Exhibit 10.5

 

EXCLUSIVE OPTION AGREEMENT

 

This Exclusive Option Agreement (this “Option Agreement”) is entered into, as of
July 7, 2011, in Hangzhou City of The People’s Republic of China

 

BETWEEN

 

Full East International Limited, with a registered address at Palm Grove House,
P.O. Box 438, Road Town, Tortola, British Virgin Islands (“Party A”);

 

AND

 

Hangzhou Xuerun Education & Technology, Ltd., with a business address at
Building 1, East, Number 3, Xiyuan Jiulu, Xiehu District, Hangzhou, Zhejiang
Province , the People’s Republic of China (“ Party B ”);

 

AND

 

Each of the shareholders of Party B listed on the signature pages hereto
(collectively, the “Party C ”).

 

(Party A, Party B and Party C are referred to collectively in this Option
Agreement as the “Parties”.)

 

RECITALS

 

 1. Party A, a company incorporated under the law of British Virgin Islands and
    has the expertise in the business of providing advisory and services in
    developing, marketing, and distributing EduCards used as a tool to educate
    children through the means of online games; Party B is a private-owned
    company incorporated in the People’s Republic of China (“PRC”), and is
    engaged in creating online educational games for students who are in primary
    school and middle school in China and is in the development and creation of
    a website to educate children how to develop and hone their creative skills
    through interactive educational games that incorporate Adobe Flash. The
    games incorporate a curriculum that has been extremely well thought-out and
    has been developed by some of China’s top professors and child psychology
    experts. It sets itself apart from other after school programs in China
    because it deviates from the traditional ways of Chinese education, which
    incorporate dull and boring ways of teaching, causing children to act in
    generally the same manner and have similar thought processes. By stimulating
    the child’s thought process, the child’s attention is focused on the subject
    at hand(the “Business”); 
 2. Party C refers collectively to the shareholders of Party B, and has the
    ownership of 100% equity interest in Party B (each, an “Equity Interest” and
    collectively the “Equity Interests”) 
 3. A series agreements, including the Business Operating Agreement, Consulting
    Services Agreement and the Equity Pledge Agreement (collectively the “Said
    Agreements”), have been entered into by and among the Parties on July 7,
    2011;
 4. The Parties are entering into this Option Agreement in conjunction with the
    Said Agreements
 5. 

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NOW, THEREFORE, the Parties to this Option Agreement hereby agree as follows

 

1.      Purchase and Sale of Equity Interest

 

1.1.   Grant of Rights. Party C (hereafter collectively the “Transferor”) hereby
irrevocably grants to Party A an exclusive option to purchase or cause any
person designated by Party A (“Designated Persons”) to purchase, to the extent
permitted under PRC Law, according to the steps determined by Party A, at the
price specified in Section 1.3 of this Option Agreement, at any time from the
Transferor a portion or all of the equity interests held by Transferor in Party
B (the “Option”). No Option shall be granted to any third party other than Party
A and/or its Designated Persons. Party B hereby agrees to the granting of the
Option by Party C to Party A and/or its Designated Persons. The “person” set
forth in this clause and this Option Agreement means an individual person,
corporation, joint venture, partnership, enterprise, trust or a non-corporation
organization.

 

1.2.   Exercise of Rights. According to the stipulations of PRC laws and
regulations, Party A and/or its Designated Persons may exercise Option by
issuing a written notice (the “Notice”) to the Transferor and specifying the
equity interest purchased from Transferor (the “Purchased Equity Interest”) and
the manner of purchase.

 

1.3.   Purchase Price. For Party A to exercise the Option, the purchase price of
the Purchased Equity Interest (“Purchase Price”) shall be equal to the lowest
price permissible under the applicable laws.

