Exhibit 4.5


 


Execution Copy


 


BONA INTERNATIONAL FILM GROUP LIMITED


SERIES B PREFERRED SHARE SUBSCRIPTION
AGREEMENT


 


THIS
SERIES B PREFERRED SHARE
SUBSCRIPTION AGREEMENT (the “Agreement”) is made as of July 7, 2009 by and
among:


 


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


 


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


 


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


 


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


 


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


 


6.     Beijing Bona Mei Tao Culture Media Co., Ltd.  a limited liability company registered in
Beijing, PRC (“Bona Mei
Tao”);


 


7.     Zhejiang Bona Movie and Television Production Co., Ltd.  a limited liability company
registered in Zhejiang, PRC (“Zhejiang Bona”);


 


8.     Yu Dong  (PRC ID No.                                    );


 


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


 


10.  Shi
Nansun   (HK ID No.                        );


 

















 


11.  Huang Hsin-Mao  (Taiwan ID No.                   );


 


12.  Bona
Entertainment Company Limited  a company incorporated
under the laws of Hong Kong Special Administrative Region  (the “Hong
Kong Company”);


 


13.  Distribution
Workshop (BVI) Ltd., a business company
incorporated under the laws of the British Virgin Islands (“Distribution Workshop”);


 


14.  Matrix
Partners China I, L.P., an exempted
partnership registered in the Cayman Islands;


 


15.  Matrix
Partners China I-A, L.P.,  an exempted partnership registered in the Cayman Islands (together
with Matrix Partners China I, L.P., “Matrix”);


 


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


 


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


 


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


 


19.  SINA Hong Kong Limited   a
company incorporated under the laws of Hong Kong Special Administrative Region  (“Sina”);


 


20.  Zero2IPO  China Fund II, L.P., an exempted
limited partnership incorporated and existing under the laws of the Cayman
Islands (“Zero2IPO”);


 


21.  Wayford
Enterprises Limited, a business company
incorporated under the laws of the British Virgin Islands (“Wayford”),


 


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


 


RECITALS


 


A.            Beijing Polybona, Beijing Bona Film, Bona Advertising, Beijing Bona Ying
Long Performance Brokerage Co., Ltd.  (“Bona Ying Long”),
Bona Mei Tao, and Zhejiang Bona (the “Domestic Companies”, and each a “Domestic Company”)
are limited liability companies  established and registered 


 


2

















 


under
the Company Law of the People’s Republic of  China that are engaged in the business of
film distribution, related advertising services and performing artiste
management, film and television production, and related investment in the PRC
(the “Business”),
as more  particularly
described in the business plan of the Group (defined below) attached as  EXHIBIT A
(the “Business Plan”).


 


B.            The Company owns beneficially and of record one hundred percent (100%)
of the equity interests in the capital of the Hong Kong Company, fifty-one
percent (51%) of the equity interests in the capital of Distribution Workshop, forty
percent (40%) of the equity interests in the capital of Wisdom Sea Group
Limited  (“Wisdom Sea”),
and one hundred percent (100%) of the equity interests in the registered
capital of the WFOE.


 


C.            As at the date hereof, the Founders, Shi Nansun and Huang Hsin-Mao collectively
hold the entire issued Ordinary Shares (defined below) of the Company and the
holders of the Series A Preferred Shares (defined below) issued by the
Company (the “Series A Shareholders”)
have acquired in aggregate 508,101 Series A Preferred Shares issued by the
Company pursuant to that certain Subscription Agreement dated July 10, 2007
entered into by and among the Company, the WFOE, Beijing Polybona, Beijing Bona
Film, Bona Advertising, the Founders, SIG and Sequoia (the “Series A  Subscription
Agreement”), a share purchase warrant dated May 1, 2007 by
and between the Company and SIG (the “SIG Warrant”)
and a share purchase warrant dated June 15, 2007 by and between the
Company and Sequoia (the “Sequoia Warrant”,
together with the SIG Warrant, the “Series A Warrants”).


 


D.            Pursuant to a term sheet, dated as of May 9, 2009 setting forth
certain terms and conditions of a proposed series B preferred share investment,
the Investors (defined below) proposed to subscribe to certain Series B Preferred
Shares (defined below) of the Company.


 


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


 


F.             The Parties desire that concurrently with the subscription for the Series B
Preferred Shares by the Investors, the Company will use certain part of the
proceeds from the sale of the Series B Preferred Shares to repurchase certain
amount of the Ordinary Shares from Yu Dong for cancellation.


 


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 


 


3

















 


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


 


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


 


“Balance Sheet Date” means December 31,
2008.


 


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


 


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


 


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


 


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


 


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


 


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


 


“Domestic Companies” means Beijing Polybona,
Beijing Bona Film, Bona Advertising, Bona Ying Long, Bona Mei Tao, and Zhejiang
Bona.


 


4

















 


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


 


“ESOP” has the meaning set forth in Section 3.3(b) of
this Agreement.


 


“Existing
Shareholders Agreement” means
the shareholders’ agreement dated July 31, 2007 among the Company, the
WFOE, Beijing Polybona, Beijing Bona Film, Bona Advertising, the Founders, Shi
Nansun, Huang Hsin-Mao, SIG and Sequoia.


 


“Financial Statements” means the consolidated
balance sheets, profit and loss accounts and cash flow statements of the Group
as for the 12-month period ended December 31, 2006, December 31, 2007
and December 31, 2008, and any notes thereto, copies of which are attached
to this Agreement as EXHIBIT C.


 


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


 


“Governmental Authority”
means any nation or government or any province or state or any other political
subdivision thereof; any entity, authority or body exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including any government authority, agency, department, board,
commission or instrumentality of the PRC or any political subdivision thereof;
any court, tribunal or arbitrator,  and any
self-regulatory organization.


 


“Group” or “Group Companies” means the Company, the
Hong Kong Company, Distribution Workshop, Wisdom Sea, the WFOE, the Domestic
Companies 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 data,
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 


 


5

















 


represented by the foregoing, customer lists
and other proprietary information and common law rights;


 


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


 


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


 


“Management Accounts” means the consolidated
unaudited profit and loss accounts of the Group Companies for the period from January 1,
2009 to March 31, 2009, and the consolidated unaudited balance sheet of
the Group Companies as at the Management Accounts Date, prepared in accordance with
the requirements of the relevant statutes on a consistent basis and presented
in a form that is satisfactory to the Investors.


 


“Management Accounts Date” means March 31,
2009.


 


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


 


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


 


“Ordinary Shares” means the ordinary shares,
par value US$0.01 per share, of the Company.


 


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


 


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


 


“Preferred Shares” means, collectively, the Series A
Preferred Shares and Series B Preferred Shares.


 


“Qualified IPO” means the closing of the
Company’s first firm commitment, underwritten public offering of Ordinary
Shares or securities representing Ordinary Shares in connection with which
Ordinary Shares or such securities (or the shares of a company of which the
Company is a wholly owned subsidiary established for the 


 


6

















 


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


 


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


 


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


 


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


 


“Restructuring Documents” means the agreements
listed in EXHIBIT D hereof and its amendments.


 


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


 


“Series A Preferred Shares” means series
A redeemable convertible preferred shares of the Company, par value US$0.01 per
share.


 


“Series B Preferred Shares” means,
collectively, Series B-1 Preferred Shares and Series B-2 Preferred
Shares.


 


“Series B-1 Preferred Shares” means
series B-1 redeemable convertible preferred shares of the Company, par value
US$0.01 per share.


 


“Series B-2 Preferred Shares” means
series B-2 redeemable convertible preferred 


 


7

















 


shares of the Company, par value US$0.01 per
share.


 


“SIG” means SIG China Investments One, Ltd..


 


“Shareholders’ Agreement” means the Amended
and Restated Shareholders’ Agreement in substantially the form attached as EXHIBIT E
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, impost, 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,
the Shareholders’ Agreement, and the Memorandum and Articles.


