Document:

Unassociated Document

    ELEVENTH
AMENDMENT TO CREDIT AGREEMENT

    

    This
ELEVENTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as
of July 31, 2009, is entered into by and among THE GYMBOREE CORPORATION, a
Delaware corporation (the “Company”), each other
Borrower named in the signature pages hereof (together with the Company, each a
“Borrower” and,
collectively, the “Borrowers”), and BANK
OF AMERICA, N.A. (the “Lender”).

     

    RECITALS

    

    A. The
Borrowers and the Lender are parties to a Credit Agreement, dated as of August
11, 2003 as amended by (i) that certain Waiver and First Amendment to Credit
Agreement dated as of December 6, 2004, (ii) that certain Second Amendment to
Credit Agreement dated as of July 25, 2005, (iii) that certain Third Amendment
to Credit Agreement dated as of March 30, 2006, (iv) that certain Fourth
Amendment to Credit Agreement dated as of July 5, 2006, (v) that certain Fifth
Amendment to Credit Agreement dated as of February 7, 2007, (vi) that
certain Sixth Amendment to Credit Agreement dated as of April 24, 2007,
(vii) that certain Seventh Amendment to Credit Agreement dated as of June
12, 2007, (viii) that certain Eighth Amendment to Credit Agreement dated as
of July 31, 2007, (ix) that certain Ninth Amendment to Credit Agreement
dated as of November 21, 2007, and (x) that certain Tenth Amendment to Credit
Agreement dated as of August 8, 2008 (collectively, and as the same may be
further amended, restated, extended, supplemented or otherwise modified from
time to time, the “Credit Agreement”),
pursuant to which the Lender has extended certain credit facilities to the
Borrowers.

     

    B. The
Borrowers have requested that the Lender agree to certain amendments to the
Credit Agreement, and the Lender has agreed to such request, subject to the
terms and conditions of this Amendment.

     

    NOW,
THEREFORE, for valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:

     

    1. Defined
Terms.  Unless otherwise defined herein, capitalized terms used
herein shall have the meanings, if any, assigned to such terms in the Credit
Agreement (as amended hereby).  As used herein, “Amendment Documents”
means this Amendment, the Credit Agreement (as amended by this Amendment), and
each certificate and other document executed and delivered by the Borrowers
pursuant to Section
5 hereof.

     

    2. Interpretation.  The
rules of interpretation set forth in Sections 1.02, 1.03, 1.04, 1.05, and 1.06 of the Credit
Agreement shall be applicable to this Amendment and are incorporated herein by
this reference.

     

    3. Amendments to Credit
Agreement.  Subject to the terms and conditions hereof, and
with effect from and after the Effective Date, the Credit Agreement shall be
amended as follows:

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (a) Section 1.01 of the
Credit Agreement shall be amended by amending and restating the definition
“Applicable Rate” to read in full as follows:

     

    “Applicable Rate”
means (a) prior to the Tenth Amendment Date, the following percentages per
annum, based upon the Consolidated Adjusted Leverage Ratio as set forth in the
most recent Compliance Certificate received by the Lender pursuant to Section 6.02(a) in
conjunction with financial statements provided pursuant to Section 6.01(a)
or (b):

     

    
      	
              Pricing
      Level

            	
              Consolidated
      Adjusted Leverage Ratio

            	
              Unused
      Line Fee (%)

            	
              Eurodollar
      Rate Loans/ Letters of Credit (%)

            	
              Base
      Rate Loans (%)

            
	
              1

            	
              >
      3.00:1.00

            	
              0.500

            	
              1.500

            	
              0.250

            
	
              2

            	
              >
      2.50:1.00 but <
      3.00:1.00

            	
              0.400

            	
              1.250

            	
              0.000

            
	
              3

            	
              >
      2.00:1.00 but <
      2.50:1.00

            	
              0.300

            	
              1.000

            	
              0.000

            
	
              4

            	
              < 2.00:1.00

            	
              0.200

            	
              0.750

            	
              0.000

            

    

    

    and (b)
at all times from and after the Tenth Amendment Date until the Eleventh
Amendment Date, the following percentages per annum, based upon the Consolidated
Adjusted Leverage Ratio as set forth in the most recent Compliance Certificate
received by the Lender pursuant to Section 6.02(a)
in conjunction with financial statements provided pursuant to Section 6.01(a)
or (b):

     

    
      	
              Pricing
      Level

            	
              Consolidated
      Adjusted Leverage Ratio

            	
              Unused
      Line Fee (%)

            	
              Eurodollar
      Rate Loans/ Letters of Credit (%)

            	
              Base
      Rate Loans (%)

            
	
              1

            	
              >
      3.00:1.00

            	
              0.600

            	
              1.750

            	
              0.250

            
	
              2

            	
              >
      2.50:1.00 but <
      3.00:1.00

            	
              0.500

            	
              1.500

            	
              0.000

            
	
              3

            	
              >
      2.00:1.00 but <
      2.50:1.00

            	
              0.400

            	
              1.250

            	
              0.000

            
	
              4

            	
              < 2.00:1.00

            	
              0.300

            	
              1.000

            	
              0.000

            

    

    

    and (c)
at all times from and after the Eleventh Amendment Date, the following
percentages per annum, based upon the Consolidated Adjusted Leverage Ratio as
set forth in the most recent Compliance Certificate received by the Lender
pursuant to Section 6.02(a)
in conjunction with financial statements provided pursuant to Section 6.01(a)
or (b):

     

    
      	
              Pricing
      Level

            	
              Consolidated
      Adjusted Leverage Ratio

            	
              Unused
      Line Fee (%)

            	
              Eurodollar
      Rate Loans/ Letters of Credit (%)

            	
              Base
      Rate Loans (%)

            
	
              1

            	
              >
      3.00:1.00

            	
              0.650

            	
              3.000

            	
              0.750

            
	
              2

            	
              >
      2.50:1.00 but <
      3.00:1.00

            	
              0.550

            	
              2.500

            	
              0.500

            
	
              3

            	
              >
      2.00:1.00 but <
      2.50:1.00

            	
              0.450

            	
              2.250

            	
              0.250

            
	
              4

            	
              < 2.00:1.00

            	
              0.350

            	
              2.000

            	
              0.000

            

    

    

    Any
increase or decrease in the Applicable Rate resulting from a change in the
Consolidated Adjusted Leverage Ratio shall become effective as of the first
Business Day immediately following the date a Compliance Certificate is
delivered pursuant to Section 6.02(a) in
conjunction with financial statements provided pursuant to Section 6.01(a)
or (b); provided, however, that if a
Compliance Certificate is not delivered when due in accordance with such
Section, then Pricing Level 1 shall apply as of the first Business Day after the
date on which such Compliance Certificate was required to have been
delivered.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (b) Section 1.01
shall be further amended by adding the following definition, in appropriate
alphabetical order:

     

    “Applicable SLC Rate”
means one-half the Applicable Rate for Letters of Credit.

     

    (c) Section 1.01 of the
Credit Agreement shall be amended by amending and restating “Consolidated
Adjusted Leverage Ratio” to read in full as follows:

     

    “Consolidated Adjusted
Leverage Ratio” means, (a) as determined as of any date prior to
August 1, 2009, the ratio of (i) Consolidated Funded Indebtedness as of such
date plus six
(6) times the amount of Lease Expenses for the Subject Period to (ii) Consolidated
Adjusted EBITDAR for the Subject Period and (b) as determined as of August
1, 2009 or thereafter, the ratio of (i) Consolidated Funded Indebtedness as of
such date plus
eight (8) times the amount of Lease Expenses for the Subject Period to (ii) Consolidated Adjusted
EBITDAR for the Subject Period.

     

    (d) Section 1.01 of the
Credit Agreement shall be further amended by adding the definition “Eleventh
Amendment Date”, in appropriate alphabetical order, to read as
follows:

     

    “Eleventh Amendment
Date” means the “Effective Date” as defined in that Eleventh Amendment to
Credit Agreement dated as of July 31, 2009 among the Borrowers and the
Lender.

     

    (e) Section 1.01 of the
Credit Agreement shall be further amended by amending and restating “Scheduled
Maturity Date” to read in full as follows:

     

    “Scheduled Maturity
Date” means September 1, 2010.

     

    (f) Section 1.01 of the
Credit Agreement shall be further amended by placing the following definitions
in appropriate alphabetical order: “Consolidated EBITDA”,
“Guarantee”,  “Standby L/C
Obligations” and “Subject
Period”.

     

    (g) Section
2.03(a)(ii)(B) and (E) of the Credit
Agreement shall each be amended by replacing the words “90 days” with “180
days”.

     

    (h) Section 2.03(h)(i)
of the Credit Agreement shall be amended and restated  to read in full
as follows:

     

    (i) Standby Letters of
Credit.  The applicable Borrower shall pay to the Lender a
letter of credit fee for each Standby Letter of Credit equal to the Applicable
SLC Rate times
the daily maximum amount available to be drawn under such Letter of Credit
(whether or not such maximum amount is then in effect under such Letter of
Credit).  Such letter of credit fees shall be computed on a quarterly
basis in arrears, and shall be due and payable on the first Business Day after
the end of each March, June, September and December, commencing with the first
such date to occur after the issuance of such Letter of Credit, on the Maturity
Date and thereafter on demand.  If there is any change in the
Applicable SLC Rate during any quarter, the daily maximum amount of each Letter
of Credit shall be computed and multiplied by the Applicable SLC Rate separately
for each period during such quarter that such Applicable SLC Rate was in
effect.  Such fees shall be fully earned when paid and are
non-refundable.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (i) Section 2.12 of the
Credit Agreement shall be amended and restated to read in full as
follows:

     

    2.12 Option to Increase
Commitment.  From and after the Tenth Amendment Date, the
Company may, upon written notice to the Lender, on not more than two occasions,
request an increase in the Commitment by up to $20,000,000 in the
aggregate.  Upon approval of such request by the Lender, in its sole
discretion, the Commitment shall be increased by the amount specified in such
notice, not to exceed $20,000,000 in the aggregate for all such requests
together, effective as of the date specified in such request (not to be earlier
than three Business Days after the date such request is approved by Lender) (the
“Increase Effective
Date”).  As conditions precedent to any such increase, the
Company shall deliver to the Lender (i) a certificate of the Company signed by a
Responsible Officer of the Company in the form of Exhibit F hereto and
attaching the resolutions adopted by each Loan Party approving or consenting to
such increase or authorizing a Responsible Officer of the Company to approve
such increase and (ii) an upfront expansion fee equal to 0.125% times the amount
of the requested increase in Commitment.

     

    (j) Section 7.06(e) of
the Credit Agreement shall be amended and restated to read in full as
follows:

     

    (e) the
Company may purchase, redeem or otherwise acquire shares of its capital stock
for cash, in an aggregate amount not to exceed, (i) for all such purchases,
redemptions and other acquisitions together occurring from and after the Second
Amendment Date until the Fifth Amendment Date, the amount of $110,000,000, (ii)
for all such purchases, redemptions and other acquisitions together occurring
from and after the Fifth Amendment Date until the Eleventh Amendment Date, the
amount of $175,000,000, and (iii) for all such purchases, redemptions and
other acquisitions together occurring from and after the Eleventh Amendment
Date, the amount of $75,000,000; provided, in each
case that after giving effect to such proposed action, no Default would
exist.

     

    (k) Section 7.11(c) of
the Credit Agreement shall be amended and restated to read in full as
follows:

     

    (c) Consolidated Adjusted
Leverage Ratio.  Permit the Consolidated Adjusted Leverage
Ratio, (i) at any time prior to the Second Amendment Date, to be greater
than 3.00:1.00, (ii) at any time from and after the Second Amendment Date
and prior to August 1, 2009, to be greater than 4.00:1.00, and
(iii) thereafter, to be greater than 3.50:1.00.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (l) Schedule 2 to Exhibit C to the
Credit Agreement shall be amended and restated in the form attached hereto as
Annex
I.

     

    (m) Schedule 5.14 to the
Credit Agreement shall be amended and restated in the form attached hereto as
Annex
II.

     

    4. Representations and
Warranties.  Each Borrower hereby represents and warrants to
the Lender as follows:

     

    (a) No Default has
occurred and is continuing.

     

    (b) The execution,
delivery and performance by the Borrowers of this Amendment have been duly
authorized by all necessary corporate and other action and do not and will not
require any registration with, consent or approval of, or notice to or action
by, any Person (including any Governmental Authority) in order to be effective
and enforceable.

     

    (c) The Amendment
Documents constitute the legal, valid and binding obligations of the Borrowers
party thereto, enforceable against each such Borrower in accordance with their
respective terms, without defense, counterclaim or offset.

     

    (d) All
representations and warranties of the Borrowers contained in Article V of the
Credit Agreement are true and correct on and as of the Effective Date, except to
the extent that any such representation and warranty specifically relates to an
earlier date, in which case they are true and correct as of such earlier
date.

     

    (e) Each Borrower
is entering into this Amendment on the basis of its own investigation and for
its own reasons, without reliance upon the Lender or any other
Person.

     

    (f) There has
occurred since January 31, 2009 no event or circumstance that has resulted or
could reasonably be expected to result in a Material Adverse
Effect.

     

    (g) The Obligations
of each Borrower under the Credit Agreement and each other Loan Document are not
subject to any defense, counterclaim, set-off, right of recoupment, abatement or
other claim.

     

    5. Effective
Date.

     

    (a) This Amendment
will become effective as of the date shown first above (the “Effective Date”),
provided each of the conditions precedent set forth in this Section 5 has been
satisfied:

     

    (i) The Lender
shall have received from each Borrower a duly executed original (or, if elected
by the Lender, an executed facsimile copy) counterpart to this
Amendment.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (ii) The Lender
shall have received from the Company a certificate signed by the assistant
secretary of each Borrower in form and substance satisfactory to the Lender, and
certifying evidence of the authorization of the execution, delivery and
performance by each Borrower of the Amendment Documents to which it is
party.

     

    (iii) The Lender
shall have received such documents and certifications as the Lender may
reasonably require to evidence that each Borrower is duly organized or formed,
validly existing, in good standing and qualified to engage in business in each
jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification, except to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect.

     

    (iv) The Borrowers
shall have paid (A) to the Lender an upfront fee of 0.125% times the
Commitment, and (B) to the Lender’s counsel, all reasonable attorneys’ fees
and expenses incurred by the Lender in connection with the development,
preparation, negotiation and delivery of this Amendment and the other Amendment
Documents.

     

    (v) The Lender
shall have received, in form and substance satisfactory to it, such additional
approvals, consents, opinions, documents and other information as the Lender
shall request.

     

    (b) From and after
the Effective Date, the Credit Agreement is amended as set forth,
herein.  Except as expressly amended pursuant hereto, the Credit
Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects.

     

    6. Reservation of
Rights.  Each Borrower acknowledges and agrees that neither the
execution nor the delivery by the Lender of this Amendment shall (a) be deemed
to create a course of dealing or otherwise obligate the Lender to execute
similar amendments under the same or similar circumstances in the future or (b)
be deemed to create any implied waiver of any right or remedy of the Lender with
respect to any term or provision of any Loan Document (including any term or
provision relating to the occurrence of a Material Adverse Effect).

     

    7. Miscellaneous.

     

    (a) Except as
herein expressly amended, all terms, covenants and provisions of the Credit
Agreement are and shall remain in full force and effect and all references
therein to such Credit Agreement shall henceforth refer to the Credit Agreement
as amended by this Amendment.  This Amendment shall be deemed
incorporated into, and a part of, the Credit Agreement.

     

    (b) This Amendment
shall be binding upon and inure to the benefit of the parties hereto and thereto
and their respective successors and assigns.  No third party
beneficiaries are intended in connection with this Amendment.

     

    (c) THIS AMENDMENT
IS SUBJECT TO THE PROVISIONS OF SECTIONS 9.19, 9.20 and 9.23 OF THE CREDIT
AGREEMENT RELATING TO GOVERNING LAW, VENUE, WAIVER OF RIGHT TO TRIAL BY JURY AND
JUDICIAL REFERENCE, THE PROVISIONS OF WHICH ARE BY THIS REFERENCE INCORPORATED
HEREIN IN FULL.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (d) This Amendment
may be executed in any number of counterparts, each of which shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.  Each of the parties hereto understands and agrees
that this document (and any other document required herein) may be delivered by
any party hereto or thereto either in the form of an executed original or an
executed original sent by facsimile transmission to be followed promptly by
mailing of a hard copy original, and the receipt by the Lender of a facsimile
transmitted document purportedly bearing the signature of a Borrower shall bind
such Borrower with the same force and effect as the delivery of a hard copy
original.  Any failure by the Lender to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Lender.

