EXHIBIT 4.4


 


SUBSCRIPTION
AGREEMENT


 


FEBRUARY
2010


 


NEWMAN INVESTMENTS LIMITED


 


LENTUO INTERNATIONAL INC.


 


LENTUO HK LIMITED





 


BEIJING AN HUI WAN XING TECHNOLOGY CO., LTD.





 


BEIJING LENTUO ELECTRON MECHANICAL GROUP CO., LTD.





 


MODERN CYBER INTERNATIONAL LIMITED


 


GUO HETONG





 





 





 





 





 





 





 





 

















 


CONTENTS


 


	
  Clause

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  Definitions

  	
   

  	
  3

  
	
  2.

  	
   

  	
  Subscription of Shares

  	
   

  	
  6

  
	
  3.

  	
   

  	
  Deposit

  	
   

  	
  7

  
	
  4.

  	
   

  	
  Representations and Warranties of the Warrantors to the Investor

  	
   

  	
  8

  
	
  5.

  	
   

  	
  Representations and Warranties of the Investor

  	
   

  	
  23

  
	
  6.

  	
   

  	
  Additional Covenants

  	
   

  	
  24

  
	
  7.

  	
   

  	
  Confidentiality and Announcements

  	
   

  	
  25

  
	
  8.

  	
   

  	
  Conditions to Investor’s Obligations at the Closing

  	
   

  	
  27

  
	
  9.

  	
   

  	
  Conditions to Company’s Obligations at the Closing

  	
   

  	
  29

  
	
  10.

  	
   

  	
  Long-Stop Date

  	
   

  	
  29

  
	
  11.

  	
   

  	
  Post-Closing Covenants of the Warrantors

  	
   

  	
  29

  
	
  12.

  	
   

  	
  Miscellaneous

  	
   

  	
  30

  



 


	
  Schedule
  A

  	
   

  	
  Shareholding
  of the Company prior to the Closing

  
	
  Exhibit
  A

  	
   

  	
  Shareholders
  Agreement

  
	
  Exhibit
  B

  	
   

  	
  Side
  Letter

  
	
  Exhibit
  C

  	
   

  	
  Draft
  Legal Opinion

  
	
  Exhibit
  D

  	
   

  	
  Contractual
  Arrangements

  
	
  Exhibit
  E

  	
   

  	
  Senior
  Management

  



 

















 


LENTUO
INTERNATIONAL INC.


 


SUBSCRIPTION
AGREEMENT


 


THIS SUBSCRIPTION AGREEMENT (the “Agreement”)  is
dated    February 2010, by and among:


 


(1)                                 LENTUO INTERNATIONAL INC., a limited liability company incorporated under the
laws of the Cayman Islands (the “Company”);


 


(2)                                 LENTUO HK LIMITED  , a limited liability company incorporated under the laws of Hong Kong (“Lentuo HK”);


 


(3)                                 BEIJING AN
HUI WAN XING TECHNOLOGY CO., LTD.  , a wholly foreign-owned enterprise established by the
Company under the laws of the People’s Republic of China (the “WFOE”);


 


(4)                                 BEIJING
LENTUO ELECTRON MECHANICAL GROUP CO., LTD.  , a limited liability company incorporated under the
laws of the PRC (“PRC Holding Company”);


 


(5)                                 MODERN CYBER INTERNATIONAL LIMITED, a limited liability company incorporated under the
laws of the British Virgin Islands (“MCIL”);


 


(6)                                 GUO HETONG  , PRC residents holding PRC Identity Card bearing
number 132902195910305977; (the “Founder”);


 


(7)                                 , a limited liability company incorporated under the
laws of the PRC ;


 


(8)                                 , a limited liability company incorporated under the
laws of the PRC ;


 


(9)                                 , a limited liability company incorporated under the
laws of the PRC ;


 


(10)                          , a limited liability company incorporated under the
laws of the PRC ;


 


(11)                          , a limited liability company incorporated under the
laws of the PRC ;


 


(12)                          , a limited liability company incorporated under the
laws of the PRC ;


 


1

















 


(13)                          , a limited liability company incorporated under the
laws of the PRC 

collectively, the “PRC
Operating Companies”, and each a “PRC Operating Company”); and


 


(14)                          NEWMAN INVESTMENTS LIMITED, a limited liability company incorporated under the
laws of Samoa (the “Investor”)
(the foregoing parties, collectively the “Parties”,
and each a “Party”).


 


RECITALS


 


A.             is a limited liability company formed under the laws of the PRC with a
registered capital of RMB20,000,000.   is currently engaged in the sale and
maintenance of automobiles  and other related services in the PRC.


 


B.             is a limited liability company formed under the laws of the PRC with a
registered capital of RMB10,000,000.   is currently engaged in the sale and
maintenance of automobiles and
other related services in the PRC.


 


C.             is a limited liability company formed under the laws of the PRC with a
registered capital of RMB10,000,000.   is currently engaged in the sale and
maintenance of automobiles and
other related services in the PRC.


 


D.             is a limited liability company formed under the laws of the PRC with a
registered capital of RMB10,000,000.   is currently engaged in the sale and
maintenance of automobiles and
other related services in the PRC.


 


E.             is a limited liability company formed under the laws of the PRC with a
registered capital of RMB10,000,000.   is currently engaged in the sale and
maintenance of automobiles and
other related services in the PRC.


 


F.              is a limited liability company formed under the laws of the PRC with a
registered capital of RMB10,000,000.   is currently engaged in automobile maintenance business and
other related services in the PRC.


 


G.             is a limited liability company formed under the laws of the PRC with a
registered capital of RMB10,000,000.   is currently engaged in automobile leasing business and
other related services in the PRC.


 


H.            The PRC Holding Company is a limited liability company
formed under the laws of the PRC with a registered capital of
RMB60,000,000.  The PRC Holding Company
owns beneficially and of record one hundred percent (100%) of the equity
capital of each of the PRC Operating Companies. 
The Founder owns beneficially and of record seventy five percent (75%)
of the equity capital of the PRC Holding Company.    The Founder manages the business on behalf
of the Group (“Business”).


 


2

















 


I.             Pursuant to a non-binding term sheet, dated as of 26
January 2010, which sets forth certain terms and conditions relating to an
investment in the Company (the “Pre-IPO
Financing”), the Investor proposed to subscribe certain Shares of
the Company.


 


J.             By this Agreement, the Parties desire to set forth the
terms of the Pre-IPO Financing.


 


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 the Investor, shall include any
Person who holds Shares as a nominee for the Investor, and (c) for the purpose
of Section 7.2(c)(i) only, in respect of the Investor, shall also include (i)
any shareholder of the Investor, (ii) any entity or individual which has a
direct and indirect interest in the Investor; (iii) any Person that directly or
indirectly Controls, is Controlled by, under common Control with, or is managed
by the 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
Agreement.


 


“Auditors”  means Ernst & Young, auditors
to the Group.


 


“Balance
Sheet Date”  means 31
December 2009.


 


“Big Four Accounting Firms”
means Deloitte Touche & Tohmatsu, Ernst & Young, KPMG and
PricewaterhouseCoopers.


 


“Board”  means the board of Directors of the
Company.


 


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


 


“Business
Day”  means any day,
excluding Saturdays and Sundays, on which banks in Hong Kong are open for
business during their normal business hours.


 


“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 twenty percent (20%)
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 of 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.


 


3

















 


“Disclosure
Letter” means the letter from the Group to the Investor executed
and delivered immediately before the Closing.


 


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


 


“Existing Shareholders”  means Modern Cyber International
Limited, Gaeatec International Limited, Violet Gold International Limited,
Hoverex International Limited, Rich Sonic International Limited and Roll Wheel
International Limited.


 


“Financial
Statements”  means the
unaudited consolidated balance sheets and profit and loss accounts of the Group
for the fiscal year ended 31 December 2009, and any notes thereto.


