Document:

exv10w9w1

Exhibit 10.9.1

	 	 	 
	[Translatio of Chinese original]

	 	Execution Version

 

Investment Framework Agreement

 

By and among

Redgate Interactive Advertising (Beijing) Co., Ltd.

All Natural Persons Listed in Appendix I

And

Shanghai FLOG Media Culture Co., Ltd.

November 24, 2007

Shanghai Office

King & Wood PRC Lawyers

 

 

Table of Contents

	 	 	 	 	 	 	 	 	 
	Article Heading	 	Page	 
	 
	1.	 	Definitions
	 	 	1	 
	2.	 	Capital Increase
	 	 	2	 
	3.	 	The Company’s Further Restructuring and Subsequent Equity Transfer
	 	 	6	 
	4.	 	Non-competition Commitment
	 	 	7	 
	5.	 	Intellectual Properties
	 	 	7	 
	6.	 	Equity Transfer
	 	 	8	 
	7.	 	Board of Directors
	 	 	8	 
	8.	 	Use of Investment Proceeds
	 	 	8	 
	9.	 	Representations and Warranties
	 	 	8	 
	10.	 	Provision of Information Materials
	 	 	9	 
	11.	 	Confidentiality
	 	 	9	 
	12.	 	Assignment
	 	 	10	 
	13.	 	Governing Law and Dispute Settlement
	 	 	10	 
	14.	 	Notice
	 	 	11	 
	15.	 	Expenses
	 	 	12	 
	16.	 	Entire Agreement
	 	 	12	 
	17.	 	Severability
	 	 	12	 
	18.	 	Waiver
	 	 	13	 
	19.	 	Liability for Breach of Contract
	 	 	13	 
	20.	 	Language
	 	 	13	 
	Appendix I Existing Shareholders	 	 	1	 
	Appendix II Form of Capital Increase Agreement	 	 	1	 
	Appendix III Articles of Association	 	 	2	 
	Appendix IV Form of Non-competition Agreement	 	 	2	 

 

 

The Agreement was duly executed by the following parties hereto in Beijing, China on
November 24, 2007:

	(1)	 	Redgate Interactive Advertising (Beijing) Co., Ltd., a limited liability company duly
incorporated and existing in accordance with the laws of China, with its registered address at
Rm. B-1807-B, Jianwai SOHO No. 23 Building (South Tower), No. 39 East 3rd Ring Road Central,
Chaoyang District, Beijing, China (“Investor”);
	 
	(2)	 	All natural persons listed in Appendix I (“Existing Shareholders”); and
	 
	(3)	 	Shanghai FLOG Media Culture Co., Ltd., a limited liability company duly incorporated and
existing in accordance with the laws of China, with its registered address at Rm. 115, No.
2126 Zhengnan, Donghai Village, Caojing Town, Jinshan District, Shanghai, China (“Company”).

(The Investor, the Existing Shareholders and the Company are collectively referred to as the
“parties” and individually as a
“party”.)

Whereas:

	(A)	 	The Investor is a wholly-foreign-owned limited liability company incorporated and existing in
accordance with the laws of China and engages in advertisement-related businesses.
	 
	(B)	 	The Company is a limited liability incorporated on January 16, 2007 in accordance with the
Company Law of the People’s Republic of China and the relevant laws and regulations of China,
with a registered capital of RMB683,100. The Company’s scope of business covers: planning and
consulting of cultural and art programs, business consulting (except for brokerage), design,
production and consigned release of advertisements, conference and exhibition services
(subject to the applicable licenses in connection with restricted businesses). The Company’s
Existing Shareholders include Baohe Meng (54.56%), Chunhong Xu (13.64%), Ting Wang (5%) and
Zhihong Zhang (26.8%).
	 
	(C)	 	The Investor desires to invest in the Company according to the terms and conditions hereof
and reorganize the Company before the listing at the overseas so as promote the long-term
development of the Company and achieve the investment returns.
	 
	(D)	 	In consideration of the time and the status quo of the legal and approval practice in China,
the parties hereto intend to complete, in steps, the reorganization at home and overseas.
	 
	(E)	 	The parties hereto agree to make certain representations, warranties and undertakings
according to the provisions hereof.

Therefore, in line with the equal and mutual-benefit principle, upon amiable negotiation, the
parties hereto have reached the following agreement regarding the investment-related arrangements
in accordance with the Company Law of the People’s Republic of China, the Administrative
Regulations of the People’s Republic of China for Registration of Companies and other relevant laws
and regulations of China:

	1.	 	Definitions
	 
	1.1	 	In the Agreement, the following terms shall have the following meanings:
	 
	 	 	“Senior Management Personnel” refers to Baohe Meng, Ting Wang, Yulong Zhang, Xiaohua Fu,
Jing Yang and Xiaodong Lan;
	 
	 	 	“Related Party” refers to any company, partner or other entity that directly or indirectly
controls the party, is directly or indirectly controlled by the party or is directly or
indirectly under the common control with the party; if the party is a natural person, it
refers to its spouse or relative. (For the purpose of this definition, the term “control”
refers to having the control right over the

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	 	 	party by holding, directly or indirectly, the party’s voting rights or through agreement or
other arrangements);

	 	 	“Capital Increase” refers to the subscription by the Investor of the Company’s 10.71%
capital increase according to the Capital Increase Agreement;
	 
	 	 	“Completion of Capital Increase” is defined as in the Capital Increase Agreement;
	 
	 	 	“Capital Increase Agreement” refers to the Company’s Capital Increase Agreement signed by
the parties hereto on the date of the Agreement, according to which the Investor shall
subscribe for the Capital Increase from the Company and its form is shown in Appendix II to
the Agreement;
	 
	 	 	“Year” refers to, for the purpose of the Agreement, the period from December 1 of the
current year to November 30 of the next year;
	 
	 	 	“Market Price of Listed Company’s Stock” refers to the average closing price of the stock of
the Listed Company (definition of which is shown below) for thirty (30) trading days before
the Offered Shares (definition of which is shown below) are issued;
	 
	 	 	“Licensing” refers to the permit, consent, order, confirmation, allowance, license,
approval, and authorization of a third party or relevant governmental authority necessary
for the Company to engage in its businesses;
	 
	 	 	“Business Day” refers to any day banks in China are open to the public for business (except
for Saturday, Sunday and public holidays);
	 
	 	 	“Restated Articles of Association” refers to the Company’s revised articles of association
signed by the Investor and the Existing Shareholders in China according to the Capital
Increase Agreement;
	 
	 	 	“Governmental Approval” refers to any approval of the relevant departments of the Chinese
government, including the local governments, on the Capital Increase Agreement and the
Restated Articles of Association as required according to law;
	 
	 	 	“China”, for the purpose of the Agreement, refers to the mainland of the People’s Republic
of China, excluding Hong Kong Special Administrative Region, Macao Special Administrative
Region and Taiwan Region.
	 
	 	 	“Capital Increase Amount” refers to the capital increase amount of RMB fifteen million
(RMB15,000,000) to be subscribed for by the Investor from the Company.
	 
	1.2	 	Headings
	 
	 	 	The headings of all articles are inserted only for the reference and shall not affect the
interpretation of the Agreement.
	 
	1.3	 	Appendices
	 
	 	 	Appendices consist of all the appendices listed in the Table of Contents hereof,
constituting an integral part of the Agreement and bearing the same legal force as the
Agreement.
	 
	1.4	 	Capital Increase Agreement
	 
	 	 	Unless otherwise defined herein or specified in the context, the terms used herein shall
bear the same meaning as those in the Capital Increase Agreement.
	 
	2.	 	Capital Increase

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	2.1	 	The Investor and the Existing Shareholders agree to sign, on the date of the Agreement and
according to the provisions of the Agreement, the Capital Increase Agreement in the form as
shown in Appendix II hereto and the Company’s Articles of Association as shown in Appendix III
hereto, regarding the Capital Increase to the Company under the Agreement, and complete the
following Capital Increase formalities of the Company according to the terms and conditions
specified in the Capital Increase Agreement:

	 	(1)	 	The Capital Increase Amount contributed by the Investor to the Company amounts
to RMB fifteen million (RMB15,000,000), of which RMB eighty-one thousand nine hundred
thirty-five (RMB81,935) shall be accounted into the Company’s registered capital and
the balance of RMB fourteen million nine hundred and eighteen thousand sixty-five
(RMB14,918,065) shall be accounted into the Company’s capital reserve. Upon Completion
of the Capital Increase, the Company’s shareholders, their contribution amounts and
proportion of the equity interest shall be as shown in the following table:

	 	 	 	 	 	 	 	 	 
	 	 	Contribution Amount	 	Ratio of Registered
	Name of Shareholders	 	(RMB)	 	Capital
	Redgate Interactive Advertising (Beijing) Co., Ltd.
	 	 	81,935	 	 	 	10.71	%
	Baohe Meng
	 	 	372,700	 	 	 	48.72	%
	Chunhong Xu
	 	 	93,200	 	 	 	12.18	%
	Ting Wang
	 	 	34,100	 	 	 	4.46	%
	Zhihong Zhang
	 	 	183,100	 	 	 	23.93	%
	 
	 	 	 	 	 	 	 	 
	Total:
	 	 	765,035	 	 	 	100	%
	 
	 	 	 	 	 	 	 	 

	 	(2)	 	The parties hereto agree that within seven (7) Business Days upon signing the
Capital Increase Agreement, the Investor shall:

	 	(a)	 	Remit RMB eighty-one thousand nine hundred thirty-five (RMB81,935)
(equal to the Company’s increased registered capital) into the RMB bank account
designated by the Company. Upon receipt of the above amount, the Company shall
carry out the capital verification and apply for registration of such alteration
so as to reflect the above Capital Increase; and
	 
	 	(b)	 	Remit RMB four million nine hundred eighteen thousand sixty-five
(RMB4,918,065) into the Co-Managed Account (as defined in the Capital Increase
Agreement). Within three (3) Business Days upon Completion of the Capital
Increase, such amount shall be remitted into the RMB bank account designated by
the Company.

	 	(3)	 	Within three (3) Business Days upon fulfilment (or the Investor’s waiver) of
the Conditions Precedent specified in the Capital Increase Agreement, the Company
shall provide the Investor with the relevant certification document and issue a written
notice to the Investor. Within three (3) Business Days upon delivery of such notice,
the parties hereto shall jointly confirm in writing whether the Conditions Precedent
have been fulfilled.
	 
	 	(4)	 	The Investor shall pay the balance of the Capital Increase Amount to the
Company’s designated RMB bank account according to the following schedule:

	 	(a)	 	Within one (1) month upon Completion of the Capital Increase, pay 1/3
of the Capital Increase Amount, namely, RMB five million (RMB5,000,000);
	 
	 	(b)	 	Within two (2) months upon Completion of the Capital Increase, pay
1/6 of the Capital Increase Amount, namely, RMB two million five hundred thousand
(RMB2,500,000); and

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	 	(c)	 	Within three (3) months upon Completion of the Capital Increase, pay
1/6 of the Capital Increase Amount, namely, RMB two million five hundred thousand
(RMB2,500,000);

	 	(5)	 	In case of failure to fulfil the Conditions Precedent specified in Article 3.1
within three (3) months upon signing the Capital Increase Agreement or before another
date as agreed upon by the parties hereto, the parties hereto shall negotiate amicably.
In the event that no agreement is reached within fifteen (15) days, the Investor shall
not be required to proceed with the Completion of the Capital Increase and may decide,
at its own discretion, to notify the Company and the Existing Shareholders in writing:

	 	(a)	 	To terminate the Capital Increase Agreement without taking any
liability and request the Company to refund the Capital Increase Amount already
paid by the Investor (if any) and pay the Investor a liquidated damage equal to
the Capital Increase Amount already paid (if any). In addition, the Company and
the Existing Shareholders shall assist the Investor in completing all the
necessary formalities for refunding such Capital Increase Amount in the Co-Managed
Account (including but not limited to presenting the seal of the Company’s legal
representative (i.e., Baohe Meng) and executing all the necessary documents);
where the industrial and commercial registration has been completed for the
Capital Increase and the Company has refunded the Capital Increase Amount and paid
the aforementioned liquidated damage, the Investor shall sign, with the Existing
Shareholders, the relevant legal documents and transfer, without any
consideration, the Company’s equity interest held by it to the Existing
Shareholders respectively according to their shareholding proportion; or
	 
	 	(b)	 	To comlete the performance of the Agreement by a later date on the
premise that the Company and the Existing Shareholders can fulfill all their
unfulfilled obligations (including the fulfillment of the relevant Conditions
Precedent). The Investor may: (i) specify one or more dates for the Company and
the Existing Shareholders to complete the unfulfilled obligations; (ii) exempt the
Company and/or the Existing Shareholders from part of their unfulfilled
obligations and specify a date for the Company and the Existing Shareholders to
fulfil the remaining unfulfilled obligations; or (iii) exempt the Company and/or
the Existing Shareholders from all the unfulfilled obligations; or
	 
	 	(c)	 	To extend the fulfillment of the Agreement to another date it may
specify in such notice. Under such circumstance, where the Company or the relevant
Existing Shareholders fail again to perform their obligations prior to or on the
later date, the provisions of Article 2.1(5) shall apply.

	 	(6)	 	In the event the Investor fails to or cannot pay any instalment of the Capital
Increase Amount as per schedule specified herein, the Existing Shareholders and the
Company agree to grant a grace period of fifteen (15) days; where the Investor fails to
pay the amount payable upon expiration of such extended period, the parties hereto
shall negotiate amicably. Where no agreement is reached within fifteen (15) days, the
Existing Shareholders and the Company may decide, at their own discretion, to notify in
writing the Investor:

	 	(a)	 	To terminate the Agreement without taking any liability and refunding
the Capital Increase Amount already paid by the Investor (if any). In addition,
the Investor shall assist the Existing Shareholders and the Company in completing
all the necessary formalities (including executing all the necessary documents)
for withdrawing and receiving such Capital Increase Amount in the Co-Managed
Account; where the industrial and commercial registration has been then completed
for the Capital Increase, the Investor shall sign, with the Existing Shareholders,
the relevant legal documents and transfer, without any consideration, the
Company’s equity interest held by it to the Existing Shareholders respectively
according to their shareholding proportion; or

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	 	(b)	 	To complete the performance of the Agreement by a later date on the
premise that the Investor can fulfill all its unfulfilled obligations; or
	 
	 	(c)	 	To extend the Investor’s payment obligation to another date it may
specify in such notice. Under such circumstance, where the Investor fails again to
perform its payment obligation prior to or on the later date, the provisions of
Article 2.1(6) shall apply.

	2.2	 	In consideration of the Company’s net asset value, historical performance, market share and
other factors (especially the information already disclosed by the Existing Shareholders and
the Company to the Investor), the estimated value of the Company’s equity interest upon
Completion of the Capital Increase shall be calculated as per the following formula: value of
the Company’s total equity interest = 7× RMB twenty million (RMB20,000,000), namely, the
forecasted net profit after tax for 2007 (from December 1, 2007 to November 30, 2008) as
audited by the auditor according to the US Accounting Standards = RMB one hundred forty
million (RMB140,000,000).
	 
	2.3	 	In the event that the Company’s actual profit after tax for 2007 as audited is less than the
above forecasted amount, the estimated equity interest value shall be appropriately adjusted
downward and the Company shall not be required to refund the surplus to the Investor, but the
Company’s shareholding proportion shall be adjusted as follows:
	 
	 	 	The Investor’s share of the equity interest:
	 
	 	 	(RMB15 million / Actual Profit after Tax for 2007 as audited × 7) × 100%
	 
	 	 	The Existing Shareholders shall make an equity transfer, without any consideration,
to the Investor for completion of the above adjustment.
	 
	 	 	The Existing Shareholders’ share of the equity interest:
	 
		 	1 - (RMB15 million /Actual Profit after Tax for 2007 as audited × 7) × 100%
	 
	2.4	 	In the event that the Company’s actual profit after tax for 2007 as audited is more than the
above forecasted amount, the estimated equity interest value shall be appropriately adjusted
upward and the Capital Increase Amount to be paid by the Investor for subscription of the
Capital Increase shall be: (Actual Profit after Tax for 2007 as audited × 7) × 10.71%, the
difference of which with the Capital Increase Amount shall be made up by the Investor and the
shares of the Investor and all Existing Shareholders in the Company’s equity interest shall
remain unchanged.
	 
	2.5	 	Notwithstanding the provisions of Article 2.4 above, where the Company’s actual profit after
tax for 2007 as audited is more than RMB25 million, the Investor shall not be required to pay
any additional Capital Increase Amount for the portion exceeding RMB25 million and its share
in the Company’s equity interest shall remain unchanged.
	 
	2.6	 	For the avoidance of doubt, the auditor specified above for auditing the Company’s profit
after tax shall be PricewaterhouseCoopers or any international chartered accountants firm with
equal reputation or any auditing body with relevant qualification and excellent market
reputation as agreed separately in writing by the parties hereto.
	 
	2.7	 	In case of any adjustment in the Company’s equity shares or investment funds as specified
herein, the Existing Shareholders and the Company shall cooperate with the Investor in
obtaining at the earliest all the Governmental Approvals and completing all the necessary
formalities with the relevant governmental authorities according to the law of China.
	 
	2.8	 	Notwithstanding the provisions of Article 2.3 above, where the Company’s actual profit after
tax for 2007 as audited is a negative value, the Investor shall have the right to require the
Existing Shareholders to refund the total Capital Increase Amount. Under such circumstance,
the Agreement, the Capital Increase Agreement and the Restated Articles of Association shall
be all

5

 

	 	 	immediately terminated and the Existing Shareholders and the Company shall cooperate with
the Investor in completing all the necessary formalities for refunding the Capital Increase
Amount, and the Investor shall sign, with the Existing Shareholders, the relevant legal
documents and transfer, without any consideration, its share in the Company’s equity
interest to their Existing Shareholders according to the shareholding
proportion.
	 
	2.9	 	Except for the circumstance specified Article 2.1(5) hereof, in the event that prior to
Completion of the Capital Increase, one party commits any material breach of the
representations and warranties made herein or in the Capital Increase Agreement or other
obligations in the Capital Increase Agreement or herein, and within thirty (30) days from the
date on which the performing party serves a written notice to the defaulting party, the
defaulting party still fails to take any action to rectify its default, on the premise of not
affecting other rights under the Agreement, any performing party shall have the right to, upon
notifying in writing other parties hereto, immediately terminate the Agreement, the Capital
Increase Agreement and the Restated Articles of Association and require the defaulting party
to undertake the relevant default liabilities with reference to the provisions of Article
2.1(5)(a) and Article 2.1(6)(a) herein.
	 
	2.10	 	Upon Completion of the Capital Increase, no party may terminate the Agreement, the Capital
Increase Agreement or the Restated Articles of Association for the reason that any Condition
Precedent has not been fulfilled.
	 
	3.	 	The Company’s Further Restructuring and Subsequent Equity Transfer
	 
	3.1	 	The Existing Shareholders and the Company agree that certain integration shall be carried out
for the Company’s existing media assets and advertising-related assets (including tangible and
intangible assets), businesses (including but not limited to all the business contracts and
customer resources) and personnel and other resources according to the plan determined by the
Investor, so that the Company’s business can be developed and expanded in a faster and more
effective way.
	 
	3.2	 	The Investor plans to, by integrating part of its assets, make a listing of itself or its
affiliate at the qualified securities exchange outside of China in 2008 and before or after
the listing, the Investor may choose to purchase all the Company’s remaining equity interest
(“Subsequent Equity Transfer”). Therefore, upon Completion of the Capital Increase, at the
request of the Investor and according to the provisions hereof and the particular plan
confirmed by the Investor, the Existing Shareholders shall immediately further restructure the
Company so as to achieve the Subsequent Equity Transfer. The restructuring plan currently
concluded by the parties hereto is as follows: the Existing Shareholders shall establish a new
overseas holding company (“New SPV”), and a new domestic wholly-foreign-owned enterprise (“New
WFOE”) established by the New SPV shall control, by agreement, the Company, and then the
Investor’s company to be listed (“To-Be-Listed Company”) shall acquire 100% equity interest of
New SPV by issuing to the Existing Shareholders the shares in the quantity as specified
herein. On the premise of maintaining the economic benefits agreed by the parties hereto, the
above plan may be adjusted by the Investor according to the prevailing applicable laws, the
strategic demand of the Investor and/or listing plan so as to ensure the restructuring in a
most legal and effective way, for which the parties hereto shall sign a written agreement to
confirm the restructuring frame.
	 
	3.3	 	Notwithstanding the above provisions, where it is deemed necessary by the Investor, the
Investor may determine, at its discretion, to purchase, by itself or through its Related
Parties or other third parties, the 89.29% equity interest in the Company from the Existing
Shareholders in cash or other consideration. The purchase price shall be calculated by
reference to the market value corresponding to the stock specified in Article 3.6(3) below,
and the schedule for such payment shall be by reference to the provisions of Article 3.6
below. In the event that the To-Be-Listed Company fails to achieve the overseas listing before
the end of 2008, the Company may seek for listing or refinancing through other approaches.
Under such circumstance, the Investor shall have the right to (by itself or through its
affiliate) to take precedence in providing refinancing and participating in the formulation
and implementation of the listing plan. However, in case of waiving such priority, the
Investor shall positively cooperate with the Company in seeking for listing or refinancing
through other approaches.

