EXHIBIT 4.4


 


EXECUTION COPY


 


TYNER
GROUP LIMITED


SUBSCRIPTION
AGREEMENT


 


THIS SUBSCRIPTION AGREEMENT (the “Agreement”) is made
as of July 10, 2007 by and among:


 


1.                                       Tyner Group Limited, a business company incorporated under the
laws of the British Virgin Islands (the “Company”);


 


2.                                       Beijing Bona New World
Media Technology Co., Ltd. , a wholly foreign-owned enterprise
registered in Beijing, PRC (the “WFOE”);


 


3.                                       Beijing Polybona Film
Distribution Co., Ltd. , a limited liability company registered in
Beijing, PRC (“Beijing
Polybona”);


 


4.                                       Beijing Bona Film Culture
Communication Co., Ltd. , a limited liability company registered in Beijing, PRC (“Beijing Bona Film”);


 


4.                                       Beijing Bona Advertising
Co., Ltd. , a limited
liability company registered in Beijing, PRC (“Bona Advertising”);


 


5.                                       Yu Dong  (PRC
ID No.                    );


 


6.                                       Yu Hai  (PRC ID No.                  ) (together with Yu Dong, the “Founders” and each a “Founder”);


 


7.                                       SIG China Investments One, Ltd., an exempted company incorporated in the
Cayman Islands (“SIG”);


 


8.                                       Sequoia Capital China I,
L.P., an exempted
limited partnership registered in the Cayman Islands (“Sequoia I”);


 


9.                                       Sequoia Capital China
Partners Fund I, L.P., an exempted limited partnership registered in the Cayman Islands (“Sequoia Partners”);
and


 


10.                                 Sequoia Capital China
Principals Fund I, L.P., an exempted limited partnership registered in the Cayman Islands (“Sequoia Principals”,
and together with Sequoia I and Sequoia Partners, “Sequoia”),


 


(the foregoing
parties collectively, the “Parties”,
and each a “Party”).


 

















 


RECITALS


 


A.            Beijing
Polybona, Beijing Bona Film and Bona Advertising (the “Domestic Companies”,
and each a “Domestic
Company”) are limited liability companies established and
registered under the Company Law of the People’s Republic of China that are
engaged in the business of film distribution, related advertising services and
performing artiste management in the PRC (the “Business”), as more particularly
described in the business plan of the Group (defined below) attached as EXHIBIT A
(the “Business Plan”).


 


B.            As
at the date hereof, the Founders collectively hold the entire issued ordinary shares of the Company.


 


C.            Pursuant
to a term sheet, dated as of February 12, 2007 setting forth certain terms
and conditions of a proposed series A preferred share investment, the Investors
(defined below) proposed to subscribe to certain series A preferred shares of
the Company.


 


D.            By
this Agreement, the Parties desire to set forth the terms of the financing of
the Company (the “Series A
Financing”) by way of the issuance and subscription of the Series A
Preferred Shares (defined below) hereunder.


 


NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:


 


1.             Definitions.  For purposes of this Agreement the following
terms have the following meanings:


 


“Affiliate” means, in respect of a Person, any other Person that, directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such Person, and (a) in the case of a
natural Person, shall include, without limitation, such Person’s spouse, parents, children, siblings,
mother-in-law and father-in-law and brothers and sisters-in-law, (b) in the case of an
Investor, shall include any Person who holds Shares as a nominee for such Investor,
and (c) for the purpose of Section 6.3(c) only, in respect of an Investor, shall also
include (i) any shareholder of such Investor, (ii) any entity or
individual which has a direct and indirect interest in such Investor
(including, if applicable, any general partner or limited partner) or any fund
manager thereof; (iii) any Person that directly or indirectly Controls, is
Controlled by, under common Control with, or is managed by such Investor or its
fund manager, (iv) the relatives of any individual referred to in (ii) above,
and (v) any trust Controlled by or held for the benefit of such
individuals.


 


“Agreement” has the meaning set forth in the preamble to
this Subscription Agreement.


 


“Balance Sheet Date” means December 31, 2006.


 


“Board” means the Company’s board of Directors as
constituted from time to time.


 


“Business” shall have the meaning set forth in the
recitals to this Agreement.


 


“Business Day” means any day, excluding Saturdays and
Sundays, on which banks in Beijing, PRC, Hong Kong, and the State of New York,
U.S.A. are generally open for business.


 


2

















 


“Closing” has the meaning set forth in Section 2.2
of this Agreement.


 


“Control” with respect to any third Person shall be
deemed to exist in favor of any Person (a) when such Person holds at least
20 percent of the outstanding voting securities of such third Person and no
other Persons owns a greater number of outstanding voting securities of such
third Person or, (b) when such Person has the right, power or ability to
direct the management and policies of such third Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, or (c) over other members of such Person’s immediate
family.  Immediate family members
include, without limitation, a Person’s spouse, parents, children, siblings,
mother-in-law and father-in-law and brothers and sisters-in-law.  The terms “Controlling” and “Controlled” have meanings correlative to the
foregoing.


 


“Directors” means the directors of the Company, and “Director” means any
one of them.


 


“Domestic Companies” means Beijing Polybona, Beijing Bona
Film and Bona Advertising.


 


“Encumbrance” means any liens, security interest,
pledges, claims, restrictions, equities, charges and encumbrances of any nature
whatsoever.


 


“ESOP” has the meaning set forth in Section 10.2 of
this Agreement.


 


“Financial Statements” means the consolidated balance
sheets, profit and loss accounts and cash flow statements of the Group as for
the 12-month period ended December 31, 2006, and any notes thereto, copies
of which are attached to this Agreement as EXHIBIT C.


 


“Founders” means Yu Dong and Yu Hai, and “Founder” means any
one of them.


 


“Group” or “Group  Companies” means the Company, the WFOE, the
Domestic Companies and their respective Subsidiaries from time to time, and “Group Company” means
any one of them.


 


“IFRS” means International Financial Reporting Standards
issued by the International Accounting Standards Board, as in effect from time
to time.


 


“Intellectual Property Rights” means any and all
worldwide, international, PRC, or foreign patents, all patent rights and all
applications therefor and all reissues, re-examinations, continuations,
continuations-in-part, divisions, and patent term extensions thereof,
inventions (whether patentable or not), discoveries, improvements, concepts,
innovations, industrial models, registered and unregistered copyrights,
copyright registrations and applications, author’s rights, works of authorship
(including artwork of any kind and software of all types in whatever medium,
inclusive of computer programs, source code, object code and executable code,
and related documentation), URLs, web sites, web pages and any part
thereof, technical information, know-how, trade secrets, drawings, designs,
design protocols, specifications for parts and devices, quality assurance and
control procedures, design tools, manuals, research data concerning historic
and current research and development efforts, including the results of
successful and unsuccessful designs, databases and proprietary data,
proprietary processes, proprietary 


 


3

















 


rights, technology, engineering, discoveries,
formulae, algorithms, operational procedures, trade names, trade dress,
trademarks, domain names, service marks, mask works, and registrations and
applications therefor, the goodwill of the business symbolized or represented
by the foregoing, customer lists and other proprietary information and common
law rights;


 


“Investors” means subscribers of Series A Preferred
Shares pursuant to this Agreement, and “Investor” means any one of them.


 


“Knowledge” means best knowledge after making due and
careful inquiry and investigation and with respect to any Warrantor that is an
entity refers to the knowledge of Yu Dong and Yu Hai.


 


“Management Accounts” means the consolidated unaudited
profit and loss accounts of the Group Companies for the period from January 1,
2007 to June 30, 2007, and the consolidated unaudited balance sheet of the
Group Companies as at the Management Accounts Date, prepared in accordance with
the requirements of the relevant statutes on a consistent basis and presented
in a form that is satisfactory to the Investors.


 


“Management Accounts Date” means June 30, 2007.


 


“Material Adverse Event” means, with respect to any
Person or group of Persons, any change, event, or effect that is materially
adverse to its business, operations, assets, liabilities, financial condition,
or results of operations or prospects.


 


“Memorandum and Articles” means the Amended and Restated
Memorandum of Association and the Amended and Restated Articles of Association
of the Company, in the form attached hereto as EXHIBIT B.


 


“Ordinary Shares” means the ordinary shares, par value
US$0.001 per share, of the Company.


 


“Person”
means any individual, sole proprietorship, partnership, firm, joint venture,
estate, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or governmental authority or
other entity of any kind or nature.


 


“PRC” means
the People’s Republic of China, and for the purpose of this Agreement only
excludes the Hong Kong Special Administrative Region, the Macau Special
Administrative Region and Taiwan.


 


“Preferred Shares” means the Series A Preferred
Shares.


 


“Promissory Notes” means the Sequoia Promissory Note and
the SIG Promissory Note.


 


“Qualified IPO” means the closing of the Company’s first
firm commitment, underwritten public offering of Ordinary Shares or securities
representing Ordinary Shares in connection with which Ordinary Shares or such
securities (or the shares of a company of which the Company is a wholly owned
subsidiary established for the purpose of listing (the “Listco”)) is listed
and becomes publicly traded on an internationally recognized securities
exchange (including the Stock Exchange of Hong Kong) or the NASDAQ National
Market 


 


4

















 


or the issue or transfer of shares in a company
whose shares are listed on an internationally recognized stock exchange
(including the Stock Exchange of Hong Kong) or on NASDAQ National Market for
which shares approval for listing and trading has been duly obtained and which
shares are issued or transferred in consideration of the acquisition of the
Ordinary Shares of the Company or the shares of the Listco, provided, however,
that such transaction or listing shall result in aggregate proceeds to the
Company of at least US$60,000,000 (before deduction for underwriters’
commissions and expenses), and that the market capitalization of the Company or
the Listco immediately after such transaction or listing shall be at least
US$300,000,000.


 


“Relevant Claim” means a claim by an Investor in respect
of any of the representations and warranties set forth in Section 3 of
this Agreement.


 


“Reserved” means, with respect to any class or series of
a company’s stock or shares to be issued in connection with the conversion
thereinto or exchange therefor of any security or the exercise of any option,
warrant or right with respect thereto, that the board of directors of such
company has adopted a resolution providing that the company shall refrain from
issuing such shares or a number of shares of such stock, and that such shares
will remain in the authorized but unissued capital of the company, unless
issued as a result of such conversion, exchange or exercise.  The word “Reserve” shall have a meaning
correlative to the foregoing.


 


“Restructuring” means the reorganization of the business
and affairs of the Group pursuant to the Restructuring Documents.


 


“Restructuring Documents” means the agreements attached
hereto as EXHIBIT D.


 


“Senior Manager” means, with respect to any Group
Company, the chief executive officer of such company and any member of
management reporting directly to the board of directors or chief executive
officer, managing director, chairman or legal representative of such company.


 


“Sequoia Promissory Note” means the convertible
promissory note in the principal amount of US$1,500,000 issued by the Company
to Sequoia on June 15, 2007.


 


“Series A Preferred Shares” means series A
redeemable convertible preferred shares of the Company, par value US$0.001 per
share.


 


“Shareholders’ Agreement” means the Shareholders’
Agreement in substantially the form attached as EXHIBIT E to this
Agreement.