 


“Group”  or “Group Companies”  means Lentuo HK, the PRC Holding Company, the PRC Operating
Companies, the Company and the WFOE, and their respective Subsidiaries from
time to time, and “Group Company”  means any one of them.


 


“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 date, proprietary processes, proprietary
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;


 


 “Internal Rate of Return”
means the annualized rate of return (compounded annually on the basis of a
360-day year) such that the present value of all cash flows received in respect
of the Investor’s investment in the Shares (including, without limitation,
dividends and distributions paid or payable thereon on or before the relevant
date), on the date that the transaction for which the Internal Rate of Return
is being calculated is to be consummated, equals the present value of all cash
flows invested.


 


“Knowledge”  means best knowledge after making all due and careful inquiries
and investigation and refers to the knowledge of the directors and executive
officers (at or above the level of vice president or general manager) of an
entity to which knowledge is attributed.


 


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


 


“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.


 


4

















 


“PRC”  means the People’s Republic of China, excluding the Hong
Kong Special Administrative Region, Macau Special Administrative Region and the
Islands of Taiwan.


 


“PRC
Counsel”  means PRC
counsel to the Group Companies acceptable to the Investor.


 


“PRC
GAAP”  means
generally accepted accounting principles in the PRC applied on a consistent
basis.


 


“Qualified
IPO”  means the
closing of the Company’s first firm commitment, underwritten public offering of
Shares approved unanimously by the Board in connection with which Shares (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 acceptable to the Investor or the NASDAQ National Market or
the issue or transfer of shares in a company whose shares are listed on an
internationally recognized stock exchange acceptable to the Investor 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 Shares of the Company or the shares of the Listco,
provided, however, that: (X) such
listing shall have a valuation of the Listco of not less than US$300 million
(calculated by multiplying the offering price per share with the total number
of Shares issued by the Company or the Listco immediately after the listing); (Y) such number of shares offered shall
not be lower than the minimum public float requirement prescribed in the
listing rules of the securities exchange where listing is sought; and (Z) the shares held by the Investor shall
not be subject to any lock-up other than (i) regulatory lock-up as may be
required by the securities exchange where listing is sought; and (ii) shortest
lock-up period proposed by the underwriters solely for the purpose of marketing
the offering of the Shares.


 


“Senior
Management” means the senior management personnel of the Group
whose names are set out in the Exhibit E.


 


“Shares”  means the ordinary shares, par value US$1.00 per share, of
the Company.


 


“Shareholders’
Agreement”  means the
Shareholders’ Agreement in substantially the form attached as Exhibit A
to this Agreement.


 


“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,
fee, deduction or withholding of any nature imposed, levied, collected withheld
or assessed by any governmental authority or other taxing or similar 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 and the Shareholders’ Agreement.


 


“Warrantors”  means the Founder, MCIL, Lentuo HK, the PRC Holding
Company, the PRC Operating Companies, the Company and the WFOE.


 


“2009 Audited Financial Statements” means the consolidated
financial statements for the PRC Holding Company’s fiscal year ended 31
December 2009 prepared in accordance with PRC GAAP applied on a consistent
basis and audited by one of the Big Four Accounting Firms.


 


“2009 Net Income”
means the consolidated after-tax net income of the PRC Holding Company for the
Company’s fiscal year ended 31 December 2009, plus reasonable expenses incurred 


 


5

















 


by the Company in connection with the
preparation of the Qualified IPO in 2009, such amount shall not exceed
RMB5,000,000; provided
that (1) the 2009 Net Income shall not include the cumulative effect of any
change or changes in accounting principle; and (2) the 2009 Net Income shall
not include any extraordinary or non-recurring earnings obtained or losses
incurred by any PRC Holding Companies.


 


“2010 Audited Financial Statements” means the
consolidated financial statements for the Company’s fiscal year ending 31
December 2010 prepared in accordance with PRC GAAP applied on a consistent
basis and audited by one of the Big Four Accounting Firms.


 


“2010 Net Income”
means the consolidated after-tax net income of the Company for the Company’s
fiscal year ending 31 December 2010, plus
reasonable expenses approved by the Investor incurred by the Company in
connection with the preparation of the Qualified IPO in 2010; provided that (1) the 2010 Net Income
shall not include the cumulative effect of any change or changes in accounting
principle; and (2) the 2010 Net Income shall not include any extraordinary or
non-recurring earnings obtained or losses incurred by any Group Companies.


 


2.             Subscription of Shares.


 


2.1          Subject to the teams and conditions of this Agreement:


 


Subscription
of Shares.  The Parties agree that the Investor would
invest based on a post money valuation of seven (7) times of the 2009 Net
Income.  The Company agrees to allot and
issue to the Investor, and the Investor agrees to subscribe, at a consideration
of US$18,000,000 (“Subscription Price”)
for such number of Shares representing a percentage equals to, (X)
US$18,000,000, divided by, the product of 7 and the 2009 Net Income ((X)
= US$18,000,000/the 2009 Net Income x 7) (“Subscription
Shares”), in the entire issued share capital of the Company as
enlarged by the subscription.


 


2.2          Closing.  Completion of the subscription by
the Investor of the Subscription Shares set forth in Section 2.1 (the “Closing”)  shall
take place at the office of Herbert Smith LLP, 28th Floor, Office Tower,
Beijing Yintai Centre, 2 Jianguomenwai Avenue, Chaoyang District, Beijing, PRC
100022, on the later of (i) the fifth (5th) Business Day following satisfaction
or waiver (if applicable) of the conditions in Sections 8 and 9, or (ii) such
other place and time as the Company and the Investor agree; provided that the
Closing shall occur on or before the 60 days from the date hereof.


 


2.3          At the Closing (except as indicated below), subject to
satisfaction or waiver of the conditions set forth in Sections 8 and 9  and the performance by each
other party of its obligations hereunder:


 


(a)           The Company shall deliver to the
Investor, in addition to any other document or item the delivery of which is
made an express closing condition pursuant to Section 8, (i) a certificate or
certificates representing the Subscription Shares subscribed by the Investor
hereunder, and (ii) a counterpart or counterparts of the Shareholders’
Agreement duly executed by all parties other than the Investor, (iii) deliver
to the Investor any other documents or items any Warrantor is contemplated
hereunder to deliver to the Investor at or prior to the Closing; (iv) issue to
the Investor its respective Subscription Shares and enter the name of the
Investor, as the case may be, in the register of shareholders of the Company as
the holder of the Subscription Shares, and deliver to the Investor a copy of
such updated register of shareholders certified to be true by the Chairman,
Chief Executive Officer or President of the Company; and (v) at the Closing,
enter the names of such person as the Investor 


 


6

















 


nominates for appointment as
director of the Company pursuant to Section 3 of the Shareholders’ Agreement in
the register of directors as a director, and deliver to the Investor as soon as
practicable after the Closing a copy of such updated register of directors
certified to be true by the Chairman, Chief Executive Officer or President of
the Company.


 


(b)           The Investor shall deliver to the
Company (i) a counterpart of the Shareholders’ Agreement executed by the
Investor, and (ii) the aggregate amount of the Subscription Price (after deducting
and giving credit for the partial payment of the Subscription Price made under
Section 3), in immediately available
funds by wire transfer to the bank account designated by the Company pursuant
to Section 2.4.


 


2.4          Payment Terms.  Payment of the Subscription Price shall be made by wire
transfer to a bank account in the name of the Company in Hong Kong. The Company
shall notify the Investor in writing of the bank with which such account is
opened, and the account number of such account, at least three (3) Business
Days prior to the Closing.