     

    (e) This Amendment,
together with the Credit Agreement, contains the entire and exclusive agreement
of the parties hereto with reference to the matters discussed herein and
therein.  This Amendment supersedes all prior drafts and
communications with respect thereto.  This Amendment may not be
amended except in accordance with the provisions of Section 9.01 of the
Credit Agreement.

     

    (f) If any term or
provision of this Amendment shall be deemed prohibited by or invalid under any
applicable law, such provision shall be invalidated without affecting the
remaining provisions of this Amendment or the Credit Agreement,
respectively.

     

    (g) Each Borrower
covenants to pay to or reimburse the Lender, upon demand, for all reasonable
fees and expenses incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment and the other Amendment
Documents.

     

    (h) This Amendment
shall constitute a “Loan Document” under
and as defined in the Credit Agreement.

     

    [Remainder of page intentionally left
blank]

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.

     

    
      	 
      	
              THE GYMBOREE
      CORPORATION,

              as
      a Borrower

            
	 	 
	 
      	
              By:

            	
              /s/ Blair W. Lambert

            
	 
      	
              Name:

            	
              Blair
      W. Lambert

            
	 
      	
              Title:

            	
              C.O.O.
      - C.F.O.

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              GYMBOREE MANUFACTURING,
      INC.,

              as
      a Borrower

            
	 	 
	 
      	
              By:

            	
              /s/ Blair W. Lambert

            
	 
      	
              Name:

            	
              Blair
      W. Lambert

            
	 
      	
              Title:

            	
              C.O.O.
      - C.F.O.

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              GYM-MARK,
      INC.,

              as
      a Borrower

            
	 	 
	 
      	
              By:

            	
              /s/ Blair W. Lambert

            
	 
      	
              Name:

            	
              Blair
      W. Lambert

            
	 
      	
              Title:

            	
                C.O.O.
      - C.F.O.

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              GYMBOREE RETAIL STORES,
      INC.,

              as
      a Borrower

            
	 	 	 
	 
      	
              By:

            	
              /s/ Blair W. Lambert

            
	 
      	
              Name:

            	
              Blair
      W. Lambert

            
	 
      	
              Title:

            	
              C.O.O.
      - C.F.O.

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              GYMBOREE PLAY PROGRAMS,
      INC.,

              as
      a Borrower

            
	 	 	 
	 
      	
              By:

            	
              /s/ Blair W. Lambert

            
	 
      	
              Name:

            	
              Blair
      W. Lambert

            
	 
      	
              Title:

            	
              C.O.O.
      - C.F.O.

            
	 
      	 
      	 
      
	 
      	 
      	 
      

    

     

    
      
        
          Signature
Page One to Eleventh Amendment to Credit Agreement

        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              GYMBOREE
      OPERATIONS, INC.,

              as
      a Borrower

            
	 	 	 
	 	
              By:

            	
              /s/ Blair W. Lambert

            
	 	
              Name:

            	
              Blair
      W. Lambert

            
	 	
              Title:

            	
              C.O.O.
      - C.F.O.

            
	 	 
      	 
      
	 	 
      	 
      
	 	
              GYMBOREE, INC.
      (CANADA),

              as
      a Borrower

            
	 	 	 
	 	
              By:

            	
              /s/ Blair W. Lambert

            
	 	
              Name:

            	
              Blair
      W. Lambert

            
	 	
              Title:

            	
              C.O.O.
      - C.F.O.

            

    

     

    
      
        
          Signature
Page Two to Eleventh Amendment to Credit
Agreement

        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              LENDER

               

              BANK OF AMERICA, N.A.,
      as the Lender

            
	 	 	 
	 	
              By:

            	
              /s/ David Leimsieder

            
	 	
              Name:

            	
              David
      Leimsieder

            
	 	
              Title:

            	
              Senior
      Vice President

            

    

     

    
      
        
          Signature
Page Three to Eleventh Amendment to Credit
Agreement

        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ANNEX
I

     

    For the
Quarter/Year ended ___________ (“Statement Date”)

     

    SCHEDULE
2

    to the
Compliance Certificate

    ($ in
000’s)

     

    
      	
              I.

            	
              Section
      7.11(b) — Consolidated Asset Coverage
Ratio

            

    

     

    
      	
              A.   
      Current Assets determined as of Statement Date:

            	 	 	 
	 	 	 	 
	
              1.
      Cash:

            	 	$	 
      	 
	 	 	 	 	 
	
              2.
      Marketable Securities:

            	 	$	  
      	 
	 	 	 	 	 
	
              3.
      Trade Accounts Receivable:

            	 	$	  
      	 
	 	 	 	 	 
	
              4.
      Inventory:

            	 	$	  
      	 
	 	 	 	 	 
	
              5.
      Current Assets (I.A.1 + 2 + 3 + 4):

            	 	$	  
      	 
	 	 	 	 	 
	
              B.   
      Current Liabilities as of Statement Date

            	 	$	  
      	 
	 	 	 	 	 
	
              C.   
      Outstanding Amounts as of Statement Date (without duplication to
      I.B):

            	 	$	  
      	 
	 	 	 	 	 
	 	 	 	 	 
	
              D.   
      Consolidated Asset Coverage Ratio (I.A.5 ÷ (I.B + I.C)):

            	 	 	

              ______to
      1.00 

            	 
	 	 	 	 	 
	
              Minimum
      Required: 1.00:1.00

            	 	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      	
              II.

            	
              Section
      7.11(c)/Applicable Rate — Consolidated Adjusted Leverage
      Ratio.

            

    

     

    
      
        	
                A.   Consolidated
      Adjusted EBITDA for four consecutive fiscal quarters ending on above date
      (“Subject
      Period”):

              	 	 	 
	 	 	 	 
	
                1.
      Consolidated Net Income for Subject Period:

              	 	$	  
      	 
	 	 	 	 	 
	
                2.
      Consolidated Interest Charges for Subject Period:

              	 	$	  
      	 
	 	 	 	 	 
	
                3.
      Provision for income taxes payable during Subject Period:

              	 	$	  
      	 
	 	 	 	 	 
	
                4.
      Depreciation expense for Subject Period:

              	 	$	  
      	 
	 	 	 	 	 
	
                5.
      Amortization expense for Subject Period:

              	 	$	  
      	 
	 	 	 	 	 
	
                6.
      Non-cash expenses recognized by the Company during the Subject Period in
      connection with the issuance of stock options and other equity interests
      in the Company in consideration of employee services:

              	 	$	  
      	 
	 	 	 	 	 
	
                7.
      Losses during the Subject Period resulting solely from the UK Dispositions
      and included in the  calculation of Consolidated Net Income
      in  Line II.A.1:

              	 	$	  
      	 
	 	 	 	 	 
	
                8.
      Consolidated Adjusted EBITDA for Subject Period (II.A.1 + 2 + 3 + 4 + 5 +
      6 + 7):

              	 	$	  
      	 
	 	 	 	 	 
	
                B.   
      1. Lease Expenses for Subject Period:

              	 	$	  
      	 
	 	 	 	 	 
	
                2.
      Consolidated Adjusted EBITDAR for Subject Period (II.A.8 +
      II.B.1):

              	 	$	  
      	 
	 	 	 	 	 
	
                C.   
      Consolidated Funded Indebtedness at Statement Date:

              	 	$	  
      	 
	 	 	 	 	 
	
                D.   
      Lease Expenses for Subject Period:

              	 	$	  
      	 
	 	 	 	 	 
	
                E.    8
      × II.D (or, for any Statement Date prior to  August 1, 2009, 6 ×
      II.D):

              	 	$	  
      	 
	 	 	 	 	 
	
                F.   
      Consolidated Leverage Ratio ((II.C+II.E) ÷ II.B.2): Maximum
      permitted:

              	 	 	

                _____
      to 1.00 

              	 
	 	 	 	 	 
	
                (1)
      At any time prior to the Second Amendment Date:

              	 	 	

                3.00:1.00 

              	 
	 	 	 	 	 
	
                (2)
      At any time from and after the Second Amendment Date  and prior
      to August 1, 2009:

              	 	 	

                4.00:1.00 

              	 
	 	 	 	 	 
	
                (3)
      Thereafter:

              	 	 	

                3.50:1.00 

              	 

      

       

      
        
          	
                  III.

                	
                  Section
      7.12 -- Capital Expenditures.

                

        

      

       

      
        	
                A.  
      Capital expenditures made during fiscal year to date:

              	 	$	  
      	 
	 	 	 	 	 
	
                B.   
      Maximum permitted capital expenditures for fiscal year:

              	 	$	  
      	 
	 	 	 	 	 
	
                C.   
      Excess (deficiency) for covenant compliance (Line
      III.B less
    III.A):

              	 	$	  
       	 

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ANNEX
II

     

    SCHEDULE
5.14

     

    SUBSIDIARIES

    AND
OTHER EQUITY INVESTMENTS

     

    
      	
              Part(i).

            	
              Subsidiaries.

            

    

     

    
      	
            	
              1.

            	
              Gymboree
      Manufacturing, Inc.

            

    

     

    
      	
            	
              2.

            	
              Gym-Mark,
      Inc.

            

    

     

    
      	
            	
              3.

            	
              Gymboree
      Retail Stores, Inc.

            

    

     

    
      	
            	
              4.

            	
              Gymboree
      Island, LLC

            

    

     

    
      	
            	
              5.

            	
              Gym-Card,
      LLC

            

    

     

    
      	
            	
              6.

            	
              Gymboree
      Play Programs, Inc.

            

    

     

    
      	
            	
              7.

            	
              Gymboree
      Operations, Inc.

            

    

     

    
      	
            	
              8.

            	
              Gymboree,
      Inc. (Canada)

            

    

     

    
      	
            	
              9.

            	
              Gymboree
      Industries Limited

            

    

     

    
      	
              Part(ii).

            	
              Other
      Equity Investments.

            

    

     

    None.Unassociated Document

     

    Exhibit
10.1

     

     

    

     

     

    

     

     

    AMERICAN
DAIRY, INC.

     

     

    

     

     

    SUBSCRIPTION
AGREEMENT

     

     

    

     

     

    August
11, 2009

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
OF CONTENTS

    

    
      	
              1.

            	Definitions	
              1

            
	
              2.

            	Purchase and Sale
      of Securities	
              11

            
	 
      	
              2.1

            	
              Purchase and Sale

            	
              11

            
	 
      	
              2.2

            	
              Closing

            	
              12

            
	
              3.

            	Representations and Warranties of the
      Company	
              12

            
	 
      	
              3.1

            	
              Incorporation

            	
              12

            
	 
      	
              3.2

            	
              Subsidiaries.

            	
              13

            
	 
      	
              3.3

            	
              Authority

            	
              13

            
	 
      	
              3.4

            	
              Litigation; Contracts

            	
              14

            
	 
      	
              3.5

            	
              Capitalization

            	
              14

            
	 
      	
              3.6

            	
              Authorization

            	
              15

            
	 
      	
              3.7

            	
              Auditors

            	
              15

            
	 
      	
              3.8

            	
              Financial Statements

            	
              15

            
	 
      	
              3.9

            	
              No Changes

            	
              16

            
	 
      	
              3.10

            	
              Property

            	
              16

            
	 
      	
              3.11

            	
              Tax Returns

            	
              17

            
	 
      	
              3.12

            	
              Transfer Taxes

            	
              17

            
	 
      	
              3.13

            	
              Internal Controls

            	
              17

            
	 
      	
              3.14

            	
              Audit Committee

            	
              18

            
	 
      	
              3.15

            	
              Disclosure Controls

            	
              18

            
	 
      	
              3.16

            	
              Insurance

            	
              18

            
	 
      	
              3.17

            	
              Losses

            	
              18

            
	 
      	
              3.18

            	
              Labor Disputes

            	
              18

            
	 
      	
              3.19

            	
              NYSE

            	
              19

            
	 
      	
              3.20

            	
              Investment Company, PFIC and
      CFC

            	
              19

            
	 
      	
              3.21

            	
              Offering Materials

            	
              19

            
	 
      	
              3.22

            	
              No Manipulation of Stock

            	
              19

            
	 
      	
              3.23

            	
              Employment Matters

            	
              19

            
	 
      	
              3.24

            	
              Environmental

            	
              19

            
	 
      	
              3.25

            	
              Outstanding Loans to Officers or Directors;
      Related Party Transactions

            	
              20

            
	 
      	
              3.26

            	
              Compliance

            	
              20

            
	 
      	
              3.27

            	
              SEC Documents

            	
              20

            
	 
      	
              3.28

            	
              Brokers, Finders, and Placement
      Agents

            	
              21

            
	 
      	
              3.29

            	
              No Integrated Offering

            	
              21

            
	 
      	
              3.30

            	
              No General Solicitation

            	
              21

            
	 
      	
              3.31

            	
              Private
      Placement

            	
              21

            
	 
      	
              3.32

            	
              Disclosures

            	
              21

            
	 
      	
              3.33

            	
              SEC Investigation.

            	
              21

            
	 
      	
              3.34

            	
              OFAC

            	
              21

            
	
              4.

            	Representations and Warranties of the
      Purchasers	
              22

            
	 
      	
              4.1

            	
              Authorization

            	
              22

            
	 
      	
              4.2

            	
              Investor Status; Etc.

            	
              22

            
	 
      	
              4.3

            	
              Shares Not Registered

            	
              22

            
	 
      	
              4.4

            	
              No Conflict

            	
              22

            
	 
      	
              4.5

            	
              No Public Offering

            	
              22

            

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    
      	
              5.

            	Conditions Precedent	
              23

            
	 
      	
              5.1

            	
              Conditions to the Obligation of the Purchasers to Consummate the
      Closing

            	
              23

            
	 
      	
              5.2

            	
              Conditions to the Obligation of the Company to
      Consummate the Closing

            	
              24

            
	
              6

            	Transfer,
      Legends	
              25

            
	 
      	
              6.1

            	
              Securities Law Transfer
      Restrictions

            	
              25

            
	 
      	
              6.2

            	
              Legends

            	
              26

            
	
              7.

            	Termination	
              27

            
	 
      	
              7.1

            	
              Termination

            	
              27

            
	 
      	
              7.2

            	
              Effect of Termination; Termination
      Fee

            	
              27

            
	
              8.

            	Purchasers’
      Rights	
              28

            
	 
      	
              8.1

            	
              Board Representation

            	
              28

            
	 
      	
              8.2

            	
              Future Issuance

            	
              28

            
	 
      	
              8.3

            	
              Participation Rights

            	
              28

            
	 
      	
              8.4

            	
              Superior Rights.

            	
              29

            
	 
      	
              8.5

            	
              Performance-linked Valuation Adjustments

            	
              29

            
	 
      	
              8.6

            	
              Securities Repurchase

            	
              31

            
	
              9.

            	Covenants	
              32

            
	 
      	
              9.1

            	
              Conduct of Business

            	
              32

            
	 
      	
              9.2

            	
              Consents and Approvals

            	
              33

            
	 
      	
              9.3

            	
              No Solicitation

            	
              34

            
	 
      	
              9.4

            	
              No Integration.

            	
              34

            
	 
      	
              9.5

            	
              Mergers

            	
              34

            
	 
      	
              9.6

            	
              Corporate Existence

            	
              34

            
	 
      	
              9.7

            	
              Reservation of Common Stock

            	
              35

            
	 
      	
              9.8

            	
              Reporting Status; Listing of Common
      Stock

            	
              35

            
	 
      	
              9.9

            	
              Adjustment for Adjustment Event

            	
              35

            
	 
      	
              9.10

            	
              Anti-Corruption

            	
              35

            
	 
      	
              9.11

            	
              PFIC and CFC

            	
              36

            
	 
      	
              9.12

            	
              2009 Notes
      and 2012 Notes

            	
              36

            
	
              10.