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	3.4	 	In the event the To-Be-Listed Company is listed at the overseas within 2008 (“Listed
Company”), the Investor shall have the right to buy, through the Listed Company issuing
ordinary shares to the Existing Shareholders, the Existing Shareholders’ 100% equity interest
in New SPV and 89.29% equity interest in the Company. The Existing Shareholders shall
cooperate, as per requirement of the Investor, in completing the above transaction so that the
To-Be-Listed Company may achieve the overseas listing as soon as possible in a way complying
with the applicable laws of China and listing rules.
	 
	3.5	 	The shares to be issued by the Listed Company to the Existing Shareholders (“Offered Shares”)
as specified Articles 3.3 and 3.4 shall be calculated as follows: the Company’s forecasted net
profit after tax for 2009 as confirmed by the Investor × the To-Be-Listed Company’s P/E × 79%
× 89.29% / market price of the Listed Company’s stock (the Listed Company’s P/E shall be the
data presented by Bloomberg).
	 
	3.6	 	The parties hereto agree that except for the circulation as per the following plan, no shares
of the Listed Company held by the Existing Shareholders shall be listed for circulation:

	 	(1)	 	The maximum of the total number of shares allowed for immediate circulation as
from the date on which the annual net profit after tax for 2007 is determined shall be:
	 
	 	 	 	The Company’s net profit after tax for 2007 × the Listed Company’s P/E × 79% × 89.29% /
market price of the Listed Company’s stock
	 
	 	(2)	 	The maximum of the total number of shares accumulatively allowed for
circulation as from the date on which the annual net profit after tax for 2008 is
determined shall be:
	 
	 	 	 	The Company’s net profit after tax for 2008 x the Listed Company’s P/E × 79% × 89.29% /
market price of the Listed Company’s stock × 50%
	 
	 	(3)	 	The maximum of the total number of shares accumulatively allowed for
circulation as from the date on which the annual net profit after tax for 2009 is
determined:
	 
	 	 	 	The Company’s net profit after tax for 2009 × the Listed Company’s P/E × 79% × 89.29% /
market price of the Listed Company’s stock
	 
	 	The Company’s net profits after tax for the years specified in the above shall be the
profits as audited by the auditor of the Listed Company according to the accounting
standards adopted by the Listed Company.

	3.7	 	In the event that the total number of shares accumulatively allowed for circulation as
calculated according to the actual net profit after tax for 2009 is more than the number of
the Offered Shares, the Listed Company shall issue additional shares to make up such
difference. In the event that the total number of shares accumulatively allowed for
circulation as calculated according to the actual net profit after tax for 2009 is less than
the number of the Offered Shares, the surplus shall be returned to the Listed Company without
consideration.
	 
	3.8	 	If it is necessary to adjust the Company’s shareholding as specified in Article 2.3 prior to
the overseas listing specified herein, the proportion of 89.29% cited in Article 3 hereof
shall be adjusted according to Article 2.3.
	 
	4.	 	Non-competition Commitment
	 
	 	 	Prior to Completion of the Capital Increase, the Existing Shareholders and the
Senior Management Personnel shall sign with the Company the Confidentiality Agreement
in the form of the non-competition agreement shown in Appendix IV, promising not to
undertake any business in direct or indirect competition with the Company’s business or
directly or indirectly solicitate the Company’s employees, suppliers, customers, etc.
	 
	5.	 	Intellectual Properties

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	 	 	Prior to Completion of the Capital Increase, the Company’s Existing Shareholders,
Senior Management Personnel and employees shall unconditionally grant to the Company
all the relevant intellectual properties required for its business operation and sign
with the Company the Confidentiality Agreement for the Company’s technical and
commercial secrets and other intellectual properties to the satisfaction of the
Investor.
	 
	6.	 	Equity Transfer
	 
	 	 	Except for the transfer to the Investor according to the Agreement, the Existing
Shareholders shall guarantee not to transfer or pledge or otherwise dispose of their
equity interst in the Company to any third-party entity or person without obtaining the
prior written consent from the Investor unless the Agreement is terminated.
	 
	7.	 	Board of Directors
	 
	7.1	 	Upon Completion of the Capital Increase, the Company’s Board of Directors shall be composed
of five (5) members, of which one (1) shall be appointed and replaced by the Investor and four
(4) shall be appointed and replaced by the Existing Shareholders.
	 
	7.2	 	In the event that the To-Be-Listed Company achieves the overseas listing in 2008 and the
Investor has acquired the Existing Shareholders’ 100% equity interest in the Company, the
composition of the Company’s Board of Directors shall be adjusted as follows: three (3) shall
be appointed and replaced by the Investor and two (2) shall be appointed and replaced by the
Existing Shareholders. Additionally, the Investor shall have the right to nominate the
Company’s chief finance officer for appointment by the Board of Directors.
	 
	7.3	 	On the premise of meeting the requirements of Article 7.2 above, the composition of the
Company’s Board of Directors in 2009 shall be adjusted as follows: four (4) shall be appointed
and replaced by the Investor and one (1) shall be appointed and replaced by the Existing
Shareholders.
	 
	8.	 	Use of Investment Proceeds
	 
	 	 	The Company and the Existing Shareholders undertake to the Investor that the total
Capital Increase Amount received by the Company shall only be used for the Company’s
further development, business expansion and other purposes as agreed by the Investor.
Unless the prior written consent is obtained from the Investor, such amount shall not
be used to acquire, merge with or otherwise invest in other enterprises.
	 
	9.	 	Representations and Warranties
	 
	9.1	 	The Existing Shareholders and the Company represent and warrant individually and jointly to
the Investor as follows:

	 	(1)	 	The Company is a limited liability incorporated and existing in accordance with
the law of China;
	 
	 	(2)	 	To sign and perform the Agreement with its corporate power and business scope,
the Company has obtained the necessary corporate authorization and such sign-off and
performance of the Agreement shall neither result in violating any provision of the
Company’s Articles of Association or any other constitutive documents, nor result in
violating any agreement, permit or other legal documents, or grating to a third party
the right to terminate any agreement, permit or other legal documents, nor result in
violating any judgment or directive issued or made by any court or governmental
authority;
	 
	 	(3)	 	All the information contained herein in connection with the Company and the
Existing Shareholders and the documents provided to the Investor in negotiation on the
Agreement is, in all respects, true, complete and accurate and without any misleading
content; and

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	 	(4)	 	Once becoming effective, the Agreement shall constitute a lawful, valid,
binding and enforceable legal document for the Company and the Existing Shareholders.

	9.2	 	The Investor represents and warrants to the Existing Shareholders and the Company as follows:

	 	(1)	 	The Investor is a limited liability incorporated and existing in accordance
with the law of China;
	 
	 	(2)	 	To sign and perform the Agreement with its corporate power and business scope,
the Investor has obtained the necessary corporate authorization and such sign-off and
performance of the Agreement shall neither result in violating any provision of the its
Articles of Association or any other constitutive documents, nor result in violating
any agreement, permit or other legal documents, or grating to a third party the right
to terminate any agreement, permit or other legal documents, nor result in violating
any judgment or directive issued or made by any court or governmental authority;
	 
	 	(3)	 	As far as the Investor knows, it is lawfully qualified for reinvestment to
others under the law of China.
	 
	 	(4)	 	Once becoming effective, the Agreement shall constitute a lawful, valid,
binding and enforceable legal document for the Investor.

	9.3	 	The parties hereto agree that on the premise of not affecting the other rights of the parties
hereto under the Agreement, if any of the representations and warranties made by any party
according to the Agreement is proven to be misleading or untrue, the party shall compensate
the other parties hereto for any possible loss, damages, expenses, expenditure, liability or
claim (including any loss, damages, expenses, expenditure, debt or claim incurred in defending
or settling any claim of such liability), including but not limited to any loss arising from
the equity interest held by it in the Company, and hold the other parties hereto from being
harmed.
	 
	10.	 	Provision of Information Materials
	 
	 	 	From the date of the Agreement to the Completion of the Capital Increase, the Existing
Shareholders and the Company shall procure the Company to permit the Investor and any of its
authorized persons to enter any domicile or office arena of the Company as may be reasonably
required by the Investor and have access to any account book, record, account, license and
certificate and other documents as may be reasonably required, and allow the Investor to
copy such account book, record, account, license and certificate and other documents, and
procure the Company to notify its directors and employees to timely provide the above
persons with all the information materials and explanations as may be required by them.
	 
	11.	 	Confidentiality
	 
	11.1	 	Without the prior written consent from the parties hereto, no party may make any public
announcement regarding the Agreement, any other or subsequent documents signed for the
investment specified herein, or the restructuring and listing of the Company.
	 
	11.2	 	Unless otherwise specified in Article 11.3, the parties hereto shall deem any information
relating to the following content, received or obtained in concluding the Agreement (or any
agreement concluded according to the Agreement) as confidential information, which shall not
be disclosed or used:

	 	(1)	 	The terms of the Agreement and terms of any agreement concluded according to
the Agreement;
	 
	 	(2)	 	Negotiation relating to the Agreement (and such other agreements); or
	 
	 	(3)	 	The business, financial condition or other affairs (including the future plans
and objectives) of any of the other parties.

9

 

	11.3	 	Under the following circumstances, Articles 11.1 and 11.2 shall not be applied to the
disclosure or use of any of the following information:

	 	(1)	 	Information that shall be disclosed or used as required by the laws, rules or
regulations of any regulatory authority or any public securities exchange;
	 
	 	(2)	 	Information that shall be disclosed or used as required for granting all the
interests of the Agreement to one party;
	 
	 	(3)	 	Information that shall be disclosed or used for the purpose of any judicial
proceedings as a result of or in connection with the Agreement or any other agreement
concluded according to the Agreement, or information concerning any taxation matter of
the disclosing party and reasonably required to be disclosed to the taxation
authorities;
	 
	 	(4)	 	Information to be disclosed to the professional advisors of the parties hereto,
provided that such professional advisors shall abide by the provisions of Article 11.2
regarding such information as if they were a party to the Agreement;
	 
	 	(5)	 	Information already in the range of public knowledge other than as a result of
breach of the Agreement; or
	 
	 	(6)	 	Information to be disclosed or used with prior written approval of other
parties hereto.

	11.4	 	Article 11 hereof shall survive the termination of the Agreement.
	 
	12.	 	Assignment
	 
	 	 	Without the prior written consent from the other parties hereto, no party shall have the
right to assign the rights, interests or obligations specified herein. However, the Investor
shall have the right to assign its rights, interests or obligations under the Agreement to
its Related Parties. After the Agreement is signed and before the Capital Increase is
completed, the Existing Shareholders shall not negotiate or sign, and shall procure the
Company not to negotiate or sign, any binding document with any third party on such matters
as the Company’s Capital Increase or similar equity cooperation.
	 
	13.	 	Governing Law and Dispute Settlement
	 
	13.1	 	Governing Law

The Agreement shall be governed by and interpreted in accordance with the law of China.
	 
	13.2	 	Arbitration

	 	(1)	 	The parties hereto shall endeavour to settle, through amiable negotiation, any
dispute arising from or relating to the Agreement. Where such settlement fails within
sixty (60) days after any party issues a notice to the other parties hereto, such
dispute (including the dispute on the validity or existence of the Agreement) shall be
submitted to China International Economic and Trade Arbitration Commission Shanghai
Sub-commission for arbitration according to its prevailing arbitration rules.
	 
	 	(2)	 	The arbitration award shall be final and binding upon all the parties hereto,
and may be enforced in accordance with the provisions of the relevant terms.
	 
	 	(3)	 	The arbitration fees shall be borne by the losing party, unless otherwise
specified by the arbitration award. Where it is necessary for one party to execute such
award by any type of litigation, the defaulting party shall pay all the reasonable
expenses and expenditures, including but not limited to the reasonable lawyer’s fees,
and any additional litigation or execution fees arising from the application of one
party to execute the arbitration award.

10

 

	 	(4)	 	During the period of dispute settlement, except for the matter in dispute, the
parties hereto shall continue to fully perform the Agreement.

	14.	 	Notice
	 
	14.1	 	All notices shall be written in Chinese and delivered by hand, by registered mail
or by fax to the following addresses or fax numbers (as the case may be):
	 
	 	 	Redgate Interactive Advertising (Beijing) Co., Ltd.
	 
	 	 	Address: Rm. B-1807-B, Jianwai SOHO No. 23 Building (South Tower), No. 39 East 3rd Ring Road
Central, Chaoyang District, Beijing
	 
	 	 	Attention: Ying Zhu
	 
	 	 	Tel:     010-58692980
	 
	 	 	Fax:     010-58692960
	 
	 	 	Baohe Meng
	 
	 	 	Address: Rm. 2309, No.1 Dapu Road, Luwan District, Shanghai
	 
	 	 	Tel:     021-53960860/0177-108/109
	 
	 	 	Fax:     021-53960056-114
	 
	 	 	Chunhong Xu
	 
	 	 	Address: Rm. 603, Shenfeng Building, No. 438 Tianyueqiao Road, Xuhui District, Shanghai
	 
	 	 	Tel:     021-54259865-216
	 
	 	 	Fax:     021-54259865-212
	 
	 	 	Ting Wang
	 
	 	 	Address: Rm. 502, Building 41, Dahuaqingshuiwan, No. 1055 Lane, Kaixuan Road North, Shanghai
	 
	 	 	Tel:     021-53960860/0177-128/129
	 
	 	 	Fax:     021-53960056-114
	 
	 	 	Zhihong Zhang
	 
	 	 	Address: Rm. 3504, Building 1, No. 108 Lane, Shangcheng Road, Pudong, Shanghai
	 
	 	 	Tel:     65-62259200
	 
	 	 	Fax:     65-62259500
	 
	 	 	Shanghai FLOG Media Culture Co., Ltd.
	 
	 	 	Address: Rm. 2309, No. 1 Dapu Road, Luwan District, Shanghai
	 
	 	 	Attention: Baohe Meng
	 
	 	 	Tel: 021-53960860

11

 

	 	 	Fax: 021-53960056
	 
	14.2	 	Any notice, correspondence or document made or sent under Article 14 hereof:

	 	(1)	 	In case of delivery by hand and receipt of the acknowledge slip, where it is
delivered not later than 17:00 on a Business Day at the place of delivery, it shall be
deemed as served with the evidence of written receipt upon delivery to the relevant
address; or where it is delivered after 17:00 on a Business Day at the place of
delivery or at any time not on a Business Day at the place of delivery, it shall be
deemed as served at 09:00 on the next Business Day at the place of delivery; or
	 
	 	(2)	 	In case of any domestic mail in China sent by prepaid speed post, it shall be
deemed as served five (5) Business Days after the date of mailing; or
	 
	 	(3)	 	In case of mailing from or to any place outside of China, where it is sent by
prepaid international courier service, it shall be deemed as served ten (10) Business
Days after the date of mailing; or
	 
	 	(4)	 	In case of sending out by fax, it shall be deemed as served upon sending, with
the sending report confirming the successfully sending and oral acknowledgement (the
sender shall record in writing and sign the same) as evidence, but in the event that
any notice sent by fax is sent after 17:00 on a Business Day at the place of the
receiver or at any time not on a Business Day at such place, it shall be deemed as
served at 09:00 of the next Business Day at the place of the receiver.

	14.3	 	During the Agreement, upon notifying in writing the other parties hereto, any one
party shall have the right to change, at any time, its address, fax number and other relevant
information for receiving notices.

	15.	 	Expenses
	 
	 	 	The Company shall be responsible to pay all its auditing fees, legal fees and other
expenses in connection with the Agreement. The legal fees and other reasonable expenses
of the Investor arsing from negotiation, preparation and performance of the Agreement
shall be borne by the Company according to the proportion of such expenses in the sum
of the expenses incurred by the Company and the Investor for the aforementioned matters
(but the maximum amount shall not exceed US Dollars twenty thousand (USD 20,000)) any
amount beyond such proportion shall be borne by the Investor.
	 
	16.	 	Entire Agreement
	 
	 	 	The Agreement and all the agreements and/or documents mentioned or specified as inclusive
herein shall constitute the entire agreement among the parties hereto regarding the subject
matter of the Agreement. Where the Agreement is inconsistent with any oral and written
agreement, contract, understanding or correspondence (including but not limited to the
Restated Articles of Association and Capital Increase Agreement) concluded by and among the
parties hereto regarding the subject matter of the Agreement prior to the date of signing
the Agreement, the Agreement shall prevail. The Main Terms of Framework Agreement for
Redgate Media AD Co., Ltd. to Invest in Shanghai FLOG Media Culture Co., Ltd. signed by and
between the Investor and the Company on August 9, 2007 shall become automatically invalid on
the date of the Agreement and be superseded by the Agreement. For the avoidance of doubt,
the Agreement shall not supersede the Capital Increase Agreement and the Restated Articles
of Association.
	 
	17.	 	Severability
	 
	 	 	If any provision of the Agreement is held invalid or unenforceable, the invalid part may not
be performed and shall be deemed as excluded from the Agreement; however, such invalidity or
unenforceability shall not invalidate the remaining provisions hereof (unless mandatory as
otherwise provided by law). The Parties shall do their reasonable utmost to supersede such

12

 

	 	 	invalid provision with an effective and enforceable one, and the validity of the superseding
provision shall have the same effect as the originally intended effect of such invalid
provision as far as possible.
	 
	18.	 	Waiver
	 
	18.1	 	The failure or delay of any party to exercise any right or remedy hereunder or acquired
according to the Agreement as provided by law shall not damage such right or remedy, or
constitute or be deemed as a waiver or alteration of such right or remedy, or be excluded from
exercising such right or remedy at any time afterwards. Any single or partial exercise of such
right or remedy shall not exclude any other or further exercise of such right or remedy or the
exercise of other rights or remedies.
	 
	18.2	 	The rights and remedies of each party hereto acquired hereunder or according to the Agreement
may be exercised in any circumstance as deemed appropriate by such party.
	 
	19.	 	Liability for Breach of Contract
	 
	19.1	 	The parties hereto shall strictly abide by the Agreement. In case of any breach of the
Agreement, the breaching party shall be liable for the losses of the performing parties due to
the breaching party’s breach of the Agreement.
	 
	19.2	 	The Company and the Existing Shareholders shall undertake joint and several liabilities for
the Agreement and the Existing Shareholders shall not claim against the Company for the reason
that the Investor requires them to undertake any liability hereunder. The Investor may
determine, at its discretion, fully or partially reduce or exempt the liabilities to be
undertaken by the Company and/or the Existing Shareholders for the Investor, but such
reduction or exemption shall not affect or damage the right of the Investor to claim against
the other parties hereto (no matter they shall undertake joint or several liabilities).
	 
	20.	 	Language
	 
	 	 	The Agreement is written in Chinese.

The Agreement is duly signed by the authorized representatives of the parties hereto in
sextuplicate, of which the parties hereto shall hold one (1) copy each.

13

 

Execution Page

	 	 	 	 	 
	Redgate Interactive Advertising (Beijing) Co., Ltd.
 	 	 
	Signature:  	/s/ Ying Zhu
 	 	 
	 	Name:  	Ying Zhu 	 	 
	 	Title:  	Legal Representative 	 	 
	 
	 
	Baohe Meng

 	 	 
	Signature:  	/s/ Baohe Meng
 	 
	 	 	 	 
	 
	Chunhong Xu

 	 	 
	Signature:  	/s/ Chunhong Xu
 	 	 
	 	 	 	 
	 	 	 	 
	 
	Ting Wang

 	 	 
	Signature:  	/s/ Ting Wang
 	 	 
	 	 	 	 
	 	 	 	 
	 
	Zhihong Zhang

 	 	 
	Signature:  	/s/ Zhihong Zhang
 	 	 
	 	 	 	 
	 	 	 	 
	 
	Shanghai FLOG Media Culture Co., Ltd. [company seal]

 	 	 
	Signature:  	/s/ Baohe Meng
 	 	 
	 	Name:  	Baohe Meng 	 	 
	 	Title:  	Legal Representative 	 	 
	 

[Signature Page of Investment Framework Agreement]

 

 

Appendix I

Existing Shareholders

1. Baohe Meng, with the ID card number of 610427197508251319 and the residential address
at Group One, Zaoffantou Village, Tandian Township, Binxian County, Shaanxi Province.

2. Chunhong Xu, with the ID card number of 320626750201202 and the residential address at
10 Huayuan Central Road, Huilong Town, Qidong City, Jiangsu Province.

3. Ting Wang, with the ID card number of 440106197308060323 and the residential address
at #201, Bldg 17, Cardre Retirement Center, 243 Xiaobei Road, Yuexiu District, Guangzhou.

4. Zhihong Zhang, with the ID card number of 110108196610265727 and the residential
address at #40, Bldg 12, Qingyun North Block, Shuangyushu, Haidian District, Beijing.

Appendix I

 

 

Appendix II

Form of Capital Increase Agreement

[See Exhibit 10.9.2]

Appendix II

 

 

Execution Version

Appendix III

Articles of Association

2

 

Articles of Association

Of

Shanghai FLOG Media Culture Co., Ltd.

Chapter I General Provisions

Article 1 Whereas, such natural persons as Banhe Meng, Chunhong Xu and Ting Wang jointly
invested to establish a limited liability company, Shanghai FLOG Media Culture Co., Ltd.
(hereinafter referred to as the “Company”) on January 16, 2007 and formulated relevant articles of
association.

Whereas, Zhihong Zhang entered into a subscription agreement for capital increase in January 2007
with the Company, Banhe Meng, Chunhong Xu and Ting Wang, specifying that Zhang should subscribe for
the increased amount of the registered capital of the Company. Based on the agreement the Articles
of Association was amended on April 7, 2007.