 

1.4.   Transfer of the Purchased Equity Interest. Upon each exercise of the
Option rights under this Option Agreement:

 

1.4.1.      The Transferor shall ask Party C to convene a shareholders’ meeting.
During the meeting, the resolutions shall be proposed, approving the transfer of
the appropriate Equity Interest to Party A and/or its Designated Persons;

1.4.2.      The Transferor shall, upon the terms and conditions of this Option
Agreement and the Notice related to the Purchased Equity Interest, enter into
Equity Interest purchase agreement in a form reasonably acceptable to Party A,
with Party A and/or its Designated Persons (as applicable);

1.4.3.      The related parties shall execute all other requisite contracts,
agreements or documents, obtain all requisite approval and consent of the
government, conduct all necessary actions, without any Security Interest,
transfer the valid ownership of the Purchased Equity Interest to Party A and/or
its Designated Persons, and cause Party A and/or its Designated Persons to be
the registered owner of the Purchased Equity Interest. In this clause and this
Option Agreement, “Security Interest” means any mortgage, pledge, the right or
interest of the third party, any purchase right of equity interest, right of
acquisition, right of first refusal, right of set-off, ownership

 

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detainment or other security arrangements, however, it does not include any
security interest created under the Equity Pledge Agreement.

 

1.5.   Payment. The payment of the Purchase Price shall be determined by the
consultation of Party A and/or its Designated Persons with the Transferor
according to the applicable PRC laws at the time of exercise of the Option.

 

2.      Promises Relating Equity Interest.

 

2.1.   Promises Related to Party B. Party B and Party C hereby promise:

 

2.1.1.      Without prior written consent by Party A, not, in any form, to
supplement, change or renew the Articles of Association of Party B, to increase
or decrease registered capital of the corporation, or to change the structure of
the registered capital in any other forms;

2.1.2.      According to customary fiduciary standards applicable to managers
with respect to corporations and their shareholders, to maintain the existence
of the corporation, prudently and effectively operate the business;

2.1.3.      Without prior written consent by Party A, not, upon the execution of
this Option Agreement, to sell, transfer, mortgage or dispose, in any other
form, any asset, legitimate or beneficial interest of business or income of
Party B, or encumber or approve any encumbrance or imposition of any security
interest on Party A’s assets;

2.1.4.      Without prior written notice by Party A, not issue or provide any
guarantee or permit the existence of any debt, other than (i) the debt arising
from normal or daily business but not from borrowing; and (ii) the debt
disclosed to Party A and obtained the written consent from Party A;

2.1.5.      To normally operate all business to maintain the asset value of
Party B, without taking any action or failing to take any action that would
result in a material adverse effect on the business or asset value of Party B;

2.1.6.      Without prior written consent by Party A, not to enter into any
material agreement, other than agreements in the ordinary course of business
(for purposes of this paragraph, if the amount of the agreement involves an
amount that exceeds a hundred thousand Yuan Renminbi (RMB 100,000) the agreement
shall be deemed material);

2.1.7.      Without prior written consent by Party A, not to provide loan or
credit loan to any others;

2.1.8.      Upon the request of Party A, to provide all materials of operation
and finance relevant to Party B;

2.1.9.      Purchases and holds the insurance from the insurance company
accepted by Party A, the insurance amount and category shall be the same with
those held by the companies in the same industry or field, operating the similar
business and owning the similar properties and assets as Party B;

2.1.10.  Without prior written consent by Party A, not to merge or associate
with any person, or acquire or invest in any person;

2.1.11.  To notify Party A of the occurrence or the potential occurrence of the
litigation, arbitration or administrative procedure related to the assets,
business and income of Party B;

 

 

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2.1.12.  In order to keep the ownership of Party B to all its assets, to execute
all requisite or appropriate documents, take all requisite or appropriate
actions, and pursue all appropriate claims, or make requisite or appropriate
pleas for all claims;

 

2.1.13.  Without prior written notice by Party A, not to assign equity interests
to shareholders in any form; however, Party B shall distribute all or part of
its distributable profits to its own shareholders upon request by Party A;

 

2.1.14.  According to the request of Party A, to appoint any person designated
by Party A to be the director(s) of Party B.

