Exhibit 4.6


 


BONA INTERNATIONAL FILM GROUP LIMITED


SHARE SUBSCRIPTION AGREEMENT


 


THIS
SHARE SUBSCRIPTION AGREEMENT
(the “Agreement”)
is made as of June 28, 2010 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 Baichuan Film
Distribution Co., Ltd.  formerly known as Beijing
Polybona Film Distribution Co., Ltd.   a limited liability company registered in
Beijing, PRC (“Beijing Baichuan ”);


 


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


 


9.              Distribution
Workshop (BVI) Ltd., a business company
incorporated under


 

















 


 the laws of
the British Virgin Islands (“Distribution Workshop”);


 


10.       Yu Dong  (PRC ID No.                                   );


 


11.       Yu Hai  (PRC ID No.                                    );


 


12.       Blooming
Capital Limited, a business company
incorporated under the laws of the British Virgin Islands (“Blooming”);


 


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


 


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


 


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


 


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


 


17.       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”);


 


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


 


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


 


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


 


21.       JEFFREY
CHAN   a citizen of United Kingdom of Great Britain
and Northern Islands with passport number                  .


 


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


 


RECITALS


 


A.                Beijing
Baichuan, 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 


 


2

















 


each a “Domestic Company”) are limited liability
companies  established
and registered under the Company Law of the People’s Republic of  China that are
engaged in the business of film distribution, related advertising services and
performing artiste management, film and television production, and related
investment in the PRC (the “Business”).


 


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; Hong Kong Company owns beneficially and of record fifty
percent (50%) of the equity interests in the capital of the Cinema Popular Limited
(“Cinema Popular”); Distribution
Workshop owns beneficially and of record one hundred percent (100%) of the
equity interests in the capital of Distribution Workshop (HK) Ltd. (“Distribution HK”).


 


C.                As
at the date hereof, SIG and Sequoia, as the holders of the Series A Preferred Shares (defined
below) issued by the Company (the “Series A Shareholders”)
have acquired in aggregate 50,810,100 Series A Preferred Shares issued by
the Company; Matrix and Sequoia, as the holders of the Series B-1 Preferred Shares (defined
below) issued by the Company (the “Series B-1
Shareholders”) have acquired in aggregate 19,871,300 Series B-1
Preferred Shares issued by the Company; Matrix, Sequoia, Zero2IPO,  Wayford
and  SINA Hong Kong Limited as the holders of the Series B-2 Preferred Shares (defined below)
issued by the Company (the “Series B-2
Shareholders”) have acquired in aggregate 37,650,900 Series B-2
Preferred Shares issued by the Company.


 


D.                The
Investors (defined below) proposed to subscribe to certain Series B-3 Preferred
Shares (defined below) of the Company; Jeffery Chan proposed to subscribe to
certain Ordinary Shares of the Company.


 


NOW,
THEREFORE, THE PARTIES AGREE AS FOLLOWS:


 


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


 


“Affiliate” means, in respect of a Person, any
other Person that, directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such Person, and (a) in
the case of a natural Person, shall include, without limitation, such Person’s
spouse, parents, children, siblings, mother-in-law and father-in-law and
brothers and sisters-in-law, (b) in the case of an Investor, shall include
any Person who holds Shares as a nominee for such Investor, and (c) for
the purpose of Section 5.3(c) only, in respect of an Investor, shall
also include (i) any shareholder of such Investor, (ii) any entity or
individual 


 


3

















 


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” has 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.


 


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


 


“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 3.2(b) of
this Agreement.


 


“Existing
Shareholders Agreement” means
the shareholders’ agreement dated July


 


4

















 


8, 2009 among the Company, the shareholders
of the Company and certain other parties thereto.


 


“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.


 


“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, Distribution HK, Wisdom Sea, the
WFOE, the Domestic Companies and their respective Subsidiaries from time to
time, and “Group Company”
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.


