Exhibit 10.2


 


STAGE SMART LIMITED


 


SERIES A PREFERENCE SHARES PURCHASE AGREEMENT


 


This
Series A Preference Shares Purchase Agreement is made as of the 16th day of October 2010 (the “Agreement”) by and among
STAGE SMART LIMITED, a British Virgin Islands company (the “Company”), STAGE SMART
(BEIJING) TECHNOLOGY LIMITED (思达齐马特(北京)科技有限公司), a
wholly-foreign owned enterprise established under the laws of the People’s
Republic of China (“PRC”) (the “PRC Subsidiary”), STAGE SMART (HONG
KONG) LIMITED, a Hong Kong company (the “HK Subsidiary”),
CRIStar (Beijing) Culture and Media Co., Ltd. (可视达(北京)文化传媒有限公司), a limited
liability company established under the laws of the PRC (the “PRC Domestic Company”),  UTStarcom, Inc., a Delaware company (the
“Investor”) and Smart Frontier
Holdings Limited, the sole shareholder of the Company (the “Shareholder”).  The PRC Subsidiary, the HK Subsidiary and the
PRC Domestic Company are referred to herein as the “Subsidiaries”
and each, a “Subsidiary.”  The Company and the Subsidiaries collectively
are referred to herein as the “Group Companies”
and each, a “Group Company.” The
Shareholder and the Investor collectively are referred to herein as the “Holders” and each, a “Holder.”


 


In
consideration of the mutual covenants and representations herein set forth, the
Group Companies, the Investor and the Shareholder agree as follows:


 


1.             Authorization, Sale and Purchase
of Shares.


 


Subject to the terms and conditions of this
Agreement, on or prior to the Closing (as defined in Section 2 below), the
Company shall have authorized (a) the sale and issuance to the Investor of
an aggregate of 9,600,000 of the Company’s Series A Preference Shares (the
“Series A Shares”)
at a price of US$2.08333 per share (the “Purchase
Price”), for an aggregate consideration of US$20,000,000, and
(b) the issuance of such Ordinary Shares (as defined in Section 3(d)(ii) below)
to be issued upon conversion of the Series A Shares (the “Conversion
Shares”).  The Series A Shares and the Conversion
Shares shall have the rights, preferences, privileges and restrictions set
forth in the Amended and Restated Memorandum of Association of the Company (the
“Amended Memorandum”)
and the Amended and Restated Articles of Association of the Company (the “Restated Articles”), each in
the form attached hereto as Exhibit A.


 


2.             Closing.


 


The
purchase, sale and issuance of the Series A Shares shall occur at a
closing (the “Closing”).  The Closing shall take place remotely via the
exchange of documents and signatures or at such other place as shall be
designated by the Company and the Investor purchasing Series A Shares in
the Closing.  At the Closing, the
Investor shall deliver to the Company the aggregate purchase price of the Series A
Shares and the Company shall deliver to the Investor a certified copy of the
Register of Members of the Company updated to reflect the Investor’s ownership
of the Series A Shares, and shall issue to the Investor a certificate
representing the Series A Shares 


 


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being purchased by the
Investor, registered in the name of such Investor.  At or before the Closing, the Group Companies
and the Holders will execute counterpart signature pages to this
Agreement, the Company and Holders will execute counterpart signature pages to
the Voting Agreement in substantially the form attached hereto as Exhibit B
(the “Voting
Agreement”), and the Company and Holders will execute
counterpart signature pages to the Ordinary Share Purchase Agreement in
substantially the form attached hereto as Exhibit C (the “Ordinary Share Agreement”
and, together with this Agreement and Voting Agreement,  the “Transaction Agreements”).


 


3.             Representations
and Warranties of the Group Companies and the Shareholder.


 


A
Schedule of Exceptions attached hereto (the “Schedule of Exceptions”) shall be
delivered to the Investor in connection with the execution of the Agreement.
Except as set forth in the Schedule of Exceptions delivered to the Investor at
the Closing, the Group Companies and the Shareholder (each a “Warrantor” and
collectively, the “Warrantors”)
hereby jointly and severally represent and warrant to the Investor as of the
date of this Agreement and as of the date of the Closing as set forth below.


 


(a)           Corporate Power.  The
Shareholder and each Group Company has full legal right, power and capacity as
may be required to execute, deliver and carry out the provisions of the
Transaction Agreements, and, with respect to the Company only, to issue and
sell the Series A Shares and the Conversion Shares to the Investor
pursuant hereto in the manner contemplated hereby and to carry out the
provisions of the Transaction Agreements.


 


(b)           Organization, Good Standing and
Qualification.  The Shareholder and each Group Company are
duly incorporated, validly existing and in good standing (or equivalent status
in the relevant jurisdiction) under the laws of its jurisdiction of formation,
and is qualified and authorized to do business as a foreign corporation in all
jurisdictions where the failure to be so qualified and/or authorized would be
reasonably likely to have Material Adverse Effect (as defined below) on the
business or the assets of such Group Company. 
As used in this Agreement, “Material
Adverse Effect” means a material adverse effect on the business,
assets (including intangible assets), liabilities, financial condition,
prospects, property or results of operations of the Group Companies, taken as a
whole.


 


(c)           Subsidiaries.


 


(i)            Group Structure.  Except for (x) the PRC Subsidiary, one
hundred percent (100%) of the equity interest of which is legally and
beneficially owned by the HK Subsidiary, (y) the HK Subsidiary, one
hundred percent (100%) of the equity interest of which is legally and
beneficially owned by the Company  and (z) the
PRC Domestic Company, which is controlled by the PRC Subsidiary via a series of
agreements, the Company does not own or control, directly or indirectly, or
hold any rights to acquire, any equity security or other interest of any other
corporation, limited partnership or other business entity.  The equity interests of the Subsidiaries are free
and clear of all liens and encumbrances. 
The Company is not a participant in any joint venture, partnership or
similar arrangement.  Except for the HK
Subsidiary which legally and beneficially owns one hundred percent (100%) of
the PRC Subsidiary and the PRC 


 


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Subsidiary which has the option to acquire the
equity of the PRC Domestic Company pursuant to the control agreements, none of
the Subsidiaries has any subsidiaries, nor do any of the Subsidiaries own or
control, directly or indirectly, or hold any rights to acquire, any equity
security or other interest in any other corporation, partnership, joint venture
or similar arrangement, or other business entity.  None of the Subsidiaries maintains any offices
or branches or subsidiaries except for such offices listed in Schedule 3(c)(i) of
the Schedule of Exceptions.


 


(ii)           Capitalization.  The authorized capital and the holders of all
of the issued and outstanding shares of capital stock of each Subsidiary are
listed in Schedule 3(c)(ii) of the Schedule of Exceptions.


 


(iii)          Options, Warrants and Rights;
Voting.  There are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), or agreements of any kind to purchase a Subsidiary’s
authorized and unissued shares of capital stock, or to compel such Subsidiary
to issue, repurchase, redeem any shares of capital stock of such Subsidiary.


 


(d)           Capitalization.  The Company shall have effected a 1 to 10,000
share split (the “Share Split”) of the Ordinary
Shares (as defined in Section 3(d)(ii) below) prior to the Closing.


 


Immediately prior to the Closing and giving effect
to the Share Split, the authorized and outstanding capitalization of the
Company consists of:


 


(i)            Preference Shares.  9,600,000 Preference Shares of the Company (“Preference
Shares”), par value US$0.0001
per share, all of which are designated as Series A Preference Shares, none
of which are issued and outstanding, and up to 9,600,000 of which may be sold
pursuant to this Agreement.  The rights,
privileges and preferences of the Series A Preference Shares will be as
stated in the Restated Articles.


 


(ii)           Ordinary Shares.  22,000,000 Ordinary Shares of the Company (“Ordinary Shares”), par value US$0.0001
per share, of which 10,000,000 shares are issued and outstanding, 9,600,000
shares have been reserved for issuance upon conversion of the Series A
Shares, and 2,177,778 shares have been reserved for issuance to employees,
consultants and directors pursuant to its 2010 Global Share Plan, under which
no options are issued and outstanding as of the date of this Agreement.. The
outstanding Ordinary Shares have been (1) duly authorized and validly
issued, and are fully paid and nonassessable, and (2) were issued in
compliance with all applicable non-U.S. and U.S. state and federal laws
concerning the issuance of securities.