     The Articles of Association is hereby formulated in accordance with the Company Law of the
People’s Republic of China and other pertinent laws and regulations, as well as the Capital
Increase Agreement (hereinafter referred to as the “Capital Increase Agreement”) made on October
19, 2007 by and among Redgate Interactive Advertising (Beijing) Co., Ltd., Banhe Meng, Chunhong Xu,
Ting Wang and Zhihong Zhang, and the agreement reached upon by the aforesaid parties with respect
to amendment to the Articles of Association formulated on April 7, 2007.

Article 2 In case of any conflicts between the provisions of the Articles of Association and
applicable Chinese laws and regulations, the latter shall prevail.

Chapter II Name and Domicile of the Company

Article 3 Name of the Company: Shanghai FLOG Media Culture Co., Ltd.

Article 4 Domicile of the Company: Rm. 115, No. 2126 Zhengnan, Donghai Village, Caojing Town,
Jinshan District, Shanghai, China.

Chapter III Business Scope

Article 5 Business scope: planning and consultation about cultural and art activities,
commercial consultation (with the exception of brokerage), design preparation, release of various
advertisements as an agent, services for conference and exhibitions (those subject to
administrative licensing shall be conducted with licenses).

Chapter IV Registered Capital and Basic Information of Shareholders

Article 6 Registered capital of the Company is RMB 765,035.

3

 

The Company shall hold a shareholders’ meeting in case of increase or reduction of the
registered capital. The shareholders’ meeting shall make approval and resolutions according to
Chapter VII hereof. In case of reduction of the registered capital, the Company shall notify
its creditors within 10 days from the date of resolution and make announcement in the newspaper
within 30 days thereafter. In case of adjustment of the registered capital, the Company shall
complete the procedures for alteration registration with the registration authority.

Article 7 Name (title), the amount of subscribed or paid-up capital contribution and the payment
method of each shareholder shall be as follows:

	 	 	 	 	 	 	 	 	 
	 	 	Capital Contribution	 	 
	Shareholder’ Name or Title	 	Amount (RMB)	 	Payment Method
	Baohe Meng
	 	 	372,700	 	 	in currency
	Chunhong Xu
	 	 	93,200	 	 	in currency
	Ting Wang
	 	 	34,100	 	 	in currency
	Zhihong Zhang
	 	 	183,100	 	 	in currency
	Redgate Interactive
Advertising (Beijing) Co.,
Ltd. (“Redgate”)
	 	 	81,935	 	 	in currency
	 
	 	 	 	 	 	 	 	 
	Total
	 	 	765,035	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 

Article 8 The Company shall, after receiving the registered capital contributed by a shareholder,
issue the capital contribution certificate to the shareholder.

Article 9 When the Company increases the registered capital, Redgate shall have the preemption
right to subscribe for all or part of the capital increase amount under identical conditions. Where
Redgate exercises the aforesaid preemption right or fails to exercise such right, other
shareholders may have the priority in subscribing for the remaining capital increase amount
according to their respective equity proportions in the Company.

The shareholders shall be liable to the Company to the extent of their respective subscribed
capital contributions, and the Company shall be liable for its debts to the extent of all its
assets.

Chapter V Shareholders’ Rights and Obligations

Article 10 The shareholders shall have the following rights according to the Articles of
Association:

	 	1)	 	to attend the Shareholders’ Meetings and exercise the voting rights in proportion to
capital contributions;
	 
	 	2)	 	to know about the operation position and financial situation of the Company;
	 
	 	3)	 	to elect and be elected as directors or supervisors;
	 
	 	4)	 	to obtain bonus in accordance with laws, regulations and the Articles of Association;

4

 

	 	5)	 	to have the preemption right to purchase the capital contributions to be transferred
by other shareholders;
	 
	 	6)	 	to be distributed the Company’s remaining properties in accordance with the law after
the termination of the Company; and
	 
	 	7)	 	to exercise other rights as stipulated in laws, regulations and the Articles of
Association.

Article 11 The shareholders shall assume the following obligations according to the Articles of
Association:

	 	1)	 	to abide by the Articles of Association;
	 
	 	2)	 	to pay the capital contributions subscribed for on schedule;
	 
	 	3)	 	to assume the Company’s debts in proportion to the subscribed capital contributions;
	 
	 	4)	 	not to withdraw the investment after the Company completes the procedures for
registration; and
	 
	 	5)	 	to perform other obligations as stipulated in laws, regulations and the Articles of
Association.

Chapter VI Equity Transfer

Article 12 A shareholder may transfer all or part of its equity interest to the other
shareholders. The shareholder who intends to transfer the equity interest shall issue a written
notice to the other shareholders concerning its transfer intention and obtain the consents of more
than half of the other shareholders (Redgate’s consent must be obtained). Any of the other
shareholders who cannot make a response within thirty (30) days after receiving the written notice
shall be deemed as having agreed to the transfer. Where more than half of the other shareholders
disagree on the transfer, the disagreeing shareholders shall, together with the shareholders who
intend to take over such equity interest to be transferred, purchase such equity interest at the
same price and under identical conditions in proportion to their respective equity interest.
Otherwise, the disagreeing shareholders shall be deemed as having agreed to the transfer.

Article 13 Redgate shall have the right to require at any time the other shareholders to purchase
all its equity interest in the Company after four (4) years from the day when the Company obtains
the new business license according to the Articles of Association, provided that Redgate shall
issue a written notice to the other shareholders sixty (60) days in advance. The written notice
shall indicate Redgate’s request, transfer price and relevant procedures. Transfer price shall not
be less than the following sum: 1) the total amount of capital increase amount as specified in the
Capital Increase Agreement, plus 2) whichever is higher: (X) all undistributed profits in respect
of such equity interest; or (Y) investment incomes (after deduction of the profits which have been
distributed before) calculated at a compound interest of 8% from the day when the Company obtains
the new business license according to the Articles of Association to the year when the equity
interest is to be transferred.

5

 

Article 14 Where a shareholder intends to transfer all or part of its equity interest to a person
other than the shareholders, he shall issue a written notice to the other shareholders concerning
its transfer intention and obtain the consents of more than half of the other shareholders
(Redgate’s consent must be obtained). Any of the other shareholders who cannot make a response
within thirty (30) days after receiving the written notice shall be deemed as having agreed to the
transfer. Where more than half of the other shareholders disagree on the transfer, the disagreeing
shareholders shall purchase such equity interest; otherwise, the disagreeing shareholders shall be
deemed as having agreed to the transfer.

The other shareholders shall have the preemption right over the equity interest to be
transferred with the consents of the shareholders. Where more than two shareholders claim to
exercise the preemption right, the purchase percentage shall be fixed through negotiation;
where negotiation fails, the preemption right may be exercises in proportion to the capital
contributions at the time of transfer. Notwithstanding the aforesaid provisions, Redgate shall
have the preemption right superior to the other shareholders under identical conditions.

Article 15 Notwithstanding the provisions of Article 14, if a third person intends to purchase the
equity interest of any shareholder, Redgate shall have the priority in selling its equity interest
under identical conditions, not exceeding than 55% of the equity interest to be taken over by such
third person; and the remaining 45% may be realized by means of sale by the other shareholders in
proportion to their equity interests. Where Redgate fails to exercise such priority or exercises
part of the priority, the other shareholders shall have the right to sell their respective equity
interests in proportion to realize the remaining equity transfer.

Article 16 After a shareholder transfers its equity interest in accordance with the laws, the
Company shall record the name and domicile of and the amount of the capital contributions taken
over by each transferee in the register of shareholders; in addition, the Company shall cancel the
existing capital contribution certificate and issue a new capital contribution certificate which
reflects new equity interest to each transferee.

Article 17 Without the prior written consent of the other shareholders, no shareholder other than
Redgate may mortgage or pledge all or part of its equity interest in the Company, or otherwise make
any third person enjoy the rights in connection with such equity interest.

Chapter VII Shareholders’ Meeting

Article 18 The Shareholders’ Meeting shall comprise all shareholders. The Shareholders’
Meeting is the top organ of the Company, and shall exercise the following functions and powers:

	 	1)	 	to decide on the business policies and investment plans of the Company;
	 
	 	2)	 	to elect and replace directors and supervisors, and to decide on their remunerations
and welfares;

6

 

	 	3)	 	to examine and approve the reports of the board of directors;
	 
	 	4)	 	to examine and approve the reports of the board of supervisors;
	 
	 	5)	 	to examine and approve the annual financial budget plan and the final accounts plan
of the Company;
	 
	 	6)	 	to examine and approve the Company’s plans for profit distribution and plans for
making up losses;
	 
	 	7)	 	to examine and approve the Company’s annual financial statements;
	 
	 	8)	 	to adopt resolutions on the increase or reduction of the Company’s registered
capital, or to grant any right or option to purchase or otherwise acquire any of the
Company’s equity interest;
	 
	 	9)	 	to adopt resolutions on the issuance of the Company bonds;
	 
	 	10)	 	to adopt resolutions on such matters as merger, division, transformation, dissolution
and liquidation of the Company;
	 
	 	11)	 	to change the Company’s legal representatives;
	 
	 	12)	 	to adopt resolutions on guarantee provided by the Company for any of its shareholders
or actual controllers;
	 
	 	13)	 	to amend the Articles of Association;
	 
	 	14)	 	to examine and approve the execution of any contract or arrangement between the
Company and any shareholder or director, or any person who is related to shareholders or
directors, or the execution of any contract or arrangement in which such shareholder or
director is directly or indirectly interested; and
	 
	 	15)	 	to exercise other functions and powers as provided for in laws and regulations.

Article 19 The shareholders shall exercise voting rights in proportion to capital contributions at
the Shareholders’ Meetings.

Article 20 Shareholders’ Meeting is divided into regular meeting and interim meeting.

A notice of a Shareholders’ Meeting shall be served on all shareholders fifteen (15) days in
advance.

Regular meeting shall be held once every year. An interim meeting shall be held upon proposals
made by the shareholders representing one-tenth or more of the voting rights, any director or
supervisor.

7

 

Article 21 The Shareholders’ Meetings shall be convened by the board of directors and presided over
by the chairman. Where the chairman cannot or fail to perform his duty, the meeting shall be
presided over by the vice-chairman; where the vice-chairman cannot or fail to perform his duty, the
meeting shall be presided over by a director elected by more than half of all the directors
(including the director appointed by Redgate). Where the board of directors cannot or fails to
convene a Shareholders’ Meeting, the meeting shall be convened and presided over by the supervisor;
where the supervisor cannot or fails to convene a Shareholders’ Meeting, the meeting shall be
convened and presided over by the shareholders representing one-tenth or more of the voting rights.

Article 22 The Shareholders’ Meeting shall adopt resolutions on the issues discussed at it
according to the voting procedures as stipulated in the Company Law of the People’s Republic of
China. Except for those issues to be approved by the shareholders representing two-thirds or more
of the voting rights in accordance with the Company Law of the People’s Republic of China, adoption
of a resolution shall require affirmative votes by the shareholders representing more than half of
the voting rights. The Shareholders’ Meeting shall keep minutes of their decisions on matters
discussed at it; the shareholders present at the meeting shall sign the minutes.

Article 23 The shareholders shall have the right to look up and copy the Articles of Association,
the minutes of the Shareholders’ Meeting, the resolutions of the meeting of the board of
directors/supervisors, financial and accounting reports and accounting books. Where a shareholder
requires to look up the Company’s accounting books or other materials, the Company shall provide
cooperation. Where any shareholder has reasonable doubts about such materials provided by the
Company, the Company shall give necessary and sufficient explanations.

Chapter VIII Board of Directors

Article 24 The Company has the board of directors, which shall comprise five (5) directors,
one (1) of whom shall be appointed by Redgate and four (4) by the other shareholders. The term of
office of each director shall be three (3) years. Directors may, if re-elected, serve consecutive
terms.

The board of directors shall have one (1) chairman, who shall be a director appointed by Baohe
Meng, and one (1) vice-chairman, who shall be a director appointed by Redgate. Either party has the
right to change, with a notice to other shareholders, the appointee prior to the expiration of the
term of office.

Article 25 The board of directors shall be responsible to the Shareholders’ Meeting and exercise
the following functions and powers:

	 	1)	 	to convene the Shareholders’ Meeting and to report on its work to the Shareholders’
Meeting;
	 
	 	2)	 	to implement the resolutions of the Shareholders’ Meeting;

8

 

	 	3)	 	to decide on the business plans and the investment plans of the Company;
	 
	 	4)	 	to formulate the annual financial budget plan and the final accounts plan of the
Company;
	 
	 	5)	 	to formulate plans for profit distribution and plans for making up losses of the
Company, and to declare or pay bonus;
	 
	 	6)	 	to formulate plans for the increase or reduction of the registered capital of the
Company and for the issuance of Company bonds;
	 
	 	7)	 	to formulate plans for the merger, division, transformation and dissolution of the
Company;
	 
	 	8)	 	to establish or invest in subsidiaries, or to divide or sell any subsidiaries;
	 
	 	9)	 	to establish branches and other affiliates;
	 
	 	10)	 	to decide on the establishment of the internal management organ of the Company;
	 
	 	11)	 	to decide on the appointment or dismissal of the Company’s general manager and decide
on his remuneration; and to, according to the recommendation of the general manager,
decide on the appointment or dismissal of the deputy general manager, chief financial
officer and other senior officers and decide on their remunerations; to decide on
modification, termination or waiver of any of the provisions of the employment contract
and the non-competition agreement between the Company and the aforesaid persons;
	 
	 	12)	 	to formulate the basic management system of the Company;
	 
	 	13)	 	to formulate plans for performance stock, option or employee stock ownership plan,
and other equity incentive plans;
	 
	 	14)	 	to examine and approve the Company’s investment, loan, guarantee and other financial
activities with an amount exceeding RMB100,000, or the purchase of properties with an
amount exceeding RMB100,000;
	 
	 	15)	 	to examine and approve any contract or arrangement with an amount exceeding
RMB100,000, or any contract or arrangement that may have material effects upon the
Company’s assets, debts, rights and operation results;
	 
	 	16)	 	to examine and approve any transaction or donation out of the budget of the Company,
with an amount exceeding RMB100,000;
	 
	 	17)	 	to examine and approve any transaction between the Company and the related party of
the shareholders, with an amount exceeding RMB100,000 (whether the amount of a single
transaction or accumulative amount of a series of relevant transactions);
	 
	 	18)	 	to examine and approve any adjustment of accounting standard or policy, unless
otherwise

9

 

	 	 	 	
stipulated in pertinent laws and regulations;
	 
	 	19)	 	to examine and approve the sale, transfer, lease, assign or disposal of the Company’s
assets with an amount exceeding RMB100,000 (whether the amount of a single transaction or
accumulative amount of a series of relevant transactions), other than those occurring
during ordinary business course;
	 
	 	20)	 	to examine and approve any lawsuit or compromise of a lawsuit with an amount of
RMB100,000 or more;
	 
	 	21)	 	to appoint and dismiss auditors and lawyers;
	 
	 	22)	 	to approve the general manager, the deputy general manager and any other senior
officer to serve concurrently as general manager or other senior officers in any other
economic organization or company other than the Company’s subsidiary;
	 
	 	23)	 	to establish other companies or alliances, or acquire or merge other organizations;
and
	 
	 	24)	 	to exercise other functions and powers as provided for in laws and regulations.

Meetings of the board of directors shall adopt resolutions on the issues discussed. Resolutions
on issues as mentioned in Paragraphs 1 to 23 of this Article must be approved by more than half
of all the directors (including the directors appointed by Redgate according to the Articles of
Association), and resolutions on other issues may be approved by more than half of arbitrary
directors.

Article 26 The meetings of the board of directors shall be convened and presided over by the
chairman. Where the chairman cannot or fail to perform his duty, the meetings shall be presided
over by the vice-chairman; where the vice-chairman cannot or fail to perform his duty, the meetings
shall be presided over by a director elected by more than half of all the directors.

Article 27 The resolutions of the board of directors shall comply with the voting principle “one
voting right for one director”.

Article 28 Four (4) directors (including the directors appointed by Redgate according to the
Articles of Association) who attend the meetings of the board of directors in person or by proxy
shall form a quorum.

Where the number of the directors who attend any meeting of the board of directors in person or
by proxy is less than the quorum, no resolution may be adopted on any issue at such meeting.

Where any director cannot attend a meeting of the board of directors for a special reason, he
may entrust his proxy with a written power of attorney to attend the meeting and participate in
voting. The proxy shall enjoy the same rights and powers with the director who issues the power
of attorney. A

10

 

director who neither attends in person nor entrusts a proxy to attend a meeting of the board of
directors shall be deemed as having waived the voting right at such meeting.

Any meeting of the board of directors may be held by means of conference telephone or other
similar communication devices if all the directors present at the meeting can be heard and talk
with each other, and all such directors shall be deemed as attending the meeting in person.

The board of directors may replace a meeting of the board of directors with written
resolutions, provided that the resolutions shall be sent to all the directors and signed in
approval by the required number of directors as mentioned in Article 25 hereof, in which case,
the resolutions shall be deemed as having been adopted.

Article 29 The meeting of the board of directors shall be held once every two (2) months. The
chairman shall convene and preside over the meeting of the board of directors. The chairman shall
send a written notice (including e-mail and facsimile) to each director at least ten (10) working
days in advance, indicating the date, time and place of the meeting as well as the topics to be
discusses at the meeting. With respect to a meeting, the requirement for written notice may be
waived with consents of all the directors.

Article 30 The chairman shall convene an interim meeting of the board of directors upon the
proposal of one (1) or more directors.

Article 31 The board of directors shall keep complete and accurate minutes, which shall be signed
by all the directors or the proxies present at the meeting of the board of directors and served on
each shareholder in time and filed by the Company after the meeting of the board of directors.

Chapter IX Supervisors

Article 32 The Company has no board of supervisors, but has two (2) supervisors, who shall be
recommended respectively by Redgate and the other shareholders and elected by the Shareholders’
Meeting. The term of office of a supervisor shall be three (3) years. A supervisor may, if
re-elected upon expiration of the term of office, serve consecutive terms.

Article 33 Supervisors shall exercise the following functions and powers:

	 	1)	 	to examine the financial affairs of the Company;
	 
	 	2)	 	to supervise the acts of the directors and senior officers during the performance of
their duties, and to propose the dismissal of the directors and senior officers who
violate laws, administrative regulations, the Articles of Association or the resolutions
of the Shareholders’ Meeting;
	 
	 	3)	 	to demand the directors and senior officers to make corrections if any of their acts
is found to have

11

 

	 		 	
damaged the Company’s interests;

	 	4)	 	to propose for an interim Shareholders’ Meeting, and to convene and preside over the
Shareholders’ Meetings where the board of directors fails to perform such duties
hereunder;
	 
	 	5)	 	to put forward proposals to the Shareholders’ Meeting;
	 
	 	6)	 	to bring lawsuits against the directors and senior officers in accordance with
Article 152 of the Company Law of the People’s Republic of China;
	 
	 	7)	 	to exercise other functions and powers as provided for in laws and regulations.

Chapter X Operation Management

Article 34 The Company shall have the management organ, of which the management personnel
comprise senior officers of the Company. Senior officers refer to general manager, deputy general
manager, chief financial officer, sales director and any other person suitable for specific
positions as appointed from time to time by the board of directors according to Article 25 hereof.
Appointment, dismissal and salary of each senior officer shall be subject to the decision of the
board of directors. The day-to-day operation affairs of the Company shall be in the full charge of
the general manager. The deputy general manager and other senior officers shall directly report on
their work to the general manager. The general manager shall report on his work to the board of
directors. Where the general manager is absent or the board of directors requires otherwise, the
deputy general manager may exercise his powers on behalf of the general manager to handle the
operation affairs of the Company.

Article 35 The term of office of each senior officer shall be three (3) years, unless any senior
officer is dismissed in advance according to the employment agreement between the board of
directors and/or the Company and such senior officer. Senior officers may, if reappointed by the
board of directors, serve consecutive terms.

Article 36 The Company has the general manager, who shall be appointed or dismissed by the board of
directors. The general manager shall be responsible to the board of directors and exercise the
following functions and powers:

	 	1)	 	to take charge of the production, operation and management of the Company and to
organize the implementation of the resolutions of the board of directors;
	 
	 	2)	 	to organize the implementation of the annual business plans and investment plans of
the Company;
	 
	 	3)	 	to draw up plans on the establishment of the internal management organs of the
Company;

12

 

	 	4)	 	to draw up the basic management system of the Company;
	 
	 	5)	 	to formulate specific rules and regulations of the Company;
	 
	 	6)	 	to propose the appointment or dismissal of the deputy manager and of persons in
charge of the financial affairs of the Company;
	 
	 	7)	 	to appoint or dismiss management personnel other than those to be appointed or
dismissed by the board of directors; and
	 
	 	8)	 	to exercise other functions and powers granted by the board of directors.

The general manager may attend the meetings of the board of directors as a non-voting
participant, if invited by the chairman.

Article 37 The Company shall conduct operation activities according to the quarterly and annual
budgets approved by the board of directors. The general manager shall, in conjunction with the
chief financial officer of the Company, submit relevant budget plans of the following fiscal
quarter or year to the board of directors as soon as possible, but in any case, within thirty (30)
days prior to the beginning of each fiscal quarter or year.

Article 38 The Company shall conduct operation activities according to the quarterly and annual
business development plans approved by the board of directors. The general manager shall submit
relevant business development plans of the following fiscal quarter or year to the board of
directors as soon as possible, but in any case, within thirty (30) days prior to the beginning of
each fiscal quarter or year. Such plans shall be prepared and submitted in compliance with the
following standards:

	 	1)	 	The plans shall describe in detail the business development and operation planning of
the following fiscal quarter or year, including detailed development and operation plans,
procedures and feasibility analysis;
	 
	 	2)	 	Relevant plans shall be prepared on the basis of sufficient communication with other
senior officers, and state the estimated financial results of the Company’s operation
activities (including income statement and balance sheet) on the basis of negotiation with
the person in charge of financial affairs; and
	 
	 	3)	 	Core and key materials on which the plans are formulated shall be provided at the
time of plan submission, so that the members of the board of directors may understand
sufficiently the background information in connection with the preparation of the plans.