 


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


 


“Investors” means SIG, Matrix, Sequoia,
Zero2IPO, Wayford and Blooming, and 


 


5

















 


“Investor” means any one of them.


 


“Management Accounts” means the consolidated
unaudited profit and loss accounts of the Group Companies for the period from January 1,
2009 to December 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.


 


“Management Accounts Date” means December 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 Fifth Amended
and Restated Memorandum of Association and the Fifth Amended and Restated
Articles of Association of the Company, in the form attached hereto as EXHIBIT A.


 


“Ordinary Shares” means the ordinary shares,
par value US$0.0001 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 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 


 


6

















 


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.


 


“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 B hereof and its amendments from time to time.


 


“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$0.0001
per share.


 


“Series B Preferred Shares” means,
collectively, Series B-1 Preferred Shares, Series B-2 Preferred
Shares and Series B-3 Preferred Shares.


 


“Series B-1 Preferred Shares” means
series B-1 redeemable convertible preferred shares of the Company, par value
US$0.0001 per share.


 


“Series B-2 Preferred Shares” means
series B-2 redeemable convertible preferred shares of the Company, par value
US$0.0001 per share.


 


“Series B-3 Preferred Shares” means
series B-3 redeemable convertible preferred shares of the Company, par value
US$0.0001 per share.


 


“Shareholders’ Agreement” means the Second
Amended and Restated Shareholders’ Agreement in substantially the form attached
as EXHIBIT C to this Agreement.


 


“SkillGreat”  means
SkillGreat Limited, a business company incorporated under the laws of the
British Virgin Islands.


 


7

















 


“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.


 


“Warrantors” means the Company, the Hong Kong
Company, Distribution Workshop, Distribution HK, the WFOE, Beijing Baichuan,
Beijing Bona Film, Bona Advertising, Bona Mei Tao, Zhejiang Bona, Yu Dong and
Yu Hai.


 


2.                                      Subscription and Issuance of Shares.


 


2.1                 (a)    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 an aggregate of 12,682,863
Series B-3 Preferred Shares (the “Series B-3 Subscribed Shares”) at the price
of US$0.39423274 per Series B-3 Subscribed Share at the First Closing (as
defined below), and as more particularly set forth below:


 


	
  Investor

  	
   

  	
  Series B-3 Subscribed

  Shares

  	
   

  	
  Consideration (Cash)

  	
   

  
	
  Matrix  

  	
   

  	
  2,536,573

  	
   

  	
  US$

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sub-allocated
  as  follows:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Matrix
  Partners China I, L.P.

  	
   

  	
  2,303,208

  	
   

  	
  US$

  	
  908,000

  	
   

  
	
  Matrix
  Partners China I-A, L.P.

  	
   

  	
  233,365

  	
   

  	
  US$

  	
  92,000

  	
   

  
	
  Sequoia  

  	
   

  	
  1,268,286

  	
   

  	
  US$

  	
  500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sub-allocated
  as  follows:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sequoia  Capital
  China  I, L.P.

  	
   

  	
  998,902

  	
   

  	
   

  	
  393,800

  	
   

  
	
  Sequoia  Capital
  China  Partners Fund  I,
  L.P.

  	
   

  	
  114,780

  	
   

  	
   

  	
  45,250

  	
   

  
	
  Sequoia  Capital
  China  Principals  Fund
  I, L.P.

  	
   

  	
  154,604

  	
   

  	
   

  	
  60,950

  	
   

  
	
  SIG

  	
   

  	
  1,268,286

  	
   

  	
  US$

  	
  500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Zero2IPO

  	
   

  	
  760,972

  	
   

  	
  US$

  	
  300,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wayford

  	
   

  	
  1,775,600

  	
   

  	
  US$

  	
  700,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Blooming

  	
   

  	
  5,073,146

  	
   

  	
  US$

  	
  2,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  12,682,863

  	
   

  	
  US$

  	
  5,000,000

  	
   

  



 


8

















 


(b)            Subject
to the terms and conditions of this Agreement, the Company agrees to allot,
issue and sell to Jeffrey Chan up to 5,073,146 Ordinary Shares (the “Ordinary Subscribed Shares”,
together with the “Series B-3 Subscribed
Shares”, the “Subscribed Shares”)
at the price of US$0.39423274 per  Ordinary Share with the total consideration of US$2,000,000 at
the Second Closing (as defined below); Jeffrey Chan has the right to decide at his
own discretion whether to subscribe for the Ordinary Subscribed Shares.