 


(iii)          Options, Warrants and Rights.  Except for the conversion privileges of the
Preference Shares, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), or
agreements of any kind to purchase any of the Company’s authorized and unissued
shares of capital stock or any equity interest in any other Group Company.


 


(iv)          Reserved Shares.  The Conversion Shares have been duly and
validly reserved for issuance.  When
issued in compliance with the provisions of this Agreement 


 


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and the Restated Articles,
the Series A Shares and the Conversion Shares will be duly authorized,
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances other than liens and encumbrances created by or imposed upon the
Investor.


 


(v)           Market Stand-off.  All outstanding shares of the Company are
subject to a one hundred eighty (180) day “market stand-off” restriction upon
an initial public offering of the Company’s securities or such other period as
may be requested by the Company or an underwriter to accommodate regulatory
restrictions on (i) the publication or other distribution of research
reports and (ii) analyst recommendations and opinions, including, but not
limited to, the restrictions contained in NASD Rule 2711(f)(4) or
NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).


 


(e)           Enforceability.  Each
of the Transaction Agreements, when executed and delivered by the Shareholder
and each Group Company, as applicable, will be duly and validly executed and
delivered by the Shareholder or such Group Company and will be the legally
binding obligations of the Shareholder or such Group Company enforceable
against it in accordance with their terms. 
All corporate action on the part of the Shareholder and each Group
Company, their officers, directors and shareholders necessary for the
authorization of the applicable Transaction Agreements, the performance of all
obligations of the Shareholder and each Group Company hereunder and thereunder
at the Closing, and the authorization, sale, issuance and delivery of the Series A
Shares pursuant hereto and the Conversion Shares pursuant to the Restated
Articles has been taken or will be taken prior to the Closing.


 


(f)            Offering.  Provided
that the representations and warranties made by the Investor herein are complete,
true and accurate, then the offer, issuance and sale of the Series A
Shares and the Conversion Shares pursuant to this Agreement and the Restated
Articles will be exempt from the registration requirements of Section 5 of
the U.S. Securities Act of 1933, as amended (the “Act”), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable U.S. state
securities laws.  Neither the Company nor
any agent on its behalf has solicited any offers to sell or has offered to sell
all or any part of the Series A Shares to any person or persons so as to
bring the sale of such Series A Shares by the Company within the
registration and/or qualification provisions of the Act or any applicable U.S.
state securities laws.


 


(g)           Minutes Books.  The
minute books of each Group Company have been made available to the Investor and
such minutes books contain a complete summary of all meetings and actions taken
by the directors and shareholders of such Group Company since its time of
formation, and summarize all transactions referred to in such minutes
accurately in all material respects.  All
board and shareholder resolutions, articles and memoranda of association (and any
amendments thereto) and any other required filings of the Company have been
duly filed with the registrar of companies of the British Virgin Islands within
the required deadlines for such filings under the applicable laws.  Each Group Company maintains its books of
accounts and records in the usual, regular and ordinary manner, on a basis
consistent with prior practice, and which shall permit its financial statements
to be prepared in accordance with the applicable international financial
reporting standard.


 


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(h)           Title to Property and Assets.  Each
Group Company has good and marketable title to its material property and
assets, and has good title to all its material leasehold interests, in each
case subject to no mortgage, pledge, lien, lease, encumbrance or charge that
materially detracts from the value of the property subject thereto or
materially impairs the operations of such Group Company.  All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Group
Companies that are material to the business of the Group Companies are in good
operating condition and repair, normal wear and tear excepted, and are
reasonably fit and usable for the purposes for which they are being used.  Each Group Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.


 


(i)            Litigation.  There
is no action, suit, proceeding, claim or investigation (“Action”) pending against any of the Group Companies for which a Group Company
has been notified or served or, currently threatened against a Group Company,
including but not limited to those involving the employment of current or
former employees, its activities or properties. 
To the knowledge of the Warrantor, there is no factual or legal basis
for any such Action.  None of the Group
Companies is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.  There is no Action by
any Group Company currently pending or which a Group Company intends to
initiate.


 


(j)            Employee and Consultant
Confidentiality Agreements.  Each
current and former employee, officer or director of each Group Company has
executed the Company’s or the appropriate Subsidiary’s standard form of
confidential information and invention assignment agreement.  No such employee has excluded works or
inventions made prior to his or her employment with a Group Company from his or
her assignment of inventions pursuant to such employee’s confidential
information and invention assignment agreement. 
Each consultant of a Group Company that has had access to any of the
Group Companies’ intellectual property has entered into an agreement containing
appropriate confidentiality and invention assignment provisions.  To the knowledge of the Warrantors, no
officer, employee or consultant of any Group Company is in violation of such
confidential information and invention assignment agreement or any other
employee or consultant agreement or proprietary information agreement with any
other corporation or third party.


 


(k)           Intellectual Property Rights.


 


(i)            Ownership.  Each Group Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses (software or otherwise), information,
processes and similar proprietary rights (“Intellectual Property”) necessary to the business of
such Group Company as presently conducted, without any conflict with or
infringement of the rights of others. 
Except for agreements with its own employees or consultants, standard
end-user license agreements, support/maintenance agreements and agreements
entered in the ordinary course of each Group Company’s business, there are no
outstanding options, licenses or agreements relating to the Intellectual
Property, and each Group Company is not bound by or a party to any options,
licenses or agreements with respect to the Intellectual Property of any other
person or entity.  No Group Company has
received any written communication alleging that such Group Company has
violated or, by conducting its business as currently conducted, would violate
any of the 


 


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Intellectual Property of
any other person or entity, nor is any Group Company aware of any basis
therefore.  Each Group Company is not
obligated to make any payments by way of royalties, fees or otherwise to any
owner or licensor of or claimant to any Intellectual Property with respect to
the use thereof in connection with the conduct of its business as presently
conducted.  There are no agreements,
understandings, instruments, contracts, judgments, orders or decrees to which
any Group Company is a party or by which any Group Company is bound which
involve indemnification by such Group Company with respect to infringements of
Intellectual Property.


 


(ii)           No Breach by Employees.  No Group Company is aware that any of its
respective employees is obligated under any contract or other agreement, or
subject to any judgment, decree or order of any court or administrative agency,
that would materially interfere with the use of his or her efforts to promote
the interests of such Group Company or that would conflict with the Group Company’s
business as presently conducted.  Neither
the execution nor delivery of this Agreement, nor the carrying on of each Group
Company’s business by the employees of such Group Company, nor the conduct of
such Group Company’s business as presently conducted, will, to the Warrantors’
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated.  No Group Company believes it is or that it
will be necessary to use any inventions of any of its employees made prior to
their employment with such Group Company.


 


(l)            Liabilities.


 


(i)            No Group Company has any liabilities
of any nature, whether accrued, absolute, contingent or otherwise, and whether
due or to become due, except for trade or business obligations and liabilities
incurred in the ordinary course of business since such Group Company’s
inception and as would be reflected on a balance sheet of the Company (on a consolidated
basis) prepared in accordance with applicable GAAP.  There has not been commenced against the
Company or any Group Company an involuntary case under any applicable national,
provincial, city, local or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect, or any case, proceeding or other action
for the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such entity or for any substantial part
of its property or for the winding up or liquidation of its affairs.


 


(ii)           With respect to assets, the balance
sheet of the Company would only include the investment in the HK Subsidiary,
the PRC Subsidiary and the PRC Domestic Company, the cash balance, and any
inter-company balance among the Company, the HK Subsidiary, the PRC Subsidiary
and the PRC Domestic Company. With respect to liabilities, the balance sheet
would include only the share capital, accumulated losses (only to extent that
such losses relate to administrative expenses associated with the maintenance
of the Company in good standing in the ordinary course of business, and lease
expenses and any legal expenses associated with equity or debt financings of
the Company), and any loans to the Company by its shareholders (if any).  The Company has not engaged in any
off-balance sheet financing.


