Yahoo 2011 Annual Report Download - page 85

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Framework Agreement with Alibaba Group regarding Alipay. On July 29, 2011, the Company entered into a
Framework Agreement (the “Framework Agreement”), with Alibaba Group, Softbank, Alipay, APN Ltd., a
company organized under the laws of the Cayman Islands (“IPCo”), Zhejiang Alibaba E-Commerce Co., Ltd., a
limited liability company organized under the laws of the People’s Republic of China (“HoldCo”), Jack Ma Yun,
Joseph C. Tsai and certain security holders of Alipay or HoldCo as joinder parties.
Alipay, formerly a subsidiary of Alibaba Group, is a subsidiary of HoldCo, which is majority owned by Mr. Ma.
IPCo is a special purpose entity formed in connection with the Framework Agreement which at the time of
consummation of the transactions under the Framework Agreement is owned by Mr. Ma and Mr. Tsai. The
transactions under the Framework Agreement closed on December 14, 2011.
Pursuant to the terms of the Framework Agreement the parties have agreed, among other things, that:
(1) Upon a Liquidity Event (as defined below), HoldCo will pay to Alibaba Group 37.5 percent of the equity
value of Alipay (the “Liquidity Event Payment”), less $500 million (i.e., the principal amount of the IPCo
Promissory Note as described below). The Liquidity Event Payment plus $500 million must in the aggregate not
be less than $2 billion and may not exceed $6 billion, subject to certain increases and additional payments if no
Liquidity Event has occurred by the sixth anniversary of the consummation of the transactions (the “closing”).
“Liquidity Event” means the earlier to occur of (a) a qualified initial public offering of Alipay, (b) a transfer of
37.5 percent or more of the securities of Alipay; or (c) a sale of all or substantially all of the assets of Alipay. If a
Liquidity Event has not occurred by the tenth anniversary of the closing, Alibaba Group will have the right to
cause HoldCo to effect a Liquidity Event, provided that the equity value or enterprise value of Alipay at such
time exceeds $1 billion, and in such case, the $2 billion minimum amount described above will not apply to a
Liquidity Event effected by means of a qualified initial public offering, a sale of all of the securities of Alipay, or
a sale of all or substantially all of the assets of Alipay.
(2) Alibaba Group and Alipay have entered into a long-term agreement pursuant to which Alibaba Group will
receive payment processing services on preferential terms from Alipay and its subsidiaries. The fees to be paid
by Alibaba Group and its subsidiaries to Alipay for the services provided under such agreement take into account
Alibaba Group and its subsidiaries’ status as large volume customers and will be approved on an annual basis by
the directors of Alibaba Group designated by Yahoo! and Softbank.
(3) Alibaba Group has licensed to Alipay certain intellectual property and technology and perform certain
software technology services for Alipay and in return Alipay pays to Alibaba Group a royalty and software
technology services fee, which consists of an expense reimbursement and a 49.9 percent share of the
consolidated pre-tax income of Alipay and its subsidiaries. This percentage will decrease upon certain dilutive
equity issuances by Alipay and HoldCo; provided, however, such percentage will not be reduced below 30
percent. This agreement will terminate upon the earlier to occur of (a) such time as it may be required to be
terminated by applicable regulatory authorities in connection with a qualified initial public offering by Alipay
and (b) the date the Liquidity Event Payment, the IPCo Promissory Note (as defined below) and certain related
payments have been paid in full.
(4) IPCo has issued to Alibaba Group a non-interest bearing promissory note in the principal amount of $500
million with a seven year maturity (the “IPCo Promissory Note”).
(5) The IPCo Promissory Note, the Liquidity Event Payment and certain other payments are secured by a pledge
of 50,000,000 ordinary shares of Alibaba Group which have been contributed to IPCo by Mr. Ma and Mr. Tsai,
as well as certain other collateral which may be pledged in the future.
(6) Yahoo!, Softbank, Alibaba Group, HoldCo, Mr. Ma and Mr. Tsai have entered into an agreement pursuant to
which (a) the Alibaba Group board of directors ratified the actions taken by Alibaba Group in connection with
the restructuring of the ownership of Alipay and the termination of certain control agreements which resulted in
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