 


2.2                                           Closings.


 


(a)                     The
consummation of the sale and issuance by the Company of the Series B-3
Subscribed Shares set forth in Section 2.1(a) (the “First  Closing”) shall take place on (a) the
fifth Business Day following satisfaction or waiver (if applicable) of the
conditions in Sections 6 and 8, or (b) such other time as the Company and
the Investors mutually agree.


 


(b)                     If
Jeffrey Chan decides to subscribe for the Ordinary Subscribed Shares, the
consummation of the sale and issuance by the Company of the Ordinary Subscribed
Shares set forth in Section 2.1(b) (the “Second
Closing”,
together with First Closing, “Closings”)
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 Jeffrey Chan mutually agree.


 


2.3                                           At each Closing, subject to satisfaction or waiver of the conditions set
forth in Sections 6, 7 and 8, as the case may be:


 


9

















 


(a)                     The
Company shall deliver to each Investor or Jeffrey Chan subscribing Subscribed
Shares at such Closing each document or item the delivery of which is made an
express closing condition pursuant to Section 6 or Section 7, as the
case may be.


 


(b)                     Each
Investor or Jeffrey Chan subscribing Subscribed Shares at such Closing shall
deliver to the Company:


 


(i)                                     at the First Closing only, a counterpart of the Shareholders’ Agreement
executed by such Investor; and


 


(ii)                                  the aggregate subscription price with respect to Subscribed Shares subscribed
by it hereunder at such Closing, as set forth in Section 2.1(a) or Section 2.1(b),
as the case may be, 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


 


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 of the Investors subject to the
disclosure schedule (the “Disclosure Schedule”)
attached hereto as EXHIBIT D, that the statements contained in this
Section 3 (i) are true, correct, complete and not misleading in all
material respect with respect to each Group Company on and as of the date of
this Agreement, (ii) shall remain true, correct, complete and not
misleading in all material respect, until and as of the date of the First Closing
(provided that Beijing Baichuan 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 Baichuan
only):


 


10






 










 


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;


 


(d)                                 has in all material respects properly kept all books, records and 


 


11

















 


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 First Closing, the Company will be authorized to
issue a maximum of 600,000,000 shares with a par value of US$0.0001 each, consisting
of :


 


(i)                         Preferred Shares.
121,015,163 Preferred Shares, of which 50,810,100 shares have been designated Series A
Preferred Shares, all of which are issued and outstanding, and 70,205,063
shares shall have been designated Series B Preferred Shares; among which,
19,871,300 shares have been designated Series B-1 Preferred Shares, all of
which are issued and outstanding, 37,650,900 shares have been designated Series B-2
Preferred Shares, 26,495,000 of which are issued and outstanding, and 12,682,863
have been designated Series B-3 Preferred Shares, none of which will be
issued and outstanding immediately prior to the First Closing.


 


(ii)                      Ordinary Shares.
478,984,837 Ordinary Shares, of which 217,951,600 Ordinary Shares (including 92,965,100
Ordinary Shares for issuance to SkillGreat in accordance with certain Share
Purchase And Sale Agreement dated as April 23, 2010) have been duly and
validly issued and are fully paid and nonassessable and were issued in
compliance with all applicable securities laws. 
The Company holds no treasury shares.