 


“SIG Promissory Note” means the convertible promissory
note in the principal amount of US$1,500,000 issued by the Company to SIG on May 1,
2007.


 


“Subsidiary” means, with respect to any Person that is
not an individual, any corporation, partnership, or other entity, Controlled by
such Person.


 


“Taxes” or “Taxation” means and includes all forms of
tax, levy, duty, charge, impost, fee, deduction or withholding of any nature
imposed, levied, collected withheld or assessed by any governmental authority
or other taxing or similar 


 


5

















 


authority in any part of the world and includes any
interest, additional tax, penalty or other charge payable or claimed in respect
thereof.


 


“Transaction Documents” means this Agreement, the
Shareholders’ Agreement and the Restructuring Documents.


 


“Warrantors” means the Company, the WFOE, the Domestic
Companies, and each Founder.


 


2.             Subscription and Issuance of Preferred Shares.


 


2.1                                 Subject to the terms and conditions of this
Agreement, the Company agrees to allot, issue and sell to the Investors, and
the Investors agree to purchase and subscribe, severally and not jointly, from
the Company, up to 500,000 Series A Preferred Shares (the “Subscribed Shares”)
at the price of US$16.00 per Subscribed Share, and as more particularly set
forth below:


 


	
   

  	
   

  	
   

  	
   

  	
  Consideration

  	
   

  	
   

  	
   

  
	
  Investor

  	
   

  	
  Subscribed

  Shares

  	
   

  	
  Cash

  	
   

  	
  Promissory

  Note

  Conversion

  	
   

  	
  Aggregate

  Consideration

  	
   

  
	
  SIG
  China Investments One, Ltd

  	
   

  	
  250,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  US$

  	
  4,000,000

  	
   

  
	
  Sequoia

  	
   

  	
  250,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  US$

  	
  4,000,000

  	
   

  
	
  Sub-allocated
  as follows:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sequoia
  Capital China I, L.P.

  	
   

  	
  196,900

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  US$

  	
  3,150,400

  	
   

  
	
  Sequoia
  Capital China Partners Fund I, L.P.

  	
   

  	
  22,625

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  US$

  	
  362,000

  	
   

  
	
  Sequoia Capital China Principals Fund I, L.P.

  	
   

  	
  30,475

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  US$

  	
  487,600

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  500,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  US$

  	
  8,000,000

  	
   

  



 


2.2                                 Closing.  The
consummation of the sale and issuance by the Company of the Subscribed Shares
set forth in Section 2.1 (the “Closing”) shall take place on (a) the
fifth Business Day following satisfaction or waiver (if applicable) of the
conditions in Sections 7 and 8, or (b) such other time as the Company and
the Investors mutually agree.


 


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2.3                                 At the Closing (except as indicated below),
subject to satisfaction or waiver of the conditions set forth in Sections 7 and
8:


 


(a)                                  The Company shall deliver to each Investor
subscribing Subscribed Shares in the Closing each document or item the delivery
of which is made an express closing condition pursuant to Section 7.


 


(b)                                 Each Investor shall deliver to the Company:


 


(i)                                     a counterpart of the Shareholders’ Agreement
executed by such Investor; and


 


(ii)                                  the aggregate subscription price or
consideration with respect to Subscribed Shares subscribed by it hereunder, as
set forth in Section 2.1, by setting off such subscription price (or part
thereof) against the amounts outstanding under the relevant Promissory Note
held by such Investor and, with respect to the balance in immediately available
funds by wire transfer to the following bank account of the Company:


 


Bank:


 


Address:


 


Account No.:


 


Bank Code:


 


Swift Code:


 


	
  Beneficiary:

  	
  TYNER
  GROUP LIMITED

  
	
   

  	
   

  
	
  Beneficiary’s

  	
  P.O. Box
  957

  
	
  Address:

  	
  Offshore
  Incorporations Centre

  
	
   

  	
  Road
  Town, Tortola

  
	
   

  	
  British
  Virgin Islands

  



 


3.             Representations and Warranties of the Warrantors.  Each of the Warrantors severally but not
jointly (with respect to Section 3.1 and with respect to any specific
representation or warranty qualified by reference to each Warrantor’s
Knowledge), and jointly and severally (with respect to all other provisions of
this Section 3 represents, warrants and undertakes to each Investor,
subject to the disclosure schedule attached hereto as EXHIBIT H, as
revised, updated or supplemented with the consent of the Investors (the “Disclosure Schedule”),
as follows:


 


3.1                                 Power and Authority;
Enforceability; No Violation of Laws.  It has all
requisite legal power and authority to execute and deliver the Transaction
Documents to which it is a party and to carry out and perform all of its
obligations thereunder in accordance with the terms thereof.  Each Transaction Document to which it is a
party is enforceable against it in accordance with the terms thereof except to
the extent that such enforcement may be limited by bankruptcy, insolvency or
similar laws now or hereafter in effect relating to creditors’ rights and
remedies generally, and the execution, delivery and performance thereof do not
violate any of its constitutional or organizational documents (where 


 


7

















 


applicable), or any agreement or order of any court
or regulatory body binding upon it, or any applicable law or regulation.


 


3.2                                 Each Group Companies’
Corporate Organization and Authority. Each Group Company:


 


(a)                                  is a corporate Person of the kind described
in the preamble to this Agreement, and is duly established, properly
registered, validly existing, authorized to exercise all its powers, rights, and
privileges, and in good standing under the laws of its jurisdiction of
establishment as described in the preamble hereto;


 


(b)                                 is duly approved by the governmental and
regulatory authorities in its jurisdiction of establishment and has the
corporate power and corporate authority to own, lease and operate its
properties and to carry on its business as now conducted, and as proposed to be
conducted; and has complied with its constitutional or organizational documents
in all material respects, and to each Warrantor’s Knowledge, none of the
activities, agreements, commitments, obligations or rights of such Group
Company is ultra vires, unauthorized or in violation of such constitutional or
organizational documents or any applicable laws;


 


(c)                                  has made available to the Investors or their
counsel a copy of its minute books.  Such
copy is true, correct, and complete and contains all amendments and all minutes
of meetings and actions taken by the shareholders and directors of the Company
since the time of incorporation through the date of this Agreement and reflects
all transactions referred to in such minutes accurately;


 


(d)                                 has in all material respects properly kept
all books, records and registers required to be kept by it under any applicable
laws, and the copies of the constitutional or organizational documents of the
Company supplied to the Investors are true, accurate and up-to-date;


 


(e)                                  has filed or delivered all material returns,
particulars, resolutions and other documents required to be filed with or delivered
to any governmental authority in respect of the Company; and


 


(f)                                    has not given any powers of attorney in
force, and there are no outstanding authorities (express or implied) by which
any Person may enter into any contract or commitment to do anything outside the
ordinary course of business on its behalf.


 


3.3                                 Capitalization of the
Company.


 


(a)                                  Share Capital. 
After the Memorandum and Articles have been adopted and have become
effective, and immediately prior to the Closing, the authorized share capital
of the Company will be US$50,000 consisting of:


 


(i)                                     Preferred Shares. 
1,000,000 Series A Preferred Shares.


 


(ii)                                  Ordinary Shares. 
4,000,000 Ordinary Shares, of which exactly 955,001 Ordinary Shares have
been duly and validly issued and 


 


8

















 


are fully paid, consisting of 932,500 Ordinary
Shares held by Yu Dong, 22,500 Ordinary Shares held by Yu Hai and one Ordinary
Share held by Shi Nansun.


 


(b)                                 Reserved Shares.  As
of the Closing, the Company shall have Reserved 1,000,000 Ordinary Shares of
the Company for the conversion of Series A Preferred Shares.


 


(c)                                  Other Securities. 
Immediately prior to the Closing and save as required by the Transaction
Documents or in the Memorandum and Articles, there will be no outstanding
rights of first refusal, preemptive rights, or other rights, warrants, options,
conversion privileges, subscriptions, or other rights, agreements or
securities, either directly or indirectly, entitling the holder thereof to
purchase or otherwise acquire or to compel the Company to issue, repurchase or
redeem any equity securities of the Company.


 


(d)                                 Capitalization immediately
before and after the Closing.  An
accurate and complete list of the Company’s shareholders and holders of options
and convertible securities and their respective holdings of the Company’s
capital stock, options and convertible securities, together with all unissued
options reserved for issuance in each case both immediately prior to and after
the Closing, is set forth in Schedule 3.3(d).


 


3.4                                 Capitalization of the WFOE.


 


(a)                                  Registered Capital.  The
registered capital of the WFOE is US$1,500,000. 
All of the equity interest of the WFOE is legally and beneficially owned
by the Company.  Such capitalization of
the WFOE and the ownership of the WFOE by the Company have been approved by all
relevant PRC authorities, which approvals are in full force and effect and have
not lapsed or been revoked.


 


(b)                                 Other Securities. 
There are no outstanding rights of first refusal, preemptive rights, or
other rights, warrants, options, conversion privileges, subscriptions, or other
rights, agreements or securities, either directly or indirectly, entitling the
holder thereof to purchase or otherwise acquire or to compel the WFOE to increase
or decrease the WFOE’s registered capital.


 


3.5                                 Capitalization of the
Domestic Companies.


 


(a)                                  The registered capital of Beijing Polybona
is RMB20,000,000, the registered capital of Beijing Bona Film is RMB1,000,000
and the registered capital of Bona Advertising is RMB500,000.  All of the registered capital of each
Domestic Company has been paid in full.


 


(i)                                     Beijing Bona Film holds 60 percent of
record, Oriental Dragon Film Company Limited  “Oriental Dragon”) holds 20.4 percent of
record, Yu Dong  holds 17.6 percent of record and
Yu Hai holds two percent of record, respectively, of the equity interest in Beijing
Polybona.


 


9

















 


(ii)                                  Yu Dong holds 97 percent of record of the
equity interest in Beijing Bona Film.


 


(iii)                               Yu Dong holds 70 percent of record of the
equity interest in Bona Advertising.


 


(b)                                 The Persons identified in Section 3.5(a)(i) are
the only Persons with direct or indirect interests in the equity capital of the
Domestic Companies, and each such Person holds its respective interests in the
Domestic Companies free and clear of all Encumbrances, except as provided under
the Restructuring Documents.  None of
such Persons will transfer, alienate or dispose of any direct or indirect
interest in any Domestic Company or create any Encumbrance over any such
interest except as required pursuant to this Agreement or the Restructuring
Documents.


 


(c)                                  Except pursuant to the Restructuring
Documents, there are no outstanding rights of first refusal, preemptive rights
or other rights, warrants, options, conversion privileges, subscriptions, or
other agreements or securities, either directly or indirectly, entitling the
holder thereof to purchase or otherwise acquire or to compel any Domestic
Company to increase or decrease its registered capital or to issue, repurchase
or redeem any of such registered capital or its issued capital.


 


3.6                                 Subsidiaries.


 


(a)                                  Save for the WFOE and the Domestic
Companies, the Company will not be the direct or indirect legal or beneficial
owner of any share, equity, membership, partnership or ownership interest in
any other Person.


 


(b)                                 All of the equity of the WFOE is legally and
beneficially owned by the Company free from all Encumbrances.