 


“US GAAP”
means the Generally Accepted Accounting Principles in the United States.


 


“Warrantors” means the Company, the Hong Kong
Company, Distribution Workshop, the WFOE, Beijing Polybona, Beijing Bona Film, Bona
Advertising, Bona Mei Tao, Zhejiang Bona, and each Founder.


 


2.             Subscription and Issuance of Series B Preferred Shares
and Repurchase of Ordinary Shares.


 


2.1          (a)      Subject to the terms and conditions of this Agreement, the Company
agrees to allot, issue and sell to Matrix, Sequoia and Sina, and Matrix, Sequoia
and Sina agree to purchase and subscribe, severally and not jointly, from the
Company, up to 198,713 Series B-1 Preferred Shares (the “Series B-1 Subscribed Shares”)
at the price of US$17.613342 per Series B-1 Subscribed Share, and as more
particularly set forth below:


 


	
  Investor

  	
   

  	
  Series B-1 Subscribed

  Shares

  	
   

  	
  Consideration (Cash)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Matrix  Sub-allocated as  follows:

  	
   

  	
  170,325

  	
   

  	
  US$

  	
  3,000,000

  	
   

  
	
  Matrix
  Partners China I, L.P.

  	
   

  	
  154,655

  	
   

  	
  US$

  	
  2,724,000

  	
   

  
	
  Matrix
  Partners China I-A, L.P.

  	
   

  	
  15,670

  	
   

  	
  US$

  	
  276,000

  	
   

  
	
  Sequoia  Sub-allocated as  follows:

  	
   

  	
  14,194

  	
   

  	
  US$

  	
  250,000

  	
   

  
	
  Sequoia  Capital
  China  I, L.P.

  	
   

  	
  11,179

  	
   

  	
  US$

  	
  196,900

  	
   

  
	
  Sequoia  Capital
  China  Partners Fund  I,
  L.P.

  	
   

  	
  1,285

  	
   

  	
  US$

  	
  22,625

  	
   

  
	
  Sequoia  Capital
  China  Principals  Fund
  I, L.P.

  	
   

  	
  1,730

  	
   

  	
  US$

  	
  30,475

  	
   

  
	
  Sina

  	
   

  	
  14,194

  	
   

  	
  US$

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  198,713

  	
   

  	
  US$

  	
  3,500,000

  	
   

  



 


8

















 






(b)           Subject
to the terms and conditions of this Agreement, the Company agrees to allot,
issue and sell to the Investors, and the Investors agree to purchase and
subscribe, severally and not jointly, from the Company, up to 264,950 Series B-2
Preferred Shares (the “Series B-2
Subscribed Shares”, and together with Series B-1 Subscribed Shares, “Subscribed Shares”)
at the price of US$22.645782 per Series B-2 Subscribed Share, and as more
particularly set forth below:


 


	
  Investor

  	
   

  	
  Series B-2 Subscribed

  Shares

  	
   

  	
  Consideration (Cash)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Matrix  Sub-allocated as  follows:

  	
   

  	
  176,633

  	
   

  	
  US$

  	
  4,000,000

  	
   

  
	
  Matrix
  Partners China I, L.P.

  	
   

  	
  160,382

  	
   

  	
  US$

  	
  3,632,000

  	
   

  
	
  Matrix
  Partners China I-A, L.P.

  	
   

  	
  16,251

  	
   

  	
  US$

  	
  368,000

  	
   

  
	
  Sequoia  Sub-allocated as  follows:

  	
   

  	
  11,040

  	
   

  	
  US$

  	
  250,000

  	
   

  
	
  Sequoia  Capital
  China  I, L.P.

  	
   

  	
  8,695

  	
   

  	
  US$

  	
  196,900

  	
   

  
	
  Sequoia  Capital
  China  Partners Fund  I,
  L.P.

  	
   

  	
  999

  	
   

  	
  US$

  	
  22,625

  	
   

  
	
  Sequoia  Capital
  China  Principals  Fund
  I, L.P.

  	
   

  	
  1,346

  	
   

  	
  US$

  	
  30,475

  	
   

  
	
  Zero2IPO

  	
   

  	
  11,040

  	
   

  	
  US$

  	
  250,000

  	
   

  
	
  Sina

  	
   

  	
  55,197

  	
   

  	
  US$

  	
  1,250,000

  	
   

  
	
  Wayford

  	
   

  	
  11,040

  	
   

  	
  US$

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  264,950

  	
   

  	
  US$

  	
  6,000,000

  	
   

  



 


9

















 






(c)           Subject
to the terms and conditions of this Agreement, the Company agrees to repurchase
from Yu Dong or Skillgreat Limited  and Yu Dong agrees to sell, or cause
Skillgreat Limited  to sell, to the Company, 198,713 Ordinary Shares
of the Company, at a purchase price of US$17.613342 per share for an aggregate
purchase price of US$3,500,000 (the “Ordinary Shares  Purchase Price”).


 


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


 


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


 


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


 


10






 










 


(b)           Each
Investor shall deliver to the Company:


 


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


 


(ii)           the
aggregate subscription price or consideration in the amount of US$9,500,000,
with respect to Subscribed Shares subscribed by it hereunder, as set forth in Section 2.1(a) and
Section 2.1(b) in immediately available funds by wire transfer to the
following bank account of the Company:


 


Bank:



 


Address:



 


Account
No.: 


 


Bank
Code: 


 


Swift
Code: 


 


Beneficiary:
BONA INTERNATIONAL FILM GROUP LIMITED


 


Beneficiary’s
P.O. Box 957


Address:      Offshore
Incorporations Centre


Road
Town, Tortola


British
Virgin Islands


 


(c)           After
the Closing, the Company shall deposit the Ordinary Shares Purchase Price as set
forth in Section 2.1(c) by wire transfer of immediately available
U.S. dollar funds into the bank account designated by Yu Dong.


 


3.             Representations and Warranties of the Warrantors. Each of the Warrantors, severally but not jointly with respect to Section 3.1,
and jointly and severally with respect to all other provisions of this Section 3,
represents, warrants and undertakes to each Investor, subject to the disclosure
schedule attached hereto as EXHIBIT H, as revised, updated or
supplemented with the consent of the Investors (the “Disclosure Schedule”),
that the statements contained in this Section 3 (i) are true, correct,
complete and not misleading with respect to each Group Company on and as of the
date of this Agreement, (ii) shall remain true, correct, complete and not
misleading, until and as of the date of the Closing (provided that Beijing
Polybona makes the following representations and warranties with respect to
itself only and so far as the context permits, as if each such representation
and warranty given with respect to the Group or Group Companies were a
representation and warranty with respect to Beijing Polybona 


 


11

















 


only):


 


3.1           Power and Authority; Enforceability; No Violation of Laws. It has all requisite legal power and authority to execute and deliver
the Transaction Documents to which it is a party and to carry out and perform
all of its obligations thereunder in accordance with the terms thereof. Upon
the execution and delivery thereof (assuming due authorization, execution and
delivery by the Investors), each Transaction Document to which it is a party
shall constitute legally binding and valid obligations of each Group Company,
as applicable, and shall be enforceable against it in accordance with the terms
thereof except to the extent that such enforcement may be limited by
bankruptcy, insolvency or similar laws now or hereafter in effect relating to creditors’
rights and remedies generally, and the execution, delivery and performance
thereof do not violate any of its constitutional or organizational documents
(where applicable), or any agreement or order of any court or regulatory body
binding upon it, or any applicable law or regulation.  Each of the Restructuring Documents constitutes
the valid and legally binding obligation of such Group Company to which it is a
party, enforceable against such Group Company in accordance with their
respective terms.