 


(b)                                 Reserved Shares.
As of the First Closing, the Company shall have Reserved (i) 163,802,663
Ordinary Shares of the Company for the conversion of Series A Preferred
Shares and Series B Preferred Shares, and (ii) 22,570,400 Ordinary
Shares are reserved for issuance to officers, directors, advisors, and
employees of the Company pursuant to the Company’s employee stock option
program approved by the 


 


12

















 


board of directors of the Company (the “ESOP”).


 


(c)                                  Other Securities.
Immediately prior to the First 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 for those rights, warrants, options and conversion privileges granted to
the Series A Shareholders, Series B-1 Shareholders and Series B-2
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 convertible securities and their
respective holdings of the Company’s capital stock and convertible securities,
together with all 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, Distribution HK, Wisdom Sea and Cinema Popular.


 


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.


 


All
of the issued and outstanding shares of the Hong Kong Company are legally and beneficially
owned by the Company.


 


Fifty-one
percent (51%) of the issued and outstanding shares of Distribution Workshop is
legally and beneficially owned by the Company.


 


Forty
percent (40%) of the issued and outstanding shares of Wisdom Sea is legally and
beneficially owned by the Company.


 


One
hundred percent (100%) of the issued and outstanding shares of Distribution HK is
legally and beneficially owned by Distribution Workshop.


 


Fifty
percent (50%) of the issued and outstanding shares of Cinema Popular is 


 


13

















 


legally
and beneficially owned by the Hong Kong Company.


 


3.5                                         Capitalization of the Domestic Companies.


 


(a)                                  The registered capital of Beijing Baichuan 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 Baichuan.


 


(ii)                                  Yu Dong holds ninety-eight percent 98% of record, Yu Hai holds 2% of
record of the equity interest in Beijing Bona Film.


 


(iii)                               Yu Dong holds forty-six percent (46%) of record, Beijing Bona Film holds
fifty-one percent (51%) of record and Jiang Zhong holds three percent (3%) 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,  holds twenty-five percent (25%) of record, and
 holds twenty-four percent (24%) of record, respectively,
of the equity interest in Bona Mei Tao.


 


14

















 


(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 (i) the Hong Kong Company, Distribution Workshop,
Distribution HK, Wisdom Sea, Cinema Popular, the WFOE and the Domestic
Companies, and (ii) the Company has entered into a purchase agreement to
purchase one hundred percent (100%) equity interest of Dewang Limited, which
controls operation of  through a set of through a series of
controlling documents, 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, Distribution HK, Cinema Popular and Wisdom Sea is free
from all Encumbrances.


 


(c)                                  Except that (i) Beijing Bona Film holds eighty point four percent (80.4%)
of the equity interest of Beijing Baichuan, which holds sixty percent (60%) of  fifty-one percent (51%) 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 


 


15

















 


percent (100%) of the equity interest in Zhejiang Bona,
(ii) Beijing Baichuan holds sixteen point six 

percent (16.6%) of  (iii) Beijing Bona Film has entered 

purchase agreement to purchase 100% equity interest in  

which holds one hundred percent (100%) equity interest of  

one hundred percent (100%) equity interest of  the WFOE and the Domestic Companies
do not have any Subsidiaries.  No Group
Company is a participant in any joint venture, partnership, or other similar arrangement
except as stated in this Agreement.


 


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 


 


16

















 


high
or low.


 


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


 


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


 


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


 


(g)                                     Management Accounts.
The Management Accounts have been prepared in accordance with 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 the Management Accounts Dates.


 


(a)                          General Changes.
Since the  Management Accounts Dates:


 


(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.


 


17

















 


(b)                         Specific Changes.
Since the Management Accounts Dates:


 


(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 Management
Accounts has been increased beyond the amount shown in the Management Accounts Dates and no
mortgage, charge, lien or Encumbrance has been created since the date hereof;


 


(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;


 


(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;


 


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


 


(x)                                          there has not been any declaration, setting aside or payment or other
distribution in respect of any Group Company’s share capital, or any direct or
indirect redemption, purchase, or other acquisition of any of such shares by
any Group Company;


 


(xi)                                       there has not been any sale, assignment or transfer of any Group Company
Intellectual Property Right except for in the ordinary course of business;


 


18

















 


(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 income.


