name to
vote and act by written consent with respect to the voting obligations described in clause (1) and (2) of the immediately preceding sentence.
Non-Solicitation and Restrictions on Transfers
The Tudou Voting Shareholders have agreed that they will not, and will use reasonable best efforts to cause his, her or its
representatives not to (1) solicit, initiate or encourage any inquiry or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal, (2) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to information to any person with respect to Tudou or any of its
subsidiaries, or facilitate, any Acquisition Proposal, or (3) enter into any letter of intent, agreement or agreement in principle with respect to an Acquisition Proposal.
Until
the earlier of the effective time of the Merger and the termination of the Merger Agreement, each Tudou Voting Shareholder has agreed to comply with certain restrictions on the
disposition and encumbrance of its Tudou shares and Tudou ADSs.
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Lock-up Restrictions
Each Tudou Voting Shareholder has agreed to comply with certain restrictions on the disposition and encumbrance of the Youku shares or
Youku ADSs received by it for 180 days following the closing of the Merger.
Other Covenants
In the Youku Voting Agreements, the Tudou Voting Shareholders (1) waived, and agreed not to assert or perfect, any of their
rights of appraisal or to dissent from the Merger under the law of the Cayman Islands; and (2) agreed that, in the event of any reclassification, reorganization, share split or combination,
exchange or readjustment of shares, change in ratio of Tudou ADSs to Tudou shares, share dividend, sub-division or distribution of securities convertible into or exchangeable for Tudou shares, all
such dividends and distributions and any securities into which any
of such Tudou shares or Tudou ADSs are changed or exchanged, will be subject to the terms of the Youku Voting Agreements.
In
addition to the covenants above, the Youku Voting Agreement entered into by Gary Wei Wang and certain of his affiliates provides that Mr. Wang shall, prior to the closing of
the Merger, provide evidence reasonably satisfactory to Youku that all obligations he owes under the Civil Settlement Agreement, dated June 10, 2011, by and between Lei Yang and
Mr. Wang, have been satisfied, and if such evidence is not so provided prior to the closing of the Merger, Mr. Wang and his affiliates agree that Youku may withhold a certain number of
Youku Class A shares from the portion of the merger consideration otherwise issuable to Mr. Wang or his affiliates or sell such withheld shares and apply the proceeds from the sale of
such shares to discharge any amounts owed under the foregoing Civil Settlement Agreement.
Voting Agreements between Tudou and Certain Youku Shareholders
Overview
As an inducement for Tudou to enter into the Merger Agreement, certain principal shareholders of Youku, including Victor Wing Cheung
Koo, Brookside Capital Partners Fund, L.P., Maverick Fund USA, Ltd., Sutter Hill Ventures and certain of their respective affiliates (the "Youku Voting Shareholders"), entered into
voting agreements with and in favor of Tudou on March 11, 2012 (the "Tudou Voting Agreements") contemporaneously with the execution and delivery of the Merger Agreement. As of April 17,
2012, an aggregate of 409,581,285 Class A ordinary shares and 645,023,149 Class B ordinary shares of Youku, constituting approximately 50.9% of the total outstanding Youku shares,
approximately 69.1% of the aggregate voting power of Youku shares and 29.0% of the aggregate voting power of Youku Class A shares, are subject to the Tudou Voting Agreements.
Each
of the Youku Voting Shareholders has agreed to vote all Youku shares and Youku ADSs beneficially owned by it (whether at a shareholders' meeting or in an action by written consent)
(1) in favor of the authorization and approval of the Share Issuance; (2) in favor of any related proposal that is necessary to consummate the Merger and the transactions contemplated by
the Merger Agreement which is considered at any such meeting of the Youku shareholders; (3) against any action, proposal, transaction or agreement that could reasonably be expected to
(a) result in a breach of any representation, warranty, covenant or other obligation or agreement of Youku contained in the Merger Agreement or of such Youku Voting Shareholder contained in the
applicable Youku Voting Agreement or (b) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of
the Merger or change in any manner the voting rights of any class of shares of Youku (including any amendments to the memorandum and articles of association of Youku, other than such amendments
contemplated by the Merger Agreement and/or any amendments that will not (x) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or
(y) have a disproportionate adverse effect on Tudou shareholders relative to current holders of Youku's Class A
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ordinary
shares); (4) against any Competing Proposal; and (5) against any change in the composition of the Youku Board (other than such changes contemplated by the Merger Agreement).
Each of the Youku Voting Shareholders has agreed to grant a proxy to Tudou and any designee of Tudou for and in such Youku Voting Shareholder's name to vote and act by written consent with respect to
the voting obligations described in clause (1) and (2) of the immediately preceding sentence.
Non-Solicitation and Restrictions on Transfers
The Youku Voting Shareholders have agreed that they will not, and will use reasonable best efforts to cause his, her or its
representatives not to (1) solicit, initiate or encourage any inquiry or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, any Competing Proposal,
(2) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to information to any person with respect to Youku or any of its subsidiaries, or
facilitate, any Competing Proposal, or (3) enter into any letter of intent, agreement or agreement in principle with respect to an Competing Proposal.
Until
the earlier of the effective time of the Merger and the termination of the Merger Agreement, each Youku Voting Shareholder has agreed to comply with certain restrictions on the
disposition and encumbrance of its Youku shares and Youku ADSs.
Other Covenants
In the Tudou Voting Agreements, the Youku Voting Shareholders agreed that, in the event of any reclassification, reorganization, share
split or combination, exchange or readjustment of shares, change in ratio of Youku ADSs to Youku shares, share dividend, subdivision or distribution of securities convertible into or exchangeable for
Youku shares, all such dividends and
distributions and any securities into which any of such Youku shares or Youku ADSs are changed or exchanged, will be subject to the terms of the Tudou Voting Agreements.
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IMPORTANT INFORMATION REGARDING YOUKU AND MERGER SUB
Important Information Regarding Youku
Description of Youku
Youku is the leading Internet television company in China and its Internet television platform enables users to search, view and share
video content across multiple devices. Youku was incorporated under the laws of the Cayman Islands and carries out its operation through its subsidiaries and consolidated affiliated entities in China.
For
a description of Youku's operation and business in China, please see "Item 4. Information on the CompanyA. History and Development of the Company" on
page 31 of the Youku 2011 20-F.
Youku's
principal executive offices are located at 11/F, SinoSteel Plaza, 8 Haidian Street, Beijing, 100080, People's Republic of China. Its telephone number at this address is
+86 10 5885-1881. Youku's registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand
Cayman, KY1-1104 Cayman Islands. Youku also has three branches in Shanghai, Guangzhou and Xi'an, China and one representative office in Chengde, China. Youku's 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.
Youku's
American depositary shares, each representing 18 Class A ordinary shares, par value US$0.00001 per share of Youku, are listed on the NYSE under the symbol "YOKU."
Directors and Executive Officers of Youku
Please see "Item 6.ADirectors, Senior Management and EmployeesDirectors and Senior Management" of the
Youku 2011 20-F for information on the current directors and executive officers of Youku.
If
the Merger is completed, Mr. Gary Wei Wang, Tudou's founder, chairman and chief executive officer, shall be entitled to serve as a director on the Youku Board for a term of one
year, and Mr. Jixun Foo shall be entitled to serve as a director on the Youku Board until his resignation or the designation of his successor by GGV II Delaware L.L.C., one of Tudou's principal
shareholders. See "The MergerBoard Representation Rights" on page 147 of this joint proxy
statement/prospectus for more information. The biographies of Mr. Gary Wei Wang and Mr. Jixun Foo are below.
Mr. Gary Wei Wang
is Tudou's founder, chairman and chief executive officer. Mr. Wang was designated as a director of Tudou
by the ordinary shareholders of Tudou. Prior to founding Tudou, Mr. Wang served as the corporate development director of Bertelsmann Group, an international media company, and also he served as
the managing director of Bertelsmann Online China, a company operating the e-commerce businesses of Bertelsmann Group in China, from 2003 to 2005. From 1997 to 2001, Mr. Wang worked
with Hughes Electronics, a provider of digital television entertainment, and satellite and wireless systems and services, with his last role as the business development manager. Mr. Wang
received his MBA degree from INSEAD in 2002, his master's degree in computer science from Johns Hopkins University in 1999, and his bachelor's degree in international business from the College of
Staten Island in 1995.
Mr. Jixun Foo
has been a partner of GGV Capital since 2006. Prior to joining GGV Capital, he served as a director of Draper Fisher
Jurveston ePlanet Ventures from 2000 to 2005 and led the firm's successful investments in a number of companies in Asia, including Baidu Inc., the leading Chinese language Internet search
provider listed on NASDAQ, Longcheer Holdings Limited, a leading PRC-based global provider of wireless technology products and services listed on the Singapore Exchange Main Board and
Focus Media, a PRC-based company that operates a leading lifestyle targeted interactive digital media network, which was listed on NASDAQ. Prior to that, he was a
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manager
of the Finance & Investment Division of the Singapore National Science & Technology Board, a Singapore governmental agency that invests in and assists start-up
technology companies from 1996 to 2000. From 1993 to 1996, Mr. Foo worked for Hewlett Packard as an engineer and group project leader. Mr. Foo received his bachelor's degree in
engineering from the School of Engineering, National University of Singapore in 1993, and his master of science degree in management of technology from the Graduate School of Business, National
University of Singapore in 1997.
Compensation of Youku's Directors and Executive Officers
Please see "Item 6.BDirectors, Senior Management and EmployeesCompensation of Directors and Executive
Officers" of the Youku 2011
20-F for information on the compensation on received by Youku's current directors and executive officers.
If
the Merger is completed, Mr. Gary Wei Wang and Mr. Jixun Foo will join the Youku Board. See "The MergerBoard Representation Rights" on page 147 of
this joint proxy statement/prospectus for more information. Mr. Wang holds an option to purchase 1,557,500 Tudou Class A shares, which will be converted into Youku share options
upon the completion of the Merger. Mr. Foo does not hold any Tudou share options. In addition, Tudou may consider the immediate vesting upon the closing of the Merger of the Tudou share options
held by certain directors and officers of Tudou, including Mr. Gary Wei Wang, chairman of the Tudou Board and Tudou's chief executive officer, in which case such Tudou share options shall
become fully vested and exercisable upon the closing of the Merger.
Ownership of Youku Shares by Certain Beneficial Owners, Directors and Executive Officers
Please see "Item 6.EDirectors, Senior Management and EmployeesShare Ownership" of the Youku 2011
20-F for information on the ownership of Youku shares by certain beneficial owners, directors and executive officers of Youku, which is incorporated herein by reference.
Related Party Transactions
Please see "Item 7.BMajor Shareholders and Related Party TransactionsRelated Party Transactions" of
the Youku 2011 20-F for information on related party transactions of Youku, which is incorporated herein by reference.
Aside
from the treatment of their respective Tudou share options in the Merger as set forth in "Important Information Regarding YoukuCompensation of Youku's
Directors and Executive Officers," neither of Mr. Gary Wei Wang or Mr. Jixun Foo have had any transactions with Youku in the past three years.
Important Information Regarding Merger Sub
Merger Sub, a Cayman Islands limited liability company, is a direct and wholly owned subsidiary of Youku which was formed solely for
the purpose of effecting the Merger. Merger Sub has not conducted any business operations other than incidental to its formation and in connection with the transactions contemplated by the Merger
Agreement. As of the date of this prospectus, Merger Sub does not beneficially own any Tudou shares or Tudou ADSs.
Merger
Sub's business offices are located at 11/F, SinoSteel Plaza, 8 Haidian Street, Beijing, 100080, People's Republic of China, and its telephone number is +86 10
5885-1881. Merger Sub's registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman,
KY1-1104, Cayman Islands.
Victor
Wing Cheung Koo and Dele Liu are the directors of Merger Sub.
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IMPORTANT INFORMATION REGARDING TUDOU
Description of Tudou's Business
A.
History and Development of Tudou
In
December 2004, Mr. Gary Wei Wang, Tudou's founder, chairman and chief executive officer, together with another member of its founding team, incorporated Quan Toodou Network
Science and Technology Co., Ltd., or Quan Toodou, in China. In April 2005, Tudou launched its online video site in China. It was the first user-generated content ("UGC") and video
sharing site launched in China based on a report issued by Gartner, Inc., an independent information technology research firm, in September 2010, (the "Gartner Report"). Tudou has been
conducting its online video and advertising business operations in China primarily through Quan Toodou.
In
November 2005, StarCloud Media Co., Limited, or StarCloud BVI, Tudou's intermediate holding company, was incorporated in the British Virgin Islands. In January 2006, StarCloud
BVI established its wholly owned subsidiary, Reshuffle Technology (Shanghai) Co., Ltd., or Reshuffle Technology, in China. Tudou has, through Reshuffle Technology, entered into certain
contractual arrangements with Quan Toodou and its shareholders, pursuant to which Tudou effectively controls Quan Toodou's operations in China.
In
May 2009, Shanghai Suzao Network Science and Technology Co., Ltd., or Shanghai Suzao, was incorporated in Shanghai, China. Shanghai Suzao is engaged in the maintenance
of Tudou's network infrastructure. Through Reshuffle Technology, Tudou has entered into certain contractual arrangements with Shanghai Suzao and its shareholders, pursuant to which Tudou effectively
controls the operations of Shanghai Suzao.
In
June 2009, Quan Toodou established its wholly-owned subsidiary, Shanghai Licheng Cultural Communication Co., Ltd., or Shanghai Licheng, in China, which primarily engages
in advertisement design and production.
In
June 2009, Chengdu Gaishi was established in China. Tudou has also, through Reshuffle Technology, entered into certain contractual arrangements with Chengdu Gaishi and its
shareholders, pursuant to which Tudou effectively controls Chengdu Gaishi's operations. Chengdu Gaishi was incorporated for purposes of maintaining Tudou's network infrastructure. However, since its
incorporation, Chengdu Gaishi has not been actively engaged in any operations. Tudou is in the process of terminating the contractual arrangements with Chengdu Gaishi and its shareholders and
dissolving Chengdu Gaishi, and expects to complete the dissolution process in the second quarter of 2012.
In
February 2010, Star Manor was incorporated in Hong Kong and was acquired by StarCloud BVI in June 2010. Star Manor was engaged in trading and investment businesses. In October 2010,
Tudou made Star Manor one of its intermediary holding companies by transferring all of StarCloud BVI's equity interest in Reshuffle Technology to Star Manor.
In
connection with its initial public offering, Tudou commenced a corporate restructuring in 2010. Set forth below are the key steps of Tudou's restructuring.
-
-
In April 2010, Tudou Holdings Limited was incorporated under the laws of the Cayman Islands.
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-
In August 2010, StarCloud BVI established a wholly owned subsidiary, Wohong Technology, in China, which primarily engages
in the provision of technology services to Tudou's consolidated affiliated entities.
-
-
In September 2010, Tudou Holdings Limited issued its shares to existing shareholders of StarCloud BVI in exchange for all
of the outstanding shares of StarCloud BVI. As a result, Tudou Holdings Limited became the ultimate holding company of the group after the transaction.
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In
February 2011, StarCloud BVI acquired a 100% equity interest in Tudou Limited, a Hong Kong company engaged in the advertising business.
On
August 16, 2011, Tudou listed the Tudou ADSs on the NASDAQ under the ticker symbol "TUDO." Tudou issued 6,000,000 Tudou ADSs, representing 24,000,000 Tudou Class B
shares, at an initial offering price of US$29.00 per Tudou ADS.
In
September 2011, Quan Toodou established its wholly-owned subsidiary, Quan Toodou Cultural Communication Co., Ltd., or Quan Toodou Cultural, in China. Tudou is in the
process of transferring the online video business of Quan Toodou to Quan Toodou Cultural.
In
December 2011, Star Manor established its wholly owned subsidiary, Chuanxian Network Technology (Shanghai) Co., Ltd., or Chuanxian Network, in China, which primarily
engages in computer hardware and software and related supporting services. In December 2011, Tudou Limited established its wholly owned subsidiary, Toodou (China) Advertising Co., Ltd.,
in China, which primarily engages in advertisement design, production, agency and dissemination businesses.
In
January 2012, Beijing Tixian was established in China, which primarily engages in animation video production and related businesses. Tudou has, through Reshuffle Technology, entered
into certain contractual arrangements with Beijing Tixian and its shareholders, pursuant to which Tudou has gained effective control over Beijing Tixian's operations.
Tudou's
principal executive offices are located at Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's Republic of China. Tudou's
telephone number at this address is (86-21) 5170-2355 and Tudou's fax number is (86-21) 5170-2366. Tudou's registered office in the Cayman Islands is at
the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
Investor
inquiries should be directed to Tudou at the address and telephone number of its principal executive offices set forth above. Tudou's website is www.tudou.com. The information
contained on Tudou's website is not part of this joint proxy statement/prospectus. Tudou's agent for service of process in the United States is CT Corporation System located at 111 Eighth Avenue, New
York, New York 10011.
Proposed Merger Between Tudou and Youku
On March 11, 2012, Tudou, Youku and Merger Sub entered into the Merger Agreement, for Tudou to combine with Youku in a 100%
stock-for-stock transaction. See "The Agreement and Plan of Merger" for a summary of the material terms of the Merger Agreement. Provided the requisite shareholder votes at the
Youku AGM and Tudou AGM are obtained and the other conditions to closing set forth in the Merger Agreement are satisfied or waived, Merger Sub will merge with and into Tudou, with Tudou continuing as
the surviving entity and as a wholly owned subsidiary of Youku. Following the Merger, Youku Inc. will be renamed as "Youku Tudou Inc.," and Tudou will cease to be a publicly traded
company. Please review this joint proxy statement/prospectus for more information about the Merger Agreement and the proposed Merger, including the section headed "The Merger Agreement and Plan of
Merger" beginning on page 134, which provides a summary of the material terms of the Merger Agreement, and the sections headed "Summary" and "Questions and Answers about the Merger and the
Annual General Meetings of Youku and Tudou" beginning on pages 19 and 1, respectively.
B.
Business Overview
Tudou
is a leading Internet video company in China. Tudou believes that the "Tudou" brand is one of the most recognized Internet brands in China. The Tudou.com website was the first UGC
and video sharing site launched in China based on the Gartner Report. Tudou provides a robust online platform
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for
Chinese Internet users to upload, watch and share videos via the Internet. By leveraging its recognizable brand and its position as a leading Internet video company in China, Tudou has established
a large and highly engaged user community.
Tudou's
registered users increased from approximately 54.4 million as of December 31, 2009 to approximately 78.2 million as of December 31, 2010 and
approximately 101.9 million as of December 31, 2011. Tudou's average number of new video clips uploaded daily increased from approximately 28,700 in 2009 to approximately 40,000 in 2010
and approximately 57,580 in 2011. In addition, the number of monthly unique visitors to Tudou.com increased from approximately 137 million in December 2009 to approximately 182 million in
December 2010, and to approximately 227 million in December 2011, according to iResearch. In December 2011, the number of monthly video views nearly doubled to 5.2 billion from
2.6 billion in December 2010.
Tudou
provides an on-demand and interactive viewing experience where its users can find content they want to view, share content they create and connect with other users on
its platform. Tudou offers a comprehensive selection of entertaining content including UGC, premium licensed content and content developed in-house. Tudou's extensive content library is
designed to meet its users' diverse viewing needs, including entertainment, animation, finance and music. The volume and quality of Tudou's content, combined with its enjoyable user experience, have
allowed Tudou to establish a large user base, consisting primarily of young, urban, affluent and educated viewers that are particularly attractive to advertisers.
Tudou
has focused on developing its online platform to provide what Tudou believes is the best user experience in the online video industry in China. Tudou has developed a user friendly
and interactive interface that Tudou believes provides its users with a superior viewing experience. Tudou's website allows its users to watch, upload, rate, comment on and recommend videos, creating
an engaging and interactive experience. In addition, Tudou has created rich community features to enhance its users' experience. Tudou encourages the creativity of its user community through signature
industry events such as the Tudou Video Festival, through talent development initiatives and monetary incentives to producers of its most viewed UGCs. To ensure an enjoyable user experience, Tudou has
built a robust technology platform with access to over 4,000 servers across China, which focuses on the delivery of online video content with an emphasis on stability, scalability and flexibility.
Online
video and online advertising have grown rapidly in China in recent years as a result of positive macroeconomic trends, increasing Internet penetration rates and the growing
acceptance of the Internet as a critical channel for advertisers' marketing strategies. In addition, users are seeking alternatives to traditional television to have more control over their media
viewing experience. Content portability is also becoming increasingly important as users want to have the option to access video and other content on their mobile phones and other Internet-enabled
devices. Tudou believes it is well positioned to capitalize on these key industry trends.
Tudou
generates revenues primarily by delivering online advertising services. Tudou provides advertising services primarily through its Tudou.com website in various formats, including
pre-roll or post-roll video advertisements, in-roll logos, background advertisements, banners, buttons, links and streaming advertisements. In addition, Tudou
provides innovative online advertising services, including event sponsorships, interactive advertising and opportunities to purchase advertising embedded in its content developed in-house.
Tudou
also began generating revenues in January 2010 from its mobile video services that it provides primarily through a channel on China Mobile's wireless video platform, which had an
aggregate of approximately 15.8 million users with a total of approximately 27.7 million video views in 2010 and an aggregate of approximately 42.7 million users with a total of
approximately 85.9 million video views in 2011. Through its agreement with China Mobile, Tudou selects and provides videos based on its assessment of mobile user preferences. Users pay a
monthly subscription fee to China
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Mobile
for access to Tudou's video channel or pay on a per-clip basis, and Tudou shares the fees for these services with China Mobile. In addition, Tudou began providing its mobile video
services in April 2011 through two video channels on China Unicom's wireless video platform and in January 2011 through China Telecom's NETiTV platform.
Since
Tudou launched its online video platform in April 2005, its business has grown substantially. As is customary in the advertising industry in China, Tudou typically enters into
advertising contracts with third-party advertising agencies. Tudou pays agency fees to third-party advertising agencies that purchase its advertising services and recognize revenues net of these
agency fees. Tudou's net revenues are net of sales taxes.
Tudou's
net revenues increased from RMB89.1 million in 2009 to RMB286.3 million in 2010 and to RMB512.2 million (US$81.4 million) in 2011, representing a compound
annual growth rate, or CAGR, of 79.1% over the three-year period. Tudou's net loss was RMB144.8 million, RMB347.4 million and RMB 511.2 million (US$81.2 million) in
2009, 2010 and 2011, respectively. Its adjusted net loss, a non-GAAP financial measure, which excludes
non-cash items including share-based compensation expenses, beneficial conversion charges on convertible loans and fair value changes in warrant liabilities from Tudou's net loss, was
RMB133.3 million, RMB107.2 million and RMB292.4 million (US$46.5 million) in 2009, 2010 and 2011, respectively. For a reconciliation of Tudou's net loss to Tudou's adjusted net loss, see
footnote 2 on page 41 of this joint proxy statement/prospectus.
Tudou's Video Platform
Tudou's Website
The Tudou.com website provides an online platform that allows users to upload, share, watch, rate and comment on videos. Tudou launched
its site in April 2005, and believes Tudou.com was the first video site launched in China. Since then, Tudou has been expanding its services available to Internet users. The average number of new
video clips uploaded each day increased from approximately 28,700 in 2009 to approximately 40,000 in 2010 and approximately 57,580 in 2011. As of December 31, 2011, the Tudou.com website
offered more than 60.7 million video clips.
Tudou
strives to provide a superior viewing experience to its users, supported by its technology. Tudou is able to offer high definition quality content. In May 2011, Tudou launched an
upgraded technology platform, which is able to maintain the original size of uploaded UGC. In addition, Tudou provides "full screen/normal screen" viewing options, and offers "light on/light off"
features which allow users to switch between white and black backgrounds when watching a video clip, just as they may turn on or turn off the light when watching a traditional television program or
film at home.
Tudou
believes its Tudou.com website also provides a highly engaging and interactive experience supported by a series of user-friendly functions not available with
traditional television. In order to help users more easily find their preferred content, videos available on Tudou's website are categorized into channels and sub-channels. Tudou provides
a selection of search tools to help users locate a desired video clip based on its channels, sub-channels and keywords. Tudou also offers a search history list for frequent visitors to
help them quickly locate recently viewed video clips.
Tudou
customizes its homepage by recommending selected video clips to users from a specific geographic area based on data about regional preferences. The most viewed videos are also
recommended to users on the "Top 10" list on Tudou's website as well as on the individual page of each channel. Once a user selects and views a program, Tudou's website will present related video
clips in which the user may be interested. Users may create a playlist based on their preferences so that the preferred videos will be broadcast continuously. Registered visitors may upload video
clips easily to Tudou's website and make comments under each video clip to share their opinions.
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Tudou
believes these features help provide an enhanced user experience and reinforce user loyalty. As a result, Tudou's registered users increased from approximately 54.4 million
as of December 31, 2009, to approximately 78.2 million as of December 31, 2010 and approximately 101.9 million as of December 31, 2011. In February 2012, Tudou
established an enhanced video sharing platform with Sina Weibo, one of the largest micro-blogging social networking sites in China, for its users to upload videos to and share videos from Tudou's
site. In addition, through this platform Sina Weibo users who are not registered with Tudou, but wish to share their videos with Tudou's users, will automatically become registered users of Tudou.com.
This platform also enables users to syncronize comments and discussions on both sites, which creates a more integrated and interactive experience for Tudou's users.
Tudou's Mobile Platform
In January 2010, Tudou extended its platform to mobile users in China through a video channel with China Mobile. China Mobile's mobile
phone customers with Internet access may subscribe for services and will have access, through their mobile phones, to the video programs Tudou has uploaded onto the channel. In 2010, Tudou's channel
had an aggregate of approximately 15.8 million users with a total of approximately 27.7 million video views. In 2011, Tudou's channel had an aggregate of approximately
42.7 million users with a total of approximately 85.9 million video views.
Tudou
generally selects UGC video programs accessible to mobile phone users based on its analysis of users' preferences and tastes. China Mobile can also introduce third-party content
for Tudou to integrate into Tudou's selected programs. To promote these services, Tudou has agreed with certain major mobile handset manufacturers, such as Blackberry, Motorola, Nokia and Samsung, and
handset design houses, to install mobile application software Tudou has developed onto their mobile handsets. This allows mobile users easy access to video programs on Tudou's channel on China
Mobile's wireless video platform. Tudou also collaborates with mobile application store operators to include access to Tudou's channel in their application stores.
In
September 2010, China Mobile rolled out the 2010 "G-Snap!" mobile video competition nationwide in cooperation with Tudou and other online video companies, soliciting the
best UGC videos among its over 800 million mobile users. Mobile users may upload UGC video clips they produce to Tudou's website through software installed on their mobile handsets. A total of
approximately 5,700 UGC video clips were uploaded to Tudou's website during this campaign.
In
April 2011, Tudou entered into a three-year cooperation agreement with a joint venture of China Unicom to provide its mobile subscribers with mobile video services through
joke and lifestyle channels on China Unicom's wireless platform. Tudou is responsible for operating these two channels pursuant to this agreement. Users pay a monthly subscription fee to China Unicom
for access to these two channels or pay on a per-clip basis, and Tudou shares the fee for these services with the joint venture after it obtains its share of the fee from China Unicom.
In
August 2011, Tudou entered into a one-year cooperation agreement with a subsidiary of China Telecom. Under this agreement, Tudou provides mobile subscribers with its
mobile video services through China's Telecom's NETiTV platform. Tudou has been responsible for operating this platform since January 2011. Users pay a monthly subscription fee to China Telecom for
access to this platform or pay on a per-clip basis, and Tudou shares the service fee with a subsidiary of China Telecom after it obtains its share of the fee from China Telecom.
Tudou's Content
Tudou offers three categories of content, namely UGC, premium licensed content Tudou licenses from third parties, and content Tudou
produces in-house.
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UGC
Tudou's website allows Internet users to easily upload, watch and share UGC video clips. Tudou believes "everyone is a director of
life." Video production processes have become easier and less expensive through the use of simple and affordable hardware such as digital
camcorders and mobile devices with video cameras, as well as software such as desktop editing software suites. Video production is no longer the sole domain of professionals in China, but can be done
by a wide range of participants, from amateurs to professionals. Tudou offers creative talents, particularly the younger Chinese generation, outlets for artistic expression outside traditional
mainstream content formats such as television.
When
Tudou first launched its website in April 2005 and during the first two years of its operations, almost all of Tudou's content was UGC. Tudou's UGC has experienced rapid growth in
terms of not only the number of registered users who upload video clips produced or aggregated by themselves, but also the number and varieties of video clips uploaded every day and the number of
daily video views. In 2010 and 2011, an average of over 40,000 and 57,580, respectively, new user-generated video clips were uploaded to Tudou's website each day, covering a wide range of
subject matters, including entertainment, sports, finance and music. The quality and length of UGC video vary from clip to clip, ranging from creative longer films with higher video quality made by
experienced producers with professional equipment to shorter lower quality videos made by amateurs using mobile phones with a video camera function. Internet users, particularly young Internet users,
have generally embraced UGC, given its sharing and interactive qualities.
UGC Support Programs
It is essential for Tudou to continue to have its network of users upload UGC. Therefore, Tudou encourages and facilitates creative UGC
talents through various initiatives, including event sponsoring programs, talent development and monetary reward programs.
One
of these key initiatives is Tudou's annual Tudou Video Festival, launched in 2008. In cooperation with China Film Group Corporation, one of the largest comprehensive film producers
in China, Tudou launched the Tudou Video Festival in 2008, which has become highly regarded by film industry participants including filmmakers, directors, actresses and actors. The Tudou Video
Festival has also become a recognized event for ambitious video enthusiasts, brands and media. Tudou's first three festivals received approximately 300, 1,900 and 5,600 clips submitted by
participants, which have resulted in an aggregate of approximately 20 million, 100 million and 150 million video views during the respective festivals.
Most
of the attendants were animators and amateur videographers from around China, mostly in their mid-to-late-20s, who showcased their work. In
cooperation with the Sundance Film Festival, or Sundance, the largest independent cinema festival in the United States, Tudou launched its fourth annual Tudou Video Festival in Beijing in March 2011.
Approximately 1,100 participants were invited to attend the final award ceremony in May 2011, including aspiring filmmakers, directors, actresses and actors. The winning video of the Independent
Spirit Award sponsored by Sundance will be eligible to participate in Sundance. Tudou believes that the annual Tudou Video Festival has now become a signature event in the online video industry in
China.
Tudou
also organizes other activities to reward talented UGC producers. For example, Tudou holds online premieres for selected UGC producers to reinforce the loyalty of talented
producers to its website. For premieres, the selected UGC will be placed prominently on Tudou's website displayed with photos and introductory materials about their creators. In cooperation with China
Film Group Corporation, Tudou sponsored the production of "Mr. Lei," an Internet drama directed by a talented UGC producer.
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Tudou
provides selected high-traffic UGC producers monetary rewards to encourage their creativity. Through its "Doujiao" project, Tudou has entered into contracts to offer
monetary rewards to over 100 UGC producers, most of whom are individuals or studio teams. Tudou plans to enter into more contracts with producers of UGC generating high traffic to incentivize certain
producers to continue to generate popular UGC. Tudou has also introduced certain creative, high-quality UGC to advertisers directly to create revenue-generating opportunities for its UGC
producers.
UGC Uploading and Filtering
To upload video clips to Tudou's site, users must first register with Tudou and accept its user agreement to obtain a user name and a
password. Tudou may in its own discretion terminate the registration of any user or remove content uploaded by any user. Pursuant to its user agreement, Tudou's users represent to Tudou that they hold
the copyright or license to upload their content on Tudou's website and authorize Tudou to use such content, and grant Tudou a permanent world-wide royalty-free and
transferable non-exclusive license to distribute, transmit and display the content. In addition, Tudou has the right to reproduce, publish, distribute or use the content at its discretion.
Pursuant
to Tudou's copyright policy, which constitutes a part of its user agreement, copyright owners may search for and identify infringing content in its content library, and send
Tudou written notice requesting removal along with proof of copyright ownership. Generally, Tudou will remove content in due course after Tudou receives the removal notice, and will send the removal
notice to the provider of the subject content. The content provider may send Tudou a rebuttal notice if it believes that its content has not infringed any copyrights. Tudou may re-upload
content if Tudou receives a rebuttal notice along with proof of copyright ownership. Tudou will not accept removal notices from copyright claimants after Tudou re-uploads content.
As
part of its copyright protection policy, Tudou may remove any content it has reason to believe infringes any third-party's copyright. In addition, Tudou has implemented a video
fingerprint system to identify and remove infringing content uploaded on its website. This system compares newly uploaded videos with fingerprint trails of copyrighted videos in Tudou's system and
enables Tudou to filter out infringing content matching copyrighted content in its system.
To
comply with PRC regulatory requirements on Internet content, Tudou has a filtering system that seeks to identify and remove Chinese language illegal video content. Tudou has developed
a digital audio and video identification system, which codes video clips based on audio and video components and can identify video clips with codes similar to those in its own in-house
"black list" of content. Encoding video clips automates the process of determining whether video content matches the black list, and therefore, enables Tudou to detect and filter out certain Chinese
language illegal content. To the extent any illegal content is not identified or removed during this initial automatic identification and removal stage, Tudou's dedicated team of over 80 employees
physically screens uploaded content against its black list. Tudou believes its filtering mechanism enables Tudou to identify and remove a substantial amount of illegal Chinese language content before
it is posted to its website.
After
receiving notice from copyright owners and licensees, Tudou updates its black list by adding notified copyrighted content, and removes any UGC Tudou identifies as matching the
listed items. Tudou has also set up screening processes to try to filter out popular movie titles featured in Chinese cinema. Illegal and infringing content that has been removed from Tudou's website
will be added to its black list for filtering. However, given the volume of UGC uploaded every day, some UGC might be uploaded without the permission of the copyright owner of the content. Therefore,
copyright infringement issues and lawsuits may result from UGC.
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Premium Licensed Content
Procuring premium licensed content is another important means for Tudou to diversify its content offerings. Tudou's licensed content
mainly includes TV series, movies and variety shows. During the three years ended December 31, 2009, Tudou obtained licenses for more than 830 TV drama series and 240 movies. In 2010, Tudou
obtained licenses for more than 1,360 TV drama series, 1,180 movies and 180 variety shows. In 2011, Tudou obtained licenses for more than 660 TV drama series, 430 movies and 80 variety shows. In
addition, through a content access arrangement between Tudou and LeTV, Tudou's users have been able to access a substantial portion of LeTV's extensive content portfolio of over 680 TV episodes and
650 movies since October 2011. Tudou believes that licensing copyrighted premium content will help to maintain the loyalty of users with different viewing needs, enable Tudou to maintain the favorable
demographics of its user base and, consequently, increase its advertising revenues.
Tudou's
content partners include leading Chinese language media companies across China, such as China International Television Corporation, Shanghai Media Group, TVB, a leading Hong Kong
television network, and SETTV, a Taiwanese television network. Tudou has also obtained licenses from distributors of international content providers such as SBS and MBC, two major South Korean
television networks. In October 2011, Tudou entered into an agreement with the Walt Disney Company,
a NYSE-listed company, for the online distribution rights to Cars 2 in China, which was the first full-length Pixar animation movie made available through an online video website in China.
In November 2011, Tudou entered into a program license agreement with TV Tokyo Corporation and TV Tokyo Medianet, Inc, or collectively TV Tokyo, which allows Tudou to initially simulcast over 60
Japanese anime series in China on an exclusive basis, marking the first time that Japanese anime will be simulcast through an online video website in China. This agreement has an initial term of two
years, and TV Tokyo has the option to renew it for another two years.
Under
license agreements with its content providers, Tudou usually pays for the license in advance or in installments for one of three types of licenses: (1) non-exclusive
webcasting rights, (2) non-exclusive webcasting rights with a guarantee that certain competitors will not receive the same license or (3) webcasting rights with a limited exclusive
period. Tudou is generally not allowed to alter or distort the licensed content without the licensor's prior consent. Content usually may only be webcast in China. Content licensed on a non-exclusive
basis may not be sublicensed to third parties. The content provider must ensure that it has the right to, or the license of, the content it provides to Tudou's site and ensure that the content will
not infringe third parties' rights.
In
October 2011, Tudou entered into a joint venture agreement with Leshi Internet Information & Technology (Beijing) Co, Ltd, another online video website operator in
China, to establish a joint venture in Shanghai, which will primarily engage in licensing video content to meet Internet users' growing demands and evolving preferences. Tudou expects the joint
venture to supplement its independent content acquisition strategy, by leveraging its Chinese partner's strong reputation and experience in building licensing partnerships with China's leading
production houses. As of the date of this joint proxy statement/prospectus, the joint venture had not been established.
Tudou
strives to acquire content that is appealing to Internet users between the ages of 18 and 35, as this demographic typically commands higher advertising value. Tudou strives to
acquire premium licensed content in order to attract and maintain a large user base and in turn generate advertising service revenues. Before making a procurement decision, Tudou collects market
information by various means, such as TV and cinema rating reports, audience comments in newspapers and magazines, and independent reviews. In addition, Tudou considers such factors as the storylines,
directors and cast of the TV episodes or movies, as well as user preferences Tudou collected from its user data and market trends such as the content its competitors have acquired. Tudou also
considers advertising opportunities presented by the content versus the licensing cost. For example, the licensing cost of a popular TV
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series
with many episodes may be similar to that of a hit movie. In such a case, Tudou would prefer to acquire a license for the TV series, which has a higher likelihood of driving serialized viewing,
and presents greater advertising opportunities due to its multi-clip viewing compared to a one-clip movie.
Content Developed In-house
Tudou began developing original programming in 2009, and plans to continue to produce, distribute and monetize online video content
developed in-house. Tudou's content developed in-house includes various segments, such as daily or weekly short features, reality shows and interviews on various topics, as well as shows featuring
auto reviews and lifestyle trends. Tudou determines the types of content to be produced based on its assessment of users' preferences and trend information Tudou gathers from user data collected
through its video platform.
Tudou
believes that content produced in-house helps strengthen its brand, user perception of its creativity and increases user traffic, particularly of younger viewers between the ages
of 18 and 35. In May 2010, Tudou launched "Orange Box," a program Tudou designed as an important part of its content production strategy. Pursuant to the program, Tudou intends to produce at least two
major "Made-for-Internet" drama series every year with the particular types of drama series determined or selected pursuant to users' preferences. In October 2010, Tudou launched its first
"Made-for-Internet" drama series, That Love Comes, on its website. Since then, Tudou has produced six more series that have received over 200 million video views to date. In April 2011, Tudou
launched "Warehouse No. 6," a talent recruitment program designed for selecting and recruiting talent for Tudou's in-house content production, including actors, actresses, directors,
screenwriters, editors and producers. One of Tudou's content production principles is to produce and provide content that is "Of the Web, By the Web, For the Web."
In
September, 2011, Tudou entered into an agreement to license broadcasting rights for its self-produced webisode series Love Oh Dear I Do, to Shenzhen Media Group and China Anhui TV
Station. Beginning in early March 2012, Love Oh Dear I Do has aired during prime time, simultaneously on Shenzhen Satellite TV and Anhui Satellite TV, as well as Tudou.com. Produced by Tudou's
in-house original production team, Love Oh Dear I Do is a teen drama series starring several popular Taiwanese actors.
Tudou
possesses in-house capabilities for substantially all video production processes. As part of its video original programming strategy, Tudou focuses on controlling key aspects of
its original programming process, such as concept generation, scriptwriting, director and actor selection, and marketing and distribution while outsourcing actual production to take advantage of
talented local and international production studios. Tudou believes that its content developed in-house provides Tudou with an attractive return on content production as some of this content can
achieve a large number of video views at low costs. In addition, Tudou believes its in-house content production presents opportunities to deepen its cooperation with other content providers and
content distributors, such as television networks.
Tudou's User Base
Tudou has accumulated an extensive user base for its video platform. A visitor to its website does not have to become a registered user
in order to watch or search videos, but he or she must become a registered user in order to use the interactive features of Tudou's website, including uploading, rating, commenting on and recommending
videos. A visitor to Tudou.com becomes a registered user by creating an account on Tudou's website. To create an account, a visitor follows certain registration steps, including creating a user name
and password and accepting Tudou's standard user agreement. Tudou's registered users increased from approximately 54.4 million as of December 31, 2009 to
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approximately
78.2 million as of December 31, 2010 and further to approximately 101.9 million as of December 31, 2011.
Tudou
believes its user base has increased significantly primarily due to its ability to consistently provide appealing video content to users and enhanced awareness of its brand. As the
number of users grows, the resulting network effect in turn attracts more users to join Tudou's established user community. Tudou considers the number of registered users a useful and relevant means
of evaluating the level of user engagement and interactivity. Tudou considers its monthly unique visitors as a useful means of evaluating its viewership levels, which is one of the key factors that
affects advertisers' decisions to adopt its platform for their advertising needs, which in turn drives advertising revenues. The number of monthly unique visitors increased from approximately
137 million in December 2009, to approximately 182 million in December 2010, and to approximately 227 million in December 2011, according to iResearch. Monthly unique visitors
differ from the users and the registered users of a website. For instance, multiple users of a website may be counted as a monthly unique visitor only once if they share the same IP address in
offices, homes or Internet cafes. In contrast, a user may be counted as a monthly unique visitor multiple times if he or she visits the same website using different IP addresses. Tudou looks to IP
addresses when reviewing the number of monthly unique visitors, while it looks to accounts created with its website when counting registered users.
Since
its inception, Tudou has built a user base consisting primarily of young, urban, educated users between the ages 18 and 35, a particularly attractive demographic to advertisers.
Tudou tracks users and maintains a user database, which includes user traffic of select video content and information voluntarily provided by registered users. Tudou applies statistical tools to
analyze user data in order to better understand users' viewing preferences and habits. This helps guide its copyright procurement and in-house content production efforts. Tudou regularly improves the
content and presentation of its
programming by utilizing user preference and trend information Tudou gathers from user data collected through its video platform.
In
order to expand its user base, Tudou cooperates with well-known Chinese online community websites. Users of these websites may recommend to each other video clips on Tudou.com, which
Tudou believes helps enhance its user traffic. In April 2011, Tudou entered into a two-year exclusive partnership agreement with Renren.com to provide an audio-visual program uploading feature to
Renren.com users. Tudou's backend platform will enable Renren.com users to upload videos onto Renren.com, and save and further edit these audio-visual programs on Tudou's backend platform and servers
as an integrated feature. Tudou expects this exclusive strategic cooperation to expand the sources and volume of UGC uploaded by users onto Tudou's website.
In
February 2012, Tudou announced an enhanced video sharing platform for users of Sina Weibo of SINA Corporation, a NASDAQ listed company, to upload and share videos to and from Tudou's
video site. Tudou is the first third party video site to enable this level of enhanced functionality for users of Sina Weibo. The enhanced video sharing platform provides a highly integrated user
experience for both Sina Weibo and Tudou's users.
Tudou's
call center and website service representatives provide assistance to its users. Tudou's service representatives are trained to address user inquires and resolve user complaints.
Tudou ensures service quality by placing emphasis on personnel selection and regularly monitoring the performance of its representatives. Each representative has to complete mandatory training
sessions every month, conducted by experienced managers, on website knowledge, service attitude, complaint handling and communication skills, among other topics.
Advertising Services and Advertisers
Tudou aims to provide the most efficient and effective marketing services for its advertisers. Tudou's advertising platform offers
innovative Internet marketing services that enable users to interact
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with
its advertisers' brands and provides valuable insights to its advertisers about their customer base. Tudou's knowledge of its users' preferences enables advertisers to reach their desired
audience by
placing advertising in a variety of placement formats. Tudou's targeted advertising services include:
-
-
geographically-targeted advertisements
, which are delivered only to
viewers with IP addresses in specified regions; and
-
-
content-targeted advertisements
, which are delivered only before, during
or after specified content. Advertisers may specify content based on Tudou's channels, sub-channels, programs or theme of content.
Tudou
has an advertising tracking system that records and maintains traffic statistics and other data relating to the effectiveness of advertisements. After the broadcasting of an
advertiser's advertisement, Tudou will provide the advertiser with a report of advertising effectiveness either prepared in-house or by an independent research firm upon its request.
Tudou's Advertising Services
Tudou's advertising services allow advertisers to display advertisements in different placement formats to optimize their performance
against their marketing objectives. Tudou's advertising products include:
-
-
pre-roll or post-roll video screen advertisements that appear on-screen before or after a user
selects a video, which is typically a 5-, 15- or 30-second slot,
-
-
in-roll logos placed on a selected video,
-
-
background advertisements that appear behind a selected video screen concurrently with a user viewing a video,
-
-
banners, buttons, links and streaming advertisements placed at various areas of the Tudou.com website, and
-
-
sponsorship right to select events.
Tudou
offers advertisements with visual effects such as background advertisements. Tudou offers tailor-made advertising services, helping advertisers deliver their advertising messages
cost-effectively to their targeted audience. Tudou offers advertising customers maximum flexibility through different advertisement formats they provide to Tudou. To strengthen its relationships with
existing customers and reach new customers, Tudou helps a number of its customers process their original advertisement materials to a form or size that fits online display by outsourcing such
processing work to independent third parties. Tudou also offers integrated advertising plans to its local and international advertising customers. For example, in September 2011, Tudou cooperated with
Pepsi Co. to implement an integrated advertising plan for Pepsi. Tudou designed, produced and promoted a four-episode online interactive drama series, Fruity Love, to promote Pepsi's Tropicana
brands in China.
Since
the third quarter of 2010, Tudou has offered advertising customers in-program advertisements embedded in its content produced in-house. Tudou employs in-show promotions and places
branded goods or services of its advertisers in the program without explicitly naming them as advertisers. For example, Tudou conducted in-program promotions for Nokia in its latest
"Made-for-Internet" drama series, Utopia Office. Through this approach, viewers may be more receptive to information about an advertiser's product or services because they are unaware they are viewing
advertisements.
The
list prices of Tudou's advertising services vary by, among other things, the type of advertisements and the demand for advertising services, as well as the duration of advertisements
purchased. Prices for advertisements on its website are fixed under its advertisement contracts, typically
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at
a discount to Tudou's list prices. Tudou does not require reimbursement or charge additional prices for advertisement processing services or the costs Tudou incurs for integrated marketing programs
or events Tudou organizes. Tudou believes these costs and expenses will indirectly benefit Tudou in terms of the loyalty of its advertising customers and awareness of the "Tudou" brand among users.
Advertisers
Tudou's high-quality delivery capabilities and customer service have earned it repeat engagements from many of its advertisers and help
develop and maintain long-term relationships with them. Among its top 20 advertisers based on net revenues in 2011, nine advertisers have been working with Tudou since 2007. Tudou's success with its
existing advertisers also provides it with strong references and validation, which help Tudou secure new advertisers.
Tudou
determines the number of advertisers in a given year or period based on the number of advertisers that place advertisements on its website in the year or period. The following
table sets forth changes in the number of Tudou's advertisers during each of the three years ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
Addition of new advertisers
|
|
|
226
|
|
|
323
|
|
|
359
|
|
Termination of existing advertisers
|
|
|
76
|
|
|
131
|
|
|
315
|
|
Advertiser retention rate
|
|
|
55
|
%
|
|
59
|
%
|
|
38
|
%
|
Net increase of advertisers
|
|
|
150
|
|
|
192
|
|
|
44
|
|
At year end
|
|
|
320
|
|
|
512
|
|
|
556
|
|
Of
the 512 advertisers for 2010, 189 advertisers were Tudou's advertisers in 2009, and 323 advertisers were new advertisers. For 2011, 197 out of the 556 advertisers were Tudou's
advertisers in 2010 and 359 were new advertisers. The advertiser retention rate decreased from 59% in 2010 to 38% in 2011 because Tudou lost some smaller advertisers while it focused its efforts on
retaining larger advertisers in 2011.
In
2011, the top five industries based on revenues derived from companies in these industries advertising on Tudou's platform were food and beverage, Internet and e-commerce, cosmetics,
electronics and automobile. Net revenues generated from these industries accounted for approximately 21.5%, 19.6%, 17.7%, 9.8% and 8.8% of Tudou's total net revenues in 2011, respectively.
Sales and Marketing
Tudou works for advertisers primarily through third-party advertising agencies. As a relatively young company, Tudou intends to
strategically leverage advertising agencies' existing long-term relationships and network resources to increase its sales and expand its advertiser base. Therefore, Tudou typically enters into
advertising contracts with third-party advertising agencies, which represent advertisers. By adopting this sales model, Tudou is able to maintain good relationships with both advertisers and
advertising agencies.
To
capitalize on the market opportunity in China for online advertising, Tudou maintains a dedicated sales team, with over 229 professionals as of December 31, 2011. Tudou's sales
team is organized by region with its main presence in Beijing, Shanghai, Guangzhou and Xiamen. Tudou intends to broaden its sales and marketing coverage to include more cities in China as it increases
the number of its domestic advertisers. Tudou's experienced sales professionals use their familiarity with various categories of online video clips as well as their understanding of users' viewing
habits and preferences to design and recommend suitable advertising opportunities to advertisers and advertising agencies. For instance, capitalizing on its broadcasting rights for the 2010 FIFA World
Cup, Tudou's
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sales
professionals promoted numerous World Cup-related advertising packages designed in-house to its advertisers.
Tudou
offers on-the-job training to its sales force to help ensure that they provide advertisers and advertising agencies with comprehensive information about its services, the
advantages of using its platform as a marketing channel, and relevant information regarding the advertising and media industry. Tudou believes its well-recognized brand and increasing acceptance of
video advertising on websites have attracted a broad base of advertisers and facilitated its sales efforts.
Tudou
strives to provide advertisers with high-quality customer service. Its experienced sales professionals help advertisers analyze their products and services for target audiences and
structure advertising campaigns accordingly. Tudou also purchases or commissions extensive survey data and research results regarding video websites in China from reputable third-party market research
firms, such as iResearch, HitWise and ACNielsen. Tudou incorporates this data in its presentations and proposals to advertisers. This data helps Tudou depict the demographics of its audience,
including age, gender, education and income profile and ratings of various programs, as well as ratings with respect to specific demographic groups. Sometimes Tudou also purchases survey data on other
media platforms such as television channels.
This
information helps Tudou convey the effectiveness of its advertising platform to its advertisers and potential advertisers and helps Tudou design suitable advertising services, as
well as the frequency and duration of these services, on behalf of these advertisers. This data also helps advertisers evaluate and verify the dissemination of their advertisements and their
effectiveness. Tudou routinely uses this data to advise advertisers with respect to their subsequent advertising campaigns with Tudou and to make adjustments to their advertising strategy. Through
communications with its advertisers and advertising agencies, Tudou strives to enhance their awareness of the attractiveness of its advertising platform and the value of available advertising
opportunities.
Tudou
employs a variety of traditional and online marketing programs and promotional activities to build its brand as part of its overall marketing strategy. Tudou focuses on building
brand awareness through proactive public relations and various forms of advertising. Tudou invests in a series of marketing activities and events to strengthen its brand image and grow its user base.
Specifically, Tudou's sales and marketing efforts for its online video business focus on the following areas:
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Direct Advertising.
Tudou engages in direct advertising in
print, radio and TV media to market and promote its online video products. Its Tudou Video Festival was also advertised on in-taxi screens in Shanghai and Guangzhou.
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Promotional Advertising.
Tudou has organized and run a
number of online promotional advertising campaigns which help create and enhance brand awareness. For example, in June 2009, Tudou launched an "Internet Millionaire" competition program with Nokia. In
addition, in March 2010, Tudou launched a "Win Gold by One Smile" campaign together with Minute Maid, one of Coca-Cola's sub-brands.
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Sponsorship Events.
Tudou has sponsored promotional events
or online content, such as websites that feature movies or TV series, athletic events, music awards and industry exhibitions. For instance, Tudou has been sponsoring and organizing the annual Tudou
Video Festival since 2008. Tudou also co-sponsored the 2010 Nine-Minute Original Movie Competition.
Technology Platform
Tudou's technology platform has been designed for reliability, scalability and flexibility and is administered by its in-house
technology department. Tudou has access to a network of over 4,000 leased and self-owned servers across China with power supply and power generator backup. Tudou has contracts with certain top-tier
vendors such as Dell and Cisco for warranty services for its hardware.
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Tudou
has developed its server operations based on a LAMP structure, which is free, open source and easily adaptable software. This has allowed Tudou to lower software-related investment and enhance
its network reliability. This structure, along with other features described below, contributes to the reliability, scalability and efficiency of Tudou's network.
Bandwidth saving technology.
Tudou's web server technology focuses on reducing bandwidth use by combining a CDN system and P2P
technology. Tudou's
self-developed CDN system focuses on connection capability and server capability at single points, and is capable of reducing the load on the central servers located at its Internet data center. A
copy of data is placed at various points in its CDN to maximize bandwidth for access to the data from users throughout the network. Users may access a copy of the data near them, as opposed to all
users accessing the Internet data center, to avoid a bottleneck near that server.
To
operate its CDN cost effectively, Tudou's CDN components are strategically deployed in cities where there is bandwidth with consistent quality at lower costs. Tudou also stores
popular video clips temporarily on bandwidth lines Tudou rents from smaller telecommunications operators in third- and fourth- tier cities to reduce bandwidth cost. In addition, Tudou's proprietary
web server software has allowed it to increase the utilization rate of broadband resources and improve content distribution
speed. Tudou's proprietary "Fast Tudou" software, which functions as a P2P platform, helps improve the display speed of online video clips while allowing Tudou to substantially decrease its Internet
bandwidth costs.
Content management technology.
Tudou's proprietary content management system reinforces network efficiency through real time
calculations. Its
servers convert newly uploaded videos to video clips viewable on its websites. In May 2011, Tudou launched an upgrade of its platform that enables uploading of UGC without compression and viewing of
such UGC at higher definition. The CDN is capable of monitoring the load of each server and transfer work from a fully loaded server to a server that has capacity, which enhances the efficiency of
Tudou's network. In addition, the audience's page-viewing volume will influence the "Top 10" ranking of each channel on a real time basis, which helps recommend the most popular video clips to Tudou's
visitors.
Content filtering technology.
Tudou's digital audio and video identification system developed in-house enables Tudou to filter out
illegal content,
while the video fingerprint system Tudou has implemented will enable it to filter out infringing content matching copyrighted content in its system.
Real time monitoring and support.
Tudou's Internet data center and regional data center servers automatically report any detected
malfunction on a
real-time basis to its network control center. This allows Tudou to quickly respond to and resolve network malfunction issues. Tudou has a network operation support team responsible for the stability
and security of its network on a 24-hour, seven-days-a-week basis. The primary responsibilities of the team members consist of monitoring system performance, troubleshooting, detecting
system error, random sample testing on servers, maintaining equipment, and testing, evaluating and installing hardware and software.
Data back-up technology.
Different servers share and back up the data of one another, which increases the security of Tudou's network by
allowing
Tudou to provide backup to failed servers and prevent system-wide failures caused by area network failures.
Competition
The online video industry in China is competitive. Tudou believes the key competitive factors in the online video industry in China
include brand recognition, demographic composition of viewers, technology platform, ability to provide innovative advertising services to advertisers, relationships with advertisers and advertising
agencies, advertising prices, the range of services and customer service
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provided
to advertisers and advertising agencies, as well as the ability to source creative UGC, acquire popular premium licensed content at a reasonable cost and create content in-house.
Tudou
faces competition from other major online video companies. Youku has been one of Tudou's major competitors. In addition, several large Chinese Internet companies, such as Shanda
Interactive Entertainment, SINA Corporation, Baidu, Inc., Sohu.com Inc., Tencent Holdings Limited, NetEase.com, Inc., Renren Inc. or their affiliates, have launched online
video websites. In addition, some of China's TV networks, such as CCTV, Phoenix Satellite TV and Hunan Satellite TV, have launched their own video sharing websites. Specifically, CCTV launched China
Internet TV, or CNTV, in December 2009. Tudou also potentially competes with software-based streaming video sites.
Certain
international online video sites, such as YouTube and Hulu, have large content portfolios and high brand recognition, particularly among users outside China. YouTube is not
accessible by viewers in China. If China lifts the relevant restrictions, YouTube may become one of Tudou's major competitors in China. Other international online video sites such as Hulu mainly
target English-speaking viewers and not Chinese-speaking viewers. If international online video sites begin targeting Chinese-speaking viewers, Tudou will face increased competition.
The
online video business is capital intensive, which may become an entry barrier to some new entrants. In addition, to operate online video operations in China, a license from SARFT is
required. Under current regulations issued by SARFT and MIIT in December 2007, generally only state-owned or state-controlled companies may apply for and obtain such licenses. Companies that had
already engaged in Internet audio-visual program provision services before the promulgation of the regulations may continue to do so. Tudou obtained a license in September 2008, which was renewed in
January 2010, and therefore, Tudou may operate its online video business in China. However, new entrants
must generally be either state-owned or state-controlled unless the Chinese government makes an exception.
Tudou
also faces competition from traditional media for advertising spending, such as television, radio, print media, billboards and other forms of outdoor media.
Legal Proceedings
Tudou may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of its
business, including intellectual property claims, breach of contract claims, labor and employment claims and other matters. Tudou was subject to a total of 119, 201 and 332 lawsuits in China for
alleged copyright infringement in 2009, 2010 and 2011, respectively. The lawsuits relate primarily to Tudou's alleged intellectual property infringement of third party copyrights. Internet media
companies are frequently involved in litigation based on allegations of infringement or other violations of intellectual property rights. See "Risk FactorsRisks Related to
TudouTudou has been, and expects it will continue to be, exposed to intellectual property infringement and other claims in China, including claims based on content posted on its website,
which could be time-consuming and costly to defend and may result in substantial damages or court orders that prevent it from providing its existing services."
Although
such proceedings are inherently uncertain and their results cannot be predicted with certainty, Tudou believes that the resolution of its current pending matters will not have a
material adverse effect on its business, consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on Tudou because of
defense costs, diversion of management resources and other factors. In addition, an unfavorable resolution of one or more such proceedings, whether in the PRC or another jurisdiction, could materially
adversely affect Tudou's financial position, results of operations or cash flows in a particular period.
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Regulation
The following is a summary of the principal laws and regulations that are or may be applicable to companies such as Tudou in China. The
scope and enforcement of many of the laws and regulations described below are uncertain. Tudou cannot predict the effect of further developments in the Chinese legal system, including the promulgation
of new laws, changes to existing laws or the interpretation or enforcement thereof.
Regulations on Telecommunication and Internet Information Services
The telecommunication industry, including the Internet sector, is highly regulated in China. Regulations issued or implemented by the
State Council of China, the MIIT and other relevant government authorities cover many aspects of the operation of telecommunication and Internet information services, including entry into the
telecommunication industry, the scope of permissible business activities, licenses and permits for various business activities and foreign investment.
The
principal regulations governing the telecommunication and Internet information services Tudou provides in China include:
-
-
Telecommunication Regulations
(2000), or the Telecom Regulations. The
Telecom Regulations categorize all telecommunication businesses in the PRC as either basic or value-added. Value-added telecommunication services are defined as telecommunication and information
services provided through public network infrastructure. According to the "Catalog of Telecommunication Business," an attachment to the Telecom Regulations that was updated in April 1, 2003,
Internet information services, or ICP services, are classified as value-added telecommunication services. Under the Telecom Regulations, commercial operators of value-added telecommunication services
must obtain an operating license for value-added telecommunication services, or a ICP license, from the MIIT or its provincial level counterpart before the commencement of value-added
telecommunication services.
-
-
Administrative Measures on Internet Information Services
(2000 and revised
in January 2011), or the Internet Measures. According to the Internet Measures, a commercial ICP service operator must obtain an ICP license from government authorities before engaging in any
commercial ICP service within the PRC. When the ICP service involves news, publication, education, medicine, health, pharmaceuticals, medical equipment or other industries and if required by law or
regulation, the operator must obtain prior approval from regulating authorities prior to applying for the ICP license from MIIT or its local branch at the provincial level. Moreover, an ICP service
operator must display its ICP license number in a conspicuous location on its website and monitor its website to remove harmful content.
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Administrative Measures for Telecommunication Business Operating License
(2009, revised), or the Telecom License Measures. The Telecom License Measures include specific provisions regarding the types of licenses required to operate value-added telecommunication services,
the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. For example, the appendix to the ICP license shall detail the permitted
activities to be conducted by the ICP service operator. An approved ICP service operator must conduct its business in accordance with the specifications recorded on its ICP license. The ICP license is
subject to annual review and the results of the annual review will be recorded as an appendix to the ICP license, published to the public and provided to the Administration for Industry and Commerce.
-
-
Regulations for Administration of Foreign-Invested Telecommunication
Enterprises
(2008, revised), or the FITE Regulations. The FITE Regulations set forth detailed requirements with respect to, among others, capitalization, investor
qualifications and application procedures in connection
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with
the establishment of a foreign-invested telecommunication enterprise. Under the FITE Regulations, a foreign entity is prohibited from owning more than 50% of the total equity interest in any
value-added telecommunication service business in China, In addition, the major foreign investor in any value-added telecommunication service business in China must have good track record in such
industry.
-
-
Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added
Telecommunication Business
(2006). Under this circular, a domestic PRC company that holds an ICP license is prohibited from leasing, transferring or selling a ICP license to
foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunication business illegally
in China. Furthermore, the domain names and registered trademarks used by an operating company providing value-added telecommunication services shall be legally owned by such company and/or its
shareholders. In addition, the company's operation premises and equipment should comply with its approved ICP license, and the company should establish and improve its internal Internet and
information security policies and standards and emergency management procedures.
Under
various laws and regulations governing ICP services, ICP services operators are required to monitor their websites. They may not produce, duplicate, post or disseminate any content
that falls within the prohibited categories and must remove any such content from their websites, including any content that:
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-
opposes the fundamental principles of China's Constitution;
-
-
compromises state security, divulges state secrets, subverts state power or damages national unity;
-
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harms the dignity or interests of the State;
-
-
incites ethnic hatred or racial discrimination or damages inter-ethnic unity;
-
-
sabotages China's religious policy or propagates heretical teachings or feudal superstitions;
-
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disseminates rumors, disturbs social order or disrupts social stability;
-
-
propagates obscenity, pornography, gambling, violence, murder or fear or incites the commission of crimes;
-
-
insults or slanders a third party or infringes upon the lawful rights and interests of a third party; or
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includes other content prohibited by laws or administrative regulations.
The
PRC government may shut down the websites of ICP license holders that violate these content restrictions, revoke their ICP licenses or impose other penalties pursuant to applicable
law.
Regulations on Online Transmission of Audio-visual Programs
On July 6, 2004, the State Administration of Radio, Film, and Television, or the SARFT, promulgated the Measures for the
Administration of Publication of Audio-visual Programs through Internet or Other Information Network, which applies to the opening, broadcasting, integration, transmission or download of audio-visual
programs via the Internet or other information network. An applicant engaged in transmitting audio-visual programs shall apply for a license issued by SARFT. Foreign invested enterprises are not
allowed to engage in the above businesses.
On
April 13, 2005, the State Council promulgated the Certain Decisions on the Entry of Non- state-owned Capital into the Cultural Industry. On July 6, 2005,
five PRC regulatory agencies, namely,
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the
Ministry of Culture, SARFT, the General Administration of Press and Publication, the National Development and Reform Commission and the Ministry of Commerce, jointly adopted the Several Opinions
on Canvassing Foreign Investment in the Cultural Sector. According to these regulations, non-state-owned capital and foreign investors are not allowed to transmit audio-visual programs via an
information network.
On
December 20, 2007, SARFT and MIIT jointly promulgated the Administrative Provisions on Internet Audio-visual Program Service, or the Audio-visual Program Provisions, which came
into effect on January 31, 2008. The Audio-visual Program Provisions apply to the provision of audio-visual program services to the public via the Internet (including mobile networks) within
the PRC. Providers of Internet audio-visual program services are required to obtain a License for Online Transmission of Audio-visual Programs issued by SARFT or complete certain registration
procedures with SARFT. Providers of Internet audio-visual program services are generally required to be either state-owned or controlled by the PRC government, and the business to be carried out by
such providers must satisfy the overall planning and guidance guidelines for Internet audio-visual program services determined by SARFT. In a press conference jointly held by SARFT and MIIT to answer
questions with respect to the Audio-visual Program Provisions in February 2008, SARFT and MIIT clarified that providers of Internet audio-visual program services who engaged in such services prior to
the promulgation of the Audio-visual Program Provisions may register their business and continue operation of Internet audio-visual program services as long as those providers have not violated PRC
laws and regulations.
On
May 21, 2008, SARFT issued a Notice on Relevant Issues Concerning Application and Approval of License for Online Transmission of Audio-visual Programs, which sets forth the
details of the application and approval process regarding the License for Online Transmission of Audio-visual Programs. The notice also provides that providers of Internet audio-visual program
services who engaged in such services prior to the promulgation of the Audio-visual Program Provisions shall be eligible to apply for the license as long as (i) any violation of the laws and
regulations by them is minor and can be rectified in a timely manner and (ii) they have no record of violations during the three months prior to the promulgation of the Audio-visual Program
Provisions.
On
December 28, 2007, SARFT promulgated the Notice on Strengthening the Administration of TV Dramas and Films Transmitted via Internet. According to such notice, audio-visual
programs in the film and drama category published to the public through an information network shall be TV dramas under the Permit for Issuance of TV Dramas, films under the Permit for Public
Projection of Films, cartoons under the Permit for Issuance of Cartoons or academic literature movies and TV plays under the Permit for Public Projection of Academic Literature Movies and TV Plays. In
addition, the providers of these services must obtain the prior consent from copyright owners of all such audio-visual programs.
On
March 31, 2009, SARFT promulgated the Notice on Strengthening the Administration of the Content of Internet Audio-visual Programs, which (i) reiterates the requirement
to obtain permits for audio-visual programs published to the public through an information network, where applicable, and
(ii) prohibits certain types of Internet audio-visual programs containing violence, pornography, gambling, terrorism, superstition or other hazardous content.
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On September 8, 2009, the SARFT issued the Administrative Measures on Radio and Television Advertisement Broadcasting, or the Advertising Measures, which
are applicable to all television and radio broadcasting entities including radio stations and television stations. The Advertising Measures, which were further revised in November 2011 and became
effective on January 1, 2012, regulate the broadcasting of radio and television advertisements, including the content of advertisements and the length of commercial advertisements. For example,
according to the Advertising Measures, the length of advertisements during radio and television programs shall not be longer than 12 minutes per hour for every program and in any episode of a TV show
(if each episode lasts 45 minutes), there shall not be any commercial advertisements in any form. This restriction does not apply to online video sites such as Tudou's site.
On
March 17, 2010, the SARFT issued the Internet Audio-visual Program Services Categories (Provisional), or the Provisional Categories, which classified Internet audio-visual
program services into four categories. Tudou has obtained a new License for Online Transmission of Audio-visual Programs according to the classification of Internet audio-visual program services
provided in the Provisional Categories.
Regulations on Production of Radio and Television Programs
On July 19, 2004, SARFT promulgated the Regulations on the Administration of Production of Radio and Television Programs, or the
Radio and TV Programs Regulations, which came into effect as of August 20, 2004. Under the Radio and TV Programs Regulations, entities engaged in the production of radio and television programs
must apply for a license from SARFT or its provincial branches. Entities with the Permit for Production and Operation of Radio and TV Programs must conduct their business strictly in compliance with
the approved scope of production and operation. Other than radio and TV stations, such entities shall not produce radio and TV programs regarding current political news or similar subjects.
Regulations on Online Cultural Activities
To regulate entities engaged in activities related to "online cultural products," the Ministry of Culture, or the MOC, promulgated the
Provisional Measures on Administration of Internet Culture on May 10, 2003, as amended on July 1, 2004, and reissued these Provisional Measures on February 17, 2011. "Online
cultural products" are classified as cultural products developed, published and disseminated via the Internet, which mainly include: (1) online cultural products specifically developed for
publishing via the Internet, such as online music and entertainment files, network games, online performing arts and artworks, and online animation features and cartoons and (2) online cultural
products converted from music entertainment products, games, performing arts, artwork and animation features and cartoons, and published via the Internet.
Pursuant
to the Provisional Measures, entities are required to obtain Online Culture Operating Permits from a provincial counterpart of the MOC if they intend to commercially engage in
any of the following types of activities:
-
-
production, duplication, import, sale or broadcasting of online cultural products;
-
-
publishing of cultural products on the Internet or transmission thereof through information networks such as the Internet
and mobile networks to computers, fixed-line or mobile phones, television sets, gaming consoles or Internet access service sites including Internet cafes for the purpose of browsing,
reviewing, using or downloading such products by online users; or
-
-
exhibitions or contests related to online cultural products.
Regulations on Internet News Dissemination
SCNO and the MIIT promulgated the Provisional Regulations for the Administration of Internet Websites Engaging in News Publication
Services, and the Provisions for the Administration of Internet
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News
Information Services on November 7, 2000 and September 25, 2005, respectively. Pursuant to these regulations, websites established by non-news organizations may publish
news released by certain official news agencies but may not publish news generated by the website or news sourced elsewhere.
In
order to disseminate news, such websites must satisfy the relevant requirements set forth in the foregoing two regulations and obtain approval from SCNO after securing permission from
the news office of the local government at the provincial level. In addition, websites that intend to publish news released by the aforementioned news agencies must enter into agreements with the
respective organizations, and file copies of such agreements with the news office of the local government at the provincial level. Tudou plans to apply for such approval in accordance with relevant
laws and regulations.
Regulations on Internet Bulletin Board Services
The MII promulgated the Administrative Measures on Internet Bulletin Board Services, or BBS Measures, on November 6, 2000. The
BBS Measures require that ICP service operators providing bulletin boards, discussion forums, chat rooms or similar services, or BBS services (1) apply for, and obtain specific approval from,
telecommunication authorities, if they are commercial ICP service operators, or (2) make specific filings with telecommunications authorities if they are noncommercial ICP service operators.
ICP
service operators must display their ICP license numbers and the rules of the BBS, and inform their end users of possible legal liabilities for improper comments in a conspicuous
location on their BBS services. On March 7, 2001, the MII issued the Notice Regarding Strengthening the Approval and Supervision on the Bulletin Board Service of Internet Information Services
to further specify the qualifications and requirements for approval of BBS services and emphasize the principles of daily supervision of BBS services. On July 4, 2010, the State Council
promulgated the Decisions on Canceling and Lowering the Administrating Levels of the Items subject to Administrative Approval (the Fifth Batch), and the requirement of administrative approval or
filing requirements for BBS services was cancelled.
Regulations on Online Education Services
According to the Measures for the Administration of Educational Websites and Online School promulgated by the Ministry of Education on
July 5, 2000, an entity that opens educational websites and online schools must obtain prior approval from the competent education administrative authorities. Educational websites are defined
as institutions that establish information databases by collecting, editing and storing educational information or establish an online platform and search tools for educational purposes and provide
study and other public educational information to website users through a connection with the Internet or educational TV stations. These measures also include specific provisions regarding the
qualifications and procedures for obtaining approval for operating educational websites.
Regulations on Provision of Drug, Medical and Healthcare Information via the Internet
On July 8, 2004, the State Food and Drug Administration, or the SFDA, promulgated the Administration Measures on Internet Drug
Information Services. Pursuant to this regulation, a website providing Internet drug (including medical instrument) information is required to apply for and obtain a qualification certificate on
Internet drug information services from the local branch of the SFDA. Certain video clips posted and uploaded on Tudou's website may contain such information. Therefore, Tudou may be required to
obtain a qualification certificate for the drug and medical instrument advertisements published on its website.
On
May 1, 2009, the Ministry of Health promulgated the Administration Measures on Internet Medical and Healthcare Information Services, which took effect on July 1, 2009.
Pursuant to this
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regulation,
a comprehensive website establishing preventive care and healthcare channels to provide medical and healthcare information to its users must apply for and obtain an approval letter from
the local branch of the Ministry of Health. Certain video clips posted and uploaded on Tudou's website, particularly those on its healthcare channels, may contain medical and healthcare information.
Tudou may be required to obtain such an approval letter on the provision of Internet medical and healthcare information.
Regulations on Internet Publication
The General Administration of Press and Publication, or the GAPP, is the government agency responsible for regulating publishing
activities in China. On June 27, 2002, the MIIT and the GAPP jointly promulgated the Tentative Administration Measures on Internet Publication, or the Internet Publication Measures, which took
effect on August 1, 2002. The Internet Publication Measures require Internet publishers to secure approval from the GAPP to conduct Internet publication activities.
The
term "Internet publication" is defined as an act of online dissemination where Internet information service providers select, edit and process works created by themselves or others
(including content from books, newspapers, periodicals, audio and video products, electronic publications, and other sources that have already been formally published or works that have been made
public in other media) which they then post on the Internet or transmit to users via the Internet for browsing, use or downloading by the public.
Neither
the GAPP nor the MIIT has specified whether the approval required by the Internet Publication Measures applies to online video programs. If, in the future, the GAPP and the MIIT
confirm that the Internet Publication Measures apply to online video programs, Tudou may need to apply for a license or permit from the relevant governmental agencies in charge of publishing.
Regulations on Internet Privacy
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of
such rights. In recent years, PRC government authorities have enacted legislation on Internet use to protect personal information from
unauthorized disclosure. The Internet Measures prohibit an ICP service operator from insulting or slandering a third party or infringing upon the lawful rights and interests of a third party. Pursuant
to the BBS Measures, ICP service operators that provide electronic messaging services must keep a user's personal information confidential and must not disclose such personal information to any third
party without the user's consent or unless required by law.
The
regulations further authorize the relevant telecommunications authorities to order ICP service operators to rectify unauthorized disclosure. ICP service operators are subject to
legal liability if the unauthorized disclosure results in damages or losses to users. The PRC government, however, has the power and authority to order ICP service operators to turn over personal
information if an Internet user posts prohibited content or engages in illegal activities on the Internet.
Regulations on Advertising Businesses
The SAIC is the government agency responsible for regulating advertising activities in China. Regulations governing advertising
business mainly include the:
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-
Advertisement Law of the People's Republic of China promulgated by the Standing Committee of the National People's
Congress on October 27, 1994, which took effect on February 1, 1995;
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Administrative Regulations for Advertising promulgated by the State Council on October 26, 1987, which took effect
on December 1, 1987; and
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-
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Implementation Rules for the Administrative Regulations for Advertising promulgated by the State Council on
January 9, 1988 and amended on December 3, 1998, December 1, 2000 and November 30, 2004.
According
to these regulations, companies that engage in advertising activities must obtain from the SAIC or its local branches a business license that specifically includes operation of
an advertising business within its business scope. An enterprise engaging in advertising business specified in its business scope need not apply for an advertising operation license, provided that
such enterprise is not a radio station, television station, newspaper or magazine publisher or any other entity specified in relevant laws or administrative regulations. Enterprises conducting
advertising activities without such a license may be subject to penalties, including fines, confiscation of advertising income and orders to cease advertising operations. The business license of an
advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant law or regulation.
PRC
advertising laws and regulations set forth certain content requirements for advertisements in China including, among other things, prohibitions on false or misleading content,
superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. PRC advertising laws require
advertisers, advertising agencies and advertising distributors to ensure that the content of the advertisements they prepare or distribute is true and in full compliance with applicable law. In
providing advertising services, advertising operators and advertising distributors must review the supporting documents provided by advertisers for advertisements and verify that the content of the
advertisements complies with applicable PRC laws and regulations.
Prior
to distributing advertisements subject to government censorship and approval, advertising distributors must verify that such censorship has been performed and approval has been
obtained. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an
advertisement correcting the misleading information. For serious violations, the SAIC or its local branches may revoke violators' licenses or permits for their advertising operations.
Regulations on Foreign Investment in Advertising Business
The principal regulations governing foreign investment in the advertising industry in China include
the:
-
-
Administrative Regulations on Foreign-Invested Advertising Enterprises (2008); and
-
-
Notice on the Relevant Issues regarding Establishing Foreign-Invested Advertising Enterprises by Foreign Investors through
Equity Acquisitions (2006).
Under
the Administrative Regulations on Foreign-Invested Advertising Enterprises, foreign investors must have at least three years prior experience operating an advertising business
outside of China as their main business before receiving approval to directly own a 100% interest in an advertising company in China. Foreign investors with at least two years prior experience
operating an advertising business outside China as their main business may establish joint ventures with domestic advertising enterprises to operate an advertising business in China.
Regulations on Information Security and Censorship
Regulations governing information security and censorship include the:
-
-
Law of the People's Republic of China on the Preservation of State Secrets promulgated by the Standing Committee of the
National People's Congress on September 5, 1988 and amended on April 29, 2010, which became effective from October 1, 2010, together with its Implementing Rules (1990);
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-
-
Rules of the People's Republic of China for Protecting the Security of Computer Information Systems promulgated by the
State Council on February 18, 1994 and amended in January 2011;
-
-
Provisional Regulations of the People's Republic of China on the Administration of International Networking of Computer
Information Networks promulgated by the State Council on February 1, 1996 and amended on May 20, 1997, together with its Implementing Rules (1998);
-
-
Administrative Measures for the Security Protection of International Connections to Computer Information Networks
promulgated by the Ministry of Public Security on December 16, 1997 and amended in January 2011;
-
-
Provisional Regulations for the Secrecy Protection of Computer Information Systems promulgated by the State Secrecy Bureau
on February 26, 1998;
-
-
Notice Regarding Issues Relating to the Implementation of the Administrative Measures for the Security Protection of
International Connections to Computer Information Networks promulgated by the Ministry of Public Security on February 13, 2000;
-
-
Decision Regarding the Safeguarding of Internet Security promulgated by the Standing Committee of the National People's
Congress on December 28, 2000 and amended on August 27, 2009;
-
-
Measures for the Administration of IP Address Archiving promulgated by MIIT on February 8, 2005;
-
-
Provision on Technical Measures for Internet Security Protection promulgated by the Ministry of Public Security on
December 13, 2005;
-
-
Administrative Measures for the Graded Protection of Information Security promulgated by the Ministry of Public Security,
the State Secrecy Bureau, the State Cipher Code Administration and the Information Office of the State Council on June 22, 2007; and
-
-
Certain Provisions on Standardizing the Market Order for Online Information Services promulgated by the MIIT on
December 29, 2011, which became effective from March 15, 2012.
These
regulations prohibit the use of Internet infrastructure where it may breach public security, provide content harmful to the stability of society or disclose state secrets.
According to these regulations, Internet companies in the PRC must complete security-filing procedures and regularly update information security and censorship systems for their websites with the
local public security bureau.
In
addition, the newly amended Law on Preservation of State Secrets, which became effective on October 1, 2010, provides that whenever an Internet service provider detects any
leakage of state secrets in the distribution of online information, it should cease the distribution of such information and report the leakage to the authorities responsible for state and public
security.
As
requested by the authorities responsible for state security, public security or state secrecy, the Internet service provider should delete any content on its website that may lead to
disclosure of state secrets. Failure to do so on a timely and adequate basis may subject the Internet service provider to liability and certain penalties given by the State Security Bureau, the
Ministry of Public Security, MIIT or their respective local counterparts.
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Regulations on Torts
The Standing Committee of the National People's Congress promulgated the PRC Tort Law on December 26, 2009 and this law became
effective on July 1, 2010. Under this law, if an Internet service provider is aware that an Internet user is infringing upon the civil rights or interests of another person, such as rights of
reputation, portraiture, privacy or copyright, through its network services, and fails to take necessary measures, the Internet service provider shall be jointly liable for such infringement with such
Internet user. Once the Internet service provider is found to be jointly liable for the infringement by the Internet user, a court may order the provider to remove the infringing content, eliminate
the adverse impact, make a public apology, pay economic compensation to the legal right holders and assume other liabilities in accordance with the law.
Regulations on Intellectual Property Rights
China has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents and trademarks.
Copyright Law
Under the Copyright Law of the People's Republic of China (1990), as revised in 2001 and 2010, or the Copyright Law, and its related
Implementing Regulations (2002 and revised in 2011), creators of protected works enjoy personal and property rights with respect to publication, authorship, alteration, integrity, reproduction,
distribution, lease, exhibition, performance, projection, broadcasting, dissemination via information network, production, adaptation, translation, compilation and related activities. The term of a
copyright, other than the rights of authorship, alteration and integrity of an author, which are unlimited in time, is life plus 50 years for individual authors and 50 years for
corporations. In consideration of the social benefits and costs of copyrights, China balances copyright protections with limitations that permit certain uses, such as private study, research, personal
entertainment and teaching, without compensation to the author or prior authorization.
To
address copyright issues relating to the Internet, the PRC Supreme People's Court on November 22, 2000 adopted the Interpretations on Some Issues Concerning Applicable Laws for
Trial of Disputes over Internet Copyright, or the Interpretations, which were subsequently amended on December 23, 2003 and November 20, 2006. The Interpretations establish joint
liability for Internet service providers if they participate in, assist in or abet infringing activities committed by any other person through the Internet, are aware of the infringing activities
committed by their website users through the Internet or fail to remove infringing content or take other action to eliminate infringing consequences after receiving a warning with evidence of such
infringing activities from the copyright holder.
In
addition, Internet service providers are liable for copyright infringement if they knowingly upload, transmit or provide any methods, equipment or materials intended to bypass or
disrupt circumvention technologies designed to protect the copyrights of others. Upon request, an Internet service provider shall provide the copyright holder with registration information of the
alleged violator for claiming infringement liabilities, provided that such copyright holder has produced relevant evidence of identification, copyright ownership and infringement. Where the Internet
service provider takes measures to remove infringing content after receiving a warning from the copyright holder with good evidence, the people's court will not support the claim of the alleged
violator against such Internet service provider for breach of contract.
According
to the Copyright Law, an infringer shall be subject to various civil liabilities, which include stopping the infringement, minimizing damages, apologizing to the copyright
owners and compensating the copyright owners for losses. The Copyright Law further provides that the infringer shall compensate the actual loss suffered by the copyright owner. If the actual loss of
the copyright
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owner
is difficult to calculate, the illegal income received by the infringer as a result of the infringement shall be deemed as the actual loss or if such illegal income is also difficult to
calculate, the court can determine the amount of actual loss up to RMB500,000.
To
address copyright infringement related to content posted or transmitted over the Internet, the PRC National Copyright Administration and MIIT jointly promulgated the Measures for
Administrative Protection of Copyright Related to the Internet on April 29, 2005. These measures became effective on May 30, 2005, which apply to, as part of the Internet information
services, acts of automatically providing functions such as uploading, storing, linking or searching works, audio or video products, or other content through the Internet based on the instruction of
website users who publish content on the Internet, or the Internet Content Providers, without editing, amending or selecting any stored or transmitted content. A copyright administration authority
shall, when imposing administrative penalties on infringing acts that occur through an information network, apply the Measures for Imposing Copyright Administrative Penalties (2009).
Where
a copyright holder finds any content communicated through the Internet infringes upon its copyright and sends a notice to the ICP service operator, the ICP service operator shall
immediately take measures to remove the relevant content. The ICP service operator must retain infringement notices for six months and record the content, display time and IP addresses or the domain
names related to the infringement for 60 days. Where an ICP service operator removes the relevant content of an Internet Content Provider after receiving notice from a copyright holder, the
Internet Content Provider may deliver a counter-notice to both the ICP service operator and the copyright holder, stating that the removed content does not infringe upon the copyright of other
parties. After the delivery of such counter-notice, the ICP service operator may immediately reinstate the removed content and shall not bear administrative legal liability for such reinstatement.
Where
an ICP service operator is clearly aware of the infringement of an Internet Content Provider against another's copyright through the Internet, or, although not being aware of such
activity, fails to take measures to remove relevant content upon receipt of the copyright owner's notice, and as a result, it damages public interests, the ICP service operator could be subject to an
order to stop the tortious act and other administrative penalties such as confiscation of illegal income and fines. Where there is no evidence to indicate that an ICP service operator is clearly aware
of the facts of the tort, or the ICP service operator has taken measures to remove relevant content upon receipt of the copyright owner's notice, the ICP service provider shall not be subject to
administrative legal liabilities.
On
May 18, 2006, the State Council promulgated the Protection of the Right of Communication through Information Networks, which became effective on July 1, 2006. Under this
regulation, an ICP service provider may be exempted from indemnification liabilities under the following circumstances:
-
-
any ICP service provider that provides an automatic Internet access service upon instructions of its users or provides for
the automatic transmission of works, performances and audio-visual products provided by its users, will not be required to assume indemnification liabilities if (1) it has not chosen or altered
the transmitted works, performances and audio-visual products and (2) it provides such works, performances and audio-visual products to the designated user and prevents any person other than
such designated user from obtaining access.
-
-
any ICP service provider which, for the sake of improving network transmission efficiency, automatically stores and
provides to its own users, based on a technical arrangement, works, performances and audio-visual products obtained from any other ICP service providers will not be responsible for indemnification
liabilities if (1) it has not altered any of the works, performances or audio-visual products that are automatically stored; (2) it has not influenced such original ICP service provider
in obtaining the relevant works, performances and audio-visual products; and (3) when the original ICP service provider revises, deletes or shields the
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works,
performances and audio-visual products, it will automatically revise, delete or shield the same based on the technical arrangement.
-
-
any ICP service provider that provides users with information memory space for such users to provide works, performances
and audio-visual products to the general public via the Internet, will not be required to assume indemnification liabilities if (1) it clearly indicates that the information memory space is
provided to the users and publicizes its own name, contact person and web address; (2) it has not altered the works, performances and audio-visual products that are provided by the users;
(3) it is not aware of or has reason to know of the infringement of the works, performances and audio-visual products provided by the users; (4) it has not directly derived any economic
benefit from the provision of the works, performances and audio-visual products by its users; and (5) after receiving a notice from the rights holder, it has deleted such works, performances
and audio-visual products pursuant to such regulation.
Since
2005, the National Copyright Administration, or the NCA, together with certain other PRC governmental authorities, have jointly launched annual campaigns specifically aimed to
crack down on Internet copyright infringement and piracy in China, which normally last for three to four months every year. According to the Notice of 2010 Campaign to Crack Down on Internet
Infringement and Piracy promulgated by the NCA, the Ministry of Public Security and MIIT on July 19, 2010, the 2010 campaign mainly targeted Internet audio and video programs, literature
websites, online games, animation, software and art works related to the Shanghai World Expo and Guangzhou Asian Games.
During
the 2010 campaign, which ran from late July to the end of October 2010, the local branches of NCA focused on popular movies and TV series; newly published books, online games,
animation, music and software; and various illegal activities, including illegal uploading or transmission of a thirty party's works without permission or a proper license, sales of pirated
audio-video content and software through e-commerce platforms, the provision of search links, information storage, web hosting or Internet access services for third parties engaging in
copyright infringement or piracy and infringement by the use of mobile media. In serious cases, the operating permits of websites engaging in illegal activities may be revoked, and such websites may
be ordered to shut down.
Patent Law
The National People's Congress adopted the Patent Law of the People's Republic of China in 1984, and amended it in 1992, 2000 and 2008.
A patentable invention, utility model or design must meet three conditions: novelty, inventiveness and practical applicability. Patents cannot be granted for scientific discoveries, rules and methods
for intellectual activities, methods used to diagnose or treat diseases, animal and plant breeds or substances obtained by means of nuclear transformation.
The
Patent Office under the State Council is responsible for receiving, examining and approving patent applications. A patent is valid for a twenty-year term in the case of
an invention and a ten-year term in the case of a utility model or design, starting from the application date. A third-party user must obtain consent or a proper license from the patent
owner except for certain
specific circumstances provided by law. Otherwise, the use will constitute an infringement of the patent rights.
Trademark Law
Registered trademarks are protected under the Trademark Law of the People's Republic of China adopted in 1982 and amended in 1993 and
2001. The PRC Trademark Office of the State Administration of Industry and Commerce is responsible for the registration and administration of trademarks throughout China. The PRC Trademark Law has
adopted a "first-to-file" principle with respect to trademark registration. When applying for trademark registration, an applicant must indicate the classes of goods or
services for which the trademark is to be registered. China is a party to the Nice Agreement and follows the International Classification of Goods and Services for the Purposes of the
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Registration
of Marks (trademark classification), or the Nice Classification. The Nice Classification includes 44 classes including 34 classes of goods and 11 classes of services. The classification
is made according to various criteria, such as functions, usages, materials for goods, or industries for services.
Where
a trademark is identical or similar to another trademark that has already been registered or been subject to a preliminary examination and approval for use on the same kind of or
similar goods or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark shall not prejudice the existing rights of others
obtained by priority, nor shall any person register in advance a trademark that has already been used by another person and that has already gained a "sufficient degree of reputation" through that
person's use.
After
receiving an application, the PRC Trademark Office will make a public announcement if the relevant trademark passes the preliminary examination. Within three months after such
public announcement, any person may file an opposition against a trademark that has passed a preliminary examination. The PRC Trademark Office's decisions on rejection, opposition or cancellation of
an application may be appealed to the PRC Trademark Review and Adjudication Board, whose decision may be further appealed through judicial proceedings. If no opposition is filed within three months
after the public announcement period or if the opposition is overruled, the PRC Trademark Office will approve the registration and issue a registration certificate, upon which the trademark is
registered and will be effective for a renewable ten-year period, unless otherwise revoked.
Regulations on Foreign Exchange Control and Administration
Foreign exchange regulation in China is primarily governed by the following
regulations:
-
-
Foreign Exchange Administration Rules, or the Exchange Rules, promulgated by the State Council on January 29, 1996,
and which was amended on January 14, 1997 and August 5, 2008; and
-
-
Administration Rules of the Settlement, Sale and Payment of Foreign Exchange, or the Administration Rules promulgated by
the People's Bank of China on June 20, 1996.
Under
the Exchange Rules, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange
transactions. For capital account items, such as direct investments, loans, security investments and the repatriation of investment returns, however, the conversion of foreign currency remains subject
to the approval of, or registration with, SAFE or its competent local branches. For foreign currency payments for current account items, SAFE approval is not necessary for the conversion of Renminbi
except as otherwise explicitly provided by law.
Under
the Administration Rules, enterprises may only buy, sell or remit foreign currencies at banks that are authorized to conduct foreign exchange business after the enterprise provides
valid commercial documents and relevant supporting documents and, in the case of certain capital account transactions, after obtaining approval from SAFE or its competent local branches. Capital
investments by enterprises outside of China are also subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the National Development and Reform Commission, or their
respective competent local branches.
Tudou
derives substantially all of its revenues in Renminbi, which is not a freely convertible currency. Under its current structure, Tudou's income will be primarily derived from
dividend payments from its subsidiaries in China. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China's
political and economic conditions. The conversion of Renminbi into foreign currencies, including the U.S. dollar, has been based on rates set by the People's Bank of China. On July 21, 2005,
the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is
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permitted
to fluctuate within a band against a basket of certain foreign currencies. There remains significant international pressure on the PRC government to adopt a substantial liberalization of its
currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the U.S. dollar.
Regulations on Foreign Exchange Registration of Offshore Investment by PRC Residents
On October 21, 2005, SAFE issued the Circular on Several Issues concerning Foreign Exchange Administration for Domestic
Residents to Engage in Financing and in Return Investments via Overseas Special Purpose Companies, or Circular No. 75, which went into effect on November 1, 2005. Circular No. 75
and related rules provide that if PRC residents establish or acquire direct or indirect interests in offshore companies, or offshore SPVs, for the purpose of financing these offshore SPVs with assets
of, or equity interests in, an enterprise in the PRC, or inject assets or equity interests in PRC entities into offshore SPVs, they must register with local SAFE branches with respect to their
investments in offshore SPVs.
Circular
No. 75 also requires PRC residents to file changes to their registration if their offshore SPVs undergo material events such as a capital increase or decrease, share
transfer or exchange, merger or division, long-term equity or debt investment, or the provision of a guaranty to a foreign party. SAFE subsequently issued guidance to its local branches
with respect to SAFE registration under Circular No. 75. This guidance provided more specific and stringent supervision of registration relating to Circular No. 75 and required onshore
subsidiaries of offshore SPVs to coordinate with and supervise PRC residents holding direct or indirect interests in offshore SPVs to complete the SAFE registration process. Under the relevant SAFE
rules, failure to comply with the registration procedures set forth in Circular No. 75 may result in restrictions on the foreign exchange activities of the relevant onshore companies of
offshore SPVs, including the payment of dividends and other distributions to offshore parents or affiliates and capital inflows from such offshore entity. These restrictions may also subject relevant
PRC residents and onshore companies to penalties under PRC foreign exchange administration regulations.
Tudou
has requested PRC residents holding direct or indirect interests in Tudou to make necessary applications, filings and amendments required under Circular No. 75 and other
related rules. Tudou attempts to comply, and attempts to ensure that PRC residents holding direct or indirect interest in Tudou comply, with the relevant requirements. However, Tudou may not be
informed of the identities of all the PRC residents holding direct or indirect interests in Tudou, and Tudou cannot provide any
assurance that these PRC residents will comply with its requests to make or obtain any applicable registrations or comply with other requirements required by Circular No. 75 or related rules.
The failure or inability of PRC residents to make required registrations or comply with other requirements under Circular No. 75 and other related rules may subject such PRC residents or
Tudou's PRC subsidiary to fines and legal sanctions and may also limit Tudou's ability to contribute additional capital into or provide loans to its PRC subsidiary, limit its PRC subsidiary's ability
to pay dividends or otherwise distribute profits to Tudou, or otherwise adversely affect Tudou.
Regulations on Share Incentive Plans
On December 25, 2006, the People's Bank of China promulgated the Administrative Measures for Individual Foreign Exchange. On
January 5, 2007, SAFE issued the Implementation Rules of the Administrative Measures for Individual Foreign Exchange, or the Individual Foreign Exchange Rule, which, among other things,
specifies approval requirements for a PRC citizen's participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company. In February 2012, SAFE issued the
Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas-Listed Company, or the Stock Option Rules, which terminated
the Processing Guidance on Foreign Exchange Administration of
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Domestic
Individuals Participating in the Employee Stock Ownership Plans or Stock Option Plans of Overseas-Listed Companies issued by SAFE in March 2007.
According
to the Stock Option Rules, if a PRC domestic individual participates in any stock option plan of an overseas listed company, a qualified PRC domestic agent or a PRC subsidiary
of such overseas listed company shall file, on behalf of such individual, an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan. Such agent or subsidiary
shall also obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with the stock purchase or stock option exercise, as PRC domestic individuals may not
directly use overseas funds to purchase stock or exercise stock options. Such PRC individuals' foreign exchange income received from the sale of stocks and dividends distributed by the overseas listed
company and any other income shall be first remitted into a collective foreign currency account in the PRC opened and managed by a PRC subsidiary of the overseas listed company or the PRC agent before
distribution to such individuals.
Tudou's
PRC citizen employees who have participated in the stock incentive plan, or PRC optionees, became subject to the Stock Option Rule when Tudou became an overseas listed company
after its initial public offering. Tudou is in the process of applying for registration with local SAFE concerning its stock incentive plan pursuant to the Stock Option Rule. If Tudou or its PRC
optionees fail to comply with the Individual Foreign Exchange Rule and the Stock Option Rule, Tudou and/or its PRC optionees may be subject to fines and other legal sanctions.
In
addition, the State Administration for Taxation has issued certain circulars concerning employee share options. Under these circulars, Tudou's employees working in the PRC who
exercise share options will be subject to PRC individual income tax. Tudou's PRC subsidiaries have obligations to file documents related to employee share options with relevant tax authorities and to
withhold individual income taxes of those employees who exercise their share options. If Tudou's employees fail to pay or Tudou fails to withhold their income taxes according to relevant laws and
regulations, Tudou may face sanctions imposed by the tax authorities or other PRC government authorities.
Regulations on Dividend Distributions
The principal regulations governing the distribution of dividends paid by wholly foreign-owned enterprises include
the:
-
-
Company Law (2005)
-
-
Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000;
-
-
Wholly Foreign-Owned Enterprise Law Implementation Regulations (1990), as amended in 2001; and
-
-
Enterprise Income Tax Law (2007), or the EIT Law, and its Implementation Regulations (2007).
Under
these regulations, wholly foreign-owned enterprises in China may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting
standards and regulations. In addition, a wholly foreign-owned enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year
to its general reserves until its cumulative total reserve funds reaches 50% of its registered capital.
The
board of directors of a wholly foreign-owned enterprise has the discretion to allocate a portion of its after-tax profits to its employee welfare and bonus funds. These
reserve funds, however, may not be distributed as cash dividends. Under the EIT Law and its implementation rules, dividends payable by a foreign-invested enterprise in the PRC to its foreign investor
who is a non-resident enterprise will be subject to a 10% withholding tax, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with the PRC that provides for
a lower withholding tax rate.
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C.
Organizational Structure
The
following diagram illustrates Tudou's current corporate structure and the place of incorporation of each of Tudou's significant subsidiaries and consolidated affiliated entities as
of the date of this joint proxy statement/prospectus:
-
(1)
-
Quan
Toodou Network Science and Technology Co., Ltd. is Tudou's consolidated affiliated entity in China and is 95% owned by
Mr. Gary Wei Wang, Tudou's founder, chairman and chief executive officer, and 5% owned by Ms. Zhiqi Wang, a member of Tudou's founding team.
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-
(2)
-
Shanghai
Suzao Network Science and Technology Co., Ltd. is Tudou's consolidated affiliated entity in China and is 50% owned by
Mr. Chengzi Wu, Tudou's employee and a member of its founding team, and 50% owned by Ms. Jing Chen, Tudou's employee and a member of its founding team.
-
(3)
-
Chengdu
Gaishi Network Science and Technology Co., Ltd. is Tudou's consolidated affiliated entity in China and is 50% owned by
Mr. Chengzi Wu and 50% owned by Mr. Xiaoyun Zhang, Tudou's employee and a member of its founding team.
-
(4)
-
Beijing
Tixian Digital Science and Technology Co., Ltd. is Tudou's consolidated affiliated entity in China and is 95% owned by
Mr. Zhou Yu and 5% owned by Mr. Ye Yuan, Tudou's employees.
Tudou
has entered into contractual arrangements with Quan Toodou, Shanghai Suzao, Chengdu Gaishi, Beijing Tixian and their respective shareholders, through which Tudou exercises
effective control over operations of these entities and receives economic benefits generated from these entities. As a result of these contractual arrangements, under U.S. GAAP, Tudou is
considered the primary beneficiary of Quan Toodou, Shanghai Suzao, Chengdu Gaishi and Beijing Tixian and consolidates their results in Tudou's consolidated financial statements.
Contractual Arrangements with Quan Toodou and its Shareholders
Tudou's relationships with Quan Toodou and its shareholders are governed by a series of contractual arrangements. Under PRC laws, each
of Quan Toodou and Reshuffle Technology is an independent legal person and neither of them is exposed to liabilities incurred by the other party. Other than pursuant to the contractual arrangements
between Quan Toodou and Reshuffle Technology, Quan Toodou is not required to transfer any funds generated from its operations to Reshuffle Technology.
Loan Agreements.
The shareholders of Quan Toodou, namely Gary Wei Wang and Zhiqi Wang, have entered into certain loan agreements with
Reshuffle
Technology. Under these loan agreements, as of December 31, 2011, Reshuffle Technology had made interest-free loans of RMB50.0 million (US$7.9 million) to these
shareholders, solely for their respective capital contributions in Quan Toodou. Each of these loan agreements has a term of five years, which will be automatically renewed for another five years upon
expiration. However, Reshuffle Technology, upon 30 days' prior notice, may require, and the shareholders, 30 days in advance, may apply for, earlier repayment of part or all of the
loans. Reshuffle Technology has the right to purchase or have its designated third party purchase the corresponding part of the equity interests in Quan Toodou in proportion to the amount of the loans
to be repaid at the purchase price equal to such amount.
Exclusive Call Option Agreement.
Quan Toodou and its shareholders have entered into an exclusive call option agreement with Reshuffle
Technology,
under which each shareholder of Quan Toodou has irrevocably granted Reshuffle Technology an exclusive option to purchase or have its designee purchase his or her equity interest in Quan Toodou at a
purchase price equal to the amount of the registered capital of Quan Toodou in proportion to the equity interest to be purchased or the lowest price permitted by PRC law. Reshuffle Technology may
exercise this option at any time to the extent permitted by PRC law. In addition, Quan Toodou and its shareholders agree that without Reshuffle Technology's prior written consent, they will not engage
in certain actions, including transferring or otherwise disposing of an equity interest in Quan Toodou or declaring any dividend.
Proxy Agreement.
Quan Toodou and its shareholders have entered into a proxy agreement with Reshuffle Technology, under which each
shareholder of Quan
Toodou irrevocably undertakes to execute powers of attorney to persons designated by Reshuffle Technology that irrevocably authorize them to vote as the shareholders'
attorneys-in-fact on all matters of Quan Toodou requiring shareholder approval, including the appointment and election of board members and senior management members.
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Exclusive Consultancy and Service Agreement.
Under the exclusive consultancy and service agreement between Quan Toodou and Reshuffle
Technology, Quan
Toodou has engaged Reshuffle Technology as its exclusive provider of technical consulting and services and shall pay Reshuffle Technology service fees consisting of a performance service fee equal to
50% of Quan Toodou's total annual revenues before tax and fees for specific technical consulting and services requested by Quan Toodou and provided by Reshuffle Technology from time to time. Tudou
sets this service fee rate in order to retain sufficient cash in Quan Toodou to fund its operating needs and manage liquidity. Tudou also retains the flexibility to adjust the service fee rate in the
future. Reshuffle Technology shall exclusively own any intellectual property arising from the performance of this agreement except for technology independently developed by Quan Toodou and subject to
certain conditions under this agreement, including that Reshuffle Technology shall have the right to purchase such technology at the purchase price of RMB1.00 or the lowest price permitted by law.
This agreement will be effective until terminated by both parties in writing or either party's business period expires without extension.
Equity Interest Pledge Agreement.
The shareholders of Quan Toodou have entered into an equity interest pledge agreement with Reshuffle
Technology,
under which each shareholder of Quan Toodou pledged all of his or her equity interest in Quan Toodou to Reshuffle Technology to secure his or her and Quan Toodou's obligations under the above
agreements and this agreement and as collateral for his or her payment of compensation for any losses suffered by Reshuffle Technology due to any event of default by Quan Toodou and/or its
shareholders and for any expenses incurred by Reshuffle Technology to enforce Quan Toodou's and/or its shareholders' obligations. If any event of default occurs, Reshuffle Technology, as pledgee, will
be entitled to dispose of the pledged equity interests. In addition, any dividends from Quan Toodou permitted by Reshuffle Technology will be deposited into the account designated by Reshuffle
Technology and be further pledged in favor of Reshuffle Technology. The above pledge has been registered with the relevant local branch of the State Administration for Industry and Commerce in China.
Contractual Arrangements with Shanghai Suzao and its Shareholders
Tudou's relationships with Shanghai Suzao and its shareholders are governed by a series of contractual arrangements. Under PRC laws,
each of Shanghai Suzao and Reshuffle Technology is an independent legal person and neither of them is exposed to liabilities incurred by the other party. Other than pursuant to the contractual
arrangements between Shanghai
Suzao and Reshuffle Technology, Shanghai Suzao is not required to transfer any funds generated from its operations to Reshuffle Technology.
Loan Agreements.
The shareholders of Shanghai Suzao, namely Chengzi Wu and Jing Chen, have entered into two loan agreements with
Reshuffle
Technology. Under these loan agreements, as of December 31, 2011, Reshuffle Technology had made interest-free loans of RMB6.0 million (US$1.0 million) to these
shareholders, solely for their respective capital contributions in Shanghai Suzao. Each of these loan agreements has a term of five years, which will be automatically renewed for another five years
upon expiration. However, Reshuffle Technology, upon 30 days' prior notice, may require, and the shareholders, 30 days in advance, may apply for, earlier repayment of part or all of the
loans. Reshuffle Technology has the right to purchase or have its designated third party purchase the corresponding part of the equity interests in Shanghai Suzao in proportion to the amount of the
loans to be repaid at the purchase price equal to such amount.
Exclusive Call Option Agreement.
