Exhibit 4.4


 


SHAREHOLDERS AGREEMENT


 


THIS SHAREHOLDERS AGREEMENT (this “Agreement”) is made and entered into as of August 28, 2009 by and among:


 


1.                                                               CHINA XUEDA
EDUCATION LTD, an exempted company organized and existing under the laws of the
Cayman Islands (the “Company”);


 


2.                                                               Golden Section Holding
Corporation, a company organized and existing under the laws of the British
Virgin Islands, one hundred percent (100%) of the equity interest of which is owned
by Mr. Jin Xin (the “ BVI 1”);


 


3.                                                               Goodor
Corporation, a company organized and existing under the laws of the British
Virgin Islands, one hundred percent (100%) of the equity interest of which is owned
by Mr. Li Rubin (the “ BVI 2”);


 


4.                                                               Nihao China
Corporation, a company organized and existing under the laws of the British
Virgin Islands, one hundred percent (100%) of the equity interest of which is owned
by Mr.Yao Jinbo (the “ BVI 3”);


 


5.                                                               New Sky
Resources Limited, a company organized and existing under the laws of the
British Virgin Islands, one hundred percent (100%) of the equity interest of
which is owned by Mr. Zhu Changyong (the “ BVI 4”);


 


6.                                                               KAIYUAN
TECHNOLOGY LIMITED, a company organized and existing under the laws of the
British Virgin Islands, one hundred percent (100%) of the equity interest of
which is owned by Mr. Deng Qiang (the “ BVI 5”);


 


7.                                                               CHINA XUEDA
CORPORATION LIMITED(), a company
organized and existing under the laws of Hong Kong Special Administrative
Region of the People’s Republic of China (the “PRC”),
as a wholly-owned subsidiary of the Company (the “HK Co.”);


 


8.                                                               , a limited
liability company organized and existing under the laws of the PRC, as a
wholly-owned subsidiary of the HK Co. (the “PRC
Subsidiary”);


 


9.                                                               a limited liability company organized and
existing under the laws of the PRC (the “Xueda Information”);


 


10.                                                         , a limited liability company organized and
existing under the laws of the PRC (the “Xueda Education”, together with Xueda
Information, the “PRC Affiliates”,
and each a “PRC Affiliate”);


 


11.                                                         , a limited liability company organized and
existing under the laws of the PRC (the “Lezhijia Education”);


 


1

















 


12.                                                         Each of the
persons (each a “Founder”, and collectively, the “Founders”) as set forth in Schedule A attached hereto;


 


13.                                                         CDH XUEDA
LIMITED, a company organized and existing under the laws of the British Virgin
Islands (the “Series A1 Investor”); and


 


14.                                                         Each of the
entities (each a “Series A2 Investor”,
and collectively, the “Series A2 Investors”)
as set forth in Schedule B attached hereto.


 


BVI1, BVI2, BVI3, BVI4 and
BVI5 are collectively herein referred to as the “BVI
Companies” and each, a “BVI Company”. The
Company, the BVI Companies, the HK Co., the PRC Subsidiary, and the PRC
Affiliates are referred to collectively herein as the “Group
Companies”, and each, a “Group Company”.  The Series A1 Investor and the Series A2
Investors are referred to collectively herein as the “Investors”
or “Preferred Shareholders”, and each, an “Investor” or “Preferred Shareholder”.


 


RECITALS


 


A.                                   The Group Companies, the Founders and the Investors have entered into a Preferred Share Purchase Agreement dated August 28, 2009 (the “Preferred Share Purchase
Agreement”), under which the Company shall issue and allot an aggregate of 21,555,920 Series A1 Shares, par value US$0.0001 per share (the “Series A1
Shares”) to the Series A1
Investor and an aggregate of 8,796,920 Series A2 Shares, par value US$0.0001 per share (the “Series A2
Shares”, together with Series A1
Shares, the “Preferred Shares”, each a “Preferred Share”) to the Series A2 Investors .


 


B.                                     In connection with
the consummation of the transactions contemplated by the Preferred Share Purchase Agreement, the
parties hereto desire to enter into this Agreement and the Ancillary Agreements
(as defined in the Preferred
Share Purchase Agreement)  for the governance,
management and operations of the Group Companies and for the rights and
obligations between and among the Preferred Shareholders and the Company.


 


C.                                     The Preferred Share Purchase Agreement
provides that the execution and delivery of this Agreement by
the parties shall be a condition precedent to the consummation of the
transactions contemplated under the Preferred Share Purchase Agreement.


 


NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:


 


1.                                       INFORMATION RIGHTS; BOARD
REPRESENTATION.


 


1.1.                              Information and
Inspection Rights.


 


(a)                                  Information Rights.  Each of the Group Companies covenants and
agrees that, commencing on the date of this Agreement, the Group Companies
shall deliver to the
Investors:


 


(i)                                     audited annual
consolidated financial statements, within one hundred twenty (120) days after the
end of each fiscal year, prepared in accordance with 


 


2

















 


the U.S. GAAP standard and audited by one of the “Big 4” international accounting firms  or other reputable accounting firm approved by
the Board of Directors of the Company (the “Board”);


 


(ii)                                  unaudited
quarterly consolidated financial statements, within thirty (30) days of the end
of each fiscal quarter prepared in accordance with the U.S. GAAP standard;


 


(iii)                               unaudited monthly
consolidated financial statements, within twenty (20) days of the end of each
month prepared in accordance with the U.S. GAAP standard;


 


(iv)                              an annual capital
expenditure and operations budget and strategic plan for the approval of the Board for the following
fiscal year, within thirty (30) days prior to the
end of each fiscal year;


 


(v)                                 copies of all
Company documents or other Company information sent to any shareholder;


 


(vi)                              upon the written
request by the Investors, such other
information as the
Investors shall reasonably request from time to time (the above rights,
collectively, the “Information Rights”).  All financial statements to be provided to the Investors pursuant to this Section 1.1(a) shall
include an income statement, a balance sheet and a cash flow statement for the
relevant period as well as for the fiscal year to-date and shall be prepared in
conformance with the U.S. GAAP standard.


 


(b)                                 Inspection Rights.  Each of the Group Companies further covenants
and agrees that, commencing on the date of this Agreement, for so long as the Investors continues to hold any Ordinary
Shares (as defined in Section 4.1) of the Company, the Investors shall have (i) the
right to inspect facilities, records and books of the Group Companies at any time during
regular working hours upon reasonable prior notice
to the Group Companies, and (ii) the
right to discuss the business, operations and conditions of the Group Company with their
respective directors, officers, employees, accountants, legal counsel and
investment bankers (the “Inspection Rights”).


 


(c)                                  Termination of
Rights.  The Information Rights and Inspection Rights shall
terminate upon consummation of a firm commitment underwritten
public offering of the ordinary shares of the Company (“Ordinary
Shares”) in the United States, that has been registered under the
United States Securities Act of 1933, as amended from time to time, including
any successor statutes (the “Securities Act”),
with the valuation of the Company in excess
of US$100,000,000 immediately
after a public offering and the total securities issued by the Company in such
offering not less than 15% of all outstanding share capital of the Company after
the offering, or in a similar public offering of the Ordinary Shares of the
Company in Hong Kong or another jurisdiction which results in the
Ordinary Shares trading publicly on a recognized international securities
exchange; provided that such offering satisfies the foregoing valuation and offering share
percentage is subject to the prior written approval of the holders of Preferred Shares (a “Qualified Public Offering”).


 


1.2.                              Board of Directors.  The Amended and
Restated Memorandum and Articles of Association of the Company (the “Restated
Memorandum and Articles”) shall 


 


3

















 


provide that the Board of the Company shall
consist of five (5) members, which number of members shall not be changed
except pursuant to an amendment to the Restated Memorandum
and Articles.
 Effective from the date
hereof,


 


(i)                                     The BVI Companies and their respective permitted
assigns be entitled to jointly appoint and remove three (3) directors(the “Ordinary Directors”, and each a “Ordinary
Director”), the Ordinary Directors shall be initially be Jin Xin, Li
Rubin and Yao Jinbo;


 


(ii)                                  the Series A1
Investor  and its permitted
assigns shall be entitled to appoint and remove one (1) director (the “Series A1  Director”), the Series A1 Director shall be initially
be Wang Jun; and


 


(iii)                               the Series A2 Investors  and their respective permitted assigns shall be
entitled to jointly appoint and remove one (1) director (the “Series A2  Director”, together with the Series A1
Director,  the “Series A
Directors”, and each a “Series A Director”), the Series A2 Director shall be initially
be Wang Yafei.


 


Each
of the BVI Companies, the Series A1 Investor and the Series A2
Investors, and their respective
permitted assigns, may remove a Director
appointed by it, with or without cause and appoint a new Director in his place
by notice in writing to the Company and the other parties.


 


A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by alternate not
less than four (4) directors, which shall include at least two Ordinary
Directors and the Series A1 Director.


 


The Series A1 Investor and its permitted assigns shall have the right to
appoint an observer to any board meeting, who will participate in any
discussion, but will have no voting rights except when explicitly authorized in
written form by the Series A1 Director as the proxy when the Series A1
Director is absent.


 


1.3.                              Compensation
Committee and Audit Committee.  The Company shall set up a compensation
committee (the “Compensation Committee”),
and an audit committee (the “Audit Committee”)  (collectively, the “Committees”) at the time determined by the
Board. The Compensation Committee shall be responsible for evaluating and
recommending to the Board for action all matters related to the Company’s annual compensation and/or
bonus plan, share option plan, and employee related compensation matters.  The Audit Committee shall be responsible for internal
audit and nomination of auditors for the Company.  Any recommendation
to be made to the Board shall require the approval by the majority of the
members of the relevant Committee(s).  The Committees
shall be held at least every three months.


 


2.                                       REGISTRATION
RIGHTS.


 


2.1.                              Applicability of
Rights. The Holders (as defined below) shall be entitled to the following
rights with respect to any proposed public offering of the
Company’s Ordinary Shares in the United States and shall be entitled to
reasonably equivalent or analogous rights with respect to any other offering of
the Company’s securities in Hong Kong 


 


4

















 


or any other jurisdiction in which the Company undertakes to publicly offer
or list such securities for trading on a recognized securities exchange.