 


(c)                                  Except pursuant to the Restructuring and
except that Beijing Bona Film holds sixty (60%) of the equity interest of
Beijing Polybona, the WFOE and the Domestic Companies do not have any
Subsidiaries.  Except pursuant to the
Restructuring, no Group Company is a participant in any joint venture, partnership,
or other similar arrangement.


 


(d)                                 Schedule 3.6(d) sets forth a true,
accurate and complete list of all entities in which any Founder has an equity
interest other than the ownership of shares or equity in the Group Companies as
set forth in this Agreement, a description of any such interest and the nature
of the business of such entity.


 


3.7                                 Financial Statements.


 


(a)                                  General.


 


(i)                                     The Financial Statements have been prepared
in accordance with the requirements of the relevant statutes and on a consistent
basis in accordance with IFRS and will be audited by 


 


10

















 


the Auditors in accordance with IFRS.


 


(ii)                                  No change in the policies of accounting have
been made in preparing the accounts of any Group Company for each of the
previous financial periods of the Group Companies ended on the Balance Sheet
Date, except as stated in the unaudited balance sheets and profit and loss
accounts for such period.


 


(iii)                               The Financial Statements fairly present in
all material respects the assets, liabilities, capital commitments, financial
condition and operating results of the Group as of the Balance Sheet Date and
of the profits and losses of the Group for the period concerned.


 


(b)                                 Provision for liabilities, etc.  Full
disclosure of and adequate provisions for bad and doubtful debts and all
liabilities, actual, contingent or otherwise and of all financial commitments
in existence at the Balance Sheet Date have been made in the Financial
Statements.


 


(c)                                  Extraordinary/exceptional
items.  The results shown by the Financial Statements
on the Balance Sheet Date have not (save as therein disclosed) been affected by
an extraordinary or exceptional or non-recurring item or by any other
circumstances rendering the profits or losses for the period covered by the
Financial Statements unusually high or low.


 


(d)                                 Provision  for
Taxation.  The Financial Statements reserve or provide
in full for all Taxation for which the Group Company was at the Balance Sheet
Date liable, and whether or not the Group Company has or may have any right of
reimbursement against any other Person, the Financial Statements have provided
for in full for any contingent or deferred liability to Taxation.


 


(e)                                  Acquisition of assets. 
None of the Group Companies’ assets has been acquired for any
consideration in excess of its net realizable value at the date of such
acquisition or otherwise than by way of a bargain at arm’s length.


 


(f)                                    Depreciation.  The
rates of depreciation adopted in the Financial Statements were sufficient for
each fixed asset of the Group Company to be written down to nil by the end of
its useful life.


 


(g)                                 Management Accounts.  The
Management Accounts have been prepared in accordance with IFRS and on a
consistent basis as those used in the Financial Statements and fairly present
in all material respects the assets and liabilities, profits and losses of the
Group as of and to the Management Accounts Date.


 


(h)                                 Books and Financial
Records.  All the accounts, books, registers, ledgers
and financial and other material records of whatsoever kind of each Group
Company have been properly and accurately kept and completed; there are no
inaccuracies or discrepancies of any kind contained or reflected therein; and
they give and reflect a true and fair view of the financial, contractual and
trading position of each such Company and of its plant and machinery, fixed and
current assets and 


 


11

















 


liabilities (actual and contingent), debtors,
creditors and work-in-progress.


 


3.8                                 Changes Since Balance
Sheet Date.


 


(a)                                  General Changes. 
Since the Balance Sheet Date:


 


(i)                                     the business of the Group Companies has been
carried on in the ordinary course and so as to maintain the same as a going
concern; and


 


(ii)                                  there has been no adverse change in the
financial position or trading prospects of the Group Companies, and to the
Knowledge of the Warrantors there are no facts which are likely to give rise to
any such adverse change.


 


(b)                                 Specific Changes. 
Since the Balance Sheet Date:


 


(i)                                     no Group Company has disposed of any asset
(including trading stock) or supply of any service or business facility of any
kind (including a loan of money or the letting, hiring or licensing of any
property whether tangible or intangible) in circumstances where the
consideration actually received or receivable for such disposal or supply was
less than the consideration which would be deemed to have been received for tax
purposes;


 


(ii)                                  none of the amounts secured by the
mortgages, charges, liens or Encumbrance disclosed in the Financial Statements
has been increased beyond the amount shown in the Financial Statements and no
mortgage, charge, lien or Encumbrance has been created since the Balance Sheet
Date;


 


(iii)                               no dividends, bonuses or distributions have
been declared, paid or made;


 


(iv)                              no payment has been made by any of the Group
Companies which will not be deductible for Tax purposes either in computing the
profits of the relevant Group Company or in computing the Tax chargeable on the
Group;


 


(v)                                 no Group Company has changed its financial
year end;


 


(vi)                              save for resolutions copies of which have
been delivered to the Investors prior to the date hereof or which are required
to be passed by any Group Company prior to the Closing in order to satisfy the
conditions set out in Section 7, no board or stockholders’ resolutions of
any of the Group Companies have been passed;


 


(vii)                           there has not been any waiver or compromise
granted by any Group Company of a valuable right or of a material debt owing to
it; and


 


(viii)                        there has been no change to any material
contract or agreement which any Group Company or any of its assets is bound by
or 


 


12

















 


subject to.


 


3.9                                 Taxation.


 


(a)                                  General.


 


(i)                                     The provisions for taxes in the respective
Financial Statements are sufficient for the payment of all accrued and unpaid
taxes of each Group Company, whether or not assessed or disputed as of the date
of each such balance sheet.  Each Group
Company has duly and punctually paid all Taxation which it has become liable to
pay, except as being actively contested in good faith, and is under no
liability to pay any penalty, interest, surcharge or fine in connection with
any Taxation and has complied in all material respects with all legislation
relating to Taxation applicable to it.


 


(ii)                                  Each Group Company has timely made or filed
all such returns, notifications and reports, provided all such information and
documents and maintained all such records in relation to Taxation as are
required to be made or provided or maintained by it, all such returns,
notifications, reports, information, documents and records are true and correct
and none is disputed by any relevant governmental authority.


 


(iii)                               Each Group Company is not and does not
expect to be involved in any dispute in relation to Taxation and to each
Warrantor’s Knowledge there is no relevant governmental authority which has
investigated or indicated that it intends to investigate the Tax affairs of any
Group Company.


 


(b)                                 Payments and Interest.  No
Group Company is under any obligation to make at any time any payments of
interest or any annual payments for which no relief will be received, whether
as a deduction or charge on income.


 


(c)                                  Deductions and
Withholdings.  Each Group Company has made all
deductions in respect, or on account, of any Tax from any payments made by it
which it is obliged or entitled to make and has accounted in full to the
appropriate authority for all amounts so deducted.


 


(d)                                 Overseas Business.  The
Group Companies have only carried on their trade, business or other activities
in the PRC.


 


(e)                                  Secondary Liability.  No
event, transaction, act or omission has occurred which would result in the
Group Company becoming liable to pay or to bear any Taxation which is primarily
or directly chargeable against or attributable to any person other than the
Group Company.


 


(f)                                    Classification for U.S.
Tax Purposes.  The Company has not made an
election to be treated as a partnership nor elected to be treated as an entity
other than a corporation for U.S. federal income tax purposes.


 


13

















 


3.10                           Changes In Net Assets. 
Since the Balance Sheet Date and at all times up to the date of the
Closing, no material changes have occurred in the assets and liabilities
(whether actual or contingent) shown in the Financial Statements, other than
changes in the usual and ordinary course of business, and there has been no
material reduction in the value of the net tangible assets of the Group
Companies on the basis of the valuations adopted in the Financial Statements.


 


3.11                           Assets and Liabilities.


 


(a)                                  Title and Condition.


 


(i)                                     The assets included in the Financial
Statements or acquired since the Balance Sheet Date (other than trading stock
subsequently disposed of in the ordinary course of business or trading stock
acquired subject to retention or reservation of title by the supplier or
manufacturer thereof) and all assets used by the Group Companies:


 


(A)                              are legally and beneficially owned by the
Group or one of the Group Companies free from all Encumbrances that materially
detract from the value of the property subject thereto or materially impairs
the business or operations of any Group Company (except as provided under the
Restructuring Documents);


 


(B)                                are not the subject of any agreement for
lease, hire, hire purchase or sale on deferred terms;


 


(C)                                are in the possession or under the control
of the Group Companies; and


 


(D)                               are situated in the PRC.


 


(ii)                                  Except as is not likely to cause a Material
Adverse Event with respect to any Group Company, the assets owned, possessed or
used by the Group comprise all the assets required to enable the Group to carry
on its business in the ordinary course.


 


(iii)                               The asset registers of each Group Company
comprise a complete and accurate record of all the plant, machinery, equipment
or vehicles and other assets owned or possessed or used by each Group Company
that are necessary for the conduct of each Group Company’s business.


 


(iv)                              All assets owned or used by each Group
Company are in good repair, condition and working order, have been regularly
and properly maintained and no asset is dangerous, inefficient, out-of-date,
unsuitable or in need of renewal or replacement.


 


(b)                                 Hire Purchase and Leased
Assets etc.  No Group Company has acquired
any assets under a hire, hire purchase or credit sale agreement.


 


(c)                                  Book Debts.


 


14

















 


(i)                                     Except as set forth on Schedule 3.11(c), no
part of the amount shown in the books of account of any Group Company in
respect of debtors is represented by debts which are more than six months
overdue for payment or by debts in respect of arrangements made otherwise than
in the ordinary course of any such Group Company’s business.


 


(ii)                                  No debt has been released by any Group
Company on terms that the debtor paid less than the book value of his debt and
no debt owing to any such Group Company has been deferred, subordinated or
written off or has proved to any extent to be irrecoverable.


 


3.12                           Corporate Power.


 


(a)                                  Each Group Company has all requisite legal
and corporate power and authority to execute and deliver the Transaction
Documents to which it is a party and to carry out and perform its obligations
under the terms of the Transaction Documents to which it is a party.


 


(b)                                 The Company has all requisite legal and
corporate power and authority to execute and deliver the Transaction Documents
and, at the Closing, to authorize, sell, issue and deliver the Subscribed
Shares to the Investors, to issue Ordinary Shares issuable upon conversion of
Preferred Shares, and to carry out and perform its obligations under the terms
of the Transaction Documents.


 


3.13                           Authorization.  All
corporate action on the part of each Group Company and its shareholders
necessary for the authorization, execution, delivery, and performance of all
obligations under the Transaction Documents to which it is a party, and for the
authorization, sale, issuance and delivery of the Subscribed Shares and the
Ordinary Shares issuable upon conversion of the Series A Preferred Shares,
has been taken, or will be taken prior to the Closing.  Upon the execution and delivery thereof
(assuming due authorization, execution and delivery by the Investors), the
Transaction Documents shall constitute legally binding and valid obligations of
each Group Company, as applicable, enforceable in accordance with their
respective terms except to the extent that such enforcement may be limited by
bankruptcy, insolvency or similar laws now or hereafter in effect relating to
creditors’ rights and remedies generally.