 


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


 


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


 


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


 


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


 


12

















 


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


 


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


 


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


 


3.3          Capitalization of the Company.


 


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


 


(i)            Preferred Shares.
1,083,323 Preferred Shares, of which 508,101 shares have been designated Series A
Preferred Shares, all of which are issued and outstanding, and 575,222 shares
shall have been designated Series B Preferred Shares; among which, 198,713
shares have been designated Series B-1 Preferred Shares and 376,509 shares
have been designated Series B-2 Preferred Shares, none of which will be
issued and outstanding immediately prior to the Closing.


 


(ii)           Ordinary Shares.
3,916,677 Ordinary Shares, of which exactly 1,448,578 Ordinary Shares have been
duly and validly issued and are fully paid and nonassessable and were issued in
compliance with all applicable securities laws, consisting of 1,381,078
Ordinary Shares held by Yu Dong, 22,500 Ordinary Shares held by Yu Hai, 30,000
Ordinary Shares held by Shi Nansun, and 15,000 Ordinary Shares held by Huang
Hsin-Mao.  The Company holds no treasury shares.


 


(b)           Reserved Shares.
As of the Closing, the Company shall have Reserved 1,511,198 Ordinary Shares of
the Company for the conversion of Series A Preferred Shares and Series B
Preferred Shares, and 139,448 Ordinary Shares are reserved for issuance to
officers, directors, advisors, and employees of the Company pursuant to the
Company’s employee stock option program to be approved by the board of
directors of the Company after the Closing (the “ESOP”).


 


13

















 


(c)           Other Securities.
Immediately prior to the Closing and save as required by the Transaction
Documents, 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,
except those rights, warrants, options and conversion privileges granted to the
Series A Shareholders under the Existing Shareholders Agreement and the
current Memorandum and Articles of Association of the Company.


 


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


 


3.4          Capitalization of the WFOE, the Hong Kong Company,
Distribution Workshop and Wisdom Sea.


 


(a)           Registered Capital.
The registered capital of the WFOE is US$1,500,000 and the total amount of
investment is US$2,140,000. All of the equity interest of the WFOE is legally
and beneficially owned by the Company. Such capitalization of the WFOE and the
ownership of the WFOE by the Company have been approved by all relevant PRC
authorities, which approvals are in full force and effect and have not lapsed
or been revoked.  The registered capital
of the WFOE has been fully paid up and there is no outstanding capital
contribution commitment.


 


The
authorized share capital of the Hong Kong Company is HK$10,000. All of the issued
and outstanding shares of the Hong Kong Company are legally and beneficially
owned by the Company.


 


The
authorized share of Distribution Workshop is 50,000. Fifty-one percent (51%) of
the issued and outstanding shares of Distribution Workshop is legally and beneficially
owned by the Company.


 


The
authorized share of Wisdom Sea is 50,000.  Forty percent (40%) of the issued and
outstanding shares of Wisdom Sea is legally and beneficially owned by the
Company.


 


(b)           Other Securities.
There are no outstanding rights of first refusal, 


 


14

















 


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, or the Hong Kong Company, or Distribution Workshop, or Wisdom
Sea to increase or decrease the WFOE’s registered capital or the Hong Kong
Company, or Distribution Workshop, or Wisdom Sea’s share capital.


 


3.5          Capitalization of the Domestic Companies.


 


(a)           The
registered capital of Beijing Polybona is RMB40,800,000, the registered capital
of Beijing Bona Film is RMB40,000,000, the registered capital of Bona
Advertising is RMB500,000, the registered capital of Bona Ying Long is RMB5,000,000,
the registered capital of Bona Mei Tao is RMB4,000,000, and the registered
capital of Zhejiang Bona is RMB10,000,000. All of the registered capital of
each Domestic Company has been paid in full.


 


(i)            Beijing
Bona Film holds eighty point four percent (80.4%) of record, Poly Film
Investment Co., Ltd.  formerly known as Oriental Dragon Film Company
Limited  “Oriental  Dragon”) holds ten percent (10%) of record,
Yu Dong  holds eight point six percent (8.6%) of record
and Yu Hai  holds one percent (1%) of record, respectively,
of the equity interest in Beijing Polybona.


 


(ii)           Yu
Dong holds one hundred percent (100%) of record of the equity interest in Beijing
Bona Film.


 


(iii)          Yu
Dong holds seventy percent (70%) of record and Beijing Bona Film holds thirty
percent (30%) of record of the equity interest in Bona Advertising.


 


(iv)          Beijing Bona Film holds
forty percent (40%) of record,  holds forty percent (40%) of
record, and  holds twenty percent (20%) of record,
respectively, of the equity interest in Bona Ying Long.


 


(v)           Beijing
Bona Film holds fifty-one percent (51%) of record, 


 


15

















 


 holds twenty-five percent (25%) of
record, and  holds twenty-four percent (24%) of record, respectively,
of the equity interest in Bona Mei Tao.


 


(vi)          Beijing
Bona Film holds one hundred percent (100%) of record of the equity interest in
Zhejiang Bona.


 


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


 


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


 


3.6          Subsidiaries.


 


(a)           Save
for the Hong Kong Company, Distribution Workshop, Wisdom Sea, the WFOE and the
Domestic Companies, the Company is not the direct or indirect legal or
beneficial owner of any share, equity, membership, partnership or ownership
interest in any other Person.


 


(b)           All
of the equity of the WFOE and the Hong Kong Company is legally and beneficially
owned by the Company free from all Encumbrances.  The equity held by the Company in
Distribution Workshop and Wisdom Sea is free from all Encumbrances.


 


(c)           Except
that Beijing Bona Film holds eighty point four percent (80.4%) of the equity
interest of Beijing Polybona, thirty percent (30%) of the equity interest in Bona
Advertising, holds forty percent (40%) of the equity interest in Bona Ying
Long, fifty-one percent (51%) of the equity interest in Bona Mei Tao, and one
hundred percent (100%) of the equity interest in Zhejiang Bona, the WFOE and
the Domestic Companies do not have any Subsidiaries.  No Group Company is a 


 


16

















 


participant
in any joint venture, partnership, or other similar arrangement except as
stated in this Agreement.


 


(d)           Schedule
3.6(d) of the Disclosure Schedule sets
forth a true, accurate and complete list of all entities in which any Founder
has an equity interest other than the ownership of shares or equity in the
Group Companies as set forth in this Agreement, a description of the percentage
equity interest held by any Founder therein and the nature of the business of
such entity. For the avoidance of any doubt, other than this Section 3.6(d),
no other provision of this Agreement shall apply to any entity set forth in Schedule
3.6(d) of the Disclosure Schedule.


 


3.7          Financial Statements.


 


(a)           General.


 


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


 


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


 


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


 


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


 


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


 


17

















 


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


 


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


 


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


 


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


 


(h)           Books and Financial Records.
All the accounts, books, registers, ledgers and financial and other material
records of whatsoever kind of each Group Company have been properly and
accurately kept and completed; there are no material 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.


 


3.8          Changes Since Balance Sheet Date.


 


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


 


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


 


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


 


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


 


18

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(ix)          there
has not been any material change in any compensation arrangement or agreement
with any employee, officer, director or shareholder;


 


(x)           except
for the re-purchase of Ordinary Shares from Yu Dong as set forth in Section 2.1(c),  there has not been any 


 


19

















 


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


 


(xi)          there
has not been any sale, assignment or transfer of any Group Company Intellectual
Property Right;


 


(xii)         there
has not been receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of any Group Company; and


 


(xiii)        there
has not been any arrangement or commitment by the Company to do any of the
things described in this Section 3.8.


 


3.9          Taxation.


 


(a)           General.


 


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


 


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


 


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


 


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


 


20

















 


income.


 


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


 


(d)           Overseas Business.
The Group Companies have only carried on their business activities in the PRC
and Hong Kong, except that they have been distributing movies and televisions
globally.


 


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


 


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


 


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


 


3.11        Assets and Liabilities.


 


(a)           Title and Condition.