 


(iii)          Both before and after giving effect to
the transactions contemplated hereby: (1) other than as provided in Section 3(m)(iii) of
the Schedule of 


 


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Exceptions, the aggregate assets, at a fair
valuation, of each Group Company, will exceed the aggregate liabilities of such
Group Company (including, without limitation, contingent, subordinated,
unmatured and unliquidated liabilities on existing debts, as such liabilities
may become absolute and matured), as the debt becomes absolute and matures: (2) no
Group Company will have incurred or intended to incur, and will not believe
that it will incur, debt beyond its ability to pay such debt as such debt
becomes absolute and matures; and (3) no Group Company will have (and will
have no reason to believe that it will have thereafter) unreasonably small
capital for the conduct of its business.


 


(m)          Compliance with Law and Other Instruments.


 


(i)            Each Group Company is in compliance
with all applicable statutes, laws, regulations and executive orders of the
PRC, the United States and all states, foreign countries or other governmental
bodies and agencies having jurisdiction over any Group Company’s business or
properties where a violation thereof would have a material and adverse impact
on such Group Company’s business.  No
Group Company has received any notice of any violation of any such statute,
law, regulation or order which has not been remedied prior to the date
hereof.  The execution, delivery, and
performance of and compliance with the Transaction Agreements, and the issuance
and sale of the Series A Shares pursuant hereto and of the Conversion
Shares pursuant to the Restated Articles, will not, with or without the passage
of time or giving of notice, result in any such violation, or be in conflict
with or constitute a default under any such term, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of a Group Company or the suspension, revocation, impairment, forfeiture
or nonrenewal of any permit, license, authorization or approval applicable to
such Group Company, its business or operations or any of its assets or properties,
or result in any violation of any such statute, law, regulation or order.  No Group Company is in violation or default
of any term of its constitutional documents, or in any material respect of any
provision of any mortgage, indenture, agreement, instrument or contract to
which it is party or by which it is bound or of any judgment, decree, order or
writ.  No Group Company has performed any
act or omitted any act, the occurrence or omission of which would result in
such Group Company’s loss of any material right granted under any license,
distribution agreement or other agreement required to be disclosed in the
Schedule of Exceptions.


 


(ii)           No Group Company, nor any director,
agent, employee or any other person acting for or on behalf of any Group Company,
has directly or indirectly (1) made any contribution, gift, bribe, payoff,
influence payment, kickback, or any other fraudulent payment in any form,
whether in money, property, or services to any public official or otherwise to (A) obtain
favorable treatment in securing business for a Group Company, (B) pay for
favorable treatment for business secured, or (C) obtain special
concessions or for special concessions already obtained, for or in respect of
any Group Company, in each case which would have been in violation of any
applicable law, or (2) established or maintained any fund or assets in
which any Group Company shall have proprietary rights that have not been
recorded in the books and records of a Group Company.


 


(iii)          Except as set forth in Schedule 3(m)(iii) of
the Schedule of Exceptions, no director, agent, employee or shareholder of any
Group Company is a government 


 


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official as such term is defined in the U.S. Foreign
Corrupt Practices Act of 1977, as amended (“US FCPA”).


 


(iv)          No Group Company (including any of
their officers, directors, agents, distributors, employees or other Person
acting on behalf of any Group Company) have, directly or indirectly, taken any
action which would cause them to be in violation of the US FCPA or any rules or
regulations thereunder or any similar anti-corruption or anti-bribery legal
requirements applicable to the Company or any of its Subsidiaries in any
jurisdiction other than the United States, including the PRC, or used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made, offered or authorized
any unlawful payment to foreign or domestic government officials or employees,
whether directly or indirectly, or made, offered or authorized any unlawful
bribe, rebate, payoff, influence payment, kickback or other similar unlawful
payment, whether directly or indirectly.


 


(n)           Agreements.  Except
as set forth in Schedule 3(n) of the Schedule of Exceptions, there are no
other agreements, understandings or proposed transactions to which a Group
Company is a party or by which it or any of its properties are bound that
involve (i) obligations (contingent or otherwise) of, or payments to, a
Group Company in the excess of US$10,000, (ii) the license of any material
Intellectual Property to or from a Group Company, or (iii) the payment of
dividends by a Group Company.  No Group
Company has breached, nor does any Warrantor have any knowledge of any claim or
threat that such Group Company has breached, any term or condition of any
agreement or understanding to which it is a party or by which its properties
are bound, the breach of which would reasonably be expected to result in a
material adverse effect on such Group Company’s business, and each such
agreement is in full force and effect in all material respects, and no other
party to such agreement is in material default thereunder.


 


(o)           Governmental Consents.  Subject
in part to information provided by the Investor, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any PRC, U.S. federal, state or local or British Virgin Islands
governmental authority on the part of the Company, the Shareholder or any Group
Company is required in connection with the valid execution, delivery and
consummation of the transactions contemplated by this Agreement, except for
filings pursuant to the Act and the rules thereunder, and other applicable
state and federal securities laws.


 


(p)           Permits.  Each
Group Company has all requisite governmental approvals, franchises, permits,
licenses, registrations and any similar authority necessary for the conduct of
its business as now being conducted by it and operation of its assets and
property, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of such Group Company, and each
Group Company believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as currently planned to be
conducted.  No Group Company is in
default in any material respect under any of such governmental approvals,
franchises, permits, licenses, registrations or other similar authority.  No Group Company has received any letter or
notice from any relevant authority notifying it of the revocation of any permit
or license issued to it for non-compliance or the need for compliance or
remedial actions in respect of the activities carried out directly or
indirectly by such Group Company.


 


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(q)           Related Party Transactions.  Except
as set forth in Schedule 3(q) of the Schedule of Exceptions, no officer or
director of a Group Company (a “Related
Party”) or an Immediate Family Member of such Related Party, or
any corporation, partnership or other entity in which such Related Party is an
officer or director (other than a Group Company) or partner, or in which such
Related Party has an ownership interest in excess of ten percent (10%) or
otherwise controls, is indebted to any Group Company, nor is any Group Company
indebted (or committed to make loans or extend or guarantee credit) to any of
them, other than (i) payment for salaries and services rendered,
(ii) reimbursement for reasonable expenses incurred on behalf of the
applicable Group Company, and (iii) standard employee benefits made
generally available to all employees (including outstanding stock option
agreements).  To the knowledge of the Warrantor(s),
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which any Group Company is affiliated or with which any
Group Company has a business relationship, or any firm or corporation that
competes with any Group Company, except that a Related Party and an Immediate
Family Member of such Related Party may own stock (but not exceeding one
percent (1%) of the outstanding shares) in publicly traded companies that may
compete with a Group Company.  To the knowledge
of the Warrantor(s), no Related Party or Immediate Family Member of such
Related Party is directly or indirectly interested in any material contract
with any Group Company, except, in the case of a Related Party, for contracts
relating to their employment or service with the applicable Group Company
(including indemnification agreements in a form entered into with all such
officers or directors, as applicable, and relevant stock option agreements).
For purposes of this Agreement, an “Immediate Family Member” means a child,  stepchild,
grandchild, parent, step-parent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law,  or  sister-in-law,
including adoptive relationships, of a person referred to herein.


 


(r)            Tax Matters.


 


(i)            For the purposes of this Agreement,
the term “Tax” or,
collectively, “Taxes” means
(i) any and all U.S. federal, state, local, British Virgin Islands, PRC
and any other taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, escheat,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts, (ii) any liability for the payment
of any amounts of the type described in clause (i) of this Section 3(s) as
a result of being a member of an affiliated, consolidated, combined, unitary or
similar group for any period (including any arrangement for group or consortium
relief or similar arrangement), and (iii) any liability for the payment of
any amounts of the type described in clauses (i) or (ii) of this
Section 3(s) as a result of any express or implied obligation to
indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor or transferor or
otherwise by operation of law.


 


(ii)           Each of the Group Companies has
prepared and timely filed all required U.S. federal, state, local, British
Virgin Islands, PRC and other returns, estimates, information statements and
reports, including amendments thereof and attachments and schedules thereto (“Returns”) relating to any and
all Taxes concerning or attributable to such 


 


9

















 


Group Company or their
operations and such Returns are true and correct and completed in accordance
with applicable law.