 


3.14                           Validity of Subscribed
Shares.  The Subscribed Shares, when issued, sold, and
delivered, and upon payment by the Investors therefor, in accordance with the
terms of this Agreement, will be duly and validly issued, fully paid and will
be free of any preemption or similar rights, liens or encumbrances other than
restrictions on transfer under the Transaction Documents.  The Ordinary Shares issuable upon the
conversion of Series A Preferred Shares in accordance with the Memorandum
and Articles, upon issuance in connection with such conversion, will be duly
and validly issued, fully-paid and will be free of any preemption or similar
rights, liens or encumbrances.


 


3.15                           Changes in Condition. 
Except pursuant to the Restructuring, since the Balance Sheet Date and
to the Knowledge of each Warrantor: (a) no Group Company has entered into
any transaction except in its ordinary course of business; (b) 


 


15

















 


there has been no Material Adverse Event with
respect to any Group Company; (c) no Group Company has incurred any tax
liability except in the ordinary course of business; (d) there has been no
resignation or termination of employment of any Senior Manager of any Group
Company, and there is no impending resignation or termination of employment of
any Senior Manager of any Group Company that, if consummated, would constitute
a Material Adverse Event with respect to the Group Company; (e) there has
been no labor dispute involving any Group Company or any of its respective
employees and none is pending or threatened that could result in a Material
Adverse Event with respect to the Group Company; (f) there has been no
waiver by any Group Company of a valuable right or debt owing to such member
which would constitute a Material Adverse Event with respect to the Group
Company, (g) there has not been any satisfaction or discharge of any lien,
claim, or encumbrance, or any payment of any obligation by any Group Company,
except in the ordinary course of business and (h) there has been no change
to a contract or arrangement by which or to which any Group Company or any of
its assets or properties is bound or subject that could result in a Material
Adverse Event with respect to the Group Company.


 


3.16                           Litigation. 
There is no current or pending action, proceeding, or investigation or,
to each Warrantor’s Knowledge, any threatened action, proceeding or
investigation against any Group Company, nor to each Warrantor’s knowledge any
reasonable basis for any such action, proceeding or investigation, including
(without limitation) any action, proceeding or investigation that challenges or
calls into question the validity of the Transaction Documents or the consummation
of the transactions contemplated by the Transaction Documents, or that would
result, either individually or in the aggregate, in any Material Adverse Event
with respect to the Group.  There is no
judgment, decree, or order of any court in effect against any Group Company,
and none of the Group Company is in default with respect to any order of any
governmental authority to which it is a party or by which it is bound.  There is no action, suit, proceeding, or investigation
by any Group Company currently pending or which any Group Company presently
intends to initiate.


 


3.17                           Title to Properties; Liens
and Encumbrances.  Except as provided under the
Restructuring Documents, each Group Company has good and marketable title to
all its properties and assets, both real and personal, including without
limitation all properties and assets set forth in the Financial Statements and
the Management Accounts, and has good title to all its leasehold interests, in
each case free from any Encumbrance that materially detracts from the value of
the property subject thereto or materially impairs the business or operations
of any Group Company.  With respect to
any properties or assets leased by any Group Company, such Group Company is in
compliance with all material terms of any such leases to which it is a party,
and such leases are in full force and effect. 
Each Group Company owns or leases all properties and assets that are
necessary in order for it to conduct the Business, as presently conducted or
proposed to be conducted.


 


3.18                           Intellectual Property
Rights.


 


(a)                                  Each Group Company owns, or possess
sufficient legal rights to, all Intellectual Property Rights (including
registrations and applications to register or renew such rights), and licenses
of any of the foregoing 


 


16

















 


necessary for its business as now conducted and as
presently proposed to be conducted (collectively, the “Group Intellectual Property”),
without any infringement of the rights of any other Person; all such rights
material to the business of the Group are set forth in Schedule 3.18; (b) there
is no current or pending infringement claim or allegation against any Group
Company regarding any third party’s Intellectual Property Rights nor, to the
Knowledge of the Warrantors, has any such claim or allegation been threatened
nor are there any facts that are likely to form the basis of any such claim or
allegation; (c) the Warrantors are not aware of any violation by a third
party of any Intellectual Property Rights of the Group Companies; (d) the
Group Companies have taken reasonable security measures to protect the secrecy,
confidentiality and value of the Group Intellectual Property; (e) to the
Knowledge of the Warrantors, no employee of any Group Company is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or is subject to any judgment, decree or order of any court
or administrative agency, that would interfere with the duties of that employee
to the Group Companies, or that would conflict with the Group’s business as
presently conducted or proposed to be conducted; to the Knowledge of the
Warrantors, it is not necessary for any of the Group Companies to utilize any
Intellectual Property Rights of any employee of any Group Company created prior
to employment by such Group Company.


 


(b)                                 The Group does not use any processes nor is
it engaged in any activities which involve the misuse of any know-how, lists of
customers or suppliers, trade secrets, technical processes or other
confidential information (“IP
Confidential Information”) belonging to any third party.  To the Knowledge of the Warrantors, there has
been no actual or alleged misuse by any person of any IP Confidential
Information.  To the Knowledge of the
Warrantors, none of the Founders or current or former officers, employees or
consultants of the Group have disclosed to any person any IP Confidential
Information except where such disclosure was properly made in the normal course
of the Group Companies’ business and was made subject to an agreement under
which the recipient is obliged to maintain the confidentiality of such IP
Confidential Information and is restrained from further discussing it or using
it other than for the purposes for which it was disclosed by the Group
Companies.


 


3.19                           Contracts.


 


(a)                                  Validity of Contracts.


 


(i)                                     No Group Company is in breach of, nor does
any Warrantor have Knowledge of the invalidity of or grounds for rescission,
avoidance or repudiation of any material agreement or other transaction to
which a Group Company is a party, nor has it received notice of any intention
to terminate any such material agreement or repudiate or disclaim any other
transaction.


 


(ii)                                  To the Knowledge of the Warrantors, no party
with whom a Group Company has entered into any agreement or arrangement is in
default thereunder being a default which 


 


17

















 


would constitute a Material Adverse Event with
respect to the Group Company and there are no circumstances likely to give rise
to any such default.


 


(iii)                               No Group Company is a party to any contract
which, by reason of the sale of the Subscribed Shares or any provision of this
Agreement and/or the Transaction Agreements, gives any other contracting party
the right to terminate the contract or create or increase any obligation on the
Group Company (whether to make payment or otherwise) to any person.


 


(b)                                 Material Contracts. 
Other than as set forth on Schedule 3.19(b), no Group Company has material
or long term contracts or commitments binding upon it including but not limited
to:


 


(i)                                     any contract entered into otherwise than in
the ordinary course of business;


 


(ii)                                  any agreement or arrangement otherwise than
by way of bargain at arm’s length;


 


(iii)                               any sale or purchase option or similar
contract or arrangement affecting any assets owned or used by the Group Company
or by which the Group Company is bound;


 


(iv)                              any contract which cannot readily be
fulfilled or performed by the Group Company on time or without undue or unusual
expenditure of money or effort;


 


(v)                                 any agreement whereby the Group Company is,
or has agreed to become, a member of any joint venture, consortium or
partnership or other unincorporated association;


 


(vi)                              any agreement whereby the Group Company is,
or has agreed to become, a party to any distributorship or agency agreement;


 


(vii)                           any agreement with a customer which
constitutes ten percent or more of the annual sales of the Group Company on an
annual basis;


 


(viii)                        any agreement with a supplier which
constitutes ten percent or more of the total supply of that Group Company on an
annual basis;


 


(ix)                                any agreement with manufacturing
subcontractors, whether or not on an Original Equipment Manufacturer or
Original Design Manufacturer basis; and


 


(x)                                   any inter-company agreements and
arrangements between any Group Companies, other than the Restructuring
Documents.


 


(c)                                  Restrictive Agreements. 
There are no agreements in force restricting the freedom of any Group
Company to provide and take goods and services or to manage its own business
affairs by such means and from and to such persons as it may from time to time
think fit.


 


18






 










 


(d)                                 Guarantee etc. in respect
of services.  Save for any condition or
warranty implied by law or contained in its standard terms of business or
otherwise given in the ordinary course of business, no Group Company has given
guarantee condition or warranty or made any representation in respect of
services supplied or contracted to be supplied by it or nor has it accepted any
obligation that could give rise to any liability after any such services has
been supplied by it.


 


(e)                                  Agreement with
Shareholders.  Other than the Transaction
Documents, the Company has not entered into any agreement with, or given any
undertaking or assurance to, any of the existing shareholders of the Company or
their Affiliates.


 


(f)                                    Restriction on Transfer of
Equity Interests by the Company.  Other than
as required by the Transaction Documents, there are no agreements binding on
the Company which prohibit or restrict the sale, disposal or transfer of any
equity securities (or any interests therein) owned by the Company.


 


3.20                           Compliance with Other
Agreements.  None of the Group Companies is
in violation in any material respect of any term or provision of its Memorandum
or Articles of Association or equivalent constitutive documents as in effect as
of the Closing.  None of the Group Companies
is in violation of any term or provision of any indebtedness, mortgage,
indenture, or material contract or agreement to which it is a party or by which
it is bound or, to the Knowledge of each Warrantor, any judgment or any decree,
order, statute, rule, or regulation applicable to any Group Company.  Neither the execution nor delivery of the
Transaction Documents, nor the conduct or carrying on of the Group Companies’
business as presently conducted or proposed to be conducted, will conflict with
or result in a breach of or violate the terms of, or constitute a default
under, with or without the passage of time or the giving of notice or
otherwise:


 


(a)                                  any provision of Memorandum or Articles of
Association or equivalent constitutive documents of any Group Company as in
effect at the Closing;


 


(b)                                 any provision of any decree or order to
which any Group Company is a party or by which it is bound;


 


(c)                                  any material contract, obligation,
commitment, covenant or instrument to which a Group Company or, to the
Warrantors’ Knowledge, any employee of any Group Company, is a party or by
which it is bound; or


 


(d)                                 any statute, rule, or governmental
regulation applicable to any Group Company.


 


3.21                           Employee Relations and
Compensation Plans.


 


(a)                                  General.


 


(i)                                     Other than employment agreements with the
Persons identified in Schedule 3.21(a), there are not in existence any
contracts of service with directors or Senior Managers of the Group Companies
nor any consultancy or management agreements 


 


19

















 


with the Group Companies.


 


(ii)                                  There are not in existence any contracts of
service with employees of the Group Companies which cannot be terminated by
three months’ notice or less without giving rise to any claim for damages or
compensation and no Group Company has received notice of resignation from any
key employees or directors.


 


(iii)                               There are no existing contracts of service
with any employees of any Group Company carrying remuneration and of all
directors entitled to emoluments at a rate, or (in the case of fluctuating
amounts) an average annual rate since the incorporation of such Group Company,
in excess of US$50,000 per annum per person.


 


(iv)                              The basis of the remuneration payable to the
directors or employees of any Group Company is the same or lower than that in
force at the Balance Sheet Date and the Company is under no obligation nor has
it made any provision to alter such basis.


 


(v)                                 There are no amounts owing to any present or
former directors or employees of any Group Company other than remuneration
accrued due or for reimbursement of business expenses.