 


19






 










 


(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 Management Accounts Date and at all times up to the date of the First
Closing, no material changes have occurred in the assets and liabilities
(whether actual or contingent) shown in the Management Accounts, 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 Management Accounts.


 


3.11            Assets and Liabilities.


 


(a)           Title and
Condition.


 


(i)            The assets included in the Management Accounts or acquired since the Management
Accounts 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);


 


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


 


20

















 


(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.


 


3.12            Corporate Power.
The Company has all requisite legal and corporate power and authority to
execute and deliver the Transaction Documents and, at the First Closing, to
authorize, sell, issue and deliver the Subscribed Shares to the 


 


21

















 


Investors, to issue Ordinary Shares issuable upon conversion
of Series B-3 Subscribed 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
sale, issuance and delivery of the Subscribed Shares and the Ordinary Shares
issuable upon conversion of the Series B-3 Preferred Shares, has been
taken, or will be taken prior to the First Closing.


 


3.14            Validity of Subscribed Shares.
The Series B-3 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-3 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 date hereof and to the Knowledge of each Warrantor: (a) there
has been no Material Adverse Event with respect to any Group Company; (b) 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; (c) 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.


 


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.


 


22

















 


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 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
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 


 


23

















 


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 current or former officers,
employees or consultants of the Group have disclosed to any person any IP
Confidential Information except where such disclosure was properly made in the normal
course of the Group Companies’ business and was made subject to an agreement
under which the recipient is obliged to maintain the confidentiality of such IP
Confidential Information and is restrained from further discussing it or using
it other than for the purposes for which it was disclosed by the Group
Companies.


 


3.19            Contracts.


 


(a)               Validity of Contracts.


 


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


 


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



 


24

















 


which were entered into after January 1, 2009
and which any of the Group Companies is currently bound to.  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;


 


(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


 


25

















 


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


 


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


 


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


 


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


 


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


 


26

















 


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


 


3.21            Employee Relations and Compensation Plans.


 


(a)               General.


 


(i)                Other than Confidentiality, Non-competition and Intellectual Property
Rights agreements with the Persons identified in Schedule 3.21(a) of
the Disclosure Schedule, there are not in existence any Confidentiality,
Non-competition and Intellectual Property Rights 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)              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.


 


(v)               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).


 


27

















 


(vi)              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 and the Management Accounts:


 


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


 


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


 


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


 


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


 


28

















 


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 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.


 


3.23            Governmental and Third Party Consents. As of the First 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


 


29






 


 










 


been secured or effected prior to the First 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. 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.


 


(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 


 


30

















 


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, none of Yu Dong and Yu Hai 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 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            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.


 


31

















 


3.29            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.


 


3.30            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.


 


3.31            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.


 


3.32            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, the Series A
Shareholders, the Series B-1 Shareholders, the Series B-2 Shareholders
and the Series B-3 Shareholders) which is preferential in nature to the
rights exercisable by holders of the Subscribed Shares, the Series A Preferred
Shares, the Series B-1 Shareholders, the Series B-2 Shareholders and
the Series B-3 Shareholders.


 


4.     Representations and Warranties of the Investors and Jeffrey
Chan. As of the date hereof, each of the Investors
and Jeffrey Chan, severally but not jointly, 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 or Jeffrey Chan, as the
case may be, 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 Subscribed 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              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 


 


32

















 


performance is required of it) to perform the
Transaction Documents to which it is a party.


 


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


 


5.1              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 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.


 


5.2              Press Releases.
Within 60 days of the First 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-3
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 


 


33

















 


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.


 


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


 


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


 


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


 


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


 


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


 


34

















 


(iv)              any information contained in press releases or public announcements of
the Company pursuant to Section 5.2 above.