13

 

Article 39 Unless specially permitted (including the consents of the directors appointed by
Redgate) in the resolutions of the board of directors, any of the Company’s staff and workers,
including senior officers, may not directly or indirectly participate in any commercial competitive
activities against the Company; any of the Company’s staff and workers other than senior officers
may not hold any post concurrently in any other economic organization. Senior officers shall devote
their major time and energy to operating the Company (namely, to ensure that they will spend at
most 10 hours every week in engaging in other activities other than their duties in the Company).

Chapter XI Legal Representative

Article 40 The chairman shall be the legal representative of the Company. The Shareholders’
Meeting has the right to replace him with the general manager as the Company’s legal
representative, if necessary.

Article 41 The legal representative shall exercise his duties to the extent of authorization under
the Articles of Association and by the board of directors:

	 	1)	 	to convene and preside over the Shareholders’ Meetings and the meetings of the board
of directors;
	 
	 	2)	 	to examine the implementation of the resolutions of the board of directors and to
report on his work to the board of directors;
	 
	 	3)	 	to sign relevant documents on behalf of the Company.

Chapter XII Financial and Accounting System, Profit Distribution and Employment System

Article 42 The Company shall establish its financial and accounting system in accordance with
laws, administrative regulations and the competent financial department under the State Council,
and prepare the financial and accounting reports at the end of each fiscal year.

Article 43 Each shareholder shall procure the Company to provide the following information to
Redgate in the forms acceptable to Redgate:

	 	1)	 	to, within sixty (60) days after each fiscal year, submit the audited complete
financial report and management personnel report; the former report shall be audited by an
accountant registered in China, who is appointed by the shareholders through negotiation;
	 
	 	2)	 	to, within thirty (30) days after each fiscal year, submit the budget report of the
following fiscal year;
	 
	 	3)	 	to, within fifteen (15) days after each quarter, submit the budget report of the
following quarter;

14

 

	 	4)	 	to, within forty-five (45) days after each quarter, submit the unaudited quarterly
financial report and quarterly management personnel report;
	 
	 	5)	 	to, within fifteen (15) days after each month, submit the unaudited monthly financial
report and monthly management personnel report; and
	 
	 	6)	 	the copies of all documents or information to be submitted by the Company to other
shareholders than Redgate.

The financial reports as mentioned above shall be prepared in accordance with generally
accepted accounting principle in China and prepared separately in accordance with US GAAP for
submission to Redgate. All management personnel reports shall contain the financial data and
the comparative results between budget targets in corresponding quarters or years.

Each shareholders shall procure the Company to provide, within ordinary business hours, Redgate
with the following materials, financial or tax information and any other information required
by Redgate reasonably: 1) any audit or other investigation conducted by any government
authority, or preparation of any of the Company’s books and tax return; or 2) any matter in
connection with any claim by any third person, administrative or legal procedures and
investigation. Such records may not be destroyed or disposed in any other way until Redgate has
a reasonable chance to review and copy them. In addition, Redgate shall be permitted to discuss
with any of the Company’s directors, management personnel, employees, accountants, legal
counselor and investment bankers about the business and operation situation of the Company and
any of its affiliates.

Article 44 At the end of each fiscal year, if the Company gains profits and the Shareholders’
Meeting decides to distribute the profits, Redgate shall have the right to have the priority in
obtaining the profits in the amount equivalent to RMB 2 million. If the profits distributed to
Redgate in the previous year exceeds the amount distributable based on the proportion of capital
contribution, the Company shall have the right to deduct the balance (the result may not be
negative) from the profits to be distributed in the current year.

Article 45 The Company’s employment systems shall be subject to pertinent provisions of national
laws, regulations and the State Council, as well as those of local labor authority.

Chapter XIII Dissolution Causes and Liquidation Methods

Article 46 The duration of the Company is ten (10) years, starting from the date on which the
Business License is issued.

Article 47 The Company may be dissolved in case of any of the following circumstances:

	 	1)	 	The duration of the Company as stipulated herein expires or other circumstances as
stipulated

15

 

	 	 	 	herein occur, unless the Company exists continually via amendments to the Articles of
Association;

	 	2)	 	The Shareholders’ Meeting resolves dissolution;
	 
	 	3)	 	Dissolution becomes necessary as a result of merger or division of the Company;
	 
	 	4)	 	Dissolution becomes necessary as a result of sale, transfer, lease or exclusive
license of the Company, or disposal of all or major part of the Company’s assets or
incomes;
	 
	 	5)	 	The Company’s Business License is revoked, the Company is ordered to close down or
its registration is cancelled;
	 
	 	6)	 	The competent People’s Court rules for dissolution in accordance with the laws; or
	 
	 	7)	 	Other dissolution circumstances as provided for in laws and administrative
regulations occur.

Article 48 Where the Company is dissolved under the circumstances as mentioned in Articles 47.1,
47.2, 47.5 and 47.6 above, a liquidation team shall be formed in accordance with the Company Law of
the People’s Republic of China to conduct liquidation upon the Company. Upon completion of the
liquidation, the liquidation team shall prepare a liquidation report, report it to the
Shareholders’ Meeting for confirmation, submit it to the Company registration authority to apply
for canceling the registration and then publicly announce the termination of the Company. In the
case of liquidation, after the Company’s properties are used to pay liquidation fee, salaries,
social insurance premium and legal compensations to the staff and workers and outstanding taxes,
and repay the Company’s debts in accordance with the Company Law of the People’s Republic of China,
Redgate shall have the priority in obtaining the amount equal to the sum of 1) total amount of
capital increase amount as specified in the Capital Increase Agreement, plus 2) whichever is
higher: (X) all declared but undistributed profits incurred from the equity interest held by
Redgate; or (Y) interests (deducting the profits which have been distributed before) calculated at
a compound interest of 8% from the day when the capitals increased are paid up. In order to realize
the aforesaid purpose, the other shareholders than Redgate warrant to transfer the benefit right
from the corresponding liquidation earnings as mentioned in such items to Redgate, free of charge.
In such case, the Company shall pay the liquidation earnings distributable to Redgate in full
amount (if the remaining assets are sufficient). The remaining properties after completing such
distribution, if any, shall be distributed to the shareholders in proportion to their capital
contributions.

Notwithstanding the aforesaid provisions, Redgate has the right to waive (whether prior to or
subsequent to distribution) the priority right to obtain the liquidation earnings if the
incomes received by Redgate after liquidation reach or exceed twice (2) of the capital increase
amount as mentioned in the Capital Increase Agreement.

16

 

Article 49 Where the Company is declared bankrupt according to law, bankruptcy liquidation shall be
conducted in accordance with the laws on enterprise bankruptcy.

Chapter XII Supplemental Provisions

Article 50 Registered items of the Company shall be subject to the verification and approval
by the Company Registration Authority.

Article 51 The Articles of Association shall be made in four (4) copies, one of which shall be
submitted to the Company Registration Authority for record filing.

     [Execution Page below]

17

 

	 	 	 	 	 
	[Execution Page]

Signatures by All Shareholders:

Baohe Meng

 	 	 
	Signature:  	 	 	 
	 	 	 	 
	 	 	 	 
	 
	Chunhong Xu

 	 	 
	Signature:  	
 	 	 
	 	 	 	 
	 	 	 	 
	 
	Ting Wang

 	 	 
	Signature:  	 	 	 
	 	 	 	 
	 	 	 	 
	 
	Zhihong Zhang

 	 	 
	Signature:  	
 	 	 
	 	 	 	 
	 	 	 	 
	 
	Redgate Interactive Advertising (Beijing) Co., Ltd. (seal)

 	 	 
	Signature:  	
 	 	 
	 	Name:  	Ying Zhu 	 	 
	 	Title:  	legal representative 	 	 
	 

Date: October 31, 2007

Appendix III

 

 

Appendix IV

Form of Non-competition Agreement

[See Exhibit 10.9.3]

Appendix IVexv10w9w2

Exhibit 10.9.2

Execution Version

[Translation of Chinese original]

 

Capital Increase Agreement

 

By and among

Redgate Interactive Advertising (Beijing) Co., Ltd.

All Natural Persons Listed in Appendix 1

And

Shanghai FLOG Media Culture Co., Ltd.

November 24, 2007

Shanghai Office

King & Wood PRC Lawyers

 

 

Table of Contents

	 	 	 	 	 	 	 
	Article Heading	 	Page
	 
	1.

	 	Definitions
	 	 	1	 
	2.

	 	Capital Increase
	 	 	3	 
	3.

	 	Conditions Precedent
	 	 	5	 
	4.

	 	Undertakings
	 	 	7	 
	5.

	 	Completion of Capital Increase
	 	 	7	 
	6.

	 	Warranties
	 	 	9	 
	7.

	 	Confidentiality
	 	 	10	 
	8.

	 	Liability for Breach of Contract
	 	 	11	 
	9.

	 	Assignment
	 	 	11	 
	10.

	 	Termination and Rescission
	 	 	11	 
	11.

	 	Governing Law and Dispute Settlement
	 	 	11	 
	12.

	 	Notice
	 	 	12	 
	13.

	 	Entire Agreement
	 	 	13	 
	14.

	 	Severability
	 	 	14	 
	15.

	 	Waiver
	 	 	14	 
	Appendix 1 Existing Shareholders	 	 	1	 
	Appendix 2 Balance Sheet	 	 	1	 
	Appendix 3 Warranties	 	 	1	 
	Appendix IV Disclosure Letter	 	 	1	 
	Appendix V Form of Employment Contract	 	 	1	 
	Appendix VI Form of Non-competition Agreement	 	 	1	 
	Appendix VII Non-competition Agreement (to be signed
with Shanghai Syndicate Advertising Co., Ltd.)	 	 	1	 

 

 

The Capital Increase Agreement (the “Agreement”) was made on November 24, 2007 in Beijing,
China by and among the following parties:

	(1)	 	Redgate Interactive Advertising (Beijing) Co., Ltd., a limited liability company duly
incorporated and existing in accordance with the laws of China, with the registered address at
Rm. B-1807-B, Jianwai SOHO No. 23 Building (South Tower), No. 39 East 3rd Ring Road Central,
Chaoyang District, Beijing, China (“Investor”);
	 
	(2)	 	All natural persons listed in Appendix 1 (“Existing Shareholders”); and
	 
	(3)	 	Shanghai FLOG Media Culture Co., Ltd., a limited liability company duly incorporated and
existing in accordance with the laws of China, with the registered office at Rm. 115, No. 2126
Zhengnan, Donghai Village, Caojing Town, Jinshan District, Shanghai, China (“Company”).

(The Investor, the Existing Shareholders and the Company are hereinafter collectively referred to
as the “Parties” and individually referred to as a “Party”.)

Whereas:

	(A)	 	The Company was established on January 16, 2007, with the registered capital of RMB Six
hundred and eighty-three thousand one hundred (RMB683,100) as of the date of the Agreement;
	 
	(B)	 	The proportions of the equity interest of the Existing Shareholders in the Company as of the
date of the Agreement are listed in Appendix 1 (Existing Shareholders). According to the
resolutions of the shareholder’s meeting adopted on November 24, 2007, the Investor desires to
subscribe for the Capital Increase (defined as below) according to the terms and conditions of
the Agreement;
	 
	(C)	 	The Existing Shareholders agree to make several representations, warranties and undertakings
concerning the Capital Increase contemplated hereunder to the Investor.

Therefore, it is agreed as follows:

	1.	 	Definitions
	 
	1.1	 	The terms used in the Agreement shall have the following meanings:
	 
	 	 	“Related Party” means, in respect of any party hereto, any company, partnership or other
entity which controls, is controlled by or is under the common control with, that party
directly or indirectly; if such party is a natural person, Related Party refers to his/her
spouse or relatives. (For the purpose of this definition, the word “Control” means having
the control right over that party by direct or indirect ownership of the voting equity of
that party, or, by means of agreement or other arrangement);
	 
	 	 	“Restated Articles of Association” refers to the amended Articles of Association signed on
the date of the Agreement;
	 
	 	 	“Accounts” refers to accounting books of the Company during the financial period up to the
Balance Sheet Date;

1

 

	 	 	“Balance Sheet” refers to the balance sheet up to the Balance Sheet Date as listed in
Appendix 2 hereto;
	 
	 	 	“Balance Sheet Date” refers to September 30, 2007;
	 
	 	 	“Board of Directors” refers to the Company’s board of directors;
	 
	 	 	“Business Day” refers to a day on which banks in China are open to the public for business
(exclusive of Saturdays, Sundays and statutory holidays);
	 
	 	 	“Completion of Capital Increase” refers to the confirmation by the Parties according to
Article 5.1 hereof that the Conditions Precedent have been fulfilled or waived;
	 
	 	 	“Conditions Precedent” refers to the conditions as specified in Article 3.1 hereof;
	 
	 	 	“Expenses” means any kind of liabilities, losses, damages, costs (including legal costs) and
expenditures (including taxes and duties);
	 
	 	 	“Disclosure Letter” refers to a letter signed and delivered to the Investor by the Company
prior to or on the date of the Agreement to disclose exceptions from Warranties, provided
that all affairs disclosed must be specific and complete and correspond to the reference
numbers of Appendix 3 (refer to Appendix 4 hereto);
	 
	 	 	“Encumbrance” refers to any mortgage, pawn, lien, option, right to sell, priority,
preemptive right and security interest in any nature;
	 
	 	 	“Capital Increase” refers to the capital of RMB fifteen million (RMB15,000,000) (“Capital
Increase Amount”) to be subscribed for by the Investor in the Company according to the
Agreement to increase the Company’s registered capital to RMB seven hundred and sixty-five
thousand and thirty-five (RMB765,035);
	 
	 	 	“Government Approval” refers to all approval documents issued by the Chinese governmental
authorities concerning issues as mentioned herein;
	 
	 	 	“Key Management Personnel” refers to Baohe Meng, Ting Wang, Yulong Wang, Xiaohua Fu, Jing
Yang and Xiaodong Lan;
	 
	 	 	“Co-managed Account” refers to a special bank account opened by the Company and the Investor
in the name of the Investor with [Agriculture Bank of China], where the seal of the
Company’s legal representative (namely, Baohe Meng) is reserved, with A/C.:
                    ;
	 
	 	 	“Intellectual Property” includes patents, patent application, utility models, trademarks,
service logos, registered designs, copyrights, technical drawings, trade names, database
rights, domain names, brand names, computer software programs and systems, know-how,
inventions, creations, confidential information and other industrial or commercial
intellectual property rights (whether they are registered or not, or whether they may be
registered or not), and all application documents for registration or protection of such
items;

2

 

	 	 	“License” refers to the licenses, consents, authorizations, orders, warranties,
confirmations, permits, certificates and approvals which are necessary or required for
existing, past and future operation activities of the Company;
	 
	 	 	“Lawsuit” includes claims, legal actions, legal proceedings, suits, litigations,
prosecution, investigation, inquiry or arbitration in which the Company is involved
(exclusive of lawsuits to which the Company is a plaintiff to recover debts and liabilities
during its normal operation);
	 
	 	 	“China” means, for the purpose of the Agreement, the mainland of the People’s Republic of
China, exclusive of Hong Kong SAR, Macao SAR and Taiwan;
	 
	 	 	“Renminbi” or “RMB” refers to the legal currency of the People’s Republic of China;
	 
	 	 	“Social Insurance” refers to pension, house accumulation fund, unemployment insurance,
industrial injury insurance, medical insurance and comprehensive insurance which the Company
must pay for its staff members and workers in accordance with the state and Shanghai laws
and policies, and any other social security fund as required by the Chinese government;
	 
	 	 	“Taxes” refers to any and all taxes and duties payable (including, but not limited to, any
income tax, sales tax, stamp tax and other kinds of taxations, tariff, fees, expenditures,
deductions, fines or withholding tax which are imposed, collected or apportioned).
“Taxation” shall also be construed correspondingly;
	 
	 	 	“Warranties” refers to representations and warranties made by the Company and Existing
Shareholders to the Investor, as mentioned in Appendix 3 hereto;
	 
	1.2	 	Headings
	 
	 	 	The headings of all clauses are inserted only for the reference and shall not affect the
interpretation of the Agreement.
	 
	1.3	 	Reference
	 
	 	 	Reference to Chinese laws includes reference to any laws, regulations, and policies with
legal force or other subsidiary legislations within China. Reference to laws includes
reference to their respective amendments or modifications. Reference to the Agreement
or any contract includes reference to the modified, amended or renewed contracts.
	 
	1.4	 	Appendices
	 
	 	 	The appendices comprise such appendices as listed in the Table of Contents hereof. The
appendices shall be integral part hereof and have equal legal force.
	 
	2.	 	Capital Increase
	 
	2.1	 	If the Conditions Precedent are fulfilled, the Investor shall invest RMB fifteen million
(RMB15,000,000) in the Company according to the Agreement, and an amount of RMB eighty-one
thousand nine hundred and thirty-five (RMB81,935) shall be accounted into the Company’s
registered capital, and the balance of RMB fourteen million nine hundred and eighty thousand

3

 

	 	 	and sixty-five (RMB14,918,065) shall be accounted into the Company’s capital reserves. After
Completion of Capital Increase as mentioned herein, the shareholders of the Company and
their capital contributions and shareholding proportion shall be as shown in the following
table:

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Proportion in
	Shareholders	 	Capital Contributions (RMB)	 	Registered Capital
	Redgate Interactive
Advertising
(Beijing) Co., Ltd.
	 	 	81,935	 	 	 	10.71	%
	Baohe Meng
	 	 	372,700	 	 	 	48.72	%
	Chunhong Xu
	 	 	93,200	 	 	 	12.18	%
	Ting Wang
	 	 	34,100	 	 	 	4.46	%
	Zhihong Zhang
	 	 	183,100	 	 	 	23.93	%
	Total
	 	 	765,035	 	 	 	100	%

	2.2	 	Subject to each party’s adjustment of the Capital Increase Amount according to Articles 2.3
to 2.6 hereof, the Capital Increase Amount contemplated hereunder shall be RMB fifteen million
(RMB15,000,000).
	 
	2.3	 	In consideration of the Company’s net asset value, historical performance, market share and
other factors (especially the information disclosed by Existing Shareholders and the Company
to the Investor), the Company’s equity value after Completion of the Capital Increase shall be
calculated as follows: value of the Company’s equity interest = 7 × RMB twenty million
(RMB20,000,000) of the forecasted profit after-tax for 2007 (for the purpose of Article 2,
from December 1, 2007 to November 30, 2007) as audited by the auditors according to American
Accounting Standards = RMB one hundred and forty million (RMB140,000,000).
	 
	2.4	 	If the actual amount of the profit after-tax for 2007 as audited is less than such amount,
the equity value shall be adjusted downward correspondingly. In such case, the Company need
not refund any surplus to the Investor, but the Company’s shareholding shall be adjusted as
follows:
	 
	 	 	Investor’s shareholding:
	 
	 	 	(RMB15,000,000 / actual amount of the profit after-tax for 2007 as audited × 7) ×100%
	 
	 	 	The Existing Shareholders shall make an equity transfer to the Investor without
consideration in order to realize the aforesaid adjustment.
	 
	 	 	Existing Shareholders’ shareholding:
	 
	 	 	1 – (RMB15,000,000 / actual amount of the profit after-tax for 2007 as audited × 7) ×100%
	 
	2.5	 	If the actual amount of the profit after-tax for 2007 as audited is more than such value, the
equity value shall be adjusted upward correspondingly. In such case, the Capital Increase
Amount to be paid by the Investor shall be: (actual amount of the profit after-tax for 2007 as
audited × 7) ×10.71% and the difference between such result and the Capital Increase Amount
shall be made up by the Investor. The shareholding of the Investor and all Existing
Shareholders shall remain unchanged thereafter.

4

 

	2.6	 	Notwithstanding the provisions of Article 2.5 above, if the actual amount of the profit
after-tax for 2007 as audited is more than RMB25,000,000, the Investor shall not pay any
additional Capital Increase Amount for the part in excess of RMB25,000,000 and its
shareholding in the Company shall remain unchanged.
	 
	2.7	 	For the avoidance of doubt, the auditor as mentioned in the preceding paragraphs in charge of
the auditing of the Company’s profit after-tax shall be PricewaterhouseCoopers or another
international accounting firm with the same level of reputation or an auditor agreed otherwise
by the Parties in writing which shall have the corresponding qualifications and good market
reputation.
	 
	2.8	 	Where the Company’s shareholding or the Capital Increase Amount changes as mentioned herein,
Existing Shareholders and the Company shall cooperate with the Investor in obtaining all
government approvals as soon as possible in accordance with Chinese laws and go through all
necessary procedures with relevant authorities.
	 
	2.9	 	Notwithstanding the provisions of Article 2.4 above, if the actual amount of the profit
after-tax for 2007 as audited is a negative value, the Investor shall have the right to
require Existing Shareholders to refund the total Capital Increase Amount promptly. In such
case, the Agreement and Restated Articles of Association shall be terminated immediately.
Existing Shareholders and the Company shall cooperate with the Investor in handling all
necessary procedures for refund of the Capital Increase Amount and the Investor shall execute
relevant legal documents with Existing Shareholders to transfer, without consideration, the
Company’s equity interest held by it to the Existing Shareholders respectively according to
their shareholding proportion.
	 