Shanghai Suzao and its shareholders have entered into an exclusive call option agreement with Reshuffle
Technology,
under which each shareholder of Shanghai Suzao has irrevocably granted Reshuffle Technology an exclusive option to purchase or have its designee purchase his or her equity interest in Shanghai Suzao
at a purchase price equal to the amount of the registered capital of Shanghai Suzao in proportion to the equity interest to be purchased or the
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lowest
price permitted by PRC law. Reshuffle Technology may exercise this option at any time to the extent permitted by PRC law. In addition, Shanghai Suzao and its shareholders agree that without
Reshuffle Technology's prior written consent, they will not engage in certain actions, including transferring or otherwise disposing of an equity interest in Shanghai Suzao or declaring any dividend.
Proxy Agreement.
Shanghai Suzao and its shareholders have entered into a proxy agreement with Reshuffle Technology, under which each
shareholder of
Shanghai Suzao irrevocably undertakes to execute powers of attorney to persons designated by Reshuffle Technology that irrevocably authorize them to vote as the shareholders'
attorneys-in-fact on all matters of Shanghai Suzao requiring shareholder approval, including the appointment and election of board members and senior management members.
Exclusive Consultancy and Service Agreement.
Under the exclusive consultancy and service agreement between Shanghai Suzao and Reshuffle
Technology,
Shanghai Suzao has engaged Reshuffle Technology as its exclusive provider of technical consulting and services and shall pay Reshuffle Technology service fees consisting of a performance service fee
equal to 20% of Shanghai Suzao's total annual revenues before tax and fees for specific technical consulting and services requested by Shanghai Suzao and provided by Reshuffle Technology from time to
time. Tudou sets this service fee rate in order to retain sufficient cash in Shanghai Suzao to fund its operating needs and manage liquidity. Tudou also retains the flexibility to adjust the service
fee rate in the future. Reshuffle Technology shall exclusively own any intellectual property arising from the performance of this agreement except for technology independently developed by Shanghai
Suzao and subject to certain conditions under this agreement, including that Reshuffle Technology shall have the right to purchase such technology at the purchase price of RMB1.00 or the lowest price
permitted by law. This agreement will be effective until terminated by both parties in writing or either party's business period expires without extension.
Equity Interest Pledge Agreement.
The shareholders of Shanghai Suzao have entered into an equity interest pledge agreement with
Reshuffle Technology,
under which each shareholder of Shanghai Suzao pledged all of his or her equity interest in Shanghai Suzao to Reshuffle Technology to secure his or her and Shanghai Suzao's obligations under the above
agreements and this agreement and as collateral for his or her payment of compensation for any losses suffered by Reshuffle Technology due to any event of default by Shanghai Suzao and/or its
shareholders and for any expenses incurred by Reshuffle Technology to enforce Shanghai Suzao's and/or its shareholders' obligations. If any event of default occurs, Reshuffle Technology, as pledgee,
will be entitled to dispose of the pledged equity interests. In addition, any dividends from Shanghai Suzao permitted by Reshuffle Technology will be deposited into the account designated by Reshuffle
Technology and be further pledged in favor of Reshuffle Technology. The above pledge has been registered with the relevant local branch of the State Administration for Industry and Commerce in China.
Contractual Arrangements with Chengdu Gaishi and its Shareholders
Tudou's relationships with Chengdu Gaishi and its shareholders are governed by a series of contractual arrangements. Under PRC laws,
each of Chengdu Gaishi and Reshuffle Technology is an independent legal person and neither of them is exposed to liabilities incurred by the other party. Other than pursuant to the contractual
arrangements between Chengdu Gaishi and Reshuffle Technology, Chengdu Gaishi is not required to transfer any funds generated from its operations to Reshuffle Technology.
Loan Agreement.
The shareholders of Chengdu Gaishi, namely Chengzi Wu and Xiaoyun Zhang, have entered into a loan agreement with
Reshuffle
Technology. Under this loan agreement, as of
December 31, 2011, Reshuffle Technology had made an interest-free loan of RMB1.0 million (US$158.9 thousand) to these shareholders, solely for their respective capital
contributions in Chengdu
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Gaishi.
The loan agreement has a term of five years, which will be automatically renewed for another five years upon expiration. However, Reshuffle Technology, upon 30 days' prior notice, may
require, and the shareholders, 30 days in advance, may apply for, earlier repayment of part or all of the loan. Reshuffle Technology has the right to purchase or have its designated third party
purchase the corresponding part of the equity interests in Chengdu Gaishi in proportion to the amount of the loans to be repaid at the purchase price equal to such amount.
Exclusive Call Option Agreement.
Chengdu Gaishi and its shareholders have entered into an exclusive call option agreement with Reshuffle
Technology,
under which each shareholder of Chengdu Gaishi has irrevocably granted Reshuffle Technology an exclusive option to purchase or have its designee purchase his equity interest in Chengdu Gaishi at a
purchase price equal to the amount of the registered capital of Chengdu Gaishi in proportion to the equity interest to be purchased or the lowest price permitted by PRC law. Reshuffle Technology may
exercise this option at any time to the extent permitted by PRC law. In addition, Chengdu Gaishi and its shareholders agree that without Reshuffle Technology's prior written consent, they will not
engage in certain actions, including transferring or otherwise disposing of an equity interest in Chengdu Gaishi or declaring any dividend.
Proxy Agreement.
Chengdu Gaishi and its shareholders have entered into a proxy agreement with Reshuffle Technology, under which each
shareholder of
Chengdu Gaishi irrevocably undertakes to execute powers of attorney to persons designated by Reshuffle Technology that irrevocably authorize them to vote as the shareholders'
attorneys-in-fact on all matters of Chengdu Gaishi requiring shareholder approval, including the appointment and election of board members and senior management members.
Exclusive Consultancy and Service Agreement.
Under the exclusive consultancy and service agreement between Chengdu Gaishi and Reshuffle
Technology,
Chengdu Gaishi has engaged Reshuffle Technology as its exclusive provider of technical consulting and services and shall pay Reshuffle Technology service fees consisting of a performance service fee
equal to 20% of Chengdu Gaishi's total annual revenues before tax and fees for specific technical consulting and services requested by Chengdu Gaishi and provided by Reshuffle Technology from time to
time. Tudou sets this service fee rate in order to retain
sufficient cash in Chengdu Gaishi to fund its operating needs and manage liquidity. Tudou also retains the flexibility to adjust the service fee rate in the future. Reshuffle Technology shall
exclusively own any intellectual property arising from the performance of this agreement except for technology independently developed by Chengdu Gaishi and subject to certain conditions under this
agreement, including that Reshuffle Technology shall have the right to purchase such technology at the purchase price of RMB1.00 or the lowest price permitted by law. This agreement will be effective
until terminated by both parties in writing or either party's business period expires without extension.
Equity Interest Pledge Agreements.
Each of the shareholders of Chengdu Gaishi has entered into an equity interest pledge agreement with
Reshuffle
Technology, under which he pledged all of his equity interest in Chengdu Gaishi to Reshuffle Technology to secure his and Chengdu Gaishi's obligations under the above agreements and such equity
interest pledge agreement and as collateral for his payment of compensation for any losses suffered by Reshuffle Technology due to any event of default by Chengdu Gaishi and/or its shareholders and
for any expenses incurred by Reshuffle Technology to enforce Chengdu Gaishi's and/or its shareholders' obligations. If any event of default occurs, Reshuffle Technology, as pledgee, will be entitled
to dispose of the pledged equity interests. In addition, any dividends from Chengdu Gaishi permitted by Reshuffle Technology will be deposited into the account designated by Reshuffle Technology and
be further pledged in favor of Reshuffle Technology. The above pledge has been de-registered with the relevant local branch of the State Administration for Industry and Commerce in China
as part of Chengdu Gaishi's dissolution.
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Tudou
is in the process of terminating the above contractual arrangements with Chengdu Gaishi and its shareholders in connection with the dissolution of Chengdu Gaishi.
Contractual Arrangements with Beijing Tixian and its Shareholders
Tudou's relationships with Beijing Tixian and its shareholders are governed by a series of contractual arrangements. Under PRC laws,
each of Beijing Tixian and Reshuffle Technology is an independent legal person and neither of them is exposed to liabilities incurred by the other party. Other than pursuant to the contractual
arrangements between Beijing Tixian and Reshuffle Technology, Beijing Tixian is not required to transfer any funds generated from its operations to Reshuffle Technology.
Loan Agreements.
The shareholders of Beijing Tixian, namely Mr. Zhou Yu and Ms. Ye Yuan, have entered into a loan agreement
with
Reshuffle Technology. Under this loan agreement, as of December 31, 2011, Reshuffle Technology had made an interest-free loan of RMB1.0 million (US$158.9 thousand) to
these shareholders, solely for their respective capital contributions in Beijing Tixian. This loan agreement has a term of five years, which will be automatically renewed for another five years upon
expiration. However, Reshuffle Technology, upon 30 days' prior notice, may require, and the shareholders, 30 days in advance, may apply for, earlier repayment of part or all of the
loans. Reshuffle Technology has the right to purchase or have its designated third party purchase the corresponding part of the equity interests in Beijing Tixian in proportion to the amount of the
loans to be repaid at the purchase price equal to such amount.
Exclusive Call Option Agreement.
Beijing Tixian and its shareholders have entered into an exclusive call option agreement with Reshuffle
Technology,
under which each shareholder of Beijing Tixian has irrevocably granted Reshuffle Technology an exclusive option to purchase or have its designee purchase his or her equity interest in Beijing Tixian
at a purchase price equal to the amount of the registered capital of Beijing Tixian in proportion to the equity interest to be purchased or the lowest price permitted by PRC law. Reshuffle Technology
may exercise this option at any time to the extent permitted by PRC law. In addition, Beijing Tixian and its shareholders agree that without Reshuffle Technology's prior written consent, they will not
engage in certain actions, including transferring or otherwise disposing of an equity interest in Beijing Tixian or declaring any dividend.
Proxy Agreement.
Beijing Tixian and its shareholders have entered into a proxy agreement with Reshuffle Technology, under which each
shareholder of
Beijing Tixian irrevocably undertakes to execute powers of attorney to persons designated by Reshuffle Technology that irrevocably authorize them to vote as the shareholders'
attorneys-in-fact on all matters of Beijing Tixian requiring shareholder approval, including the appointment and election of board members and senior management members.
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Exclusive Consultancy and Service Agreement.
Under the exclusive consultancy and service agreement between Beijing Tixian and Reshuffle
Technology,
Beijing Tixian has engaged Reshuffle Technology as its exclusive provider of technical consulting and services and shall pay Reshuffle Technology service fees consisting of the performance service fee
equal to 50% of Beijing Tixian's total annual revenues before tax and fees for specific technical consulting and services requested by Beijing Tixian and provided by Reshuffle Technology from time to
time. Tudou sets this service fee rate in order to retain sufficient cash in Beijing Tixian to fund its operating needs and manage liquidity. Tudou also retains the flexibility to adjust the service
fee rate in the future. Reshuffle Technology shall exclusively own any intellectual property arising from the performance of this agreement except for technology independently developed by Beijing
Tixian and subject to certain conditions under this agreement, including that Reshuffle Technology shall have the right to purchase such technology at the purchase price of RMB1.00 or the lowest price
permitted by law. This agreement will be effective until terminated by both parties in writing or either party's business period expires without any extension.
Equity Interest Pledge Agreement.
The shareholders of Beijing Tixian have entered into an equity interest pledge agreement with
Reshuffle Technology,
under which each shareholder of Beijing Tixian pledged all of his or her equity interest in Beijing Tixian to Reshuffle Technology to secure his or her and Beijing Tixian's obligations under the above
agreements and this agreement and as collateral for his or her payment of compensation for any losses suffered by Reshuffle Technology due to any event of
default by Beijing Tixian and/or its shareholders and for any expenses incurred by Reshuffle Technology to enforce Beijing Tixian's and/or its shareholders' obligations. If any event of default
occurs, Reshuffle Technology, as pledgee, will be entitled to dispose of the pledged equity interests. In addition, any dividends from Beijing Tixian permitted by Reshuffle Technology will be
deposited into the account designated by Reshuffle Technology and be further pledged in favor of Reshuffle Technology. The above pledge has been registered with the relevant local branch of the State
Administration for Industry and Commerce in China.
-
D.
-
Property,
Plant and Equipment
Tudou's
principal executive offices are located at Building #6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's Republic of China. Tudou maintains a number
of offices in Shanghai, Beijing, Guangzhou and Chengdu under leases with terms ranging from one to five years. Tudou leases all of its facilities from unrelated parties. Tudou believes it will be able
to obtain adequate facilities principally by leasing appropriate properties to accommodate its future expansion plans.
The
following table describes each of the leases for Tudou's major offices as of the date of this joint proxy statement/prospectus.
|
|
|
|
|
|
|
|
Location
|
|
Space
(in square meters)
|
|
Usage of Property
|
|
Expiration Time
|
Shanghai
|
|
|
2,700
|
*
|
Principal Executive Offices
|
|
June 30, 2014
|
|
|
|
805
|
*
|
Principal Executive Offices
|
|
July 14, 2013
|
|
|
|
699
|
|
Sales Office
|
|
July 31, 2012
|
|
|
|
1,067
|
|
Content Monitoring Center
|
|
May 9, 2014
|
Beijing
|
|
|
2,700
|
|
Technical Support and Administrative Offices
|
|
April 30, 2015
|
|
|
|
512
|
|
Administrative Offices
|
|
December 11, 2013
|
Guangzhou
|
|
|
1,256
|
*
|
Sales Office
|
|
October 31, 2014
|
|
|
|
702
|
|
Sales Office
|
|
February 28, 2014
|
-
*
-
The
sum of space under multiple leases.
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Tudou
believes that its leased facilities are adequate to meet its needs for the foreseeable future, and that it will be able to obtain adequate facilities, principally through leasing
of additional properties, to accommodate its future expansion.
Operating and Financial Review and Prospects of Tudou
You should read the following discussion and analysis of Tudou's financial condition and results of operations in conjunction with
Tudou's audited consolidated financial statements for the three years ended December 31, 2011 and as of December 31, 2010 and 2011, which are included elsewhere in this joint proxy
statement/prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Tudou's 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 in the section of this joint proxy statement/prospectus headed "Risk Factors."
Overview
Tudou is a leading Internet video company in China. Tudou generates revenues primarily by providing online advertising services through
its Tudou.com website. These online advertising services include pre-roll or post-roll video advertisements, in-roll logos, background advertisements, banners,
buttons, links and streaming advertisements. Tudou also provides other formats of online advertising services, including event sponsorships, interactive advertising and opportunities to purchase
advertising embedded in its in-house developed content. Tudou provided its advertising services to 320, 512 and 556 advertisers in 2009, 2010 and 2011, respectively.
Tudou
also generates revenues from mobile video services. Tudou's mobile video services began generating revenues in January 2010 and are provided primarily through a channel on China
Mobile's wireless video platform. Tudou has also provided mobile video services through China Telecom's NETiTV platform since January 2011 and through two video channels on China Unicom's wireless
video platform since April 2011. In addition, since the third quarter of 2010, Tudou has generated revenues from sub-licensing certain premium content that Tudou licensed from third party
vendors.
Tudou's
net revenues increased from RMB89.1 million in 2009 to RMB286.3 million in 2010 and RMB512.2 million (US$81.4 million) in 2011, representing a CAGR of
79.1% over the three-year period. Tudou's net loss was RMB144.8 million, RMB347.4 million and RMB511.2 million (US$81.2 million) in 2009, 2010 and 2011,
respectively. Tudou's adjusted net loss, a non-GAAP financial measure, which excludes non-cash items including share-based compensation expenses, beneficial conversion charges
on convertible loans and fair value changes in warrant liabilities from Tudou's net loss, was RMB133.3 million, RMB107.2 million and RMB292.4 million (US$46.5 million) in 2009,
2010 and 2011, respectively. For a reconciliation of Tudou's net loss to Tudou's adjusted net loss, see footnote 2 on page 41 of this joint proxy statement/prospectus.
Factors Affecting Tudou's Results of Operations
Tudou's business, financial condition and results of operations are subject to general conditions affecting the online video and online
advertising industries in China. These conditions include, among others, the stability and growth of China's economy and the advertising and mobile Internet industries, the growth of the Internet and
increasing Internet penetration rate in China, and the increasing acceptance of online advertising as part of advertisers' overall Internet marketing strategy and spending.
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In
addition, Tudou's business, financial condition and results of operations depend on a number of company-specific factors including the following:
-
-
Tudou's Ability to Provide Innovative and Effective Advertising
Services.
Tudou's financial condition and results of operations depend on the demand for and the effectiveness of its advertising
services. Tudou aims to provide innovative and effective online advertising services to increase advertisers' advertising spending on its platform and attract new advertisers. The Tudou.com website
allows advertisers to display their advertisements in different placement formats to help optimize the effectiveness of the advertisements based on their marketing objectives. Tudou strives to grow
its revenues by offering innovative and effective advertising services to advertisers.
-
-
Tudou's Ability to Maintain and Expand its Highly Engaged User Community and Drive Traffic to its
Website
. Tudou's business depends on its ability to maintain and expand its highly engaged user community and drive traffic to its website. Tudou has built a valuable user base
consisting primarily of highly engaged young, urban, affluent and educated users between the ages of 18 and 35, a particularly attractive demographic to advertisers. A visitor to Tudou's website does
not have to be a registered user to watch or search videos, but he or she must become a registered user in order to use the interactive features of its website, including uploading, rating, commenting
on and recommending video clips. A visitor to Tudou.com becomes a registered user by creating an account on Tudou's website. To create an account, a visitor follows certain registration steps,
including creating a user name and password and accepting Tudou's standard user agreement. Tudou's registered users increased from approximately 54.4 million as of December 31, 2009 to
approximately 78.2 million as of December 31, 2010 and further to approximately 101.9 million as of December 31, 2011.
The
number of Tudou's users, their engagement in its website and interactivity directly affect its revenues because under Tudou's advertising plans and advertising contracts, Tudou charges based
primarily on the number of video views of advertisements. The number of Tudou's monthly video views nearly doubled from 2.6 billion in December 2010 to 5.2 billion in December 2011.
Tudou considers the number of its registered users as a useful and relevant means of evaluating the level of user engagement and interactivity. Tudou considers its monthly unique visitors as a useful
means of evaluating its viewership levels and as one of the key factors that affects its advertisers' decisions to adopt Tudou's platform for their advertising needs, which in turn drives advertising
revenues. The number of Tudou's monthly unique visitors increased from approximately 137 million in December 2009 to approximately 182 million in December 2010 and to approximately
227 million in December 2011, according to iResearch.
The
monthly unique visitors differ from the users and the registered users of a website. For instance, multiple users of a website may be counted as a monthly unique visitor only once if they share
the same IP address in offices, homes or Internet cafes. In contrast, a user may be counted as a monthly unique visitor multiple times if he or she visits the same website using different IP
addresses. Tudou looks to IP addresses when reviewing the number of monthly unique visitors, while it looks to accounts created on its website when counting registered users.
-
-
Tudou's Ability to Obtain Popular Video Content at a Commercially Acceptable
Cost.
In addition to UGC and content produced in-house, Tudou needs to license and acquire popular video content to deliver
an engaging experience for its users and present attractive advertising opportunities for advertisers. Tudou believes that popular premium licensed content will help increase its user base and overall
traffic and constitutes a critical factor in its future success. From 2007 through 2009, Tudou obtained licenses for more than 830 TV drama series and 240 movies. In 2010, Tudou significantly
increased its content procurement and obtained licenses for more than 1,360 TV drama series, 1,180 movies and 180 variety shows. In 2011, Tudou obtained licenses for more
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than
660 TV drama series, 430 movies and 80 variety shows. In addition, through content access arrangements between Tudou and LeTV, Tudou's users have been able to access a substantial portion of
LeTV's extensive content portfolio of over 680 TV episodes and 650 movies since October 2011. Tudou procures premium licensed content at prevailing market prices. Tudou expects that its
investment in premium licensed content will significantly increase in the foreseeable future as it plans to procure more premium licensed content and the unit procurement cost of premium licensed
content, such as licensing fees for TV drama series and movies, increases.
-
-
Tudou's Ability to Procure Internet Bandwidth Cost-Effectively and in a Timely
Manner.
Internet bandwidth procurement costs accounted for a majority of Tudou's cost of revenues in recent periods. Tudou has increased
Internet bandwidth capacities in recent years following the growth of its user base and traffic on its website. While Internet bandwidth costs have increased in absolute terms, Tudou has been able to
control Internet bandwidth procurement cost per unit primarily due to the use of its own content delivery network, or CDN; Tudou's efficient use of Internet bandwidth; its bandwidth saving technology,
such as its innovative "Fast Tudou" software functioning as a peer-to-peer, or P2P, content delivery system; and its unit price negotiation efforts.
Tudou
procures Internet bandwidth from provincial subsidiaries of telecommunication operators such as China Telecom and China Unicom, and other independent third parties that purchase bandwidth from
telecommunications operators. The provincial subsidiaries of China Telecom and China Unicom function as independent companies, and Tudou negotiates bandwidth prices separately with them or other
bandwidth vendors.
-
-
Tudou's Ability to Control Sales and Marketing
Expenses.
Sales and marketing expenses account for a significant portion of Tudou's operating expenses. Tudou's sales and marketing
expenses increased from RMB73.4 million in 2009 to RMB143.2 million in 2010, primarily due to an increase in salaries and benefits as Tudou hired additional sales professionals and an
increase in its revenues resulting in higher performance-based salary and bonus expenses. However, over the same periods, Tudou's sales and marketing expenses decreased as a percentage of its total
net revenues primarily due to higher revenues and operating efficiency. Tudou's sales and marketing expenses increased from RMB143.2 million in 2010 to RMB286.8 million
(US$45.6 million) in 2011 primarily due to an increase in salaries and benefits as Tudou hired additional sales professionals and an increase in advertising expenses. Tudou's ability to enhance
its sales efforts and control its sales and marketing expenses will affect its revenues and operating expenses.
-
-
Tudou's Ability to Grow its Mobile Video Services.
Tudou
began generating revenues in January 2010 from offering its mobile video services to mobile phone users in China through Tudou's channel on China Mobile's wireless video platform. In 2011, Tudou began
generating revenues from its mobile video services through two video channels on China Unicom's wireless video platform and China Telecom's NETiTV platform. Tudou also collaborates with certain major
mobile handset manufacturers such as Blackberry, Motorola, Nokia and Samsung, as well as handset design houses and application store operators, to promote these services. Tudou believes its mobile
video business has substantial potential and is an important component of its growth strategy. Tudou's success in the mobile video business depends on its ability to provide quality content that
attracts subscribers, maintain its relationships with telecommunication operators such as China Mobile, China Unicom and China Telecom and their affiliates, mobile handset companies and application
store operators and promote its content to wireless users.
-
-
Tudou's Ability to Maintain a Leading Brand and Market
Position.
Tudou believes that advertisers select Tudou largely because Tudou possesses a leading brand and market position in the online
video market in China. The online video industry in China is intensely competitive. Tudou
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competes
with other independent online video sites in China, major domestic Internet companies, other companies engaged in online advertising and, potentially, software-based streaming video sites.
Tudou's ability to compete effectively and to maintain a leading brand and market position in the online video market in China is key to its ability to attract new advertisers, maintain and enhance
relationships with its existing advertisers and advertising agencies, and increase its revenues.
Descriptions of Certain Statement of Operations Items
Net revenues
For 2009, Tudou derived all of its revenues from sales of online advertising services. For 2010 and 2011, Tudou derived most of its
revenues from sales of online advertising services. Tudou's net revenues from online advertising services amounted to RMB89.1 million, RMB265.2 million and RMB443.5 million
(US$70.5 million) in 2009, 2010 and 2011, respectively. In addition, Tudou began generating revenues from its mobile video services in January 2010. For 2010 and 2011, Tudou's net revenues from
mobile video services amounted to RMB19.1 million and RMB57.8 million (US$9.2 million), representing 6.7% and 11.3% of its net revenues for the respective years. Since the third
quarter of 2010, Tudou has generated revenues from sub-licensing certain premium content that Tudou licensed from third party vendors. For 2010 and 2011, Tudou's net revenues from
sub-licensing premium content amounted to
RMB2.0 million and RMB10.8 million (US$1.7 million), representing approximately 0.7% and 2.1% of its net revenues for the respective periods.
Tudou
sells online advertising services primarily through its Tudou.com website, such as pre-roll or post-roll video advertisements, in-roll logos,
banners, buttons, links and streaming advertisements. Tudou also offers background advertisements appearing behind a selected video screen concurrently with a user viewing a video, and sponsorship
rights for a particular area of its website or for a particular event. Tudou expects that its online advertising service revenues will constitute the primary source of, and generate a substantial
majority of, its revenues for the foreseeable future.
As
is customary in the advertising industry in China, Tudou typically enters into advertising contracts with third-party advertising agencies. Tudou offers agency fees to third-party
advertising agencies that purchase its advertising services and recognizes revenues net of these agency fees. Tudou incurred RMB24.1 million, RMB55.0 million and RMB93.0 million
(US$14.8 million) of agency fees in 2009, 2010 and 2011, respectively. Tudou's net revenues from online advertising services are net of business taxes and related surcharges incurred in
connection with its operations. Tudou's advertising service revenues are subject to a business tax of approximately 5.0% and a cultural and educational related surcharge of 3.5% of revenues earned
from its advertising services provided in China. Prior to 2011, the cultural and educational related surcharge was 4.5% of revenues earned from Tudou's advertising services provided in China. Tudou
deducts these amounts from its advertising service revenues to arrive at its net revenues attributable to advertising services.
The
growth of Tudou's online advertising service revenues is driven by the number of its advertisers as well as revenues from individual advertisers. Tudou had an aggregate of 320, 512
and 556 advertisers as of December 31, 2009, 2010 and 2011, respectively.
Tudou
determines the number of advertisers in a given year or period based on the number of advertisers that place advertisements on its website in that year or period. The following
table sets forth
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the
changes in the number of Tudou's advertisers during each of the three years ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
Addition of new advertisers
|
|
|
226
|
|
|
323
|
|
|
359
|
|
Termination of the existing advertisers
|
|
|
76
|
|
|
131
|
|
|
315
|
|
Advertiser retention rate
|
|
|
55
|
%
|
|
59
|
%
|
|
38
|
%
|
Net increase of advertisers
|
|
|
150
|
|
|
192
|
|
|
44
|
|
At year end
|
|
|
320
|
|
|
512
|
|
|
556
|
|
Of
the 512 advertisers for 2010, 189 advertisers were Tudou's advertisers in 2009, and 323 advertisers were new advertisers. In 2011, 197 out of the 556 advertisers were Tudou's
advertisers in 2010 and 359 were new advertisers. The advertiser retention rate decreased from 59% in 2010 to 38% in 2011 because Tudou lost some smaller advertisers while it focused its efforts on
retaining larger advertisers in 2011.
The
number of advertisers during any period is affected by Tudou's services, sales and marketing efforts and influenced by its market position and advertisers' perception of the
effectiveness of its online advertising services. The size of Tudou's advertiser base is also driven by customer-specific factors such as the timing of the introduction of new advertising campaigns,
Tudou's ability to maintain a favorable demographic user base, the seasonality of its advertisers' operations and the growth of business sectors in which Tudou's advertisers operate.
Tudou's
user base in China, which primarily consists of young, urban, educated users between the ages of 18 and 35, contributes to attracting advertisers to its services. Net revenues
from Tudou's top 10 advertisers collectively amounted to approximately RMB26.4 million, RMB62.3 million and RMB113.2 million in 2009, 2010 and 2011, respectively, representing
29.6%, 21.8% and 22.1% of its net revenues in 2009, 2010 and 2011, respectively. Tudou expects that revenues generated from its top 10 advertisers will increase in absolute amount, but will decrease
as a percentage of its total revenues as its advertiser base grows.
Tudou's
revenues from online advertising services are subject to seasonal fluctuations. For example, revenues of China-based online advertising companies such as Tudou are usually lower
around Chinese New Year in the first quarter when advertisers tend to spend less on online advertising. However, due to the growth of its online advertising business during 2009, 2010 and 2011, such
seasonality may not be readily apparent from Tudou's financial results
In
addition, Tudou began generating revenues from mobile video services in January 2010. Its revenues from mobile video services provided in China are subject to a turnover tax
consisting of approximately 3.0% business tax and related surcharges of 0.3%. Tudou deducts these amounts from its mobile video services revenues to arrive at its net revenues attributable to such
services. In 2010 and 2011, Tudou also generated revenues by sub-licensing certain premium content that Tudou licenses from third parties.
Cost of Revenues
Tudou's cost of revenues consists of Internet bandwidth costs, content costs, mobile video services costs, depreciation of servers and
other equipment, share-based compensation allocated to cost of revenues and other costs. Tudou's total cost of revenues amounted to RMB127.2 million, RMB226.4
199
Table of Contents
million
and RMB427.8 million (US$68.0 million) in 2009, 2010 and 2011, respectively. The following table sets forth the components of Tudou's cost of revenues for the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands, except percentages)
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internet bandwidth costs
|
|
|
74,386
|
|
|
103,634
|
|
|
180,245
|
|
|
28,638
|
|
Content costs
|
|
|
33,630
|
|
|
79,639
|
|
|
168,589
|
|
|
26,786
|
|
Mobile video services costs
|
|
|
|
|
|
9,521
|
|
|
34,721
|
|
|
5,517
|
|
Depreciation of servers and other equipment
|
|
|
15,413
|
|
|
17,241
|
|
|
23,998
|
|
|
3,813
|
|
Share-based compensation
|
|
|
1,876
|
|
|
14,133
|
|
|
14,177
|
|
|
2,252
|
|
Other
|
|
|
1,878
|
|
|
2,231
|
|
|
6,112
|
|
|
971
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
127,182
|
|
|
226,399
|
|
|
427,842
|
|
|
67,977
|
|
|
|
|
|
|
|
|
|
|
|
Internet
bandwidth costs represent the fees Tudou pays to bandwidth vendors, which are typically provincial subsidiaries of telecommunications operators in China, such as China Telecom
and China Unicom, or independent third parties that purchase bandwidth from major telecommunications operators in China. Tudou expects its Internet bandwidth costs to increase in absolute amount given
the anticipated increase in the volume of its website traffic, and to decrease as a percentage of its total net revenues as Tudou increases its revenues. Tudou also hopes to control its Internet
bandwidth procurement costs per unit by adopting its in-house built CDN system instead of leasing from third-party CDN service providers, efficiently using Internet bandwidth, implementing
bandwidth saving technology such as its innovative "Fast Tudou" software, and undertaking unit price negotiation efforts.
Content
costs primarily consist of amortization and write-down associated with premium licensed content and content produced in-house, advertisement production
costs, and salaries and benefits for Tudou's content team. Tudou expects content costs to significantly increase in the foreseeable future because it plans to procure more premium licensed content and
produce more content developed in-house, such as its "Made-For-Internet" drama series. Tudou also expects the unit procurement cost of premium licensed content,
such as licensing fees for TV drama series and movies, to increase.
Tudou
began incurring mobile video services costs starting in the first quarter of 2010. These mobile video services costs represent service fees paid to mobile application store
operators and handset design houses in connection with Tudou's mobile video services. Tudou expects these costs to increase proportionally with the increase in its mobile video service revenues.
Depreciation
expenses consist primarily of depreciation of servers, computer hardware and other equipment directly related to Tudou's operations. Tudou expects that depreciation
recognized under
cost of revenues will increase in absolute amount as a result of the purchase of additional equipment due to traffic growth on its website.
Cost
of revenues also includes labor costs related to its technical support personnel. While Tudou expects its labor costs recognized under cost of revenues to increase, Tudou expects
the cost of labor as a percentage of its total cost of revenues to remain relatively insignificant.
Tudou's
cost of revenues includes share-based compensation charges. See "Operating and Financial Review and ProspectsCritical Accounting Policies and
EstimatesShare-based Compensation.
200
Table of Contents
Operating Expenses
Tudou's operating expenses consist of sales and marketing expenses, general and administrative expenses, and impairment of equipment.
Sales and marketing expenses
Tudou's sales and marketing expenses primarily consist of salaries and benefits for its sales and marketing staff, sales commission
paid to its sales team and marketing expenses. Sales and marketing expenses were RMB73.4 million, RMB143.2 million and RMB286.8 million (US$45.6 million) in 2009, 2010 and
2011, respectively, accounting for approximately 82.4%, 50.0% and 56.0% of its net revenues in 2009, 2010 and 2011, respectively. Tudou's share-based compensation charges allocated under sales and
marketing expenses amounted to RMB3.5 million, RMB31.0 million and RMB39.5 million (US$6.3 million) in 2009, 2010 and 2011, respectively. Salaries and benefits expenses
generally correspond to fluctuations in Tudou's net revenues as salary and bonus expenses are generally tied to the performance of its sales team. Marketing expenses primarily consist of advertising
expenses.
Tudou's
total advertising expenses were RMB7.2 million, RMB19.6 million and RMB94.8 million (US$15.1 million) in 2009, 2010 and 2011, respectively. Tudou's
sales and marketing expenses have increased in recent years, primarily due to its hiring additional sales professionals and increased performance-based salary and bonus expenses for its sales
professionals consistent with its increase in revenues. Tudou expects that its sales and marketing expenses will increase in absolute amount as it enhances its sales and marketing efforts. However,
Tudou expects its sales and marketing expenses to decrease as a percentage of its total revenues as it gains more operating efficiencies while scaling up its business.
General and administrative expenses
Tudou's general and administrative expenses primarily consist of salaries and benefits for its general administrative, finance and
human resources personnel, office rentals, professional service fees and other expenses incurred for general corporate purposes. General and administrative expenses were RMB37.6 million,
RMB104.9 million and RMB175.0 million (US$27.8 million) in 2009, 2010 and 2011, respectively, accounting for approximately 42.2%, 36.6% and 34.2% of Tudou's total net revenues in
2009, 2010 and 2011, respectively. Tudou's share-based compensation charges allocated under general and administrative expenses amounted to RMB6.2 million, RMB59.4 million and
RMB51.4 million (US$8.2 million) in 2009, 2010 and 2011, respectively.
Tudou
expects its general and administrative expenses to increase in absolute amount in the near future as it incurs additional expenses in connection with the expansion of its business
as a publicly traded company, which include expenses related to improving and maintaining Tudou's internal control over financial reporting and complying with its reporting obligations. However, Tudou
expects its general and administrative expenses to decrease as a percentage of its total revenues in the future as Tudou increases operating efficiency while scaling up its business.
Impairment of equipment
Tudou assesses the impairment of equipment in accordance with guidance under ASC 360-10-35 by comparing the
carrying value of the equipment with the estimated undiscounted future cash flows Tudou expects to receive from (1) use of the equipment and (2) its eventual disposition. If the sum of
the estimated undiscounted future cash flows is less than the carrying value, Tudou recognizes an impairment loss equal to the excess of the carrying value over the fair value of the equipment.
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Table of Contents
In
2009, due to its relatively limited ability to generate operating cash flow and a decrease in expected future cash flow from use of equipment, Tudou incurred impairment charges. Tudou
recognized impairment charges of RMB2.4 million related to servers, computer hardware and other equipment in 2009. Tudou did not record impairment of equipment charges in 2010
or 2011.
Taxation
Cayman Islands Taxation
The Cayman Islands does not currently levy taxes on individuals or corporations based upon profits, income, gains or appreciation, and
there is no taxation in the nature of inheritance tax or estate duty. No Cayman Islands stamp duty will be payable unless an instrument is executed in, brought to, or produced before a court of the
Cayman Islands. The Cayman Islands are not parties to any double tax treaties that are applicable to any payment made to or by Tudou. There are no exchange control regulations or currency restrictions
in the Cayman Islands.
People's Republic of China Taxation
Prior to January 1, 2008, foreign-invested enterprises established in the PRC were generally subject to a 30% national and 3%
local enterprise income tax rate. Various preferential tax treatments promulgated by national tax authorities were available to foreign-invested enterprises or enterprises located in certain areas of
China. In addition, some local tax authorities allowed certain enterprises registered in their tax jurisdiction to enjoy preferential tax treatment. Under relevant local tax preferential treatments,
Tudou's subsidiary and consolidated affiliated entities that are registered in the Pudong New District of Shanghai were subject to a 15% preferential income tax rate
in 2007. Prior to August 2007, Quan Toodou was considered a small business, and subject to an effective income tax rate of 2.3% of its revenues.
The
EIT Law in the PRC was enacted in March 2007 and became effective on January 1, 2008. The EIT Law applies a uniform 25% enterprise income tax rate to both foreign-invested
enterprises and domestic enterprises. However, the EIT Law also permits certain enterprises to continue to enjoy preferential tax treatment, adjusted by certain transitional phase-out
rules, under which enterprises that were subject to an enterprise income tax rate lower than 25% prior to January 1, 2008, may continue to enjoy the lower rate and gradually transition to the
new tax rate within a maximum of five years after the effective date of the EIT Law. In addition, under the phase-out rules, enterprises established before March 16, 2007 and which
were granted tax holidays under the then effective tax laws or regulations may continue to enjoy tax holidays until the expiration of their tax holidays. Dividends paid by Tudou's PRC subsidiaries out
of profits earned after December 31, 2007 to their immediate holding company outside of China will be subject to PRC withholding tax at 10%, if such immediate holding company is considered a
"non-resident enterprise" under the EIT Law, unless such immediate holding company's jurisdiction of incorporation has a tax treaty or arrangement with China that provides for a reduced
rate of withholding tax. Pursuant to the double taxation avoidance arrangement between the PRC and Hong Kong and subject to the approval of the local tax authorities, dividends paid to Star Manor and
Tudou Limited by their respective PRC subsidiaries may be subject to PRC withholding tax at the preferential rate of 5% as long as Star Manor or Tudou Limited, as the case may be, is deemed to be a
Hong Kong resident enterprise under the EIT Law and directly holds an equity interest of 25% or more in the relevant PRC subsidiary. However, if the PRC tax authorities do not consider Star Manor or
Tudou Limited as the beneficial owner of any dividends paid from such PRC subsidiaries based on the "substance over form" principle under applicable tax rules and thus deny the claim for the
preferential withholding tax rate, dividends from such PRC subsidiaries to Star Manor or Tudou Limited will be subject to PRC withholding tax at a rate of 10% instead of 5%.
202
Table of Contents
Under
the EIT Law, enterprises established under the laws of foreign countries or regions and whose "de facto management bodies" are located within PRC territory may be deemed by the PRC
tax authorities as PRC tax resident enterprises, and will be subject to PRC enterprise income tax at the rate of 25% on their worldwide income. Under the detailed implementation rules of the EIT Law,
"de facto management bodies" are defined as bodies that have material and overall management and control over the business, personnel, accounts and assets of an enterprise. In addition, the State
Administration for Taxation issued the SAT Circular 82 on April 22, 2009. SAT Circular 82 clarifies that dividends and other income paid by resident enterprises to shareholders that are
non-PRC resident enterprises will be considered to be PRC source income, and subject to PRC withholding tax, currently at a rate of 10% unless otherwise reduced by relevant tax treaties.
SAT Circular 82 also subjects such PRC resident enterprises to various reporting requirements with the PRC tax authorities. In addition, SAT Circular 82 provides certain specific criteria for
determining whether the "de facto management body" of a Chinese-controlled overseas-incorporated enterprise is located in China.
However,
as SAT Circular 82 only applies to PRC enterprises established outside of China that are controlled by PRC enterprises or groups of PRC enterprises, it remains unclear how the
tax authorities will determine the location of "de facto management bodies" for overseas incorporated enterprises with indirect shareholders being individual PRC residents, including Tudou. Although
substantially all of Tudou's operational management is based in the PRC, it is unclear whether PRC tax authorities will require (or permit) Tudou to be treated as a PRC resident enterprise. As a
result, Tudou is uncertain as to whether it will be subject to the tax applicable to resident enterprises or non-resident enterprises under the EIT Law. If Tudou is considered to be a PRC
resident enterprise, Tudou will be subject to PRC enterprise income tax at the rate of 25% on its worldwide income. In such cases, however, there is no guarantee that preferential treatments
applicable to PRC tax residents will automatically apply to Tudou, such as the withholding tax exemption on dividends between qualified PRC resident companies.
Tudou
was subject to business tax of 5.0% on its online advertising services for the three years ended December 31, 2011. Tudou was subject to 4.5%, 4.5% and 3.5% cultural
surcharges on its online advertising services for 2009, 2010 and 2011, respectively. Tudou was subject to a turnover tax at a rate of 3.0%, 3.0% and 3.5% on its mobile video services in 2009, 2010 and
2011, respectively.
The
PRC government recently adopted a PRC tax pilot program, which is initially being implemented in Shanghai and may be extended to other cities. On November 16, 2011, the
Ministry of Finance and the State Administration of Taxation jointly issued the Circular on the Pilot Program for the Collection of Value Added Tax in Lieu of Business Tax, or Circular 110, and the
Circular on the Pilot Program for the Collection of Value Added Tax in Lieu of Business Tax in the Transportation and Certain Modern Service Sectors in Shanghai, or Circular 111. These circulars
became effective on January 1, 2012. Pursuant to Circular 110 and Circular 111, starting from January 1, 2012, companies which are classified by Shanghai's local tax authorities as being
engaged in certain services, including transportation services, research and development services, information technology services and advertising services, are required to pay VAT at a rate ranging
from 6% to 17% in lieu of business tax. As of December 31, 2011, Quan Toodou was subject to VAT payable in an amount of RMB8.3 million (US$1.3 million) because it did not issue
VAT tax invoices in 2011 to its customers for revenues generated from online advertising services amounting to RMB143 million (US$ 22.7 million), which was subject to a 6% VAT in
lieu of business tax, and because it issued VAT tax invoices with respect to such revenues in 2012.
203
Table of Contents
Consolidated Results of Operations
The following table sets forth a summary of Tudou's consolidated results of operations for the periods indicated. You should read this
information together with Tudou's audited consolidated financial statements and related notes included elsewhere in this joint proxy statement/prospectus. The operating results in any period are not
necessarily indicative of the results that may be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
89,147
|
|
|
286,258
|
|
|
512,195
|
|
|
81,380
|
|
Cost of revenues
(1)
|
|
|
(127,182
|
)
|
|
(226,399
|
)
|
|
(427,842
|
)
|
|
(67,977
|
)
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(38,035
|
)
|
|
59,859
|
|
|
84,354
|
|
|
13,402
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
(1)
|
|
|
(73,435
|
)
|
|
(143,224
|
)
|
|
(286,848
|
)
|
|
(45,576
|
)
|
General and administrative expenses
(1)
|
|
|
(37,586
|
)
|
|
(104,911
|
)
|
|
(174,972
|
)
|
|
(27,800
|
)
|
Impairment of equipment
|
|
|
(2,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(113,393
|
)
|
|
(248,136
|
)
|
|
(461,819
|
)
|
|
(73,376
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(151,428
|
)
|
|
(188,277
|
)
|
|
(377,466
|
)
|
|
(59,973
|
)
|
Finance income
|
|
|
3,104
|
|
|
331
|
|
|
428
|
|
|
68
|
|
Finance expenses
|
|
|
|
|
|
(12,851
|
)
|
|
(4,771
|
)
|
|
(758
|
)
|
Other income/(expense), net
|
|
|
(63
|
)
|
|
1
|
|
|
(134
|
)
|
|
(21
|
)
|
Foreign exchange gain (loss)
|
|
|
3,610
|
|
|
(10,957
|
)
|
|
(15,486
|
)
|
|
(2,461
|
)
|
Beneficial conversion charge on convertible loan
|
|
|
|
|
|
(10,967
|
)
|
|
|
|
|
|
|
Fair value changes in warrant liabilities
|
|
|
|
|
|
(124,680
|
)
|
|
(113,733
|
)
|
|
(18,070
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(144,777
|
)
|
|
(347,400
|
)
|
|
(511,162
|
)
|
|
(81,215
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(144,777
|
)
|
|
(347,400
|
)
|
|
(511,162
|
)
|
|
(81,215
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
|
(145,086
|
)
|
|
(362,384
|
)
|
|
(526,047
|
)
|
|
(83,580
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss per ordinary share, basic and diluted
|
|
|
(12.09
|
)
|
|
(30.20
|
)
|
|
(10.51
|
)
|
|
(1.67
|
)
|
Non-GAAP Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
(2)
|
|
|
(133,255
|
)
|
|
(107,176
|
)
|
|
(292,395
|
)
|
|
(46,457
|
)
|
-
(1)
-
These
items include share-based compensation expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
(in thousands)
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
Share-based compensation expenses included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,876
|
|
|
14,133
|
|
|
14,177
|
|
|
2,253
|
|
Sales and marketing expenses
|
|
|
3,492
|
|
|
31,025
|
|
|
39,475
|
|
|
6,272
|
|
General and administrative expenses
|
|
|
6,155
|
|
|
59,418
|
|
|
51,383
|
|
|
8,164
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
11,522
|
|
|
104,576
|
|
|
105,035
|
|
|
16,688
|
|
|
|
|
|
|
|
|
|
|
|
-
(2)
-
Tudou
defines adjusted net loss, a non-GAAP financial measure, as net loss excluding share-based compensation expenses, beneficial
conversion charges on convertible loans and fair value changes in warrant liabilities. Tudou believes adjusted net loss is useful supplemental information for
204
Table of Contents
investors
and other interested persons to assess its operating performance without the effect of non-cash beneficial conversion charges on convertible loans and fair value changes in
warrant liabilities, which will not likely be recurring factors in its business in the future, and share-based compensation expenses, which have been and will continue to be a significant recurring
factor in its business. Tudou presents this non-GAAP financial measure because its management uses this measure to evaluate its operating performance. Tudou believes that this
non-GAAP financial measure provides useful information to investors and other interested persons because such information allows them to understand and evaluate its consolidated results of
operations in the same manner as its management and to make period over period comparison of its financial results. However, adjusted net loss has material limitations as an analytical tool. One
limitation of using non-GAAP adjusted net loss is that it does not include all items that impact Tudou's net loss for the period. In addition, because adjusted net loss may not be
calculated in the same manner by all companies, it may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider
adjusted net loss in isolation from or as an alternative to net loss prepared in accordance with U.S. GAAP. Tudou encourages investors and other interested persons to review its financial
information in its entirety and not rely on a single financial measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
Net loss
|
|
|
(144,777
|
)
|
|
(347,400
|
)
|
|
(511,162
|
)
|
|
(81,215
|
)
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expenses
|
|
|
11,522
|
|
|
104,576
|
|
|
105,035
|
|
|
16,688
|
|
Beneficial conversion charge on convertible loan
|
|
|
|
|
|
10,967
|
|
|
|
|
|
|
|
Fair value changes in warrant liabilities
|
|
|
|
|
|
124,680
|
|
|
113,733
|
|
|
18,070
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
|
(133,255
|
)
|
|
(107,176
|
)
|
|
(292,395
|
)
|
|
(46,457
|
)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Net Revenues.
Tudou's net revenues increased by 78.9% to RMB512.2 million (US$81.4 million) in 2011 from
RMB286.3 million in
2010, primarily as a result of higher net revenues from its online advertising services. The increase in Tudou's net revenues from online advertising services was primarily attributable to a
RMB166.4 million increase in its net revenues from its existing advertisers as of December 31, 2011 compared to those from existing advertisers as of December 31, 2010, which
reflected an increase in average spending per advertiser. The increase in net revenues from online advertising services was also attributable to a RMB11.9 million increase in net revenues from
new advertisers as a result of greater acceptance of Tudou's online advertising services and its marketing efforts.
The
number of Tudou's advertisers increased from 512 in 2010 to 556 in 2011. Net revenues generated from Tudou's top 10 advertisers increased by 303.5% to RMB251.4 million
(US$39.9 million) in 2011 from RMB62.3 million in 2010 primarily as a result of Tudou's marketing efforts targeted at key advertisers and increasing acceptance of Tudou's online
advertising services.
Tudou's
net revenues are net of agency fees Tudou paid to third-party advertising agencies. Tudou's agency fees paid to advertising agencies increased from RMB55.0 million in 2010
to RMB93.0 million (US$14.8 million) in 2011, primarily as a result of greater online advertising services revenues generated through advertising agencies in absolute amounts.
In
2011, Tudou also generated net revenues of RMB57.8 million (US$9.2 million) from its mobile video services, compared to net revenues of RMB19.1 million in 2010.
In addition, Tudou generated
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net
revenues of RMB10.8 million (US$1.7 million) in 2011 by sub-licensing certain premium content that Tudou licensed from third party vendors, compared to net revenues of
RMB2.0 million for 2010.
Cost of Revenues.
Tudou's cost of revenues increased by 89.0% to RMB427.8 million (US$68.0 million) for 2011 from
RMB226.4 million in
2010. This increase was primarily attributable to the substantial increase in its Internet bandwidth costs, content costs and mobile video services costs.
-
-
Internet bandwidth costs totaled RMB180.2 million (US $28.6 million), or 35.2% of net revenues, compared to
RMB103.6 million, or 36.2% of net revenues for 2010, primarily due to Internet bandwidth expansion in 2011 in response to an increase in website traffic.
-
-
Content costs totaled RMB168.6 million (US $26.8 million) in 2011, or 32.9% of net revenues, compared to
RMB79.6 million, or 27.8% of net revenues for 2010. Content costs primarily consisted of amortization and write-down of premium licensed content and content produced in house,
advertisement production costs and salaries and benefits for Tudou's content team.
-
-
Mobile video services costs totaled RMB34.7 million (US$5.5 million), or 6.8% of net revenues, compared to
RMB9.5 million, or 3.3% of net revenues in 2010. The increase in mobile video services cost was primarily attributable to the increase in mobile video services revenues.
Gross Profit.
For fiscal year 2011, gross profit totaled RMB84.4 million (US$13.4 million) representing a 16.5% gross margin,
compared
to RMB59.9 million representing a 20.9% gross margin for 2010. The decline in gross margin was primarily due to an increase in Internet bandwidth costs and content costs.
Operating Expenses.
Total operating expenses in 2011 were RMB461.8 million (US$73.4 million) compared to
RMB248.1 million in
2010. The increase was primarily due to an increase in sales and marketing expenses, mainly as a result of Tudou hiring additional sales professionals and enhanced promotion and marketing efforts.
-
-
Tudou's sales and marketing expenses increased by 100.3% to RMB286.8 million (US$45.6 million) in 2011 from
RMB143.2 million in 2010. The increase was primarily attributable to an increase of RMB75.3 million (US$12.0 million) in its marketing and promotion expenses and an increase of
RMB58.6 million (US$9.3 million) in salaries and benefits for its sales and marketing staff, resulting from an increase in performance-based salary and bonus expenses and Tudou's hiring
of additional sales professionals. Tudou had 229 sales professionals as of December 31, 2011 compared to 170 as of December 31, 2010. This increase was also attributable to an increase
of RMB8.4 million (US$1.3 million) in share-based compensation expenses recognized as sales and marketing expenses during the period.
-
-
Tudou general and administrative expenses increased by 66.8% to RMB175.0 million (US$27.8 million) in 2011 from
RMB104.9 million in 2010. The increase was primarily due to (1) an increase of RMB36.7 million (US$5.8 million) in its allowance for bad debts related to certain
advertising agencies primarily due to the deterioration in the financial condition of certain advertising agencies and advertisers and increased long aged overdue receivables; (2) an increase
of RMB12.4 million (US$2.0 million) in salaries and benefits for its general and administrative staff, resulting from Tudou's hiring additional personnel to support its growth and
(3) an increase of RMB6.6 million (US$1.0 million) in legal service fees in connection with defending copyright infringement actions. The increase was partially offset by a
decrease of RMB8.0 million (US$1.3 million) in share-based compensation expenses recognized as general and administrative expenses.
Loss from Operations.
As a result of the foregoing, Tudou's loss from operations increased by 100.5% to RMB377.5 million
(US$60.0 million) in 2011 from RMB188.3 million in 2010.
Finance Income (Expense).
Tudou recorded finance income from short-term deposits of approximately RMB0.3 million and
RMB0.4 million (US$68 thousand) in 2010 and 2011, respectively.
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The
increase was primarily due to an increase in its short-term deposits and higher interest rates. Tudou incurred a finance expense of RMB12.9 million and RMB4.8 million
(US$0.8 million) in 2010 and 2011, respectively. The RMB4.7 million (US$0.7 million) finance expense primarily resulted from interest expenses related to short-term
loans extended to Tudou by certain commercial banks in China. As of December 31, 2011, Tudou had a total short term loan balance of RMB83.3 million (US$13.2 million).
Foreign Exchange Gain (Loss).
Tudou recorded a foreign exchange loss of RMB15.5 million (US$2.5 million) in 2011 compared
with a
foreign exchange loss of RMB11.0 million in 2010. The foreign exchange loss was primarily due to depreciation of the U.S. dollar during the year ended December 31, 2011. Tudou had an
average of approximately US$32.9 million in cash balances during 2011. The foreign exchange loss for the year ended December 31, 2010 was primarily attributable to depreciation of the
U.S. dollar, Australian dollar and Euro versus the Renminbi in 2010. Tudou had an average of approximately US$33.0 million, AUD2.1 million and EUR1.1 million in cash balances in
2010.
Beneficial Conversion Charge on Convertible Loan.
Tudou recorded a beneficial conversion charge of approximately RMB11.0 million
in 2010 as a
result of the conversion of a convertible loan to Series E preferred shares in an aggregate principal amount of US$15.0 million that Tudou issued to a group of investors in April 2010.
Tudou assessed the beneficial conversion feature attributable to the convertible loan in accordance with ASC470-20 and determined that there was a contingent beneficial conversion feature
with a value of approximately RMB11.0 million. Tudou recognized the RMB11.0 million beneficial conversion charge upon the conversion of the convertible loan into Series E preferred
shares in July 2010. Tudou did not record such a beneficial conversion charge in 2011.
Fair Value Changes in Warrant Liabilities.
Tudou recorded a loss of RMB113.7 million (US$18.1 million) from fair value
changes in
certain warrants in 2011 compared to a loss of RMB124.7 million in 2010. The loss resulted from fair value changes in warrants that Tudou issued in connection with the issuance of the convertible loan
in April 2010 and the warrants Tudou issued in connection with the issuance of its Series E preferred shares in July 2010. These warrants were converted into Series E preferred shares,
which converted into Tudou Class B shares immediately prior to the completion of its initial public offering.
Net Loss.
As a result of the foregoing, Tudou's net loss increased by 47.1% to RMB511.2 million (US$81.2 million) in 2011
from a net
loss of RMB347.4 million in 2010.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Net Revenues.
Tudou's net revenues increased by 221.1% to RMB286.3 million in 2010 from RMB89.1 million in 2009, primarily as
a result
of higher net revenues from its online advertising services. The increase in online advertising service net revenues was primarily attributable to a RMB123.1 million increase in Tudou's net revenues
from its existing advertisers as of December 31, 2010 compared to those from existing advertisers as of December 31, 2009 as a result of Tudou's enhanced business relationships with
these advertisers. The increase in net revenues from online advertising services was also attributable to a RMB74.0 million increase in net revenues from new advertisers as a result of more
acceptance of Tudou's online advertising services and its marketing efforts.
The
number of Tudou's advertisers increased from 320 in 2009 to 512 for 2010. In addition, the number of Chinese domestic advertisers placing advertisements with Tudou increased to 260
in 2010 from 131 in 2009. Net revenues generated from Tudou's top 10 advertisers increased by 136.0% to RMB62.3 million in 2010 from RMB26.4 million in 2009 primarily as a result of its
marketing efforts targeted at key advertisers and increasing acceptance of Tudou's online advertising services.
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Tudou's net revenues are net of agency fees Tudou paid to third-party advertising agencies. Tudou's agency fees paid to advertising agencies increased from
RMB24.1 million in 2009 to RMB55.0 million in 2010, primarily as a result of a higher absolute amount of online advertising service revenues generated through advertising agencies. However, Tudou's
agency fees paid to advertising agencies as a percentage of its net revenues from online advertising services decreased to 19.2% in 2010 from 27.0% in 2009 as Tudou gained additional negotiating power
with advertising agencies. Additionally, more advertisers, particularly domestic advertisers, placed advertisements directly with Tudou in 2010 compared to 2009.
In
2010, Tudou also generated net revenues of RMB19.1 million from its mobile video services, representing approximately 6.7% of its net revenues in 2010. Tudou started providing mobile
video services in January 2010 through a channel on China Mobile's wireless video platform. In addition, Tudou generated net revenues of RMB2.0 million by sub-licensing certain premium content that
Tudou licenses from third party vendors, representing approximately 0.7% of its net revenues in 2010.
Cost of Revenues.
Tudou's cost of revenues increased by 78.0% to RMB226.4 million in 2010 from RMB127.2 million in 2009. The increase
was primarily
attributable to a substantial increase in amortization and write-down of its premium licensed content procurement costs and an increase in its Internet bandwidth costs.
Amortization
and write-down of Tudou's premium licensed content procurement and production costs increased significantly in 2010 to RMB34.9 million from RMB9.9 million in 2009, primarily
due to an increase in amortization of premium licensed content. Tudou's write-down increased from RMB1.9 million in 2009 to RMB10.7 million in 2010. In 2010, Tudou obtained licenses for more than
1,360 TV drama series, 1,180 movies and 180 variety shows, compared to approximately 420 TV drama series, 60 movies and 25 variety shows in 2009. In addition, Tudou's unit procurement costs,
such as licensing fees for TV drama series and movies, increased significantly in 2010 compared to 2009. Tudou's Internet bandwidth costs increased from RMB74.4 million in 2009 to RMB103.6 million in
2010 primarily due to Internet bandwidth expansion in 2010 in response to greater website traffic.
The
increase in Tudou's cost of revenues was also partly attributable to an increase of RMB17.1 million in advertisement production expenses, an increase of RMB3.4 million in salaries
and benefits for its employees associated with its platform operations, which was related to the expansion of Tudou's platform operations, and an increase of RMB1.8 million in depreciation charges,
which was related to the higher number of servers, other computers and equipment Tudou procured to support the growth of its technology platform in 2010, as compared to 2009. The RMB17.1 million
increase in advertisement production expenses mainly resulted from increased advertisement outsourcing fees paid to third parties and increased expenses Tudou incurred for its integrated marketing
programs. In addition, Tudou recorded RMB9.5 million in connection with its mobile video services as service fees paid to mobile application store operators and handset design houses.
Gross Profit (Loss).
As a result of the foregoing, Tudou's gross profit was RMB59.9 million in 2010 compared to a gross loss of RMB38.0
million in
2009.
Operating Expenses.
Tudou's operating expenses increased by 118.8% to RMB248.1 million in 2010 from RMB113.4 million in 2009. The
increase in Tudou's
operating expenses was due to both an increase in its sales and marketing expenses and an increase in its general and administrative expenses.
-
-
Tudou's sales and marketing expenses increased by 95.0% to RMB143.2 million in 2010 from RMB73.4 million in 2009. This
increase was primarily attributable to an increase of RMB27.5 million in share-based compensation expenses recognized as sales and marketing expenses and an increase of RMB16.5 million in salaries and
benefits for its sales and marketing staff, resulting from an increase in performance-based salary and bonus expenses and Tudou's hiring additional sales professionals. Tudou had 170 sales
professionals as of December 31, 2010 compared to 133 as of December 31, 2009. The increase was also attributable to an increase of
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Loss from Operations.
As a result of the foregoing, Tudou's loss from operations increased by 24.3% to RMB188.3 million in 2010 from
RMB151.4 million
in 2009.
Finance Income (Expense).
Tudou recorded finance income from short-term deposits of approximately RMB3.1 million and RMB0.3 million in
2009 and 2010,
respectively. The decrease was primarily due to a decrease in short-term deposits and lower interest rates. Tudou incurred finance expenses of zero and approximately RMB12.9 million in 2009 and 2010,
respectively. The RMB12.9 million finance expense primarily resulted from RMB10.2 million in interest expenses on Tudou's convertible loan in an aggregate principal amount of US$15.0 million that
Tudou issued to a group of investors in April 2010 and interest expenses related to short-term loans extended to Tudou by certain commercial banks in China. As of December 31, 2010, Tudou had a
total short term loan balance of RMB61.2 million.
Foreign Exchange Gain (Loss).
Tudou recorded a foreign exchange loss of RMB11.0 million in 2010 compared with a foreign exchange gain
of RMB3.6
million in 2009. The foreign exchange loss was primarily due to the depreciation of the U.S. dollar, Australian dollar and Euro versus the Renminbi in
2010. Tudou had an average of approximately US$33.0 million, AUD2.1 million and EUR1.1 million in cash balances in 2010. The foreign exchange gain in 2009 was primarily attributable to the
appreciation of the Australian dollar versus the Renminbi. Tudou had an average of approximately AUD3.5 million in cash balances in 2009.
Beneficial Conversion Charge on Convertible Loan.
Tudou recorded a beneficial conversion charge of approximately RMB11.0 million in
2010 as a result
of the conversion of a convertible loan to Series E preferred shares in an aggregate principal amount of US$15.0 million that Tudou issued to a group of investors in April 2010. Tudou assessed
the beneficial conversion feature attributable to the convertible loan in accordance with ASC470-20 and determined that there was a contingent beneficial conversion feature with a value of
approximately RMB11.0 million. Tudou recognized the RMB11.0 million beneficial conversion charge upon the conversion of the convertible loan into Series E preferred shares in July 2010.
Fair Value Changes in Warrant Liabilities.
Tudou recorded a loss of RMB124.7 million from fair value changes in certain warrants in
2010. The loss
resulted from fair value changes in warrants that Tudou issued in connection with the issuance of the convertible loan in April 2010 and the warrants Tudou issued in connection with the issuance of
its Series E preferred shares in July 2010.
Net Loss.
As a result of the foregoing, Tudou's net loss increased by 140.0% to RMB347.4 million in 2010 from a net loss of RMB144.8
million in 2009.
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Liquidity and Capital Resources
The following table sets forth a summary of Tudou's net cash flows for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Net cash provided by / (used in) operating activities
|
|
|
(94,798
|
)
|
|
(98,783
|
)
|
|
1,501
|
|
|
238
|
|
Net cash used in investing activities
|
|
|
(107,547
|
)
|
|
(85,242
|
)
|
|
(495,197
|
)
|
|
(78,679
|
)
|
Net cash provided by financing activities
|
|
|
|
|
|
396,098
|
|
|
1,118,032
|
|
|
177,637
|
|
|
|
|
|
|
|
|
|
|
|
Net increase / (decrease) in cash
|
|
|
(202,345
|
)
|
|
212,074
|
|
|
624,336
|
|
|
99,197
|
|
Cash and cash equivalents at beginning of year
|
|
|
260,769
|
|
|
62,034
|
|
|
263,151
|
|
|
41,810
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate change on cash
|
|
|
3,610
|
|
|
(10,957
|
)
|
|
(15,486
|
)
|
|
(2,461
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
62,034
|
|
|
263,151
|
|
|
872,001
|
|
|
138,547
|
|
|
|
|
|
|
|
|
|
|
|
Prior
to its initial public offering in August 2011, Tudou had financed its operations primarily through the issuance of redeemable convertible preferred shares and convertible loans. As
of December 31, 2009, 2010 and 2011, Tudou had RMB62.0 million, RMB263.2 million, and RMB872.0 million (US$138.5 million) in cash, respectively. Tudou did not have any short-term or long-term
bank borrowings outstanding as of December 31 2009. It began financing its operations using Renminbi-denominated short-term loans from March 2010. Tudou had outstanding short-term loans in an
aggregate principal amount of RMB61.2 million and RMB83.3 million (US$13.2 million) as of December 31, 2010 and December 31, 2011, respectively.
The
convertible loan issued by Tudou in April 2010 was converted into Series E preferred shares in July 2010. In addition, Tudou received net proceeds of RMB961.4 million
(US$143.5 million) from its initial public offering and RMB160.4 million (US$25.5 million) from the exercise of warrants to purchase Series E preferred shares by certain warrant holders in
August 2011. All of these Series E preferred shares converted into Tudou Class B shares immediately prior to the completion of its initial public offering. Tudou's cash primarily
consists of cash on hand and demand deposits placed with banks or other financial institutions.
Tudou
believes that its current levels of cash balances and cash flows from operations, combined with the cash it received from its initial public offering in August 2011 and short-term
loans from commercial banks in China, will be sufficient to meet its anticipated cash needs to fund its operations for at least the next 12 months. If Tudou has additional liquidity needs in
the future, Tudou may obtain additional financing, including through equity offerings and debt financings in capital markets, to meet such needs.
Accounts Receivable and Turnover Days
Tudou's accounts receivable balance net of allowance for doubtful accounts increased significantly from RMB71.1 million as of
December 31, 2009 to RMB243.0 million as of December 31, 2010. Tudou's accounts receivable balance net of allowance for doubtful accounts was RMB239.8 million (US$38.1 million) as of
December 31, 2011, while average turnover days slightly increased from 139 days in 2009 to 149 days in 2010, and decreased to 132 days in 2011. Average turnover for
accounts receivable is the average period it takes for outstanding invoices to be paid in full after issuance, which is equal to the average of accounts receivable at the beginning of a period and the
accounts receivable at the end of a period, divided by net revenues, adding back the sales taxes and agency fees over the period, and multiplied by the number of days during the period. The
significant increase in Tudou's accounts receivables was primarily due to the significant growth of its business, which is evidenced by
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the
increase of its online advertising revenues from RMB89.1 million in 2009 to RMB265.2 million in 2010 and further to RMB443.5 million (US$70.5 million) in 2011.
Tudou's
average turnover days are longer than the 90-day credit term specified in its advertising contracts and have been significantly affected by the settlement pattern of
advertising agencies and advertisers. The significant increase in accounts receivable and Tudou's high average turnover days may have an adverse impact on its liquidity although such impact can be
mitigated to a certain extent by certain payables, such as advertising agency fees and commission fees, which are usually settled upon the collection of accounts receivables. Failure to collect
receivables in a timely manner may materially adversely affect Tudou's operations and its business strategies, such as funding Tudou's expansion of Internet bandwidth capacity, procuring premium
licensed content and enhancing its technology platform.
In
an effort to reduce its turnover days, Tudou has implemented a series of internal policies to monitor and collect overdue receivables, including assigning a specific sales person to
communicate and coordinate with each customer and to follow up on outstanding receivables, evaluating the performance of sales persons by taking into consideration the ageing of the receivables for
which they are responsible, and adopting a policy whereby sales persons are entitled to commission only after receivables have been collected. In addition, management reviews the ageing of all
receivables on a quarterly basis to assess collectability and consider the need for providing provisions. In 2009, 2010 and 2011, Tudou recorded RMB3.5 million, RMB7.5 million and RMB44.2 million
(US$7.0 million) as an allowance for doubtful accounts, respectively. The significant increase in allowance for bad debts was related to a deterioration in the financial condition of certain
advertising agencies and advertisers and an increase in long aged overdue receivables.
Tudou
recently enhanced its collection efforts to ensure the collectability of its accounts receivables, including by adding to its sales force, involving senior executives in collection
and implementing more stringent collection policies. Through these enhanced procedures, Tudou believes it will be able to more effectively manage its receivable collections and ensure adequate ongoing
communication with respect to collections. Collections and average turnover days improved significantly after Tudou implemented the efforts and initiatives discussed above.
Consolidated Affiliated Entities and PRC Subsidiaries
Tudou is a holding company, and its ability to pay dividends and meet other cash needs relies principally on the dividends paid by its
PRC subsidiaries, which in turn largely depend on service fees payable by its consolidated affiliated entities under the exclusive consultancy and service agreements between its consolidated
affiliated entities and Reshuffle Technology. Under these exclusive consultancy and service agreements, Tudou's consolidated affiliated entities agree to, among other things, pay Reshuffle Technology
service fees equal to a certain percentage of their annual revenues before tax. Earnings of Tudou's PRC subsidiaries (including the economic benefits Reshuffle Technology receives from Tudou's
consolidated affiliated entities) are paid to Tudou's offshore intermediate holding companies, and from these companies to Tudou, mainly through dividend distributions.
Tudou's
subsidiaries may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. As of
December 31, 2011, Tudou's PRC subsidiaries had aggregate accumulated deficits of RMB496.5 million as determined under applicable Chinese accounting standards. Tudou's PRC subsidiaries,
therefore, currently cannot pay dividends or make other distributions to Tudou.
As
an offshore holding company, Tudou intends to finance its PRC subsidiaries primarily through capital contributions by increasing their registered capital, subject to PRC governmental
approvals and registrations. In addition, Tudou may provide additional funding to its PRC subsidiaries through shareholder loans. Under PRC law, foreign currency loans borrowed by Tudou's PRC
subsidiaries from Tudou or other foreign lenders should not exceed the differences between their respective approved
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total
investment amount and registered capital. As of December 31, 2011, Tudou's PRC subsidiaries were able to borrow US$7.8 million in foreign currency loans. These limits may increase
correspondingly with increases in the total investment amounts and registered capital of Tudou's PRC subsidiaries, subject to PRC governmental approvals and registrations.
Operating Activities
Tudou's net cash provided by operating activities in 2011 was RMB1.5 million (US$0.2 million). This was primarily due to its net loss
of RMB511.2 million (US$81.2 million) in 2011, partially offset by (1) RMB113.7 million (US$18.1 million) from fair value changes in warrant liabilities that resulted from an increase in the
fair value of warrants issued in connection with the issuance of a convertible loan in April 2010 and warrants issued in connection with the issuance of Tudou's Series E preferred shares in
July 2010, (2) a RMB105.6 million (US$16.8 million) increase in other payables and accruals primarily consisting of higher payroll and welfare costs, promotional costs, fees payable to
advertising agencies, litigation losses and professional fees, (3) RMB105.0 million (US$16.7 million) of share-based compensation expenses and (4) RMB97.5 million (US$15.5 million) in
amortization of licensed content that mainly resulted from Tudou's increased purchase of premium licensed content.
Tudou's
net cash used in operating activities in 2010 was RMB98.8 million. This was primarily due to (1) its net loss of RMB347.4 million in the period and (2) a RMB179.4
million increase in accounts receivable primarily attributable to a substantial increase in its online advertising service revenues. These amounts were partially offset by (1) RMB124.7 million
from fair value changes in its warrants that resulted from an increase in the fair value of warrants issued in connection with the issuance of a convertible loan in April 2010 and warrants issued in
connection with the issuance of Tudou's Series E preferred shares in July 2010, (2) RMB104.6 million of share-based compensation expenses, (3) a RMB70.9 million increase in other
payables and accruals that primarily consisted of higher tax levies, fees payable to advertising agencies, litigation losses and professional fees and (4) a RMB45.9 million increase in accounts
payable primarily attributable to fees payable to bandwidth vendors.
Tudou's
net cash used in operating activities in 2009 was RMB94.8 million. This was primarily due to (1) its net loss of RMB144.8 million and (2) a RMB50.9 million increase
in accounts receivable primarily attributable to a substantial increase in its online advertising service revenues. These amounts were partially offset by (1) a RMB42.2 million increase in
other payables and accruals primarily consisting of higher payroll and welfare expenses, fees payable to advertising agencies, Internet bandwidth costs, tax levies, potential litigation loss and
professional fees and (2) RMB19.6 million in depreciation of equipment primarily attributable to servers.
Investing Activities
Tudou's net cash used in investing activities was RMB495.2 million (US$78.7 million) in 2011. RMB397.2 million (US$63.1 million) was
used to purchase premium licensed content, including cash payments and cash advances during the year. RMB68.4 million (US$10.9 million) was used to purchase fixed assets, primarily equipment including
servers, computers and other equipment. RMB4.9 million (US$0.8 million) was used to purchase intangible assets. These amounts were partly offset by RMB30.6 million (US$4.9 million) of restricted cash
deposited in commercial banks as a guarantee to Tudou's bank loans and RMB5.8 million (US$0.9 million) received upon maturity of short-term investments.
Tudou's
net cash used in investing activities was RMB85.2 million in 2010. RMB66.2 million was used as collateral for short-term loans from certain commercial banks. RMB68.2 million was
used to purchase premium licensed content including RMB15.0 million in connection with 2010 FIFA World Cup content. RMB27.6 million was used to purchase fixed assets, primarily equipment including
servers, computer and other equipment. RMB5.8 million was used to purchase short-term investments, which consisted of time deposits with maturity terms of three months or more but less than one year.
These amounts were partly offset by RMB84.2 million received upon maturity of short-term
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investments,
which were time deposits with maturity terms of three months or more but less than one year.
Net
cash used in investing activities was RMB107.5 million in 2009. RMB84.2 million was used to purchase short-term investments, which consisted of time deposits with maturity terms of
three months or more but less than one year. RMB24.7 million was used for the purchase of fixed assets, primarily equipment including servers, computers and other equipment. RMB9.9 million was used to
purchase premium licensed content. These amounts were partly offset by RMB11.3 million received from the disposal of short-term investments.
Financing Activities
Net cash provided by financing activities amounted to RMB1,118.0 million (US$177.6 million) in 2011, primarily attributable to
(1) proceeds of RMB961.4 million (US$152.7 million) from Tudou's initial public offering in August 2011, (2) proceeds of RMB160.4 million (US$25.5 million) from exercise of warrants to
purchase Series E preferred shares and (3) RMB52.6 million (US$8.4 million) in short-term loans from commercial banks. These amounts were partially offset by RMB30.5 million (US$4.8
million) in repayment of short-term loans and RMB25.9 million (US$4.1 million) in expenses paid in connection with its initial public offering.
Net
cash provided by financing activities amounted to RMB396.1 million in 2010, resulting from (1) proceeds received from the issuance of Series E preferred shares in the
amount of RMB236.4 million, (2) the issuance of a convertible loan in the amount of RMB102.4 million and (3) short-term loans in the amount of RMB81.2 million. These amounts were offset
by RMB20.0 million in repayment of short-term loans.
Tudou
did not conduct any material financing activities in 2009. As a result, Tudou did not generate or use any cash from financing activities in 2009.
Capital Expenditures
Tudou had capital expenditures of RMB24.7 million, RMB27.6 million and RMB477.0 million (US$75.8 million) for 2009, 2010 and 2011,
respectively. Tudou's capital expenditures were used primarily for (1) the purchase of computer hardware and equipment, including those purchased for building its CDN and (2) the
acquisition of premium licensed content. Tudou expects to incur capital expenditures of RMB470.0 million in 2012, which will be primarily used for content procurement and expansion of Internet
bandwidth capacity. Tudou also expects to incur additional costs in connection with its becoming a public company, including costs to prepare for its first Section 404 compliance testing and
additional compliance costs associated with being a public company. Tudou is not able to estimate with reasonable certainty these additional expenses, but expects the additional costs not to exceed
US$1.0 million in 2012.
Inflation
In recent years, inflation has not materially affected Tudou's results of operations. According to the National Bureau of Statistics of
China, the change in China's Consumer Price Index was -0.7%, 3.3% and 5.4% in 2009, 2010 and 2011, respectively. If inflation rises, it may materially adversely affect Tudou's business.
Research and Development
Tudou has a team of experienced engineers. They develop and implement technologies focusing on improving bandwidth efficiency, managing
and filtering content, and improving user friendly functions such as search tools. Tudou's development efforts also cover the enhancement of features and functionality of its website, CDN maintenance,
infrastructure technologies, advertising management
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systems
and user data analyses technologies to deliver a high quality user experience. Tudou's technology development expenses, comprising primarily salaries and benefits for its engineers, were not
material in 2009, 2010 and 2011.
Intellectual Property
Tudou regards its trademarks, trade secrets, patents, copyrights and similar intellectual property as critical to its success, and rely
on trademark, copyright and patent law, trade secret protection and confidentiality and/or license agreements with its employees, business partners and others to protect its proprietary rights. Tudou
owns one utility model patent in China relating to a search engine system, and is in the process of applying for 34 additional patents to protect
its core technologies with respect to online video distribution and search. Tudou has registered 10 copyrights with respect to Internet related software.
Tudou
believes "
," which is its name "Tudou" in Chinese as well as its logo, is a well-recognized brand in China. Tudou owns 54 registered
trademarks in China and is in the process of applying
for 42 additional trademarks in China. Quan Toodou and one of Youku's consolidated affiliated entities have jointly applied for 21 trademark registrations for the "Youku Tudou" trademark. In
addition, Tudou owns 63 domain names as of the date of this joint proxy statement/prospectus, including Tudou.com, which is Tudou's primary website.
Trend Information
Other than as disclosed elsewhere in this joint proxy statement/prospectus, Tudou is not aware of any trends, uncertainties, demands,
commitments or events for 2011 that are reasonably likely to have a material adverse effect on its net revenues, income, profitability, liquidity or capital resources, or that would cause the
disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
Off-Balance Sheet Arrangements
Tudou has not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In
addition, Tudou has not entered into any derivative contracts that are indexed to its own shares and classified as shareholder's equity, or that are not reflected in its consolidated financial
statements. Furthermore, Tudou does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such
entity. Moreover, Tudou does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to Tudou or engages in leasing, hedging or
research and development services with Tudou.
Tabular Disclosure of Contractual Obligations
The following table sets forth Tudou's contractual obligations as of December 31, 2011:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
Total
|
|
Less than
1 Year
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
More than
5 Years
|
|
|
|
RMB
|
|
US$
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Operating lease commitments
|
|
|
275,172
|
|
|
43,720
|
|
|
155,550
|
|
|
71,489
|
|
|
48,133
|
|
|
|
|
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Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk
Tudou's revenues and purchases are generally denominated in Renminbi. Its assets and liabilities are also denominated in Renminbi,
except for cash held in other currencies, which included US$19.0 million as of December 31, 2011. As a result, fluctuations in the exchange rates between the U.S. dollar and these other
currencies and Renminbi will affect its results of operations and financial condition. Such fluctuations will also affect Tudou with respect to the translation of the net proceeds that Tudou received
from its initial public offering into Renminbi.
The
Renminbi's exchange rate with the U.S. dollar and other currencies is affected by, among other things, changes in China's political and economic conditions and China's foreign
exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under this policy, the Renminbi was
permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For almost two years after reaching a high against the U.S. dollar in July 2008, the Renminbi
traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high. As a consequence, the Renminbi fluctuated sharply since July 2008 against other freely traded
currencies, in tandem with the U.S. dollar.
In
June 2010, the PRC government announced that it would increase Renminbi exchange rate flexibility and since that time the Renminbi has gradually appreciated against the U.S. dollar.
However, it remains unclear how this flexibility might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could
result in greater fluctuation of the Renminbi against the U.S. dollar.
To
the extent that Tudou needs to convert U.S. dollars into the Renminbi for its operations or other uses within the PRC, appreciation of the Renminbi against the U.S. dollar would have
an adverse effect on the Renminbi amount Tudou would receive from the conversion. On the other hand, a decline in the value of the Renminbi against the U.S. dollar could reduce the U.S. dollar
equivalent amounts of Tudou's financial results, the value of any investment in Tudou and the dividends Tudou may pay in the future, if any. As of December 31, 2011, Tudou had US$-denominated
cash balances of US$19.0 million. Assuming Tudou had converted the US$19.0 million into the Renminbi at the exchange rate of $1.00 for RMB6.2939 as of December 31, 2011, this cash
balance would have been RMB119.7 million. Assuming a 1% appreciation of the RMB against the U.S. dollar, this cash balance would have decreased to RMB118.0 million as of
December 31, 2011.
Interest Rate Risk
Tudou's exposure to interest rate risk primarily relates to finance income generated by excess cash invested in demand deposits with
original maturities of three months or less and time deposits with maturity terms of three months or more but less than one year. Tudou is also exposed to interest rate risk related to finance
expenses incurred by short-term bank borrowings. Tudou has not used any derivative financial instruments to manage its interest risk exposure. Tudou has not been exposed, nor does it
anticipate being exposed, to material risks due to changes in interest rates. However, Tudou's future finance income may be lower than expected due to changes in market interest rates.
Credit Risk
As of December 31, 2009, 2010 and 2011, substantially all of Tudou's cash and cash equivalents and short-term
investments were held by reputable financial institutions. Tudou believes that it is not exposed to unusual risks as these financial institutions have high credit quality. Tudou has not experienced
losses on deposits of cash and cash equivalents and short-term investments. Prior to entering into contracts, Tudou makes a credit assessment of its advertising agencies and advertisers to
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assess
the collectability of the contracts. Tudou recorded RMB3.5 million, RMB7.5 million and RMB44.2 million (US$7.0 million) as an allowance for doubtful accounts in
2009, 2010 and 2011, respectively.
China
does not have an official deposit insurance program, nor does it have an agency similar to The Federal Deposit Insurance Corporation, or the FDIC in the United States. However,
Tudou believes that the risk of failure of any of these PRC banks is not material. Bank failure is uncommon in China and Tudou believes that those Chinese banks that hold its cash, cash equivalents,
short-term investments and long term time deposit are financially sound based on public available information.
Critical Accounting Policies and Estimates
The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with Tudou's
consolidated financial statements and other disclosures included in this joint proxy statement/prospectus. When reviewing Tudou's financial statements, you should consider (1) Tudou's selection
of critical accounting policies, (2) judgment and other uncertainties affecting the application of such policies and (3) the sensitivity of reported results to changes in conditions and
assumptions.
Revenue Recognition
Tudou derives revenues primarily from sales of online advertising services.
In
accordance with ASC 605, Tudou recognizes revenues when the following criteria are met: persuasive evidence of an arrangement exists, the sales price is fixed or determinable,
delivery has occurred and collectability is reasonably assured. Revenues are recorded net of business taxes and related surcharges.
Most
of Tudou's advertising contracts are multiple element arrangements, including placements of different types of advertisements on its website that entitle Tudou to bill and collect
from its customers only after all of the elements of the arrangement have been delivered. There is generally no objective evidence available with respect to the fair values of the individual elements
to be delivered. Revenue is recognized for these contracts upon completion.
On
January 1, 2011, Tudou adopted ASU No. 2009-13 Revenue RecognitionMultiple-Deliverable Revenue Arrangements ("ASU No.2009-13")
prospectively. ASU 2009-13 requires Tudou to allocate multi-element revenue arrangements to each element using the relative selling price method according to the best estimated selling
price for each element in a multi-element arrangement. As noted above, Tudou's entitlement to payment from customers is contingent upon the completion of the delivery of all elements within the
multiple element revenue arrangements. As a result, Tudou recognizes revenues upon completion of delivery of all the elements involved in the arrangements according to its contractual rights and
obligations in the multiple element advertising contracts with the customers. The adoption of ASU No. 2009-13 did not impact Tudou's financial statements.
Certain
multiple element customer contracts entered into in 2010 provided that each of the elements within the arrangement be delivered in uniform combination and allow Tudou payment as
the elements are delivered. Revenue was recognized based on the proportion of the obligation performed. Prior to 2010, Tudou also entered into a small number of single element revenue arrangements
with customers. Revenue was recognized either on a straight line basis over the contract period when the performance obligations were uniform over the contract period; or based on the proportion of
the obligations performed when the performance obligations were based on the number of clicks.
As
is customary in the advertising industry in China, Tudou typically enters into advertising contracts with third-party advertising agencies. Tudou offers agency fees to third-party
advertising agencies that purchase its advertising services and recognizes revenues net of these agency fees. The
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agency
fees paid by Tudou to advertising agencies are based on a certain percentage of revenue generated involving the advertising agencies and such percentage is agreed with the advertising agencies
based on the different target revenue volumes. Tudou records revenues on a net basis and the associated advertising agency fees are recorded as a reduction to revenue in its consolidated statement of
operations over the period in which the related revenue is recognized.
Tudou
also generates revenues from mobile video services primarily through an agreement with China Mobile. Tudou provides video clips to China Mobile for its mobile phone users. Users
pay a monthly subscription fee to China Mobile for access to the video channel or pay on a per-clip basis, and Tudou shares fees collected by China Mobile for such services. Revenues from
mobile video services are recognized in the month in which the service is performed.
Tudou
receives monthly reports from China Mobile that provide details of the total revenues collected by China Mobile relating to the mobile video services and Tudou's share of such
revenues. Tudou also has access to a platform operated by China Mobile for its content partners where Tudou can monitor on a real time basis when its content is being downloaded by mobile users. The
information is then reconciled with the monthly report from China Mobile, any differences noted are adjusted at each month end. Tudou has not noted any significant differences between the information
from China Mobile's platform and the monthly report.
The
revenues recognized under this arrangement represent Tudou's share of the revenues to be received from the mobile network operator. Tudou is not the primary obligor in this
arrangement as it does not enter into contracts with end customers, nor does it have price setting capabilities; rather Tudou provides content in accordance with China Mobile's overall strategy and
requirements.
Tudou
began providing mobile video services in April 2011 through two video channels on China Unicom's wireless video platform and started generating revenues since October, 2011. Tudou
began providing mobile video services in January 2011 through China Telecom's NETiTV platform and began generating revenues from this platform starting in October 2011. For 2011, revenues generated
from the agreements with China Unicom and China Telecom were not significant.
Starting
in the third quarter of 2010, Tudou has generated revenues by sub-licensing certain premium content that Tudou licenses from third-party vendors. The exclusive
licensing agreements Tudou enters into with these third-party vendors have a definitive license period and include the right to sublicense certain premium content to other third parties. Tudou then
enters into a non-exclusive sub-license agreement with the sub-licensee for a period within the original license period of the exclusive licensing agreements. Tudou
receives a fixed amount of the sub-license fee upfront under the sub-licensing arrangements and does not have any future obligation once Tudou provides the underlying tape/disk
to
the sub-licensee (which is provided at or before the beginning of the sub-license period). In accordance with ASC 926-605, Entertainment-Films, Revenue Recognition,
Tudou recognizes the sub-license fee as revenues only when all of the following criteria are met: persuasive evidence of a sub-licensing arrangement with a customer exists; the
content is delivered or available for immediate and unconditional delivery; the sub-license period of the arrangement has begun and the customer can begin its exploitation; exhibition or
sale, the arrangement fee is fixed or determinable; and collection of the arrangement fee is reasonably assured.
Consolidation
Tudou assesses the consolidation of variable interest entities under ASC 810, which provides guidance on the identification of and
financial reporting for entities over which control is achieved through means other than voting interests, which requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other parties.
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Table of Contents
Through
a series of contractual arrangements, Tudou holds variable interests in the consolidated affiliated entities and is the primary beneficiary of the consolidated affiliated entities.
Share-based Compensation
Tudou accounts for share options granted to employees under ASC 718, "Stock Compensation." In accordance with ASC 718, Tudou determines
whether a share option should be classified and accounted for as a liability award or equity award. All grants of share-based awards to employees classified as equity awards are recognized in the
financial statements based on their grant date fair values, which are calculated using an option pricing model. All grants of share-based awards to employees and directors classified as equity awards
are recognized in Tudou's financial statements based on their grant date fair values, which are calculated using the Black-Scholes option pricing model.
All
grants of share-based awards to employees and directors classified as liability awards are re-measured at the end of each reporting period with an adjustment for fair
value recorded to the current period expense in order to properly reflect the cumulative expense based on the current fair value of the vested rewards over the vesting periods. The changes in the fair
value of vested awards are recognized immediately as compensation cost.
Prior
to its initial public offering, Tudou accounted for its options granted to employees as liability awards as the exercise price was denominated in U.S. dollars while its functional
currency is RMB and the underlying shares were not publicly traded. Subsequent to its initial public offering, Tudou has accounted for its options granted to employees as equity awards. In addition,
the liability awards were reclassified to equity awards on the date of Tudou's initial public offering. The fair value of the liability awards outstanding was remeasured with the fair value of the
share-based liabilities relating to the vested options reclassified to additional paid-in capital and the fair value of the unvested options to be recognized over the remaining requisite
service period as compensation expenses.
Tudou
has elected to recognize compensation expenses on a straight-line basis over the requisite service period, which is generally the vesting period. ASC 718 requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation expense was recorded net
of estimated forfeitures such that expense was recorded only for those share-based awards that are expected to vest.
In
2009, certain employees leaving Tudou applied to Tudou to extend the exercise period of the vested options from 90 days after the termination date to the actual date of its
initial public offering. Tudou approved such applications and extended the exercise period of the vested options granted until the date of its initial public offering. In July 2010 Tudou further
extended the exercise period to 90 days after the completion of the registration of its share incentive plan with the SAFE after its initial public offering, because under the PRC law they
could not legally exercise these options prior to the completion of such registration. Such extension was limited, was at Tudou's sole discretion and was considered based on the employment terms or
contribution of the respective employees to Tudou. Total incremental value arising from modification of the options amounted to RMB0.5 million. Tudou recorded the incremental compensation cost
of approximately RMB27,000 and approximately RMB0.1 million for 2009 and 2010, respectively, on the date the vested options were modified. Tudou recorded no incremental compensation cost for
2011 as there was no option modification in 2011. The
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following
table sets forth amounts of Tudou's share-based compensation expenses and their allocation to certain line items on Tudou's consolidated statements of operations for the periods indicated:
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|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands)
|
|
Share-based compensation expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,876
|
|
|
14,133
|
|
|
14,177
|
|
|
2,253
|
|
Sales and marketing expenses
|
|
|
3,492
|
|
|
31,025
|
|
|
39,475
|
|
|
6,272
|
|
General and administrative expenses
|
|
|
6,155
|
|
|
59,418
|
|
|
51,383
|
|
|
8,164
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
11,522
|
|
|
104,576
|
|
|
105,035
|
|
|
16,688
|
|
|
|
|
|
|
|
|
|
|
|
Fair value change in warrant liabilities
The fair value change in warrants from the date of issuance primarily resulted from the decrease in the expected terms of the warrants
and the change in the fair value of the Series E preferred shares underlying such warrants or the expected price volatility of the Series E preferred shares as discussed below.
Specially, the decrease in the fair value of the warrants issued in connection with the convertible loan in April 2010 from RMB11.0 million as of April 8, 2010 to RMB8.2 million
as of June 30, 2010 mainly resulted from (1) a decrease in the expected terms of the warrants and (2) the expected price volatility of Tudou's Series E preferred shares.
The
decrease in the fair value of the warrants from RMB8.2 million as of June 30, 2010 to RMB7.9 million as of July 28, 2010 mainly resulted from the decrease
in the expected terms of the warrants, partially offset by the increase in the fair value of the Series E preferred shares underlying the warrants. The decrease in the fair value of the
warrants from RMB26.3 million as of July 28, 2010 to RMB12.5 million as of September 30, 2010 mainly resulted from the decrease in (1) the expected terms of the
warrants and (2) the fair value of the Series E preferred shares underlying the warrants.
The
increase in the fair value of the warrants from RMB12.5 million as of September 30, 2010 to RMB154 million as of December 31, 2010 mainly resulted from
the increase in (1) the fair value of the Series E preferred shares underlying the warrants and (2) the expected price volatility of the Series E preferred shares. The
increase in the fair value of the warrants from RMB154 million as of December 31, 2010 to RMB268 million immediately prior to Tudou's initial public offering mainly resulted from
the increase in the fair value of Series E preferred shares underlying the warrants.
Fair value change in the Series E preferred shares
In determining the fair value of the Series E preferred shares as of each valuation date, Tudou applied a discounted cash flow
analysis to determine its equity value and applied the option pricing method to allocate the equity value among its ordinary shares, preferred shares, stock options and warrants. In allocating the
equity value among Tudou's ordinary shares, preferred shares, stock options and warrants, Tudou considered initial public offering, redemption and liquidation scenarios and their respective dates and
probabilities, based on management's best estimates, to derive a probability-weighted equity allocation. Tudou treated its ordinary shares and preferred shares as call options on their equity value,
with exercise prices based on the redemption preference, liquidation preference and conversion threshold of the preferred shares.
The
slight increase in fair value of the Series E Preferred Shares from US$2.69 as of April 15, 2010 to US$2.72 as of June 30, 2010 and US$2.74 as of July 28,
2010, and the slight fluctuation in fair value of ordinary shares from US$1.39 as of April 8, 2010 to US$1.40 as of June 30, 2010 and US$1.37
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as
of July 28, 2010 mainly resulted from a combination of Tudou's operating and financial results and a decrease in ordinary share price volatility.
The
decrease in the fair value of Series E Preferred Shares from US$2.74 as of July 28, 2010 to US$2.48 as of September 30, 2010 mainly resulted from an increase in
the probability of Tudou's initial public offering at the time of evaluation.
The
increase in the fair value of the Series E Preferred Shares from US$2.48 as of September 30, 2010 to US$5.21 as of December 31, 2010 was in line with the
increase in the fair value of the ordinary shares, and was primarily due to a combination of an upward revision to Tudou's revenue and net income forecast, a downward revision of the discount rate
used for the valuation of Tudou's ordinary shares and the increased probability of its initial public offering.
The
increase in the fair value of the Series E Preferred Shares from US$5.21 as of December 31, 2010 to US$7.25 immediately prior to Tudou's initial public offering was in
line with the increase in the fair value of the ordinary shares, and was primarily due to improved prospects for Tudou's online advertising and mobile video businesses and a downward revision of the
discount rate used for the valuation of Tudou's ordinary shares.
Income Taxes
Tudou's income taxes are based on 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. Tudou follows ASC 740, "Accounting for Income Taxes," and accounts for income taxes
under the asset and liability method. Deferred tax assets and liabilities are recognized for tax consequences attributable to differences between the carrying amounts of existing assets and
liabilities in financial statements, their respective tax bases 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.
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, Tudou considers various tax planning strategies, forecasts of future taxable income and its 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 Tudou's statements of operations in the period of such change.
Tudou
had no material uncertain tax positions for 2009, 2010 and 2011, nor does it anticipate any significant increases or decreases to liability for unrecognized tax benefits within the
next twelve months. For Tudou's subsidiary and consolidated affiliated entities, the years 2004 to 2011 remain subject to examination by the PRC tax authorities.
Impairment of Long-Lived Assets
Tudou applies ASC 360-10-35, Property, Plant and Equipment, and reviews its long-lived assets, such
as property and equipment and purchased intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be
recoverable. When these events occur, Tudou measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows it expects to
receive from use of the assets and their eventual disposition. If the sum of the estimated undiscounted future cash flow is less than the carrying value of the assets, Tudou recognizes an impairment
loss equal to the excess of the carrying value over the fair value of the assets. When impairment is recognized, the
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adjusted
carrying amount of the underlying property, plant and equipment becomes its new cost basis. The new cost basis is depreciated over the remaining useful life of the asset.
Tudou
uses estimates and judgments in its impairment tests and if different estimates or judgments had been utilized, the timing or the amount of any impairment charges could be
different. In calculating the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters such as revenue growth rates and gross margin percentages. Tudou
recognized impairment charges of RMB2.4 million, zero and zero related to computer hardware and other equipment for 2009, 2010 and 2011.
Content Costs
Content costs primarily consist of amortization and write-down associated with premium licensed content and content
produced in-house, advertisement production costs, and salaries and benefits for Tudou's content team. Tudou incurs content procurement costs primarily as a result of its obtaining
copyright licenses for third-party content, such as TV series and movies, as well as producing in-house developed content.
Premium Licensed Content and Content Produced In-house
Apart from video content uploaded by users for which Tudou does not need to pay, Tudou licenses premium content from third party
vendors and produces certain content in-house. As of December 31, 2011, the balance of premium licensed content and content produced in-house amounted to
RMB205.9 million (US$32.7 million) and RMB8.2 million (US$1.3 million), respectively.
The
re-run of premium licensed content is amortized on a straight line basis over its licensing period. The new release of premium licensed content is amortized using a
double declining balanced method, an accelerated depreciation method, over its licensing period. The term of the licensing period is driven by various factors, such as the availability in the market,
different terms set by the vendors, cost and types of content. The weighted average amortization period of the premium licensed content was 1.0 year, 2.0 years and 2.25 years in
2009, 2010 and 2011, respectively.
Tudou
began to purchase new releases of TV series starting from the third quarter of 2011. Tudou monitors the number of video views of premium licensed content by category in order to
estimate net realizable value. The six categories Tudou uses are re-run of movies and TV series, new release of TV series, variety shows, music, animation and others.
As
part of its procedures to monitor the number of video views of premium licensed content by category, Tudou analyzes the number of video views by sub-grouping content that
was licensed in the same quarter in each of the six categories and tracking the number of video views for each of these categories over the licensing period. If the actual number of video views
indicates a shorter amortization period or a clear pattern of usage that differs from the current amortization policy, Tudou will then revise the amortization policy prospectively. These changes, if
required in the future, could increase Tudou's amortization expenses and reduce its capitalized content balance.
Tudou
plans to implement a system that would allow it to capture the number of video views relating to each individual or block of content based on how they are licensed. With such a
system in place, Tudou could evaluate the amortization period and the method for each individual or block of content separately, which would give Tudou a clearer view of the length of the amortization
period and actual usage pattern.
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Tudou evaluates the net realizable value for recoverability of premium licensed content using the same categories as above. The premium licensed content is
carried at the lower of unamortized cost or net realizable value pursuant to ASC 920-350-35-3. Under the net realizable value approach, Tudou compares the
unamortized cost of each group of premium licensed content to the expected net realizable value attributable to that category of content, which equals the estimated future cash inflows related to the
particular group of content less the direct costs to deliver the content at each quarter end. A write-down is recorded if the net realizable value is lower than the net carrying value.
Once the write-down is recorded, it establishes a new cost basis and cannot be subsequently reversed.
When
estimating the expected net realizable value of its content library, Tudou looks to existing and expected future advertising contracts, existing and estimated future direct cost and
the operating plan in deriving cash inflows available to recover the cost of premium licensed content over the remaining licensing period. Tudou also applies a discount rate to adjust cash flows
beyond one year.
Tudou
estimates future advertising revenue from the overall content library over the weighted average term of the premium licensed content because the weighted average term of the
premium licensed content for each category is similar to the overall weighted average life of the overall content library.
Tudou
estimates near term (meaning one to two quarters) advertising revenues based on secured advertising contracts, advertisers' current budgets and possible advertising campaigns, and
recurring advertising spending and media allocations through its discussions with advertisers and advertising agencies.
Tudou
projects mid-term (meaning within one year but not near-term) advertising revenue based on the estimated advertising budgets of advertisers and framework
agreements entered into with advertising agencies for the relevant period and updates the estimates based on ongoing communication with the advertisers and advertising agencies.
For
periods beyond one year, Tudou estimates projected advertising revenues based on the budget for the current year obtained from advertising agencies and advertisers, and adjusts it
based on forecasted change for future years. When estimating advertising revenue, Tudou takes into account expected seasonal promotions for certain types of advertisers as well as expected price
adjustments in the future. Tudou has typically adjusted its pricing on a semi-annual basis, which has been incorporated into the estimates.
Tudou
closely monitors its relationships with advertising agencies and advertisers and has constant communication with them to obtain and update its understanding of these agencies and
advertisers' advertising budgets and the allocation of these budgets to various advertising channels, such as TV, Internet and newspapers. Tudou uses this information as the basis for its operational
budget and forecast. Based on its historical experience, Tudou believes this provides a reasonably reliable basis on which to estimate future advertising revenue.
The
allocation of the estimated future net cash flow of the content library is based on the number of video views for each category of content as a percentage of the total number of
video views for the entire content library. Tudou believes the number of video views for each category of content is highly correlated to the future advertising cash flows to be generated by each
content category because advertisers are attracted to Tudou's advertising services by the popularity of its website, which Tudou believes is reasonably represented by the number of video views.
Because
in the past Tudou purchased a large portion of its licensed content in blocks, including movies and TV series, Tudou is accumulating historical purchase information and will
continue to collect and evaluate market information, including pricing information for individual TV series or movies if and when such information becomes available. With China's domestic content
market becoming more mature and more content producers and vendors entering this market in the future,
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Tudou
believes that it will have more transparent pricing information and market data when negotiating with content vendors, which Tudou believes will help it better value individual content.
Furthermore, as the market value for individual TV series and movies becomes available and licensed content blocks become less significant as Tudou purchases less licensed content in blocks, Tudou
will separate the license cost for movies and TV series into separate categories in order to evaluate unamortized cost and net realizable value. In the event such a market does not materialize, Tudou
intends to allocate the cost of TV series and movies block purchases between TV series and movies based on the average historical cost paid for individual TV series and movies. Tudou performs net
realizable value analyses for each content category on a quarterly basis. Based on its estimates, Tudou anticipates that it will perform such disaggregation by the middle of 2012.
For
the years ended December 31, 2009, 2010 and 2011, Tudou recorded amortization expenses for premium licensed content of RMB8.0 million, RMB24.2 million and
RMB97.5 million (US$15.5 million), respectively, amortization expense for content produced in-house of nil, RMB1.6 million and RMB7.3 million (US$1.2 million),
respectively, and write-down for premium licensed content of RMB1.9 million, RMB10.7 million and nil, respectively, under its cost of revenues.
Recent Accounting Pronouncements
On May 12, 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The new guidance results in a consistent definition of fair value and common requirements for measurement of and
disclosure about fair value between U.S. GAAP and IFRS. The new guidance changes some fair value measurement principles and disclosure requirements. The disclosure requirements have been
enhanced, with certain exceptions for U.S. non-public companies. The most significant change will require entities, for their recurring Level 3 fair value measurements, to disclose
quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. New
disclosures are required about the use of a nonfinancial asset measured or disclosed at fair value if its use differs from its highest and best use. In addition, entities must report the level in the
fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. The amendments in this update are to be applied prospectively. For public entities, the
amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after
December 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply the amendments in this update early, but no earlier than for interim periods beginning
after December 15, 2011. Tudou does not expect the adoption of this update to materially impact its consolidated financial statements and disclosures.
In
June 2011, FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("ASU 2011-05"). This
newly issued accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity,
(2) requires the consecutive presentation of the statement of net income and other comprehensive income and (3) requires an entity to present reclassification adjustments on the face of
the financial statements from other comprehensive income to net income. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. In December 2011, the FASB issued ASU
No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards
Update No. 2011-05, which defers the requirement within ASU 2011-05 to present on the face of the financial statements the effects of reclassifications out of
accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. During the deferral, entities should continue to
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report
reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the issuance of ASU 2011-05. These ASUs are
required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Tudou does not expect the adoption of these
standards to have a material impact on its financial position or results of operations.
Ownership of Tudou Shares by Certain Beneficial Owners, Directors and Executive Officers
The following table sets forth information with respect to the beneficial ownership of Tudou shares as of April 17, 2012,
by:
-
-
each of Tudou's directors and executive officers; and
-
-
each person known to Tudou to own beneficially more than 5% of the Tudou shares.
The
total number of Tudou shares outstanding as of April 17, 2012 is 115,452,677, including shares represented by Tudou ADSs.
For
each person and group included in the following table, percentage of beneficial ownership is calculated by dividing the number of Tudou shares beneficially owned by such person or
group (which includes Tudou Class B shares underlying Tudou share options held by such person or group that are exercisable within 60 days after April 17, 2012) by the sum of
(1) the number of Tudou shares outstanding as of April 17, 2012 and (2) the number of Tudou shares underlying Tudou share options held by such person or group that are exercisable
within 60 days after April 17, 2012 (not taking into account any accelerated vested options upon the closing of the Merger).
|
|
|
|
|
|
|
|
|
|
Tudou Shares
Beneficially Owned
|
|
|
|
Number
|
|
%
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
Gary Wei Wang
(1)
|
|
|
9,970,833
|
|
|
8.6
|
|
Suyang Zhang
(2)
|
|
|
|
|
|
|
|
Hany Nada
(3)
|
|
|
11,027,224
|
|
|
9.6
|
|
Sam Yung King Lai
(4)
|
|
|
*
|
|
|
*
|
|
David M. Hand
(5)
|
|
|
14,215,278
|
|
|
12.3
|
|
Seow Woon Kwong
(6)
|
|
|
|
|
|
|
|
Ted Tak-Tai Lee
(7)
|
|
|
*
|
|
|
*
|
|
Conor Chia-hung Yang
(8)
|
|
|
|
|
|
|
|
Bin Yu
(9)
|
|
|
*
|
|
|
*
|
|
All Directors and Executive Officers as a Group
(10)
|
|
|
36,195,160
|
|
|
30.8
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
Crescent Peak, Ltd., Crescent P.E., Ltd. and Crescent Peak II Limited
(11)
|
|
|
14,215,278
|
|
|
12.3
|
|
Sennett Investments (Mauritius) Pte Ltd
(12)
|
|
|
19,384,853
|
|
|
16.8
|
|
First Easy Group Limited
(13)
|
|
|
8,913,333
|
|
|
7.7
|
|
IDG Technology Venture Investment III, L.P. and IDG Technology Venture Investment IV, L.P.