 


(vi)                              There is no agreement or understanding
(contractual or otherwise) between any Group Company and any employee or
ex-employee with respect to his employment, his ceasing to be employed or his
retirement which is not included in the written terms of his employment or
previous employment (as the case may be).


 


(b)                                 Payments on termination. 
Save to the extent (if any) to which provision or allowance has been made
in the Financial Statements:


 


(i)                                     No liability has been incurred by any Group
Company for breach of any contract of service or for services, for payments
under any applicable laws or for any other liability accruing from the
termination of any contract of employment or for services; and


 


(ii)                                  No Group Company has made or agreed to make
any payment or provided or agreed to provide any benefit to any present or
former director or employee or any dependant of any such former director or
employee in connection with the actual or proposed termination or suspension of
employment or variation of any contract of employment of any present or former
director or employee.


 


(c)                                  Compliance with relevant
legislation, etc.  Each Group Company has in
relation to each of its employees (and, so far as relevant, to each of its
former employees):


 


(i)                                     complied in all material respects with all
obligations imposed on it by, and all orders and awards made under, all
statutes, 


 


20

















 


regulations, codes of conduct and practice,
collective agreements, customs and practices relevant to the relations between
it and its employees or any trade union or the conditions of service of its
employees; and


 


(ii)                                  maintained current, adequate and suitable
records regarding the service of each of its employees.


 


(d)                                 Confidential Information
and Inventions Agreements.  Each employee, officer and
consultant of each Group Company identified in Schedule 3.21(d) has
executed a form of agreement which provides that all Intellectual Property
Rights which arise during the course of their employment or engagement by the
Group Company shall belong to such Group Company.


 


(e)                                  Trade Union.  No
Group Company:


 


(i)                                     has any agreement or other arrangement
(binding or otherwise) with any trade union or other body representing its
employees or any of them nor does it recognize any trade union or other body
representing its employees or any of them for negotiating purposes; or


 


(ii)                                  is involved in any industrial or trade
disputes or any dispute or negotiation regarding a claim of material importance
with any trade union or association of trade unions or organization or body of
employees and there are no circumstances likely to give rise to any such
dispute.


 


(f)                                    Incentive Schemes. 
Except as set forth in Schedule 3.21(f), no Group Company has in
existence nor is it proposing to introduce any share incentive scheme, share
option scheme or profit sharing bonus or other such incentive scheme for all or
any of its directors or employees except as provided in the Transaction
Documents.


 


3.22                           Transactions with
Affiliates.  Except pursuant to the
Restructuring or as set forth in Schedule 3.22, (i) no shareholder,
director or Senior Manager of any Group Company, no spouse, parent, sibling or
children of any such director or Senior Manager, and no entity Controlled by
any of the foregoing, has any agreement, understanding, proposed transaction
with, indebtedness owing to, commitments to make loans or to extend or
guarantee credit from any Group Company other than in the ordinary course of
business; (ii) the sum of the value of all agreements, understandings,
proposed transactions with, indebtedness owing to, commitments to make loans or
to extend or guarantee credit by all members of the Group with respect to any
shareholder, director or Senior Manager of any Group Company, the spouse,
parents, siblings and children of such shareholder, director or Senior Manager,
and any entity in which such shareholder, director, Senior Manager or such
relatives thereof have a direct or indirect ownership interest of not less than
one percent do not exceed US$1,500; and (iii) no shareholder, director or
Senior Manager of any Group Company, no spouse, parent, sibling or children of
any such shareholder, director or Senior Manager, and no entity Controlled by
any of the foregoing, has any direct or indirect ownership interest in any
Affiliate of any Group Company or in any firm or corporation that competes with
any Group Company.


 


21

















 


3.23                           Governmental and Third
Party Consents.  Except as set forth in Schedule
3.23, as of the Closing, no consent, approval, order, or authorization of, or
registration, qualification, designation, declaration, or filing with, any
governmental authority on the part of any Group Company will be required in
connection with the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated in the
Transaction Documents which has not already been secured or effected prior to
the Closing.


 


3.24                           Permits. 
Each Group Company has all franchises, permits, licenses, and any
similar governmental authority necessary for the conduct of its business as now
being conducted (the “Licenses”),
the lack of which could materially and adversely affect its business,
properties or financial condition, and to the Knowledge of the Warrantors, the
Group can obtain, without undue burden or expense, all Licenses for the conduct
of its business as proposed to be conducted in the Business Plan.  The Licenses are in full force and
effect.  None of the Group Companies is
in default in any material respect under any of its Licenses and has not
received any notice relating to the suspension, revocation or modification of
any such Licenses.


 


3.25                           Business Plan.  The
Business Plan has been drawn up based on fair, proper and reasonable
assumptions in good faith in a professional workmanlike manner and on a
realistic basis, after due and careful consideration of all relevant facts and
circumstances, and to the Knowledge of each Warrantor does not give a
misleading indication of the business or financial prospects of the Group;
provided, however, that in the process of implementation the Business Plan may
be adjusted by the Board based on actual conditions.


 


3.26                           Full Disclosure. 
Each of the Warrantors has provided the Investors with all the
information that the Investors have requested in connection with deciding
whether to subscribe the Subscribed Shares, and all such information being
true, accurate and complete in all material respects and not misleading in any
material respect.


 


3.27                           No Direct Selling Efforts.  No
Group Company has engaged, or permitted or caused any other person to engage in
its behalf, in any advertising or any other promotional activity in the United
States that would constitute “directed selling efforts” (as such term is
defined in Rule 902(c) of Regulation S under the Act) with respect to
sale of shares or equity interests of such Group Company.


 


3.28                           Not Investment Company.  The
Company is not required to register as an investment company under the United
States Investment Company Act of 1940, as amended.


 


3.29                           Brokers and Finders.  Except as set forth in Schedule 3.29, none of the
Warrantors has retained any investment banker, broker, or finder and there are
no fees or charges due or payable to third parties (other than reasonable legal
fees) in connection with the transactions contemplated by this Agreement.


 


3.30                           No Registration Rights.  Save
for the registration rights to be granted to the Investors under the
Shareholders’ Agreement, none of the Group Companies 


 


22

















 


has granted any registration rights to any third
party with respect to sales of any of its securities in the United States.


 


3.31                           Prior Rights.  The
Company has not granted any right to any holder of shares of the Company (other
than the holder of any Subscribed Shares) which is preferential in nature to
the rights exercisable by holders of the Subscribed Shares.


 


4.             Representations and Warranties of the Investors.  As of the date hereof, each Investor
represents and warrants to the Company as follows:


 


4.1                                 Authorization. When executed and delivered by it, and
assuming execution and delivery by the other parties thereto, each of the
Transaction Documents will constitute a legally valid and binding obligation of
such Investor, enforceable in accordance with its terms.


 


4.2                                 Investment.  The
Subscribed Shares to be subscribed by it hereunder, and the Ordinary Shares
issuable upon conversion thereof, will be acquired for investment for its own
account, and not with a view to the sale or distribution of any part thereof
(other than in compliance with applicable securities law).


 


4.3                                 Exemption from
Registration.  It understands that the offer
and sale of the Series A Preferred Shares hereunder are intended to be
exempt from the registration or qualification requirements of all applicable
securities laws and regulations, and that the reliance of the Company on such
exemptions is predicated in part on its representations set forth in this
Agreement.


 


4.4                                 Each Investor’s
Organization and Authority.  It (i) is
an entity duly organized and validly existing, and (ii) has the power and
authority to enter into and (to the extent performance is required of it) to
perform the Transaction Documents to which it is a party.


 


4.5                                 Receipt of Information.  It
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Subscribed Shares and
the business, properties and financial condition of the Group Companies.  The foregoing representation, however, does
not limit or modify the representations and warranties of the Warrantors under
this Agreement or the right of each Investor to rely thereon.


 


4.6                                 Investment Experience.  It
is able to bear the economic risk of the Subscribed Shares subscribed by it,
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of its investment in the
Subscribed Shares.  It is an accredited
investor as defined in Rule 501 of Regulation D promulgated under the
United States Securities Act of 1933, as amended.


 


5.             Additional Covenants.


 


5.1                              Restructuring Documents. 
Each Warrantor will execute or cause to be executed the Restructuring
Documents and other documents.  Prior to
the 


 


23

















 


Closing, all Restructuring Documents will have been
duly executed by all respective parties thereto and will constitute legally
binding obligations of the parties thereto, enforceable in accordance with
their respective terms.


 


5.2                                 Resolutions, Contracts or
Commitments.  Each of the Warrantors,
severally and jointly, covenants with each Investor that, except as required by
the Transaction Documents, no resolution of the directors, owners, members,
partners or shareholders of any Group Company shall be passed nor shall any
contract or commitment (other than commercial agreements entered into in the
ordinary course of business) be entered into prior to the Closing without the
written consent of each Investor.


 


5.3                                 Covenants up to the
Closing.  Notwithstanding anything to the contrary in
this Agreement, except as otherwise permitted by any of the Transaction
Documents or with the written consent of the Investors, from the date hereof
and at all times up to and including the Closing, each Group Company shall
comply with, the Founders undertake that each Group Company shall comply with
the following restrictions and requirements:


 


(a)                                  carry on its business prudently in the usual
and ordinary course consistent with past practice and the Business Plan and,
except as otherwise provided in the Business Plan, use commercial best efforts
to preserve its relationships with customers, suppliers and others having
business dealings with the Group Companies;


 


(b)                                 not amend, alter or repeal, whether by
merger, reclassification or otherwise any provision of its articles of
incorporation and by-laws or equivalent constitutional documents;


 


(c)                                  not increase, reduce, consolidate,
sub-divide or cancel its authorized and issued share capital;


 


(d)                                 not change its name or the name under which
it carries on business;


 


(e)                                  not change its jurisdiction of
incorporation;


 


(f)                                    not make any composition or arrangement with
its creditors;


 


(g)                                 not pass any resolution which would result
in its winding up, liquidation or entering into administration or receivership;


 


(h)                                 save as contemplated under the Business Plan,
not change its nature or scope (including the geographical scope) of the
business or commence or carry on any type of business not ancillary or
deviating from the business; not consolidate or merge with any other business,
which is not part of its existing business of as at the date hereof;


 


(i)                                     not offer, sell or issue, or enter into any
agreement or issue any instrument providing for the offer, sale or issuance
(contingent or otherwise) of, any shares or convertible securities, or any
equity securities of any of the Group Companies;


 


(j)                                     not increase the number of shares available
for grant or issuance under any share option plan or other share incentive plan
or arrangement or 


 


24

















 


make any amendment to or terminate any such plan or
arrangement including, without limitation, the ESOP;


 


(k)                                  not approve, amend or supplement the
Business Plan;


 


(l)                                     not incur any expenditure or make any
investment or enter into any transaction or otherwise take any action that is
not provided for in the Business Plan;


 


(m)                               not make any investment or incur any
commitment in excess of US$10,000 in respect of any one transaction or in
excess of US$50,000 in related transactions other than outsourcing services
contracts in connection with the Group’s business or otherwise in the ordinary
course of business;


 


(n)                                 not borrow any sum which when aggregated
with all the other outstanding borrowings of the Group Companies exceeds
US$50,000;


 


(o)                                 not sell, dispose of or transfer any of its
assets, business or shares where the value of such sale, disposal or transfer
in a single transaction exceeds US$10,000 or in a series of transactions
exceeds US$50,000;


 


(p)                                 not create any Encumbrance (other than a
Lien arising by operation of law) over the whole or any part of its
undertaking, property or assets except for the purpose of securing its
indebtedness to its bankers for sums borrowed in the ordinary and proper course
of business which do not exceed US$20,000 in aggregate;


 


(q)                                 not enter into any contract for transaction
other than in the ordinary course of business and on arm’s length terms;


 


(r)                                    not make any loan or advance (except to its
wholly-owned Subsidiary) or give any credit (except trade credit to customers
in the ordinary course of business); not to give any guarantee or indemnity for
or otherwise secure the liabilities or obligations of any Person (except in
favor of its wholly-owned subsidiary in the ordinary course of business); and


 


(s)                                  permit a representative of each Investor to
attend all meetings of the board of directors (or equivalent governing body) of
each Group Company, and provide each Investor with notices of any such meetings
and documents provided to the directors of each Group Company at the same time
as the same is provided to such directors.