            	Miscellaneous
      Provisions	
              36

            

    

     

    
      	
              ExhibitA

            	
              List
      of Purchasers

            
	
              Exhibit
      B

            	Legal
      Opinion
	
              Exhibit
      C

            	Form
      Registration Rights Agreement

    

                      

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    
       

      SUBSCRIPTION
AGREEMENT

       

      This
SUBSCRIPTION AGREEMENT (this “Agreement”) is dated
as of the 11th day of
August, 2009 (the “Effective Date”) by
and between American Dairy, Inc., a corporation incorporated in the State of
Utah, with its principal office at Star City International Building, 10
Jiuxianqiao Road, C-16th Floor Chaoyang District, Beijing, China 100016
(the “Company”), and the
several purchasers identified in the attached Exhibit A
(individually, a “Purchaser” and
collectively, the “Purchasers”).

       

      WHEREAS,
the Company desires to issue and sell to the Purchasers, 2,100,000 shares (the
number of which shall be adjusted from time to time to reflect any Adjustment
Event that occurred following the Closing) (the “Shares”) of the
authorized but unissued shares of common stock, US$0.001 par value per share, of
the Company (the “Common Stock”) for an
aggregate purchase price of US$63,000,000;

       

      WHEREAS,
the Purchasers wish to purchase the Securities on the terms and subject to the
conditions set forth in this Agreement;

       

      WHEREAS,
the Company and the Purchasers have entered into a Bridge Loan Agreement and a
Share Pledge Agreement on July 28, 2009, pursuant to which (i) the Purchasers
provided a Bridge Loan to the Company; (ii) the Guarantor under the Share Pledge
Agreement pledged certain Common Stock to the Purchasers; and (iii) the parties
thereto agreed that the Purchasers shall have the right to convert the Bridge
Loan into certain shares of Common Stock; and

       

      WHEREAS,
contemporaneously with and as a condition to the execution of this Agreement,
the parties hereto are entering into a Registration Rights Agreement under which
the Company has agreed to provide certain registration rights under the
Securities Act, the Rules and Regulations promulgated thereunder and applicable
state securities laws.

       

      NOW,
THEREFORE, in consideration of the mutual agreements, representations,
warranties and covenants herein contained, the parties hereto agree as
follows:

       

      1. Definitions. As used
in this Agreement, the following terms shall have the following respective
meanings:

       

      “2009 Notes” means the
7.75% convertible notes issued by the Company in an aggregate principal amount
of US$18.2 million due October 2, 2009 issued on October 3, 2006, as
restructured on November 12, 2008.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      “2009 Warrants” means
the warrants to purchase up to an aggregate of approximately 251,000 shares of
Common Stock at any time prior to October 3, 2012, issued by the Company on
October 3, 2006 in connection with the 2009 Notes, as restructured on November
12, 2008.

       

      “2012 Notes” means the
1.00% guaranteed senior secured convertible notes issued by the Company in the
aggregate principal amounts of US$60.0 million and US$20.0 million due 2012,
issued on June 1, 2007 and June 27, 2007 respectively, as restructured on
November 12, 2008.

       

      “Adjusted Benchmark
Price” means, with respect to any time of determination, the Initial
Purchase Price as adjusted from time to time to reflect any Adjustment Event
that occurred during the period commencing from the Closing until such time of
determination.

       

      “Adjusted EPS” means,
with respect to any fiscal year of determination, the diluted earnings per share
of Common Stock, which shall be calculated based on the audited financial
statements of the Company for the said fiscal year on which the Company Auditor
shall have prepared a report to be included in the Company’s annual report on
Form 10-K and filed with SEC, provided, however, that the Adjusted
EPS shall be calculated without taking into account any expenses recognized as a
result of the transactions contemplated in the Operative Agreements being
treated as an embedded derivative or any other non-cash charges to the earnings
of the Company resulting from the transactions contemplated in the Operative
Agreements, provided,
further, that, for purposes of calculating the number of shares for any
fiscal year of determination, such number shall be calculated to include any
shares of Common Stock repurchased from the Closing to the time of
determination. For the purpose of this Agreement, in case Adjusted EPS for any
fiscal year is below zero, Adjusted EPS for the said year shall be deemed as
US$0.01.

       

      “Adjusted Purchase
Price” has the meaning set forth in Section 8.5.

       

      “Adjustment Event” has
the meaning set forth in Section 9.9.

       

      “Affiliate” of a party
means any corporation or other business entity controlled by, controlling or
under common control with such party. For this purpose “control” shall mean
direct or indirect beneficial ownership of fifty percent (50%) or more of the
voting or income interest in such corporation or other business
entity.

       

      “Aggregate Purchase
Price” has the meaning set forth in Section 2.1 below.

       

      “Agreement” has the
meaning set forth in the preamble above.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      “Alternative Proposal”
has the meaning set forth in Section 9.3 below.

       

      “Articles of
Incorporation” has the meaning set forth in Section 3.1
below.

       

      “Bridge Loan” means
the loan in the principal amount of US$16,000,000 provided by Sequoia Capital
China Growth Fund I, L.P. and its Affiliates to the Company pursuant to the
Bridge Loan Agreement.

       

      “Bridge Loan
Agreement” means the bridge loan agreement by and among the Company, Mr.
Leng You-Bin and Sequoia Capital China Growth Fund I, L.P. and its Affiliates
dated July 28, 2009.

       

      “Business Day” means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by Law or other governmental action to
close.

       

      “Buy-In” has the
meaning set forth in Section 6.2(b) below.

       

      “Bylaws” has the
meaning set forth in Section 3.1 below.

       

      “Closing” has the
meaning set forth in Section 2.2 below.

       

      “Closing Date” means
the date of the Closing.

       

      “Common Stock” has the
meaning set forth in the recitals above.

       

      “Company” has the
meaning set forth in the preamble above.

       

      “Company Auditor”
means Grant Thornton, the Hong Kong member firm of Grant Thornton International
Ltd., or any of the four internationally recognized and reputable accounting
firms commonly known as the “Big Four” the Company may designate from time to
time.

       

      “Company Board” has
the meaning set forth in section 3.6 below.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      “Company Shareholder
Approval” means any approval by the affirmative vote of the holders of a
number of shares of Common Stock present or represented by proxy at a
shareholder meeting of the Company.

       

      “Contract” has the
meaning set forth in Section 3.3 below.

       

      “Effective Date” has
the meaning set forth in the preamble above.

       

      “Environmental Laws”
has the meaning set forth in Section 3.24 below.

       

      “EPS Target” means (i)
US$3.00 for the fiscal year of 2009, as adjusted from time to time to reflect
any Adjustment Event that occurred during the period commencing from the Closing
until the end of fiscal year of 2009, or (ii) US$4.30 for the fiscal year of
2010, as adjusted from time to time to reflect any Adjustment Event that
occurred during the period commencing from the Closing until the end of fiscal
year of 2010.

       

      “Equity Securities”
means, with respect to any Person, any class of capital stock of, or other
profit or voting interests in such Person, and all securities convertible into
or rights to purchase capital stock of or such interests in such Person, if any,
including any Equity Security Equivalent and any and all other equity securities
of such Person or securities convertible into or exchangeable for such
securities or issued as a distribution with respect to or in exchange for such
securities.

       

      “Equity Security
Equivalent” means, with respect to any Person, any security or
obligation, including any debt or preferred stock which is by its terms,
directly or indirectly, convertible into or exchangeable or exercisable for
shares of common stock or other capital stock of such Person, and any option,
warrant or other subscription or purchase right with respect to common stock or
such other capital stock.

       

      “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and all of the rules and
regulations promulgated thereunder.

       

      “Expenses” means the
costs and expenses of a party in connection with this Agreement and any other
Operative Agreement and the transactions contemplated hereby and thereby,
including all out-of-pocket expenses (including, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its Affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the other Operative Agreements, and the
transactions contemplated hereby and thereby.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      “Financial Statements”
has the meaning set forth in Section 3.8 below.“Floor Stock Price”
means as of any time of determination, US$24.00, as adjusted from time to time
to reflect any Adjustment Event that occurred during the period commencing from
the Closing until such time of determination.

       

      “Fully Diluted Basis”
means, as of any time of determination, the shares of Common Stock outstanding
at such time assuming the conversion, exchange or exercise of all Equity
Securities outstanding at such date, excluding unissued shares available for
issuance under the Company’s 2009 Stock Incentive Plan and assuming the 2012
Notes are duly repurchased and do not become convertible into Common
Stock.

       

      “GAAP” has the meaning
set forth in Section 3.8 below.

       

      “Government Entity”
has the meaning set forth in Section 3.3 below.

       

      “Group” means the
Company and all its Subsidiaries.

       

      “Group Intellectual
Property” has the meaning set forth in Section 3.10(b)
below.

       

      “Initial Purchase
Price” has the meaning set forth in Section 2.1 below.

       

      “Initial Shareholding
Percentage” has the meaning set forth in Section 2.1 below.

       

      “Irreparable Breach”
has the meaning set forth in Section 10.9(c) below.

       

      “Issuance” means, with
respect to any Person, sell, offer to sell, solicit offers to purchase or sell
any of the Equity Securities of such Person.

       

      “Issuance Price”
means, (i) with respect to any Issuance of Equity Securities other than Equity
Security Equivalents, the purchase price per share of Common Stock in such
Issuance, or (ii) with respect to any Issuance of Equity Security Equivalents,
the lower of (x) the purchase price per share of Common Stock in such Issuance,
and (y) the conversion, exchange or exercise price per share of Common Stock for
the Equity Security Equivalents issued, determined as of the date of such
Issuance.

       

      “knowledge of the
Company” or any other similar term or knowledge qualifier means the
knowledge of any of the directors or
officers of the Company, in each case assuming due inquiry of the employees of
the Company whose job responsibilities would typically put such employees in
possession of the type of information to which the term is intended to
relate.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      “Law” has the meaning
set forth in Section 3.3 below.

       

      "LIBOR" shall mean the
rate per annum calculated as set forth below. With respect to each interest
period, LIBOR shall mean the rate for deposits in United States dollars, for a
period equal to three months, which appears on the Dow Jones Market Service
(formerly known as "Telerate") Page 3750 as of 11:00 a.m., London time, on such
date (rounded upwards to the nearest 1/1,000 of 1%). If such rate does not
appear on Telerate Page 3750 as of 11:00 a.m., London time, on such date, LIBOR
shall be the arithmetic mean of the offered rates (expressed as a percentage per
annum) for deposits in United States dollars for a three-month period that
appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such
date, if at least two such offered rates so appear. If fewer than two such
offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m., London
time, on such date, the Purchasers shall request the principal London office of
any four major reference banks in the London interbank market selected by the
Purchasers to provide such bank's offered quotation (expressed as a percentage
per annum) to prime banks in the London interbank market for deposits in United
States dollars for a three-month period as of 11:00 a.m., London time, on such
date for the amounts of not less than US$1,000,000. If at least two such offered
quotations are so provided, LIBOR shall be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, the Purchasers
shall request any three major banks in New York City selected by the Purchasers
to provide such bank's rate (expressed as a percentage per annum) for loans in
United States dollars to leading European banks for a three-month period as of
approximately 11:00 a.m., New York City time on such date for amounts of not
less than US$1,000,000. If at least two such rates are so provided, LIBOR shall
be the arithmetic mean of such rates. LIBOR shall be determined conclusively by
the Purchasers or its agent (absent manifest error).

       

      “Lien” has the meaning
set forth in Section 3.3 below.

       

      “Material Adverse
Effect” has the meaning set forth in Section 3.4 below.

       

      “New Securities” has
the meaning set forth in Section 8.3(b) below.

       

      “NYSE” has the meaning
set forth in Section 3.19 below.

       

      “NYSE Rules” has the
meaning set forth in Section 3.14 below.

       

      “Operative Agreements”
means the Registration Rights Agreement and this Agreement.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      “Participation Shares”
means the shares of Common Stock issued pursuant to Section 8.3, which shall be
adjusted from time to time to reflect any Adjustment Event that occurred during
the period commencing from the time of issuance of such said Participation
Shares until any time of determination.

       

      “Performance Adjustment
Date” has the meaning set forth in Section 8.5(b) below.

       

      “Performance Adjustment
Event” means the EPS Target for the fiscal year of 2009 or 2010, as
applicable, is greater than the Adjusted EPS for the said year.

       

      “Performance Adjustment
Shares” means the shares of Common Stock issued pursuant to Section 8.5,
which shall be adjusted from time to time to reflect any Adjustment Event that
occurred during the period commencing immediately after the end of the fiscal
year with respect to which the Performance Adjustment Shares are issued until
any time of determination.

       

      “Permitted Issuance”
means any Issuance by the Company:

      
         

        
          	
                   
      

                	
                  (i)

                	
                  the
      Issuance Price of which shall exceed the Adjusted Purchase Price as of the
      time of such Issuance;

                

        

         

        
          	
                   
      

                	
                  (ii)

                	
                  pursuant
      to any stock or equity incentive plan or agreement approved by the Company
      Board;

                

        

         

        
          	
                   
      

                	
                  (iii)

                	
                  to
      any financial institutions in connection with commercial credit
      arrangements, equipment financing or similar
  transactions;

                

        

         

        
          	
                   
      

                	
                  (iv)

                	
                  pursuant
      to a bona fide, firm underwritten public offering of the Company’s
      securities;

                

        

         

        
          	
                   
      

                	
                  (v)

                	
                  in
      connection with a merger, acquisition or
  consolidation;

                

        

         

        
          	
                   
      

                	
                  (vi)

                	
                  to
      any placement agent and/or its designees in connection with any securities
      offering of the Company;

                

        

         

        
          	
                   
      

                	
                  (vii)

                	
                  resulting
      from the application of anti-dilution provisions in respect of any other
      Equity Securities of the Company;

                

        

         

        
          
            
            

          

          
            7

            
              

            

          

          
            
            

          

        

         

        
          	
                   
      

                	
                  (viii)

                	
                  of
      the Reserved Shares;

                

        

         

        
          	
                   
      

                	
                  (ix)

                	
                  pursuant
      to any Adjustment Event or Performance Adjustment Event;
    and

                

        

         

        
          	
                   
      

                	
                  (x)

                	
                  upon
      the exercise or conversion of, any Equity Securities of the Company
      included in this definition of Permitted
  Issuance.

                

        

         

        “Permitted Lien” has
the meaning set forth in Section 3.10(a) below.

         

        “person” or “Person” means an
individual, corporation, partnership, limited partnership, limited liability
company, syndicate, person (including a “person” as defined in Section 13(d)(3)
of the Exchange Act), trust, joint venture, joint stock company, association or
entity or Government Entity or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.

         

        “Purchaser” has the
meaning set forth in the preamble above.

         

        “Purchaser Adjusted
Shareholding Percentage” means, as of any time of determination, the
ratio to be determined by multiplying (i) the Initial Shareholding Percentage by
(ii) a fraction of which (x) the numerator is the aggregate number of Securities
held by the Purchasers and their respective Affiliates as of such time, and (y)
the denominator is the aggregate number of Securities as of such
time.

         

        “Purchaser Party” has
the meaning set forth in Section 10.1 below.

         

        “Registration Rights
Agreement” means that certain Registration Rights Agreement, dated as of
the Effective Date, between the Company and the Purchasers.

         

        “Registration
Statement” has the meaning set forth in Section 6.1(c)
below.

         

        “Relevant Number”
means the number of Participation Shares, Performance Adjustment Shares,
Repurchase Shares, Securities, and Shares, which are subject to the adjustment
for any Adjustment Event from time to time.

         

        “Relevant Price” means
the Adjusted Benchmark Price, the Adjusted Purchase Price, the EPS Targets, the
Floor Stock Price, and the Initial Purchase Price, which are subject to the
adjustment for any Adjustment Event from time to time.

         

        
          
            
            

          

          
            8

            
              

            

          

          
            
            

          

        

         

        “Repurchase Benchmark
Date” has the meaning set forth in Section 8.6.

         

        “Repurchase
Consideration” means, with respect to any portion or all of the
Repurchase Shares the Company is purchasing as of any Repurchase Time, the sum
of Repurchase Principal plus the Repurchase Interest, both as of such Repurchase
Time.