(14)
|
|
|
10,379,691
|
|
|
9.0
|
|
GGV II Delaware L.L.C.
(15)
|
|
|
11,027,224
|
|
|
9.6
|
|
SINA Corporation
(16)
|
|
|
9,270,280
|
|
|
8.0
|
|
-
*
-
Less
than 1%
-
(1)
-
Represents
8,913,333 Tudou Class A Shares held by First Easy Group Limited, a British Virgin Islands company ultimately owned by
Mr. Wang's family trust and 1,057,500 Tudou
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Class A
Shares issuable upon exercise of options within 60 days of April 17, 2012 beneficially owned by Mr. Wang. Mr. Wang also owns options to purchase an
additional 500,000 Tudou Class A shares. First Easy Group Limited is a wholly-owned subsidiary of Arrow Lane Limited, a Bahamas incorporated company, which is in turn wholly-owned by Credit
Suisse Trust Limited, as trustee of the Arrow Lane Trust. The Arrow Lane Trust was established by Mr. Wang for the benefit of him and his designated family member. Mr. Wang is the sole
director of First Easy Group Limited and, as such, exercises voting power on behalf of First Easy Group Limited on all matters of Tudou requiring shareholder approval. In accordance with SEC rules,
Mr. Wang may be deemed to have voting and investment power with respect to all of the shares of Tudou held by First Easy Group Limited. Mr. Wang's ex-wife had initiated a
lawsuit with a local court in Shanghai against Mr. Wang, claiming for her share of community property during their marriage which may involve a claim for part of the above shares. This lawsuit
was concluded through settlement directed by the court in June 2011 and pursuant to a court ruling, Mr. Wang is entitled to the equity interests in companies that are directly or indirectly
held by Mr. Wang. In exchange, Mr. Wang has agreed to pay the plaintiff out of his personal assets a cash amount before June 2012, which he has paid, and an additional cash amount in the
event of an initial public offering, merger, acquisition, reorganization or a similar transaction of Tudou within two years after such an event, an obligation which, according to Mr. Wang, he
is willing and will be able to perform. However, if Mr. Wang fails to perform his obligations under the court ruling, Mr. Wang's personal assets, including the equity interests in the
companies, directly or indirectly held by him, may be subject to the court's enforcement measures. In April 2011, First Easy Group Limited transferred 666,667 Tudou shares, representing less than 1%
of Tudou's current outstanding shares on an as-converted basis, to an independent third party. These Tudou shares were redesignated as Tudou Class B Shares immediately prior to the
completion of Tudou's initial public offering. The address for Mr. Wang is Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032,
People's Republic of China.
-
(2)
-
The
address for Mr. Zhang is Suite 1105, An Tai Mansion, 107 Zun Yi Road, Shanghai, 200051, People's Republic of
China.
-
(3)
-
Represents
11,027,224 Tudou Class B shares held by GGV II Delaware L.L.C. Mr. Nada disclaims beneficial ownership with respect
to the shares held by GGV II Delaware L.L.C. except to the extent of his pecuniary interest therein. The address for Mr. Nada is 2494 Sand Hill Road, Suite 100,
Menlo Park, CA 94025.
-
(4)
-
Represents
Tudou Class B Shares issuable upon exercise of options within 60 days of April 17, 2012 beneficially owned by
Mr. Lai. The address for Mr. Lai is Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's Republic of China.
-
(5)
-
Represents
5,985,918 Tudou Class B shares held by Crescent Peak, Ltd., 5,460,095 Tudou Class B shares held by Crescent
P.E., Ltd., and 1,846,177 Tudou Class B shares held by Crescent Peak II Limited, as well as 923,088 Tudou Class B shares held by Crescent Peak II Limited. The
address for Mr. Hand is One Temasek Avenue, No. 20-01, Millenia Tower, Singapore 039192.
-
(6)
-
The
business address for Mr. Seow is MediaCorp Pte Ltd., Caldecott Broadcast Center, Andrew Road, Singapore 299939.
-
(7)
-
The
business address for Mr. Lee is Room 3303, No. 17, Lane 688 South Xi Zang Road, Shanghai 200011, Peoples' Republic of
China.
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Table of Contents
-
(8)
-
The
business address for Mr. Yang is 4/F, Tower C, the 5th Square No. 7, Chaoyangmen North Avenue, Dongcheng District,
Beijing 100010, People's Republic of China.
-
(9)
-
The
business address of Ms. Yu is Building No. 6, X2 Creative Park, 1238 Xietu Road, Xuhui District, Shanghai 200032, People's
Republic of China.
-
(10)
-
Represents
Tudou Class A shares and Tudou Class B shares held by all of Tudou's directors and executive officers as a group and
Tudou Class B shares issuable upon exercise of Tudou share options and warrants within 60 days of April 17, 2012 held by all of Tudou's directors and executive officers as a
group.
-
(11)
-
Represents
5,985,918 Tudou Class B shares held by Crescent Peak, Ltd., 5,460,095 Tudou Class B shares held by Crescent
P.E., Ltd., and 2,769,265 Tudou Class B shares held by Crescent Peak II Limited. Each of Crescent Peak, Ltd., Crescent P.E., Ltd. and Crescent Peak II Limited is a limited
liability company incorporated in the Cayman Islands. Crescent Point Management Ltd., which has the sole voting power and investment power over the shares held by Crescent Peak, Ltd., is
ultimately controlled by David M. Hand and Sami A. Sindi. Crescent Point Investments Ltd., which has the sole voting power and investment power over the shares held by Crescent
P.E., Ltd., is ultimately controlled by David M. Hand, Richard T. Scanlon and Sami A. Sindi. Crescent Peak II Limited is controlled, indirectly, by Crescent Peak II Investments Ltd.,
which in turn is controlled by David M. Hand and Richard T. Scanlon. The address for each of Crescent Peak, Ltd., Crescent P.E., Ltd. and Crescent Peak II Limited is One Temasek Avenue,
No. 20-01, Millenia Tower, Singapore 039192.
-
(12)
-
Represents
19,384,853 Tudou Class B shares held by Sennett Investments (Mauritius) Pte Ltd, a private company limited by shares
incorporated in Mauritius.Sennett Investments (Mauritius) Pte Ltd is wholly-owned by Dunearn Investments (Mauritius) Pte Ltd, which in turn is wholly-owned by Seletar Investments
Pte Ltd. Seletar Investments Pte Ltd is wholly-owned by Temasek Capital (Private) Limited which in turn is wholly-owned by Temasek Holdings (Private) Limited. Temasek Holdings (Private)
Limited is wholly-owned by the Government of Singapore through the Minister of Finance. Please see the Schedule 13G for the information relating to Sennett Investments (Mauritius)
Pte Ltd and certain other reporting persons filed with the SEC on February 14, 2012. The registered office address for Sennett Investments (Mauritius) Pte Ltd is IMM, Les Cascades
Building, Edith Cavell Street, Port Louis, Mauritius, and the mailing address is 60B Orchard Road, #06-18 Tower 2, the Atrium@Orchard, Singapore 238891.
-
(13)
-
Represents
8,913,333 Tudou Class A shares held by First Easy Group Limited, a British Virgin Islands company ultimately owned by
Mr. Wang's family trust. See note (1) to this table for details of Mr. Wang's family trust. The address for First Easy Group Limited is P.O. Box 957, Offshore
Incorporations Centre, Road Town, Tortola, British Virgin Islands.
-
(14)
-
Represents
8,127,384 Tudou Class B shares held by IDG Technology Venture Investment III, L.P., a limited partnership
incorporated under the laws of the State of Delaware, and 2,252,307 Tudou Class B shares held by IDG Technology Venture Investment IV, L.P., a limited partnership incorporated
under the laws of the State of Delaware. The general partner of IDG Technology Venture Investment III, L.P. is IDG Technology Venture Investment III, LLC, which in turn is controlled by
its managing members, Mr. Quan Zhou and Mr. Patrick J. McGovern. The general partner of IDG Technology Venture Investment IV, L.P. is IDG Technology Venture Investment
IV, LLC, which in turn is controlled by its managing members, Mr. Quan Zhou and Mr. Patrick J. McGovern. Each of Mr. Zhou and Mr. McGovern disclaims beneficiary
ownership with
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respect
to the shares held by IDG Technology Venture Investment III, L.P. and IDG Technology Venture Investment IV, L.P. except to the extent of his pecuniary interest therein. The
address for each of IDG Technology Venture Investment III, L.P. and IDG Technology Venture Investment IV, L.P. is Unit 1509, The Center, 99 Queen's Road, Central, Hong Kong.
-
(15)
-
Represents
11,027,224 Tudou Class B shares held by GGV II Delaware L.L.C., a limited liability company incorporated under the laws of
the State of Delaware. The two members of GGV II Delaware L.L.C. are GGV II Entrepreneurs Fund L.P. and Granite Global Ventures II L.P., both of which are limited partnerships
incorporated under the laws of the State of Delaware. Granite Global Ventures II L.L.C., a Delaware limited liability company, is the sole general partner of each of GGV II Entrepreneurs
Fund L.P. and Granite Global Ventures II L.P. Messrs. Ray A. Rothrock, Anthony Sun, Scott B. Bonham, Joel D. Kellman, Jixun Foo, Glenn Solomon, Hany M.
Nada, Thomas, K. Ng and Ms. Jenny Lee are members of the investment committee of Granite Global Ventures II L.L.C. Each member disclaims beneficial ownership with respect to the
shares held by GGV II Delaware L.L.C. except to the extent of his pecuniary interest therein. Please see the Schedule 13G for the information relating to Granite Global
Ventures II L.P., GGV II Entrepreneurs Fund L.P. and certain other reporting persons filed with the SEC on February 13, 2012. The address for GGV II
Delaware L.L.C. is 2494 Sand Hill Road, Suite 100, Menlo Park, CA 94025.
-
(16)
-
Represents
2,317,570 Tudou ADSs, representing 9,270,280 Tudou Class B shares held by SINA Corporation, a company organized under the
laws of the Cayman Islands, a NASDAQ-listed company. Information other than the Tudou ADS amount is based on the Schedule 13D filed by SINA Corporation with the SEC on August 26, 2011.
The principle executive address of SINA Corporation is 37F, Jin Mao Tower 88 Century Boulevard, Pudong, Shanghai 200121, China.
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COMPARISON OF RIGHTS OF HOLDERS OF YOUKU SECURITIES AND TUDOU SECURITIES
Comparison of Rights of Youku and Tudou Shareholders
The rights of Youku shareholders are governed by Cayman Islands law and the memorandum and articles of association of Youku, and the
rights of Tudou shareholders are governed by Cayman Islands law and the memorandum and articles of association of Tudou. Upon completion of the Merger, the rights of Tudou shareholders who become
shareholders of Youku in the Merger will be governed by Cayman Islands law and the memorandum and articles of association of Youku.
While
both Youku and Tudou are companies organized under the laws of the Cayman Islands, and accordingly, the shareholder rights of both companies are governed by Cayman Islands law,
there are certain differences between the rights of Youku shareholders and the rights of Tudou shareholders due to differences between the two companies' respective memorandum and articles of
association. Summarized below are the material differences between the two companies' respective memorandum and articles of association in regards to shareholder rights. The statements in this joint
proxy statement/prospectus concerning a comparison of shareholder rights is necessarily a summary and is not intended to identify immaterial differences that may exist between the rights of Youku
shareholders and the rights of Tudou shareholders.
This
comparison is qualified in its entirety by reference to Youku's and Tudou's respective amended and restated memorandum and articles of association, both of which should be read
carefully. Youku's amended and restated memorandum and articles of association were filed as Exhibit 3.2 to Youku's registration statement on Form F-1 (SEC File
No. 333-170603), as amended, for its initial public offering, initially filed with the SEC on November 15, 2010, and is incorporated herein by reference, and the description
of the Youku shares contained in the section headed "Description of Share Capital" in Youku's registration statement on Form F-1 (SEC File No. 333-173963), as
amended, for its follow-on public offering, initially filed with the SEC on May 5, 2011, is incorporated herein by reference. Tudou's amended and restated memorandum and articles of
association were filed as Exhibit 3.2 to Tudou's registration statement on Form F-1 (SEC File No. 333-170485), as amended, for its initial public offering,
initially filed with the SEC on November 9, 2010, and a description of the Tudou shares is contained in the section headed "Description of Share Capital" in Tudou's registration statement on
Form F-1, as amended, for its initial public offering, initially filed with the SEC on November 9, 2010. For more information, see "Where You Can Find More Information" and
"Incorporation of Certain Documents by Reference" on pages 252 and 253, respectively, of this joint proxy statement/prospectus.
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|
|
|
Provisions Applicable to Holders of Youku Ordinary Shares
|
|
Provisions Applicable to Holders of Tudou Ordinary Shares
|
Voting and Conversion Rights of Shareholders
|
Voting
Subject to the following paragraph, holders of Youku Class A shares and holders of Youku Class B shares shall at all times vote together as one class on all matters submitted to a vote by shareholders,
and, where a poll is requested, each Youku Class A share shall be entitled to one vote on all matters subject to a vote at general meetings of Youku and each Youku Class B share shall be entitled to three (3) votes on all matters
subject to a vote at general meetings of Youku. Except for the voting and conversion rights attached to such shares, each Youku Class A share and each Youku Class B share have the same economic and income rights in all circumstances.
The following matters are subject to the approval by the holders representing a majority of the aggregate voting power of Youku and also by the holders of a majority of the total outstanding Youku
Class A shares:
(1) (a) an amalgamation, arrangement or consolidation or scheme of arrangement (i) in which Youku
is not the surviving entity, except for a transaction the principal purpose of which is to change the jurisdiction in which Youku is incorporated or (ii) following which the holders of the voting securities of Youku do not continue to hold more
than 50% of the combined voting power of the voting securities of the surviving entity, or (b) sale, transfer or other disposition of all or substantially all of the assets of Youku.
(2) issuance of that number of Youku shares, or of securities convertible into or exercisable for that number of Youku shares, equal to or in excess of twenty percent (20%)
of the number of all Youku shares outstanding immediately prior to the issuance of such shares or securities on an as-converted basis, if (a) such Youku shares are sold at a per share price less than the per share book or market value of the
Youku shares or (b) such securities convertible into or exercisable for the Youku shares have a per share conversion or exercise price less than the per share book or market value of the Youku shares;
(3) election of director(s) to the Youku Board at an annual general meeting; and
|
|
Voting
Holders of Tudou Class A shares and Tudou Class B shares shall at all times vote together as one class on all resolutions submitted to a vote by shareholders. Each Tudou Class A share is entitled
to four (4) votes on all matters subject to vote at general meetings of Tudou, and each Tudou Class B share is entitled to one (1) vote on all matters subject to vote at general meetings of Tudou.
Except for voting rights and conversion rights as set out below, the Tudou Class A shares and the Tudou Class B shares shall rank pari passu and shall have the same rights, preferences, privileges and restrictions.
|
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|
|
|
Provisions Applicable to Holders of Youku Ordinary Shares
|
|
Provisions Applicable to Holders of Tudou Ordinary Shares
|
(4) issuance of Youku shares, or of securities convertible into or exercisable for Youku shares exceeding either 1% of the total
outstanding Youku shares on an as-converted basis or 1% of the aggregate voting power outstanding before the issuance to a director, officer or substantial security holder of Youku on an individual basis.
|
|
|
Conversion
Each Youku Class B share is convertible into one (1) share of Youku Class A share at any time by the holder thereof. In no event shall Youku Class A shares be convertible into Youku
Class B shares. A conversion of Youku Class B shares to Youku Class A shares shall be effected by way of compulsory repurchase by Youku of the relevant Youku Class B shares for a redemption price equal to the original issue price
for each Youku Class B share and the issue of Youku Class A shares for a subscription price equal to the redemption price for an equal number of Youku Class B shares.
Upon any sale,
pledge, transfer, assignment or disposition of Youku Class B shares by a holder thereof to any person or entity which is not an affiliate of such holder, such Youku Class B shares shall be automatically and immediately converted into an
equal number of Youku Class A shares.
|
|
Conversion
Each Tudou Class A share is convertible into one (1) Tudou Class B share at any time by the holder thereof. In no event shall Tudou Class B shares be convertible into Tudou Class A
shares. The right to convert shall be exercisable by the holder of the Tudou Class A share delivering a written notice to Tudou that such holder elects to convert a specified number of Tudou Class A shares into Tudou Class B
shares.
Upon any sale, pledge, transfer, assignment or disposition of Tudou Class A shares by a holder thereof to any person or entity which is not an affiliate of such holder, such Tudou
Class A shares shall be automatically and immediately converted into an equal number of Tudou Class B shares.
In the event that Mr. Gary Wei Wang ceases to be employed by Tudou as chief executive officer, all the Tudou Class A shares then issued and outstanding shall be automatically and immediately converted into an equal
number of Tudou Class B shares.
Any conversion of Tudou Class A shares into Tudou Class B shares shall be effected by means of the re-designation of the relevant Tudou Class A share
as a Tudou Class B share. Such conversion shall become effective forthwith upon entries being made in the register of members to record the re-designation of the relevant Tudou Class A shares as Tudou Class B shares.
|
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|
|
|
Provisions Applicable to Holders of Youku Ordinary Shares
|
|
Provisions Applicable to Holders of Tudou Ordinary Shares
|
Issue of Shares
|
Subject to the provisions, if any, in Youku's amended and restated memorandum and articles of association and to any direction that may be given by Youku in a general meeting, the directors may, in their absolute
discretion and without approval of the existing Youku shareholders, issue shares, grant rights over existing shares or issue other securities in one or more series as they deem necessary and appropriate and determine designations, powers, preferences,
privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the shares held by existing Youku shareholders,
at such times and on such other terms as they think proper.
The directors may provide, out of the unissued shares, for series of preferred shares. Before any preferred shares of any such series are issued, the directors shall fix, by resolution or resolutions, the
following provisions of the preferred shares thereof:
(1) the designation of such series, the number of preferred shares to
constitute such series and the subscription price thereof if different from the par value thereof;
(2) whether the shares of such
series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited;
(3) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such
dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of any other class or any other series of preferred shares;
(4) whether the preferred shares of such series shall be subject to redemption by Youku, and, if so, the times, prices and other
conditions of such redemption;
(5) the amount or amounts payable upon preferred shares of such series upon, and the rights of the
holders of such series in, a voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of Youku;
|
|
Subject to applicable law, rules, regulations and the relevant provisions, if any, in Tudou's amended and restated memorandum of association, the directors may, in their absolute discretion and without the approval of
the Tudou shareholders, cause Tudou to issue such amounts of additional shares (including, without limitation, preferred shares), grant rights over existing shares or issue other securities in one or more series as they deem necessary and appropriate
and determine designations, powers, preferences, privileges and other rights, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights
associated with the then outstanding shares, at such times and on such other terms as they think proper.
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|
|
|
Provisions Applicable to Holders of Youku Ordinary Shares
|
|
Provisions Applicable to Holders of Tudou Ordinary Shares
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(6) whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the
extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation
thereof;
(7) whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or any other
series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by Youku of, the existing Youku shares or shares of any other class of shares or any other series of preferred shares;
(9) the conditions or restrictions, if any, upon the creation of indebtedness of Youku or upon the issue of any additional shares, including
additional shares of such series or of any other class of shares or any other series of preferred shares; and
(10) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations
and restrictions thereof.
Subject to the articles of Youku's amended and restated articles of association concerning directors, the voting powers of any series of preferred shares may include the right,
in the circumstances specified in the resolution or resolutions providing for the issuance of such preferred shares, to elect one or more directors who shall serve for such term and have such voting powers as shall be stated in the resolution or
resolutions providing for the issuance of such preferred shares. The term of office and voting powers of any director elected in the manner provided in the immediately preceding sentence may be greater than or less than those of any other director or
class of directors.
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Provisions Applicable to Holders of Youku Ordinary Shares
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Provisions Applicable to Holders of Tudou Ordinary Shares
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The powers, preferences and relative, participating, optional and other special rights of each series of preferred shares, and the qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding. All shares of any one series of preferred shares shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times
may differ as to the dates from which dividends thereon shall be cumulative.
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Transfer of Shares
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Youku shares are transferable; provided that the Youku Board may, in its sole discretion, decline to register any transfer of any Youku share which is not fully paid up or on which Youku has a lien. Directors of the
Youku Board may also decline to register any transfer of any Youku share unless:
(1) the instrument of transfer is lodged with
Youku, accompanied by the certificate for the Youku shares to which it relates and such other evidence as the Youku Board may reasonably require to show the right of the transferor to make the transfer;
(2) the Youku shares conceded are free of any lien in favor of Youku; and
(3) a fee of such maximum sum as the New York Stock Exchange may determine to be payable, or such lesser sum as the Youku Board may from time to time require, is paid to
Youku in respect thereof.
Any one of the directors of the Youku Board authorized by the Youku Board shall have the power to accept the transfers of Youku shares.
The registration of transfers may, on 14 days' notice being given by advertisement in one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as the Youku Board may from
time to time determine.
The instrument of transfer of any share shall be in writing and executed by or on behalf of the transferor (and if the directors of the Youku Board so require, signed by the transferee). The Youku Board
may also resolve, either generally or in any particular case, upon request by either the transferor or transferee, to accept mechanically executed transfers. The transferor shall be deemed to remain a holder of the Youku share until the name of the
transferee is entered in Youku's register of members.
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The instrument of transfer of any Tudou share shall be in writing and in such usual or common form or such other form as the Tudou directors may in their discretion approve and be executed by or on behalf of the
transferor and shall be accompanied by the certificate of the Tudou shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to
remain a holder of the Tudou share until the name of the transferee is entered in Tudou's register of members in respect thereof.
The directors may, in their absolute discretion, and without assigning any reason, refuse to register a transfer of any Tudou share which is not fully paid up or upon which Tudou has a lien.
The directors may also decline to register any transfer of any share unless:
(1) the
instrument of transfer is lodged with Tudou, accompanied by the certificate for the Tudou shares to which it relates and such other evidence as the Tudou directors may reasonably require to show the right of the transferor to make the
transfer;
(2) the instrument of transfer is in respect of only one class of Tudou shares;
(3) the instrument of transfer is properly stamped, if required;
(4) in the case of a transfer to joint holders, the number of joint holders to whom the Tudou share is to be transferred does not
exceed four;
(5) the shares transferred are free of any lien in favor of Tudou; or
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Provisions Applicable to Holders of Youku Ordinary Shares
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Provisions Applicable to Holders of Tudou Ordinary Shares
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(6) a fee of such maximum sum as the Nasdaq may determine to be payable or such lesser sum as the directors may from time to time require is paid
to Tudou in respect thereof.
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The registration of transfers of shares may, after not less than 14 days' notice has been given by advertisement in an appointed newspaper or any other newspapers or by any other means (including by electronic means)
in accordance with the requirements of the Nasdaq to that effect, be suspended and Tudou's register of members closed at such times and for such periods (not exceeding in the whole 30 calendar days in any year) as the directors may
determine.
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Variation of Rights Attaching to Shares
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If at any time the share capital is divided into different classes or series of shares, the rights attaching to any class or series (unless otherwise provided by the terms of issue of the shares of that class or
series) may, subject to Youku's amended and restated articles of association, be varied or abrogated with the consent in writing of the holders of a majority of the issued shares of that class or series or with the sanction of a special resolution
passed at a general meeting of the holders of the shares of that class or series.
The provisions of Youku's articles of association relating to general meetings shall apply to every such general
meeting of the holders of one class or series of shares except the following:
(1) separate general meetings of the holders of a class or series of shares may be called only by (a) the chairman of the Youku Board, or (b) a
majority of the entire Youku Board (unless otherwise specifically provided by the terms of issue of the shares of such class or series). Neither of the two preceding paragraphs shall be deemed to give any Youku shareholder or Youku shareholders the
right to call a class or series meeting.
(2) the necessary quorum shall be one or more persons holding or representing by proxy at
least one-third of the issued shares of the class or series and any holder of shares of the class or series present in person or by proxy may demand a poll.
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If at any time the share capital is divided into different classes of shares, the rights attaching to any class (unless otherwise provided by the terms of issue of the shares of that class) may, subject to Tudou's
amended and restated articles of association, be varied or abrogated with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders
of the shares of that class.
The provisions of Tudou's articles and of association relating to general meetings shall apply to every such general meeting of the holders of one class of shares except that the necessary quorum shall be
one person holding or representing by proxy at least one-third of the issued shares of the class.
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Provisions Applicable to Holders of Youku Ordinary Shares
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Provisions Applicable to Holders of Tudou Ordinary Shares
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Convening Extraordinary General Meetings of Shareholders
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An extraordinary general meeting of Youku shareholders shall, whether or not the notice of the extraordinary general meeting has been given and whether or not the provisions of Youku's amended and restated articles
of association regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed by a majority in number of Youku shareholders (or their proxies) having a right to attend and vote at the meeting, being a
majority together holding not less than ninety five percent in par value of the Youku shares giving that right.
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An extraordinary general meeting of Tudou shareholders shall, whether or not the notice of the extraordinary general meeting has been given and whether or not the provisions of Tudou's amended and restated articles of
association regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed by a majority in number of Tudou shareholders (or their proxies) having a right to attend and vote at the meeting, being a
majority together holding not less than seventy five percent in par value of the Tudou shares giving that right.
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Quorum for General Meetings
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At least one Youku shareholder holding not less than an aggregate of one-third of all voting share capital of Youku in issue present in person or by proxy and entitled to vote shall be a quorum for a general meting
for all purposes.
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Two or more Tudou shareholders holding not less than an aggregate of one-third of all voting share capital of Tudou in issue present in person or by proxy or, if a corporation or other non-natural person, by its duly
authorized representative or proxy and entitled to vote shall be a quorum for a general meeting all purposes.
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Directors
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The Youku Board shall consist of not less than five directors (exclusive of alternate directors), provided that Youku may from time to time by ordinary resolution increase or decrease the number of directors on the
Youku Board.
The directors by the affirmative vote of a simple majority of the remaining directors present and voting at a Youku Board meeting, or the sole remaining director, shall have the power from
time to time and at any time to appoint any person as a director to fill a casual vacancy on the Youku Board or as an addition to the existing Youku Board, subject to Youku's compliance with director nomination procedures required under applicable
New York Stock Exchange corporate governance rules.
If (1) a director was or is affiliated with or was appointed to the Youku Board by a holder or a group of affiliated holders of preferred shares
and/or Youku Class A shares converted from preferred shares of Youku prior to the completion of Youku's initial public offering, and (2) such holder or holders ceases to own 5% or more of Youku's total issued and outstanding Youku shares on
an as-converted basis, the Youku Board may request the director to resign from the Youku Board and the director shall resign from the Youku Board when a suitable director replacement candidate is identified by the Youku Board after a reasonable
period of time.
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Unless otherwise determined by Tudou in a general meeting, the number of directors shall not be less than three and not more than ten. The directors shall be elected or appointed by Tudou shareholders at a general
meeting or by the Tudou Board in accordance with Tudou's amended and restated articles and memorandum of association.
Tudou may by ordinary resolution elect any person to be a director either to fill a
casual vacancy on the Tudou Board or as an addition to the existing Tudou Board.
The directors may appoint any person as a director to fill a casual vacancy on the Tudou Board or as an addition to the
existing Tudou Board. Any director so appointed by the Tudou Board shall only hold office until the next annual general meeting of Tudou and shall then be eligible for election.
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Provisions Applicable to Holders of Youku Ordinary Shares
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Provisions Applicable to Holders of Tudou Ordinary Shares
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Proceedings of Directors
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Questions arising at any meeting of the directors shall be decided by a majority of votes and each director shall be entitled to one vote in deciding matters deliberated at any meeting of the directors. In case of
equality of votes, the chairman shall have a second or casting vote.
The chairman or at least a majority of the directors then in office may at any time summon a meeting of the directors by prior
notice to every other director and alternate director.
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Subject to the paragraph below, questions arising at any meeting of the directors shall be decided by a majority of votes. In case of an equality of votes the chairman of the meeting shall not have a second or casting
vote. A director may at any time summon a meeting of the directors by at least three calendar days' notice in writing to every other director and alternate director, which notice shall set forth the general nature of the business to be considered,
unless notice is waived by all the directors (or their alternates) either at, before or after the meeting is held.
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The following matters shall require the affirmative vote of at least two-thirds of all the directors:
(1)
the appointment of either of the chief executive officer or chief financial officer;
(2) any anti-takeover
action in response to a takeover attempt;
(3) any merger or consolidation of Tudou with or into any other business entity in which
the shareholders of Tudou immediately prior to such merger or consolidation held shares representing less than a majority of the voting power of the outstanding share capital of the surviving business entity;
(4) the sale or transfer of all or substantially all of the assets of Tudou; and
(5) any change in the number of directors on the Tudou Board, subject to certain articles of Tudou's amended and restated articles of association concerning removal of a
director from office by special resolution and certain circumstances in which the office of director shall be vacated.
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Dividend Rights
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The Youku amended and restated articles of association do not contain provisions such as those described in the two paragraphs for Tudou under this heading "Dividend and Liquidation Rights."
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The directors may deduct from any dividend or distribution payable to any Tudou shareholder all sums of money (if any) then payable by him to Tudou on account of calls or otherwise.
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Provisions Applicable to Holders of Youku Ordinary Shares
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Provisions Applicable to Holders of Tudou Ordinary Shares
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Any dividend or distribution which cannot be paid to a Tudou shareholder and/or which remains unclaimed after six months from the date of declaration of such dividend or distribution may, in the discretion of the
directors, be paid into a separate account in Tudou's name, provided that Tudou shall not be constituted as a trustee in respect of that account and the dividend or distribution shall remain as a debt due to the shareholder. Any dividend or
distribution which remains unclaimed after a period of six years from the date of declaration of such dividend or distribution shall be forfeited and shall revert to Tudou.
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Capitalization of Profits
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The Youku Board requires the authority of an ordinary resolution of the shareholders of Youku in order to capitalize any amounts standing to the credit of Youku's profit and loss account or other reserves in order to
pay up in full new shares to be issued to shareholders, or to pay up amounts unpaid on existing issued shares.
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The Tudou Board has authority, without any further sanction or approval required of Tudou's shareholders, to capitalize any amounts standing to the credit of Tudou's profit and loss account or other reserves in order
to pay up in full new shares to be issued to shareholders, or to pay up amounts unpaid on existing issued shares.
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Effect of the Merger on Youku Shareholder Rights
In the event that the Merger is completed, Mr. Gary Wei Wang, the chairman and chief executive officer of Tudou, and
Mr. Jixun Foo, an appointee of GGV II Delaware L.L.C., one of Tudou's principal shareholders, shall become members of the Youku Board, subject to certain conditions. For more information,
please see "The Merger Agreement and Plan of MergerBoard Representation Rights" beginning on page 147.
Comparison of Rights of Youku and Tudou American Depositary Share Holders
The rights of Youku ADS holders are governed by the Youku Deposit Agreement, and the rights of Tudou ADS holders are governed by the
Tudou Deposit Agreement.
Upon completion of the Merger, the rights of Tudou ADS holders who become Youku ADS holders in the Merger will be governed by the Youku Deposit Agreement.
Summarized
below are the material difference between the rights of Youku ADS holders under the Youku Deposit Agreement and the rights of Tudou ADS holders under the Tudou Deposit
Agreement. The statements in this joint proxy statement/prospectus concerning a comparison of ADS holder rights is necessarily a summary and is not intended to identify immaterial differences that may
exist between the rights of Youku ADS holders and the rights of Tudou ADS holders. This comparison is qualified in its entirety by reference to the Youku Deposit Agreement and the Tudou Deposit
Agreement, both of which should be read carefully.
The
Youku Deposit Agreement was filed as Exhibit 4.3 to Youku's registration statement on Form S-8 (SEC File No. 333-171454) filed with the
SEC on December 29, 2010. An amended form of Youku ADR was filed with the SEC on Form F-6 (SEC File No. 333-170709) on November 25, 2011. The
amended form of Youku ADR amends the form of Youku ADR which was included as Exhibit A to the Youku Deposit Agreement filed as Exhibit 4.3 to Youku's registration statement on
Form S-8 filed with the SEC on December 29, 2010. The description of the Youku ADSs contained in the section headed "Description of American Depositary Shares" in Youku's
registration statement on Form F-1, as amended, for its follow-on public offering, initially filed with the SEC on May 5, 2011, and such description of the Youku
ADSs is incorporated herein by reference.
The
Tudou Deposit Agreement was filed as Exhibit 4.3 to Tudou's registration statement on Form F-1, as amended, for its initial public offering, initially filed
with the SEC on November 9, 2010, and a description of the Tudou ADSs is contained in the section headed "Description of American Depositary Shares" in Tudou's registration statement on
Form F-1, as amended, for its initial public offering, initially filed with the SEC on November 9, 2010.
For
more information, see "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference" on pages 252 and 253, respectively, of this joint proxy
statement/prospectus.
All
references to the depositary in the left hand column below refer to the Youku depositary and all references to the depositary in the right hand column below refer to the Tudou
depositary; and all references to ADSs in the left hand column below refer to Youku ADSs, and all references to ADSs in the right hand column below refer to Tudou ADSs.
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Provisions Applicable to
holders of Youku ADSs
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Provisions Applicable to
holders of Tudou ADSs
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General
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The Youku ADS depositary is Citibank, N.A. pursuant to the Youku Deposit Agreement.
Each Youku ADS represents 18 Youku Class A shares deposited with the Citibank,
N.A.Hong Kong (the Youku custodian) and the right to receive any other property received by the Youku depositary or the custodian on behalf of the owner of the Youku ADSs.
Holders of Youku ADSs are not treated as shareholders of Youku and do not have the same rights as Youku Class A shareholders. Rather, such holders have rights as holders of Youku ADSs, which are set
forth in the Youku Deposit Agreement. The Youku ADS depositary will actually be the holder of the Youku Class A shares underlying the registered Youku ADSs, so holders of Youku ADSs must rely on it to exercise the rights of a shareholder of
Youku on their behalf.
An investor may hold the Youku ADSs either directly or indirectly through its broker, dealer, commercial bank, trust company or other nominee. If an investor holds Youku ADSs
directly, it is a Youku ADR holder and the Youku ADSs will be registered in its name on the books of the Youku ADS depositary.
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The Tudou ADS depositary is Bank of New York Mellon pursuant to the Tudou Deposit Agreement.
Each Tudou ADS represents an ownership interest in four Tudou Class B
shares deposited with the principal Hong Kong office of the Hongkong and Shanghai Banking Corporation Limited (the "Tudou custodian"), as custodian for the depositary, and any securities, cash or property received by the Tudou depositary or the Tudou
custodian in respect of such Tudou ADS and at such time held under the Tudou ADS Deposit Agreement.
Holders of Tudou ADSs are not treated as Tudou Class B shareholders and do not have the same
rights as Tudou Class B shareholders. Rather, such holders have rights as holders of Tudou ADSs, which are set forth in the Tudou ADS Deposit Agreement. The custodian, as the Tudou depositary's agent, will actually be the registered owner of the
Tudou Class B shares underlying the Tudou ADSs, so holders of Tudou ADSs must rely on it to exercise the rights of a Tudou Class B shareholder on their behalf.
An investor may hold the Tudou ADSs either directly or indirectly through its broker, dealer, commercial bank, trust company or other nominee. If an investor holds Tudou ADSs directly, it is a Tudou ADR
holder and the Tudou ADSs will be registered in its name on the books of the Tudou depositary.
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Dividends and Other Distributions
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Youku ADS holders generally have the right to receive distributions Youku makes on the securities deposited with the custodian. A Youku ADS holder's receipt of these distributions may be limited, however, by
practical considerations and legal limitations. Holders will receive such distributions under the terms of the Youku Deposit Agreement in proportion to the number of Youku ADSs held as of a specified record date.
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The depositary has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its fees and expenses. Holders will
receive these distributions in proportion to the number of Tudou Class B shares their ADSs represent.
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Provisions Applicable to
holders of Youku ADSs
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Provisions Applicable to
holders of Tudou ADSs
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Distributions of Cash
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Distributions of Cash
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Whenever Youku makes a cash distribution for the securities on deposit with the custodian, it will deposit the funds with the custodian. Upon receipt of confirmation of the deposit of the requisite funds, the
depositary will arrange for the funds to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to the laws and regulations of the Cayman Islands.
The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The amounts distributed to holders will be net of the fees, expenses,
taxes and governmental charges payable by holders under the terms of the Youku Deposit Agreement. The depositary will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian
in respect of securities on deposit.
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The depositary will convert any cash dividend or other cash distribution Tudou pays on the Tudou shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States.
If that is not possible or if any government approval is needed and can not be obtained, the Tudou Deposit Agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the
foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.
Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. The depositary will distribute only whole U.S. dollars and cents and will round
fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, holders may lose some or all of the value of the distribution.
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Distributions of Shares
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Distributions of Shares
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Whenever Youku makes a free distribution of Youku shares for the securities on deposit with the custodian, it will deposit the applicable number of ordinary shares with the custodian. Upon receipt of confirmation of
such deposit, the depositary will either distribute to holders new ADSs representing the ordinary shares deposited or modify the ADS-to-ordinary share ratio, in which case each ADS held will represent rights and interests in the additional ordinary
shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.
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The depositary may distribute additional ADSs representing any shares Tudou distribute as a dividend or free distribution. The depositary will only distribute whole ADSs. It will try to sell shares which would require
it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new shares. The depositary may sell a portion of
the distributed shares sufficient to pay its fees and expenses in connection with that distribution.
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The distribution of new ADSs or the modification of the ADS-to-ordinary share ratio upon a distribution of ordinary shares will be made net of the fees, expenses, taxes and governmental charges payable
by holders under the terms of the Youku Deposit Agreement. In order to pay such taxes or governmental charges, the depositary may sell all or a portion of the new ordinary shares so distributed.
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Provisions Applicable to
holders of Youku ADSs
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Provisions Applicable to
holders of Tudou ADSs
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No such distribution of new ADSs will be made if it would violate a law (including U.S. securities laws) or if it is not operationally practicable. If the depositary does not distribute new ADSs as
described above, it may sell the ordinary shares received upon the terms described in the Youku Deposit agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.
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Distributions of Rights
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Distributions of Rights
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Whenever Youku intends to distribute rights to purchase additional ordinary shares, it will give prior notice to the depositary and it will assist the depositary in determining whether it is lawful and reasonably
practicable to distribute rights to purchase additional ADSs to holders.
The depositary will establish procedures to distribute rights to purchase additional ADSs to holders and to enable such holders
to exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if Youku provides all of the documentation contemplated in the Youku Deposit Agreement (such as opinions to address the lawfulness
of the transaction). ADS holders may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of their rights. The depositary is not obligated to establish procedures to facilitate the
distribution and exercise by holders of rights to purchase new ordinary shares other than in the form of ADSs.
The depositary will not distribute the rights to ADS holders if:
Youku does not timely request that the rights be distributed to the ADS holder or Youku requests that the rights not be distributed to the ADS
holder; or
Youku fails to deliver satisfactory documents to the depositary; or
it is not reasonably practicable to distribute the rights.
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If Tudou offers holders of its securities any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to ADS holders. If the depositary decides it is not legal and
practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that
are not distributed or sold to lapse. In that case, ADS holders will receive no value for them.
If the depositary makes rights available to ADS holders, it will exercise the rights and purchase the
shares on the holders' behalf. The depositary will then deposit the shares and deliver ADSs to the persons entitled to them. It will only exercise rights if the holder pays it the exercise price and any other charges the rights require such holder to
pay.
U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares purchased upon exercise of rights. For example, holders may not be able to trade these ADSs freely in the
United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions in place.
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Provisions Applicable to
holders of Youku ADSs
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Provisions Applicable to
holders of Tudou ADSs
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The depositary will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of such sale will be distributed to holders as in the case of a
cash distribution. If the depositary is unable to sell the rights, it will allow the rights to lapse.
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Elective Distributions
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Whenever Youku intends to distribute a dividend payable at the election of shareholders either in cash or in additional shares, it will give prior notice thereof to the depositary and will indicate
whether it wishes the elective distribution to be made available to the holder. In such case, Youku will assist the depositary in determining whether such distribution is lawful and reasonably practicable.
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N/A
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The depositary will make the election available to the holder only if it is reasonably practicable and if Youku has provided all of the documentation contemplated in the Youku Deposit Agreement. In such
case, the depositary will establish procedures to enable the holder to elect to receive either cash or additional ADSs in each case as described in the Youku Deposit Agreement.
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If the election is not made available to the holder, you will receive either cash or additional ADSs, depending on what a holder of ordinary shares would receive upon failing to make an
election.
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Other Distributions
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Other Distributions
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Whenever Youku intends to distribute property other than cash, ordinary shares or rights to purchase additional ordinary shares, it will notify the depositary in advance and will indicate whether it wishes such
distribution to be made to the holder. If so, Youku will assist the depositary in determining whether such distribution to holders is lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to the ADS holder and if Youku provides all of the documentation contemplated in the Youku Deposit Agreement, the depositary will distribute the
property to the holders in a manner it deems practicable.
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The depositary will send to ADS holders anything else Tudou distributes on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a
choice. It may decide to sell what Tudou distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what Tudou distributed, in which case ADSs will also represent the newly distributed property.
However, the depositary is not required to distribute any securities to ADS holders unless it receives satisfactory evidence from Tudou that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or
property sufficient to pay its fees and expenses in connection with that distribution.
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Provisions Applicable to
holders of Youku ADSs
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Provisions Applicable to
holders of Tudou ADSs
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The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the Youku Deposit Agreement. In order to pay such taxes and governmental charges,
the depositary may sell all or a portion of the property received.
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The depositary will not distribute the property to a holder and will sell the property if:
Youku does not request that the property be distributed to the holder or if
Youku asks that the property not be distributed to the holder; or
Youku does not deliver satisfactory documents to the depositary; or
the depositary determines that all
or a portion of the distribution to the holder is not reasonably practicable.
|
|
|
The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.
|
|
|
Redemption
|
|
|
Whenever Youku decides to redeem any of the securities on deposit with the custodian, it will notify the depositary in advance. If it is practicable and if Youku provides all of the documentation
contemplated in the Youku Deposit Agreement, the depositary will provide notice of the redemption to the holders.
The custodian will be instructed to surrender the shares being redeemed against payment
of the applicable redemption price. The depositary will convert the redemption funds received into U.S. dollars upon the terms of the Youku Deposit Agreement and will establish procedures to enable holders to receive the net proceeds from the
redemption upon surrender of their ADSs to the depositary. ADS holders may have to pay fees, expenses, taxes and other governmental charges upon the redemption of their ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be
selected by lot or on a pro rata basis, as the depositary may determine.
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|
N/A
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|
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Provisions Applicable to
holders of Youku ADSs
|
|
Provisions Applicable to
holders of Tudou ADSs
|
Voting
|
ADS holders generally have the right under the Youku Deposit Agreement to instruct the depositary to exercise the voting rights for the Youku Class A shares represented by ADSs.
If
Youku asks for ADS holders' instructions in a timely manner pursuant to the Youku Deposit Agreement, as soon as practicable after receiving notice of any meeting or solicitation of consents or proxies from Youku, the depositary will distribute to the
registered ADS holders a notice stating such information as is contained in the voting materials received by the depositary and describing how ADS holders may instruct the depositary to exercise the voting rights for the shares which underlie the ADS
holders' ADSs, including circumstances under which a discretionary proxy may be given to a person designated by Youku. At the holder's request, the depositary will distribute to the holder any notice of shareholders' meeting received from Youku
together with information explaining how to instruct the depositary to exercise the voting rights of the securities represented by ADSs.
If the depositary timely receives voting instructions from a holder of ADSs, the depositary will endeavor to cause the Youku Class A shares on deposit to be voted as follows: (a) in the event
voting takes place at a shareholders' meeting by show of hands, the depositary will instruct the custodian to vote, directly or by proxy, all Youku Class A shares on deposit in accordance with the voting instructions received from a majority of
the holders of ADSs who provided voting instructions; or (b) in the event voting takes place at a shareholders' meeting by poll, the depositary will instruct the custodian to vote, directly or by proxy, the Youku Class A shares on deposit
in accordance with the voting instructions received from holders of ADSs.
|
|
ADS holders may instruct the depositary to vote the number of deposited shares their ADSs represent. The depositary will notify ADS holders of shareholders' meetings and arrange to deliver Tudou's voting materials to
them if Tudou asks it to. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary.
Otherwise, ADS holders won't be able to exercise their right to vote unless they withdraw the shares. However, ADS holders may not know about the meeting enough in advance to withdraw the
shares.
The depositary will only vote or attempt to vote as instructed or as described in the following sentence. If Tudou asked for ADS holders' instructions but the depositary does not receive a
holder's instructions by the cutoff date it sets, the depositary will give us a discretionary proxy to vote the ordinary shares underlying such holder's ADSs as to all matters at shareholders' meetings unless:
Tudou instructed the depositary it does not
wish to receive a discretionary proxy;
Tudou
informed the depositary that there is substantial opposition to the particular matter; or
the particular matter would have a material adverse impact on shareholders.
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|
|
|
Provisions Applicable to
holders of Youku ADSs
|
|
Provisions Applicable to
holders of Tudou ADSs
|
In the event of voting by poll, holders of ADSs in respect of which no timely voting instructions have been received shall be deemed to have instructed the depositary to give a discretionary proxy to a
person designated by Youku to vote the Youku Class A shares represented by such holders' ADSs; provided, that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which Youku
informs the depositary that it does not wish such proxy to be given; provided, further, that no such discretionary proxy shall be given (1) with respect to any matter as to which Youku informs the depositary that (a) there exists
substantial opposition, or (b) the rights of holders of ADSs or the shareholders of Youku will be adversely affected and (2) in the event that the vote is on a show of hands.
|
|
|
Fees
|
Youku ADS holders are required to pay the following service fees to the depositary:
an issuance fee of up to US$0.05 per ADS issued;
a cancellation fee of up to US$0.05 per ADS cancelled;
a fee of up to US$0.05 per ADS held
for distributions of cash dividends or other cash distributions;
a fee of up to US$0.05 per ADS held for distribution of ADSs pursuant to stock dividends, free stock distributions or exercise of rights;
a fee of up to US$0.05 per ADS held for
distribution of securities other than ADSs or rights to purchase additional ADSs;
a fee of up
to US$0.05 per ADS held on the applicable record date(s) established by the depositary for depositary services; and
a fee of US$1.50 per certificate presented for transfer for the transfer of ADRs.
|
|
Persons depositing or withdrawing Tudou shares or Tudou ADS holders must pay the following amounts under the following circumstances:
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) for: (1) issuance
of ADSs, including issuances resulting from a distribution of shares or rights or other property or (2) cancellation of ADSs for the purpose of withdrawal, including if the Tudou Deposit Agreement terminates;
US$0.05 (or
less) per ADS for any cash distribution to ADS holders;
a fee equivalent to the fee that would be payable if securities distributed to an ADS holder had been shares and the shares had been deposited for issuance of ADSs for
distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders;
US$0.05 (or less) per ADSs per calendar year for depositary services;
registration
or transfer fees for transfer and registration of shares on the Tudou share register to or from the name of the depositary or its agent when an ADS holder deposits or withdraws shares;
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|
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Provisions Applicable to
holders of Youku ADSs
|
|
Provisions Applicable to
holders of Tudou ADSs
|
|
|
expenses of the depositary
for (1) cable, telex and facsimile transmissions (when expressly provided in the Tudou Deposit Agreement) and (2) converting foreign currency to U.S. dollars;
taxes and
other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes; and
any charges incurred by the depositary or its agents for servicing
the deposited securities.
|
Changes Affecting Deposited Securities
|
Upon any change in nominal or par value, split-up, cancellation, consolidation or any other reclassification of Youku shares, or upon any recapitalization, reorganization, merger, consolidation or sale of assets
affecting Youku or to which it is a party, any securities which shall be received by the depositary or the custodian in exchange for, or in conversion of or replacement of or otherwise in respect of, such Youku shares shall, to the extent permitted
by law, be treated as new Youku shares under the Youku Deposit Agreement, and the ADRs shall, subject to the provisions of the Youku Deposit Agreement and applicable law, evidence ADSs representing the right to receive such additional or replacement
securities. In giving effect to such change, split-up, cancellation, consolidation or other reclassification of Youku shares, recapitalization, reorganization, merger, consolidation or sale of assets, the depositary may, with Youku's approval, and
shall, if Youku shall so request, subject to the terms of the Youku Deposit Agreement and receipt of an opinion of counsel to Youku satisfactory to the depositary that such actions are not in violation of any applicable laws or regulations,
(1) issue and deliver additional ADSs as in the case of a stock dividend on the shares, (2) amend the Youku Deposit Agreement and the applicable ADRs, (3) amend the applicable registration statement(s) on Form F-6 as filed with
the SEC in respect of the ADSs, (4) call for the surrender of outstanding ADRs to be exchanged for new ADRs, and (5) take such other actions as are appropriate to reflect the transaction with respect to the ADSs. Youku agrees to, jointly
with the depositary, amend the registration statement on Form F-6 as filed with SEC to permit the issuance of such new form of ADRs.
|
|
Upon any change in nominal value, change in par value, split-up, consolidation, or any other reclassification of Tudou shares, or upon any recapitalization, reorganization, merger or consolidation, or sale of assets
affecting Tudou or to which it is a party, or upon the redemption or cancellation by Tudou of Tudou shares, any securities, cash or property which shall be received by the depositary or a custodian in exchange for, in conversion of, in lieu of or in
respect of Tudou shares shall be treated as new Tudou shares under the Tudou Deposit Agreement, and ADSs shall thenceforth represent, in addition to the existing Tudou shares, the right to receive the new Tudou shares so received, unless additional
ADRs are delivered pursuant to the following sentence. In any such case the depositary may deliver additional ADSs as in the case of a dividend in shares, or call for the surrender of outstanding ADRs to be exchanged for new ADRs specifically
describing such new Tudou shares.
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|
|
Provisions Applicable to
holders of Youku ADSs
|
|
Provisions Applicable to
holders of Tudou ADSs
|
Notwithstanding the foregoing, in the event that any security so received may not be lawfully distributed to some or all holders, the depositary may, with Youku's approval, and shall, if Youku requests,
subject to receipt of an opinion of Youku's counsel satisfactory to the depositary that such action is not in violation of any applicable laws or regulations, sell such securities at public or private sale, at such place or places and upon such terms
as it may deem proper and may allocate the net proceeds of such sales (net of (1) reasonable fees and charges of, and expenses incurred by, the depositary and (2) taxes) for the account of the holders otherwise entitled to such securities
upon an averaged or other practicable basis without regard to any distinctions among such holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash. The depositary shall not be
responsible for (1) any failure to determine that it may be lawful or practicable to make such securities available to holders in general or to any holder in particular, (2) any foreign exchange exposure or loss incurred in connection with
such sale, or (3) any liability to the purchaser of such securities.
|
|
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LIMITATIONS ON ENFORCEMENT OF U.S. LAWS
Youku was incorporated in the Cayman Islands in order to enjoy the following
benefits:
-
-
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:
-
-
the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws
provide significantly less protection to investors; and
-
-
Cayman Islands companies may not have standing to sue before the federal courts of the United States.
Youku's
constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between Youku, its officers,
directors and shareholders, be arbitrated.
All
of Youku's operations are conducted in China, and substantially all of its assets are located in China. A majority of Youku's officers are nationals or residents of jurisdictions
other than the United States and a substantial portion of its 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 Youku or its officers 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.
Youku
has appointed Law Debenture Corporate Services Inc. at 400 Madison Avenue, 4th Floor, New York, New York as its agent upon whom process may be served in any action
brought against it under the securities laws of the United States.
Conyers
Dill and Pearman, Youku's counsel as to Cayman Islands law, and TransAsia Lawyers, Youku's counsel as to PRC law, have advised Youku, respectively, that there is uncertainty as
to whether the courts of the Cayman Islands and China, respectively, would:
-
-
recognize or enforce judgments of United States courts obtained against Youku or its 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 Youku or its directors or officers predicated
upon the securities laws of the United States or any state in the United States.
Conyers
Dill and Pearman has further advised Youku that a final and conclusive judgment in personam in the federal or state courts of the United States under which a sum of money is
payable, other than a sum payable in respect of multiple damages, taxes, fines, penalties or similar charges, may be recognized by the courts of the Cayman Islands provided that (1) such courts
had proper jurisdiction over the parties subject to such judgment (2) such courts did not contravene the rules of natural justice of the Cayman Islands, (3) such judgment was not
obtained by fraud, (4) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands, (5) no new admissible evidence relevant to the action is
submitted prior to the rendering of the judgment by the courts of the
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Table of Contents
Cayman
Islands, and (6) there is due compliance with the correct procedures under the laws of the Cayman Islands.
TransAsia
Lawyers has further advised Youku that the recognition and enforcement of foreign judgments are provided for under PRC Civil Procedures Law. PRC courts may recognize and
enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between
jurisdictions. However, China does not have any treaties or other agreements with the United States that provide for the reciprocal recognition and enforcement of foreign judgments.
249
Table of Contents
LEGAL MATTERS
Youku is being represented by Skadden, Arps, Slate, Meagher & Flom LLP with respect to certain legal matters as to United
States federal securities and New York State law. The validity of the Youku shares represented by the Youku ADSs offered by this joint proxy statement/prospectus will be passed upon for Youku by
Conyers Dill and Pearman, and certain legal matters as to PRC law will be passed upon for Youku by TransAsia Lawyers. Skadden, Arps, Slate, Meagher & Flom LLP may rely upon Conyers Dill
and Pearman with respect to matters governed by Cayman Islands law and TransAsia Lawyers with respect to matters governed by PRC law.
Tudou
is being represented by Kirkland & Ellis International LLP and Latham & Watkins LLP with respect to certain legal matters as to United States federal
securities and New York State law. Certain legal matters as to Cayman Islands law will be passed upon for Tudou by Maples and Calder. Certain legal matters as to PRC law will be passed upon for Tudou
by Fangda Partners. Kirkland & Ellis International LLP and Latham & Watkins LLP may rely upon Maples and Calder with respect to matters governed by Cayman Islands law and
Fangda Partners with respect to matters governed by PRC law.
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Table of Contents
EXPERTS
The consolidated financial statements of Youku Inc. in Youku Inc.'s annual report on Form 20-F for the
year ended December 31, 2011, and the effectiveness of Youku Inc.'s internal control over financial reporting as of December 31, 2011 have been audited by Ernst & Young Hua
Ming, independent registered public accounting firm, as set forth in their reports thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given on the authority of such firm
as experts in accounting and auditing. The offices of Ernst & Young Hua Ming are located at Level 16, Ernst & Young Tower, Tower E3, Oriental Plaza, No. 1 East Chang An
Avenue, Dong Cheng District, Beijing 100738, People's Republic of China.
The
financial statements of Tudou Holdings Limited as of December 31, 2011 and 2010, and for each of the three years in the period ended December 31, 2011, included in this
joint proxy statement/prospectus have been so included in reliance upon the report of PricewaterhouseCoopers Zhong Tian CPAs Limited Company, an independent registered public accounting firm, given on
the authority of said firm as experts in accounting and auditing. The offices of PricewaterhouseCoopers Zhong Tian CPAs Limited Company are located at PricewaterhouseCoopers Center, 202 Hu Bin Road,
Luwan District, Shanghai 200021, People's Republic of China.
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Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
Each of Youku and Tudou files annual reports with and furnish other reports and information to the SEC. You may read and copy any
document Youku or Tudou files with or furnishes to the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these reports, as well
as proxy and information statements and other information that Youku or Tudou file with or furnish to the SEC, at the Internet website maintained by the SEC, at www.sec.gov. The address of the SEC's
website is provided solely for the information of prospective investors and is not intended to be an active link. Please visit this website or call the SEC at
1-800-SEC-0330 for further information about its Public Reference Room. Reports and other information concerning the business of Youku may also be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005, and reports and other information concerning the business of Tudou may be inspected at the offices of NASDAQ at One Liberty
Plaza, 165 Broadway, New York, New York 10006.
Youku
has filed a registration statement on Form F-4, including the exhibits filed therewith, with the SEC under the Securities Act, to register the Youku shares that
will underlie the Youku ADSs that Tudou ADS holders will receive in connection with the Merger. This joint proxy statement/prospectus is a part of that registration statement as well as a joint proxy
statement under Cayman Islands law with respect to the Youku AGM and Tudou AGM. Youku may also file amendments to the registration statement. This joint proxy statement/prospectus does not contain all
of the information set forth in the registration statement, and some parts have been omitted in accordance with the rules and regulations of the SEC. Citibank, N.A., as the Youku depositary, has
previously filed
a separate registration statement on Form F-6 (Registration No. 333-170709) with the SEC for the registration of the Youku ADSs that Tudou ADS holders will
receive in connection with the Merger. You should read the two registration statements on Form F-4 and Form F-6 and the exhibits and schedules filed with those
registration statements as they contain important information about Youku and Tudou and the Youku shares and Youku ADSs.
Each
of Youku and Tudou undertake to provide without charge to holders of Youku shares and ADSs and holders of Tudou shares and ADSs, upon request, by first class mail or other equally
prompt means, within one business day of receipt of the request, a copy of any or all of the documents incorporated by reference into this joint proxy statement/prospectus, other than the exhibits to
these documents, unless the exhibits are specifically incorporated by reference into the information that this joint proxy statement/prospectus incorporates.
Requests
for copies of the filings of Youku and Tudou should be directed to:
|
|
|
Youku
|
|
Tudou
|
Ryan Cheung
|
|
Michael Fu
|
Corporate Finance Director
|
|
Investor Relations Director
|
Youku Inc.
|
|
Tudou Holdings Limited
|
11/F, SinoSteel Plaza
|
|
Building No. 6, X2 Creative Park
|
8 Haidian Street
|
|
1238 Xietu Road
|
Haidian District, Beijing 100080
|
|
Xuhui District, Shanghai 200032
|
People's Republic of China
|
|
People's Republic of China
|
Tel: (+8610) 5885-1881 x6090
|
|
Tel: (+8621) 5170-2375
|
Email: ryan.cheung@youku.com
|
|
Email: mfu@tudou.com
|
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Table of Contents
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Youku to "incorporate by reference" certain information filed with or furnished to the SEC, which means that Youku can
disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this joint proxy statement/prospectus. With respect to this
joint proxy statement/prospectus, information that Youku later files with or furnishes to the SEC and that is incorporated by reference will automatically update and supersede information in this
joint proxy statement/prospectus and information previously incorporated by reference into this joint proxy statement/prospectus.
Each
document incorporated by reference into this joint proxy statement/prospectus is current only as of the date of such document, and the incorporation by reference of such document is
not intended to create any implication that there has been no change in the affairs of Youku since the date of the relevant document or that the information contained in such document is current as of
any time subsequent to its date. Any statement contained in such incorporated documents is deemed to be
modified or superseded for the purpose of this joint proxy statement/prospectus to the extent that a subsequent statement contained in another document that is incorporated by reference into this
joint proxy statement/prospectus at a later date modifies or supersedes that statement. Any such statement so modified or superseded will not be deemed, except as so modified or superseded, to
constitute a part of this joint proxy statement/prospectus.
This
joint proxy statement/prospectus incorporates by reference the documents listed below, which Youku has previously filed with or furnished to the SEC. These documents contain
important information about Youku and its business, financial condition and results of operation.
-
-
Youku's annual report on Form 20-F for the year ended December 31, 2011, filed with the SEC on
April 10, 2012 (SEC file number is 001-34977); and
-
-
The description of the Youku shares and Youku ADSs contained in Youku's Form 424(b)(4) final prospectus for its
follow-on public offering, filed with the SEC on May 20, 2011 (SEC file number 333-173963).
In
addition, all annual reports on Form 20-F that Youku files with the SEC and all reports on Form 6-K that Youku furnishes to the SEC indicating
that they are so incorporated by reference into this joint proxy statement/prospectus, in each case after the date of this joint proxy statement/prospectus and prior to the date of the Youku AGM, will
also be incorporated by reference into this joint proxy statement/prospectus. Any information contained in, or incorporated by reference into, this joint proxy statement/prospectus prior to the filing
with, or furnishing to, the SEC of any such report after the date of this joint proxy statement/prospectus shall be deemed to be modified or superseded to the extent that the disclosure in such report
modifies or supersedes such information.
You
may obtain copies of these documents in the manner described under "Where You Can Find More Information."
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE YOUR
SHARES AT THE YOUKU AGM OR TUDOU AGM. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
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THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 2012. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE.
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TUDOU HOLDINGS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and Shareholders of Tudou Holdings Limited:
In
our opinion, the accompanying consolidated balance sheets and related consolidated statements of operations, changes in shareholders' equity/(deficits) and cash flows present fairly,
in all material respects, the financial position of Tudou Holdings Limited (the "Company") and its subsidiaries at December 31, 2010 and 2011, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers Zhong Tian CPAs Limited Company
PricewaterhouseCoopers Zhong Tian CPAs Limited Company
Shanghai, the People's Republic of China
March 30,
2012
F-2
Table of Contents
TUDOU HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
(Amounts expressed in RMB unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2010
|
|
December 31,
2011
|
|
December 31,
2011
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
|
|
|
|
(Note 2 (aa))
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
263,150,775
|
|
|
872,000,453
|
|
|
138,546,919
|
|
Restricted cash
|
|
|
66,227,000
|
|
|
96,786,719
|
|
|
15,377,861
|
|
Short term investments
|
|
|
5,837,246
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
243,033,349
|
|
|
239,804,186
|
|
|
38,101,048
|
|
Prepayments and other current assets
|
|
|
28,299,804
|
|
|
17,888,737
|
|
|
2,842,233
|
|
Content licensed
|
|
|
1,070,902
|
|
|
64,461,085
|
|
|
10,241,835
|
|
Content produced
|
|
|
6,562,500
|
|
|
8,214,506
|
|
|
1,305,154
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
614,181,576
|
|
|
1,299,155,686
|
|
|
206,415,050
|
|
Equipment
|
|
|
46,405,816
|
|
|
88,787,903
|
|
|
14,106,977
|
|
Intangible assets
|
|
|
1,626,290
|
|
|
6,183,164
|
|
|
982,406
|
|
Other assets
|
|
|
4,353,859
|
|
|
4,211,498
|
|
|
669,140
|
|
Other long-term receivables
|
|
|
|
|
|
10,000,000
|
|
|
1,588,840
|
|
Prepayment for content to be licensed
|
|
|
|
|
|
142,750,301
|
|
|
22,680,739
|
|
Content licensed
|
|
|
32,174,634
|
|
|
141,403,738
|
|
|
22,466,791
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
698,742,175
|
|
|
1,692,492,290
|
|
|
268,909,943
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
66,812,485
|
|
|
126,643,349
|
|
|
20,121,602
|
|
Business taxes payable
|
|
|
21,158,672
|
|
|
37,640,665
|
|
|
5,980,499
|
|
Accrued liabilities and other payables
|
|
|
134,990,897
|
|
|
230,764,509
|
|
|
36,664,788
|
|
Short-term loan
|
|
|
61,243,510
|
|
|
83,343,510
|
|
|
13,241,950
|
|
Share-based compensation liability
|
|
|
134,153,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
418,358,912
|
|
|
478,392,033
|
|
|
76,008,839
|
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
|
154,039,611
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
572,398,523
|
|
|
478,392,033
|
|
|
76,008,839
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
|
Mezzanine Equity
|
|
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred shares, US$0.0001 par value; 6,000,000 shares authorized, 6,000,000 shares issued and outstanding as of
December 31, 2010 and none outstanding as of December 31, 2011 (Liquidation value: US$749,970 and nil as of December 31, 2010 and 2011)
|
|
|
7,381,256
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred shares, US$0.0001 par value; 11,333,340 shares authorized, 11,333,340 shares issued and outstanding as of
December 31, 2010 and none outstanding as of December 31, 2011 (Liquidation value: US$16,999,970 and nil as of December 31, 2010 and 2011)
|
|
|
56,292,851
|
|
|
|
|
|
|
|
Series C redeemable convertible preferred shares, US$0.0001 par value; 13,781,800 shares authorized, 13,781,800 shares issued and outstanding as of
December 31, 2010 and none outstanding as of December 31, 2011 (Liquidation value: US$38,000,000 and nil as of December 31, 2010 and 2011)
|
|
|
125,831,300
|
|
|
|
|
|
|
|
Series D redeemable convertible preferred shares, US$0.0001 par value; 21,671,117 shares authorized, 21,671,117 shares issued and outstanding as of
December 31, 2010 and none outstanding as of December 31, 2011 (Liquidation value: US$85,200,000 and nil as of December 31, 2010 and 2011)
|
|
|
376,169,360
|
|
|
|
|
|
|
|
Series E redeemable convertible preferred shares, US$0.0001 par value; 18,461,767 shares authorized, 18,461,767 shares issued and outstanding as of
December 31, 2010 and none outstanding as of December 31, 2011 (Liquidation value: US$75,000,000 and nil as of December 31, 2010 and 2011)
|
|
|
351,402,129
|
|
|
|
|
|
|
|
Shareholders' equity/(deficits)
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares (US$0.0001 par value; 9,928,751,976 shares authorized, 12,000,000 shares issued and outstanding as of December 31, 2010)
|
|
|
9,700
|
|
|
|
|
|
|
|
Class A Ordinary Shares (US$0.0001 par value;12,357,500 authorized, 8,913,333 issued and outstanding as of December 31, 2011)
|
|
|
|
|
|
5,863
|
|
|
932
|
|
Class B Ordinary Shares (US$0.0001 par value;9,977,642,500 authorized, 104,512,229 issued and outstanding as of December 31, 2011)
|
|
|
|
|
|
68,745
|
|
|
10,922
|
|
Additional paid-in capital
|
|
|
11,054,330
|
|
|
2,541,869,642
|
|
|
403,862,413
|
|
Accumulated deficits
|
|
|
(801,797,274
|
)
|
|
(1,327,843,993
|
)
|
|
(210,973,163
|
)
|
|
|
|
|
|
|
|
|
Total shareholders' equity/(deficits)
|
|
|
(790,733,244
|
)
|
|
1,214,100,257
|
|
|
192,901,104
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
|
698,742,175
|
|
|
1,692,492,290
|
|
|
268,909,943
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
TUDOU HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts expressed in RMB unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
|
|
|
|
|
|
(Note 2 (aa))
|
|
Revenue
|
|
|
100,805,799
|
|
|
329,453,609
|
|
|
572,613,750
|
|
|
90,979,162
|
|
Less: Sales taxes
|
|
|
(11,658,458
|
)
|
|
(43,195,533
|
)
|
|
(60,418,386
|
)
|
|
(9,599,514
|
)
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
89,147,341
|
|
|
286,258,076
|
|
|
512,195,364
|
|
|
81,379,648
|
|
Cost of revenues(1)
|
|
|
(127,182,087
|
)
|
|
(226,399,229
|
)
|
|
(427,841,723
|
)
|
|
(67,977,204
|
)
|
|
|
|
|
|
|
|
|
|
|
Gross profit / (loss)
|
|
|
(38,034,746
|
)
|
|
59,858,847
|
|
|
84,353,641
|
|
|
13,402,444
|
|
Operating expenses(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(73,435,247
|
)
|
|
(143,224,062
|
)
|
|
(286,847,739
|
)
|
|
(45,575,516
|
)
|
General and administrative expenses
|
|
|
(37,585,601
|
)
|
|
(104,911,440
|
)
|
|
(174,971,586
|
)
|
|
(27,800,185
|
)
|
Impairment of equipment
|
|
|
(2,372,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(113,393,137
|
)
|
|
(248,135,502
|
)
|
|
(461,819,325
|
)
|
|
(73,375,701
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(151,427,883
|
)
|
|
(188,276,655
|
)
|
|
(377,465,684
|
)
|
|
(59,973,257
|
)
|
Finance income
|
|
|
3,103,750
|
|
|
330,967
|
|
|
427,810
|
|
|
67,972
|
|
Finance expense
|
|
|
|
|
|
(12,851,263
|
)
|
|
(4,771,362
|
)
|
|
(758,093
|
)
|
Other income/(expense), net
|
|
|
(63,043
|
)
|
|
1,370
|
|
|
(133,716
|
)
|
|
(21,245
|
)
|
Foreign exchange gain/(loss)
|
|
|
3,610,023
|
|
|
(10,957,198
|
)
|
|
(15,486,249
|
)
|
|
(2,460,517
|
)
|
Beneficial conversion charge on convertible loan
|
|
|
|
|
|
(10,966,998
|
)
|
|
|
|
|
|
|
Fair value changes in warrant liabilities
|
|
|
|
|
|
(124,680,060
|
)
|
|
(113,732,565
|
)
|
|
(18,070,285
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(144,777,153
|
)
|
|
(347,399,837
|
)
|
|
(511,161,766
|
)
|
|
(81,215,425
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(144,777,153
|
)
|
|
(347,399,837
|
)
|
|
(511,161,766
|
)
|
|
(81,215,425
|
)
|
|
|
|
|
|
|
|
|
|
|
Accretion and effect of foreign exchange movement on Series A Preferred Shares
|
|
|
(847,959
|
)
|
|
(624,453
|
)
|
|
(284,625
|
)
|
|
(45,222
|
)
|
Effect of foreign exchange movement on Series B Preferred Shares
|
|
|
54,400
|
|
|
1,746,747
|
|
|
1,896,347
|
|
|
301,299
|
|
Effect of foreign exchange movement on Series C Preferred Shares
|
|
|
121,600
|
|
|
3,904,500
|
|
|
4,238,900
|
|
|
673,493
|
|
Effect of foreign exchange movement on Series D Preferred Shares
|
|
|
363,520
|
|
|
11,672,400
|
|
|
12,672,080
|
|
|
2,013,391
|
|
Accretion and effect of foreign exchange movement on Series E Preferred Shares
|
|
|
|
|
|
(31,683,102
|
)
|
|
(33,407,655
|
)
|
|
(5,307,942
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders
|
|
|
(145,085,592
|
)
|
|
(362,383,745
|
)
|
|
(526,046,719
|
)
|
|
(83,580,406
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
(12.09
|
)
|
|
(30.20
|
)
|
|
(10.51
|
)
|
|
(1.67
|
)
|
Weighted average number of ordinary shares used in computing loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
12,000,000
|
|
|
12,000,000
|
|
|
50,069,321
|
|
|
50,069,321
|
|
-
(1)
-
Share-based
compensation was allocated in cost of revenue and operating expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,875,564
|
|
|
14,133,016
|
|
|
14,177,071
|
|
|
2,252,510
|
|
Sales and marketing expenses
|
|
|
3,491,755
|
|
|
31,025,332
|
|
|
39,474,846
|
|
|
6,271,921
|
|
General and administrative expenses
|
|
|
6,155,031
|
|
|
59,418,021
|
|
|
51,382,824
|
|
|
8,163,909
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
TUDOU HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/(DEFICITS)
(Amounts expressed in RMB unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
|
|
|
|
|
|
|
Additional paid
in capital
|
|
Accumulated
deficits
|
|
Total Shareholders'
equity/(deficits)
|
|
|
|
Shares
|
|
Par value
|
|
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Balance as of December 31, 2008
|
|
|
12,000,000
|
|
|
9,700
|
|
|
87,332
|
|
|
(294,327,937
|
)
|
|
(294,230,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and effect of foreign exchange movement on Convertible Redeemable Series A Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
(847,959
|
)
|
|
(847,959
|
)
|
Effect of foreign exchange movement on Convertible Redeemable Series B Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
54,400
|
|
|
54,400
|
|
Effect of foreign exchange movement on Convertible Redeemable Series C Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
121,600
|
|
|
121,600
|
|
Effect of foreign exchange movement on Convertible Redeemable Series D Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
363,520
|
|
|
363,520
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(144,777,153
|
)
|
|
(144,777,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
12,000,000
|
|
|
9,700
|
|
|
87,332
|
|
|
(439,413,529
|
)
|
|
(439,316,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-5
Table of Contents
TUDOU HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/(DEFICITS) (Continued)
(Amounts expressed in RMB unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
|
|
|
|
|
|
|
Additional
paid in capital
|
|
Accumulated
deficits
|
|
Total Shareholders'
equity/(deficits)
|
|
|
|
Shares
|
|
Par value
|
|
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Balance as of December 31, 2009
|
|
|
12,000,000
|
|
|
9,700
|
|
|
87,332
|
|
|
(439,413,529
|
)
|
|
(439,316,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and effect of foreign exchange movement on Convertible Redeemable Series A Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
(624,453
|
)
|
|
(624,453
|
)
|
Effect of foreign exchange movement on Convertible Redeemable Series B Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
1,746,747
|
|
|
1,746,747
|
|
Effect of foreign exchange movement on Convertible Redeemable Series C Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
3,904,500
|
|
|
3,904,500
|
|
Effect of foreign exchange movement on Convertible Redeemable Series D Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
11,672,400
|
|
|
11,672,400
|
|
Accretion and effect of foreign exchange movement on Convertible Redeemable Series E Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
(31,683,102
|
)
|
|
(31,683,102
|
)
|
Beneficial conversion feature on convertible note
|
|
|
|
|
|
|
|
|
10,966,998
|
|
|
|
|
|
10,966,998
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(347,399,837
|
)
|
|
(347,399,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
12,000,000
|
|
|
9,700
|
|
|
11,054,330
|
|
|
(801,797,274
|
)
|
|
(790,733,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-6
Table of Contents
TUDOU HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY/(DEFICITS)(Continued)
(Amounts expressed in RMB unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
|
|
|
|
|
|
|
Ordinary
Shares
|
|
Par value
|
|
Class A
Ordinary
Shares
|
|
Par value
|
|
Class B
Ordinary
Shares
|
|
Par value
|
|
Additional
paid in capital
|
|
Accumulated
deficits
|
|
Total
Shareholders'
equity/(deficits)
|
|
|
|
|
|
RMB
|
|
|
|
RMB
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Balance as of December 31, 2010
|
|
|
12,000,000
|
|
|
9,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,054,330
|
|
|
(801,797,274
|
)
|
|
(790,733,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and effect of foreign exchange movement on Convertible Redeemable Series A Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,625
|
)
|
|
(284,625
|
)
|
Effect of foreign exchange movement on Convertible Redeemable Series B Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,896,347
|
|
|
1,896,347
|
|
Effect of foreign exchange movement on Convertible Redeemable Series C Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,238,900
|
|
|
4,238,900
|
|
Effect of foreign exchange movement on Convertible Redeemable Series D Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,672,080
|
|
|
12,672,080
|
|
Accretion and effect of foreign exchange movement on Convertible Redeemable Series E Preferred Shares to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,407,655
|
)
|
|
(33,407,655
|
)
|
Division of ordinary shares into Class A Ordinary Shares and Class B Ordinary Shares upon the initial public offering
|
|
|
(12,000,000
|
)
|
|
(9,700
|
)
|
|
8,913,333
|
|
|
5,863
|
|
|
3,086,667
|
|
|
3,837
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class B Ordinary Shares in the initial public offering, net-off the issuance cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,280,000
|
|
|
14,258
|
|
|
931,520,307
|
|
|
|
|
|
931,534,565
|
|
Conversion of preferred shares to Class B Ordinary Shares in conjunction with the initial public offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,914,684
|
|
|
44,743
|
|
|
931,917,107
|
|
|
|
|
|
931,961,850
|
|
Conversion of Series E preferred share (resulting from the exercise of warrant) to Class B Ordinary Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,230,878
|
|
|
5,907
|
|
|
428,189,809
|
|
|
|
|
|
428,195,716
|
|
Reclassification of the liability awards to equity awards in conjunction with the initial public offering (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,153,348
|
|
|
|
|
|
134,153,348
|
|
Share-based compensation (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,034,741
|
|
|
|
|
|
105,034,741
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(511,161,766
|
)
|
|
(511,161,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
|
|
|
|
|
|
|
|
8,913,333
|
|
|
5,863
|
|
|
104,512,229
|
|
|
68,745
|
|
|
2,541,869,642
|
|
|
(1,327,843,993
|
)
|
|
1,214,100,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011 (US$) (Note 2(aa))
|
|
|
|
|
|
|
|
|
8,913,333
|
|
|
932
|
|
|
104,512,229
|
|
|
10,922
|
|
|
403,862,413
|
|
|
(210,973,163
|
)
|
|
192,901,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-7
Table of Contents
TUDOU HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts expressed in RMB unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
|
|
|
|
|
|
(Note 2 (aa))
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(144,777,153
|
)
|
|
(347,399,837
|
)
|
|
(511,161,766
|
)
|
|
(81,215,425
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of equipment
|
|
|
19,629,792
|
|
|
20,681,661
|
|
|
29,614,603
|
|
|
4,705,285
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
355,545
|
|
|
56,490
|
|
Amortization of other assets
|
|
|
|
|
|
|
|
|
142,361
|
|
|
22,619
|
|
Provision for doubtful accounts
|
|
|
3,515,026
|
|
|
7,500,531
|
|
|
44,155,087
|
|
|
7,015,537
|
|
Amortization of the content licensed
|
|
|
8,006,828
|
|
|
24,209,941
|
|
|
97,546,423
|
|
|
15,498,566
|
|
Amortization of the content produced
|
|
|
|
|
|
1,586,500
|
|
|
7,312,500
|
|
|
1,161,839
|
|
Write-down of the content licensed
|
|
|
1,904,074
|
|
|
10,712,277
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
11,522,350
|
|
|
104,576,369
|
|
|
105,034,741
|
|
|
16,688,340
|
|
Impairment of equipments
|
|
|
2,372,289
|
|
|
|
|
|
|
|
|
|
|
Interest expense for the accretion of the convertible loan
|
|
|
|
|
|
10,249,998
|
|
|
|
|
|
|
|
Beneficial conversion charge on convertible loan
|
|
|
|
|
|
10,966,998
|
|
|
|
|
|
|
|
Fair value changes in warrant liabilities
|
|
|
|
|
|
124,680,060
|
|
|
113,732,565
|
|
|
18,070,285
|
|
Foreign exchange loss/(gain)
|
|
|
(3,610,023
|
)
|
|
10,957,198
|
|
|
15,486,249
|
|
|
2,460,517
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
(50,920,073
|
)
|
|
(179,425,363
|
)
|
|
(40,925,924
|
)
|
|
(6,502,474
|
)
|
Prepayments and other current assets
|
|
|
1,538,034
|
|
|
(18,169,499
|
)
|
|
(3,385,554
|
)
|
|
(537,910
|
)
|
Content produced
|
|
|
|
|
|
(8,149,000
|
)
|
|
(8,964,506
|
)
|
|
(1,424,317
|
)
|
Other assets
|
|
|
|
|
|
(4,353,859
|
)
|
|
|
|
|
|
|
Other long-term receivables
|
|
|
|
|
|
|
|
|
(10,000,000
|
)
|
|
(1,588,840
|
)
|
Accounts payable
|
|
|
9,592,292
|
|
|
45,929,468
|
|
|
40,479,974
|
|
|
6,431,620
|
|
Business taxes payable
|
|
|
4,229,425
|
|
|
15,804,442
|
|
|
16,481,993
|
|
|
2,618,725
|
|
Other payables and accruals
|
|
|
42,199,205
|
|
|
70,859,585
|
|
|
105,596,416
|
|
|
16,777,581
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by / (used in) operating activities
|
|
|
(94,797,934
|
)
|
|
(98,782,530
|
)
|
|
1,500,707
|
|
|
238,438
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(24,736,361
|
)
|
|
(27,595,513
|
)
|
|
(68,392,412
|
)
|
|
(10,866,460
|
)
|
Purchase of intangible assets
|
|
|
|
|
|
(1,626,290
|
)
|
|
(4,912,419
|
)
|
|
(780,504
|
)
|
Advance payment for premium content to be licensed
|
|
|
|
|
|
|
|
|
(142,750,301
|
)
|
|
(22,680,739
|
)
|
Cash paid for content licensed
|
|
|
(9,910,902
|
)
|
|
(68,167,754
|
)
|
|
(254,419,098
|
)
|
|
(40,423,124
|
)
|
Cash received from maturity of short-term investment
|
|
|
11,312,175
|
|
|
84,211,616
|
|
|
5,837,246
|
|
|
927,445
|
|
Cash paid for short-term investments
|
|
|
(84,211,616
|
)
|
|
(5,837,246
|
)
|
|
|
|
|
|
|
Net increase in restricted cash
|
|
|
|
|
|
(66,227,000
|
)
|
|
(30,559,719
|
)
|
|
(4,855,450
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(107,546,704
|
)
|
|
(85,242,187
|
)
|
|
(495,196,703
|
)
|
|
(78,678,832
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of the redeemable convertible preferred shares
|
|
|
|
|
|
236,434,080
|
|
|
|
|
|
|
|
Cash received from short-term loan
|
|
|
|
|
|
81,243,510
|
|
|
52,643,510
|
|
|
8,364,211
|
|
Cash paid for the repayment of short-term loan
|
|
|
|
|
|
(20,000,000
|
)
|
|
(30,543,510
|
)
|
|
(4,852,875
|
)
|
Cash received from issuance of convertible loan
|
|
|
|
|
|
102,394,500
|
|
|
|
|
|
|
|
Cash received from exercise of warrants
|
|
|
|
|
|
|
|
|
160,423,540
|
|
|
25,488,734
|
|
Cash received from public offering
|
|
|
|
|
|
|
|
|
961,381,493
|
|
|
152,748,136
|
|
Cash paid for public offering costs
|
|
|
|
|
|
(3,973,818
|
)
|
|
(25,873,110
|
)
|
|
(4,110,823
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
396,098,272
|
|
|
1,118,031,923
|
|
|
177,637,383
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash
|
|
|
(202,344,638
|
)
|
|
212,073,555
|
|
|
624,335,927
|
|
|
99,196,989
|
|
Cash and cash equivalents at beginning of year
|
|
|
260,769,033
|
|
|
62,034,418
|
|
|
263,150,775
|
|
|
41,810,447
|
|
Effect of foreign exchange rate change on cash
|
|
|
3,610,023
|
|
|
(10,957,198
|
)
|
|
(15,486,249
|
)
|
|
(2,460,517
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
62,034,418
|
|
|
263,150,775
|
|
|
872,000,453
|
|
|
138,546,919
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
|
|
|
2,081,693
|
|
|
4,699,135
|
|
|
746,617
|
|
Supplementary Disclosure of Non-cash Investing and Financial Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid deferred expenses/payables related to the initial public offering
|
|
|
|
|
|
9,822,804
|
|
|
|
|
|
|
|
Payables related to purchase of equipment
|
|
|
7,211,162
|
|
|
8,139,022
|
|
|
11,743,300
|
|
|
1,865,822
|
|
Payables related to content licensed
|
|
|
1,088,250
|
|
|
10,630,443
|
|
|
26,377,055
|
|
|
4,190,892
|
|
Conversion of the convertible loan to redeemable convertible preferred shares
|
|
|
|
|
|
102,394,500
|
|
|
|
|
|
|
|
Conversion of preferred shares to Class B Ordinary Shares
|
|
|
|
|
|
|
|
|
931,961,850
|
|
|
148,073,825
|
|
Cashless conversion of Series E preferred shares (resulting from the exercise of warrant) to Class B Ordinary Shares
|
|
|
|
|
|
|
|
|
267,772,176
|
|
|
42,544,714
|
|
Capitalized expenses related to public offering prepaid in prior
year
|
|
|
|
|
|
|
|
|
3,973,818
|
|
|
631,376
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-8
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in RMB unless otherwise stated)
1. Organization and Nature of Operations
Tudou Holdings Limited (the "Company") was incorporated under the law of Cayman Islands ("Cayman") as a limited liability company on April 15, 2010. The Company was incorporated
as an investment holding company and currently has no significant assets or operations of its own, other than its investments in the entities discussed below.
Starcloud
Media Co., Limited (the "Starcloud BVI") was incorporated under the law of British Virgin Islands ("BVI") as a limited liability company on November 1, 2005.
In
September 2010, all of the existing ordinary and preferred shareholders of Starcloud BVI exchanged their respective shares in Starcloud BVI for an equivalent number of shares of the
Company at equivalent classes. As a result, Starcloud BVI became a wholly-owned subsidiary of the Company. The rights of the preferred and ordinary shares issued by the Company were the same as those
originally issued by Starcloud BVI (the "Reorganization").
Accordingly,
the Reorganization has been accounted for as a legal reorganization of entities under common control and the accompanying consolidated financial statements have been
prepared as if the group structure after the completion of the Reorganization had been in existence throughout all relevant periods.
The
accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries and variable interest entities ("VIEs" or "VIE subsidiaries",
collectively as "subsidiaries") as follows:
|
|
|
|
|
|
|
|
|
Name of the subsidiaries
|
|
Place of
incorporation
|
|
Date of
incorporation/
acquisition
|
|
Relationship
|
|
Principal activities
|
Starcloud BVI
|
|
BVI
|
|
November 1, 2005
|
|
Wholly-owned subsidiary
|
|
Investment holding
|
Star Manor Limited ("Star Manor")
|
|
Hong Kong
|
|
February 9, 2010
|
|
Wholly-owned subsidiary
|
|
Investment holding
|
Reshuffle Technology (Shanghai) Co., Ltd. ("Reshuffle Shanghai")
|
|
Shanghai, PRC
|
|
January 25, 2006
|
|
Wholly-owned subsidiary
|
|
Technology consulting and administrative services
|
Wohong Network Technology (Shanghai) Co., Ltd. ("Shanghai Wohong")
|
|
Shanghai, PRC
|
|
August 2, 2010
|
|
Wholly-owned subsidiary
|
|
Technology consulting services
|
Quan Toodou Network Science and Technology Co., Ltd. ("Quan Toodou")
|
|
Shanghai, PRC
|
|
December 8, 2004
|
|
VIE
|
|
Online advertising operations
|
F-9
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
1. Organization and Nature of Operations (Continued)
|
|
|
|
|
|
|
|
|
Name of the subsidiaries
|
|
Place of
incorporation
|
|
Date of
incorporation/
acquisition
|
|
Relationship
|
|
Principal activities
|
Shanghai Suzao Network Science and Technology Co., Ltd. ("Suzao")
|
|
Shanghai, PRC
|
|
May 19, 2009
|
|
VIE
|
|
Technology supporting services
|
Chengdu Gaishi Network Science and Technology Co., Ltd. ("Gaishi")
|
|
Shanghai, PRC
|
|
June 30, 2009
|
|
VIE
|
|
Technology supporting services
|
Shanghai Licheng Cultural Broadcasting Co., Ltd. ("Licheng")
|
|
Shanghai, PRC
|
|
June 2, 2009
|
|
Wholly-owned subsidiary of Quan Toodou
|
|
Online advertising operations
|
Tudou Limited (formerly named "Global Media Partners Limited") (Note 5)
|
|
Hong Kong
|
|
February 22, 2011
|
|
Wholly-owned subsidiary
|
|
Advertising operations
|
Chuanxian Technology (Shanghai) Co., Ltd. ("Chuanxian")
|
|
Shanghai, PRC
|
|
September 15, 2011
|
|
Wholly-owned subsidiary
|
|
Technology consulting services
|
Shanghai Quan Toodou Cultural Communication Co., Ltd. ("Toodou Cultural")
|
|
Shanghai, PRC
|
|
September 9, 2011
|
|
Wholly-owned subsidiary of Quan Toodou
|
|
Advertising production and operations
|
Toodou (China) Advertising Co., Ltd. ("Toodou China")
|
|
Shanghai, PRC
|
|
December 31, 2011
|
|
Wholly-owned subsidiary
|
|
Online advertising operations
|
The
Company, its subsidiaries and the consolidated VIEs are collectively referred to as the "Group".
The
Group engages primarily in provision of online advertising services by posting online advertisements and special advertisement campaigns on its online video sharing platform, where
users can upload, view and share video clips, through its operating subsidiary and VIEs. The Group also engages in provision of mobile video services.
To
comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provide advertising services and hold Internet Content Provider ("ICP") license and
the License for Transmission of Audio-Visual Programs through the Internet ("the License"), the Company conducts substantially all of its operations through its VIEs. The VIEs are wholly owned by
certain employees of the Company ("nominee shareholders").
F-10
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
1. Organization and Nature of Operations (Continued)
Upon
the formation of these VIEs, the Company has various agreements with its VIEs, through which, the Company holds all of the variable interests of the VIEs. Details of certain key
agreements with the VIEs are as follows:
-
-
Loan Agreements:
Reshuffle Shanghai has granted
interest-free loans to the nominee shareholders with the sole purpose of providing funds necessary for the capital injection and acquisition of the VIEs. The portion of the loans for
initial and subsequent capital injection is eliminated with the capital of the VIEs during consolidation. The interest-free loans to the nominee shareholders of VIE as of
December 31, 2009 and 2010 and 2011 were RMB57 million, respectively. Reshuffle Shanghai is able to require the nominee shareholders to settle the loan amount through the entire equity
interest of the VIEs and nominate someone else to hold the shares on Reshuffle Shanghai's behalf. Reshuffle Shanghai and the shareholders of Quan Toodou, Suzao and Gaishi signed various loan
agreements in 2006, 2008, 2009 and 2010. Each of these agreements became effective from its respective signing date. All of the Loan Agreements have a term of five years, which will be automatically
renewed every five years upon its expiration. The Loan Agreements with the shareholders of Quan Toodou were renewed on May 10, 2011 for another period of five years.
-
-
Proxy Agreement:
The nominee shareholders of the VIEs
irrevocably appointed Reshuffle Shanghai's officers to vote on their behalf on all matters they are entitled to vote on, including matters relating to the transfer of any or all of their respective
equity interests in VIEs, making all the operational, financial decisions and the appointment of the directors, general managers and other senior management of the VIEs. The Proxy Agreements between
Reshuffle Shanghai and the shareholders of Quan Toodou, Suzao and Gaishi became effective on May 10, 2006, March 2, 2009 and May 20, 2009, respectively. All the Proxy Agreements
shall remain effective until they are terminated in writing by the shareholders of the VIEs and Reshuffle Shanghai.
-
-
Equity Interest Pledge Agreements:
The nominee shareholders
of the VIEs have pledged their respective equity interests in the VIEs as collaterals to secure the nominee shareholders' obligation under other agreements and for the payment by the VIEs under the
exclusive technical consulting and services agreements and the loan agreement. The nominee shareholders cannot sell or pledge their equity interests to others without the approval from Reshuffle
Shanghai, and the nominee shareholders cannot receive any dividends without the approval of Reshuffle Shanghai. Also, any dividend declared will be held in an account designated by Reshuffle Shanghai
and shall serve as a collateral for the loans. The Equity Interest Pledge Agreements between Reshuffle Shanghai and the shareholders of Quan Toodou, Suzao and Gaishi became effective on May 10,
2006 (amended on April 11, 2007 and February 26, 2010), May 20, 2009, and July 1, 2009, respectively. All of the Equity Interest Pledge Agreements shall remain valid until
the full performance of the secured contractual obligations including the obligations of nominee shareholders of the respective VIEs under Loan Agreements, Proxy Agreements and Exclusive Call Option
Agreements, or the full discharge of the losses suffered by Reshuffle Shanghai as a result of any breach by the nominee shareholders of the respective VIEs and VIEs of their respective obligations
under these various agreements.
-
-
Exclusive Call Option Agreements:
The nominee shareholders of
the VIEs grant Reshuffle Shanghai the exclusive and irrevocable right to purchase from the nominee shareholders, to the
F-11
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
1. Organization and Nature of Operations (Continued)
extent
permitted under PRC laws and regulations or at the request of the Company, all of the equity interest in these entities for a purchase price equal to the amount of the registered capital or at
the lowest price permitted by PRC laws and regulations. Reshuffle Shanghai may exercise such option at any time. In addition, VIEs and its nominee shareholders agree that without Reshuffle Shanghai's
prior written consent, they will not transfer or otherwise dispose the equity interest or declare any dividend. The Exclusive Call Option Agreements between Reshuffle Shanghai and the shareholders of
Quan Toodou, Suzao and Gaishi became effective on May 10, 2006 (amended on April 11, 2007), May 20, 2009, and March 2, 2009, respectively. All the Exclusive Call Option
Agreements shall remain valid until all of the equity interests of the VIEs have been legally transferred to Reshuffle Shanghai and/or its designated entity or individual.
-
-
Exclusive Technical Consulting and Services
Agreements:
Reshuffle Shanghai is an exclusive provider of the technical consulting and related services and information services to the VIEs. In consideration for
those services, the VIEs agree to pay Reshuffle Shanghai service fees which equal to 50%, 20% and 20% of the total annual revenues before tax of Quan Toodou, Suzhao and Gaishi, respectively, and other
consulting fees. Reshuffle Shanghai also retains the right to adjust in its discretion the service fees rate in the future. The service fees are eliminated upon consolidation. Reshuffle Shanghai shall
exclusively own intellectual properties arising from the performance of this agreement except for those technologies independently developed by the VIEs and subject to certain conditions under this
agreement including that Reshuffle Shanghai shall have the right to purchase such technologies at the purchase price of RMB1.00 or the lowest price permitted by law. The Exclusive Technical Consulting
and Services Agreements between Reshuffle Shanghai and Quan Toodou, Suzao and Gaishi became effective on May 10, 2006 (amended on April 11, 2007 and August 31, 2010),
May 20, 2009 (amended on August 31, 2010), and March 2, 2009 (amended on August 31, 2010), respectively. All the Exclusive Technical Consulting and Services Agreements
shall remain valid until they are terminated in writing by the shareholders of the VIEs and Reshuffle Shanghai or until either a VIE or Reshuffle Shanghai ceases its business.
The
balances of service fees payable by the VIEs to Reshuffle Shanghai as of December 31, 2010 and 2011 were RMB303,929,509 and RMB642,033,595, respectively. The service fees charged from
Reshuffle Shanghai to the VIEs for the years ended December 31, 2009, 2010 and 2011 were RMB62,439,084, RMB235,827,779 and RMB346,037,350, respectively.
As
a result of these agreements, Reshuffle Shanghai exercises effective control over the VIEs, receives all of the economic benefits and residual interest and absorbs all of the risks
and expected losses from the VIEs, and has an exclusive call option to purchase all the equity interest in the VIEs at a minimal price. Therefore, Reshuffle Shanghai is considered as the primary
beneficiary of these VIEs and accordingly the financial statements of these VIEs are consolidated in the Company's consolidated financial statements.
The
Company believes that Reshuffle Shanghai's contractual arrangements with the VIEs are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal
system could limit the Company's ability to enforce these contractual arrangements and if the shareholders of the VIEs were to reduce their interest in the Company, their interests may diverge from
that of the Company and that may potentially increase the risk that they would seek to act contrary to the
F-12
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
1. Organization and Nature of Operations (Continued)
contractual
terms, for example by influencing the VIE not to pay the service fees when required to do so.
The
Company's ability to control the VIEs also depends on the voting power Reshuffle Shanghai obtained under the Proxy Agreement to vote on all matters requiring shareholder approval in
the VIEs. As noted above, the Company believes this Proxy Agreement is legally enforceable but may not be as effective as direct equity ownership, given the uncertainty in the PRC legal system.
In
addition, if the legal structure and contractual arrangements were found to be in violation of any existing PRC laws and regulations, the PRC government could, among other
things:
-
-
revoke the Group's business and operating licenses;
-
-
require the Group to discontinue or restrict operations;
-
-
restrict the Group's right to issue the invoice and collect revenues;
-
-
block the Group's websites;
-
-
require the Group to restructure the operations in such a way as to compel the Group to establish a new enterprise,
re-apply for the necessary licenses or relocate our businesses, staff and assets;
-
-
impose additional conditions or requirements with which the Group may not be able to comply; or take other regulatory or
enforcement actions against the Group that could be harmful to the Group's business.
The
imposition of any of these penalties may result in a material and adverse effect on the Group's ability to conduct the business. In addition, if the imposition of any of these
penalties causes the Group to lose the rights to direct the activities of the VIEs and their subsidiaries or the right to receive their economic benefits, the Group would no longer be able to
consolidate the VIEs. However, the Group does not believe that any penalties imposed or actions taken by the PRC Government would result in the liquidation of the Company, Reshuffle Shanghai, or the
VIEs.
Summary
stand-alone financial information of Quan Toodou and its subsidiary was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Total assets
|
|
|
88,496,963
|
|
|
307,113,445
|
|
|
403,486,026
|
|
Total liabilities
|
|
|
145,990,387
|
|
|
490,954,831
|
|
|
979,437,294
|
|
F-13
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
1. Organization and Nature of Operations (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Revenues
|
|
|
100,796,851
|
|
|
329,453,609
|
|
|
572,613,750
|
|
Cost of revenues(1)
|
|
|
108,665,769
|
|
|
327,809,837
|
|
|
696,489,193
|
|
Net loss
|
|
|
(51,685,411
|
)
|
|
(136,252,251
|
)
|
|
(407,207,701
|
)
|
-
(1)
-
The
cost of revenues of Quan Toodou includes the service fees paid/payable to Reshuffle Shanghai according to the Exclusive Technical Consulting and
Services Agreements between Reshuffle Shanghai and Quan Toodou as discussed above. The service fees paid/payable to Reshuffle Shanghai for the years ended December 31, 2009, 2010 and 2011 were
RMB62,439,084, RMB235,827,779 and RMB346,037,350, respectively, which were fully eliminated during the consolidation.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America ("US GAAP") for all periods presented.
Significant
accounting policies followed by the Group in the preparation of its accompanying consolidated financial statements are summarized below.
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of the assets and
liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported revenues and expenses during the reported periods. These estimates are based on
management's best knowledge of current events and actions that the Group may take in the future. Actual results could materially differ from these estimates.
Significant
accounting estimates reflected in the Group's financial statements mainly include share-based compensation, allowance for doubtful accounts, valuation of deferred tax assets,
useful lives of equipment, amortization and net realizable value of premium licensed content and impairment for long-lived assets,
The
Group operates with significant losses, which principally resulted from investments in equipments, premium licensed contents and the lease of internet bandwidth. As of
December 31, 2011, the accumulated deficits of the Group were RMB1,327,843,993. The Group believes that its current cash balance will be sufficient to meet the Group's operating cash flow for
the period of twelve months from the balance sheet date. The Company also believes that it can obtain sufficient funding through additional issuance of equity shares or loans to finance future capital
commitments and for working capital purposes in the foreseeable future. The consolidated financial statements have therefore been prepared on a going concern basis.
F-14
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
The consolidated financial statements include the financial statements of the Company, its subsidiaries and VIE subsidiaries for which
the Company is the primary beneficiary. All significant transactions and balances among the Company, its subsidiaries and VIE subsidiaries have been eliminated upon consolidation.
A
subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to appoint or remove the majority of the members of
the board of directors; to cast majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee under a statute or agreement among the
shareholders or equity holders.
Accounting
Standards Codification ("ASC") 810 "Consolidation" provides guidance on the identification of and financial reporting for entities over which control is achieved through means
other than voting interests, which requires certain VIEs to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support from other parties. Through the above
contractual arrangements, the Company holds all the variable interests of the VIEs and has been determined to be the primary beneficiary of the VIEs.
Pursuant
to the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs, or can transfer out the assets of the VIEs primarily in the form of
the service fees paid by the VIEs. Therefore, the Company is of the view that it has control over the asset of a consolidated VIE to the extent permitted by the applicable PRC law and the contractual
arrangements. As all the consolidated VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company
for any of the liabilities of the consolidated VIEs, which consisted of accounts payable of RMB 765 million and accrued expenses and other current liabilities of RMB 181 million as of
December 31, 2011, respectively. Currently there is no contractual arrangement that could require the Company to provide additional financial support to the consolidated VIEs. As the Company is
conducting certain business in the PRC mainly through the VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
On October 11, 2010, the ex-wife of Mr. Gary Wei Wang, the founder and chief executive officer of the Company
who holds 95% of the equity interests in Quan Toodou, initiated a lawsuit against him in a local court in Shanghai, PRC and claimed for the division of the 76% equity interest of Quan Toodou held by
Mr. Wang, which she alleged to form part of the community property during their marriage. On November 10, 2010, the court approved the plaintiff's application and issued Asset
Conservatory Notification on November 17, 2010 and imposed restrictions on transfer, disposal or payment of dividend on the 95% equity interest in Quan Toodou held by Mr. Wang for period
from November 12, 2010 to November 11, 2012. This notification was delivered to Mr. Wang on November 19, 2010 by the court.
F-15
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
On
November 23, 2010, the court released the restriction on the 95% equity interests in Quan Toodou and issued another Asset Conservatory Notification to restrict the transfer,
disposal or payment of dividend on the 38% equity interests in Quan Toodou ("Frozen Equity"), which represents the plaintiff's claim of her portion of the community assets. The court did not specify
the period of the conservatory measures and normally, it should be no longer than 2 years according to PRC judicial practice.
Subsequently,
the Company has evaluated the potential impact of the lawsuit on the contractual arrangements it has currently in place with Quan Toodou based on the advice of its PRC
legal counsel.
Based
on the advice from the Company's PRC legal counsel, the restrictions imposed under the conservatory measures did not impact the validity and performance of any of the agreements
entered into between Reshuffle Shanghai and Mr. Wang as the nominee shareholder of Quan Toodou and between Reshuffle Shanghai and Quan Toodou. Consequently, prior to the litigation and issuance
of the Asset Conservatory Notification, it did not impact the Company's previous accounting conclusion on the consolidation of Quan Toodou.
Based
on the advice of the Company's PRC legal counsel, upon the issuance of the conservatory measures as set out in the Asset Conservatory Notification, the Company concluded that all
of these agreements discussed in Note 1 are still valid. While the overall performance of these agreements is still intact, certain restrictions have been imposed as a result of the
conservatory measures on the following agreements:
-
-
Proxy AgreementThe conservatory measures prohibited the use of voting rights to transfer, dispose or
distribute dividend on the Frozen Equity. However, Reshuffle Shanghai could continue to exercise full voting rights on all other matters, including making all the operational and financial decisions.
-
-
Option Agreementthe exercise of the option agreement was not allowed under the conservatory measure, however,
the exercise under this agreement is subject to restrictions under the current PRC laws regardless of the conservatory measures. Given the PRC laws and regulations prohibit or restrict foreign
ownership of companies that provide advertising services and hold ICP license and the License for Transmission of Audio-Visual Programs through the Internet at present, the Company is not allowed to
exercise the option to acquire the equity interest in Quan Toodou until the PRC Laws allows foreign ownerships in Internet-related and mobile value-added service businesses. Therefore, the temporary
restriction from the conservatory measures had no substantial impact on this agreement currently.
-
-
Equity Interest Pledge Agreementwhile the transfer, disposal or dividend distribution on the pledged Frozen
Equity upon exercise of Reshuffle Shanghai's right was prohibited by the conservatory measures, the pledge was still effective and the entire 95% of Mr. Wang's holding in Quan Toodou continued
to be pledged in favor of Reshuffle Shanghai.
-
-
Loan Agreementsthe transfer of the underlying equity interest collateralized related to Frozen Equity was
prohibited (same as the Equity Interest Pledge Agreement).
F-16
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
-
-
Exclusive Technical Consulting and Service AgreementThe conservatory measure was unlikely to have adverse
impact on this agreement as it was signed between Quan Toodou and Reshuffle Shanghai, which was not the subject matter of the conservatory measures.
Although
the conservatory measures had imposed certain restrictions on the above agreements, these restrictions did not affect the ability of Reshuffle Shanghai's control over the Quan
Toodou, as it could continue to exert full control on its operation and finance decisions, enforce the equity pledge and loan agreements as long as it did not dispose, transfer or distribute dividends
on the Frozen Equity. In addition, Reshuffle Shanghai would continue to absorb the losses and fund the operations of Quan Toodou through a series of loan agreements, and obtain a majority of the
potential benefits of Quan Toodou through the enforcement of the Exclusive Technical Consulting and Service Agreement. Consequently, the contractual agreements that were in place continue to enable
Reshuffle Shanghai to have control over Quan Toodou, and Quan Toodou remained as the consolidated VIE during the period asset conservatory measures was in effect. In addition, the Company would
continue to absorb the 100% of the cumulative deficit of Quan Toodou during the period the conservatory measures were in effect as the restrictions imposed did not alleviate the Company's obligations
to absorb losses.