 


(iii)          Each of the Group Companies has timely
paid all Taxes they are required to pay and timely paid or withheld with
respect to its employees and other third parties (and timely paid over any
Withheld Amounts to the appropriate Taxing authority) all U.S. federal and
state, British Virgin Islands, PRC and other income taxes, Federal Insurance
Contribution Act amounts, Federal Unemployment Tax Act amounts and other Taxes
of a similar nature, including those imposed by a non-U.S. Taxing authority,
required to be withheld, whether or not such payments are in connection with
any Return.


 


(iv)          None of the Group Companies has been
delinquent in the payment of any Tax, nor is there any Tax deficiency outstanding,
assessed or proposed against any Group Company, nor has any Group Company
executed any outstanding waiver of any statute of limitations on or extension
of the period for the assessment or collection of any Tax.


 


(v)           No audit or other examination of any
Return of any Group Company is presently in progress, nor has any Group Company
been notified of any request for such an audit or other examination.  No adjustment relating to any Return filed by
any Group Company has been proposed by any tax authority to such Group Company
or any representative thereof.  No claim
has ever been made by an authority in a jurisdiction where no Group Company
files Returns that any Group Company is or may be subject to taxation by that jurisdiction.


 


(vi)          No Group Company has any liabilities
for unpaid Taxes as of June 30, 2010, whether asserted or unasserted,
contingent or otherwise, and no Group Company has not incurred any liability
for Taxes other than in the ordinary course of business.


 


(vii)         The Company has made available to the
Investor or its legal counsel or accountants copies of all Tax returns for the
Group Companies filed for all periods since its inception.


 


(viii)        There are (and immediately following the
Closing there will be) no Liens on the assets of any Group Company to or
attributable to Taxes other than Liens for Taxes not yet due and payable.  There is no basis for the assertion of any
claim relating or attributable to Taxes which, if adversely determined, would
result in any Lien for Taxes on the assets of any Group Company.


 


(ix)           The Company is not, and has not been
at any time, a “United States Real Property Holding Corporation” within the
meaning of Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended (the “Code”).


 


(x)            No
Group Company has (a) ever been a member of an affiliated group (within
the meaning of Code §1504(a)) filing a consolidated U.S. federal income tax
Return or a Return under similar state, local or non-U.S. Tax laws (other than
a group the common parent of which was Company), (b) ever been a
party to any Tax sharing, indemnification or allocation agreement, (c) any liability for the Taxes of any person under
Treas. Reg. § 1.1502-6 (or any similar provision of state, local or foreign
law, including any 


 


10

















 


arrangement
for group or consortium relief or similar arrangement), as a transferee or
successor, by contract, by operation of law or otherwise and (d) ever been
a party to any joint venture, partnership or other agreement that could be
treated as a partnership for Tax purposes.


 


(xi)           No
Group Company has constituted either a “distributing corporation” or a “controlled
corporation” in a distribution of stock intended to qualify for tax-free
treatment under Section 355 of the Code.


 


(xii)          No
Group Company has participated in a reportable transaction under Treas.
Reg. § 1.6011-4(b), including any
transaction that is the same as or substantially similar to one of the types of
transactions that the Internal Revenue Service has determined to be a tax
avoidance transaction and identified by notice, regulation, or other form of
published guidance as a listed transaction, as set forth in Treas. Reg. § 1.6011-4(b)(2).


 


(xiii)         Each of the Group Company is in
compliance with all terms and conditions of any Tax exemption, Tax holiday or
other Tax reduction agreement or order (each, a “Tax Incentive”) and the
consummation of the transactions contemplated by this Agreement will not have
any adverse effect on the continued validity and effectiveness of any such Tax
Incentive.  Each of the Group Companies
has maintained all documentation necessary and adequate to substantiate any
credits, deductions and other tax attributes of such Group Company.


 


(xiv)        Each of the Group Companies is and has
at all times been resident for Tax purposes in its country of incorporation or
formation and is not and has not at any time been treated as resident in any
other country for any Tax purpose (including any arrangement for the avoidance
of double taxation).  No Group Company is
subject to Tax in any country other than its country of incorporation or
formation by virtue of having a permanent establishment or other place of
business or by virtue of having a source of income in that country.  No Group Company is liable for any tax as the
agent of any other person or business or constitutes a permanent establishment
or other place of business of any other person, business or enterprise for any
Tax purpose.


 


(xv)         Each of the Group Companies in
compliance in all material respects with all applicable transfer pricing laws
and regulations, including the execution and maintenance of contemporaneous
documentation substantiating the transfer pricing practices and methodology of
the Group Companies.  All intercompany
arrangements have been adequately documented, and such documents have been duly
executed, in a timely manner. The prices for any property or services (or for
the use of any property) provided by or to any Group Company are arm’s length
prices for purposes of all applicable transfer pricing laws, including Treasury
Regulations promulgated under Section 482 of the Code.


 


(xvi)        No
Group Company will be required to include any income or gain or exclude
any deduction or loss from income for any taxable period or portion thereof
after the Closing as a result of any (a) change in method of accounting
made prior to the Closing, (b) closing agreement under Section 7121
of the Code executed prior to the Closing, (c) deferred intercompany gain
or excess loss account under Treasury Regulations under Section 1502 of
the Code in connection with a transaction consummated prior to the Closing (or
in the case of each of (a), (b) and (c), under any similar provision of
applicable law), (d) installment sale or open


 


11
















 


transaction disposition
consummated prior to the Closing or (e) amount received prior to the
Closing.


 


(xvii)                                              No Group Company is or has been a “Passive Foreign Investment Company”
within the meaning of Section 1297(a) of the Code or a “Controlled
Foreign Corporation” within the meaning of Section 957 of the Code.  No Group Company owns, directly or
indirectly, any interests in an entity that is or has been a Passive Foreign
Investment Company or a Controlled Foreign Corporation.


 


(xviii)                                           There is no contract, agreement, plan or arrangement to which any Group
Company is a party, including the provisions of this Agreement, covering any
Employee of the Group Companies, which, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code or that would give rise to a
penalty under Section 409A of the Code or that would give rise to an
Employee penalty and Company reporting obligations under Section 409A of
the Code using Federal Form W-2, in Box 12 using Code Z or Form 1099-Misc,
in Box 15b and Box 7.


 


(s)                                  Employees.


 


All employees of each
Group Company are devoting their full professional time to such Group
Company.  No employee of any Group
Company is in violation of any material order, or any material provision of any
contract, relating to such employee’s relationship with such Group Company, or
that would materially interfere with such employee’s ability to promote the
interests of the Group Companies or that would conflict with the business of
the Group Companies.  Except as set forth
in Schedule 3(s) of the Schedule of Exceptions, no Group Company has any
Benefit Plans.  For purposes hereof, “Benefit Plan” means any plan,
contract or other arrangement, formal or informal, whether oral or written,
providing any benefit to any present or former officer, director or employee,
or dependent or beneficiary thereof, including any employment agreement or
profit sharing, deferred compensation, share option, performance share,
employee share purchase, bonus, severance, retirement, health or insurance
plan.  No officer or Key Employee, or any
group of employees of the Group Companies, intend to terminate their employment
with the applicable Group Company, nor do any of the Group Companies have a
present intention to terminate the employment of any of the foregoing.  No employee, consultant or independent
contractor of a Group Company is owed any back wages or other compensation for
services rendered except as set forth on Section 3(t) of the Schedule
of Exceptions.  No Group Company is bound
by or subject to (and none of its assets or properties are bound by or subject
to) any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested, or has sought to
represent any of the employees, representatives or agents of any Group
Company.  There is no labor strike, labor
slow down, labor claim, labor dispute or labor union organization activities
pending or, threatened between any Group Company and its employees.  Each Group Company has complied in all
material respects with all applicable laws related to employment and related to
the Benefit Plans, including making all required contributions required to be
made under the PRC social insurance and housing schemes, medical benefits,
insurance, retirement benefits, pensions, wages, hours, worker classification,
and collective bargaining, and the payment and withholding of taxes and other
sums as required by law except where noncompliance with any 


 


12

















 


applicable law would not result in a Material
Adverse Effect.  For purposes of this
Agreement, “Key Employee”
means each
of the Persons listed in Exhibit D.