	3.	 	Conditions Precedent
	 
	3.1	 	Transactions as mentioned in Article 2 hereof shall not be completed until the following
conditions are fulfilled or waived by the Investor in writing:

	 	3.1.1	 	The Company’s shareholders’ meeting has adopted all necessary resolutions to:

	 	(i)	 	approve the transactions as mentioned herein;
	 
	 	(ii)	 	approve the acceptance of the Capital Increase by the
Investor as mentioned in the Agreement;
	 
	 	(iii)	 	approve amendment to the original Articles of Association of
the Company; and
	 
	 	(iv)	 	The Existing Shareholders waive their pre-emptive rights.

	 	3.1.2	 	The Existing Shareholders and the Investor have executed the Restated Articles
of Association;
	 
	 	3.1.3	 	The Warranties made hereunder are true, accurate and complete and are not
misleading on the date of the Agreement and the Completion of Capital Increase;
	 
	 	3.1.4	 	The Company has submitted to the Investor a letter signed by its authorized
representative, confirming that there are not circumstances which may have any

5

 

	 	 	 	material adverse effect upon the Company’s operation or financial conditions up to
the date of the Completion of Capital Increase;

	 	3.1.5	 	The procedures for alteration of industrial and commercial registration in
respect of the Capital Increase have been completed, the register of shareholders has
been modified correspondingly and the Investor has obtained the capital contribution
certificate issued by the Company;
	 
	 	3.1.6	 	The Company has the Board of Directors which comprises five (5) directors, of
whom one director appointed by the Investor, namely, Ying Zhu, has been duly appointed;
	 
	 	3.1.7	 	The Company has executed with all its staff members and workers the formal
employment contracts and paid various social insurance premiums for them in accordance
with Chinese laws and regulations. The Company has executed with all Key Management
Personnel the employment contracts in the form as mentioned in Appendix 5 hereto;
	 
	 	3.1.8	 	The Company has executed with all its staff members and workers the employment
contracts which contain clauses of confidentiality obligations. The Company has
executed with all Key Management Personnel the non-competition agreements in the form
as mentioned in Appendix 6 hereto;
	 
	 	3.1.9	 	As to the Agreement for Subscription for Increased Capital between the Company
and each of Existing Shareholders in January 2007, Existing Shareholders have executed
a supplementary agreement, agreeing on the right of Zhihong Zhang to make additional
investment to the Company and other affairs which may affect the Capital Increase such
as changes in equity based on performance, which have been acknowledged by the
Investor; and
	 
	 	3.1.10	 	The Company has executed with Shanghai Syndicate Advertising Co., Ltd. the
non-competition agreement (as mentioned in Appendix 7 hereto), the contents of which
have been acknowledged by the Investor.

	3.2	 	The Company and Existing Shareholders undertake to make all reasonable efforts to ensure that
the Conditions Precedent as mentioned in Article 3.1 hereof are fulfilled as soon as possible
provided that the Investor has made payment as mentioned in Articles 5.2 and 5.3 hereof, and
in any event, they shall be fulfilled within three (3) months from the date of the Agreement.
	 
	3.3	 	The Investor shall have the right to waive all or part of the Conditions Precedent as
mentioned in Article 3.1 hereof at its own discretion with a written notice to the Company and
Existing Shareholders.
	 
	3.4	 	Unless the Investor waives any of the Conditions Precedent, in case the Conditions Precedent
cannot be fulfilled within three (3) months from the date of the Agreement, the Investor shall
have the right to terminate the Agreement immediately according to the procedures as mentioned
in Article 5.7 hereof after issuing a written notice to the Company and Existing Shareholders
without taking any liability therefor. However, if the failure to fulfil all the Conditions
Precedent is resulted from either the Company or Existing Shareholders violating Article 3.2
hereof, termination of the Agreement shall not affect the default liability to be assumed by
the breaching party.

6

 

	4.	 	Undertakings
	 
	4.1	 	Before Completion of Capital Increase, except with the Investor’s written consent, the
Company and Existing Shareholders shall ensure and procure that:

	 	4.1.1	 	The Company shall take all reasonable measures to preserve and protect all
its assets;
	 
	 	4.1.2	 	They shall disclose rapidly all information to the Investor which the Company
or Existing Shareholders are aware of and may constitute facts or events (whether they
exist on or prior to or subsequent to the date of the Agreement) in breach of
Warranties made then in terms of facts and circumstances upon the Completion of Capital
Increase;
	 
	 	4.1.3	 	The Company shall not conduct any activity which may disturb seriously or
delay improperly the completion of the transactions as mentioned herein or which may
constitute a violation of Warranties hereunder;
	 
	 	4.1.4	 	The Company shall not arbitrarily conduct any activity subject to the consent
of the shareholders’ meeting or the Board of Directors in accordance with laws or the
Articles of Association; and
	 
	 	4.1.5	 	The Company will not enter into any other agreement, contract or arrangement,
or make any transaction, except during normal operation and with the Investor’s written
consent.

	4.2	 	If prior to the Completion of Capital Increase, the Company or Existing Shareholders violate
materially their respective undertakings or Warranties under Article 4 hereof or other
obligations hereunder, the Investor shall have the right to rescind the Agreement
unconditionally without taking any liability and require the Company to refund the Capital
Increase Amount paid by the Investor (if any). In addition, the Company and Existing
Shareholders shall assist with the Investor in handling all required procedures (including,
but not limited to, presenting the seal of the Company’s legal representative — Baohe Meng —
and executing all necessary documents, etc.) for refunding the Capital Increase Amount (if
any) in the Co-Managed Account. If the procedures for alteration of industrial and commercial
registration in respect of the Capital Increase have been completed, the Investor shall
execute relevant legal documents with the Existing Shareholders and transfer, without any
consideration, the Company’s equity interest held by it to the Existing Shareholders
respectively according to their shareholding proportion.
	 
	4.3	 	The Company shall, within three (3) months after the Completion of Capital Increase, change
the registered address, so that it shall be consistent with its actual business place in a way
acceptable to the Investor.
	 
	4.4	 	The Company shall, within three (3) months after the Completion of Capital Increase, take
over, without any consideration, all the remaining advertising business in connection with
golf court from Shanghai Syndicate Advertising Co., Ltd., namely, the Company shall enter into
a transfer agreement with Kunshan Fullrich Entertainment Co., Ltd. and Beijing CBD
International Golf Club concerning the transfer affairs under the Cooperation Agreement for
Court Advertisements to the satisfaction of the Investor.
	 
	5.	 	Completion of Capital Increase

7

 

	5.1	 	The Company shall provide the Investor with relevant certification documents and issue a
written notice within three (3) Business Days after all the Conditions Precedent are fulfilled
or waived. The Parties shall, within three (3) Business Days after such a notice is issued,
confirm in writing whether the Conditions Precedent have been fulfilled.
	 
	5.2	 	All parties agree that within seven (7) Business Days after the date of the Agreement, the
Investor shall remit RMB eighty-one thousand nine hundred and thirty-five (RMB81,935) (equal
to the increased amount of the Company’s registered capital) to the RMB account designated by
the Company. All parties agree that the Company shall, within three (3) Business Days after
receiving such amount, appoint a Chinese certified public accountant to verify the capital and
issue the relevant capital verification report. The Company shall, within three (3) Business
Days after the report is issued, apply to the relevant administration for industry and
commerce for going through the procedures for alteration in order to reflect the aforesaid
Capital Increase.
	 
	5.3	 	All parties agree that within seven (7) Business Days after the date of the Agreement, the
Investor shall remit RMB four million nine hundred and eighteen thousand and sixty-five
(RMB4,918,065) to the Co-Managed Account. Such amount shall be remitted to the RMB account
designated by the Company within three (3) Business Days after Completion of Capital Increase.
	 
	5.4	 	All parties agree that within one (1) month after Completion of Capital Increase, the
Investor shall pay one third of the Capital Increase Amount, totally RMB five million
(RMB5,000,000), to the RMB account designated by the Company.
	 
	5.5	 	All parties agree that within two (2) months after Completion of Capital Increase, the
Investor shall pay one sixth of the Capital Increase Amount, totally RMB two million five
hundred thousand (RMB2,500,000), to the RMB account designated by the Company.
	 
	5.6	 	All parties agree that within three (3) months after Completion of Capital Increase, the
Investor shall pay one sixth of the Capital Increase Amount, totally two million five hundred
thousand (RMB2,500,000), to the RMB account designated by the Company.
	 
	5.7	 	The Parties shall make settlement through amiable negotiation where the Conditions Precedent
as mentioned in Article 3.1 hereof have not been or cannot be fulfilled within three (3)
months from the date of the Agreement or another date agreed upon by all parties. If no
agreement is reached within fifteen (15) Business Days after negotiation, the Investor need
not continue with Capital Increase and may, at its own discretion, notify Existing
Shareholders and the Company in writing:

	 	5.7.1	 	To terminate the Agreement without taking any legal liability and require the
Company to refund the Capital Increase Amount paid by the Investor (if any) and pay the
amount equal to the Capital Increase Amount (if any) to the Investor as the penalty. In
addition, the Company and Existing Shareholders shall assist with the Investor in
handling all necessary procedures (including, but not limited to, presenting the seal
of the Company’s legal representative, executing all necessary documents and so on) for
refunding such Capital Increase Amount in the Co-Managed Account.If the procedures for
alteration of industrial and commercial registration in respect of the Capital Increase
have been completed and the Company has refunded the Capital Increase Amount and paid
the penalty, the Investor shall execute relevant legal documents with the Existing

8

 

	 	 	 	Shareholders and transfer, without consideration, the Company’s equity interest held
by it to the Existing Shareholders respectively according to their shareholding
proportion; or

	 	5.7.2	 	To perform the Agreement prior to a later date provided that the Company and
Existing Shareholders can perform their respective unfulfilled obligations (including
fulfillment of relevant Conditions Precedent). The Investor may: i) specify one or more
dates on which the Company and Existing Shareholders shall fulfill their respective
unfulfilled obligations; or ii) exempt the Company and Existing Shareholders from part
of unfulfilled obligations, and specify a deadline prior to which the remaining
unfulfilled obligations shall be performed; or iii) exempt the Company and Existing
Shareholders from all their unfulfilled obligations; or
	 
	 	5.7.3	 	To extend the performance of the Agreement to another date that may be
specified in the notice. In such case, if the Company or Existing Shareholders still
fail to perform their obligations on such a later date, the provisions of Article 5.7
hereof shall apply.

	5.8	 	The Company and Existing Shareholders agree to grant a grace period of fifteen (15) days
where the Investor fails to or cannot pay the Capital Increase Amount at relevant stages
according to the Agreement. The Parties shall make settlement through amiable negotiation
where the Investor still fails to pay the amount due after expiration of the grace period. The
Company and Existing Shareholders may, at their own discretion, issue a written notice to the
Investor in case of no agreement made within fifteen (15) days:

	 	5.8.1	 	To terminate the Agreement without taking any legal liability and refund of
the Capital Increase Amount paid by the Investor (if any). In addition, the Investor
shall assist with the Company and Existing Shareholders in handling all necessary
procedures (including executing all necessary documents and so on) for withdrawing and
receiving such Capital Increase Amount in the Co-Managed Account. If the procedures for
alteration of industrial and commercial registration in respect of the Capital Increase
have been completed, the Investor shall execute relevant legal documents with the
Existing Shareholders and transfer, without any consideration, the Company’s equity
interest held by it to the Existing Shareholders respectively according to their
shareholding proportion; or
	 
	 	5.8.2	 	To choose a later date for the Investor to perform its unfulfilled obligations
provided that the Investor can fulfill such obligations; or
	 
	 	5.8.3	 	To extend the performance of the Investor’s payment obligation to another date
that may be specified in the notice. In such case, if the Investor still fails to
perform its obligation on such a later date, the provisions of Article 5.8 hereof shall
apply.

	6.	 	Warranties
	 
	6.1	 	The Company and Existing Shareholders make representations and warranties to the Investor
jointly and severally according to the terms of Appendix 3 hereto.
	 
	6.2	 	The Company and Existing Shareholders acknowledge that the Investor’s execution of the
Agreement relies on these Warranties and undertakings set out in Article 4. Each undertaking
or Warranty shall be deemed independent from others and (unless otherwise expressed) shall not

9

 

	 	 	be limited or restricted by any other Warranty or undertaking or any other terms of the
Agreement.

	6.3	 	Warranties shall be deemed as made on the basis of existing facts and circumstances on the
date of the Agreement and prior to the Completion of Capital Increase.
	 
	6.4	 	The Company and Existing Shareholders undertake to notify the Investor in writing immediately
when they are aware of any fact or event which may cause any Warranty to be untrue or
incorrect or misleading in any aspect. The Investor agrees that if such fact or event occurs
during the period from the date of the Agreement to the date of the Completion of Capital
Increase and is attributable to force majeure, the Company and Existing Shareholders may be
exempted from default liability hereunder as a result of the said untrue or incorrect or
misleading Warranty after the Investor receives a written notice issued by the Company and
Existing Shareholders according to Article 6.4 hereof; however, such notice shall not
constitute a modification to the said Warranty.
	 
	6.5	 	The Company and Existing Shareholders agree to compensate the Investor’s direct or indirect
losses in case of breach of their undertakings or Warranties hereunder.
	 
	6.6	 	The Investor agrees to compensate for direct or indirect losses caused to the Company and/or
Existing Shareholders in case of breach of its undertakings or Warranties hereunder.
	 
	7.	 	Confidentiality
	 
	7.1	 	Without prior written consents of the other parties (such consent may not be withheld without
any justified reason), no party may make any public announcement of the Agreement or any other
or subsequent document executed concerning Capital Increase as mentioned herein, or any public
announcement of the Capital Increase.
	 
	7.2	 	Unless otherwise stipulated in Articles 7.1 and 7.3 hereof, the Parties shall deem any
information received or acquired as a result of execution of the Agreement and in connection
with the following contents as confidential information and such information shall not be
disclosed or used:

	 	7.2.1	 	the terms of the Agreement or the terms of any agreement made on the basis of
the Agreement;
	 
	 	7.2.2	 	negotiations in connection with the Agreement (and other relevant agreements
or legal documents); or
	 
	 	7.2.3	 	business, financial conditions or other issues (including future plans and
objectives) relating to any party hereto.

	7.3	 	Under any of the following circumstances, restricted disclosure or use of the information as
specified in Article 7.2 hereof shall not apply:

	 	7.3.1	 	the information to be disclosed or used as required by laws or rules or
regulations of any regulatory organization or any stock exchange;

10

 

	 	7.3.2	 	the information required to be disclosed or used in order to empower the
Parties with all interests under the Agreement;
	 
	 	7.3.3	 	the information required to be disclosed or used by any legal proceedings
resulting from the Agreement or any other agreement which is made according to the
Agreement; or information concerning taxation affairs of the disclosing party to be
reasonably disclosed to the tax agency;
	 
	 	7.3.4	 	the information to be disclosed to one party’s professional advisors, provided
that the party shall require the professional advisors to abide by the provisions of
Article 7.2 hereof on protection of such information as if they were the parties to the
Agreement;
	 
	 	7.3.5	 	the information already in public domain other than as a result of breach of
the Agreement;
	 
	 	7.3.6	 	the information that other parties have made a prior written approval to
disclose or use; and
	 
	 	7.3.7	 	the information developed by one party independently after Completion of
Capital Increase.

	8.	 	Liability for Breach of Contract
	 
	8.1	 	Any party who is in breach of the Agreement shall be responsible for losses caused to the
non-breaching party as a result of its breach (including the expenditures as mentioned in
Article 13 hereof if the Agreement is terminated or rescinded).
	 
	8.2	 	The Company and Existing Shareholders shall assume joint and several liabilities under the
Agreement. The Existing Shareholders may not have recourse to the Company due to the
Investor’s requirement for liabilities hereunder. The Investor may, at its own discretion,
reduce or exempt the Company and/or Existing Shareholders from all or part of their respective
liabilities to the Investor; however, such reduction or exemption shall not affect or impair
its claims against other parties (no matter whether they assume joint and several
liabilities).
	 
	9.	 	Assignment
	 
	 	 	Any party shall not assign any of its rights and interests hereunder without the prior
written consent of the other parties.
	 
	10.	 	Termination and Rescission
	 
	 	 	If the Agreement is terminated or rescinded, the Parties shall, according to the Agreement,
take necessary steps immediately to cause the funds in the Co-Managed Account to be
available for use by the Company and Existing Shareholders or the Investor at their own
discretion.
	 
	11.	 	Governing Law and Dispute Settlement
	 
	11.1	 	Governing Law

11

 

	 	 	The Agreement shall be governed by and interpreted in accordance with the laws of the
People’s Republic of China.
	 
	11.2	 	Arbitration

	 	11.2.1	 	Each party shall do its utmost to settle any and all disputes arising from or
relating to the Agreement through amiable negotiation. If a dispute cannot be settled
in an amiable way within sixty (60) days after one party notifies the other parties,
such dispute (including disputes over the effectiveness or existence of the Agreement)
shall be submitted to China International Economic and Trade Arbitration Commission
Shanghai Sub-Commission for arbitration according to the prevailing arbitration rules.
	 
	 	11.2.2	 	Arbitral awards shall be final and binding upon the Parties and may be enforced
according to relevant rules.
	 
	 	11.2.3	 	Arbitration fee shall be borne by the losing party/parties or the party/parties
specified by the arbitration tribunal. If one party deems it necessary to enforce
arbitral awards via any kind of lawsuit, the breaching party/parties shall be
responsible for all reasonable expenses and costs, including, but not limited to,
reasonable legal fee and costs for any additional lawsuit or arbitration arising from
the enforcement of arbitral awards by non-breaching party/parties.
	 
	 	11.2.4	 	All Parties shall perform the Agreement continually in all aspects during dispute
settlement, except for those in dispute.

	12.	 	Notice
	 
	12.1	 	All notices shall be written in Chinese and served to the following addresses or fax numbers
(as the case may be) by hand, by registered airmail or by fax:
	 
	 	 	Redgate Interactive Advertising (Beijing) Co., Ltd.
	
	 	 	Add.: Rm. B-1807-B, Jianwai SOHO No. 23 Building (South Tower), No. 39 East 3rd Ring Road
Central, Chaoyang District, Beijing
	 
	 	 	Attn.: Ying Zhu

Tel: 010-58692980

Fax: 010-58692960
	 
	 	 	Baohe Meng

Add.: Room 2309, Jinyulan Plaza, No. 1  Dapu Road, Luwan District, Shanghai,

Tel: 021-53960860/0177-108/109

Fax: 021-53960056-114
	 
	 	 	Chunhong Xu

Add.: Room 603, Shenfeng Building, No. 438 Tianyueqiao Road, Xuhui District, Shanghai,

Tel: 021-54259865-216

Fax: 021-54259865-212

12

 

	 	 	Ting Wang

Add.: Rm. 502, Building 41, Dahuaqingshuiwan, No. 1005 Lane, Kaixuan Road North, Shanghai

Tel: 021-53960860/0177-128/129

Fax: 021-53960056-114
	 
	 	 	Zhihong Zhang

Add.: Room 3504, Building 1, No. 108 Lane, Shangcheng Road, Pudong District, Shanghai

Tel: 65-62259200

Fax: 65-62259500
	 
	 	 	Shanghai FLOG Media Culture Co., Ltd.,

Add.: Room 2309, Jinyulan Plaza, No.1 Dapu Road, Luwan District, Shanghai

Attn.: Baohe Meng

Tel: 021-53960860

Fax: 021-53960056
	 
	12.2	 	As to any notice, correspondence or document made or sent under Article 12 hereof:

	 	12.2.1	 	it shall be deemed as served on a Business Day of the destination if it is delivered
with a written receipt at or prior to 17:00 on the same day, or it shall be deemed as
served at 9:00 of the next Business Day of the destination if it is delivered later
than 17:00 on a Business Day or at any time on a non-Business Day; or
	 
	 	12.2.2	 	it shall be deemed as served on the fifth (5th) Business Day after mailing
if it is sent within China by postage prepaid EMS; or
	 
	 	12.2.3	 	it shall be deemed as served on the tenth (10th) Business Day after
mailing if it is sent to or from any place outside of China by postage prepaid
international courier service; or
	 
	 	12.2.4	 	it shall be deemed as served upon transmission by fax, with a transmission report
which confirms successful transmission and an oral acknowledgement (the sender shall
keep the record which bears his/her signature), or it shall be deemed as served at 9:00
of the next Business Day of the destination if it is delivered later than 17:00 on a
Business Day or at any time on a non-Business Day.

	12.3	 	During the term of the Agreement, each party shall have the right to change its contact
address or fax number with a written notice to other parties hereto.
	 
	13.	 	Entire Agreement
	 
	13.1	 	The Agreement, as well as all agreements and/or documents as mentioned or expressly included
herein, shall be the entire agreement among the Parties concerning the subject matter hereof
and supersede all prior written or oral agreements, contracts, understandings and
correspondences among the Parties concerning the subject matter.
	 
	13.2	 	If it is necessary to execute other agreements or documents in order to obtain the government
approvals or to complete alteration procedures for implementing the equity transfer under the
Agreement, the contents of such agreements or documents shall be consistent with those of the
Agreement; otherwise, the Agreement shall prevail.

13

 

	14.	 	Severability
	 
	 	 	If any provision of the Agreement is held invalid or unenforceable, such provision may not
be performed (to the extent that is invalid or unenforceable), and shall be deemed as
excluded from the Agreement; however, such invalidity or unenforceability shall not
invalidate the remaining provisions hereof. The Parties shall do their reasonable utmost to
supersede such invalid and unenforceable provision with an effective and enforceable one,
and the validity of the superseding provision shall have the same effect as the originally
intended effect of such invalid and unenforceable provision as far as possible.
	 