The
lawsuit between Mr. Wang and his ex-wife was concluded through settlement directed by the court on June 10, 2011 and pursuant to a court ruling,
Mr. Wang is entitled to the equity interests in any companies that are directly or indirectly held by him. In exchange, Mr. Wang has agreed to pay the plaintiff a cash amount before June
2012 and an additional cash amount in the event of an initial public offering, merger, acquisition, reorganization or a similar transaction of the Company within two years after such event. As of
December 31, 2011, Mr. Wang had partially paid the total amount. According to Mr. Wang, he is willing and will be able to perform and will pay the remaining amount within two
years of the initial public offering of the Company. Based on the Company's assessment, the likelihood that Mr. Wang will not fulfill his obligations under the court ruling is remote. In the
meantime, the court also issued an order releasing the conservatory measures imposed by the Assets Conservatory Notification. However, if Mr. Wang fails to fully perform his obligations under
the court ruling, Mr. Wang's personal assets, including the equity interests of the companies that are directly or indirectly held by him, will be subject to the court's enforcement measures.
If Mr. Wang does not fully perform his obligations for whatever reasons, and as a result of the court's enforcement measures, Mr. Wang must transfer part or all of his equity interest in
Quan Toodou to his ex-wife or any other third party. If that were to happen, the Company may have to re-negotiate with Mr. Wang's ex-wife or such other third
party and request such person to become a party to the contractual arrangements with Quan Toodou. If such person does not become a party to these contractual arrangements, with such person obtains
more than one-third of the equity interests of Quan Toodou, such person may have certain protective rights, i.e., the power to veto certain critical corporate actions of Quan
Toodou, such as increases or decreases in registered capital,
amendment of the articles of association, merger, division or dissolution of Quan Toodou and change of company's form. The potential limitation of control over Quan Toodou could cause significant
disruption to the Company's business, operations and financial condition which could have a negative impact on the Company's execution of such corporate actions. If such person does not become a party
to these contractual arrangements, with such person obtains more than a half of the equity interests of Quan Toodou, the Company will be unable to continue to consolidate Quan Toodou.
F-17
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
An entity's functional currency is the currency of the primary economic environment in which it operates, normally that is the currency
of the environment in which it primarily generates and expends cash. Management's judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales
price and market, expenses, financing and intercompany transactions and arrangements. The functional currency of the Company, the Company's subsidiaries and VIEs is the Renminbi ("RMB"), the official
currency in the PRC.
Transactions denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the People's Bank of
China (the "PBOC") prevailing at the dates of the transactions. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations. Monetary assets
and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates quoted by the PBOC at the applicable balance sheet dates. Such exchange gains or losses
are separately presented in the accompanying consolidated statements of operations.
On January 1, 2008, the Company adopted Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures,
for financial assets and liabilities. On January 1, 2009, the Company also adopted the statement for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions
that market participants would use in pricing an asset or liability. As a basis for considering such assumptions the guidance establishes a three-tier value hierarchy, which prioritizes
the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets
that are observable either directly or indirectly, or quoted prices in less active markets; and (Level 3) unobservable inputs with respect to which there is little or no market data, which
require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining
fair value. On a recurring basis, the Company measures certain financial assets at fair value.
The
Company's financial instruments consist principally of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and certain accrued
expenses. Short-term investments are limited to time deposits with original maturities longer than three months and less than one year. As of December 31, 2010 and 2011, the
respective carrying values of financial instruments approximated their fair values based on their short-term maturities.
F-18
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
Financial
assets and liabilities measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash in bank
|
|
|
97,275,297
|
|
|
|
|
|
|
|
|
97,275,297
|
|
Restricted cash
|
|
|
66,227,000
|
|
|
|
|
|
|
|
|
66,227,000
|
|
Bank deposit with the maturity term below 3 months
|
|
|
165,875,478
|
|
|
|
|
|
|
|
|
165,875,478
|
|
Bank deposit with the maturity term greater than 3 months but less than 1 year
|
|
|
5,837,246
|
|
|
|
|
|
|
|
|
5,837,246
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
335,215,021
|
|
|
|
|
|
|
|
|
335,215,021
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants to purchase Series E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares (Note 10)
|
|
|
|
|
|
|
|
|
154,039,611
|
|
|
154,039,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash in bank
|
|
|
872,000,453
|
|
|
|
|
|
|
|
|
872,000,453
|
|
Restricted cash
|
|
|
96,786,719
|
|
|
|
|
|
|
|
|
96,786,719
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
968,787,172
|
|
|
|
|
|
|
|
|
968,787,172
|
|
|
|
|
|
|
|
|
|
|
|
In
accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC 360-10-35, long-lived assets held
and used were written down to their fair value whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. The determination of fair value
of the long-lived assets acquired involves significant judgments and estimates, including, but are not limited to, comparable market transactions, quotes, future cash flows, business
plans, technological improvements or obsolesces, and operating results. Impairment charges of RMB 2,372,289, zero and zero related to computer hardware and other equipment was recognized for the years
ended December 31, 2009, 2010 and 2011 (Note 4).
Financial
assets and liabilities measured and recognized at fair value on a non-recurring basis and classified under the appropriate level of the fair value hierarchy as
described above was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
Using
|
|
|
|
|
|
Carrying
Amount
|
|
|
|
As of December 31, 2009
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Loss
|
|
Computer hardware and other equipment
|
|
|
72,425,312
|
|
|
|
|
|
|
|
|
70,053,023
|
|
|
(2,372,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
Following
is reconciliation of the beginning and ending balances of warrants measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the
year ended December 31, 2010 and 2011:
|
|
|
|
|
|
|
|
|
|
Amount (RMB)
|
|
Amount (RMB)
|
|
Balance as on January 1, 2010
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
|
|
|
|
29,359,551
|
|
Changes in fair value of warrants recorded in income statement
|
|
|
|
|
|
124,680,060
|
|
|
|
|
|
|
|
Balance as on December 31, 2010
|
|
|
|
|
|
154,039,611
|
|
|
|
|
|
|
|
Balance as on January 1, 2011
|
|
|
|
|
|
154,039,611
|
|
Changes in fair value of warrants recorded in income statement
|
|
|
|
|
|
113,732,565
|
|
Exercise of warrants
|
|
|
|
|
|
|
|
Proceeds from the exercise of warrants
|
|
|
160,423,540
|
|
|
|
|
Cash conversion of Series E preferred shares (resulting from the exercise of warrants) to Class B Ordinary Shares
|
|
|
(160,423,540
|
)
|
|
|
|
|
|
|
|
|
|
Cashless conversion of Series E preferred shares (resulting from the exercise of warrant) to Class B Ordinary Shares
|
|
|
|
|
|
(267,772,176
|
)
|
|
|
|
|
|
|
Balance as on December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
determining the fair value of the warrants, the Company applied the Black-Scholes option pricing model. The assumptions used in the Black-Scholes option pricing model are disclosed in
Note 12.
Cash and cash equivalents represent cash on hand, demand deposits placed with banks or other financial institutions, which have
original maturities of three months or less. Cash and cash equivalents balance as of December 31, 2010 and 2011 primarily consist of the following currencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
As of December 31, 2011
|
|
|
|
Amount
|
|
RMB equivalent
|
|
Amount
|
|
RMB equivalent
|
|
RMB
|
|
|
19,967,338
|
|
|
19,967,338
|
|
|
752,024,482
|
|
|
752,024,482
|
|
HKD
|
|
|
|
|
|
|
|
|
57,839
|
|
|
46,890
|
|
US$
|
|
|
36,719,248
|
|
|
243,180,562
|
|
|
19,033,643
|
|
|
119,929,081
|
|
AUD
|
|
|
434
|
|
|
2,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
263,150,775
|
|
|
|
|
|
872,000,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash are deposits designated as collateral for the short-term borrowings.
F-20
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
Short-term investments comprise time deposits with maturity terms of three months or more but due within one year. The
carrying values of time deposits approximate fair value because of their short maturities. The interest earned is recognized in the income statement over the contractual term of the deposit.
h. Accounts receivable, net
The carrying value of accounts receivable is reduced by an allowance that reflects the Company's best estimate of the amounts that will
not be collected. The Company makes estimations for the collectability of accounts receivable considering many factors including but not limited to reviewing delinquent accounts receivable, performing
aging analysis, customer credit analysis, analyzing historical bad debt records and financial conditions of the customers, resulting in their inability to make payments due to the Company. The
following table summarized the details of the Company's allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Balance at beginning of year
|
|
|
|
|
|
3,515,026
|
|
|
7,500,531
|
|
Provision for doubtful accounts
|
|
|
3,515,026
|
|
|
7,500,531
|
|
|
44,155,087
|
|
Write-off for doubtful accounts
|
|
|
|
|
|
(3,515,026
|
)
|
|
(7,500,531
|
)
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
3,515,026
|
|
|
7,500,531
|
|
|
44,155,087
|
|
|
|
|
|
|
|
|
|
Equipments are stated at cost less accumulated depreciation and impairment loss, if any.
Equipments
are depreciated over their estimated useful lives on a straight-line basis. Residual rate is determined based on the economic value of the equipment at the end of
the estimated useful lives as a percentage the original cost. The residual values and estimated useful lives are as follows:
|
|
|
|
|
|
Category
|
|
Residual
rate
|
|
Estimated useful life
|
Computer hardware and other equipment
|
|
|
5
|
%
|
36 months
|
Furniture, fixture and office equipment
|
|
|
5
|
%
|
36 months
|
Motor vehicle
|
|
|
5
|
%
|
48 months
|
Leasehold improvements
|
|
|
|
|
Shorter of the estimated useful lives or the lease term
|
F-21
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
Intangible assets and other assets with definite useful lives are stated at cost and are amortized using the straight-line
method over the estimated useful lives. The Company does not amortize intangible assets and other assets with indefinite useful live, rather such assets are required to be tested for impairment at
least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired.
Apart from the videos contents uploaded by the users for which the Group does not need to pay, the Group also licenses premium content
from external vendors and produces certain content in-house. As of December 31, 2011, the licensed content and in-house produced content is RMB 205,864,823 and RMB
8,214,506, respectively.
The
re-run of premium licensed content is amortized over their respective licensing periods on a straight line basis. The new release of premium licensed content, which can
be shown simultaneously with the TV stations or shortly after the first show on TV stations, is amortized over their respective licensing periods using the double declining balance method, an
accelerated depreciation method. The weighted average amortization period of the premium licensed content was 1.0 years, 2.0 years and 2.25 years during 2009, 2010 and 2011
respectively.
The
Company evaluates the net realizable value for recoverability of the premium licensed contents by grouping the premium licensed contents presented on its website into six categories
as re-run of movies and TV series, new release of TV series, variety shows, music, animations and others. The premium licensed contents are carried at the lower of unamortized cost or net
realizable value pursuant to ASC 920-350-35-3. Under the net realizable value approach, the Company compares the unamortized cost of each group of the premium
licensed contents to the expected net realizable value that are attributable to that respective category of contents, which is the estimated future cash inflows related to this particular group of
contents less the direct costs to deliver these contents at each quarter end. A write-down is recorded if the net realizable value is lower than the net carrying value. Once the
write-down is recorded, it establishes a new cost basis and cannot be subsequently reversed.
Following
the guidance under ASC 926-20-25, the Company capitalizes the direct costs incurred in physical production of the in-house content to the
amount of revenue contracted for each the in-house content. With respect to production costs of episodic television series, until the Company can establish estimates of secondary market
revenue, such revenues are not considered when assessing the recovery of content produced in-house. As of December 31, 2010 and 2011, the Company has not been able to reasonably and
reliably establish any estimates of secondary market revenue. Therefore, the Company has not considered secondary market revenue when assessing the recovery of the in-house produced
content. The contents produced in-house are amortized over their projected useful life of 6 to 8 months, which equals to their respective contracted revenue period. The capitalized
costs for content produced in-house are subject to assessment for impairment in accordance with ASC 926-20-35-12 to 35-18 if an event or
change in circumstances indicates that the fair value is less than its unamortized costs. There has been no impairment recognized relating to the content produced in-house in any of the
years presented.
F-22
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
For
the years ended December 31, 2009, 2010 and 2011, the Company recorded amortization expense for premium licensed content of RMB8,006,828, RMB24,209,941, RMB97,546,423,
amortization expense for in-house produced content of zero, RMB1,586,500 and RMB7,312,500 and write-down for premium licensed content of RMB1,904,074, RMB10,712,277 and zero
respectively in cost of revenues.
The Company applies ASC 360-10-35, "Property, Plant and Equipment", and reviews its long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment
by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to receive from use of the assets and their eventual disposition. If the
sum of the estimated undiscounted future cash flow is less than the carrying amount of the assets, the Company recognizes an impairment loss equal to the excess of the carrying value over the fair
value of the assets.
When
impairment is recognized, the adjusted carrying amount of the underlying property, plant and equipment becomes its new cost basis. The new cost basis is depreciated over the
remaining useful life of the asset. Impairment charges of RMB 2,372,289, zero and zero related to computer hardware and other equipment was recognized for the years ended December 31, 2009,
2010 and 2011 (Note 4).
In accordance with ASC 605, Revenue Recognition, the Group recognizes revenue when the following criteria are met: persuasive evidence
of an arrangement exists, the sales price is fixed or determinable, delivery has occurred and collectability is reasonably assured.
The Group's revenues are derived principally from online brand advertising arrangements, where the advertisers pay to place their
advertisements on the Company's online video platform in different formats. Such formats generally include pre-roll or post-roll video advertisements, in-roll
logos, background advertisements, banners, buttons, links and stream advertisements. In addition, the Company provides innovative and differentiated online advertising services including event
sponsorships and interactive advertising.
Advertisements
on the Company's online video platform are charged either based on the agreed number of clicks per day over the agreement period or on per day basis. In the first case,
the delivery of service occurs when users click on the designated videos clips and there is an actual display of the embedded advertisement per the terms of the agreement. In the latter case, the
delivery is not linked to displays, but occurs as the advertisement is hosted each day. The period of online advertising arrangements ranges from 2 to 4 weeks, and for other innovative services
ranges from 1 to 2 months.
The
amount is agreed under each agreement (multiple element or single deliverable) and is invoiced to the customer at the end of the agreement period when all the services have been
rendered. The Company generally provides a credit term of up to 90 days to its customers.
F-23
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
Most of the Company's customer contracts are multiple element arrangements, including placements of different types of advertisements on its website, which entitle the Company to bill
and collect from its customers only after all of the elements of the arrangement have been delivered. There is generally no objective evidence available with respect to the fair values of the
individual elements to be delivered. Revenue is recognized for these contracts upon completion.
On
January 1, 2011, the Company adopted ASU No.2009-13 Revenue RecognitionMultiple-Deliverable Revenue Arrangements ("ASU No.2009-13")
prospectively, ASU 2009-13 requires the Company to allocate multi-element revenue arrangement to each element using the relative selling price method according to the best estimated
selling price for each element in a multi-element arrangement. As noted above, the Company's entitlement to payment from customers is contingent upon the completion of the delivery of all elements
within the multiple-element revenue arrangements. As a result, the Company continues to recognize the revenue upon completion of delivery of all the elements involved in the arrangements according to
the Company's contractual rights and obligations in the multi-element advertising contracts with the customers. The adoption of ASU No.2009-13 did not have an impact to the Company's
financial statements.
A
relatively few multiple-element customer contracts entered into in 2010 provided that each of the elements within the arrangement be delivered in uniform combination and allow the
Company the right to payment as the elements are delivered. The revenue was recognized based on the proportion of the obligation performed. Prior to 2010, the Company also entered into a small number
of single element revenue arrangements with the customers. The revenue was recognized either on a straight line basis over the contract period when the performance obligations were uniform over the
contract period; or based on the proportion of the obligation performed when the performance obligation was based on number of clicks. There were RMB750,000 of unbilled revenue included in the
receivable balance related to the multiple element arrangements where the revenue is recognized based on the proportion of the obligation performed described above as of December 31, 2010. The
Company did not have such arrangement in 2011.
Prior
to entering into contracts, the Group makes a credit assessment of the advertisers and advertising agencies to assess the collectability of the contract.
The
Group typically enters into advertising contracts with third-party advertising agencies. The Group offers agency fees to third-party advertising agencies that purchase our
advertising services on behalf of advertisers. The agency fees paid by the Group to advertising agencies are based on certain percentage of revenue generated and such percentage is agreed with the
agencies based on the different target revenue volumes. The Group records revenues on a net basis and the associated agencies expenses are recorded as deduction to the revenue in the consolidated
statement of operation over the period when the related revenue was recognized. The advertising agency fees were RMB24,081,317, RMB55,001,949 and RMB 92,994,209 for the years ended December 31,
2009, 2010 and 2011, respectively.
The
Group does not enter into advertising-for-advertising barter transactions.
F-24
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
The Group currently also generates revenue from mobile video services through the partnership agreement with the third party mobile
network operator. The Group provides video clips to the mobile network operator for its mobile phone users. Users pay a monthly subscription fee to the mobile network operator for access to the video
channel or pay on a per-clip download basis, and the Company shares the fees collected by the mobile network operator for such services. Mobile video service revenue is recognized in the
month in which the service is performed based on the information obtained from a platform operated by the mobile network operator and the monthly reports from the mobile network operator. Differences
noted, if any, between the information received from the platform and the monthly report are adjusted at each month end. There has been no significant difference noted during the years presented.
The
revenues recognized under the arrangement represent only the Group's shares of the revenues to be received from the mobile network operator, i.e. recorded on a net basis. The
Group is not the primary obligor in the arrangement, nor does it enter into contract with end customers or has the price setting capabilities, rather the Group provides the content to the mobile
network operator in accordance with the operator's overall strategy and requirements.
The Group also generates revenues from the sub-licensing agreements for some content licensed from third party vendors. The
exclusive licensing agreements the Group entered into with the vendors has a definitive license period and including the rights to sublicense these content to other third parties. The Group enters
into a non-exclusive sub-license agreement with the sub-licensee for a period that falls within the original exclusive license period. The Company receives a fixed
amount of the sub-license fee upfront under the sub-licensing arrangements and does not have any future obligation once it has provided the underlying tape/disk to the
sub-licensee (which is provided at or before the beginning of the sub-license period). In accordance with ASC 926-605, Entertainment-Films, Revenue Recognition, the
Group recognizes the amount of the sub-license fee as revenue at the beginning of the sub-license period only when the Company meets all the following criteria: persuasive
evidence of a sub-licensing arrangement with a customer exists, the content has been delivered or is available for immediate and unconditional delivery, the sub-license period
of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale, the arrangement fee is fixed or determinable and collection of the arrangement fee is reasonably assured.
The Group started the sub-licensing in year 2010 and recognized the sub-licensing revenue of RMB 4,625,308 and RMB 11,456,906 for the years ended December 31, 2010 and
2011.
Effective
January 1, 2012, all entities in Shanghai are subject to value-added tax, which is excluded from revenue (Note 13(d)).
Cost of revenues consist of employee costs associated with the platform operation, depreciation expenses, internet bandwidth leasing
costs, amortization and write down of video content licensed or
F-25
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
produced,
agency fee for mobile video services to third party mobile agencies, advertisement expenses and other outside service fees.
Sales and marketing expenses comprise primarily of the sales and marketing personnel payroll compensation and related employee costs,
promotion expenses and the sales commission paid to the sales team.
Government grants are originally recorded as liabilities when received upfront. Depending on the nature of the grants, the grants then
are recognized as a reduction of expense or asset in the period when the Group has met all of the conditions attached to the grants and the collection of payment is probable. As of December 31,
2010 and 2011, the Company recorded a deferred liability for cash subsidies received from the PRC government of RMB 3,000,000 and RMB 3,200,000 (Note 9), because the Group has not met all of
the conditions attached to the grants at the respective period end.
The Group expenses advertising costs as incurred. Total advertising expenses were RMB 7,157,698, RMB 17,167,965 and RMB 94,838,249 for
the years ended December 31, 2009, 2010, 2011, respectively, and have been included as part of sales and marketing expenses.
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.
The
Company follows ASC 740, "Income Taxes", and accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the tax
consequences attributable to differences between carrying amounts of existing assets and liabilities in financial statement, 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 years in which those temporary differences are expected to be recovered or settled.
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, the Company considers various tax planning strategies, forecasts of future taxable income and its most recent operating results in assessing the need for a valuation
allowance. The effect on deferred tax assets and liabilities arising from change in tax rates is recognized in statements of operations in the period of such change.
F-26
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
The
Company adopted ASC 740-10-25. Since the adoption, the Group assesses and recognizes uncertain tax positions (if any) following the guidance. The Group
classifies any interest and/or penalties related to unrecognized tax benefits as a component of income tax provisions.
The Group is subject to sales taxes of 9.5% with a business tax of 5% and a cultural and educational related surcharge of 4.5% on the
provision of advertising services. In 2011, the cultural and educational related surcharge rate decreased to 3.5% on the provision of advertising services.
In November 2011, the Ministry of Finance released Circular Caishui [2011] No. 111 mandating Shanghai to
be the pilot of a tax reform program. Effective January 1, 2012, all entities in Shanghai that fall in the category of "selected modern service industries" will switch from a business tax payer
and become a value-added taxes ("VAT") payer. All of our subsidiaries in Shanghai are subject to VAT at a rate of 6% with VAT invoice and no longer paying 5% business tax from January 1, 2012
onwards.
The PRC employees of the Company's subsidiary and consolidated VIEs incorporated in the PRC are entitled to staff welfare benefits,
including medical care, welfare subsidies, unemployment insurance and pension benefits. These companies are required to pay for the employee social benefits based upon certain percentages of
employees' salaries in accordance with the relevant regulations, and to make contributions to the state-sponsored pension and medical plans. Employee social benefits included as expenses in the
accompanying statements of operations amounted RMB 5,978,104, RMB 11,041,993 and RMB 22,937,975 for the year ended December 31, 2009, 2010 and 2011, respectively. The PRC government is directly
responsible for the benefits and ultimate pension liabilities to employees.
The Company accounts for the share option granted to employees under provisions of ASC 718, "Stock Compensation". In accordance with
ASC 718, the Company determines whether a share option should be classified and accounted for as a liability award or equity award. All grants of share-based awards to employees and directors
classified as equity awards are recognized in the financial statements based on their grant date fair values which are calculated using Black-Scholes option pricing model. All grants of share-based
awards to employees and directors classified as liability awards are remeasured at the end of each reporting period with an adjustment for fair value recorded to the current period expense in order to
properly reflect the cumulative expense based on the current fair value of the vested rewards over the vesting periods.
The
Company has elected to recognize compensation expense on share-based awards with service condition only on a straight-line basis over the requisite service period, which
is generally the vesting period.
ASC
718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based
compensation expense
F-27
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
was
recorded net of estimated forfeitures such that expense was recorded only for those share-based awards that are expected to vest.
According
to ASC 718, a change in any of the terms or conditions of stock options shall be accounted for as a modification of the plan. Therefore, the Company calculates incremental
compensation cost of a modification as the excess of the fair value of the modified option over the fair value of the original option immediately before its terms are modified, measured based on the
share price and other pertinent factors at the modification date. For vested options, the Company would recognize incremental compensation cost in the period the modification occurs and for unvested
options, the Company would recognize, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award
on the modification date.
The Company applies ASC 220, "Comprehensive Income", with respect to reporting and presentation of comprehensive loss. The
comprehensive loss of the Company only comprises of net loss as the Company did not have any other comprehensive income item in the years ended December 31, 2009, 2010 and 2011, respectively.
The Company's PRC subsidiary and VIEs are required to allocate at least 10% of their after-tax profit, after the recovery
of accumulated deficit under PRC accounting regulations to the general reserve in accordance with the relevant PRC regulations until the general reserve has reached 50% of the registered capital of
each company. Appropriations to the enterprise expansion fund, staff welfare and bonus fund are at the discretion of the board of directors of the subsidiaries. These reserves can only be used for
specific purposes and are not transferable to the Company in the form of loans, advances, or cash dividends. As of December 31, 2010 and 2011, all the Company's PRC subsidiaries and VIEs were
in accumulated deficit position with negative net assets under both PRC accounting regulations and US GAAP. Therefore, irrespective of the PRC regulations and the Asset Conservatory
Notification as disclosed in Note 2(b), as of December 31, 2010 and 2011, none of the Company's PRC subsidiaries is in the position to distribute any amount to the Company nor has
appropriated any amount to statutory reserves.
Leases where substantially all the risks and rewards of ownership of the underlying assets remain with the lessors are accounted for as
operating leases. Payments made under operating lease to the lessors, net of any incentives, are charged to the consolidated statements of operations on a straight-line basis over the
lease periods.
Dividends are recognized when declared. No dividends were declared for the year ended December 31, 2009, 2010 and 2011,
respectively. The Group does not have any present plan to pay any
F-28
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
dividends
on ordinary shares in the foreseeable future. The Group currently intends to retain the available funds and any future earnings to operate and expand its business.
The Group's revenues are derived principally from online brand advertising from advertisers all located in PRC.
Based
on the criteria established by ASC 280 "Segment Reporting", the Group's chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated
results when making decisions about allocating resources and assessing performance of the Group. The Group has internal reporting that does not distinguish between markets or segments, and reports the
entire business as a whole. Hence, the Group has only one operating segment. In addition, the Group operates in the PRC and all of the Group's long-lived assets are located in the PRC.
In accordance with ASC 260, "Earnings Per Share", basic loss per share is computed by dividing net loss attributable to ordinary
shareholders by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net loss is allocated
between ordinary shares and other participating securities based on their participation rights. Net losses are not allocated to other participating securities if based on their contractual terms they
are not obligated to share in the losses. Diluted loss per share is calculated by dividing net loss attributable to ordinary shareholders, as adjusted for the effect of dilutive ordinary equivalent
shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of ordinary shares issuable upon
the conversion of the convertible preferred shares using the if-converted method and ordinary shares issuable upon the exercise of outstanding stock options using the treasury stock
method. Ordinary equivalent shares are not included in the denominator of the diluted loss per share calculation when inclusion of such instruments would be anti-dilutive.
Translations of amounts from RMB into United States dollars ("US$") as of and for the year ended December 31,, 2011 are solely
for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.2939, representing the noon buying rate in The City of New
York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the RMB amounts could have been, or could be, converted,
realized or settled into US$ at that rate on December 30, 2011, or at any other rate.
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU No. 2011-04, "Fair Value Measurement
(Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" (ASU 2011-04). This newly issued accounting standard clarifies
the application of certain existing fair value measurement guidance and expands the
F-29
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
2. Summary of Significant Accounting Policies (Continued)
disclosures
for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This ASU is effective on a prospective basis for annual and interim reporting periods
beginning on or after December 15, 2011. The adoption of this standard is not expected to have a material impact on the Company's financial position or results of operations.
In
June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" (ASU 2011-05). This newly issued
accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity; (2) requires the
consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial
statements from other comprehensive income to net income. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive
income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. In December 2011, the FASB issued ASU No. 2011-12, Deferral
of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,
which defers the requirement within ASU 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the
components of net income and other comprehensive income for all periods presented. During the deferral, entities should continue to report reclassifications out of accumulated other comprehensive
income consistent with the presentation requirements in effect prior to the issuance of ASU 2011-05. These ASUs are required to be applied retrospectively and are effective for fiscal
years, and interim periods within those years, beginning after December 15, 2011. The adoption of these standards is not expected to have a material impact on our financial position or results
of operations.
3. Prepayments and other receivables
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
Rental deposit
|
|
|
2,554,234
|
|
|
4,293,987
|
|
Advances to suppliers
|
|
|
1,798,055
|
|
|
2,342,214
|
|
Staff advances
|
|
|
2,566,536
|
|
|
1,574,345
|
|
Deferred expenses relating to the initial public offering(1)
|
|
|
13,796,622
|
|
|
|
|
Prepaid bandwidth cost
|
|
|
1,324,391
|
|
|
2,500,667
|
|
Prepaid professional expenses
|
|
|
|
|
|
1,264,680
|
|
Prepaid rental expenses
|
|
|
1,332,782
|
|
|
1,575,795
|
|
Prepaid promotion and marketing expenses
|
|
|
1,627,266
|
|
|
2,001,853
|
|
Others
|
|
|
3,299,918
|
|
|
2,335,196
|
|
|
|
|
|
|
|
Total
|
|
|
28,299,804
|
|
|
17,888,737
|
|
|
|
|
|
|
|
(1)Deferred
expenses relating to the initial public offering represent costs incurred by the Company directly attributable to a proposed offering of the Company's equity
shares in the United States and they were charged against the gross proceeds from such offering and net of the additional paid in capital. The unpaid deferred expenses relating to the initial public
offering were RMB 9,822,804 and zero as of December 31, 2010 and 2011, respectively (Note 9).
F-30
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
4. Equipment
Equipment and related accumulated depreciation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Gross amount
|
|
Impairment
|
|
Net amount
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Computer hardware and other equipment
|
|
|
72,425,312
|
|
|
(2,372,289
|
)
|
|
70,053,023
|
|
Furniture, fixture and office equipment
|
|
|
1,870,401
|
|
|
|
|
|
1,870,401
|
|
Motor vehicle
|
|
|
1,169,548
|
|
|
|
|
|
1,169,548
|
|
Leasehold improvements
|
|
|
5,444,473
|
|
|
|
|
|
5,444,473
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(39,045,481
|
)
|
|
|
|
|
(39,045,481
|
)
|
|
|
|
|
|
|
|
|
Equipment, net
|
|
|
41,864,253
|
|
|
(2,372,289
|
)
|
|
39,491,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Gross amount
|
|
Impairment
|
|
Net amount
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Computer hardware and other equipment
|
|
|
91,281,374
|
|
|
|
|
|
91,281,374
|
|
Furniture, fixture and office equipment
|
|
|
2,998,103
|
|
|
|
|
|
2,998,103
|
|
Motor vehicle
|
|
|
1,169,548
|
|
|
|
|
|
1,169,548
|
|
Leasehold improvements
|
|
|
10,684,089
|
|
|
|
|
|
10,684,089
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(59,727,298
|
)
|
|
|
|
|
(59,727,298
|
)
|
|
|
|
|
|
|
|
|
Equipment, net
|
|
|
46,405,816
|
|
|
|
|
|
46,405,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Gross amount
|
|
Impairment
|
|
Net amount
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Computer hardware and other equipment
|
|
|
157,938,992
|
|
|
|
|
|
157,938,992
|
|
Furniture, fixture and office equipment
|
|
|
4,141,761
|
|
|
|
|
|
4,141,761
|
|
Motor vehicle
|
|
|
1,719,926
|
|
|
|
|
|
1,719,926
|
|
Leasehold improvements
|
|
|
13,740,420
|
|
|
|
|
|
13,740,420
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(88,753,196
|
)
|
|
|
|
|
(88,753,196
|
)
|
|
|
|
|
|
|
|
|
Equipment, net
|
|
|
88,787,903
|
|
|
|
|
|
88,787,903
|
|
|
|
|
|
|
|
|
|
F-31
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
4. Equipment (Continued)
The
depreciation charges recognized for the years ended December 31, 2009, 2010 and 2011 were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Cost of revenues
|
|
|
16,913,152
|
|
|
17,240,634
|
|
|
24,002,801
|
|
General and administrative expenses
|
|
|
1,557,818
|
|
|
2,596,832
|
|
|
4,619,471
|
|
Sales and marketing expenses
|
|
|
1,158,822
|
|
|
844,195
|
|
|
992,331
|
|
|
|
|
|
|
|
|
|
Total depreciation charge
|
|
|
19,629,792
|
|
|
20,681,661
|
|
|
29,614,603
|
|
|
|
|
|
|
|
|
|
The
Company recognized an impairment loss of RMB2,372,289, zero and zero for the year ended December 31, 2009, 2010 and 2011, respectively.
5. Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Gross
Carrying Value
|
|
Accumulated
Amortization
|
|
Net
Carrying Value
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Software
|
|
|
1,291,750
|
|
|
|
|
|
1,291,750
|
|
Trademark
|
|
|
334,540
|
|
|
|
|
|
334,540
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
1,626,290
|
|
|
|
|
|
1,626,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Gross
Carrying Value
|
|
Accumulated
Amortization
|
|
Net
Carrying Value
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Software
|
|
|
4,376,867
|
|
|
(350,469
|
)
|
|
4,026,398
|
|
PRC advertising license qualification right(1)
|
|
|
1,827,302
|
|
|
(5,076
|
)
|
|
1,822,226
|
|
Trademark
|
|
|
334,540
|
|
|
|
|
|
334,540
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
6,538,709
|
|
|
(355,545
|
)
|
|
6,183,164
|
|
|
|
|
|
|
|
|
|
(1)On
January 16, 2011, the Company entered into an agreement to acquire Global Media, a shell company incorporated in and existing under the law of Hong Kong with the cash
consideration of HK$ 2.2 million. The acquisition has been completed on February 22, 2011. The Company determined that the acquisition of Global Media shall be accounted for as an asset
acquisition of its PRC advertising license qualification right as it did not meet the definition of a business as pursuant to ASC 805-20-20 and
ASC 805-10-55-4 through 805-10-55-9. The PRC advertising license qualification right is amortized over the licensing
period of 30 years upon approval by the PRC government in December 2011, which is the time the Company can begin to use such qualification right.
F-32
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
5. Intangible assets (Continued)
The
software purchased has an estimated useful life of 5 years. The trademark acquired has an indefinite useful life.
For
the years presented, the Company did not record any impairment for intangible assets. The Company estimates amortization expenses for each of the succeeding five years as follows:
|
|
|
|
|
2012
|
|
|
1,012,257
|
|
2013
|
|
|
1,012,257
|
|
2014
|
|
|
1,012,257
|
|
2015
|
|
|
949,455
|
|
2016
|
|
|
344,732
|
|
|
|
|
|
Total
|
|
|
4,330,958
|
|
|
|
|
|
6. Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Gross
Carrying Value
|
|
Accumulated
Amortization
|
|
Net
Carrying Value
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Golf club membership
|
|
|
4,353,859
|
|
|
|
|
|
4,353,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Gross
Carrying Value
|
|
Accumulated
Amortization
|
|
Net
Carrying Value
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Golf club membership
|
|
|
4,353,859
|
|
|
(142,361
|
)
|
|
4,211,498
|
|
|
|
|
|
|
|
|
|
In
December 2010, the Group purchased two golf club memberships from third parties at a total consideration of RMB4,353,859. The golf club memberships are amortized over the remaining
useful life until July 2041. For the year ended December 31, 2011, amortization expense of RMB142,361 was recognized.
For
the years presented, the Company did not recognize any impairment charge. The Company estimates amortization expenses for each of the succeeding five years as follows:
|
|
|
|
|
2012
|
|
|
142,361
|
|
2013
|
|
|
142,361
|
|
2014
|
|
|
142,361
|
|
2015
|
|
|
142,361
|
|
2016
|
|
|
142,361
|
|
|
|
|
|
Total
|
|
|
711,805
|
|
|
|
|
|
F-33
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
7. Other long-term receivables
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
Long term deposit
|
|
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
In
August 2011, the Company entered into a cooperation agreement with an unrelated third party, which provides the users of the Company with access to a group of selected video contents.
This cooperation agreement will end in November 2013, upon signing of the cooperation agreement, the Company paid a deposit of RMB 10 million and the amount will be refunded after the
cooperation agreement ends. Under the cooperation agreement, the Company agreed to pay the unrelated third party either a fixed minimum guarantee or based on the agreed upon payment formula, whichever
is higher. In 2011, the Company incurred content access cost of RMB 4,056,798 related to this arrangement, which has been included in the cost of revenue.
8. Short term loans
The Group borrowed short-term loans from several commercial banks in the PRC. As of December 31, 2010 and 2011, the short-term bank loans are analyzed as
follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2010
RMB
|
|
December 31, 2011
RMB
|
|
Secured
|
|
|
61,243,510
|
|
|
83,343,510
|
|
|
|
|
|
|
|
-
(i)
-
In
April 2010, Reshuffle Shanghai entered into a facility loan agreement with a PRC commercial bank with the total facility of US$ 9 million
in RMB equivalent borrowing. The facility could be drawn in a six-month period and the repayment term for each loan should not exceed one year. In March 2011, Reshuffle Shanghai renewed
the facility loan agreement with the total facility of US$ 15 million in RMB equivalent borrowing with a term of 12 months. As of December 31, 2010 and 2011, the
short-term loans under this facility are collateralized by the Company's bank deposit of US$ 10,000,000 (RMB 66,227,000) and US$ 7,360,777 (RMB 46,379,519),
respectively. There is covenant associated with the facility loan agreement that during the facility period. As of December 31, 2011, the Company was in compliance with the covenant. As of
December 31, 2011, the unused facility under the facility loan agreement was US$ 8.4 million.
As
of December 31, 2010 and 2011, the loan balance under the facility loan agreement are RMB 61,243,510 and RMB 41,800,000, respectively with the activities as follows,
-
-
In April 2010, the Group took a bank loan of RMB 30,700,000. The short-term bank loan bore an interest rate of
4.73% per annum with a repayment term of six months. The loan was repaid in October 2010.
F-34
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
8. Short term loans (Continued)
-
-
In July 2010, the Group took a bank loan of RMB 6,000,000. The short-term bank loan bore an interest rate of
5.31% per annum with a repayment term of one year. The loan was repaid in July 2011.
-
-
In July 2010, the Group took a bank loan of RMB 4,000,000. The short-term bank loan bore an interest rate of
5.31% per annum with a repayment term of one year. The loan was repaid in July 2011.
-
-
In September 2010, the Group took a bank loan of RMB 20,543,510. The short-term bank loan bore an interest
rate of 5.31% per annum with a repayment term of one year. This loan was extended for another two months in September 2011 and was repaid in November 2011.
-
-
In October 2010, the Group took a bank loan of RMB 30,700,000. The short-term bank loan bore an interest rate
of 5.56% per annum with a repayment term of six months. In April 2011, the repayment term was extended to April 2012.
-
-
In April 2011, the Group took a bank loan of RMB 8,000,000. The short-term bank loan bore an interest rate of
7.10% per annum with a repayment term of one year.
-
-
In June 2011, the Group took a bank loan of RMB 3,100,000. The short-term bank loan bore an interest rate of
7.10% per annum with a repayment term of one year.
-
(ii)
-
In
July and September 2011, the Group took a bank loan of RMB 10,000,000 and RMB 11,000,000, respectively, from a PRC commercial bank. The
short-term bank loans bore an interest rate of 7.22% per annum with a repayment term of one year and are collateralized by the Company's bank deposit of US$ 4,000,000 (RMB
25,203,600).
-
(iii)
-
In
October 2011, the Group took bank loan of RMB 20,543,510 from a PRC commercial bank. The short-term bank loans bore an interest rate of
7.22% per annum with a repayment term of one year and are collateralized by the Company's bank deposit of US$ 4,000,000 (RMB 25,203,600).
Interest
expense on short term loans for the year ended December 31, 2010 and 2011 was RMB 2,181,616 and RMB 4,695,664, respectively.
F-35
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
9. Accrued liabilities and other payables
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
Agency fees-advertisement
|
|
|
60,703,555
|
|
|
91,239,936
|
|
Payroll and welfare
|
|
|
36,164,412
|
|
|
64,890,846
|
|
Promotional and marketing cost
|
|
|
3,057,692
|
|
|
29,991,465
|
|
Mobile video service fee
|
|
|
3,342,483
|
|
|
15,923,488
|
|
Tax levies
|
|
|
9,989,511
|
|
|
13,336,221
|
|
Conditional grant(1)
|
|
|
3,000,000
|
|
|
3,200,000
|
|
Unearned commission received from depository bank(2)
|
|
|
|
|
|
2,550,981
|
|
Payable relating to initial public offering (Note 3)
|
|
|
9,822,804
|
|
|
|
|
Professional fee
|
|
|
3,931,798
|
|
|
5,083,956
|
|
Litigation accrual (Note 15(b) and 17 (a))
|
|
|
3,481,086
|
|
|
1,389,132
|
|
Others
|
|
|
1,497,556
|
|
|
3,158,484
|
|
|
|
|
|
|
|
Total
|
|
|
134,990,897
|
|
|
230,764,509
|
|
|
|
|
|
|
|
(1)In
January 2010, the Company received RMB 1 million from the Shanghai Xuhui District government as grant upon changing its registered office, which was further subject to
Licheng, paying specified amount of taxes before October 2010. The Company did not meet the specified condition and has recorded the amount as a payable.
In
August 2010, the Company received RMB 2 million from Shanghai Economic and Information Committee as a grant to support the Group's internal research and development activities, which was
subject to the ongoing review and final inspection by the government and require the Company to spend certain amount of research and development cost. As of December 31, 2010 and 2011
respectively, the amount of grant received was recorded as payable as the Company has not met all of conditions attached to the grant.
In
January 2011, the Company received RMB 0.2 million from the Human Resource Center of Shanghai Ministry of Publicity as a grant for the project of an online video distance education system,
which was subject to the ongoing review and final inspection by the government. As of December 31, 2011, the Company has not met all the conditions attached to the grant.
-
(2)
-
In
August 2011, the Company entered into an agreement with a depository bank, which agreed to reimburse up to US$ 1.6 million to the Company's expenses
incurred in connection with the advancement of the Company's ADS and investor relations programs in the next five years. The Company initially recorded the payment from the depository bank as
liabilities and then recognized as a reduction to general and administrative expenses over the beneficial period of five years. The Company received US$ 436,398 (RMB 2,759,475) in the year
ended December 31, 2011 and recorded RMB 208,494 as a reduction of general and administrative expenses for the year ended December 31, 2011.
F-36
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
10. Redeemable Convertible Preferred Shares and Convertible Loan
In January 2006, the Company issued 6,000,000 Series A Preferred Shares for an aggregate purchase price of US$ 499,980
(RMB 3,977,591) or US$ 0.083 per Series A Preferred Share.
In
May 2006, the Company issued 11,333,340 Series B Redeemable Convertible Preferred Shares ("Series B Preferred Shares") for an aggregate purchase price of
US$ 8,499,985 (RMB 67,621,631) or US$ 0.75 per Series B Preferred Share and incurred direct equity issuance costs of RMB 652,612.
In
April 2007, the Company issued 13,781,800 Series C Redeemable Convertible Preferred Shares ("Series C Preferred Shares") for an aggregate purchase price of
US$ 19,000,000 (RMB 146,349,600) or US$ 1.379 per Series C Preferred Share and incurred direct equity issuance costs of RMB 552,526.
In
March 2008, the Company issued 21,671,117 Series D Redeemable Convertible Preferred Shares ("Series D Preferred Shares") for an aggregate purchase price of
US$ 56,800,000 (RMB 394,260,668) or US$ 2.621 per Series D Preferred Share and incurred direct equity issuance costs of RMB 928,212.
In
April 2010, the Company entered into an agreement with several institutional investors and issued a convertible loan (the "Convertible Loan") for an aggregated amount of
US$15 million (RMB 102,394,500). The Convertible Loan expired on January 30, 2012 and carried an interest of 10% per annum starting from January 31, 2011. According to the
agreement, if the Company can complete the issuance of Series E Redeemable Convertible Preferred Shares ("Series E Preferred Shares") before December 31, 2010, the convertible
loan shall be automatically converted into the Series E Preferred Shares with the conversion price equal to the issuance price of Series E Preferred Shares. However, if the Company
cannot complete the issuance of Series E Preferred Shares before December 31, 2010, upon the exercise of the conversion option by the investors, the convertible loan shall be converted
to the Series D Preferred Shares at the conversion price mutually agreed by the Company and the investors then. The investors can require the Company to repay the Convertible Loan or the
Company can repay it any time after January 30, 2011 if the conversion option has not been exercised.
In
connection with the issuance of the Convertible Loan, the Company also issued 2,769,264 warrants to the respective holders of the Convertible Loan to purchase up to
US$ 7.5 million Series E Preferred Shares, with an initial exercise price at the original issue price of the Series E Preferred Shares. The warrants have an exercise period
ending on the earlier of (a) the fifth anniversary of the issuance date and (b) the closing of Qualified IPO.
In
July 2010, the Company issued 18,461,767 Series E Preferred Shares for an aggregate purchase price of US$ 50,000,000 or US$ 2.7083 per Series E Preferred
Share, including 5,538,531 Series E Preferred Shares issued through conversion of the Convertible Loan afore-mentioned for an aggregated conversion price of US$ 15 million, or
share conversion price of US$ 2.7083.
In
connection with the issuance of the Series E Preferred Shares, the Company also issued 6,461,614 warrants to the Series E Preferred Shareholder (other than the holders
of the Convertible Loan) to purchase up to US$ 17.5 million Series E Preferred Shares, with an initial exercise price at the original issue price of the Series E Preferred
Shares. The warrants have an exercise period ending on the earlier of (a) the fifth anniversary of the issuance date and (b) the closing of Qualified IPO. As
F-37
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
10. Redeemable Convertible Preferred Shares and Convertible Loan (Continued)
of
December 31, 2010, there were 9,230,878 warrants issued and outstanding, and in November 2010, the Company received the exercise notice from all the holders of the warrants as
follows:
-
-
Holders of warrants to purchase 9,083,185 Series E preferred shares (further convertible into equivalent number of
ordinary shares) with the aggregated exercise price of US$ 24.6 million agreed to exercise the warrants immediately prior to the closing of Qualified IPO.
-
-
Holders of warrants to purchase 147,693 Series E preferred shares (further convertible into equivalent number of
ordinary shares) with the aggregated exercise price of US$ 0.4 million agreed to exercise the warrants i) immediately prior to the closing of Qualified IPO and ii) if and
only if the per share price at which ordinary shares are sold in the Qualified IPO equals or exceeds the exercise price of the warrants.
As
of December 31, 2010, the Series A, B, C, D and E Preferred Shares (collectively the "Preferred Shares") are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
|
|
Issuance Date
|
|
Shares
Issued and
Outstanding
|
|
Issue Price
Per Share
|
|
Proceeds from
issuance, net of
issuance costs
|
|
Carrying
amount
|
|
|
|
|
|
|
|
US$
|
|
US$
|
|
RMB
|
|
A
|
|
|
January, 2006
|
|
|
6,000,000
|
|
|
0.083
|
|
|
499,980
|
|
|
3,977,591
|
|
B
|
|
|
May, 2006
|
|
|
11,333,340
|
|
|
0.750
|
|
|
8,417,952
|
|
|
66,969,019
|
|
C
|
|
|
April, 2007
|
|
|
13,781,800
|
|
|
1.379
|
|
|
18,928,295
|
|
|
145,797,074
|
|
D
|
|
|
March, 2008
|
|
|
21,671,117
|
|
|
2.621
|
|
|
56,666,275
|
|
|
393,332,456
|
|
E
|
|
|
July, 2010
|
|
|
18,461,767
|
|
|
2.708
|
|
|
49,880,000
|
|
|
338,828,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,248,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon
completion of the initial public offering of the Company in August 2011, Series A, B, C, D and E Preferred Shares automatically converted into 69,914,684 Class B
ordinary shares. In addition, all warrants were exercised to 9,230,878 Series E Preferred Shares on the date when the Company consummated its initial public offering with the conversion price
of US$ 2.7083, for a total cash consideration of US$ 25 million (RMB160,423,540), the Series E Preferred Shares as the result of the exercise of the warrants were also
automatically converted into 9,230,878 Class B ordinary shares.
All
Series Preferred Shares had a par value of US$ 0.0001 per share. The rights, preferences and privileges of the Preferred Shares were follows:
Each preferred share was convertible, at the option of the holder, at any time after the date of issuance of such preferred shares into
such number of ordinary shares according to a conversion ratio determined by dividing the original issuance price by the applicable conversion price, and was subject to adjustments for dilution as
follows:
-
-
Additional ordinary shares issued at a price lower than the effective conversion price;
-
-
Dividends on and distribution of ordinary shares;
F-38
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
10. Redeemable Convertible Preferred Shares and Convertible Loan (Continued)
-
-
Combination or reclassification of ordinary shares;
-
-
Receipt of any distribution payable in securities of the Company other than ordinary shares;
-
-
Ordinary shares issuable upon conversion changed into the same or different number of shares of any other classes;
-
-
Recapitalization, exchange or substitution of the ordinary shares;
-
-
Subdivision of Preferred Shares
Each
share of Series A, Series C, Series D and Series E Preferred Share was convertible into one ordinary share. The conversion price of Series B
Preferred Share was initially equal to US$ 0.75, per the
agreement and was subsequently adjusted to US$0.85 as the Company met the agreed criteria relating to the actual number of IP visitors to the website of the Company following the 2006 year end.
Thereafter, due to the change in conversion price to US$0.85 as compared with the issue price of US$0.75, each share of Series B Preferred Share is convertible into 0.88 ordinary share.
Each
preferred share was automatically convertible into the number of shares of ordinary share into which such shares are convertible upon the earlier of any of the following events:
(i) affirmative vote or written consent of the holders of two-thirds of the preferred shares then outstanding, voting together as a single class, or (ii) the closing of a
first firm commitment underwritten Qualified IPO. The Qualified IPO was defined as an effective registration statement under the U.S. Securities Act of 1933, as amended, covering the offer and sale of
ordinary shares to the public with gross cash proceeds to the Company in respect of all such ordinary shares so offered of at least US$80 million, representing a pre-money market
valuation of the Company of at least US$450 million.
As
of December 31, 2010, the Company had reserved 69,914,684 ordinary shares, respectively for the conversion of the preferred shares based on the respective conversion ratio of
each series.
Beginning on or after twenty four months following the issuance of the Series E Preferred Shares, the preferred shares were
redeemable as follows:
-
a)
-
Upon
request by holders of at least two-thirds (
2
/
3
) of the then outstanding fully-paid Preferred Shares (voting
together on an as-converted basis), the Company shall redeem all, but not less than all, of the then outstanding fully-paid Preferred Shares, by paying a redemption price as
defined below.
-
b)
-
Upon
request by holders of not less than 50% of then outstanding Series E Preferred Shares, the Company shall redeem all of the outstanding
Series E Preferred Shares. Holders of at least fifty percent 50% of the Series D Preferred Shares, holders of at least fifty percent 50% of the Series C Preferred Shares, holders
of at least 50% of the then outstanding Series B Preferred Shares and/or holders of at least 50% of the Series A Preferred Shares, each voting separately as separate classes, shall have
the right to request the Company to redeem all of the Series D Preferred Shares, Series C Preferred Shares and/or the Series B Preferred Shares and/or the Series A
Preferred Shares, together with the fully-paid Series E Preferred Shares, by paying a redemption price as defined below. If the assets and funds distributed among the
F-39
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
10. Redeemable Convertible Preferred Shares and Convertible Loan (Continued)
holders
are insufficient to permit the payment of the full preferential amounts, then the holders of Series D Preferred Shares shall be entitled to be paid first out of the assets of the
Company available for distribution, prior and in preference to any payment on all other series of preferred shares and ordinary shares, followed in sequence by Series C Preferred Shares,
Series B Preferred Shares and Series A Preferred Shares.
The
redemption price should be equal to:
-
a)
-
With
respect to the Series A Preferred Shares, the Original Purchase Price × (1.25)^N plus all declared but unpaid
dividends, "N" means a fraction the numerator of which is the number of calendar days from the date on which the first Series A Preferred Share was issued up to and including the date on which
such Series A Preferred Shares are redeemed and the denominator of which is 365.
-
b)
-
With
respect to the Series B, C and D Preferred Shares, the Original Purchase Price plus all declared but unpaid dividends.
-
c)
-
With
respect to the Series E Preferred Shares, the 150% Original Purchase Price, plus all any declared but unpaid dividends.
Due
to its redemption features described above, the Company classified the Preferred Shares in the mezzanine section of the consolidated balance sheets in accordance with
ASC 480-10-S99. In addition, the carrying value of the preferred shares was adjusted for accretion and the translation difference with a corresponding adjustment to
accumulated deficits.
In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, the holders of
preferred shares shall be entitled to receive an amount per share equal to 150% to 200% of the original purchase price plus all dividends accrued, or declared and unpaid. If the assets and funds
distributed among the holders are insufficient to permit the payment of the full preferential amounts, then the holders of Series E Preferred Shares shall be entitled to be paid first out of
the assets of the Company available for distribution among the Shareholders, prior and in preference to any payment on all other series of preferred shares and ordinary shares, followed in sequence by
Series D Preferred Shares, Series C Preferred Shares, Series B Preferred Shares, Series A Preferred Shares and ordinary shares. After payment of the full amounts from
above, the remaining assets of the Company available for distribution shall be distributed ratably among the holders of preferred shares and ordinary shares in proportion to the number of outstanding
shares held by each such holder on an as converted basis.
No dividends shall be declared or paid to any holders of the preferred or ordinary share unless approved unanimously by Board of
Directors. Holders of the preferred shares are entitled to participate in dividends on an as converted basis with the ordinary shares when and if declared by the Board of Directors. No dividends on
preferred and ordinary shares have been declared since the inception through December 31, 2011.
F-40
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
10. Redeemable Convertible Preferred Shares and Convertible Loan (Continued)
The holder of each Preferred Share shall be entitled to the number of votes equal to the number of Ordinary Share into which such
Preferred Share could be converted at the record date for determination of the members entitled to vote on such matter, or, if no such record date is established, at the date such vote is taken or any
written consent of members is solicited. The Preferred Shareholders shall vote together with ordinary shareholders, and not as a separate class or series.
Following
the application of ASC 480 and ASC 815-40-25, the warrants issued to the Series E Preferred Shareholders (including the warrants
issued with the Convertible Loan) are classified as liability. The proceeds from the issuance of the Convertible Loan and warrants are first allocated to the warrants based upon the fair value of the
warrants being the amount of RMB10,966,998 and the residual amount of proceeds with amount of RMB91,427,502 are allocated to the Convertible Loan. The carrying amount of the Convertible Loan is
accreted to the full repayment amount at the earliest repayment date. The accreted interest was recorded as interest expense over the period. The Convertible loan was converted to Series E
Preferred Shares in July, 2010. For the year ended December 31, 2010, the interest expense from the accretion was RMB10,249,998, net of the foreign exchange gain of RMB718,000 resulting from
the fluctuation of the foreign currency exchange rates from the date of issuance of the Convertible Loan to the date of its conversion. The proceeds from the issuance of the Series E Preferred
Shares and warrants are also first allocated to the warrants based upon the fair value of the warrants being the amount of RMB18,392,553 and the residual amount of proceeds with amount of
RMB218,041,527 are allocated to the Series E Preferred Shares.
In
accordance with ASC 480-10-S99-3A, and consistent with the accounting for Series A, B, C and D preferred shares, the carrying value of the
Series E preferred shares was adjusted for accretion to the redemption price over the period from the date of issuance to the first possible redemption date (which is twenty four months from
its issuance date) using the interest method and the translation difference with a corresponding adjustment to accumulated deficits. The warrants were carried subsequently at fair value and the
changes in the fair value on each balance sheet dates are recognized separately in the consolidated statements of operations. The losses arising from changes in the fair values of the warrants were
RMB124,680,060 and RMB113,732,565 in the year ended December 31, 2010 and 2011, respectively.
Prior
to its initial public offering in August 2011, when determining the fair value of the warrants, the Company applied the Black-Scholes option pricing model with the following
assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
April 15,
2010
|
|
July 28,
2010
|
|
December 31,
2010
|
|
Expected volatility (%)
|
|
|
42
|
|
|
31
|
|
|
37
|
|
Expected dividend yield (%)
|
|
|
|
|
|
|
|
|
|
|
Expected term (years)
|
|
|
1.61
|
|
|
1.31
|
|
|
0.50
|
|
Risk-free interest rate (per annum) (%)
|
|
|
1.55
|
|
|
1.54
|
|
|
1.11
|
|
-
-
Expected volatility was estimated based on average annualized standard deviation of the share price of comparable listed
companies and applied certain discount for a period equal to the expected term preceding the valuation date.
F-41
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
10. Redeemable Convertible Preferred Shares and Convertible Loan (Continued)
-
-
Expected dividends are considered as zero because the Company has no history or expectation of paying dividends on its
ordinary shares.
-
-
The expected term was determined based on the expected timing of completion of the IPO since the warrants have an exercise
period ending on the earlier of (a) the fifth anniversary of the issuance date and (b) the closing of Qualified IPO.
-
-
Risk-free interest rates are based on the derived market yield of the US$ denominated Chinese government bonds
for the term approximating the expected life of the warrants at the time of valuation.
Upon
the initial public offering, the Company measured the fair value of the warrants before their exercise using IPO price of US$ 7.25 per ordinary share with its exercise price
of US$ 2.7083 per ordinary share.
The
Company assessed the beneficial conversion feature attributable to the Convertible Loan in accordance with ASC 470-20 and determined that at the commitment date, there
was a contingent beneficial conversion feature with amount of RMB 10,966,998 which was recognized as beneficial conversion charge expense in the consolidated statements of operations upon the
automatic conversion of Convertible Loan upon issuance of Series E Preferred Shares. There was no beneficial conversion feature recorded for Series E preferred shares.
11. Ordinary Shares
In November 2005, the Company issued 12,000,000 ordinary shares to the founders for a consideration of US$ 12,000, equal to the par value of US$ 0.0001.
The
holders of the ordinary shares are granted certain registration rights, which include Demand Registration Rights, Form S-3 or Form F-3
Registration Rights and Piggyback Registration Rights. All registration expenses incurred in connection with any demand, piggyback or S-3/F-3 registration, other than any
underwriting discounts and selling commissions, shall be borne by the Company.
As
of December 31, 2010, the Company was authorized to issue a maximum number of 9,928,751,976 ordinary shares, respectively, at par value of US$0.0001 per share.
On
October 28, 2010, the shareholders of the Company adopted a dual-class ordinary share structure effective immediately prior to the completion of the IPO pursuant to
which the ordinary shares of the Company are divided into 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 voting and conversion rights. Each Class A ordinary share is entitled to four votes on all matters subject to shareholders' vote, and each Class B
ordinary share is entitled to one vote on all matters subject to shareholders' vote. Each Class A ordinary share is convertible into one Class B ordinary share at any time by the holder
thereof. Class B ordinary shares are not convertible into Class A ordinary shares under any circumstances. The dual-class ordinary share structure is viewed as a transfer of
value or compensation from holders of Class B ordinary shares to the benefits of Mr. Gary Wei Wang, the sole director and a beneficial owner of First Easy Group Limited, which is the
holder of Class A ordinary shares, as an employee in accordance with ASC 718-10-15-4. Therefore, when the dual class structure became effective
immediately prior to the completion of the IPO in August 2011, a compensation
F-42
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
11. Ordinary Shares (Continued)
charge
should be recorded based on the incremental fair value and was measured on October 28, 2010, which was considered as the grant date. Based on the assessment the Company performed, the
incremental fair value was not material to the Company's consolidated results of operations or financial condition.
In
August 2011, the Company adopted its Amended and Restated Memorandum of Association, pursuant to which, immediately prior to the completion of its initial public offering, the
authorized share capital of the Company increased to US$ 1,000,000, divided into a) 9,990,000,000 ordinary shares with a par value of US$ 0.0001 each, of which
i) 12,357,500 shares were designated as Class A Ordinary Shares and ii) 9,977,642,500 shares were designated as Class B Ordinary Shares, and b) 10,000,000 preferred
shares of a par value of US$ 0.0001 each. Upon the completion of its initial public offering in August 2011, 12,000,000 ordinary shares were divided into 8,913,333 class A Ordinary
Shares and 3,086,667 Class B Ordinary Shares, and the Company issued 1) 69,914,684 Class B Ordinary Shares in conjunction with the conversion of all Series A, B, C, D and E
Preferred Shares, 2) 9,230,878 Class B Ordinary Shares for the exercise of the all the warrants by warrant holders and 3) 22,280,000 Class B Ordinary Shares with the IPO
price of US$ 7.25 per share for the initial public offering.
As
of December 31, 2011, the Company was authorized to issue a maximum number of 9,990,000,000 ordinary shares, respectively, at par value of US$0.0001 per share and total
113,425,562 shares were issued and outstanding, comprised of (i) 8,913,333 Class A Ordinary Shares and (ii) 104,512,229 Class B Ordinary Shares.
12. Share-Based Compensation
In February 2006, the Board of Directors of the Company passed a resolution to adopt Stock Option Plan ("the Option Plan") that provides for the granting of options to key employees to
acquire
ordinary shares of the Company at an exercise price as determined by the Administrator or the Board at the time of grant. Upon this resolution, the Board of Directors and shareholders authorized and
reserved 2,000,000 ordinary shares for the issuance under the Plan. In September 2006, the Board of Director of the Company passed a resolution to increase the number of shares reserved for issuance
under the Plan by 1,111,110 ordinary shares to 3,111,110 ordinary shares. In April 2007, the Board of Director of the Company passed a resolution to increase the number of shares reserved for issuance
under the Plan by 1,530,000 ordinary shares to 4,641,110 ordinary shares. In March 2008, the Board of Director of the Company passed a resolution to increase the number of shares reserved for issuance
under the Plan to 5,244,398 ordinary shares. In June 2008, the number of ordinary shares reserved for option issuance under the Plan increased to 7,050,324 ordinary shares. In July 2010, the number of
ordinary shares reserved for option issuance under the Plan increased to 12,240,118 ordinary shares.
On
July 25, 2011, the shareholders of the Company passed a resolution to increase the number of ordinary shares reserved for issuance under the Option Plan of the Company. Upon
this resolution, the aggregate number of ordinary shares reserved for issuance under the Option Plan was 14,123,214 for 2011, and for each of the subsequent four years, the number of ordinary shares
reserved for issuance under the Option Plan will increase annually by two percent of the Basic Share Number (as defined below). The Basic Share Number equals: (i) 96,037,898 for the calendar
year of 2011, and (ii) for subsequent calendar years, 102% of the Basic Share Number for the prior calendar year. No more than
F-43
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
12. Share-Based Compensation (Continued)
5,000,000
ordinary shares may be issued upon the exercise of the incentive options as defined under the Option Plan.
The
contractual term of the share option under the Option Plan is five years. The options contain service condition with the vesting period of four years, with 25% of the options vesting
every year. Except for the vesting period of the option granted on August 20, 2008 to certain directors of the Company, which has a vesting period of sixteen months. As disclosed in
Note 2(x), the Company's share-based compensation cost is measured at the value of the award as calculated under the Black-Scholes option pricing model.
During the years ended December 31, 2009 and 2010, the employees leaving the Company applied to the Company to extend the
exercise period of the vested options from 90 days since the termination date to the actual IPO date. The Management of the Company approved to extend the exercisable period of the vested
options granted until after the IPO date for some of the
employees who were leaving the Company. Such extensions have been limited, and were at the sole discretion of the Company and were considered based on the employment term or contribution of the
respective employee to the Company. All employees who were granted the extension had entered into amendments to their original option agreements with the Company. The Company recorded incremental
compensation cost of RMB26,829 and RMB126,400 for years ended December 31, 2009 and 2010, respectively on the date the vested options were modified. There was no option modification in 2011.
In
July 2010, the Board of Directors resolved to modify the Option Plan that if the Board determined that the IPO of the Company is unlikely to be consummated prior to the original
expiration date of the options granted under the Option Plan, upon the application of the grantee, the Board may in its sole discretion to extend the exercisable period of the vested options granted
until after the IPO date. All employees who were granted the extension had entered into amendments to their original option agreements with the Company. The Company recorded the incremental
compensation cost of RMB33,679 for the year ended December 31, 2010 in respect of such modification.
On
October 28, 2010, the Company modified the options granted to Mr. Gary Wei Wang, the founder and chief executive officer of the Company, on August 20, 2008 to
enable him to purchase the Class A Ordinary Shares of the Company, when and if the dual-class ordinary share structure became effective, upon exercise of these options. All other
terms and conditions remain unchanged. The dual class structure became effective immediately prior to the completion of the IPO, the incremental value resulting from Mr. Gary Wei Wang receives
Class A ordinary shares should be recognized as compensation charge immediately after IPO. Based on the assessment the Company performed, the amount was not material to the Company's
consolidated results of operations or financial condition.
F-44
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
12. Share-Based Compensation (Continued)
A
summary of all granted options under the Option Plan was presented below (in US Dollars, except shares):
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Average
Exercise
Price
|
|
|
|
|
|
US$
|
|
Balance as of December 31, 2008
|
|
|
5,650,695
|
|
|
0.91
|
|
Granted
|
|
|
708,600
|
|
|
1.40
|
|
Forfeited
|
|
|
(244,000
|
)
|
|
0.78
|
|
Cancelled
|
|
|
(13,600
|
)
|
|
1.40
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
6,101,695
|
|
|
1.02
|
|
Granted
|
|
|
1,729,700
|
|
|
2.75
|
|
Forfeited
|
|
|
(646,600
|
)
|
|
1.67
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
7,184,795
|
|
|
1.38
|
|
Granted
|
|
|
2,838,600
|
|
|
4.57
|
|
Forfeited
|
|
|
(746,300
|
)
|
|
2.64
|
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
|
|
9,277,095
|
|
|
2.24
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2011
|
|
|
5,238,233
|
|
|
1.07
|
|
|
|
|
|
|
|
The
following table summarizes information about share options outstanding as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
Options exercisable
|
|
Exercise price
|
|
Number of
options
outstanding
|
|
Remaining
contractual
life (years)
|
|
Aggregate
Intrinsic Value
(US$)
|
|
Number
exercisable
|
|
Remaining
contractual
life (years)
|
|
Aggregate
Intrinsic Value
(US$)
|
|
US$0.001
|
|
|
1,055,000
|
|
|
|
|
|
2,894,920
|
|
|
1,055,000
|
|
|
|
|
|
2,894,920
|
|
US$0.100
|
|
|
319,000
|
|
|
|
|
|
843,755
|
|
|
319,000
|
|
|
|
|
|
843,755
|
|
US$0.300
|
|
|
326,600
|
|
|
0.26
|
|
|
798,537
|
|
|
310,550
|
|
|
0.22
|
|
|
759,295
|
|
US$1.400
|
|
|
3,672,295
|
|
|
1.49
|
|
|
4,939,237
|
|
|
3,175,408
|
|
|
1.45
|
|
|
4,270,923
|
|
US$2.800
|
|
|
573,600
|
|
|
3.18
|
|
|
|
|
|
164,950
|
|
|
3.19
|
|
|
|
|
US$2.708
|
|
|
706,600
|
|
|
3.56
|
|
|
25,932
|
|
|
213,325
|
|
|
3.56
|
|
|
7,829
|
|
US$4.956
|
|
|
1,608,300
|
|
|
4.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$4.088
|
|
|
915,700
|
|
|
4.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$2.600
|
|
|
100,000
|
|
|
4.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,277,095
|
|
|
|
|
|
9,502,381
|
|
|
5,238,233
|
|
|
|
|
|
8,776,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2010 was calculated as the difference between the estimated fair value of the
Company's ordinary shares as of December 31, 2010 and the exercise price of the share options. The aggregate intrinsic value of options outstanding and options exercisable as of
December 31, 2011 was calculated as the difference between the market price of the Company's ordinary shares as of December 31, 2011 and the exercise price of the share options.
F-45
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
12. Share-Based Compensation (Continued)
Prior
to the Company's IPO, the Company has accounted for its options granted to employees as liability awards as the exercise price was denominated in US$ while the functional currency
of the Company is RMB and the underlying shares were not publicly traded. The share-based compensation liability was initially recognized at estimated fair-value on the date of grant and
was subsequently remeasured at the end of each reporting period with an adjustment for the estimated fair-value recorded to the current period expense in order to properly reflect the
cumulative expense based on the current estimated fair value of the vested options over the vesting period.
Subsequent
to the Company's initial public offering, the Company accounts for its options granted to employees as equity awards, as the Company's shares are now publicly traded. In
addition, the liability awards were reclassified to equity awards on the date of the Company's initial public offering. The fair value of the liability awards outstanding was remeasured with the fair
value of the share-based liabilities relating to the vested options reclassified to Additional Paid-in Capital and the
fair value of the unvested options to be recognized over the remaining requisite service period as compensation expenses.
For
the years ended December 31, 2009, 2010 and 2011, RMB 11,522,350, RMB 104,576,369 and RMB 105,034,741 were recorded as share-based compensation expenses. The stock-based
compensation expenses of RMB 105,034,741 represented the fair value change in liability awards which has been reclassified to equity upon the Company's initial public offering and compensation
expenses for the equity awards subsequent to the IPO.
The
weighted average grant-date fair values of each option for employee were US$0.87, US$2.05 and US$18.48 for the years ended December 31, 2009, 2010 and 2011. There
was no income tax benefit recognized in the statements of operations for share-based compensation plans in the years ended December 31, 2009, 2010 and 2011.
Under
ASC 718, the Company applied the Black-Scholes option pricing model in determining the fair value of options granted. The assumptions used to value share-based compensation awards
are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended
December 31
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
Expected volatility (%)
|
|
|
60 - 75
|
|
|
35 - 60
|
|
|
40 - 75
|
|
Expected dividend yield (%)
|
|
|
|
|
|
|
|
|
|
|
Expected term(years)
|
|
|
1.42 - 4
|
|
|
0.25 - 3.58
|
|
|
1.00 - 7.00
|
|
Risk-free interest rate (per annum) (%)
|
|
|
1.38 - 3.59
|
|
|
0.99 - 1.83
|
|
|
1.10 - 2.40
|
|
The
Company estimated the expected volatility at the date of grant based on average annualized standard deviation of the share price of comparable listed companies. The Company has no
history or expectation of paying dividends on its ordinary shares. The Company estimated the expected term based on the timing of the expected public offering or using the simplified method under
ASC 718-10-S99, the vesting schedule and the exercise period of the options. Risk-free interest rates are based on the derived market yield of the US$
denominated Chinese Government bonds for the term approximating the expected life of award at the time of grant.
F-46
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
12. Share-Based Compensation (Continued)
As
of December 31, 2011, there was RMB 65,900,481 of unrecognized compensation cost for employee related to unvested share-based compensation arrangements granted under the Option
Plan. The cost was expected to be recognized over a remaining weighted-average period of 2.95 years as of December 31, 2011.
13. Taxation
The
provisions for income taxes were summarized as follows:
|
|
|
|
|
|
|
|
|
|
Years ended
December 31
|
|
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
Current income tax expense
|
|
|
|
|
|
|
|
Deferred tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
components of loss before income taxes for PRC and non-PRC operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Loss arising from PRC operations
|
|
|
(139,225,855
|
)
|
|
(86,563,768
|
)
|
|
(223,774,378
|
)
|
Loss arising from non-PRC operations
|
|
|
(5,551,298
|
)
|
|
(260,836,069
|
)
|
|
(287,387,388
|
)
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(144,777,153
|
)
|
|
(347,399,837
|
)
|
|
(511,161,766
|
)
|
|
|
|
|
|
|
|
|
Income tax expense relating to PRC operations
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit relating to non-PRC operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the current laws of Cayman, the Company, being a Cayman incorporated company, is not subject to tax on income or capital gain. In
addition, upon payments of dividends by the Company to its shareholders, no Cayman withholding tax will be imposed.
Under the current tax laws of British Virgin Islands, Starcloud BVI is not subject to tax on income or capital gain. In addition, no
British Virgin Islands withholding tax will be imposed on payments of dividends by Starcloud BVI to its shareholders.
F-47
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
13. Taxation (Continued)
In March 2007, the Chinese government enacted the Corporate Income Tax Law, and promulgated related regulations Implementing
Regulations for the PRC Corporate Income Tax Law. The law and regulations went into effect on January 1, 2008. The Corporate Income Tax Law, among other things, imposes a unified income tax
rate of 25% for both domestic and foreign invested enterprises. The Corporate Income Tax Law provides a five-year transitional period for those entities established before March 16,
2007, which enjoyed a favorable income tax rate of less than 25% under the previous income tax laws and regulations, to gradually change their income tax rates to 25%. Accordingly, the income tax rate
is 20%, 25% and 25% in 2009, 2010 and 2011 respectively.
The
following table set out the reconciliation of the statutory income tax rate and the Group's effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
Statutory EIT rate
|
|
|
20.0
|
%
|
|
25.0
|
%
|
|
25
|
%
|
Non-deductible tax losses*
|
|
|
(0.2
|
)%
|
|
(18.8
|
)%
|
|
(14.1
|
)%
|
Change in valuation allowance
|
|
|
(19.8
|
)%
|
|
(6.2
|
)%
|
|
(10.9
|
)%
|
|
|
|
|
|
|
|
|
Effective EIT rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
This
reconciling item primarily relates to losses incurred by the Company and Starcloud BVI incorporated in BVI with no corresponding deferred tax assets,
since the Company and Starcloud BVI are not subject to income tax under the Cayman and BVI laws.
The
Group's significant components of deferred tax assets were as follows:
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
|
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
Net operating losses
|
|
|
88,798,333
|
|
|
121,369,268
|
|
Accrued liabilities
|
|
|
34,389,202
|
|
|
47,898,888
|
|
Fixed assets depreciation
|
|
|
428,268
|
|
|
1,127,603
|
|
Allowance for doubtful accounts
|
|
|
1,875,133
|
|
|
11,038,772
|
|
|
|
|
|
|
|
Total
|
|
|
125,490,936
|
|
|
181,434,531
|
|
Less: Valuation allowance
|
|
|
(125,490,936
|
)
|
|
(181,434,531
|
)
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2009, 2010 and 2011, valuation allowances were provided for tax losses carry-forward and other deferred tax assets because it was more likely than not that such
deferred tax will not be realized based on the Group's estimate of its future taxable income. Accumulated tax losses of approximately RMB 389,157,840, RMB 506,083,746 and RMB 672,646,922 carried
forward as of
F-48
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
13. Taxation (Continued)
December 31,
2009, 2010 and 2011 will expire through 2012 to 2016. If any events occur in the future that allow the Group to realize more of its deferred tax assets than the presently recorded
amount, an adjustment to the valuation allowances will increase income when those events occur. The Company recognized additional valuation allowances for RMB 34,806,464, RMB 21,640,942 and
RMB55,943,595 during the years ended December 31, 2009, 2010 and 2011, respectively.
The
Corporate Income Tax Law also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China, which
were exempted under the previous income tax laws and rules. All the foreign invested enterprises are subject to withholding tax on dividends distribution effective from January 1, 2008. Since
Group is currently loss making and the Company intends to reinvest its future earnings to further expand its businesses, its PRC subsidiary do not intend to declare dividends to their immediate
foreign holding companies in foreseeable future.
In
order to assess uncertain tax positions, the Company applies a more likely than not threshold and a two-step approach for tax position measurement and financial statement
recognition. For the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely
than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more
than 50% likely to be realized upon settlement. The Company did not have any uncertain tax positions for the year ended December 31, 2009, 2010 and 2011. The Company does not anticipate the
uncertain tax positions to significantly increase or decrease within twelve months of December 31, 2011.
The
various entities within the Group were in tax loss position during the reporting periods and as discussed above, no deferred tax asset has been recognized for the carry forward tax
losses. Therefore, there was no impact of the preferential tax treatment on the loss per share.
The
Group is subject to sales taxes of 9.5% with a business tax of 5% and a cultural and educational related surcharge of 4.5% on the provision of advertising
services. In 2011, the cultural and educational related surcharge rate decreased to 3.5% on the provision of advertising services.
In November 2011, the Ministry of Finance released Circular Caishui [2011] No. 111 mandating Shanghai to
be the pilot of a tax reform program. Effective January 1, 2012, all entities in Shanghai that fall in the category of "selected modern service industries" will switch from a business tax payer
and become a VAT payer. All of our subsidiaries in Shanghai were subject to VAT at a rate of 6% by issuing VAT invoice and stop paying 5% business tax from January 1, 2012 onwards. For the year
ended December 31, 2011, there was amount of RMB 143,014,764 advertising revenue that the Company has not issued tax invoices and accordingly was subject to VAT, which was presented net of VAT
of RMB 8,264,154.
F-49
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
14. Loss per Share
Basic and diluted net loss attributable to the Company's ordinary shareholders per ordinary share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
(144,777,153
|
)
|
|
(347,399,837
|
)
|
|
(511,161,766
|
)
|
Accretion / remeasurement for Preferred Shares
|
|
|
(308,439
|
)
|
|
(14,983,908
|
)
|
|
(14,884,953
|
)
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted loss per share
|
|
|
(145,085,592
|
)
|
|
(362,383,745
|
)
|
|
(526,046,719
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding for basic and diluted calculation
|
|
|
12,000,000
|
|
|
12,000,000
|
|
|
50,069,321
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per ordinary share
|
|
|
(12.09
|
)
|
|
(30.20
|
)
|
|
(10.51
|
)
|
The
potentially dilutive securities such as share based awards, preferred shares, convertible loan and warrants were not included in the calculation of dilutive loss per share because of
their anti-dilutive effect.
The
Company's preferred shares are participating securities and as such would be included in the calculation of basic earnings (loss) per share under the Two-class Method in
periods of net loss if, based on the contractual terms of the preferred shares, the preferred shares have a contractual obligation to share in the losses of the Company. For the years ended
December 31, 2009, 2010 and 2011, it was determined that the preferred shareholders have no such obligation to share in the losses of the Company and therefore no loss was allocated to them in
the computation of basic loss per share.
The
following ordinary shares equivalent were excluded from the computation of diluted net loss per ordinary share for the periods presented because including them would have had an
anti-dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
Preferred shares
|
|
|
51,452,917
|
|
|
69,914,684
|
|
|
|
|
Share-based awards
|
|
|
2,622,823
|
|
|
7,184,795
|
|
|
9,277,095
|
|
Warrants of the Series E Preferred Shares (Note 10)
|
|
|
|
|
|
9,230,878
|
|
|
|
|
15. Commitments and contingencies
The Group leases office premises under non-cancellable leases. Rental expenses under operating leases for the years ended
December 31, 2009, 2010 and 2011 were RMB 6,806,086, RMB 8,508,838, and RMB12,267,009, respectively.
F-50
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
15. Commitments and contingencies (Continued)
In
addition, the Group also leases internet bandwidth under non-cancellable leases. Internet bandwidth leasing cost for the years ended December 31, 2009, 2010 and
2011 were RMB 74,385,535, RMB 103,634,434 and RMB 180,244,594, respectively.
As
of December 31, 2011, the Group had remaining outstanding commitments in respect of its non-cancellable operating leases as follows:
|
|
|
|
|
|
|
RMB
|
|
2012
|
|
|
155,549,771
|
|
2013
|
|
|
47,856,122
|
|
2014
|
|
|
23,632,573
|
|
2015
|
|
|
16,122,911
|
|
2016
|
|
|
32,010,185
|
|
|
|
|
|
|
|
|
275,171,561
|
|
|
|
|
|
The shareholders of VIEs maybe involved in personal disputes with third parties that may have adverse effect on their respective equity
interests in the relevant VIEs. On October 11, 2010, the ex-wife of Mr. Gary Wei Wang, the founder and chief executive officer of the Company who holds 95% of the equity
interests in Quan Toodou, initiated a lawsuit against him with a local court in Shanghai, PRC and claimed for the division of 76% equity interest of Quan Toodou held by Mr. Wang, which she
alleges to form part of the community property during their marriage. The dispute has been settled by the court on June 10, 2011. The detailed evaluation and assessment of the impact has been
included in Note 2(b).
The
Group is subject to claims and litigations, which may arise in the normal course of business. As of December 31, 2011, there were a total of 47 lawsuits against the Company
with the total claim amount of RMB 3.4 million. These claims relate to the allegations of infringement of copyrights of others as well as other claims of liability. Based on the management's
assessment of each lawsuit and advice from external PRC litigation counsel, the Group believed that it is probable that the Group could incur a loss with respect to some of these litigations, whether
through reaching a final judgment on the merits or through settlement. In addition, as disclosed in Note 17(a) to the consolidated financial statements, the Company has also evaluated the
subsequent litigation arose after the balance sheet date to accrue
liabilities associated with claims and litigations related to events existed at December 31, 2011 as the conditions existed as of the December 31, 2011 that become probable and
estimable. Accordingly, the Group collectively accrued a litigation liability of RMB 1.4 million as of December 31, 2011 associated with these claims and litigations (Note 9).
Although it is reasonably possible that additional losses in excess of amounts currently accrued may be incurred, the Company does not expect such amounts to be material to its business and
consolidated financial statements based on the Company's assessment with the advice from external PRC litigation counsel and the historical outcomes.
On
December 21, 2010, the Company received a letter from legal counsel representing Twentieth Century Fox Film Corporation, Universal City Studios LLLP, Viacom Inc.,
Paramount Pictures
F-51
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
15. Commitments and contingencies (Continued)
Corporation,
and Warner Bros. Entertainment Inc. (the "Content Owners"), alleging copyright infringement by the Company. The Company has engaged a legal counsel to assist in its discussion with
the Content Owners and to negotiate the additional copyright protection measures, including filtering which the Company will undertake. Subsequently the Company entered into a Content Protection
Agreement with the Content Owners to undertake certain steps to prevent copyright infringement in the future on April 7, 2011. There can be no assurance that the Company will avoid legal claims
in the future for past infringements by the Content Owners for material amounts. If the Content Owners successfully assert a claim for copyright infringement, the resultant liability could have a
material impact on the Company's business, financial position and results of operations. The Company has not made any provision in the consolidated financial statements as of each balance sheet date
for this matter. Management has implemented a number of additional steps to improve its copyright protection policy and procedures, including upgrading its copyright infringement detection system.
Apart
from the discussion above and discussion included in Note 17, the Group is not currently a party to, nor is it aware of, any legal proceeding, investigation or other claims
that is likely to have a material adverse effect on its business, financial condition or results of operations. Although we have not previously been subject to legal actions for copyright infringement
in jurisdictions other than the PRC, it is possible that we may be subject to such claims in the future.
16. Certain Risks and Concentration
The Group's financing activities are denominated in US$. Remittances of foreign currencies into the PRC and exchange of foreign
currencies into RMB require approval by foreign exchange administrative authorities and certain supporting documentation. As of December 31, 2010, the Group's cash funds, including restricted
cash, denominated in US$ 46,719,248, AUD 434 and short-term investments in EUR 662,834 are exposed to foreign exchange risk. As of December 31, 2011, the Group's cash funds,
including restricted cash, denominated in US$ 19,033,643 and HKD 57,839 are exposed to foreign exchange risk.
The
Group's revenues and purchases are generally denominated in RMB and the Group's assets and liabilities are denominated in RMB, except for cash held in other currencies and preferred
shares which are denominated in US$. RMB is not freely convertible into foreign currencies. In the PRC, foreign exchange transactions are required by law to be transacted only by authorized financial
institutions at the exchange rates set by the People's Bank of China (the "PBOC"). Remittances in currencies other than RMB by the Group in the PRC require certain supporting documentation in order to
affect the remittance.
The Group depends on a limited number of customers for a significant portion of the revenue. The top 10 customers accounted for 52%,
46%, and 44% of the revenue for the years ended December 31, 2009, 2010 and 2011, respectively.
No
individual customer accounted for over 10% of accounts receivable and revenue as of December 31, 2009, 2010 and 2011 and for the years then ended respectively.
F-52
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
16. Certain Risks and Concentration (Continued)
As of December 31, 2010 and 2011, substantially all of the Group's cash and cash equivalents and short-term
investments were held by reputable financial institutions in the jurisdictions where the Company and its subsidiaries are located. China does not have an official deposit insurance program, nor does
it have an agency similar to The Federal Deposit Insurance Corporation (FDIC) in the United States. However, the Group believes that the risk of failure of any of these PRC banks is remote. Bank
failure is extremely uncommon in China and the Group believes that those Chinese banks that hold the Company's cash, cash equivalents, short-term investments and long term time deposit are
financially sound based on public available information.
The
Group has not experienced any losses on its deposits of cash and cash equivalents and short-term investments. Furthermore, prior to entering into contracts, the Group
makes a credit assessment of the customer to assess the collectability of the contract.
17. Subsequent Events
Subsequent to December 31, 2011, certain copyright holders filed a total of 22 lawsuits against the Company for unauthorized
display of their contents on the Company's website with the total claim amount of RMB7.3 million. Based on the management's assessment for each lawsuit and the advice from external PRC
litigation counsel, the Group believed that it is probable that it could incur a loss with respect to some of these litigations. Accordingly, as disclosed in Note 9 and 15 (b), the Group
collectively accrued liabilities associated with claims and litigations related to events existed at December 31, 2011 as they become probable and could be reasonably estimated. While it is
reasonably possible that additional losses in excess of amounts currently accrued may be incurred, the Company does not expect such amounts to be material to its business and consolidated financial
statements based on the Company's assessment with the advice from its external PRC litigation counsel and the historical outcomes.
In
February 2012, the Company has received a notification of lawsuit filed by a third party, where the plaintiff claimed that in December 2011, the Company announced in a press
conference with respect to an asserted copyright infringement by the plaintiff had constituted the unfair competitive practices and claimed a damage of RMB 4.8 million. Based on the
management's assessment and the advice from the external PRC litigation counsel, the Group believes that the likelihood that the plaintiff will prevail is remote and the potential impact if any is not
likely be material to its business and the consolidated financial statements.
In February 2012, the Company started to cooperate with Sina Weibo,which is operated by Sina Corporation, an equity investor of the
Company, for its users to upload and share videos seamlessly onto the Company's site. With such cooperation, Sina Weibo users are able to register with the Company's site automatically using its Sina
Weibo accounts and enjoy the full functionality of the Company's site as the Company's registered users.
F-53
Table of Contents
TUDOU HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts expressed in RMB unless otherwise stated)
17. Subsequent Events (Continued)
(c) Establishment of Beijing Tixian Digital Science and Technology Co., Ltd. ("Beijing Tixian")
In January 2012, Beijing Tixian, a VIE of the Company was established, which primarily engaged in animation related business. The
Company, through Reshuffle Shanghai, entered into various contractual agreements with Beijing Tixian or its nominee shareholders, pursuant to which, the Company holds all of the variable interests of
Beijing Tixian.
On March 11, 2012, the Company and Youku entered into a definitive agreement for the Company to combine with Youku in a 100%
stock-for-stock transaction. Under the terms of the agreement, each Class A ordinary share and Class B Ordinary Share of the Company issued and outstanding
immediately prior to the effective time of the merger will be cancelled in exchange for the right to receive 7.177 Class A Ordinary Shares of Youku, and each American depositary share ("ADS")
of the Company, each of which represents four Class B Ordinary Shares of the Company, will be cancelled in exchange for the right to receive 1.595 ADSs of Youku, each of which represents 18
Youku Class A ordinary shares resulting in the shareholders and ADS holders of Youku and the Company owning approximately 71.5% and 28.5% of the combined entity, respectively, immediately upon
completion of the transaction. Upon completion, the combined entity will be named Youku Tudou Inc. Youku's ADSs will continue to be listed on the NYSE under the symbol "YOKU".
F-54
Table of Contents
Appendix A
AGREEMENT AND PLAN OF MERGER
dated as of March 11, 2012
among
Youku Inc.,
Tudou Holdings Limited
and
Two
Merger Sub Inc.
Table of Contents
A-i
Table of Contents
A-ii
Table of Contents
A-iii
Table of Contents
Glossary of Defined Terms
|
|
|
|
|
Defined Terms
|
|
Defined on Page
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2011 Form 20-F
|
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38
|
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Acquisition Proposal
|
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39
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Affiliate
|
|
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58
|
|
Aggregate ADS Payment
|
|
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7
|
|
Agreement
|
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1
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Articles of Association
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3
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Bankruptcy and Equity Exception
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|
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12
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business day
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59
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Cayman Companies Law
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2
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Certificates
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6
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Claim
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43
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Closing
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2
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Closing Date
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2
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Code
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59
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Company T
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1
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Company T ADSs
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3
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Company T Affiliate
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16
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Company T Agreements
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15
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Company T Benefit Plan
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18
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Company T Board
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1
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Company T Board Recommendation
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39
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Company T Change of Recommendation
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39
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Company T Class A Share
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3
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Company T Class B Share
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3
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Company T Deposit Agreement
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5
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Company T Depositary
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5
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Company T Disclosure Schedule
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10
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Company T Employees
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59
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Company T Financial Advisor
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24
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Company T Financial Information
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13
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Company T Founder Settlement Agreement
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46
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Company T Intellectual Property
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59
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Company T IP Agreements
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|
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59
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Company T Leased Properties
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16
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Company T Licensed Intellectual Property
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59
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Company T Material Adverse Effect
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59
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Company T Material Contracts
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20
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Company T Option
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60
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Company T Owned Intellectual Property
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60
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Company T Permits
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16
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Company T PRC Subsidiaries
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23
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Company T Principal Shareholders
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60
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Company T Related Party
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60
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Company T SEC Reports
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12
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|
Company T Share
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|
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3
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Company T Share Incentive Plan
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60
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Company T Shareholders Meeting
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41
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Company T Shares
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|
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3
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Company T Software
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60
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Company T VIE Contracts
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60
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Company T VIEs
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60
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Company T Voting Agreement
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1
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Company T Voting Shareholders
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61
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Company Y
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1
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Company Y ADSs
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3
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Company Y Board
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28
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Company Y Board Recommendation
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40
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Company Y Change of Board Recommendation
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40
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Company Y Class A Shares
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3
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Company Y Class B Shares
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26
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Company Y Deposit Agreement
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5
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Company Y Depositary
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5
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Company Y Disclosure Schedule
|
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25
|
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Company Y Employees
|
|
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61
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Company Y Financial Information
|
|
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28
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|
Company Y Intellectual Property
|
|
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61
|
|
Company Y IP Agreements
|
|
|
61
|
|
Company Y Licensed Intellectual Property
|
|
|
61
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|
Company Y Material Adverse Effect
|
|
|
61
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|
Company Y Option
|
|
|
62
|
|
Company Y Owned Intellectual Property
|
|
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62
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|
Company Y Permits
|
|
|
30
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|
Company Y Related Party
|
|
|
63
|
|
Company Y SEC Reports
|
|
|
28
|
|
Company Y Share Incentive Plan
|
|
|
63
|
|
Company Y Shareholders Meeting
|
|
|
41
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|
Company Y Shares
|
|
|
26
|
|
Company Y VIE Contracts
|
|
|
63
|
|
Company Y VIEs
|
|
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63
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|
Company Y Voting Agreement
|
|
|
1
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|
Company Y Voting Shareholders
|
|
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63
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Competing Proposal
|
|
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40
|
|
Contract
|
|
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15
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CSRC
|
|
|
17
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Dissenters Shares
|
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8
|
|
Effective Time
|
|
|
2
|
|
ERISA
|
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63
|
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Exchange Act
|
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|
12
|
|
Exchange Agent
|
|
|
5
|
|
Exchange Ratio
|
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3
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|
A-iv
Table of Contents
|
|
|
|
|
Defined Terms
|
|
Defined on Page
|
|
Excluded Shares
|
|
|
4
|
|
Expenses
|
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|
45
|
|
FCPA
|
|
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16
|
|
Form F-4
|
|
|
13
|
|
GAAP
|
|
|
13
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Government Official
|
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17
|
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Governmental Antitrust Entity
|
|
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42
|
|
Governmental Entity
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|
|
15
|
|
Indemnified Parties
|
|
|
43
|
|
Intellectual Property
|
|
|
63
|
|
IT Assets
|
|
|
63
|
|
Judgment
|
|
|
16
|
|
know
|
|
|
64
|
|
knowledge
|
|
|
64
|
|
Law
|
|
|
64
|
|
Lien
|
|
|
64
|
|
Maximum Premium
|
|
|
44
|
|
Merger
|
|
|
1
|
|
Merger Consideration
|
|
|
4
|
|
Merger Sub
|
|
|
1
|
|
Merger Sub Board
|
|
|
27
|
|
No Vote Termination Fee
|
|
|
64
|
|
Off-the-Shelf Software
|
|
|
64
|
|
Parties
|
|
|
1
|
|
Per ADS Merger Consideration
|
|
|
4
|
|
Per Share Merger Consideration
|
|
|
3
|
|
Permitted Liens
|
|
|
64
|
|
Person
|
|
|
64
|
|
Plan of Merger
|
|
|
2
|
|
PRC
|
|
|
64
|
|
PRC Anti-Bribery Laws
|
|
|
16
|
|
PRC Anti-Monopoly Law and Regulations
|
|
|
17
|
|
Proceedings
|
|
|
16
|
|
Prospectus
|
|
|
13
|
|
Public Software
|
|
|
64
|
|
Registered
|
|
|
65
|
|
Representative
|
|
|
39
|
|
Required Company T Vote
|
|
|
12
|
|
Required Company Y Vote
|
|
|
28
|
|
Review Date
|
|
|
14
|
|
SAFE
|
|
|
17
|
|
SAFE Circular No. 75
|
|
|
17
|
|
SEC
|
|
|
65
|
|
Securities Act
|
|
|
12
|
|
Share Issuance
|
|
|
27
|
|
Software
|
|
|
65
|
|
Subsidiary
|
|
|
65
|
|
Surviving Corporation
|
|
|
2
|
|
Takeover Statute
|
|
|
24
|
|
Tax Returns
|
|
|
65
|
|
Taxes
|
|
|
65
|
|
Termination Date
|
|
|
50
|
|
Termination Fee
|
|
|
65
|
|
Transaction Agreements
|
|
|
65
|
|
Transition Management Committee
|
|
|
47
|
|
UGC Agreements
|
|
|
65
|
|
Uncertificated Shares
|
|
|
6
|
|
US$
|
|
|
65
|
|
Wholly Owned Company T Subsidiaries
|
|
|
11
|
|
Wholly Owned Company Y Subsidiaries
|
|
|
27
|
|
Withheld Shares
|
|
|
47
|
|
A-v
Table of Contents
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "
Agreement
"), dated March 11, 2012 is by
and among Youku Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company Y
"), Two Merger
Sub Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands and a direct wholly owned Subsidiary of Company Y ("
Merger
Sub
"), and Tudou Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company
T
" and, together with Company Y and Merger Sub, the "
Parties
"). Certain capitalized terms used in this Agreement are used as
defined in Section 9.12.
WHEREAS,
the respective Boards of Directors of Company Y and Merger Sub have (i) approved the merger of Merger Sub with and into Company T (the
"
Merger
"), with Company T surviving the Merger upon the terms and subject to the conditions set forth in this Agreement and becoming a direct wholly
owned Subsidiary of Company Y as a result of the Merger, (ii) approved the execution, delivery and performance by Company Y and Merger Sub, as the case may be, of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby; and (iii) recommended the approval of the Share Issuance (as defined below) by the requisite vote of the Company Y
shareholders and the authorization and approval of this Agreement and the Merger and the Plan of Merger (as defined below) by the requisite vote of the Merger Sub shareholder;
WHEREAS,
the Board of Directors of Company T (the "
Company T Board
") has (i) determined that it is in the best interests of Company
T and its shareholders, and declared it advisable, to enter into this Agreement and the Plan of Merger, (ii) approved the execution, delivery and performance by Company T of this Agreement and
the Plan of Merger and the consummation of the Merger and the other transactions contemplated hereby and (iii) recommended the authorization and approval by way of special resolution of this
Agreement, the Merger and the Plan of Merger by the shareholders of Company T;
WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the willingness of Company T to enter into this Agreement, each of the
Company Y Voting Shareholders has executed and delivered to Company T a voting agreement dated as of the date hereof, between each such Company Y Voting Shareholder and Company T (together with the
schedules and exhibits attached thereto, each a "
Company Y Voting Agreement
"); and
WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the willingness of Company Y and Merger Sub to enter into this Agreement,
each of the Company T Voting Shareholders has executed and delivered to Company Y a voting agreement, dated as of the date hereof, between each such Company T Voting Shareholder and Company Y
(together with the schedules and exhibits attached thereto, each a "
Company T Voting Agreement
").
NOW,
THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, Company T,
Company Y and Merger Sub hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1
The Merger.
At the Effective Time, upon the terms and subject to the conditions of this
Agreement and in accordance with the Cayman Islands Companies Law Cap. 22 (Law 3 of
1961, as consolidated and revised) (the "
Cayman Companies Law
"), Merger Sub shall be merged with and into Company T. Following the Merger, Company T
shall continue as the surviving corporation (the "
Surviving Corporation
") and the separate corporate existence of Merger Sub shall cease.
A-1
Table of Contents
Section 1.2
Effective Time.
Subject to the provisions of this Agreement, Company Y, Merger Sub
and Company T shall execute a plan of merger (the "
Plan of
Merger
") substantially in the form contained in
Annex A
hereto and the Parties shall file the Plan of Merger and other
documents required to effect the Merger pursuant to the Cayman Companies Law with the Registrar of Companies of the Cayman Islands as provided in Section 233 of the Cayman Companies Law on or
as soon as practicable after the Closing Date. The Merger shall become effective at the time when the Plan of Merger has been registered by the Registrar of Companies of the Cayman Islands or at such
other subsequent date or time thereafter within 90 days of the date of registration of the Plan of Merger by the Registrar of Companies of the Cayman Islands as Merger Sub and Company T may
agree and specify in the Plan of Merger in accordance with the Cayman Companies Law (the "
Effective Time
").
Section 1.3
Closing of the Merger.
Unless otherwise mutually agreed in writing among
Company Y, Merger Sub and Company T, the closing of the Merger (the
"
Closing
") will take place at 10:00 a.m. (Hong Kong time), on a date to be agreed between Company Y and Company T (the
"
Closing Date
"), which shall be no later than the third business day immediately following the satisfaction or waiver of the conditions set forth in
Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions at the Closing), at the offices of
Skadden, Arps, Slate, Meagher & Flom, 42/F, Edinburgh Tower, The Landmark, 15 Queen's Road Central, Hong Kong or another place and time agreed in writing by Company Y and Company T.
Section 1.4
Effects of the Merger.
The Merger shall have the effects specified in the Cayman
Companies Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective
Time, the Surviving Corporation shall succeed to and assume all the rights, property of every description, including choses in action, and the business, undertaking, goodwill, benefits, immunities and
privileges, mortgages, charges or security interests and all contracts, obligations, claims, debts and liabilities of Merger Sub and Company T in accordance with the Cayman Companies Law.
Section 1.5
Memorandum and Articles of Association.
At the Effective Time, the memorandum of
association and articles of association of Merger Sub then in effect shall be the memorandum of association and articles
of association (the "
Articles of Association
") of the Surviving Corporation (except that, at the Effective Time, (i) Clause 1 of the
memorandum of association shall be amended to be and read as follows: "The name of the Company is Tudou Holdings Limited", and (ii) the Articles of Association shall be amended to refer to the
name of the Surviving Corporation as "Tudou Holdings Limited"), in each case, until thereafter changed or amended as provided therein or by applicable Law.
Section 1.6
Directors.
The directors of Merger Sub immediately prior to the Effective Time shall
be the directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Association until their respective death, resignation, or removal or until their respective successors are duly elected and qualified.
Section 1.7
Officers.
The officers of Company T immediately prior to the Effective Time shall be
the officers of the Surviving Corporation, each to hold office in accordance with the
Articles of Association until successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1
Conversion of Securities.
At the Effective Time, by virtue of the Merger and without
any action on the part of any of the Parties or any other shareholders of Company T:
(a)
Securities of Merger Sub.
Each ordinary share, par value US$0.0001 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into one
A-2
Table of Contents
fully
paid and nonassessable ordinary share, par value US$0.0001 per share, of the Surviving Corporation. Such share shall be the only issued and outstanding share capital of the Surviving
Corporation.
(b)
Merger Consideration.
(i) Other
than as provided in Section 2.1(b)(ii), each Class A ordinary share, par value US$0.0001 per share, of Company T ("
Company T
Class A Share
") and Class B ordinary share, par value US$0.0001 per share, of Company T ("
Company T Class B
Share
" ) issued and outstanding immediately prior to the Effective Time (individually, a "
Company T Share
" and collectively, the
"
Company T Shares
") (other than the Excluded Shares and any Dissenters Shares), shall be cancelled in exchange for the right to receive
7.177
(the
"
Exchange Ratio
") validly issued, fully paid, non-assessable Class A
ordinary shares, par value US$0.00001 per share, of Company Y ("
Company Y Class A Shares
") (such number of shares, the
"
Per Share Merger Consideration
").
(ii) Each
American depositary share of Company T, each of which represents four Company T Class B Shares (the "
Company T
ADSs
"), shall be cancelled in exchange for the right of the holder of the relevant Company T ADS at the direction of the Company T Depositary to receive
1.595
American
depositary shares of Company Y, each of which represents 18 Company Y Class A Shares (the "
Company Y
ADSs
") (such number of Company Y ADSs, the "
Per ADS Merger Consideration
" and together with the Per Share Merger Consideration,
the "
Merger Consideration
").
As
of the Effective Time, all Company T Shares, including Company T Shares represented by Company T ADSs, shall, by virtue of the Merger and without any action on the part of its holder,
automatically be cancelled, shall no longer be issued or outstanding and shall cease to exist and the register of members of Company T will be amended accordingly. Each Company T Share (other than the
Excluded Shares and any Dissenters Shares) shall thereafter represent only the right to receive the Per Share Merger Consideration and each Company T Share represented by a Company T ADS, together
with such Company T ADS, shall thereafter represent only the right to receive the Per ADS Merger Consideration, as the case may be, without interest, and any Dissenters Shares shall thereafter
represent only the right to receive the applicable payments due and owing as referred to in Section 2.6.
(c)
Cancellation of Company T Shares.
Notwithstanding Section 2.1(b), each Company T Share and each
Company T ADS issued and outstanding immediately prior to the Effective Time that is (i) issued to the Company T Depositary and reserved for future grants under the Company T Share
Incentive Plan, or (ii) repurchased and held by Company T in treasury either in the form of Company T Shares or Company T ADSs (collectively, the "
Excluded
Shares
") shall, by virtue of the Merger and without any action on the part of its holder, automatically be cancelled, shall no longer be issued or outstanding and shall cease
to exist, and the register of members of Company T will be amended accordingly, and no consideration shall be delivered or deliverable in exchange therefor.
(d)
Untraceable and Dissenting Shareholders.
The Per Share Merger Consideration shall not be issued or delivered
to Company T shareholders who are untraceable unless, except as provided below, they notify the Exchange Agent of their current contact details prior to the Effective Time. A Company T shareholder
will be deemed to be untraceable if (i) he has no registered address in the register of members maintained by Company T, (ii) on the last two consecutive occasions on which a dividend
has been paid by Company T, a check payable to such shareholder either (A) has been sent to such shareholder and has been returned undelivered or has not been cashed or (B) has not been
sent to such shareholder because on an earlier occasion a check for a dividend so payable has been returned undelivered, and in any such case no valid claim in respect thereof has
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been
communicated in writing to Company T or (iii) notice of the Company T Shareholders Meeting has been sent to such shareholder and has been returned undelivered.
(e)
Certain Adjustments.
Notwithstanding any provision of this Article II to the contrary, if between the
date of this Agreement and the Effective Time the outstanding Company T Shares or Company Y Shares, as applicable, or securities convertible into or exchangeable or exercisable for Company T
Shares or Company Y Shares, as applicable, shall have been changed into a different number of shares or a different class by reason of the occurrence or record date of any share dividend, subdivision,
reclassification, recapitalization, split, combination, consolidation, readjustment, exchange of shares or similar transaction, the Per Share Merger Consideration and Per ADS Merger Consideration
shall be appropriately adjusted to reflect such share dividend, subdivision, reclassification, recapitalization, split, combination, consolidation, readjustment, exchange of shares or similar
transaction.
Section 2.2
Treatment of Company T Options.
(a) Each Company T Option that is outstanding
immediately prior to the Effective Time, whether vested or unvested, shall, at the Effective Time, be assumed
by Company Y and be replaced by Company Y with a Company Y Option. Each such Company Y Option shall be exercisable for that number of whole Company Y Class A Shares (rounded down to the nearest
whole share) equal to the product of (i) the total number of Company T Shares subject to such Company T Option and (ii) the Exchange Ratio, at an exercise price per Company Y
Class A Share (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of the Company T Option by (y) the Exchange Ratio.
Each such Company Y Option shall continue to have, and shall be subject to, the same terms and conditions as applied to the Company T Option immediately prior to the Effective Time (but taking into
account any changes thereto provided for in the Company T Share Incentive Plan, any award agreement, or any other contract or agreement, including by reason of this Agreement or the transactions
contemplated hereby).