 


(t)                                    Changes.  Since the Company’s formation, there has not
been:


 


(i)                                     any event or condition of any type that has had or is reasonably likely
to have a material and adverse effect on the Group Companies’ business or
assets;


 


(ii)                                  any change in the assets, liabilities, financial condition or operating
results of any Group Company, except changes in the ordinary course of business
that have not caused, in the aggregate, a Material Adverse Effect;


 


(iii)                               any damage, destruction or loss, whether or not covered by insurance,
that would be reasonably likely to have a Material Adverse Effect;


 


(iv)                              any waiver or compromise by any Group Company of a valuable right or of a
material debt owed to it;


 


(v)                                 any satisfaction or discharge of any lien, claim, or encumbrance or
payment of any obligation by any Group Company, except in the ordinary course
of business and the satisfaction or discharge of which would not be reasonably
likely to have a Material Adverse Effect;


 


(vi)                              any material change to a material contract or agreement by which any
Group Company or any of its assets is bound or subject;


 


(vii)                           any material change in any compensation arrangement or agreement with any
employee, officer, director or shareholder;


 


(viii)                        any resignation or termination of employment of any officer or Key
Employee of any Group Company;


 


(ix)                                any mortgage, pledge, transfer of a security interest in, or, to the
knowledge of the Warrantors, lien, created by any Group Company, with respect
to any of its material properties or assets, except liens for taxes not yet due
or payable and liens that arise in the ordinary course of business and do not
materially impair such Company’s ownership or use of such property or assets;


 


(x)                                   any dividend, loans or guarantees made by any Group Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;


 


(xi)                                any declaration, setting aside or payment or other distribution in
respect of any Group Company’s share capital, or any direct or indirect
redemption, purchase, or other acquisition of any of such shares by any Group
Company;


 


13

















 


(xii)                             any sale, assignment or transfer of any Group Company Intellectual
Property that could reasonably be expected to result in a Material Adverse
Effect;


 


(xiii)                          receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of any Group Company;


 


(xiv)                         any other event or condition of any character, other than events
affecting the economy or the Company’s industry generally,  that could reasonably be expected to result
in a Material Adverse Effect; or


 


(xv)                            any arrangement or commitment by the Company or any Group Company to do
any of the things described in this Section 3(u).


 


(u)                                 Brokers or Finders.  No
Group Company has incurred, nor will any Group Company incur, directly or
indirectly, as a result of any action taken by any Group Company, any liability
for brokerage or finders’ fees or agents’ commissions or any similar charges in
connection with this Agreement or any of the transaction contemplated hereby.


 


(v)                                 No Other Business.  Each of the the Company and the Hong Kong
Subsidiary was formed solely to acquire and
hold an equity interest in its respective subsidiary and since its formation
has not engaged in any business and has not incurred any liability in the
course of its business of acquiring and
holding its equity interest in the Subsidiaries.  The Group Companies are engaged solely in the
Business and have no other activities.


 


(w)                               Other Representations and Warranties Relating
to the PRC Subsidiary and the PRC Domestic Company.


 


(i)                                     The constitutional
documents and certificates of the PRC
Subsidiary and the PRC Domestic Company are valid and have been duly approved
or issued (as applicable) by the competent PRC governmental authorities.


 


(ii)                                  All consents, approvals, authorizations, registrations or licenses
required under PRC laws for the due and proper establishment and operation of
the PRC Subsidiary and the PRC Domestic Company have been duly obtained from
the relevant PRC governmental authorities and are in full force and effect.


 


(iii)                               All filings and registrations with the PRC governmental authorities required
in respect of the PRC Subsidiary and its
operations (whether required to be filed by the PRC Subsidiary or any
shareholder thereof), including but not limited to the registrations with the
Ministry of Commerce (or any of its predecessors), the State Administration of
Industry and Commerce, the State Administration of Foreign Exchange (“SAFE”), tax bureau, customs
authorities, product registration authorities, and PRC
health regulatory authorities  have been duly
completed in accordance with the relevant rules and regulations, and, as
applicable, the relevant administration for industry and commerce has affixed
an annual inspection chop on its business license.


 


(iv)                              The registered capital of each of the PRC Subsidiary and the PRC Domestic
Company is fully paid up.  The HK
Subsidiary legally and beneficially owns 100% of 


 


14

















 


the equity interest in the PRC Subsidiary. 
There are no outstanding rights, or commitments made by the HK
Subsidiary to sell any of its equity interest in the PRC Subsidiary.


 


(v)                                 Neither the PRC Subsidiary nor the PRC Domestic Company is in receipt of
any letter or notice from any relevant governmental authority concerning
revocation of any permits or licenses issued to it or the need for compliance
or remedial actions in respect of the activities carried out directly or
indirectly by it.


 


(vi)                              The PRC Subsidiary has been conducting and will conduct its business
activities within the permitted scope of business as set forth on its business
license and on its foreign-invested enterprise approval certificate as currently
in effect, copies of which have been provided to the Investor, and is otherwise
operating its business in full compliance with all relevant legal requirements and with
all requisite licenses, permits and approvals granted by competent PRC
governmental authorities.


 


(vii)                           In respect of approvals, licenses or permits requisite for the conduct of
any part of the business of the PRC Subsidiary which are subject to periodic renewal,
none of the Group Companies has any reason to believe that such requisite
renewals will not be timely granted by the relevant PRC governmental
authorities.


 


(viii)                        All PRC regulatory and corporate authorizations and approvals, where
applicable, have been obtained in respect of the transactions contemplated
herein, and such authorizations and approvals currently are, or will be as of
the Closing, valid and subsisting pursuant to PRC Law and in accordance with
their respective terms.


 


(ix)                                The PRC Domestic
Company is 100% controlled by the PRC Subsidiary through a series of control
agreements in the forms disclosed to the Investor.


 


(x)                                   No Untrue Statement of Material Fact.  No representation or warranty made by the
Shareholder or the Group Companies contained in this Agreement, and no
statement contained in the Disclosure Schedule or in any certificate, list or
other writing furnished to the Investor pursuant to any provision of this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein, in
the light of the circumstances under which they were made, not misleading.  The Shareholder and the Group Companies have
provided the Investor with all of the documents heretofore requested on behalf
of the Investor in writing, and all other material information concerning the
Group Company in the possession, custody or control of the Group Companies.


 


4.                                      Investor’s
Representations.  The
Investor hereby represents and warrants to the Company as set forth below:


 


(a)                                  Investment.  The Investor is acquiring the Series A
Shares and the Conversion Shares for investment for its own account, not as a
nominee or agent, and not with the view to, or for resale in connection with,
any distribution thereof.  The Investor
has no present or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition of the Series A
Shares or the Conversion Shares.  The
Investor understands that the Series A Shares to be purchased and the
Conversion Shares have not been registered under the Act, by reason of a
specific exemption from the registration 


 


15

















 


provisions of the Act, the availability of which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Investor’s representations as expressed herein or
otherwise made pursuant hereto.


 


(b)                                 Rule 144.  The Investor understands that the Series A
Shares constitute “restricted securities” within the meaning of Rule 144
promulgated under the Act (“Rule 144”) inasmuch as they are being acquired from
the Company in a private placement transaction. 
Under applicable laws and regulations, the Series A Shares may be
resold without registration under the Act only in certain limited
circumstances.  In this connection, the
Investor represents that it is familiar with Rule 144, and understands the
resale limitations imposed thereby and by the Act.  The Investor understands that under Rule 144,
except as otherwise provided by section (k) of that rule, the limitations
include, among other things: (i) the availability of certain current
public information about the issuer; (ii) the resale occurring not less
than one year after the party has purchased and paid for the securities to be
sold; and (iii) limitations on the amount of securities to be sold and the
manner of sale.  The Investor understands
that the current public information referred to above is not now available and
the Company has no present plans to make such information available.  The Investor acknowledges and understands
that the Company may not be in compliance with the current public information
requirement of Rule 144 at the time it wishes to sell the Series A
Shares, and that, in such event, it may be precluded from selling such Series A
Shares under Rule 144 to the extent that the Act applies to such transfer,
even if the minimum holding period of Rule 144 has been satisfied.  The Investor acknowledges that in the event
all of the requirements of Rule 144 are not met, registration under the
Act or compliance with another exemption from registration will be required for
any disposition of the Series A Shares and the Conversion Shares to the
extent that the Act applies to such transfer. 
Such Investor understands that although Rule 144 is not exclusive,
the Securities and Exchange Commission (the “SEC”) has expressed its opinion that persons
proposing to sell restricted securities received in a private offering other
than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.