 


(i)            The
assets included in the Financial Statements or acquired since the Balance Sheet
Date (other than disposition of assets in the ordinary course of business) and
all assets used by the Group Companies:


 


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


 


21






 










 


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


 


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


 


(D)                                   are situated in the PRC.


 


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


 


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


 


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


 


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


 


(c)                                      Book Debts.


 


(i)                                             No part of the amount shown in the books of account of any Group Company
in respect of debtors is represented by debts which are more than six months
overdue for payment or by debts in respect of arrangements made otherwise than
in the ordinary course of any such Group Company’s business.


 


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


 


22

















 


3.12                           Corporate Power.


 


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


 


3.13                             Authorization.
All corporate action on the part of each Group Company and its shareholders
necessary for the authorization, execution, delivery, and performance of all
obligations under the Transaction Documents to which it is a party, and for the
authorization, repurchase of the Founders’ Ordinary Shares, sale, issuance and
delivery of the Subscribed Shares and the Ordinary Shares issuable upon conversion
of the Series B Preferred Shares, has been taken, or will be taken prior
to the Closing.


 


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


 


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


 


23

















 


with
respect to the Group Company.


 


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


 


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


 


3.18                           Intellectual Property Rights.


 


(a)                                      Each Group Company owns, or possess sufficient legal rights to, all Intellectual
Property Rights (including registrations and applications to register or renew
such rights), and licenses of any of the foregoing necessary for its business
as now conducted and as presently proposed to be conducted (collectively, the “Group Intellectual  Property”), without
any infringement of the rights of any other Person; all such rights material to
the business of the Group are set forth in Schedule 3.18 of the Disclosure
Schedule;  Each Group Company has
obtained and possesses valid licenses to use all of the software programs
present on the computers and other software-enabled electronic devices that it
owns or leases or that it has otherwise provided to its employees for their use
in connection with such Group Company’s business.  (b) there is no current or pending
infringement claim or allegation against


 


24

















 


any
Group Company regarding any third party’s Intellectual Property Rights nor, to
the Knowledge of the Warrantors, has any such claim or allegation been
threatened nor are there any facts that are likely to form the basis of any
such claim or allegation; (c) the Warrantors are not aware of any violation
by a third party of any Intellectual Property Rights of the Group Companies; (d) the
Group Companies have taken reasonable security measures to protect the secrecy,
confidentiality and value of the Group Intellectual Property; (e) to the
Knowledge of the Warrantors, no employee of any Group Company is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or is subject to any judgment, decree or order of any court
or administrative agency, that would interfere with the duties of that employee
to the Group Companies, or that would conflict with the Group’s business as presently
conducted or proposed to be conducted; to the Knowledge of the Warrantors, it
is not necessary for any of the Group Companies to utilize any Intellectual
Property Rights of any employee of any Group Company created prior to
employment by such Group Company.


 


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


 


3.19                           Contracts.


 


(a)                                       Validity of Contracts.


 


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


 


25

















 


(ii)                                  To the Knowledge of the Warrantors, no party with whom a Group Company
has entered into any agreement or arrangement is in default thereunder being a
default which would constitute a Material Adverse Event with respect to the Group
Company and there are no circumstances likely to give rise to any such default.


 


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


 


(b)                                      Material Contracts.
Schedule 3.19(b) of the Disclosure Schedule contains a complete and
accurate list of all business contracts to which any of the Group Companies is
currently bound.  Each of the contracts
has been made available for inspection by the Investors and its counsel.  Other than as set forth on Schedule 3.19(b) of
the Disclosure Schedule, no Group Company has material or long term
contracts or commitments binding upon it including but not limited to:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


26

















 


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


 


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


 


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


 


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


 


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


 


(e)                                       Agreement with Shareholders. Other than the Transaction Documents and the Series A Subscription Agreement, the Existing Shareholders Agreement,
the memorandum and articles of association of the Company currently in force and the exhibits and schedules thereto, the Company has not entered
into any agreement with, or given any undertaking or assurance to, any of the
existing shareholders of the Company or their Affiliates.


 


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


 


3.20                             Compliance with Other Agreements. None of the Group Companies is in violation in any material respect of
any term or provision of its Memorandum or Articles of Association or
equivalent constitutive documents as in effect as of the Closing. None of the
Group Companies is in violation of any term or provision of any indebtedness,
mortgage, indenture, or material contract or agreement to which it is a party
or by which it is bound or, to the Knowledge of each Warrantor, any judgment or
any decree, order, statute, rule, or regulation applicable to any Group Company.
Neither the execution nor delivery of the Transaction Documents, nor the
conduct or carrying on of the


 


27

















 


Group
Companies’ business as presently conducted or proposed to be conducted, will
conflict with or result in a breach of or violate the terms of, or constitute a
default under, with or without the passage of time or the giving of notice or
otherwise:


 


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


 


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


 


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


 


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


 


3.21                           Employee Relations and Compensation Plans.


 


(a)                                      General.


 


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


 


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


 


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


 


(iv)                                      The basis of the remuneration payable to the directors or


 


28

















 


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


 


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


 


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


 


(vii)                                   Each Group Company has withheld and paid to the appropriate governmental
entity or is holding for payment not yet due to such governmental entity all
amounts required to be withheld from employees of such Group Company and is not
liable for any arrears of wages, taxes, penalties, or other sums for failure to
comply with any of the foregoing.


 


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


 


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


 


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


 


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


 


(i)                                             complied in all material respects with all obligations imposed


 


29

















 


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


 


(e)                                      Trade Union.
No Group Company:


 


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


 


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


 


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


 


3.22                             Transactions with Affiliates. Except pursuant to the Restructuring or as set forth in Schedule
3.22 of the Disclosure Schedule, (i) no shareholder, director
or Senior Manager of any Group Company, no spouse, parent, sibling or children
of any such director or Senior Manager, and no entity Controlled by any of the
foregoing, has any agreement, understanding, proposed transaction with,
indebtedness owing to, commitments to make loans or to extend or guarantee
credit from any Group Company other than in the ordinary course of business; (ii) the
sum of the value of all agreements, understandings, proposed transactions with,
indebtedness owing to, commitments to make


 


30

















 


loans
or to extend or guarantee credit by all members of the Group with respect to
any shareholder, director or Senior Manager of any Group Company, the spouse,
parents, siblings and children of such shareholder, director or Senior Manager,
and any entity in which such shareholder, director, Senior Manager or such relatives
thereof have a direct or indirect ownership interest of not less than one
percent do not exceed US$1,500; and (iii) no shareholder, director or
Senior Manager of any Group Company, no spouse, parent, sibling or children of
any such shareholder, director or Senior Manager, and no entity Controlled by
any of the foregoing, has any direct or indirect ownership interest in any
Affiliate of any Group Company or in any firm or corporation that competes with
any Group Company.


 


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


 


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


 


3.25                             Compliance with Laws.


 


(a)                                  Each Group Company is in compliance with all laws that are applicable to
them. No event has occurred and no circumstance exists that (with or without
notice or lapse of time) (a) may constitute or result in a violation by
the Group Companies of, or a failure on the part of the Group Companies to
comply with, any law, or (b) may give rise to any obligation on the part
of the Group Companies to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature, except for such violations or failures
by the Group Companies that, individually or in the aggregate, would not result
in any Material Adverse Event.


 


31














 


(b)                                 No Group Company has received any notice or other communication (whether
oral or written) from any Governmental Authority regarding (a) any actual,
alleged, possible, or potential material violation of, or material failure to
comply with, any law, or (b) any actual, alleged, possible, or potential
material obligation on the part of the Group Companies to undertake, or to bear
all or any portion of the cost of, any remedial action of any nature.