         

        “Repurchase Interest”
means, with respect to any portion or all of the Repurchase Shares the Company
is repurchasing as of any Repurchase Time, the sum of (i) any interest accrued
on the respective Repurchase Principal at the rate of interest equal to the
LIBOR as of the Repurchase Benchmark Date plus 5% per annum, compounded
annually, during the period commencing on the date immediately following the
date on which the Repurchase Notice is mailed or delivered until and including
the earlier of (x) such Repurchase Time, or (y) the close of the 120th day
following the date on which the Repurchase Notice is mailed or delivered, and
(ii) any interest accrued on the respective Repurchase Principal at the rate of
interest equal to the three-month LIBOR as of the Repurchase Benchmark Date (as
specified on liborated.com) plus 10% per annum, for the period commencing on the
date that is 120 days following the date on which the Repurchase Notice is
mailed or delivered until the date of payment for such Repurchase Shares, if
any. Interest shall be computed on the basis of a year having 360 days
(comprised of twelve months each having 30 days) and the actual days
elapsed.

         

        “Repurchase Notice”
has the meaning set forth in Section 8.6(a).

         

        “Repurchase Principal”
means, with respect to any portion or all of the Repurchase Shares the Company
is repurchasing as of any Repurchase Time,

         

        
          	
                   
      

                	
                  (i)

                	
                  in
      the event that any Performance Adjustment Event has occurred, 130% of the
      product of (x) the number of such Repurchase Shares being repurchased and
      paid for by the Company as of such Repurchase Time, which shall be
      adjusted from time to time to reflect any Adjustment Event that occurred
      during the period commencing from Repurchase Benchmark Date until such
      Repurchase Time, and (y) the Adjusted Purchase Price as of such Repurchase
      Time.

                

        

         

        
          	
                   
      

                	
                  (ii)

                	
                  in
      the event that no Performance Adjustment Event has occurred, 100% of the
      product of (x) the number of such Repurchase Shares being repurchased and
      paid for by the Company as of such Repurchase Time, as adjusted from time
      to time to reflect any Adjustment Event that occurred during the period
      commencing from the Repurchase Benchmark Date until such Repurchase Time,
      and (y) the Adjusted Purchase Price as of such Repurchase
      Time.

                

        

         

        
          
            
            

          

          
            9

            
              

            

          

          
            
            

          

        

         

        “Repurchase Shares”
has the meaning set forth in Section 8.6.

         

        “Repurchase Time” has
the meaning set forth in Section 8.6(b).

         

        “Repurchase Triggering
Price” means 130% of the arithmetic mean of the Adjusted Benchmark Prices
during period of fifteen (15) consecutive Trading Days commencing on the third
anniversary of the Closing Date.

         

        “Reserved Shares”
means the shares of Common Stock reserved as of the date hereof which may become
issuable in connection with:

         

        
          	
                   
      

                	
                  (i)

                	
                  the
      2009 Notes and the 2012 Notes;

                

        

         

        
          	
                   
      

                	
                  (ii)

                	
                  the
      2003 Stock Incentive Plan;

                

        

         

        
          	
                   
      

                	
                  (iii)

                	
                  an
      aggregate of 1,045,983 warrants with an average exercise price of $5.06
      per warrant, as described in the Financial Statements for the 2008 fiscal
      year;

                

        

         

        
          	
                   
      

                	
                  (iv)

                	
                  the
      2009 Stock Incentive Plan; and

                

        

         

        
          	
                   
      

                	
                  (v)

                	
                  the
      Issuance to the Purchasers contemplated by the Operative
      Agreements.

                

        

         

        “Rules and
Regulations” means the rules and regulations of the SEC.

         

        “SEC” means the
Securities and Exchange Commission.

         

        “SEC Documents” has
the meaning set forth in Section 3.27 below.

         

        “SEC Filings” has the
meaning set forth in Section 3.27 below.

         

        “Section 16” has the
meaning set forth in Section 9.5 below.

         

        
          
            
            

          

          
            10

            
              

            

          

          
            
            

          

        

         

        “Securities” means the
Shares, the Performance Adjustment Shares, and the Participation Shares, if any,
the number of which shall be adjusted from time to time to reflect any relevant
Adjustment Event pursuant to this Agreement.

         

        “Securities Act” means
the Securities Act of 1933, as amended, and all of the rules and regulations
promulgated thereunder.

         

        “Shares” has the
meaning set forth in recitals above.

         

        “Share Pledge
Agreement” means, the share pledge agreement by and among Mr. Leng
You-Bin, Sequoia Capital China Growth Fund I, L.P. and its Affiliates dated July
28, 2009.

         

        “Shareholding
Percentage” means, as of any time of determination, with respect to any
Person, the ratio of the aggregate number of Securities held by such Person at
such time to the aggregate number of issued and outstanding shares of Common
Stock at such time, determined on a Fully Diluted Basis.

         

        “Subsidiary” of any
entity means another entity, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect at
least a majority of its board of directors or other governing body (or, if there
are no such voting interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first entity.

         

        “Superior Right” means
any right of first refusal or registration right that is, in the good faith
judgment of the Company Board, more favorable than the similar rights granted to
the Purchasers pursuant to this Agreement or any other Operative
Agreement.

         

        “Trading Day” means
any day during which securities are generally eligible for trading on the
NYSE.

         

        “Transfer Agent” has
the meaning set forth in Section 6.2(b) below.

         

        “U.S.” means the
United States of America.

         

        “US$”
means the United States dollars.

         

        
          2. Purchase and Sale of
Securities

           

          2.1           Purchase and Sale. Subject
to and upon the terms and conditions set forth in this Agreement, the Company
agrees to issue and sell to each Purchaser, and each Purchaser hereby agrees to
purchase from the Company, on the Closing Date, the number of Shares set forth
opposite the name of such Purchaser in Exhibit A hereto at a purchase price of
US$30.00 per Share (such price as of the Closing Date, the “Initial Purchase
Price”). The total number of Shares to be purchased upon Closing shall be
2,100,000, representing approximately 8.7% of the shares of the Common Stock on
a Fully Diluted Basis (the “Initial Shareholding
Percentage”). The total purchase price payable by Purchasers for the
Shares that Purchasers are hereby agreeing to purchase is US$63,000,000 (the
“Aggregate Purchase
Price”), which shall have included the portion of purchase price payable
by the Purchasers through converting the principal of the Bridge Loan, with the
amount of US$16,000,000 pursuant to the Bridge Loan Agreement.

           

          
            
              
              

            

            
              11

              
                

              

            

            
              
              

            

          

           

          2.2           Closing. The
closing of the transactions contemplated under this Agreement (the “Closing”) shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 30th
Floor, Tower 2, China World Trade Center, No. 1 Jianguomenwai Avenue, Beijing,
China, at 9:00 AM Beijing time, on August 27, 2009, Beijing Time or at such
other location, date and time as may be agreed upon between the Purchasers and
the Company. At the Closing, the Company shall deliver to the Purchasers the
stock certificates representing the number of Shares purchased by the respective
Purchaser, each to be registered in the name of the respective Purchaser,
against payment of the Aggregate Purchase Price by (1) wire transfer of
immediately available funds of US$47,000,000 to such account or accounts as the
Company shall designate in writing; and (2) conversion of the full principal
amount of US$16,000,000 of the Bridge Loan pursuant to Section 2.5 of the Bridge
Loan Agreement.

           

          3. Representations and
Warranties of the Company. The
Company hereby represents and warrants, as of the Effective Date (except as to
representations or warranties that expressly speak as of a particular date other
than the Effective Date), to each of the Purchasers as follows:

           

          3.1           Incorporation. The
Company has been duly incorporated and is a validly existing corporation in good
standing under the laws of Utah with full power and authority (corporate and
other) to own, lease and operate, as the case may be, its properties and conduct
its business as now conducted; and the Company is duly qualified to transact
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it, or its ownership or leasing of property, or its
employment of employees or consultants therein, makes such qualification
necessary. The Company has not received notification, written or otherwise, that
any proceeding has been instituted in any such jurisdiction, revoking, limiting
or curtailing, or seeking to revoke, limit or curtail, such power and authority
or qualification, and to the Company’s knowledge, no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification.
The Company is in possession of and operating in material compliance with all
approvals, sanctions, orders, clearances, no objections declarations,
qualifications, licenses, permits, certificates, consents, permissions,
authorizations, filings, franchises, registrations, concessions and other
permits (“Approvals”) from all
relevant Government Entity that are material to the conduct of its business, all
of which are valid and in full force and effect. The Company is not in violation
of its articles of incorporation (the “Articles of
Incorporation”) and bylaws (the “Bylaws”), complete
and correct copies of which as in effect on the Effective Date have been filed
by the Company with the SEC.

           

          
            
              
              

            

            
              12

              
                

              

            

            
              
              

            

          

           

          3.2           Subsidiaries. The SEC
Documents disclose all the direct and indirect subsidiaries of the
Company.  Each of the Subsidiaries has been duly incorporated and is
validly existing as a legal person with limited liability and is in good
standing under all Laws of its respective jurisdiction with the legal right,
power and authority (corporate and other) to own or lease, as the case may be,
and to use and operate its properties and to conduct its business in the manner
presently conducted and as described in the SEC Documents.  The
memorandum and articles of association, charter or by-laws or other similar
constituent documents of each of the Subsidiaries complies with the requirements
of all Laws of its respective jurisdiction and are in full force and
effect.  Each of the Subsidiaries is duly qualified to transact
business in each jurisdiction where such qualification is required (by virtue of
its business, ownership or leasing of properties or otherwise); the liability of
the Company in respect of equity interests held in each Subsidiary is limited to
its investment therein.

           

          3.3           Authority. The
Company has all requisite corporate power and authority to enter into the
Operative Agreements and to perform the transactions contemplated hereby and
thereby. The Operative Agreements have been duly authorized and, when executed
and delivered, each of the Operative Agreements will constitute the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally and by general equitable principles. The
execution, delivery and performance of the Operative Agreements and the
consummation of the transactions herein and therein contemplated will not result
in (a) any violation of the Articles of Incorporation or Bylaws of the Company
or (b) the creation of any pledge, lien, encumbrance, mortgage, hypothecation,
charge, security interest, easement, title defect, conditional sale or other
title retention agreement, judgment, interest, equitable interest, setoff or
claim of any kind or nature, whether arising by agreement, Law or otherwise
(“Lien”), other
than a Permitted Lien, upon any assets or property of the Company pursuant to
the terms or provisions of, or will not, in any material respect, conflict with,
result in the breach or violation of, or constitute a breach or violation of any
of the terms and provisions of, or constitute a default under any contract,
agreement, license, understanding, indenture, mortgage, deed of trust, loan
agreement, joint venture, lease (including without limitation any sale and
leaseback arrangement), franchise, permit or other instrument or bond,
debenture, note or other evidence of indebtedness, to which the Company is a
party or by or to which it or its properties (including without limitation all
Group Intellectual Property) or assets are or may be bound or subject (each, a
“Contract”) or
any law, order, ruling, rule, regulation, writ, assessment, injunction, judgment
or decree of any government or governmental court, agency or body, domestic or
foreign, having jurisdiction over the Company or over any of its respective
properties (including without limitation all Group Intellectual Property) or
Contracts (“Government
Entity”) or by or to which they or such of its properties or Contracts
are or may be bound or subject (each, a “Law”). No consent,
approval, authorization or order of or qualification with any Government Entity
is required for the execution, delivery and performance of the Operative
Agreements and the consummation by the Company of the transactions herein and
therein contemplated, except such consents as may be required by NYSE
Rules.

           

          
            
              
              

            

            
              13

              
                

              

            

            
              
              

            

          

           

          3.4           Litigation;
Contracts. Except
as disclosed in the SEC Documents, there are no actions, suits, claims,
investigations or proceedings pending or, to the Company’s knowledge, threatened
to which any member of the Group, or, to the Company’s knowledge, to which any
of its directors or officers is a party, or to which any of its properties
(including without limitation all Group Intellectual Property) or any Contract
may be subject, at law or in equity, before or by any Government Entity which,
individually or in the aggregate, would reasonably be expected to prevent or to
materially impede or delay the consummation of the transactions contemplated by
this Agreement or which would reasonably be expected to have, individually or in
the aggregate, a material adverse effect on or change in the condition
(financial or otherwise), business, properties or results of operations of the
Company and its Subsidiaries taken as a whole (a “Material Adverse
Effect”). There are no Contracts of a character required to be described
or referred to in the SEC Documents, and/or filed as an exhibit to, by the
Securities Act, the Exchange Act or the Rules and Regulations which have not
been accurately described in all material respects in the SEC Documents, and/or
filed as an exhibit to such SEC Documents. Except to the extent disclosed in the
SEC Documents, the Contracts described in the SEC Documents are in full force
and effect and are valid agreements, enforceable by the Company or any
Subsidiary of the Company, as the case may be, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors’ rights generally and by general
equitable principles. No event has occurred, and no circumstances or condition
exists, that (with or without notice or lapse of time) (a) has resulted or is
reasonably likely to result in a breach, default, violation or waiver of any
Contract described in the SEC Documents or any provision thereof; (b) gives or
is reasonably likely to give any party to any such Contract the right to declare
a breach, default or violation of or exercise any remedy under such Contract;
(c) gives or is reasonably likely to give any party to any such Contract the
right to cancel, terminate, modify or be excused from performance of any
obligations under such Contract; or (d) has resulted or is reasonably likely to
result in a violation of any Law or in imposition of any fines, penalties,
damages, injunctions, prohibitions or other sanctions.

           

          3.5           Capitalization. All
outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and have not been issued
in violation of any preemptive right, co-sale right, registration right, right
of first refusal or other rights to subscribe for or purchase securities, and
except as disclosed in the SEC Documents and pursuant to the Share Pledge
Agreement, free and clear of any Lien, other than a Permitted Lien. The
authorized capital stock of the Company consists of 50,000,000 shares of Common
Stock, of which approximately 18,837,888 shares are outstanding on the date
hereof. Except for the Reserved Shares or such rights that have been expressly
waived, there are no existing options, warrants, calls, preemptive (or similar)
rights, subscriptions or other rights, agreements, arrangements or commitments
of any character obligating the Company to issue, transfer or sell, or cause to
be issued, transferred or sold, any Equity Securities of the Company, and there
are no outstanding contractual obligations of the Company to repurchase, redeem
or otherwise acquire any shares of its capital stock or other equity
interests.  There are no voting agreements or other similar
arrangements with respect to the Common Stock to which the Company is a party.
The description of the Company’s stock option plans, employee stock purchase
plans or similar arrangements, and the options or other rights granted and
exercised thereunder, set forth in the SEC Documents accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights. Except as described in the SEC Documents or as
have been expressly waived, no person or entity has the right to require the
Company to register any securities of the Company under the Securities Act,
whether on a demand basis or in connection with the registration of securities
of the Company for its own account or for the account of any other person or
entity. The issuance and sale of the Securities hereunder will not obligate the
Company to issue shares of Common Stock or other securities to any other person
or entity (other than the Purchasers) and, will not result in the adjustment of
the exercise, conversion, exchange or reset price of any outstanding security.
Except as disclosed in the SEC Documents and pursuant to the Share Pledge
Agreement, all of the shares of capital stock of any Subsidiary directly or
indirectly owned by the Company are owned free and clear of any Liens, other
than Permitted Liens.  Each of the outstanding shares of capital stock
of each of the Subsidiaries has been duly authorized and validly issued and is
fully paid or credited as fully paid and not subject to unpaid
calls.  None of the outstanding shares of capital stock or ownership
interests in any Subsidiary was issued in violation of preemptive right, co-sale
right, registration right, right of first refusal or other similar rights of any
security holder of such Subsidiary and there are no outstanding rights, warrants
or options to acquire, or instruments convertible into or exchangeable for, any
shares of capital stock of, or direct or indirect interests in, any
Subsidiary.

           

          
            
              
              

            

            
              14

              
                

              

            

            
              
              

            

          

           

          3.6           Authorization. The
Securities have been duly and validly authorized for issuance and sale to the
Purchasers pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable, and will be
sold free and clear of any Lien. No approval or authorization of any
shareholder, the board of directors of the Company (the “Company Board”) or
others is required for the issuance and sale of the Securities, except the
approval by the Company Board of the transactions as contemplated hereby in this
Agreement and any other Operative Agreement. The Company and the
Company Board have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Laws of the State of Utah, the
Company’s organizational documents and any other agreement to which the Company
is bound, which is or could become applicable to any of the Purchasers as a
result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and the Purchasers’
respective ownership of the Securities.  The Company does not have a
shareholder rights plan or other “poison pill” arrangement.