 


2.2.                              Definitions.  For purposes of this Section 2:


 


(a)                                  Registration. The terms “register,” “registered,”
and “registration” refer to a registration
effected by filing a registration statement which is in a form which complies
with, and is declared effective by the SEC (as defined below) in accordance
with, the Securities Act.


 


(b)                                 Registrable
Securities.  The
term “Registrable Securities” means: (1) any
Ordinary Shares of the Company issued or issuable pursuant to conversion of any
shares of Preferred Shares issued (A) under the Preferred Share
Purchase Agreement, or (B) pursuant to the Right of Participation (defined in Section 3.1),
(2) any Ordinary Shares issued (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued) as a dividend
or other distribution with respect to, or in exchange for or in replacement of,
any Preferred Shares described in clause (1) of this
subsection (b), (3) any other
Ordinary Shares of the Company owned or hereafter acquired by the holders of Preferred Shares.  Notwithstanding the foregoing, “Registrable Securities” shall exclude any Registrable
Securities sold by a person in a transaction in which rights under this Section 2 are not validly assigned in
accordance with this Agreement, and any Registrable Securities which are sold
in a registered public offering under the Securities Act or analogous statute
of another jurisdiction, or sold pursuant to Rule 144 promulgated under
the Securities Act or analogous rule of another jurisdiction.


 


(c)                                  Registrable
Securities Then Outstanding.  The number of shares of “Registrable
Securities then Outstanding” shall mean the
number of Ordinary Shares of the Company that are Registrable Securities and
are then issued and outstanding, issuable upon conversion of Preferred Shares then issued
and outstanding, or issuable upon
conversion or exercise of any warrant, right or other security then
outstanding.


 


(d)                                 Holder.  For purposes of this Section 2,  the term “Holder” means any person owning or having the rights to
acquire Registrable Securities or any permitted assignee of record of such
Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement.


 


(e)                                  Form F-3.  The term “Form F-3”
means such respective form under the Securities Act or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.


 


(f)                                    SEC.  The term “SEC”
or “Commission” means the U.S. Securities
and Exchange Commission.


 


(g)                                 Registration
Expenses.  The
term “Registration Expenses” shall mean all
expenses incurred by the Company in complying with Sections 2.3, 2.4 and
2.5 hereof, including, without limitation, all registration and filing fees,
printing expenses, fees, and disbursements of counsel for the Company,
reasonable fees and disbursements of one counsel for all the Holders, “blue sky”
fees and expenses and the expense of any special 


 


5

















 


audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company).


 


(h)                                 Selling Expenses.  The term “Selling
Expenses” shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities pursuant to
Sections 2.3, 2.4 and 2.5 hereof.


 


(i)                                     Exchange Act.  The term “Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended, and any successor
statute.


 


2.3.                              Demand Registration.


 


(a)                                  Request by Holders.  If the Company shall, at any time after the
earlier of (i) the fourth (4th) anniversary of the date of
this Agreement or (ii) six (6) months following the closing of a Qualified
Public Offering, receive a written request from the Holders of at least 20% of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.3, then the Company shall, within
ten (10) business days of the receipt of such written request, give
written notice of such request (“Request Notice”)
to all Holders, and use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the Holders request to
be registered and included in such registration by written notice given by such Holders to
the Company within twenty (20) days after receipt of the Request Notice,
subject only to the limitations of this Section 2.3; provided that
the Company shall not be obligated to effect any such registration if the
Company has, within the six (6) month period preceding the date of such
request, already effected a registration under the Securities Act pursuant to
this Section 2.3 or Section 2.5 or in which the
Holders had an opportunity to participate pursuant to the provisions of Section 2.4,
other than a registration from which the Registrable Securities of the Holders have been
excluded (with respect to all or any portion of the Registrable Securities the
Holders requested be included in such registration) pursuant to the provisions
of Section 2.4(a).  The Company shall be obligated to effect no more
than two (2) Registrations pursuant to this Section 2.1.  For purposes of this
Agreement, reference to registration of securities under the Securities Act and
the Exchange Act shall be deemed to mean the equivalent registration in a
jurisdiction other than the United States as designated by such Holders, it
being understood and agreed that in each such case all references in this
Agreement to the Securities Act, the Exchange Act and rules, forms of
registration statements and registration of securities thereunder, U.S. law and
the SEC, shall be deemed to refer, to the equivalent statutes, rules, forms of
registration statements, registration of securities and laws of and equivalent
government authority in the applicable non-U.S. jurisdiction. In addition, “Form F-3”
shall be deemed to refer to Form S-3 or any comparable form under the U.S.
securities laws in the condition that the Company is not at that time eligible
to use Form F-3.


 


(b)                                 Underwriting.  If the Holders initiating the registration
request under this Section 2.3 (the “Initiating Holders”) intend to distribute the Registrable
Securities covered by their request by means of an underwriting, then they
shall so advise the Company as a part of their request made pursuant to this Section 2.3
and the Company shall include such information in the Request Notice.  In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder’s participation in such underwriting and the inclusion of such
Holder’s Registrable Securities in 


 


6

















 


the underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders  and such Holder)
to the extent provided herein.  All
Holders proposing to distribute their securities through such underwriting
shall enter into an underwriting agreement in customary form with the managing
underwriter or underwriters selected for such underwriting by the Holders of a
majority of the Registrable Securities being registered and reasonably
acceptable to the Company.  Notwithstanding any
other provision of this Section 2.3, if the underwriter(s) advise(s) the
Company in writing that marketing factors require a limitation of the number of
securities to be underwritten, then the Company shall so advise all Holders of
Registrable Securities which would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be
included in such underwriting and registration shall not be reduced unless all
other securities  are first entirely excluded
from the underwriting and registration including, without limitation, all
shares that are not Registrable Securities and are held by any other person,
including, without limitation, any person who is an employee, officer or
director of the Company or any subsidiary of the Company; provided
further, that at least twenty-five percent (25)% of shares of
Registrable Securities requested by the Holders to be included in such
underwriting and registration shall be so included.  If any Holder disapproves of the terms of any
such underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company and the underwriter(s), delivered at least ten (10) business
days prior to the effective date of the registration statement.  Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration.


 


(c)                                  Deferral.  Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting registration pursuant to this Section 2.3,
a certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board, it would be materially
detrimental to the Company and its shareholders for such registration statement
to be filed at such time, then the Company shall have the right to defer such
filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period; provided  further, that the Company shall not register any
other of its shares during such twelve (12) month period.  A demand right shall not be deemed to have
been exercised until such deferred registration shall have been effected.


 


2.4.                              Piggyback
Registrations.


 


(a)                                  The Company shall
notify all Holders of Registrable Securities in writing at least thirty (30)
days prior to filing any registration statement under the Securities Act for
purposes of effecting a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration
statements relating to any employee benefit plan or a corporate
reorganization), and shall afford each such Holder an opportunity to include in
such registration statement all or any part of the Registrable Securities then
held by such Holder.  Each Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by it shall within twenty (20) days after receipt
of the above-described notice from the Company, so notify the Company in
writing, and in such 


 


7

















 


notice shall inform the Company of the number of Registrable Securities
such Holder wishes to include in such registration statement.  If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein.


 


(b)                                 Underwriting.  If a registration
statement under which the Company gives notice under this Section 2.4 is
for an underwritten offering, then the Company shall so advise the Holders of
Registrable Securities.  In such event,
the right of any such Holder’s Registrable Securities to be included in a
registration pursuant to this Section 2.4 shall be conditioned upon such
Holder’s participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting to the extent provided herein.  All Holders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting. 
Notwithstanding any other provision of this Agreement but subject to Section 4,
if the managing underwriter(s) determine(s) in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares from the
registration and the underwriting, and the number of shares that may be
included in the registration and the underwriting shall be allocated, first,
to the Company, second, to each of the Holders requesting inclusion of
their Registrable Securities in such registration statement on a pro rata basis
based on the total number of shares of Registrable Securities then held by each
such Holder, and third, to holders of other securities of the Company; provided,
however, that the right of the underwriter(s) to exclude shares
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that (i) the number of Registrable
Securities included in any such registration is not reduced below twenty-five
percent (25%) of the aggregate number of shares of
Registrable Securities for which inclusion has been requested; and (ii) all
shares that are not Registrable Securities and are held by any other person,
including, without limitation, any person who is an employee, officer or
director of the Company (or any subsidiary of the Company) shall first be
excluded from such registration and underwriting before any Registrable
Securities are so excluded.  If any
Holder disapproves of the terms of any such underwriting, such Holder may elect
to withdraw therefrom by written notice to the Company and the underwriter(s),
delivered at least ten (10) business days prior to the effective date of
the registration statement.  Any
Registrable Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration.


 


(c)                                  Not Demand
Registration. 
Registration pursuant to this Section 2.4 shall not be deemed to be
a demand registration as described in Section 2.3 above.  There shall be no limit on the number of
times the Holders may request registration of Registrable Securities under this
Section 2.4.


 


2.5.                              Form F-3.  In case the Company shall receive from any
Holder or Holders of 20% of the Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form F-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, then the Company will:


 


8

















 


(a)                                  Notice.  Promptly give written notice of the proposed
registration and the Holder’s or Holders’ request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities;
and


 


(b)                                 Registration.  As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holders or Holders’ Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities
of any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after the Company provides the
notice contemplated by Section 2.5(a); provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.5:


 


(i)                                     if Form F-3
is not available for such offering by the Holders;


 


(ii)                                  if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public of less than US$500,000;


 


(iii)                               if the Company
shall furnish to the Holders a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be materially detrimental to the
Company and its shareholders for such Form F-3 registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form F-3 registration statement no more than once during any
twelve (12) month period for a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under this Section 2.5; provided
that the Company shall not register any of its other shares during such ninety
(90) day period;


 


(iv)                              if the Company
has, within the six (6) month period preceding the date of such request,
already effected a registration under the Securities Act other than a
registration from which the Registrable Securities of Holders have been
excluded (with respect to all or any portion of the Registrable Securities the
Holders requested be included in such registration) pursuant to the provisions
of Sections 2.3(b) and 2.4(a); or


 


(v)                                 in any particular
jurisdiction in which the Company would be required to qualify to do business
or to execute a general consent to service of process in effecting such
registration, qualification or compliance.


 


Subject to the foregoing, the Company shall file a Form F-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.


 


(c)                                  Not Demand
Registration.  Form F-3
registrations shall not be deemed to be demand registrations as described in Section 2.3
above.  Except as otherwise provided
herein, there shall be no limit on the number of times the Holders may request
registration of Registrable Securities under this Section 2.5.