 


(a)                                  No Public Market.  The
Investor understands and acknowledges that no public market now exists for any
of the securities issued by the Company and that the Company has made no
assurances that a public market will ever exist for the Company’s securities.


 


(b)                                 Accredited Investor.  The
Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a),
promulgated by the Securities and Exchange Commission under the Securities Act.


 


5.                                      Conditions
to Closing of the Investor.  The
Investor’s obligation to purchase the Series A Shares at the Closing is
subject to the fulfillment of the following conditions:


 


(a)                                  Representations and Warranties and Covenants.  The
representations and warranties made by the Group Companies and the Shareholder
in Section 3 hereof shall be true and correct when made and true and
correct as of the date of the Closing, except for representations and
warranties made expressly as of another date, which representations and 


 


16

















 


warranties shall be true and correct on and as of
such date.  The Group Companies and the
Shareholder shall have performed all covenants, obligations and conditions
herein required to be performed or observed by it on or prior to the Closing.


 


(b)                                 Qualifications; Authorizations.  All
authorizations, approvals, permits, qualifications or exemptions, if any, of
any governmental authority or regulatory body of the United States or of any
state or foreign body that are required in connection with the lawful issuance
and sale of the Series A Shares pursuant to the Transaction Agreements
shall be duly obtained and effective as of the date of the Closing, except for
such as may properly be obtained subsequent to the Closing.  The Company shall have fully satisfied
(including with respect to rights of timely notification) or obtained
enforceable waivers in respect of any preemptive or similar rights directly or
indirectly affecting any of its shares or securities, as applicable.


 


(c)                                  Memorandum and Articles of Association.  The
Amended Memorandum and the Restated Articles shall have been adopted by the
shareholder of the Company and shall be in full force and effect.


 


(d)                                 Board of Directors.  Effective
as of the date of the Closing, the authorized size of the Board of Directors
shall be five (5), of which three (3) shall be designated by the Investor,
and two (2) shall be designated by the Shareholder.  Jack Lu, Xie Yong Hong, Jason Sun, Zheng
Jiaqiang and Lin Song shall be the initial members of the Board of Directors
(each a “Director”).


 


(e)                                  Voting Agreement.  The
Company, the Investor and the Shareholder shall have entered into the Voting
Agreement.


 


(f)                                    Indemnification Agreements.  The
Company shall have entered into an indemnification agreement, in substantially
the form attached hereto as Exhibit E, with each Director.


 


(g)                                 Employment Agreements.  The
employees of the Company set forth on Schedule 5(g) (the “Senior Management”) shall have entered into
an Employment Agreement with the Company in substantially the form attached
hereto as Exhibit F.


 


(h)                                 Non-competition Agreements.  Each
of the Senior Management shall have entered into a Non-competition Agreement
with the Company in substantially the form attached hereto as Exhibit G.


 


(i)                                     Confidential Information and Invention
Assignment Agreements.  All officers and employees of the Group Companies shall have entered into
the applicable Group Company’s standard form of Confidential Information and
Invention Assignment Agreement, in substantially the form attached hereto as Exhibit H.


 


(j)                                     Compliance Certificate.  The Investor shall have
received a certificate executed and delivered by the chief executive officer of the Company in substantially the form
attached hereto as Exhibit I.


 


(k)                                  Secretary’s Certificate.  The
Secretary of the Company shall have delivered to the Investor a certificate in
substantially the form attached hereto as Exhibit J having attached



 


17

















 


thereto (i) the Amended Memorandum and Restated
Articles as in effect at the time of the Closing, (ii) resolutions adopted
by the Board of Directors authorizing the transactions contemplated hereby, and
(iii) resolutions adopted by the Company’s shareholder approving and
authorizing the filing of the Amended Memorandum and Restated Articles and the
issuance of Series A Shares hereunder.


 


(l)                                     Completion of Due Diligence.  The
Investor shall have completed, to its satisfaction, business, legal and
financial due diligence review of the Group Companies.


 


(m)                               Company Structure.  The
Company shall have established a legal and business structure that is
acceptable to the Investor.


 


(n)                                 Sale of Ordinary Shares.  All conditions to the closing of the Ordinary
Share Agreement shall have been satisfied.


 


(o)                                 Control Agreements.  The PRC Subsidiary and the PRC Domestic
Company shall have entered into control agreements in forms satisfactory to the
Investor.  In addition, PRC Subsidiary or
its shareholders and each of the shareholders of the PRC Domestic Company shall
have entered into control agreements forms satisfactory to the Investor.


 


(p)                                 Intellectual Property Assignment. The Investor shall have received written
confirmations regarding the ownership and assignment of certain Intellectual
Property in forms satisfactory to the Investor.


 


(q)                                 Schedule of Exceptions. The Company shall have delivered to the
Investor the Schedule of Exceptions.


 


6.                                      Conditions
to Closing of the Company.  The
Company’s obligation to sell and issue the Series A Shares to the Investor
at the Closing is, at the option of the Company, subject to the fulfillment of
the following conditions:


 


(a)                                  Representations and Warranties Correct.  The representations and warranties made by
the Investor in Section 4 hereof shall be true and correct when made, and
shall be true and correct on the date of the Closing and the Investor shall
have performed all covenants, obligations and conditions herein required to be
performed or observed by it on or prior to the date of the Closing.


 


(b)                                 Memorandum and Articles of Association.  The Amended Memorandum and the Restated
Articles shall have been adopted by the shareholder of the Company and shall be
in full force and effect.


 


(c)                                  Voting Agreement.  The Company, the Investor and the Shareholder
shall have entered into the Voting Agreement.


 


18

















 


7.                                      Post Closing Covenant.


 


(a)                                  SAFE Compliance.  The
Group Companies hereby agree and covenant to ensure and cause the continuing
compliance, including by their respective shareholders, after the Closing, with
rules and regulations issued by SAFE relating to registration of ownership
in non-PRC entities by PRC nationals.


 


(a)                                  Audited Financial Statements.  The Company shall provide to the Investor
audited consolidated financial statements of the Company as of September 30,
2010 (together with the auditor’s report and footnotes to the financial
statements) within thirty (30) days of the Closing.


 


8.                                      Miscellaneous.


 


(a)                                  Intent.  The
parties agree to execute such further instruments and to take such further
action as may reasonably be necessary to carry out the intent of this
Agreement.


 


(b)                                 Indemnity. In the event of (1) any breach or violation
of, or inaccuracy or misrepresentation in, any representation or warranty made
by the Shareholder or any Group Company contained herein or any of the other
Transaction Agreements (for purposes of determining the amount of the damages
and costs, no effect will be given to any qualification as to “materiality” or “Material
Adverse Effect” contained therein), or (2) any breach or violation of any
covenant or agreement contained herein or any of the other Transaction
Agreements by the Shareholder or any Group Company, (each of (1) and (2),
a “Breach”),
the Company and the Shareholder shall use best efforts to cure such Breach (to
the extent that such Breach is curable) to the reasonable satisfaction of the
Investor.  Notwithstanding the foregoing,
the Group Companies and the Shareholder shall also jointly indemnify the
Investor and its Affiliates, limited partners, members, stockholders,
employees, agents and representatives (each, an “Indemnitee”) for any and all losses,
liabilities, damages, liens,  claims,
obligations, penalties, settlements, deficiencies, costs and expenses,
including without limitation reasonable advisor’s fees and other reasonable
expenses of investigation, defense and resolution of any Breach or alleged
Breach paid, suffered, sustained or incurred by the Indemnitees (each, an “Indemnifiable Loss”)
resulting from, or arising out of, or due to, directly or indirectly, any
Breach or alleged Breach.