(b) Unless
otherwise determined by Company Y, the Company T Share Incentive Plan shall terminate as of the Effective Time. Company T shall take all actions necessary to
(i) effect the measures contemplated in this Section 2.2, including but not limited to the adoption of any plan amendments, obtaining Company T Board approval, and/or obtaining the
necessary employee or optionholder consents and (ii) to ensure that from and after the Effective Time neither Company Y nor the Surviving Corporation will be required to issue Company T
Shares, other share capital of the Surviving Corporation or any other consideration (other than as required by this Section 2.2) to any Person pursuant to or in settlement of Company T Options
or any other awards granted under the Company T Share Incentive Plan.
Section 2.3
Exchange Fund.
(a) Subject to the conditions and terms of the depositary
agreement dated as of August 16, 2011 (the "
Company T Deposit
Agreement
"), entered into among Company T, The Bank of New York Mellon (the "
Company T Depositary
"), as depositary and all
owners and beneficial owners from time to time of Company T ADSs, prior to the Effective Time, Company Y shall, subject to Company T's prior approval (which approval shall not be unreasonably
withheld, conditioned or delayed), appoint a commercial bank or trust to act as exchange agent hereunder for the purpose of canceling Company T Shares and Company T ADSs in exchange for the Per Share
Merger Consideration and the Per ADS Merger Consideration, as applicable (the "
Exchange Agent
").
(b) Prior
to the Effective Time, Company Y shall deposit, allot and issue or cause to be deposited, alloted and issued, as the case may be, with the Exchange Agent, for the
benefit of the holders of Company T Shares and Company T ADSs (other than the Excluded Shares) a number of Company Y
Class A Shares and Company Y ADSs sufficient to settle the Merger Consideration provided in Section 2.1(b) and Section 2.2. The Company Y ADSs shall be issued in accordance with
the depositary agreement dated as of December 8, 2010 (the "
Company Y Deposit
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Agreement
"), entered into among Company Y, Citibank, N.A. (the "
Company Y Depositary
"), as depositary and all owners and
beneficial owners from time to time of the Company Y ADSs, and Company Y shall cause the Company Y Depositary to issue the Per ADS Merger Consideration to the Exchange Agent.
Section 2.4
Exchange Procedures.
(a)
Holders of Company T
Shares:
(i) promptly after the Effective Time (and in any event within five
business days thereafter), the Surviving Corporation shall cause the Exchange Agent to mail to each registered holder of Company T Shares (other than the Company T Depositary and holders of Excluded
Shares and Dissenters Shares) (A) a form of letter of transmittal (which shall specify how the delivery of the Merger Consideration to the registered holders of Company T Shares shall be
effected) and (B) instructions for effecting the surrender of any and all share certificates which have been issued representing Company T Shares (the
"
Certificates
"). Each registered holder of Company T Shares (including Company T Shares not represented by a Certificate
("
Uncertificated Shares
")) shall be entitled to receive the Per Share Merger Consideration, without interest, for each Company T Share (including
Company T Shares formerly represented by a Certificate and Uncertificated Shares) cancelled at the Effective Time multiplied by (x) the number of Company T Shares represented by such
Certificate (or declaration of loss or non-receipt and, if applicable, indemnity in the required form and in compliance with Section 2.9) or (y) the number of Uncertificated
Shares, as the case may be, provided that each holder of a Certificate shall be required to surrender such Certificate (or a declaration of loss or non-receipt and, if applicable,
indemnity in the required form and in compliance with Section 2.9) to the Exchange Agent together with such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, and such other documents as may reasonably be required by the Exchange Agent, and the Certificate so surrendered shall forthwith be cancelled; and (ii) if the Per Share
Merger Consideration is to be made to a Person other than the Person in whose name the cancelled Company T Share is registered, it shall be a condition of payment that (A) a share transfer form
in respect of Company T Shares represented by the Certificate so surrendered (if any) shall be in a proper form to transfer the relevant Company T Shares and (B) the Person requesting such
payment shall have paid any transfer and other Taxes required by reason of the payment of the Per Share Merger Consideration to a Person other than the registered holder of such cancelled Company T
Shares and shall have established to the reasonable satisfaction of the Surviving Corporation that such Tax either has been paid or is not applicable. Upon the cancellation of any Company T Shares at
the Effective Time, the registered holder of such cancelled Company T Shares shall have no further rights in respect of such cancelled Company T Shares, and each Certificate in respect of such
cancelled Company T Shares shall be deemed at any time after the Effective Time to represent only the right to receive the Per Share Merger Consideration as contemplated by this Article II,
without interest.
(b)
Holders of Company T ADSs.
Notwithstanding anything to the contrary set forth in Section 2.4(a)
above, promptly after the Effective Time (and in any event within five business days thereafter), the Surviving Corporation and the Exchange Agent shall mail to the Company T Depositary (A) a
form of letter of transmittal (which shall specify how the delivery of the Merger Consideration to the Company T Depositary shall be effected); and (B) instructions for effecting the surrender
of any and all Certificates representing Company T Shares in the form of Company T ADSs. The Company T Depositary shall be entitled to receive the Per ADS Merger Consideration, without
interest, for each Company T Share held by the Company T Depositary in respect of which a Company T ADS has been issued (other than those Company T ADSs represented by Company T Shares issued to the
Company T Depositary and reserved for future grants under the Company T Share Incentive Plan) (the "
Aggregate ADS Payment
"),
provided
that the Company T
Depositary shall be required to surrender such Certificates it holds to the Exchange Agent, together with such letter of
transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Exchange Agent, and the Certificates so surrendered
shall forthwith be cancelled. Promptly
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after
the payment of the Aggregate ADS Payment (and in any event within five business days thereafter), and subject to the Company T Deposit Agreement, the Surviving Corporation and the Exchange Agent
shall cause the Company T Depositary to mail to each registered holder of Company T ADSs (other than holders of Excluded Shares) (X) a form of letter of transmittal (which shall specify how the
delivery of the Merger Consideration to the registered holders of Company T ADSs shall be effected); and (Y) instructions for effecting the surrender of any and all Receipts (as such term is
defined in the Company T Deposit Agreement) evidencing Company T ADSs. Each holder registered on the register of Receipts of Company T of such Company T ADSs cancelled at the Effective Time shall be
entitled to receive the Per ADS Merger Consideration for each Company T ADS cancelled at the Effective Time multiplied by the number of Company T ADSs held by such holder,
provided
that each holder of a
Receipt shall be required to surrender such Receipt to the Company T Depositary together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Company T Depositary, and the Receipts so surrendered shall
forthwith be cancelled pursuant to the Company T Deposit Agreement. Each Receipt in respect of such cancelled Company T ADS shall be deemed at any time after the Effective Time to represent only the
right to receive the Per ADS Merger Consideration as contemplated by this Article II. Notwithstanding anything to the contrary set forth in this Section 2.4(b), Company Y and each
registered holder of Company T ADSs shall each pay any applicable fees, charges and expenses provided under the Company T Deposit Agreement in connection with distribution of the Per ADS Merger
Consideration to Company T ADS holders and any and all Taxes under applicable Law.
(c)
Settlement of Fractional Securities.
No fractional Company Y Class A Shares or Company Y ADSs shall
be issued to holders of Company T Shares and Company T ADSs as part of the total Merger Consideration. The Exchange Agent shall (i) receive all Company Y ADSs not used for share exchange in the
Merger because of the existence of fractional Company Y Class A Shares or Company Y ADSs and (ii) sell such Company Y ADSs on behalf of the holders of fractional Company Y Class A
Shares or Company Y ADSs on The New York Stock Exchange and pass on the proceeds due and payable to such holders of Company T Shares and Company T ADSs in cash. Each holder of Company T Shares or
Company T ADSs (except the holders of the Excluded Shares and Dissenters Shares) who would have received fractional Company Y Class A Shares or Company Y ADSs but for this Section 2.4(c)
shall receive a cash payment representing such holder's proportionate interest in the net proceeds from the sale by the Exchange Agent pursuant to this Section 2.4(c).
(d)
Arrangements with Depositaries.
Each of Company Y and Company T will use reasonable efforts to put into
place appropriate arrangements with the Company Y Depositary and the Company T Depositary to give effect to this Article II.
Section 2.5
Transfer Books; No Further Ownership Rights.
Subject to Section 2.6, the Merger
Consideration paid in respect of the cancellation of Company T Shares and Company T ADSs in accordance with the terms of
this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to Company T Shares (including Company T Shares previously represented by Certificates and
Uncertificated Shares) or Receipts. At the Effective Time, the register of members of Company T and the register of Receipts of Company T shall be closed, and thereafter there shall be no further
registration of transfers on the register of members of the Surviving Corporation of Company T Shares or on the register of Receipts of Company T of Company T ADSs that were issued and outstanding
immediately prior to the Effective Time. From and after the Effective Time, (i) the holders of Company T Shares issued and outstanding immediately prior to the Effective Time and
(ii) subject to the Company T Deposit Agreement, the holders of Receipts that evidenced ownership of Company T ADSs outstanding immediately prior to the Effective Time, shall cease to
have any rights
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with
respect to such Company T Shares or Receipts, except as otherwise provided for herein or by applicable Law. Subject to the last sentence of Section 2.6, if, at any time after the Effective
Time, Certificates or Receipts are presented to the Surviving Corporation, or the Company T Depositary, where applicable, for any reason, they shall be cancelled as provided in this Article II.
Section 2.6
Dissenting Shares.
No Person who has validly exercised such Person's rights to
dissent from the Merger pursuant to Section 238 of the Cayman Companies Law shall be entitled
to receive the Per Share Merger Consideration with respect to Company T Shares owned by such Person ("
Dissenters Shares
") unless and until such Person
shall have effectively withdrawn or lost such Person's rights to dissent from the Merger under the Cayman Companies Law. If a holder of Dissenters Shares effectively withdraws its demand for, or loses
its rights to, dissent from the Merger pursuant to Section 238 of the Cayman Companies Law with respect to any Dissenters Shares, such Company T Shares shall cease to be Dissenters Shares. Each
Dissenters Share shall be entitled to receive only the payment resulting from the procedure in Section 238 of the Cayman Companies Law. Company T shall promptly give Company Y (i) copies
of notices of objection, notices of dissent, any written demands for appraisal, attempted withdrawals of such demands, and any other instruments served pursuant to applicable Law that are received by
Company T relating to Company T shareholders' rights to dissent from the Merger and (ii) the opportunity to direct or approve all offers, negotiations and proceedings with respect to demand for
appraisal under the Cayman Companies Law. Company T shall not, except with the prior written consent of Company Y, voluntarily make any payment with respect to any exercise by a shareholder of its
rights to dissent from the Merger, any demands for appraisal, offer to settle or settle any such demands or approve any withdrawal of any such demands.
Section 2.7
Termination of Exchange Fund.
Any portion of the Exchange Fund which remains
undistributed to the holders of Company T Shares (other than the Excluded Shares and the Dissenters Shares) at the
date nine months after the Effective Time shall be delivered to the Surviving Corporation on the instruction of the Surviving Corporation, and any holder of Company T Shares (other than the Excluded
Shares and the Dissenters Shares) who has not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation and Company Y (subject to this Agreement and
abandoned property, escheat and similar laws) for the Per Share Merger Consideration or the Per ADS Merger Consideration, as the case may be, exchangeable for such Company T Shares to which such
holder is entitled, without any interest on any portion thereof. Any such portion of the Exchange Fund remaining unclaimed by such holders of Company T Shares at such time at which amounts would
otherwise escheat to or become property of any Governmental Entity shall, to the extent permitted by Law, become the property of the Surviving Corporation or its designee, free and clear of any claims
or interest of any Person previously entitled thereto.
Section 2.8
No Liability.
None of Company Y, Merger Sub, Company T, the Surviving Corporation or
the Exchange Agent shall be liable to any Person in respect of any Merger Consideration
from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.
Section 2.9
Lost, Stolen or Destroyed Certificates.
If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit or declaration of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed and, if required by the Surviving Corporation or by the Exchange Agent, an indemnity or the posting by such Person of a bond in such reasonable amount as the Surviving
Corporation or the Exchange Agent may direct as indemnity against any claim that may be made against it with respect to such lost, stolen or destroyed Certificate, the Exchange Agent will deliver in
exchange for such lost, stolen or destroyed Certificate the applicable Per Share Merger Consideration with respect to Company T Shares formerly represented thereby pursuant to this Agreement.
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Section 2.10
Withholding Rights.
Each of the Surviving Corporation, Company T,
Company Y and the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement such amounts as it reasonably determines is required to deduct and withhold with respect to the making of such payment under any provisions of Tax Law of the United States,
PRC, or other applicable jurisdictions. To the extent that amounts are so withheld and paid over to the appropriate Governmental Entity by the Surviving Corporation, Company T, Company Y or the
Exchange Agent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to (a) the holder of Company T Shares or Company T ADSs in
respect to which such deduction and withholding was made by the Surviving Corporation or Company Y, as the case may be, (b) Company Y in respect of which such deduction and withholding
was made by Company T with respect any Termination Fee paid by Company T, and (c) Company T in respect of which such deduction and withholding was made by Company Y with respect to any No Vote
Termination Fee or Termination Fee paid by Company Y.
Section 2.11
Agreement of Fair Value.
Company Y, Merger Sub and Company T respectively agree
that the Per Share Merger Consideration represents the fair value of Company T Shares for the purposes of
Section 238(8) of the Cayman Companies Law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY T
Except
as (A) disclosed in the Company T SEC Reports filed with, or furnished to the SEC prior to the date hereof (other than disclosures in such
Company T SEC Reports contained in the "Risk Factors" and "Forward-Looking Statements" sections thereof or any other disclosures of risks or uncertainties in the Company T SEC Reports which are
nonspecific, cautionary, predictive or forward-looking in nature) or (B) set forth in the section of the disclosure schedule delivered to Company Y by Company T on the date hereof (the
"
Company T Disclosure Schedule
") that specifically relates to a specified section or subsection of this Article III, or any other section or
subsection of this Agreement to the extent that it is reasonably apparent that such information is relevant to such other section or subsection, Company T hereby represents and warrants to Company Y
and Merger Sub that:
Section 3.1
Organization and Qualification; Subsidiaries.
(a) Company T and each of its
Subsidiaries is a corporation or legal entity duly organized, validly existing and in good standing (with respect to
jurisdictions that recognize the concept of good standing) under the Laws of the jurisdiction of its incorporation and has all requisite corporate, partnership or similar power and authority to own,
lease and operate its properties and to carry on its businesses as now conducted. Company T and each of its Subsidiaries is duly qualified or licensed to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed is not
material. Accurate and complete copies of the memorandum and articles of association of Company T, as in effect as of the date of this Agreement, have been publicly filed or furnished by Company T as
part of the Company T SEC Reports.
(b)
Section 3.1(b)
of the Company T Disclosure Schedule sets forth a list of (i) all Subsidiaries
of Company T and (ii) Company T's interest in any Person which is not a Subsidiary, including any Person in which Company T has a non-controlling equity interest. Company T does not
own, directly or indirectly, beneficially or of record, any shares of capital stock or other security of any other entity or any other investment in any other entity.
Section 3.2
Capitalization of Company T and Its Subsidiaries.
(a) As of the date of this
Agreement, the authorized share capital of Company T is US$1,000,000 divided into (A) 9,990,000,000 ordinary shares of
par value US$0.0001 each, of which (i) 12,357,500 are designated as Company T Class A Shares and (ii) 9,977,642,500 are designated as Company T Class B Shares and
(B) 10,000,000
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preferred
shares of a nominal or par value of US$0.0001 each. As of the date of this Agreement, (1) 8,913,333 Company T Class A Shares were issued and outstanding; (2) 104,512,229
Company T Class B Shares were issued and outstanding (including 39,527,940 Company T Class B Shares represented by Company T ADSs); and (3) no preferred shares were issued and
outstanding.
Section 3.2
of the Company T Disclosure Schedule sets forth a complete and correct list of all holders of Company T Options,
including such Person's name, the grant or issuance date, the number of Company T Options (vested, unvested and total) held by such person as of the date of this Agreement, the exercise price for each
such Company T Option and the expiration date.
(b) Company
T has made available to Company Y accurate and complete copies of the Company T Share Incentive Plan and the form of award agreements in respect of Company T
Options granted as of the date of this Agreement. Since the date of this Agreement, no options, warrants or other rights to purchase Company T Shares have been issued or granted and no Company T
Shares have been issued. All the outstanding Company T Shares are, and Company T Shares issuable upon the exercise of outstanding Company T Options will be, when issued in accordance with the terms
thereof, duly authorized, validly issued, fully paid and non-assessable. Except as set forth in
Section 3.2(a)
and except for this
Agreement, the Company T Voting Agreements and the Company T VIE Contracts, (i) there is no share capital of Company T authorized, issued or outstanding, (ii) there are no authorized or
outstanding options, warrants, calls, preemptive rights, subscriptions or other rights, agreements, arrangements or commitments of any character (whether or not conditional) relating to the issued or
unissued share capital of Company T or any of its Subsidiaries, obligating Company T or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any share capital
or other equity interest in Company T or any of its Subsidiaries or securities convertible into or exchangeable or exercisable for such share capital or equity interests, or obligating Company T or
any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, preemptive right, subscription or other right, agreement, arrangement or commitment, and (iii) there are
no outstanding obligations of Company T or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Company T Shares or other share capital of Company T or any of its Subsidiaries, or to
make any payments based on the market price or value of shares or other share capital of Company T or its Subsidiaries, or to provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Subsidiary or any other entity other than loans to Subsidiaries in the ordinary course of business. Other than Company T ADSs and the Company T Deposit
Agreement, Company T does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exchangeable or exercisable for
securities having the right to vote) with the shareholders of Company T on any matter.
(c) All
of the outstanding share capital of Company T's wholly owned Subsidiaries ("
Wholly Owned Company T Subsidiaries
") has
been duly authorized, and validly issued, and is fully paid and nonassessable and owned by Company T, directly or indirectly, free and clear of any Lien or any other limitation or restriction
(including any restriction on the right to vote or sell the same, except as may be required by applicable Law), and there are no irrevocable proxies with respect to such share capital. The outstanding
share capital of Company T's Subsidiaries that are not Wholly Owned Company T Subsidiaries (other than the Company T VIEs and their Subsidiaries) has been duly authorized, and validly issued, and is
fully paid and nonassessable and owned by Company T, directly or indirectly, free and clear of any Liens (other than Permitted Liens).
(d) Each
Company T Option (i) was granted in compliance with all applicable Law in all material respects and all of the terms and conditions of the Company T Share
Incentive Plan, (ii) has an exercise price per Company T Share equal to or greater than the fair market value of a
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Company
T Share on the date of such grant, and (iii) has a grant date no earlier than the date on which the Company T Board actually approved such Company T Option.
(e) Company
T has no secured creditors and has granted no fixed or floating security interests that are outstanding.
Section 3.3
Authority.
(a) Company T has all necessary corporate power and authority to
execute and deliver this Agreement and, subject to obtaining the Required Company T Vote,
to consummate the transactions contemplated hereby. The Company T Board has duly and validly authorized the execution, delivery and performance of this Agreement and approved the consummation of the
transactions contemplated hereby, and has at a meeting duly called and held at which over two-thirds of the members of the Company T Board attended in person or through telephone or other
electronic means in which all participants of the meeting could hear and communicate with each other (in accordance with memorandum and articles of association of Company T) and voted in favor
of such resolutions (i) approved, and declared advisable, this Agreement, the Merger, the Plan of Merger and the other transactions contemplated hereby; (ii) determined that such
transactions are advisable and fair to, and in the best interests of, Company T and its shareholders; and (iii) resolved to recommend that the shareholders of Company T authorize and approve by
way of special resolution this Agreement, the Merger and the Plan of Merger. No other corporate proceedings on the part of Company T are necessary to authorize or approve this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to the Merger and the Plan of Merger, the Required Company T Vote). This Agreement has been duly and validly executed and
delivered by Company T and, assuming the due authorization, execution and delivery by Company Y and Merger Sub, constitutes a valid, legal and binding agreement of Company T, enforceable against
Company T in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors'
rights and to general equity principles (the "
Bankruptcy and Equity Exception
").
(b) The
Company T Board has directed that this Agreement, the Merger and the Plan of Merger be submitted to the shareholders of Company T for their authorization and
approval by way of special resolution at a meeting to be held for that purpose. The only vote of the holders of any class or series of share capital of Company T necessary to authorize and approve
this Agreement, the Merger and the Plan of Merger and the transactions contemplated hereby, is a Special Resolution of Company T, meaning the affirmative vote of shareholders representing
two-thirds or more of Company T Shares present and voting in person or by proxy as a single class at the Company T Shareholders Meeting in accordance with Section 233(6) of the
Cayman Companies Law authorizing and approving this Agreement, the Merger and the Plan of Merger (the "
Required Company T Vote
"). No other vote of the
shareholders of Company T is required by Law, the memorandum and articles of association of Company T or otherwise in order for Company T to authorize and approve this Agreement, the Merger or the
Plan of Merger or to consummate the transactions contemplated hereby.
Section 3.4
SEC Reports; Financial Statements.
(a) Company T has timely filed or furnished,
as applicable, all forms, reports and documents required to be filed or furnished by it with the SEC pursuant
to the Securities Act of 1933, as amended (the "
Securities Act
") or the Securities Exchange Act of 1934, as amended (the
"
Exchange Act
") (the forms, reports and documents so filed, furnished or provided and those filed or furnished with the SEC subsequent to the date
hereof, including any amendments thereto, collectively, the "
Company T SEC Reports
"). Each of the Company T SEC Reports, as of its filing date (and as
of the date of any amendment or incorporation by reference), has complied or, if filed or furnished after the date hereof and before the Effective Time, will comply, as to form in all material
respects with all applicable requirements of the Securities Act and the Exchange Act, each as in effect on the dates such forms, reports and documents were filed or amended, as the case may be. No
Subsidiary of Company T is subject to the reporting requirements of Sections 13(a)
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and
15(d) of the Exchange Act. The Company T SEC Reports did not contain, when filed or furnished (or, if amended or superseded by a filing prior to the date hereof, on the date of such filing), any
untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. No executive officer of Company T has failed in any respect to make the certifications required of him or her under section 302 or
section 906 of the Sarbanes-Oxley Act of 2002, in each case with respect to the Company T SEC Reports.
(b) The
audited and unaudited consolidated financial statements of Company T, and the unaudited financial data included in the earnings release for the quarters ended
June 30, 2011, September 30, 2011 and December 31, 2011, included (or incorporated by reference) in the Company T SEC Reports (collectively, the "
Company T
Financial Information
") fairly present, or in the case of Company T SEC Reports filed or furnished after the date of this Agreement, will fairly present, in all material
respects, the consolidated balance sheets of Company T and its consolidated Subsidiaries as of the dates thereof and their consolidated statements of operations and changes in shareholders equity and
comprehensive income for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments that are not material in the aggregate).
Such Company T Financial Information has been prepared in accordance with U.S. generally accepted accounting principles applied on a consistent basis
("
GAAP
" ), except as specifically indicated in the notes thereto.
(c) Company
T is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of The NASDAQ Global Market.
(d) Company
T has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as required under
Rule 13a-15 or
15d-15 of the Exchange Act. Such disclosure controls and procedures are designed to ensure that material information relating to Company T, including its Subsidiaries, required to be
included in reports filed or furnished under the Exchange Act is accumulated and communicated to the chief executive officer and chief financial officer of Company T by others within those entities.
Neither Company T nor, to Company T's knowledge, Company T's independent registered public accounting firm, has identified or been made aware of "significant deficiencies" or "material weaknesses" (as
defined by the Public Company Accounting Oversight Board) in the design or operation of Company T's internal controls and procedures which could reasonably adversely affect Company T's ability to
record, process, summarize or report financial data, in each case which has not been subsequently remediated.
Section 3.5
Information Supplied.
None of the information furnished by Company T and its
Subsidiaries for the filing of registration statement on Form F-4, including a
prospectus (the "
Prospectus
"), by Company Y relating to the Share Issuance (as amended or supplemented from time to time and including any document
incorporated by reference therein, the "
Form F-4
"), at the date it (and any amendment or supplement to it) is filed with the SEC by
Company Y, at the date it is first mailed to each of Company T's shareholders and Company Y's shareholders or at the time of each of the Company T Shareholders Meeting and Company Y Shareholders
Meeting shall contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they
are made, not misleading. Notwithstanding the foregoing, Company T makes no representation with respect to statements made or incorporated by reference therein based on information supplied by or on
behalf of Company Y or Merger Sub for inclusion or incorporation by reference in the Form F-4.
Section 3.6
No Undisclosed Liabilities.
Neither Company T nor any of its Subsidiaries has any
liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, required to be
recorded or reflected on a balance sheet under GAAP, and there is no existing condition, situation or
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set
of circumstances which could be expected to result in such a liability or obligation, except for (a) liabilities or obligations reflected, accrued or reserved against in Company T's
consolidated balance sheets or in the notes thereto included in the Company T SEC Reports filed or furnished prior to the date hereof and (b) liabilities or obligations incurred since the date
of the most recent balance sheet included in the Company T SEC Reports in the ordinary course of business consistent with past practices.
Section 3.7
Absence of Changes.
Except for the execution and performance of this Agreement and
the discussions, negotiations and transactions related thereto, since December 31, 2011 (the
"
Review Date
"), Company T and its Subsidiaries have conducted their respective businesses in all material respects in the ordinary course of business
consistent with past practice and there has not been:
(a) any
circumstance, event, occurrence or development which has had, or would reasonably be expected to have, individually or in the aggregate, a Company T Material Adverse
Effect;
(b) (i)
any declaration, setting aside or payment of any dividend or other distribution with respect to any share capital of Company T or any of its Subsidiaries (except for
dividends or other distributions by any Subsidiary to Company T or to any Wholly Owned Company T Subsidiary) or (ii) any redemption, repurchase or other acquisition of any share capital of
Company T or any of its Subsidiaries;
(c) any
material change in any method of accounting or accounting practice by Company T or any of its Subsidiaries;
(d) any
making or revocation of any material Tax election, any settlement or compromise of any material Tax liability, or any change (or request to any taxing authority to
change) any material aspect of the method of accounting of Company T or any of its Subsidiaries for Tax purposes;
(e) any
increase in the compensation or benefits payable or to become payable to any of its directors, officers or employees (except for increases for
non-officer employees in the ordinary course of business and consistent with past practice);
(f) except
to the extent required by applicable Law (i) any establishment, adoption, entry into, termination or amendment of any labor, collective bargaining, bonus,
profit sharing, equity, thrift, pension, retirement, deferred compensation, compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the
benefit or welfare of any director, officer or employee, or (iii) any grant or increase in any severance, change in control, termination or similar compensation or benefits payable to any
director, officer or employee, or (iii) any acceleration of the time of payment or vesting of, or the lapsing of restrictions with respect to, or any funding or otherwise securing the payment
of, any compensation or benefits payable or to become payable to any director, officer or employee under any benefit or compensation plan, agreement or arrangement;
(g) any
amendment to the memorandum and articles of association (or other similar governing instrument) of Company T or any of its Subsidiaries or any of the Company T VIE
Contracts;
(h) any
incurrence of material indebtedness for borrowed money or any guarantee of such indebtedness for another Person or any issue or sale of debt securities, warrants or
other rights to acquire any debt security of Company T or any Subsidiary of Company T;
(i) any
adoption of, resolution to approve or petition or similar proceeding or order in relation to, a plan of complete or partial liquidation, dissolution, scheme of
arrangement, merger, consolidation, restructuring, recapitalization or other reorganization of Company T or any of its Subsidiaries;
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(j) any
receiver, trustee, administrator or other similar Person appointed in relation to the affairs of Company T or its property or any part thereof; or
(k) any
agreement to do any of the foregoing.
Section 3.8
Consents and Approvals; No Violations.
(a) Except such as shall have been
obtained prior to the Closing and except for (i) compliance with the applicable requirements of the Exchange Act,
including, without limitation, the furnishing of information for the filing with the SEC of the Form F-4 by Company Y, (ii) compliance with the rules and regulations of The
NASDAQ Global Market, and (iii) the filing of the Plan of Merger with the Registrar of Companies of the Cayman Islands pursuant to the Cayman Companies Law and related documentation, no filing
with or notice to, and no permit, authorization, consent or approval of, any supranational, national, state, municipal or local court or tribunal or administrative, governmental, quasi-governmental or
regulatory body, agency or authority (a "
Governmental Entity
") is necessary for the execution and delivery by Company T of this Agreement or the
consummation by Company T of the transactions contemplated hereby.
(b) The
execution, delivery and performance of this Agreement by Company T does not, and the consummation by Company T of the transactions contemplated hereby will not
constitute or result in, (i) any breach of any provision of the respective memorandum and articles of association (or similar governing documents) of Company T or any of its Subsidiaries,
(ii) a violation or breach of, or (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration of any
obligation or the creation of any Lien (other than any Lien created as a result of any actions taken by Company Y or Merger Sub)) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument (each, a "
Contract
") or obligation to which Company T or any of its
Subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound
(collectively, the "
Company T Agreements
"), or (iii) (assuming the Required Company T Vote is duly obtained and passed and compliance with the
matters referred to in
Section 3.8(a)
) violate any Law or Judgment applicable to Company T or any of its Subsidiaries or any of their respective
properties or assets.
Section 3.8
of the Company T Disclosure Schedule sets forth a list of all material third-party consents and approvals
required to be obtained under the Company T Agreements in connection with the consummation of the transactions contemplated by this Agreement.
Section 3.9
Property.
None of Company T or its Subsidiaries owns any real property. Company T or
one of its Subsidiaries is the lessee of all leases reflected in the most recent
consolidated balance sheet included in the Company T SEC Reports filed or furnished prior to the date hereof or acquired after the date thereof (except for leases that have expired by their terms
since the date thereof or have been otherwise terminated since the date thereof) (the "
Company T Leased Properties
"), free and clear of all Liens (other
than Permitted Liens), and is in occupancy of the properties purported to be leased thereunder, and each such lease is valid without default thereunder by the lessee or, to the knowledge of Company T,
the lessor, except for such properties as are no longer used or useful in the conduct of their respective businesses or have been disposed in the ordinary course of business.
Section 3.10
Legal Proceedings.
Neither Company T, nor any of its Subsidiaries, nor any of their
directors or officers is a party to any, and there are no pending or, to the knowledge of Company
T, threatened, material legal, administrative, arbitral or other proceedings, claims, actions, suits or governmental or regulatory investigations
("
Proceedings
") of any nature against Company T or any of its Subsidiaries or to which any of their equity interests or material properties or assets is
subject. There is no material judgment, order, injunction or decree ("
Judgment
") outstanding against Company T, any of its Subsidiaries, any of
their equity interests, material properties or assets, or any of their directors and officers (in their capacity as directors and officers).
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Section 3.11
Permits; Compliance with Applicable Laws.
(a) Company T and its Subsidiaries
hold all material permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary
for the lawful conduct of their respective businesses (the "
Company T Permits
"), and are in material compliance with the terms of Company T Permits.
Neither Company T nor any of its Subsidiaries is or has been in material violation of any Law applicable to Company T or its Subsidiaries (including the Foreign Corrupt Practices Act of 1977, as
amended (the "
FCPA
"), the PRC Law on Anti-Unfair Competition adopted on September 2, 1993, if applicable, the Interim Rules on
Prevention of Commercial Bribery issued by the PRC State Administration of Industry and Commerce on November 15, 1996, if applicable (collectively, the "
PRC
Anti-Bribery Laws
"), and applicable rules and regulations of relevant PRC Governmental Entities). No investigation or review by any Governmental Entity with respect
to Company T or its Subsidiaries is pending or, to Company T's knowledge, threatened, nor to Company T's knowledge has any Governmental Entity indicated an intention to conduct the same, in each case
with respect to a material violation of applicable Law.
(b) None
of Company T, any of its Subsidiaries or any of their respective directors, officers or employees or, to Company T's knowledge, any agent, or any other person
acting for or on behalf of Company T or any Subsidiary has (individually and collectively, a "
Company T Affiliate
"), (i) made any bribe,
influence payment, kickback, payoff, or any other type of payment that would be unlawful under any applicable Law; (ii) offered, paid, promised to pay, or authorized any payment or transfer of
anything of value, directly or indirectly, to any officer, employee or any other person acting in an official capacity for any Governmental Entity (including any political party or official thereof),
or to any candidate for political office (individually and collectively, a "
Government Official
") for the purpose of (A) improperly influencing
any act or decision of such Government Official in his official capacity, (B) improperly inducing such Government Official to do or omit to do any act in relation to his lawful duty,
(C) securing any improper advantage, or (D) inducing such Government Official to improperly influence or affect any act or decision of any Governmental Entity, in each case, in order to
assist Company T, any Subsidiary, or any Company T Affiliate in obtaining or retaining business for or with, or in directing business to, any Person; or (iii) accepted or received any
unlawful contributions, payments, gifts, or expenditures. Company T and its Subsidiaries have effective disclosure controls and procedures and an internal accounting controls system applicable to it
and its Subsidiaries which are designed to provide reasonable assurances that violations of the FCPA, the PRC Anti-Bribery Laws or any similar law will be prevented, detected and deterred.
(c) Company
T is aware of, and has been advised as to, the content of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly promulgated
by the PRC Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Tax Administration, the State Administration of Industry and Commerce, the China Securities
Regulatory Commission ("
CSRC
") and the State Administration of Foreign Exchange ("
SAFE
") on
August 8, 2006 and effective as of September 8, 2006.
(d) Company
T and its Subsidiaries have taken all reasonable steps to comply with, and to cause their respective employee shareholders to comply with, applicable rules and
regulations of the PRC Tax authority to the extent such rules and regulations are material, including taking reasonable steps to request their employee shareholders to complete registration and other
procedures required under
applicable rules and regulations of the PRC Tax authority to the extent such rules and regulations are material.
(e) Company
T is aware of and has been advised as to the content of the PRC Anti-Monopoly Law, which became effective on August 1, 2008, and the related
publicly available rules, regulations and guidelines issued by various PRC Governmental Entities (the "
PRC Anti-Monopoly Law and
Regulations
"). All acquisitions and other similar transactions conducted
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by
Company T or any of its Subsidiaries have complied with the PRC Anti-Monopoly Law and Regulations.
(f) Company
T has taken reasonable steps to comply with the
Notice on the Administration of Foreign Exchange Matters for Domestic Individuals
Participating in the Stock Incentive Plans of Overseas Listed Companies
and related rules issued by SAFE, and has taken reasonable steps to cause its beneficiary shareholders
who are PRC citizens to comply with SAFE's
Circular on Several Issues concerning Foreign Exchange Administration for Domestic Residents to Engage in Financing and in Return
Investments via Overseas Special Purpose Companies
("
SAFE Circular No. 75
" ) with respect to their interest in Company T.
Section 3.12
Employee Benefit Plans.
(a) (i) Each "employee benefit plan" (as such term is
defined in Section 3(3) of ERISA) that Company T or any of its Subsidiaries maintains,
sponsors, participates in, is a party to or contributes to, or with respect to which Company Y or any of its Subsidiaries could reasonably be expected to have any liability and (ii) each other
employee benefit plan, program or arrangement (whether written or unwritten) for the benefit of any Company T Employee (including without limitation, any stock option, stock purchase, stock
appreciation rights or other stock or stock-based incentive plan, cash bonus or incentive compensation arrangement, retirement or deferred compensation plan, profit sharing plan, unemployment or
severance compensation plan, or employment or consulting agreement) that does not constitute an "employee benefit plan" (as defined in Section 3(3) of ERISA) and that Company T or any of its
Subsidiaries maintains, sponsors, participates in, is a party to or contributes to, or with respect to which Company T or any of its Subsidiaries could reasonably be expected to have any (each, a
"
Company T Benefit Plan
") is disclosed in the Company T SEC Reports or listed in
Section 3.12(a)
of the Company T Disclosure Schedule. True and complete copies of each such Company T Benefit Plan, including all amendments thereto have been provided or made available to Company Y and Merger Sub.
(b) Except
as permitted by this Agreement, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby (either alone or
in conjunction with another event) will (i) result in any payment becoming due to any Company T Employee under any of the Company T Benefit Plans or otherwise; (ii) increase any
compensation or benefits due to any Company T Employee under any of the Company T Benefit Plans or otherwise; or (iii) result in any acceleration of the time of payment or vesting of any
compensation or benefits due to any Company T Employee under any Company T Benefit Plan or otherwise.
(c) Except
as disclosed in the Company T SEC Reports and severance benefits provided for under applicable Law, Company T and its Subsidiaries do not maintain any Company T
Benefit Plan that provides benefits in the nature of severance to any Company T Employees. No Company T Benefit Plan provides welfare benefits, including, death or medical benefits (whether or
not insured), beyond retirement or termination of service, other than coverage mandated solely by applicable Law.
(d) With
respect to each Company T Benefit Plan, neither Company T nor any of its Subsidiaries has received any notice, letter or other written or oral communications from
any Governmental Entity regarding any material non-compliance of employee social benefits requirements.
(e) There
are no pending or threatened Proceedings by or on behalf of any Company T Benefit Plan, by any employee or beneficiary covered under any such Company T Benefit
Plan, as applicable, or otherwise involving any such Company T Benefit Plan (other than routine claims for benefits). Each Company T Benefit Plan has been operated and administered in all material
respects in accordance with its terms and applicable Law.
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(f) Neither
Company T nor any Person that is a member of a "controlled group of corporations" with, is under "common control" with, or is an "Affiliate" of, or is a member
of the same "affiliated service group" with Company T, in each case, as defined in Sections 414(b), (c), (m) or (o) of the Code maintains, contributes to, or sponsors (or has in
the past six years maintained, contributed to, or sponsored) a multiemployer plan as defined in Section 3(37) of ERISA or an employee benefit pension plan subject to Title IV of ERISA.
(g) Company
T is not obligated, pursuant to any of the Company T Benefit Plans or otherwise, to grant any options or other rights to purchase or acquire Company T Shares to
any Company T Employees after the date hereof.
Section 3.13
Labor Matters.
There are no collective bargaining agreements which pertain to
Company T Employees. (i) There are no pending labor disputes between Company T or any of its
Subsidiaries, on the one hand, and any Company T Employee, on the other hand, (ii) each of Company T and its Subsidiaries is in compliance in all material respects with all applicable
Law relating to employment, termination, wages and hours and social security, in each case, with respect to each of the Company T Employees (including those on layoff, disability or leave of absence,
whether paid or unpaid); and (iii) neither Company T nor any of its Subsidiaries is liable for any material payment to any trust or other fund or to any Governmental Entity, with respect to
unemployment compensation benefits, social security or other benefits for Company T Employees other than coverage mandated by applicable Law.
Section 3.14
Taxes.
(a) Each of Company T and its Subsidiaries has duly and timely filed,
or has caused to be timely filed on its behalf (taking into account any extension of
time within which to file), all material Tax Returns required to be filed by it, and all such filed Tax Returns are true, complete and accurate in all material respects. All Taxes shown to be due and
payable on such Tax Returns have been timely paid.
(b) The
most recent Company T Financial Information reflects an adequate reserve for all Taxes payable by Company T and its Subsidiaries for all Taxable periods and portions
thereof through the date of such Company T Financial Information. No deficiency with respect to Taxes has been proposed, asserted or assessed against Company T or any of its Subsidiaries, other than
any deficiency which has been paid or is being contested in good faith in appropriate Proceedings. No material Liens for Taxes exist with respect to any asset of Company T or any of its Subsidiaries,
except for Permitted Liens or Liens for which adequate reserves have been established in the Company T SEC Reports.
(c) All
material amounts of Taxes required to be withheld by Company T and each of its Subsidiaries have been timely withheld, and to the extent required by applicable Law,
all such withheld amounts have been timely paid over to the appropriate Governmental Entity.
(d) No
audit or other administrative or court proceedings are pending with respect to any Taxes of Company T or any of its Subsidiaries and no written notice thereof has
been received. No issue has been raised by any taxing authority in any presently pending Tax audit that could reasonably be expected to be material and adverse to Company T and its Subsidiaries, taken
as a whole, for any period after the Effective Time.
(e) No
written claim has been made by a taxing authority in a jurisdiction where neither Company T nor any of its Subsidiaries file state income or state franchise Tax
Returns that Company T or any Subsidiary is or may be subject to income or franchise taxation in that jurisdiction.
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Section 3.15
Material Contracts.
(a) Except
for this Agreement and the other Transaction Agreements, as of the date hereof, none of Company T or its Subsidiaries is a party to nor are any of Company T's or
its Subsidiaries' properties or assets bound by:
(i) any
Contract that would be required to be filed or furnished by Company T pursuant to Item 19 and paragraph 4 of the Instructions to Exhibits of
Form 20-F under the Exchange Act;
(ii) any
Contract granting a right of first refusal, first offer or first negotiation;
(iii) any
Contract relating to the formation, creation, operation, management or control of a partnership, joint venture, limited liability company or similar arrangement;
(iv) any
Contract for the acquisition, sale or lease (including leases in connection with financing transactions) of material properties or assets of Company T (by merger,
purchase or sale of assets or stock or otherwise);
(v) any
Contract with any Governmental Entity;
(vi) any
Contract involving the payment or receipt of amounts by Company T or its Subsidiaries, or relating to indebtedness for borrowed money or any financial guaranty, of
more than US$4,000,000;
(vii) any
non-competition Contract or other Contract that purports to limit, curtail or restrict in any material respect the ability of Company T or any of its
Subsidiaries to compete in any geographic area, industry or line of business;
(viii) any
Contract that contains a put, call or similar right pursuant to which Company T or any of its Subsidiaries could be required to purchase or sell, as applicable,
any equity interests of any Person ;
(ix) any
Contract that contains restrictions with respect to (A) payment of dividends or any distribution with respect to equity interests of Company T or any of its
Subsidiaries, (B) pledging of share capital of Company T or any of its Subsidiaries or (C) issuance of guaranty by Company T or any of its Subsidiaries; or
(x) any
material Company T IP Agreements other than agreements for Off-the-Shelf Software and UGC Agreements (all such Contracts described in
clauses (i) through (x), and any Company T VIE Contracts, collectively, the "
Company T Material Contracts
").
(b) Each
of the Company T Material Contracts constitutes the valid and legally binding obligation of Company T or its applicable Subsidiary, enforceable in accordance with
its terms and is in full force and effect. There is no material breach or default under any Company T Material Contract so listed either by Company T or, to Company T's knowledge, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by Company T or, to Company T's knowledge, any other party. No
party to any such Company T Material Contract has given notice to Company T of or made a claim against Company T with respect to any material breach or default thereunder.
Section 3.16
Insurance Matters.
Section 3.16
of the Company T Disclosure Schedule sets forth a list of all material insurance policies and
all material self insurance programs and arrangements relating to the business, assets, liabilities, operations and directors and officers of Company T and its Subsidiaries. All such policies,
programs and arrangements are in full force and effect, no notice of cancellation or modification has been received, and there is no existing default or event which, with the giving of notice or lapse
of time or both, would constitute a default, by any insured thereunder. Neither Company T nor any of its Subsidiaries knows of any threatened termination of, or material alteration of coverage under,
any of its respective insurance policies.
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Section 3.17
Intellectual Property.
(a)
List of Intellectual Property
.
Section 3.17(a)
of the Company T
Disclosure Schedule sets forth a true and complete list of all Company T Owned Intellectual Property that is Registered, indicating for each such item, as applicable, the application or registration
number, date and jurisdiction of filing or issuance, and the identity of the current applicant or registered owner.
(b)
Ownership; Sufficiency.
Company T and its Subsidiaries own or have sufficient rights to use all Intellectual
Property that is material to or necessary for the operation of their business. Except for Company T Intellectual Property, there are no other items of Intellectual Property that are material to or
necessary for the operation of the business of Company T and its Subsidiaries. Company T or one of its Subsidiaries is the exclusive owner of all right, title and interest in and to each item of
material Company T Owned Intellectual Property, free and clear of all Liens (other than Permitted Liens and non-exclusive licenses granted in the ordinary course of business consistent
with past practice), or any obligation to grant any Lien. Company T has a valid license to use the material Company T Licensed Intellectual Property in connection with and as used in the operation of
the business of Company T and its Subsidiaries as currently conducted.
(c)
Validity and Enforceability.
The Company T Owned Intellectual Property that is Registered is
(i) valid, subsisting and enforceable, (ii) currently in compliance with any and all legal requirements necessary to maintain the validity and enforceability thereof, and
(iii) not subject to any outstanding Judgment materially and adversely affecting Company T's use thereof or rights thereto, or that would materially impair the validity or enforceability
thereof. The Intellectual Property owned by Company T or any of its Subsidiaries that is Registered is currently in compliance in all material respects with any and all legal requirements necessary to
record and perfect the interest of Company T and its applicable Subsidiaries therein and the chain of title thereof, and Company T or its applicable Subsidiary is the sole and exclusive beneficial and
record owner thereof.
(d)
Infringement.
Company T and its Subsidiaries have not received any notice that the operation of the business
of Company T and its Subsidiaries and the use of Company T Intellectual Property in connection therewith have, in the last two (2) years, infringed, misappropriated or otherwise violated the
Intellectual Property rights of any other Person that has not been resolved in a satisfactory manner. There is no action or claim pending or that Company T has been a party to in the last two
(2) years, that the operation of the business of Company T and its Subsidiaries and the use of Company T Intellectual Property in connection therewith have infringed, misappropriated or
otherwise violated or conflicted with the Intellectual Property rights of any other Person. Company T or any of its Subsidiaries have not received any notification in writing in the last two
(2) years that a license under any other Person's Intellectual Property (other than licenses included in the Company T IP Agreements) is or may be required to operate the business of Company T
and its Subsidiaries that has not been resolved in a satisfactory manner. To the knowledge of Company T, no Person is engaging, or has engaged in the last two (2) years, in any activity that
materially infringes, misappropriates or otherwise violates any Company T Intellectual Property, and there is no action or claim pending, asserted or threatened by Company T against any other Person
concerning any of the foregoing.
(e)
Protection Measures.
Company T has taken reasonable measures at a level that is not below reputable industry
standards to maintain the confidentiality and value of all confidential information used or held for use in the operation of the business of Company T and its Subsidiaries, including the source code
for any Company T Software and all other confidential Company T Intellectual Property. No material confidential information, trade secrets or other confidential Company T Intellectual Property have
been disclosed by Company T to any Person except pursuant to non-disclosure and/or license agreements that obligate such Person to keep such confidential information, trade secrets or
other confidential Company T Intellectual Property
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confidential
and to the knowledge of Company T, no party thereto is in material default of any such agreement.
(f)
Public Software.
No Public Software has been used by Company T or any of its Subsidiaries in connection with
any Company T Software or any IT Asset of Company T or any of its Subsidiaries in a manner that requires the licensing, disclosure or distribution of any source code (other than source code that is a
part of such Public Software) or limits the receipt of consideration in connection with the use, licensing or distribution of such Company T Software or Asset of Company T or any of its Subsidiaries.
(g)
IT Assets.
The IT Assets owned by or licensed, pursuant to valid and enforceable license agreements, to
Company T and its Subsidiaries (including Company T Software) are sufficient for the present operation of the business of Company T and its Subsidiaries. The IT Assets owned by or licensed to Company
T or its Subsidiaries are free from material bugs or other defects and, to the knowledge of Company T, do not contain any viruses. Company T and its Subsidiaries have implemented reasonable backup,
security and disaster recovery measures and technology at a level that is not below reputable industry practices.
Section 3.18
PRC Subsidiaries.
(a) True
and complete copies of each of the constitutional documents and certificates and related contracts and agreements of Company T's Subsidiaries formed in the PRC
("
Company T PRC Subsidiaries
") have been provided or made available to Company Y and Merger Sub and have been duly approved or issued (as applicable) by
competent PRC Governmental Entities.
(b) All
material filings and registrations with the PRC Governmental Entities required to be made in respect of the Company T PRC Subsidiaries and their operations,
including, but not limited to, the registrations with the Ministry of Commerce, the State Administration of Industry and Commerce, SAFE, tax bureau and customs authorities have been duly completed in
accordance with the relevant rules and regulations.
(c) The
registered capital of each Company T VIE is fully contributed in accordance with applicable Law.
(d) No
approvals are required to be obtained for the performance by the respective parties of their obligations and the transactions contemplated under the Company T VIE
Contracts other than those already obtained or contemplated by the Company T VIE Contracts.
(e) The
execution, delivery and performance by each of the relevant parties of their respective obligations under each of the Company T VIE Contracts, and the consummation
of the transactions contemplated thereunder, did not, do not and will not (i) result in any violation of their respective articles of association, their respective business licenses or
constitutive documents; (ii) result in any violation of any applicable PRC Laws, or (iii) conflict with or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any Judgment of any court of the PRC having jurisdiction over the relevant parties to the Company T VIE Contracts, as the case may be, any agreement or instrument to which
any of them is expressed to be a party or which is binding on any of them .
(f) (i)
The Company T VIE Contracts, taken as a whole, comprise all of the contracts enabling Company T to effect control over each Company T VIE and consolidate the
financial statements of each Company T VIE, and (ii) each of the Company T VIE Contracts is legally valid, enforceable and binding under PRC Laws.
(g) Company
T has effective control of and is the primary beneficiary of each Company T VIE. Except as provided in the Company T VIE Contracts, nominee equity holders'
equity interests in any Company T VIE are not subject to any Liens (other than Permitted Liens) or any
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third-party
rights or claims. There are no disputes, disagreements, claims or any legal proceedings of any material nature, raised by any Governmental Entity or any other Person, against or affecting
any of Company T, Company T VIEs or any of Company T VIE's shareholders that: (i) challenge the validity or enforceability of any part or all of the Company T VIE Contracts taken as whole;
(ii) challenge the Company T VIE structure or the ownership structure as set forth in the Company T VIE Contracts; (iii) claim any ownership, share, equity or interest in Company T or
Company T VIEs, or claim any compensation for not being granted any ownership, share, equity or interest in Company T or Company T VIEs; or (iv) claim any of the Company T VIE Contracts or the
ownership structure thereof or any arrangements or performance of or in accordance with the Company T VIE Contracts was, is or will be in violation of any PRC Laws, in each case in the preceding
clauses (i) through (iv), where such dispute, disagreement, claim or legal proceeding has a materially disproportionate adverse effect on Company T, Company T VIEs or any of their shareholders
as compared to other similarly situated enterprises in the PRC which adopt a similar "variable interest entity" structure that allows one entity to exercise voting control and have a substantial
economic interest in another entity where such first entity does not, directly or indirectly, own a majority of the equity interests of the second entity.
Section 3.19
Takeover Statutes.
Company
T is not a party to a shareholder rights agreement, "poison pill" or similar agreement or plan. To Company T's knowledge, no "business combination," "fair price," "moratorium,"
"control share acquisition" or other similar anti-takeover statute or regulation save for the Cayman Companies Law or any similar anti-takeover provision in Company T's
memorandum and articles of association (each, a "
Takeover Statute
") is applicable to Company T, Company T Shares, the Merger or the other transactions
contemplated by this Agreement.
Section 3.20
Interested Party Transactions.
Except
for (a) employment agreements and indemnification agreements filed, furnished or incorporated by reference as an exhibit to a Company T SEC Report filed or furnished prior
to the date hereof and (b) the Company T Share Incentive Plan, Section 3.20 of the Company T Disclosure Schedule sets forth a correct and complete list of the contracts or agreements
under which there are any existing or future liabilities between Company T or any of its Subsidiaries, on the one hand, and any (i) present executive officer or director of Company T as of the
date of this Agreement or (ii) record or beneficial owner of more than five percent (5%) of the Company T Shares as reflected in filings of Schedules 13G or 13D with the SEC with respect
to Company T prior to the date of this Agreement, on the other hand.
Section 3.21
Opinion of Financial Advisor.
Morgan
Stanley Asia Limited (the "
Company T Financial Advisor
") has delivered to the Company T Board its opinion, to the effect that, as
of the date of such opinion, and subject to the various assumptions, qualifications and limitations set forth therein, the Exchange Ratio pursuant to this Agreement is fair from a financial point of
view to the holders of Company T Shares and Company T ADSs.
Section 3.22
Brokers.
No
broker, finder or investment banker (other than the Company T Financial Advisor) is entitled to any brokerage, finder's or other fee or commission or expense reimbursement in
connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Company T or any of its Affiliates.
Section 3.23
Non-Reliance.
In
connection with the due diligence investigation of Company Y and its Subsidiaries by Company T, its Affiliates and its Representatives, Company T, its Affiliates and its
Representatives have received and may continue to receive after the date hereof from Company Y, its Affiliates and its Representatives certain estimates, projections, forecasts and other forward
looking information, as well as certain business plan information, regarding Company Y and its Subsidiaries and their businesses and operations. Company T hereby acknowledges and agrees
(a) that there are uncertainties inherent in attempting to make such estimates, projections, forecasts and other forward looking statements, as well as in such business plans, with which
Company T is familiar, (b) that
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Company
T is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections, forecasts and other forward looking information, as well as such
business
plans, so furnished to them (including the reasonableness of the assumptions underlying such estimates, projections, forecasts, forward looking information or business plans), and (c) that
Company T will have no claim against Company Y or any of its Subsidiaries, or any of their respective Affiliates, Representatives or any other Person, with respect thereto. Accordingly, Company T
hereby acknowledges and agrees that none of Company Y or any of its Subsidiaries, nor any of their respective Affiliates, Representatives, nor any other Person, has made or is making any express or
implied representation or warranty with respect to such estimates, projections, forecasts, forward looking statements or business plans.
Section 3.24
No Additional Representations.
Except
for the representations and warranties made by Company T in this Article III, neither Company T nor any other person makes any other express or implied representation or
warranty with respect to Company T or any of its Subsidiaries or their respective business, operations, assets, liabilities, condition (financial or otherwise) or prospects or any information provided
to Company Y, Merger Sub or any of their respective Affiliates or Representatives, notwithstanding the delivery or disclosure to Company Y or any of its Affiliates or Representatives of any
documentation, forecasts or other information in connection with the transactions contemplated hereby, and each of Company Y and Merger Sub acknowledges the foregoing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF COMPANY Y AND MERGER SUB
Except
as (A) disclosed in the Company Y SEC Reports filed with, or furnished to, the SEC prior to the date hereof (other than disclosures in such
Company Y SEC Reports contained in the "Risk Factors" and "Forward-Looking Statements" sections thereof or any other disclosures of risks or uncertainties in the Company Y SEC Reports which are
nonspecific, cautionary, predictive or forward-looking in nature) or (B) set forth in the section of the disclosure schedule delivered to Company T by Company Y on the date hereof (the
"
Company Y Disclosure Schedule
") that specifically relates to a specified section or subsection of this Article IV or any other section or
subsection of this Agreement to the extent that it is reasonably apparent that such information is relevant to such other section or subsection, Company Y and Merger Sub hereby jointly and severally
represent and warrant to Company T that:
Section 4.1
Organization and Qualification.
(a) Company
Y and each of its Subsidiaries is a corporation or legal entity duly organized, validly existing and in good standing (with respect to jurisdictions that
recognize the concept of good standing) under the Laws of the jurisdiction of its incorporation and has all requisite corporate, partnership or similar power and authority to own, lease and operate
its properties and to carry on its businesses as now conducted. Company Y and each of its Subsidiaries is duly qualified or licensed to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so qualified or licensed is not material.
Accurate and complete copies of the memorandum and articles of association of Company Y, as in effect as of the date of this Agreement, have been publicly filed or furnished by Company Y as part of
the Company Y SEC Reports.
(b) Section 4.1(b)
of the Company Y Disclosure Schedule sets forth a list of (i) all Subsidiaries of Company Y and (ii) Company Y's interest in any
Person which is not a Subsidiary, including any Person in which Company Y has a non-controlling equity interest. Company Y does
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not
own, directly or indirectly, beneficially or of record, any shares of capital stock or other security of any other entity or any other investment in any other entity.
Section 4.2
Capitalization.
(a) As
of the date of this Agreement, the authorized share capital of Company Y is US$100,000 divided into 10,000,000,000 shares of par value US$0.00001 each (the
"
Company Y Shares
"), of which (i) 9,340,238,793 are designated Company Y Class A Shares; and (ii) 659,761,207 are designated
Class B ordinary shares (the "
Company Y Class B Shares
"). As of the date of this Agreement, (A) 1,402,801,335 Company Y
Class A Shares were issued and outstanding, and (B) 659,561,893 Company Y Class B Shares were issued and outstanding. Section 4.2(a) of the Company Y Disclosure Schedule
sets forth a complete and correct list of all Company Y Options and Company Y Restricted Shares, including the grant or issuance date, the number of Company Y Options and/or Company Y Restricted
Shares outstanding as of the date of this Agreement and the exercise price for each such Company Y Option. Company Y has made available to Company T accurate and complete copies of the Company Y Share
Incentive Plan and the form of award agreements in respect of the Company Y Options and Company Y Restricted Shares granted as of the date of this Agreement.
(b) From
the date of this Agreement through the date of this Agreement, no options, warrants or other rights to purchase Company Y Shares have been issued or granted and no
Company Y Shares have been issued. All the outstanding Company Y Shares are, and Company Y Shares issuable upon the
exercise of outstanding Company Y Options will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and non-assessable. Except as
(i) set forth in Section 4.2(a), (ii) set forth in the Company Y Deposit Agreement, and (iii) for the transactions contemplated by this Agreement, (1) there is no
share capital of Company Y authorized, issued or outstanding; (2) there are no authorized or outstanding options, warrants, calls, preemptive rights, subscriptions or other rights,
agreements, arrangements or commitments of any character (whether or not conditional) relating to the issued or unissued share capital of Company Y or any of its Subsidiaries, obligating Company Y or
any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any share capital or other equity interest in Company Y or any of its Subsidiaries or securities
convertible into or exchangeable or exercisable for such share capital or equity interests, or obligating Company Y or any of its Subsidiaries to grant, extend or enter into any such option, warrant,
call, preemptive right, subscription or other right, agreement, arrangement or commitment, and (3) there are no outstanding obligations of Company Y or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Company Y Shares or other share capital of Company Y or any of its Subsidiaries, or to make any payments based on the market price or value of shares or other share
capital of Company Y or any of its Subsidiaries, or to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in any Subsidiary or any other entity other than
loans to Subsidiaries in the ordinary course of business. Other than the Company Y ADSs and the Company Y Deposit Agreement, Company Y does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible into or exchangeable or exercisable for securities having the right to vote) with the shareholders of Company Y on any matter.
(c) All
of the outstanding share capital of Company Y's wholly owned Subsidiaries ("
Wholly Owned Company Y Subsidiaries
") has
been duly authorized, and validly issued, and is fully paid and non-assessable and owned by Company Y, directly or indirectly, free and clear of any Lien or any other limitation or
restriction (including any restriction on the right to vote or sell the same, except as may be required by applicable Law), and there are no irrevocable proxies with respect to such share capital. The
outstanding share capital of its Subsidiaries that are not Wholly Owned Company Y Subsidiaries has been duly authorized, and validly issued, and is fully paid and non-assessable and owned
by Company Y, directly or indirectly, free and clear of any Liens other than Permitted Liens).
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(d) The
authorized share capital of Merger Sub consists solely of $1,000,000, divided into 10,000,000,000 ordinary shares, par value $0.0001 per share, of which 100 shares
are validly issued and outstanding. All of the issued and outstanding share capital of Merger Sub is, and at the Effective Time will be, owned by Company Y, free and clear of any Liens. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by this Agreement, and it has not conducted any business prior to the date hereof and has no, and prior to the Effective
Time, will have no, assets, liabilities or obligations of any nature other than those incident to its formation and capitalization and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
(e) Merger
Sub has no secured creditors and has granted no fixed or floating security interests that are outstanding.
Section 4.3
Authority.
(a) Each of Company Y and Merger
Sub has all necessary corporate power and authority to execute and deliver this Agreement and, subject to, in the
case of Company Y, obtaining the Required Company Y Vote, to consummate the transactions contemplated hereby. The Company Y Board has duly and validly authorized the execution, delivery and
performance of this Agreement and approved the consummation of the transactions contemplated hereby, and has at a meeting duly called and held (i) approved, and declared advisable this
Agreement, the Merger and the Plan of Merger and the other transactions contemplated hereby; (ii) determined that such transactions are advisable and fair to, and in the best interests of,
Company Y and its shareholders; and (iii) recommended that the shareholders of Company Y approve of the issuance of Company Y Class A Shares constituting the Merger Consideration (the
"
Share Issuance
"). The Board of Directors of Merger Sub (the "
Merger Sub Board
"), and Company Y as the
sole shareholder of Merger Sub, have at meetings duly called and held, duly and validly authorized and approved by board resolution (in the case of Company Y) and by special resolution (in the
case of Merger Sub) the execution, performance and delivery of this Agreement, the Merger and the Plan of Merger and the consummation of the transactions contemplated hereby, and taken all corporate
actions required to be taken by the Merger Sub Board and by Company Y as the sole shareholder of Merger Sub for the consummation of the transactions. No other corporate proceedings on the part of
Company Y or Merger Sub are necessary to authorize and approve this Agreement, the Merger or the Plan of Merger or to consummate the transactions contemplated hereby (other than, with respect to the
Share Issuance, the Required Company Y Vote). This Agreement has been duly and validly executed and delivered by each of Company Y and Merger Sub and, assuming the due authorization, execution and
delivery by Company T, constitutes a valid, legal and binding agreement of each of Company Y and Merger Sub, enforceable against each of Company Y and Merger Sub in accordance with its terms, subject
to the Bankruptcy and Equity Exception.
(b) The
Board of Directors of Company Y (the "
Company Y Board
") has directed that this Agreement and the Share Issuance be
submitted to the shareholders of Company Y for their authorization and approval at a meeting to be held for that purpose. The only vote of the holders of any class or series of share capital of
Company Y necessary to authorize and approve this Agreement and the Share Issuance and the transactions contemplated hereby, is (i) an affirmative vote by the holders of the Company Y Shares
representing a majority of the aggregate voting power of Company Y Shares outstanding (voting together as a single class), and (ii) an affirmative vote by the holders of a majority of the total
outstanding Company Y Class A Shares, in each case, at a meeting of the shareholders of Company Y in accordance with the articles of association of the Company, authorizing and approving this
Agreement, the Share Issuance and the transactions contemplated hereby (the "
Required Company Y Vote
"). No other vote of the shareholders of Company Y
is required by Law, the memorandum and articles of association of Company Y or otherwise in order for Company Y to authorize and approve this Agreement, the Share Issuance or to consummate the
transactions contemplated hereby.
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Section 4.4
SEC Reports; Financial Statements.
(a) Company Y has timely
filed or furnished, as applicable, all forms, reports and documents required to be filed or furnished by it with the SEC
since December 8, 2010 pursuant to the Securities Act or the Exchange Act (the forms, reports and documents so filed, furnished or provided and those filed or furnished with the SEC subsequent
to the date hereof, including any amendments thereto, collectively, the "
Company Y SEC Reports
"). Each of the Company Y SEC Reports, as of its filing
date (and as of the date of any amendment or incorporation by reference) has complied or, if filed or furnished after the date hereof and before the Effective Time, will comply, comply as to form in
all material respects with all applicable requirements of the Securities Act and the Exchange Act, each as in effect on the dates such forms, reports and documents were filed or amended, as the case
may be. No Subsidiary of Company Y is subject to the reporting requirements of Sections 13(a) and 15(d) of the Exchange Act. The Company Y SEC Reports did not contain, when filed or furnished
(or, if amended or superseded by a filing prior to the date hereof, on the date of such filing), any untrue statement of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(b) The
audited and unaudited consolidated financial statements of Company Y, the unaudited financial data included in the earnings release for the quarters ended
June 30, 2011 and September 30, 2011, included (or incorporated by reference) in the Company Y SEC Reports, and the unaudited financial data for the quarter ended December 31,
2011 that Company Y has provided to Company T (collectively, "
Company Y Financial Information
") fairly present, or in the case of Company Y SEC Reports
filed or furnished after the date of this Agreement, will fairly present, in all material respects, the consolidated balance sheets of Company Y and its consolidated Subsidiaries as of the dates
thereof and their consolidated statements of operations and changes in shareholders equity and comprehensive income for the periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments that are not material in the aggregate). Such Company Y Financial Information have been prepared in accordance with GAAP, except as specifically
indicated in the notes thereto.
(c) Company
Y is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of The New York Stock Exchange.
(d) Company
Y has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as required under
Rule 13a-15 or 15d-15 of the Exchange Act. Such disclosure controls and procedures are designed to ensure that material information relating to Company Y, including its
Subsidiaries, required to be included in reports filed under the Exchange Act is accumulated and communicated to the chief executive officer and chief financial officer of Company Y by others within
those entities. Neither Company Y nor, to Company Y's knowledge, Company Y's independent registered public accounting firm, has identified or been made aware of "material weaknesses" (as defined by
the Public Company Accounting Oversight Board) in the design or operation of Company Y's internal controls and procedures which could reasonably adversely affect Company Y's ability to record,
process, summarize or report financial data, in each case which has not been subsequently remediated.
Section 4.5
Information Supplied.
None of the information furnished by Company Y or its
Subsidiaries (including Merger Sub) for the filing of the Form F-4 shall, on the date it
(and any amendment or supplement to it) is filed or furnished with the SEC, at the date it is first mailed to each of Company T's shareholders and Company Y's shareholders or at the time of each of
the Company T Shareholders Meeting and the Company Y Shareholders Meetings shall contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are made, not misleading. The Form F-4 shall comply as to form in all material respects with the requirements
of the Exchange Act. Notwithstanding the foregoing, Company Y and Merger Sub makes no representation with respect to statements made
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or
incorporated by reference therein based on information supplied by or on behalf of Company T for inclusion or incorporation by reference in the Form F-4.
Section 4.6
No Undisclosed Liabilities.
Neither Company Y nor any of its Subsidiaries has any
liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, required to be
recorded or reflected on a balance sheet under GAAP, and there is no existing condition, situation or set of circumstances which could be expected to result in such a liability or obligation, except
for (a) liabilities or obligations reflected, accrued or reserved against in Company Y's consolidated balance sheets or in the notes thereto included in the Company Y SEC Reports filed or
furnished prior to the date hereof and (b) liabilities or obligations incurred since the date of the most recent balance sheet included in the Company Y SEC Reports in the ordinary course of
business consistent with past practices that do not have, and would not reasonably be expected to have, individually or in the aggregate, a Company Y Material Adverse Effect.
Section 4.7
Absence of Changes.
Since the Review Date, Company Y and its Subsidiaries have
conducted have conducted their respective businesses in all material respects in the ordinary course of
business consistent with past practice and there has not been any Company Y Material Adverse Effect.
Section 4.8
Consents and Approvals; No Violations.
(a) Except for
(i) compliance with the applicable requirements of the Exchange Act, including, without limitation, filing with the SEC, and
the declaration of effectiveness under the Securities Act, of the Form F-4, (ii) compliance with the rules and regulations of The New York Stock Exchange and approval of
listing of newly issued Company Y ADSs to be issued in the Merger on The New York Stock Exchange, and (iii) the filing of the Plan of Merger with the Registrar of Companies of the Cayman
Islands pursuant to the Cayman Companies Law and related documentation, no filing with or notice to, and no permit, authorization, consent or approval of, any Governmental Entity is necessary for the
execution and delivery by Company Y or Merger Sub of this Agreement or the consummation by Company Y or Merger Sub of the transactions contemplated hereby, including the Merger and the Share Issuance.
(b) The
execution, delivery and performance of this Agreement by Company Y or Merger Sub does not, and the consummation by Company Y or Merger Sub of the transactions
contemplated hereby including the Merger and the Share Issuance will not constitute or result in (i) (assuming the Required Company Y Vote is duly obtained and passed) any breach of any
provision of the respective memoranda and articles of association (or similar governing documents) of Company Y or Merger Sub or any of Company Y's Subsidiaries, (ii) a violation or breach of,
or (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration of an obligation or the creation of any Liens
(other than any Liens created as a result of any actions taken by Company T)) under, any of the terms, conditions or provisions of any Contract or obligation to which Company Y or Merger Sub or any of
Company Y's Subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound or (iii) (assuming the Required Company Y Vote is duly obtained and
passed) and compliance with the matters referred to in Section 4.8(a)) violate any Law or Judgment applicable to Company Y or Merger Sub or any of Company Y's Subsidiaries or any of their
respective properties or assets.
Section 4.9
Legal Proceedings.
Neither Company Y nor any of its Subsidiaries is a party to any,
and there are no pending or, to the knowledge of Company Y, threatened, material Proceedings of
any nature against Company Y or any of its Subsidiaries or to which any of their equity interests, material properties or assets is subject. There is no material Judgment outstanding against Company
Y, any of its Subsidiaries or any of their equity interests, material properties or assets.
Section 4.10
Permits; Compliance with Applicable Laws.
Company Y and its Subsidiaries hold all
material permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities necessary for the
lawful conduct of their respective businesses (the "
Company Y Permits
"), and are in
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material
compliance with the terms of Company Y Permits. Neither Company T nor any of its Subsidiaries is or has been in material violation of any Law applicable to Company Y or its Subsidiaries
(including FCPA and the PRC Anti-Bribery Laws and applicable rules and regulations of relevant PRC Governmental Entities). No investigation or review by any Governmental Entity with
respect to Company Y or its Subsidiaries is pending or, to Company Y's knowledge, threatened, nor to Company Y's knowledge has any Governmental Entity indicated an intention to conduct
the same, in each case with respect to a material violation of applicable Law.
Section 4.11
Taxes.
(a) Each
of Company Y and its Subsidiaries has duly and timely filed, or has caused to be timely filed on its behalf (taking into account any extension of time within which
to file), all material Tax Returns required to be filed by it, and all such filed Tax Returns are true, complete and accurate in all material respects, in each case except as would not individually or
in the aggregate, have a Company Y Material Adverse Effect. All material Taxes shown to be due and payable on such Tax Returns have been timely paid, except as would not individually or in the
aggregate, have a Company Y Material Adverse Effect.
(b) No
deficiency with respect to a material amount of Taxes has been proposed, asserted or assessed against Company Y or any of its Subsidiaries, other than any deficiency
which has been paid or is being contested in good faith in appropriate Proceedings.
(c) All
material amounts of Taxes required to be withheld by Company Y and each of its Subsidiaries have been timely withheld, except as would not individually or in the
aggregate, have a Company T Material Adverse Effect, and to the extent required by applicable Law, all such withheld amounts have been timely paid over to the appropriate Governmental Entity.
(d) No
audit or other administrative or court proceedings are pending with respect to any material amounts of Taxes of Company Y or any of its Subsidiaries and no written
notice thereof has been received, except as would not, individually or in the aggregate, have a Company Y Material Adverse Effect.
Section 4.12
Material Contracts.
Each of the Company Y Material Contracts constitutes the valid
and legally binding obligation of Company Y or its Subsidiaries, enforceable in accordance with its
terms and is in full force and effect, except as would not individually or in the aggregate reasonably be expected to have a Company Y Material Adverse Effect. There is no material breach or default
under any Company Y Material Contract so listed either by Company Y or, to Company Y's knowledge, by any other party thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder by Company Y or, to Company Y's knowledge, any other party, in each case except as would not individually or in the aggregate, have a Company Y
Material Adverse Effect. No party to any such Company Y Material Contract has given notice to Company Y of or made a claim against Company Y with respect to any material breach or default thereunder.
Section 4.13
Intellectual Property.
Company Y and its Subsidiaries own or have sufficient rights
to use all Intellectual Property that is material to or necessary for the operation of their
business, except as would not, individually or in the aggregate, have a Company Y Material Adverse Effect. Except for Company Y Intellectual Property, there are no other items of Intellectual Property
that are material to or necessary for the operation of the business of Company Y and its Subsidiaries. Company Y or one of its Subsidiaries is the exclusive owner of all right, title and
interest in and to each item of material Company Y Owned Intellectual Property, free and clear of all Liens (other than Permitted Liens and non-exclusive licenses granted in the ordinary
course of business consistent with past practice), or any obligation to grant any Lien. Company Y has a valid license to use the material Company Y Licensed Intellectual Property in connection with
and as used in the operation of the
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business
of Company Y and its Subsidiaries as currently conducted, subject only to the terms of Company Y IP Agreements.
Section 4.14
PRC Subsidiaries.
Company Y has effective control of and is the primary beneficiary
of each Company Y VIE. Nominee equity holders' equity interests in any Company Y VIE are not
subject to any Liens (other than Permitted Liens) or any third-party rights or claims. The Company Y VIE Contracts, taken as a whole, comprise all of the contracts enabling Company Y to effect control
over each Company Y VIE and consolidate the financial statements of each Company Y VIE, and each of the Company Y VIE Contracts is legally valid, enforceable and binding under PRC Laws.
Section 4.15
Interested Party Transactions.
Except for (a) employment agreements and
indemnification agreements filed, furnished or incorporated by reference as an exhibit to a Company Y SEC Report
filed or furnished prior to the date hereof and (b) the Company Y Share Incentive Plan, Section 4.15 of the Company Y Disclosure Schedule sets forth a correct and complete list of the
contracts or agreements under which there are any existing or future liabilities between Company Y or any of its Subsidiaries, on the one hand, and any (i) present executive officer or director
of Company Y as of the date of this Agreement or (ii) record or beneficial owner of more than five percent (5%) of the Company Y Shares as reflected in filings of Schedules 13G or 13D
with the SEC with respect to Company Y prior to the date of this Agreement, on the other hand.
Section 4.16
Opinion of Financial Advisor.
Allen & Co. LLC has delivered to
the Company Y Board its opinion to the effect that, as of the date of such opinion and subject to the
various assumptions, qualifications and limitations set forth therein, the Exchange Ratio is fair, from a financial point of view, to Company Y.
Section 4.17
Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of Company Y or Merger Sub or any of their Affiliates.
Section 4.18
Non-Reliance.
In connection with the due diligence investigation of Company T and
its Subsidiaries by Company Y, Merger Sub, their Affiliates and their respective
Representatives, Company Y, Merger Sub, their Affiliates and their respective Representatives have received and may continue to receive after the date hereof from Company T and its Affiliates and
their respective Representatives certain estimates, projections, forecasts and other forward looking information, as well as certain business plan information, regarding Company T and its Subsidiaries
and their businesses and operations. Company Y and Merger Sub hereby acknowledge and agree (a) that there are uncertainties inherent in attempting to make such estimates, projections, forecasts
and other forward looking statements, as well as in such business plans, with which Company Y and Merger Sub are familiar, (b) that Company Y and Merger Sub are taking full responsibility for
making their own evaluation of the adequacy and accuracy of all estimates, projections, forecasts and other forward looking information, as well as such business plans, so furnished to them (including
the reasonableness of the assumptions underlying such estimates, projections, forecasts, forward looking information or business plans), and (c) that Company Y and Merger Sub will have no claim
against Company T or any of its Subsidiaries, or any of their respective Affiliates, Representatives or any other Person, with respect thereto. Accordingly, Company Y and Merger Sub hereby acknowledge
and agree that none of Company T or any of its Subsidiaries, nor any of their respective Affiliates, Representatives, nor any other Person, has made or is making any express or implied representation
or warranty with respect to such estimates, projections, forecasts, forward looking statements or business plans.
Section 4.19
No Additional Representations.
Except for the representations and warranties made
by Company Y in this Article IV, neither Company Y nor any other person makes any other express or
implied representation or warranty with respect to Company Y or any of its Subsidiaries or their
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respective
business, operations, assets, liabilities, condition (financial or otherwise) or prospects or any information provided to Company T or any of their respective Affiliates or Representatives,
notwithstanding the delivery or disclosure to Company T or any of its Affiliates or Representatives of any documentation, forecasts or other information in connection with the transactions
contemplated hereby, and Company T acknowledges the foregoing.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
Section 5.1
Conduct of Business of Company T.
Except as required by applicable Law or as
expressly contemplated by this Agreement, during the period from the date hereof to the earlier of the Effective Time
or the termination of this Agreement in accordance with Article VIII, Company T will, and will cause each of its Subsidiaries to, conduct its operations in the ordinary and usual course of
business consistent with past practice and keep available the service of its current officers and employees and preserve its relationships with customers, advertisers, licensors, suppliers and others
having business dealings with it. Without limiting the generality of the foregoing, and except as required by applicable Law, as otherwise contemplated in this Agreement or the Company T Disclosure
Schedule, from the date hereof until the earlier of the Effective Time or the termination of this Agreement in accordance with Article VIII, Company T will not, and will not permit its
Subsidiaries or direct equity holders of any of its Company T VIEs to, without the prior written consent of Company Y:
(a) amend
its memorandum and articles of association (or other similar governing instrument) or any of the Company T VIE Contracts;
(b) authorize
for issuance, issue, sell, pledge, dispose of, transfer, deliver or agree or commit to issue, sell, pledge, dispose of, transfer or deliver (whether through
the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any share capital or any other securities convertible into or exchangeable for any share
capital or any equity equivalents (including, without limitation, any stock options or stock appreciation rights), except for the issuance of Company T Shares as required to be issued upon exercise or
settlement of Company T Options;
(c) (i)
split, combine, subdivide or reclassify any of its share capital; (ii) declare, set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its share capital; (iii) enter into any agreement with respect to the voting of its share capital, (iv) make any other actual,
constructive or deemed distribution in respect of any of its share capital or otherwise make any payments to shareholders in their capacity as such; or (v) redeem, repurchase or otherwise
acquire any of its share capital or any share capital of any of its Subsidiaries, except (A) the withholding of Company's securities to satisfy Tax obligations with respect to Company T Options
or (B) the acquisition by Company T of its securities in connection with the forfeiture of Company T Options or (C) the acquisition by Company T of its securities in connection with the
net exercise of Company T Options in accordance with the terms thereof;
(d) place
Company T or any of its Subsidiaries into liquidation, dissolution, scheme of arrangement, merger, consolidation, restructuring, recapitalization redomiciliation
or other reorganization (other than the Merger);
(e) alter
through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of any of Company T's Subsidiaries;
(f) except
pursuant to a Contract existing on the date of this Agreement (i) incur, modify, renew or assume any long-term or short-term debt
or issue any debt securities in an amount exceeding US$4,000,000 in the aggregate, except for borrowings under existing lines of credit in the
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ordinary
and usual course of business consistent with past practice; (ii) prepay any debt, borrowings or obligations in excess of US$1,000,000 in the aggregate prior to their stated maturity;
(iii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, except in the ordinary and
usual course of business consistent with past practice and in amounts not material to Company T and its Subsidiaries, taken as a whole, except for guarantees of obligations of Wholly Owned Company T
Subsidiaries ; (iv) make any loans, advances or capital contributions to, or investments in, any other person (other than to Wholly Owned Company T Subsidiaries, Company T VIEs in accordance
with the Company T VIE Contracts and for advances for travel and other expenses to officers, directors and employees made in the ordinary course of business consistent with past practice);
(v) pledge or otherwise encumber shares of capital stock of Company T or its Subsidiaries; or (vi) mortgage or pledge any of its material assets, tangible or intangible, or create or
suffer to exist any Lien thereupon other than Permitted Liens;
(g) except
in the ordinary course of business or as may be required by Law (i) enter into, adopt, amend, extend or terminate any bonus, profit sharing, compensation,
severance, termination, equity, stock option, stock appreciation right, restricted stock, performance unit, stock equivalent, stock purchase, pension, retirement, deferred compensation, labor,
collective bargaining, employment, severance or other benefit or compensation agreement, trust, plan, fund, award or arrangement for the benefit or welfare of any director, officer or employee in any
manner (other than the entry into or amendment of employment or labor contracts with newly hired or promoted employees or the termination of employment agreements or labor contracts with terminated
employees in the ordinary course of business consistent with past practice), (ii) (or except as required under any agreement, plan or arrangement in effect on the date hereof) increase in any
manner the compensation or benefits payable or to become payable to any director, officer or employee (including, without limitation, the granting of stock options or other equity awards),
(iii) grant or increase any severance, termination or similar compensation or benefits payable to any director, officer or employee (except with respect to new hires and to employees in
connection with promotions in the ordinary course of business consistent with past practice), or (iv) accelerate the time of payment or vesting of, or the lapsing of restrictions with respect
to, or fund or otherwise secure the payment of, any compensation or benefits payable or to become payable to any director, officer or employee under any benefit or compensation plan, agreement or
arrangement;
(h) (i)
dispose of, license, transfer or grant to any Person any rights to Company T Intellectual Property other than consistent with past licensing practice in the ordinary
course of business, (ii) abandon, permit to lapse or otherwise dispose of any Company T Intellectual Property, (iii) make any material change in the ownership or right to register any
Company T Intellectual Property, or (iv) enter into any Contract with respect to or otherwise binding upon any Company T Intellectual Property other than, in the case of clauses (i) to
(iv), in the ordinary course of business consistent with past licensing practice;
(i) acquire,
sell, lease, transfer or otherwise dispose of any assets in an amount exceeding RMB1,000,000 in the aggregate (including but not limited to domain names,
trademarks and content licenses), except in the ordinary course of business consistent with past practice;
(j) except
as may be required as a result of a change in Law or in GAAP, change any of the accounting principles used by it;
(k) revalue
in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary and usual course of business consistent with past practice or as required by GAAP;
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(l) (i)
acquire (by merger, consolidation, or acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or
any equity interest therein, if such acquisition would be material to Company T or (ii) authorize any new capital expenditures, except as specifically budgeted in Company T's current plan
approved by the Company T Board prior to the date hereof that was made available to Company Y or that, in the aggregate, would not exceed US$4,000,000 during any fiscal quarter;
(m) make
or revoke any material Tax election, or settle or compromise any material Tax liability, or change (or make a request to any taxing authority to change) any aspect
of its method of accounting for Tax purposes in a material manner;
(n) pay,
discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business consistent with past practice;
(o) waive
the benefits of, reduce the restriction periods or agree to modify in a manner adverse to Company T or any of its Subsidiaries any non-competition,
confidentiality, standstill or similar agreement to which Company T or any of its Subsidiaries is a party;
(p) settle
or compromise any pending or threatened suit, action or claim relating to the transactions contemplated hereby (other than responding to takedown notices or other
notices or accusations of potential infringement in a manner consistent with past practice in the ordinary course of business);
(q) (i)
cancel, materially modify, terminate or grant a waiver of any rights under any Company T Material Contract in a manner adverse to Company T or any of its
Subsidiaries, (ii) enter into a new Contract that (A) would be a Company T Material Contract if in existence as of the date of this Agreement or (B) contains, unless required by
applicable Law, a change of control provision in favor of the other party or parties thereto or would otherwise require a payment to or give rise to any rights to such other party or parties in
connection with the transactions contemplated by this Agreement or (iii) waive, release, cancel, convey or otherwise assign any material rights or claims under any such Company T Material
Contract or new Contract;
(r) enter
into any new lines of business;
(s) grant
any Lien (other than Permitted Liens) in any of its assets (other than non-exclusive licenses granted in the ordinary course of business); or
(t) take,
propose to take, or agree in writing or otherwise to take, any of the actions described in Section 5.1(a) through Section 5.1(s).
Section 5.2
Conduct of Business of Company Y and Merger Sub.
Except as required
by applicable Law or as expressly contemplated by this Agreement, during the period from the date hereof to the earlier of the Effective Time
or the termination of this Agreement in accordance with Article VIII, Company Y will, and will cause each of its Subsidiaries to, conduct its operations in the ordinary and usual course of
business consistent with past practice and keep available the service of its current officers and employees and preserve its relationships with customers, advertisers, licensors, suppliers and others
having business dealings with it. Without limiting the generality of the foregoing, and except as required by applicable Law, as otherwise contemplated in this Agreement or the Company Y Disclosure
Schedule, from the date hereof until the earlier of the Effective Time or the termination of this Agreement in accordance with Article VIII, Company Y will not, and will not permit its
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Subsidiaries
to, without the prior written consent of Company T (which consent shall not be unreasonably withheld):
(a) authorize
for issuance, issue, sell, pledge, dispose of, transfer, deliver or agree or commit to issue, sell, pledge, dispose of, transfer or deliver (whether through
the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any share capital or any other securities convertible into or exchangeable for any share
capital or any equity equivalents (including, without limitation, any stock options or stock appreciation rights), except for the issuance of Company Y Shares (i) as required to be issued upon
exercise or settlement of Company Y Options, (ii) in connection with the Share Issuance and, (iii) in connection with any strategic investment or acquisition, which would result in, in
the aggregate, an issuance of ten percent (10%) or less of the share capital of Company Y that is issued and outstanding as of the date of this Agreement;
(b) if
any of the following will have a disproportionate adverse effect on holders of Company T Shares and/or Company T ADSs relative to current holders of Company Y
Class A Shares and/or Company Y ADSs: (i) split, combine, subdivide or reclassify any of its share capital; (ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of its share capital; (iii) make any other actual, constructive or deemed distribution in respect of any of its share
capital or otherwise make any payments to shareholders in their capacity as such;
(c) place
Company Y into liquidation, dissolution, scheme of arrangement or redomiciliation; or
(d) take,
propose to take, or agree in writing or otherwise to take, any of the actions described in Section 5.2(a) through Section 5.2(c).
Section 5.3
Access to Information.
(a) Subject to applicable Law, between the date hereof
and the Effective Time, Company T will give Company Y and Merger Sub and their authorized
representatives (including counsel, financial advisors and auditors) reasonable access during normal business hours to all employees, officers, agents, contracts and properties and to all books and
records of Company T and its Subsidiaries, will permit Company Y and Merger Sub to make such inspections as Company Y and Merger Sub may reasonably require and will cause Company T's officers and
those of its Subsidiaries to furnish Company Y and Merger Sub with such financial and operating data and other information with respect to the business, properties and personnel of Company T and its
Subsidiaries as Company Y or Merger Sub may from time to time reasonably request;
provided
that no investigation pursuant to this Section 5.3(a)
shall affect or be deemed to modify any of the representations or warranties made by Company T. For the avoidance of doubt, none of Company T or any of its Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would (i) waive the attorney-client privilege of Company T or any of its Subsidiaries (provided that Company T shall use its
reasonable best efforts to allow for such access or disclosure to the maximum extent that does not result in a loss of attorney-client privilege), (ii) contravene any applicable Law or
requirements of Governmental Entities (provided that Company T shall use its reasonable best efforts to make appropriate substitute arrangements to permit reasonable disclosure not in violation of
such law or requirement) or (iii) breach the terms of a confidentiality agreement with a third party entered into prior to the date hereof (provided that Company T shall use its reasonable best
efforts to obtain the required consent of such third party to such access or disclosure). If any information is withheld by Company T or any of its Subsidiaries pursuant to the proviso to the
preceding sentence, Company T shall inform Company Y as to the general nature of what, and pursuant to which clause of the proviso in the preceding sentence such information, is being withheld.
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(b) Between
the date hereof and the Effective Time, Company T shall furnish to Company Y, (i) concurrently with the delivery thereof to management, such
monthly financial statements and data as are regularly prepared for distribution to Company T management and (ii) at the earliest time they are available, such financial statements as are
prepared for the Company T SEC Reports.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1
Preparation of and Filing of Form 20-F and Form F-4.
(a) As promptly as
practicable after the execution of this Agreement and in any event, before April 30, 2012, each of Company Y and Company T shall
prepare and file with the SEC its annual report on Form 20-F covering fiscal year 2011 (the "
2011 Form 20-F
"). As
promptly as practicable after the filing of the 2011 Form 20-F by each of Company Y and Company T, Company Y shall, with the assistance of Company T, prepare and file with the SEC a
registration statement on Form F-4 with respect to the Company Y Class A Shares to be issued with the Merger. Company Y shall promptly respond to any comments made by the SEC
regarding the Form F-4 and shall use its reasonable best efforts to have the Form F-4 declared effective under the Securities Act promptly. No filing of, or
amendment or supplement to, the Form F-4 will be made by Company Y without providing Company T a reasonable opportunity to review and comment thereon. Each Party shall,
(i) as promptly as practicable after the receipt thereof, provide to the other Party copies of any written comments and advise the other Party of any oral comments, with respect to the
Form 20-F or Form F-4 received from the staff of the SEC, (ii) provide the other Party a reasonable opportunity to review the Party's proposed response to
such comments, and (iii) include in the Party's written response to such comments any comments reasonably proposed by the other Party. Company T shall furnish as promptly as practicable such
information concerning Company T reasonably requested by Company Y in connection with the Form F-4 or other filings required under applicable Law.
(b) If,
at any time prior to the Effective Time, any information relating to each Party or any of its Affiliates, directors or officers should be discovered by such Party,
which should be set forth in an amendment or supplement to the Form F-4 so that such document would not include any misstatement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, such Party shall promptly notify the other Party of such information and the
other Party shall cooperate in the prompt filing with the SEC of any necessary amendment or supplement to the Form F-4.
(c) Company
Y shall use reasonable best efforts to cause any Company Y ADSs to be issued in connection with the Merger to be approved for listing on The New York Stock
Exchange, such listing to be subject to official notice of issuance.
Section 6.2
Acquisition Proposals Relating to Company T.
(a) Company T will not, nor will
it permit any of its Subsidiaries to, nor will it authorize or permit any officer, director or employee or any investment
banker, attorney, accountant or other advisor or representative (each, a "
Representative
") of Company T or any of its Subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage any inquiry or the making of any proposal or offer or any other effort or attempt that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below), (ii) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public
information with respect to Company T or any of its Subsidiaries, or take any other action to facilitate, any Acquisition Proposal, or (iii) enter into any letter of intent, agreement or
agreement in principle with respect to an Acquisition Proposal. Immediately after the execution and delivery of this Agreement, Company T will, and will cause its Subsidiaries and Affiliates and their
respective Representatives to, cease and terminate any existing activities, discussions or negotiations with any
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Person
conducted heretofore with respect to any possible Acquisition Proposal, shall promptly cause to be returned or destroyed all confidential information provided by or on behalf of Company T or
any of its Subsidiaries to such Person and shall notify each such Person or its Representatives that the Company T Board no longer seeks or requests the making of any Acquisition Proposal, and
withdraws any consent theretofore given to the making of an Acquisition Proposal. For the purpose of this Agreement, "
Acquisition Proposal
" means any
proposal or offer made by any Person (other than Company Y, Merger Sub or any Affiliate thereof) to purchase or otherwise acquire, directly or indirectly, in one transaction or a series of
transactions, (A) beneficial ownership (as defined under section 13(d) of the Exchange Act) of ten percent (10%) or more of any class of share capital of Company T pursuant to a merger,
consolidation or other business combination, sale of shares of capital stock, tender offer, exchange offer or similar transaction or (B) any one or more assets or businesses of Company T and
its Subsidiaries that constitute ten percent (10%) or more of the revenues or assets of Company T and its Subsidiaries, taken as a whole.
(b) The
Company T Board will not (i) fail to recommend that shareholders of Company T vote in favor of this Agreement and the Merger (the
"
Company T Board Recommendation
") or fail to include the Company T Board Recommendation in the Prospectus or (ii) withhold, withdraw, qualify or
modify, or publicly announce its intent to withhold, withdraw, qualify or modify, in a manner adverse to Company Y or Merger Sub, the Company T Board Recommendation (actions described in this
clause (ii) referred to as a "
Company T Change of Recommendation
"). Notwithstanding anything to the contrary set forth in this Agreement, prior
to the time the Required Company T Vote is obtained, but not after, the Company T Board may effect a Company T Change of Recommendation if the Company T Board has determined in good faith, after
consultation with its financial advisor and outside legal counsel, that failure to take such action would constitute a breach of the directors' fiduciary duties under applicable Law;
provided
,
however
, that prior to taking such action or announcing the intention to do so, (i) the
Company T Board has given Company Y at least five business days' prior written notice of its intention to take such action and a description of the reasons for taking such action, (ii) Company
T has negotiated, and has caused its Representatives to negotiate, in good faith with Company Y during such
notice period to enable Company Y to revise the terms of this Agreement in such a manner that would obviate the need for taking such action and (iii) following the end of such notice period,
the Company T Board shall have considered in good faith any revisions to this Agreement proposed in writing by Company Y in a manner that would form a binding contract if accepted by Company T,
and shall have determined in good faith, after consultation with its financial advisor and outside legal counsel, that failure to effect a Company T Change of Recommendation would constitute a breach
of the directors' fiduciary duties under applicable Law.
(c) Nothing
in this Section 6.2 shall (i) permit Company T to terminate this Agreement, (ii) release Company T from the obligation of holding the
Company T Shareholders Meeting (as defined below) pursuant to Section 6.4 or (iii) affect any other obligations of Company T under this Agreement.
Section 6.3
Competing Proposals Relating to Company Y.
(a) During
the period from the date hereof to the earlier of the Effective Time or the termination of this Agreement in accordance with Article VIII, Company Y will
not, nor will it permit any of its Subsidiaries to, nor will it authorize or permit any Representatives of Company Y or any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate
or encourage any inquiry or the making of any proposal or offer or any other effort or attempt that constitutes, or may reasonably be expected to lead to, any Competing Proposal, (ii) engage
in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public information with respect to Company Y or any of its
Subsidiaries, or take any other action to facilitate, any Competing Proposal, or (iii) enter into any letter of intent, agreement or agreement
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in
principle with respect to any Competing Proposal. Immediately after the execution and delivery of this Agreement, Company Y will, and will cause its Subsidiaries and Affiliates and their respective
Representatives to, cease and terminate any existing activities, discussions or negotiations with any Person conducted heretofore with respect to any Competing Proposal. For the purpose of this
Agreement, "
Competing Proposal
" means any proposal or offer made by Company Y to purchase or otherwise acquire any Person (other than Company T or any
of its Affiliates), directly or indirectly, in one transaction or a series of transactions which results in the issuance of ten percent (10%) or more of the share capital of Company Y (on a fully
diluted basis) issued and outstanding as of the date hereof.
(b) The
Company Y Board will not (i) fail to recommend that shareholders of Company Y vote in favor of the Share Issuance (the "
Company Y
Board Recommendation
") or fail to include the Company Y Board Recommendation in the Prospectus or (ii) withhold, withdraw, qualify or modify, or publicly announce its
intent to withhold, withdraw, qualify or modify, in a manner adverse to Company T, the Company Y Board Recommendation (actions described in this clause (ii) referred to as a
"
Company Y Change of Recommendation
"). Notwithstanding anything to the contrary set forth in this Agreement, prior to the time the Required Company Y
Vote is obtained, but not after, the Company Y Board may effect a Company Y Change of Recommendation if the Company Y Board has determined in good faith, after consultation with its financial advisor
and outside legal counsel, that failure to take such action would constitute a breach of the directors' fiduciary duties under applicable Law;
provided
,
however
, that prior to taking such action or announcing the intention to do so, (x) the Company Y Board has given Company T at least five
business days' prior written notice of its intention to take such action and a description of the reasons for taking such action, (y) Company Y has negotiated, and has caused its
Representatives to negotiate, in good faith with Company T during such notice period to enable Company T to revise the terms of this Agreement in such a manner that would obviate the need for taking
such action and (z) following the end of such notice period, the Company Y Board shall have considered in good faith any revisions to this Agreement proposed in writing by Company T in a manner
that would form a binding contract if accepted by Company Y, and shall have determined in good faith, after consultation with its financial advisor and outside legal counsel, that failure to
effect a Company Y Change of Recommendation would constitute a breach of the directors' fiduciary duties under applicable Law.
(c) Nothing
in this Section 6.3 shall (i) permit Company Y to terminate this Agreement, (ii) release Company Y from the obligation of holding the
Company Y Shareholders Meeting pursuant to Section 6.4(b) or (iii) affect any other obligations of Company Y under this Agreement.
Section 6.4
Shareholders Meetings.
(a) Company T shall take, in accordance with applicable
Law and its memorandum and articles of association, all actions necessary to (a) cause an
annual or extraordinary general meeting of its shareholders (the "
Company T Shareholders Meeting
") to be duly called and held as soon as practicable
after the SEC declares the Form F-4 effective for the purpose of voting on the authorization and approval by way of special resolution of this Agreement, the Merger and the Plan of
Merger and (b) subject to its fiduciary duties, solicit proxies from its shareholders to obtain the Required Company T Vote for such authorization and approval. The Company T Board shall,
subject to Section 6.2(b), recommend authorization and approval of this Agreement, the Merger and the Plan of Merger by Company T's shareholders.
(b) Company
Y shall take, in accordance with applicable Law and its memorandum and articles of association, all actions necessary to (a) cause an annual or
extraordinary general meeting of its shareholders (the "
Company Y Shareholders Meeting
") to be duly called and held as soon as practicable after the SEC
declares the Form F-4 effective for the purpose of voting on the authorization and approval of this Agreement and the Share Issuance and (b) subject to its
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fiduciary
duties, solicit proxies from its shareholders to obtain the Required Company Y Vote for such authorization and approval. The Company Y Board shall, subject to Section 6.3(b),
recommend authorization and approval of this Agreement and the Share Issuance by Company T's shareholders.
Section 6.5
Reasonable Best Efforts.
(a) Subject to the terms and conditions of this
Agreement, and subject at all times to each Party's and its directors' duty to act in a manner consistent
with their fiduciary duties, each Party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under
applicable Law promptly to consummate the Merger and the other transactions contemplated by this Agreement, including preparing, executing and filing promptly all documentation to effect all necessary
notices, reports and other filings and to obtain promptly all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party and/or
Governmental Entity in order to consummate the Merger and the other transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, to the extent applicable, each
Party hereto agrees to promptly provide to each relevant Governmental Entity with jurisdiction over enforcement of any applicable antitrust or competition Laws ("
Governmental
Antitrust Entity
") non-privileged information and documents (i) requested by any Governmental Antitrust Entity or (ii) that are necessary, proper or
advisable to permit consummation of the transactions contemplated by this Agreement, and use its reasonable best efforts to take or cause to be taken all other actions necessary, proper or advisable
consistent with this Section 6.5 to cause the expiration or termination of the applicable waiting periods, or receipt of required authorizations, as applicable, under all applicable antitrust
Laws as soon as practicable.
(b) In
furtherance and not in limitation of the covenants of the Parties contained in Section 6.5(a), each of Company Y and Company T shall use its reasonable best
efforts to resolve such objections if any, as may be asserted by any applicable Governmental Entity or other person with respect to the transactions contemplated hereby under any antitrust Law. In
connection with the foregoing, if any administrative or judicial action or proceeding, including any action or proceeding by a private party, is instituted (or threatened to be instituted) challenging
any transaction contemplated by this Agreement as violative of any antitrust Law, each of Company Y and Company T shall cooperate with each other to contest and resist any such action or proceeding
and to use their reasonable best efforts to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect
and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement, so long as such actions by Company Y or Company T do not have, and are not reasonably likely
to have, individually or in the aggregate, a Company T Material Adverse Effect or a Company Y Material Adverse Effect;
provided
,
however
, that Company T
may expressly condition any such actions and any agreement to take any such actions upon the consummation of the Merger and the
other transactions contemplated hereby.
Section 6.6
Public Announcements.
The initial press release with respect to the execution of
this Agreement shall be a joint press release to be reasonably agreed upon by Company Y and Company T.
Thereafter, each of Company Y and Company T will consult with one another before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by
this Agreement, including, without limitation, the Merger, and shall not issue any such press release or make any such public statement prior to obtaining the approval of such other Party (such
approval not to be unreasonably withheld or delayed), except with respect to any action taken by the Company T Board pursuant to, and in accordance with, Section 6.2 and Section 6.4(a),
any action taken by the Company Y Board pursuant to, and in accordance with, Section 6.4(b), or as may be required by Law or by any applicable listing agreement with or rules of a securities
exchange, as determined by Company Y or Company T, as the case may be.
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Section 6.7
Indemnification; Directors' and Officers' Insurance.
(a)
Each of Company Y and the Surviving Corporation agrees that, from and after the Effective Time, it will indemnify and hold harmless each
individual who at the Effective Time is, or at any time prior to the Effective Time was, a director or officer of Company T or its Subsidiaries (the "
Indemnified
Parties
") against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or related to such Indemnified Parties' service as a director or officer of Company
T or its Subsidiaries or services performed by such persons at the request of Company T or its Subsidiaries at or prior to the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time, including, for the avoidance of doubt, in connection with (i) the transactions contemplated by this Agreement and (ii) actions to enforce this provision or any other
indemnification or advancement right of any Indemnified Party;
provided
that such indemnification shall be subject to any limitation imposed from time
to time under applicable Law. The Articles of Association will contain provisions with respect to rights to indemnification, advancement of expenses and limitations on, or exculpation from,
liabilities, for acts or omissions that are at least as favorable to the directors, officers or employees of Company T as those contained in the memorandum and articles of association of Company T as
in effect on the date hereof, except to the extent prohibited by the Cayman Companies Law or any other applicable Law, which provisions will not be amended, repealed or otherwise modified for a period
of six years from the Effective Time in any manner that would adversely affect the rights thereunder of the Indemnified Parties, unless such modification is required by Law.
(b) Company
Y or the Surviving Corporation shall have the right, but not the obligation, to assume and control the defense of any threatened or actual litigation, claim or
proceeding relating to any acts or omissions covered under this Section 6.7 (each, a "
Claim
") unless there is a conflict of interest between
Company Y and the Surviving Corporation, on the one hand, and the Indemnified Party, on the other (for the avoidance of doubt, conflict of interest shall be deemed to exist in the event of any
threatened or actual litigation, claim or proceeding relating to the transactions contemplated by this Agreement), but in any event, no such Claim shall be settled or compromised without Company Y's
prior written consent (such consent not to be unreasonably withheld, conditioned or delayed);
provided
, that none of Company Y or the Surviving
Corporation shall settle, compromise or consent to the entry of any judgment in any such Claim for which indemnification has been sought by an Indemnified Party hereunder, unless such settlement,
compromise or consent includes an unconditional release of such Indemnified Party from all liability arising out of such Claim or such Indemnified Party otherwise consents in writing to such
settlement, compromise or consent. Each of Company Y, the Surviving Corporation and the Indemnified Parties shall cooperate in the defense of any Claim and shall provide access to properties and
individuals as reasonably requested and furnish or cause to be furnished records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be
reasonably requested in connection therewith.
(c) For
a period of six (6) years after the Effective Time, Company Y shall cause the Surviving Corporation to maintain Company T's existing policies of directors'
and officers' liability insurance for the benefit of those persons who are covered by such policies at the Effective Time (or Company Y may substitute therefor policies of at least the same coverage
with respect to matters occurring prior to the Effective Time), to the extent that such liability insurance can be maintained at a cost to Company Y not greater than 300 percent of the annual
premium (such 300 percent threshold, the "
Maximum Premium
") for the current Company directors' and officers' liability insurance as set forth in
Section 6.7 of the Company T Disclosure Schedule;
provided
that if such insurance cannot be so maintained or obtained at such costs, Company Y
shall maintain or obtain as much of such insurance as can be so maintained or obtained at an annual premium amount not in excess of the Maximum Premium.
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(d) If
Company Y or the Surviving Corporation or any of their respective successors or assigns (i) shall consolidate with or merge into any other corporation or
entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then, and in each such case, proper provisions shall be made so that the successors and assigns of Company Y or the Surviving Corporation shall assume all of
the obligations set forth in this Section 6.7.
(e) The
provisions of this Section 6.7 shall survive the consummation of the Merger and are intended to be for the benefit of, and shall be enforceable by, each of
the Indemnified Parties and their heirs and legal representatives, each of which shall be a third-party beneficiary of the provisions of this Section 6.7.
Section 6.8
Notification of Certain Matters.