 


2.5          Calculation of 2009
and 2010
Net Income.  As soon as practicable and in any event
within one hundred and eighty (180) days after the end of the PRC Holding
Company’s fiscal year ended 31 December 2009 and within one hundred and eighty
(180) days after the end of the Company’s fiscal year ending 31 December 2010,
the PRC Holding Company and the Company shall complete the 2009 Audited
Financial Statements and 2010 Audited Financial Statements, respectively.  The PRC Holding Company and the Company
shall, on the same date of such completion, have the Auditors calculate the 2009
Net Income
or the 2010 Net Income, respectively,
based on the 2009 Audited Financial Statements or the 2010 Audited Financial
Statements, respectively


 


2.6          Adjustment Based on 2010
Net Income.   If the 2010 Net
Income is lower than the RMB160,000,000, MCIL shall, and the Founder shall
procure MCIL to transfer to the Investor free of charge a number of Shares such
that the shareholding of the Investor will equal to (x) the shareholding of the
Investor immediately after the Closing, multiplied by
(y) a ratio, the numerator of which is equal to RMB160,000,000, and the
denominator of which is the 2010 Net Income.


 


2.7          Procedure of Adjustment.  The adjustments set forth in Section 2.6  shall be made within five
(5) Business Days of the day on which the 2010 Net Income, is calculated
pursuant to Section 2.5.  On each date on
which the adjustments are to be made, MCIL shall, and the Founder shall procure
MCIL to, subject to the execution and delivery of the relevant instrument of
transfer by the Investor, cause the Company to (a) deliver to the Investor a
copy of the updated register of members of the Company dated such date and duly
certified by a duly authorized director of the Company evidencing such Investor’s
ownership of the Shares transferred to the Investor pursuant to Section 2.6,
respectively, such Shares shall be free and clear of any Encumbrance, duly
authorized, validly issued, fully paid and non-assessable.


 


3.             Deposit.


 


3.1          Within three (3) Business Days after the date of execution
of this Agreement, the Investor shall pay to the Company a deposit in an amount
of US$14,000,000 by electronic transfer to the bank account of the Company
notified to the Investor.


 


3.2          At the Closing, the amount of US$14,000,000 of the deposit
shall be deemed
as partial payment of the
Subscription Price for the Subscription Shares pursuant to Section 2.1 above.


 


7

















 


3.3          If the conditions set out in Sections 8 and 9 are not
fulfilled on or before the Long Stop Date (as defined in Section 10), the amount of US$14,000,000 shall be repaid by the Company to the
Investor on the earlier of, (A) the
Business Day next following the Long Stop Date; or (B) the Business Day next
following the date on which this Agreement is terminated.


 


4.             Representations and Warranties of the Warrantors to the Investor. As
of the date hereof, each of the Warrtors jointly and severally represents and
warrants to the Investor as follows:


 


4.1          The Company’s Corporate
Organization and Authority. 
The Company:


 


(a)           is an exempt company duly organized,
validly existing, authorized to exercise all its corporate powers, rights, and
privileges, and in good standing under the laws of the Cayman Islands;


 


(b)           has the corporate power and corporate
authority to own, lease and operate its properties and to carry on its business
as now conducted; and has complied with its constitutional or organizational
documents in all respects, and none of the activities, agreements, commitments,
obligations or rights of the Company is ultra vires, unauthorized or in violation
of such constitutional or organizational documents or any applicable laws;


 


(c)           has made available to the Investor 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 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 Investor are true, accurate and up-to-date;


 


(e)           has filed or delivered all 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.


 


4.2          Lentuo HK’s Corporate Organization and Authority.  As of
Closing, Lentuo HK:


 


(a)           is a company duly incorporated,
validly existing, authorized to exercise all its corporate powers, rights, and
privileges, and in good standing under the laws of Hong Kong;


 


(b)           has the corporate power and corporate
authority to own, lease and operate its properties and to carry on its business
as now conducted; and has complied with its constitutional or organizational
documents in all respects, and none of the activities, agreements, commitments,
obligations or rights of Lentuo HK is ultra


 


8














 


vires, unauthorized or in
violation of such constitutional or organizational documents or any applicable
laws;


 


(c)           has made available to the Investor 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 Lentuo HK since
the time of incorporation through the date of this Agreement and reflects all
transactions referred to in such minutes accurately;


 


(d)           has 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 Lentuo HK supplied
to the Investor are true, accurate and up-to-date;


 


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


 


(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; and


 


(g)           has enter into valid and enforceable
contractual arrangements as agreed between certain Parties to this Agreement,
details of which are set out in Exhibit D to this Agreement.


 


4.3          The WFOE’s Corporate
Organization and Authority. 
As of Closing, the WFOE:


 


(a)           is a wholly foreign-owned entity duly
organized, validly existing, authorized to exercise all its corporate powers,
rights, and privileges, and in good standing under the laws of the PRC;


 


(b)           is duly approved by the relevant PRC
governmental authorities and has the corporate power and corporate authority to
own, lease and operate its properties and to carry on its business as now
conducted; has complied with its constitutional or organizational documents in
all respects, and none of the activities, agreements, commitments, obligations
or rights of the WFOE is ultra vires, unauthorized or in violation of such
constitutional or organizational documents or any applicable laws;


 


(c)           has made available to the Investor or
its 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 WFOE since the time of incorporation through the date of this Agreement and
reflects all transactions referred to in such minutes accurately;


 


(d)           has been duly approved by the
relevant authorities in the PRC as a wholly foreign-owned entity held by the
Company, and enjoys the preferential treatment and benefits (including but not
limited to the preferential tax treatment) available generally to wholly
foreign-owned entities under applicable PRC laws;


 


9

















 


(e)           has 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 WFOE supplied
to the Investor are true, accurate and up-to-date;


 


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


 


(g)           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; and


 


(h)           has enter into valid and enforceable
contractual arrangements as agreed between certain Parties to this Agreement,
details of which are set out in Exhibit D to this Agreement.


 


4.4          PRC Operating Companies’
Corporate Organization and Authority.  Each of the PRC Operating Company:


 


(a)           is a limited liability company duly
organized, validly existing, authorized to exercise all its corporate powers,
rights and privileges, and in good standing under the laws of PRC;


 


(b)           has the corporate power and corporate
authority to own, lease and operate its properties and to carry on its business
as now conducted; has complied with its constitutional or organizational
documents in all respects, and none of its activities, agreements, commitments,
obligations or rights is ultra vires, unauthorized or in violation of such
constitutional or organizational documents or any applicable laws;


 


(c)           has made available to the Investor 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 its shareholders and directors since the time of
incorporation through the date of this Agreement and reflects all transactions
referred to in such minutes accurately;


 


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


 


(e)           has filed or delivered all returns,
particulars, resolutions and other documents required to be filed with or
delivered to any governmental authority;


 


(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; and


 


(g)           has enter into valid and enforceable
contractual arrangements as agreed between certain Parties to this Agreement,
details of which are set out in Exhibit D to this Agreement.


 


10

















 


4.5          Share Capital


 


(a)           Capital Stock.  Immediately prior to the Closing,
the authorized capital of the Company consists of 50,000 Shares, of which 100
Shares have been duly and validly issued, and are fully paid.


 


(b)           Other Securities.  Immediately prior to the Closing
and save as contemplated by this Agreement or in the Shareholders’ Agreement,
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.


 


(c)           Share capital immediately
before the Closing.  An
accurate and complete list of the Company’s shareholders and their respective
holdings of the Company’s capital stock is set forth in Schedule A.


 


4.6          Share capital of Lentuo
HK


 


(a)           Capital Stock.  The authorized capital of Lentuo HK consists of 10,000 shares,
of which 1 share has been duly and validly issued, and is fully paid, all of
which is held by the Company.


 


4.7          Share capital of the WFOE.


 


(a)           Registered Capital.  The registered capital of the WFOE is
RMB100,000.  The Company through Lentuo
HK hold one hundred percent (100%) of the equity interest in the WFOE.  Any unfunded balance of the registered
capital will be funded by the Company in accordance with the terms of the WFOE’s
articles of association.  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.