 


(c)                                  Market Stand-Off Agreement.  If requested by
the Company and an underwriter of Common Stock (or other securities) of the
Company, each Holder shall not sell or otherwise transfer, make any short sale
of, grant any option for the purchase of, or enter into any hedging or similar
transaction with the same economic effect as a sale, of any Ordinary Share (or
other securities) of the Company held by such Holder (other than those included
in the registration) during the one hundred eighty (180) day period following
the effective date of the registration statement for the Company’s Initial
Public Offering filed under the Securities Act (or such other period as may be
requested by the Company or an underwriter to accommodate regulatory
restrictions on (i) the publication or other distribution of research
reports and (ii) analyst recommendations and opinions, including, but not
limited to, the restrictions contained in NASD Rule 2711(f)(4) or
NYSE Rule 472(f)(4), or any successor provisions or 


 


19

















 


amendments
thereto). The obligations described herein shall not apply to a registration
relating solely to employee benefit plans on Form S-l or Form S-8 or
similar forms that may be promulgated in the future, or a registration relating
solely to a transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
and may stamp each such certificate with the appropriate legends with respect
to the shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of such one hundred eighty (180) day (or other)
period.


 


(d)                                 Expenses.  Except as
set forth below, each party will pay the costs it incurs in connection with
transaction contemplated hereby. The Investor shall pay any reasonable costs
incurred by the Company in connection with the negotiation of the Transaction
Agreements and the Amended Memorandum and Restated Articles. The Shareholder
shall pay any reasonable costs incurred by the Company in connection with the
negotiation and execution of the term sheet for the transaction and any other
agreements required for the Closing.


 


(e)                                  Notices.  All notices and other communications required
or permitted hereunder shall be in writing and shall be sent by facsimile or
mailed by electronic, registered or certified mail or by overnight courier or
otherwise delivered by hand or by messenger, addressed:


 


(i)                                     if to the Investor, at the Investor’s address (attention: Chief Executive
Officer) as follows:


 


20F,
Tower E1, The Towers, Oriental Plaza


No. 1
East Chang An Ave


Dong
Cheng District


Beijing,
China 100738


 


with
a copy to:


 


Carmen
Chang, Esq.

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, CA  94304

Facsimile:  (650) 493-6811


 


(ii)                                  if to the Company or any of its Subsidiaries, at the address of the
Company’s principal corporate offices (attention: President), or at such other
address as the Company shall have furnished to the Investor in writing, as
follows:


 


Room 512, 5/F


Tower 1 Silvercord, 30 Canton Road


Tsimshatsui, Kowloon


Hong Kong


 


Where
a notice is sent by mail, service of the notice shall be deemed to be effected
by properly addressing, pre-paying and mailing a letter containing the notice,
and to have been 


 


20

















 


effected
at the expiration of three (3) business days after the letter containing
the same is mailed as aforesaid.


 


Where
a notice is sent by overnight courier, service of the notice shall be deemed to
be effected by properly addressing, and sending such notice through an
internationally recognized express courier service, delivery fees pre-paid, and
to have been effected three (3) business days following the day the same
is sent as aforesaid.  Notwithstanding
anything to the contrary in this Agreement, notices sent to the Investor (and
their permitted assigns) shall only be delivered by internationally recognized
express courier service pursuant to this paragraph.


 


Where
a notice is delivered by facsimile, electronic mail, by hand or by messenger,
service of the notice shall be deemed to be effected upon delivery.


 


(f)                                    Successors and Assigns.  This
Agreement shall inure to the benefit of the successors and assigns of the Group
Companies, subject to the restrictions on transfer herein set forth, and be
binding upon the Investor, his heirs, executors, administrators, successors and
assigns.


 


(g)                                 Amendment.  This Agreement may be amended by a written
instrument executed by the Company and the Investor; provided, however,
that this Agreement may not be amended or terminated and the observance of any
term hereunder may not be waived with respect to the Investor without the
written consent of such Investor.


 


(h)                                 Governing Law.  This Agreement shall be governed by, and
construed and enforced, and the arbitrators shall decide any disputes submitted
by the parties of this Agreement, in accordance with the substantive laws of
New York as such laws are applied to agreements between New York residents
entered into and to be performed within New York.


 


(i)                                     Dispute Resolution.


 


(i)                                     Any dispute, controversy or claim arising out of or relating to this
Agreement, or the interpretation, breach, termination or validity hereof, shall
first be subject to resolution through consultation of the parties to such
dispute, controversy or claim.  Such
consultation shall begin within seven (7) days after one party hereto has
delivered to the other parties involved a written request for such
consultation.  If within thirty (30) days
following the commencement of such consultation the dispute cannot be resolved,
the dispute shall be submitted to arbitration upon the request of any party
with notice to the other parties.


 


(ii)                                  The arbitration shall be conducted in Hong Kong under the auspices of the
Hong Kong International Arbitration Centre (the “HKIAC”) in accordance with the UNCITRAL Arbitration Rules (“UNCITRAL Rules”) in effect,
which rules are deemed to be incorporated by reference into this Section 7(i).  There shall be three (3) arbitrators.  The complainant and the respondent to such
dispute shall each select one arbitrator within thirty (30) days after giving
or receiving the demand for arbitration. 
Such arbitrators shall be freely selected, and the parties shall not be
limited in their selection to any prescribed list.  The Chairman of the HKIAC shall select the
third arbitrator, who shall be qualified to practice law in New York. If either
party to the arbitration does not appoint an arbitrator who has consented to


 


21
















 


participate within thirty (30) days after selection
of the first arbitrator, the relevant appointment shall be made by the Chairman
of the HKIAC.


 


(iii)          The arbitration proceedings shall be
conducted in English.  The arbitration
tribunal shall apply the UNCITRAL Rules in effect at the time of the
arbitration.  However, if such rules are
in conflict with the provisions of this Section 7(i), including the
provisions concerning the appointment of arbitrators, the provisions of this Section 7(i) shall
prevail.


 


(iv)          The arbitrators shall decide any
dispute submitted by the parties to the arbitration strictly in accordance with
the substantive law of New York, and shall not apply any other substantive law.


 


(v)           Each Party hereto shall cooperate
with any party to the dispute in making full disclosure of and providing
complete access to all information and documents requested by such party in
connection with such arbitration proceedings, subject only to any
confidentiality obligations binding on the Party receiving the request.


 


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


 


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


 


(j)            Specific
Enforcement.  The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached.  It is accordingly agreed that,
notwithstanding Section 7(i), the parties shall be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.


 


(k)           Survival.  The representations, warranties,
covenants and agreements made herein shall survive any investigation made by
any Investor  and the closing of the
transactions contemplated hereby, and shall terminate on the third anniversary
of the date of the Initial Closing; provided, that such termination date
shall not apply in the case of a fraudulent breach of any such representation,
warranty, covenant or agreement.


 


(l)            Broker’s
Fees.  The
Company shall indemnify and hold harmless the Investor from any liability for
any commission or compensation in the nature of a brokerage or finder’s fee or
agent’s commission (and the costs and expenses of defending against such
liability or asserted liability) for which the Investor or any of its
constituent partners, members, officers, directors, employees or representatives
is responsible to the extent such liability is attributable to any inaccuracy
or breach of the representations and warranties contained in Section 3(v).


 


(m)          Counterparts;
Facsimiles.  This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such


 


22

















 


counterparts, and all of
which together shall constitute one instrument. 
A facsimile, telecopy or other reproduction of this Agreement may be
executed by one or more parties hereto and delivered by such party by facsimile
or any similar electronic transmission device pursuant to which the signature
of or on behalf of such party can be seen. 
Such execution and delivery shall be considered valid, binding and
effective for all purposes.


 


(n)           Titles
and Subtitles.  The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this
Agreement.  All references in this
Agreement to sections, paragraphs and exhibits shall, unless otherwise
provided, refer to sections and paragraphs hereof and exhibits attached hereto.