 


9

















 


2.6.                              Expenses.  All Registration Expenses incurred in
connection with any registration pursuant to Sections 2.3, 2.4 or 2.5 (but
excluding Selling Expenses) shall be borne by the Company.  Each Holder participating in a registration
pursuant to Sections 2.3, 2.4 or 2.5 shall bear such Holder’s proportionate
share (based on the total number of shares sold in such registration other than
for the account of the Company) of all Selling Expenses or other amounts
payable to underwriter(s) or brokers, in connection with such offering by
the Holders.  Notwithstanding the
foregoing, the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 2.3 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered, unless the Holders of a majority of the
Registrable Securities then outstanding agree that such registration
constitutes the use by the Holders of one (1) demand registration pursuant
to Section 2.3; provided  further, however, that if at
the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company not known to the
Holders at the time of their request for such registration and have withdrawn
their request for registration with reasonable promptness after learning of
such material adverse change, then the Holders shall not be required to pay any
of such expenses and such registration shall not constitute the use of a demand
registration pursuant to Section 2.3.


 


2.7.                              Obligations of the
Company.  Whenever required to effect
the registration of any Registrable Securities under this Agreement the Company
shall, as expeditiously as reasonably possible:


 


(a)                                  Registration
Statement.  Prepare and file
with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for a period of up to ninety (90) days or, in the case of Registrable
Securities registered under Form F-3 in accordance with Rule 415
under the Securities Act or a successor rule, until the distribution
contemplated in the registration statement has been completed; provided,
however, that (i) such ninety (90) day period shall be extended for
a period of time equal to the period any Holder refrains from selling any
securities included in such registration at the request of the underwriter(s),
and (ii) in the case of any registration of Registrable Securities on Form F-3
which are intended to be offered on a continuous or delayed basis, such ninety
(90) day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold.


 


(b)                                 Amendments and
Supplements.  Prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement.


 


(c)                                  Prospectuses.  Furnish to the Holders such number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.


 


10














 


(d)                                 Blue Sky.  Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or “blue sky” laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act.


 


(e)                                  Underwriting.  In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement in usual and customary form, with the managing underwriter(s) of
such offering.  Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.


 


(f)                                    Notification.  Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of (i) the
issuance of any stop order by the SEC in respect of such registration
statement, or (ii) the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.


 


(g)                                 Opinion and
Comfort Letter.  Furnish, at the
request of any Holder requesting registration of Registrable Securities, on the
date that such Registrable Securities are delivered to the underwriter(s) for
sale, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering and reasonably satisfactory to
a majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) letters dated as of (x) the effective date of the
registration statement covering such Registrable Securities and (y) the
closing date of the offering, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.


 


2.8.                              Furnish
Information.  It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to Sections 2.3, 2.4 or 2.5 that the selling Holders shall
furnish to the Company such information regarding themselves, the Registrable
Securities held by them and the intended method of disposition of such
securities as shall be required to timely effect the Registration of their
Registrable Securities.


 


2.9.                              Indemnification.  In the event any Registrable Securities are
included in a registration statement under Sections 2.3, 2.4 or 2.5:


 


11

















 


(a)                                  By the Company.  To the extent
permitted by law, the Company will indemnify and hold harmless each Holder, its
partners, officers, directors, legal counsel, any underwriter (as defined in
the Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act, or
other United States federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a “Violation”):


 


(i)                                     any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto;


 


(ii)                                  the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading; or


 


(iii)                               any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
United States federal or state securities law, or any rule or regulation
promulgated under the Securities Act, the Exchange Act, or any United States
federal or state securities law in connection with the offering covered by such
registration statement;


 


and the Company will reimburse each such Holder, its partner, officer,
director, legal counsel, underwriter or controlling person for any legal or
other expenses reasonably incurred by them, as such expenses are incurred, in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity
agreement contained in this subsection 2.9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, legal
counsel, underwriter or controlling person of such Holder.


 


(b)                                 By Selling Holders.  To the extent permitted by law, each selling
Holder will, if Registrable Securities held by Holder are included in the
securities as to which such registration qualifications or compliance is being
effected, indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder’s partners, directors, officers, legal
counsel or any person who controls such Holder within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, legal counsel, controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of such other Holder may
become subject under the Securities Act, the Exchange Act or other United
States federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) 


 


12

















 


that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, partner, officer, director or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 2.9(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; and provided, further,
that in no event shall any indemnity under this Section 2.9(b) exceed
the net proceeds received by such Holder in the registered offering out of
which the applicable Violation arises.


 


(c)                                  Notice.  Promptly after receipt by an indemnified
party under this Section 2.9 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section 2.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding.  The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall relieve such indemnifying party of
liability to the indemnified party under this Section 2.9 to the extent
the indemnifying party is prejudiced as a result thereof, but the omission to
so deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this Section 2.9.


 


(d)                                 Contribution.  In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any indemnified party makes a claim for indemnification
pursuant to this Section 2.9 but it is judicially determined (by the entry
of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 2.9 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any indemnified party
in circumstances for which indemnification is provided under this Section 2.9;
then, and in each such case, the indemnified party and the indemnifying party
will contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion
so that a Holder (together with its related persons) is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Securities offered by and sold under the registration statement
bears to the public offering price of all securities offered by and sold under
such registration statement, and the Company and other selling Holders are
responsible for the remaining portion. 
The relative fault of the indemnifying party and of the indemnified party
shall be determined by a court of law by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the 


 


13

















 


indemnifying party or by the indemnified party and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, however, that, in any such
case: (A) no Holder will be required to contribute any amount in excess of
the net proceeds to such Holder from the sale of all such Registrable
Securities offered and sold by such Holder pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.


 


(e)                                  Survival; Consents
to Judgments and Settlements.  The obligations of the Company and Holders
under this Section 2.9 shall survive the completion of any offering of
Registrable Securities in a registration statement, regardless of the
expiration of any statutes of limitation or extensions of such statutes.  No indemnifying party, in the defense of any
such claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.


 


2.10.                        Termination of the
Company’s Obligations.  The
Company shall have no obligations pursuant to Sections 2.3, 2.4 and 2.5 with
respect to any Registrable Securities proposed to be sold by a Holder in a
registration pursuant to Sections 2.3, 2.4 or 2.5 more than two (2) years after the Qualified Public
Offering, or, if, in the opinion of counsel to the Company, all such Registrable
Securities proposed to be sold by a Holder may then be sold without
registration in any ninety (90) day period pursuant to Rule 144
promulgated under the Securities Act.


 


2.11.                        No Registration
Rights to Third Parties.  Without
the prior written consent of the holders of a majority of the Preferred Shares then
outstanding, the Company covenants and agrees that it shall not grant, or cause
or permit to be created, for the benefit of any person or entity any
registration rights of any kind (whether similar to the demand, “piggyback” or Form F-3
registration rights described in this Section 2, or otherwise) relating to
any securities of the Company which are senior to, or on a parity with, those
granted to the Holders of Registrable Securities.


 


2.12.                        Rule 144
Reporting.  With a
view to making available to the Holders the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Registrable
Securities to the public without registration or pursuant to a registration on Form F-3,
after such time as a public market exists for the Ordinary Shares, the Company
agrees to:


 


(a)                                  Make and keep
public information available, as those terms are understood and defined in Rule 144
under the Securities Act, at all times after the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;


 


(b)                                 File with the SEC
in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements); and


 


(c)                                  So long as a
Holder owns any Registrable Securities, to furnish to such Holder forthwith
upon request (i) a written statement by the Company as to its 


 


14

















 


compliance with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the effective date of the Company’s initial public
offering), the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), or its qualification as a
registrant whose securities may be resold pursuant to Form F-3  (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company, and (iii) such
other reports and documents of the Company as a Holder may reasonably request
in availing itself of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to Form F-3.


 


2.13.                        Market Stand-Off.  Each party agrees that, so long as it holds
any voting securities of the Company, upon request by the Company or the
underwriters managing the initial public offering of the Company’s securities,
it will not sell or otherwise transfer or dispose of any securities of the
Company (other than those permitted to be included in the registration and
other transfers to affiliates permitted by law) without the prior written
consent of the Company or such underwriters, as the case may be, for a  period of time specified by the
representative of the underwriters not to exceed 180 days from the effective
date of the registration statement covering such initial public offering or the
pricing date of such offering as may be requested by the underwriters. The Company shall
use commercially reasonable efforts to take all steps to shorten such lock-up
period. The foregoing provision of this Section 2.13 shall not apply to the
sale of any securities of the Company to an underwriter pursuant to any
underwriting agreement, and shall only be applicable to the Holders if all
other shareholders of the Company enter into similar agreements, and if the
Company or any underwriter releases any other shareholder from his, her or its
sale restrictions so undertaken, then each Holder shall be notified prior to
such release and shall itself be simultaneously released to the same
proportional extent. The Company shall require all future acquirers of the
Company’s securities to execute prior to a Qualified Public Offering a market
stand-off agreement containing substantially similar provisions as those
contained in this Section 2.13.


 


3.                                       RIGHT OF
PARTICIPATION.


 


3.1.                              General.  The Preferred Shareholder and any holder of Preferred Shares  to which rights
under this Section 3 have been duly assigned in accordance with Section 9 (hereinafter
referred to as a “Participation Rights
Holder”) shall have the right of first refusal to purchase such
Participation Rights Holder’s Pro Rata Share (as defined below), of all (or any
part) of any New Securities (as defined in Section 3.3) that the Company may from time to
time issue after the date of this Agreement (the “Right of
Participation”).


 


3.2.                              Pro Rata Share.  A Participation Rights Holder’s “Pro Rata Share” for purposes of the Right of Participation
is the ratio of (a) the number of Ordinary Shares (calculated on a
fully-diluted and as-converted basis) held by such Participation Rights Holder,
to (b) the total number of Ordinary Shares  held by all  of the Participation Rights Holders (calculated on a
fully-diluted and as-converted basis) immediately prior to the issuance of New
Securities giving rise to the Right of Participation.