	15.	 	Waiver
	 
	 	 	Any party’s failure to exercise, or delay in exercise of, any right or remedy hereunder
shall not be deemed a waiver or alteration of such right or remedy. Any party’s rights and
remedies hereunder or according to the Agreement shall be accumulative.

The Agreement is written in Chinese and has been signed by duly authorized representatives of the
Parties in Beijing, China. The Agreement is made in nine (9) copies, one (1) for each party and the
remaining used for the procedures of the government approvals.

14

 

Execution Page

	 	 	 	 	 
	Redgate Interactive Advertising (Beijing) Co., Ltd.

 	 	 
	Signature:  	/s/ Yin Zhu
 	 	 
	 	Name:  	Yin Zhu 	 	 
	 	Title:  	Legal Representative 	 	 
	 
	Baohe Meng

 	 	 
	Signature:  	/s/ Baohe Meng
 	 	 
	 	 	 	 
	 	 	 	 
	Chunhong Xu

 	 	 
	Signature:  	/s/ Chunhong Xu
 	 	 
	 	 	 	 
	 	 	 	 
	Ting Wang

 	 	 
	Signature:  	/s/ Ting Wang
 	 	 
	 	 	 	 
	 	 	 	 
	Zhihong Zhang

 	 	 
	Signature:  	/s/ Zhihong Zhang
 	 	 
	 	 	 	 
	 	 	 	 
	

Shanghai FLOG Media Culture Co., Ltd. [company seal]

 	 	 
	Signature:  	/s/ Baohe Meng
 	 	 
	 	Name:  	Baohe Meng 	 	 
	 	Title:  	Legal Representative 	 	 

[Signature Page of Capital Increase Agreement]

 

Appendix 1

Existing Shareholders

Basic Information of Existing Shareholders:

	 	 	 	 	 	 	 
	Name	 	ID No.	 	Domicile
	Baohe Meng

	 	 	610427197508251319	 	 	Group 1, Zaofantou Village, Tandian
Town,
 Binxian County, Shaanxi
Province
	Chunhong Xu

	 	 	320626750201202	 	 	10 Huayuan Central Road, Huilong

Town, Qidong City, Jiangsu Province
	Ting Wang

	 	 	440106197308060323	 	 	Room 201, Building 17, Cardre
Retirement Center, 243 Xiaobei Road,
Yuexiu District, Guangzhou.
	Zhihong Zhang

	 	 	110108196610265727	 	 	No. 40, Building 12, Qingyun North
Block, Shuangyushu, Haidian
District, Beijing

Capital Contributions of Existing Shareholders:

	 	 	 	 	 	 	 	 	 
	 	 	Amount of Capital	 	 
	 	 	Contributions	 	Shareholding
	Name	 	(RMB10,000)	 	Proportion
	Baohe Meng
	 	 	37.27	 	 	 	54.56	%
	Chunhong Xu
	 	 	9.32	 	 	 	13.64	%
	Ting Wang
	 	 	3.41	 	 	 	5.00	%
	Zhihong Zhang
	 	 	18.31	 	 	 	26.8	%
	Total
	 	 	68.31	 	 	 	100	%

Shareholding Proportion after Completion of Capital Increase:

	 	 	 	 	 	 	 	 	 
	 	 	Amount of Capital	 	 
	 	 	Contributions	 	Shareholding
	Name	 	(RMB10,000)	 	Proportion
	Baohe Meng
	 	 	37.27	 	 	 	48.72	%
	Chunhong Xu
	 	 	9.32	 	 	 	12.18	%
	Ting Wang
	 	 	3.41	 	 	 	4.46	%
	Zhihong Zhang
	 	 	18.31	 	 	 	23.93	%
	Total
	 	 	68.31	 	 	 	89.29	%

Appendix 1

 

 

Appendix 2

Balance Sheet

Appendix 2

 

 

2007 Shanghai Monthly Accounting Statements of Small Enterprises

Balance Sheet

					
	 	 	 	 	 
	Competent Authority:
	 	 	 	Kuai Xiao Qi Di Yue Sheet 01
	 
	 	September,	 	 
	Compiled by: Fu Lang Ge Culture Co., Ltd.
	 	2007
	 	Unit: RMB Yuan

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Opening	 	Closing
	 	 	Line	 	Balance of	 	Balance of
	Item	 	No.	 	Year	 	Year
	Current Assets:
	 	 	 	 	 	 	 	 	 	 	 	 
	Monetary Fund
	 	 	1	 	 	 	 	 	 	 	410,997.96	 
	Short-term Investment
	 	 	2	 	 	 	 	 	 	 	 	 
	Notes Receivable
	 	 	3	 	 	 	 	 	 	 	 	 
	Dividends Receivable
	 	 	4	 	 	 	 	 	 	 	 	 
	Accounts Receivable
	 	 	6	 	 	 	 	 	 	 	 	 
	Other Receivables
	 	 	7	 	 	 	 	 	 	 	46,601.00	 
	Prepayment
	 	 	8	 	 	 	 	 	 	 	479,990.00	 
	Inventories
	 	 	10	 	 	 	 	 	 	 	 	 
	Deferred Expenses
	 	 	11	 	 	 	 	 	 	 	846,710.00	 
	Long-term Debt Investment due within a
Year
	 	 	21	 	 	 	 	 	 	 	 	 
	Other Current Assets
	 	 	24	 	 	 	 	 	 	 	 	 
	Total Current Assets
	 	 	31	 	 	 	 	 	 	 	1,784,298.96	 
	Long-term Investment:
	 	 	 	 	 	 	 	 	 	 	 	 
	Long-term Options Investment
	 	 	32	 	 	 	 	 	 	 	 	 
	Long-term Debt Investment
	 	 	34	 	 	 	 	 	 	 	 	 
	Total Long-term Investment
	 	 	38	 	 	 	 	 	 	 	0.00	 
	Fixed Assets:
	 	 	 	 	 	 	 	 	 	 	 	 
	Original Value of Fixed Assets
	 	 	39	 	 	 	 	 	 	 	219,185.00	 
	Less: Accumulated Depreciation
	 	 	40	 	 	 	 	 	 	 	20,244.58	 
	Net Value of Fixed Assets
	 	 	41	 	 	 	 	 	 	 	198,940.42	 
	Engineering Materials
	 	 	44	 	 	 	 	 	 	 	 	 
	Construction in Process
	 	 	45	 	 	 	 	 	 	 	 	 
	Liquidation of fixed assets
	 	 	46	 	 	 	 	 	 	 	 	 
	Total Fixed Assets
	 	 	50	 	 	 	 	 	 	 	198,940.42	 
	Intangible Assets and Other Assets:
	 	 	 	 	 	 	 	 	 	 	 	 
	Intangible Assets
	 	 	51	 	 	 	 	 	 	 	 	 
	Long-term Deferred Expenses
	 	 	52	 	 	 	 	 	 	 	561,644.20	 
	Other Long-term Assets
	 	 	53	 	 	 	 	 	 	 	 	 
	Other long-term Assets:
	 	 	60	 	 	 	 	 	 	 	 	 
	Total Intangible Assets and Other Assets
	 	 	 	 	 	 	 	 	 	 	561,644.20	 
	Total Assets
	 	 	65	 	 	 	0.00	 	 	 	2,544,883.58	 
	 
	 	 	 	 	 	 	 	 	 	 	0.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Enterprise Administrative Principal:
	 	 	 	 	 	Chief Accountant:	 	 	 	 

Appendix 2

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Opening	 	 
	 	 	Line	 	Balance of	 	Closing Balance
	Item	 	No.	 	Year	 	of Year
	Current Liabilities:
	 	 	 	 	 	 	 	 	 	 	 	 
	Short-term Loans
	 	 	68	 	 	 	 	 	 	 	 	 
	Notes Payable
	 	 	69	 	 	 	 	 	 	 	 	 
	Accounts Payable
	 	 	70	 	 	 	 	 	 	 	34,166.00	 
	Accounts Received in Advance
	 	 	71	 	 	 	 	 	 	 	1,949,040.00	 
	Accrued Payroll
	 	 	72	 	 	 	 	 	 	 	 	 
	Welfare Benefits Payable
	 	 	73	 	 	 	 	 	 	 	 	 
	Profits Payable
	 	 	74	 	 	 	 	 	 	 	-2,121,972.26	 
	Taxes Payable
	 	 	76	 	 	 	 	 	 	 	18,447.14	 
	Other Payables
	 	 	80	 	 	 	 	 	 	 	396.00	 
	Other Payables
	 	 	81	 	 	 	 	 	 	 	72,311.70	 
	Accrued Expenses
	 	 	82	 	 	 	 	 	 	 	 	 
	Long-term Liabilities due within a Year
	 	 	86	 	 	 	 	 	 	 	 	 
	Other Current Liabilities
	 	 	90	 	 	 	 	 	 	 	 	 
	Total Current Liabilities
	 	 	100	 	 	 	 	 	 	 	-47,611.42	 
	Long-term Liabilities:
	 	 	 	 	 	 	 	 	 	 	 	 
	Long-term Loans
	 	 	101	 	 	 	 	 	 	 	 	 
	Long-term Payables
	 	 	103	 	 	 	 	 	 	 	 	 
	Other long-term Loans
	 	 	106	 	 	 	 	 	 	 	 	 
	Total Long-term Liabilities
	 	 	110	 	 	 	 	 	 	 	0.00	 
	Total Liabilities
	 	 	114	 	 	 	 	 	 	 	-47,611.42	 
	Owner’s Equity (or Shareholder’s Equity)
	 	 	 	 	 	 	 	 	 	 	 	 
	Paid-up Capital
	 	 	115	 	 	 	 	 	 	 	2,592,495.00	 
	Capital Reserves
	 	 	120	 	 	 	 	 	 	 	 	 
	Surplus Reserves
	 	 	121	 	 	 	 	 	 	 	 	 
	Including: Statutory Public Welfare Funds
	 	 	122	 	 	 	 	 	 	 	 	 
	Undistributed Profits
	 	 	123	 	 	 	 	 	 	 	 	 
	Total Owner’s Equity (or Shareholder’s Equity)
	 	 	124	 	 	 	 	 	 	 	2,592,495.00	 
	Total Liabilities and Owner’s Equity
	 	 	135	 	 	 	0.00	 	 	 	2,544,883.58	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Accounting Manager:
	 	 	 	 	 	Prepared by:	 	 	 	 

Appendix 2

 

 

2007 Shanghai Monthly Accounting Statements of Small Enterprises

Statement of Main Taxes Payable 

			
	 	 	 
	Competent Authority:
	 	Kuai Xiao Qi Di Yue Sheet 02 Attached List

					
	 	 	 	 	 
	Name of Company:
	 	September, 2007
	 	Monetary Unit: RMB Yuan

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Current Year
	 	 	Line	 	Amount of	 	Cumulative
	Item	 	No.	 	Current Month	 	Amount
	I. Value-added Tax
	 	 	 	 	 	 	 	 	 	 	 	 
	1. VAT Payable:
	 	 	 	 	 	 	 	 	 	 	 	 
	(1) Amount not deducted at the beginning of
the period (presented by “-”)
	 	 	1	 	 	 	 	 	 	 	 	 
	(2) Output VAT
	 	 	2	 	 	 	 	 	 	 	 	 
	Export Rebates
	 	 	3	 	 	 	 	 	 	 	 	 
	Transfer-out of input VAT
	 	 	4	 	 	 	 	 	 	 	 	 
	Transfer-out of overpaid VAT
	 	 	5	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	(3) Input VAT
	 	 	6	 	 	 	 	 	 	 	 	 
	Taxes Paid
	 	 	7	 	 	 	 	 	 	 	 	 
	VAT Deductions and Exemptions
	 	 	8	 	 	 	 	 	 	 	 	 
	Export Deduct Domestic Sales Goods Tax
	 	 	9	 	 	 	 	 	 	 	 	 
	Transfer-out of unpaid VAT
	 	 	10	 	 	 	0.00	 	 	 	0.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	(4) Amount not deducted at the end of the
period (presented by “-”)
	 	 	11	 	 	 	0.00	 	 	 	0.00	 
	2. VAT Payable
	 	 	 	 	 	 	 	 	 	 	 	 
	(1) Amount unpaid at the beginning of the year
	 	 	12	 	 	 	 	 	 	 	 	 
	(2) Transfer-in amount of current period
	 	 	13	 	 	 	 	 	 	 	 	 
	(3) Amount paid of current period
	 	 	14	 	 	 	 	 	 	 	 	 
	(4) Amount unpaid at the end of the period
	 	 	15	 	 	 	 	 	 	 	 	 
	II. Business Tax:
	 	 	 	 	 	 	 	 	 	 	 	 
	1. Amount unpaid at the beginning of the period
	 	 	16	 	 	 	 	 	 	 	 	 
	2. Amount payable of current period
	 	 	17	 	 	 	2944.14	 	 	 	3,894.14	 
	3. Amount paid of current period
	 	 	18	 	 	 	0.00	 	 	 	 	 
	4. Amount unpaid at the end of the period
	 	 	19	 	 	 	 	 	 	 	 	 
	III. Consumption Tax:
	 	 	 	 	 	 	 	 	 	 	 	 
	1. Amount unpaid at the beginning of the period
	 	 	20	 	 	 	 	 	 	 	 	 
	2. Amount payable of current period
	 	 	21	 	 	 	 	 	 	 	 	 
	3. Amount paid of current period
	 	 	22	 	 	 	 	 	 	 	 	 
	4. Amount unpaid at the end of the period
	 	 	23	 	 	 	 	 	 	 	 	 
	IV. Urban Maintenance and Construction Tax
	 	 	 	 	 	 	 	 	 	 	 	 
	1. Amount unpaid at the beginning of the period
	 	 	24	 	 	 	 	 	 	 	 	 
	2. Amount payable of current period
	 	 	25	 	 	 	49.50	 	 	 	99.00	 
	3. Amount paid of current period
	 	 	26	 	 	 	0.00	 	 	 	 	 
	4. Amount unpaid at the end of the period
	 	 	27	 	 	 	 	 	 	 	 	 
	V. Income Tax:
	 	 	 	 	 	 	 	 	 	 	 	 
	1. Amount unpaid at the beginning of the period
	 	 	28	 	 	 	 	 	 	 	 	 
	2. Amount payable of current period
	 	 	29	 	 	 	3267.00	 	 	 	6,534.00	 
	3. Amount paid of current period
	 	 	30	 	 	 	0.00	 	 	 	 	 
	4. Amount unpaid at the end of the period
	 	 	31	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Principal of Enterprise:
	 	 	 	 	 	Chief Accountant:	 	 	 	 

Appendix 2

 

 

Income Statement

Kuai Xiao Qi Di Yue Sheet 02

			
	 	 	 
	Name of Company: Shanghai Fu Lang Ge Culture Co., Ltd.
	 	Monetary Unit: RMB Yuan

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Current Year
	 	 	 	 	 	 	Amount of	 	Cumulative
	Item	 	Line No.	 	Current Month	 	Amount
	I. Main Operating Income
	 	 	1	 	 	 	99,000.00	 	 	 	198,000.00	 
	Less: Main Operating Costs
	 	 	4	 	 	 	40,117.12	 	 	 	120,117.12	 
	Tax and Extra Charges on Main Business
	 	 	5	 	 	 	6,953.64	 	 	 	12,111.14	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	II. Main Operating Profits (Losses presented by “-”)
	 	 	10	 	 	 	51,929.24	 	 	 	65,771.74	 
	Add: Other Operating Profits (Losses presented by “-”)
	 	 	11	 	 	 	 	 	 	 	 	 
	Less: Operating Expenses
	 	 	14	 	 	 	318,128.00	 	 	 	1,173,449.00	 
	Administrative Expenses
	 	 	15	 	 	 	166,392.91	 	 	 	1,010,260.04	 
	Financial Expenses
	 	 	16	 	 	 	-1,141.78	 	 	 	-2,079.04	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	III. Operating Profits (Losses presented by “-”)
	 	 	18	 	 	 	-431,449.89	 	 	 	-2,115,858.26	 
	Add: Investment Proceeds (Losses presented by “-”)
	 	 	19	 	 	 	 	 	 	 	 	 
	Non-operating Income
	 	 	23	 	 	 	 	 	 	 	420.00	 
	Less: Non-operating Expenses
	 	 	25	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	IV. Total Profits (Losses presented by “-”)
	 	 	27	 	 	 	-431,449.89	 	 	 	-2,115,438.26	 
	Less: Income Tax
	 	 	28	 	 	 	3,267.00	 	 	 	6,534.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	V. Net Profit (Losses presented by “-”)
	 	 	30	 	 	 	-434,716.89	 	 	 	-2,121,972.26	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Accounting Executive:
	 	 	 	 	 	Prepared by:	 	 	 	 

Appendix 2

 

 

Appendix 3

Warranties

	1	 	Power and Capability of Company and Existing Shareholders
	 
	1.1	 	Establishment and Power to Execute the Agreement
	 
	 	 	The Company and each of the Existing Shareholders have legal rights, all powers and
authorizations to execute and perform the Agreement. The Existing Shareholders will execute
any other documents (“Associated Documents”) according to or in connection with the
Agreement. Once executed, such document shall become an effective and binding obligation of
the Existing Shareholders according to the terms thereof.
	 
	1.2	 	Non-conflict
	 
	 	 	The execution of the Agreement, performance of the obligations hereunder, execution of any
other document according to or in connection with the Agreement or performance of the
obligations under such documents by the Company and Existing Shareholders will not violate
any agreement, permit or document, or empower any third party to terminate or modify
agreements, permits or other documents, or violate any judgment or ruling issued or made by
any court or governmental authority.
	 
	1.3	 	Company’s Registered Capital

	 	1.3.1	 	The Company’s registered capital has been paid up in full amount.
	 
	 	1.3.2	 	The Company has the right to accept the investment by Investor without the
consent of any third person (except for government approval).

	1.4	 	Options, etc.
	 
	 	 	No one has the right to require the Company to issue, sell or transfer any equity interest
to it. There is no Encumbrance or arrangement or obligation of Encumbrance or judicial
preservation measures on the Company’s equity interest, and there is no existing or
potential legal dispute or controversy on the Company’s equity interest.
	 
	1.5	 	Competitive Interests
	 
	 	 	The Existing Shareholders or their respective related parties do not hold any direct or
indirect interests in any field that is or may be competitive with the businesses of the
Company.
	 
	1.6	 	Investments, Joint Ventures and Affiliates
	 
	 	 	The Company has not invested in any other company, enterprise, partnership, joint venture or
other unincorporated organization, institute or firm, or established any branch,
representative office, business unit or any permanent office.

Appendix III

 

 

	2	 	Accuracy and Sufficiency of Information Disclosed to the Investor
	 
	 	 	The information included herein and other information rendered or provided by the Company
and Existing Shareholders to the Investor or any of its representatives, employees or
professional advisors during the negotiation of the Agreement or for the background check or
other investigations by the Investor (or its representatives) prior to the date of the
Agreement was (at the time of provision) and are true, complete and accurate in all aspects,
not misleading. No facts, affairs or circumstances which may cause any of such information
to become untrue, incorrect or misleading have been disclosed to the Investor. There is no
fact, affair or circumstance which might reasonably affect the Investor’s intention of
subscription for Capital Increase of the Company or which might reasonably affect the terms
and conditions on which the Investor intends to subscription for Capital Increase of the
Company once such fact, affair or circumstance is disclosed.
	 
	3	 	Accounts and Records
	 
	3.1	 	Current Accounts
	 
	 	 	The Company has prepared accounts in accordance with Chinese laws and accounting principles,
standards and practices generally adopted in China on the date of the Agreement in order to
truly and fairly reflect the Company’s assets, liabilities and operations up to the Balance
Sheet Date, the Company’s profits or losses during relevant periods, and the provision for
bad and doubtful debts made by the Company on the Balance Sheet Date according to accounting
practices.
	 
	3.2	 	Company’s Accounts
	 
	 	 	The Company’s accounts truly and fairly reflect the Company’s assets, liabilities and
operations up to the Balance Sheet Date, the Company’s profits or losses during relevant
periods, and the provision for bad and doubtful debts made by the Company on the Balance
Sheet Date according to accounting practices.
	 
	3.2	 	Profit
	 
	 	 	Profits reflected in the accounts up to the Balance Sheet Date and the profit trends
indicated in the accounts will not be affected by extraordinary item expenditures, abnormal
or special transactions, transactions made out of regular business terms or any other factor
included in the accounts, and will not thus cause all or any part of the Company’s profits
to be on the high or low side exceptionally (except for those disclosed reasonably in the
accounts).
	 
	3.3	 	Loans and Debts
	 
	 	 	The Company has not any loan which has not been settled, or any kind of financing
which need not to be indicated or reflected in the accounts or any debt which has not
been repaid.