 


(c)                                  No Group Company, or any director, agent, employee or any other person
acting for or on behalf of the Group Companies, has directly or indirectly (a) made
any contribution, gift, bribe, payoff, influence payment, kickback, or any
other fraudulent payment in any form, whether in money, property, or services to
any foreign official or otherwise (A) to obtain favorable treatment in
securing business for the Group Companies, (B) to pay for favorable
treatment for business secured, or (C) to obtain special concessions or
for special concessions already obtained, for or in respect of the Group
Companies, in each case which would have been in violation of any applicable law
or (b) established or maintained any fund or assets in which the Group
Companies shall have proprietary rights that have not been recorded in the
books and records of the Group Companies.


 


(d)                                 During the previous four (4) years, no Founder has been (i) subject
to voluntary or involuntary petition under any applicable bankruptcy laws or
any applicable insolvency law or the appointment of a manager, receiver, or
similar officer by a court for his business or property; (ii) convicted in
a criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offences); (iii) subject to
any order, judgment, or decree (not subsequently reversed, suspended, or
vacated) of any court of competent jurisdiction permanently or temporarily
enjoining him from engaging, or otherwise imposing limits or conditions on his
engagement in any securities, investment advisory, banking, insurance, or other
type of business or acting as an officer or director of a public company; or (iv) found
by a court of competent jurisdiction in a civil action or by any regulatory
organization to have violated any applicable securities, commodities or unfair
trade practices law whatsoever, which such judgment or finding has not been
subsequently reversed, suspended, or vacated.


 


3.26                             Entire Business.
 There
are no material facilities, services, assets or properties shared with any
entity other than the Group Company which are used in connection with the
business of the Domestic Companies.


 


3.27                             SAFE Registration.  To the
extent applicable, the holders of the Ordinary Shares shall fully comply with
all requirements and obligations of the PRC


 


32

















 


authorities with respect to their direct or indirect
holding of the Ordinary Shares or other securities in the Company (if any) on a
continuing basis, including without
limitation receiving all approval, consents and permits from and fulfilling the
reporting requirements with the Beijing Branch of the State Administration of
Foreign Exchange, in a timely manner, as required under the Circular of the
State Administration of Foreign Exchange on Relevant Issues concerning Foreign
Exchange Administration of Financing and Inbound Investment through Offshore
Special Purpose Companies by PRC Residents  its interpreting/implementing rules and
other relevant obligations imposed by the PRC authorities and obtaining all
consents, approvals and permits required by the PRC authorities in connection
therewith.


 


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


 


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


 


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


 


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


 


3.32                             Brokers and Finders.  Except as set forth in Schedule 3.32 of the Disclosure
Schedule, 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.


 


33

















 


3.33                             No Registration Rights.  Save for the registration rights to be granted to the Investors under
the Shareholders’ Agreement, 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.


 


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


 


3.35                             Series A Transaction Documents.  Except
as disclosed in Schedule 3.35 of the Disclosure Schedule, no Group
Company has breached or is in breach of any of their representations and
warranties in the Series A Subscription Agreement and no event, condition
or other circumstance has arisen that, with notice or lapse of time or both,
would constitute such a breach.  Each of the
Group Companies has otherwise fully performed, observed and complied with and
is not in default of its respective obligations, commitments, undertakings, agreements,
warranties, indemnities and covenants under or pursuant to the Series A Subscription Agreement, the Existing Shareholders Agreement,
the memorandum and articles of association of the Company currently in force,
the Restructuring Documents and the Restructuring, and the Restructuring has
been fully implemented.


 


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


 


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


 


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


 


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


 


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


 


34

















 


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


 


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


 


5.                                       Additional Covenants.


 


5.1                                   Compliance with the Restructuring Documents. The Group Companies shall cause the Founders and other shareholders of
the Domestic Companies to fully observe and comply with the Restructuring
Documents.  Any breach by or default of
the Founders or such other shareholders of the Domestic Companies with respect
to the Restructuring Documents will be deemed as a violation by the Company and
shall subject the Group Companies to the Indemnity obligation as set forth in Section 11.3
herein in addition to any other remedies available to the Investors under the
applicable agreements and laws.


 


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


 


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


 


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


 


35

















 


having
business dealings with the Group Companies;


 


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


 


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


 


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


 


(e)                                      not change its jurisdiction of incorporation;


 


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


 


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


 


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


 


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


 


(j)                                         not increase the number of shares available for grant or issuance under
any share option plan or other share incentive plan or arrangement or make any
amendment to or terminate any such plan or arrangement including, without
limitation, the ESOP;


 


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


 


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


 


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


 


36

















 


(n)                                     not borrow any sum which when aggregated with all the other outstanding
borrowings of the Group Companies exceeds US$50,000, except for the loans which
any of the Group Companies has applied for with a commercial bank prior to the
date hereof;


 


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


 


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


 


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


 


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


 


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


 


Any
breach of this Section 5.3 shall entitle the Investors to terminate this Agreement
forthwith.


 


6.                                       Confidentiality and Announcements.


 


6.1                                   Disclosure of Terms.
Each Party acknowledges that the terms and conditions (collectively, the “Financing Terms”) of
the Transaction Documents, and all exhibits, restatements and amendments hereto
and thereto, including their existence, shall be considered confidential
information and shall not be disclosed by it to any third party except in
accordance with the provisions set forth below. Each Investor agrees with the
Company that it will keep confidential and will not disclose or divulge, any
information which such Investor obtains from the Company, pursuant to financial
statements, reports, presentations, correspondence, and any other materials
provided by the Company to, or communications between the Company and, such Investor,
or


 


37

















 


pursuant
to information rights granted under the Shareholders’ Agreement or any other
related documents, unless the information is known, or until the information
becomes known, to the public through no fault of such Investor, or unless the
Company gives its written consent to such Investor’s release of the
information.


 


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


 


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


 


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


 


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


 


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


 


(i)                                            any information to such Investor’s and/or its fund manager’s


 


38

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


6.4                                   Legally Compelled Disclosure. In the event that any Party is requested or becomes legally compelled
(including without limitation, pursuant to securities laws and regulations) to
disclose the existence of this Agreement or any Financing Terms in
contravention of the provisions of this Section 6, such Party (the “Disclosing Party”)
shall provide the other Parties (the “Non-  Disclosing Parties”) with prompt written
notice of that fact so that the


 


39

















 


appropriate
Party may seek (with the cooperation and reasonable efforts of the other
Parties) a protective order, confidential treatment or other appropriate
remedy. In such event, the Disclosing Party shall furnish only that portion of
the information that is legally required and shall exercise reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded such
information to the extent reasonably requested by any Non- Disclosing Party.


 


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


 


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


 


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


 


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


 


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


 


40

















 


other
provision of this Agreement.


 


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


 


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


 


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


 


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


 


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


 


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


 


7.8                                 Memorandum and Articles.


 


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


 


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


 


41














 


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


 


7.9           Allotment and Issuance of Subscribed Shares; Share
Certificates.


 


(a)             The
Company shall have allotted and issued to each Investor or its nominee its
respective Series B-1 Subscribed Shares and/or Series B-2 Subscribed
Shares and shall have entered the name of such Investor or its nominee, as the
case may be, in the register of members of the Company as the holder of its
respective Series B-1 Subscribed Shares and/or Series B-2 Subscribed
Shares.


 


(b)            Each
Investor shall have received a copy of the register of members of the Company
as at the date of the Closing, certified by the Chief Executive Officer or
President of the Company to be a true and complete copy thereof, reflecting the
allotment and issuance of the Series B-1 Subscribed Shares and/or Series B-2
Subscribed Shares pursuant to this Agreement.


 


(c)             Each
Investor shall have received a certificate or certificates (in such denominations
as such Investor may require) representing the Series B-1 Subscribed
Shares and/or Series B-2 Subscribed Shares subscribed by each Investor
hereunder.


 


7.10         Board Composition.


 


(a)             Effective
upon the Closing, the Board shall be constituted of seven Directors, consisting
of one Director appointed by Matrix, two Directors appointed by the Series A
Shareholders, one of which shall be appointed by SIG and one of which shall be appointed
by Sequoia, and four Directors appointed by holders of a majority of the
Ordinary Shares.