 


3.3.                              New Securities.  “New Securities”
shall mean any Preferred Shares, Ordinary Shares or other voting shares of the Company  and rights,
options or warrants to purchase such  Preferred Shares,
Ordinary Shares and securities of any type whatsoever that are, or may become,
convertible or exchangeable into such  Preferred Shares,
Ordinary Shares or other voting shares, provided, however, that
the term “New Securities” shall not include:


 


15

















 


(a)                                  the Ordinary Shares (and/or
options or warrants therefor) issued to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to the Company’s
employee share option plans approved by the Board and holders of Preferred Shares in
accordance with Section 8  hereof;


 


(b)                                 any shares of Preferred Shares issued
under the Preferred Share Purchase Agreement, as such agreement may be
amended and any Ordinary Shares issued pursuant to the conversion thereof;


 


(c)                                  any securities
issued in connection with any share split, share dividend or other similar
event in which all Participation Rights Holders are entitled to participate on
a pro rata basis;


 


(d)                                 any securities
issued upon the exercise, conversion or exchange of any outstanding security if
such outstanding security constituted a New Security;


 


(e)                                  any securities
issued pursuant to a Qualified Public Offering; or


 


(f)                                    any securities
issued pursuant to the acquisition of another corporation or entity by the
Company by consolidation, merger, purchase of assets, or other reorganization
in which the Company acquires, in a single transaction or series of related
transactions, all or substantially all assets of such other corporation or
entity, or fifty percent (50%) or more of the equity ownership or voting power
of such other corporation or entity.


 


3.4.                              Procedures.


 


(a)                                  First
Participation Notice.  In the
event that the Company proposes to undertake an issuance of New Securities (in
a single transaction or a series of related transactions), it shall give to
each Participation Rights Holder written notice of its intention to issue New
Securities (the “First Participation Notice”),
describing the amount and type of New Securities, the price and the general
terms upon which the Company proposes to issue such New Securities.  Subject to Section 3.6, each Participation
Rights Holder shall have twenty (20) business days from the date of receipt of
any such First Participation Notice to agree in writing to purchase such
Participation Rights Holder’s Pro Rata Share of such New Securities for the
price and upon the terms and conditions specified in the First Participation
Notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased (not to exceed such Participation Rights
Holder’s Pro Rata Share).  If any
Participation Rights Holder fails to so agree in writing within such twenty (20)
business day period to purchase such Participation Rights Holder’s full Pro
Rata Share of an offering of New Securities, then such Participation Rights
Holder shall forfeit the right hereunder to purchase that part of its Pro Rata
Share of such New Securities that it did not agree to purchase.


 


(b)                                 Second
Participation Notice; Oversubscription.  If any Participating Rights Holder fails or
declines to exercise its Right of Participation in accordance with subsection (a) above,
the Company shall
promptly give notice (the “Second Participation
Notice”) to other Participating Rights Holders who exercised their
Right of Participation (the “Right Participants”)
in accordance with subsection (a) above. 
Subject to Section 3.6,
each Right Participant, other than a Participating Rights Holder who fails or 


 


16

















 


declines to exercise its Right of Participation in accordance with
subsection (a) above, shall have five (5) business
days from the date of the Second Participation Notice (the “Second Participation Period”) to notify the Company of its
desire to purchase more than its Pro Rata Share of the New Securities, stating
the number of the additional New Securities it proposes to buy (the “Additional Number”). 
Such notice may be made by telephone if confirmed in writing within in
two (2) business days.  If, as a
result thereof, such oversubscription exceeds the total number of the remaining
New Securities available for purchase, each oversubscribing Right Participant
will be cut back by  the Company with
respect to its oversubscription to that number of remaining New Securities
equal to the lesser of (x) the Additional Number and (y) the product
obtained by multiplying (i) the number of the remaining New Securities
available for subscription by (ii) a fraction, the numerator of which is
the number of Ordinary Shares (calculated on a fully-diluted and as-converted
basis) held by such oversubscribing Right Participant and the denominator of
which is the total number of Ordinary Shares (calculated on a fully-diluted and
as-converted basis) held by all the oversubscribing Right Participants.  Each Right Participant shall be obligated to
buy such number of New Securities as determined by the Company pursuant to this
Section 3.4 and  the Company shall
so notify the Right Participants within fifteen (15) business days following
the date of the Second Participation Notice.


 


3.5.                              Failure to
Exercise.  Upon
the expiration of the Second Participation Period, or in the event no
Participation Rights Holder exercises the Right of Participation within twenty (20) days following the
issuance of the First Participation Notice, the Company shall have ninety (90)
days thereafter to sell the New Securities described in the First Participation
Notice (with respect to which the Right of Participation hereunder were not
exercised) at the same or higher price and upon non-price terms not materially
more favorable to the purchasers thereof than specified in the First Participation
Notice.  In the event that the Company has not issued and
sold such New Securities within such ninety (90) day period, then the Company
shall not thereafter issue or sell any New Securities without again first
offering such New Securities to the Participation Rights Holders pursuant to
this Section 3.


 


3.6.                              Notwithstanding
anything to the contrary, the number of the New Securities subject to the Right of Participation
under this Section 3 shall not exceed forty-nine percent (49%) of the
total number of the New Securities in each issuance.


 


3.7.                              Termination.  The Right of Participation for each
Participation Rights Holder shall terminate upon a Qualified Public Offering.


 


4.                                       TRANSFER RESTRICTIONS.


 


4.1.                              Certain
Definitions.  For
purposes of this Section 4, “Ordinary Shares”
means (i) the Company’s outstanding Ordinary Shares, (ii) the
Ordinary Shares issued or issuable upon conversion of the Company’s outstanding
Preferred Shares, (iii) the
Ordinary Shares issuable upon exercise of outstanding options or warrants and (iv) the
Ordinary Shares issuable upon conversion of any outstanding convertible
securities; “Preferred
Shareholder” means each of the Preferred Shareholders and their permitted
assignees to whom their rights under this Section 4 have been duly
assigned in accordance with this Agreement; and “Ordinary
Shareholder” means any holder of Ordinary Shares of the
Company.


 


17

















 


4.2.                              Preferred
Shareholders’ Right of First Refusal.  Subject to Section 4.5 of this
Agreement, if any of the BVI Companies or any shareholder holding Ordinary
Shares or Preferred Shares of the Company (the “Selling
Shareholder”) proposes to sell or transfer any Ordinary
Shares or Preferred Shares held by it, then the Selling Shareholder
shall promptly give written notice (the “Transfer Notice”)
to the Company and each of the Preferred Shareholders (the “Non-Selling Shareholders”) prior to such sale or
transfer.  The Transfer Notice shall
describe in reasonable detail the proposed sale or transfer including, without
limitation, the number of Ordinary Shares  or Preferred
Shares to be sold or transferred (the “Offered Shares”),
the nature of such sale or transfer, the consideration to be paid, and the name
and address of each prospective purchaser or transferee.  The Non-Selling Shareholders shall have an
option for a period of thirty (30) days from receipt of the Transfer Notice to
elect to purchase the Offered Shares at the same price and subject to the same
terms and conditions as described in the Transfer Notice.  The Non-Selling Shareholders may exercise such
purchase option and purchase all or any portion of the Offered Shares by
notifying the Selling Shareholder in writing before expiration of such thirty (30) days period as to the
number of shares that it wishes to purchase. 
Each Non-Selling Shareholder  will have the
right, exercisable upon written notice (the “Non-Selling Shareholder’s First
Refusal Notice”) to the Selling Shareholder, the Company and
each other Non-Selling Shareholder  within thirty (30) days after receipt of the
Transfer Notice (the “Non-Selling Shareholder’s First
Refusal Period”) of its election to exercise its right of
first refusal hereunder.  The Non-Selling
Shareholder’s First Refusal Notice shall set forth the number
of Offered Shares that such Non-Selling Shareholder  wishes to
purchase, which amount shall not exceed the First Refusal Allotment (as defined
below) of such Non-Selling Shareholder.  Such right of first
refusal shall be exercised as follows:


 


(a)                                  First Refusal
Allotment.  Each
Non-Selling Shareholder shall have the right to purchase that number of the Offered Shares (the “First Refusal Allotment”) equivalent to the product obtained
by multiplying  (x) the
aggregate number of the Offered Shares by (y) a
fraction, the numerator of which is the number of Ordinary Shares held by such
Non-Selling Shareholder  at the time of the
transaction and the denominator of which is the total number of Ordinary Shares
owned by all Non-Selling Shareholders  at the time of the transaction
who elect to participate in the right of first refusal purchase.  A Non-Selling Shareholder  shall not have a
right to purchase any of the Offered Shares unless it exercises
its right of first refusal within the Non-Selling Shareholder’s First Refusal
Period to purchase up to all of its First Refusal Allotment of the Offered Shares.  To the extent that any Non-Selling
Shareholder does not exercise its right of first refusal to the full extent of
its First Refusal Allotment, the Selling Shareholder and the exercising Non-Selling
Shareholders shall, at the exercising Non-Selling Shareholders’ sole
discretion, within five (5) days after the end of the First Refusal
Period, make such adjustment to the First Refusal Allotment of each exercising
Non-Selling Shareholder so that any remaining Offered Shares may be allocated
to those Non-Selling Shareholders exercising their rights of first refusal on a
pro rata basis.


 


(b)                                 Purchase Price.  The purchase price for the Offered Shares to be
purchased by the Non-Selling Shareholders  exercising their
right of first refusal will be the price set forth in the Transfer Notice, but
will be payable as set forth below. If the purchase price in the Transfer
Notice includes consideration other than cash, the cash equivalent value of the
non-cash consideration will be as previously determined by the Board in good
faith, which determination will be binding upon the Company, the Selling
Shareholder and the Non-Selling Shareholders, absent fraud or error.  Payment of the purchase price for the Offered Shares purchased
by the Non-Selling Shareholders  shall be 


 


18

















 


made within ten (10) days following the date of the Non-Selling
Shareholder’s First Refusal Expiration Notice (as defined in the Section 4.2(c) below)
by wire transfer or check as directed by the Selling Shareholder.


 


(c)                                  Expiration Notice.  Within fifteen (15) days after the expiration of
the Non-Selling
Shareholder’s First Refusal Period, the Company will give
written notice (the “First Refusal Expiration
Notice”) to each of the Selling Shareholders and the Non-Selling
Shareholders specifying either (i) that all of the Offered Shares were
subscribed by the Non-Selling Shareholders  exercising their
rights of first refusal, or (ii) that the Non-Selling Shareholders  have not
subscribed for all of the Offered Shares in which case the First Refusal
Expiration Notice will specify the Co-Sale Pro Rata Portion (as defined below)
of the remaining Offered Shares for the purpose of the co-sale right of the holders of the
Preferred Shares described in the Section 4.3 below.