Appendix III

 

 

	3.4	 	Changes since the Balance Sheet Date (except with the Investor’s written consent)
	 
	 	 	For the purpose of the Company, since the Balance Sheet Date:

	 	3.4.1	 	There is not any material adverse change in the Company’s financial
conditions, transaction conditions, prospects or sales volume, or any existing or
potential fact, condition or circumstance which will or may result in such facts,
affairs or circumstances;
	 
	 	3.4.2	 	The Company engages in its businesses in a normal or usual way; there is not
any interruption or change in nature, business scope or manner of the Company’s
businesses; and the Company conducts operation activities consecutively at all times;
	 
	 	3.4.3	 	The Company has not made any other transaction, or assumed or incurred any
liability (including contingent liability), or omitted any payment in the accounts;
	 
	 	3.4.4	 	The Company’s profits will not be affected as a result of changes or
inconsistencies of accounting treatments, any extraordinary item expenditures, abnormal
or special transactions, transactions made out of regular business terms or any other
factor which causes the Company’s profits to be on the high or low side exceptionally;
	 
	 	3.4.5	 	There is no material adverse impact upon the Company’s business resulting from
loss of any important clients or any abnormal factor which affects similar business in
the similar degree, and there is not any fact which may result in such kind of impacts.
For the purpose of this Article, the Company’s important client refers to a client who
contributes to at least 5% of the Company’s sales volume prior to the Balance Sheet
Date;
	 
	 	3.4.6	 	Unless otherwise indicated in the accounts, the Company has not declared, made
or paid any bonus or other distributions to its shareholders;
	 
	 	3.4.7	 	The Company has not reduced or agreed to reduce the registered capital;
	 
	 	3.4.8	 	The Company has not been refused for any insurance claim, or settled any claim
at the benefit of less than the amount claimed;
	 
	 	3.4.9	 	Compared with the information disclosed in the accounts, there is not any
material adverse change in client relationship of the mentioned businesses, the
businesses or the Company’s financial conditions or current situation, prospects,
assets or debts, or any damage or loss of the mentioned businesses or assets of the
Company (whether insured or not);
	 
	 	3.4.10	 	The Company has not purchased, sold, assigned or otherwise disposed of any kind of
assets, or withdrawn, waived or released or discounted all or any part of its debts or
claims, except for those during the normal course of business;
	 
	 	3.4.11	 	The Company has not waived or released any right of important or substantial value;

Appendix III

 

 

	 	3.4.12	 	The Company has not paid any capital expenditure exceeding RMB1 million in total, or
made any capital commitment exceeding RMB1 million in total;
	 
	 	3.4.13	 	The Company has not adopted any resolution which may substantially reduce the net
asset value of the Company, or during affair handling or management taken any step
which may substantially reduce the net asset value of the Company; and
	 
	 	3.4.14	 	The Company need not assume any absolute or contingent liability or obligation,
except for existing liabilities and obligations under the contracts which are made in
the ordinary course of business .

	4	 	Legal Affairs
	 
	4.1	 	Compliance with Laws
	 
	 	 	None of the Company’s past and present businesses and operations may violate any of Chinese
laws. Except for those disclosed in the Disclosure Letter, the Company has not violated its
constitutive documents. Since the date of establishment, the Company has not been
investigated or inquired by any court, arbitrator, government agency or regulatory organ,
has not any pending or anticipated ruling, arbitral award, decision or judgment, and has not
received any notice or other communications (official or otherwise) issued by any court,
arbitrator, government agency or regulatory organ concerning any person’s Lawsuit against
the Company for actual or potential violation of and/or non-compliance with any law or its
constitutive documents.
	 
	4.2	 	Permits and Approval Documents
	 
	 	 	All permits have been obtained, are fully valid, and have been or are being observed. There
is not any pending or anticipated investigation or inquiry which may suspend, revoke, modify
or cancel any permit. No permit is violated and may in no case be suspended, revoked,
modified or cancelled (no matter whether it is due to execution or performance of the
Agreement or otherwise).
	 
	4.3	 	Lawsuits

	 	4.3.1	 	The Company has not received any claim for damages or other demands up to the
Balance Sheet Date.
	 
	 	4.3.2	 	The Company (or each person to whom the Company shall assume vicarious
liability for act or default) has not been involved in any claim, legal action, legal
proceedings, Lawsuit, charge, investigation, inquiry or arbitration (as a plaintiff, a
defendant or other party), or any kind of pending or threatened claim, legal action,
legal proceedings, Lawsuit, charge, investigation, inquiry or arbitration which is made
by the Company (or each person to whom the Company shall assume vicarious liability for
act or default) against a third person, or by a third person against the Company (or
each person to

Appendix III

 

 

	 	 	 	whom the Company shall assume vicarious liability for act or default) or the assets
held by the Company.
	 
	 	4.3.3	 	Except for disclosed disputes, the Company is not involved in any
investigation, sanction procedures or other circumstance concerning claim, legal
action, legal proceedings, Lawsuit, charge, investigation, inquiry or arbitration which
may result in any dispute or dissension.
	 
	 	4.3.4	 	Disputes disclosed by the Company will not have material adverse effects upon
ordinary business of the Company.
	 
	 	4.3.5	 	In particular, but without prejudice to generality of the aforesaid clause,
the Company is not involved in any dispute with its clients or employees about the
Company’s facilities or work, or about any loss, damage or injury arising therefrom.
	 
	 	4.3.6	 	There is not any pending judgment, court order or arbitral award in connection
with the Company, and the Company’s businesses or assets is not subject to any seizure,
enforcement or procedure.

	4.4	 	Bankruptcy

	 	4.4.1	 	There is no ruling or the Company has not been involved in any received
judgment, made application, adopted resolutions or held meetings concerning dissolution
or bankruptcy (or shutout, distribution of the Company’s assets to its creditors and/or
shareholders or other contributors, or any other procedure). The Company is not
involved in any case or legal proceedings on bankruptcy or reorganization, or in any
event which may provide legal basis for such cases or legal proceedings in accordance
with Chinese laws.
	 
	 	4.4.2	 	The Company is not insolvent, or incapable of repaying its debts due.

	5	 	Transactions and Contract Arrangements
	 
	5.1	 	Capital Commitments
	 
	 	 	The Company did not and will not make any capital commitment.
	 
	5.2	 	Arrangements with Related Parties

	 	5.2.1	 	There is not any (actual or contingent) debt, or any arrangement for
compensation, warranty or guarantee, between the Company and Existing Shareholders or
any of related parties.
	 
	 	5.2.2	 	The Company is not and has not been a party to any contract, arrangement or
understanding: i) with the Existing Shareholders or any of related parties; or ii)
under

Appendix III

 

 

	 	 	 	which the Existing Shareholders or any of related parties enjoy direct or indirect
interests.
	 
	 	5.2.3	 	There is not any existing contract or arrangement between the Company and/or
the Existing Shareholders and/or any of related parties.

	5.3	 	Arrangements with Related Parties

	 	5.3.1	 	There is not any actual or contingent debt, or any arrangement for
compensation, warranty or guarantee, between the Company and any of its present or
former employees, directors or consultants or any party relating to the aforesaid
persons.
	 
	 	5.3.2	 	The Company is not and has not been a party to any contract, arrangement or
understanding: i) with any of its present or former employees, directors or consultants
or any party relating to the aforesaid persons; or ii) under which any of its present
or former employees, directors or consultants or any party relating to the aforesaid
persons enjoy direct or indirect interests.
	 
	 	5.3.3	 	There is not any existing contract or arrangement between the Company and/or
any of its present or former employees, directors or consultants or any party relating
to the aforesaid persons.

	5.4	 	Consequences of Capital Increase
	 
	 	 	The execution, compliance with, or fulfilment of the Agreement will not and cannot make the
Company lose any of its present rights or preferences, or make any person who conducts
normal transactions with or grants credit loans to the Company terminate transactions with
or credit loans to the Company on the same basis, or cause any of the Company’s directors or
senior officers to resign. The attitudes or behaviours of any of the Company’s clients,
employees and other persons will not be affected adversely thereby.
	 
	5.5	 	Contracts

	 	5.5.1	 	The Company is not, and has not been, a party to the following contracts,
arrangements or commitments which:

	 	(i)	 	are made out of ordinary business course;
	 
	 	(ii)	 	are not made on the basis of fair business transaction in all
aspects;
	 
	 	(iii)	 	are in a loss nature, namely, the Company is aware that
fulfilment of the contracts, arrangements or commitments will result in
losses;
	 
	 	(iv)	 	cannot be performed or fulfilled on schedule without any
difficulty except with enormous or special expenditures or efforts; or

Appendix III

 

 

	 	(v)	 	make the Company agree to be a party of any joint venture,
consortium, partnership or other unincorporated organization (except for
recognized industrial associations), unless those have been disclosed to Party
B in the Disclosure Letter.

	 	5.5.2	 	No contract, obligation, agreement or arrangement to which the Company is one
party or which is binding upon the Company will be invalid, illegal or unenforceable,
or is required to be registered or amended, in accordance with laws or regulations or
as a result of conflicts with laws or regulations.
	 
	 	5.5.3	 	No agreement with respect to the Company will be or has been terminated due to
changes in the Company’s control right or in members of the Board of Directors, and no
rights of any person concerned will be affected materially and adversely.

	5.6	 	Compliance with the Agreement
	 
	 	 	Item 5.6 of the Disclosure Letter lists all effective contracts or agreements to
which the Company is one party, covering the target price of equal to or more than
RMB30,000. All contracts to which the Company is one party and all kinds of agreements
with respect of media lease, billboard setup and advertising release are effective,
binding and enforceable upon the parties thereto, and the Company and other parties
concerned have complied with the terms thereof. The Company has no reason to rescind,
avoid or waive any contract or such kind of agreement. The Company has not received any
notice concerning rescission or proposed rescission of any such document. The Company’s
acceptance of the contracts and agreements concerning advertising business from
Shanghai Syndicate Advertising Co., Ltd. are legal and valid, free from disputes over
the main body and contents of contracts.
	 
	5.7	 	Guarantee

	 	5.7.1	 	Except for those reflected in the accounts, there is not any pending warranty,
compensation, guarantee or comfort (whether or not it is legally binding) made by or in
favour of the Company.
	 
	 	5.7.2	 	Neither the Company nor its representative has offered, made or incurred any
loan, warranty, pledge, mortgage, lien, bond, encumbrance or unusual debt, or granted
any loan to any of the Company’s directors or shareholders. Neither the directors nor
other persons have made any warranty or guarantee for any of the Company’s finance or
other obligations.

	6	 	Employees, etc.
	 
	6.1	 	Employees and Employment Term

	 	6.1.1	 	All agreements and arrangements in connection with the employment of the
Company’s directors and senior officers are made by the parties concerned on the basis
of fair business transaction, and the terms thereof are fair and reasonable in
comparison with recognized market practices in China.

Appendix III

 

 

	 	6.1.2	 	The following contents are absent from the Company’s employment clauses,
consulting agreements or director appointment terms: changes in the Company’s control
right or shareholders (control right is to be specified in relevant documents, if any)
will empower such employees, consultants or directors to deem the aforesaid changes as
a default, or to receive any fund or any kind of interest, or to deem that they have
been dismissed by the Company or exempted from any obligation.
	 
	 	6.1.3	 	There is not any past or present, threatened or pending dispute between the
Company and any kind of its employees. There is not any arrangement between the Company
and any trade union or organization on behalf of such employees.
	 
	 	6.1.4	 	There is no circumstance which requires or may require the Company to pay
compensations as a result of any of its former employees, or to reemploy its former
employees or to recover their posts.

	6.2	 	Amounts Payable upon Termination of Employment Contract
	 
	 	 	Unless otherwise disclosed in the accounts:

	 	6.2.1	 	The Company has not assumed and will not assume any liability for violation of
any employment or consulting contract with any of its employees or consultants,
including, but not limited to, redundancy payment, damages for illegal rescission of
any employment contract, and penalties for non-compliance with rulings on post recovery
or reemployment of any employee; and
	 
	 	6.2.2	 	As for proposed termination or suspension of employment of any present or
former employee, or modifications to any employment contract concerning such present or
former employee, or modifications to any consulting agreement concerning any present or
former consultant, the Company did not pay or agree to pay any amount or offer any
interest to such present or former employee or any dependent (supported or fostered)
thereby or to such present or former consultant.

	6.3	 	Labour Dispute
	 
	 	 	The Company is not involved in any labour dispute, and no circumstances may result in any
labour dispute. The Company has not been under any dispute or negotiation over any major
claim with any trade union, employees’ association, any other similar organization or
institution on behalf of employees.
	 
	6.4	 	Reward System
	 
	 	 	The Company has not any arrangement for option incentive, stock option, profit sharing or
other similar incentives in connection with the Company, any of its present or former
employees.

Appendix III

 

 

	6.5	 	Social Insurance

	 	6.5.1	 	The Company is not in breach of any obligation to pay social insurance
premiums for its employees.
	 
	 	6.5.2	 	Except for the social insurance, there is not any pension, accumulation fund
or pension and welfare fund, scheme or arrangement under which the Company is obligated
(whether moral or contractual obligation) to offer any kind of retirement benefit
(including benefit payable for retirement, demission, death and deformity, and any
other benefit which is usually offered according to accumulation fund or pension
scheme) of the same degree to any of the Company’s present or former employees, or
their respective spouses or other relatives.

	7	 	Taxes
	 
	7.1	 	Since the Balance Sheet Date, the Company has not participated in any transaction which has
imposed or may impose liabilities for tax payment upon the Company (or, failure to make any
remedy, reduction, exemption or setoff will or may result in such liability), except for those
in ordinary business course.
	 
	7.2	 	The Company has not any major dispute with any tax authority about tax affairs since the date
of establishment. All tax preferences and financial subsidies which the Company has enjoyed
are obtained in accordance with laws. There is no circumstance where Company is required to
make up for taxes or relevant interests, refund subsidies or assume other relevant
liabilities.
	 
	7.3	 	The Company has paid in time all taxes and government fees, made all declarations, issued all
notices and provided all other materials to be provided to any tax authority and other
government agencies within the period specified by laws. All aforesaid materials are kept
complete and accurate in all major aspects, and so are all declarations and notices, which are
made on an appropriate basis. The Company need not make up for taxes, pay additional tax or
accept other tax investigation. There is no fact that will result in tax investigation against
the Company. No notice has been received or issued concerning disputes over any third person’s
right to recover taxes from the Company or to offer any tax reduction or exemption to the
Company. Since the deadline of balance sheet, the Company has no and will have no obligation
to pay interests of any unpaid tax.
	 
	7.4	 	The execution or performance of the Agreement will not:

	 	7.4.1	 	result in losses to the Company, or offer any other tax reduction or
exemption, deduction or setoff with respect to the Company’s profits, earnings or
revenues (or any amount deemed as profits, earnings or revenues) or increase relevant
discount for the purpose of tax reduction or exemption; or
	 
	 	7.4.2	 	result in the Company’s obligation to pay any tax or additional tax.

Appendix III

 

 

	8	 	Assets
	 
	8.1	 	Ownership of Assets

	 	8.1.1	 	All assets of the Company (except for those to be disposed of or repaid in
subsequent ordinary business course) are owned by the Company as of the Balance Sheet
Date. All such assets and all assets purchased or debts incurred thereafter, belong to
the Company’s properties in all aspects, and are not the subject matters of any
transfer or encumbrance (except for lien incurred legally in ordinary business course),
or of any instalment payment, conditional sales or credit sale agreement.
	 
	 	8.1.2	 	All such assets are in the possession (if applicable) or under the control of
the Company, or the Company has the right to possess or control such assets. All such
assets are within the territory of China.
	 
	 	8.1.3	 	The Company has no title to any land or real estate, but owns valid and
binding lease interest, which is complete, and free of any encumbrance. No third person
claims that it has the priority in such lease interest.
	 
	 	8.1.4	 	Item 8.1 of the Disclosure Letter lists all real estates and moveable property
leased or used by the Company. As to those properties or assets leased by the Company
which concern substantially operation activities, the Company abides by the lease
clauses and owns valid lease interests in such assets. There is not any lien,
encumbrance, security interest or claim made by any person other than the lessors of
such properties and assets.

	8.2	 	Sufficiency of Funds
	 
	 	 	The assets owned or leased by the Company constitute all properties, titles and assets
required for the Company’s sufficient and effective operation of its present businesses or
for convenient business operation.
	 
	8.3	 	Insurance

	 	8.3.1	 	Within all relevant dates and the date of the Agreement, the Company has
effected, in the full amount of replacement, insurance for all its assets which other
companies engaging in similar businesses or owning similar kinds of assets effect
usually, covering accident insurance, death-and-injury insurance, third party liability
insurance and other insurances which the same kind of companies effect usually.
	 
	 	8.3.2	 	As for all such insurances:

	 	(i)	 	The Company has paid all premiums in time up to now;

Appendix III

 

 

	 	(ii)	 	All the insurances covered by the Company on leased real estates
are valid. If the Company is responsible for further insurance, policies shall
conform to all requirements for lease of real estates in all aspects;
	 
	 	(iii)	 	All policies are fully effective. There is not any act, omission,
false statement or undisclosed event made by the Company or its
representative, which may make such policies withdrawn, or has occurred any
circumstance which may make such policies invalid or unenforceable for illegal
factors or other reasons, or any activity in violation of terms, conditions
and warranties under any policy, which empowers any insurer to refuse payment
of all or partial benefits claimed under the relevant policy;
	 
	 	(iv)	 	As to each policy, there are not any special or irregular limits,
terms, exceptions or restrictions, the premium payable thereunder does not
exceed the normal rate, and no circumstances may increase premiums; and
	 
	 	(v)	 	There is not any pending claim or any circumstance which may result
in any claim.

	8.4	 	Subsidy
	 
	 	 	The Company has neither applied for, nor received, any investment or subsidy, loan or
financial support from any governmental authority, regional organization, government agency
or local authority.
	 
	8.5	 	No Non-disclosed Debt
	 
	 	 	The Company has not any other debt except for: i) debts disclosed or listed in the accounts;
ii) debts in the ordinary business course of the Company up to the Balance Sheet Date
(neither of the two kinds of debts will have material adverse effect upon the Company’s
financial affairs, transaction status, prospect or sales volume); or iii) debts disclosed
herein.
	 
	9	 	Intellectual Property
	 
	9.1	 	Ownership
	 
	 	 	All intellectual property rights (the Company shall list in Item 9.1 of the Disclosure
Letter all intellectual property rights which have been registered or are under registration
application and describe them in brief) which have been or can be used for the Company’s
operation and which are required for or in connection with the Company’s operation, and all
relevant registration applications:

	 	9.1.1	 	are or will be owned legally by the Company as a beneficiary or may be used
legally with the owners’ consents or permits;
	 
	 	9.1.2	 	are valid and enforceable;

Appendix III

 

 

	 	9.1.3	 	are not infringed upon, attacked or opposed by any person;
	 
	 	9.1.4	 	are not restricted by any encumbrance or any permit or authorization offered
to other persons;
	 
	 	9.1.5	 	as for the intellectual property rights which have been registered, or those
which are listed and described in brief in the Disclosure Letter and are under
registration application, all due costs for registration renewal have been paid, and
all measures required for maintenance and protection of the intellectual property
rights have been taken; and
	 
	 	9.1.6	 	the Company has not made any claim or pending application, which will have material impact
upon the authenticity and accuracy of any of the aforesaid contents once it is made or approved.

Appendix III

 

 

Appendix IV

Disclosure Letter

Appendix IV

 

 

Disclosure Letter

I. Powers and Capabilities of the Company and Existing Shareholders

	1.4	 	Option
	 
	 	 	The Existing Shareholders of the Company, namely, Chunhong Xu and Ting Wang entered on
December 1, 2006 into a loan agreement specifying that Chunhong Xu may borrower RMB one
hundred and forty thousand (RMB140,000) from Ting Wang for twelve (12) months. In the loan
agreement, the Parties agree that Xu shall provide its 5% of the equity of Shanghai FLOG
Media Culture Co., Ltd. (“FLOG” or “Company”) as the guarantee. Where Xu cannot make
repayment on schedule, Xu shall, with Wang’s consent, transfer the 5% equity interest of the
Company held by him to Wang, free of charge.
	 
	 	 	According to Article 2.1 of the investment agreement made on May 16, 2006 by and among Baohe
Meng, Chunhong Xu and Ting Wang, where a shareholder cannot make the investment on schedule,
he/she shall be punished by means of deduction of share proportion according to the
agreement between the sponsor (Baohe Meng) and other shareholders. In fact, the shareholder,
Chunhong Xu, has not made the investment on schedule, and the outstanding amount was paid in
advance by Baohe Meng (the receipt thereof is kept by the
Company’s finance department) when
the capital increase agreement was executed by and among Baohe Meng, Chunhong Xu and Ting
Wang in January, 2007.
	 
	1.6	 	Investment, Joint Venture and Branches
	 
	 	 	The Company has representative offices respectively in Guangzhou and Beijing. Guangzhou
Representative Office was established on March 1, 2007 at the address of 13AF/B, Zhongqiao
Plaza, No. 76 Xianlie Central Road, Guangzhou, China, and Beijing Representative Office was
established on June 10, 2007 at the address of Room 604, Building 3, SOHO, 88 Jianguo Road,
Chaoyang District, Beijing, China. The two representative offices have not completed the
procedures for business registration and have not conducted any actual operation activities.

IV. Legal Affairs

	4.2	 	License and Approval
	 
	 	 	The Company engages in adverting transactions by means of release of various advertisements in
golf clubs. The Company has not obtained the Outdoor Advertisement License from the
administration

Appendix IV

 

 

	 	 	for industry and commerce and other similar government licenses or approvals in connection
with ad-release in golf clubs. At present, relevant competent authorities have not required
the Company to apply for such government licenses or approvals. In the future, the Company
will make remedies in time, if necessary.
	 
	4.3	 	Lawsuit
	 
	 	 	With respect to the existing golf course cooperation agreements executed by the Company,
Hangzhou Weiming Resort Management Co., Ltd. has set up billboards without authorization in
Hangzhou Westlake International Golf Club, which constitutes a breach of contract. The
Company is negotiating with them about solution; however, the Company has not initiated
arbitration or legal proceedings.