Company T shall, upon obtaining knowledge of any of
the following, give prompt notice to Company Y, and Company Y shall, upon obtaining knowledge of any of the
following, give prompt notice to Company T, of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of such Party contained in this Agreement, which is qualified as to materiality, to be untrue or inaccurate, or any representation or warranty of such Party not so
qualified, to be untrue or inaccurate in any material respect, at or prior to the Effective Time, (ii) any material failure of Company T or Company Y, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, (iii) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any condition to the obligations of any Party to effect the transactions contemplated hereby not to be satisfied, (iv) any notice
of, or other communication relating to, a default or event which, with notice or lapse of time or both, would become a default, received by such Party or any of its Subsidiaries between the date of
this Agreement and the Effective Time, under any contract or agreement material to the financial condition, properties, businesses, results of operations or prospects of such Party and its
Subsidiaries taken as a whole to which such Party or any of its Subsidiaries is a party or is subject, (v) any notice or other communication from any Governmental Entity in connection with the
Merger, (vi) (x) any Proceedings (or communications indicating that the same may be contemplated) commenced or threatened against Company T, Company Y or any of their respective
Subsidiaries which, in each case, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.10 or Section 4.9, or which relate to
the consummation of the Merger, or (y) any disputes, disagreements, claims or any legal proceedings of any nature, which, in each case, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.17, (vii) any notice or other communication from any third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement, or (viii) any event or occurrence that has, or would reasonably be expected to have, a Company T Material Adverse Effect or a
Company Y Material Adverse Effect with respect to Company T or Company Y, as the case may be;
provided
,
however
, that the delivery of any notice pursuant
to this Section 6.8 shall not cure such breach or non-compliance or limit or
otherwise affect the remedies available hereunder to the Party receiving such notice.
Section 6.9
Fees and Expenses.
Subject to Section 8.5(b), Section 8.5(c) and
Section 8.5(f), whether or not the Merger is consummated, all Expenses (as hereinafter defined)
incurred in connection with this Agreement, and the transactions contemplated hereby shall be paid by the Party incurring such Expenses. As used in this Agreement,
"
Expenses
" includes all reasonable and documented out-of-pocket expenses (including, without limitation, all filing costs and
reasonable fees and expenses of counsel, accountants, investment bankers, experts and consultants to a Party hereto and its Affiliates) incurred by a Party or on its behalf in connection with, or
related to, the authorization, preparation, negotiation, execution and performance of this Agreement and the
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transactions
contemplated hereby, including the solicitation of shareholder approvals and all other matters related to the transactions contemplated hereby;
provided
, that Expenses incurred in connection with the
printing and mailing of the Prospectus and, to the extent applicable, filing fees with respect
to Governmental Antitrust Entities shall be shared equally by Company Y and Company T.
Section 6.10
Delisting of Stock.
Company Y and Company T shall use reasonable efforts to cause
Company T Shares to be delisted from the NASDAQ Global Market and Company T to be deregistered under
the Exchange Act as promptly as practicable after the Effective Time.
Section 6.11
Anti-Takeover Statutes.
If any Takeover Statute is or may become applicable to the
Merger or the other transactions contemplated by this Agreement, each of Company Y and
Company T shall use their respective reasonable best efforts to take such actions as are necessary so that the transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or lawfully minimize the effects of any Takeover Statute on the Merger or the other transactions contemplated by this
Agreement.
Section 6.12
Resignations.
To the extent requested by Company Y in writing at least three
business days prior to the Closing, on the Closing Date, Company T shall cause to be delivered to
Company Y duly signed resignations, effective as of the Effective Time, of the directors and officers of Company T and the Subsidiaries as requested by Company Y.
Section 6.13
Board Representation Rights.
(a) Prior
to the Effective Time, Company Y shall organize a meeting of the Company Y Board for the purpose of appointing to the Company Y Board as a director
(i) Mr. Gary Wei Wang, who, subject to Section 6.13(b), shall be entitled to serve as a director on the Company Y Board for a term of one year, and (ii) Mr. Jixun
Foo, who, subject to Section 6.13(b), shall be entitled to serve as a director on the Company Y Board until his resignation or the designation of his successor by GGV II Delaware L.L.C. The
Company Y Board shall cause any successor so designated by GGV II Delaware L.L.C. to be appointed to the Company Y Board as a director.
(b) Notwithstanding
anything in Section 6.13(a) to the contrary, at such time after the Effective Time as the Company T Principal Shareholders beneficially own (as
defined under section 13(d) of the Exchange Act), in the aggregate, less than 5% of the total issued and outstanding Company Y Shares on a fully-diluted basis for the first time: (i) all
rights of the Company T Principal Shareholders under this Section 6.13 shall immediately terminate and upon the request of the Company Y Board, Mr. Gary Wei Wang and/or Mr. Jixun
Foo should tender his respective resignation from the Company Y Board and (ii) Company Y may remove Mr. Wang and/or Mr. Foo from the Company Y Board pursuant to its then effective
articles of association.
(c) The
provisions of this Section 6.13 shall survive the consummation of the Merger and are intended to be for the benefit of, and shall be enforceable by
(i) each of the Company T Principal Shareholders and their heirs and legal representatives, each of which shall be a third-party beneficiary of the provisions of this Section 6.13, and
(ii) Company Y.
Section 6.14
Company T Corporate Structure Matters.
(a) On
or prior to the Closing, Company T shall use reasonable best efforts to cause the nominee shareholders of each Company T VIE to transfer all equity interests in each
Company T VIE to Person(s) designated by Company Y, free of any third-party rights, claims or Liens (except for Permitted Liens and as provided under the Company T VIE Contracts), and revise Company T
VIE Contracts to reflect the change of the nominee shareholders.
(b) Company
T shall take all steps necessary and appropriate to cause the changes of directors, officers and governing documents for any of Company T's Subsidiaries upon the
reasonable request of Company Y on or prior to the Closing.
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Section 6.15
Non-Competition Agreements.
Company T shall cause each of Company T's or its
Subsidiaries' employees hired after the date hereof to enter into a customary non-competition
agreement with Company T or one of its Subsidiaries with a non-competition term of at least one year;
provided
, that, for employees holding
the position of vice president or above, such term shall be at least two years.
Section 6.16
Participation in Litigation.
Prior to the Effective Time, Company Y shall give
prompt notice to Company T, and Company T shall give prompt notice to Company Y, of any actions, suits, claims
or proceedings commenced or, to Company T's knowledge, on the one hand, and Company Y's knowledge, on the other hand, threatened against such Party which relate to this Agreement and the transactions
contemplated hereby. Each Party shall give the other Party the opportunity to participate in the defense or settlement of any shareholder litigation against itself and/or its directors relating to the
transactions contemplated hereby, and no such litigation shall be settled or compromised without the other Party's prior written consent (such consent not to be unreasonably withheld, conditioned or
delayed).
Section 6.17
Company Y Memorandum and Articles of Association.
Prior to the Effective Time,
Company Y shall amend its memorandum and articles of association to provide that the name of Company Y shall be changed to "Youku
Tudou Inc.", effective as of the Effective Time.
Section 6.18
Evidence of Settlement Payment.
Company T shall use reasonable best efforts to
provide evidence reasonably satisfactory to Company Y that all obligations under the Civil Settlement Agreement,
dated June 10, 2011, by and between Lei Yang and Gary Wei Wang (the "
Company T Founder Settlement Agreement
") have been satisfied;
provided
,
that
, in the event such evidence is not provided to the reasonable satisfaction of Company Y
prior to Closing, Company T shall use reasonable best efforts to request Gary Wei Wang to (a) agree and irrevocably authorize Company Y to (i) withhold a number of Company Y
Class A Shares from the portion of the Merger Consideration otherwise issuable to Gary Wei Wang in connection with the Merger equal to the product of (x) 1.05 multiplied by
(y) the quotient of (1) the aggregate amount of obligations that remain outstanding under the Company T Founder Settlement Agreement as of the Closing divided by (2) the closing
price of Company Y Class A Shares on the date three business days prior to the Closing (such number of shares, the "
Withheld Shares
"), and
(ii) sell such Withheld Shares either on the open market or in privately negotiated transactions on an arms'-length basis (but only in the event any such privately negotiated transaction is at
a price per share in excess of the price per share available on the open market) and apply the proceeds from the sales of such Withheld Shares to discharge any such amounts under the Company T Founder
Settlement Agreement, with any excess proceeds being returned to Mr. Wang following the full settlement; provided, however, that Mr. Wang shall remain solely liable for all unsettled
obligations under the Company T Founder Settlement Agreement, and (b) enter into an escrow agreement reasonably acceptable to Company Y with Company Y to effect the withholding of such Merger
Consideration, sale of such Withheld Shares and application of the proceeds of such Withheld Shares.
Section 6.19
Transition Management Committee.
(a) Between
the date hereof and the earlier of the Closing and the termination of this Agreement in accordance with Article VIII, Company Y and Company T shall
form a transition management committee consisting of one representative selected by Company T and one by Company Y (the "
Transition Management
Committee
"). Each member of the Transition Management Committee will report directly to the board of directors of the company that selected such person.
(b) The
Transition Management Committee is intended to support the efforts of the Parties to this Agreement in planning and supporting implementation of the integration of
the businesses
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of
Company Y and Company T and their respective Subsidiaries. In particular and subject to applicable Law, these responsibilities include, but shall not be limited to, the following:
(i) facilitating
Company Y's access to information regarding the operations of Company T and its Subsidiaries with the goal of ensuring that Company Y has sufficient
visibility into Company T's businesses and operations to permit the coordination of the Parties' related operations on a timely basis in an effort to accelerate to the earliest time practicable after
the Effective Time the realization of synergies, operating efficiencies and other benefits expected to be realized by the Parties as a result of the transactions contemplated by this Agreement;
(ii) ensuring
that the business and operations of Company T are conducted in the best long term interests of Company T;
(iii) acting
as a locus of discussion concerning matters relating to transition planning including, but not limited to, employee matters and business matters; and
(iv) coordinating
the communications, public relations and investor relations strategy regarding the Merger and the other transactions contemplated by this Agreement.
(c) Consistent
with their duties under Section 6.5 of this Agreement, each of the Parties hereto will cooperate with the Transition Management Committee to support
and give effect to its efforts in the
areas of its responsibility. Any action or request by the Transition Management Committee shall be unanimously approved in writing by each member of the Transition Management Committee.
Section 6.20
Tax Treatment.
For United States federal income Tax purposes, the Parties intend
that the Merger be treated as a reorganization within the meaning of Section 368(a) of
the Code, and the Parties shall use reasonable best efforts to cause the Merger to qualify as a reorganization within the meaning of Section 368 of the Code.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1
Conditions to Each Party's Obligations to Effect the Merger.
The obligation of each Party
to consummate the transactions contemplated by this Agreement is subject to the fulfillment at or prior to the Effective Time of each
of the following conditions:
(a) The
Required Company T Vote and the Required Company Y Vote shall have been obtained.
(b) The
Form F-4 shall have become effective under the Securities Act, and shall not be the subject of any stop order, or any proceedings to seek a stop
order, suspending the effectiveness of the Form F-4.
(c) The
Company Y ADSs issuable as Merger Consideration pursuant to this Agreement shall have been approved for listing on The New York Stock Exchange, subject to official
notice of issuance.
(d) No
Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which (i) is in effect and (ii) has the effect of making the Merger illegal or otherwise prohibiting or preventing
consummation of the Merger.
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Section 7.2
Conditions to the Obligations of Company Y and Merger Sub.
The obligation of Company
Y and Merger Sub to consummate the transactions contemplated by this Agreement is subject to the fulfillment at or prior to the
Effective Time of each of the following additional conditions, any or all of which may be waived in whole or part by Company Y to the extent permitted by applicable Law:
(a) The
representations and warranties of Company T (i) set forth in Section 3.3 and Section 3.18(g) shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date as if made on and as of such date and time (except for representations and warranties made as of a specified date, only as of the specified
date), (ii) set forth in Section 3.1(a) and Section 3.2(a) shall be true and correct in all but immaterial respects as of the date of this Agreement and as of the Closing Date as
if made on and as of such date and time (except for representations and warranties made as of a specified date, only as of the specified date) and (iii) set forth in this Agreement (other than
those Sections specifically identified in clause (i) and (ii)), shall be true and correct interpreted without giving effect to the words "materially" or "material" or to any qualifications
based on such terms or based on the defined term "Company T Material Adverse Effect," except where the failure of such representations and warranties to be true and correct, in the aggregate, does not
constitute a Company T Material Adverse Effect, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct, or true and correct in all material respects, as the case may be, only as of the specified date).
(b) Company
T shall have performed or complied in all material respects with all covenants and agreements contained herein required to be performed or complied with by it
prior to or at the time of the Closing.
(c) Since
the date of this Agreement, there shall not have been any Company T Material Adverse Effect.
(d) All
nominee shareholders of each Company T VIE shall have transferred, free of any third-party rights, claims or Liens (except for Permitted Liens and as provided in the
Company T VIE Contracts), all their equity interests in each Company T VIE to Person(s) designated by Company Y.
(e) Company
T shall have delivered to Company Y a certificate, dated as of the Effective Time, signed by an executive officer of Company T, certifying as to the fulfillment
of the conditions specified in Section 7.2(a) to (d) above.
(f) The
holders of no more than 10% of Company T Shares shall have validly served a written objection under Section 238(2) of the Cayman Companies Law.
Section 7.3
Conditions to the Obligations of Company T.
The obligation of Company T to
consummate the transactions contemplated by this Agreement is subject to the fulfillment at or prior to the Effective Time of each
of the following conditions, any or all of which may be waived in whole or in part by Company T to the extent permitted by applicable Law:
(a) The
representations and warranties of Company Y and Merger Sub (i) set forth in Section 4.3 and Section 4.14 shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as if made on and as of such date and time (except for representations and warranties made as of a specified date, only as
of the specified date), (ii) set forth in Section 4.1(a) and Section 4.2(a) shall be true and correct in all but immaterial respects as of the date of this Agreement and as of the
Closing Date as if made on and as of such date and time (except for representations and warranties made as of a specified date, only as of the specified date) and (iii) set forth in this
Agreement (other than those Sections specifically
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identified
in clause (i) and (ii)), shall be true and correct interpreted without giving effect to the words "materially" or "material" or to any qualifications based on such terms or based on
the defined term "Company Y Material Adverse Effect," except where the failure of such representations and warranties to be true and correct, in the aggregate, does not constitute a Company Y Material
Adverse Effect, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified
date, which need be
true and correct, or true and correct in all material respects, as the case may be, only as of the specified date).
(b) Company
Y and Merger Sub shall have performed or complied in all material respects with all covenants and agreements contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) Since
the date of this Agreement, there shall not have been any Company Y Material Adverse Effect.
(d) Company
Y shall have delivered to Company T a certificate, dated as of the Effective Time, signed by a designated director of Company Y and a designated director of
Merger Sub, certifying as to the fulfillment of the conditions specified in Section 7.3(a), (b) and (c).
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
Section 8.1
Termination by Mutual Agreement.
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after receipt of the Required Company
T Vote and the Required Company Y Vote, by mutual written consent of Company T and Company Y.
Section 8.2
Termination by Either Company Y or Company T.
This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by either Company Y or Company T if:
(a) the
Merger shall not have been consummated by August 31, 2012 (the "
Termination Date
");
provided
,
however
,
that the right to terminate this Agreement under this Section 8.2(a) shall not
be available to a Party if the failure of the Merger to have been consummated on or before the Termination Date was primarily due to the breach or failure of such Party to perform in a material
respect any of its obligations under this Agreement;
(b) any
Law, injunction or order having the effect set forth in Section 7.1(d) shall be in effect and shall have become final and non-appealable;
provided
,
however
, that the right to terminate this Agreement pursuant to this Section 8.2(b)
shall not be available to a Party if the issuance of such final, non-appealable Law, injunction or order was primarily due to the breach or failure of such Party to perform in a material
respect any of its obligations under this Agreement;
(c) the
Required Company T Vote is not obtained at the Company T Shareholders Meeting or any adjournment thereof at which this Agreement has been voted upon; or
(d) the
Required Company Y Vote is not obtained at the Company Y Shareholders Meeting or any adjournment thereof at which the Share Issuance has been voted upon;
provided
that Company Y shall not be permitted
to terminate this Agreement pursuant to this Section 8.2(d) if Company Y has not paid the No Vote
Termination Fee required to be paid to Company T pursuant to Section 8.5(c)(i).
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Section 8.3
Termination by Company Y.
This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by Company Y if:
(a) the
representations and warranties of Company T shall not be true and correct or Company T shall have breached or failed to perform any of its covenants or agreements
contained in this Agreement, which failure to be true and correct, breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.2 and
(ii) cannot be cured by the Termination Date, or if capable of being cured, shall not have been cured within 30 days following receipt by Company T of written notice of such breach or
failure to perform from Company Y stating Company Y's intention to terminate this Agreement pursuant to this Section 8.3(a) and the basis for such termination (or, if earlier, the Termination
Date);
provided
, that Company Y shall not have the right to terminate this Agreement pursuant to this Section 8.3(a) if it is then in material
breach of any representations, warranties, covenants or other agreements hereunder that would result in any condition to Closing set forth in Section 7.3 not being satisfied; or
(b) (i)
all of the conditions set forth in Section 7.1 and Section 7.3 (other than those conditions that by their nature are to be satisfied by actions taken
at the Closing) have been satisfied, (ii) Company Y has confirmed by notice to Company T that all conditions set forth in Section 7.2 have been satisfied or that it is willing to waive
any unsatisfied conditions in Section 7.2 and (iii) Company T fails to consummate
the Merger within three business days following the date the Closing should have occurred pursuant to Section 1.3.
Section 8.4
Termination by Company T.
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by Company T if:
(a) the
representations and warranties of Company Y or Merger Sub shall not be true and correct or Company Y or Merger Sub shall have breached or failed to perform any of
their covenants or agreements contained in this Agreement, which failure to be true and correct, breach or failure to perform (i) would give rise to the failure of a condition set forth in
Section 7.3 and (ii) cannot be cured by the Termination Date, or if capable of being cured, shall not have been cured within 30 days following receipt by Company Y and Merger Sub
of written notice of such breach or failure to perform from Company T stating Company T's intention to terminate this Agreement pursuant to this Section 8.4(a) and the basis for such
termination (or, if earlier, the Termination Date);
provided
, that Company T shall not have the right to terminate this Agreement pursuant to this
Section 8.4(a) if it is then in material breach of any representations, warranties, covenants or other agreements hereunder that would result in any condition to Closing set forth in
Section 7.2 not being satisfied; or
(b) if
(i) all of the conditions set forth in Section 7.1 and Section 7.2 (other than those conditions that by their nature are to be satisfied by
actions taken at the Closing) have been satisfied, (ii) Company T has confirmed by notice to Company Y that all conditions set forth in Section 7.3 have been satisfied or that it is
willing to waive any unsatisfied conditions in Section 7.3 and (iii) Company Y or Merger Sub fail to consummate the Merger within three business days following the date the Closing
should have occurred pursuant to Section 1.3.
Section 8.5
Effect of Termination and Abandonment.
(a) In the event of termination of this
Agreement and the abandonment of the Merger pursuant to this Article VIII, written notice thereof shall be
given to the other Party or Parties specifying the provision hereof pursuant to which such termination is made, and this Agreement shall become void and of no effect with no liability on the part of
any Party hereto (or of any of its Representatives);
provided
,
however
, that (i) this
Section 8.5, Section 6.9 and Article IX (in each case, subject to the terms thereof) shall remain in full force and effect and survive termination of this Agreement, and
(ii) nothing herein shall relieve any Party from liability for fraud.
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(b) In
the event that this Agreement is terminated by Company Y pursuant to Section 8.3, Company T shall pay Company Y in cash in same-day funds as
promptly as possible (but in any event within two business days) after such termination the Termination Fee. The Parties acknowledge and agree that in no event shall Company T be required to pay the
Termination Fee on more than one occasion, whether or not the Termination Fee may be payable under more than one provision of this Agreement, at the same or at different times or upon the occurrence
of different events.
(c) In
the event that this Agreement is terminated (i) by Company Y or Company T pursuant to Section 8.2(d), Company Y shall pay Company T the No Vote
Termination Fee in cash in same day funds (x) in the event this Agreement is terminated by Company T, as promptly as possible (but in any event within two business days) after such termination
or (y) in the event this Agreement is terminated by Company Y, prior to such termination or (ii) by Company T pursuant to Section 8.4, Company Y shall pay Company T in cash in
same-day funds as promptly as possible (but in any event within two business days) after such termination the Termination Fee. The Parties acknowledge and agree that in no event shall
Company Y be required to pay the No Vote Termination Fee or the Termination Fee on more than one occasion, whether or not the No Vote Termination Fee or the Termination Fee may be payable under more
than one provision of this Agreement, at the same or at different times or upon the occurrence of different events.
(d) (i)
Subject to Section 8.5(f) and Section 9.8, Company Y's receipt of the Termination Fee from Company T pursuant to Section 8.5(b) shall be the
sole and exclusive remedy of Company Y and its Subsidiaries against the Company T Related Parties (other than the Company T Voting Shareholders pursuant to the terms of the Company T Voting
Agreements) for any loss suffered as a result of any breach of any covenant or agreement or the failure of the Merger to be consummated, and upon payment of such amount, none of the Company T Related
Parties (other than the Company T Voting Shareholders pursuant to the terms of the Company T Voting Agreements) shall have any further liability or obligation relating to or arising out of this
Agreement or the transactions contemplated by this Agreement and, (ii) subject to Section 8.5(f), Company T's receipt of the No Vote Termination Fee or the Termination Fee from Company Y
pursuant to Section 8.5(c) shall be the sole and exclusive remedy of Company T against the Company Y Related Parties (other than the Company Y Voting Shareholders pursuant to the terms of the
Company Y Voting Agreements) for any loss suffered as a result of any breach of any covenant or agreement or the failure of the Merger to be consummated, and upon payment of such amount, none of the
Company Y Related Parties (other than the Company Y Voting Shareholders pursuant to the terms of the Company Y Voting Agreements) shall have any further liability or obligation relating to or arising
out of this Agreement or the transactions contemplated by this Agreement. For the avoidance of doubt, subject to Section 8.5(f), (A) under no circumstances will Company Y be entitled to
monetary damages in excess of the amount of the Termination Fee and (B) under no circumstances will Company T be entitled to monetary damages in excess of the amount of the No Vote Termination
Fee or the Termination Fee, as applicable.
(e) The
Parties expressly acknowledge and agree that, with respect to any termination of this Agreement under circumstances in which the No Vote Termination Fee or the
Termination Fee is payable pursuant to this Section 8.5, payment of the Termination Fee, as required hereunder, shall constitute liquidated damages with respect to any claim for damages or any
other claim which Company T, on the one hand, or Company Y, on the other hand, as the case may be, would otherwise be entitled to assert against Company Y, on the one hand, or Company T, on the other
hand, as the case may be, or their respective assets, or against any of their respective employees or equity holders (without limiting any claims otherwise available to (i) Company T against
the Company Y Voting Shareholders pursuant to
the Company Y Voting Agreements or (ii) Company Y against the Company T Voting Shareholders pursuant to the terms of the
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Company
T Voting Agreements) or any other Company T Related Party or Company Y Related Party, as the case may be, with respect to any such termination of this Agreement. The Parties expressly
acknowledge and agree that, in light of the difficulty of accurately determining actual damages with respect to the foregoing upon any such termination of this Agreement under circumstances in which
the No Vote Termination Fee or the Termination Fee is payable pursuant to this Section 8.5, the right to such payment (A) constitutes a reasonable estimate of the damages that will be
suffered by reason of any such termination of this Agreement, and (B) shall be in full and complete satisfaction of any and all damages arising as a result of any such termination of this
Agreement.
(f) Each
of the Parties acknowledges that the agreements contained in this Section 8.5 are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, the other Parties would not have entered into this Agreement; accordingly, if Company T or Company Y, as the case may be, fails to promptly pay the amount due pursuant
to this Section 8.5, and, in order to obtain such payment, Company Y or Company T, as the case may be, commences a suit which results in a judgment against the other Party, with respect to
Company Y or Merger Sub, or Parties, with respect to Company T for amounts set forth in this Section 8.5, such paying Party shall pay the other Party or Parties, as applicable,
its reasonable and documented costs and expenses (including attorneys' fees) in connection with such suit.
ARTICLE IX
MISCELLANEOUS
Section 9.1
Nonsurvival of Representations and Warranties.
None of the representations and warranties
in this Agreement or in any schedule or instrument delivered pursuant to this Agreement shall survive beyond the
Effective Time. None of the covenants and agreements in this Agreement shall survive beyond the Effective Time, other than the covenants and agreements contained in this Article IX, the
agreements of Company T, Company Y and Merger Sub contained in Article II and those other covenants and agreements of the Parties which by their terms apply or contemplate performance after the
Effective Time.
Section 9.2
Entire Agreement; Assignment.
This Agreement (including the Company T Disclosure
Schedule, the Company Y Disclosure Schedule and other exhibits and annexes thereto) and the other Transaction
Agreements, constitute the entire agreement between the Parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the
Parties with respect to the subject matter hereof. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by operation of Law (including, but not limited
to, by merger or consolidation) or otherwise by any of the Parties without the prior written consent of the other Parties;
provided
,
however
, that prior to
the Effective Time, Merger Sub may assign, in its sole discretion, any or all of its rights, interests and obligations under this
Agreement to any Company Y Wholly Owned Subsidiary, but no such assignment shall relieve Company Y or Merger Sub of its obligations hereunder if such assignee does not perform such obligations. Any
assignment in violation of the preceding sentence shall be void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and
their respective successors and assigns.
Section 9.3
Notices.
All notices, requests, instructions or other documents to be given under
this Agreement shall be in writing and shall be deemed given if delivered personally or
sent by registered or
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certified
mail, postage prepaid, by facsimile (which is confirmed) or overnight courier (with proof of delivery) to a Party at the following address for such Party:
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if to Company Y or to Merger Sub, to:
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Youku Inc.
11/F, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
The People's Republic of China
Telephone: +8610 5885-1881
Facsimile: +8610 5970-8818
Attention: Mr. Victor Koo
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and
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Two Merger Sub Inc.
11/F, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
The People's Republic of China
Telephone: (8610) 5885-1881
Facsimile: (8610) 5970-8818
Attention: Mr. Victor Koo
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with a copy to (which shall not constitute notice):
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Skadden, Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
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Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
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Facsimile: +852 3910 4850
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if to Company T, to:
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Tudou Holdings Limited
Building No. 6, X2 Creative Park
1238 Xietu Road, Xuhui District
Shanghai 200032
People's Republic of China
Facsimile: +8621 5170 2366
Attention: Mr. Gary Wei Wang
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with a copy to (which shall not constitute notice):
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Kirkland & Ellis
26th Floor, Gloucester Tower, The Landmark
15 Queen's Road Central, Hong Kong
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Attention: David Zhang
Jesse Sheley
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Facsimile: +852-3761-3301
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or
to such other address as the person to whom notice is given may have previously furnished to the other in writing in the manner set forth above. All notices, requests, instructions or other
documents shall be deemed received on the date of actual receipt by the recipient thereof if received prior to
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5:00 p.m.
local time in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request, instruction or other document shall be deemed not to
have been received until the next succeeding business day in the place of receipt.
Section 9.4
Governing Law; Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be
construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles
or rules of conflict of laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York except that the
following matters arising out of or relating to this Agreement shall be construed, performed and enforced in accordance with the Laws of the Cayman Islands in respect of which the Parties hereto
hereby irrevocably submit to the non-exclusive jurisdiction of the courts of the Cayman Islands: the Merger, the vesting of the rights, property, choses in action, business, undertaking,
goodwill, benefits, immunities and privileges, contracts, obligations, claims, debts and liabilities of the Merger Sub in Company T, the cancellation of Company T Shares in consideration of the issue
of Company Y Class A Shares, the rights provided for in Section 238 of the Cayman Companies Law with respect to any Dissenters Shares, the fiduciary or other duties of the Company T
Board and the Company Y Board, and the internal corporate affairs of Company T and Company Y. Save as aforesaid any Proceeding (whether sounding in contract, tort, equity or otherwise) arising out of
or relating to this Agreement, the other Transaction Agreements or the transactions contemplated hereby or thereby, including any Proceeding against any Company T Related Party or Company Y Related
Party, shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York. Each of the
Parties hereto agrees that a final judgment (subject to any appeals therefrom) in any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by Law. Each Party hereby irrevocably submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in any such court in accordance with the
provisions of this Section 9.4(a). Each of the Parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such
Proceeding in any such court. Each of the Parties hereto hereby irrevocably and unconditionally consents to service of process in the manner provided for notices in Section 9.3. Nothing in this
Agreement or any of the other Transaction Agreements will affect the right of any Party to this Agreement to serve process in any other manner permitted by Law.
(b) Each
Party acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement or the other Transaction Agreements is likely to involve
complicated and difficult issues, and therefore each such Party hereby irrevocably and unconditionally waives any right such Party may have to a trial by jury in respect of any Proceeding directly or
indirectly arising out of or relating to this Agreement or the other Transaction Agreements or the transactions contemplated hereby or thereby, including any controversy or Proceeding involving any
Company T Related Party or Company Y Related Party under any such agreement. Each Party certifies and acknowledges that (i) no representative, agent or attorney of any other Party has
represented, expressly or otherwise, that such other Party would not, in the event of a Proceeding, seek to enforce the foregoing waiver, (ii) each Party understands and has considered the
implications of this waiver, (iii) each Party makes this waiver voluntarily, and (iv) each Party has been induced to enter into this Agreement by, among other things, the mutual waivers
and certifications in this Section 9.4(b).
Section 9.5
Descriptive Headings.
The descriptive headings herein are inserted for convenience
of reference only and are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
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Section 9.6
No Third Party Beneficiaries.
Except as expressly set forth in Section 6.7 and
Section 6.13, this Agreement shall be binding upon and inure solely to the benefit of each Party
hereto and its successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 9.7
Severability.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 9.8
Specific Performance.
The Parties agree that irreparable damage, for which monetary
damages would not be an adequate remedy, would occur in the event that any of the provisions of this
Agreement were not performed by Company T in accordance with their specific terms or were otherwise breached by Company T. Subject to the preceding sentence, it is accordingly agreed that Company Y
and Merger Sub shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the necessity of
proving the inadequacy of money damages as a remedy, this being in addition to any other remedy to which they are entitled at Law or in equity. Neither Company Y nor Merger Sub shall be required to
provide any bond or other security in connection with an injunction or injunctions sought in accordance with this Agreement to prevent breaches of this Agreement and to enforce specifically the terms
and provisions of this Agreement. Notwithstanding anything herein to the contrary, (i) while Company Y and Merger Sub may pursue both a grant of specific performance and the payment of the
Termination Fee pursuant to Section 8.5(b), under no circumstances shall Company Y and Merger Sub be permitted or entitled to receive both a grant of specific performance and any money damages,
including all or any portion of the Termination Fee, and (ii) the Parties hereto agree that Company T shall under no circumstances be entitled to an injunction, specific performance or other
equitable relief to prevent breaches of this Agreement or to otherwise enforce the terms hereof.
Section 9.9
Amendment.
This Agreement may be amended by action taken by Company T, Company Y and
Merger Sub at any time before or after approval of the Merger by the earlier of the
Required Company T Vote or the Required Company Y Vote but, after any such approval, no amendment shall be made which requires the approval of such shareholders under applicable Law without such
approval. This Agreement may not be amended except by an instrument in writing signed on behalf of the Parties.
Section 9.10
Extension; Waiver.
At any time prior to the Effective Time, each Party hereto (for
these purposes, Company Y and Merger Sub shall together be deemed one Party and Company T shall be
deemed the other Party) may (a) extend the time for the performance of any of the obligations or other acts of the other Party, (b) waive any inaccuracies in the representations and
warranties of the other Party contained herein or in any document, certificate or writing delivered pursuant hereto, or (c) waive compliance by the other Party with any of the agreements or
conditions contained herein. Any agreement on the part of either Party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such
Party. The failure of either Party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights.
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Section 9.11
Interpretation.
(a) The words "hereof," "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this
Agreement unless otherwise specified. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." All
terms defined in this Agreement shall have the defined meanings contained herein when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. Any
agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time, amended,
qualified or supplemented, including (in the case of agreements and instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and all attachments
thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns.
(b) The
Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of
this Agreement.
Section 9.12
Certain Definitions
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by
contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
business day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(c)
"Code"
means the United States Internal Revenue Code of 1986, as amended.
(d) "
Company T Employees
" means current, former, or retired employees, officers, consultants, independent contractors
providing individual services, agents or directors of Company T or any Subsidiary of Company T.
(e) "
Company T Intellectual Property
" means Company T Owned Intellectual Property and Company T Licensed Intellectual
Property.
(f) "
Company T IP Agreements
" means all (i) licenses of Intellectual Property to Company T and its Subsidiaries,
(ii) licenses of Intellectual Property by Company T or any of its Subsidiaries to third parties, and (iii) agreements restricting the right of Company T or its Subsidiaries, or pursuant
to which Company T or its Subsidiaries permit other Persons, to use or register Intellectual Property.
(g) "
Company T Licensed Intellectual Property
" means all Intellectual Property owned by third parties (including Company
Y) and licensed to Company T and any of its Subsidiaries pursuant to Company T IP Agreements.
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(h) "
Company T Material Adverse Effect
" means any change, circumstance, event, effect or occurrence that, individually or in
the aggregate with all other changes, circumstances, events, effects or occurrences, (i) has had or would reasonably be expected to have a material adverse effect on the business, results of
operations, assets or consolidated financial condition of Company T and its Subsidiaries, taken as a whole, or (ii) would or would reasonably be expected to prevent or materially impair
or delay the consummation of the transactions contemplated by this Agreement; provided that in no event shall any of the following, constitute, or be taken into account in determining whether a
"Company T Material Adverse Effect" has occurred:
(i) changes
generally affecting (A) the industry in which Company T and its Subsidiaries operate and (B) economic, credit or financial or capital markets, in
the United States or elsewhere in the world, including changes in interest or exchange rates;
(ii) (A)
changes in Law or in generally accepted accounting principles or in accounting standards, (B) acts of war (whether or not declared), sabotage or terrorism,
or any escalation or worsening of any such acts of war (whether or not declared), sabotage or terrorism, (C) pandemics, earthquakes, hurricanes, tornadoes or other natural disasters or similar
force majeure events, (D) any change, circumstance, event, effect or occurrence attributable to any action taken by Company T or its Subsidiaries that is expressly required by this Agreement or
requested by the Transition Management Committee or the failure by Company T or its Subsidiaries to take any action that is prohibited by this Agreement or the Transition Management Committee
(provided that any request by the Transition Management Committee shall have been unanimously approved by the Transition Management Committee in writing), (E) any decline in the market price,
or change in trading volume, of the share capital of Company T or Company T ADSs, (F) any failure to meet any internal or public projections, forecasts, or guidance, (G) any change,
circumstance, event, effect or occurrence attributable to the consummation of the transactions contemplated by, or the announcement of the execution of, this Agreement, or (H) any change
resulting, or any facts or circumstances relating to, Company Y, Merger Sub or any of their respective Affiliates (it being understood that the exceptions in clauses (E) and (F) shall
not prevent or otherwise affect a determination that the underlying cause of any such decline or failure referred to therein is a Company T Material Adverse Effect);
(iii)
provided
,
however
, that any change, circumstance, effect, event or
occurrence referred to in clauses (i) or (ii)(A), (B) or (C) shall be taken into account for purposes of such clause only to the extent such change, circumstance, effect, event or
occurrence does not adversely affect Company T and its Subsidiaries, taken as a whole, in a materially disproportionate manner as compared to other participants in the industry in which Company T and
its Subsidiaries operate.
(i) "
Company T Option
" means an option to purchase Company T Shares granted pursuant to the Company T Share Incentive Plan.
(j) "
Company T Owned Intellectual Property
" means all Intellectual Property owned or purported to be owned by Company T or
its Subsidiaries.
(k) "
Company T Principal Shareholders
" means Crescent Peak, Ltd, Crescent Peak II Limited, Crescent P.E., Ltd.,
First Easy Group Limited, Gary Wei Wang and GGV II Delaware L.L.C.
(l) "
Company T Related Party
" means Company T and its Subsidiaries and any of their respective former, current and future
officers, employees, directors, partners, shareholders, management members or Affiliates (excluding any Company Y Related Party).
(m) "
Company T Share Incentive Plan
" means the 2010 Share Incentive Plan of Company T.
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(n) "
Company T Software
" means all Software owned by, under obligation of assignment to, or purported to be owned by any of
Company T or its Subsidiaries.
(o) "
Company T VIE Contracts
" means all the contracts listed in Section 9.12 of the Company T Disclosure Schedule.
(p) "
Company T VIEs
" means Quan Toodou Network Science and Technology Co., Ltd., Shanghai Suzao Network Science
and Technology Co., Ltd., Chengdu Gaishi Network Science and Technology Co., Ltd. and Beijing Tixian Digital Science and Technology Co., Ltd.
(q) "
Company T Voting Shareholders"
means Crescent Peak, Ltd, Crescent Peak II Limited, Crescent P.E., Ltd.,
First Easy Group Limited, Gary Wei Wang, GGV II Delaware L.L.C., IDG Technology Venture Investment III, L.P., IDG Technology Venture Investment IV, L.P. and Sennett Investments
(Mauritius) Pte Ltd.
(r) "
Company Y Employees
" means the current, former, or retired employees, officers, consultants, independent contractors
providing individual services, agents or directors of Company Y or any Subsidiary of Company Y, excluding Company T Employees.
(s) "
Company Y Intellectual Property
" means Company Y Owned Intellectual Property and Company Y Licensed Intellectual
Property.
(t) "
Company Y IP Agreements
" means all (i) licenses of Intellectual Property to Company Y and its
Subsidiaries, (ii) licenses of Intellectual Property by Company Y or any of its Subsidiaries to third parties and (iii) agreements restricting the right of Company Y or its Subsidiaries,
or pursuant to which Company Y or its Subsidiaries permit other Persons, to use or register Intellectual Property.
(u) "
Company Y Licensed Intellectual Property
" means all Intellectual Property owned by third parties (including Company
T) and licensed to Company Y and any of its Subsidiaries pursuant to Company Y IP Agreements.
(v) "
Company Y Material Adverse Effect
" means any change, circumstance, event, effect or occurrence that, individually or in
the aggregate, with all other changes, circumstances, events, effects or occurrences, (i) has had or would reasonably be expected to have a material adverse effect on the business, results of
operations, assets or consolidated financial condition of Company Y and its Subsidiaries taken as a whole, or (ii) would or would reasonably be expected to prevent or materially impair
or delay the consummation of the transactions contemplated by this Agreement; provided, that in no event shall any of the following, constitute, or be taken into account in determining whether a
"Company Y Material Adverse Effect" has occurred:
(i) changes
generally affecting (A) the industry in which Company Y and its Subsidiaries operate and (B) economic, credit or financial or capital markets, in
the United States or elsewhere in the world, including changes in interest or exchange rates;
(ii) (A)
changes in Law or in generally accepted accounting principles or in accounting standards after the date of this Agreement, (B) acts of war (whether or not
declared), sabotage or terrorism, or any escalation or worsening of any such acts of war (whether or not declared), sabotage or terrorism, (C) pandemics, earthquakes, hurricanes, tornadoes or
other natural disasters or similar force majeure events, (D) any decline in the market price, or change in trading volume, of the capital stock of Company Y, (E) any action taken by
Company Y or its Subsidiaries that is required by this Agreement or the failure by Company Y or its Subsidiaries to take any action that is prohibited by this Agreement, or (F) any
change resulting or arising from the identity of, or any facts or circumstances relating to, Company T or any of its Affiliates;
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(iii)
provided
,
however
, that any change, circumstance, effect, event or
occurrence referred to in clauses (i) or (ii)(A), (B) or (C) shall be taken into account for purposes of such clause only to the extent such change, circumstance, effect, event or
occurrence does not adversely affect Company Y and its Subsidiaries, taken as a whole, in a materially disproportionate manner as compared to other participants in the industry in which Company Y and
its Subsidiaries operate, or does not arise out of Company T Material Adverse Effect.
(w) "
Company Y Option
" means an option to purchase Company Y Class A Shares granted under the Company Y Share
Incentive Plans.
(x) "
Company Y Owned Intellectual Property
" means all Intellectual Property owned or purported to be owned by Company Y or
its Subsidiaries.
(y) "
Company Y Material Contracts
" means:
(i) any
Contract that would be required to be filed or furnished by Company Y pursuant to Item 19 and paragraph 4 of the Instructions to Exhibits of
Form 20-F under the Exchange Act;
(ii) any
material Contract granting a right of first refusal, first offer or first negotiation;
(iii) any
material Contract relating to the formation, creation, operation, management or control of a partnership, joint venture, limited liability company or similar
arrangement;
(iv) any
material Contract for the acquisition, sale or lease (including leases in connection with financing transactions) of material properties or assets of Company Y (by
merger, purchase or sale of assets or stock or otherwise);
(v) any
material Contract with any Governmental Entity;
(vi) any
Contract involving the payment or receipt of amounts by Company Y or its Subsidiaries, or relating to indebtedness for borrowed money or any financial guaranty, of
more than US$10,000,000;
(vii) any
material non-competition Contract or other Contract that purports to limit, curtail or restrict in any material respect the ability of Company Y or any
of its Subsidiaries to compete in any geographic area, industry or line of business;
(viii) any
material Contract that contains a put, call or similar right pursuant to which Company Y or any of its Subsidiaries could be required to purchase or sell, as
applicable, any equity interests of any Person;
(ix) any
material Contract that contains restrictions with respect to (A) payment of dividends or any distribution with respect to equity interests of Company Y or
any of its Subsidiaries, (B) pledging of share capital of Company Y or any of its Subsidiaries or (C) issuance of guaranty by Company Y or any of its Subsidiaries; or
(x) any
material Company Y IP Agreements other than agreements for Off the Shelf Software and material UGC Agreements,
in
each case, to which Company Y or its Subsidiaries is a party to nor any of Company Y's or its Subsidiaries' properties or assets are bound by.
(z) "
Company Y Voting Shareholders
" means, collectively, 1Verge Holdings Ltd., 1Look Holdings Ltd., Victor Wing
Cheung Koo, Brookside Capital Partners Fund, L.P., Maverick Fund USA, Ltd., Maverick Fund, L.D.C., Maverick Fund II, Ltd., Maverick Long Fund, Ltd., Maverick Long Enhanced
Fund, Ltd., Maverick Neutral Fund, Ltd., Maverick Neutral Levered Fund, Ltd., Maverick II Holdings, Ltd., Maverick Fund Private Investments, Ltd., Maverick USA II,
Corp.,
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Sutter
Hill Ventures, Saunders Holdings, L.P., Wells Fargo Bank, N.A. FBO G. Leonard Baker, Jr. Roth IRA and G. Leonard Baker Jr.
(aa) "
Company Y Related Party
" means Company Y, Merger Sub, or any of their respective former, current and future general or
limited partners, shareholders, managers, members, agents, directors, officers, employees or Affiliates.
(bb) "
Company Y Share Incentive Plans
" means the 2006 Stock Option Scheme of Company Y and the 2010 Share Incentive
Plan of Company Y.
(cc) "
Company Y VIE Contracts
" means all the contracts listed in Section 9.12 of the Company Y Disclosure Schedule.
(dd) "
Company Y VIEs
" means 1Verge Information Technology (Beijing) Co., Ltd. and Jiaheyi Advertising
(Beijing) Co., Ltd.
(ee) "
ERISA
" means the Employee Retirement Income Security Act of 1974, as amended.
(ff) "
Intellectual Property
" means in any and all jurisdictions worldwide, all (i) patents, statutory invention
registrations and invention disclosures, and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, and extensions
thereof, (ii) trademarks, service marks, domain names, uniform resource locators, trade dress, trade names, logos and other identifiers of source, including the goodwill symbolized thereby or
associated therewith, (iii) works of authorship (including Software) and copyrights, (iv) confidential and proprietary information, including trade secrets and confidential and
proprietary know-how, inventions, processes, models and methodologies, (v) rights of publicity, privacy and rights to personal information, (vi) registrations, applications,
and renewals for any of the foregoing in (i)-(v), and (vii) all rights in the foregoing and in other similar intangible assets.
(gg) "
IT Assets
" means all Software, systems, servers, computers, hardware, firmware, middleware, networks, data
communications lines, routers, hubs, switches and all other information technology equipment, and all associated documentation.
(hh) "
know
" or "
knowledge
" means, with respect to any Party, the knowledge of
such Party's executive officers after due inquiry, including inquiry of such Party's counsel and other officers or employees of such Party responsible for the relevant matter.
(ii) "
Law
" means any United States federal, state or local, non-United States national, provincial or local, or
multinational law, statute or ordinance, common law, or any rule, regulation, directive, treaty provision, governmental guidelines or interpretations having the force of law, permits and orders of any
Governmental Entity.
(jj) "
Lien
" means, with respect to any asset (including, without limitation, any security) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
(kk) "
Off-the-Shelf Software
" means, with respect to any Person, all Software that is commercially
available off-the-shelf Software that (i) has not been modified or customized for such Person, and (ii) is licensed to such Person for a one-time or
annual fee of US$10,000 or less.
(ll) "
No Vote Termination Fee
" means US$10 million.
(mm) "
Permitted Liens
" means (i) Liens for Taxes, assessments and governmental charges or levies not yet due and
payable or that are being contested in good faith by appropriate proceedings; (ii) mechanics', carriers', workmen's, repairmen's, materialmen's or other Liens or security interests arising or
incurred in the ordinary course of business in respect of amounts that are not yet due and payable; (iii) Liens securing indebtedness or liabilities that are reflected in the
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Company
T SEC Reports or the Company Y SEC Reports, as applicable, filed or furnished prior to the date hereof; (iv) Liens that would be disclosed by a current survey or physical inspection of
the real property; and (v) any other Liens that have been incurred or suffered in the ordinary course of business and that are not material in amount or do not materially detract from the value
of or materially impair the existing use of the property affected by such Lien.
(nn) "
Person
" means an individual, corporation, limited liability company, partnership, association, trust, unincorporated
organization, other entity or group (as defined in the Exchange Act).
(oo) "
PRC
" means the People's Republic of China.
(pp) "
Public Software
" means any Software that is distributed as freeware, shareware, open source Software
(e.g., Linux) or under similar licensing or distribution models that (i) require the licensing or distribution of source code of such Software to any other Person, (ii) prohibit
or limit the receipt of consideration in connection with sublicensing or distributing any such Software, (iii) allow any Person to decompile, disassemble or otherwise reverse-engineer any such
Software, or (iv) require the licensing of any such Software to any other Person for the purpose of making derivative works. For the avoidance of doubt, "Public Software" includes Software
licensed or distributed under any of the following licenses or distribution models (or licenses or distribution models similar thereto): (i) the GNU General Public License (GPL) or
Lesser/Library GPL (LGPL); (ii) the Artistic License (e.g., PERL); (iii) the Mozilla Public License; (iv) the Netscape Public License; (v) the BSD License;
(vi) the Apache License; and (x) any other license or distribution model described by the Open Source Initiative in its Open Source Definition as set forth on www.opensource.org.
(qq) "
Registered
" means issued by, registered, recorded or filed with, renewed by or the subject of a pending application
before any Governmental Entities or Internet domain name registrar.
(rr) "
SEC
" means the Securities and Exchange Commission of the United States.
(ss) "
Software
" means all (i) computer programs, applications, systems and code, including software implementations of
algorithms, models and methodologies, program interfaces, and source code and object code, (ii) Internet and intranet websites, databases and compilations, including data and collections of
data, whether machine-readable or otherwise, (iii) development and design tools, library
functions and compilers, (iv) technology supporting websites, and the contents and audiovisual displays of websites, and (v) media, documentation and other works of authorship, including
user manuals and training materials, relating to or embodying any of the foregoing or on which any of the foregoing is recorded.
(tt) "
Subsidiary
" "means, when used with reference to any Person, (i) of which such party or any other Subsidiary of
such party is a general or managing partner, or (ii) the outstanding voting securities or interests of which, having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such corporation or other organization, are directly or indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, and, when use with reference to Company T or Company Y, of which Company T or Company Y, as applicable, consolidates in its consolidated financial statements as a variable interest
entity in accordance with GAAP.
(uu) "
Tax Returns
" means all federal, state, local, provincial and non-United States returns, declarations,
statements, claims, reports, schedules, forms and information returns and, including any attachment thereto or amendment thereof, with respect to Taxes.
A-54
Table of Contents
(vv) "
Tax
" or "
Taxes
" includes all forms of taxation, whenever created or
imposed, and whether of the PRC, the United States or elsewhere, and whether imposed by a local, municipal, governmental, provincial, state, foreign, federal or other Governmental Entity, including
all interest, penalties and additions imposed with respect to such amounts.
(ww) "
Termination Fee
" means US$100 million.
(xx) "
Transaction Agreements
" means this Agreement, the Company T Voting Agreements and the Company Y Voting Agreements.
(yy) "
UGC Agreements
" means agreements with individual end-users who provide user-generated content.
(zz) "
US$
" means the legal currency of the United States of America.
Section 9.13
Counterparts
.
This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been
signed by each of the Parties and delivered to the other Parties.
[Remainder of page left intentionally blank; signature pages follow]
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be duly executed on its behalf as of the day and year first above written.
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Youku Inc.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name:
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Victor Wing Cheung Koo
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Title:
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Chairman and Chief Executive Officer
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Two Merger Sub Inc.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name:
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Victor Wing Cheung Koo
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Title:
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Director
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[
Merger Agreement Signature Page]
A-56
Table of Contents
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Tudou Holdings Limited
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By:
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/s/ GARY WEI WANG
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Name:
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Gary Wei Wang
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Title:
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Chief Executive Officer
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[
Merger Agreement Signature Page]
A-57
Table of Contents
Annex A
PLAN OF MERGER
THIS PLAN OF MERGER
is made on 2012.
BETWEEN
-
(1)
-
Two
Merger Sub Inc., an exempted company incorporated under the laws of the Cayman Islands on March 1, 2012, with its registered office
situate at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands ("
Merger
Sub
"); and
-
(2)
-
Tudou
Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands on 15 April 2010, with its
registered office situate at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands ("
Company
T
" or "
Surviving Corporation
" and together with Merger Sub, the "
Constituent
Companies
").
WHEREAS
-
(a)
-
Merger
Sub and Company T have agreed to merge (the "
Merger
") on the terms and conditions contained or
referred to in an Agreement and Plan of Merger (the "
Agreement
") dated March 11, 2012 made between Youku Inc., Merger Sub and Company T, a
copy of which is attached as
Appendix I
to this Plan of Merger and under the provisions of Part XVI of the Companies Law Cap.22 (Law 3 of
1961, as consolidated and revised) (the "
Companies Law
").
-
(b)
-
This
Plan of Merger is made in accordance with section 233 of the Companies Law.
-
(c)
-
Terms
used in this Plan of Merger and not otherwise defined in this Plan of Merger shall have the meanings given to them under the Agreement.
W
I T N E S S E T H
CONSTITUENT
COMPANIES
-
1.
-
The
Constituent Companies to the Merger are Merger Sub and Company T.
NAME
OF THE SURVIVING CORPORATION
-
2.
-
The
name of the Surviving Corporation shall be Tudou Holdings Limited.
REGISTERED
OFFICE
-
3.
-
The
Surviving Corporation shall have its registered office at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand
Cayman, KY 1-1104, Cayman Islands.
AUTHORISED
AND ISSUED SHARE CAPITAL
-
4.
-
Immediately
prior to the Effective Date (as defined below) the authorized share capital of Merger Sub was US$1,000,000 divided into 10,000,000,000 ordinary
shares of US$0.0001 par value per share, of which 100 shares have been issued.
-
5.
-
Immediately
prior to the Effective Date (as defined below) the authorized share capital of Company T was US$1,000,000 divided into (a) 9,990,000,000
ordinary shares of a par value of US$0.0001 each, of which (i) 12,357,500 are designated as Class A ordinary shares and (ii) 9,977,642,500 are designated as Class B
ordinary shares, and (b) 10,000,000 preferred shares of a par value of US$0.0001 each. Among them, 8,913,333 Class A ordinary shares and [SPECIFY
AA1-1
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NUMBER]
Class B ordinary shares had been issued and fully paid. No preferred shares had been issued.
-
6.
-
The
authorized share capital of the Surviving Corporation shall be US$1,000,000 divided into 10,000,000,000 ordinary shares of US$0.0001 par value per share.
-
7.
-
On
the Effective Date (as defined below), and in accordance with the terms and conditions of the Agreement:
-
(a)
-
Each
Class A ordinary share, par value US$0.0001 per share, and Class B ordinary shares, par value US$0.0001 per share, of Company T, other
than (i) any Dissenters Shares (as defined in the Agreement); and (ii) Excluded Shares (as defined in the Agreement) shall be cancelled in exchange for the right to receive the Per Share
Merger Consideration (as defined in the Agreement).
-
(b)
-
Excluded
Shares shall be cancelled for no consideration.
-
(c)
-
Dissenters
Shares shall be cancelled in exchange for a payment resulting from the procedure in section 238 of the Companies Law unless any holders of
Dissenters Shares fail to exercise or withdraw their rights to dissent from the Merger under section 238 of the Companies Law in which event they shall receive the Per Share Merger
Consideration.
-
(d)
-
Each
share of Merger Sub shall be converted into and continue as an ordinary share of the Surviving Corporation.
-
8.
-
On
the Effective Date, the ordinary shares of the Surviving Corporation shall:
-
(a)
-
be
entitled to one vote per share;
-
(b)
-
be
entitled to such dividends as the board of directors of the Surviving Corporation may from time to time declare;
-
(c)
-
in
the event of a winding-up or dissolution of the Surviving Corporation, whether voluntary or involuntary or for the purpose of a
reorganization or otherwise or upon any distribution of capital, be entitled to the surplus assets; and
-
(d)
-
generally
be entitled to enjoy all of the rights attaching to ordinary shares;
in
each case as set out in the Amended and Restated Memorandum of Association and Articles of Association of the Surviving Corporation in the form attached as
Appendix II
to this Plan of Merger.
EFFECTIVE
DATE
-
9.
-
The
Merger shall take effect on [SPECIFY DATE] (the "
Effective Date
").
PROPERTY
-
10.
-
On
the Effective Date, the rights, property of every description including choses in action, and the business, undertaking, goodwill, benefits, immunities
and privileges of each of the Constituent Companies shall immediately vest in the Surviving Corporation which shall be liable for and subject, in the same manner as the Constituent Companies, to all
mortgages, charges, or security interests and all contracts, obligations, claims, debts and liabilities of each of the Constituent Companies.
AA1-2
Table of Contents
MEMORANDUM
AND ARTICLES OF ASSOCIATION
-
11.
-
The
Memorandum of Association and Articles of Association of the Surviving Corporation shall be amended and restated in the form attached as Annex B
to this Plan of Merger on the Effective Date.
DIRECTORS
BENEFITS
-
12.
-
There
are no amounts or benefits payable to the directors of the Constituent Companies on the Merger becoming effective.
DIRECTORS
OF THE SURVIVING CORPORATION
-
13.
-
The
names and addresses of the directors of the Surviving Corporation are as follows:
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NAME
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ADDRESS
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Victor Wing Cheung Koo
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11/F, SinoSteel Plaza
8 Haidian Street
Haidian District
Beijing 100080
The People's Republic of China
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Dele Liu
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11/F, SinoSteel Plaza
8 Haidian Street
Haidian District
Beijing 100080
The People's Republic of China
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SECURED
CREDITORS
-
14.
-
(a)
Merger Sub has no secured creditors and has granted no fixed or floating security interests that are outstanding as at the date of this Plan of Merger;
and
-
(b)
-
Company
T has no secured creditors and has granted no fixed or floating security interests that are outstanding as at the date of this Plan of Merger.
RIGHT
OF TERMINATION
-
15.
-
This
Plan of Merger may be terminated pursuant to the terms and conditions of the Agreement.
APPROVAL
AND AUTHORIZATION
-
16.
-
This
Plan of Merger has been approved by the board of directors of each of the Surviving Corporation and Merger Sub pursuant to section 233(3) of the
Companies Law.
-
17.
-
This
Plan of Merger has been authorised by the shareholders of each of the Surviving Corporation and Merger Sub pursuant to section 233(6) of the
Companies Law.
COUNTERPARTS
-
18.
-
This
Plan of Merger may be executed by facsimile and in one or more counterparts, each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
AA1-3
Table of Contents
GOVERNING
LAW
-
19.
-
This
Plan of Merger shall be governed by and construed in accordance with the laws of the Cayman Islands.
For
and on behalf of Two Merger Sub Inc.:
For
and on behalf of Tudou Holdings Limited:
AA1-4
Table of Contents
Appendix B-1
VOTING AGREEMENT
By and among
YOUKU INC.
And
THE SHAREHOLDERS PARTY HERETO
Dated as of March 11, 2012
Table of Contents
TABLE OF CONTENTS
B-1-i
Table of Contents
INDEX OF DEFINED TERMS
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Term
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Section
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Acquisition Proposal
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4, 6
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Additional Shares
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4
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Affiliate
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3
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Agreement
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3
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Bankruptcy and Equity Exception
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7
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Beneficial Owner
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4
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Beneficial Ownership
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4
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Beneficially Own
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4
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Beneficially Owned
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4
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Company T
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3
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Company T ADSs
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4
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Company T Shareholder
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3
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Company T Shares
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4
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Company Y
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3
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control
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4
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controlled by
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4
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controlling
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4
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Covered Shares
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5
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Effective Time
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7
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Exchange Act
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4
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Existing Shares
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5
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Governmental Entities
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8
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Merger
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3
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Merger Agreement
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3
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Merger Sub
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3
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Permitted Transfer
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5
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Transfer
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5
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under common control with
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4
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B-1-ii
Table of Contents
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Youku Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company Y
"), and each of the Persons
listed on Schedule 1 hereto (each, a "
Company T Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company Y, Two Merger Sub Inc., an exempted company with limited
liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y ("
Merger Sub
"), and Tudou Holdings Limited, an
exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), are entering into an Agreement and Plan
of Merger, dated as of the date of this Agreement (the "
Merger Agreement
"), pursuant to which, among other things, Merger Sub will merge
with and into Company T, with Company T surviving the merger as a wholly owned subsidiary of Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, each Company T Shareholder is the Beneficial Owner of the Existing Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company Y and Merger Sub to enter into the Merger Agreement,
Company Y has required that each Company T Shareholder agree, and each Company T Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter into this Agreement and
abide by the covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms.
The following terms, as used in this Agreement, shall have
the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by
contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Acquisition Proposal
" means any proposal or offer made by any Person (other than Company Y, Merger Sub or any Affiliate
thereof) to purchase or otherwise acquire, directly or indirectly, in one transaction or a series of transactions, (A) beneficial ownership (as defined under section 13(d) of the
Exchange Act) of ten percent (10%) or more of the share capital of Company T pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, tender offer,
exchange offer or similar transaction or (B) any one or more assets or businesses of Company T and its Subsidiaries that constitute ten percent (10%) or more of the revenues or assets of
Company T and its Subsidiaries, taken as a whole.
(c) "
Additional Shares
" means Company T Shares, Company T ADSs or other voting share capital of Company T with respect to
which any Company T Shareholder acquires Beneficial
B-1-1
Table of Contents
Ownership
after the date of this Agreement (including any Company T Shares issued upon the exercise of any Company T Options or warrants or the conversion of any convertible securities or otherwise).
(d) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange Act
"). Without
duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include securities Beneficially Owned by all Affiliates of such Person and all other
Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. The terms "Beneficially Own," "Beneficially Owned" and "Beneficial Owner" shall
have correlative meanings.
(e) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(f) "
Company T ADSs
" means American depositary shares of Company T.
(g) "
Company T Shares
" means the authorized share capital of Company T, which as of the date hereof consists of US$1,000,000,
divided into (i) 9,990,000,000 ordinary shares of par value US$0.0001 each and (ii) 10,000,000 preferred shares of a nominal or par value of US$0.0001 each.
(h) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(i) "
Covered Shares
" means the Existing Shares and any Additional Shares.
(j) "
Existing Shares
" means Company T Shares and Company T ADSs Beneficially Owned by a Company T Shareholder on the date
hereof, as set forth opposite such Company T Shareholder's name on Schedule 1 hereto.
(k) "
Permitted Transfer
" means a Transfer by a Company T Shareholder to (i) an Affiliate of such Company T
Shareholder, (ii) a member of such Company T Shareholder's family or a trust for the benefit of such Company T Shareholder's or any member of such Company T Shareholder's family, or
(iii) any heir, legatees, beneficiaries and/or devisees of any individual who is a Company T Shareholder;
provided
that the Transferee agrees to
execute a Joinder in the form attached hereto as Exhibit A.
(l) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
B-1-2
Table of Contents
ARTICLE II
VOTING
Section 2.1
Agreement to Vote.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, each Company T Shareholder hereby
irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company T and at any other meeting of the shareholders of Company T, however called,
including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company T and in any other circumstance upon which a vote, consent or other
approval of all or some of the shareholders of Company T is sought, it shall, and shall cause any holder of record of its Covered Shares to, in each case to the extent that the Covered Shares are
entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company T for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the Merger, the Plan of Merger and the approval and adoption of the Merger Agreement and the other transactions contemplated by the Merger Agreement, (2) in
favor of any related proposal that is necessary to consummate the Merger and the transactions contemplated by the Merger Agreement which is considered at any such meeting of Company T
Shareholders, (3) against any action, proposal, transaction or agreement that could reasonably be expected to (A) result in a breach of any representation, warranty, covenant or other
obligation or agreement of Company T contained in the Merger Agreement, (B) result in a breach of any representation, warranty, covenant or other obligation or agreement of such Company T
Shareholder contained in this Agreement, or (C) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in any manner the voting
rights of any class of shares of Company T (including any amendments to the memorandum and articles of association of Company T), (4) against any Acquisition Proposal, and (5) against
any change in the composition of the board of directors of Company T (other than such changes contemplated by the Merger Agreement).
(b) Each
Company T Shareholder shall retain at all times the right to vote such Company T Shareholder's Covered Shares in such Company T Shareholder's sole discretion and
without any other limitation on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to Company T Shareholders of
Company T generally.
Section 2.2
Grant of Proxy
.
Each Company T Shareholder hereby irrevocably and unconditionally grants a proxy to, and appoints, Company Y and any designee of Company Y, and each of them individually, as its proxies
and attorneys-in-fact, with full power of substitution and resubstitution, for and in such Company T Shareholder's name, place and stead, in the event that such Company T
Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)5)), to
vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with respect to the Covered Shares as provided in Section 2.1
hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)5)). This proxy and power of attorney is given in connection with, and in consideration of,
the execution of the Merger Agreement by
B-1-3
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Company Y
and Merger Sub, and to secure the performance of the duties and obligations of such Company T Shareholder owed to Company Y under this Agreement. Each Company T Shareholder hereby
(a) affirms that such irrevocable proxy is (i) coupled with an interest by reason of the Merger Agreement and (ii) executed and intended to be irrevocable in accordance with the
provisions of the Laws of the State of New York, and (b) revokes any and all prior proxies granted by each Company T Shareholder with respect to the Covered Shares and no subsequent proxy shall
be given by any Company T Shareholder (and if given shall be ineffective). Each Company T Shareholder shall take such further action or execute such other instruments as may be reasonably necessary in
accordance with the relevant provisions of the Laws of the State of New York or any other Law to effectuate the intent of this proxy. The power of attorney granted by such Company T Shareholder herein
is a durable power of attorney and, so long as Company Y has the interest secured by such power of attorney or the obligations secured by such power of attorney remain undischarged, the power of
attorney shall not be revoked by the dissolution, bankruptcy, death or incapacity of such Company T Shareholder. The proxy and power of attorney granted hereunder shall terminate upon the termination
of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company T Shareholders
.
Each Company T Shareholder represents and warrants to Company Y as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action
. Each Company T Shareholder, as of the
date hereof (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized (in the case of good standing, to the extent the concept is
recognized by such jurisdiction) and (ii) has all corporate, limited partnership, trust or other organizational power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery by such Company T Shareholder of this Agreement, the performance by such Company T
Shareholder of its obligations hereunder and the consummation by such Company T Shareholder of the transactions contemplated by this Agreement have been duly and validly authorized by such Company T
Shareholder and no other actions or proceedings on the part of such Company T Shareholder are necessary to authorize the execution and delivery by him, her or it of this Agreement, the performance by
him, her or it of its obligations hereunder or the consummation by him, her or it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by such
Company T Shareholder and, assuming this Agreement constitutes a valid and binding obligation of Company Y, constitutes a legal, valid and binding agreement of such Company T Shareholder enforceable
against such Company T Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating
to or affecting creditors' rights and to general equity principles (the "
Bankruptcy and Equity Exception
").
(b)
Ownership
. Such Company T Shareholder is the Beneficial Owner of and has good and valid title to the
Existing Shares set forth next to such Company T Shareholder's name on Schedule 1, free and clear of any liens, other than any liens pursuant to this Agreement or arising under the articles of
association of Company T and transfer restrictions imposed by generally applicable securities Laws. As of the date of this Agreement, such Company T Shareholder's Existing Shares constitute all of the
Company T Shares and Company T ADSs Beneficially Owned or owned of record by such Company T Shareholder. Except to the extent Covered Shares are Transferred after the date of this Agreement pursuant
to a Permitted Transfer, such Company T Shareholder has not granted any proxy inconsistent with this Agreement that is still effective or entered into any voting or similar agreement, in each case
with respect to all of such Company T
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Shareholder's
Existing Shares and with respect to all of the Covered Shares Beneficially Owned by such Company T Shareholder at all times through the effective time of the Merger (the
"
Effective Time
").
(c)
Non-Contravention
. The execution and delivery of this Agreement by such Company T Shareholder do
not, and the performance by such Company T Shareholder of its obligations under this Agreement and the consummation by such Company T Shareholder of the transactions contemplated by this Agreement,
will not (i) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, consent,
termination, cancellation or acceleration of any obligation or loss of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or
result in the creation of any lien upon its assets or properties under, any provision of (A) any charter or organizational documents of such Company T Shareholder, (B) any contract,
agreement or other instrument to which such Company T Shareholder is party or by which any of its assets or properties is bound and (C) any judgment, order, injunction, decree or Law applicable
to such Company T Shareholder or its assets or properties or (ii) require any consent of, or registration, declaration or filing with, notice to, or permit from, any supranational, national,
state, municipal or local court or tribunal or administrative, governmental, quasi-governmental or regulatory body, agency or authority ("
Governmental
Entities
"), except, in the case of clauses (i) and (ii) above, any such items that, individually or in the aggregate, would not be expected to be materially
adverse to the ability of such Company T Shareholder to timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements
. Except for this Agreement, such Company T Shareholder has not:
(i) entered into any contract, agreement or other instrument, voting agreement, voting trust or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable
proxy, consent or power of attorney with respect to any of the Covered Shares or (iii) taken any action that would constitute a breach hereof, make any representation or warranty of such
Company T Shareholder set forth in this Article III untrue or incorrect in any material respect or have the effect of preventing or disabling such Company T Shareholder from performing in any
material respect any of its obligations under this Agreement. Such Company T Shareholder understands and acknowledges that Company Y and Merger Sub are entering into the Merger Agreement in reliance
upon the Company T Shareholders' execution and delivery of this Agreement and the representations, warranties, covenants and other agreements of such Company T Shareholder contained herein.
(e)
No Action
. As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of such Company T Shareholder, threatened against such Company T Shareholder that could reasonably be expected to impair
the ability of such Company T Shareholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
Section 3.2
Representations and Warranties of Company Y.
Company Y represents
and warrants to each Company T Shareholder that Company Y has all corporate power and authority to execute, deliver and perform this
Agreement. The execution and delivery by Company Y of this Agreement, the performance by Company Y of its obligations hereunder and the consummation by Company Y of the transactions contemplated by
this Agreement have been duly and validly authorized by Company Y and no other actions or proceedings on the part of Company Y are necessary to authorize the execution and delivery by it of this
Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
Company Y and, assuming this Agreement constitutes a valid and binding obligation of each Company T Shareholder, constitutes a legal, valid and binding agreement of Company Y enforceable against
Company Y in accordance with its terms, subject to the Bankruptcy and Equity Exception.
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ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers of Company T Shares.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, each Company T Shareholder agrees not to Transfer any of the Covered Shares, or any voting
right or power (including whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or
any interest therein in violation of this Section 4.1 shall be null and void.
(b) This
Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or Beneficial Ownership shall pass,
whether by operation of law or otherwise, including, such Company T Shareholder's successors or assigns. No Company T
Shareholder may request that Company T or Company T's depositary bank register the Transfer (book-entry or otherwise) of any or all of the Covered Shares (whether represented by a
certificate or uncertificated), unless such Transfer is made in compliance with this Agreement. Notwithstanding any Transfer of Covered Shares, the transferor shall remain liable for the performance
of all of the obligations of such Company T Shareholder under this Agreement.
Section 4.2
Prohibition on Transfers of Company Y Shares.
(a) Subject
to the terms of this Agreement, during the period from the Closing until the date which is 180 days following the Closing Date, each Company T Shareholder
agrees not to Transfer any of the Company Y Shares or Company Y ADSs received by such Company T Shareholder as consideration in the Merger, or any voting right or power (including whether such right
or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or any interest therein in violation of this
Section 4.2 shall be null and void.
(b) No
Company T Shareholder may request that Company Y or Company Y's depositary bank register the Transfer (book-entry or otherwise) of any or all of the
Company Y Shares or Company Y ADSs received by such Company T Shareholder as consideration in the Merger (whether represented by a certificate or uncertificated), unless such Transfer is made in
compliance with this Agreement. Notwithstanding any Transfer of Company Y Shares or Company Y ADSs received by the Company T Shareholders as consideration in the Merger, the transferor shall remain
liable for the performance of all of the obligations of such Company T Shareholder under this Section 4.2 and the last sentence of Section 4.4.
Section 4.3
Additional Shares
.
Each Company T Shareholder agrees to promptly notify Company Y of the number of Additional Shares acquired by such Company T Shareholder after the date hereof. Any
such Additional Shares shall automatically become subject to the terms of this Agreement and shall constitute Covered Shares for all purposes of this Agreement.
Section 4.4
Share Dividends, etc.
In the event of a reclassification,
recapitalization, reorganization, share split (including a reverse share split) or combination, exchange or readjustment of
shares, change in ratio of Company T ADS to Company T Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution of securities
convertible into or exchangeable for Company T Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include such shares as well as
all such share dividends and distributions and any securities of Company T into which or for which any or all of such shares may be changed or exchanged or which are received in such transaction. In
the event of any issuance of shares of voting securities by Company Y hereafter to any of the parties hereto (including, without limitation, in connection with any share split, share dividend,
recapitalization,
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reorganization,
reverse share split, change in ratio of Company Y ADSs to Company Y Shares, exercise of options or the like), such securities shall become subject to Section 4.2 of this
Agreement until the date which is 180 days following the Closing Date.
Section 4.5
No Solicitation.
Subject to Section 5.13 hereof, each
Company T Shareholder hereby agrees that during the term of this Agreement, such Company T Shareholder shall not, and
shall use reasonable best efforts to cause its Representatives not to, directly or indirectly, take any action that Company T is otherwise prohibited from taking under Section 6.2(a) of the
Merger Agreement.
Section 4.6
No Inconsistent Agreements.
Except for this Agreement, none of
the Company T Shareholders shall: (a) enter into any contract agreement or other instrument, option or other agreement
with respect to, or consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein, (b) create or permit to exist any lien that could prevent
such Company T Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material respects with the other obligations under this Agreement, other than any
restrictions imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with respect to the Covered Shares, or grant any proxy, consent or power of
attorney with respect to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any action, directly or indirectly, that could reasonably be expected to
(i) result in a material breach hereof, (ii) make any representation or warranty of such Company T Shareholder set forth in Article III untrue or incorrect in any material respect
or (iii) have the effect of materially delaying, preventing or disabling such Company T Shareholder from performing any of its obligations under this Agreement.
Section 4.7
Waiver of Appraisal and Dissenters' Rights.
Each Company T
Shareholder hereby waives, and agrees not to assert or perfect, and shall cause any of its Affiliates who hold of record any of such Company T
Shareholder's Covered Shares to waive and to not assert or perfect, any rights of appraisal or rights to dissent from the Merger that such Company T Shareholder may have under the law of the Cayman
Islands by virtue of ownership of the Covered Shares.
Section 4.8
Documentation and Information.
Each Company T Shareholder
(i) consents to and authorizes the publication and disclosure by Company Y of such Company T Shareholder's identity and holding
of the Covered Shares and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without limitation, Company
Y's Form F-4, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such disclosure documents. Each Company T
Shareholder shall promptly notify Company Y of any required corrections with respect to any written information supplied by such Company T Shareholder specifically for use in any such disclosure
document, if and to the extent that any shall have become false or misleading in any material respect. Each of the parties hereto shall not issue any press release or make any other public statement
with respect to the transactions contemplated by this Agreement and the Merger Agreement without the prior written consent of Company T and Company Y, except as such release or statement may be
required by applicable Law or the rules and regulations of any national securities exchange or Governmental Entity to which such Company T Shareholder is subject or submits.
Section 4.9
Registration of ADS.
Company Y agrees that no earlier than
15 days before the 180th day following the Closing, upon the request of any Company T Shareholder, Company Y
shall cooperate, and cause its advisers to cooperate, with such Company T Shareholder so that American depositary shares (which, in the case of a Company T Shareholder who is not deemed to be an
"affiliate" of Company Y under the meaning of Rule 144 of the Securities Act, shall be unrestricted American depositary shares) representing any or all Company Y Shares then Beneficially Owned
by such Company T Shareholder shall be issued in the name of such Company T Shareholder on or immediately after the 180th day following the Closing) in accordance with the terms of the Company
Y Deposit Agreement.
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Section 4.10
Further Assurances.
No Company T Shareholder
shall take any action, directly or indirectly, that would make any representation or warranty of such Company T Shareholder contained
herein untrue or incorrect in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by such Company T
Shareholder of its obligations under this Agreement. From time to time, at Company Y's request and without further consideration, each Company T Shareholder, solely in its capacity as a Company T
Shareholder of Company T, shall take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be reasonably necessary to consummate and make
effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation.
Unless the express context otherwise requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) mean such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
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Section 5.2
Termination.
This Agreement and all obligations of the parties
hereunder (other than as set forth in the following sentence) shall automatically terminate on the earliest to
occur of (i) the Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, or (iii) at any time upon the written agreement of Company Y
and the Company T Shareholders. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further action by any party except for
(i) the provisions of Section 4.2 and Section 4.9, which shall continue to apply until the date which is 180 days from the Closing Date, and (ii) the provisions of
Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any party of liability for any breach prior to such
termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York. Any action, claim, demand, or
proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York.
Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by Law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby
irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in
any such court in accordance with the provisions of this Section 5.3. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an
inconvenient forum to the maintenance of such Proceeding in any such court. Each of the parties hereto hereby irrevocably and unconditionally agrees that, to the fullest extent permitted by applicable
Law, service of process to such party's address set forth in Section 5.4, and in the manner provided for notices in Section 5.4, will be effective service of process for any Proceeding
in New York with respect to any matter to which such party has submitted to jurisdiction as set forth in this Section 5.3. Nothing in this Agreement will affect the right of any party to this
Agreement to serve process in any other manner permitted by Law.
(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any Proceeding directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated hereby, including any controversy or Proceeding involving any Company Y Related Party under this Agreement. Each party hereto certifies and
acknowledges that (i) no representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that such other party would not, in the event of a Proceeding, seek
to enforce the foregoing waiver, (ii) each party hereto understands and has considered the implications of this waiver, (iii) each party hereto makes this waiver voluntarily, and
(iv) each party hereto has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.3.
Section 5.4
Notices.
All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given (a) upon personal
delivery, (b) one (1) Business Day after being sent via an internationally recognized overnight courier service, (c) three
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(3) Business
Days after being sent, postage prepaid, by registered, certified or express mail or (d) upon receipt of electronic or other confirmation of transmission if sent via
facsimile, in each case, at the addresses or facsimile numbers (or at such other address or facsimile number for a party as shall be specified by like notice) set forth below:
If
to Company Y to:
Youku Inc.
11/F, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
The People's Republic of China
Telephone: (8610) 5885-1881
Facsimile: (8610) 5970-8818
Attention: Mr. Victor Koo
with
a copy (which shall not constitute notice) to:
Skadden,
Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
Facsimile: +852 3910 4850
If
to any Company T Shareholder: to such Company T Shareholder and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
Section 5.5
Amendment.
This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by Company Y and each Company T Shareholder;
provided
that matters that only affect the right of a particular Company T Shareholder or a group of Company T Shareholders shall only require an
instrument in writing signed by Company Y and such Company T Shareholder or Company T Shareholders.
Section 5.6
Extension; Waiver.
At any time before the termination of this
Agreement, Company Y, on the one hand, and any of the Company T Shareholders, on the other hand, may
(a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party
contained in this Agreement or in any document delivered under this Agreement or (c) waive compliance with any of the covenants or conditions contained in this Agreement. Any agreement on the
part of a party to any extension or waiver shall be valid only if set forth in an instrument in writing signed by such party. The failure of any party to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or
privilege under this Agreement.
Section 5.7
Entire Agreement.
This Agreement (together with the Merger
Agreement, to the extent referred to in this Agreement) constitutes the sole and entire agreement of the Company T
Shareholders or any of their Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and
contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding
or condition not set forth in this Agreement has been made or relied upon by any of the parties to this Agreement.
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Section 5.8
No Third-Party Beneficiaries.
This Agreement is for the sole
benefit of, shall be binding upon, and may be enforced solely by Company Y and the Company T Shareholders and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person (other than Company Y and the Company T Shareholders) any legal or equitable right, benefit or remedy of any nature
whatsoever.
Section 5.9
Severability.
The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction.
The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions
of this Agreement.
Section 5.11
Assignment.
Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by operation of Law (including, but not limited to, by merger
or consolidation) or otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance.
The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches
or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise,
this being in addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party
hereto agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or
(ii) an award of specific performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company T Shareholder Capacity.
Notwithstanding anything
contained in this Agreement to the contrary, the representations, warranties, covenants and agreements made herein by each Company T
Shareholder are made solely with respect to such Company T Shareholder and the Covered Shares. Each Company T Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner
of such Covered Shares and nothing herein shall limit or affect any actions taken by any officer or director of Company T (or a Subsidiary of Company T) solely in his or her capacity as a
director or officer of Company T (or a Subsidiary of Company T), including participating in his or her capacity as a director or officer of Company T in any discussions or negotiations with Company Y.
Nothing contained herein, and no action taken by any Company T Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
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Section 5.14
No Ownership Interest.
Nothing contained in this Agreement shall
be deemed to vest in Company Y any direct or indirect ownership or incidence of ownership of or with respect to any
Covered Shares. All rights, ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company T Shareholders, and Company Y shall have no authority
to direct the Company T Shareholders in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses.
All costs and expenses (including all fees
and disbursements of counsel, accountants, investment bankers, experts and consultants to a party) incurred in
connection with this Agreement shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness.
This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the other parties;
provided
,
however
, that if any of the Company T Shareholders
fails for any reason to execute, or perform their obligations under, this Agreement, this Agreement
shall remain effective as to all parties executing this Agreement.
Section 5.17
Several Obligations.
The agreements, obligations,
representations and warranties of the Company T Shareholders hereunder shall be several and not joint.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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YOUKU INC.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name:
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Victor Wing Cheung Koo
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Title:
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Chairman and Chief Executive Officer
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CRESCENT P.E., LTD.
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By:
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/s/ DAVID M. HAND
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Name:
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David M. Hand
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Title:
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Director
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CRESCENT PEAK, LTD.
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By:
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/s/ DAVID M. HAND
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Name:
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David M. Hand
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Title:
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Director
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CRESCENT PEAK II LIMITED
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By:
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/s/ DAVID M. HAND
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Name:
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David M. Hand
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Title:
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Director
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Schedule 1
COMPANY T SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company T
Shares
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Number of
Company T
ADSs
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CRESCENT P.E., LTD.
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5,460,095
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0
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c/o One Temasek Avenue
#20-01 Millenia Tower
Singapore 039192
Singapore
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Attention: David Hand
Facsimile: +65 6223 5992
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CRESCENT PEAK, LTD.
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5,985,918
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0
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c/o One Temasek Avenue
#20-01 Millenia Tower
Singapore 039192
Singapore
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Attention: David Hand
Facsimile: +65 6223 5992
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CRESCENT PEAK II LIMITED
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2,769,265
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0
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c/o One Temasek Avenue
#20-01 Millenia Tower
Singapore 039192
Singapore
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Attention: David Hand
Facsimile: +65 6223 5992
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EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company Y and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of [Tudou Holdings
Limited][Youku Inc.] (the "
Shares
") subject to the terms and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of a
Company T Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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|
By:
|
|
Name and Title
|
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|
Address:
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Fax:
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Accepted
and Agreed:
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Appendix B-2
VOTING AGREEMENT
By and among
YOUKU INC.
And
THE SHAREHOLDER PARTY HERETO
Dated as of March 11, 2012
Table of Contents
TABLE OF CONTENTS
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INDEX OF DEFINED TERMS
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Term
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Section
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Acquisition Proposal
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4, 6
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Additional Shares
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4
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Affiliate
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3
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Agreement
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3
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Bankruptcy and Equity Exception
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7
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Beneficial Owner
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4
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Beneficial Ownership
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4
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Beneficially Own
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4
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Beneficially Owned
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4
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Company T
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3
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Company T ADSs
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4
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Company T Shareholder
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3
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Company T Shares
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4
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Company Y
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3
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control
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4
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controlled by
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4
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controlling
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4
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Covered Shares
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5
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Effective Time
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7
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Exchange Act
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4
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Existing Shares
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5
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Governmental Entities
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8
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Merger
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3
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Merger Agreement
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3
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Merger Sub
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3
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Permitted Transfer
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5
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Transfer
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5
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under common control with
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4
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VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Youku Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company Y
"), and the Person listed on
Schedule 1 hereto (the "
Company T Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company Y, Two Merger Sub Inc., an exempted company with limited
liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y ("
Merger Sub
"), and Tudou Holdings Limited, an
exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), are entering into an Agreement and Plan
of Merger, dated as of the date of this Agreement (the "
Merger Agreement
"), pursuant to which, among other things, Merger Sub will merge
with and into Company T, with Company T surviving the merger as a wholly owned subsidiary of Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, the Company T Shareholder is the Beneficial Owner of the Existing Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company Y and Merger Sub to enter into the Merger Agreement,
Company Y has required that the Company T Shareholder agree, and the Company T Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter into this Agreement and
abide by the covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms.
The following terms, as used in this Agreement, shall
have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership
interests, by contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Acquisition Proposal
" means any proposal or offer made by any Person (other than Company Y, Merger Sub or any Affiliate
thereof) to purchase or otherwise acquire, directly or indirectly, in one transaction or a series of transactions, (A) beneficial ownership (as defined under section 13(d) of the
Exchange Act) of ten percent (10%) or more of the share capital of Company T pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, tender offer,
exchange offer or similar transaction or (B) any one or more assets or businesses of Company T and its Subsidiaries that constitute ten percent (10%) or more of the revenues or assets of
Company T and its Subsidiaries, taken as a whole.
(c) "
Additional Shares
" means Company T Shares, Company T ADSs or other voting share capital of Company T with respect to
which the Company T Shareholder acquires Beneficial Ownership after the date of this Agreement (including any Company T Shares issued upon the
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exercise
of any Company T Options or warrants or the conversion of any convertible securities or otherwise).
(d) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange Act
"). Without
duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include securities Beneficially Owned by all Affiliates of such Person and all other
Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. The terms "Beneficially Own," "Beneficially Owned" and "Beneficial Owner" shall
have correlative meanings.
(e) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(f) "
Company T ADSs
" means American depositary shares of Company T.
(g) "
Company T Shares
" means the authorized share capital of Company T, which as of the date hereof consists of US$1,000,000,
divided into (i) 9,990,000,000 ordinary shares of par value US$0.0001 each and (ii) 10,000,000 preferred shares of a nominal or par value of US$0.0001 each.
(h) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(i) "
Covered Shares
" means the Existing Shares and any Additional Shares.
(j) "
Existing Shares
" means Company T Shares and Company T ADSs Beneficially Owned by the Company T Shareholder on the date
hereof, as set forth opposite the Company T Shareholder's name on Schedule 1 hereto.
(k) "
Permitted Transfer
" means a Transfer by the Company T Shareholder to (i) an Affiliate of the Company T
Shareholder, (ii) a member of the Company T Shareholder's family or a trust for the benefit of the Company T Shareholder's or any member of the Company T Shareholder's family, or
(iii) any heir, legatees, beneficiaries and/or devisees of any individual who is the Company T Shareholder;
provided
that the Transferee agrees
to execute a Joinder in the form attached hereto as Exhibit A.
(l) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
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ARTICLE II
VOTING
Section 2.1
Agreement to Vote.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, the Company T Shareholder hereby
irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company T and at any other meeting of the shareholders of Company T, however called,
including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company T and in any other circumstance upon which a vote, consent or other
approval of all or some of the shareholders of Company T is sought, it shall, and shall cause any holder of record of its Covered Shares to, in each case to the extent that the Covered Shares are
entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company T for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the Merger, the Plan of Merger and the approval and adoption of the Merger Agreement and the other transactions contemplated by the Merger Agreement, (2) in
favor of any related proposal that is necessary to consummate the Merger and the transactions contemplated by the Merger Agreement which is considered at any such meeting of Company T
Shareholder, (3) against any action, proposal, transaction or agreement that could reasonably be expected to (A) result in a breach of any representation, warranty, covenant or other
obligation or agreement of Company T contained in the Merger Agreement, (B) result in a breach of any representation, warranty, covenant or other obligation or agreement of the Company T
Shareholder contained in this Agreement, or (C) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in
any manner the voting rights of any class of shares of Company T (including any amendments to the memorandum and articles of association of Company T), (4) against any Acquisition Proposal, and
(5) against any change in the composition of the board of directors of Company T (other than such changes contemplated by the Merger Agreement).
(b) The
Company T Shareholder shall retain at all times the right to vote the Company T Shareholder's Covered Shares in its sole discretion and without any other limitation
on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to Company T Shareholder of Company T generally.
Section 2.2
Grant of Proxy.
The Company T Shareholder hereby irrevocably and
unconditionally grants a proxy to, and appoints, Company Y and any designee of Company Y, and each of them
individually, as its proxies and attorneys-in-fact, with full power of substitution and resubstitution, for and in the Company T Shareholder's name, place and stead, in the
event that the Company T Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or
Section 2.1(a)(ii)5)), to vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with respect to the Covered Shares as
provided in Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)5)). This proxy and power of attorney is given in connection
with, and in consideration of, the execution of the Merger Agreement by Company Y and Merger Sub, and to secure the performance of the duties and obligations of the Company T Shareholder owed to
Company Y under this Agreement. The Company T Shareholder hereby (a) affirms that such
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irrevocable
proxy is (i) coupled with an interest by reason of the Merger Agreement and (ii) executed and intended to be irrevocable in accordance with the provisions of the Laws of the
State of New York, and (b) revokes any and all prior proxies granted by Company T Shareholder with respect to the Covered Shares and no subsequent proxy shall be given by the Company T
Shareholder (and if given shall be ineffective). The Company T Shareholder shall take such further action or execute such other instruments as may be reasonably necessary in accordance with the
relevant provisions of the Laws of the State of New York or any other Law to effectuate the intent of this proxy. The power of attorney granted by the Company T Shareholder herein is a durable power
of attorney and, so long as Company Y has the interest secured by such power of attorney or the obligations secured by such power of attorney remain undischarged, the power of attorney shall
not be revoked by the dissolution, bankruptcy, death or incapacity of the Company T Shareholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company T Shareholder.
The
Company T Shareholder represents and warrants to Company Y as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action.
The Company T Shareholder, as of the
date hereof (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized (in the case of good standing, to the extent the concept is
recognized by such jurisdiction) and (ii) has all corporate, limited partnership, trust or other organizational power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery by the Company T Shareholder of this Agreement, the performance by the Company T
Shareholder of its obligations hereunder and the consummation by the Company T Shareholder of the transactions contemplated by this Agreement have been duly and validly authorized by the Company T
Shareholder and no other actions or proceedings on the part of the Company T Shareholder are necessary to authorize the execution and delivery by him, her or it of this Agreement, the performance by
him, her or it of its obligations hereunder or the consummation by him, her or it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by the Company
T Shareholder and, assuming this Agreement constitutes a valid and binding obligation of Company Y, constitutes a legal, valid and binding agreement of the Company T Shareholder enforceable against
the Company T Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or
affecting creditors' rights and to general equity principles (the "
Bankruptcy and Equity Exception
").
(b)
Ownership.
The Company T Shareholder is the Beneficial Owner of and has good and valid title to the Existing
Shares set forth next to the Company T Shareholder's name on Schedule 1, free and clear of any liens, other than any liens pursuant to this Agreement or arising under the articles of
association of Company T and transfer restrictions imposed by generally applicable securities Laws. As of the date of this Agreement, the Company T Shareholder's Existing Shares constitute all of the
Company T Shares and Company T ADSs Beneficially Owned or owned of record by the Company T Shareholder.
Except to the extent Covered Shares are Transferred after the date of this Agreement pursuant to a Permitted Transfer, the Company T Shareholder has not granted any proxy inconsistent with this
Agreement that is still effective or entered into any voting or similar agreement, in each case with respect to all of the Company T Shareholder's Existing Shares and with respect to all of the
Covered Shares Beneficially Owned by the Company T Shareholder at all times through the effective time of the Merger (the "
Effective Time
").
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(c)
Non-Contravention.
The execution and delivery of this Agreement by the Company T Shareholder do
not, and the performance by the Company T Shareholder of its obligations under this Agreement and the consummation by the Company T Shareholder of the transactions contemplated by this Agreement, will
not (i) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, consent,
termination, cancellation or acceleration of any obligation or loss of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or
result in the creation of any lien upon its assets or properties under, any provision of (A) any charter or organizational documents of the Company T Shareholder, (B) any contract,
agreement or other instrument to which the Company T Shareholder is party or by which any of its assets or properties is bound and (C) any judgment, order, injunction, decree or Law applicable
to the Company T Shareholder or its assets or properties or (ii) require any consent of, or registration, declaration or filing with, notice to, or permit from, any supranational, national,
state, municipal or local court or tribunal or administrative, governmental, quasi-governmental or regulatory body, agency or authority ("
Governmental
Entities
"), except, in the case of clauses (i) and (ii) above, any such items that, individually or in the aggregate, would not be expected to be materially
adverse to the ability of the Company T Shareholder to timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements.
Except for this Agreement, the Company T Shareholder has not: (i) entered
into any contract, agreement or other instrument, voting agreement, voting trust or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable proxy, consent or
power of attorney with respect to any of the Covered Shares or (iii) taken any action that would constitute a breach hereof, make any representation or warranty of the Company T
Shareholder set forth in this Article III untrue or incorrect in any material respect or have the effect of preventing or disabling the Company T Shareholder from performing in any material
respect any of its obligations under this Agreement. The Company T Shareholder understands and acknowledges that Company Y and Merger Sub are entering into the Merger Agreement in reliance upon the
Company T Shareholder's execution and delivery of this Agreement and the representations, warranties, covenants and other agreements of the Company T Shareholder contained herein.
(e)
No Action.
As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of the Company T Shareholder, threatened against the Company T Shareholder that could reasonably be expected to impair the
ability
of the Company T Shareholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
Section 3.2
Representations and Warranties of Company Y.
Company Y represents
and warrants to the Company T Shareholder that Company Y has all corporate power and authority to execute, deliver and perform this
Agreement. The execution and delivery by Company Y of this Agreement, the performance by Company Y of its obligations hereunder and the consummation by Company Y of the transactions contemplated by
this Agreement have been duly and validly authorized by Company Y and no other actions or proceedings on the part of Company Y are necessary to authorize the execution and delivery by it of this
Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
Company Y and, assuming this Agreement constitutes a valid and binding obligation of the Company T Shareholder, constitutes a legal, valid and binding agreement of Company Y enforceable against
Company Y in accordance with its terms, subject to the Bankruptcy and Equity Exception.
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ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers of Company T Shares.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, the Company T Shareholder agrees not to Transfer any of the Covered Shares, or any
voting right or power (including
whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or any interest therein in
violation of this Section 4.1 shall be null and void.
(b) This
Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or Beneficial Ownership shall pass,
whether by operation of law or otherwise, including, the Company T Shareholder's successors or assigns. The Company T Shareholder may not request that Company T or Company T's depositary bank register
the Transfer (book-entry or otherwise) of any or all of the Covered Shares (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this
Agreement. Notwithstanding any Transfer of Covered Shares, the transferor shall remain liable for the performance of all of the obligations of the Company T Shareholder under this Agreement.
Section 4.2
Prohibition on Transfers of Company Y Shares.
(a) Subject
to the terms of this Agreement, during the period from the Closing until the date which is 180 days following the Closing Date, the Company T Shareholder
agrees not to Transfer any of the Company Y Shares or Company Y ADSs received by it as consideration in the Merger, or any voting right or power (including whether such right or power is granted by
proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or any interest therein in violation of this Section 4.2 shall be
null and void.
(b) The
Company T Shareholder may not request that Company Y or Company Y's depositary bank register the Transfer (book-entry or otherwise) of any or all of the
Company Y Shares or Company Y ADSs received by it as consideration in the Merger (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this
Agreement. Notwithstanding any Transfer of Company Y Shares or Company Y ADSs received by the Company T Shareholder as consideration in the Merger, the transferor shall remain liable for the
performance of all of the obligations of the Company T Shareholder under this Section 4.2 and the last sentence of Section 4.4.
Section 4.3
Additional Shares.
The Company T Shareholder agrees to promptly
notify Company Y of the number of Additional Shares acquired by the Company T Shareholder after the date
hereof. Any such Additional Shares shall automatically become subject to the terms of this Agreement and shall constitute Covered Shares for all purposes of this Agreement.
Section 4.4
Share Dividends, etc.
In the event of a reclassification,
recapitalization, reorganization, share split (including a reverse share split) or combination, exchange or readjustment of
shares, change in ratio of Company T ADS to Company T Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution of securities
convertible into or exchangeable for Company T Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include such shares as well as
all such share dividends and distributions and any securities of Company T into which or for which any or all of such shares may be changed or exchanged or which are received in such transaction. In
the event of any issuance of shares of voting securities by Company Y hereafter to any of the parties hereto (including, without limitation, in connection with any share split, share dividend,
recapitalization,
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reorganization,
reverse share split, change in ratio of Company Y ADSs to Company Y Shares, exercise of options or the like), such securities shall become subject to Section 4.2 of this
Agreement until the date which is 180 days following the Closing Date.
Section 4.5
No Solicitation.
Subject to Section 5.13 hereof, the Company
T Shareholder hereby agrees that during the term of this Agreement, the Company T Shareholder shall not, and
shall use reasonable best efforts to cause its Representatives not to, directly or indirectly, take any action that Company T is otherwise prohibited from taking under Section 6.2(a) of the
Merger Agreement.
Section 4.6
No Inconsistent Agreements.
Except for this Agreement, the
Company T Shareholder shall not: (a) enter into any contract agreement or other instrument, option or other agreement with
respect to, or consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein, (b) create or permit to exist any lien that could prevent the
Company T Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material respects with the other obligations under this Agreement, other than any
restrictions imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with respect to the Covered Shares, or grant any proxy, consent or power of
attorney with respect to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any action, directly or indirectly, that could reasonably be expected to
(i) result in a material breach hereof, (ii) make any representation or warranty of the Company T Shareholder set forth in Article III untrue or incorrect in any material respect
or (iii) have the effect of materially delaying, preventing or disabling the Company T Shareholder from performing any of its obligations under this Agreement.
Section 4.7
Waiver of Appraisal and Dissenters' Rights.
The Company T
Shareholder hereby waives, and agrees not to assert or perfect, and shall cause any of its Affiliates who hold of record any of the Company T
Shareholder's Covered Shares to waive and to not assert or perfect, any rights of appraisal or rights to dissent from the Merger that the Company T Shareholder may have under the law of the Cayman
Islands by virtue of ownership of the Covered Shares.
Section 4.8
Documentation and Information.
Company T Shareholder
(i) consents to and authorizes the publication and disclosure by Company Y of the Company T Shareholder's identity and holding of the
Covered Shares and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without limitation, Company Y's
Form F-4, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such disclosure documents. Company T Shareholder
shall promptly notify Company Y of any required corrections with respect to any written information supplied by the Company T Shareholder specifically for use in any such disclosure document, if and
to the extent that any shall have become false or misleading in any material respect. Each of the parties hereto shall not issue any press release or make any other public statement with respect to
the transactions contemplated by this Agreement and the Merger Agreement without the prior written consent of Company T and Company Y, except as such release or statement may be required by applicable
Law or the rules and regulations of any national securities exchange or Governmental Entity to which the Company T Shareholder is subject or submits.
Section 4.9
Registration of ADS.
Company Y agrees that no earlier than
15 days before the 180th day following the Closing, upon the request of the Company T Shareholder, Company Y
shall cooperate, and cause its advisers to cooperate, with the Company T Shareholder so that American depositary shares (which, in the case of a Company T Shareholder who is not deemed to be an
"affiliate" of Company Y under the meaning of Rule 144 of the Securities Act, shall be unrestricted American depositary shares) representing any or all Company Y Shares then Beneficially Owned
by the Company T Shareholder shall be issued in the name of the Company T Shareholder on or immediately after the 180th day following the Closing) in accordance with the terms of the Company Y
Deposit Agreement.
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Section 4.10
Further Assurances.
The Company T Shareholder
shall not take any action, directly or indirectly, that would make any representation or warranty of the Company T Shareholder contained
herein untrue or incorrect in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by the Company T
Shareholder of its obligations under this Agreement. From time to time, at Company Y's request and without further consideration, the Company T Shareholder, solely in its capacity as a Company T
Shareholder of Company T, shall take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be reasonably necessary to consummate and make
effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation.
Unless the express context otherwise requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) mean such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
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Section 5.2
Termination.
This Agreement and all obligations of the parties
hereunder (other than as set forth in the following sentence) shall automatically terminate on the earliest to
occur of (i) the Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, or (iii) at any time upon the written agreement of Company Y
and the Company T Shareholder. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further action by any party except for
(i) the provisions of Section 4.2 and Section 4.9, which shall continue to apply until the date which is 180 days from the Closing Date, and (ii) the provisions of
Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any party of liability for any breach prior to such
termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York. Any action, claim, demand, or
proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York.
Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in any such court in
accordance with the provisions of this Section 5.3. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the
maintenance of such Proceeding in any such court. Each of the parties hereto hereby irrevocably and unconditionally agrees that, to the fullest extent permitted by applicable Law, service of process
to such party's address set forth in Section 5.4, and in the manner provided for notices in Section 5.4, will be effective service of process for any Proceeding in New York with respect
to any matter to which such party has submitted to jurisdiction as set forth in this Section 5.3. Nothing in this Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by Law.
(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any Proceeding directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated hereby, including any controversy or Proceeding involving any Company Y Related Party under this Agreement. Each party hereto certifies and
acknowledges that (i) no representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that such other party would not, in the event of a Proceeding, seek
to enforce the foregoing waiver, (ii) each party hereto understands and has considered the implications of this waiver, (iii) each party hereto makes this waiver voluntarily, and
(iv) each party hereto has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.3.
Section 5.4
Notices.
All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given (a) upon personal
delivery, (b) one (1) Business Day after being sent via an internationally recognized overnight courier service, (c) three (3)
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Business
Days after being sent, postage prepaid, by registered, certified or express mail or (d) upon receipt of electronic or other confirmation of transmission if sent via facsimile, in each
case, at the
addresses or facsimile numbers (or at such other address or facsimile number for a party as shall be specified by like notice) set forth below:
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If to Company Y to:
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Youku Inc.
11/F, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
The People's Republic of China
Telephone: (8610) 5885-1881
Facsimile: (8610) 5970-8818
Attention: Mr. Victor Koo
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with a copy (which shall not constitute notice) to:
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Skadden, Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
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Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
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Facsimile: +852 3910 4850
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If to the Company T Shareholder, to it and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
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Section 5.5
Amendment.
This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by Company Y and Company T Shareholder;
provided
that matters that only affect the right of a particular Company T Shareholder or a group of
Company T Shareholder shall only require an
instrument in writing signed by Company Y and the Company T Shareholder.
Section 5.6
Extension; Waiver.
At any time before the termination of this
Agreement, Company Y, on the one hand, and the Company T Shareholder, on the other hand, may (a) extend
the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this
Agreement or in any document delivered under this Agreement or (c) waive compliance with any of the covenants or conditions contained in this Agreement. Any agreement on the part of a party to
any extension or waiver shall be valid only if set forth in an instrument in writing signed by such party. The failure of any party to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege under this
Agreement.
Section 5.7
Entire Agreement.
This Agreement (together with the Merger
Agreement, to the extent referred to in this Agreement) constitutes the sole and entire agreement of the Company T
Shareholder or any of their Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and
contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding
or condition not set forth in this Agreement has been made or relied upon by any of the parties to this Agreement.
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Section 5.8
No Third-Party Beneficiaries.
This Agreement is for the sole
benefit of, shall be binding upon, and may be enforced solely by Company Y and the Company T Shareholder and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person (other than Company Y and the Company T Shareholder) any legal or equitable right, benefit or remedy of any nature
whatsoever.
Section 5.9
Severability.
The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction.
The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions
of this Agreement.
Section 5.11
Assignment.
Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by operation of Law (including, but not limited to, by merger
or consolidation) or otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance.
The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches
or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise,
this being in addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party
hereto agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or
(ii) an award of specific performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company T Shareholder Capacity.
Notwithstanding anything
contained in this Agreement to the contrary, the representations, warranties, covenants and agreements made herein by the Company T
Shareholder are made solely with respect to the Company T Shareholder and the Covered Shares. The Company T Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner
of such Covered Shares and nothing herein shall limit or affect any actions taken by any officer or director of Company T (or a Subsidiary of Company T) solely in his or her capacity as a
director or officer of Company T (or a Subsidiary of Company T), including participating in his or her capacity as a director or officer of Company T in any discussions or negotiations with Company Y.
Nothing contained herein, and no action taken by the Company T Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
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Section 5.14
No Ownership Interest.
Nothing contained in this Agreement shall
be deemed to vest in Company Y any direct or indirect ownership or incidence of ownership of or with respect to any
Covered Shares. All rights, ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company T Shareholder, and Company Y shall have no authority
to direct the Company T Shareholder in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses.
All costs and expenses (including all fees
and disbursements of counsel, accountants, investment bankers, experts and consultants to a party) incurred in
connection with this Agreement shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness.
This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the other parties;
provided
,
however
, that if the Company T Shareholder fails
for any reason to execute, or perform their obligations under, this Agreement, this Agreement shall
remain effective as to all parties executing this Agreement.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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YOUKU INC.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name: Victor Wing Cheung Koo
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Title: Chairman and Chief Executive Officer
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GGV II DELAWARE L.L.C.
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By:
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Granite Global Ventures II L.P., its Member
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By:
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Granite Global Ventures II L.L.C. its General Partner
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By:
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/s/ HANY NADA
Managing Director
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B-2-14
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Schedule 1
COMPANY T SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company T
Shares
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Number of
Company T
ADSs
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GGV II DELAWARE L.L.C.
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11,027,224
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0
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c/o GGV Capital
2494 Sand Hill Road, Suite 100
Menlo Park, CA 94025
United States of America
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Attention: Stephen Hyndman
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with a copy to:
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c/o GGV Capital
Unit 3501, IFC Two
8 Century Avenue, Pudong
Shanghai 200120
People's Republic of China
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Attention: Jixun Foo
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Table of Contents
EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company Y and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of [Tudou Holdings
Limited][Youku Inc.] (the "
Shares
") subject to the terms and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of the
Company T Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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By:
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Name and Title
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Address:
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Fax:
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Accepted and Agreed:
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YOUKU INC.
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By:
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Title:
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B-2-16
Table of Contents
Appendix B-3
VOTING AGREEMENT
By and among
YOUKU INC.