 


(d)                                 Rights of a
Selling Shareholder.  If any
Non-Selling Shareholder exercises its right of first refusal to purchase the
Offered Shares, then, upon the date the notice of such exercise is given by the
Non-Selling Shareholder, the Selling Shareholder will have no further rights as
a holder of such Offered Shares except the right to receive payment for such
Offered Shares from such Non-Selling Shareholder  in accordance with
the terms of this Agreement, and the Selling Shareholder will forthwith cause
all certificate(s) evidencing such Offered Shares to be surrendered to the
Company for transfer to such Non-Selling Shareholder, and shall also deliver a duly executed instrument of
transfer in respect of such Offered Shares to the Company for effecting the
transfer of such Offered Shares to the relevant Non-Selling Shareholder.


 


4.3.                              Preferred
Shareholders’
Co-Sale Right.  In the event that the Non-Selling Shareholders
have not exercised their right of first refusal with respect to any or all of
the Offered Shares
and the Selling Shareholder is the Ordinary Shareholder, then the remaining
Offered Shares not subscribed for under the right of first refusal pursuant to Section 4.2
above shall be subject to co-sale rights under this Section 4.3 and each Preferred
Shareholder shall have the
right, exercisable upon written notice to the Selling Shareholder, the Company
and each other Preferred Shareholder (the “Co-Sale Notice”)
within ten (10) days after receipt of First Refusal Expiration Notice (the
“Co-Sale Right Period”), to participate
in such sale of the Offered Shares on the same terms and conditions as set
forth in the Transfer Notice.  The
Co-Sale Notice shall set forth the number of Ordinary Shares (on both an absolute and as-converted to
Ordinary Shares basis) that such participating Preferred Shareholder wishes to include in such sale or transfer,
which amount shall not exceed the Co-Sale Pro Rata Portion (as defined below)
of such Preferred Shareholder.  To the extent one or more of
the Preferred Shareholders exercise such right of participation in accordance with the terms and
conditions set forth below, the number of Ordinary Shares that such Selling Shareholder
may sell in the transaction shall be correspondingly reduced.  The co-sale right of each Preferred Shareholder shall be subject to the following terms and
conditions:


 


(a)                                  Co-Sale Pro Rata Portion.  Each Preferred
Shareholder may sell all or any
part of that number of Ordinary Shares held by it that is equal to the product
obtained by multiplying (x) the aggregate number of the Offered Shares
subject to the co-sale right hereunder by (y) a fraction, the numerator of
which is the number of Ordinary Shares (on an as-converted basis) owned by the Preferred
Shareholder at the time of the
sale or transfer and the denominator of which is the combined number of
Ordinary Shares (on an 


 


19

















 


as-converted
basis) at the time owned by all Preferred Shareholders  who elect to exercise their
co-sale rights (if any Preferred Shareholder does not elect to exercise
the co-sale right to the full extent then its Ordinary Shares (on
as-converted basis) for calculation in the denominator shall be proportionately
reduced) and the Selling
Shareholder (“Co-Sale Pro Rata Portion”).


 


(b)                                 Transferred Shares.  Each participating
Preferred Shareholder shall effect its participation in the sale by promptly delivering to
the Selling Shareholder for transfer to the prospective purchaser one or more
certificates, properly endorsed for transfer, which represent:


 


(i)                                     the number of Ordinary Shares which such Preferred
Shareholder elects  to sell;


 


(ii)                                  that number of Preferred Shares which is at such time convertible into
the number of Ordinary Shares that such Preferred Shareholder elects to sell; provided in such case
that, if the prospective purchaser objects to the delivery of Preferred Shares in lieu of Ordinary Shares, such Preferred Shareholder shall convert such Preferred Shares into Ordinary Shares and deliver
Ordinary Shares as provided in Subsection 4.3(b)(i) above. The Company
agrees to make any such conversion concurrent with the actual transfer of such
shares to the purchaser; or


 


(iii)                               or a combination of the above; together with an
instruments of transfer duly executed by such participating Preferred
Shareholder.


 


(c)                                  Payment to Preferred Shareholders.  The
share certificate or certificates, and an instrument of transfer duly executed
by the participating Preferred Shareholder, that the participating Preferred Shareholder delivers to the Selling Shareholder pursuant to
Section 4.3(b) shall be transferred to the prospective purchaser in
consummation of the sale of the Offered Shares pursuant to the terms and
conditions specified in the Transfer Notice, and the Selling Shareholder shall
concurrently therewith remit to such  Preferred
Shareholder that portion of the
sale proceeds to which such  Preferred
Shareholder is entitled by reason
of its participation in such sale.  To
the extent that any prospective purchaser or purchasers prohibits such
assignment or otherwise refuses to purchase any shares or other securities from
a Preferred Shareholder exercising its co-sale right hereunder, the Selling Shareholder shall not
sell to such prospective purchaser or purchasers any Ordinary Shares unless and
until, simultaneously with such sale, the Selling Shareholder shall purchase
such shares or other securities from such Preferred Shareholder.


 


(d)                                 Right to Transfer.  To the extent
the Preferred Shareholders do not elect to purchase, or to participate in the sale of, any or all
of the Offered Shares subject to the Transfer Notice, the Selling Shareholder
may, not later than ninety (90) days following delivery to the Company and each
of the Preferred Shareholders of the Transfer Notice, conclude a transfer of the
Offered Shares covered by the Transfer Notice and not elected to be purchased
by the Company or the Non-Selling Shareholders, which in each case shall be on
substantially the same terms and conditions as those described in the Transfer
Notice.  Any proposed transfer on terms
and conditions which are materially different from those described in the Transfer Notice, as well
as any subsequent proposed transfer of any Ordinary Shares by the Selling
Shareholder, shall again be subject to the right of first refusal of the
Non-Selling Shareholders and the co-sale right of the Preferred
Shareholders
and shall


 


20














 


require
compliance by the Selling Shareholder with the procedures described in Sections
4.2, and 4.3 of this Agreement.


 


4.4.                            Notwithstanding
anything to the contrary, Section 4.2 and 4.3 shall not apply to any
proposed transfer of Preferred
Shares by the Preferred
Shareholder to one or more of its affiliates at such price, terms and conditions as
may be agreed between the Preferred Shareholder and the transferee, without prejudice to the
rights of the Preferred
Shareholder to purchase any Offered Shares to be
transferred by any other shareholders pursuant to Section 4.2 and 4.3.


 


4.5.                            The shareholders specifically agree
that the restrictions with regard to the transfer of the Ordinary Shareholders’
shares in the Company as described under this Section 4 shall apply
equally to transfer of the shares in the BVI Companies, as if each of the
provisions under this Section 4 has been repeated under this Section 4.5
with regard to transfer of the shares in the BVI Companies except that the
reference to the shares in the Company has been revised to refer to the shares
in the BVI Companies.


 


4.6.                            Restriction on
Indirect Transfers. 
Notwithstanding anything to the contrary contained herein, without the
prior written approval of holders of more than fifty percent (50%) of the Preferred Shares:


 


(a)                                 (i) The Founders shall not, directly
or indirectly, sell, assign, transfer, pledge, hypothecate, mortgage, encumber
or otherwise dispose through one or a series of transactions any equity
interest held, directly or indirectly, by him or her in the BVI Companies to
any person; and (ii) the BVI Companies shall not,
and the Founders shall not cause the BVI Companies to,
issue to any person any equity securities of the BVI Companies or
any options or warrants for, or any other securities exchangeable for or
convertible into, such equity securities of the BVI Companies.


 


(b)                                 The Founders and
the BVI Companies shall not, and shall not cause or permit any other person to,
directly or indirectly, sell, assign, transfer, pledge, hypothecate, mortgage,
encumber or otherwise dispose through one or a series of transactions any
equity interest held or controlled by him or the BVI Companies respectively in
the Company to any person.  Any transfer in
violation of this Section 4.6 shall be void and the Company hereby agrees
it will not effect such a transfer nor will it treat any alleged transferee as
the holder of such equity interest without the prior written
approval of holders of more than fifty percent (50%) of the Preferred Shares.


 


(c)                                  Each Group Company shall not, and
the Founders shall not cause any Group Company to, issue to any
person any equity securities of such Group Company, or any options
or warrants for, or any other securities exchangeable for or convertible into,
such equity securities of such Group Company.


 


4.7.                            Guarantees by the
Founders.  The Founders guarantee and warrant the performance and
obligations of the BVI Companies under this
Agreement.


 


4.8.                            Legend.


 


(a)                                 Each certificate representing the Ordinary
Shares shall be endorsed with the following legend:


 


21

















 


“THE SALE, PLEDGE,
HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THE ARTICLES OF
ASSOCIATION AND
A SHAREHOLDERS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE COMPANY.”


 


(b)                                 Each party agrees that the Company may instruct
its transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in Section 4.8(a) above
to enforce the provisions of this Agreement and the Company agrees to promptly
do so.  The legend shall be removed upon
termination of the provisions of this Section 4.


 


4.9.                            Term.  The
provisions under this Section 4 shall terminate upon the closing of a
Qualified Public Offering.


 


5.                                      REDEMPTION.


 


5.1.                            Redemption by the
Company.  Notwithstanding anything to
the contrary herein, if (i) the Company fails to
consummate a Qualified Public Offering on or before December 31, 2011, or (ii) the Company
satisfies all the conditions and prerequisites for a Qualified Public Offering
according to the opinions provided by an independent investment bank designated
by the Series A1 Investor, and the Series A1 Director has approved a
proposal to initiate such a Qualified Public Offering on a meeting of board of directors, however,
such proposal is rejected by other Directors, or (iii) there is a
material breach by the Company or any of  the Group Companies  or the Founders of any of their respective warranties and
undertakings set forth in the Preferred Share Purchase Agreement, then subject to
the Companies Law (2007
Revision) of the Cayman Islands and, if so requested by
the holders of at least fifty percent (50%) of the Preferred Shares, the Company
shall redeem all, but not less than all, of the outstanding Preferred Shares out of
funds legally available therefore (the “Redemption”).  The price at which each Preferred Share shall be
redeemed shall be equal to


 


IP x (115%)N, where


 


IP = Original Contribution (as defined in Section 7.1) for each Preferred
Share; and


 


N = a fraction the numerator of which is the number of calendar days
between date the holders of the Preferred Shares acquired
their Preferred Shares and the relevant Redemption Date (as defined below) on which such Preferred Share is redeemed and the denominator of which is
365,


 


plus all declared but unpaid dividends thereon up to the date of
redemption, proportionally adjusted for share subdivisions, share dividends,
reorganizations, reclassifications, consolidations or mergers (the “Redemption Price”).