           

          3.7           Auditors. The
Company Auditor whose report on the audited financial statements of the Company
is filed with the SEC in the Company’s annual report for the fiscal year ended
December 31, 2008 on Form 10-K, as amended is an independent registered public
accounting firm as required by the Rules and Regulations. To the Company’s
knowledge, the Company Auditor has not engaged in any “prohibited activities”
(as defined in Section 10A of the Exchange Act) on behalf of the
Company.

           

          3.8           Financial
Statements. The
financial statements of the Group contained in the SEC Documents, together with
the related schedules and notes (the “Financial
Statements”): (a) present fairly the financial position of the Group as
of the dates indicated and the results of operations and cash flows of the Group
for the periods specified; (b) have been prepared in compliance with
requirements of the Securities Act, the Exchange Act and the Rules and
Regulations, as applicable, and in conformity with generally accepted accounting
principles in the United States (“GAAP”) applied on a
consistent basis during the periods presented and present fairly the information
required to be stated therein; and (c) describe accurately the controlling
principles used to form the basis for their presentation. There are no financial
statements (historical or pro forma) and/or related schedules and notes that are
required to be included in the SEC Filings that are not included as required by
the Securities Act, the Exchange Act and/or the Rules and
Regulations.  Except as set forth in the Financial Statements, the
Group has no material liabilities, contingent or otherwise, other than
liabilities incurred in the ordinary course of business subsequent to March 31,
2009, and liabilities of the type not required under GAAP to be reflected in the
Financial Statements.

           

          
            
              
              

            

            
              15

              
                

              

            

            
              
              

            

          

           

          3.9           No
Changes.
Subsequent to March 31, 2009, except as described in the SEC Documents, there
has not been (a) any change, development or event that would reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Effect, (b) any transaction that is material to any member of the Group, (c) any
obligation, direct or contingent, that is material to any member of the Group
incurred by such member of the Group, (d) any material change in the capital
stock or outstanding indebtedness of the Group (except the change in the
outstanding indebtedness of the Group due to the repurchase or repayment of 2012
Notes), (e) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company, (f) any loss or damage (whether or not
insured) that has been sustained or will have been sustained that would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, (g) any waiver by the Group member of a material right or of a
material debt owed to it, (h) any sale, assignment or transfer of any Group
Intellectual Property or (i) any arrangement or commitment by the Group member
to do any of the acts described in subsections (a) through (h)
above.

           

          3.10           Property

           

          (a)         Except
as set forth in the SEC Documents: (i) the Group has good and marketable title
to all properties and assets as described in the SEC Documents as owned by it
free and clear of any Lien, except for Permitted Liens; and (ii) the Group has
valid and enforceable leases, including without limitation any leases that are
the subject of any sale and leaseback arrangement, for all properties as
described in the SEC Documents as leased by it, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors’ rights generally and by general
equitable principles. Except as set forth in the SEC Documents, the Group
owns or leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted. A “Permitted Lien” means
(i) any Liens for taxes not yet due, (ii) any mechanics Lien or similar Lien for
labor, materials or supplies incurred in the ordinary course of business for
amounts that are not delinquent, (iii) any Lien that may arise by operation of
Law, and (iv) any Lien that individually, or when aggregated with any other
Liens, is not material.

           

          
            
              
              

            

            
              16

              
                

              

            

            
              
              

            

          

           

          (b)         Except
as described in the SEC Documents, to the Company’s knowledge, the Group owns or
has valid, binding and enforceable licenses or other rights to use the patents
and patent applications, inventions, copyrights, trademarks, service marks,
trade names, service names, technology or know-how (including trade secrets and
other unpatented and/or unpatentable proprietary rights) necessary to conduct
its business in the manner described in the SEC Documents (collectively, the
“Group Intellectual
Property”). The Group Intellectual Property is free and clear of any
Lien, except for Permitted Liens. No member of the Group is obligated to pay a
royalty, grant a license or provide other consideration to any third party in
connection with the Group Intellectual Property other than as disclosed in the
SEC Documents. Except as disclosed in the SEC Documents (i) no member of the
Group has received any notice claiming infringement, misappropriation, or other
conflict with asserted intellectual property rights of others resulting from the
conduct of the business of the Group, and (ii) no third party, including any
academic or governmental organization, possesses rights to the Group
Intellectual Property which, if exercised, would enable such party to develop
products competitive to those of the Group. The Company has not received any
notice and has no knowledge of (x) any actual or potential infringement,
misappropriation or other violation by others of the Group Intellectual Property
or (y) any intellectual property of others that potentially conflicts or
interferes with the Group Intellectual Property. To the Company’s knowledge, no
claim of any patent or patent application (assuming the claims of patent
applications issue as currently pending) included in the Group Intellectual
Property is unenforceable or invalid. The Group takes reasonable measures to
protect the confidentiality of trade secrets and other confidential and
proprietary information, including requiring all persons having access thereto
to execute written non-disclosure agreements. Except as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
(i) the Group has at all times complied with all applicable Laws, as well as its
own rules, policies, and procedures, relating to privacy, data protection, and
the collection and use of personal information collected, used, or held for use
by the Group, (ii) no claims have been asserted or, to the Company’s knowledge,
threatened against the Group alleging a violation of any privacy or personal
information or data rights, and (iii) the Group takes reasonable measures to
ensure that such information is protected against unauthorized access, use,
modification, or other misuse.

           

          3.11           Tax
Returns. The
Group has accurately prepared and filed all U.S. federal, state, local and
foreign tax returns required to be filed by it. All taxes shown to be due and
payable on such returns, any assessment received, and all other taxes due and
payable by the Company have been paid or will be paid prior to the time they
become delinquent, or due provision has been made therefor.  All tax
liabilities of the Group has been adequately and properly provided for on the
books and accounts of the Company. Since the completion of the Company’s
acquisition of 100% of the issued and outstanding capital stock of American
Flying Crane, Inc., a Delaware corporation, on May 7, 2003, the federal
income tax returns of the Company have not been audited by the Internal Revenue
Service. No deficiency assessment or proposed adjustment of the Company’s income
taxes is pending by any federal, state, local or foreign taxation authority and
the Company has no knowledge of any proposed liability for any tax to be imposed
upon the properties of the Company for which the Company has not established
adequate reserves which are reflected on the Financial Statements.

           

          3.12           Transfer
Taxes. On the
Closing Date, all stock transfer or other taxes (other than income taxes) which
are required to be paid in connection with the sale and transfer of the Shares
to the Purchasers will be, or will have been, fully paid or provided for by the
Company and all Laws imposing such taxes will be or will have been fully
complied with.

           

          3.13           Internal
Controls. Except
as disclosed in the SEC Documents, the Company has established and maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that: (a) transactions are executed in accordance with management’s
general or specific authorization; (b) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP in the United
States and to maintain accountability for assets; (c) access to assets is
permitted only in accordance with management’s general or specific
authorization; (d) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences; and (e) financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP are
reliable.

           

          
            
              
              

            

            
              17

              
                

              

            

            
              
              

            

          

           

          3.14           Audit
Committee. The
Company Board has validly appointed an audit committee whose composition
satisfies the requirements of the applicable listing and corporate governance
rules and regulations of the NYSE (the “NYSE Rules”) and the
Company Board and/or such audit committee has adopted a charter that satisfies
the requirements of the NYSE Rules.

           

          3.15           Disclosure
Controls. Except
as disclosed in the SEC Documents, the Company has established and maintains
disclosure controls and procedures (as such term is defined in Rules 13a-15 and
15d-15 under the Exchange Act). Except as disclosed in the SEC Documents, since
the date of the most recent evaluation by the Company’s certifying officers of
such disclosure controls and procedures, there have been no significant changes
in internal controls or in other factors that could significantly affect
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses. Except as disclosed in the SEC Documents,
the Company is in compliance with all provisions currently in effect and
applicable to the Company of the Sarbanes-Oxley Act of 2002, and all rules and
regulations promulgated thereunder or implementing the provisions
thereof.

           

          3.16           Insurance. The
Group maintains insurance with insurers of recognized financial responsibility
of the types and in the amounts it reasonably believes to be adequate for its
business and consistent with insurance coverage maintained by similar companies
in similar businesses, including, but not limited to, insurance covering the
acts and omissions of directors and officers, real and personal property owned
or leased by the Group against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against, all of which insurance is in full
force and effect; and the Company has no reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not reasonably be expected to have a
Material Adverse Effect.

           

          3.17           Losses. The
Company has not sustained since March 31, 2009 any material losses or
interferences with its business from fire, explosion, flood or other calamity or
natural disaster, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree.

           

          3.18           Labor
Disputes. No
dispute with the directors and no dispute, work stoppage, slow down or other
conflict with the employees (or any trade union or other body representing all
or any of such employees), consultants or agents of the Company or any of the
Subsidiaries exists or has been threatened or, to the Company’s knowledge, is
imminent. No collective bargaining agreement exists with any of the Company’s
employees and, to the Company’s knowledge, no such agreement is
imminent.

           

          
            
              
              

            

            
              18

              
                

              

            

            
              
              

            

          

           

          3.19           NYSE. The
Common Stock is registered pursuant to Section 12(b) of the Exchange Act and is
listed on the New York Stock Exchange Inc. (the “NYSE”), and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the NYSE. Except as disclosed in the SEC
Documents, the Company has not received any notification that the SEC or the
NYSE is contemplating terminating such registration or listing. The Company is
in compliance with all corporate governance requirements of the NYSE. The
Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.

           

          3.20           Investment Company, PFIC and
CFC. The
Company is not and, after giving effect to the sale of the Securities, will not
be an “investment company” or an entity “controlled” by an “investment company,” as
such terms are defined in the Investment Company Act of 1940, as amended, and
the regulations promulgated thereunder, or a “passive
foreign investment company” or a “controlled foreign
corporation” as such terms are defined in the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder..

           

          3.21           Offering
Materials. Other
than the SEC Documents and in connection with the Operative Agreements, the
Company has not distributed any offering materials in connection with the
offering and sale of the Securities. The Company has not in the past made,
effected or otherwise engaged in any Issuance which would require that the
offer, issuance or sale of the Securities, as contemplated by this Agreement, be
registered under the Securities Act.

           

          3.22           No Manipulation of
Stock. Neither
the Company nor any of its Affiliates has taken, directly or indirectly, any
action designed to or which has constituted or which would reasonably be
expected to cause or result, under the Exchange Act or otherwise, in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.

           

          3.23           Employment
Matters. Except
as disclosed in the SEC Documents, (a) no directors or executive officers of the
Company or any of the Subsidiaries have given or been given notice terminating
their contracts of employment; and (b) none of the Company nor any of the
Subsidiaries has outstanding any past-due undischarged liability to pay to any
Government Entity in any jurisdiction any taxation, contribution or other impost
arising in connection with the employment or engagement of directors, employees
or consultants by it.  Except as disclosed in the SEC Documents, each
of the Company and the Subsidiaries has complied in all material respects with
all applicable Laws regarding, and the terms and conditions of, such directors’
or officers’ contracts of employment.

           

          3.24           Environmental. (a)
each of the Company and the Subsidiaries (i) is in compliance with any and all
applicable Laws relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”);
(ii) has obtained all Approvals required of them under applicable Environmental
Laws to conduct their respective businesses, and (iii) all such Approvals remain
in full force and effect; (b) there are no proceedings that are ongoing, pending
or that, to the Company’s knowledge, are threatened, against the Company or any
of the Subsidiaries under any Environmental Laws; (c) to the Company’s
knowledge, there are no circumstances which require or would reasonably be
expected to require the Company or any of the Subsidiaries to incur any material
expenditures under any Environmental Law; and (d) there are no material costs or
liabilities associated with any Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws, or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties) which would, individually or in the aggregate,
result in a Material Adverse Effect.

           

          
            
              
              

            

            
              19

              
                

              

            

            
              
              

            

          

           

          3.25           Outstanding Loans to
Officers or Directors; Related Party Transactions. Except
as disclosed in the SEC Documents, there are no outstanding loans, advances
(except normal advances for business expenses in the ordinary course of
business) or guarantees of indebtedness by the Company to or for the benefit of
any of the officers or directors of the Company or any of the members of the
families of any of them. No transaction has occurred between or among the
Company and its Affiliates, officers or directors or any Affiliate or Affiliates
of any such officer or director that is required to be described in the SEC
Documents that is not so described.

           

          3.26           Compliance. The
Company and its Subsidiaries are conducting their respective businesses in the
manner described in the SEC Documents and are in compliance with all applicable
Laws and Approvals. To the knowledge of the Company, none of the Company nor any
Subsidiary has been threatened to be charged with or given notice of any
material violation of, all applicable Laws and Approvals.

           

          3.27           SEC
Documents. The
Company has made available to Purchasers (through the SEC’s website at http://www.sec.gov or
otherwise), a true and complete copy of the Company’s registration statement on
Form S-1 which became effective on June 30, 2009, the Prospectus dated June 30,
2009 and the Prospectus Supplement dated July 24, 2009, and each current report
on Form 8-K (except for the information deemed to be furnished and not filed
therewith) and the definitive proxy statement filed by the Company with the SEC
during the period commencing on July 24, 2009 and ending on the date hereof. The
Company will, promptly upon the filing thereof, also make available to the
Purchasers all Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
filed by the Company with the SEC during the period commencing on the date
hereof and ending on the Closing Date (all such materials required to be
furnished to the Purchasers pursuant to this sentence or pursuant to the
immediately preceding sentence of this Section 3.27 being called, as amended
through the date hereof, and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference therein
collectively, the “SEC
Documents”). Except as disclosed in the SEC Documents, the Company has
filed in a timely manner all documents that the Company was required to file
under the Exchange Act during the period commencing from January 1st, 2008
until and including the Effective Date (the “SEC Filings”). As of
the respective filing dates or as of the date of any subsequent amendment in the
case of the SEC Filings that have been amended, the SEC Filings complied with
the requirements of the Exchange Act, the Securities Act and the Rules and
Regulations, as applicable, and none of the SEC Filings contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. All of
the SEC Filings have been filed on a timely basis since April 15,
2009.

           

          
            
              
              

            

            
              20

              
                

              

            

            
              
              

            

          

           

          3.28           Brokers, Finders, and
Placement Agents. Except
as has been disclosed to the Purchasers in writing, the Company has not dealt
with any broker, finder or placement agent in connection with the transactions
contemplated by this Agreement or any similar transaction, and the Company has
not incurred, and shall not incur, directly or indirectly, any liability for any
brokerage or finders’ fees or agents’ commissions or any similar charges in
connection with this Agreement or any transaction contemplated
hereby.

           

          3.29           No Integrated
Offering. Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made, effect or engage in any Issuance under
circumstances within the prior six months that would require registration under
the Securities Act of the issuance of the Securities to the
Purchasers.

           

          3.30           No General
Solicitation. Neither
the Company nor any person acting for the Company has conducted any “general
solicitation” (as such term is defined in Regulation D) with respect to any of
the Securities being offered and sold hereby. The Company will not distribute
any offering material in connection with the sale of the Securities prior to the
Closing Date, other than the Operative Agreements and the SEC
Documents.

           

          3.31           Private
Placement. The
offer, sale and issuance of the Securities to the Purchasers as contemplated
hereby does not require registration under the Securities Act.

           

          3.32           Disclosures. Neither
the Company nor any person or entity acting on its behalf has provided the
Purchasers or their respective agents or counsel with any information that
constitutes material, non-public information, other than information relating to
the terms of the transactions contemplated by the Operative Agreements and the
Bridge Loan Agreement and the transactions contemplated thereby, except as has
been provided pursuant to that the confidentiality agreement by and between the
Company and the Sequoia Capital China Advisors (Hong Kong) Limited dated March
27, 2009.

