Tax Indemnity Agreement - Focus Media Holding Ltd., GS Focus Holding LTd. and 3i Group plc
TAX INDEMNITY AGREEMENT
THIS TAX INDEMNITY AGREEMENT (this "AGREEMENT"), dated November 29, 2004,
is entered into by and among Focus Media Holding Limited, an international
business company organized under the laws of the British Virgin Islands (the
"COMPANY"), GS Focus Holding Limited, an exempted company organized and existing
under the laws of the Cayman Islands (the "LEAD INVESTOR"), 3i Group plc, a
company organized and existing under the laws of England (the "CO-INVESTOR
Lead"), and each of the parties listed on Schedule A hereto (together with the
Lead Investor and the Co-Investor Lead, the "INVESTORS").
RECITALS
WHEREAS the Company and the Investors are parties to a Share Purchase
Agreement, dated November 9, 2004 (the "SHARE PURCHASE AGREEMENT");
WHEREAS it is a condition precedent under the Share Purchase Agreement
that the Company enter into this Agreement; and
WHEREAS the Company seeks to induce the Investors to consummate their
investment in the Company as contemplated in the Share Purchase Agreement, and
to such ends, seek to satisfy the conditions precedent to such investment by
entering into this Agreement;
AGREEMENT
NOW, THEREFORE, in consideration of the premises set forth above, the
mutual covenants and agreements set forth herein and for other good and valuable
consideration, the adequacy of which is hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1 INTERPRETATION
1.1 Definitions. Unless otherwise defined in this Agreement, capitalized
terms used herein shall have the following meanings:
"AFFILIATE" means, with respect to any given Person, a Person that
Controls, is Controlled by, or is under common Control with the given
Person.
"ACQUISITION PRICE" means, with respect to each Indemnity Share,
US$102.78 per share, subject to adjustment as provided below.
(a) In connection with the occurrence of an Earnout Event, (i) the
Acquisition Price for each Indemnity Share issued and
outstanding prior to the Earnout Event shall be adjusted by
multiplying such Acquisition Price by the Earnout Dilution
Factor and (ii) the Acquisition Price for each Series C Share
issued by the Company to any Investor in connection with the
Earnout Event shall equal US$102.78 muliplied by the Earnout
Dilution Factor.
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(b) In the case of any new Indemnity Share issued upon the
conversion or exchange of any other Indemnity Share, the
Acquisition Price for such new Indemnity Share shall be the
Acquisition Price of the Indemnity Share so converted or
exchanged, apportioned pro rata across all Indemnity Shares
issued in such conversion or exchange according to the Fair
Value thereof.
"APPLICABLE LAW" means, with respect to any Person, any and all
provisions of any constitution, treaty, statute, law, regulation,
ordinance, code, rule, judgment, rule of common law, order, decree, award,
injunction, governmental approval, concession, grant, franchise, license,
agreement, directive, requirement, or other governmental restriction or
any similar form of decision of, or determination by, or any
interpretation or administration of any of the foregoing by, any
Government Entity, whether in effect as of the date hereof or thereafter
and in each case as amended, applicable to such Person or its subsidiaries
or their respective assets.
"CLOSING" has the meaning ascribed thereto in the Share Purchase
Agreement.
"CONSENT" means any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or
order of, registration, certificate, declaration or filing with, or report
or notice to, any Person, including any Government Entity.
"CONTROL" means, when used with respect to any Person, the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise, and the terms "Controlling" and "Controlled" have meanings
correlative to the foregoing.
"EARNOUT AGREEMENT" means that certain Earnout Agreement, of even
date herewith, among the Company, the Investors and certain Affiliates of
the Company.
"EARNOUT DILUTION FACTOR" means with respect to an Earnout Event, a
fraction, the numerator of which shall equal the total Indemnity Shares
issued and outstanding immediately prior to such Earnout Event (determined
on an as-converted basis) and the denominator of which shall equal the
total Indemnity Shares issued and outstanding immediately following such
Earnout Agreement (on an as-converted basis).
"EARNOUT EVENT" means the issuance of any Series C Shares to the
Investors under the Earnout Agreement.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise.
"EQUITY SECURITIES" shall mean any Ordinary Shares or Ordinary Share
Equivalents.
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"FAIR VALUE" means, with respect to any security, property, assets,
business or entity, the fair market value thereof as determined in
accordance with the following procedure:
(i) Fair Value shall be initially determined in good faith by the
Board of Directors and communicated in writing to Holders
representing a majority in voting power of the Indemnity
Shares held by all Holders.