 


(o)           Delays
or Omissions.  No delay or omission to exercise any right, power or remedy accruing to
any party under this Agreement, upon any breach or default of any other party
under this Agreement, shall impair any such right, power or remedy of such
non-breaching or non-defaulting party nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring.  Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in
such writing.  All remedies, either under
this Agreement or by law otherwise affording to any party, shall be cumulative
and not alternative.


 


(p)           Severability.  If
any provision of this Agreement shall be determined to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.


 


(q)           Entire
Agreement.  This Agreement, and the documents referred to herein constitute the
entire agreement between the parties hereto pertaining to the subject matter
hereof, and any and all other written or oral agreements relating to the
subject matter hereof existing between the parties hereto are expressly
canceled.


 


(r)            No Commitment for Additional Financing.  The
Company acknowledges and agrees that the Investor has not made any
representation, undertaking, commitment or agreement to provide or assist the
Company in obtaining any financing, investment or other assistance, other than
the purchase of the Series A Shares as set forth herein and subject to the
conditions set forth herein.  In
addition, the Company acknowledges and agrees that (i) no oral statements
made by the Investor or its representatives on or after the date of this
Agreement shall create an obligation, commitment or agreement to provide or
assist the Company in obtaining any financing or investment, (ii) the
Company shall not rely on any such statement by the Investor or its
representatives, and (iii) an obligation, commitment or agreement to
provide or assist the Company in obtaining any financing or investment may only
be created by a written agreement, signed by the Investor and the Company,
setting forth the terms and conditions of such financing or investment and
stating that the parties intend for such writing to be a binding obligation or
agreement.  The Investor shall have the
right, in it sole and absolute discretion, to refuse or decline to participate
in any other financing of or


 


23

















 


investment
in the Company, and shall have no obligation to assist or cooperate with the
Company in obtaining any financing, investment or other assistance.


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


 


24

















 


IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first above written.


 


 


	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  STAGE SMART LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Lin Song

  
	
   

  	
   

  	
  Lin
  Song, Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PRC SUBSIDIARY:

  
	
   

  	
   

  
	
   

  	
  STAGE
  SMART (BEIJING) TECHNOLOGY LIMITED

  
	
   

  	
  (思达齐马特(北京)科技有限公司)

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Fan Changqing

  
	
   

  	
   

  	
  Fan
  Changqing, Legal Representative

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HK SUBSIDIARY:

  
	
   

  	
   

  
	
   

  	
  STAGE SMART (HONG KONG) LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Han Dahai

  
	
   

  	
   

  	
  Han
  Dahai, Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PRC DOMESTIC COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  可视达(北京)文化传媒有限公司

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Li Yang

  
	
   

  	
   

  	
  Li
  Yang, Legal Representative

  



 


SIGNATURE PAGE TO

SERIES A PREFERENCE SHARES PURCHASE AGREEMENT


 

















 


IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first above written.


 


 


	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
  UTSTARCOM, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jack Lu

  
	
   

  	
   

  	
  Jack
  Lu, Chief Executive Officer

  



 


SIGNATURE PAGE TO

SERIES A PREFERENCE SHARES PURCHASE AGREEMENT


 

















 


IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first above written.


 


 


	
   

  	
  SHAREHOLDER:

  
	
   

  	
   

  
	
   

  	
  SMART FRONTIER HOLDINGS LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Zhang Mingliang

  
	
   

  	
   

  	
  Zhang
  Mingliang, Director

  



 


SIGNATURE PAGE TO

SERIES A PREFERENCE SHARES PURCHASE AGREEMENT


 

















 


Exhibit A


 


Amended and Restated Memorandum and Articles of
Association


 

















 


Exhibit B


 


Voting Agreement


 

















 


Exhibit C


 


Ordinary Share Purchase Agreement


 

















 


Exhibit D


 


Key Employee


 






 












 


Exhibit E


 


Form of Indemnification Agreement


 

















 


Exhibit F


 


Form of Employment Agreement


 

















 


Exhibit G


 


Form of Non-competition Agreement


 

















 


Exhibit H


 


Confidential Information and Invention Assignment
Agreement


 

















 


Exhibit I


 


Form of Compliance
Certificate


 


              
      , 2010


 


Capitalized
terms used herein without definition have the meanings assigned to such terms
in that certain Series A Preference Shares Purchase Agreement (the “Share Purchase Agreement”),
dated
                ,
by and among STAGE SMART LIMITED, a British Virgin Islands company (the “Company”), STAGE SMART (BEIJING)
TECHNOLOGY LIMITED (思达齐马特(北京)科技有限公司), a wholly-foreign owned
enterprise established under the laws of the People’s Republic of China (“PRC”) (the “PRC Subsidiary”), STAGE SMART (HONG KONG)
LIMITED, a Hong Kong company (the “HK Subsidiary”),
and 可视达(北京)文化传媒有限公司, a limited
liability company established under the laws of the PRC (the “PRC Domestic Company”),  UTStarcom, Inc., a Delaware company (the
“Investor”), Smart Frontier Holdings
Limited, the sole shareholder of the Company (the “Shareholder”).


 


THE UNDERSIGNED, Lin Song, the Chief Executive Officer of the Company, hereby
certifies on behalf of the Company that the conditions specified in Section 5(a) through
(i) of the Share Purchase Agreement have
been fulfilled as of the date hereof.


 


(signature page follows)


 

















 


IN WITNESS WHEREOF, the undersigned has set
forth his signature on this Compliance Certificate as of the date first set
forth above.


 


 


	
   

  	
  STAGE SMART LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:
  Lin Song

  
	
   

  	
  Title:
  Chief Executive Officer

  



 

















 


Exhibit J


 


Form of Secretary’s
Certificate


 


              
      , 2010


 


Capitalized
terms used herein without definition have the meanings assigned to such terms
in that certain Series A Preference Shares Purchase Agreement (the “Share Purchase Agreement”),
dated
                ,
by and among STAGE SMART LIMITED, a British Virgin Islands company (the “Company”), STAGE SMART (BEIJING)
TECHNOLOGY LIMITED (思达齐马特(北京)科技有限公司), a wholly-foreign owned
enterprise established under the laws of the People’s Republic of China (“PRC”) (the “PRC
Subsidiary”), STAGE SMART (HONG KONG) LIMITED, a Hong Kong
company (the “HK Subsidiary”), and 可视达(北京)文化传媒有限公司, a limited
liability company established under the laws of the PRC (the “PRC Domestic Company”),  UTStarcom, Inc., a Delaware company (the
“Investor”), Smart Frontier Holdings
Limited, the sole shareholder of the Company (the “Shareholder”).


 


THE UNDERSIGNED, Li Yang, the Secretary of the Company, hereby certifies on
behalf of the Company as follows.


 


1.             Attached as Exhibit A
is a true and complete copy of the Amended and Restated Memorandum of
Association of the Company (the “Amended Memorandum”)
and the Amended and Restated Articles of Association of the Company (the “Restated Articles”) as in effect on
the date hereof. No steps have been taken by the board of directors or
shareholder of the Company to authorize or effect any amendment or other
modification to the Amended Memorandum or the Restated Articles, other than as
may be contemplated by the Share Purchase Agreement.


 


2.             Attached as Exhibit B
is a true and complete copy of the resolutions duly adopted by the board of
directors of the Company authorizing the transactions contemplated by the Share
Purchase Agreement. The resolutions (i) were adopted in compliance with
the Company’s Amended Memorandum and Restated Articles, (ii) have not been
amended, modified or rescinded since their adoption and (iii) are in full
force and effect as of the date hereof.


 


3.             Attached as Exhibit C
is a true and complete copy of the resolutions duly adopted by the Shareholder
relating to the transactions contemplated by the Share Purchase Agreement. The
resolutions (i) were adopted in compliance with the Company’s Amended
Memorandum and Restated Articles, (ii) have not been amended, modified or
rescinded since their adoption and (iii) are in full force and effect as
of the date hereof.


 


(signature page follows)


 

















 


IN WITNESS WHEREOF, the undersigned has set
forth his signature on this Secretary’s Certificate as of the date first set
forth above.


 


 


	
   

  	
  STAGE SMART LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:
  Li Yang

  
	
   

  	
  Title:
  Secretary