 


(d)            the
confidentiality obligations set out in Section 5.1 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 5, 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 5.3.


 


5.4   Legally Compelled Disclosure.
In the event that any Party is requested or becomes legally compelled
(including without limitation, pursuant to securities laws and regulations) to
disclose the existence of this Agreement or any Financing Terms in
contravention of the provisions of this Section 6, such Party (the “Disclosing Party”)
shall provide the other Parties (the “Non-  Disclosing Parties”) with prompt written
notice of that fact so that the appropriate Party may seek (with the
cooperation and reasonable efforts of the other Parties) a protective order,
confidential treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the information that is
legally required and shall exercise reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded such information to the
extent reasonably requested by any Non- Disclosing Party.


 


5.5    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.


 


35

















 


5.6    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.


 


5.7    Other Information. The
provisions of this Section 5 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.


 


6.                Conditions to Investors’ Obligations at the First
Closing. The obligations of the Investors under
Sections 2.1 (a) of this Agreement are subject to the fulfillment at or
before the first Closing of each of the following conditions, except to the
extent waived in writing by the Investors:


 


6.1              Representations and Warranties; No Breaches. The representations and warranties of the Warrantors contained in this
Agreement shall be true and accurate in all material respects on and as of the First
Closing with the same effect as if made on and as of the First Closing with
reference to the facts and circumstances existing at that time. There has been
no breach of any other provision of this Agreement.


 


6.2              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 First 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 to be subscribed at the First Closing.


 


6.3              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 the
Subscribed Shares to be subscribed at the First Closing pursuant to this
Agreement shall be duly obtained effective as of the First Closing.


 


6.4              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 


 


36

















 


delivery hereof and the performance hereunder of
the obligations of such Group Company.


 


6.5              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.


 


6.6              Reservation of Underlying Stock. The Ordinary Shares issuable on conversion of the Series B-3
Preferred Shares shall have been duly authorized and Reserved.


 


6.7              Shareholders’ Agreement.
Each of the Investors shall have received original counterparts of the
Shareholders’ Agreement duly executed by all parties thereto other than such
Investor, as the case may be.


 


6.8              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 First Closing, and the Investors shall
have received satisfactory evidence of such filing.


 


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


 


6.9              Allotment and Issuance of Subscribed Shares; Share
Certificates.


 


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


 


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


 


(c)             Each
Investor shall have received a certificate or certificates (in such 


 


37

















 


denominations as such Investor may require)
representing the Subscribed Shares subscribed by each Investor hereunder.


 


6.10            Closing Certificate.
Each of the Investors shall have received a certificate or certificates duly
executed by each Warrantor certifying the completion of the conditions in
Sections 6.


 


6.11            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.


 


6.12            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.                Conditions to Jeffrey
Chan’s Obligations at the
Second Closing. The obligations of
Jeffrey Chan under Section 2.1 (b) of this Agreement are subject to
the fulfillment at or before the Second Closing of each of the following
conditions, except to the extent waived in writing by Jeffrey Chan:


 


7.1              Decision
of Jeffrey Chan. Jeffrey Chan shall have
decided to subscribe for the Ordinary Subscribed Shares.


 


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 Second Closing and shall have obtained all
approvals, consents and qualifications necessary to complete the sale of the Ordinary
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 the
Ordinary Subscribed Shares pursuant to this Agreement shall be duly obtained
effective as of the Second 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 


 


38

















 


Transaction Documents to which it is a party.


 


7.6              Allotment and Issuance of Subscribed Shares; Share
Certificates.


 


(a)     The
Company shall have allotted and issued to Jeffrey Chan the Ordinary Subscribed
Shares and shall have entered the name of Jeffrey Chan in the register of
members of the Company as the holder of the Ordinary Subscribed Shares.


 


(b)    Jeffrey
Chan shall have received a copy of the register of members of the Company as at
the date of the Second 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 Ordinary Subscribed Shares pursuant to this Agreement.