           

          3.33           SEC
Investigation. The SEC has advised the Company that its
investigation involving the Company, which commenced in September 2007, has
been completed. The SEC did not intend to recommend, and to the knowledge of the
Company, the SEC has not recommended, any enforcement action in relation thereto
against the Company. To the knowledge of the Company, there is no other SEC
investigation, enforcement or disciplinary action involving the
Company.

           

          3.34           OFAC. Neither the
Company nor, to the knowledge of the Company, any director, officer, agent,
employee, Affiliate or Person acting on behalf of the Company is currently
subject to any U.S. sanctions administered by the Office of Foreign Assets
Control of the U.S. Treasury Department (“OFAC”); and the
Company will not directly or indirectly use the proceeds of the sale of the
Securities, or lend, contribute or otherwise make available such proceeds to any
Subsidiary, joint venture partner or other Person or entity, towards any sales
or operations in any country sanctioned by OFAC or for the purpose of
financing the activities of any person currently subject to any U.S. sanctions
administered by OFAC.

           

          
            
              
              

            

            
              21

              
                

              

            

            
              
              

            

          

           

          4.  Representations and
Warranties of the Purchasers. The
Purchasers jointly and severally represents and warrants to the Company as
follows:

           

          4.1           Authorization.  Each
Purchaser has all requisite power and authority to enter into the Operative
Agreements and to perform the transactions contemplated hereby and
thereby.  When executed and delivered, each of the Operative
Agreements will constitute the legal, valid and binding obligation of each
Purchaser, enforceable against such Purchaser in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors’ rights
generally and by general equitable principles.

           

          4.2           Investor Status;
Etc. Each
Purchaser certifies and represents to the Company that it is now, and at the
time such Purchaser acquires any of the Securities, such Purchaser will be, an
“Accredited Investor” as defined in Rule 501 of Regulation D promulgated under
the Securities Act. Each Purchaser has received, reviewed and considered all
information it deems necessary in making an informed decision to make an
investment in the Securities and has been afforded the opportunity to ask
questions of and receive answers from the management of the Company concerning
this investment and has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company’s stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company.  Such due diligence investigation conducted by the Purchasers
or any of their advisors or representatives does not modify, amend or affect
Purchasers’ right to rely on the Company’s representations and warranties
contained in Section 3 of this Agreement.

           

          4.3           Shares Not
Registered. Each
Purchaser understands that the Securities have not been registered under the
Securities Act, by reason of their issuance by the Company in a transaction
exempt from the registration requirements of the Securities Act, and that the
Securities must continue to be held by Purchasers unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration.

           

          4.4           No
Conflict. The
execution, delivery and performance of this Agreement and the other Operative
Agreements by each Purchaser and the consummation of the transactions
contemplated hereby and thereby will not conflict with or result in any
violation of (a) any provision of the organizational documents of such
Purchaser, or (b) any Law applicable to such Purchaser except, in the case of
the foregoing clauses (b), such conflicts or violations would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
such Purchaser’s ability to consummate the transactions contemplated by this
Agreement.

           

          4.5           No Public
Offering. None of
the Purchasers has received any information relating to the Securities or the
Company, and is purchasing the Securities as a result of, any form of general
solicitation or general advertising, including but not limited to, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio or
pursuant to any seminar or meeting whose attendees were invited by any general
solicitation or general advertising.

           

          
            
              
              

            

            
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          5. Conditions
Precedent

           

          5.1           Conditions to the Obligation
of the Purchasers to Consummate the Closing. The
obligation of the Purchasers to consummate the Closing and to purchase and pay
for the Securities being purchased by it pursuant to this Agreement is subject
to the satisfaction or written waiver of the following conditions
precedent:

           

          (a)         No
Company Shareholder Approval shall be required for any transaction contemplated
hereby in this Agreement or in other Operative Agreements.

           

          (b)         The
representations and warranties of the Company contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date; provided, that any
representation or warranty that addresses a matter as of a particular date shall
remain true and correct in all material respects as of such date; and provided, further, however,
that if any such representation or warranty shall be subject to a qualification
as to materiality, such qualified representation and warranty shall be true and
correct in all respects at the Closing Date (unless the representation or
warranty address a matter as of a particular date, in which case it shall remain
true and correct in all respects as of such date).

           

          (c)         The
Company shall have performed in all material respects all covenants herein
required to be performed or observed by the Company on or prior to the Closing
Date.

           

          (d)         No
proceeding challenging this Agreement or the transactions contemplated hereby,
or seeking to prohibit, alter, prevent or materially delay the Closing, shall
have been instituted before any Government Entity and shall be
pending.

           

          (e)         No
preemptive right, co-sale right, right of first refusal or other similar right
of shareholders exists with respect to any of the Securities or the issuance and
sale thereof, other than those that have been expressly waived prior to the
Closing Date.

           

          (f)         The
purchase of and payment for the Securities by the Purchasers shall not be
prohibited by any Law. All necessary consents, approvals, licenses, permits,
orders and authorizations of, or registrations, declarations and filings with,
any Government Entity or of any other person with respect to any of the
transactions contemplated hereby shall have been duly obtained or made and shall
be in full force and effect.

           

          (g)         No
stop order or suspension of trading shall have been imposed by the NYSE, the SEC
or any other Government Entity with respect to public trading in the Common
Stock.

           

          
            
              
              

            

            
              23

              
                

              

            

            
              
              

            

          

           

          (h)         All
instruments and corporate proceedings in connection with the transactions
contemplated by this Agreement to be consummated at the Closing shall be
reasonably satisfactory in form and substance to the Purchasers, the Purchasers
shall have received an opinion of legal counsel to the Company substantially in
the form of Exhibit
B
attached hereto, and the Purchasers shall have received such certificates of the
Company’s officers as the Purchasers may have reasonably requested in connection
with such transactions.

           

          (i)         The
Company shall have executed the Registration Rights Agreement, in the form
attached hereto as Exhibit C.

           

          (j)         Neither
any due diligence investigation by the Purchasers nor any other document
delivered to the Purchasers as contemplated by this Agreement, shall have
revealed any facts or circumstances which, in the sole and exclusive judgment of
the Purchasers, reflect in a material adverse way on the consolidated financial
condition, businesses, results of operations, liquidity or prospects of the
Group.

           

          (k)         The
Chairman of the Company Board shall deliver to the Purchasers at the Closing a
certificate certifying that the conditions specified in this Section 5.1(a)
through Section 5.1(g) have been fulfilled.

           

          (l)         The
appointment to the Company Board of Neil Shen or another representative
designated by the Purchasers reasonably acceptable to the Company Board and its
Nominating/Corporate Governance Committee shall have become
effective.

           

          5.2           Conditions to the Obligation
of the Company to Consummate the Closing. The
obligation of the Company to consummate the Closing and to issue and sell to the
Purchasers the Securities to be purchased by it at the Closing is subject to the
satisfaction or written waiver of the following conditions
precedent:

           

          (a)         The
representations and warranties contained herein of the Purchasers shall be true
and correct on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date.

           

          (b)         The
Purchasers shall have performed in all material respects all covenants herein
required to be performed or observed by the Purchasers on or prior to the
Closing Date.

           

          (c)         No
proceeding challenging this Agreement or the transactions contemplated hereby,
or seeking to prohibit, alter, prevent or materially delay the Closing, shall
have been instituted before any Government Entity and shall be
pending.

           

          
            
              
              

            

            
              24

              
                

              

            

            
              
              

            

          

           

          (d)         The
sale of the Securities by the Company shall not be prohibited by any Law. All
necessary consents, approvals, licenses, permits, orders and authorizations of,
or registrations, declarations and filings with, any Government Entity or of any
other person with respect to any of the transactions contemplated hereby shall
have been duly obtained or made and shall be in full force and
effect.

           

          (e)         The
Purchasers shall have executed the Registration Rights Agreement, in the form
attached hereto as Exhibit C.

           

          6. Transfer,
Legends.

           

          6.1           Securities Law Transfer
Restrictions.

           

          (a)         Each
Purchaser understands that the Securities have not been registered under the
Securities Act or any state securities laws, and each Purchaser agrees that it
will not dispose of the Securities unless (a) the resale of the Securities is
registered under the Securities Act, or (b) such registration is not required
under the Securities Act or any applicable state securities law due to the
applicability of an exemption therefrom. In that connection, each Purchaser is
aware of Rule 144 under the Securities Act and the restrictions imposed
thereby.

           

          (b)         Each
Purchaser acknowledges that no action has been or will be taken in any
jurisdiction outside the United States by the Company that would permit an
offering of the Securities, or possession or distribution of offering materials
in connection with the issue of the Securities, in any jurisdiction outside of
the United States where action for that purpose is required.

           

          (c)         Each
Purchaser hereby covenants with the Company not to make any sale of the
Securities without complying with the provisions of the Operative Agreements and
each Purchaser acknowledges that the certificates evidencing the Securities will
be imprinted with a legend that prohibits their transference except in
accordance therewith. Each Purchaser acknowledges that there may occasionally be
times when the Company, based on the advice of its counsel, determines that it
must suspend a registration statement (a “Registration
Statement”) registering the Securities, until such time as an amendment
to a Registration Statement has been filed by the Company and declared effective
by the SEC or until the Company has amended or supplemented such
Prospectus.

           

          
            
              
              

            

            
              25

              
                

              

            

            
              
              

            

          

           

          6.2           Legends.

           

          (a)         
Each certificate representing any of the Securities shall be endorsed with the
legends set forth below, and each Purchaser covenants that, except to the extent
such restrictions are waived by the Company, it shall not transfer the shares
represented by any such certificate without complying with the restrictions on
transfer described in this Agreement and the legends endorsed on such
certificate:

           

          “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER SAID ACT AND, IF REQUESTED BY THE COMPANY IN CONNECTION WITH
SUCH A DISPOSITION PURSUANT TO AN EXEMPTION, UPON DELIVERY OF AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER IS
EXEMPT FROM SAID ACT.”

           

          (b)         Upon
the earlier of (i) registration for resale pursuant to the Registration Rights
Agreement or (ii) the date that the Purchasers may resell a Security pursuant to
Rule 144 without volume or manner restrictions, the Company shall (A) deliver to
the transfer agent for the Common Stock (the “Transfer Agent”)
irrevocable instructions that the Transfer Agent shall reissue the certificates
representing shares of Common Stock held by each Purchasers without legends upon
receipt by such Transfer Agent of the legended certificates for such shares,
together with, if the sale is being made pursuant to Rule 144, a completed
certification on the Company’s standard form from such Purchasers regarding the
applicability of Rule 144, and (B) cause its counsel to deliver to the Transfer
Agent one or more blanket opinions to the effect that the removal of such
legends in such circumstances may be effected under the Securities Act. From and
after the earlier of such dates, upon such Purchaser’s written request, the
Company shall promptly, and in any event within five (5) Business Days of
receipt of such certificates, cause certificates evidencing such Purchaser’s
Securities to be replaced with certificates which do not bear such restrictive
legends. When the Company is required to cause an unlegended certificate to
replace a previously issued legended certificate, if: (1) the unlegended
certificate is not delivered to such Purchaser within five (5) Business Days of
submission by such Purchaser of a legended certificate and supporting
documentation to the Transfer Agent as provided above and (2) prior to the time
such unlegended certificate is received by such Purchaser, such Purchaser, or
any third party on behalf of such Purchaser or for such Purchaser’s account,
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Purchaser of shares represented by
such certificate (a “Buy-In”), then the
Company shall pay in cash to such Purchaser (for costs incurred either directly
by such Purchaser or on behalf of a third party) the amount by which the total
purchase price paid for Common Stock as a result of the Buy-In (including
brokerage commissions, if any) exceeds the proceeds received by such Purchaser
as a result of the sale to which such Buy-In relates. The Purchaser shall
provide the Company written notice indicating the amounts payable to such
Purchaser in respect of the Buy-In. The Company shall pay all transfer agent
fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchaser.

           

          
            
              
              

            

            
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          7. Termination.

           

          7.1           Termination.  This
Agreement may be terminated and the transactions contemplated hereunder
abandoned at any time prior to the Closing only as follows:

           

          (a)         by
any Purchaser, with respect to such Purchaser, if the Company (x) breaches
or fails in any material respect to perform or comply with any of their
covenants and agreements contained herein or (y) breaches its
representations and warranties, which in either case would have a Material
Adverse Effect; or

           

          (b)         by
any Purchaser, with respect to such Purchaser, if there has been any breach of
any representation or warranty or any material breach of any agreement or
covenant of the Company contained herein and the same has not been cured within
fifteen (15) days after notice thereof; or

           

          (c)         by
a Purchaser, with respect to such Purchaser, if (x) all conditions to Closing
set forth in Sections 5.1 and 5.2 of this Agreement have been satisfied, (y) the
Purchasers have tendered an irrevocable offer to the Company to purchase the
Securities in accordance with the Operative Agreements by August 31, 2009, and
(z) the Company fails to consummate the Closing and to issue and sell to the
Purchasers the Securities pursuant to this Agreement within three (3) Business
Days of such offer; or

           

          (d)         by
the Company, if there has been any breach of any representation, warranty or any
material breach of any agreement or covenant of any Purchaser contained herein
and the same has not been cured within fifteen (15) days after notice thereof;
or

           

          (e)         by
the Company, if all conditions to Closing set forth in Sections 5.1 of this
Agreement have been satisfied and the Purchasers fail to consummate the Closing
and to purchase and pay for the Securities within three (3) Business Days
following the Closing Date; or

           

          (f)         at
any time by mutual agreement of the Company and the Purchasers.

           

          7.2           Effect of Termination;
Termination Fee.

           

          (a)         Except
as set forth in Section 7.2(b) and Section 7.2(c) below, any termination
pursuant to this Section 7 shall be without liability on the part of any party,
unless such termination is the result of a material breach of this Agreement by
a party to this Agreement in which case such breaching party shall remain liable
for such breach notwithstanding any termination of this Agreement.

           

          (b)         In
the event this Agreement is terminated pursuant to Section 7.1(c) and Section
7.1(b) by any Purchaser, the Company shall pay to such Purchaser, by wire
transfer of immediately available funds, such Purchaser’s pro rata share (based
on the number of Shares set forth opposite the name of such Purchaser in Exhibit A) of the
aggregate sum of US$800,000, which shall be deemed to have included all the
Expenses incurred by the Purchasers.

           

          
            
              
              

            

            
              27

              
                

              

            

            
              
              

            

          

           

          (c)         In
the event this Agreement is terminated pursuant to Section 7.1(e) above by the
Company, the Purchasers shall jointly and severally pay to the Company, by wire
transfer of immediately available funds, the sum of US$800,000, which shall be
deemed to have included all the Expenses incurred by the Company.

           

          8. Purchasers’
Rights

           

          8.1           Board
Representation. (i) The Company shall take all necessary corporate
action, effective as of the Closing Date, to cause Neil Shen as representative
designated by the Purchasers to serve as director on the Company
Board; and (ii) until the earlier of (A) the 3rd Business Day
immediately following the Repurchase Benchmark Date, or (B) the first day
on which the Purchaser Adjusted Shareholding Percentage becomes less than 4.0%,
(1) the Purchasers shall be entitled to nominate one director to the Company
Board, and (2) the Company shall nominate and recommend the election of Neil
Shen or such other nominee to the Company Board (except such nominee that each
member of the Nominating/Corporate Governance Committee reasonably concludes is
unfit to serve as a director to the Company Board) to its shareholders at the
Company’s annual meeting of shareholders, except to the extent that,
with regard to the case of both (i) and (ii) above in this Section, the Company
Board reasonably concludes in good faith, after consultation with, and based on
the advice of its legal advisor that taking such actions would be in breach of
the fiduciary duties of Company’s directors.

           

          8.2           Future
Issuance. The
Company shall not, until the earlier of (i) the 3rd
Business Day immediately following the Repurchase Benchmark Date, or (ii) the
first day on which the Purchaser Adjusted Shareholding Percentage shall become
less than 4.0%, make, effect or otherwise engage in any Issuance without the
prior written consent of a majority in interest of the Purchasers; provided, however, that no
such consent shall be required for the Company to make, effect or engage in any
Permitted Issuance (except for shares issuable pursuant to item (iv) in the
definition of the Permitted Issuances that do not otherwise constitute a
Permitted Issuance, which shall be subject to the consent requirement of this
Section 8.2).