 


4.8          Capitalization of the PRC
Operating Companies.


 


The registered capital of each of the PRC
Operating Companies is set out in the Recitals. 
The PRC Holding Company holds beneficially and of record one hundred
percent (100%) of the equity interest in each of the PRC Operating
Companies.  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 each of the PRC Operating Companies to increase or
decrease its registered capital or to issue, repurchase or redeem any of such registered
capital or its issued capital.


 


4.9          Founder.


 


The
Founder has obtained all approvals and registration and has complied with
necessary filing requirements associated with the Founder’ overseas investment
and round trip investments back into China as required under PRC law, in
particular, the “Notice of the State Administration of Foreign Exchange on
Relevant Issues concerning Foreign Exchange 


 


11

















 


Administration
for Domestic Residents to Engage in Financing and in Return Investment via
Overseas Special Purpose Companies” prior to Closing.


 


4.10        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 PRC GAAP.


 


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


 


(iii)          The Financial Statements show a true
view of the assets, liabilities, capital commitments and the state of affairs
of the Group Companies as at the Balance Sheet Date and of the profits and
losses of the Group Companies for the period concerned.


 


(b)           Provision for liabilities, etc.  Full disclosure
of 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 Statement were sufficient for each fixed asset of the Group
Company to be written down to nil by the end of its useful life.


 


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


 


12

















 


4.11        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.


 


(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 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)           no Group Company has assumed or
incurred any liabilities (actual or contingent) or expenditure otherwise than
in the ordinary course of carrying on its business or entered into any
transaction which is not in its ordinary course of business;


 


(iii)          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 other than in the ordinary course of business;


 


(iv)          no business of any of the Group
Companies has been adversely affected by the loss of any important contract or
customer or source of supply or by any abnormal factor not affecting similar
businesses to a like extent and the Warrantors are not aware of any facts which
are likely to give rise to any such effects;


 


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


 


(vi)          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 (except for those disclosed in the Financial
Statements);


 


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


 


(viii)        save for resolutions copies of which
have been delivered to the Investor prior to the date hereof or which are
required to be passed by any Group Company prior to Closing in order to satisfy
the conditions set out in Section 8, no board or shareholders’ resolutions of
any of the Group Companies have been passed;


 


(ix)          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


 


13

















 


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


 


4.12        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 the Group Companies, 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 and is under no liability to pay any penalty,
interest, surcharge or fine in connection with any Taxation and has complied in
all respects with all legislation relating to Taxation applicable to it.


 


(ii)           Each Group Company has made all such
returns and notifications, provided all such information, documents and
particulars and maintained all such records in relation to Taxation as are
required to be made or provided or maintained by it and none of such returns,
notifications, information, documents or particulars is disputed by the
relevant governmental authority concerned.


 


(iii)          A return has been submitted in respect
of each Group Company’s liability to Tax under the relevant applicable laws for
each year of assessment up to and including the last year of assessment ending
before the date hereof.


 


(iv)          To the Knowledge of the Warrantors,
each Group Company is not and does not expect to be involved in any dispute in
relation to Taxation and there is no relevant governmental authority concerned
which has investigated or indicated that it intends to investigate the Tax
affairs of any Group Company.


 


(b)           Duties, etc.  All duties,
charges, imposts or fees payable in respect of any assets (including trading
stock) imported, exported or owned by the Group Company have been paid in full.


 


(c)           Annual 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.


 


(d)           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.


 


(e)           Overseas Elements.  The Group Companies only have
trade, business or other activities in the PRC and do not have any overseas
operating subsidiary or associated or related company (as such terms are used
in relation to Tax in any foreign country) other than in the PRC.


 


(f)            Secondary Liability.  No event, transaction, act or
omission has occurred which could 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.


 


14

















 


4.13        Changes In Net Assets.  Since the Balance Sheet Date and
at all times up to the date of Closing, no material changes have occurred in
the assets and liabilities (whether actual or contingent) shown in the
Financial Statements 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.


 


4.14        Assets


 


(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;


 


(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)           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.


 


(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 none is dangerous, inefficient, out-of-date,
unsuitable or in need of renewal or replacement.


 


(v)           Maintenance contracts are in full
force and effect in respect of all assets of each Group Company which is normal
or prudent to have maintained by independent or specialist contractors and in
respect of all assets which each Group Company is obliged to maintain or repair
under any leasing or similar agreement and all  such
assets have been regularly maintained to a good technical standard, and in
accordance with safety regulations required or prudent to be observed in
relation thereto and in accordance with the terms and conditions of any
applicable leasing or similar agreement.


 


(b)           Hire Purchase and Leased
Assets etc.  No Group Company
has acquired any assets under hire, a hire purchase or credit sale agreement
other than in the ordinary course of business.


 


15

















 


(c)           Book Debts.


 


Save as disclosed in
the Financial Statements, 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.


 


4.15        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 allot and issue the Subscription Shares to
the Investor and to carry out and perform its obligations under the terms of
the Transaction Documents.


 


4.16        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, at the Closing for the authorization, issuance, and
delivery of the Subscription Shares has been taken.  The Transaction Documents constitute legally
binding and valid obligations of the Group Company enforceable in accordance
with their respective terms.


 


4.17        Validity of the Subscription Shares. The
Subscription Shares, when issued, and delivered 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.


 


4.18        Changes in Condition.  Except as specifically
contemplated by this Agreement since the Balance Sheet Date: (a) no Group
Company has entered into any transaction except in its ordinary course of
business: (b) 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 member among the Senior Management of any Group Company,
and there is no impending resignation or termination of employment of any
member among the Senior Management of any Group Company that, if consummated,
would constitute a Material Adverse Event; (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; (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, (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.


 


4.19        Litigation. 
There is no action, proceeding, or investigation against any
Group Company, pending or threatened, or any basis therefore to the Knowledge
of the Warrantors, including action, proceeding or investigation, that
questions the validity of the Transaction Documents, the right of any Group
Company to consummate the transactions contemplated by the Transaction
Documents, or that would result, either individually or in the aggregate, in
any 


 


16

















 


Material Adverse Event.  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.


 


4.20        Title to Properties; Liens and
Encumbrances.  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 on the Financial Statements, and has good title to all its leasehold
interests, in each case not being subject to any mortgage, pledge, lien,
security interest, conditional sales agreement, encumbrance, or charge.  With respect to the properties and assets
leased by each
of the PRC Operating Companies, each of the PRC Operating
Companies is in compliance with such
leases which are in full force and effect. 
Each
of the PRC Operating Companies
owns or leases all properties and assets necessary to conduct its business and
operations as presently conducted and proposed to be conducted.


 


4.21        Intellectual Property Rights.


 


(a)           The Group Companies have
independently developed and own or possess sufficient legal rights to all
Intellectual Property Rights (including registrations and applications to
register or renew such rights), and licences of any of the foregoing necessary
for its business as now conducted and as proposed to be conducted
(collectively, the “Group Intellectual Property”),  without any infringement of the rights of others.  There are no outstanding options, licences or
agreements of any kind relating to the Group Intellectual Property, nor is any
Group Company bound by or are parties to any options, licences or agreements of
any kind with respect to the Group Intellectual Property of any other person or
entity except, in either case, for standard end-user agreements with respect to
“off-the-shelf computer software that is generally commercially available.  Each Group Company is in compliance with all
material terms of any licences by which it uses any Group Intellectual
Property, and each such licence is in full force and effect.  Each licensor thereof is in compliance with
all material terms of the respective licences. 
No Group Company is aware of the existence of any fact or circumstance
that would give the licensor thereof grounds under the terms of such licence to
cancel, terminate or suspend such licence. 
There is no expectation by any Group Company that any licences material
to the operation of the Group Companies will not be renewed in the ordinary
course of business on terms that are commercially reasonable.  No Group Company has received any communications
alleging that it has violated or, by conducting its businesses as presently
conducted or proposed to be conducted, would violate any of the Intellectual
Property Rights of any other person or entity. 
To the Knowledge of the Warrantors, no employee of any Group Company is
obligated under any contract (including licences, 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 their duties
to the Group Companies, or that would conflict with the Group Companies’
business as presently conducted or proposed to be conducted.  To the Knowledge of the Warrantors, it is not
necessary for any Group Company to utilize any Intellectual Property Rights of
any employees of the Group made prior to employment by the Group, except for
Intellectual Property Rights that have been assigned to such Group Company.