 


If the Company do not have sufficient cash or funds legally available to redeem
all of the Preferred Shares required to be redeemed in accordance with any applicable law, the remainder will be paid in the form of a one-year
promissory note issued by the Company


 


22

















 


to such holders of
Preferred Shares, which shall bear a compound interest at the rate of 15% per
annum with a security provided by the Founders in a form acceptable to the
holders of the Preferred Shares.


 


5.2.                            Notice.  A 30-day prior notice of
redemption by such holders of at least fifty percent (50%) of the Preferred Shares shall be given by
hand or by mail to the registered office of the Company (the “Redemption Notice”).  The
Redemption Notice shall specify the date of Redemption (the “Redemption Date”) which shall be the 30th day commencing from the date of the Redemption
Notice unless otherwise agreed.


 


5.3.                            Surrender of
Certificates.  Before any holder
of Preferred Shares shall be entitled for redemption under
the provisions of this Article 5, such holder shall surrender his or her
certificate or certificates representing such Preferred Shares to be
redeemed to the Company,
and the Redemption Price shall be payable on the Redemption Date to the order of the person
whose name appears on such certificate or certificates as the owner of such
shares and each such certificate shall be cancelled on the Redemption Date. In the event less than
all the shares represented by any such certificate are redeemed, a new
certificate shall be promptly issued representing the unredeemed shares.  Upon cancellation
of the certificate representing such Preferred Shares to be
redeemed, all dividends on such Preferred Shares designated
for redemption on the relevant Redemption Date shall cease to accrue and all
rights of the holders thereof, except the right to receive the Redemption Price
thereof (including all accrued and unpaid dividend up to the relevant redemption date), without interest,
shall cease and terminate and such Preferred Shares shall be cancelled by the Company.


 


5.4.                            Restriction on
Distribution.  If the Company
fail (for whatever reason) to redeem any Preferred Shares on its due
date for redemption then, as from such date until the date on which the same
are redeemed the Company shall not declare or pay any dividend nor otherwise
make any distribution of or otherwise decrease its profits available for
distribution.


 


5.5.                            To the extent
permitted by law, the Company shall procure that the profits of each subsidiary
and affiliate of the Company for the time being legally available for distribution
shall be paid to it by way of dividend or otherwise if and to the extent that,
but for such payment, the Company would not itself otherwise have sufficient
profits available for distribution to make any redemption of Preferred Shares required
to be made pursuant to this Article 5.


 


5.6.                            The provisions under this Section 5 shall
terminate upon the closing of a Qualified Public Offering.


 


6.                                      DRAG-ALONG RIGHT.


 


If at any time after December 31, 2011  and before a Qualified Public Offering, there shall be an
offer from a third party to effect a Trade Sale (as defined below), and if so
requested by written notice from the holder(s) of more than fifty percent
(50%) of the outstanding Preferred Shares, all the shareholders of the Company
and their respective assigns shall consent to, enter into any agreement in
connection with, and participate in, and use their best efforts to cause all
other shareholders of the Company, if any, to consent to, enter into any
agreement in connection with, any participate in, such Trade Sale; provided
that the holder(s) 


 


23

















 


of more than fifty percent (50%) of the Preferred Shares have approved
the terms and conditions of such Trade Sale and have committed to participate
in such Trade Sale.  For purpose of this
Agreement, “Trade Sale” means either (i) a merger, consolidation, share
purchase, or other business combination of the Company with or into any other
business entity in which the shareholders of the Company immediately after such
merger, consolidation, share purchase or business combination hold shares
representing less than a majority of the voting power of the outstanding share
capital of the surviving business entity, or (ii) the sale, lease,
transfer or other disposition of all or substantially all of the Company’s assets.


 


7.                                      LIQUIDATION.


 


7.1.                            Liquidation Preference.  Subject to applicable laws, in the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, the holders of the Preferred
Shares shall be entitled to receive, prior to any distribution to the holders
of the Ordinary Shares or any other class or series of shares then outstanding,
an amount equal to Preferred Shareholders’ respective direct or indirect
original capital contribution to the Company as adjusted for share dividends,
splits, combinations, recapitalizations or similar events and are otherwise
provided herein,  as set forth under the caption “Original Contribution”  in Exhibit A
hereto (the “Original Contribution”),
plus all declared but unpaid dividends thereon (including the Original
Contribution, the “Preferred Share Preference
Amount”).  Any remaining funds
or assets of the Company legally available for distribution to shareholders
shall be distributed on a pro rata, pari passu basis among the holders of the Preferred
Shares (on an as-converted basis), together with the holders of the Ordinary
Shares.  If the Company has insufficient
assets to permit payment of the Preferred Share Preference Amount in full to
all holders of Preferred Shares, then the assets of the Company shall be
distributed ratably to the holders of the Preferred Shares in proportion to the
full Preferred Share Preference Amount each such holder of Preferred Shares
would otherwise be entitled to receive under this Section 7.1.


 


7.2.                            Any sale of
shares, merger, consolidation or other similar transaction involving the
Company in which its shareholders do not retain a majority of the voting power
in the surviving entity, or a sale of all or substantially all the Company’s
assets, shall in each case be deemed a liquidation, dissolution or winding up
of the Company, such that the provision of Section 7 shall apply as if all
consideration received by the Company and its shareholders in connection with
such event were being distributed in a liquidation of the Company. If the
requirements of this Section 7 are not complied with, the Company shall
forthwith either (i) cause such closing to be postponed until such time as
the requirements of this Section 7 have been complied with,
or (ii) cancel such transaction.


 


7.3.                            Notwithstanding
any other provision of this Section 7, the holders of the Preferred Shares shall irrevocably
waive the right of liquidation preference set forth in Section 7.1, and thereafter, any funds or assets of the
Company legally available for distribution to shareholders shall be distributed
on a pro rata, pari passu basis among the holders of the Preferred Shares (on
an as-converted basis), together with the holders of the Ordinary Shares, provided
that the holders of the Preferred Shares receive the distribution no less than  two hundred percent (200%) of Preferred Share Preference Amount pursuant
to this Section 7.3.


 


24

















 


7.4.                            Notwithstanding
any other provision of this Section 7, the Company may at any
time, out of funds legally available therefor and subject to compliance with the provisions of the
Companies Law (2007 Revision) of the Cayman Islands, repurchase Ordinary
Shares of the Company issued to or held by employees, officers or consultants
of the Company or its subsidiaries upon termination of their employment or
services, pursuant to any bona fide agreement providing for such right of
repurchase, whether or not dividends on the Preferred Shares shall have
been declared.


 


7.5.                            In the event the
Company proposes to distribute assets other than cash in connection with any
liquidation, dissolution or winding up of the Company, the value of the assets
to be distributed to the holders of Preferred Shares and
Ordinary Shares shall be that as determined in good faith by the liquidator or,
in the case of any proposed distribution in connection with a transaction which
is a deemed liquidation hereunder, by the Board, which decision shall include
the affirmative vote from the  Series A1 Director.  Any securities not subject to investment
letter or similar restrictions on free marketability shall be valued as
follows:


 


(i)                         If traded on a
securities exchange, the value shall be deemed to be the average of the
security’s closing prices on such exchange over the thirty (30) day ending one (1) day
prior to the distribution;


 


(ii)                      If actively traded
over-the-counter, the value shall be deemed to be the average of the closing
bid prices over the thirty (30) day period ending three (3) days prior to
the distribution; and


 


(iii)                   If there is no active
public market, the value shall be the fair market value thereof as determined
in good faith by the liquidator or, in the case of any proposed distribution in
connection with a transaction which is a deemed liquidation hereunder, by the
Board.


 


The method of valuation of securities subject to restrictions on free
marketability shall be adjusted to make an appropriate discount from the market
value determined as above in clauses (i), (ii) or (iii) to reflect
the fair market value thereof as determined in good faith by the liquidator or,
in the case of any proposed distribution in connection with a transaction which
is a deemed liquidation hereunder, by the Board. The holders of  at least fifty percent (50%) of the Preferred Shares, shall have the
right to challenge any determination by the liquidator or the Board, as the
case may be, of fair market value pursuant to this Section 7, in which case
the determination of fair market value shall be made by an independent
appraiser selected jointly by the liquidator or the Board, as the case may be,
and the challenging parties, the cost of such appraisal to be borne equally by
the Company and the challenging party.


 


8.                                      ASSIGNMENT AND AMENDMENT.


 


8.1.                            Assignment and Amendment. 
Notwithstanding anything herein to the contrary:


 


(a)                                 Information Rights; Registration Rights.  The
Information and Inspection Rights under Section 1.1 may be assigned to any
holder of Preferred Shares
in connection with a transfer of shares of the Company by such Preferred
Shareholder; and the registration rights of the Holders  under Section 2 may be assigned to any
Holder or to any 


 


25

















 


person
acquiring Registrable Securities; provided, however, that in
either case no party may be assigned any of the foregoing rights unless the
Company is given written notice by the assigning party stating the name and
address of the assignee and identifying the securities of the Company as to
which the rights in question are being assigned; provided  further,
that any such assignee shall receive such assigned rights subject to all the
terms and conditions of this Agreement, including without limitation the
provisions of this Section 9.


 


(b)                                 Right of Participation; Right of First Refusal;
Co-Sale Right; Drag-Along Right.  The rights of
the Preferred Shareholder  under Sections 3, 4, and 6 are fully assignable
in connection with a transfer of shares of the Company by such Preferred
Shareholder; provided, however,
that no party may be assigned any of the foregoing rights unless the Company is
given written notice by the Preferred Shareholder  stating the name and address of the assignee and
identifying the securities of the Company as to which the rights in question
are being assigned; and provided  further, that any such assignee
shall receive such assigned rights subject to all the terms and conditions of
this Agreement.