 


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


 


(c)             The
Director appointed by Matrix shall have received a deed of indemnity in
substantially the form attached as EXHIBIT A to the Shareholders’
Agreement, duly executed by the Company in favor of the Director nominated by Matrix.


 


42

















 


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


 


7.12          Legal Opinions.  The Investors shall have received legal opinions of British Virgin
Islands counsel and PRC counsel to the Company substantially in the form
attached hereto as EXHIBIT I-1 and EXHIBIT I-2.


 


7.13          Closing Certificate.
Each Investor shall have received a certificate or certificates duly executed
by each Warrantor certifying the completion of the conditions in Sections 7.1,
7.2, 7.3, 7.5, 7.6, and 7.16.


 


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


 


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


 


7.16          Material Adverse Event.  Since
the date of this Agreement and until the date of Closing, no event,
circumstance or change shall have occurred that, individually or in the
aggregate with one or more other events, circumstances or changes, have had or
reasonably could be expected to have a Material Adverse Event on any Group
Company.


 


7.17          Investment
Committee Approval.  Each Investor’s investment committee shall have
approved the execution of this Agreement and the other Transaction Agreements
and the transactions contemplated hereby and thereby.


 


7.18          Management
Rights Letters.  The
Company shall have executed and delivered to Matrix Management Rights Letters in
the form provided to the Company.


 


7.19          Amendment
to the Restructuring Documents.  The Founders, the shareholders of
the Domestic Companies and the WFOE shall have entered


 


43

















 


into Amendments to the Restructuring
Documents to extend the terms of the Restructuring Documents.


 


7.20          Annual Inspection for the year 2008.  Each of the WFOE and the Domestic Companies
shall have passed the annual inspection for the year 2008 conducted by the competent
administration of industry and commerce.


 


7.21          Audited Report.  The Company
shall have submitted to the Investors
an audited financial report for the fiscal
year ended December 31, 2007 signed by Deloitte
with unqualified opinions.


 


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


 


8.1            The
representations and warranties given by each Investor at the Closing in which
it is participating under Section 4 of this Agreement being true and correct
when made and true and correct in all material respects as of the Closing; and


 


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


 


9.             Long-Stop Date.
In the event that any condition to the Closing hereunder is not fulfilled or
waived by August 31, 2009 (the “Long-Stop Date”), this Agreement shall
terminate; provided that the Investors shall extend the Long-Stop Date by an
additional 60 days if the failure to fulfill any condition hereunder is due to
reasons that are beyond the control of the Company or any of the Founders,
including but not limited to force majeure events and delay of approval and/or
registration procedures by the PRC competent authorities. Notwithstanding any
termination of this Agreement and notwithstanding the non-consummation of any
transaction contemplated under the Transaction Document, (i) the
obligations of the parties specified in Sections 6, 11.1, 11.2, 11.3, 11.7 and
11.12 shall continue unimpaired and in full force and effect, and (ii) such
termination shall not relieve any party from any liability hereunder for any
misrepresentation or for the breach of any warranty, agreement or obligation
hereunder.


 


10.           Post-Closing Covenants of the Warrantors.


 


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


 


44

















 


1986,
as amended.


 


10.2          Employee Stock Ownership Plan.
Following the Closing and prior to December 31, 2009, the Company may, subject
to the conditions of the Shareholders’ Agreement, establish the ESOP to reserve
additional 139,448 Ordinary Shares, among which 69,724 Ordinary Shares shall
initially be issued to Yu Dong provided that the profit of the Company has met
a certain amount jointly decided by the Series A Shareholders and the
Investors.  Without the consent of Matrix,
the Series A Shareholders and the Board of the Company, no issuances under
the ESOP may be made.


 


10.3          Future Employees.
The Company shall cause each Person identified in Schedule 3.21(d) of
the Disclosure Schedule to deliver to the Company an executed
Confidentiality and Inventions Agreement and a Non-Competition and
Non-Solicitation Agreement or a service contract which includes terms and
conditions acceptable to the Investors.


 


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


 


10.5         Use of Proceeds.


 


(a)             The
Company shall use the US$3,500,000 of the proceeds from the issuance of the
Subscribed Shares to purchase existing Ordinary Shares from Yu Dong, and shall
use the remaining proceeds from the issuance of the Subscribed Shares (less reasonable
expenses agreed by the Investors and the Series A Shareholders) from the
issuance of the Subscribed Shares to grow and expand capital, capital expenditure
and general working capital needs related to the Group Companies and in
accordance with any control procedures approved by the Investors and the Board
from time to time. In particular, and without prejudice to the rights of the
Investors and the Board to approve additional or different control procedures
from time to time, the advance or contribution of any of the proceeds of the Series B
Financing to any other Group Company (by way of loan, capital contribution or otherwise)
shall require the approval of the Board. Save as specifically provided in this
Agreement, no Group Company shall use any proceeds to reimburse or


 


45

















 


retire
outstanding debt of any kind.


 


(b)            Without
limiting the generality of the foregoing, proceeds of the Series B
Financing, less any expenses incurred in connection with the transactions
contemplated by the Transaction Documents that are borne by the Company shall
be paid into the U.S. Dollar savings account of the Company with Standard
Chartered Bank in Hong Kong numbered 368-1-097863-2 (the “Main Account”). The
Chief Executive Officer of the Company and the Director appointed by Matrix
shall be the sole authorized signatories with respect to the Main Account (the “Account Signatories”).  The Director appointed by Matrix shall be the
co-signatory for the WFOE’s bank accounts.


 


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


 


(i)               Any
transaction in an Operational Account of US$100,000 or more, or any transaction
in an Operational Account that when added with transactions in that Operational
Account in the 30-day period preceding that transaction would amount to US$200,000
or more, shall require the signatures of two Account Signatories.


 


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


 


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


 


10.7          Amendment to Articles.
The Founders shall not change, and shall not cause or permit any change in, the
Articles of Association of the Company and the


 


46

















 


constitutional documents of each Group
Company, except in accordance with the Shareholders’ Agreement.


 


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


 


10.9          Exit of Oriental Dragon. The
Founders shall try their best efforts to cause the equity interests held by
Oriental Dragon in Beijing Polybona to be diluted from ten percent (10%) to
zero by December 31, 2009.


 


10.10        SAFE Registration.  The holders of the Ordinary Shares shall obtain as soon as commercially
practical all necessary registrations from the Beijing Branch of the State of Administration
of Foreign Exchange in connection with the ownership change in the Company with
respect to any PRC resident individual shareholders of the Company on an
ongoing basis.


 


10.11        Registration of Branch in Beijing.  The WFOE and Beijing Polybona
shall try their best efforts to ensure that, as soon as practicable after
the Closing and prior to June 30, 2010, the operating office of the WFOE
and Beijing Polybona in Poly Building will have been registered with the
applicable local Administration of Industry and Commerce in accordance with
applicable laws.


 


10.13        Registration of Office Leases.  Within
one (1) month after the Closing, each of the WFOE and the Domestic Companies
shall have the office lease agreements filed with the competent Municipal
Construction Committee.


 


10.14        Registration of Performing Artiste Management Personnel.  As
soon as practicable after the Closing and in any event within one (1) month
thereafter, the Company shall try its best efforts to cause each of Bona Ying
Long and Bona Mei Tao to have the Performing Artiste Management Personnel filed
with the competent Administration of Industry and Commerce.


 


10.15        Film
Distribution.  Zhejiang
Bona shall obtain as soon as commercially practical a permit for film distribution and expand
its business scope to include film distribution.


 


10.16        Registration
of Share Pledge.   Within
one (1) month after the transfer of the equity interest specified in Section 10.21
or requested by the Investors and/or the Series A Shareholders, each of
the Founders and the shareholders of the Domestic Companies shall
register the share pledge under the Share Pledge Agreements with the
responsible Administration for Industry and Commerce.