 


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


 


8.                Conditions to Company’s Obligations at the Closings. The obligations of the Company under Section 2 of this Agreement
with respect to each 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 of the Investors and Jeffrey Chan,
as the case may be, under Section 4 of this Agreement being true and correct
in all material aspects when made and true and correct in all material respects
as of such Closing; and


 


8.2               Each
of the Investors and Jeffrey Chan, as the case may be, 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 such Closing, including
execution of the Shareholders’ Agreement and the other Transaction Documents.


 


9.                Post-Closing Covenants.


 


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


 


9.2               Employee Stock Ownership Plan.
The Company may, subject to the conditions of the Shareholders’ Agreement,
establish the ESOP to reserve an


 


39






 


 










 


aggregate of 22,570,400 Ordinary Shares.  Without the consent of Matrix, the Series A
Shareholders and the Board of the Company, no issuances under the ESOP may be
made.


 


9.3                                             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.


 


9.4                                             Use of Proceeds.
The Company shall use the proceeds from the issuance of the Subscribed Shares
(less reasonable expenses agreed by the Investors) 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.


 


9.5                                             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.                                             Miscellaneous.


 


10.1                                       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.


 


10.2                                       Dispute Resolution


 


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


 


40

















 


(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.


 


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


 


41

















 


be payable by such Indemnitee as a result of the indemnification
of any Indemnifiable Loss hereunder.


 


10.4                                       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.


 


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


 


10.6                                       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
 11/F,
Guan Hu Garden 3


105
Yao Jia Yuan Road, Chaoyang District


Beijing
100025, PRC


 


Attention:
Chief Executive Officer


 


Facsimile:
+86 (10) 5928 3383


Telephone:
+86 (10) 5928 3663.


Email:
yudong@polybona.com.cn


 


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


 


42

















 


Telephone:
+86 (10) 65000088


Email:
dsu@matrixpartners.com.cn


 


To:                                                          SIG


 


101
California Street, Suite 3250


San
Francisco


CA
94111, USA


 


Attention:
Mr. Michael L. Spolan


 


Facsimile:
+1(610) 6173896


Telephone:
+1(415) 4036510


Email:
michael.spolan@sig.com


 


To:                                                          Sequoia


 


2408,
Air China Plaza


36
Xiaoyun Road


Chaoyang
District


Beijing
100027, P.R. China


 


Attention:
Mr. Steven Ji


 


Facsimile:
+ 86(10) 84475669


Telephone:
+86(10) 84475668


Email:
sji@sequoiacap.com


 


 


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


 


43

















 


Facsimile:
+ 852 35211503


Telephone:
+852 21210880


Email:
michelle@ehousehk.com


 


 


To:                                                          Blooming Capital Limited


Room 1501,
Tower B, Euro America Center, No.18 Jiaogong 

Road, Hangzhou, Zhejiang


 


Attention:
Mr. Cao Guoxiong


 


Facsimile:
+86 571 85460681


Telephone:
+86 571 85463628


Email:
caoguoxiong@126.com


 


To:                                                          Jeffery Chan


11/F,
Guan Hu Garden 3


105
Yao Jia Yuan Road, Chaoyang District


Beijing
100025, PRC


 


Facsimile:
+86 (10) 5928 3383


Telephone:
+86 (10) 59282095


Email:
66cc.com@gmail.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 10.6 by giving
the other parties written notice of the new address in the manner set forth
above.


 


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


 


10.8                                       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.


 


10.9                                       Entire Agreement; Successors and Assigns. Except as specifically referenced 


 


44

















 


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 Subscribed 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.


 


10.10                                 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.


 


10.11                                 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.


 


10.12                                 Fees and Expenses. Each
Party shall pay all costs and expenses incurred by such Party in connection
with the negotiation, execution, delivery and performance of this Agreement and
other Transaction Documents and the transactions contemplated hereby and
thereby.


 


10.13                                 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.