V. Transactions and Contractual Arrangement

	5.5	 	Contracts
	 
	 	 	Shanghai FLOG Media Culture Co., Ltd. executed in the name of Shanghai Syndicate Advertising
Co., Ltd. (“Syndicate”) the Ad-cooperation Agreements respectively with Kunshan Fuyuan
Entertainment Co., Ltd., Grand Shanghai Int’l Golf & Holiday Resort, Suzhou Jingying Sports
Co., Ltd., Suzhou Sanyang Golf Club, Shanghai Xinchang Leisure Resort Center Co., Ltd.,
Haining Jianshan Golf Club Co., Ltd., Beijing CBD International Golf Club and Shanghai New
Continent Sports Center. In order to transfer Syndicate’s advertising transactions in
connection with golf clubs to the Company, FLOG and Syndicate have made three-party
acknowledgement letters respectively with Grand Shanghai International Golf & Holiday
Resort, Suzhou Jingying Sports Co., Ltd., Suzhou Sanyang Golf Club, Shanghai New Continent
Sports Center, Haining Jianshan Golf Club Co., Ltd. and Shanghai Xinchang Leisure Resort
Center Co., Ltd., confirming that the claims and debts under the Golf Club Agreements shall
be succeeded by Shanghai FLOG Media Culture Co., Ltd. as a result of change of Party B
(namely, Syndicate) to the original Golf Club Agreements. The Company has not executed any
agreement with Kunshan Fuyuan Entertainment Co., Ltd. or Beijing CBD International Golf Club
in connection with transfer of the Golf Club Cooperation Agreement.
	 
	5.6	 	Compliance with Agreements
	 
	 	 	All existing contracts or agreements to which the Company is one party: ad-cooperation
agreements with 27 golf clubs, totally 30 agreements. The detailed contract parties are as
follows:

Appendix IV

 

 

i) Ad-cooperation Agreements with golf clubs

	 	1)	 	Kunshan Fuyuan Entertainment Co., Ltd. (execution date: October 9, 2006)
	 
	 	2)	 	Grand Shanghai International Golf & Holiday Resort (execution dates of two
agreements: October 22, 2006/April 3, 2007 respectively)
	 
	 	3)	 	Suzhou Jingying Sports Co., Ltd. (execution date: October 6, 2006)
	 
	 	4)	 	Suzhou Sanyang Golf Club (execution date: December 7, 2006)
	 
	 	5)	 	Suzhou Lingyan Entertainment Co., Ltd. (execution date: February 26, 2007)
	 
	 	6)	 	Nanjing Zhaofu International Golf Club Co., Ltd. (execution date: March 1, 2007)
	 
	 	7)	 	Zhejiang Jiulongshan International Golf Club Co., Ltd. (execution date: June 5, 2007)
	 
	 	8)	 	Shanghai Xinchang Leisure Resort Center Co., Ltd. (execution date: March 1, 2007)
	 
	 	9)	 	Fujian Lianjiang Taoyuan Sports Entertainment Co., Ltd. (execution date: January 4,
2007)
	 
	 	10)	 	Shanghai Xubao Golf Club Co., Ltd. (execution date: June 5, 2007)
	 
	 	11)	 	Shanghai Meilanhu Golf Club Co., Ltd. (execution date: May 30, 2007)
	 
	 	12)	 	Shanghai Fushen Sports Development Co., Ltd. (execution date: July 31, 2007)
	 
	 	13)	 	Beijing Wanliu Golf Club Co., Ltd. (execution date: August 12, 2007)
	 
	 	14)	 	Guanghzou Lihu Golf & Country Club (execution date: May 21, 2007)
	 
	 	15)	 	Shenzhen Shahe Golf Club Co., Ltd. (execution date: June 5, 2007)
	 
	 	16)	 	Dongguan Chang’an Jinyu Golf Club Co., Ltd. (execution date: June 29, 2007)
	 
	 	17)	 	Beijing CBD International Golf Club (execution date: August 1, 2007)
	 
	 	18)	 	Chengdu Mudi Golf Club Management Co., Ltd. (execution date: June 12, 2007)
	 
	 	19)	 	Xi’an International Golf Club Co., Ltd. (execution dates of two agreements: April 3,
2007/October 30, 2007 respectively)
	 
	 	20)	 	Dalian Jinshi Golf Club Co., Ltd. (execution date: June 8, 2007)
	 
	 	21)	 	Hangzhou Weiming Resort Management Co., Ltd. (execution dates of two agreements: July
1, 2007/July 31, 2007 respectively)
	 
	 	22)	 	Nanjing Zhongshan International Golf Real Estate Co., Ltd. Golf Club Branch
(execution date: June 22, 2007)
	 
	 	23)	 	Tianjin Sanyou Golf Training Co., Ltd. (execution date: August 8, 2007)
	 
	 	24)	 	Kunming Chuncheng Hupan Tourism Real Estate Development Co., Ltd. (execution date:
September 6, 2007)
	 
	 	25)	 	Beijing Tianzhu Golf Country Club Co., Ltd. (execution date: April 18, 2007)
	 
	 	26)	 	Shanghai New Continent Sports Center (execution date: December 26, 2006)
	 
	 	27)	 	Haining Jianshan Golf Club Co., Ltd. (execution date: November 28, 2006)

ii) Billboard Production & Setup Service Contract

	 	1)	 	Shanghai Zhuoxin Decoration Co., Ltd. (execution dates of two agreements: January 20,
2007/May 31, 2007 respectively)

iii) Ad-sale Contracts

	 	1)	 	Shanghai Boshida Advertising Co., Ltd. (Ballantine Media Sale) (execution date: May
24, 2007)
	 
	 	2)	 	Bulgari Commercial (Shanghai) Co., Ltd. (Bulgari Media Sale) (execution date:
September 17, 2007)
	 
	 	3)	 	Pernod Ricard (China) Trading Co. Ltd. (Game Media Cooperation Agreement) (execution
date: October 16, 2007)
	 
	 	4)	 	Beijing 5100 Water Industry Co., Ltd. (Game Media Cooperation Agreement) (execution
date: October 16, 2007)

iv) Picture Production & Maintenance Contract

	 	1)	 	Production & Maintenance Co., Ltd. of Bulgari Commercial (Shanghai) Co., Ltd.
(execution date: September 17, 2007)

v) Contracts

	 	1)	 	Shanghai TangLion Advertising Co., Ltd. (Ballantine Media Brokerage Service Contract)
(execution
date: July 1, 2007)

Appendix IV

 

 

VI. Employees, etc.

	6.5	 	Social Insurance
	 
	 	 	The Company has engaged 8 employees for the duration from January 16, 2007 when it obtained
the Business License to May 2007. The Company has neither executed any employment contract
with nor paid social insurance premium for its employees. Since June 2007, all 23 employees
have executed employment contracts and confidentiality agreements with the Company. 15
employees have paid social insurance premium in accordance with the law, and the remaining 8
employees are undergoing their respective probation period. At present, the Company pay
social insurance premium for employees after they become formal ones, but in the future, it
will social insurance premium for employees immediately upon the execution of employment
contract.

VIII. Assets

	8.1	 	Ownership of Assets
	 
	 	 	The Company hires 3 real properties: HQ: Room 2309, Golden Magnolia Plaza, 1 Dapu Road,
Shanghai, China; Beijing Representative Office: Room 604, Building 3, SOHO, 88 Jianguo Road,
Chaoyang District, Beijing, China; Guangzhou Representative Office: 13AF/B, Zhongqiao Plaza,
76 Xianlie Middle Road, Guangzhou, China.
	 
	8.3	 	Insurance
	 
	 	 	Shanghai FLOG Media Culture Co., Ltd. has not purchased any insurance and, if necessary,
will make remedies in time.

IX. Intellectual Property

	9.1	 	Title
	 
	 	 	The Company has registered two domain names as follows up to now:

Appendix IV

 

 

www.floggolfmedia.com

www.floggolfmedia.com.cn

Appendix IV

 

 

Appendix V

Form of Employment Contract

[See Exhibit 10.13]

Appendix V

 

 

Appendix VI

Form of Non-competition Agreement

Appendix VI

 

 

Non-Compete Agreement

This Non-Compete Agreement (hereinafter referred to as the “Agreement”) was signed by the following
parties on
                                             
           , in                     :

	 	(1)	 	Shanghai FLOG Media Culture Company Ltd., a limited liability company organized and
existing under the laws of the People’s Republic of China (“PRC”), with its registered
address at Room 115, No. 2126 South Donghai Village, Caojing County, Jinshan District,
Shanghai, PRC (hereinafter referred as “Party A”); and
	 
	 	(2)	 	[shareholder/senior management], Identity Card No.: ____________, with a
residential address at: __________________     ____________ (hereinafter
referred as “Party B”).

(The above signatories shall hereinafter be referred to, jointly, as the “Parties” and,
individually, as a “Party”.)

     Whereas:

	 	(1)	 	Party A is a limited liability company that designs, produces, acts as an agent, and
publishes both domestic advertisements and advertisements of foreign companies coming to
China. Party A also organizes exhibitions, acts as an advertising consultant, and
organizes cultural and artistic exchange activities.
	 
	 	(2)	 	Party B owns a share interest in Party A (or holds the post of _________ for Party
A).
	 
	 	(3)	 	Party B acknowledges that a breach of the Non-Compete obligations set forth in the
Agreement occurring during the period he owns a share interest in Party A (“Equity Interest
Holding Period”) or holds the post of _________ of Party A (“Term of Employment”) and a
specified period of time thereafter will cause substantial harm to Party A.
	 
	 	(4)	 	In order to protect Party A’s interests, Party B hereby agrees to fulfill the
Non-Compete obligations in accordance with the terms and provisions of the Agreement.

	 	 	Now Therefore, in accordance with the laws, regulations and rules of the PRC currently in effect
and as a result of equitable and friendly negotiations, the Parties hereby reach the following
agreement:
	 
	I.	 	Definitions
	 
	 	 	Related Party

With respect to the Agreement, a Related Party of any person or entity shall mean: (1) an
organization of any type at which such person or entity holds a management position or of
which such person or entity is either a director or partner or in which, either
individually or in conjunction with a Related Party, such person or entity holds, directly
or indirectly, 10% or more actual interest; (2) such person or entity of which 10% or more
of its actual interest is directly or indirectly owned by a Related Party; (3) such person
or entity of which 10% or more of its actual interest and that of a Related Party is
directly or indirectly owned by the same person or entity; (4) any trust or other property
in which such person or entity owns a substantial actual interest or for which such person
or entity is acting as a trustee (or undertaking a similar duty of trust); and (5) any
person who cohabits with such person or is the director or manager of such entity or its
parent company or its subsidiary, or any family member or spouse of such director or
manager, or any family member of such spouse.

Appendix VI

 

 

	 	 	Competing Business

Competing Business refers to any business which is in competition with Party A, including
but not limited to the following activities: (1) developing and manufacturing products
which compete with or which are similar to products developed or manufactured by Party A;
(2) distributing, trading or selling, through direct sales or using networks or by other
means, products that are manufactured in a different location but which compete with or
are similar to products distributed, traded or sold by Party A; (3) providing, by any
means, services which compete with or which are similar to services provided by Party A
(the foregoing products or services include any products or services under development by
Party A or products or services in the course of being planned and developed during the
period that Party B holds shares in Party A or during his Term of Employment); or (4)
possessing any other attributes which compete with Party A.

	II.	 	Non-Compete
	 
	 	 	Non-Compete Period

The Parties hereby agree that, in accordance with the intent of the Agreement, the
“Non-Compete Period” shall be the period during which Party B continues to be a Related
Party and a period of two (2) years thereafter. “Related Party Relationship” refers to
Party B’s related party relationship to Party A arising out of the fact that Party B owns
a share interest in Party A (or holds the post of the                      of Party A);
“Relationship Period” refers to the ongoing period during which Party B maintains a
Related Party Relationship with Party A. The Relationship Period shall be the longer of
Party B’s period of shareholding and the Term of Employment (if applicable).

	 	 	Non-Compete Territory

The Parties hereby agree that, in accordance with the intent of the Agreement, the
“Non-Compete Territory” shall refer to the entire world including, but not limited to, the
British Virgin Islands, the British Cayman Islands, the People’s Republic of China
(including the Special Administrative Region of Hong Kong, the Special Administrative
Region of Macau, and the territory of Taiwan, hereinafter referred as “China”), and any
other countries and territories in the world where Party A is currently developing or may
develop business in the future.

	 	 	Non-Compete Obligations

Without the prior written approval of Party A, Party B warrants that, within the
Non-Compete Period and the Non-Compete Territory, he shall not individually or in
conjunction with a Related Party:

	 	(1)	 	Engage in any conduct that will harm the interests of Party A (with respect
to the intent of Clause 2.3, “Party A” shall be interpreted as including Party A and
Party A’s subsidiary(ies), parent company(ies) or Related Party(ies)), or infringe on
the legal rights of Party A; or
	 
	 	(2)	 	Incite, induce, encourage, or facilitate by other means, any employee of
Party A to terminate the employment relationship with Party A, with the exception of
actions undertaken by Party B with Party A’s written approval in the course of the
performance of Party B’s duties within the Relationship Period.
	 
	 	(3)	 	Incite, induce, encourage or facilitate by other means any supplier,
contractor or client of Party A (including, but not limited, to any golf operating
and management companies,

Appendix VI

 

 

	 	 	 	advertising firms, or advertisers) to terminate its cooperative relationship with
Party A, or engage in any conduct which may have a negative effect on the cooperative
relationship between Party A and such supplier, contractor or client.
	 
	 	(4)	 	Directly or indirectly, whether on Party B’s own behalf or acting as a
representative or employee of another person or organization, provide any consulting
services or other type of service that will assist others to engage in a Competing
Business.
	 
	 	(5)	 	Individually or in conjunction with others, by any means (including, but
not limited to, via investment, merger/acquisition, joint operation, joint venture;
cooperation, partnership; subcontracting arrangement, leasing arrangement or share
purchase) directly or indirectly engage in or participate in any business or activity
which competes or may constitute competition with businesses currently being
undertaken or to be undertaken by Party A.

	III.	 	Applicable Law and Dispute Resolution
	 
	 	 	Applicable Law

The Agreement shall be governed by the laws of the PRC and interpreted in accordance therewith.

	 	 	Dispute Resolution

	 	(1)	 	The Parties shall use their best efforts to resolve any disputes arising
out of or in relation to the Agreement through friendly negotiations. If a dispute
is unable to be resolved by negotiations within sixty (60) days of any Party issuing
a notice to the other Party of the existence of such dispute, then such dispute
(including disputes related to the validity or existence of the Agreement) shall be
submitted to the Beijing Sub-Commission of the China International Economic and Trade
Arbitration Commission and be arbitrated in accordance with the arbitration
regulations of such Sub-Commission in effect at the time of arbitration.
	 
	 	(2)	 	The arbitral award shall be final and equally binding on the Parties and
may be compulsorily enforced in accordance with the stipulations of the relevant
terms and conditions thereof.
	 
	 	(3)	 	The arbitration fees shall be borne by the losing party, unless otherwise
specified by the arbitral award. If it is necessary for a Party to enforce the
arbitral award by means of litigation, the breaching party shall pay all reasonable
fees and expenses including, but not limited to, reasonable legal fees and any
additional litigation or enforcement fees arising out of a Party’s application for
the enforcement of the arbitral award.
	 
	 	(4)	 	During the period of dispute resolution, with the exception of the matters
in dispute, the Parties shall continue to fulfill the Agreement in its entirety.

IV. Remedies for Breach of Contract

	 	4.1	 	The Parties agree that if Party B breaches the Non-Compete obligations stipulated by
Clause II of the Agreement, he shall bear liability for such breach. All benefits and
proceeds acquired as a result of the breach of such Non-Compete obligations (such as work
product resulting from engaging in competition with Party A) shall become the property of
Party A. Furthermore, Party B shall compensate Party A for actual losses incurred by Party
A as a result of such breach. Party A shall also have the right to request that Party B
immediately terminate any activity related to the Competing Business.
	 
	 	4.2	 	Party B acknowledges that the compensation for the losses described in Clause 4.1 above
will not constitute sufficient remedy for a breach of contract. Party B agrees that if the
breach of the Agreement by Party B results in any payments, liabilities or losses suffered
on the part of Party A

Appendix VI

 

 

	 	 	 	(including but not limited to loss of profits by Party A), Party B shall compensate Party
A such payments, liabilities or losses (including but not limited to interest and legal
fees paid or lost as a result of the breach).
	 
	 	4.3	 	Party B agrees that, upon breach of the Agreement by Party B, he shall immediately
resign from all posts held with Party A (if any) and waive any claims against Party A which
may arise from such resignation.

	V.	 	Effective Date and Term of Contract
	 
	 	 	The Agreement shall be effective upon the signing thereof by the Parties and shall remain valid
until the expiration of the Non-Compete Period stipulated by Clause 2.1 of the Agreement.
However, termination of the Agreement shall not affect the rights of a non-breaching party to
pursue a breaching party for breach of contract in accordance with the Agreement.
	 
	VI.	 	Other

	 	6.1	 	Entire Agreement: The Agreement and its Appendices and Attachments (if any) are the
sole documents which completely and accurately describe the intentions of the Parties and
constitute the entire agreement between the Parties with respect to the matters set forth
herein. No prior statements, guarantees or agreements exist in relation to the Agreement.
Unless agreed in writing by both Parties, amendments, additions and deletions to the terms
and conditions of the Agreement shall not be binding on either Party.
	 
	 	6.2	 	Waiver: Any waiver of the breach of contract or fault under the Agreement is not to be
taken as waiver of any other breach of contract or fault, regardless of whether they are of
a similar nature. Any single or partial exercise of any right shall not exclude any other
future exercise of such right. Notwithstanding the foregoing, such waiver shall be valid
only upon issuance of a written document signed by an authorized signatory of the waiving
Party and whose contents indicate that it was issued as a result of circumstances
necessitating a waiver.
	 
	 	6.3	 	Severability: In the event that any term or condition of the Agreement is determined to
be invalid (for whatever reason), unless the invalidity of such term or condition has an
actual effect on the continued fulfillment of the contract as a whole, such invalidity
shall not affect the other terms and conditions of the Agreement and such invalid term or
condition shall be deemed to be deleted from the Agreement. After negotiations, the
Parties may sign a supplemental agreement to make arrangements regarding related matters.
	 
	 	6.4	 	Third Party Interests: The Agreement shall be binding on and shall inure to the benefit
of the Parties, their respective heirs, and those assignees approved by both Parties.
Nothing in the Agreement may be deemed to explicitly or implicitly grant any right, relief
or obligation to any other person or entity with the exception of the Parties, their
respective heirs and approved assignees.
	 
	 	6.5	 	Notice: All notices, claims, requests, acknowledgements or other correspondence shall
be made in writing, and the issuing party may personally, or through courier or registered
mail, deliver the same to the address of the receiving party set forth below (or a
different address as notified in writing by a Party). The time of delivery for all
notices, claims, requests, acknowledgements or other correspondence in relation to the
Agreement shall be deemed to be as follows: (1) in the event of a personal delivery, the
actual time of delivery; (2) in the event of courier, after the third (3rd) day
from the date of submission to the courier (if delivery occurs within three (3) days, then
the actual date of delivery shall be binding) ; (3) in the event of registered mail (or
mail posted

Appendix VI

 

 

	 	 	 	overseas by air mail), after the fifth (5th) day from the date of posting (if
delivery occurs within five (5) days, then the actual date of delivery shall be binding).

	 	 	 	 	 
	To:	 	Shanghai FLOG Media Culture Company Ltd.
	 

	 	     Address:
	 	Room2309, Jinyulan Square, Dapu Road, Luwan District, Shanghai
	 
	 	 	 	 
	 

	 	Attention:
	 	Baohe Meng
	 
	 	 	 	 
	 

	 	Telephone:
	 	021-53960860
	 
	 	 	 	 
	 

	 	Fax:
	 	021-53960056
	 
	 	 	 	 
	To:	 	[Party B]
	 

	 	     Address:	 	 
	 
	 	 	 	 
	 

	 	Telephone:	 	 
	 
	 	 	 	 
	 

	 	Fax:	 	 

	 	6.6	 	Headings: The headings of all clauses in the Agreement are for reference only and shall not be utilized in the
interpretation of the Agreement or affect the meaning of the Agreement.
	 
	 	6.7	 	Disclosure: Unless otherwise stipulated by laws and regulations, neither Party nor its
agent shall issue any public statements with respect to the Agreement or any other
documents or subsequent documents signed in respect to the matters herein without the prior
written consent of the other Party (such consent not to be unreasonably withheld).
	 
	 	6.8	 	Language: The Agreement is executed in Chinese.
	 
	 	6.9	 	Counterparts: The Agreement is executed in two (2) counterparts, one counterpart for each Party.

(This page is intentionally left blank, the signature page is attached at the end)

Appendix VI

 

 

(Non-Compete Agreement Signature Page, no other contents on this page.)

The Parties have noted the date of signature of the Agreement at the beginning of the document.

	 	 	 
	Party A:

	 	Shanghai FLOG Media Culture Company Ltd.
	 
	 	 
	 

	 	Legal Representative:          (Signed and Sealed)__________________
	 

	 	Baohe Meng
	 
	 	 
	Party B:

	 	[name]
	 
	 	 
	 

	 	(Signature) __________________

Non-compete Agreement Signature Page

Appendix VI

 

 

Appendix VII

Non-competition Agreement (to be signed with Shanghai Syndicate Advertising Co., Ltd.)

[See Exhibit 10.9.3]

Appendix 7

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