 


47

















 


10.17        Appointment
of New Members of the Board of Directors and the Board of Supervisors of the
WFOE.  Within one (1) month after the Closing,
directors of the Company’s board shall be appointed as directors of the WFOE
and the Board of Supervisors of the WFOE shall consist of three supervisors, one
of whom will be appointed by Matrix and one of whom will be appointed by the Series A
Shareholders.  All necessary approval and
registration effecting such appointments shall be obtained from the competent
authorities.  The Domestic Companies’
board structure shall be decided by the Board of the Company.


 


10.18        Expansion of Business Scope.  As soon as practicable after the Closing and prior
to December 31, 2009, Beijing Bona Film
shall try its best efforts to expend its business scope to include film and
television production, and Beijing Polybona shall try its best efforts to include
film and television production and project investment.


 


10.19        Renewal of the Tax Registration Certificate.  Prior to June 30, 2010, Beijing Bona Film shall try
its best efforts to rectify its tax registration certificate to be
consistent with the registered address of Beijing
Bona Film or its branch.


 


10.20        Transfer
of Equity Interest.  Within two (2) months after
the Investors’ and/or the Series A
Shareholders’
request, the Founders and shareholders of the Domestic Companies shall transfer
20.87% of the equity interest in Beijing Bona Film, Beijing Polybona and Bona
Advertising, respectively, to the Investor nominees and 22.87% of the equity
interest in Beijing Bona Film, Beijing Polybona and Bona Advertising,
respectively, to the Series A Shareholders’ nominees.  The Restructuring Documents shall be amended
to reflect the shareholding changes in Beijing Bona Film, Beijing Polybona and
Bona Advertising and Beijing Bona Film, Beijing Polybona and Bona Advertising
shall inform the Industrial and Commercial Bank of China Dong Cheng Branch of
the shareholding changes.


 


11.           Miscellaneous.


 


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


 


11.2         Dispute Resolution


 


(a)             Any
dispute, controversy or claim arising out of or relating to this Agreement, or
the interpretation, breach, termination or validity hereof, shall be resolved
through consultation. Such consultation shall begin immediately after one party
hereto has delivered to the other party


 


48

















 


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.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


11.3          Indemnity.  Each Group Company agrees
to indemnify and hold harmless each Investor, and such Investor’s directors,
officers, employees, affiliates, agents and assigns (each, an “Indemnitee”), against
any and all Indemnifiable Losses to such Indemnitee, directly or indirectly, as
a result of, or based upon or arising from any inaccuracy in or breach of
nonperformance of any of the representations, warranties, covenants or
agreements made by any Warrantor in or pursuant to this Agreement. For purposes
of this Section, “Indemnifiable
Loss” means, with respect to any Indemnitee, any action, cost,
damage, disbursement, expense, liability, loss, deficiency, diminution in
value, obligation, penalty or settlement of any kind or nature, whether
foreseeable or


 


49

















 


unforeseeable, including, but not limited
to, (i) interest or other carrying costs, penalties, legal, accounting and
other professional fees and expenses reasonably incurred in the investigation,
collection, prosecution and defense of claims and amounts paid in settlement,
that may be imposed on or otherwise incurred or suffered by such Indemnitee,  (ii) any taxes that may be payable by
such Indemnitee as a result of the indemnification of any Indemnifiable Loss
hereunder, (iii) any penalties on violation of or non-compliance with
applicable PRC laws regulating the film and television investment and
production and any obligation therein contained which may be applicable to any
Group Company or any of its business activities, and (iv) penalties or
payments exceeding RMB1,000,000 resulting from a breach or non-compliance with
applicable PRC laws pertaining to mandatory social welfares with respect to the
employees of the WFOE or of the Domestic Companies (including any social
insurance or other contributions required to be but was not made or any
shortfall in any prior contributions).


 


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


 


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


 


11.6          Notices.
Except as may be otherwise provided herein, all notices, requests, waivers and
other communications made pursuant to this Agreement shall be in writing and
shall be conclusively deemed to have been duly given (a) when hand
delivered to the other party; (b) when printed confirmation sheet verifying
successful transmission of the facsimile is generated by the sender’s machine,
when sent by facsimile at the number set forth below (or hereafter amended by
subsequent notice to the parties hereto); (c) five Business Days after
deposit in the mail as certified mail, receipt requested, postage prepaid and
addressed to the other party as set forth below; or (d) three Business Days
after deposit with an overnight delivery service, postage prepaid, addressed to
the parties as set forth below, provided that the sending party receives a
confirmation of delivery from the delivery service provider.


 


	
   

  	
  To:

  	
  Any of the Warrantors

  
	
   

  	
   

  	
  c/o Bona International Film Group Limited

  
	
   

  	
   

  	
  16/18F Poly Plaza (Office Building)

  
	
   

  	
   

  	
  No.14 South Donzhimen Street

  
	
   

  	
   

  	
  Dongcheng District

  
	
   

  	
   

  	
  Beijing 100027, P.R. China

  
	
   

  	
   

  	
  

  



 


50

















 


	
   

  	
   

  	
  

  
	
   

  	
   

  	
  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:
  +86 (10) 64601221

  
	
   

  	
   

  	
  Telephone:
  +86 (10) 65510888

  
	
   

  	
   

  	
  Email:
  polybona@vip.sina.com

  
	
   

  	
   

  	
   

  
	
   

  	
  To:

  	
  Matrix

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Suite 2901,
  Nexus Center,

  
	
   

  	
   

  	
  No. 19A,
  East 3rd Ring Road North,

  
	
   

  	
   

  	
  Chaoyang
  District, Beijing, 100020, China

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:
  Mr. David Su

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:
  +86 (10) 65000066

  
	
   

  	
   

  	
  Telephone:
  +86 (10) 65000088

  
	
   

  	
   

  	
  Email:
  dsu@matrixpartners.com.cn

  
	
   

  	
   

  	
   

  
	
   

  	
  To:

  	
  Sequoia

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2408,
  Air China Plaza

  
	
   

  	
   

  	
  36
  Xiaoyun Road

  
	
   

  	
   

  	
  Chaoyang
  District

  
	
   

  	
   

  	
  Beijing
  100027, P.R. China

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:
  Mr. Steven Ji

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:
  + 86(10) 84475669

  
	
   

  	
   

  	
  Telephone:
  +86(10) 84475668

  
	
   

  	
   

  	
  Email:
  sji@sequoiacap.com

  
	
   

  	
   

  	
   

  
	
   

  	
  To:

  	
  Sina

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  20F, Ideal
  Plaza, No.58,

  
	
   

  	
   

  	
  Bei
  Si Huan Xi Road,

  
	
   

  	
   

  	
  Haidian
  District,

  
	
   

  	
   

  	
  Beijing
  100080

  
	
   

  	
   

  	
  Attention:
  Charles Chao

  



 


51

















 


	
   

  	
   

  	
  Facsimile:
  + 86(10) 82607166

  
	
   

  	
   

  	
  Telephone:
  +86(10) 82628888

  
	
   

  	
   

  	
  Email:
  charlesc@staff.sina.com.cn

  
	
   

  	
   

  	
   

  
	
   

  	
  To:

  	
  Zero2IPO

  
	
   

  	
   

  	
  Room 2101,
  21st Floor, Westlands Centre,

  
	
   

  	
   

  	
  20
  Westlands Road, Quarry Bay,

  
	
   

  	
   

  	
  Hong
  Kong

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention: Chung Wai Chi, Danny

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:
  + 852-2960-0185

  
	
   

  	
   

  	
  Telephone:
  +852-2960-4611

  
	
   

  	
   

  	
  Email:
  dannychung@zero2ipo.com.cn

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  To:

  	
  Wayford

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Room 2101,
  21/F, World Wide House,

  
	
   

  	
   

  	
  8
  Connaught Place, Central, Hong Kong.

  
	
   

  	
   

  	
  Attention:
  Zhou Xin

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:
  + 852 35211503

  
	
   

  	
   

  	
  Telephone:
  +852 21210880

  
	
   

  	
   

  	
  Email:
  edward@ehouseiea.com

  



 


Each person making a communication hereunder
by facsimile shall promptly confirm by telephone to the person to whom such
communication was addressed each communication made by it by facsimile pursuant
hereto but the absence of such confirmation shall not affect the validity of
any such communication. A party may change or supplement the addresses given above,
or designate additional addresses, for purposes of this Section 11.6 by giving
the other parties written notice of the new address in the manner set forth
above.