And
THE SHAREHOLDERS PARTY HERETO
Dated as of March 11, 2012
Table of Contents
TABLE OF CONTENTS
B-3-i
Table of Contents
INDEX OF DEFINED TERMS
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Term
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Section
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Acquisition Proposal
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4, 6
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Additional Shares
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4
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Affiliate
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3
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Agreement
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3
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Bankruptcy and Equity Exception
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7
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Beneficial Owner
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4
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Beneficial Ownership
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4
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Beneficially Own
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4
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Beneficially Owned
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4
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Company T
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3
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Company T ADSs
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4
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Company T Shareholder
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3
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Company T Shares
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4
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Company Y
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3
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control
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4
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controlled by
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4
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controlling
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4
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Covered Shares
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5
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Effective Time
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7
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Exchange Act
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4
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Existing Shares
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5
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Governmental Entities
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8
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Merger
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3
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Merger Agreement
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3
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Merger Sub
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3
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Permitted Transfer
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5
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Transfer
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5
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under common control with
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4
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B-3-ii
Table of Contents
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Youku Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company Y
"), and each of the Persons
listed on Schedule 1 hereto (each, a "
Company T Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company Y, Two Merger Sub Inc., an exempted company with limited
liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y ("
Merger Sub
"), and Tudou Holdings Limited, an
exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), are entering into an Agreement and Plan
of Merger, dated as of the date of this Agreement (the "
Merger Agreement
"), pursuant to which, among other things, Merger Sub will merge
with and into Company T, with Company T surviving the merger as a wholly owned subsidiary of Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, each Company T Shareholder is the Beneficial Owner of the Existing Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company Y and Merger Sub to enter into the Merger Agreement,
Company Y has required that each Company T Shareholder agree, and each Company T Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter into this Agreement and
abide by the covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms.
The following terms, as used in this Agreement, shall have the meanings set
forth below. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership
interests, by contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Acquisition Proposal
" means any proposal or offer made by any Person (other than Company Y, Merger Sub or any Affiliate
thereof) to purchase or otherwise acquire, directly or indirectly, in one transaction or a series of transactions, (A) beneficial ownership (as defined under section 13(d) of the
Exchange Act) of ten percent (10%) or more of the share capital of Company T pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, tender offer,
exchange offer or similar transaction or (B) any one or more assets or businesses of Company T and its Subsidiaries that constitute ten percent (10%) or more of the revenues or assets of
Company T and its Subsidiaries, taken as a whole.
(c) "
Additional Shares
" means Company T Shares, Company T ADSs or other voting share capital of Company T with respect to
which any Company T Shareholder acquires Beneficial
B-3-1
Table of Contents
Ownership
after the date of this Agreement (including any Company T Shares issued upon the exercise of any Company T Options or warrants or the conversion of any convertible securities or otherwise).
(d) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange Act
"). Without
duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include securities Beneficially Owned by all Affiliates of such Person and all other
Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. The terms "Beneficially Own," "Beneficially Owned" and "Beneficial Owner" shall
have correlative meanings.
(e) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(f) "
Company T ADSs
" means American depositary shares of Company T.
(g) "
Company T Shares
" means the authorized share capital of Company T, which as of the date hereof consists of US$1,000,000,
divided into (i) 9,990,000,000 ordinary shares of par value US$0.0001 each and (ii) 10,000,000 preferred shares of a nominal or par value of US$0.0001 each.
(h) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(i) "
Covered Shares
" means the Existing Shares and any Additional Shares.
(j) "
Existing Shares
" means Company T Shares and Company T ADSs Beneficially Owned by a Company T Shareholder on the date
hereof, as set forth opposite such Company T Shareholder's name on Schedule 1 hereto.
(k) "
Permitted Transfer
" means a Transfer by a Company T Shareholder to (i) an Affiliate of such Company T
Shareholder, (ii) a member of such Company T Shareholder's family or a trust for the benefit of such Company T Shareholder's or any member of such Company T Shareholder's family, or
(iii) any heir, legatees, beneficiaries and/or devisees of any individual who is a Company T Shareholder;
provided
that the Transferee agrees to
execute a Joinder in the form attached hereto as Exhibit A.
(l) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
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Table of Contents
ARTICLE II
VOTING
Section 2.1
Agreement to Vote.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, each Company T Shareholder hereby
irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company T and at any other meeting of the shareholders of Company T, however called,
including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company T and in any other circumstance upon which a vote, consent or other
approval of all or some of the shareholders of Company T is sought, it shall, and shall cause any holder of record of its Covered Shares to, in each case to the extent that the Covered Shares are
entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company T for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the Merger, the Plan of Merger and the approval and adoption of the Merger Agreement and the other transactions contemplated by the Merger Agreement, (2) in
favor of any related proposal that is necessary to consummate the Merger and the transactions contemplated by the Merger Agreement which is considered at any such meeting of Company T
Shareholders, (3) against any action, proposal, transaction or agreement that could reasonably be expected to (A) result in a breach of any representation, warranty, covenant or other
obligation or agreement of Company T contained in the Merger Agreement, (B) result in a breach of any representation, warranty, covenant or other obligation or agreement of such Company T
Shareholder contained in this Agreement, or (C) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in
any manner the voting rights of any class of shares of Company T (including any amendments to the memorandum and articles of association of Company T), (4) against any Acquisition Proposal, and
(5) against any change in the composition of the board of directors of Company T (other than such changes contemplated by the Merger Agreement).
(b) Each
Company T Shareholder shall retain at all times the right to vote such Company T Shareholder's Covered Shares in such Company T Shareholder's sole discretion and
without any other limitation on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to Company T Shareholders of
Company T generally.
Section 2.2
Grant of Proxy.
Each Company T Shareholder hereby irrevocably and unconditionally
grants a proxy to, and appoints, Company Y and any designee of Company Y, and each of them
individually, as its proxies and attorneys-in-fact, with full power of substitution and resubstitution, for and in such Company T Shareholder's name, place and stead, in the
event that such Company T Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or
Section 2.1(a)(ii)5)), to vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with respect to the Covered Shares as
provided in Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)5)). This proxy and power of attorney is given in connection
with, and in consideration of, the execution of the Merger Agreement by
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Table of Contents
Company Y
and Merger Sub, and to secure the performance of the duties and obligations of such Company T Shareholder owed to Company Y under this Agreement. Each Company T Shareholder hereby
(a) affirms that such irrevocable proxy is (i) coupled with an interest by reason of the Merger Agreement and (ii) executed and intended to be irrevocable in accordance with the
provisions of the Laws of the State of New York, and (b) revokes any and all prior proxies granted by each Company T Shareholder with respect to the Covered Shares and no subsequent proxy shall
be given by any Company T Shareholder (and if given shall be ineffective). Each Company T Shareholder shall take such further action or execute such other instruments as may be reasonably necessary in
accordance with the relevant provisions of the Laws of the State of New York or any other Law to effectuate the intent of this proxy. The power of attorney granted by such Company T Shareholder herein
is a durable power of attorney and, so long as Company Y has the interest secured by such power of attorney or the obligations secured by such power of attorney remain undischarged, the power of
attorney shall not be revoked by the dissolution, bankruptcy, death or incapacity of such Company T Shareholder. The proxy and power of attorney granted hereunder shall terminate upon the termination
of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company T Shareholders.
Each Company T Shareholder
represents and warrants to Company Y as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action.
Each Company T Shareholder, as of the
date hereof (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized (in the case of good standing, to the extent the concept is
recognized by such jurisdiction) and (ii) has all corporate, limited partnership, trust or other organizational power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery by such Company T Shareholder of this Agreement, the performance by such Company T
Shareholder of its obligations hereunder and the consummation by such Company T Shareholder of the transactions contemplated by this Agreement have been duly and validly authorized by such Company T
Shareholder and no other actions or proceedings on the part of such Company T Shareholder are necessary to authorize the execution and delivery by him, her or it of this Agreement, the performance by
him, her or it of its obligations hereunder or the consummation by him, her or it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by such
Company T Shareholder and, assuming this Agreement constitutes a valid and binding obligation of Company Y, constitutes a legal, valid and binding agreement of such Company T Shareholder enforceable
against such Company T Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating
to or affecting creditors' rights and to general equity principles (the "
Bankruptcy and Equity Exception
").
(b)
Ownership.
Such Company T Shareholder is the Beneficial Owner of and has good and valid title to the
Existing Shares set forth next to such Company T Shareholder's name on Schedule 1, free and clear of any liens, other than any liens pursuant to this Agreement or arising under the articles of
association of Company T and transfer restrictions imposed by generally applicable securities Laws. As of the date of this Agreement, such Company T Shareholder's Existing Shares constitute all of the
Company T Shares and Company T ADSs Beneficially Owned or owned of record by such Company T Shareholder. Except to the extent Covered Shares are Transferred after the date of this Agreement
pursuant to a Permitted Transfer, such Company T Shareholder has not granted any proxy inconsistent with this Agreement that is still effective or entered into any voting or similar agreement, in each
case with respect to all of such Company T
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Shareholder's
Existing Shares and with respect to all of the Covered Shares Beneficially Owned by such Company T Shareholder at all times through the effective time of the Merger (the
"
Effective Time
").
(c)
Non-Contravention.
The execution and delivery of this Agreement by such Company T Shareholder do
not, and the performance by such Company T Shareholder of its obligations under this Agreement and the consummation by such Company T Shareholder of the transactions contemplated by this Agreement,
will not (i) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, consent,
termination, cancellation or acceleration of any obligation or loss of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or
result in the creation of any lien upon its assets or properties under, any provision of (A) any charter or organizational documents of such Company T Shareholder, (B) any contract,
agreement or other instrument to which such Company T Shareholder is party or by which any of its assets or properties is bound and (C) any judgment, order, injunction, decree or Law applicable
to such Company T Shareholder or its assets or properties or (ii) require any consent of, or registration, declaration or filing with, notice to, or permit from, any supranational, national,
state, municipal or local court or tribunal or administrative, governmental, quasi-governmental or regulatory body, agency or authority ("
Governmental
Entities
"), except, in the case of clauses (i) and (ii) above, any such items that, individually or in the aggregate, would not be expected to be materially
adverse to the ability of such Company T Shareholder to timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements.
Except for this Agreement, such Company T Shareholder has not:
(i) entered into any contract, agreement or other instrument, voting agreement, voting trust or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable
proxy, consent or power of attorney with respect to any of the Covered Shares or (iii) taken any action that would constitute a breach hereof, make any representation or warranty of such
Company T Shareholder set forth in this Article III untrue or incorrect in any material respect or have the effect of preventing or disabling such Company T Shareholder from performing in any
material respect any of its obligations under this Agreement. Such Company T Shareholder understands and acknowledges that Company Y and Merger Sub are entering into the Merger Agreement in reliance
upon the Company T Shareholders' execution and delivery of this Agreement and the representations, warranties, covenants and other agreements of such Company T Shareholder contained herein.
(e)
No Action.
As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of such Company T Shareholder, threatened against such Company T Shareholder that could reasonably be expected to impair
the ability of such Company T Shareholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
Section 3.2
Representations and Warranties of Company Y.
Company Y represents and warrants to
each Company T Shareholder that Company Y has all corporate power and authority to execute, deliver and perform this
Agreement. The execution and delivery by Company Y of this Agreement, the performance by Company Y of its obligations hereunder and the consummation by Company Y of the transactions contemplated by
this Agreement have been duly and validly authorized by Company Y and no other actions or proceedings on the part of Company Y are necessary to authorize the execution and delivery by it of this
Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
Company Y and, assuming this Agreement constitutes a valid and binding obligation of each Company T Shareholder, constitutes a legal, valid and binding agreement of Company Y enforceable against
Company Y in accordance with its terms, subject to the Bankruptcy and Equity Exception.
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ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers of Company T Shares.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, each Company T Shareholder agrees not to Transfer any of the Covered Shares, or any voting
right or power (including whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or
any interest therein in violation of this Section 4.1 shall be null and void.
(b) This
Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or Beneficial Ownership shall pass,
whether by operation of law or otherwise, including, such Company T Shareholder's successors or assigns. No Company T Shareholder may request that Company T or Company T's depositary bank register the
Transfer (book-entry or otherwise) of any or all of the Covered Shares (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this
Agreement. Notwithstanding any Transfer of Covered Shares, the transferor shall remain liable for the performance of all of the obligations of such Company T Shareholder under this Agreement.
Section 4.2
Prohibition on Transfers of Company Y Shares.
(a) Subject
to the terms of this Agreement, during the period from the Closing until the date which is 180 days following the Closing Date, each Company T Shareholder
agrees not to Transfer any of the Company Y Shares or Company Y ADSs received by such Company T Shareholder as consideration in the Merger, or any voting right or power (including whether such right
or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or any interest therein in violation of this
Section 4.2 shall be null and void.
(b) No
Company T Shareholder may request that Company Y or Company Y's depositary bank register the Transfer (book-entry or otherwise) of any or all of the
Company Y Shares or Company Y ADSs received by such Company T Shareholder as consideration in the Merger (whether represented by a certificate or uncertificated), unless such Transfer is made in
compliance with this Agreement. Notwithstanding any Transfer of Company Y Shares or Company Y ADSs received by the Company T Shareholders as consideration in the Merger, the transferor shall remain
liable for the performance of all of the obligations of such Company T Shareholder under this Section 4.2 and the last sentence of Section 4.4.
Section 4.3
Additional Shares.
Each Company T Shareholder agrees to promptly notify
Company Y of the number of Additional Shares acquired by such Company T Shareholder after the date
hereof. Any such Additional Shares shall automatically become subject to the terms of this Agreement and shall constitute Covered Shares for all purposes of this Agreement.
Section 4.4
Share Dividends, etc.
In the event of a reclassification, recapitalization,
reorganization, share split (including a reverse share split) or combination, exchange or readjustment of
shares, change in ratio of Company T ADS to Company T Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution of securities
convertible into or exchangeable for Company T Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include such shares as well as
all such share dividends and distributions and any securities of Company T into which or for which any or all of such shares may be changed or exchanged or which are received in such transaction. In
the event of any issuance of shares of voting securities by Company Y hereafter to any of the parties hereto (including, without limitation, in connection with any share split, share dividend,
recapitalization,
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reorganization,
reverse share split, change in ratio of Company Y ADSs to Company Y Shares, exercise of options or the like), such securities shall become subject to Section 4.2 of this
Agreement until the date which is 180 days following the Closing Date.
Section 4.5
No Solicitation.
Subject to Section 5.13 hereof, each Company T Shareholder
hereby agrees that during the term of this Agreement, such Company T Shareholder shall not, and
shall use reasonable best efforts to cause its Representatives not to, directly or indirectly, take any action that Company T is otherwise prohibited from taking under Section 6.2(a) of the
Merger Agreement.
Section 4.6
No Inconsistent Agreements.
Except for this Agreement, none of the Company T
Shareholders shall: (a) enter into any contract agreement or other instrument, option or other agreement
with respect to, or consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein, (b) create or permit to exist any lien that could prevent
such Company T Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material respects with the other obligations under this Agreement, other than any
restrictions imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with respect to the Covered Shares, or grant any proxy, consent or power of
attorney with respect to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any action, directly or indirectly, that could reasonably be expected to
(i) result in a material breach hereof, (ii) make any representation or warranty of such Company T Shareholder set forth in Article III untrue or incorrect in any material respect
or (iii) have the effect of materially delaying, preventing or disabling such Company T Shareholder from performing any of its obligations under this Agreement.
Section 4.7
Waiver of Appraisal and Dissenters' Rights
.
Each Company T Shareholder hereby waives, and agrees not to assert or perfect, and shall cause any of its Affiliates who hold of record any of such Company T Shareholder's Covered Shares
to waive and to not assert or perfect, any rights of appraisal or rights to dissent from the Merger that such Company T Shareholder may have under the law of the Cayman Islands by virtue of ownership
of the Covered Shares.
Section 4.8
Documentation and Information
.
Each Company T Shareholder (i) consents to and authorizes the publication and disclosure by Company Y of such Company T Shareholder's identity and holding of the Covered Shares
and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without limitation, Company Y's
Form F-4, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such disclosure documents. Each Company T
Shareholder shall promptly notify Company Y of any required corrections with respect to any written information supplied by such Company T Shareholder specifically for use in any such disclosure
document, if and to the extent that any shall have become false or misleading in any material respect. Each of the parties hereto shall not issue any press release or make any other public statement
with respect to the transactions contemplated by this Agreement and the Merger Agreement without the prior written consent of Company T and Company Y, except as such release or statement may be
required by applicable Law or the rules and regulations of any national securities exchange or Governmental Entity to which such Company T Shareholder is subject or submits.
Section 4.9
Registration of ADS
.
Company Y agrees that no earlier than 15 days before the 180th day following the Closing, upon the request of any Company T Shareholder, Company Y shall cooperate, and
cause its advisers to cooperate, with such Company T Shareholder so that American depositary shares (which, in the case of a Company T Shareholder who is not deemed to be an "affiliate" of Company Y
under the meaning of Rule 144 of the Securities Act, shall be unrestricted American depositary shares) representing any or all Company Y Shares then Beneficially Owned by such Company T
Shareholder shall be issued in the name of such Company T Shareholder on or immediately after the 180th day following the Closing) in accordance with the terms of the Company Y Deposit
Agreement.
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Section 4.10
Further Assurances
.
No Company T Shareholder shall take any action, directly or indirectly, that would make any representation or warranty of such Company T Shareholder contained herein untrue or incorrect
in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by such Company T Shareholder of its obligations
under this Agreement. From time to time, at Company Y's request and without further consideration, each Company T Shareholder, solely in its capacity as a Company T Shareholder of Company T, shall
take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be reasonably necessary to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation
.
Unless the express context otherwise requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) mean such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
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Section 5.2
Termination.
This Agreement and all obligations of the parties hereunder (other than
as set forth in the following sentence) shall automatically terminate on the earliest to
occur of (i) the Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, or (iii) at any time upon the written agreement of Company Y
and the Company T Shareholders. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further action by any party except for
(i) the provisions of Section 4.2 and Section 4.9, which shall continue to apply until the date which is 180 days from the Closing Date, and (ii) the provisions of
Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any party of liability for any breach prior to such
termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue
.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York. Any action, claim, demand, or
proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York.
Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so,
any objection which it may now or hereafter have to the laying of venue of any such Proceeding in any such court in accordance with the provisions of this Section 5.3. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such Proceeding in any such court. Each of the parties hereto
hereby irrevocably and unconditionally agrees that, to the fullest extent permitted by applicable Law, service of process to such party's address set forth in Section 5.4, and in the manner
provided for notices in Section 5.4, will be effective service of process for any Proceeding in New York with respect to any matter to which such party has submitted to jurisdiction as set
forth in this Section 5.3. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by Law.
(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any Proceeding directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated hereby, including any controversy or Proceeding involving any Company Y Related Party under this Agreement. Each party hereto certifies and
acknowledges that (i) no representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that such other party would not, in the event of a Proceeding, seek
to enforce the foregoing waiver, (ii) each party hereto understands and has considered the implications of this waiver, (iii) each party hereto makes this waiver voluntarily, and
(iv) each party hereto has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.3.
Section 5.4
Notices.
All notices, requests, claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given (a) upon personal
delivery, (b) one (1) Business Day after being sent via an internationally recognized overnight courier service, (c) three
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(3) Business
Days after being sent, postage prepaid, by registered, certified or express mail or (d) upon receipt of electronic or other confirmation of transmission if sent via
facsimile, in each case, at the addresses or facsimile numbers (or at such other address or facsimile number for a party as shall be specified by like notice) set forth below:
If
to Company Y to:
Youku Inc.
11/F, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
The People's Republic of China
Telephone: (8610) 5885-1881
Facsimile: (8610) 5970-8818
Attention: Mr. Victor Koo
with
a copy (which shall not constitute notice) to:
Skadden,
Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
Facsimile: +852 3910 4850
If
to any Company T Shareholder: to such Company T Shareholder and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
Section 5.5
Amendment.
This Agreement may not be amended, modified or supplemented except by an
instrument in writing signed by Company Y and each Company T Shareholder;
provided
that matters that only affect the right of a particular Company T Shareholder or a group of Company T Shareholders
shall only require an
instrument in writing signed by Company Y and such Company T Shareholder or Company T Shareholders.
Section 5.6
Extension; Waiver
.
At any time before the termination of this Agreement, Company Y, on the one hand, and any of the Company T Shareholders, on the other hand, may (a) extend the time for the
performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any
document delivered under this Agreement or (c) waive compliance with any of the covenants or conditions contained in this Agreement. Any agreement on the part of a party to any extension or
waiver shall be valid only if set forth in an instrument in writing signed by such party. The failure of any party to assert any of its rights under this Agreement or otherwise shall not constitute a
waiver of such rights, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege under this Agreement.
Section 5.7
Entire Agreement
.
This Agreement (together with the Merger Agreement, to the extent referred to in this Agreement) constitutes the sole and entire agreement of the Company T Shareholders or any of their
Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings,
agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding or condition not set forth in
this Agreement has been made or relied upon by any of the parties to this Agreement.
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Section 5.8
No Third-Party Beneficiaries
.
This Agreement is for the sole benefit of, shall be binding upon, and may be enforced solely by Company Y and the Company T Shareholders and nothing in this Agreement, express or
implied, is intended to or shall confer upon any person (other than Company Y and the Company T Shareholders) any legal or equitable right, benefit or remedy of any nature whatsoever.
Section 5.9
Severability
.
The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions
hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or
enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction
.
The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.
Section 5.11
Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of Law (including, but not limited to, by merger
or consolidation) or otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance.
The parties hereto agree that irreparable damage would occur
if any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches
or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise,
this being in addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party
hereto agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or
(ii) an award of specific performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company T Shareholder Capacity
.
Notwithstanding anything contained in this Agreement to the contrary, the representations, warranties, covenants and agreements made herein by each Company T Shareholder are made solely
with respect to such Company T Shareholder and the Covered Shares. Each Company T Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner of such Covered Shares and
nothing herein shall limit or affect any actions taken by any officer or director of Company T (or a Subsidiary of Company T) solely in his or her capacity as a director or officer of Company T
(or a Subsidiary of Company T), including participating in his or her capacity as a director or officer of Company T in any discussions or negotiations with Company Y. Nothing contained herein, and no
action taken by any Company T Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other kind of entity, or create a
presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
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Section 5.14
No Ownership Interest
.
Nothing contained in this Agreement shall be deemed to vest in Company Y any direct or indirect ownership or incidence of ownership of or with respect to any Covered Shares. All rights,
ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company T Shareholders, and Company Y shall have no authority to direct the Company T
Shareholders in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses
.
All costs and expenses (including all fees and disbursements of counsel, accountants, investment bankers, experts and consultants to a party) incurred in connection with this Agreement
shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness
.
This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties;
provided
,
however
, that if any of the
Company T Shareholders fails for any reason to execute, or perform their obligations under, this Agreement, this Agreement shall remain effective as to all parties executing this Agreement.
Section 5.17
Several Obligations
.
The agreements, obligations, representations and warranties of the Company T Shareholders hereunder shall be several and not joint.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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YOUKU INC.
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By:
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/s/ VICTOR WING CHEUNG KOO
Name: Victor Wing Cheung Koo
Title: Chairman and Chief Executive Officer
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IDG TECHNOLOGY VENTURE
INVESTMENT III, L.P.
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By:
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/s/ CHI SING HO
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Name:
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Chi Sing Ho
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Title:
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Authorized Signatory
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IDG TECHNOLOGY VENTURE
INVESTMENT IV, L.P.
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By:
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/s/ CHI SING HO
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Name:
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Chi Sing Ho
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Title:
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Authorized Signatory
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Schedule 1
COMPANY T SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company T
Shares
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Number of
Company T
ADSs
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IDG TECHNOLOGY VENTURE INVESTMENT III, L.P
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8,127,384
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0
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c/o IDG VC Management Limited
Unit 1509, The Centre
99 Queen's Road, Central
Hong Kong
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Attention: Simon Ho
Facsimile: +852 2523 1619
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IDG TECHNOLOGY VENTURE INVESTMENT IV, L.P
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2,252,307
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0
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c/o IDG VC Management Limited
Unit 1509, The Centre
99 Queen's Road, Central
Hong Kong
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Attention: Simon Ho
Facsimile: +852 2523 1619
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EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company Y and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of [Tudou Holdings
Limited][Youku Inc.] (the "
Shares
") subject to the terms and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of a
Company T Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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By:
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Name and Title
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Address:
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Fax:
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Accepted and Agreed:
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YOUKU INC.
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By:
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Title:
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Appendix B-4
VOTING AGREEMENT
By and among
YOUKU INC.
And
THE SHAREHOLDER PARTY HERETO
Dated as of March 11, 2012
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TABLE OF CONTENTS
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INDEX OF DEFINED TERMS
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Term
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Section
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Acquisition Proposal
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4, 6
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Additional Shares
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4
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Affiliate
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3
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Agreement
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3
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Bankruptcy and Equity Exception
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7
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Beneficial Owner
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4
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Beneficial Ownership
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4
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Beneficially Own
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4
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Beneficially Owned
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4
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Company T
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3
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Company T ADSs
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4
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Company T Shareholder
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3
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Company T Shares
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4
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Company Y
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3
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control
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4
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controlled by
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4
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controlling
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4
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Covered Shares
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5
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Effective Time
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7
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Exchange Act
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4
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Existing Shares
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5
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Governmental Entities
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8
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Merger
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3
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Merger Agreement
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3
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Merger Sub
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3
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Permitted Transfer
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5
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Transfer
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5
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under common control with
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4
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VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Youku Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company Y
"), and the Person
listed on Schedule 1 hereto (the "
Company T Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company Y, Two Merger Sub Inc., an exempted company with
limited liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y ("
Merger Sub
"), and Tudou Holdings
Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), are entering into an
Agreement and Plan of Merger, dated as of the date of this Agreement (the "
Merger Agreement
"), pursuant to which, among other things, Merger Sub
will merge with and into Company T, with Company T surviving the merger as a wholly owned subsidiary of Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, the Company T Shareholder is the Beneficial Owner of the Existing Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company Y and Merger Sub to enter into the Merger
Agreement, Company Y has required that the Company T Shareholder agree, and the Company T Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter
into this Agreement and abide by the covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms.
The following terms, as used in this Agreement, shall have
the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by
contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Acquisition Proposal
" means any proposal or offer made by any Person (other than Company Y, Merger Sub or any Affiliate
thereof) to purchase or otherwise acquire, directly or indirectly, in one transaction or a series of transactions, (A) beneficial ownership (as defined under section 13(d) of the
Exchange Act) of ten percent (10%) or more of the share capital of Company T pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, tender offer,
exchange offer or similar transaction or (B) any one or more assets or businesses of Company T and its Subsidiaries that constitute ten percent (10%) or more of the revenues or assets of
Company T and its Subsidiaries, taken as a whole.
(c) "
Additional Shares
" means Company T Shares, Company T ADSs or other voting share capital of Company T with respect
to which the Company T Shareholder acquires Beneficial Ownership after the date of this Agreement (including any Company T Shares issued upon the
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exercise
of any Company T Options or warrants or the conversion of any convertible securities or otherwise).
(d) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange Act
"). Without
duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include securities Beneficially Owned by all Affiliates of such Person and all other
Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. The terms "Beneficially Own," "Beneficially Owned" and "Beneficial Owner" shall
have correlative meanings.
(e) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(f) "
Company T ADSs
" means American depositary shares of Company T.
(g) "
Company T Shares
" means the authorized share capital of Company T, which as of the date hereof consists of US$1,000,000,
divided into (i) 9,990,000,000 ordinary shares of par value US$0.0001 each and (ii) 10,000,000 preferred shares of a nominal or par value of US$0.0001 each.
(h) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(i) "
Covered Shares
" means the Existing Shares and any Additional Shares.
(j) "
Existing Shares
" means Company T Shares and Company T ADSs Beneficially Owned by the Company T Shareholder on the date
hereof, as set forth opposite the Company T Shareholder's name on Schedule 1 hereto.
(k) "
Permitted Transfer
" means a Transfer by the Company T Shareholder to (i) an Affiliate of the Company T
Shareholder, (ii) a member of the Company T Shareholder's family or a trust for the benefit of the Company T Shareholder's or any member of the Company T Shareholder's family, or
(iii) any heir, legatees, beneficiaries and/or devisees of any individual who is the Company T Shareholder;
provided
that the Transferee agrees
to execute a Joinder in the form attached hereto as Exhibit A.
(l) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
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ARTICLE II
VOTING
Section 2.1
Agreement to Vote.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, the Company T Shareholder hereby
irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company T and at any other meeting of the shareholders of Company T, however called,
including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company T and in any other circumstance upon which a vote, consent or other
approval of all or some of the shareholders of Company T is sought, it shall, and shall cause any holder of record of its Covered Shares to, in each case to the extent that the Covered Shares are
entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company T for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the Merger, the Plan of Merger and the approval and adoption of the Merger Agreement and the other transactions contemplated by the Merger Agreement, (2) in
favor of any related proposal that is necessary to consummate the Merger and the transactions contemplated by the Merger Agreement which is considered at any such meeting of Company T
Shareholder, (3) against any action, proposal, transaction or agreement that could reasonably be expected to (A) result in a breach of any representation, warranty, covenant or other
obligation or agreement of Company T contained in the Merger Agreement, (B) result in a breach of any representation, warranty, covenant or other obligation or agreement of the Company T
Shareholder contained in this Agreement, or (C) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in any manner the voting
rights of any class of shares of Company T (including any amendments to the memorandum and articles of association of Company T), (4) against any Acquisition Proposal, and (5) against
any change in the composition of the board of directors of Company T (other than such changes contemplated by the Merger Agreement).
(b) The
Company T Shareholder shall retain at all times the right to vote the Company T Shareholder's Covered Shares in its sole discretion and without any other limitation
on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to Company T Shareholder of Company T generally.
Section 2.2
Grant of Proxy.
The Company T Shareholder hereby irrevocably and
unconditionally grants a proxy to, and appoints, Company Y and any designee of Company Y, and each of them
individually, as its proxies and attorneys-in-fact, with full power of substitution and resubstitution, for and in the Company T Shareholder's name, place and stead, in the
event that the Company T Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or
Section 2.1(a)(ii)5)), to vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with respect to the Covered Shares as
provided in Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)5)). This proxy and power of attorney is given in connection
with, and in consideration of, the execution of the Merger Agreement by Company Y and Merger Sub, and to secure the performance of the duties and obligations of the Company T Shareholder owed to
Company Y under this Agreement. The Company T Shareholder hereby (a) affirms that such
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irrevocable
proxy is (i) coupled with an interest by reason of the Merger Agreement and (ii) executed and intended to be irrevocable in accordance with the provisions of the Laws of the
State of New York, and (b) revokes any and all prior proxies granted by Company T Shareholder with respect to the Covered Shares and no subsequent proxy shall be given by the Company T
Shareholder (and if given shall be ineffective). The Company T Shareholder shall take such further action or execute such other instruments as may be reasonably necessary in accordance with the
relevant provisions of the Laws of the State of New York or any other Law to effectuate the intent of this proxy. The power of attorney granted by the Company T Shareholder herein is a durable power
of attorney and, so long as Company Y has the interest secured by such power of attorney or the obligations secured by such power of attorney remain undischarged, the power of attorney shall
not be revoked by the dissolution, bankruptcy, death or incapacity of the Company T Shareholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company T Shareholder.
The
Company T Shareholder represents and warrants to Company Y as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action.
The Company T Shareholder, as of the
date hereof (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized (in the case of good standing, to the extent the concept is
recognized by such jurisdiction) and (ii) has all corporate, limited partnership, trust or other organizational power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery by the Company T Shareholder of this Agreement, the performance by the Company T
Shareholder of its obligations hereunder and the consummation by the Company T Shareholder of the transactions contemplated by this Agreement have been duly and validly authorized by the Company T
Shareholder and no other actions or proceedings on the part of the Company T Shareholder are necessary to authorize the execution and delivery by him, her or it of this Agreement, the performance by
him, her or it of its obligations hereunder or the consummation by him, her or it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by the Company
T Shareholder and, assuming this Agreement constitutes a valid and binding obligation of Company Y, constitutes a legal, valid and binding agreement of the Company T Shareholder enforceable against
the Company T Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or
affecting creditors' rights and to general equity principles (the "
Bankruptcy and Equity Exception
").
(b)
Ownership.
The Company T Shareholder is the Beneficial Owner of and has good and valid title to the Existing
Shares set forth next to the Company T Shareholder's name on Schedule 1, free and clear of any liens, other than any liens pursuant to this Agreement or arising under the articles of
association of Company T and transfer restrictions imposed by generally applicable securities Laws. As of the date of this Agreement, the Company T Shareholder's Existing Shares constitute all of the
Company T Shares and Company T ADSs Beneficially Owned or owned of record by the Company T Shareholder. Except to the extent Covered Shares are Transferred after the date of this Agreement pursuant to
a Permitted Transfer, the Company T Shareholder has not granted any proxy inconsistent with this Agreement that is still effective or entered into any voting or similar agreement, in each case with
respect to all of the Company T Shareholder's Existing Shares and with respect to all of the Covered Shares Beneficially Owned by the Company T Shareholder at all times through the effective time of
the Merger (the "
Effective Time
").
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(c)
Non-Contravention.
The execution and delivery of this Agreement by the Company T Shareholder do
not, and the performance by the Company T Shareholder of its obligations under this Agreement and the consummation by the Company T Shareholder of the transactions contemplated by this Agreement, will
not (i) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, consent,
termination, cancellation or acceleration of any obligation or loss of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or
result in the creation of any lien upon its assets or properties under, any provision of (A) any charter or organizational documents of the Company T Shareholder, (B) any contract,
agreement or other instrument to which the Company T Shareholder is party or by which any of its assets or properties is bound and (C) any judgment, order, injunction, decree or Law applicable
to the Company T Shareholder or its assets or properties or (ii) require any consent of, or registration, declaration or filing with, notice to, or permit from, any supranational, national,
state, municipal or local court or tribunal or administrative, governmental, quasi-governmental or regulatory body, agency or authority ("
Governmental
Entities
"), except, in the case of clauses (i) and (ii) above, any such items that, individually or in the aggregate, would not be expected to be materially
adverse to the ability of the Company T Shareholder to timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements.
Except for this Agreement, the Company T Shareholder has not: (i) entered
into any contract, agreement or other instrument, voting agreement, voting trust or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable proxy, consent or
power of attorney with respect to any of the Covered Shares or (iii) taken any action that would constitute a breach hereof, make any representation or warranty of the Company T
Shareholder set forth in this Article III untrue or incorrect in any material respect or have the effect of preventing or disabling the Company T Shareholder from performing in any material
respect any of its obligations under this Agreement. The Company T Shareholder understands and acknowledges that Company Y and Merger Sub are entering into the Merger Agreement in reliance upon the
Company T Shareholder's execution and delivery of this Agreement and the representations, warranties, covenants and other agreements of the Company T Shareholder contained herein.
(e)
No Action.
As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of the Company T Shareholder, threatened against the Company T Shareholder that could reasonably be expected to impair the
ability of the Company T Shareholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
Section 3.2
Representations and Warranties of Company Y.
Company Y
represents and warrants to the Company T Shareholder that Company Y has all corporate power and authority to execute, deliver and perform this
Agreement. The execution and delivery by Company Y of this Agreement, the performance by Company Y of its obligations hereunder and the consummation by Company Y of the transactions contemplated by
this Agreement have been duly and validly authorized by Company Y and no other actions or proceedings on the part of Company Y are necessary to authorize the execution and delivery by it of this
Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
Company Y and, assuming this Agreement constitutes a valid and binding obligation of the Company T Shareholder, constitutes a legal, valid and binding agreement of Company Y enforceable against
Company Y in accordance with its terms, subject to the Bankruptcy and Equity Exception.
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ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers of Company T Shares.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, the Company T Shareholder agrees not to Transfer any of the Covered Shares, or any
voting right or power (including whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of
shares or any interest therein in violation of this Section 4.1 shall be null and void.
(b) This
Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or Beneficial Ownership shall pass,
whether by operation of law or otherwise, including, the Company T Shareholder's successors or assigns. The Company T Shareholder may not request that Company T or Company T's depositary bank register
the Transfer
(book-entry or otherwise) of any or all of the Covered Shares (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this Agreement.
Notwithstanding any Transfer of Covered Shares, the transferor shall remain liable for the performance of all of the obligations of the Company T Shareholder under this Agreement.
Section 4.2
Prohibition on Transfers of Company Y Shares.
(a) Subject
to the terms of this Agreement, during the period from the Closing until the date which is 180 days following the Closing Date, the Company T Shareholder
agrees not to Transfer any of the Company Y Shares or Company Y ADSs received by it as consideration in the Merger, or any voting right or power (including whether such right or power is granted by
proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or any interest therein in violation of this Section 4.2 shall be
null and void.
(b) The
Company T Shareholder may not request that Company Y or Company Y's depositary bank register the Transfer (book-entry or otherwise) of any or all of the
Company Y Shares or Company Y ADSs received by it as consideration in the Merger (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this
Agreement. Notwithstanding any Transfer of Company Y Shares or Company Y ADSs received by the Company T Shareholder as consideration in the Merger, the transferor shall remain liable for the
performance of all of the obligations of the Company T Shareholder under this Section 4.2 and the last sentence of Section 4.4.
Section 4.3
Additional Shares.
The Company T Shareholder agrees to promptly
notify Company Y of the number of Additional Shares acquired by the Company T Shareholder after the date
hereof. Any such Additional Shares shall automatically become subject to the terms of this Agreement and shall constitute Covered Shares for all purposes of this Agreement.
Section 4.4
Share Dividends, etc.
In the event of a reclassification,
recapitalization, reorganization, share split (including a reverse share split) or combination, exchange or readjustment of
shares, change in ratio of Company T ADS to Company T Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution of securities
convertible into or exchangeable for Company T Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include such shares as well as
all such share dividends and distributions and any securities of Company T into which or for which any or all of such shares may be changed or exchanged or which are received in such transaction. In
the event of any issuance of shares of voting securities by Company Y hereafter to any of the parties hereto (including, without limitation, in connection with any share split, share dividend,
recapitalization,
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reorganization,
reverse share split, change in ratio of Company Y ADSs to Company Y Shares, exercise of options or the like), such securities shall become subject to Section 4.2 of this
Agreement until the date which is 180 days following the Closing Date.
Section 4.5
No Solicitation.
Subject to Section 5.13 hereof, the Company
T Shareholder hereby agrees that during the term of this Agreement, the Company T Shareholder shall not, and
shall use reasonable best efforts to cause its Representatives not to, directly or indirectly, take any action that Company T is otherwise prohibited from taking under Section 6.2(a) of the
Merger Agreement.
Section 4.6
No Inconsistent Agreements.
Except for this Agreement, the
Company T Shareholder shall not: (a) enter into any contract agreement or other instrument, option or other agreement with
respect to, or consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein, (b) create or permit to exist any lien that could prevent the
Company T Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material respects with the other obligations under this Agreement, other than any
restrictions imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with respect to the Covered Shares, or grant any proxy, consent or power of
attorney with respect to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any action, directly or indirectly, that could reasonably be expected to
(i) result in a material breach hereof, (ii) make any representation or warranty of the Company T Shareholder set forth in Article III untrue or incorrect in any material respect
or (iii) have the effect of materially delaying, preventing or disabling the Company T Shareholder from performing any of its obligations under this Agreement.
Section 4.7
Waiver of Appraisal and Dissenters' Rights.
The Company T
Shareholder hereby waives, and agrees not to assert or perfect, and shall cause any of its Affiliates who hold of record any of the Company T
Shareholder's Covered Shares to waive and to not assert or perfect, any rights of appraisal or rights to dissent from the Merger that the Company T Shareholder may have under the law of the Cayman
Islands by virtue of ownership of the Covered Shares.
Section 4.8
Documentation and Information.
Company T Shareholder
(i) consents to and authorizes the publication and disclosure by Company Y of the Company T Shareholder's identity and holding of the
Covered Shares and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without limitation, Company Y's
Form F-4, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such disclosure documents. Company T Shareholder
shall promptly notify Company Y of any required corrections with respect to any written information supplied by the Company T Shareholder specifically for use in any such disclosure document, if and
to the extent that any shall have become false or misleading in any material respect. Each of the parties hereto shall not issue any press release or make any other public statement with respect to
the transactions contemplated by this Agreement and the Merger Agreement without the prior written consent of Company T and Company Y, except as such release or statement may be required by applicable
Law or the rules and regulations of any national securities exchange or Governmental Entity to which the Company T Shareholder is subject or submits.
Section 4.9
Registration of ADS.
Company Y agrees that no earlier than
15 days before the 180th day following the Closing, upon the request of the Company T Shareholder, Company Y
shall cooperate, and cause its advisers to cooperate, with the Company T Shareholder so that American depositary shares (which, in the case of a Company T Shareholder who is not deemed to be an
"affiliate" of Company Y under the meaning of Rule 144 of the Securities Act, shall be unrestricted American depositary shares) representing any or all Company Y Shares then Beneficially Owned
by the Company T Shareholder shall be issued in the name of the Company T Shareholder on or immediately after the 180th day following the Closing) in accordance with the terms of the Company Y
Deposit Agreement.
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Section 4.10
Further Assurances.
The Company T Shareholder
shall not take any action, directly or indirectly, that would make any representation or warranty of the Company T Shareholder contained
herein untrue or incorrect in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by the Company T
Shareholder of its obligations under this Agreement. From time to time, at Company Y's request and without further consideration, the Company T Shareholder, solely in its capacity as a Company T
Shareholder of Company T, shall take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be reasonably necessary to consummate and make
effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation.
Unless the express context otherwise requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) mean such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
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Section 5.2
Termination.
This Agreement and all obligations of the parties
hereunder (other than as set forth in the following sentence) shall automatically terminate on the earliest to
occur of (i) the Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, or (iii) at any time upon the written agreement of Company Y
and the Company T Shareholder. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further action by any party except for
(i) the provisions of Section 4.2 and Section 4.9, which shall continue to apply until the date which is 180 days from the Closing Date, and (ii) the provisions of
Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any party of liability for any breach prior to such
termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York. Any action, claim, demand, or
proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York.
Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by Law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby
irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in
any such court in accordance with the provisions of this Section 5.3. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an
inconvenient forum to the maintenance of such Proceeding in any such court. Each of the parties hereto hereby irrevocably and unconditionally agrees that, to the fullest extent permitted by applicable
Law, service of process to such party's address set forth in Section 5.4, and in the manner provided for notices in Section 5.4, will be effective service of process for any Proceeding
in New York with respect to any matter to which such party has submitted to jurisdiction as set forth in this Section 5.3. Nothing in this Agreement will affect the right of any party to this
Agreement to serve process in any other manner permitted by Law.
(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any Proceeding directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated hereby, including any controversy or Proceeding involving any Company Y Related Party under this Agreement. Each party hereto certifies and
acknowledges that (i) no representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that such other party would not, in the event of a Proceeding, seek
to enforce the foregoing waiver, (ii) each party hereto understands and has considered the implications of this waiver, (iii) each party hereto makes this waiver voluntarily, and
(iv) each party hereto has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.3.
Section 5.4
Notices.
All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given (a) upon personal
delivery, (b) one (1) Business Day after being sent via an internationally recognized overnight courier service, (c) three
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(3) Business
Days after being sent, postage prepaid, by registered, certified or express mail or (d) upon receipt of electronic or other confirmation of transmission if sent via
facsimile, in each case, at the addresses or facsimile numbers (or at such other address or facsimile number for a party as shall be specified by like notice) set forth below:
If
to Company Y to:
Youku Inc.
11/F, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
The People's Republic of China
Telephone: (8610) 5885-1881
Facsimile: (8610) 5970-8818
Attention: Mr. Victor Koo
with
a copy (which shall not constitute notice) to:
Skadden,
Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
Facsimile: +852 3910 4850
If
to the Company T Shareholder, to it and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
Section 5.5
Amendment.
This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by Company Y and Company T Shareholder;
provided
that matters that only affect the right of a particular Company T Shareholder or a group of Company T Shareholder shall only require an
instrument in writing signed by Company Y and the Company T Shareholder.
Section 5.6
Extension; Waiver.
At any time before the termination of this
Agreement, Company Y, on the one hand, and the Company T Shareholder, on the other hand, may (a) extend
the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this
Agreement or in any document delivered under this Agreement or (c) waive compliance with any of the covenants or conditions contained in this Agreement. Any agreement on the part of a party to
any extension or waiver shall be valid only if set forth in an instrument in writing signed by such party. The failure of any party to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege under this
Agreement.
Section 5.7
Entire Agreement.
This Agreement (together with the Merger
Agreement, to the extent referred to in this Agreement) constitutes the sole and entire agreement of the Company T
Shareholder or any of their Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and
contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding
or condition not set forth in this Agreement has been made or relied upon by any of the parties to this Agreement.
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Section 5.8
No Third-Party Beneficiaries.
This Agreement is for the sole
benefit of, shall be binding upon, and may be enforced solely by Company Y and the Company T Shareholder and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person (other than Company Y and the Company T Shareholder) any legal or equitable right, benefit or remedy of any nature
whatsoever.
Section 5.9
Severability.
The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction.
The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions
of this Agreement.
Section 5.11
Assignment.
Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by operation of Law (including, but not limited to, by merger
or consolidation) or otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance.
The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches
or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise,
this being in addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party
hereto agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or
(ii) an award of specific performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company T Shareholder Capacity.
Notwithstanding anything
contained in this Agreement to the contrary, the representations, warranties, covenants and agreements made herein by the Company T
Shareholder are made solely with respect to the Company T Shareholder and the Covered Shares. The Company T Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner
of such Covered Shares and nothing herein shall limit or affect any actions taken by any officer or director of Company T (or a Subsidiary of Company T) solely in his or her capacity as a
director or officer of Company T (or a Subsidiary of Company T), including participating in his or her capacity as a director or officer of Company T in any discussions or negotiations with Company Y.
Nothing contained herein, and no action taken by the Company T Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
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Section 5.14
No Ownership Interest.
Nothing contained in this Agreement
shall be deemed to vest in Company Y any direct or indirect ownership or incidence of ownership of or with respect to any
Covered Shares. All rights, ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company T Shareholder, and Company Y shall have no authority
to direct the Company T Shareholder in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses.
All costs and expenses (including all fees
and disbursements of counsel, accountants, investment bankers, experts and consultants to a party) incurred in
connection with this Agreement shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness.
This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the other parties;
provided
,
however
, that if the Company T Shareholder fails
for any reason to execute, or perform their obligations under, this Agreement, this Agreement shall
remain effective as to all parties executing this Agreement.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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YOUKU INC.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name:
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Victor Wing Cheung Koo
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Title:
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Chairman and Chief Executive Officer
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SENNETT INVESTMENTS
(MAURITIUS) PTE LTD.
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By:
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/s/ ANG PENG HUAT
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Name:
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Ang Peng Huat
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Title:
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Authorised Signatory
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[
Signature Page to Voting Agreement
]
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Schedule 1
COMPANY T SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company T
Shares
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Number of
Company T
ADSs
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SENNETT INVESTMENTS (MAURITIUS) PTE LTD
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19,384,853
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0
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c/o 60B Orchard Road #06-18 Tower 2
The Atrium@Orchard
Singapore 238891
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with a copy to:
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c/o IMM Les Cascades
Edith Cavell, Port Louis
Republic of Mauritius
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Attention: Lau Teck Sien
Facsimile: +86 105930 4901
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EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company Y and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of [Tudou Holdings
Limited][Youku Inc.] (the "
Shares
") subject to the terms and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect
as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of the Company T Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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By:
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Name and Title
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Address:
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Fax:
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Accepted
and Agreed:
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Appendix B-5
VOTING AGREEMENT
By and among
YOUKU INC.
And
THE SHAREHOLDERS PARTY HERETO
Dated as of March 11, 2012
Table of Contents
TABLE OF CONTENTS
B-5-i
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INDEX OF DEFINED TERMS
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Term
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Section
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Acquisition Proposal
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4, 6
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Additional Shares
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4
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Affiliate
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3
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Agreement
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3
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Bankruptcy and Equity Exception
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7
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Beneficial Owner
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4
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Beneficial Ownership
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4
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Beneficially Own
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4
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Beneficially Owned
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4
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Company T
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3
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Company T ADSs
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4
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Company T Shareholder
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3
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Company T Shares
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4
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Company Y
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3
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control
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4
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controlled by
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4
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controlling
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4
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Covered Shares
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5
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Effective Time
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7
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Exchange Act
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4
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Existing Shares
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5
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Governmental Entities
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8
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Merger
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3
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Merger Agreement
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3
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Merger Sub
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3
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Permitted Transfer
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5
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Transfer
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5
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under common control with
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4
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B-5-ii
Table of Contents
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Youku Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company Y
"), Mr. Gary Wei Wang,
an individual and a citizen of the PRC (as defined below) ("
Mr. Wang
") and each of the other Persons listed on Schedule 1 hereto (each
such Person, including Mr. Wang, a "
Company T Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company Y, Two Merger Sub Inc., an exempted company with limited
liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y ("
Merger Sub
"), and Tudou Holdings Limited, an
exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), are entering into an Agreement and Plan
of Merger, dated as of the date of this
Agreement (the "
Merger Agreement
"), pursuant to which, among other things, Merger Sub will merge with and into Company T, with Company T surviving the
merger as a wholly owned subsidiary of Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, each Company T Shareholder is the Beneficial Owner of the Existing Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company Y and Merger Sub to enter into the Merger Agreement,
Company Y has required that each Company T Shareholder agree, and each Company T Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter into this Agreement and
abide by the covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms
.
The following terms, as used in this Agreement, shall have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto
in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by
contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Acquisition Proposal
" means any proposal or offer made by any Person (other than Company Y, Merger Sub or any Affiliate
thereof) to purchase or otherwise acquire, directly or indirectly, in one transaction or a series of transactions, (A) beneficial ownership (as defined under section 13(d) of the
Exchange Act) of ten percent (10%) or more of the share capital of Company T pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, tender offer,
exchange offer or similar transaction or (B) any one or more assets or businesses of Company T and its Subsidiaries that constitute ten percent (10%) or more of the revenues or assets of
Company T and its Subsidiaries, taken as a whole.
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(c) "
Additional Shares
" means Company T Shares, Company T ADSs or other voting share capital of Company T with respect to
which any Company T Shareholder acquires Beneficial Ownership after the date of this Agreement (including any Company T Shares issued upon the exercise of any Company T Options or warrants or the
conversion of any convertible securities or otherwise).
(d) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange Act
"). Without
duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include securities Beneficially Owned by all Affiliates of such Person and all other
Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. The terms "Beneficially Own," "Beneficially Owned" and "Beneficial Owner" shall
have correlative meanings.
(e) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(f) "
Company T ADSs
" means American depositary shares of Company T.
(g) "
Company T Shares
" means the authorized share capital of Company T, which as of the date hereof consists of US$1,000,000,
divided into (i) 9,990,000,000 ordinary shares of par value US$0.0001 each and (ii) 10,000,000 preferred shares of a nominal or par value of US$0.0001 each.
(h) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(i) "
Covered Shares
" means the Existing Shares and any Additional Shares.
(j) "
Existing Shares
" means Company T Shares and Company T ADSs Beneficially Owned by a Company T Shareholder on the date
hereof, as set forth opposite such Company T Shareholder's name on Schedule 1 hereto.
(k) "
Permitted Transfer
" means (i) a Transfer by a Company T Shareholder to (x) an Affiliate of such Company T
Shareholder, (y) a member of such Company T Shareholder's family or a trust for the benefit of such Company T Shareholder's or any member of such Company T Shareholder's family, or
(z) any heir, legatees, beneficiaries and/or devisees of any individual who is a Company T Shareholder;
provided
that the Transferee agrees to
execute a Joinder in the form attached hereto as Exhibit A; or (ii) a Transfer by a Company T Shareholder to any Person (other than a Person referred to in clause (i) above) if
and only if (1) the gross proceeds received by the Transferring Company T Shareholder as part of such Transfer (together with any other Permitted Transfer made pursuant to this
clause (ii)) shall not exceed an aggregate amount equal to US$10,000,000 and (2) the net proceeds of any such Transfer may not be used for any purpose other than to satisfy
Mr. Wang's obligations under the Company T Founder Settlement Agreement unless and until all of Mr. Wang's obligations under the Company T Founder Settlement Agreement have been
satisfied and evidence to this effect reasonably satisfactory to Company Y has been provided to Company Y.
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Table of Contents
(l) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
ARTICLE II
VOTING
Section 2.1
Agreement to Vote
.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, each Company T Shareholder hereby
irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company T and at any other meeting of the shareholders of Company T, however called,
including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company T and in any other circumstance upon which a vote, consent or other
approval of all or some of the shareholders of Company T is sought, it shall, and shall cause any holder of record of its Covered Shares to, in each case to the extent that the Covered Shares are
entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company T for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the Merger, the Plan of Merger and the approval and adoption of the Merger Agreement and the other transactions contemplated by the Merger Agreement, (2) in
favor of any related proposal that is necessary to consummate the Merger and the transactions contemplated by the Merger Agreement which is considered at any such meeting of Company T
Shareholders, (3) against any action, proposal, transaction or agreement that could reasonably be expected to (A) result in a breach of any representation, warranty, covenant or other
obligation or agreement of Company T contained in the Merger Agreement, (B) result in a breach of any representation, warranty, covenant or other obligation or agreement of such Company T
Shareholder contained in this Agreement, or (C) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in any manner the voting
rights of any class of shares of Company T (including any amendments to the memorandum and articles of association of Company T), (4) against any Acquisition Proposal, and (5) against
any change in the composition of the board of directors of Company T (other than such changes contemplated by the Merger Agreement).
(b) Each
Company T Shareholder shall retain at all times the right to vote such Company T Shareholder's Covered Shares in such Company T Shareholder's sole discretion and
without any other limitation on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to Company T Shareholders of
Company T generally.
Section 2.2
Grant of Proxy
.
Each Company T Shareholder hereby irrevocably and unconditionally grants a proxy to, and appoints, Company Y and any designee of Company Y, and each of them individually, as his, her or
its proxies and attorneys-in-fact, with full power of substitution and resubstitution, for and in such Company T Shareholder's name, place and stead, in the event that such
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Company
T Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or
Section 2.1(a)(ii)5)), to vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with respect to the Covered Shares as
provided in Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)5)). This proxy and power of attorney is given in connection
with, and in consideration of, the execution of the Merger Agreement by Company Y and Merger Sub, and to secure the performance of the duties and obligations of such Company T Shareholder owed
to Company Y under this Agreement. Each Company T Shareholder hereby (a) affirms that such irrevocable proxy is (i) coupled with an interest by reason of the Merger Agreement and
(ii) executed and intended to be irrevocable in accordance with the provisions of the Laws of the State of New York, and (b) revokes any and all prior proxies granted by each Company T
Shareholder with respect to the Covered Shares and no subsequent proxy shall be given by any Company T Shareholder (and if given shall be ineffective). Each Company T Shareholder shall take such
further action or execute such other instruments as may be reasonably necessary in accordance with the relevant provisions of the Laws of the State of New York or any other Law to effectuate the
intent of this proxy. The power of attorney granted by such Company T Shareholder herein is a durable power of attorney and, so long as Company Y has the interest secured by such power of attorney or
the obligations secured by such power of attorney remain undischarged, the power of attorney shall not be revoked by the dissolution, bankruptcy, death or incapacity of such Company T Shareholder. The
proxy and power of attorney granted hereunder shall terminate upon the termination of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company T Shareholders
.
Each Company T Shareholder represents and warrants to Company Y as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action
. If such Company T Shareholder
is not a natural person, such Company T Shareholder, as of the date hereof (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is
organized (in the case of good standing, to the extent the concept is recognized by such jurisdiction) and (ii) has all corporate, limited partnership, trust or other organizational power and
authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. If such Company T Shareholder is a natural
person, he or she, as of the date hereof, has the legal capacity and authority to execute and deliver this Agreement and perform his or her obligations hereunder and to consummate the transactions
contemplated by this Agreement. The execution and delivery by such Company T Shareholder of this Agreement, the performance by such Company T Shareholder of his, her or its obligations hereunder and
the consummation by such Company T Shareholder of the transactions contemplated by this Agreement have been duly and validly authorized by such Company T Shareholder and no other actions or
proceedings on the part of such Company T Shareholder are necessary to authorize the execution and delivery by him, her or it of this Agreement, the performance by him, her or it of its obligations
hereunder or the consummation by him, her or it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by such Company T Shareholder and, assuming this
Agreement constitutes a valid and binding obligation of Company Y, constitutes a legal, valid and binding agreement of such Company T Shareholder enforceable against such Company T Shareholder in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors' rights and
to general equity principles (the "
Bankruptcy and Equity Exception
").
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(b)
Ownership
. Such Company T Shareholder is the Beneficial Owner of and has good and valid title to the
Existing Shares set forth next to such Company T Shareholder's name on Schedule 1, free and clear of any liens, other than any liens pursuant to this Agreement or arising under the articles of
association of Company T and transfer restrictions imposed by generally applicable securities Laws. As of the date of this Agreement, such Company T Shareholder's Existing Shares constitute all of the
Company T Shares and Company T ADSs Beneficially Owned or owned of record by such Company T Shareholder. Except to the extent Covered Shares are Transferred after the date of this Agreement pursuant
to a Permitted Transfer, such Company T Shareholder has not granted any proxy inconsistent with this Agreement that is still effective or entered into any voting or similar agreement, in each case
with respect to all of such Company T Shareholder's Existing Shares and with respect to all of the Covered Shares Beneficially Owned by such Company T Shareholder at all times through the effective
time of the Merger (the "
Effective Time
").
(c)
Non-Contravention
. The execution and delivery of this Agreement by such Company T Shareholder do
not, and the performance by such Company T Shareholder of his, her or its obligations under this Agreement and the consummation by such Company T Shareholder of the transactions contemplated by this
Agreement, will not (i) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in,
consent, termination, cancellation or acceleration of any obligation or loss of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person
under, or result in the creation of any lien upon his, her or its assets or properties under, any provision of (A) any charter or organizational documents of such Company T Shareholder,
(B) any contract, agreement or other instrument to which such Company T Shareholder is party or by which any of his, her or its assets or properties is bound and (C) any judgment, order,
injunction, decree or Law applicable to such Company T Shareholder or his, her or its assets or properties or (ii) require any consent of, or registration, declaration or filing with, notice
to, or permit from, any supranational, national, state, municipal or local court or tribunal or administrative, governmental, quasi-governmental or regulatory body, agency or authority
("
Governmental Entities
"), except, in the case of clauses (i) and (ii) above, any such items that, individually or in the aggregate, would
not be expected to be materially adverse to the ability of such Company T Shareholder to timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements
. Except for this Agreement, such Company T Shareholder has not:
(i) entered into any contract, agreement or other instrument, voting agreement, voting trust or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable
proxy, consent or power of attorney with respect to any of the Covered Shares or (iii) taken any action that would constitute a breach hereof, make any representation or warranty of such
Company T Shareholder set forth in this Article III untrue or incorrect in any material respect or have the effect of preventing or disabling such Company T Shareholder from performing in any
material respect any of its obligations under this Agreement. Such Company T Shareholder understands and acknowledges that Company Y and Merger Sub are entering into the Merger Agreement in reliance
upon the Company T Shareholders' execution and delivery of this Agreement and the representations, warranties, covenants and other agreements of such Company T Shareholder contained
herein.
(e)
No Action
. As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of such Company T Shareholder, threatened against such Company T Shareholder that could reasonably be expected to
impair the ability of such Company T Shareholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
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Section 3.2
Representations and Warranties of Company Y.
Company Y represents and warrants to each Company T Shareholder that Company Y has all corporate power and authority to execute, deliver and perform this
Agreement. The execution and delivery by Company Y of this Agreement, the performance by Company Y of its obligations hereunder and the consummation by Company Y of the transactions contemplated by
this Agreement have been duly and validly authorized by Company Y and no other actions or proceedings on the part of Company Y are necessary to authorize the execution and delivery by it of this
Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
Company Y and, assuming this Agreement constitutes a valid and binding obligation of each Company T Shareholder, constitutes a legal, valid and binding agreement of Company Y enforceable against
Company Y in accordance with its terms, subject to the Bankruptcy and Equity Exception.
ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers of Company T Shares
.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, each Company T Shareholder agrees not to Transfer any of the Covered Shares, or any voting
right or power (including whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or
any interest therein in violation of this Section 4.1 shall be null and void.
(b) This
Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or Beneficial Ownership shall pass,
whether by operation of law or otherwise, including, such Company T Shareholder's successors or assigns. No Company T Shareholder may request that Company T or Company T's depositary bank register the
Transfer (book-entry or otherwise) of any or all of the Covered Shares (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this
Agreement. Notwithstanding any Transfer of Covered Shares, the transferor shall remain liable for the performance of all of the obligations of such Company T Shareholder under this Agreement.
Section 4.2
Prohibition on Transfers of Company Y Shares.
(a) Subject
to the terms of this Agreement, during the period from the Closing until the date which is 180 days following the Closing Date, each Company T Shareholder
agrees not to Transfer any of the Company Y Shares or Company Y ADSs received by such Company T Shareholder as consideration in the Merger, or any voting right or power (including whether such right
or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or any interest therein in violation of this
Section 4.2 shall be null and void.
(b) No
Company T Shareholder may request that Company Y or Company Y's depositary bank register the Transfer (book-entry or otherwise) of any or all of the
Company Y Shares or Company Y ADSs received by such Company T Shareholder as consideration in the Merger (whether represented by a certificate or uncertificated), unless such Transfer is made in
compliance with this Agreement. Notwithstanding any Transfer of Company Y Shares or Company Y ADSs received by the Company T Shareholders as consideration in the Merger, the transferor shall remain
liable for the performance of all of the obligations of such Company T Shareholder under this Section 4.2 and the last sentence of Section 4.4.
Section 4.3
Additional Shares.
Each Company T Shareholder agrees to
promptly notify Company Y of the number of Additional Shares acquired by such Company T Shareholder after the
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date
hereof. Any such Additional Shares shall automatically become subject to the terms of this Agreement and shall constitute Covered Shares for all purposes of this Agreement.
Section 4.4
Share Dividends, etc.
In the event of a
reclassification, recapitalization, reorganization, share split (including a reverse share split) or combination, exchange or readjustment of
shares, change in ratio of Company T ADS to Company T Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution of securities
convertible into or exchangeable for Company T Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include such shares as well as
all such share dividends and distributions and any securities of Company T into which or for which any or all of such shares may be changed or exchanged or which are received in such transaction. In
the event of any issuance of shares of voting securities by Company Y hereafter to any of the parties hereto (including, without limitation, in connection with any share split, share dividend,
recapitalization, reorganization, reverse share split, change in ratio of Company Y ADSs to Company Y Shares, exercise of options or the like), such securities shall become subject to
Section 4.2 of this Agreement until the date which is 180 days following the Closing Date.
Section 4.5
No Solicitation.
Subject to Section 5.13 hereof, each
Company T Shareholder hereby agrees that during the term of this Agreement, such Company T Shareholder shall not, and
shall use reasonable best efforts to cause his, her or its Representatives not to, directly or indirectly, take any action that Company T is otherwise prohibited from taking under
Section 6.2(a) of the Merger Agreement.
Section 4.6
No Inconsistent Agreements.
Except for this Agreement, none of
the Company T Shareholders shall: (a) enter into any contract agreement or other instrument, option or other agreement
with respect to, or consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein, (b) create or permit to exist any lien that could prevent
such Company T Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material respects with the other obligations under this Agreement, other than any
restrictions imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with respect to the Covered Shares, or grant any proxy, consent or power of
attorney with respect to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any action, directly or indirectly, that could reasonably be expected to
(i) result in a material breach hereof, (ii) make any representation or warranty of such Company T Shareholder set forth in Article III untrue or incorrect in any material respect
or (iii) have the effect of materially delaying, preventing or disabling such Company T Shareholder from performing any of his, her or its obligations under this Agreement.
Section 4.7
Waiver of Appraisal and Dissenters' Rights.
Each Company T
Shareholder hereby waives, and agrees not to assert or perfect, and shall cause any of his, her or its Affiliates who hold of record any of such
Company T Shareholder's Covered Shares to waive and to not assert or perfect, any rights of appraisal or rights to dissent from the Merger that such Company T Shareholder may have under the law of the
Cayman Islands by virtue of ownership of the Covered Shares.
Section 4.8
Documentation and Information.
Each Company T Shareholder
(i) consents to and authorizes the publication and disclosure by Company Y of such Company T Shareholder's identity and holding
of the Covered Shares and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without limitation, Company
Y's Form F-4, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such disclosure documents. Each Company T
Shareholder shall promptly notify Company Y of any required corrections with respect to any written information supplied by such Company T Shareholder specifically for use in any such disclosure
document, if and to the extent that any shall have become false or misleading in any material respect.
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Each
of the parties hereto shall not issue any press release or make any other public statement with respect to the transactions contemplated by this Agreement and the Merger Agreement without the
prior written consent of Company T and Company Y, except as such release or statement may be required by applicable Law or the rules and regulations of any national securities exchange or Governmental
Entity to which such Company T Shareholder is subject or submits.
Section 4.9
Registration of ADS.
(a)
Company Y agrees that no earlier than 15 days before the 180th day following the Closing, upon the request
of any Company T Shareholder, Company Y shall cooperate, and cause its advisers to cooperate, with such Company T Shareholder so that American depositary shares (which, in the case of a Company T
Shareholder who is not deemed to be an "affiliate" of Company Y under the meaning of Rule 144 of the Securities Act, shall be unrestricted American depositary shares) representing any or all
Company Y Shares then Beneficially Owned by such Company T Shareholder shall be issued in the name of such Company T Shareholder on or immediately after the 180th day following the Closing) in
accordance with the terms of the Company Y Deposit Agreement.
(b)
In the event that any Company T Shareholder notifies Company Y that it desires to effect a Permitted Transfer pursuant to
Section 1.1(k)(ii) following the Closing, and to the extent that such Transfer will be made pursuant to, and in compliance with Rule 144 of the Securities Act and in compliance with
Company T's policies governing the prevention of insider trading, then Company Y shall cooperate, and cause its advisers to cooperate, with such Company T Shareholder so that American depositary
shares representing a number of Company Y Shares then Beneficially Owned by such Company T Shareholder having an aggregate trading value on the public market of no more than US$10,000,000 shall be
issued in the name of such Company T Shareholder as soon as practicable in accordance with the terms of the Company Y Deposit Agreement.
Section 4.10
Evidence of Settlement Payment.
Mr. Wang will provide
evidence reasonably satisfactory to Company Y prior to the Closing that all obligations he owes under the Civil Settlement Agreement,
dated June 10, 2011, by and between Lei Yang and Mr. Wang (the "
Company T Founder Settlement Agreement
") have been satisfied, and if such
evidence is not so provided and the Closing is consummated, (a) First Easy Group Limited and Mr. Wang hereby agree and irrevocably authorize Company Y to, and Company Y shall,
(i) withhold a number of Company Y Class A Shares from the portion of the Merger Consideration otherwise issuable to Mr. Wang in connection with the Merger equal to the product of
(x) 1.05
multiplied by
(y) the quotient of (1) the aggregate amount of obligations that remain outstanding under the Company T
Founder Settlement Agreement as of the Closing, divided by (2) the closing price of Company Y Class A Shares on the date that is three Business Days prior to the Closing (such number of
shares, the "
Withheld Shares
"), and (ii) sell such Withheld Shares either on the open market or in a privately negotiated transaction on an arms'
length basis (but only in the event such privately negotiated transaction is at a price per share in excess of the price per share available on the open market) and apply the proceeds from the sale or
sales of such Withheld Shares to discharge any such amounts owed under the Company T Founder Settlement Agreement, with any excess proceeds being returned to Mr. Wang or any designee of
Mr. Wang following the full settlement of Mr. Wang's obligations under the Company T Founder Settlement Agreement (provided, however, that Mr. Wang shall remain solely liable for
all unsettled obligations under the Company T Founder Settlement Agreement) and (b) Company Y, First Easy Group Limited and Mr. Wang shall enter into an escrow agreement reasonably
acceptable to Company Y to effect the withholding of such Withheld Shares, sale of such Withheld Shares and application of the proceeds of such Withheld Shares as set forth in this
Section 4.10.
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Section 4.11
SAFE Registration.
Mr. Wang shall use his reasonable best efforts to complete
the amendment filings for his registration under the State Administration of Foreign Exchange's
Circular on Several Issues concerning Foreign Exchange Administration for Domestic Residents to Engage in Financing and in Return
Investments via Overseas Special Purpose
Companies
prior to the Closing.
Section 4.12
Further Assurances.
No Company T Shareholder shall take any action, directly or
indirectly, that would make any representation or warranty of such Company T Shareholder contained
herein untrue or incorrect in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by such Company T
Shareholder of his, her or its obligations under this Agreement. From time to time, at Company Y's request and without further consideration, each Company T Shareholder, solely in his, her or its
capacity as a Company T Shareholder of Company T, shall take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be reasonably necessary
to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation.
Unless the express context otherwise
requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) mean such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
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(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
Section 5.2
Termination.
This Agreement and all obligations of the
parties hereunder (other than as set forth in the following sentence) shall automatically terminate on the earliest to
occur of (i) the Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, or (iii) at any time upon the written agreement of Company Y
and the Company T Shareholders. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further action by any party except for
(i) the provisions of Section 4.2 and Section 4.9, which shall continue to apply until the date which is 180 days from the Closing Date, and (ii) the provisions of
Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any party of liability for any breach prior to such
termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York. Any action, claim, demand, or
proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York.
Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in any such court in
accordance with the provisions of this Section 5.3. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the
maintenance of such Proceeding in any such court. Each of the parties hereto hereby irrevocably and unconditionally agrees that, to the fullest extent permitted by applicable Law, service of process
to such party's address set forth in Section 5.4, and in the manner provided for notices in Section 5.4, will be effective service of process for any Proceeding in New York with respect
to any matter to which such party has submitted to jurisdiction as set forth in this Section 5.3. Nothing in this Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by Law.
(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any Proceeding directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated hereby, including any controversy or Proceeding involving any Company Y Related Party under this Agreement. Each party hereto certifies and
acknowledges that (i) no representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that such other party would not, in the event of a Proceeding, seek
to enforce the foregoing waiver, (ii) each party hereto understands and has considered the implications of this waiver, (iii) each party hereto makes this waiver voluntarily, and
(iv) each party hereto has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.3.
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Section 5.4
Notices.
All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given (a) upon personal
delivery, (b) one (1) Business Day after being sent via an internationally recognized overnight courier service, (c) three (3) Business Days after being sent, postage
prepaid, by registered, certified or express mail or (d) upon receipt of electronic or other confirmation of transmission if sent via facsimile, in each case, at the addresses or facsimile
numbers (or at such other address or facsimile number for a party as shall be specified by like notice) set forth below:
If
to Company Y to:
Youku Inc.
11/F, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
The People's Republic of China
Telephone: (8610) 5885-1881
Facsimile: (8610) 5970-8818
Attention: Mr. Victor Koo
with
a copy (which shall not constitute notice) to:
Skadden,
Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
Facsimile: +852 3910 4850
If
to any Company T Shareholder: to such Company T Shareholder and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
Section 5.5
Amendment.
This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by Company Y and each Company T Shareholder;
provided
that matters that only affect the right of a particular Company T Shareholder or a group of
Company T Shareholders shall only require an
instrument in writing signed by Company Y and such Company T Shareholder or Company T Shareholders.
Section 5.6
Extension; Waiver.
At any time before the termination of this
Agreement, Company Y, on the one hand, and any of the Company T Shareholders, on the other hand, may
(a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party
contained in this Agreement or in any document delivered under this Agreement or (c) waive compliance with any of the covenants or conditions contained in this Agreement. Any agreement on the
part of a party to any extension or waiver shall be valid only if set forth in an instrument in writing signed by such party. The failure of any party to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or
privilege under this Agreement.
Section 5.7
Entire Agreement.
This Agreement (together with the Merger
Agreement, to the extent referred to in this Agreement) constitutes the sole and entire agreement of the Company T
Shareholders or any of their Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and
contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding
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or
condition not set forth in this Agreement has been made or relied upon by any of the parties to this Agreement.
Section 5.8
No Third-Party Beneficiaries.
This Agreement is for the sole
benefit of, shall be binding upon, and may be enforced solely by Company Y and the Company T Shareholders and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person (other than Company Y and the Company T Shareholders) any legal or equitable right, benefit or remedy of any nature
whatsoever.
Section 5.9
Severability.
The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction.
The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions
of this Agreement.
Section 5.11
Assignment.
Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by operation of Law (including, but not limited to, by merger
or consolidation) or otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance.
The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches
or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise,
this being in addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party
hereto agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or
(ii) an award of specific performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company T Shareholder Capacity.
Notwithstanding anything
contained in this Agreement to the contrary, the representations, warranties, covenants and agreements made herein by each Company T
Shareholder are made solely with respect to such Company T Shareholder and the Covered Shares. Each Company T Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner
of such Covered Shares and nothing herein shall limit or affect any actions taken by any officer or director of Company T (or a Subsidiary of Company T) solely in his or her capacity as a
director or officer of Company T (or a Subsidiary of Company T), including participating in his or her capacity as a director or officer of Company T in any discussions or negotiations with Company Y.
Nothing contained herein, and no action taken by any Company T Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other
kind
B-5-12
Table of Contents
of
entity, or create a presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
Section 5.14
No Ownership Interest.
Nothing contained in this Agreement shall
be deemed to vest in Company Y any direct or indirect ownership or incidence of ownership of or with respect to any
Covered Shares. All rights, ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company T Shareholders, and Company Y shall have no authority
to direct the Company T Shareholders in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses.
All costs and expenses (including all fees
and disbursements of counsel, accountants, investment bankers, experts and consultants to a party) incurred in
connection with this Agreement shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness.
This Agreement may be
executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the other parties;
provided
,
however
, that if any of the Company T Shareholders
fails for any reason to execute, or perform their obligations under, this Agreement, this Agreement
shall remain effective as to all parties executing this Agreement.
Section 5.17
Joint and Several Obligations.
The agreements, obligations,
representations and warranties of the Company T Shareholders hereunder shall be joint and several.
[Signature page follows]
B-5-13
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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YOUKU INC.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name: Victor Wing Cheung Koo
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Title: Chairman and Chief Executive Officer
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B-5-14
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FIRST EASY GROUP LIMITED
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By:
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/s/ GARY WEI WANG
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Name: Gary Wei Wang
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Title: Authorized Signatory
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B-5-15
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SPRING PROSPER GROUP LIMITED
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By:
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/s/ GARY WEI WANG
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Name: Gary Wei Wang
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Title: Authorized Signatory
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B-5-16
Table of Contents
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Gary Wei Wang
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/s/ GARY WEI WANG
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B-5-17
Table of Contents
Schedule 1
COMPANY T SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company T
Shares
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Number of
Company T
ADSs
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Number of
Company T
Options
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FIRST EASY GROUP LIMITED
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8,913,333
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0
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0
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c/o P.O. Box 957, Offshore Incorporation Centre
Road Town, Tortola
British Virgin Islands
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with a copy to:
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c/o 8th Floor, No. 922 Hengshan Road
Xuhui District, Shanghai 200032
The People's Republic of China
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Attention: Gary Wei Wang
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SPRING PROSPER GROUP LIMITED
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0
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0
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1,057,500
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c/o 8th Floor, No. 922 Hengshan Road
Xuhui District, Shanghai 200032
The People's Republic of China
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Attention: Gary Wei Wang
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GARY WEI WANG
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8,913,333
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*
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0
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1,557,500
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**
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c/o 8th Floor, No. 922 Hengshan Road
Xuhui District, Shanghai 200032
The People's Republic of China
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Attention: Gary Wei Wang
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-
*
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Includes
8,913,333 Company T Shares held of record by First Easy Group Limited
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**
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Includes
options to acquire 1,057,500 Company T Shares held by Spring Prosper Group Limited
B-5-18
Table of Contents
EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company Y and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of [Tudou Holdings
Limited][Youku Inc.] (the "
Shares
") subject to the terms and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of a
Company T Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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By:
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Name and Title
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Address:
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Fax:
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Accepted and Agreed:
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YOUKU INC.
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By:
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Title:
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B-5-19
Table of Contents
Appendix B-6
VOTING AGREEMENT
By and among
TUDOU HOLDINGS LIMITED
And
THE SHAREHOLDERS PARTY HERETO
Dated as of March 11, 2012
Table of Contents
TABLE OF CONTENTS
B-6-i
Table of Contents
INDEX OF DEFINED TERMS
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Term
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Section
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Additional Shares
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4
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Affiliate
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3
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Agreement
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3
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Bankruptcy and Equity Exception
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6
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Beneficial Owner
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4
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Beneficial Ownership
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4
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Beneficially Own
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4
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Beneficially Owned
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4
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Business Day
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4
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Company T
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3
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Company Y
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3
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Company Y ADSs
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4
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Company Y Shareholder
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3
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Company Y Shares
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4
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control
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4
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controlled by
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4
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controlling
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4
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Covered Shares
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4
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Effective Time
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7
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Exchange Act
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4
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Existing Shares
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4
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Governmental Entities
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7
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Merger
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3
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Merger Agreement
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3
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Merger Sub
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3
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Permitted Transfer
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4
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Transfer
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5
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under common control with
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4
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B-6-ii
Table of Contents
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Tudou Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), and each of the
Persons listed on Schedule 1 hereto (each, a "
Company Y Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company T, Youku Inc., an exempted company with limited liability
incorporated under the laws of the Cayman Islands ("
Company Y
"), and Two Merger Sub Inc., an exempted company with limited liability
incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y ("
Merger Sub
"), are entering into an Agreement and Plan of
Merger, dated as of the date of this Agreement (the "
Merger Agreement
"), pursuant to which, among other things, Merger Sub will merge
with and into Company T, with Company T surviving the merger as a wholly owned subsidiary of Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, each Company Y Shareholder is the Beneficial Owner of the Existing Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company T to enter into the Merger Agreement, Company T has
required that each Company Y Shareholder agree, and each Company Y Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter into this Agreement and abide by the
covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms.
The following terms, as used in this Agreement, shall have
the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership
interests, by contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Additional Shares
" means Company Y Shares, Company Y ADSs or other voting share capital of Company Y with respect to
which any Company Y Shareholder acquires Beneficial Ownership after the date of this Agreement (including any Company Y Shares issued upon the exercise of any Company Y Options or warrants or the
conversion of any convertible securities or otherwise).
(c) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in
B-6-1
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accordance
with the term "beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange
Act
"). Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include securities Beneficially Owned by all
Affiliates of such Person. The terms "Beneficially Own," "Beneficially Owned" and "Beneficial Owner" shall have correlative meanings.
(a) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(b) "
Company Y ADSs
" means American depositary shares of Company Y.
(d) "
Company Y Shares
" means the authorized share capital of Company Y, which as of the date hereof consists of US$100,000,
divided into 10,000,000,000 shares of par value US$0.00001 each.
(e) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(f) "
Covered Shares
" means the Existing Shares and any Additional Shares.
(g) "
Existing Shares
" means Company Y Shares and Company Y ADSs Beneficially Owned by a Company Y Shareholder on the date
hereof, as set forth opposite such Company Y Shareholder's name on Schedule 1 hereto.
(h) "
Permitted Transfer
" means a Transfer by a Company Y Shareholder to (i) Affiliates, limited or general partners,
members or stockholders of such Company Y Shareholder, (ii) a member of such Company Y Shareholder's family or a trust for the benefit of such Company Y Shareholder's or any member of such
Company Y Shareholder's family, or (iii) any heir, legatees, beneficiaries and/or devisees of any individual who is a Company Y Shareholder;
provided
that the Transferee agrees to execute a Joinder
in the form attached hereto as Exhibit A.
(i) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
ARTICLE II
VOTING
Section 2.1
Agreement to Vote.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, each Company Y Shareholder hereby
irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company Y and at any other meeting of the shareholders of Company Y, however called,
including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company Y and in any other circumstance upon which a vote, consent or other
approval of all or some of the shareholders of Company Y is sought, it shall, and shall cause
B-6-2
Table of Contents
any
holder of record of its Covered Shares to, in each case to the extent that the Covered Shares are entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company Y for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the issuance of Class A ordinary shares, par value US$0.00001 per share, of the Company (including those represented by American depositary shares),
constituting the Merger Consideration (as such term is defined in the Merger Agreement), to the Company T Shareholders, (2) in favor of any related proposal that is necessary to consummate the
Merger and the transactions contemplated by the Merger Agreement, on the terms contemplated by the Merger Agreement including the Merger Consideration contemplated by the Merger Agreement, which is
considered at any such meeting of Company Y Shareholders, (3) against any action, proposal, transaction or agreement that could reasonably be expected to (A) result in a breach of any
representation, warranty, covenant or other obligation or agreement of Company Y contained in the Merger Agreement, (B) result in a breach of any representation, warranty, covenant or other
obligation or agreement of such Company Y Shareholder contained in this Agreement, or (C) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the
Merger or change in any manner the voting rights of any class of shares of Company Y (including any amendments to the memorandum and articles of association of Company Y, other than such amendments
contemplated by the Merger Agreement and/or any
amendments that will not (i) impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or (ii) have a disproportionate adverse effect
on Company T shareholders relative to current holders of Company Y's Class A Ordinary Shares), (4) against any Competing Proposal, and (5) against any change in the composition of
the board of directors of Company Y (other than such changes contemplated by the Merger Agreement).
(b) Each
Company Y Shareholder shall retain at all times the right to vote such Company Y Shareholder's Covered Shares in such Company Y Shareholder's sole discretion and
without any other limitation on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to Company Y Shareholders of
Company Y generally.
Section 2.2
Grant of Proxy.
Each Company Y Shareholder hereby irrevocably and unconditionally
grants a proxy to, and appoints, Company T and any designee of Company T, and each of them
individually, as his, her or its proxies and attorneys-in-fact, with full power of substitution and resubstitution, for and in such Company Y Shareholder's name, place and
stead, in the event that such Company Y Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3),
Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)(5)), to vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with
respect to the Covered Shares as provided in Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)(5)). This proxy and power of
attorney is given in connection with, and in consideration of, the execution of the Merger Agreement by Company T, and to secure the performance of the duties and obligations of such Company Y
Shareholder owed to Company T under this Agreement. Each Company Y Shareholder hereby (a) affirms that such irrevocable proxy is (i) coupled with an interest by reason of the Merger
Agreement and (ii) executed and intended to be irrevocable in accordance with the provisions of the Laws of the State of New York, and (b) revokes any and all prior proxies granted by
each Company Y Shareholder with respect to the Covered Shares and no subsequent proxy shall be given by any
B-6-3
Table of Contents
Company
Y Shareholder (and if given shall be ineffective). Each Company Y Shareholder shall take such further action or execute such other instruments as may be reasonably necessary in accordance with
the relevant provisions of the Laws of the State of New York or any other Law to effectuate the intent of this proxy. The power of attorney granted by such Company Y Shareholder herein is a durable
power of attorney and, so long as Company T has the interest secured by such power of attorney or the obligations secured by such power of attorney remain undischarged, the power of attorney shall not
be revoked by the dissolution, bankruptcy, death or incapacity of such Company Y Shareholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company Y Shareholders.
Each
Company Y Shareholder represents and warrants to Company Y as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action.
If such Company Y
Shareholder is not a natural person, such Company Y Shareholder, as of the date hereof (i) is duly organized, validly existing and in
good standing under the Laws of the jurisdiction in which it is organized (in the case of good standing, to the extent the concept is recognized by such jurisdiction) and (ii) has all
corporate, limited partnership, trust or other organizational power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions
contemplated by this Agreement. If such Company Y Shareholder is a natural person, he or she, as of the date hereof, has the legal capacity and authority to execute and deliver this Agreement and
perform his or her obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery by such Company Y Shareholder of this Agreement, the performance
by such Company Y Shareholder of his, her or its obligations hereunder and the consummation by such Company Y Shareholder of the transactions contemplated by this Agreement have been duly and validly
authorized by such Company Y Shareholder and no other actions or proceedings on the part of such Company Y Shareholder are necessary to authorize the execution and delivery by him, her or it of this
Agreement, the performance by him, her or it of its obligations hereunder or the consummation by him, her or it of the transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by such Company Y Shareholder and, assuming this Agreement constitutes a valid and binding obligation of Company T, constitutes a legal, valid and binding agreement of such
Company Y Shareholder enforceable against such Company Y Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar
Laws of general applicability relating to or affecting creditors' rights and to general equity principles (the "
Bankruptcy and Equity Exception
").
(b)
Ownership.
Such Company Y Shareholder is the Beneficial Owner of and has good and valid title to
the Existing Shares set forth next to such Company Y Shareholder's name on
Schedule 1, free and clear of any liens, other than any liens pursuant to this Agreement or arising under the articles of association of Company Y and transfer restrictions imposed by generally
applicable securities Laws. As of the date of this Agreement, such Company Y Shareholder's Existing Shares constitute all of the Company Y Shares and Company Y ADSs Beneficially Owned or owned of
record by such Company Y Shareholder. Except to the extent Covered Shares are Transferred after the date of this Agreement pursuant to a Permitted Transfer, such Company Y Shareholder has not granted
any proxy inconsistent with this Agreement that is still effective or entered into any voting or similar agreement, in each case with respect to all of such Company Y Shareholder's Existing Shares and
with respect to all of the Covered Shares Beneficially Owned by such Company Y Shareholder at all times through the effective time of the Merger (the "
Effective
Time
").
B-6-4
Table of Contents
(c)
Non-Contravention.
The execution and delivery of this Agreement by such Company Y Shareholder do
not, and the performance by such Company Y Shareholder of his, her or its
obligations under this Agreement and the consummation by such Company Y Shareholder of the transactions contemplated by this Agreement, will not (i) conflict with, or result in any violation or
breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, consent, termination, cancellation or acceleration of any obligation or loss
of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or result in the creation of any lien upon his, her or its assets or
properties under, any provision of (A) any charter or organizational documents of such Company Y Shareholder, (B) any contract, agreement or other instrument to which such Company Y
Shareholder is party or by which any of his, her or its assets or properties is bound and (C) any judgment, order, injunction, decree or Law applicable to such Company Y Shareholder or his, her
or its assets or properties or (ii) require any consent of, or registration, declaration or filing with, notice to, or permit from, any supranational, national, state, municipal or local court
or tribunal or administrative, governmental, quasi-governmental or regulatory body, agency or authority ("
Governmental Entities
"), except, in the case
of clauses (i) and (ii) above, any such items that, individually or in the aggregate, would not be expected to be materially adverse to the ability of such Company Y Shareholder to
timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements.
Except for this Agreement, such Company Y Shareholder has not:
(i) entered into any contract, agreement or other instrument, voting agreement, voting trust
or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable proxy, consent or power of attorney with respect to any of the Covered Shares or (iii) taken
any action that would constitute a breach hereof, make any representation or warranty of such Company Y Shareholder set forth in this Article III untrue or incorrect in any material respect or
have the effect of preventing or disabling such Company Y Shareholder from performing in any material respect any of its obligations under this Agreement. Such Company Y Shareholder understands and
acknowledges that Company Y and Merger Sub are entering into the Merger Agreement in reliance upon the Company Y Shareholder's execution and delivery of this Agreement and the representations,
warranties, covenants and other agreements of such Company Y Shareholder contained herein.
(e)
No Action.
As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of
such Company Y Shareholder, threatened against such Company Y Shareholder that could reasonably be expected to impair the ability of such Company Y Shareholder to perform its obligations hereunder or
to consummate the transactions contemplated hereby on a timely basis.
Section 3.2
Representations and Warranties of Company T.
Company T represents
and warrants to each Company Y Shareholder that Company T has all corporate power and authority to execute, deliver and perform this
Agreement. The execution and delivery by Company T of this Agreement, the performance by Company T of its obligations hereunder and the consummation by Company T of the transactions contemplated by
this Agreement have been duly and validly authorized by Company T and no other actions or proceedings on the part of Company T are necessary to authorize the execution and delivery by it of this
Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
Company T and, assuming this Agreement constitutes a valid and binding obligation of each Company Y Shareholder, constitutes a legal, valid and binding agreement of Company T enforceable against
Company T in accordance with its terms, subject to the Bankruptcy and Equity Exception.
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ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, each Company Y Shareholder agrees not to Transfer any of the Covered Shares, or any voting
right or power (including whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or
any interest therein in violation of this Section 4.1 shall be null and void.
(b) During
the term of this Agreement, this Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or
Beneficial Ownership shall pass, whether by operation of Law or otherwise, including, such Company Y Shareholder's successors or assigns. No Company Y Shareholder may request that Company Y or Company
Y's depositary bank register the Transfer (book-entry or otherwise) any or all of the Covered Shares (whether represented by a certificate or uncertificated), unless such Transfer is made
in compliance with this Agreement. Notwithstanding any Transfer of Covered Shares, the transferor shall remain liable for the performance of all of the obligations of such Company Y Shareholder under
this Agreement.
Section 4.2
Additional Shares.
Each Company Y Shareholder agrees to promptly notify Company T of
the number of Additional Shares acquired by such Company Y Shareholder after the date hereof.
Any such Additional Shares shall automatically become subject to the terms of this Agreement and shall constitute Covered Shares for all purposes of this Agreement.
Section 4.3
Share Dividends, etc.
In the event of a reclassification, recapitalization,
reorganization, share split (including a reverse share split) or combination, exchange or readjustment of
shares, change in ratio of Company Y ADS to Company Y Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution of securities
convertible into or exchangeable for Company Y Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include such shares as well as
all such share dividends and distributions and any securities of Company Y into which or for which any or all of such shares may be changed or exchanged or which are received in such transaction.
Section 4.4
No Solicitation.
Subject to Section 5.13 hereof, each Company Y Shareholder
hereby agrees that during the term of this Agreement, such Company Y Shareholder shall not, and
shall use reasonable best efforts to cause his, her or its Representatives not to, directly or indirectly, take any action that Company Y is otherwise prohibited from taking under
Section 6.3(a) of the Merger Agreement.
Section 4.5
No Inconsistent Agreements.
Except for this Agreement and as contemplated by this
Agreement, none of the Company Y Shareholders shall (a) enter into any contract agreement or other
instrument, option or other agreement with respect to, or consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein, (b) create or permit
to exist any lien that could reasonably be expected to prevent such Company Y Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material respects
with the other obligations under this Agreement, other than any restrictions imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with respect to the
Covered Shares or grant any proxy, consent or power of attorney with respect to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any action, directly or
indirectly, that could reasonably be expected to (i) result in a material breach hereof, (ii) make any representation or warranty of such Company Y Shareholder set forth in
Article III untrue or incorrect in any material respect or (iii) have the effect of materially delaying, preventing or disabling such Company Y Shareholder from performing any of his,
her or its obligations under this Agreement.
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Section 4.6
Reserved.
Section 4.7
Documentation and Information.
Each Company Y Shareholder (i) consents to and
authorizes the publication and disclosure by Company T of such Company Y Shareholder's identity and holding
of the Covered Shares and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without limitation, Company
T's proxy statement relating to the Merger, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such disclosure documents. Each
Company Y Shareholder shall promptly notify Company T of any required corrections with respect to any written information supplied by such Company Y Shareholder specifically for use in any such
disclosure document, if and to the extent that any shall have become false or misleading in any material respect. Each of the parties hereto shall not issue any press release or make any other public
statement with respect to the transactions contemplated by this Agreement and the Merger Agreement without the prior written consent of Company T and Company Y, except as such release or statement may
be required by applicable Law, the SEC or the rules and regulations of any national securities exchange or Governmental Entity to which such Company Y Shareholder is subject or submits.
Section 4.8
Further Assurances.
No Company Y Shareholder shall take any action, directly or
indirectly, that would make any representation or warranty of such Company Y Shareholder contained
herein untrue or incorrect in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by such Company Y
Shareholder of his, her or its obligations under this Agreement. From time to time, at Company T's request and without further consideration, each Company Y Shareholder, solely in his, her or its
capacity as a Company Y Shareholder of Company Y, shall take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be reasonably necessary
to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation.
Unless the express context otherwise requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
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(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) means such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
Section 5.2
Termination.
This Agreement and all obligations of the parties hereunder (other than
as set forth in the following sentence) shall automatically terminate on the earliest to
occur of (i) the Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, or (iii) at any time upon the written agreement of Company T
and the Company Y Shareholders. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further action by any party except for the
provisions of Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any party of liability for any breach
prior to such termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York. Any action, claim, demand, or
proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York.
Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in any such court in
accordance with the provisions of this Section 5.3. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the
maintenance of such Proceeding in any such court. Each of the parties hereto hereby irrevocably and unconditionally agrees that, to the fullest extent permitted by applicable Law, service of process
to such party's address set forth in Section 5.4, and in the manner provided for notices in Section 5.4, will be effective service of process for any Proceeding in New York with respect
to any matter to which such party has submitted to jurisdiction as set forth in this Section 5.3. Nothing in this Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by Law.
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(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party
hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any Proceeding directly or indirectly arising out of or relating to this Agreement or the
transactions contemplated hereby, including any controversy or Proceeding involving any Company T Related Party under this Agreement. Each party hereto certifies and acknowledges that (i) no
representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that such other party would not, in the event of a Proceeding, seek to enforce the foregoing
waiver, (ii) each party hereto understands and has considered the implications of this waiver, (iii) each party hereto makes this waiver voluntarily, and (iv) each party hereto
has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.3.
Section 5.4
Notices.
All notices, requests, claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given (a) upon personal
delivery, (b) one (1) Business Day after being sent via an internationally recognized overnight courier service, (c) three (3) Business Days after being sent, postage
prepaid, by registered, certified or express mail or (d) upon receipt of electronic or other confirmation of transmission if sent via facsimile, in each case, at the addresses or facsimile
numbers (or at such other address or facsimile number for a party as shall be specified by like notice) set forth below:
If
to Company T to:
Tudou
Holdings Limited
Building No. 6, X2 Creative Park, 1238 Xietu Road
Xuhui District
Shanghai 20032
The People's Republic of China
Telephone: +86-21-5170-2355
Facsimile: +86-21-5170-2366
Attention: Gary Wei Wang
Jixun Foo
Bin Yu
with
a copy (which shall not constitute notice) to:
Kirkland &
Ellis
26th Floor, Gloucester Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: David Zhang
Jesse Sheley
Facsimile: +852-3761-3301
If
to any Company Y Shareholder: to such Company Y Shareholder and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
Section 5.5
Amendment.
This Agreement may not be amended, modified or supplemented except by an
instrument in writing signed by Company T and each Company Y Shareholder;
provided
that matters that only affect the right of a particular Company Y Shareholder or a group of Company Y
Shareholders shall only require an
instrument in writing signed by Company T and such Company Y Shareholder or Company Y Shareholders.
Section 5.6
Extension; Waiver.
At any time before the termination of this Agreement,
Company T, on the one hand, and any of the Company Y Shareholders, on the other hand, may
(a) extend the time for the performance of any of the obligations or other acts of the other party,
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(b) waive
any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered under this Agreement or (c) waive compliance
with any of the covenants or conditions contained in this Agreement. Any agreement on the part of a party to any extension or waiver shall be valid only if set forth in an instrument in writing signed
by such party. The failure of any party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right, power or privilege under this Agreement.
Section 5.7
Entire Agreement.
This Agreement (together with the Merger Agreement, to the extent
referred to in this Agreement) constitutes the sole and entire agreement of the Company Y
Shareholders or any of their Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and
contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding
or condition not set forth in this Agreement has been made or relied upon by any of the parties to this Agreement.
Section 5.8
No Third-Party Beneficiaries.
This Agreement is for the sole benefit of, shall be
binding upon, and may be enforced solely by Company T and the Company Y Shareholders and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person (other than Company T and the Company Y Shareholders) any legal or equitable right, benefit or remedy of any nature
whatsoever.
Section 5.9
Severability.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction.
The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions
of this Agreement.
Section 5.11
Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of Law (including, but not limited to, by merger
or consolidation) or otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance.
The parties hereto agree that irreparable damage would occur
if any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches
or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise,
this being in addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party
hereto agrees that it will
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not
oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or (ii) an award of specific
performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company Y Shareholder Capacity.
Notwithstanding anything contained in this
Agreement to the contrary, the representations, warranties, covenants and agreements made herein by each Company Y
Shareholder are made solely with respect to such Company Y Shareholder and the Covered Shares. Each Company Y Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner
of such Covered Shares and nothing herein shall limit or affect any actions taken by any officer or director of Company Y (or a Subsidiary of Company Y) in his or her capacity as a director or
officer of Company Y (or a Subsidiary of Company Y), including participating in his or her capacity as a director or officer of Company Y in any discussions or negotiations with Company T. Nothing
contained herein, and no action taken by any Company Y Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
Section 5.14
No Ownership Interest.
Nothing contained in this Agreement shall be deemed to vest
in Company T any direct or indirect ownership or incidence of ownership of or with respect to any
Covered Shares. All rights, ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company Y Shareholders, and Company T shall have no authority
to direct the Company Y Shareholders in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses.
All costs and expenses (including all fees and disbursements of
counsel, accountants, investment bankers, experts and consultants to a party) incurred in
connection with this Agreement shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness.
This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the other parties;
provided
,
however
, that if any of the Company Y Shareholders
fails for any reason to execute, or perform their obligations under, this Agreement, this Agreement
shall remain effective as to all parties executing this Agreement.
Section 5.17
Several Obligations.
The agreements, obligations, representations and warranties of
the Company Y Shareholders hereunder shall be several and not joint.
Section 5.18
No Agreement Until Executed.
This Agreement shall not constitute or be deemed to
evidence a contract, agreement, arrangement or understanding between the parties hereto unless and until
(a) the Company Y Board has adopted and approved the Merger, (b) the Merger Agreement is executed by all parties thereto and (c) this Agreement is executed by all parties hereto.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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Tudou Holdings Limited
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By:
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/s/ GARY WEI WANG
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Name:
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Gary Wei Wang
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Title:
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Chief Executive Officer
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[
Signature Page to the Voting Agreement
]
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Brookside Capital Partners Fund, L.P.
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By:
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/s/ RANESH RAMANATHAN
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Name:
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Ranesh Ramanathan
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Title:
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General Counsel
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[
Signature Page to the Voting Agreement
]
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Table of Contents
Schedule 1
COMPANY Y SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company Y
Shares
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Number of
Company Y
ADSs
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Brookside Capital Partners Fund, L.P.
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224,782,288
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12,487,904
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c/o John Hancock Tower
200 Clarendon Street
Boston, MA 02116
Attention:
Facsimile:
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with a copy to:
Ropes & Gray LLP
Prudential Tower, 800 Boylston Street
Boston, MA 02199-3600
Attention: Paul Boltz
Thomas Holden
Facsimile: (617) 235-7323
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EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company T and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of Company Y (the "Shares") subject to the terms
and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of a
Company Y Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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By:
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Name and Title
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Address:
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Fax:
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Accepted and Agreed:
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TUDOU HOLDINGS LIMITED
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By:
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Title:
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Appendix B-7
VOTING AGREEMENT
By and among
TUDOU HOLDINGS LIMITED
And
MAVERICK FUND USA, LTD.,
MAVERICK FUND, L.D.C.,
MAVERICK FUND II, LTD.,
MAVERICK LONG FUND, LTD.,
MAVERICK LONG ENHANCED FUND, LTD.,
MAVERICK NEUTRAL FUND, LTD.,
MAVERICK NEUTRAL LEVERED FUND, LTD.,
MAVERICK II HOLDINGS, LTD.,
MAVERICK FUND PRIVATE INVESTMENTS, LTD.
And
MAVERICK USA II, CORP.
Dated as of March 11, 2012
Table of Contents
TABLE OF CONTENTS
B-7-i
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INDEX OF DEFINED TERMS
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Term
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Section
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Affiliate
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4
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Agreement
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3
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Bankruptcy and Equity Exception
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7
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Beneficial Owner
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4
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Beneficial Ownership
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4
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Beneficially Own
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4
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Beneficially Owned
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4
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Business Day
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4
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Company T
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3
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Company Y
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3
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Company Y ADSs
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4
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Company Y Shareholder
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3
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Company Y Shares
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4
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control
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4
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controlled by
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4
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controlling
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4
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Covered Shares
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5
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Effective Time
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8
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Exchange Act
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4
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Governmental Entities
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8
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Merger
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3
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Merger Agreement
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3
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Merger Sub
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3
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Permitted Transfer
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5
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Transfer
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5
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under common control with
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4
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B-7-ii
Table of Contents
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Tudou Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), each of
Maverick Fund USA, Ltd., Maverick Fund, L.D.C., Maverick Fund II, Ltd., Maverick Long Fund, Ltd., Maverick Long Enhanced Fund, Ltd., Maverick Neutral Fund, Ltd.,
Maverick Neutral Levered Fund, Ltd., Maverick II Holdings, Ltd., Maverick Fund Private Investments, Ltd. and Maverick USA II, Corp. (each, a
"
Company Y Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company T, Youku Inc., an exempted company with limited liability
incorporated under the laws of the Cayman Islands ("
Company Y
"), and Two Merger Sub Inc., an exempted company with limited liability
incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y
("
Merger Sub
"), are entering into an Agreement and Plan of Merger, dated as of the date of this Agreement (the "
Merger
Agreement
"), pursuant to which, among other things, Merger Sub will merge with and into Company T, with Company T surviving the merger as a wholly owned subsidiary of
Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, each Company Y Shareholder is the Beneficial Owner of the Covered Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company T to enter into the Merger Agreement, Company T has
required that each Company Y Shareholder agree, and each Company Y Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter into this Agreement and
abide by the covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms.
The following terms, as used in this Agreement, shall have
the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership
interests, by contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange Act
"). Without
duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include
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securities
Beneficially Owned by all Affiliates of such Person and all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act.
The terms "Beneficially Own," "Beneficially Owned" and "Beneficial Owner" shall have correlative meanings.
(a) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(b) "
Company Y ADSs
" means American depositary shares of Company Y.
(c) "
Company Y Shares
" means the authorized share capital of Company Y, which as of the date hereof consists of
US$100,000, divided into 10,000,000,000 shares of par value US$0.00001 each.
(d) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(e) "
Covered Shares
" means Company Y Shares and Company Y ADSs Beneficially Owned by a Company Y
Shareholder on the date hereof, as set forth opposite such Company Y Shareholder's name on Schedule 1 hereto.
(f) "
Permitted Transfer
" means a Transfer by a Company Y Shareholder to any Transferee that executes a Joinder in
substantially the form attached hereto as Exhibit A.
(g) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
ARTICLE II
VOTING
Section 2.1
Agreement to Vote.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, each Company Y Shareholder
hereby irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company Y and at any other meeting of the shareholders of
Company Y, however called, including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company Y and in any other
circumstance upon which a vote, consent or other approval of all or some of the shareholders of Company Y is sought, it shall, and shall cause any holder of record of its Covered Shares to, in
each case to the extent that the Covered Shares are entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company Y for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the issuance of Class A ordinary shares, par value US$0.00001 per share, of the Company (including those represented by American depositary shares),
constituting the
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Merger
Consideration (as such term is defined in the Merger Agreement), to the Company T Shareholders, (2) in favor of any related proposal that is necessary to consummate the Merger and the
transactions contemplated by the Merger Agreement which is considered at any such meeting of Company Y Shareholders, (3) against any action, proposal, transaction or agreement that could
reasonably be expected to (A) result in a breach of any representation, warranty, covenant or other obligation or agreement of Company Y contained in the Merger Agreement,
(B) result in a breach of any representation, warranty, covenant or other obligation or agreement of such Company Y Shareholder contained in this Agreement, or (C) impede,
interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in any manner the voting rights of any class of shares of Company Y (including any
amendments to the memorandum and articles of association of Company Y, other than such amendments contemplated by the Merger Agreement and/or any amendments that will not (i) impede,
interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or (ii) have a disproportionate adverse effect on Company T shareholders relative to current
holders of Company Y's Class A Ordinary Shares), (4) against any Competing Proposal, and (5) against any change in the composition of the board of directors of
Company Y (other than such changes contemplated by the Merger Agreement).
(b) Each
Company Y Shareholder shall retain at all times the right to vote such Company Y Shareholder's Covered Shares in such Company Y Shareholder's
sole discretion and without any other limitation on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to
Company Y Shareholders of Company Y generally.
Section 2.2
Grant of Proxy.