 


Any breach of this Section 5.3 shall entitle
SIG and Sequoia to terminate this Agreement forthwith.


 


6.             Confidentiality and Announcements.


 


6.1                                 Disclosure of Terms. 
Each Party acknowledges that the terms and conditions (collectively, the
“Financing Terms”)
of the Transaction Documents, and all exhibits, restatements and amendments
hereto and thereto, including their existence, shall be considered confidential
information and shall not be disclosed by it to any third party except in
accordance with the provisions set 


 


25

















 


forth below. 
Each Investor agrees with the Company that it will keep confidential and
will not disclose or divulge, any information which such Investor obtains from
the Company, pursuant to financial statements, reports, presentations,
correspondence, and any other materials provided by the Company to, or
communications between the Company and, such Investor, or pursuant to
information rights granted under the Shareholders’ Agreement or any other
related documents, unless the information is known, or until the information
becomes known, to the public through no fault of such Investor, or unless the
Company gives its written consent to such Investor’s release of the
information.


 


6.2                                 Press Releases. 
Within 60 days of the Closing, the Company may issue a press release
disclosing that the Investors have invested in the Company provided that (a) the
release does not disclose any of the Financing Terms, (b) the press release
discloses only the entire amount invested in the Series A Financing
without disclosing the amount invested by any particular Investor, and (c) the
final form of the press release is approved in advance in writing by each
Investor referred to therein.  The
Investors’ names and the fact that such Investors are shareholders in the
Company can be included in a reusable standardized press statement that has
been approved in writing by each Investor, provided that such standardized
press statement is reproduced in exactly the form in which it was approved by
the Investors.  No other announcement
regarding any Investor in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise to the general public may be made without such Investor’s prior
written consent.


 


6.3                                 Permitted Disclosures. 
Notwithstanding anything in the foregoing to the contrary:


 


(a)                                  the Company may disclose any of the
Financing Terms to its current or bona fide prospective investors, directors,
officers, employees, shareholders, investment bankers, lenders, accountants,
auditors, insurers, business or financial advisors, and attorneys, in each case
only where such persons or entities are under appropriate non-disclosure obligations
imposed by professional ethics, law or otherwise;


 


(b)                                 each Investor may, without disclosing the
identities of the other Investors or the Financing Terms with respect to such
other Investors, disclose its own investment in the Company (and in connection
with such disclosure, may disclose the name of the Company and the general
nature of the Company’s business) to third parties or to the public at its sole
discretion, provided that any other disclosure shall be subject to the Company’s
approval and that any information disclosed in a press release or other public
announcement by such Investor may (after such disclosure) be disclosed by the
other Parties to third parties;


 


(c)                                  each Investor shall have the right to
disclose:


 


(i)                                     any information to such Investor’s and/or
its fund manager’s and/or its Affiliate’s legal counsel, fund manager auditor,
insurer, accountant, consultant or to an officer, director, general partner,
limited partner, its fund manager, shareholder, investment 


 


26

















 


counsel or advisor, or employee of such Investor
and/or its Affiliate; provided, however, that any counsel, auditor, insurer,
accountant, consultant, officer, director, general partner, limited partner,
fund manager, shareholder, investment counsel or advisor, or employee shall be
advised of the confidential nature of the information or are under appropriate
non-disclosure obligation imposed by professional ethics, law or otherwise;


 


(ii)                                  any information for fund and inter-fund
reporting purposes;


 


(iii)                               any information to bona fide prospective
purchasers/investors of any share, security or other interests in the Company;
and


 


(iv)                              any information contained in press releases
or public announcements of the Company pursuant to Section 6.2 above.


 


(d)                                 the confidentiality obligations set out in Section 6.1
do not apply to:


 


(i)                                     information which was in the public domain
or otherwise known to the relevant Party before it was furnished to it by
another Party or, after it was furnished to that Party, entered the public
domain otherwise than as a result of (i) a breach by that Party of this Section 6,
or (ii) a breach of a confidentiality obligation by the discloser, where
the breach was known to that Party;


 


(ii)                                  information the disclosure of which is
necessary in order to comply with any applicable law, the order of any court,
the requirements of a stock exchange or to obtain tax or other clearances or
consents from any relevant authority; or


 


(iii)                               information disclosed by any director of the
Company to its appointer or any of its Affiliates or otherwise in accordance
with the foregoing provisions of this Section 6.3.


 


6.4                                 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
or any Financing Terms in contravention of the provisions of this Section 6,
such Party (the “Disclosing
Party”) shall provide the other Parties (the “Non-Disclosing Parties”)
with prompt written notice of that fact so that the appropriate Party may 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 that is legally required and shall
exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded such information to the extent reasonably requested
by any Non-Disclosing Party.


 


6.5                              Use of SIG’s Name or Logo. 
Without the prior written consent of SIG, and whether or not SIG is then
a shareholder of the Company, none of the other Parties shall use, publish or
reproduce the name “Susquehanna”, “Susquehanna Asia Investment LLLP”, “SIG” or
the logo of SIG or any similar name, trademark, or logo in any advertisement,
press release, professional or trade publication, marketing or advertising or
promotional materials, or in any other manner. 
SIG’s name and the fact that SIG is an investor in the Company 


 


27

















 


may be included as a standardized text in multiple
press releases by the Company, so long as SIG has approved such standardized
text and such text is reproduced in the same form in which it was approved.


 


6.6                                 Use of Sequoia’s Name or
Logo.  Without the prior written consent of Sequoia,
and whether or not Sequoia is then a shareholder of the Company, none of the
other Parties shall use, publish or reproduce the name “Sequoia China”, “Sequoia
Capital China”, “Sequoia” or the logo of Sequoia or any similar name,
trademark, or logo in any advertisement, press release, professional or trade
publication, marketing or advertising or promotional materials, or in any other
manner.  Sequoia’s name and the fact that
Sequoia is an investor in the Company may be included as a standardized text in
multiple press releases by the Company, so long as Sequoia has approved such
standardized text and such text is reproduced in the same form in which it was
approved.


 


6.7                                 Other Information.  The
provisions of this Section 6 shall be in addition to, and not in
substitution for, the provisions of any separate nondisclosure agreement
executed by any of the Parties hereto with respect to the transactions
contemplated hereby.


 


7.             Conditions to Investors’ Obligations at the Closing.  The obligations of the Investors under Section 2
of this Agreement are subject to the fulfillment at or before Closing of each
of the following conditions, except to the extent waived in writing by the
Investors:


 


7.1                                 Representations and
Warranties; No Breaches. The representations and warranties of the Warrantors contained in this
Agreement shall be true and accurate (or, with respect to the representations
and warranties set forth in Sections 3.8, 3.9(a), 3.10, 3.11(a)(i),
3.11(a)(iii), 3.11(a)(iv), 3.11(b), 3.11(c) and 3.18, true and accurate in
all material respects) on and as of the Closing with the same effect as if made
on and as of the Closing with reference to the facts and circumstances existing
at that time.  There has been no breach
of any other provision of this Agreement.


 


7.2                                 Performance. 
Each Group Company shall have performed or fulfilled all the terms,
obligations, and conditions in this Agreement required to be performed or
fulfilled by such entity before the Closing, including execution of the
Shareholder’s Agreement and the other Transaction Documents to which it is a
party, and shall have obtained all approvals, consents and qualifications
necessary to complete the sale of the Subscribed Shares.


 


7.3                                 Qualifications. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body that are required
under British Virgin Islands or PRC law in connection with the lawful issuance
and sale of securities pursuant to this Agreement shall be duly obtained
effective as of the Closing.


 


7.4                                 Proceedings Satisfactory.  All
corporate and legal proceedings taken by each Group Company in connection with
the transactions contemplated by this Agreement shall be duly completed which
are necessary to the signing and delivery hereof and the performance hereunder
of the obligations of such Group Company.


 


28






 










 


7.5                                 No Legal Proceedings.  No
legal action shall be pending or shall have been threatened which seeks to
impose liability upon any of the Group Companies by reason of the consummation
of the transactions contemplated by the Transaction Documents to which it is a
party.


 


7.6                                 Reservation of Underlying
Stock. The Ordinary
Shares issuable on conversion of the Series A Preferred Shares shall have
been duly authorized and Reserved.


 


7.7                                 Shareholders’ Agreement. Each Investor shall have received original
counterparts of the Shareholders’ Agreement duly executed by all parties
thereto other than such Investor, and in such numbers as such Investor may
require.


 


7.8                                 Memorandum and Articles.


 


(a)                                  The Memorandum and Articles shall have been
duly adopted by the Company by all necessary corporate action of the Board and
shareholders of the Company.


 


(b)                                 The Company shall have filed its Memorandum
and Articles with the Registrar of Corporate Affairs of the British Virgin
Islands, which Memorandum and Articles shall be in full force and effect as of
the Closing, and the Investors shall have received satisfactory evidence of
such filing.


 


(c)                                  The Investors shall have received a copy of
the Memorandum and Articles certified by the Chief Executive Officer or
President of the Company to be a true and complete copy thereof.


 


7.9                                 Allotment and Issuance of
Subscribed Shares; Share Certificates.


 


(a)                                  The Company shall have allotted and issued
to each Investor or its nominee its respective Subscribed Shares and shall have
entered the name of such Investor or its nominee, as the case may be, in the
register of members of the Company as the holder of its respective Subscribed
Shares.


 


(b)                                 Each Investor shall have received a copy of
the register of members of the Company as at the date of the Closing, certified
by the Chief Executive Officer or President of the Company to be a true and
complete copy thereof, reflecting the allotment and issuance of the Subscribed
Shares pursuant to this Agreement.


 


(c)                                  Each Investor shall have received a certificate
or certificates (in such denominations as such Investor may require)
representing the Subscribed Shares subscribed by each Investor hereunder.


 


7.10                           Board Composition.


 


(a)                                  Effective upon the Closing, the Board shall
be constituted of five Directors, consisting of two Directors appointed by the
Investors, one of which shall be appointed by SIG and one of which shall be
appointed 


 


29

















 


by Sequoia, and
three Directors appointed by holders of a majority of the Ordinary Shares.