 


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


 


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


 


52














 


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


 


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


 


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


 


11.12      Fees and Expenses. The
Company shall pay all costs and expenses incurred by the Group Companies in
connection with the negotiation, execution, delivery and performance of this
Agreement and other Transaction Documents and the transactions contemplated
hereby and thereby, including the financial advisory fee of China eCapital,
legal fees of the PRC and BVI counsels of the Group Companies, and annual audit
fee of Deloitte.  The Warrantors agree
jointly and severally to pay the Investors the legal fees and due diligence
expenses (the “Expenses”)
actually incurred by the Investors in conducting due diligence on the Group Companies
and in preparing, negotiating and executing all documentation, including the
expenses of the Investors’ legal counsel, if the transactions contemplated
hereby are consummated, provided that the maximum amount to be reimbursed shall
not exceed RMB300,000. If the transactions contemplated hereby are not consummated
for any reasons, each Party shall bear its own expenses.


 


11.13      Exclusivity.
From the date hereof up to the Closing, or up to the Long-Stop Date, as may be
extended pursuant to Section 9 (whichever is earlier), each of the
Warrantors agrees, jointly and severally, with the Investors that they will not
make and/or maintain any form of contact with any other potential investors,
whether private or institutional or corporate, for the purpose of


 


53

















 


raising funds for any Group Company or any
of their respective Affiliates, without the prior written consent of each
Investor.


 


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


 


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


 


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


 


[Remainder of
this page intentionally left blank]


 


54

















 


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


 


 


	
  BONA
  INTERNATIONAL FILM GROUP LIMITED 

  	
   

  	
  BONA
  ENTERTAINMENT COMPANY LIMITED 

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Yu Dong

  	
   

  	
  By:

  	
  /s/
  Yu Dong

  
	
  Name:
  Yu Dong

  	
   

  	
  Name:
  Yu Dong

  
	
  Title:
  Director

  	
   

  	
  Title:
  Director

  
	
   

  	
   

  	
   

  
	
  BEIJING
  BONA NEW WORLD

  	
   

  	
  BEIJING
  BONA FILM CULTURE

  
	
  MEDIA
  TECHNOLOGY CO., LTD. 

  	
   

  	
  COMMUNICATION
  CO., LTD. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Yu Dong

  	
   

  	
  By:

  	
  /s/
  Yu Dong

  
	
  Name:
  Yu Dong

  	
   

  	
  Name:
  Yu Dong

  
	
  Title:
  Legal Representative

  	
   

  	
  Title:
  Legal Representative

  
	
   

  	
   

  	
   

  
	
  BEIJING
  POLYBONA FILM DISTRIBUTION CO., LTD. 

  	
   

  	
  BEIJING
  BONA ADVERTISING CO., LTD. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Yu Dong

  	
   

  	
  By:

  	
  /s/
  Yu Dong

  
	
  Name:
  Yu Dong

  	
   

  	
  Name:
  Yu Dong

  
	
  Title:
  Legal Representative

  	
   

  	
  Title:
  Legal Representative

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/
  Yu Dong

  	
   

  	
   

  	
  /s/ Yu Hai

  
	
  Yu Dong 

  	
   

  	
  Yu Hai

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/
  Shi Nansun

  	
   

  	
   

  	
  /s/
  Huang Hsin-Mao

  
	
  Shi Nansun 

  	
   

  	
  Huang Hsin-Mao 

  
							



 


[SERIES B PREFERRED SHARE SUBSCRIPTION AGREEMENT
SIGNATURE PAGE]


 

















 


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


 


 


	
  BEIJING BONA MEI TAO CULTURE
  MEDIA CO., LTD.

  

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Yu Dong

  	
   

  
	
  Name:
  Yu Dong

  	
   

  
	
  Title:
  Legal Representative

  	
   

  
	
   

  	
   

  
	
  ZHEJIANG BONA MOVIE AND TELEVISION PRODUCTION CO., LTD.
  

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Yu Dong

  	
   

  
	
  Name:
  Yu Dong

  	
   

  
	
  Title:
  Legal Representative

  	
   

  
	
   

  	
   

  
	
  DISTRIBUTION
  WORKSHOP (BVI) LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Yu Dong

  	
   

  
	
  Name:
  Yu Dong

  	
   

  
	
  Title:
  Director

  	
   

  



 


56

















 


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


 


	
  Matrix Partners China I, L.P.

  	
   

  
	
  c/o Maples Corporate Services Limited

  	
   

  
	
  P.O. Box 309 Ugland House,

  	
   

  
	
  Grand Cayman, KY1-1104, Cayman Islands

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Matrix China Management I, L.P.

  	
   

  
	
   

  	
  its General Partner

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Matrix China I GP GP, Ltd.

  	
   

  
	
   

  	
  its General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Tim Barrows

  	
   

  
	
  Print Name: Tim Barrows

  	
   

  
	
  Title: Authorized Signatory

  	
   

  
	
   

  	
   

  
	
  Matrix Partners China I-A, L.P.

  	
   

  
	
  c/o Maples Corporate Services Limited

  	
   

  
	
  P.O. Box 309 Ugland House,

  	
   

  
	
  Grand Cayman, KY1-1104, Cayman Islands

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Matrix China Management I, L.P.

  	
   

  
	
   

  	
  its General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  Matrix China I GP GP, Ltd.

  	
   

  
	
   

  	
  its General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/ Tim Barrows

  	
   

  
	
  Print Name: Tim Barrows

  
	
  Title: Authorized Signatory

  



 


[SERIES B PREFERRED SHARE SUBSCRIPTION AGREEMENT
SIGNATURE PAGE]


 

















 


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


 


	
  SEQUOIA CAPITAL CHINA I, L.P.

  	
   

  
	
  SEQUOIA CAPITAL CHINA PARTNERS FUND I, L.P.

  	
   

  
	
  SEQUOIA CAPITAL CHINA PRINCIPALS FUND I, L.P.

  	
   

  
	
   

  	
   

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

  	
   

  
	
  A
  Cayman Islands Exempted Limited partnership

  	
   

  
	
  General
  Partner of Each

  	
   

  
	
   

  	
   

  
	
  By:
  SC China Holding Limited

  	
   

  
	
  A
  Cayman Islands limited liability company

  	
   

  
	
  Its
  General Partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Jimmy Wong

  	
   

  
	
  Name:
  Jimmy Wong

  	
   

  
	
  Title:
  Authorized Signatory

  	
   

  
			



 


58

















 


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


 


	
  SINA Hong Kong Limited

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Charles Chao

  	
   

  
	
  Name:
  Charles Chao

  	
   

  
	
  Title:
  Chief Executive Officer

  	
   

  
			



 


[SERIES B PREFERRED SHARE SUBSCRIPTION AGREEMENT
SIGNATURE PAGE]


 

















 


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


 


 


	
  Zero2IPO China Fund II, L.P.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Chung Wai Chi, Danny

  	
   

  
	
  Name:
  Chung Wai
  Chi, Danny

  	
   

  
	
  Title: Authorized Signatory

  	
   

  
			



 


60

















 


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


 


 


	
  Wayford
  Enterprises Limited

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Zhou Xin

  	
   

  
	
  Name:
  Zhou Xin

  	
   

  
	
  Title:
  Director