Each Company Y Shareholder hereby irrevocably
and unconditionally grants a proxy to, and appoints, Company T and any designee of Company T, and each of
them individually, as its proxies and attorneys-in-fact, with full power of substitution and resubstitution, for and in such Company Y Shareholder's name, place and
stead, in the event that such Company Y Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3),
Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)(5)), to vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with
respect to the Covered Shares as provided in Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)(5)). This proxy and power of
attorney is given in connection with, and in consideration of, the execution of the Merger Agreement by Company T, and to secure the performance of the duties and obligations of such
Company Y Shareholder owed to Company T under this Agreement. Each Company Y Shareholder hereby (a) affirms that such irrevocable proxy is (i) coupled with an interest by
reason of the Merger Agreement and (ii) executed and intended to be irrevocable in accordance with the provisions of the Laws of the State of New York, and (b) revokes any and all prior
proxies granted by each Company Y Shareholder with respect to the Covered Shares and no subsequent proxy shall be given by any Company Y Shareholder (and if given shall be ineffective).
Each Company Y Shareholder shall take such further action or execute such other instruments as may be reasonably necessary in accordance with the relevant provisions of the Laws of the State of
New York or any other Law to effectuate the intent of this proxy. The power of attorney granted by such Company Y Shareholder herein is a durable power of attorney and, so long as Company T has
the interest secured by such power of attorney or the obligations secured by such power of attorney remain undischarged, the power of attorney shall not be revoked by the dissolution, bankruptcy or
incapacity of such Company Y Shareholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company Y Shareholders.
Each
Company Y Shareholder represents and warrants to Company Y as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action.
That such Company Y
Shareholder, as of the date hereof, (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized (in the case of good standing, to
the extent the concept is recognized by such jurisdiction) and (ii) has all corporate, limited partnership, trust or other organizational power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery by such Company Y Shareholder of this Agreement,
the performance by such Company Y Shareholder of its obligations hereunder and the consummation by such Company Y Shareholder of the transactions contemplated by this Agreement have been
duly and validly authorized by such Company Y Shareholder and no other actions or proceedings on the part of such Company Y Shareholder are necessary to authorize the execution and
delivery by it of this Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed
and delivered by such Company Y Shareholder and, assuming this Agreement constitutes a valid and binding obligation of Company T, constitutes a legal, valid and binding agreement of such
Company Y Shareholder enforceable against such Company Y Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar Laws of general applicability relating to or affecting creditors' rights and to general equity principles (the "
Bankruptcy and Equity
Exception
").
(b)
Ownership.
Such Company Y Shareholder is the Beneficial Owner of and has title to the Covered Shares
set forth next to such Company Y Shareholder's name on Schedule 1. As of the date of this Agreement and except as disclosed on Schedule 1, such Company Y Shareholder's
Covered Shares constitute all of the Company Y Shares and Company Y ADSs Beneficially Owned or owned of record by such Company Y Shareholder. Except to the extent Covered Shares
are Transferred after the date of this Agreement pursuant to a Permitted Transfer, such Company Y Shareholder has not granted any proxy inconsistent with this Agreement that is still effective
or entered into any voting or similar agreement, in each case with respect to all of the Covered Shares Beneficially Owned by such Company Y Shareholder at all times through the effective time
of the Merger (the "
Effective Time
").
(c)
Non-Contravention.
The execution and delivery of this Agreement by such Company Y
Shareholder do not, and the performance by such Company Y Shareholder of its obligations under this Agreement and the consummation by such Company Y Shareholder of the transactions
contemplated by this Agreement, will not (i) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right
of, or result in, consent, termination, cancellation or acceleration of any obligation or loss of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements
of any Person under, or result in the creation of any lien upon its assets or properties under, any provision of (A) any charter or organizational documents of such Company Y
Shareholder, (B) any contract, agreement or other instrument to which such Company Y Shareholder is party or by which any of its assets or properties is bound and (C) any
judgment, order, injunction, decree or Law applicable to such Company Y Shareholder or its assets or properties or (ii) require any consent of, or registration, declaration or filing
with, notice to, or permit from, any supranational, national, state, municipal or local court or tribunal
or administrative, governmental, quasi-governmental or regulatory body, agency or authority ("
Governmental Entities
"), except, in the case
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of
clauses (i) and (ii) above, any such items that, individually or in the aggregate, would not be expected to be materially adverse to the ability of such Company Y Shareholder to
timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements.
Except for this Agreement, such Company Y Shareholder has not:
(i) entered into any contract, agreement or other instrument, voting agreement, voting trust or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable
proxy, consent or power of attorney with respect to any of the Covered Shares or (iii) taken any action that would constitute a breach hereof, make any representation or warranty of such
Company Y Shareholder set forth in this Article III untrue or incorrect in any material respect or have the effect of preventing or disabling such Company Y Shareholder from
performing in any material respect any of its obligations under this Agreement. Such Company Y Shareholder understands and acknowledges that Company Y and Merger Sub are entering into
the Merger Agreement in reliance upon the Company Y Shareholders' execution and delivery of this Agreement and the representations, warranties, covenants and other agreements of such
Company Y Shareholder contained herein.
(e)
No Action.
As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of such Company Y Shareholder, threatened against such Company Y Shareholder that could reasonably be expected to
impair the ability of such Company Y Shareholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
Section 3.2
Representations and Warranties of Company T.
Company T represents
and warrants to each Company Y Shareholder that Company T has all corporate power and authority to execute, deliver and perform this
Agreement. The execution and delivery by Company T of this Agreement, the performance by Company T of its obligations hereunder and the consummation by Company T of the transactions contemplated by
this Agreement have been duly and validly authorized by Company T and no other actions or proceedings on the part of Company T are necessary to authorize the execution and delivery by it of this
Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
Company T and, assuming this Agreement constitutes a valid and binding obligation of each Company Y Shareholder, constitutes a legal, valid and binding agreement of Company T enforceable
against Company T in accordance with its terms, subject to the Bankruptcy and Equity Exception.
ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, each Company Y Shareholder agrees not to Transfer any of the Covered Shares, or any
voting right or power (including whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of
shares or any interest therein in violation of this Section 4.1 shall be null and void.
(b) This
Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or Beneficial Ownership shall pass,
whether by operation of Law or otherwise, including, such Company Y Shareholder's successors or assigns. No Company Y Shareholder may request that Company Y or Company Y's
depositary bank register the Transfer
(book-entry or otherwise) any or all of the Covered Shares (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this Agreement.
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Notwithstanding
any Transfer of Covered Shares, the transferor shall remain liable for the performance of all of the obligations of such Company Y Shareholder under this Agreement.
Section 4.2
Reserved.
Section 4.3
Share Dividends, etc.
In the event of a reclassification,
recapitalization, reorganization, share split (including a reverse share split) or combination, exchange or readjustment of
shares, change in ratio of Company Y ADS to Company Y Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution
of securities convertible into or exchangeable for Company Y Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include
such shares as well as all such share dividends and distributions and any securities of Company Y into which or for which any or all of such shares may be changed or exchanged or which are
received in such transaction.
Section 4.4
No Solicitation.
Subject to Section 5.13 hereof, each
Company Y Shareholder hereby agrees that during the term of this Agreement, such Company Y Shareholder
shall not, and shall use reasonable best efforts to cause its Representatives not to, directly or indirectly, take any action that Company Y is otherwise prohibited from taking under
Section 6.3(a) of the Merger Agreement.
Section 4.5
No Inconsistent Agreements.
Except for this Agreement, none of the
Company Y Shareholders shall (a) enter into any contract agreement or other instrument, option or other
agreement with respect to, or consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein that, in each case, conflicts with this Agreement,
(b) create or permit to exist any lien that could prevent such Company Y Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material
respects with the other obligations under this Agreement, other than any restrictions imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with
respect to the Covered Shares or grant any proxy, consent or power of attorney with respect to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any
action, directly or indirectly, that could reasonably be expected to (i) result in a material breach hereof, (ii) make any representation or warranty of such Company Y Shareholder
set forth in Article III untrue or incorrect in any material respect or (iii) have the effect of materially delaying, preventing or disabling such Company Y Shareholder from
performing any of its obligations under this Agreement.
Section 4.6
Reserved.
Section 4.7
Documentation and Information.
Each Company Y Shareholder
(i) consents to and authorizes the publication and disclosure by Company T of such Company Y Shareholder's
identity and holding of the Covered Shares and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without
limitation, Company T's proxy statement relating to the Merger, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such
disclosure documents. Each Company Y Shareholder shall promptly notify Company Y of any required corrections with respect to any written information supplied by such Company Y
Shareholder specifically for use in any such disclosure document, if and to the extent that any shall have become false or misleading in any material respect. Each of the parties hereto shall not
issue any press release or make any other public statement with respect to the transactions contemplated by this Agreement and the Merger Agreement without the prior written consent of Company T and
Company Y, except as such release or statement may be required by applicable Law or the rules and regulations of any national securities exchange or Governmental Entity to which such
Company Y Shareholder is subject or submits.
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Section 4.8
Further Assurances.
No Company Y Shareholder
shall take any action, directly or indirectly, that would make any representation or warranty of such Company Y Shareholder
contained herein untrue or incorrect in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by such
Company Y Shareholder of its obligations under this Agreement. From time to time, at Company T's request and without further consideration, each Company Y Shareholder, solely in its
capacity as a Company Y Shareholder of Company Y, shall take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be
reasonably necessary to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation.
Unless the express context otherwise requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) means such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
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Section 5.2
Termination.
This Agreement and all obligations of the parties
hereunder (other than as set forth in the following sentence) shall automatically terminate on the earliest to
occur of (i) the Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, (iii) at any time upon the written agreement of Company T and
the Company Y Shareholders, or (iv) August 31, 2012. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further
action by any party except for the provisions of Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any
party of liability for any breach prior to such termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other
than the State of New York. Any action, claim, demand, or proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising
out of or relating to this Agreement or the transactions contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America
sitting in the County of New York in the State of New York. Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of such
courts in respect of any such Proceeding, and hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter
have to the laying of venue of any such Proceeding in any such court in accordance with the provisions of this Section 5.3. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by Law, the defense of an inconvenient forum to the maintenance of such Proceeding in any such court. Each of the parties hereto hereby irrevocably and unconditionally agrees that, to
the fullest extent permitted by applicable Law, service of process to such party's address set forth in Section 5.4, and in the manner provided for notices in Section 5.4, will be
effective service of process for any Proceeding in New York with respect to any matter to which such party has submitted to jurisdiction as set forth in this Section 5.3. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by Law.
(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any Proceeding directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated hereby, including any controversy or Proceeding involving any Company T Related Party under this Agreement. Each party hereto certifies and
acknowledges that (i) no representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that such other party would not, in the event of a Proceeding, seek
to enforce the foregoing waiver, (ii) each party hereto understands and has considered the implications of this waiver, (iii) each party hereto makes this waiver voluntarily, and
(iv) each party hereto has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.3.
Section 5.4
Notices.
All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given (a) upon personal
delivery, (b) one (1) Business Day after being sent via an internationally recognized overnight courier service, (c) three (3) Business Days after being sent, postage
prepaid, by registered, certified or express mail or (d) upon
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receipt
of electronic or other confirmation of transmission if sent via facsimile, in each case, at the addresses or facsimile numbers (or at such other address or facsimile number for a party as
shall be specified by like notice) set forth below:
If
to Company T to:
Tudou
Holdings Limited
Building No. 6, X2 Creative Park, 1238 Xietu Road
Xuhui District
Shanghai 20032
The People's Republic of China
Telephone: +86-21-5170-2355
Facsimile: +86-21-5170-2366
Attention: Gary Wei Wang
Jixun Foo
Bin Yu
with
a copy (which shall not constitute notice) to:
Kirkland &
Ellis
26th Floor, Gloucester Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: David Zhang
Jesse Sheley
Facsimile: +852-3761-3301
If
to any Company Y Shareholder: to such Company Y Shareholder and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
Section 5.5
Amendment.
This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by Company T and each Company Y Shareholder;
provided
that matters that only affect the right of a particular Company Y Shareholder or a group of Company Y Shareholders shall only require an
instrument in writing signed by Company T and such Company Y Shareholder or Company Y Shareholders.
Section 5.6
Extension; Waiver.
At any time before the termination of this
Agreement, Company T, on the one hand, and any of the Company Y Shareholders, on the other hand, may
(a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party
contained in this Agreement or in any document delivered under this Agreement or (c) waive compliance with any of the covenants or conditions contained in this Agreement. Any agreement on the
part of a party to any extension or waiver shall be valid only if set forth in an instrument in writing signed by such party. The failure of any party to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or
privilege under this Agreement.
Section 5.7
Entire Agreement.
This Agreement (together with the Merger
Agreement, to the extent referred to in this Agreement) constitutes the sole and entire agreement of the Company Y
Shareholders or any of their Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and
contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding
or condition not set forth in this Agreement has been made or relied upon by any of the parties to this Agreement.
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Section 5.8
No Third-Party Beneficiaries.
This Agreement is for the sole
benefit of, shall be binding upon, and may be enforced solely by Company T and the Company Y Shareholders and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person (other than Company T and the Company Y Shareholders) any legal or equitable right, benefit or remedy of any nature
whatsoever.
Section 5.9
Severability.
The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction.
The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions
of this Agreement.
Section 5.11
Assignment.
Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by operation of Law (including, but not limited to, by merger
or consolidation) or otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance.
The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches
or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise,
this being in addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party
hereto agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or
(ii) an award of specific performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company Y Shareholder Capacity.
Notwithstanding anything
contained in this Agreement to the contrary, the representations, warranties, covenants and agreements made herein by each Company Y
Shareholder are made solely with respect to such Company Y Shareholder and the Covered Shares. Each Company Y Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner
of such Covered Shares and nothing herein shall limit or affect any actions taken by any officer or director of Company Y (or a Subsidiary of Company Y) solely in his or her capacity as a
director or officer of Company Y (or a Subsidiary of Company Y), including participating in his or her capacity as a director or officer of Company Y in any discussions or negotiations with Company T.
Nothing contained herein, and no action taken by any Company Y Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
B-7-10
Table of Contents
Section 5.14
No Ownership Interest.
Nothing contained in this Agreement shall
be deemed to vest in Company T any direct or indirect ownership or incidence of ownership of or with respect to any
Covered Shares. All rights, ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company Y Shareholders, and Company T shall have no authority
to direct the Company Y Shareholders in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses.
All costs and expenses (including all fees
and disbursements of counsel, accountants, investment bankers, experts and consultants to a party) incurred in
connection with this Agreement shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness.
This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the other parties;
provided
,
however
, that if any of the Company Y Shareholders
fails for any reason to execute, or perform their obligations under, this Agreement, this Agreement
shall remain effective as to all parties executing this Agreement.
Section 5.17
Several Obligations.
The agreements, obligations,
representations and warranties of the Company Y Shareholders hereunder shall be several and not joint. This Agreement does not
constitute an agreement or understanding by or among the Company Y Shareholders and any other shareholders of Company Y with respect to the voting or disposition of any shares of Company Y.
[Signature page follows]
B-7-11
Table of Contents
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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Tudou Holdings Limited
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By:
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/s/ GARY WEI WANG
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Name: Gary Wei Wang
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Title: Chief Executive Officer
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B-7-12
Table of Contents
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Maverick Fund USA, Ltd.
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Maverick Fund, L.D.C.
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By:
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Maverick Capital, Ltd.,
its Investment Manager
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By:
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Maverick Capital, Ltd.,
its Investment Manager
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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Maverick Fund II, Ltd.
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Maverick Long Fund, Ltd.
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By:
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Maverick Capital, Ltd.,
its Investment Manager
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By:
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Maverick Capital, Ltd.,
its Investment Manager
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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Maverick Long Enhanced Fund, Ltd.
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Maverick Neutral Fund, Ltd.
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By:
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Maverick Capital, Ltd.,
its Investment Manager
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By:
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Maverick Capital, Ltd.,
its Investment Manager
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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Maverick Neutral Levered Fund, Ltd.
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By:
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Maverick Capital, Ltd.,
its Investment Manager
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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[
Signature Page to the Voting Agreement
]
B-7-13
Table of Contents
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Maverick II Holdings, Ltd.
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By:
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Maverick Capital, Ltd.,
its Attorney-in-Fact
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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Maverick Fund Private Investments, Ltd.
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By:
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Maverick Capital, Ltd.,
Under Power of Attorney effective as of December 30, 2008
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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Maverick USA II, Corp.
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By:
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Maverick Capital, Ltd.,
Its Attorney-in-Fact
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By:
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/s/ JOHN T. MCCAFFERTY
John T. McCafferty
Limited Partner and General Counsel
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[
Signature Page to the Voting Agreement
]
B-7-14
Table of Contents
Schedule 1
COMPANY Y SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company Y
Shares*
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Number of
Company Y
ADSs*
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Maverick Fund Private Investments, Ltd.
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17
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0
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Maverick USA II, Corp.
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12
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0
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Maverick II Holdings, Ltd.
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38,873,325
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2,159,629
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Maverick Fund, L.D.C.
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62,263,404
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3,459,078
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Maverick Fund USA, Ltd.
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37,036,134
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2,057,563
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Maverick Fund II, Ltd.
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4,707,000
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261,500
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Maverick Long Fund, Ltd.
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3,461,274
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192,293
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Maverick Long Enhanced Fund, Ltd.
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6,958,908
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386,606
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Maverick Neutral Fund, Ltd.
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1,714,338
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95,241
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Maverick Neutral Levered Fund, Ltd.
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9,062,298
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503,461
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Contact information for each Company Y Shareholder listed above is:
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c/o Maverick Capital, Ltd.
300 Crescent Court 18th Floor
Dallas, Texas 75201
Attention: General Counsel
Facsimile: (214) 880-4020
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with a copy to:
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Jones Day
2727 North Harwood Street
Dallas, Texas 75201
Attention: Charles T. Haag, Esq.
Facsimile: (214) 969-5100
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-
*
-
Does
not include Beneficial Ownership of Company Y Shares and Company Y ADSs in certain separately managed accounts.
B-7-15
Table of Contents
EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company T and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of Company Y (the "Shares") subject to the terms
and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of a
Company Y Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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By:
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Name and Title
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Address:
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Fax:
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Accepted and Agreed:
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TUDOU HOLDINGS LIMITED
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By:
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Title:
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B-7-16
Table of Contents
Appendix B-8
VOTING AGREEMENT
By and among
TUDOU HOLDINGS LIMITED
And
THE SHAREHOLDERS PARTY HERETO
Dated as of March 11, 2012
Table of Contents
TABLE OF CONTENTS
B-8-i
Table of Contents
INDEX OF DEFINED TERMS
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Term
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Section
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Additional Shares
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4
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Affiliate
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3
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Agreement
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3
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Bankruptcy and Equity Exception
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6
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Beneficial Owner
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4
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Beneficial Ownership
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4
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Beneficially Own
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4
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Beneficially Owned
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4
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Business Day
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4
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Company T
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3
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Company Y
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3
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Company Y ADSs
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4
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Company Y Shareholder
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3
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Company Y Shares
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4
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control
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4
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controlled by
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4
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controlling
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4
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Covered Shares
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4
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Effective Time
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7
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Exchange Act
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4
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Existing Shares
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4
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Governmental Entities
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7
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Merger
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3
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Merger Agreement
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3
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Merger Sub
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3
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Permitted Transfer
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4
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Transfer
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5
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under common control with
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4
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B-8-ii
Table of Contents
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Tudou Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), and each of the
Persons listed on Schedule 1 hereto (each, a "
Company Y Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company T, Youku Inc., an exempted company with limited liability
incorporated under the laws of the Cayman Islands ("
Company Y
"), and Two Merger Sub Inc., an exempted company with limited liability
incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y ("
Merger Sub
"), are entering into an Agreement and Plan of
Merger, dated as of the date of this Agreement (the "
Merger Agreement
"), pursuant to which, among other things, Merger Sub will merge
with and into Company T, with Company T surviving the merger as a wholly owned subsidiary of Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, each Company Y Shareholder is the Beneficial Owner of the Existing Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company T to enter into the Merger Agreement, Company T has
required that each Company Y Shareholder agree, and each Company Y Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter into this Agreement and abide by the
covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms
.
The following terms, as used in this Agreement, shall have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto
in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by
contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Additional Shares
" means Company Y Shares, Company Y ADSs or other voting share capital of Company Y with respect to
which any Company Y Shareholder acquires Beneficial Ownership after the
date of this Agreement (including any Company Y Shares issued upon the exercise of any Company Y Options or warrants or the conversion of any convertible securities or otherwise).
(c) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in
B-8-1
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accordance
with the term "beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange
Act
"). Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include securities Beneficially Owned by all
Affiliates of such Person and all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. The terms "Beneficially Own,"
"Beneficially Owned" and "Beneficial Owner" shall have correlative meanings.
(a) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(b) "
Company Y ADSs
" means American depositary shares of Company Y.
(d) "
Company Y Shares
" means the authorized share capital of Company Y, which as of the date hereof consists of US$100,000,
divided into 10,000,000,000 shares of par value US$0.00001 each.
(e) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(f) "
Covered Shares
" means the Existing Shares and any Additional Shares.
(g) "
Existing Shares
" means Company Y Shares and Company Y ADSs Beneficially Owned by a Company Y Shareholder on the date
hereof, as set forth opposite such Company Y Shareholder's name on Schedule 1 hereto.
(h) "
Permitted Transfer
" means a Transfer by a Company Y Shareholder to (i) an Affiliate of such Company Y
Shareholder, (ii) a member of such Company Y Shareholder's family or a trust for the benefit of such Company Y Shareholder's or any member of such Company Y Shareholder's family, or
(iii) any heir, legatees, beneficiaries and/or devisees of any individual who is a Company Y Shareholder;
provided
that the Transferee agrees to
execute a Joinder in the form attached hereto as Exhibit A.
(i) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
ARTICLE II
VOTING
Section 2.1
Agreement to Vote
.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, each Company Y Shareholder hereby
irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company Y and at any other meeting of the shareholders of Company Y, however called,
including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company Y and in any other circumstance upon which a vote, consent or other
approval of all or some of the shareholders of Company Y is sought, it shall, and shall cause
B-8-2
Table of Contents
any
holder of record of its Covered Shares to, in each case to the extent that the Covered Shares are entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company Y for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the issuance of Class A ordinary shares, par value US$0.00001 per share, of the Company (including those represented by American depositary shares),
constituting the Merger Consideration (as such term is defined in the Merger Agreement), to the Company T Shareholders, (2) in favor of any related proposal that is necessary to consummate the
Merger and the transactions contemplated by the Merger Agreement which is considered at any such meeting of Company Y Shareholders, (3) against any action, proposal, transaction or agreement
that could reasonably be expected to (A) result in a breach of any representation, warranty, covenant or other obligation or agreement of Company Y contained in the Merger Agreement,
(B) result in a breach of any representation, warranty, covenant or other obligation or agreement of such Company Y Shareholder contained in this Agreement, or (C) impede, interfere
with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in any manner the voting rights of any class of shares of Company Y (including any amendments to
the memorandum and articles of association of Company Y, other than such amendments contemplated by the Merger Agreement and/or any amendments that will not (i) impede, interfere with, delay,
discourage, adversely affect or inhibit the timely consummation of the Merger or (ii) have a disproportionate adverse effect on Company T shareholders relative to current holders of Company Y's
Class A Ordinary Shares), (4) against any Competing Proposal, and (5) against any change in the composition of the board of directors of Company Y (other than such changes
contemplated by the Merger Agreement).
(b) Each
Company Y Shareholder shall retain at all times the right to vote such Company Y Shareholder's Covered Shares in such Company Y Shareholder's sole discretion and
without any other limitation on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to Company Y Shareholders of
Company Y generally.
Section 2.2
Grant of Proxy
.
Each Company Y Shareholder hereby irrevocably and unconditionally grants a proxy to, and appoints, Company T and any designee of Company T, and each of them individually, as his, her or
its proxies and attorneys-in-fact, with full power of substitution and resubstitution, for and in such Company Y Shareholder's name, place and stead, in the event that such
Company Y Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or
Section 2.1(a)(ii)(5)), to vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with respect to the Covered Shares as
provided in Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)(5)). This proxy and power of attorney is given in connection
with, and in consideration of, the execution of the Merger Agreement by Company T, and to secure the performance of the duties and obligations of such Company Y Shareholder owed to Company T
under this Agreement. Each Company Y Shareholder hereby (a) affirms that such irrevocable proxy is (i) coupled with an interest by reason of the Merger Agreement and (ii) executed
and intended to be irrevocable in accordance with the provisions of the Laws of the State of New York, and (b) revokes any and all prior proxies granted by each Company Y Shareholder with
respect to the Covered Shares and no subsequent proxy shall be given by any Company Y Shareholder (and if given shall be ineffective). Each Company Y Shareholder shall take
B-8-3
Table of Contents
such
further action or execute such other instruments as may be reasonably necessary in accordance with the relevant provisions of the Laws of the State of New York or any other Law to effectuate the
intent of this proxy. The power of attorney granted by such Company Y Shareholder herein is a durable power of attorney and, so long as Company T has the interest secured by such power of attorney or
the obligations secured by such power of attorney remain undischarged, the power of attorney shall not be revoked by the dissolution, bankruptcy, death or incapacity of such Company Y Shareholder. The
proxy and power of attorney granted hereunder shall terminate upon the termination of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company Y Shareholders
.
Each Company Y Shareholder represents and warrants to Company Y as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action.
If such Company Y Shareholder is not a
natural person, such Company Y Shareholder, as of the date hereof (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized (in
the case of good standing, to the extent the concept is recognized by such jurisdiction) and (ii) has all corporate, limited partnership, trust or other organizational power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. If such Company Y Shareholder is a natural person, he or
she, as of the date hereof, has the legal capacity and authority to execute and deliver this Agreement and perform his or her obligations hereunder and to consummate the transactions contemplated by
this Agreement. The execution and delivery by such Company Y Shareholder of this Agreement, the performance by such Company Y Shareholder of his, her or its obligations hereunder and the consummation
by such Company Y Shareholder of the transactions contemplated by this Agreement have been duly and validly authorized by such Company Y Shareholder and no other actions or proceedings on the part of
such Company Y Shareholder are necessary to authorize the execution and delivery by him, her or it of this Agreement, the performance by him, her or it of its obligations hereunder or the consummation
by him, her or it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by such Company Y Shareholder and, assuming this Agreement constitutes a valid
and binding obligation of Company T, constitutes a legal, valid and binding agreement of such Company Y Shareholder enforceable against such Company Y Shareholder in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors' rights and to general equity principles (the
"
Bankruptcy and Equity Exception
").
(b)
Ownership.
Such Company Y Shareholder is the Beneficial Owner of and has good and valid title to the
Existing Shares set forth next to such Company Y Shareholder's name on Schedule 1, free and clear of any liens, other than any liens pursuant to this Agreement or arising under the articles of
association of Company Y and transfer restrictions imposed by generally applicable securities Laws. As of the date of this Agreement, such Company Y Shareholder's Existing Shares constitute all of the
Company Y Shares and Company Y ADSs Beneficially Owned or owned of record by such Company Y Shareholder. Except to the extent Covered Shares are Transferred after the date of this Agreement pursuant
to a Permitted Transfer, such Company Y Shareholder has not granted any proxy inconsistent with this Agreement that is still effective or entered into any voting or similar agreement, in each case
with respect to all of such Company Y Shareholder's Existing Shares and with respect to all of the Covered Shares Beneficially Owned by such Company Y Shareholder at all times through the effective
time of the Merger (the "
Effective Time
").
B-8-4
Table of Contents
(c)
Non-Contravention.
The execution and delivery of this Agreement by such Company Y Shareholder do
not, and the performance by such Company Y Shareholder of his, her or its obligations under this Agreement and the consummation by such Company Y Shareholder of the transactions contemplated by this
Agreement, will not (i) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in,
consent, termination, cancellation or acceleration of any obligation or loss of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person
under, or result in the creation of any lien upon his, her or its assets or properties under, any provision of (A) any charter or organizational documents of such Company Y Shareholder,
(B) any contract, agreement or other instrument to which such Company Y Shareholder is party or by which any of his, her or its assets or properties is bound and (C) any judgment, order,
injunction, decree or Law applicable to such Company Y Shareholder or his, her or its assets or properties or (ii) require any consent of, or registration, declaration or filing with, notice
to, or permit from, any supranational, national, state, municipal or local court or tribunal or administrative, governmental, quasi-governmental or regulatory body, agency or authority
("
Governmental Entities
"), except, in the case of clauses (i) and (ii) above, any such items that, individually or in the aggregate, would
not be expected to be materially adverse to the ability of such Company Y Shareholder to timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements.
Except for this Agreement, such Company Y Shareholder has not:
(i) entered into any contract, agreement or other instrument, voting agreement, voting trust or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable
proxy, consent or power of attorney with respect to any of the Covered Shares or (iii) taken any action that would constitute a breach hereof, make any representation or warranty of such
Company Y Shareholder set forth in this Article III untrue or incorrect in any material respect or have the effect of preventing or disabling such Company Y Shareholder from performing in any
material respect any of its obligations under this Agreement. Such Company Y Shareholder understands and acknowledges that Company Y and Merger Sub are entering into the Merger Agreement in reliance
upon the Company Y Shareholders' execution and delivery of this Agreement and the representations, warranties, covenants and other agreements of such Company Y Shareholder contained herein.
(e)
No Action.
As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of such Company Y Shareholder, threatened against such Company Y Shareholder that could reasonably be expected to impair
the ability of such Company Y Shareholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
Section 3.2
Representations and Warranties of Company T
.
Company T represents and warrants to each Company Y Shareholder that Company T has all corporate power and authority to execute, deliver and perform this Agreement. The execution and
delivery by Company T of this Agreement, the performance by Company T of its obligations hereunder and the consummation by Company T of the transactions contemplated by this Agreement have been duly
and validly authorized by Company T and no other actions or proceedings on the part of Company T are necessary to authorize the execution and delivery by it of this Agreement, the performance by it of
its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by Company T and, assuming this Agreement
constitutes a valid and binding obligation of each Company Y Shareholder, constitutes a legal, valid and binding agreement of Company T enforceable against Company T in accordance with its terms,
subject to the Bankruptcy and Equity Exception.
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ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers
.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, each Company Y Shareholder agrees not to Transfer any of the Covered Shares, or any voting
right or power (including whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or
any interest therein in violation of this Section 4.1 shall be null and void.
(b) This
Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or Beneficial Ownership shall pass,
whether by operation of Law or otherwise, including, such Company Y Shareholder's successors or assigns. No Company Y Shareholder may request that Company Y or Company Y's depositary bank register the
Transfer (book-entry or otherwise) any or all of the Covered Shares (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this
Agreement.
Notwithstanding any Transfer of Covered Shares, the transferor shall remain liable for the performance of all of the obligations of such Company Y Shareholder under this Agreement.
Section 4.2
Additional Shares
.
Each Company Y Shareholder agrees to promptly notify Company T of the number of Additional Shares acquired by such Company Y Shareholder after the date hereof. Any such Additional Shares
shall automatically become subject to the terms of this Agreement and shall constitute Covered Shares for all purposes of this Agreement.
Section 4.3
Share Dividends, etc.
In
the event of a reclassification, recapitalization, reorganization, share split (including a reverse share split) or combination, exchange or readjustment of shares, change in ratio of
Company Y ADS to Company Y Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution of securities convertible into or
exchangeable for Company Y Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include such shares as well as all such share
dividends and distributions and any securities of Company Y into which or for which any or all of such shares may be changed or exchanged or which are received in such transaction.
Section 4.4
No Solicitation
.
Subject to Section 5.13 hereof, each Company Y Shareholder hereby agrees that during the term of this Agreement, such Company Y Shareholder shall not, and shall use reasonable
best efforts to cause his, her or its Representatives not to, directly or indirectly, take any action that Company Y is otherwise prohibited from taking under Section 6.3(a) of the Merger
Agreement.
Section 4.5
No Inconsistent Agreements
.
Except for this Agreement, none of the Company Y Shareholders shall: (a) enter into any contract agreement or other instrument, option or other agreement with respect to, or
consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein, (b) create or permit to exist any lien that could prevent such Company Y
Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material respects with the other obligations under this Agreement, other than any restrictions
imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with respect to the Covered Shares or grant any proxy, consent or power of attorney with respect
to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any action, directly or indirectly, that could reasonably be expected to (i) result in a
material breach hereof, (ii) make any representation or warranty of such Company Y Shareholder set forth in Article III untrue or incorrect in any material respect or (iii) have
the effect of materially delaying, preventing or disabling such Company Y Shareholder from performing any of his, her or its obligations under this Agreement.
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Section 4.6
Reserved
.
Section 4.7
Documentation and Information
.
Each Company Y Shareholder (i) consents to and authorizes the publication and disclosure by Company T of such Company Y Shareholder's identity and holding of the Covered Shares
and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without limitation, Company T's proxy statement
relating to the Merger, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such disclosure documents. Each Company Y Shareholder
shall promptly notify Company Y of any required corrections with respect to any written information supplied by such Company Y Shareholder specifically for use in any such disclosure document, if and
to the extent that any shall have become false or misleading in any material respect. Each of the parties hereto shall not issue any press release or make any other public statement with respect to
the transactions contemplated by this Agreement and the Merger Agreement without the prior written consent of Company T and Company Y, except as such release or statement may be required by applicable
Law or the rules and regulations of any national securities exchange or Governmental Entity to which such Company Y Shareholder is subject or submits.
Section 4.8
Further Assurances
.
No Company Y Shareholder shall take any action, directly or indirectly, that would make any representation or warranty of such Company Y Shareholder contained herein untrue or incorrect
in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by such Company Y Shareholder of his, her or its
obligations under this Agreement. From time to time, at Company T's request and without further consideration, each Company Y Shareholder, solely in his, her or its capacity as a Company Y Shareholder
of Company Y, shall take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be reasonably necessary to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation
.
Unless the express context otherwise requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
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(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) means such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
Section 5.2
Termination
.
This Agreement and all obligations of the parties hereunder (other than as set forth in the following sentence) shall automatically terminate on the earliest to occur of (i) the
Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, or (iii) at any time upon the written agreement of Company T and the Company Y
Shareholders. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further action by any party except for the provisions of
Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any party of liability for any breach prior to such
termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue
.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York. Any action, claim, demand, or
proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York.
Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in any such court in
accordance with the provisions of this Section 5.3. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the
maintenance of such Proceeding in any such court. Each of the parties hereto hereby irrevocably and unconditionally agrees that, to the fullest extent permitted by applicable Law, service of process
to such party's address set forth in Section 5.4, and in the manner provided for notices in Section 5.4, will be effective service of process for any Proceeding in New York with respect
to any matter to which such party has submitted to jurisdiction as set forth in this Section 5.3. Nothing in this Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by Law.
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(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect
of any Proceeding directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby, including any controversy or Proceeding involving any Company T Related
Party under this Agreement. Each party hereto certifies and acknowledges that (i) no representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that
such other party would not, in the event of a Proceeding, seek to enforce the foregoing waiver, (ii) each party hereto understands and has considered the implications of this waiver,
(iii) each party hereto makes this waiver voluntarily, and (iv) each party hereto has been induced to enter into this Agreement by, among other things, the mutual waivers and
certifications in this Section 5.3.
Section 5.4
Notices
.
All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given (a) upon personal delivery, (b) one
(1) Business Day after being sent via an internationally recognized overnight courier service, (c) three (3) Business Days after being sent, postage prepaid, by registered,
certified or express mail or (d) upon receipt of electronic or other confirmation of transmission if sent via facsimile, in each case, at the addresses or facsimile numbers (or at such other
address or facsimile number for a party as shall be specified by like notice) set forth below:
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If to Company T to:
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Tudou Holdings Limited
Building No. 6, X2 Creative Park, 1238 Xietu Road
Xuhui District
Shanghai 20032
The People's Republic of China
Telephone: +86-21-5170-2355
Facsimile: +86-21-5170-2366
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Attention: Gary Wei Wang
Jixun Foo
Bin Yu
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with a copy (which shall not constitute notice) to:
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Kirkland & Ellis
26th Floor, Gloucester Tower, The Landmark
15 Queen's Road Central, Hong Kong
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Attention: David Zhang
Jesse Sheley
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Facsimile: +852-3761-3301
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If to any Company Y Shareholder: to such Company Y Shareholder and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
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Section 5.5
Amendment
.
This Agreement may not be amended, modified or supplemented except by an instrument in writing signed by Company T and each Company Y Shareholder;
provided
that matters that only
affect the right of a particular Company Y Shareholder or a group of Company Y Shareholders shall only require an
instrument in writing signed by Company T and such Company Y Shareholder or Company Y Shareholders.
Section 5.6
Extension; Waiver
.
At any time before the termination of this Agreement, Company T, on the one hand, and any of the Company Y Shareholders, on the other hand, may (a) extend the time for the
performance of any of the obligations or other acts of the other party,
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(b) waive
any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered under this Agreement or (c) waive compliance
with any of the covenants or conditions contained in this Agreement. Any agreement on the part of a party to any extension or waiver shall be valid only if set forth in an instrument in writing signed
by such party. The failure of any party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right, power or privilege under this Agreement.
Section 5.7
Entire Agreement
.
This Agreement (together with the Merger Agreement, to the extent referred to in this Agreement) constitutes the sole and entire agreement of the Company Y Shareholders or any of their
Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings,
agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding or condition not set forth in
this Agreement has been made or relied upon by any of the parties to this Agreement.
Section 5.8
No Third-Party Beneficiaries
.
This Agreement is for the sole benefit of, shall be binding upon, and may be enforced solely by Company T and the Company Y Shareholders and nothing in this Agreement, express or
implied, is intended to or shall confer upon any person (other than Company T and the Company Y Shareholders) any legal or equitable right, benefit or remedy of any nature whatsoever.
Section 5.9
Severability
.
The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions
hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or
enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction
.
The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.
Section 5.11
Assignment
.
Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by operation of Law (including, but not limited to, by merger or consolidation) or
otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance
.
The parties hereto agree that irreparable damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise
breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches or threatened
breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise, this being in
addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party hereto agrees that
it will
B-8-10
Table of Contents
not
oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or (ii) an award of specific
performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company Y Shareholder Capacity
.
Notwithstanding anything contained in this Agreement to the contrary, the representations, warranties, covenants and agreements made herein by each Company Y Shareholder are made solely
with respect to such Company Y Shareholder and the Covered Shares. Each Company Y Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner of such Covered Shares and
nothing herein shall limit or affect any actions taken by any officer or director of Company Y (or a Subsidiary of Company Y) solely in his or her capacity as a director or officer of Company Y
(or a Subsidiary of Company Y), including participating in his or her capacity as a director or officer of Company Y in any discussions or negotiations with Company T. Nothing contained herein, and no
action taken by any Company Y Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other kind of entity, or create a
presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
Section 5.14
No Ownership Interest
.
Nothing contained in this Agreement shall be deemed to vest in Company T any direct or indirect ownership or incidence of ownership of or with respect to any Covered Shares. All rights,
ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company Y Shareholders, and Company T shall have no authority to direct the Company Y
Shareholders in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses
.
All costs and expenses (including all fees and disbursements of counsel, accountants, investment bankers, experts and consultants to a party) incurred in connection with this Agreement
shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness
.
This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties;
provided
,
however
, that if any of the
Company Y Shareholders fails for any reason to execute, or perform their obligations under, this Agreement, this Agreement shall remain effective as to all parties executing this Agreement.
Section 5.17
Several Obligations
.
The agreements, obligations, representations and warranties of the Company Y Shareholders hereunder shall be several and not joint.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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Tudou Holdings Limited
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By:
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/s/ GARY WEI WANG
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Name:
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Gary Wei Wang
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Title:
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Chief Executive Officer
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[
Signature Page to the Voting Agreement
]
B-8-12
Table of Contents
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Sutter Hill Ventures, A California Limited
Partnership
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By:
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/s/ G. LEONARD BAKER JR.
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Name:
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G. Leonard Baker Jr.
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Title:
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Managing Director of the General Partner
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Saunders Holdings, L.P.
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By:
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/s/ G. LEONARD BAKER JR.
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Name:
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G. Leonard Baker Jr.
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Title:
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General Partner
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Wells Fargo Bank, N.A. FBO G. Leonard
Baker, Jr. Roth IRA
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By:
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/s/ TODD NOETZELMAN
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Name:
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Todd Noetzelman
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Title:
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Vice President
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G. Leonard Baker Jr.
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By:
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/s/ G. LEONARD BAKER JR.
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Name:
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G. Leonard Baker Jr.
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[
Signature Page to the Voting Agreement
]
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Table of Contents
Schedule 1
COMPANY Y SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company Y
Shares
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Number of
Company Y
ADSs
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Sutter Hill Ventures, A California Limited Partnership
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10
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0
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c/o 755 Page Mill Road
Suite A-200, Palo Alto, CA 94304
Attention: Mr. George Leonard Baker Jr.
Robert Yin
Facsimile: (650) 858-1854
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Saunders Holdings, L.P.
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5,155,488
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286,416
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c/o 755 Page Mill Road
Suite A-200, Palo Alto, CA 94304
Attention: Mr. George Leonard Baker Jr.
Robert Yin
Facsimile: (650) 858-1854
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Wells Fargo Bank, N.A. FBO G. Leonard Baker, Jr. Roth IRA
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540,475
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30,026
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c/o 755 Page Mill Road
Suite A-200, Palo Alto, CA 94304
Attention: Mr. George Leonard Baker Jr.
Robert Yin
Facsimile: (650) 858-1854
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G. Leonard Baker Jr.
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15,026,314
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834,795
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c/o 755 Page Mill Road
Suite A-200, Palo Alto, CA 94304
Attention: Mr. George Leonard Baker Jr.
Robert Yin
Facsimile: (650) 858-1854
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Table of Contents
EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company T and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of Company Y (the "Shares") subject to the terms
and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of a
Company Y Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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By:
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Name and Title
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Address:
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Fax:
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Accepted and Agreed:
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TUDOU HOLDINGS LIMITED
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By:
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Title:
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Appendix B-9
VOTING AGREEMENT
By and among
TUDOU HOLDINGS LIMITED
And
THE SHAREHOLDERS PARTY HERETO
Dated as of March 11, 2012
Table of Contents
TABLE OF CONTENTS
B-9-i
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INDEX OF DEFINED TERMS
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Term
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Section
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Additional Shares
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4
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Affiliate
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3
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Agreement
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3
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Bankruptcy and Equity Exception
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6
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Beneficial Owner
|
|
|
4
|
|
Beneficial Ownership
|
|
|
4
|
|
Beneficially Own
|
|
|
4
|
|
Beneficially Owned
|
|
|
4
|
|
Business Day
|
|
|
4
|
|
Company T
|
|
|
3
|
|
Company Y
|
|
|
3
|
|
Company Y ADSs
|
|
|
4
|
|
Company Y Shareholder
|
|
|
3
|
|
Company Y Shares
|
|
|
4
|
|
control
|
|
|
4
|
|
controlled by
|
|
|
4
|
|
controlling
|
|
|
4
|
|
Covered Shares
|
|
|
4
|
|
Effective Time
|
|
|
7
|
|
Exchange Act
|
|
|
4
|
|
Existing Shares
|
|
|
4
|
|
Governmental Entities
|
|
|
7
|
|
Merger
|
|
|
3
|
|
Merger Agreement
|
|
|
3
|
|
Merger Sub
|
|
|
3
|
|
Permitted Transfer
|
|
|
4
|
|
Transfer
|
|
|
5
|
|
under common control with
|
|
|
4
|
|
B-9-ii
Table of Contents
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 11, 2012 (this "
Agreement
"), by and among
Tudou Holdings Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("
Company T
"), and each of the
Persons listed on Schedule 1 hereto (each, a "
Company Y Shareholder
").
RECITALS
WHEREAS, concurrently with the execution of this Agreement, Company T, Youku Inc., an exempted company with limited liability
incorporated under the laws of the Cayman Islands ("
Company Y
"), and Two Merger Sub Inc., an exempted company with limited liability
incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Company Y ("
Merger Sub
"), are entering into an Agreement and Plan of
Merger, dated as of the date of this Agreement (the "
Merger Agreement
"), pursuant to which, among other things, Merger Sub will merge
with and into Company T, with Company T surviving the merger as a wholly owned subsidiary of Company Y (the "
Merger
");
WHEREAS,
as of the date of this Agreement, each Company Y Shareholder is the Beneficial Owner of the Existing Shares (as defined below); and
WHEREAS,
concurrently with the execution of the Merger Agreement, and as a condition and inducement to the willingness of Company T to enter into the Merger Agreement, Company T has
required that each Company Y Shareholder agree, and each Company Y Shareholder has agreed, upon the terms and subject to the conditions set forth herein, to enter into this Agreement and abide by the
covenants and obligations set forth herein.
NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL
Section 1.1
Defined Terms.
The following terms, as used in this Agreement, shall have
the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
(a) "
Affiliate
" means, as to any Person, (i) any other Person that, directly or indirectly, controls, or is controlled
by, or is under common control with, such Person. For this purpose, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by
contract or otherwise and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) "
Additional Shares
" means Company Y Shares, Company Y ADSs or other voting share capital of Company Y with respect to
which any Company Y Shareholder acquires Beneficial Ownership after the
date of this Agreement (including any Company Y Shares issued upon the exercise of any Company Y Options or warrants or the conversion of any convertible securities or otherwise).
(c) "
Beneficial Ownership
" by a Person of any security includes ownership by any Person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or otherwise (whether or not in writing), has or shares: (i) voting power which includes the power to vote, or to direct the voting of,
such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in
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accordance
with the term "beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "
Exchange
Act
"). Without duplicative counting of the same securities by the same holder, securities Beneficially Owned by a Person will include securities Beneficially Owned by all
Affiliates of such Person and all other Persons with whom such Person would constitute a "group" within the meaning of Section 13(d) of the Exchange Act. The terms "Beneficially Own,"
"Beneficially Owned" and "Beneficial Owner" shall have correlative meanings.
(a) "
Business Day
" means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close
in New York, New York, the Cayman Islands, Hong Kong or Shanghai, China.
(b) "
Company Y ADSs
" means American depositary shares of Company Y.
(d) "
Company Y Shares
" means the authorized share capital of Company Y, which as of the date hereof consists of US$100,000,
divided into 10,000,000,000 shares of par value US$0.00001 each.
(e) "
control
" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control
with"), when used with respect to any Person, means the power to direct or cause the direction of the management or policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
(f) "
Covered Shares
" means the Existing Shares and any Additional Shares.
(g) "
Existing Shares
" means Company Y Shares and Company Y ADSs Beneficially Owned by a Company Y Shareholder on the date
hereof, as set forth opposite such Company Y Shareholder's name on Schedule 1 hereto.
(h) "
Permitted Transfer
" means a Transfer by a Company Y Shareholder to (i) an Affiliate of such Company Y
Shareholder, (ii) a member of such Company Y Shareholder's family or a trust for the benefit of such Company Y Shareholder's or any member of such Company Y Shareholder's family, or
(iii) any heir, legatees, beneficiaries and/or devisees of any individual who is a Company Y Shareholder;
provided
that the Transferee agrees to
execute a Joinder in the form attached hereto as Exhibit A.
(i) "
Transfer
" means, directly or indirectly, to sell, transfer, offer, exchange, assign, pledge, encumber, hypothecate or
otherwise dispose of (by merger, by tendering into any tender or exchange offer, by testamentary disposition, by operation of Law or otherwise), either voluntarily or involuntarily, or to enter into
any contract, option or other agreement with respect to any sale, transfer, offer, exchange, assignment, pledge, encumbrance, hypothecation or other disposition.
ARTICLE II
VOTING
Section 2.1
Agreement to Vote.
(a) During
the period commencing on the date hereof and continuing until the termination of this Agreement in accordance with its terms, each Company Y Shareholder hereby
irrevocably and unconditionally agrees that at an annual or extraordinary general meeting of the shareholders of Company Y and at any other meeting of the shareholders of Company Y, however called,
including any adjournment, recess or postponement thereof, in connection with any written consent of the shareholders of Company Y and in any other circumstance upon which a vote, consent or other
approval of all or some of the shareholders of Company Y is sought, it shall, and shall cause
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any
holder of record of its Covered Shares to, in each case to the extent that the Covered Shares are entitled to vote thereon or consent thereto:
(i) appear
at each such meeting or otherwise cause all of its Covered Shares to be counted as present thereat for purposes of calculating a quorum and respond to each
request by Company Y for written consent, if any; and
(ii) vote
(or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent covering, all of its Covered Shares (1) in favor of
the approval and authorization of the issuance of Class A ordinary shares, par value US$0.00001 per share, of the Company (including those represented by American depositary shares),
constituting the Merger Consideration (as such term is defined in the Merger Agreement), to the shareholders of Company T, (2) in favor of any related proposal that is necessary to consummate
the Merger and the transactions contemplated by the Merger Agreement which is considered at any such meeting of Company Y Shareholders, (3) against any action, proposal, transaction or
agreement that could reasonably be expected to (A) result in a breach of any representation, warranty, covenant or other obligation or agreement of Company Y contained in the Merger Agreement,
(B) result in a breach of any representation, warranty, covenant or other obligation or agreement of such Company Y Shareholder contained in this Agreement, or (C) impede, interfere
with, delay, discourage, adversely affect or inhibit the timely consummation of the Merger or change in any manner the voting rights of any class of shares of Company Y (including any amendments to
the memorandum and articles of association of Company Y, other than such amendments contemplated by the Merger Agreement and/or any amendments that will not (i) impede, interfere with, delay,
discourage, adversely affect or inhibit the timely consummation of the Merger or (ii) have a disproportionate adverse effect on Company T shareholders relative to current holders of Company Y's
Class A Ordinary Shares), (4) against any Competing Proposal, and (5) against any change in the composition of the board of directors of Company Y (other than such changes
contemplated by the Merger Agreement).
(b) Each
Company Y Shareholder shall retain at all times the right to vote such Company Y Shareholder's Covered Shares in such Company Y Shareholder's sole discretion and
without any other limitation on those matters other than those set forth in Section 2.1(a) that are at any time or from time to time presented for consideration to Company Y Shareholders of
Company Y generally.
Section 2.2
Grant of Proxy.
Each Company Y Shareholder hereby irrevocably and
unconditionally grants a proxy to, and appoints, Company T and any designee of Company T, and each of them
individually, as his, her or its proxies and attorneys-in-fact, with full power of substitution and resubstitution, for and in such Company Y Shareholder's name, place and
stead, in the event that such Company Y Shareholder shall at any time fail to perform its obligations under Section 2.1 hereof (other than Section 2.1(a)(ii)(3),
Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)(5)), to vote, act by written consent or execute and deliver a proxy to vote or grant a written consent during the term of this Agreement with
respect to the Covered Shares as provided in Section 2.1 hereof (other than Section 2.1(a)(ii)(3), Section 2.1(a)(ii)(4) or Section 2.1(a)(ii)(5)). This proxy and power of
attorney is given in connection with, and in consideration of, the execution of the Merger Agreement by Company T, and to secure the performance of the duties and obligations of such Company Y
Shareholder owed to Company T under this Agreement. Each Company Y Shareholder hereby (a) affirms that such irrevocable proxy is (i) coupled with an interest by reason of the Merger
Agreement and (ii) executed and intended to be irrevocable in accordance with the provisions of the Laws of the State of New York, and (b) revokes any and all prior proxies granted by
each Company Y Shareholder with respect to the Covered Shares and no subsequent proxy shall be given by any Company Y Shareholder (and if given shall be ineffective). Each Company Y Shareholder shall
take
B-9-3
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such
further action or execute such other instruments as may be reasonably necessary in accordance with the relevant provisions of the Laws of the State of New York or any other Law to effectuate the
intent of this proxy. The power of attorney granted by such Company Y Shareholder herein is a durable power of attorney and, so long as Company T has the interest secured by such power of attorney or
the obligations secured by such power of attorney remain undischarged, the power of attorney shall not be revoked by the dissolution, bankruptcy, death or incapacity of such Company Y Shareholder. The
proxy and power of attorney granted hereunder shall terminate upon the termination of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1
Representations and Warranties of the Company Y Shareholders.
Each
Company Y Shareholder represents and warrants to Company Y, jointly and severally, as follows:
(a)
Organization; Authorization; Validity of Agreement; Necessary Action.
If such Company Y Shareholder is not a
natural person, such Company Y Shareholder, as of the date hereof (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized (in
the case of good standing, to the extent the concept is recognized by such jurisdiction) and (ii) has all corporate, limited partnership, trust or other organizational power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. If such Company Y Shareholder is a natural person, he or
she, as of the date hereof, has the legal capacity and authority to execute and deliver this Agreement and perform his or her obligations hereunder and to consummate the transactions contemplated by
this Agreement. The execution and delivery by such Company Y Shareholder of this Agreement, the performance by such Company Y Shareholder of his, her or its obligations hereunder and the consummation
by such Company Y Shareholder of the transactions contemplated by this Agreement have been duly and validly authorized by such Company Y Shareholder and no other actions or proceedings on the part of
such Company Y Shareholder are necessary to authorize the execution and delivery by him, her or it of this Agreement, the performance by him, her or it of its obligations hereunder or the consummation
by him, her or it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by such Company Y Shareholder and, assuming this Agreement constitutes a valid
and binding obligation of Company T, constitutes a legal, valid and binding agreement of such Company Y Shareholder enforceable against such Company Y Shareholder in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors' rights and to general equity principles (the
"
Bankruptcy and Equity Exception
").
(b)
Ownership.
Such Company Y Shareholder is the Beneficial Owner of and has good and valid title to the
Existing Shares set forth next to such Company Y Shareholder's name on Schedule 1, free and clear of any liens, other than any liens pursuant to this Agreement or arising under the articles of
association of Company Y and transfer restrictions imposed by generally applicable securities Laws. As of the date of this Agreement, such Company Y Shareholder's Existing Shares constitute all of the
Company Y Shares and Company Y ADSs Beneficially Owned or owned of record by such Company Y Shareholder. Except to the extent Covered Shares are Transferred after the date of this Agreement pursuant
to a Permitted Transfer, such Company Y Shareholder has not granted any proxy inconsistent with this Agreement that is still effective or entered into any voting or similar agreement, in each case
with respect to all of such Company Y Shareholder's Existing Shares and with respect to all of the Covered Shares Beneficially Owned by such Company Y Shareholder at all times through the effective
time of the Merger (the "
Effective Time
").
B-9-4
Table of Contents
(c)
Non-Contravention.
The execution and delivery of this Agreement by such Company Y Shareholder do
not, and the performance by such Company Y Shareholder of his, her or its obligations under this Agreement and the consummation by such Company Y Shareholder of the transactions contemplated by this
Agreement, will not (i) conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in,
consent, termination, cancellation or acceleration of any obligation or loss of material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person
under, or result in the creation of any lien upon his, her or its assets or properties under, any provision of (A) any charter or organizational documents of such Company Y Shareholder,
(B) any contract, agreement or other instrument to which such Company Y Shareholder is party or by which any of his, her or its assets or properties is bound and (C) any judgment, order,
injunction, decree or Law applicable to such Company Y Shareholder or his, her or its assets or properties or (ii) require any consent of, or registration, declaration or filing with, notice
to, or permit from, any supranational, national, state, municipal or local court or tribunal or administrative, governmental, quasi-governmental or regulatory body, agency or authority
("
Governmental Entities
"), except, in the case of clauses (i) and (ii) above, any such items that, individually or in the aggregate, would
not be expected to be materially adverse to the ability of such Company Y Shareholder to timely perform any of its obligations hereunder in any material respect.
(d)
No Inconsistent Agreements.
Except for this Agreement, such Company Y Shareholder has not:
(i) entered into any contract, agreement or other instrument, voting agreement, voting trust or similar agreement with respect to any of the Covered Shares, (ii) granted any irrevocable
proxy, consent or power of attorney with respect to any of the Covered Shares or (iii) taken any action that would constitute a breach hereof, make any representation or warranty of such
Company Y Shareholder set forth in this Article III untrue or incorrect in any material respect or have the effect of preventing or disabling such Company Y Shareholder from performing in any
material respect any of its obligations under this Agreement. Such Company Y Shareholder understands and acknowledges that Company Y and Merger Sub are entering into the Merger Agreement in reliance
upon the Company Y Shareholders' execution and delivery of this Agreement and the representations, warranties, covenants and other agreements of such Company Y Shareholder contained herein.
(e)
No Action.
As of the date of this Agreement, there are no proceedings, claims, actions, suits or
governmental or regulatory investigations pending or, to the knowledge of such Company Y Shareholder, threatened against such Company Y Shareholder that could reasonably be expected to
impair the ability of such Company Y Shareholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
Section 3.2
Representations and Warranties of Company T.
Company T
represents and warrants to each Company Y Shareholder that Company T has all corporate power and authority to execute, deliver and perform this
Agreement. The execution and delivery by Company T of this Agreement, the performance by Company T of its obligations hereunder and the consummation by Company T of the transactions contemplated by
this Agreement have been duly and validly authorized by Company T and no other actions or proceedings on the part of Company T are necessary to authorize the execution and delivery by it of this
Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by
Company T and, assuming this Agreement constitutes a valid and binding obligation of each Company Y Shareholder, constitutes a legal, valid and binding agreement of Company T enforceable against
Company T in accordance with its terms, subject to the Bankruptcy and Equity Exception.
B-9-5
Table of Contents
ARTICLE IV
OTHER COVENANTS
Section 4.1
Prohibition on Transfers.
(a) Subject
to the terms of this Agreement, during the term of this Agreement, each Company Y Shareholder agrees not to Transfer any of the Covered Shares, or any voting
right or power (including whether such right or power is granted by proxy or otherwise) or economic interest therein unless such Transfer is a Permitted Transfer. Any attempted Transfer of shares or
any interest therein in violation of this Section 4.1 shall be null and void.
(b) This
Agreement and the obligations hereunder shall attach to the Covered Shares and shall be binding upon any Person to which legal or Beneficial Ownership shall pass,
whether by operation of Law or otherwise, including, such Company Y Shareholder's successors or assigns. No Company Y Shareholder may request that Company Y or Company Y's depositary bank register the
Transfer (book-entry or otherwise) any or all of the Covered Shares (whether represented by a certificate or uncertificated), unless such Transfer is made in compliance with this
Agreement. Notwithstanding any Transfer of Covered Shares, the transferor shall remain liable for the performance of all of the obligations of such Company Y Shareholder under this Agreement.
Section 4.2
Additional Shares.
Each Company Y Shareholder agrees to promptly
notify Company T of the number of Additional Shares acquired by such Company Y Shareholder after the date hereof.
Any such Additional Shares shall automatically become subject to the terms of this Agreement and shall constitute Covered Shares for all purposes of this Agreement.
Section 4.3
Share Dividends, etc.
In the event of a reclassification,
recapitalization, reorganization, share split (including a reverse share split) or combination, exchange or readjustment of
shares, change in ratio of Company Y ADS to Company Y Shares, or other similar transaction, or if any share dividend, subdivision or distribution (including any dividend or distribution of securities
convertible into or exchangeable for Company Y Shares) is declared, in each case affecting the Covered Shares, the term "Covered Shares" shall be deemed to refer to and include such shares as well as
all such share dividends and distributions and any securities of Company Y into which or for which any or all of such shares may be changed or exchanged or which are received in such transaction.
Section 4.4
No Solicitation.
Subject to Section 5.13 hereof, each Company
Y Shareholder hereby agrees that during the term of this Agreement, such Company Y Shareholder shall not, and
shall use reasonable best efforts to cause his, her or its Representatives not to, directly or indirectly, take any action that Company Y is otherwise prohibited from taking under
Section 6.3(a) of the Merger Agreement.
Section 4.5
No Inconsistent Agreements.
Except for this Agreement, none of
the Company Y Shareholders shall (a) enter into any contract agreement or other instrument, option or other agreement
with respect to, or consent to, a Transfer of, any of the Covered Shares, Beneficial Ownership thereof or any other interest therein, (b) create or permit to exist any lien that could prevent
such Company Y Shareholder from voting the Covered Shares in accordance with this Agreement or from complying in all material respects with the other obligations under this Agreement, other than any
restrictions imposed by applicable Law on such Covered Shares, (c) enter into any voting or similar agreement with respect to the Covered Shares or grant any proxy, consent or power of attorney
with respect to any of the Covered Shares (other than as contemplated by Section 2.1) or (d) take any action, directly or indirectly, that could reasonably be expected to
(i) result in a material breach hereof, (ii) make any representation or warranty of such Company Y Shareholder set forth in Article III untrue or incorrect in any material respect
or (iii) have the effect of materially delaying, preventing or disabling such Company Y Shareholder from performing any of his, her or its obligations under this Agreement.
B-9-6
Table of Contents
Section 4.6
Reserved.
Section 4.7
Documentation and Information.
Each Company Y Shareholder
(i) consents to and authorizes the publication and disclosure by Company T of such Company Y Shareholder's identity and holding
of the Covered Shares and the nature of its commitments and obligations under this Agreement in any disclosure required by the SEC or other Governmental Entity, including, without limitation, Company
T's proxy statement relating to the Merger, and (ii) agrees promptly to give to Company Y any information it may reasonably request for the preparation of any such disclosure documents. Each
Company Y Shareholder shall promptly notify Company Y of any required corrections with respect to any written information supplied by such Company Y Shareholder specifically for use in any such
disclosure document, if and to the extent that any shall have become false or misleading in any material respect. Each of the parties hereto shall not issue any press release or make any other public
statement with respect to the transactions contemplated by this Agreement and the Merger Agreement without the prior written consent of Company T and Company Y, except as such release or statement may
be required by applicable Law or the rules and regulations of any national securities exchange or Governmental Entity to which such Company Y Shareholder is subject or submits.
Section 4.8
Further Assurances.
No Company Y Shareholder shall take any action,
directly or indirectly, that would make any representation or warranty of such Company Y Shareholder contained
herein untrue or incorrect in any material respect or have the effect of preventing, impeding, interfering with or adversely affecting in any material respect the performance by such Company Y
Shareholder of his, her or its obligations under this Agreement. From time to time, at Company T's request and without further consideration, each Company Y Shareholder, solely in his, her or its
capacity as a Company Y Shareholder of Company Y, shall take all further action, and execute and deliver or cause to be executed or delivered such additional documents, as may be reasonably necessary
to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1
Interpretation.
Unless the express context otherwise
requires:
(a) the
words "hereof", "hereto", "hereby", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(b) terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa;
(c) references
herein to a specific Section, Recital or Schedule shall refer, respectively, to Sections, Recitals or Schedules of this Agreement unless otherwise indicated
and references to this Agreement shall refer as well to all exhibits and schedules thereto;
(d) wherever
the word "include," "includes" or "including" is used in this Agreement, it shall be deemed to be followed by the words "without limitation";
(e) references
herein to any gender shall include each other gender;
(f) references
herein to any Person shall include such Person's heirs, executors, personal representatives, administrators, successors and assigns;
provided,
that nothing contained in this Section 5.1 is intended
to authorize any assignment or Transfer not otherwise permitted by this
Agreement;
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(g) with
respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding";
(h) the
word "or" shall be disjunctive but not exclusive;
(i) references
herein to any Law shall be deemed to refer to such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part and in effect
from time to time, and also to all rules and regulations promulgated thereunder;
(j) references
herein to any contract (other than the Merger Agreement) means such contract as amended, supplemented or modified (including any waiver thereto) in accordance
with the terms thereof;
(k) the
captions, headings and arrangements used in this Agreement are for convenience only and do not in any way affect, limit, amplify or modify the terms and provisions
hereof; and
(l) with
regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
Section 5.2
Termination.
This Agreement and all obligations of the
parties hereunder (other than as set forth in the following sentence) shall automatically terminate on the earliest to
occur of (i) the Effective Time, (ii) the date of termination of the Merger Agreement in accordance with its terms, or (iii) at any time upon the written agreement of Company T
and the Company Y Shareholders. Upon termination of this Agreement, the rights and obligations of all the parties will terminate and become void without further action by any party except for the
provisions of Article V, which will survive such termination indefinitely. For the avoidance of doubt, the termination of this Agreement shall not relieve any party of liability for any breach
prior to such termination. All representations and warranties in this Agreement shall survive any termination of this Agreement or the Merger Agreement.
Section 5.3
Governing Law and Venue.
(a) This
Agreement shall be construed, performed and enforced in accordance with the Laws of the State of New York without giving effect to its principles or rules of
conflict of Laws to the extent such principles or rules would require or permit the application of the Laws of another jurisdiction other than the State of New York. Any action, claim, demand, or
proceeding (a "
Proceeding
") (whether sounding in contract, tort, equity or otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby shall be brought solely and exclusively in any New York State court or Federal court of the United States of America sitting in the County of New York in the State of New York.
Each of the parties hereto agrees that a final judgment (subject to any appeals therefrom) relating to any such Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of such courts in respect of any such Proceeding, and hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Proceeding in any such court in
accordance with the provisions of this Section 5.3. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the
maintenance of such Proceeding in any such court. Each of the parties hereto hereby irrevocably and unconditionally agrees that, to the fullest extent permitted by applicable Law, service of process
to such party's address set forth in Section 5.4, and in the manner provided for notices in Section 5.4, will be effective service of process for any Proceeding in New York with respect
to any matter to which such party has submitted to jurisdiction as set forth in this Section 5.3. Nothing in this Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by Law.
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(b) Each
party hereto acknowledges and agrees that any Proceeding which may arise under or relate to this Agreement is likely to involve complicated and difficult issues,
and therefore each such party
hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any Proceeding directly or indirectly arising out of or relating to this Agreement or the
transactions contemplated hereby, including any controversy or Proceeding involving any Company T Related Party under this Agreement. Each party hereto certifies and acknowledges that (i) no
representative, agent or attorney of any other party hereto has represented, expressly or otherwise, that such other party would not, in the event of a Proceeding, seek to enforce the foregoing
waiver, (ii) each party hereto understands and has considered the implications of this waiver, (iii) each party hereto makes this waiver voluntarily, and (iv) each party hereto
has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.3.
Section 5.4
Notices.
All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given (a) upon personal
delivery, (b) one (1) Business Day after being sent via an internationally recognized overnight courier service, (c) three (3) Business Days after being sent, postage prepaid, by
registered, certified or express mail or (d) upon receipt of electronic or other confirmation of transmission if sent via facsimile, in each case, at the addresses or facsimile numbers (or at
such other address or facsimile number for a party as shall be specified by like notice) set forth below:
If
to Company T to:
Tudou Holdings Limited
Building No. 6, X2 Creative Park, 1238 Xietu Road
Xuhui District
Shanghai 20032
The People's Republic of China
Telephone: +86-21-5170-2355
Facsimile: +86-21-5170-2366
Attention: Gary Wei Wang
Jixun Foo
Bin Yu
with a copy (which shall not constitute notice) to:
Kirkland & Ellis
26th Floor, Gloucester Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: David Zhang
Jesse Sheley
Facsimile: +852-3761-3301
If
to any Company Y Shareholder: to such Company Y Shareholder and its counsel at their respective addresses and facsimile numbers set forth on
Schedule 1
hereto.
Section 5.5
Amendment.
This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by Company T and each Company Y Shareholder;
provided
that matters that only affect the right of a particular Company Y Shareholder
or a group of Company Y Shareholders shall only
require an instrument in writing signed by Company T and such Company Y Shareholder or Company Y Shareholders.
Section 5.6
Extension; Waiver.
At any time before the termination of this
Agreement, Company T, on the one hand, and any of the Company Y Shareholders, on the other hand, may
(a) extend the time for the performance of any of the obligations or other acts of the other party,
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(b) waive
any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered under this Agreement or (c) waive compliance
with any of the covenants or conditions contained in this Agreement. Any agreement on the part of a party to any extension or waiver shall be valid only if set forth in an instrument in writing signed
by such party. The failure of any party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right, power or privilege under this Agreement.
Section 5.7
Entire Agreement.
This Agreement (together with the Merger
Agreement, to the extent referred to in this Agreement) constitutes the sole and entire agreement of the Company Y
Shareholders or any of their Affiliates, on the one hand, and Company Y or any of its Affiliates, on the other, with respect to the subject matter contained herein, and supersedes all prior and
contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. No representation, warranty, inducement, promise, understanding
or condition not set forth in this Agreement has been made or relied upon by any of the parties to this Agreement.
Section 5.8
No Third-Party Beneficiaries.
This Agreement is for the sole
benefit of, shall be binding upon, and may be enforced solely by Company T and the Company Y Shareholders and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person (other than Company T and the Company Y Shareholders) any legal or equitable right, benefit or remedy of any nature
whatsoever.
Section 5.9
Severability.
The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability
of the other provisions hereof. If any provision of this Agreement, or the application thereof to any party or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
Section 5.10
Rules of Construction.
The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions
of this Agreement.
Section 5.11
Assignment.
Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by operation of Law (including, but not limited to, by merger
or consolidation) or otherwise by any of the parties without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 5.12
Specific Performance.
The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. Accordingly each party to this Agreement (a) shall be entitled to an injunction or injunctions, specific performance and other equitable relief to prevent breaches
or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the forum described in Section 5.3, without proof of damages or otherwise,
this being in addition to any other remedy at law or in equity, and (b) hereby waives any requirement for the posting of any bond or similar collateral in connection therewith. Each party
hereto agrees that it will
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not
oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the other party has an adequate remedy at law or (ii) an award of specific
performance is not an appropriate remedy for any reason at law or equity.
Section 5.13
Company Y Shareholder Capacity.
Notwithstanding anything
contained in this Agreement to the contrary, the representations, warranties, covenants and agreements made herein by each Company Y
Shareholder are made solely with respect to such Company Y Shareholder and the Covered Shares. Each Company Y Shareholder is entering into this Agreement solely in its capacity as the Beneficial Owner
of such Covered Shares and nothing herein shall limit or affect any actions taken by any officer or director of Company Y (or a Subsidiary of Company Y) solely in his or her capacity as a
director or officer of Company Y (or a Subsidiary of Company Y), including participating in his or her capacity as a director or officer of Company Y in any discussions or negotiations with Company T.
Nothing contained herein, and no action taken by any Company Y Shareholder pursuant hereto, shall be deemed to constitute the parties as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the parties are in any way acting in concert or as a group with respect to the obligations or the transactions contemplated by this Agreement.
Section 5.14
No Ownership Interest.
Nothing contained in this Agreement shall
be deemed to vest in Company T any direct or indirect ownership or incidence of ownership of or with respect to any
Covered Shares. All rights, ownership and economic benefits of and relating to the Covered Shares shall remain vested in and belong to the Company Y Shareholders, and Company T shall have no authority
to direct the Company Y Shareholders in the voting or disposition of any of the Covered Shares, in each case, except as otherwise provided herein.
Section 5.15
Costs and Expenses.
All costs and expenses (including all fees
and disbursements of counsel, accountants, investment bankers, experts and consultants to a party) incurred in
connection with this Agreement shall be paid by the party incurring such costs and expenses.
Section 5.16
Counterparts; Effectiveness.
This Agreement may be
executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the other parties;
provided
,
however
, that if any of the Company Y Shareholders
fails for any reason to execute, or perform their obligations under, this Agreement, this Agreement
shall remain effective as to all parties executing this Agreement.
Section 5.17
Joint and Several Obligations.
The agreements,
obligations, representations and warranties of the Company Y Shareholders hereunder shall be joint and several.
[Signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed on its behalf on the day and year first above written.
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Tudou Holdings Limited
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By:
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/s/ GARY WEI WANG
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Name:
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Gary Wei Wang
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Title:
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Chief Executive Officer
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[
Signature Page to the Voting Agreement
]
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Table of Contents
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1Verge Holdings Ltd.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name:
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Victor Wing Cheung Koo
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Title:
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Director
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1Look Holdings Ltd.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name:
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Victor Wing Cheung Koo
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Title:
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Director
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Victor Wing Cheung Koo
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By:
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/s/ VICTOR WING CHEUNG KOO
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[
Signature Page to the Voting Agreement
]
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Table of Contents
Schedule 1
COMPANY Y SHAREHOLDER INFORMATION
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Name and Contact Information
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Number of
Company Y
Shares
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Number of
Company Y
ADSs
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1Verge Holdings Ltd.
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626,773,149
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N/A
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c/o Suite C, No. 33
Lane 672 Changle Road
Shanghai 200040
P.R. China
Attention: Mr. Ye Sha
Facsimile: (8610) 8460 8311
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with a copy to:
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c/o Skadden, Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
Facsimile: +852 3910 4850
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1Look Holdings Ltd.
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645,023,149
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*
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N/A
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11th Floor, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
P.R. China
Attention: Victor Wing Cheung Koo
Facsimile: (8610) 8460 8311
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with a copy to:
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c/o Skadden, Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
Facsimile: +852 3910 4850
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Victor Wing Cheung Koo
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649,523,149
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**
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N/A
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11th Floor, SinoSteel Plaza
8 Haidian Street, Haidian District
Beijing 100080
P.R. China
Attention: Victor Wing Cheung Koo
Facsimile: (8610) 8460 8311
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with a copy to:
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c/o Skadden, Arps, Slate, Meagher & Flom
42/F, Edinburgh Tower, The Landmark
15 Queen's Road Central, Hong Kong
Attention: Z. Julie Gao, Esq.
Michael V. Gisser, Esq.
Facsimile: +852 3910 4850
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*
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Includes
626,773,149 Class B ordinary shares, which may be converted into 626,773,149 Class A ordinary shares held of record by 1Verge
Holdings Ltd. and 18,250,000 Class B ordinary shares, which may be converted into 18,250,000 Class A ordinary shares, held of record by 1Look Holdings Ltd.
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**
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Includes
626,773,149 Class B ordinary shares, which may be converted into 626,773,149 Class A ordinary shares, held of record by 1Verge
Holdings Ltd., 18,250,000 Class B ordinary shares, which may be converted into 18,250,000 Class A ordinary shares, held of record by 1Look Holdings Ltd. and 4,500,000
restricted shares.
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EXHIBIT A
JOINDER AGREEMENT
This Joinder Agreement ("
Joinder Agreement
") is executed by the undersigned (the
"
Transferee
") pursuant to the terms of that certain Voting Agreement dated as of March 11, 2012 (the
"
Agreement
") by and among Company T and certain other parties named therein. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Agreement. By the execution of this Joinder Agreement, the Transferee agrees as follows:
(a) Acknowledgment. Transferee
acknowledges that Transferee is acquiring certain shares of the capital share of Company Y (the "Shares") subject to the terms
and conditions of the Agreement.
(b) Agreement. Transferee
(i) agrees that the Shares acquired by Transferee shall be bound by and subject to the terms of the Agreement,
(ii) hereby adopts the Agreement with the same force and effect as if Transferee were originally a party thereto and (iii) agrees to be subject to the obligations and restrictions of a
Company Y Shareholder thereunder.
(c) Notice. Any
notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee's signature below.
EXECUTED AND DATED
this day
of .
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TRANSFEREE:
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By:
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Name and Title
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Address:
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Fax:
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Accepted
and Agreed:
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TUDOU HOLDINGS LIMITED
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By:
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Title:
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B-9-15
Table of Contents
Appendix C
[LETTERHEAD OF ALLEN & COMPANY LLC]
March 11,
2012
The
Board of Directors
Youku Inc.
5th floor, Sinosteel Plaza
8 Haidian Dajie, Haidian District
Beijing 1000080
People's Republic of China
The
Board of Directors:
We
understand that Youku Inc., a Cayman Islands incorporated company ("
Youku
"), Two Merger Sub Inc., a Cayman Islands incorporated company and
wholly owned subsidiary of Youku ("
Merger Sub
"), and Tudou Holdings Limited, a Cayman Islands incorporated company ("
Tudou
"), propose to enter
into an Agreement and Plan of Merger, dated as of March 11, 2012 (the "
Agreement
"), pursuant to which, among other things, Merger Sub will be merged with and
into Tudou (the "
Merger
") and each outstanding Class A ordinary share, par value US$0.0001 per share, and Class B ordinary share, par value US$0.0001
per share, of Tudou (such classes, respectively, "
Tudou Class A Shares
" and "
Tudou Class B Shares
") will be cancelled in
exchange for the right to receive 7.177 (the "
Exchange Ratio
") Class A ordinary shares, par value US$0.00001 per share, of Youku ("
Youku
Class A Shares
"). The Agreement provides that each outstanding American depositary share of Tudou ("
Tudou ADSs
"), which represents four Tudou
Class B Shares, will be cancelled in exchange for the right to receive a corresponding number of American depositary shares of Youku ("
Youku ADSs
"), each of which
represents 18 Youku Class A Shares.
As
you know, Allen & Company LLC ("
Allen
") was engaged by Youku to render an opinion to the Board of Directors of Youku
(the "
Board
") as to the fairness, from a financial point of view, to Youku of the Exchange Ratio. Youku has agreed to pay to Allen a cash fee upon delivery of this
opinion, which fee is not contingent upon either the conclusion expressed in this opinion or successful consummation of the Merger. Youku also has agreed to reimburse Allen's reasonable expenses and
to indemnify Allen against certain liabilities arising out of our engagement.
Allen,
as part of our investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, private
placements and related financings, bankruptcy reorganizations and similar recapitalizations, negotiated underwritings, secondary distributions of listed and unlisted securities, and valuations for
corporate and other purposes. Allen in the past has provided and in the future may provide investment banking services to Youku, for which services Allen has received and may receive compensation,
including, during the two-year period prior to date hereof, acting as placement agent in connection with a private placement of Youku preferred shares and co-manager in
connection with the initial public offering and a follow-on offering of Youku ADSs. In the ordinary course of
business as a broker-dealer and market maker, Allen may have long or short positions, either on a discretionary or non-discretionary basis, for our own account or for those of our clients,
in the debt and equity securities (or related derivative securities) of Youku and Tudou. The issuance of this opinion has been approved by Allen's fairness opinion committee.
Our
opinion as expressed herein reflects and gives effect to our general familiarity with Youku and Tudou as well as information which we received during the course of this assignment,
including information provided by the managements of Youku and Tudou in the course of discussions relating to the Merger as more fully described below. In arriving at our opinion, we neither conducted
a physical inspection of the properties or facilities of Youku or Tudou nor made or obtained any evaluations or
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The
Board of Directors
Youku Inc.
March 11, 2012
Page 2
appraisals
of the assets or liabilities (contingent or otherwise) of Youku or Tudou, or conducted any analysis concerning the solvency of Youku or Tudou.
In
arriving at our opinion, we have, among other things:
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(i)
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reviewed the financial terms and conditions of the Agreement;
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(ii)
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reviewed certain publicly available historical business and financial information relating to Youku and Tudou, including their respective public filings, market prices and trading volumes;
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(iii)
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reviewed certain internal financial statements and other financial and operating data of Youku and Tudou provided by the respective managements of Youku and Tudou;
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(iv)
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reviewed certain internal financial projections relating to Youku for calendar year 2012 prepared by the management of Youku and certain publicly available financial projections relating to Youku for calendar years
2013 and 2014 discussed with us by the management of Youku;
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(v)
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reviewed certain internal financial projections relating to Tudou for calendar years 2012 through 2016 prepared by the management of Tudou;
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(vi)
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reviewed certain information relating to potential strategic, financial and operational benefits anticipated by the management of Youku to result from the Merger;
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(vii)
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held discussions with the managements of Youku and Tudou relating to the past and current operations and financial condition and prospects of Youku and Tudou;
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(viii)
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reviewed and analyzed certain publicly available information, including certain stock market data and financial information, relating to selected companies with businesses which we deemed relevant in evaluating Youku
and Tudou;
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(ix)
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reviewed and analyzed certain publicly available financial information relating to selected transactions which we deemed relevant in evaluating the Merger; and
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(x)
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conducted such other financial analyses and investigations as we deemed necessary or appropriate for the purposes of the opinion expressed herein.
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In
rendering our opinion, we have relied upon and assumed, with your consent and without independent verification, the accuracy and completeness of all of the financial, legal,
regulatory, tax, accounting and other information available to us from public sources, provided to us by Youku, Tudou or their respective representatives or otherwise reviewed by us. With respect to
financial projections and other information prepared by the managements of Youku and Tudou relating to Youku, Tudou and potential strategic, financial and operational benefits anticipated by the
management of Youku to result from the Merger, we have been advised and have assumed, with your consent, that they have been reasonably prepared in good faith reflecting the best currently available
estimates and judgments of the managements of Youku and Tudou, as the case may be, as to the future operating and financial
performance of Youku and Tudou and such strategic, financial and operational benefits. With respect to publicly available financial projections relating to Youku referred to above, with your consent,
we have assumed that they are a reasonable basis upon which to evaluate the future operating and financial performance of Youku for the periods reflected therein and have used such financial
projections in performing our analyses. In addition, we have assumed, with your consent, that the financial results (including the strategic, financial and operational benefits) reflected in the
financial projections and other information utilized in our analyses will be realized in the amounts and at the times
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Table of Contents
The
Board of Directors
Youku Inc.
March 11, 2012
Page 3
contemplated
thereby. We assume no responsibility for and express no view or opinion as to such financial projections and other information or the assumptions on which they are based. We have relied,
without independent verification and with your consent, upon the assessments of the management of Youku as to (i) industry trends and prospects in, and foreign ownership and other regulatory
matters relating to, the Chinese markets in which Youku and Tudou operate and the potential impact thereof on Youku and Tudou; (ii) the existing technology and services of Youku and Tudou and
the validity of, and risks associated with, the future technology and services of Youku and Tudou (including any potential or pending copyright infringement claims involving such existing and future
technology and services or other litigation involving Youku and Tudou); and (iii) the ability of Youku to retain key advertisers and partners of Tudou and to integrate the business of Tudou. We
have assumed, with your consent, that there will be no developments with respect to any of the foregoing that would affect our analyses or opinion.
Further,
our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof. As you are
aware, the credit, financial and stock markets have been experiencing unusual volatility and we express no opinion or view as to any potential effects of such volatility on Youku, Tudou or the Merger.
It should be understood that subsequent developments may affect the conclusion expressed in this opinion and that we assume no responsibility for advising any person of any change in any matter
affecting this opinion or for updating or revising our opinion based on circumstances or events occurring after the date hereof.
It
is understood that this opinion is intended for the benefit and use of the Board (in its capacity as such) in connection with its evaluation of the Merger. This opinion does
not constitute a recommendation as to what course of action the Board or Youku should pursue in connection with the Merger, or otherwise address the merits of the underlying decision by Youku to
engage in the Merger, including in comparison to other strategies or transactions that might be available to Youku or in which Youku might engage. In connection with our engagement, we were not
requested to, and we did not, participate in the negotiation or structuring of the Merger. This opinion does not constitute advice or a recommendation to any securityholder as to how such
securityholder should vote or act on any matter relating to the Merger or otherwise. We do not express any opinion as to the fairness, financial or otherwise, of the amount, nature or any other aspect
of any compensation payable to any officers, directors or employees of any party to the Merger, or any class of such persons or any other party, relative to the Exchange Ratio or otherwise. We are not
expressing any opinion as to what the value of Youku Class A Shares or Youku ADSs will be when issued in connection with the Merger or the prices at which Youku Class A Shares, Youku
ADSs or any other securities of Youku or Tudou may trade or otherwise be transferable at any time.
In
addition, we do not express any opinion as to any tax or other consequences that might result from the Merger, nor does our opinion address any legal, regulatory, tax or accounting
matters, as to which we understand that Youku obtained such advice as it deemed necessary from qualified professionals. We have assumed, with your consent, that the Merger will qualify for
U.S. federal income tax purposes as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended. We also have assumed, with your consent, that the
Merger will be consummated in accordance with the terms and conditions set forth in the Agreement and that all governmental, regulatory or other consents necessary for the consummation of the Merger
as contemplated by the Agreement will be obtained without adverse effect on Youku, Tudou or the Merger.
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Table of Contents
The
Board of Directors
Youku Inc.
March 11, 2012
Page 4
Our
opinion is limited to the fairness, from a financial point of view and as of the date hereof, to Youku of the Exchange Ratio provided for in the Merger without taking into account
different attributes of Tudou Class A Shares, Tudou Class B Shares and Tudou ADSs, including with respect to
control, voting, liquidity or other rights, restrictions or aspects which may distinguish such securities. Our opinion does not address any other aspect or implication of the Merger, including,
without limitation, the form of securities issuable in the Merger or any aspects or implications of any other agreement, arrangement or understanding entered into in connection with the Merger
or otherwise.
Based
upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio provided for in the Merger is fair, from a financial point of view,
to Youku.
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Very truly yours,
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ALLEN & COMPANY LLC
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By:
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/s/ JOHN H. JOSEPHSON
John H. Josephson
Managing Director
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Table of Contents
Appendix D
March 10,
2012
Board
of Directors
Tudou Holdings Limited,
c/o Maples Corporate Services Limited
PO Box 309, Ugland House,
Grand Cayman, KY1-1104,
Cayman Islands
Members
of the Board:
We
understand that Tudou Holdings Limited (the "
Company
"), Youku Inc. (the "
Buyer
")
and Two Merger Sub Inc., a wholly owned subsidiary of the Buyer ("
Acquisition Sub
"), propose to enter into an Agreement and Plan of Merger,
substantially in the form of the draft dated March 6, 2012 (the "
Merger Agreement
"), which provides, among other things, for the merger (the
"
Merger
") of Acquisition Sub with and into the Company. Pursuant to the Merger, the Company will become a wholly owned subsidiary of the Buyer, and all
of the Company's Class A ordinary shares and Class B ordinary shares, both with par value US$0.0001 per share, issued and outstanding immediately prior to the effective time of the
Merger (collectively, the "
Company Common Stock
") (other than Company Common Stock held by the Buyer, Acquisition Sub or any direct or indirect wholly
owned subsidiaries of the Company, issued to the Company depositary and reserved for future grants under the Company's share incentive plan, repurchased and held by the Company in treasury, or as to
which dissenters' rights have been validly exercised), will be cancelled in exchange for the right to receive 7.177 (the "
Share Exchange Ratio
") validly
issued, fully paid, non-assessable Class A ordinary shares, par value US$0.00001 per share, of the Buyer (the "
Buyer Common Stock
").
In addition, each American depositary share of the Company, each of which represents four Class B ordinary shares of the Company (collectively, the "
Company
ADSs
"), will be cancelled in exchange for the right of the holder of the relevant Company ADS to receive 1.595 American depositary shares of the Buyer (the
"
ADS Exchange Ratio
"), each of which represents 18 shares of Buyer Common Stock (the "
Buyer ADSs
"). The
Share Exchange Ratio and the ADS Exchange Ratio are subject to adjustment in certain circumstances pursuant to the Merger Agreement. The terms and conditions of the Merger are more fully set forth in
the Merger Agreement, and the summary of the Merger set forth above is qualified in its entirety by the terms of the Merger Agreement. The Share Exchange Ratio and the ADS Exchange Ratio are subject
to adjustment in certain circumstances pursuant to the Merger Agreement. The terms and conditions of the Merger are more fully set forth in the Merger Agreement, and the summary of the Merger set
forth above is qualified in its entirety by the terms of the Merger Agreement.
You
have asked for our opinion as to whether the Share Exchange Ratio and the ADS Exchange Ratio pursuant to the Merger Agreement are fair from a financial point of view to the holders
of shares of the Company Common Stock and Company ADSs, respectively.
For
purposes of the opinion set forth herein, we have:
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(a)
-
reviewed
certain publicly available financial statements and other business and financial information of the Company and the Buyer, respectively;
-
(b)
-
reviewed
certain internal financial statements and other public and private financial and operating data concerning the Company and the Buyer, respectively;
-
(c)
-
reviewed
certain, limited financial forecasts prepared by the managements of the Company and the Buyer, respectively;
D-1
Table of Contents
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(d)
-
reviewed
information relating to certain strategic, financial and operational benefits anticipated from the Merger, prepared by the managements of the
Company and the Buyer, respectively;
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(e)
-
discussed
the past and current operations and financial condition and the prospects of the Company, including information relating to certain strategic,
financial and operational benefits anticipated from the Merger, with senior executives of the Company and the Buyer, respectively;
-
(f)
-
reviewed
the reported prices and trading activity for the Company ADSs and the Buyer ADSs;
-
(g)
-
compared
the financial performance of the Company and the Buyer and the prices and trading activity of the Company ADSs and the Buyer ADSs with that of
certain other publicly-traded companies comparable with the Company and the Buyer, respectively, and their securities;
-
(h)
-
reviewed
the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
-
(i)
-
participated
in certain discussions on the Merger among representatives of the Company and the Buyer and their financial and legal advisors;
-
(j)
-
reviewed
the draft Merger Agreement and certain related documents; and
-
(k)
-
reviewed
such other information and considered such other factors as we have deemed appropriate.
We
have assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to
us or discussed with us by the Company and the Buyer and that formed a substantial basis for this opinion. We have further relied upon the assurances of the managements of the Company and the Buyer
that they are not aware of any facts or circumstances that would make such information inaccurate or misleading; and we have not assumed any responsibility or liability therefor. With respect to the
limited financial forecasts prepared by the managements of the Company and the Buyer, including information relating to certain strategic, financial and operational benefits anticipated from the
Merger, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of the Company and the Buyer of
the future financial performance of the Company and the Buyer. We express no view as to the sufficiency, adequacy or any other aspect of such financial forecasts or the assumptions on which they were
based. In addition, we have assumed that the Merger will be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or
conditions, and that the definitive Merger Agreement will not differ in any material respects from the draft thereof furnished to us. We have also assumed that the representations and warranties made
by the Company and the Buyer in the Merger Agreement are and will be true and correct in all respects material to our analysis. Morgan Stanley has assumed that in connection with the receipt of all
the necessary governmental, regulatory or other approvals and consents required for the proposed Merger, no delays, limitations, conditions or restrictions will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the proposed Merger. We are not legal, tax, or regulatory advisors. We are financial advisors only and have relied upon, without
independent verification, the assessment of the Buyer and the Company and their legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. We have relied upon, without
independent verification, the assessment by the managements of the Company and the Buyer of: (i) the strategic, financial and other benefits expected to result from the Merger; (ii) the
timing and risks associated with the integration of the Company and the Buyer; (iii) their ability to retain key employees of the Company and the Buyer, respectively and (iv) the
validity of, and risks associated with, the
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Company
and the Buyer's existing and future technologies, intellectual property, products, services and business models. We have also not made any assessment with regard to the holding or
organizational structure of the Company or the Buyer, its validity or risk. We express no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company's
officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares of the Company Common Stock and Company ADSs in the transaction or
with respect to the underlying decision by the Company to engage in the Merger. Our opinion does not address the relative merits of the Merger as compared to any other alternative business
transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. We have not made any independent valuation or appraisal of the assets or liabilities of the
Company, nor have we been furnished with any such valuations or appraisals. Our opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information
made available to us as of, the date hereof. Events occurring after the date hereof may affect this opinion and the assumptions used in preparing it, and we do not assume any obligation to update,
revise or reaffirm this opinion.
We
have acted as financial advisor to the Board of Directors of the Company in connection with this transaction and will receive a fee for our services, a substantial portion of which is
contingent upon the closing of the Merger. In addition, the Company has agreed to reimburse certain of our expenses and indemnify us for certain liabilities arising out of our engagement.
Please
note that Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Our securities business
is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and
financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance
positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of the Buyer, the Company, or any
other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument.
This
opinion has been approved by a committee of Morgan Stanley investment banking and other professionals in accordance with our customary practice. This opinion is for the information
of the Board of Directors of the Company and may not be used for any other purpose without our prior written consent, except that a copy of this opinion may be included in its entirety in any proxy or
information statement mailed to shareholders of the Company or any filing the Company is required to make with the Securities and Exchange Commission in connection with this transaction if such
inclusion is required by applicable law. In addition, this opinion does not in any manner address the prices at which the Buyer ADSs or Company ADSs will trade following the announcement or
consummation of the Merger or at any other time, and Morgan Stanley expresses no opinion or recommendation as to how the shareholders of the Buyer and the Company should vote at the shareholders'
meetings to be held in connection with the Merger.
Based
on and subject to the foregoing, we are of the opinion on the date hereof that the Share Exchange Ratio and ADS Exchange Ratio pursuant to the Merger Agreement are fair from a
financial point of view to the holders of shares of the Company Common Stock and Company ADSs, respectively.
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Very
truly yours,
MORGAN STANLEY ASIA LIMITED
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By:
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/s/ RICHARD J. WONG
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Name:
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Richard J. Wong
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Title:
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Managing Director
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Table of Contents
Appendix E
Cayman Companies Law Cap. 22
(Law 3 of 1961, as consolidated and revised)Section 238
238. Rights of dissenters
-
(1)
-
A
member of a constituent company incorporated under this Law shall be entitled to payment of the fair value of his shares upon dissenting from a merger or
consolidation.
-
(2)
-
A
member who desires to exercise his entitlement under subsection (1) shall give to the constituent company, before the vote on the merger or
consolidation, written objection to the action.
-
(3)
-
An
objection under subsection (2) shall include a statement that the member proposes to demand payment for his shares if the merger or consolidation
is authorised by the vote.
-
(4)
-
Within
twenty days immediately following the date on which the vote of members giving authorisation for the merger or consolidation is made, the constituent
company shall give written notice of the authorisation to each member who made a written objection.
-
(5)
-
A
member who elects to dissent shall, within twenty days immediately following the date on which the notice referred to in subsection (4) is given,
give to the constituent company a written notice of his decision to dissent, stating-
(a) his
name and address;
(b) the
number and classes of shares in respect of which he dissents; and
(c) a
demand for payment of the fair value of his shares.
-
(6)
-
A
member who dissents shall do so in respect of all shares that he holds in the constituent company.
-
(7)
-
Upon
the giving of a notice of dissent under subsection (5), the member to whom the notice relates shall cease to have any of the rights of a member
except the right to be paid the fair value of his shares and the rights referred to in subsections (12) and (16).
-
(8)
-
Within
seven days immediately following the date of the expiration of the period specified in subsection (5), or within seven days immediately
following the date on which the plan of merger or consolidation is filed, whichever is later, the constituent company, the surviving company or the consolidated company shall make a written offer to
each dissenting member to purchase his shares at a specified price that the company determines to be their fair value; and if, within thirty days immediately following the date on which the offer is
made, the company making the offer and the dissenting member agree upon the price to be paid for his shares, the company shall pay to the member the amount in money forthwith.
-
(9)
-
If
the company and a dissenting member fail, within the period specified in subsection (8), to agree on the price to be paid for the shares owned by
the member, within twenty days immediately following the date on which the period expires-
(a) the
company shall (and any dissenting member may) file a petition with the Court for a determination of the fair value of the shares of all dissenting members;
and
(b) the
petition by the company shall be accompanied by a verified list containing the names and addresses of all members who have filed a notice under subsection (5)
and with whom agreements as to the fair value of their shares have not been reached by the company.
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Table of Contents
-
(10)
-
A
copy of any petition filed under subsection (9)(a) shall be served on the other party; and where a dissenting member has so filed, the company
shall within ten days after such service file the verified list referred to in subsection (9)(b).
-
(11)
-
At
the hearing of a petition, the Court shall determine the fair value of the shares of such dissenting members as it finds are involved, together with a
fair rate of interest, if any, to be paid by the company upon the amount determined to be the fair value.
-
(12)
-
Any
member whose name appears on the list filed by the company under subsection (9)(b) or (10) and who the Court finds are involved may
participate fully in all proceedings until the determination of fair value is reached.
-
(13)
-
The
order of the Court resulting from proceeding on the petition shall be enforceable in such manner as other orders of the Court are enforced, whether the
company is incorporated under the laws of the Islands or not.
-
(14)
-
The
costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances; and upon
application of a member, the Court may order all or a portion of the expenses incurred by any member in connection with the proceeding, including reasonable attorney's fees and the fees and expenses
of experts, to be charged pro rata against the value of all the shares which are the subject of the proceeding.
-
(15)
-
Shares
acquired by the company pursuant to this section shall be cancelled and, if they are shares of a surviving company, they shall be available for
re-issue.
-
(16)
-
The
enforcement by a member of his entitlement under this section shall exclude the enforcement by the member of any right to which he might otherwise be
entitled by virtue of his holding shares, except that this section shall not exclude the right of the member to institute proceedings to obtain relief on the ground that the merger or consolidation is
void or unlawful.
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Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20.
Indemnification of Directors and Officers
Cayman
Islands law does not limit the extent to which a company's articles of association may provide for indemnification of officers and directors, except to
the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a
crime.
Under
Youku amended and restated memorandum and articles of association, Youku may indemnify its directors, officers, employees and agents against expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred by such persons in connection with actions, suits or proceedings to which they are party or are threatened to be made a party by reason of their
acting as Youku's directors, officers, employees or agents. To be entitled to indemnification, these persons must have acted in good faith and in the best interest and not contrary to the interest of
Youku, and must not have acted in a manner willfully or grossly negligent and, with respect to any criminal action, they must have had no reasonable cause to believe their conduct was unlawful. You
amended and restated memorandum and articles of association may also provide for indemnification of such person in the case of a suit initiated by Youku or in the right of Youku.
Youku
entered into indemnification agreements with its directors and executive officers to indemnify them to the fullest extent permitted by applicable law and You articles of
association, from and against all costs, charges, expenses, liabilities and losses incurred in connection with any litigation, suit or proceeding to which such director is or is threatened to be made
a party, witness or other participant.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Youku under the foregoing provisions, Youku has
been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and therefore is unenforceable.
Item 21.
Exhibits and Financial Statement Schedules
The
exhibits listed below in the "Exhibit Index" are part of this registration statement and are numbered in accordance with Item 601 of
Regulation S-K.
The
agreements included as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and
warranties were made for the benefit of the other parties to the applicable agreement and (1) were not intended to be treated as categorical statements of fact, but rather as a way of
allocating the risk to one of the parties if those statements prove to be inaccurate; (2) may have been qualified in such agreement by disclosures that were made to the other party in
connection with the negotiation of the applicable agreement; (3) may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and
(4) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.
Youku
acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material
information regarding
material contractual provisions are required to make the statements in this registration statement not misleading.
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Table of Contents
Item 22.
Undertakings
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(a) to
include any prospectus required by section 10(a)(3) of the Securities Act;
(b) to
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in aggregate, the changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;
(c) to
include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the
offering.
(4) To
file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of
Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (4)
and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements.
The
undersigned registrant hereby undertakes that, for the purpose of determining liability under the Securities Act to any purchaser, if the registrant is subject to Rule 430C,
each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however,
that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
The
undersigned registrant hereby undertakes that, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method
used to sell the securities
II-2
Table of Contents
to
the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such purchaser: (1) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424; (2) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(3) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the
undersigned registrant; and (4) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
The
undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to reoffering by persons who may be deemed underwriters, in addition to the information called for by the other items of the
applicable form.
The
registrant undertakes that every prospectus (1) that is filed pursuant to the immediately preceding paragraph, or (2) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
The
undersigned registrant hereby undertake (1) to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11
or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means and (2) to arrange or provide
for a facility in the U.S. for purpose of responding to such requests. This includes information contained in documents filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The
undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the registration statement when it became effective.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer of controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issue.
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-4 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Beijing, China, on April 24, 2012.
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Youku Inc.
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By:
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/s/ VICTOR WING CHEUNG KOO
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Name:
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Victor Wing Cheung Koo
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Title:
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Chairman of the Board of Directors
and Chief Executive Officer
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Table of Contents
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of Victor Wing Cheung Koo and Dele Liu as
attorneys-in-fact with full power of substitution, for him or her in any and all capacities, to do any and all acts and all things and to execute any and all instruments which
said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended (the "Securities Act"), and any rules, regulations and
requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant (the "Shares"), including, without
limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-4 (the "Registration
Statement") to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or
supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any
and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective
date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on April 24, 2012.
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Signature
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Title
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/s/ VICTOR WING CHEUNG KOO
Name: Victor Wing Cheung Koo
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Chairman of the Board of Directors and Chief Executive Officer (principal executive officer)
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/s/ DELE LIU
Name: Dele Liu
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Director, Chief Financial Officer and Senior Vice President (principal financial and accounting officer)
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/s/ GEORGE LEONARD BAKER JR.
Name: George Leonard Baker Jr.
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Director
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/s/ JONATHAN JIA ZHU
Name: Jonathan Jia Zhu
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Director
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/s/ YE SHA
Name: Ye Sha
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Director
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/s/ NICHOLAS FREDERICK LAWLER
Name: Nicholas Frederick Lawler
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Director
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/s/ BRYAN ZONGWEI LI
Name: Bryan Zongwei Li
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Director
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Table of Contents
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act, the undersigned, the duly authorized representative in the United States of Youku Inc., has
signed this registration statement or amendment thereto in New York, on April 24, 2012.
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Authorized U.S. Representative
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By:
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/s/ KATE LEDYARD
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Name:
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Kate Ledyard, on behalf of Law Debenture Corporate Services Inc.
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Title:
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Manager
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S-3
Table of Contents
Youku Inc.
EXHIBIT INDEX
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Exhibit No.
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Description of Document
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2.1
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Agreement and Plan of Merger, dated March 11, 2012, by and among Youku Inc., Tudou Holdings Limited and Two Merger Sub Inc. (attached as Appendix A to the joint proxy statement/prospectus forming part
of this Registration Statement and incorporated herein by reference)
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3.1
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Amended and Restated Memorandum and Articles of Association of the registrant (incorporated by reference to Exhibit 3.2 from the registrant's registration statement on Form F-1 (File No. 333-170603), as
amended, initially filed with the SEC on November 15, 2010)
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4.1
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Deposit Agreement among the registrant, Citibank, N.A. and holders of the American Depositary Receipts of the Registrant (incorporated by reference to Exhibit 4.3 from the registrant's registration statement on
Form S-8 (File No. 333-171454) filed with the SEC on December 29, 2010)
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4.2
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Form of Youku ADR for Youku ADSs representing deposited Youku Class A shares (incorporated by reference to the prospectus filed with the SEC on November 25, 2011, which is a part of the registrant's statement on
Form F-6 (SEC File No. 333-170709)
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5.1
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Opinion of Conyers Dill & Pearman regarding the validity of the Youku Class A shares being registered and the Youku Class A shares underlying the Youku ADSs
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8.1
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Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the material United States federal tax consequences of the Merger
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8.2
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Opinion of Conyers Dill & Pearman as to the material Cayman Islands tax consequences of the Merger (included in Exhibit 5.1)
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8.3
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Opinion of TransAsia Lawyers as to the material PRC tax consequences of the Merger (included in Exhibit 99.9)
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23.1
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Consent of Ernst & Young Hua Ming, independent registered public accounting firm
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23.2
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Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company, independent registered public accounting firm
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23.3
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Consent of Conyers Dill & Pearman (included in Exhibit 5.1)
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23.4
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Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.1)
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23.5
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Consent of TransAsia Lawyers
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23.6
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Consent of Fangda Partners (included in Exhibit 99.10).
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24.1
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Powers of Attorney (included on signature page to registration statement)
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99.1
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Consent of Allen & Company LLC
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99.2
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Consent of Morgan Stanley Asia Limited
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99.3
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*
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Form of Proxy Card for the Annual General Meeting of Shareholders of Youku
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99.4
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*
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Form of Youku Notice of Annual General Meeting of Shareholders of Youku
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99.5
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*
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Form of Youku Depository Notice of Annual General Meeting of Shareholders of Youku for Youku ADS Holders
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Table of Contents
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Exhibit No.
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Description of Document
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99.6
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*
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Form of ADS Voting Instruction Card for Youku
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99.6
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*
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Form of Proxy Card for the Annual General Meeting of Shareholders of Tudou
|
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|
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99.7
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*
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Form of Tudou Notice of Annual General Meeting of Shareholders of Tudou
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99.8
|
*
|
Form of ADS Voting Instruction Card for Tudou
|
|
|
|
|
|
99.9
|
|
Opinion of TransAsia Lawyers regarding certain PRC legal matters
|
|
|
|
|
|
99.10
|
|
Opinion of Fangda Partners regarding certain PRC legal matters
|
-
*
-
To
be filed by amendment
S-5
Youku Tudou Inc. American Depositary Shares, Each Representing 18 Class A Ordinary Shares. (NYSE:YOKU)
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From Jun 2024 to Jul 2024
Youku Tudou Inc. American Depositary Shares, Each Representing 18 Class A Ordinary Shares. (NYSE:YOKU)
Historical Stock Chart
From Jul 2023 to Jul 2024