 


(b)           None of the Group Companies, MCIL or
the Founder has entered into any agreement to indemnify any other person
against any charge of infringement or misappropriation of any Group
Intellectual Property.


 


17

















 


(c)           Each Group Company has taken all
necessary action to protect and preserve (i) the validity and enforceability of
trade and service marks and associated goodwill included in the Group
Intellectual Property; (ii) the enforceability of copyrights and the
confidentiality, validity and enforceability of pending patent applications
included in the Group Intellectual Property; (iii) the validity and
enforceability of patents included in the Group Intellectual Property; and (iv)
the confidentiality and enforceability of trade secrets and the confidentiality
of other proprietary information included in the Group Intellectual Property.


 


(d)           No trade secret or confidential
information constituting Group Intellectual Property has been used, divulged or
appropriated for the benefit of any person other than the Company or the WFOE
or otherwise to the detriment of the Group Companies, except pursuant to
appropriate non-disclosure agreements. 
None of the Founder, current employees or consultants of the Group
Companies has used any trade secrets or other confidential information of any
other Person in the course of work for the Group Companies, except with the
legally valid consent of such Person.


 


(e)           No Group Company has any written
agreements or, to the Knowledge of the Warrantors, any oral agreements with
current or former employees or consultants with respect to the ownership of
Group Intellectual Property, including inventions, trade secrets or other works
created by them as a result of which any such employee or consultant may have
exclusive or non-exclusive rights to any portion or part of the Group
Intellectual Property created by such individual.


 


(f)            To the Knowledge of the Warrantors, none of the Founder, member of the Senior Management, technical employees employed by any Group Company,
current or former officer, employee or consultant of the Group Companies are in
violation of any term of any written employment contract, patent disclosure
agreement, proprietary information agreement, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or agreement or any restrictive covenants relating to the right of the
Founder, such member of the Senior
Management, officer, employee, consultant or person to be
employed or engaged by the Group Companies, or relating to the use of trade
secrets or proprietary information of others, and no former employer of any
such person has any rights in respect of the Group Intellectual Property.


 


(g)           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 Founder and 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.


 


(h)           No royalty, honorarium, fees or other
payments are payable by a Group Company to any third party by reason of the
ownership, possession, sale , marketing, use or other exploitations of any
Group Intellectual Property.


 


18














 


4.22        Contracts.


 


(a)           Validity of Contracts.


 


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


 


(ii)           To the Knowledge of the Warrantors,
no party with whom the Group Company has entered into any agreement or
arrangement is in default thereunder being a default which would have a
material and adverse effect on the financial or trading position or prospects
of 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 subscription of the Subscription 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.  No Group Company has material or
long term contract or commitment 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 thirty-five percent (35%) or more of the annual sales of the Group
Company on an annual basis; and


 


(viii)        any agreement with a supplier which
constitutes thirty-five percent (35%) or more of the total supply of that Group Company on
an annual basis.


 


(c)           Restrictive
Agreements.  There are no
agreements in force restricting the freedom of any Group Company to provide and
take goods and services 


 


19

















 


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.


 


(d)           Guarantee etc. in respect
of goods or 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 any guarantee, condition or warranty or made any
representation in respect of goods (including trading stock) or 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 goods or
services has been supplied by it


 


(e)           Agreement with
Shareholders,  Other than
this Agreement, the Company has not entered into any agreement with, or given
any undertaking or assurance to, any of the Existing Shareholders or their
Affiliates, which may prejudice the rights of the Investor or contravene with
the terms and conditions set out in this Agreement and the Shareholders’
Agreement.


 


(f)            Restriction on Transfer of
Equity Interests by the Company.  Other
than as required by this Agreement, 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.


 


4.23        Compliance with Other Agreements.  None of the Group Companies is in
violation 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, contract,
agreement, judgment or any decree, order, statute, rule, or regulation
applicable to that person.  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 the 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 contract, obligation, commitment,
covenant or instrument to which a Group Company or, to the Founder’s 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.


 


4.24        Employee Relations and Compensation Plans.


 


(a)           General.


 


(i)            The employment of the personnel of
the Group is in compliance with the relevant labor laws of the PRC.


 


(ii)           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 


 


20

















 


Balance Sheet Date and the
Company is under no obligation nor has it made any provision to alter such basis.


 


(iii)          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.


 


(iv)          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 this 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 with all obligations
imposed on it by, and all orders and awards made under, all statutes,
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)           Proprietary Information
and Inventions Agreements. 
Each former and current employee, officer and consultant of each Group
Company 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 


 


21

















 


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.  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.


 


4.25        Transactions with Affiliates.  (i) No director or member of the Senior
Management of any Group Company, no spouse, parent, sibling or children of any
such director or member of the Senior Management of the Company, 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 Company Group with respect to
any director or member of the Senior Management of Group Company, the spouse,
parents, siblings and children of such director or member of the Senior
Management, and any entity in which such director, member of the Senior
Management or such relatives thereof have a direct or indirect ownership
interest of not less than 0.1%, do not exceed US$1,000; and (iii) no director
or member of the Senior Management of any Group Company, no spouse, parent,
sibling or children of any such director or member of the Senior Management,
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.


 


4.26        Governmental and Third Party Consents.


 


(a)           As of 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.


 


(b)           No consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any federal, state, local, or provincial governmental authority on
the part of any Group Company is required in connection with the execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated in the Transaction Documents.


 


4.27        Permits. 
Each Group Company has all franchises, permits, licences,
certificates and any similar governmental authority necessary for the conduct
of its business as now being conducted (the “Licences”),  and the Group can obtain, without undue burden or expense,
all Licenses for the conduct of its business. 
The Licences are in full force and effect.  None of the Group Companies is in default in
any respect under any of its Licences and has not received any notice relating
to the suspension, revocation or modification of any such Licences.


 


4.28        Full Disclosure.  Each of the Warrantors has
provided the Investor with (a) all the information that the Investor has
reasonably requested for deciding whether to subscribe the Subscription Shares,
and (b) all information necessary to enable the Investor to make a fully
informed decision as to whether or not to subscribe the Subscription Shares,
all such information being accurate and complete in all material respects and
not misleading in any material respect, subject to such assumptions made in
good faith and commercially prudent manner with respect to certain financial
projections.  The representations and
warranties 


 


22

















 


contained in this Agreement and any other
Transaction Documents, certificates and other documents made or delivered in
connection herewith do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements contained
therein or herein, in view of the circumstances under which they were made, not
misleading.


 


4.29        Not Investment Company.  The Company is not an “investment
company” as such term is defined under the United States Investment Company Act
of 1940, as amended.  The Company is not
a passive foreign investment company (“PFIC”)  within the meaning of Section 1296 of the United States
internal Revenue Code of 1986, as amended and will use all efforts to avoid
becoming a PFIC.


 


4.30        Brokers and Finders.  Save as disclosed, 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.


 


4.31        No Registration Rights.  None of the Group Companies has
granted any registration rights to any third party with respect to sales of any
of its securities in the United States.