 

2.2.   Promises Related to Transferor. Party C hereby promise:

 

2.2.1.      Without prior written consent by Party A, not, upon the execution of
this Option Agreement, to sell, transfer, mortgage or dispose in any other form
any legitimate or beneficial interest of equity interest, or to approve any
other security interest set on it, with the exception of the pledge set on the
equity interest of the Transferor subject to Equity Pledge Agreement;

 

2.2.2.      Without the prior written notice by Party A, not to decide or
support or execute any shareholder resolution at any shareholder meeting of
Party B that approves any sale, transfer, mortgage or dispose of any legitimate
or beneficial interest of equity interest, or allows any other security interest
set on it, other than the pledge on the equity interests of Transferor pursuant
to Equity Pledge Agreement;

 

2.2.3.      Without prior written notice by Party A, the Parties shall not agree
or support or execute any shareholders resolution at any shareholder meeting of
Party B that approves Party B’s merger or association with any person,
acquisition of any person or investment in any person;

 

2.2.4.      To notify Party A the occurrence or the potential occurrence of the
litigation, arbitration or administrative procedure related to the equity
interest owned by them;

 

2.2.5.      To cause the Board of Directors of Party B to approve the transfer
of the Purchased Equity Interest subject to this Option Agreement;

 

2.2.6.      In order to keep its ownership of the equity interest, to execute
all requisite or appropriate documents, conduct all requisite or appropriate
actions, and make all requisite or appropriate claims, or make requisite or
appropriate defend against fall claims of compensation;

 

2.2.7.      Upon the request of Party A, to appoint any person designated by
Party A to be the directors of Party B;

 

2.2.8.      Upon the request of Party A at any time, to transfer its Equity
Interest immediately to the representative designated by Party A unconditionally
at any time and abandon its prior right of first refusal of such equity interest
transferring to another available shareholder;

 

2.2.9.      To prudently comply with the provisions of this Option Agreement and
other Said Agreements entered into collectively or respectively by the
Transferor, Party B and Party A and perform all obligations under these Said
Agreements, without taking any action or any nonfeasance that sufficiently
affects the validity and enforceability of these Said Agreements.

 

3.      Representations and Warranties. As of the execution date of this Option
Agreement and every

 

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transferring date, Party B and Party C hereby represent and warrant collectively
and respectively to Party A as follows:

 

3.1.   It has the power and ability to enter into and deliver this Option
Agreement, and for every single transfer of Purchased Equity Interest according
to this Option Agreement, the corresponding equity interest transferring
agreement (each a “Transferring Agreement”) of which it as a party, and to
perform its obligations under this Option Agreement and any Transferring
Agreement. Upon execution, this Option Agreement and the Transferring Agreements
of which it as a party will constitute legal, valid and binding obligations and
enforceable against it in accordance with the applicable terms;

 

3.2.   The execution, delivery of this Option Agreement and any Transferring
Agreement and performance of the obligations under this Option Agreement and any
Transferring Agreement will not: (i) cause to violate any relevant laws and
regulations of PRC; (ii) constitute a conflict with its Articles of Association
or other organizational documents; (iii) cause to breach any Agreement or
instruments to which it is a party or having binding obligation on it, or
constitute the breach under any Agreement or instruments to which it is a party
or having binding obligation on it; (iv) cause to violate relevant authorization
of any consent or approval to it and/or any continuing valid condition; or (v)
cause any consent or approval authorized to it to be suspended, removed, or into
which other requests be added;

 

3.3.   The shares of Party B are transferable, and Party B has not permitted or
caused any security interest to be imposed upon the shares of Party B.

 

3.4.   Party B does not have any unpaid debt, other than (i) debt arising from
its normal business; and (ii) debt disclosed to Party A and obtained by written
consent of Party A;

 

3.5.   Party B has complied with all PRC laws and regulations applicable to the
acquisition of assets and securities in connection with this Option Agreement.

 

3.6.   No litigation, arbitration or administrative procedure relevant to the
Equity Interests and assets of Party B or Party B itself is in process or to be
settled and the Parties have no knowledge of any pending or threatened claim.

 

3.7.   The Transferor bears the fair and salable ownership of its Equity
Interest free of encumbrances of any kind, other than the security interest
pursuant to the Equity Pledge Agreement.

 

4.      Assignment of Agreement

 

4.1.   Party B and Party C shall not transfer their rights and obligations under
this Option Agreement to any third party without the prior written consent of
the Party A.