 


8.2.                            Amendment of Rights.  Any
provision in this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either retroactively
or prospectively), only by the written consent of (i) as to the Company,
only by the Company; (ii) as to the Series A1 Investor, only by the Series A1
Investor; as to the Series A2 Investors, by persons or entities holding more than
fifty percent (50%) of the Preferred Shares held by the holders of the Preferred
Shares and their permitted assigns; provided, however, that any holder of Preferred Shares may waive any of its rights hereunder
without obtaining the consent of any other holders of Preferred Shares or their assigns; and (iii) as to
the holders of Ordinary Shares, by persons or entities holding a
majority of the Ordinary
Shares and their assigns; provided, however, that any holder of Ordinary Shares may waive
any of its rights hereunder without obtaining the consent of any other holders
of Ordinary Shares or their assigns.  Any
amendment or waiver effected in accordance with this Section 9.2 shall be binding upon the Company, the Investors,
the holders of Ordinary Shares and their respective assigns.


 


9.                                      CONFIDENTIALITY
AND NON-DISCLOSURE.


 


9.1.                            Disclosure of
Terms.  The terms and conditions of
this Agreement and the Preferred Share Purchase Agreement, and all
exhibits and schedules attached to such agreements (collectively, the “Financing Terms”), including their existence, shall be
considered confidential information and shall not be disclosed by any party
hereto to any third party except in accordance with the provisions set forth
below; provided that such confidential information shall not include any
information that is in the public domain other than caused by the breach of the
confidentiality obligations hereunder.


 


9.2.                            Press Releases, Etc.  Any press release issued
by the Company  shall not disclose any
of the Financing Terms and the final form of such press release  shall be approved
in advance in writing by the Investors.  No other announcement regarding any of
the Financing Terms in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise to the general public may be made without the Investors’ prior written
consent.


 


9.3.                            Permitted
Disclosures. 
Notwithstanding the foregoing, any party may disclose any of the
Financing Terms to its current or bona fide prospective investor, 


 


26

















 


employees, investment bankers, lenders, partners, accountants and
attorneys, in each case only where such persons or entities have the need to
know such information and are subject to appropriate nondisclosure
obligations.  Without limiting the
generality of the foregoing, the Investors shall be entitled to disclose the Financing
Terms for the purposes of fund reporting or inter-fund reporting or to their
fund manager, other funds managed by their fund manager and their respective
auditors, counsel, directors, officers, employees, shareholders or investor.


 


9.4.                            Legally Compelled
Disclosure.  In the
event that any party is requested or becomes legally compelled (including
without limitation, pursuant to securities laws and regulations) to disclose
the existence of this Agreement and the Preferred Share Purchase Agreement, any of
the exhibits and schedules attached to such agreements, or any of the Financing
Terms hereof in contravention of the provisions of this Section 10, such party (the “Disclosing party”) shall provide the other parties (the “Non-Disclosing Parties”) with prompt written notice of that
fact and use all reasonable efforts to seek (with the cooperation and
reasonable efforts of the other parties) a protective order, confidential
treatment or other appropriate remedy. 
In such event, the Disclosing party shall furnish only that portion of
the information which is legally required to be disclosed and shall exercise
reasonable efforts to keep confidential such information to the extent
reasonably requested by any Non-Disclosing party.


 


9.5.                            Other Information.  The provisions of this Section 10 shall be in addition to,
and not in substitution for, the provisions of any separate nondisclosure
agreement executed by any of the parties with respect to the transactions
contemplated hereby.


 


9.6.                            Notices.  All notices required under this section shall
be made pursuant to Section 12.1 of this Agreement.


 


10.                               PROTECTIVE
PROVISIONS.


 


In addition to such other limitations as may be provided in the Restated Memorandum
and Articles, the following acts shall require (i) the prior written approval
of the holder(s) of more than fifty percent (50%) of the Preferred Shares, in the event that any such
matter set forth below is by applicable laws required to be determined by
members of the Company;
or (ii)the prior written approval of one or more Series A Directors appointed by the holder(s) of
more than fifty percent (50%) of the Preferred Shares, in the event that
any such matter set forth below is by applicable laws required to be determined
by the board of the Company:


 


(a)                                 adoption or change to the
Memorandum and Articles of Association or other charter documents of any Group
Company;


 


(b)                                 establishment of any board
committee and the delegation of any authority to the Board of Directors of any
Group Company;


 


(c)                                  any change in the
number of directors of any Group Company;


 


(d)                                 issuance of any new
securities or any instruments that are convertible into securities, excluding (i) any
issuance of the Preferred Shares under the Preferred Share
Purchase Agreement, (ii) any issuance of Ordinary Shares upon
conversion 


 


27

















 


of the Preferred Shares, and (iii) any
issuance of Ordinary Shares (or options or warrants therefor) under employee
equity incentive plans approved by the Board;


 


(e)                                  any amendment or
change of the rights, preferences, privileges or powers of, or the restrictions
provided for the benefit of, the Preferred Shares;


 


(f)                                   any action by the
Company to authorize, create or issue shares of any class or series of the
Company having preferences superior to or on a parity with the Preferred Shares;


 


(g)                                  any action by the
Company to reclassify any outstanding shares into shares having preferences or
priority as to dividends or assets senior to or on a parity with the preference
of the Preferred Shares;


 


(h)                                 any repurchase or
redemption of any equity securities of the Company other than pursuant to the
redemption right of the holders of Preferred Shares as
provided in the Restated Memorandum and Articles or
contractual rights to repurchase Ordinary Shares from the employees, directors
or consultants of the Company upon termination of their employment or services;


 


(i)                                     decisions in
connection with the initial
public offering of the Company, including but not limited
to the stock exchange, timing, and valuation of initial public offering of the Company;


 


(j)                                appointment, removal and
remuneration of senior management (including Chairman, CEO, COO, CFO)  of any Group
Company;


 


(k)                                 the declaration and/or
payment of any and all dividends on any securities of any Group Company;


 


(l)                                     the repurchase by any Group
Company  of any outstanding securities and any
other reduction of capital or similar process;


 


(m)                             any merger, consolidation,
scheme of arrangement, recapitalization or sale of all or substantially all of
the assets of any Group Company;


 


(n)                                 any expenditure, any purchase and
disposal of assets and businesses, or any purchase and disposal of assets and
businesses worth, in the aggregate, more than RMB five million (RMB5,000,000), per transaction or
in the aggregate in
a fiscal year, by any Group Company;


 


(o)                                 any transaction
between the Company or any of its subsidiaries on the one hand, and any Related
Party, on the other hand;


 


(p)                                 employment of any Related Party by any Group
Company;


 


(q)                                 any capital expenditures or any capital
commitments  (i) that are in excess of the amount of  ten thousand U.S. dollars (US$10,000) per transaction or fifty thousand U.S. dollars (US$50,000) in the aggregate in a fiscal year;  and (ii) that are outside annual budget approved by the Board;


 


28

















 


(r)                                    any non-ordinary
course of transactions  (i) that are in excess of the amount of  RMB five million (RMB5,000,000) per transaction
or in the aggregate
in a period of 12 month;  and (ii) that are outside annual budget approved by the Board


 


(s)                                   incurrence of debt or assumption of
any financial obligation or issue, assumption, provision of guarantee or
creation of any liability for borrowed money exceeding the amount of  RMB five million (RMB5,000,000) per transaction
or in the aggregate;


 


(t)                                    adoption or change of the
treasury policy, any material accounting policy or the fiscal year of any Group Company;


 


(u)                                 establishment of any
subsidiary or affiliates and the signing of any shareholders agreement or joint venture agreement  by any Group Company;


 


(v)                                 appointment or change of the
auditors;


 


(w)                               any purchase by
any Group Company of equity securities of, or any securities convertible into
equity securities of, any other company exceeding the amount of RMB five
million (RMB5,000,000);


 


(x)                                 the adoption of,
or amendment to, any employee equity incentive plan of any Group
Company;


 


(y)                                 any change in the
business plan or scope of  principal business
of any Group Company; and


 


(z)                                  approval of the
business plan or the annual budget of the Group Companies.


 


For the purpose of this Section 10.1, “Related Party” means (i) any
shareholder of the Company or any subsidiary, (ii) any director of the
Company or any subsidiary, (iii) any officer of the Company or any subsidiary,
(iv) any relative (including any spouse, parent, child, grandparent,
grandchild, sibling of such person) of a Five Percent Shareholder, director or
officer of the Company or any subsidiary and (v) any Person in which any
director or officer of the Company or any subsidiary, or in which any Five
Percent Shareholder of the Company or any subsidiary, has any interest, other
than a passive shareholding of less than 1% in a publicly listed company; “Five
Percent Shareholder” means any Person who owns, of record or beneficially, five
percent or more of the outstanding voting power of any other Person entitled to
vote in the election of directors of such other Person; “Person” means any
individual, firm, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, limited
liability company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity.


 


29

















 


11.                               GENERAL PROVISIONS.


 


11.1.                     Notices.  Except as may be otherwise provided herein,
all notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been
duly given (a) when hand delivered to the other party, upon delivery; (b) when
sent by facsimile at the number set forth in Exhibit B hereto, upon receipt of
confirmation of error-free transmission; (c) seven (7) business days
after deposit in the mail as air mail or certified mail, receipt requested,
postage prepaid and addressed to the other party as set forth in Exhibit B; or (d) three (3) business
days after deposit with an international overnight delivery service, postage
prepaid, addressed to the parties as set forth in Exhibit B with next business day
delivery guaranteed, provided that the sending party receives a confirmation of
delivery from the delivery service provider. 
Each person making a communication hereunder by facsimile shall promptly
confirm by telephone to the person to whom such communication was addressed
each communication made by it by facsimile pursuant hereto but the absence of
such confirmation shall not affect the validity of any such communication.  A party may change or supplement the
addresses given above, or designate additional addresses, for purposes of this Section 11.1 by giving the
other party written notice of the new address in the manner set forth above.


 


11.2.                     Entire Agreement.  This Agreement and
the Preferred Share Purchase Agreement, any Ancillary Agreements (as
defined in the Preferred Share Purchase Agreement),
together with all the exhibits hereto and thereto, constitute and contain the
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes any and all prior negotiations, correspondence,
agreements, understandings, duties or obligations between the parties
respecting the subject matter hereof.  .


 


11.3.                     Governing Law.  This Agreement shall be governed by and
construed exclusively in accordance the laws of Hong Kong Special
Administrative Region of the People’s Republic of China, as to matters within
the scope thereof and without regard to its principles of conflicts of laws.