 


4.32        Insurance. 
Each Group Company maintains insurance policies, with
extended coverage, sufficient in amount (subject to reasonable deductibles) to
allow it to replace any of its properties that might be damaged or
destroyed.  Each Group Company has in
full force and effect employees’ liability, third party risks and personal
injury, products liability and errors and omissions insurance in amounts
customary for companies similarly situated.


 


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


 


The Warrantors and
the Company shall indemnify the Investor against any damages resulted from any breach of the provisions of this Section 4  if the aggregated amount of
such damages is in excess of RMB1,200,000. For the avoidance of any doubt, the
events disclosed in the Disclosure Letter shall not be treated as breach of
this Section 4.


 


5.             Representations
and Warranties of the Investor.


 


5.1          Investor’s
Warranties.  As of the date
hereof, the Investor represents and warrants to the Company as follows:


 


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


 


(b)           Investment.  The Subscription Shares to be
subscribed by it hereunder 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). 
The Investor warrants the legal source of the US$18,000,000 is clean and
lawful, which shall be free from any and all claims of any relevant competent
authorities or third parties.


 


(c)           Domicile. The
Investor: (1) is domiciled and has its principal place of business outside the
United States; (2) certifies it is not a U.S. Person (a “Non-


 


23

















 


U.S. Person”) as defined
under Rule 902 of Regulation S under the United States Securities Act of 1933,
as amended (the “Securities Act”) and is not a acquiring the Subscription
Shares for the account or benefit of any U.S. Person; and (3) at the time of
the Closing, the Non-U.S. Person or persons acting on the Non-U.S. Person’s
behalf in connection therewith will be located outside the United States. The
Investor is an “accredited investor” within the meaning of Rule 501 of
Regulation D under the Securities Act.


 


5.2          The Investor’s
Organization and Authority.  It
(i) is an entity duly organized, validly existing, authorized to exercise all
its powers, rights and privileges as an exempted company, and is in good standing
under the laws of the stated jurisdiction of its establishment or organization,
and (ii) has the power and authority to operate and carry on its business in
accordance with its constitutional documents.


 


6.             Additional Covenants.


 


6.1          Resolutions, Contracts or Commitments.  Each
of the Warrantors, severally and jointly, covenants with the Investor that,
except as required by this Agreement, no resolution of the directors, owners,
members, partners or shareholders of any Group Company shall be passed nor
shall any contract or commitment whose value is more than RMB1,200,000 (other
than commercial agreements entered into in the ordinary course of business) be
entered into prior to Closing without the written consent of the Investor.


 


6.2          Notwithstanding anything to the contrary in this Agreement,
except as otherwise permitted by this Agreement or with the written consent of
the Investor, from the date hereof and at all times up to and including the
Closing, the Company shall, and shall cause each other Group Company in respect
of itself to comply with the following restrictions and requirements:


 


(a)           carry on its business in the ordinary
course consistent with past practice and use commercially reasonable efforts to
preserve its relationships with customers, suppliers and others having business
dealings with the Group Companies;


 


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


 


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


 


(e)           not to change its jurisdiction of
incorporation;


 


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


 


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


 


(h)           not to 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 to
consolidate or merge with any other business, which is not part of its existing
business of as at the date hereof;


 


24

















 


(i)            except with the written consent from
the Investor, not to 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, such consent shall not be unreasonably withheld;


 


(j)            not to make any investment or incur
any commitment in excess of RMB1,200,000in related transactions other than in
the ordinary course of business;


 


(k)           save as disclosed, not to sell,
dispose of or transfer any of its assets, business or shares;


 


(l)            not to create any Encumbrance 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;


 


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


 


(n)           not to 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).


 


6.3          Subsequent
Disclosure.  Subject to
Section 6.4, if at any time before Closing, any party (the “Warranting Party”)  comes to know of any fact or event which:


 


(a)           is in any way inconsistent with any
of the representations and warranties given by the Warranting Party.


 


(b)           suggests that any fact warranted by
the Warranting Party may not be as warranted or may be misleading, and/or


 


(c)           would be material to any decision by
the Investor of whether or not to consummate the Pre-IPO Financing.


 


the Warranting Party shall give immediate
written notice thereof to the other parties, in which event subject to Section
6.3, the Investor may terminate this Agreement without any penalty whatsoever,
by delivering written notice of such termination, within fourteen (14) Business
Days of receiving the Warranting Party’s notice under this Section.


 


6.4          Force Majeure.  No party shall be entitled to
terminate this Agreement if any representation or warranty contained in Section
3 of this Agreement is or becomes untrue, incomplete or inaccurate as a
consequence of any Force Majeure Event between the time of signing of this
Agreement and Closing.  For purposes of
this Agreement, “Force Majeure Event” shall mean acts of God, natural
disasters, or acts of war.


 


7.             Confidentiality and Announcements.


 


7.1          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 


 


25

















 


with the provisions set forth below.  The Investor agrees with the Company that it
will keep confidential and will not disclose or divulge, any information which
the 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, the 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 the Investor, or
unless the Company gives its written consent to the Investor’s release of the
information.


 


7.2          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)           the Investor may disclose its own
investment in the Company to third parties or to the public at its sole
discretion, provided that any such information disclosed in a press release or
other public announcement by the Investor may (after such disclosure) be
disclosed by the other Parties to third parties;


 


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


 


(i)            any information to such Investor’s
and/or its Affiliate’s legal counsel, auditor, insurer, accountant, consultant
or to an officer, director, shareholder, investment counsel or advisor, or
employee of such Investor and/or its Affiliate; provided, however,
that any counsel, auditor, insurer, accountant, consultant, officer, director,
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 as required by law,
government authorities, exchanges and/or regulatory bodies;


 


(iii)          any description of the Financing Terms
and Investor with offering documents and the filing of the Transaction
Documents to the government authorities in connection with the Company’s
initial public offering; and


 


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


 


(d)           the confidentiality obligations set
out in Section 7.1 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 Patty, entered the public
domain otherwise than as a result of (i) a breach by that Party of this Section
7, 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 


 


26

















 


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 Affiliate or otherwise in
accordance with the foregoing provisions of this Section 7.2.


 


7.3          Legally Compelled
Disclosure.  Unless the
disclosure is specifically permitted under section 7.2 (c) (iii), 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 7, 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.


 


7.4          Other Information.  The provisions of this Section 7
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.


 


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


 


8.1          Representations and
Warranties.  The
representations and warranties of the Warrantors contained in this Agreement
shall be true and accurate 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 the Closing.


 


8.2          Authorized Capital.  The Company shall have passed
shareholder resolutions to increase its authorized share capital and to allot
the Subscription Shares to the Investor.


 


8.3          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 and shall have obtained all approvals, consents and qualifications
necessary to complete the subscription of the Subscription Shares.


 


8.4          Corporate Authorisation.  The Board shall have approved this Agreement
and the transactions contemplated hereunder in accordance with its
constitutional documents.


 


8.5          Proceedings Satisfactory;
Compliance Certificate.  All  corporate
and legal proceedings taken by each Group Company in connection with the
transactions contemplated by this Agreement and all documents relating to these
transactions shall be duly completed which are necessary to the signing and
delivery hereof and the performance hereunder of the obligations of such Group
Company.  No legal action shall be
pending or shall have been threatened in writing which seeks to impose
liability upon any of the Group Companies by reason of the consummation of the
transactions contemplated by this Agreement or the Transaction Documents to
which it is a party; the Company shall have delivered to the Investor
subscribing the Subscription Shares hereunder a certificate dated as of the
Closing, signed by the CEO of the Company, certifying that the conditions set
forth in this Section 8 have been satisfied.


 


27

















 


8.6          Shareholders’
Agreement.  The Existing
Shareholders shall have delivered to the Investor the duly executed
Shareholders’ Agreement.