 


(b)                                 The Investors shall have received a copy of
the register of Directors of the Company as at the date of the Closing,
certified by the Chief Executive Officer or President of the Company to be a
true and complete copy thereof, reflecting the Board composition set forth in
this Section.


 


(c)                                  Each Investor shall have received a deed of
indemnity in substantially the form attached as EXHIBIT A to the
Shareholders’ Agreement, duly executed by the Company in favor of the Directors
nominated by the Investors.


 


7.11                           Bank Account Signatories.  The
Company shall have caused all existing and shall cause all future bank
signatory arrangements in respect of the Company’s Main Account (as defined
below) to be established or amended to conform with the provisions of Section 10.5.


 


7.12                           Legal Opinions.  The
Investors shall have received (i) a legal opinion of British Virgin
Islands counsel to the Company, and (ii) a legal opinion of PRC counsel to
the Company, in each case in form and substance acceptable to the Investors.


 


7.13                           Closing Certificate.  The
Investors shall have received a certificate or certificates duly executed by
each Warrantor certifying the completion of the conditions in Sections 7.1,
7.2, 7.3, 7.5, and 7.6 and the validity and enforceability of the
Restructuring.


 


7.14                           Good Standing Certificate. The Investors shall have received a good
standing certificate with respect to the Company issued by the Registrar of
Corporate Affairs of the British Virgin Islands evidencing that the Company is
in good standing in the British Virgin Islands as at the Closing.


 


7.15                           Restrictive Agreements. 
Each Person identified in Schedule 3.21(d) shall have entered into
a Confidentiality and Inventions Agreement substantially in the form attached
hereto as EXHIBIT F and a Non-Competition and Non-Solicitation Agreement
substantially in the form attached hereto as EXHIBIT G, or in form and
substance otherwise acceptable to the Investors, and copies of such agreements
certified true by the Chief Executive Officer or President of the Company shall
have been delivered to the Investors.  In
addition, each such Person shall have entered into an employment agreement with
the Company or the WFOE, for a term of at least three years.


 


8.             Conditions to Company’s Obligations at the Closing.  The obligations of the Company under Section 2
of this Agreement with respect to the Closing are subject to the fulfillment of
each of the following conditions, any of which may be waived in writing by the
Company:


 


8.1                                 The representations and warranties given by
each Investor at the Closing in which it is participating under Section 4
of this Agreement being true and 


 


30

















 


correct when made and true and correct in all
material respects as of the Closing; and


 


8.2                                 Each Investor shall have performed or
fulfilled all the terms, obligations, and conditions in this Agreement required
to be performed or fulfilled by it in connection with the Closing, including
execution of the Shareholders’ Agreement and the other Transaction Documents.


 


9.             Long-Stop Date. In the event that any
condition to the Closing hereunder is not fulfilled or waived by August 31,
2007 (the “Long-Stop
Date”), this Agreement shall terminate; provided that SIG and Sequoia
shall extend the Long-Stop Date by an additional 60 days if the failure to
fulfill any condition hereunder is due to reasons that are beyond the control
of the Company or any of the Founders, including but not limited to force
majeure events and delay of approval and/or registration procedures by the PRC
competent authorities (such as the State Administration of Foreign Exchange and
its local branches).  Notwithstanding any
termination of this Agreement and notwithstanding the non-consummation of any
transaction contemplated under the Transaction Document, (i) the
obligations of the parties specified in Sections 6, 11.1, 11.2, 11.3, 11.7 and
11.12 shall continue unimpaired and in full force and effect, and (ii) such
termination shall not relieve any party from any liability hereunder for any
misrepresentation or for the breach of any warranty, agreement or obligation
hereunder.


 


10.           Post-Closing Covenants of the Warrantors.


 


10.1                           Information Rights
Relating to PFIC.  On or prior to a Qualified IPO,
the Company will furnish the Investors, upon request, as promptly as
practicable, such information as any Investor shall request from time to time
to determine whether any Group Company is a passive foreign investment company
within the meaning of Section 1296 of the United States Internal Revenue
Code of 1986, as amended.


 


10.2                           Employee Stock Ownership
Plan.  Following the Closing, the Company may,
subject to the conditions of the Shareholders’ Agreement, establish an employee
stock ownership plan (an “ESOP”),
pursuant to which the Board may grant employees, officers or directors (each a “Plan Beneficiary”) of
the Group Companies options to purchase Ordinary Shares or sell Ordinary
Shares, or may grant restricted stock or shares subject to such vesting restrictions
as the Board may determine (“Restricted Stock”) to Plan Beneficiaries.  The terms of the ESOP shall be subject to the
approval of the Board.  The number of
shares of Restricted Stock issued under the ESOP, together with any Ordinary
Shares issuable upon the exercise of options granted under the ESOP, shall not
in any event exceed 85,000 Ordinary Shares.  Such Ordinary Shares issued under ESOP shall
initially be issued to Yu Dong who shall hold such Ordinary Shares for
subsequent, direct grant to employees, officers or directors. The per share
purchase price paid by any Plan Beneficiary for Restricted Stock and the
exercise price per share for options granted under the ESOP shall be determined
by the Board.


 


10.3                           Future Employees.  The
Company shall cause each Person identified in Schedule 3.21(d) to deliver
to the Company an executed Confidentiality and Inventions Agreement and a
Non-Competition and Non-Solicitation Agreement 


 


31

















 


or a service contract which includes terms and
conditions acceptable to the Investors.


 


10.4                           D&O Insurance; Key
Person Insurance.  If the Board so requires, the
Company shall (i) purchase and maintain directors’ liability insurance
policies for the benefit of its Directors for such insured amounts as the Board
requires; and (ii) deliver to each Director (including each Director appointed by
Investors, or his alternate), at the time of its appointment as a Director or
an alternate Director, a copy of the policy documents in relation to such
insurance against any liability incurred by it in the course of discharging its
duties as a Director of the Company.  At the
request of the Investors, the Company shall purchase and maintain key person
insurance policies for the benefit of the Company upon the life and against the
disability of such of its Senior Managers, and for such insured amounts, as the
Board may decide.


 


10.5                           Use of Proceeds.


 


(a)                                  The Company shall use the US$1,500,000 of
the proceeds from the issuance of the Subscribed Shares to purchase existing
Ordinary Shares from the Founders on a pro rata basis, and shall use the
remaining proceeds from the issuance of the Subscribed Shares (less reasonable
expenses agreed by the Investors) from the issuance of the Subscribed Shares to
grow and expand capital, capital expenditure and general working capital needs
related to the Group Companies and in accordance with any control procedures
approved by the Investors from time to time. 
In particular, and without prejudice to the rights of the Investors to
approve additional or different control procedures from time to time, the
advance or contribution of any of the proceeds of the Series A Financing
to any other Group Company (by way of loan, capital contribution or otherwise)
shall require the approval of the Board. 
Save as specifically provided in this Agreement, no Group Company shall
use any proceeds to reimburse or retire outstanding debt of any kind.


 


(b)                                 Without limiting the generality of the
foregoing, proceeds of the Series A Financing, less any expenses incurred
in connection with the transactions contemplated by the Transaction Documents
that are borne by the Company shall be paid into the U.S. Dollar savings
account of the Company with Standard Chartered Bank in Hong Kong numbered 368-1-097863-2 (the “Main
Account”).  The Chief
Executive Officer of the Company, and a Director appointed by an Investor (or
such other Person or Persons appointed by SIG and Sequoia for this purpose),
shall be the sole authorized signatories with respect to the Main Account (the “Account Signatories”).


 


(c)                                  Each payment out of the Main Account shall
be no less than US$250,000 (except if transferring all the cash remaining in
the Main Account) and shall be made only to bank account(s) of the WFOE
approved by the Board for operational use in the ordinary course of business
(the “Operational
Accounts”), unless otherwise agreed in writing by the Investors
and the Founders.  Each Operational
Account shall be operated as follows:


 


(i)                                     Any transaction in an Operational Account of
US$50,000 or more, or any transaction in an Operational Account that when 


 


32

















 


added with
transactions in that Operational Account in the 30-day period preceding that
transaction would amount to US$100,000 or more, shall require the signatures of
two Account Signatories.


 


(ii)                                  Any other transaction in an Operational
Account may be effected by the signature of the general manager of the Company.


 


10.6                           Non Competition.  The
Founders will cause each Person identified in Schedule 3.21(d) to enter
into a confidentiality and inventions agreement in a form approved by the
Investors in favor of the Company confirming, without limitation, that he shall
keep confidential all business information, trade secrets, financial
information and other confidential information of each Group Company and all
Intellectual Property Rights in relation to any services he performs in
connection with his employment by any Group Company shall be owned by such
Group Company, and the Company shall promptly provide a copy of each such
confidentiality and inventions agreement to the Investors.


 


10.7                           Amendment to Articles.  The
Founders shall not change, and shall not cause or permit any change in, the
Articles of Association of the Company and the constitutional documents of each
Group Company, except in accordance with the Shareholders’ Agreement.


 


10.8                           Insurance. 
Within three months of the Closing, the Board will consider in good
faith the purchase and implementation of (a) insurance policies sufficient
in amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed, and (b) employees’
liability, third party risks and personal injury, products liability and errors
and omissions insurance in amounts customary for companies similarly situated.


 


10.9                           Dilution of Oriental
Dragon.  The Founders will cause the equity interests
held by Oriental Dragon in Beijing Polybona to be diluted from 20.4% to 10% by December 31,
2007.


 


11.           Miscellaneous.


 


11.1                           Governing Law.  This
Agreement shall be governed by, and construed in accordance with, the laws of
the Hong Kong Special Administrative Region, excluding those laws that direct
the application of the laws of another jurisdiction.


 


11.2                           Dispute Resolution


 


(a)                                  Any dispute, controversy or claim arising
out of or relating to this Agreement, or the interpretation, breach,
termination or validity hereof, shall be resolved through consultation.  Such consultation shall begin immediately
after one party hereto has delivered to the other party hereto a written
request for such consultation.  If within
30 days following the date on which such notice is given the dispute cannot be
resolved, the dispute shall be submitted to arbitration upon the request of
either party with notice to the other.


 


33

















 


(b)                                 The arbitration shall be conducted in Hong
Kong under the auspices of the Hong Kong International Arbitration Centre (the “Centre”).  There shall be one arbitrator.  The arbitrator shall be jointly appointed by
the disputing parties or, failing which the Secretary-General of the Centre
shall appoint the arbitrator.


 


(c)                                  The arbitration proceedings shall be
conducted in English. The arbitration tribunal shall apply the UNCITRAL
Arbitration Rules as administered by the Centre at the time of the
arbitration.


 


(d)                                 The arbitrator shall decide any dispute
submitted by the parties to the arbitration strictly in accordance with the
substantive laws of Hong Kong and shall not apply any other substantive law.


 


(e)                                  Each party 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.


 


(f)                                    In the course of arbitration, the Parties
shall continue to implement the terms of this Agreement except (as between the
disputing parties) for the matters under arbitration.


 


(g)                                 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.