 


11.4.                     Severability.  If any provision of this Agreement is found
to be invalid or unenforceable, then such provision shall be construed, to the
extent feasible, so as to render the provision enforceable and to provide for
the consummation of the transactions contemplated hereby on substantially the
same terms as originally set forth herein, and if no feasible interpretation
would save such provision, it shall be severed from the remainder of this
Agreement, which shall remain in full force and effect unless the severed
provision is essential to the rights or benefits intended by the parties.  In such event, the parties shall use best
efforts to negotiate, in good faith, a substitute, valid and enforceable
provision or agreement which most nearly effects the parties’ intent in
entering into this Agreement.


 


11.5.                     Third Parties.  Nothing in this
Agreement, express or implied, is intended to confer upon any person, other
than the parties hereto and their permitted successors and assigns any rights
or remedies under or by reason of this Agreement.


 


11.6.                     Successors and
Assigns.  Subject to the provisions of Section 8.1, the provisions of this
Agreement shall inure to the benefit of, and shall be binding upon, the
successors and permitted assigns of the parties hereto.


 


30














 


11.7.        Interpretation;
Captions.  This Agreement shall be
construed according to its fair language. 
The rule of construction to the effect that ambiguities are to be
resolved against the drafting party shall not be employed in interpreting this
Agreement. The captions to sections of this Agreement have been inserted for
identification and reference purposes only and shall not be used to construe or
interpret this Agreement.  Unless
otherwise expressly provided herein, all references to Sections and Exhibits
herein are to Sections and Exhibits of this Agreement.


 


11.8.        Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


 


11.9.        Adjustments for
Share Splits, Etc.  Wherever in
this Agreement there is a reference to a specific number of shares of Preferred Shares or
Ordinary Shares of the Company, then, upon the occurrence of any subdivision,
combination or share dividend of the Preferred Shares or
Ordinary Shares, the specific number of shares so referenced in this Agreement
shall automatically be proportionally adjusted to reflect the effect on the
outstanding shares of such class or series of shares by such subdivision,
combination or share dividend.


 


11.10.      Aggregation of
Shares.  All Preferred Shares or
Ordinary Shares held or acquired by affiliated entities
or persons (as defined in Rule 144 under the Securities Act) shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.


 


11.11.      Dispute Resolution.


 


(a)           Negotiation
Between Parties; Mediation.  The
parties agree to negotiate in good faith to resolve any dispute between them
regarding this Agreement. If the negotiations do not resolve the dispute to the
reasonable satisfaction of all parties within thirty (30) days, Section 11.11(b))
shall apply.


 


(b)           Arbitration.  In the event the
parties are unable to settle a dispute between them regarding this Agreement in
accordance with subsection (a) above, such dispute shall be referred to
and finally settled by arbitration at Hong Kong International Arbitration
Centre (the “Centre”) in accordance with the Centre’s then effective rules (the
“Rules”) in effect, which rules are
deemed to be incorporated by reference into this subsection (b). However, if
such rules are in conflict with the provisions of this Section 8.17,
the provisions of this Section 8.17 shall prevail. The arbitration tribunal
shall consist of three arbitrators to be appointed according to the Rules.  The language of the arbitration shall be
English.


 


(c)           Each party to an arbitration
hereunder shall cooperate with the other in making full disclosure of and
providing complete access to all information and documents requested by the
other in connection with such arbitration proceedings, subject only to any
confidentiality obligations binding on such party.


 


31

















 


(d)           The award of the
arbitration tribunal shall be final and binding upon the disputing parties, and
the prevailing party may apply to a court of competent jurisdiction for
enforcement of such award.


 


(e)           Either party shall be
entitled to seek preliminary injunctive relief, if possible, from any court of
competent jurisdiction pending the constitution of the arbitral tribunal.


 


11.12.      Further Actions.  Each shareholder of the Company agrees that
it shall use its best effort to enhance and increase the value and principal
business of the Company.


 


11.13.      Effective Date.  This Agreement should only take effect and
become binding on and enforceable against the parties hereto subject to and
upon the Closing of the
Preferred Share Purchase Agreement.


 


— REMAINDER OF THIS PAGE
LEFT INTENTIONALLY BLANK —


 


32

















 


IN WITNESS WHEREOF, the parties have caused their respective duly
authorized representatives to execute this Agreement as of the date and year
first above written.


 


 


	
  THE GROUP COMPANIES

  
	
   

  	
   

  
	
   

  	
  CHINA XUEDA EDUCATION LTD

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Li Rubin

  
	
   

  	
  Name: Li Rubin()

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CHINA XUEDA CORPORATION LIMITED

  
	
   

  	
  ()

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Li Rubin 

  
	
   

  	
  Name: Li Rubin()

  
	
   

  	
  Title: Director

  



 


SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT


 

















 


THE GROUP COMPANIES


 


 


	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ HSU WILLIAM SHANG WI

  
	
   

  	
  Name:  (HSU
  WILLIAM SHANG WI)

  
	
   

  	
  Title: Legal Representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Li Rubin

  
	
   

  	
  Name: Li Rubin()

  
	
   

  	
  Title: Legal Representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Li Rubin

  
	
   

  	
  Name: Li Rubin()

  
	
   

  	
  Title: Legal Representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Li Rubin

  
	
   

  	
  Name: Li Rubin()

  
	
   

  	
  Title: Legal Representative

  



 


SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT


 

















 


THE GROUP COMPANIES


 




	
   

  	
  Golden Section Holding Corporation

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jin Xin

  
	
   

  	
  Name: Jin Xin()

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Goodor Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Li Rubin

  
	
   

  	
  Name: Li Rubin()

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Nihao China Corporation

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Yao Jinbo

  
	
   

  	
  Name: Yao Jinbo()

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  New Sky Resources Limited

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zhu Changyong

  
	
   

  	
  Name: Zhu Changyong()

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KAIYUAN TECHNOLOGY LIMITED

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Deng Qiang

  
	
   

  	
  Name: Deng Qiang()

  
	
   

  	
  Title: Director

  






 


SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT


 

















 


THE FOUNDERS


 


 


	
   

  	
  By:

  	
  /s/ Jin Xin

  
	
   

  	
  Name: Jin Xin()

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Li Rubin

  
	
   

  	
  Name: Li Rubin()

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Yao Jinbo

  
	
   

  	
  Name: Yao Jinbo()

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zhu Changyong

  
	
   

  	
  Name: Zhu Changyong()

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Deng Qiang

  
	
   

  	
  Name: Deng Qiang()

  



 


SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT


 














 


	
   

  	
  THE
  SERIES
  A INVESTOR

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CDH
  XUEDA LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Wang Jun

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT


 

















 


	
   

  	
  THE
  SERIES A2 INVESTORS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Happyall Ltd

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wang Yafei

  
	
   

  	
  Name: Wang Yafei()

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Poda Capital Limited

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chai Chaoming

  
	
   

  	
  Name: Chai Chaoming()

  
	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Wavesong Ltd

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Song Junbo

  
	
   

  	
  Name: Song Junbo()

  
	
   

  	
  Title: Director

  



 


SIGNATURE PAGE TO SHAREHOLDERS AGREEMENT


 

















 


Schedule
A


 


Founders


 




	
  Name

  	
   

  	
  ID No. /Passport No.

  
	
  Jin Xin()

  	
   

  	
  110105197702260013

  
	
  Li Rubin()

  	
   

  	
  372831197709070053

  
	
  Yao Jinbo()

  	
   

  	
  432321197610190959

  
	
  Zhu Changyong()

  	
   

  	
  G13919783

  
	
  Deng Qiang()

  	
   

  	
  110102196711032318

  






 

















 


Schedule B


 


Series A2 Investors


 




	
  Name

  	
   

  	
  Number of Series A2 Shares at the Closing

  
	
  Happyall Ltd

  	
   

  	
  3,518,770

  
	
  Poda Capital Limited

  	
   

  	
  2,262,570

  
	
  Wavesong Ltd

  	
   

  	
  3,015,580

  
	
  Total

  	
   

  	
  8,796,920

  






 

















 


EXHIBIT A


 


Original
Contribution


 


	
  Name of

  Preferred

  Shareholders

  	
   

  	
  Original
  Contribution

  	
   

  	
  The
  number of the

  Preferred Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CDH
  XUEDA LIMITED 

  	
   

  	
  US$500,000

  Certain US Dollars
  equivalent to RMB15,950,000

  	
   

  	
  21,555,920 Series A1 Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Series A2 Investors

  	
   

  	
  RMB7,000,000

  	
   

  	
  8,796,920 Series A2 Shares

  



 

















 


EXHIBIT B


 


Notices


 


	
  To:

  	
   

  	
  Group Companies

  
	
  Attention:

  	
   

  	
  Li Rubin/Jin Xin

  
	
  Address:

  	
   

  	
  Room 93.09, 3/F, Jingshi Buliding, No.19 Xinwai Street,

  
	
   

  	
   

  	
  Haidian District, Beijing, 100875 PRC

  
	
  Tel:

  	
   

  	
  010-5880 0211

  
	
  Fax:

  	
   

  	
  010-5880 0211

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
  Founders

  
	
  Address:

  	
   

  	
  Room 93.09, 3/F, Jingshi Buliding, No.19 Xinwai Street,

  
	
   

  	
   

  	
  Haidian District, Beijing, 100875 PRC

  
	
  Tel:

  	
   

  	
  010-5880 0211

  
	
  Fax:

  	
   

  	
  010-5880 0211

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
  Series A1 Investor

  
	
  Attention:

  	
   

  	
  Wang Jun

  
	
  Address:

  	
   

  	
  Suite 318, Tower B, Grand Pacific Trade Centre,

  
	
   

  	
   

  	
  8A, Guanghua Road, Chaoyang District, Beijing, 100026 PRC

  
	
  Tel:

  	
   

  	
  010-6581 8388

  
	
  Fax:

  	
   

  	
  010-6581 5730

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
  Series A2 Investors

  
	
  Attention:

  	
   

  	
  Wang Yafei

  
	
  Address:

  	
   

  	
  New Building, Guanghua School of Management

  
	
   

  	
   

  	
  Peking Univ.,Beijing 100871,PRC

  
	
  Tel:

  	
   

  	
  010-62757916

  
	
  Fax:

  	
   

  	
  010-62754838