 


8.7          Legal Opinions.  The Company shall have delivered
to the Investor a legal opinion issued by its PRC counsel in agreed form
annexed hereto as Exhibit C.


 


8.8          Exemption from
Registration.  The offer and
sale of the Shares hereunder shall be exempt from the registration or
qualification requirements of all applicable securities laws and regulations.


 


8.9          Due Diligence.  A due diligence review of the
Group Companies (including but not limited to legal, financial, management,
technology, Intellectual Property, process licenses and government regulatory due
diligence) shall have been completed which shall not discover any Material
Adverse Event occurred prior to the Closing.


 


8.10        Material Adverse Event.  In respect of any Group Company, no Material
Adverse Event shall, in the Investor’s opinion, have taken place at Closing.


 


8.11        Board Appointees.  The Company shall provide
satisfactory evidence that one (1) representative proposed by the Investor has
been duly appointed as a director of each of the Company and the PRC Holding
Company.


 


8.12        Additional Documents.  The Company shall have delivered
to the Investor at or before the Closing:


 


(a)           a copy of the register of members of
the Company as at the date of the Closing, certified by the Chairman, Chief
Executive Officer or President of the Company to be a true and complete copy
thereof;


 


(b)           Good Standing
Certificate.  The Company
shall have delivered to the Investor at or before the Closing a good standing
certificate with respect to the Company issued by the Registrar of Companies of
the Cayman Islands, dated no earlier than five (5) Business Days before the
Closing;


 


(c)           Share Charge.  The Company shall have delivered to the
Investor at or before the Closing a duly executed, valid and enforceable share
charge in connection with 100% equity interest in the PRC Holding Company in
favour of YIN WEIMIN (holding of PRC identity card bearing number 410105197109
244339), in form and substance to the satisfaction of the Investor;


 


(d)           2009 Audited Financial
Statements.  The company shall have delivered to the Investor
at or before Closing the 2009 Audited Financial Statements prepared by its
Auditors with no qualified opinion; and


 


(e)           Senior management
Employment Contracts.  The
company shall have delivered to the Investor at or before Closing, legally
binding employment contracts entered into between certain key personnel and the
relevant Group Companies (including employees who are deputy general manager or
above), in form and substance to the satisfaction of the Investor.


 


(f)            Side Letter.  The Company shall provide a copy of the side
letter substantially in the form annexed hereto as Exhibit B to the
Investor.


 


28














 


9.             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:


 


9.1          The warranties given by the Investor at the Closing in
which it is participating under Section 5 of this Agreement being true and
correct when made and as of the Closing; and


 


9.2          The covenants and agreements contained in this Agreement to
be complied with by the Investor with respect to the Closing in which it is
participating having been complied with on or before the Closing.


 


9.3          Additional Documents.  Executed counterparts of the
Shareholders’ Agreement shall have been delivered by the Investor.


 


10.          Long-Stop Date.


 


In the event that any condition to the Closing
hereunder is not fulfilled or waived within sixty (60) days of the signing of
this Agreement, this Agreement shall terminate. 
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 Section 7, Section 12.1,
Section 12.2 and Section 12.5 shall continue unimpaired and in fall
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.


 


11.          Post-Closing Covenants of the Warrantors.


 


11.1        Information Rights Relating to PFIC.  On or prior to a Qualified IPO,
the Company will furnish to the Investor, upon request, as promptly as
practicable, such information as the 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.


 


11.2        Use of Proceeds.  The Company shall use the entire
proceeds (less reasonable expenses agreed by the Investor) from the subscription
of the Subscription Shares for the purposes of conducting its core business and
payment of any expenses arising from or in connection with implementing the
Qualified IPO.


 


11.3        Put Option.  The Warrantors shall use their best
endeavours to consummate the Qualified IPO on or before 31 December 2010.  If for any reason the Company has not
achieved a Qualified IPO within two (2) years after the Closing, then the
Investor shall have an option (the “Put Option”),
exercisable in its sole discretion, to require the Company to purchase all of Subscription Shares at a consideration which would constitute an Internal
Rate of Return to the Investor of eighteen percent (18%).  If the Company fails to pay within thirty
(30) days all amounts due pursuant to the exercise of the Put Option, upon the
demand of the Investor, the Founder shall pay all such amounts which are then due and owing to the Investor.


 


29

















 


11.4        Non competition.


 


(a)           For the purpose of assuring the
Investor the full benefit of the Business and goodwill of the Group Companies,
the Founder shall and shall cause the key employees, officers and consultants
of any Group Company to enter into nondisclosure and non-competition agreements
with the Company upon the written request from the Investor in form and
substance to the satisfaction of the Investor.


 


(b)           The Founder will cause the key
employees, officers and consultants of any Group Company specified by the
Investor to enter into an assignment and confidentiality agreement in a form
approved by the Investor 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 assignment and confidentiality agreement to the Investor.


 


11.5        Taxation Indemnity.  The Founder shall (in form and
substance satisfactory to the Investor) indemnify the Investor and the Company
against any depletion in or reduction in value of its assets or increase in its
liabilities as a result of any claim of taxation made in respect of a
transaction effected prior to the Closing.


 


11.6        Amendment to Articles.  The Founder 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.


 


11.7        Variation of Contractual
Arrangements.  Each of the
Warrantors represents, warrants and undertakes that the contractual arrangements
as set out as Exhibit D to this Agreement has been and will be at
all times valid and enforceable and such contractual arrangements shall not be
supplemented, amended or terminated without the prior written consent of the
Investor.


 


11.8        Non-disposal Undertaking.  The Founder undertakes to the Investor that
he will not offer, pledge, charge, sell, contract to sell, grant or agree to
grant any option, right or warrant to purchase or subscribe for, lend or
otherwise transfer or dispose of, either directly or indirectly, any shares in
MCIL prior to the Qualified IPO unless and until the Shares held by the
Investor is less than one percent (1%) of the total number of outstanding
Shares.


 


12.          Miscellaneous


 


12.1        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.


 


12.2        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.


 


30

















 


(b)           The arbitration shall be conducted in
Hong Kong under the auspices of the Hong Kong International Arbitration Centre
(the “Centre”).  There shall be three (3) arbitrators.  Each opposing party to a dispute shall be entitled
to appoint one arbitrator, and the third arbitrator shall be jointly appointed
by the disputing parties or, failing which the Centre shall appoint the third
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 arbitrators 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)            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.


 


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


 


12.3        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.


 


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


 


12.5        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 (5) 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 (3) 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


 


 


Tel. No.:


 


Fax No.:


 


31

















 


Attention:


 


To:                          Investor


 


 


Tel.
No.:


 


Fax
No.:


 


Attention:


 


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


 


12.6        Amendment of this Agreement.  Any provision of this Agreement
may be amended by a written instrument signed by the all the Parties hereto.


 


12.7        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.


 


12.8        Entire Agreement; Successors and
Assigns.  Except as
specifically referenced in this Agreement, this Agreement, together with all
Exhibits and Schedules to this Agreement, constitute 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
subscription of shares in 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.


 


12.9        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.


 


12.10      Further Assurances.  From and after the date of this
Agreement, upon the request of the Investor, 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 effect fully the intent and purposes
of this Agreement.


 


12.11      Fees and Expenses.  The Company agrees to pay the
Investor up to US$50,000 to cover legal fees and due diligence expenses (the “Expenses”)  actually
incurred by the Investor, if the transactions contemplated hereby are
consummated.


 


12.12      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, 


 


32

















 


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.


 


12.13      Prior Agreements Superseded.  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 Subscription Shares and
the terms thereof).  All such prior agreements
shall lapse and terminate upon execution hereof.


 


[Remainder of
this page intentionally left blank]


 


33

















 


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


 


 


	
   

  	
  LENTUO INTERNATIONAL INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENTUO HK LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BEIJING AN HUI WAN XING TECHNOLOGY CO., LTD.