 


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


 


11.3                           Indemnity.  Each
Group Company agrees to indemnify and hold harmless each Investor, and such
Investor’s directors, officers, employees, affiliates, agents and assigns
(each, an “Indemnitee”),
against any and all Indemnifiable Losses to such Indemnitee, directly or
indirectly, as a result of, or based upon or arising from any inaccuracy in or
breach of nonperformance of any of the representations, warranties, covenants
or agreements made by any Warrantor in or pursuant to this Agreement.  For purposes of this Section, “Indemnifiable Loss”
means, with respect to any Indemnitee, any action, cost, damage, disbursement,
expense, liability, loss, deficiency, diminution in value, obligation, penalty
or settlement of any kind or nature, whether foreseeable or unforeseeable,
including, but not limited to, (i) interest or other carrying costs,
penalties, legal, accounting and other professional fees and expenses
reasonably incurred in the investigation, collection, prosecution and defense
of claims and amounts paid in settlement, that may be imposed on or otherwise
incurred or suffered by such Indemnitee and (ii) any taxes that may be
payable by such Indemnitee as a result of the indemnification of any
Indemnifiable Loss hereunder.


 


11.4                           Counterparts and Facsimile
Execution.  This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Any counterpart or
other signature delivered by facsimile shall be deemed for all purposes as
being good and valid execution and delivery of this Agreement by that party.


 


34

















 


11.5                           Headings.  The
headings of the sections of this Agreement are for convenience and shall not by
themselves determine the interpretation of this Agreement.


 


11.6                           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; (b) when printed confirmation sheet
verifying successful transmission of the facsimile is generated by the sender’s
machine, when sent by facsimile at the number set forth below (or hereafter
amended by subsequent notice to the parties hereto); (c) five Business
Days after deposit in the mail as certified mail, receipt requested, postage
prepaid and addressed to the other party as set forth below; or (d) three
Business Days after deposit with an overnight delivery service, postage
prepaid, addressed to the parties as set forth below, provided that the sending
party receives a confirmation of delivery from the delivery service provider.


 


	
  To:

  	
  Any of the Warrantors

  
	
   

  	
   

  
	
   

  	
  c/o Tyner Group Limited

  
	
   

  	
   

  
	
   

  	
  16/18F Poly Plaza (Office Building)

  
	
   

  	
  No.14 South Donzhimen Street

  
	
   

  	
  Dongcheng District

  
	
   

  	
  Beijing
  100027, P.R. China

  
	
   

  	
  

  
	
   

  	
  

  
	
   

  	
  

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
  Attention: Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  Facsimile: +86
  (10) 64601221

  
	
   

  	
  Telephone: +86 (10) 65510888

  
	
   

  	
  Email: polybona@vip.sina.com

  
	
   

  	
   

  
	
  To:

  	
  SIG

  
	
   

  	
   

  
	
   

  	
  101
  California Street, Suite 3250

  
	
   

  	
  San
  Francisco

  
	
   

  	
  CA
  94111, USA

  
	
   

  	
   

  
	
   

  	
  Attention: Mr. Michael
  L. Spolan

  
	
   

  	
   

  
	
   

  	
  Facsimile: +1(610) 6173896

  
	
   

  	
  Telephone: +1(415) 4036510

  
	
   

  	
  Email: michael.spolan@sig.com

  
	
   

  	
   

  
	
  To:

  	
  Sequoia

  
	
   

  	
   

  
	
   

  	
  2408,
  Air China Plaza

  
	
   

  	
  36
  Xiaoyun Road

  



 


35

















 


	
   

  	
  Chaoyang
  District

  
	
   

  	
  Beijing
  100027, P.R. China

  
	
   

  	
   

  
	
   

  	
  Attention: Mr. Steven Ji

  
	
   

  	
   

  
	
   

  	
  Facsimile: + 86(10) 84475669

  
	
   

  	
  Telephone: +86(10) 84475668

  
	
   

  	
  Email: sji@sequoiacap.com

  



 


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 11.6 by giving the other parties written notice
of the new address in the manner set forth above.


 


11.7                           Amendment of this
Agreement.  Any provision of this Agreement
may be amended by a written instrument signed by Investors representing at
least two-thirds (2/3) of the Series A Preferred Shares then outstanding,
as adjusted in accordance with their terms, or securities resulting from the
conversion or exchange of such Preferred Shares, holders of a majority of the
Ordinary Shares and the Company.


 


11.8                           Dollar Amounts. 
Unless otherwise specified, all dollar amounts in this Agreement are
stated in, and shall be interpreted to be, dollars of the currency of the
United States of America.


 


11.9                           Entire Agreement; Successors
and Assigns.  Except as specifically
referenced in this Agreement, this Agreement, together with all Exhibits and
Schedules to this Agreement, this Agreement supersedes all prior agreements by
or among the Parties with respect to the subject matter hereof (including in
particular the subscription of the Series A Preferred Shares) and
constitutes the entire contract among the parties with respect to the subject
matter of this Agreement.  Any prior or
contemporaneous agreement, discussion, understanding, or correspondence among
the parties (including any prior representations or warranties given by the
parties) regarding the purchase of capital stock of the Company is superseded
by this Agreement.  Subject to the exceptions
specifically set forth in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors, and assigns of the parties to
this Agreement.


 


11.10                     Survival of Warranties.  The
representations, warranties, and covenants of the Warrantors contained in this
Agreement shall survive the execution and delivery of this Agreement and the
Closing by two years.


 


11.11                     Further Assurances.  From
and after the date of this Agreement, upon the request of the Investors, the
Warrantors shall execute and deliver such instruments, documents or other
writings as may be necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.


 


36






 










 


11.12                     Fees and Expenses.  The
Warrantors agree jointly and severally to pay the Investors the legal fees and
due diligence expenses (the “Expenses”) actually incurred by the Investors in
conducting due diligence on the Group Companies and in preparing, negotiating
and executing all documentation, including the expenses of the Investors’ legal
counsel, Paul, Hastings, Janofsky & Walker, if the transactions
contemplated hereby are consummated, provided that the maximum amount to be
reimbursed shall not exceed US$80,000. 
If the transactions contemplated hereby are not consummated for reasons
attributable to any Warrantor and not the Investors (such as, without
limitation, a failure to meet the conditions specified in Section 7), the
Warrantors agree jointly and severally to pay all legal fees and disbursements
incurred by or on behalf of the Investors. 
In the event that the reasons for failure to consummate the transactions
contemplated hereby cannot be clearly attributed to the Warrantors or the
Investors, each Party shall bear its own expenses.


 


11.13                     Exclusivity. 
From the date hereof up to the Closing, or up to the Long-Stop Date, as
may be extended pursuant to Section 9 (whichever is earlier), each of the
Warrantors agrees, jointly and severally, with the Investors that they will not
make and/or maintain any form of contact with any other potential investors,
whether private or institutional or corporate, for the purpose of raising funds
for any Group Company or any of their respective Affiliates, without the prior
written consent of each Investor.


 


11.14                     Exercise of Investor’s
Rights.  Any rights of any Investor under this
Agreement may, without prejudice to such Investor to exercise any such rights,
be exercised by any nominee of such Investor or their respective nominees (“Fund Manager”, which
in the case of SIG includes Susquehanna Asia Investment, LLLP and in the case
of Sequoia includes Sequoia Capital Management I, L.P.), unless such Investor
has given notice to the other Parties that any such rights cannot be exercised
by such Fund Manager.


 


11.15                     Severability. 
Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.


 


11.16                     Several Liability of
Investors.  Each Investor shall be
severally liable (and not jointly and severally liable, or jointly liable, with
any other Person) for its own obligations under this Agreement.


 


[Remainder of this page intentionally left blank]


 


37

















 


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


 


	
  TYNER
  GROUP LIMITED  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yu Dong

  	
   

  	
   

  
	
  Name: Yu Dong  

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BEIJING BONA NEW WORLD
  MEDIA TECHNOLOGY CO., LTD. 

  	
   

  	
  BEIJING BONA FILM CULTURE
  COMMUNICATION CO., LTD. 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yu Dong  

  	
   

  	
  By:

  	
  /s/ Yu Dong  

  
	
  Name: Yu Dong  

  	
   

  	
  Name: Yu Dong  

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BEIJING POLYBONA FILM
  DISTRIBUTION CO., LTD. 

  	
   

  	
  BEIJING BONA ADVERTISING CO., LTD. 

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yu Dong  

  	
   

  	
  By:

  	
  /s/ Yu Dong  

  
	
  Name: Yu Dong  

  	
   

  	
  Name: Yu Dong  

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Yu Dong  

  	
   

  	
   

  
	
  Yu
  Dong 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Yu Hai  

  	
   

  	
   

  
	
  Yu Hai 

  	
   

  	
   

  



 


 


[SUBSCRIPTION
AGREEMENT SIGNATURE PAGE]


 

















 


	
  SIG
  CHINA INVESTMENTS ONE, LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Michael L. Spolan

  	
   

  
	
  Name: Michael L.
  Spolan

  	
   

  
	
  Title: Vice
  President

  	
   

  
	
  Susquehanna Asia
  Investment LLP,

  	
   

  
	
  authorized agent
  for

  	
   

  
	
  SIG China
  Investments One, Ltd.

  	
   

  



 


 


[SUBSCRIPTION
AGREEMENT SIGNATURE PAGE]


 

















 


	
  SEQUOIA
  CAPITAL CHINA I, L.P.

  	
   

  
	
  SEQUOIA
  CAPITAL CHINA PARTNERS FUND I, L.P.

  	
   

  
	
  SEQUOIA
  CAPITAL CHINA PRINCIPALS FUND I, L.P.

  	
   

  
	
   

  	
   

  
	
  By: Sequoia
  Capital China Management I, L.P.

  A Cayman Islands Exempted Limited partnership

  General Partner of Each

  	
   

  
	
   

  	
   

  
	
  By: SC
  China Holding Limited

  A Cayman Islands limited liability company

  Its General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Jimmy Wong

  	
   

  
	
  Name: Jimmy Wong

  	
   

  
	
  Title: Authorized
  Signatory

  	
   

  



 


 


[SUBSCRIPTION
AGREEMENT SIGNATURE PAGE]


 

















 


Dated July 10,
2007


 


 


TYNER
GROUP LIMITED


 


 


SUBSCRIPTION
AGREEMENT


relating to


US$8,000,000
Series A Financing pursuant to a


Issuance and
Subscription of 500,000 Series A Preferred Shares


 


 


PAUL, HASTINGS,
JANOFSKY & WALKER


22nd Floor


Bank of China Tower


1 Garden Road


Hong Kong


 

















 


TABLE OF CONTENTS


 


	
  1.

  	
  Definitions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Purchase
  and Sale of Preferred Shares

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Representations
  and Warranties of the Warrantors to the Series A Investors

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Representations
  and Warranties of the Series A Investors

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Additional
  Covenants

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Confidentiality
  and Announcements

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Conditions
  to Series A Investors’ Obligations at each Closing

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Conditions
  to Company’s Obligations at each Closing

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Long-Stop
  Date

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  Post-Closing
  Covenants of the Warrantors

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Miscellaneous

  	
   

  	
  33

  



 


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