 


10.14                                 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.


 


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


 


45

















 


[Remainder of
this page intentionally left blank]


 


46

















 


IN WITNESS WHEREOF, the
parties to this Agreement have executed this 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 MEDIA TECHNOLOGY CO.,
  LTD. 

  	
   

  	
  BEIJING BONA FILM CULTURE COMMUNICATION CO.,
  LTD. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yu Dong

  	
   

  	
  By:

  	
  /s/ Yu Dong

  
	
  Name:

  	
  Yu Dong

  	
   

  	
  Name:

  	
  Yu Dong

  
	
  Title:

  	
  Legal Representative

  	
   

  	
  Title:

  	
  Legal Representative

  
	
   

  	
   

  	
   

  
	
  BEIJING BAICHUAN 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

  
	
   

  	
   

  	
   

  
	
  BEIJING BONA MEI TAO CULTURE MEDIA CO., LTD. 

  	
   

  	
  ZHEJIANG BONA MOVIE AND TELEVISION PRODUCTION
  CO., LTD. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yu Dong

  	
   

  	
  By:

  	
  /s/ Yu Dong

  
	
  Name:

  	
  Yu Dong

  	
   

  	
  Name:

  	
  Yu Dong

  
	
  Title:

  	
  Legal Representative

  	
   

  	
  Title:

  	
  Legal Representative

  
	
   

  	
   

  	
   

  
	
  DISTRIBUTION WORKSHOP (BVI) LTD.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Yu Dong

  	
   

  	
   

  



 


[SHARE SUBSCRIPTION AGREEMENT SIGNATURE PAGE]


 

















 


	
  Name: 

  	
  Yu Dong

  	
   

  	
   

  
	
  Title: 

  	
  Director

  	
   

  	
   

  



 


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


 


 


	
  /s/
  Yu Dong  

  	
   

  
	
  Yu Dong 

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Yu Hai

  	
   

  
	
  Yu Hai

  	
   

  



 


[SHARE SUBSCRIPTION AGREEMENT SIGNATURE PAGE]


 

















 


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


 


 


	
  JEFFREY
  CHAN

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Jeffrey Chan

  	
   

  
			



 


[SHARE SUBSCRIPTION AGREEMENT SIGNATURE PAGE]


 














 


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


 


 


	
  BLOOMING
  CAPITAL LIMITED

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Cao Guoxiong

  	
   

  
	
  Name:
  Cao Guoxiong

  	
   

  
	
  Title:
  Authorized signatory

  	
   

  
			



 


[SHARE SUBSCRIPTION AGREEMENT SIGNATURE PAGE]


 

















 


IN WITNESS WHEREOF, the
parties to this Agreement have executed this 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

  	
   

  



 


[SHARE SUBSCRIPTION AGREEMENT SIGNATURE PAGE]


 

















 


IN
WITNESS WHEREOF, the parties to this Agreement have executed this 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

  	
   

  



 


[SHARE SUBSCRIPTION AGREEMENT SIGNATURE PAGE]


 

















 


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


 


 


SIG China Investments One, Ltd.


 


 


	
  By:

  	
  /s/
  Michael L. Spolan

  	
   

  
	
  Name:
  

  	
  Michael
  L. Spolan

  	
   

  
	
  Title:
  

  	
  Vice President, Susquehanna Asia Investment LLLP,
  authorized agent for SIG China Investments One, Ltd.

  	
   

  
				



 


[SHARE SUBSCRIPTION AGREEMENT SIGNATURE PAGE]


 

















 


IN
WITNESS WHEREOF, the parties to this Agreement have executed this 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

  	
   

  



 


[SHARE SUBSCRIPTION AGREEMENT SIGNATURE PAGE]


 

















 


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


 


 


Wayford
Enterprises Limited


 


 


	
  By:

  	
  /s/
  Zhou Xin

  	
   

  
	
  Name:
  Zhou Xin

  	
   

  
	
  Title:
  Director