 

4.2.   Party B and Party C hereby agrees that Party A shall be able to transfer
all of its rights and obligation under this Option Agreement to any third party
as its needs (natural person or

 

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legal entity) at any time, and such transfer shall only be subject to a written
notice sent to Party B, Party C by Party A, and no any further consent from
Party B and/or Party C will be required.

 

5.      Effective Date and Term

 

5.1.   This Agreement shall be effective as of the date first set forth above.

 

5.2.   The term of this Option Agreement is ten (10) years unless the early
termination in accordance with this Option Agreement or other terms of the
relevant agreements stipulated by the Parties. This Agreement may be extended
according to the written consent of Party A before the expiration of this Option
Agreement. The term of extension will be decided unanimously through mutual
agreement of the Parties.

 

5.3.   At the end of the term of this Option Agreement (including any
extension), or if earlier terminated pursuant to Section 5.2, the Parties agree
that any transfer of rights and obligations pursuant to Section 4.2 shall
continue in effect.

 

6.      Applicable Law and Dispute Resolution

 

6.1.   Applicable Law. The execution, validity, construing and performance of
this Option Agreement and the resolution of disputes under this Option Agreement
shall be governed by the laws of PRC.

 

6.2.   Dispute Resolution. The parties shall strive to settle any dispute
arising from the interpretation or performance, or in connection with this
Agreement through friendly consultation. In case no settlement can be reached
through consultation within thirty (30) days, each party can submit such matter
to South China sub-commission of the China International Economic and Trade
Arbitration Commission (“CIETAC”) for arbitration in accordance with its
arbitration rules in force at the date of this Agreement including such addition
to the CIETAC arbitration rules as are therein contained. Arbitration shall take
place in Hangzhou of PRC and the arbitration proceedings shall be conducted in
Chinese. There shall be only one (1) arbitrator. Any resulting arbitration award
shall be final conclusive and binding upon the parties.

 

7.      Taxes and Expenses. Each Party shall, according to the PRC laws, bear
any and all registering taxes, costs and expenses for equity transfer arising
from the preparation and execution of this Option Agreement and all Transferring
Agreements, and the completion of the transactions under this Option Agreement
and all Transferring Agreements.

 

8.      Notices. Notices or other communications required to be given by any
party pursuant to this Option Agreement shall be written in English and Chinese
and delivered personally or sent by registered mail or postage prepaid mail or
by a recognized courier service or by facsimile transmission to the address of
relevant each party or both parties set forth below or other address of the
party or of the other addressees specified by such party from time to time. The
date when the notice is deemed to be duly served shall be determined as the
follows: (a) a

 

 

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notice delivered personally is deemed duly served upon the delivery; (b) a
notice sent by mail is deemed duly served the tenth (10th) day after the date
when the air registered mail with postage prepaid has been sent out (as is shown
on the postmark), or the fourth (4th) day after the delivery date to the
internationally recognized courier service agency; and (c) a notice sent by
facsimile transmission is deemed duly served upon the receipt time as is shown
on the transmission confirmation of relevant documents.

 

Party A

 

Full East International Limited

 

 

Address: Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin
Islands

 

 

Attn: Tian Yuan

 

 

 

Party B:

 

Hangzhou Xuerun Education & Technology, Ltd.

 

 

Address: Building 1, East, Number 3, Xiyuan Jiulu, Xiehu District, Hangzhou,
Zhejiang Province, the People’s Republic of China

 

 

Attn: Peter Liu

 

 

 

Party C:

 

Address: Building 1, East, Number 3, Xiyuan Jiulu, Xiehu District, Hangzhou,
Zhejiang Province, the People’s Republic of China

 

9.      Confidentiality. The Parties acknowledge and confirm any oral or written
materials exchanged by the Parties in connection with this Option Agreement are
confidential. The Parties shall maintain the secrecy and confidentiality of all
such materials. Without the written approval by the other Parties, any Party
shall not disclose to any third party any relevant materials, but the following
circumstances shall be excluded: (a) the materials that is known or may be known
by the general public (but not include the materials disclosed by each party
receiving the materials); (b) the materials required to be disclosed subject to
the applicable laws or the rules or provisions of stock exchange; or (c) The
materials disclosed by each Party to its legal or financial consultant relating
the transaction of this Option Agreement, and this legal or financial consultant
shall comply with the confidentiality set forth in this Section. The disclosure
of the confidential materials by staff or employed institution of any Party
shall be deemed as the disclosure of such materials by such Party, and such
Party shall bear the liabilities for breaching the contract. This clause shall
survive whatever this Option Agreement is invalid, amended, revoked, terminated
or unable to implement by any reason.