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


34

















 


	
   

  	
  BEIJING LENTUO ELECTRON MECHANICAL GROUP CO., LTD.

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUO HETONG

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Hetong Guo

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MODERN CYBER INTERNATIONAL LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


35

















 


	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jing Yang

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Yanhong Qin

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


36

















 


	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jing Yang

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chuanxin Sun

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Yanlong Xu

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


37

















 


	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chuanxin Sun

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NEWMAN INVESTMENTS
  LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Weimin Yin

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


[Subscription agreement signature page]


 


38














 


Schedule
A


 


	
  Shareholder

  	
   

  	
  Shareholding before the Closing

  
	
  Guo Hetong 

  	
   

  	
  75

  
	
  Yang Jing 

  	
   

  	
  6

  
	
  Hang Xueyuan 

  	
   

  	
  6

  
	
  Geng Xiaoli 

  	
   

  	
  6

  
	
  Sun Chuanxin 

  	
   

  	
  6

  
	
  Yang Miusi 

  	
   

  	
  1

  



 


39

















 


EXHIBIT A


Shareholders’
Agreement


 


40

















 


EXHIBIT B


Side
Letter


 


41

















 


EXHIBIT C


Draft
Legal Opinion


 


42

















 


EXHIBIT D


Contractual
Arrangements


 


43

















 


EXHIBIT E


Senior
Management


 


44














 


SUPPLEMENTARY
AGREEMENT


 


TO


 


SBUSCRIPTION
AGREEMENT


 


THIS SUPPLEMENTARY AGREEMENT TO SBUSCRIPTION AGREEMENT (this
“Agreement”)  is made as of October 28, 2010, by
and among:


 


(1)           LENTUO INTERNATIONAL INC., a limited liability company incorporated under the
laws of the Cayman Islands (the “Company”);


 


(2)           LENTUO HK LIMITED  a limited liability company incorporated under the
laws of Hong Kong SAR (“Lentuo HK”);


 


(3)           MODERN CYBER INTERNATIONAL LIMITED, a limited liability company incorporated under the
laws of the British Virgin Islands (“MCIL”);


 


(4)           BEIJING AN HUI WAN XING TECHNOLOGY
CO., LTD.  a wholly
foreign-owned enterprise established by the Company under the laws of the
People’s Republic of China (the “WFOE”);


 


(5)           BEIJING LENTUO ELECTRON MECHANICAL GROUP
CO., LTD.   a limited liability company incorporated under
the laws of the PRC (the “PRC Holding Company”);


 


(6)           BEIJING TUOZHAN INDUSTRIAL &
TRADING DEVELOPMENT CO. LTD., a limited liability company incorporated under the laws of the PRC (“Beijing Tuozhan”);


 


(7)           BEIJING
YUANTONGQIAO TOYOTA AUTOMOBILE TRADING CO., LTD., a limited liability company incorporated under the
laws of the PRC (“Beijing Yuantongqiao”);


 


(8)           BEIJING
LENTUO AUTOMOBILE LEASING CO., LTD., a limited liability company incorporated under the
laws of the PRC (“Lentuo Automobile
Leasing”);


 


(9)           BEIJING LENTUO CHENGXIN
COMMERCIAL & TRADING CO., LTD., a limited liability company incorporated under the
laws of the PRC (“Lentuo Chengxin”);


 


(10)         BEIJING
AOTONG AUTOMOBILE TRADING CO., LTD., a limited liability company incorporated under the
laws of the PRC (“Lentuo Aotong”);


 


(11)         BEIJING TUOJIACHENG
COMMERCIAL & TRADING CO., LTD., a limited liability company incorporated under the
laws of the PRC (“Beijing Tuojiacheng”);


 


1

















 


(12)         BEIJING
TUOZHAN AUTOMOBILE REPAIR CO., LTD., a limited liability company incorporated under the
laws of the PRC (“TUOZHAN AUTOMOBILE”);


 


(13)         NEWMAN INVESTMENTS LIMITED, a limited liability company incorporated under the
laws of Samoa (the “Investor”);
and


 


(14)         GUO HETONG PRC residents
holding PRC Identity Card bearing number 132902195910305977, with his address
being at Rm. 302, 3/F, Lentuo Building, 38 East Guangqu Road, Chaoyang
District, Beijing; (the “Founder”),


 


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


 


(Beijing Tuozhan, Beijing Yuantongqiao, Lentuo Automobile Leasing,
Lentuo Chengxin, Lentuo
Aotong, Beijing Tuojiacheng, and Tuozhan Automobile collectively, the “PRC Operating Companies”, and each a “PRC Operating Company”)


 


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


 


Recitals


 


1.     The Company, Lentuo HK, MCIL, the WFOE, the PRC
Holding Company, the Founder, the PRC Operating Companies, and the Investor entered
into a Subscription Agreement dated as of February 2010 (the “Subscription
Agreement”), pursuant to which, the Parties agree that the Investor would
invest based on a post money valuation of seven (7) times of the 2009 Net
Income (as defined in the Subscription Agreement) of the PRC Holding Company
and the Company agrees to allot and issue to the Investor, and the Investor
agrees to subscribe certain number of Shares; and


 


2.     Having agreed to amend relevant provisions in the
Subscription Agreement and having reached agreement on such amendments, the
Parties desire to enter into a written agreement to confirm such amendments.


 


NOW, THEREFORE, in consideration of the foregoing premises, the Parties
agree as follows:


 


1.     The Parties agree that the definition of “Qualified
IPO” in Article 1. Definitions
in the Subscription Agreement shall be amended to the effect that the listing
of the Listco on a foreign stock exchange resulting in the Listco having a
market capitalization of not less than US$300 million shall be removed from the
conditions for the determination of the Qualified IPO; and


 


2.     The Parties agree
that this Agreement shall take effect as of the date of execution and shall
constitute an integral part of the Subscription Agreement upon execution.  This Agreement shall be binding upon the
Parties unless terminated in writing by the Parties.


 


[Remainder of
this page intentionally left blank]


 


2

















 


[Signature Page]


 


IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective representatives as of the date first above
written.


 


	
   

  	
  Lentuo International Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
   

  
	
   

  	
  Lentuo HK Limited

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
   

  
	
   

  	
  Modern Cyber International Limited

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
   

  
	
   

  	
  BEIJING AN HUI WAN XING TECHNOLOGY CO., LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
   

  
	
   

  	
  BEIJING LENTUO ELECTRON MECHANICAL GROUP CO., LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
   

  
	
   

  	
  BEIJING TUOZHAN INDUSTRIAL & TRADING DEVELOPMENT CO. LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  
	
   

  	
   

  
	
   

  	
  BEIJING YUANTONGQIAO TOYOTA AUTOMOBILE TRADING CO., LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chuanxin Sun

  



 


3

















 


	
   

  	
  BEIJING LENTUO AUTOMOBILE LEASING CO., LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chuanxin Sun

  
	
   

  	
   

  
	
   

  	
  BEIJING LENTUO CHENGXIN COMMERCIAL & TRADING CO., LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Min Xu

  
	
   

  	
   

  
	
   

  	
  BEIJING AOTONG AUTOMOBILE TRADING CO., LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jing Yang

  
	
   

  	
   

  
	
   

  	
  BEIJING TUOJIACHENG COMMERCIAL & TRADING CO., LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jing Yang

  
	
   

  	
   

  
	
   

  	
  BEIJING TUOZHAN AUTOMOBILE REPAIR CO., LTD.

  
	
   

  	
   

  
	
   

  	
  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Yanlong Xu

  
	
   

  	
   

  
	
   

  	
  Newman Investments Limited

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Weimin Yin

  
	
   

  	
   

  
	
   

  	
  GUO HETONG  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hetong Guo

  



 


4