           

          8.3           Participation
Rights.

           

          (a)         Subject
to Section 8.3(f), during the period commencing on the Closing Date and ending
on the earlier of (x) the first anniversary of the Closing Date, or (y) the date
of the completion of an underwritten public offering of the Common Stock, the
Company grants each of the Purchasers a participation right to purchase up to
such person’s pro rata share of New Securities that the Company may, from time
to time, propose to sell or issue after the Closing Date. Such number of pro
rata share of New Securities, for purposes of this participation right, shall be
determined by multiplying the number of New Securities by the Shareholding
Percentage of such person having such participation right contemplated herein
immediately prior to the issuance of New Securities.

           

          (b)         As
used in this Agreement, the term “New Securities” means
any of the Company’s Equity Securities, whether or not now authorized; provided that the term “New
Securities” expressly does not include the shares issuable pursuant to any
Permitted Issuance (except for the shares issuable pursuant to items (i) in the
definition of the Permitted Issuance, which shall be included within the scope
of the New Securities for the purpose of this Section 8.3).

           

          
            
              
              

            

            
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          (c)         If
the Company proposes to issue New Securities, then the Company will give each
Purchaser written notice of the Company’s intention, describing the type of New
Securities, their relevant price information, and the general terms upon which
the Company proposes to issue the New Securities. Each Purchaser will have
fifteen (15) Business Days after any such notice is delivered to agree to
purchase its Participation Shares for the price and upon the terms specified in
the notice by delivering written notice to the Company and stating in such
notice the quantity of New Securities to be purchased (the “Participation
Shares”).

           

          (d)         If
any Purchaser fails to exercise fully the participation right within
fifteen (15) Business Days, then the Company will have 120 days thereafter to
sell the New Securities with respect to which such person’s participation right
specified in this Section 8.3 was not exercised, at a price and upon terms no
more favorable to such purchasers thereof than specified in the Company’s notice
to the Purchasers pursuant to Section 8.3(c). If the Company has not sold such
New Securities within such 120 day period, then the Company will not
thereafter issue or sell any New Securities, without first again offering such
securities to the Purchasers in the manner provided in this Section
8.3.

           

          (e)         Any
Purchaser may designate any of its Affiliates to receive such Purchaser’s
Participation Shares, provided that the Affiliate
(i) is a pooled investment vehicle managed by the same management company,
general partner, or similar fund manager as the Purchaser, and (ii) has made the
representations to the Company set forth in Section 4 of this
Agreement.

           

          (f)         During
the time period commencing six (6) months after the Closing Date and ending two
years from the Closing Date, the Company agrees to use its best efforts to
request that the underwriters in any firm underwritten public offering of the
Company’s Equity Securities allow the Purchasers to participate in such offering
in an amount up to their pro rata share (calculated in accordance with
Section 8.3(a)).

           

          8.4           Superior Rights.
During the one year period commencing on the Closing Date, the Company shall
not, without the prior written consent of the Purchasers, enter into any
agreement with any holder or prospective holder of any Equity Securities of the
Company giving such holder or prospective holder any Superior
Right.

           

          8.5           Performance-linked Valuation
Adjustments. Following the Closing Date, the Company shall issue to the
Purchasers any Performance Adjustment Shares to reflect, and the Initial
Purchase Price shall be adjusted from time to time (such adjusted price, the
“Adjusted Purchase
Price”) to reflect, the occurrence of any Adjustment Event or any
Performance Adjustment Event.

           

          
            
              
              

            

            
              29

              
                

              

            

            
              
              

            

          

           

          (a)         Calculation of the Adjusted Purchase
Price:

           

          
            
              	
                    	
                      (i)

                    	
                      Subject
      to Section 8.5(a)(ii) and Section 8.5(a)(iii) below, the Adjusted Purchase
      Price shall be equal to the Initial Purchase Price upon Closing, and shall
      be adjusted from time to time to reflect the occurrence of any
      Adjustment Event occurring between the Closing and any time of
      determination.

                    

            

          

           

          
            
              	
                    	
                      (ii)

                    	
                      In
      the event that there is a Performance Adjustment Event for the fiscal year
      of 2009, the Adjusted Purchase Price immediately following the last day of
      the fiscal year of 2009 shall be equal to the greater of (a) the product
      of (x) the Adjusted Purchase Price immediately prior to the adjustment for
      the Performance Adjustment Event in 2009 as contemplated in this
      subsection, and (y) a fraction, of which the numerator is the Adjusted EPS
      for the fiscal year of 2009, and the denominator is the EPS Target for the
      fiscal year of 2009, and (b) the Floor Stock
  Price.

                    

            

          

           

          
            
              	
                    	
                      (iii)

                    	
                      In
      the event that there is a Performance Adjustment Event for the fiscal year
      of 2010, the Adjusted Purchase Price immediately following the last day of
      the fiscal year of 2010 shall be equal to the greater of (a) the product
      of (x) the Adjusted Purchase Price immediately prior to the adjustment for
      the Performance Adjustment Event in 2010 as contemplated in this
      subsection, and (y) a fraction, of which the numerator is the Adjusted EPS
      for the fiscal year of 2010, and the denominator is the EPS Target for the
      fiscal year of 2010, and (b) the Floor Stock
  Price.

                    

            

          

           

          (b)         If
any Performance Adjustment Event occurs, the Company shall issue shares of
Common Stock to the Purchasers (such shares issued, “Performance Adjustment
Shares”) in a transaction that does not require registration under the
Securities Act (the date on which such Performance Adjustment Shares are issued,
a “Performance Adjustment Date”).
The total purchase price payable by Purchasers for all the Performance
Adjustment Shares issued with respect to the said year that Purchasers are
hereby agreeing to purchase shall be US$1.00. For the purpose of this Section
8.5, the number of Performance Adjustment Shares to be issued by the Company to
the Purchasers for a Performance Adjustment Event as of the Performance
Adjustment Date shall be equal to the difference of (x) the quotient of the
Aggregate Purchase Price divided by the Adjusted Purchase Price immediately
after the last day of the fiscal year with respect to which the performance
adjustment is made, and (y) the number of the Shares and the Performance
Adjustment Shares, if any, as of the end of the fiscal year with respect to
which the performance adjustment is made, which difference shall be adjusted
from time to time to reflect any Adjustment Event that occurred immediately
following the last day of the said fiscal year until the said time the
Performance Adjustment Shares are to be issued.

           

          
            
              
              

            

            
              30

              
                

              

            

            
              
              

            

          

           

          (c)         The
Company shall use its best efforts to ensure that, (i) each and every
representation and warranty contained in Section 3.6 in this Agreement is true
and correct on and as of the Performance Adjustment Date with the same force and
effect as though made on and as of the Performance Adjustment Date, provided that such
representations and warranties shall be deemed for the purpose of this Section
8.5 to be made only with regard to the Performance Adjustment Shares being
issued on and as of such Performance Adjustment Date; (ii) the other Operative
Agreements are in full force and effect as of such Performance Adjustment Date;
and (iii) the Purchasers shall have received an opinion of legal counsel to the
Company reasonably satisfactory in form and substance to the Purchasers that the
issued Performance Adjustment Shares by the Company has been duly authorized and
such shares will be validly issued, fully paid and nonassessable prior to or on
such Performance Adjustment Date; and (iv) such Performance Adjustment Date
shall be prior to or on the thirtieth (30th) day
following the date on which the Company’s annual report on Form 10-K for the
relevant fiscal year becomes final and available and is filed with
SEC.

           

          8.6           Securities
Repurchase.  In the event that the average of the closing
prices for the Common Stock for the period of fifteen (15) consecutive Trading
Days commencing on the third anniversary of the Closing Date (the Business Day
immediately after such fifteen (15) Trading Day period, the “Repurchase Benchmark Date”), is less
than the Repurchase Triggering Price, the Purchasers shall have the right (but
not an obligation) to cause the Company to repurchase all (but not less than
all) Shares and Performance Adjustment Shares held by the Purchasers and their
respective Affiliates as of the Repurchase Benchmark Date (such shares of Common
Stock eligible for repurchase as of Repurchase Benchmark Date, the “Repurchase Shares”)
and to pay the Repurchase Consideration with respect to all Repurchase
Shares.

           

          (a)         In
the event that the Purchasers elect to cause the Company to repurchase the
Repurchase Shares, the Purchasers shall notify the Company by delivering a
written notice to such effect to the Company within three (3) Business Days
immediately following the Repurchase Benchmark Date (the “Repurchase
Notice”). The rights, privilege or power as conferred by this
Agreement and any other Operative Agreement on such Repurchase Shares shall be
terminated immediately upon the earlier of (i) the time the Purchasers delivered
the Repurchase Notice, provided, however, that with
respect to any unrepurchased and unpaid for Repurchase Shares and for so long as
such Repurchase Shares remain unrepurchased and unpaid for by the Company, the
right to receive payment of the Repurchase Consideration as contemplated in this
Section 8.6 shall remain in full force and effect; and (ii) the expiration of
the three (3) Business Day period immediately following the Repurchase Benchmark
Date.

           

          
            
              
              

            

            
              31

              
                

              

            

            
              
              

            

          

           

          (b)         The
Company may elect to repurchase the Repurchase Shares in whole or in part from
time to time, and shall repurchase all the Repurchase Shares within 120 days
following the date on which the Repurchase Notice is delivered by the
Purchasers. Each time the Company plans to repurchase and pay for the Repurchase
Shares, it shall notify each Purchaser in writing at least five (5) Business
Days prior to such planned time of repurchase (the “Repurchase Time”).
The Company shall cause, prior to the Repurchase Time, the share
certificates representing the aggregate number of unrepurchased Repurchase
Shares to be held by such Purchaser and/or its Affiliates immediately after such
Repurchase Time to replace the previously certificate(s) held by such Purchaser
and/or its Affiliates representing the Repurchase Shares, which the Purchasers
shall tender within three (3) Business Days upon notice by the Company of such
Repurchase Time. The Company shall repurchase the number of Repurchase Shares at
such Repurchase Time as set forth in the respective notice and shall pay the
Repurchase Consideration with respect to such Repurchase Shares by wire
transfer of immediately available funds in United States dollars to such
account or accounts as the Purchasers shall designate.

           

          (c)         Notwithstanding
anything contained herein in this Agreement to the contrary, the rights,
privilege or power attached to any such Securities held by the
Purchasers and their respective Affiliates, as such rights, privilege or
power are generally attached to the shares of the Common Stock and enjoyed by
other shareholders of the Company (including without limitation the right to
receive dividends and any adjustment for Adjustment Events), shall remain in
full force and effect until the Securities are Repurchased and paid for in
accordance with this Section 8.6.

           

          9. Covenants.

           

          9.1           Conduct of
Business.  The
Company agrees that, except as expressly approved by the Purchasers in writing
(which approval shall not be unreasonably withheld or delayed), during the
period between the Effective Date and the Closing Date, the Company (i) shall
operate its business only in the ordinary course of business, shall not
introduce any new method of management or operation and shall use the reasonable
best efforts to preserve its business intact, (ii) shall use the reasonable best
efforts to keep available the services of its current officers, employees and
consultants and (iii) shall use the reasonable best efforts to preserve the
goodwill and present relationships with customers, vendors, distributors,
licensors, licensees, creditors, business partners and others with which the
Company has business relations.  Without limiting the generality of
the first sentence of this Section 9.1, during the period between the Effective
Date through the Closing Date, the Company shall not, except as expressly
required or permitted by the terms of this Agreement, do or propose or agree to
do any of the following without the prior written consent or direction of the
Purchasers:

           

          
            
              
              

            

            
              32

              
                

              

            

            
              
              

            

          

           

          (a)         amend
the Bylaws or Articles of Incorporation, except as contemplated by this
Agreement;

           

          (b)         merge
with or into or consolidate with any other Person; or

           

          (c)         issue
or sell Equity Securities of the Company other than a Permitted
Issuance.

           

          9.2           Consents and
Approvals.

           

          (a)         Subject
to the terms and conditions of this Agreement, each of the parties will use
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable Law
to consummate the transactions contemplated by this Agreement, including
preparing and filing as promptly as practicable all documentation to effect all
necessary filings, notices, petitions, statements, registrations, submissions of
information, applications and other documents necessary to consummate the
transactions contemplated by this Agreement, including, without limitation, any
filings required under the Securities Act, the Exchange Act, any applicable
state or securities or “blue sky” laws and the securities laws of any foreign
country, or under any other Law relating to the transactions contemplated by
this Agreement. Each party will cause all documents that it is responsible for
filing with any Government Entity under this Section 9.2 to comply in all
material respects with all applicable Laws.  Each party shall promptly
supply the other with any information which may be required in order to
effectuate any filings or application pursuant to this Section 9.2.

           

          (b)         Upon
the terms and subject to the conditions set forth herein, each of the parties
agrees to use the reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including using all their respective reasonable
best efforts to accomplish the following: (i) the taking of all reasonable acts
necessary to cause the conditions precedent set forth in Section 5 to be
satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers,
consents, approvals, orders and authorizations from Government Entities and the
making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Government Entities, if any) and
the taking of all necessary steps as may be necessary to avoid any suit, claim,
action, investigation or proceeding by any Government Entity, (iii) the
obtaining of all necessary consents, approvals or waivers from third
parties, and (iv) the execution or delivery of any additional instruments
necessary to consummate the transactions and to fully carry out the purposes of,
this Agreement.  In connection with and without limiting the
foregoing, the Company and the Company Board shall, if any takeover statute or
similar Law is or becomes applicable to this Agreement or any of the
transactions contemplated by this Agreement, use all its respective reasonable
best efforts to ensure that the transactions contemplated by this Agreement may
be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such Law on this Agreement and
the transactions contemplated hereby.

           

          
            
              
              

            

            
              33

              
                

              

            

            
              
              

            

          

           

          9.3           No
Solicitation. At all
times during the period commencing with the execution and delivery of this
Agreement and continuing until the earlier to occur of the termination of this
Agreement and the Closing Date, without the express written consent of the
Purchasers, the Company shall not, and the Company shall use the best efforts to
cause its officers, directors, employees, accountants, counsel, financial
advisors, consultants, financing sources and other advisors or representatives
not to, directly or indirectly, (a) initiate or solicit or knowingly facilitate
or encourage any inquiry or the making of any proposal that constitutes an
Alternative Proposal, (b) enter into any letter of intent, memorandum of
understanding or other agreement, arrangement or understanding relating to any
Alternative Proposal,  (c) continue or otherwise participate in any
discussions or negotiations regarding, furnish to any Person any information or
data with respect to, or otherwise cooperate with or take any other action to
facilitate any proposal that (i) constitutes any Alternative Proposal or (ii)
requires the Company to abandon, terminate or fail to consummate the
transactions contemplated by this Agreement or (d) submit to the shareholders of
the Company for their approval or adoption any Alternative Proposal or any
amendment to the Articles of Incorporation or Bylaws, or agree or publicly
announce an intention to take any of the foregoing actions. [Missing Graphic
Reference]For purposes of this Agreement, “Alternative Proposal”
means any proposal or offer relating to any (A) direct or indirect acquisition
of the Company, (B) merger or consolidation with or involving the Company, (C)
acquisition of any portion of the stock or assets of the Company outside the
ordinary course of business, (D) direct or indirect acquisition by the Company
of any business, (E) joint venture involving the Company, (F) business or
strategic investment by the Company in any business or (G) financing to be
provided to or by the Company, which, in the case of clauses (D)-(G) of this
sentence, would reasonably be expected to prevent or to materially impede or
delay the consummation of the transactions contemplated by this
Agreement.

           

          9.4           No Integration. The
Company has not made, effected or otherwise engaged in any Issuance during the
six months preceding the Effective Date or any Performance Adjustment Date, and
the Company will not make, effect or otherwise engage in any Issuance during the
six months following the Effective Date or any Performance Adjustment Date, that
would be required to be integrated with the offer and sale of the Securities
pursuant to this Agreement so as to require registration of the offer and sale
of the Securities under the Securities Act of 1933, as amended.

           

          9.5           Mergers. The
Company agrees that it will not, prior to the date that is six (6) months from
the Closing Date or any Performance Adjustment Date, consummate a merger or
other consolidation that could result in short swing liability under Section 16
of the Securities Exchange Act of 1934 (“Section 16”) for any
Purchaser; provided,
however, that the foregoing shall not preclude the Company from entering
into a definitive agreement with respect to such merger or other business
combination.