 

10.  Further Warranties. The Parties agree to promptly execute documents
reasonably required to perform the provisions and the aim of this Option
Agreement or documents beneficial to it, and to take actions reasonably required
to perform the provisions and the aim of this Option Agreement or actions
beneficial to it.

 

11.  Miscellaneous. 

 

11.1.              Amendment, Modification and Supplement. Any amendment and
supplement to this Option Agreement shall only be effective is made by the
Parties in writing.

 

 

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11.2.              Entire Agreement. Notwithstanding the Article 5 of this
Option Agreement, the Parties acknowledge that this Option Agreement constitutes
the entire agreement of the Parties with respect to the subject matters therein
and supercede and replace all prior or contemporaneous agreements and
understandings, whether orally or in writing.

 

11.3.              Severability. If any provision of this Option Agreement is
judged as invalid or non-enforceable according to relevant Laws, the provision
shall be deemed invalid only within the applicable laws and regulations of the
PRC, and the validity, legality and enforceability of the other provisions
hereof shall not be affected or impaired in any way. The Parties shall, through
fairly consultation, replace those invalid, illegal or non-enforceable
provisions with valid provisions that may bring the similar economic effects
with the effects caused by those invalid, illegal or non-enforceable provisions.

 

11.4.              Headings. The headings contained in this Option Agreement are
for the convenience of reference only and shall not affect the interpretation,
explanation or in any other way the meaning of the provisions of this Option
Agreement.

 

11.5.              Language and Copies. This Agreement has been executed in
English in five (5) duplicate originals; each Party holds one (1) original and
each duplicate original shall have the same legal effect.

 

11.6.              Successor. This Agreement shall bind and benefit the
successor of each Party and the transferee allowed by each Party.

 

11.7.              Survival. Any obligation taking place or at term hereof prior
to the end or termination ahead of the end of this Option Agreement shall
continue in force and effect notwithstanding the occurrence of the end or
termination ahead of the end of the Agreement. Article 6, Article 8, Article 9
and Section 11.7 hereof shall continue in force and effect after the termination
of this Option Agreement.

 

11.8.              Waiver. Any Party may waive the terms and conditions of this
Option Agreement in writing with the signature of the Parties. Any waiver by a
Party to the breach by other Parties within certain situation shall not be
construed as a waiver to any similar breach by other Parties within other
situations.

 

 

 

[INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]

 

 

 

 

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SIGNATURE PAGE

 

IN WITNESS WHEREOF both parties hereto have caused this Option Agreement to be
duly executed by their legal representatives and duly authorized representatives
on their behalf as of the date first set forth above.

 

PARTY A:

 

Full East International Limited

 

 

 

 

 

Legal/Authorized Representative:

 

 

 

 

 

/s/ Hongxiao Zhang

 

 

Title: Director

Name: WU Jianhua

 

 

 

PARTY B:

 

Hangzhou Xuerun Education & Technology, Ltd.

 

 

 

 

 

Legal/Authorized Representative:

 

 

 

 

 

/s/ Hongxiao Zhang

 

 

Title: Director

Name: WU Jianhua

 

 

 

PARTY C: 

 

/s/Hongxiao Zhang

 

 

owns 25% shares of Hangzhou Xuerun Education & Technology, Ltd.

 

 

 

 

 

 

 

 

/s/ Yuedan Tao

 

 

Owns 25% shares of Hangzhou Xuerun Education & Technology, Ltd.

 

 

 

 

 

/s/ Yongfu Zhu

 

 

Owns 50% shares of Hangzhou Xuerun Education & Technology, Ltd.

 

 

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