           

          9.6           Corporate
Existence. The
Company shall, so long as the Purchasers beneficially owns any Securities,
maintain its corporate existence in good standing and shall pay all its material
taxes when due except for taxes which the Company reasonably
disputes.

           

          
            
              
              

            

            
              34

              
                

              

            

            
              
              

            

          

           

          9.7           Reservation of Common
Stock.  As
of the Effective Date and from time to time, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive right, co-sale right, registration right, right of first refusal or
other similar right, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue Securities pursuant to this
Agreement.

           

          9.8           Reporting Status; Listing of
Common Stock. The
Company’s Common Stock is registered under Section 12 of the Exchange Act.
Throughout the period during which the Registration Statement (as defined in the
Registration Rights Agreement) is effective, the
Company will use the best efforts to timely file all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC under the
reporting requirements of the Securities Act and the Exchange Act, and the
Company will not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. The Company hereby agrees to use the
best efforts to maintain the listing of the Common Stock on the NYSE, and as
soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list all of the Securities on the NYSE. The Company further agrees, if the
Company applies to have the Common Stock traded on any national securities
exchange other than the NYSE, it will include in such application all of the
Securities, and will take such other action as is necessary to cause all of the
Securities to be listed on such other national securities exchange as promptly
as possible. The Company will use the best efforts to continue the listing and
trading of its Common Stock on the NYSE and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the NYSE. The Company shall use its best efforts to qualify for registration on
Form S-3 or any comparable or successor form or forms. The Company shall comply
with all requirements of the NYSE with respect to the issuance of the
Securities.

           

          9.9           Adjustment for Adjustment
Event. In the event the Company at any time or from time to time
following the Closing to effect a split or subdivision, combination or otherwise
reverse split of its shares of Common Stock, or pay a dividend or otherwise make
a distribution on its shares of Common Stock and proportionately payable in
additional shares of Common Stock without payment of any consideration by such
shareholders, or issue any shares of capital stock of the Company by
reclassification of its Common Stock (the effectuation or completion of any of
such event, an “Adjustment Event”),
the Relevant Prices and the Relevant Numbers shall be adjusted proportionately
immediately following the record date or the effective date of such Adjustment
Event so as to give effect of such Adjustment Event.

           

          9.10           Anti-Corruption. The
Company shall use the best efforts to procure that neither the Company nor any
of its Subsidiaries, or their respective Affiliates, nor any director, officer,
or employee, nor, any agent or representative of the Company or of any of its
Subsidiaries or their respective Affiliates, will take any action in furtherance
of an offer, payment, promise to pay, or authorization or approval of the
payment or giving of money, property, gifts or anything else of value, directly
or indirectly, to any “government official” (including any officer or employee
of a government or government-owned or controlled entity or of a public
international organization, or any person acting in an official capacity for or
on behalf of any of the foregoing, or any political party or party official or
candidate for political office) to influence official action or secure an
improper advantage; and the Company and its Subsidiaries and Affiliates shall
conduct their businesses in compliance with applicable anti-corruption Laws and
will institute and maintain policies and procedures designed to promote and
achieve compliance with such Laws and with the covenants contained
herein.

           

          
            
              
              

            

            
              35

              
                

              

            

            
              
              

            

          

           

          9.11           PFIC and CFC. The Company
shall not be, after giving effect to the transactions contemplated hereby in
this Agreement and in any other Operative Agreements, and shall use the best
efforts to avoid being classified as, a “passive foreign investment
company” or a “controlled foreign corporation” as defined in the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder.

           

          9.12           2009 Notes and 2012
Notes. The Company shall ensure that the 2009 Notes are duly converted or
repaid by October 2, 2009 and that the 2012 Notes are duly repurchased by
October 15, 2009, both pursuant to their respective terms as restructured on
November 12, 2008.

           

          10. Miscellaneous
Provisions.

           

          10.1           Indemnification of
Purchasers. Subject
to the provisions of this Section 10.1, the Company will indemnify and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other persons with a functionally equivalent role
of a person holding such titles notwithstanding a lack of such title or any
other title), each person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, shareholders, agents, members, partners or employees (and
any other persons with a functionally equivalent role of a person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling persons (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other Operative
Documents or any legal, administrative or other proceedings arising out of the
transactions contemplated by this Agreement and any other Operative Agreement.
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party, provided, however, that the failure by
any Purchaser Party to give notice as provided herein shall not relieve the
Company of its obligations under this Section 10.1 unless and to the extent that
the Company shall have been actually prejudiced by the failure of such Purchaser
Party to so notify such party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (x) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (y) to the extent, but only to the extent, that a loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Operative
Documents.

           

          
            
              
              

            

            
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          10.2           Public Statements or
Releases. The
Company shall, by 8:30 a.m. Eastern time on the Business Day following the date
hereof, issue a press release and file a Current Report on Form 8-K, copies of
each of which shall be provided to each Purchaser for review, disclosing the
transactions contemplated hereby and shall make such other filings and notices
in the manner and time required by the SEC. The Company and Purchasers shall
consult with each other in issuing any press releases and/or filing any Current
Reports on Form 8-K or other such SEC Documents with respect to the transactions
contemplated hereby, and none of the parties to this Agreement shall make,
issue, or release any announcement, whether to the public generally, or to any
of its suppliers or customers, with respect to this Agreement or the
transactions provided for herein, or make any statement or acknowledgment of the
existence of, or reveal the status of, this Agreement or the transactions
provided for herein, without the prior consent of the other parties, which shall
not be unreasonably withheld or delayed, provided that nothing in this
Section 10.2 shall prevent any of the parties hereto from making such public
announcements as may be required by applicable Law or NYSE Rule or listing
standard, but to the extent not inconsistent with such requirements, it shall
provide the other parties with an opportunity to review and comment on any
proposed public announcement before it is made; provided further, that
nothing in this Section 10.2 will require a party to obtain consent to disclose
information, which the Company was required to disclose under the Exchange Act,
substantially in a form to which the other party has previously provided
consent.

           

          10.3                      Further
Assurances. Each
party agrees to cooperate fully with the other party and to execute such further
instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by the other party to better evidence
and reflect the transactions described herein and contemplated hereby, and to
carry into effect the intents and purposes of this Agreement.

           

          10.4           Rights
Cumulative. Each
and all of the various rights, powers and remedies of the parties shall be
considered to be cumulative with and in addition to any other rights, powers and
remedies which such parties may have at law or in equity in the event of the
breach of any of the terms of this Agreement. The exercise or partial exercise
of any right, power or remedy shall neither constitute the exclusive election
thereof nor the waiver of any other right, power or remedy available to such
party.

           

          10.5           Pronouns. All
pronouns or any variation thereof shall be deemed to refer to the masculine,
feminine or neuter, singular or plural, as the identity of the person, persons,
entity or entities may require.

           

          
            
              
              

            

            
              37

              
                

              

            

            
              
              

            

          

           

          10.6           Notices. Any
notices, reports or other correspondence (hereinafter collectively referred to
as “correspondence”) required or permitted to be given hereunder shall be in
writing and shall be sent by postage prepaid first class mail, courier, delivery
service or telecopy or delivered by hand to the party to whom such
correspondence is required or permitted to be given hereunder, and except as
otherwise provided herein, shall be deemed sufficient upon receipt when
delivered personally or courier, or upon the next Business Day immediately
following the date of delivery by overnight delivery service or confirmed
facsimile, or by being deposited in the regular mail as certified or registered
mail (airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party’s address or facsimile
number as set forth below:

           

          
            	
                  	
                    (a) 

                  	
                    All
      correspondence to the Company shall be addressed as
    follows:

                  

          

           

          Star City
International Building

          10
Jiuxianqiao Road, C-16th Floor

          Chaoyang,
Beijing, People’s Republic of China

          Attention:
Mr. Leng You-Bin

          Facsimile:
86 10 8456 7768

           

          with a
copy to

           

          DLA Piper
Beijing Representative Office

          Beijing
Kerry Centre

          20th
Floor, South Tower

          Chaoyang
District, Beijing 100020 PRC

          Attention:
Rocky Lee

          Facsimile:
86 10 6561 5158

           

          
            	
                  	
                    (b) 

                  	
                    All
      correspondence to the Purchasers shall be addressed as
      follows:

                  

          

           

          Room
2408, Air China Plaza

          No.36
Xiaoyun Road,

          Chaoyang
District, Beijing

          100027,
PRC

          Attention:
George Xu

          Facsimile:
86 10 8447 5669

           

          3000 Sand
Hill Road, 4-250

          Menlo
Park, CA 94250, USA

          Attention:
Melinda Dunn

          Facsimile:
650 854 2977

           

          With a
copy to:

           

          Suite
2215, Two Pacific Place

          88
Queensway

          Hong
Kong, PRC

          Attention:
Jimmy Wong

          Facsimile:  852
2501 5249

           

          
            
              
              

            

            
              38

              
                

              

            

            
              
              

            

          

           

          (c)         Either
party may change the address to which correspondence to it is to be addressed by
written notification as provided for herein.

           

          10.7           Captions. The
captions and paragraph headings of this Agreement are solely for the convenience
of reference and shall not affect its interpretation.

           

          10.8           Severability. Should
any part or provision of this Agreement be held unenforceable or in conflict
with the applicable Laws of any jurisdiction, the invalid or unenforceable part
or provisions shall be replaced with a provision which accomplishes, to the
extent possible, the original business purpose of such part or provision in a
valid and enforceable manner, and the remainder of this Agreement shall remain
binding upon the parties hereto.

           

          10.9           Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial; Injunctive Relief.

           

          (a)         This
Agreement shall be governed by and construed in accordance with the internal and
substantive laws of the State of New York without regard to any conflicts of
laws concepts which would apply the substantive law of some other
jurisdiction.

           

          (b)         Each
of the parties hereto irrevocably submits to the exclusive jurisdiction of the
state and federal courts located in the State of New York for the purpose
of any suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement. Each of the parties hereto irrevocably consents
to the jurisdiction of any such court in any such suit, action or proceeding and
to the laying of venue in such court. Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought
in such courts and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

           

          (c)         Each
of the parties hereto acknowledges and agrees that damages will not be an
adequate remedy for any material breach or violation of this Agreement if such
material breach or violation would cause immediate and irreparable harm (an
“Irreparable
Breach”). Accordingly, in the event of a threatened or ongoing
Irreparable Breach, each party hereto shall be entitled to seek equitable relief
of a kind appropriate in light of the nature of the ongoing or threatened
Irreparable Breach, which relief may include, without limitation, specific
performance or injunctive relief; provided, however, that if the party bringing
such action is unsuccessful in obtaining the relief sought, the moving party
shall pay the non-moving party’s reasonable costs, including attorney’s fees,
incurred in connection with defending such action. Such remedies shall not be
the parties’ exclusive remedies, but shall be in addition to all other remedies
provided in this Agreement.

           

          
            
              
              

            

            
              39

              
                

              

            

            
              
              

            

          

           

           

          10.10           Amendments. This
Agreement may be amended or modified solely pursuant to an instrument in writing
signed by the Company and a majority in interest of the Purchasers.

           

          10.11           Waiver. Any
provision of this Agreement may be waived pursuant to an instrument in writing
signed (i) in the case of waiver provided to the Purchasers, by the Company; or
(ii) in the case of a waiver provided to the Company, by a majority in interest
of the Purchasers, and any such waiver shall be binding on all Purchasers. No
waiver of any term, provision or condition of this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be, or be
construed as, a further or continuing waiver of any such term, provision or
condition or as a waiver of any other term, provision or condition of this
Agreement.

           

          10.12           Expenses. Each
party will bear its own Expenses in connection with the Operative
Agreements.

           

          10.13           Assignment. The
rights and obligations of the parties hereto shall inure to the benefit of and
shall be binding upon the authorized successors and permitted assigns of each
party. No party may assign its rights or obligations under this Agreement or
designate another person (i) to perform all or part of its obligations under
this Agreement or (ii) to have all or part of its rights and benefits under this
Agreement, in each case without the prior written consent of the other party,
provided, however, that
each Purchaser may assign its rights and delegate its duties hereunder in whole
or in part to an Affiliate or to a third party acquiring some or all of its
Securities in a transaction complying with applicable securities laws without
the prior written consent of the Company; provided that no such
assignment shall affect the obligations of such Purchaser hereunder. In the
event of any assignment in accordance with the terms of this Agreement, the
assignee shall specifically assume and be bound by the provisions of the
Agreement by executing and agreeing to an assumption agreement reasonably
acceptable to the other party.

           

          10.14           Survival. The
respective representations and warranties given by the parties hereto shall
survive the Closing Date for a period of three years.

           

          10.15           Counterpart. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one instrument.
Execution and delivery of this Agreement by electronic transmission in PDF
format shall be deemed due execution and delivery for all purposes.

           

          10.16           Entire
Agreement. This
Agreement and the other Operative Agreements constitute the entire agreement
between the parties hereto respecting the subject matter hereof and supersede
all prior agreements, negotiations, understandings, representations and
statements respecting the subject matter hereof, whether written or
oral.

           

          
            
              
              

            

            
              40

              
                

              

            

            
              
              

            

          

           

          10.17           Costs of
Enforcement. In the
event that legal proceedings are commenced by any party to this Agreement
against another party to this Agreement in connection with this Agreement or the
other Operative Agreements, the non-prevailing party in such proceedings shall
pay the reasonable attorneys’ fees and other reasonable out-of-pocket costs and
expenses incurred by the prevailing party in such proceedings.

           

          [Signature Page to Follow]

           

          
            
              
              

            

            
              41

              
                

              

            

            
              
              

            

          

           

          IN
WITNESS WHEREOF, the parties hereto have executed this Subscription Agreement as
of the day and year first above written.

           

           

           

          
            
              	 	AMERICAN DAIRY,
      INC.	 
	 	 	 	 
	
                       

                    	By:       	/s/ Leng
      You-Bin     	 
	 	Name:       	Leng
      You-Bin	 
	 	Title:       	Chief Executive Officer	 
	 	 	 	 

            

          

           

          
            
              
              

            

            
              
                [Signature
Page to Subscription Agreement]

              

              
                

              

            

            
              
              

            

          

           

                              

          
            
              	 	

                      The
      Purchasers:

                      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	 
	 	 	 	 
	 	/s/ Jimmy
      Wong     	 
	 	

                      Name: 
      Jimmy Wong

                      Title:   
      Authorized Signatory

                    	 
	 	 	 
	 	 	 	 

            

          

                              

           

          

          
            
              
                	 	

                        

                          SEQUOIA
      CAPITAL CHINA GROWTH FUND I, L.P.

                          SEQUOIA
      CAPITAL CHINA GROWTH PARTNERS FUND I, L.P.

                          SEQUOIA
      CAPITAL CHINA GF PRINCIPALS FUND I, L.P.

                        

                      	 
	 	
                         

                      	 	 
	
                      	
                        By:
      

                      	Sequoia Capital
      China Growth Fund 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	 
	 	 	 	 
	 	/s/ Jimmy
      Wong     	 
	 	

                        Name: 
      Jimmy Wong

                        Title:   
      Authorized Signatory

                      	 
	 	 	 
	 	 	 	 

              

               

              
                 

                
                  
                    
                    

                  

                  
                    
                      [Signature
Page to Subscription Agreement]

                    

                    
                      

                    

                  

                  
                    
                    

                  

                

              

            

          

           

          

           

          
            	 	

                    

                      SEQUOIA
      CAPITAL GROWTH FUND III

                      SEQUOIA
      CAPITAL GROWTH PARTNERS III

                      SEQUOIA
      CAPITAL GROWTH III PRINCIPALS FUND

                    

                  	 
	 	
                     

                  	 	 
	
                  	
                    By:
      

                  	SCGF III
      Management, LLC	 
	 	 	A Delaware
      Limited Liability Company	 
	 	 	General Partner of Each	 
	 	 	 	 
	 	By:	 /s/
      	 
	 	      
                     

                  	      
                    Managing
      Member

                  	 

          

          
            
              
                
                

              

              
                
                  [Signature
Page to Subscription Agreement]

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