(ii) If Holders representing a majority in voting power of the
Indemnity Shares held by all Holders do not agree with the
Fair Value initially determined by the Board of Directors,
such holders may require that the Fair Value be determined by
an appraiser of recognized international standing and
reputation, or if the Company and such holders are not able to
agree on the appointment of such an appraiser, the Company and
such holders shall each designate an appraiser of recognized
international standing and reputation, which appraisers will
in turn appoint a third such appraiser which shall determine
the Fair Value.
(iii) Any appraiser duly designated to make the determination of
Fair Value shall deliver its determination in writing to the
Company and to each of the Holders, and such determination
shall be conclusive and binding on the Company and the
Holders. The fees and expense of such appraiser shall be borne
by the Company.
(iv) The Fair Value of any equity interest in a Person shall be
determined without regard to the fact that such equity
interest may constitute a minority ownership interest in a
closely held corporation.
Whenever Fair Value must be determined pursuant to these provisions, the
Company shall be responsible for promptly initiating the procedures for
making such determination. If the procedures contemplated in connection
with obtaining such determination have not been fully complied with, then
any such determination of Fair Value for any purpose shall be deemed to be
preliminary and subject to adjustment pending full compliance with such
procedures.
"GOVERNMENT ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government.
"GROUP COMPANY" means any Person that is not a natural person and
that is Controlled by the Company.
"HOLDERS" means the Investors, together with the permitted
transferees and assigns of any Holder's rights hereunder.
"HONG KONG" means the Hong Kong Special Administrative Region.
"INDEMNIFIABLE LOSS" means, with respect to any Indemnified Party at
any given date, any diminution in the Fair Value of any Indemnity Share
held thereby below the Acquisition Price of such share and any other
action, cost, damage,
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disbursement, expense, Liability, loss, deficiency, obligation, penalty or
settlement of any kind or nature suffered by such Indemnified Party other
than by way of diminution in value. Notwithstanding anything to the
contrary provided in the preceding sentence, "Indemnifiable Loss" shall
include, but shall not be limited to, (i) interest or other carrying
costs, penalties, legal, accounting and other professional fees and
expenses reasonably incurred in the investigation, collection, prosecution
and defense of claims and amounts paid in settlement, that may be imposed
on or otherwise incurred or suffered by such Indemnified Party, (ii) any
Taxes that may be payable by such Indemnified Party by reason of the
indemnification of any Indemnifiable Loss hereunder, other than Taxes that
would have been payable notwithstanding the event giving rise to
indemnification and (iii) any further diminution in the Fair Value of
Indemnity Shares resulting from any indemnity payment made by the Company
pursuant to this Agreement.
"INDEMNITY SHARE" means (i) any Series C Shares acquired by the
Investors pursuant to the Share Purchase Agreement or the Earnout
Agreement, (ii) Ordinary Shares issuable or issued upon conversion of the
Series C Shares, and (iii) any Equity Securities of the Company issued as
(or issuable upon the conversion, exchange or exercise of any Ordinary
Share Equivalent) a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the shares referenced in (i) and (ii).
"IPO" means a firm-commitment underwritten initial public offering
of the Company's Ordinary Shares.
"LIABILITIES" means, with respect to any Person, liabilities owing
by such Person of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due.
"ORDINARY SHARES" shall mean the Ordinary Shares, par value US$0.01
per share, of the Company.
"ORDINARY SHARE EQUIVALENTS" shall mean warrants, options and rights
exercisable for Ordinary Shares and instruments convertible or
exchangeable for Ordinary Shares.
"PERSON" means any natural person, limited liability company, joint
stock company, joint venture, partnership, enterprise, trust,
unincorporated organization or any other entity or organization.
"PRC" means the People's Republic of China, but solely for purposes
of this Agreement, excluding Hong Kong, the Macau Special Administrative
Region and the islands of Taiwan.
"QUALIFIED EXCHANGE" means the New York Stock Exchange, the Nasdaq
Stock Market's National Market System, the Main Board of the Hong Kong
Stock Exchange, the Main Market of the London Stock Exchange and the
Mainboard of the Singapore Exchange.
"SERIES C QPO" means an IPO by the Company on a Qualified Exchange
(or such other exchange as shall be approved in writing by the holders of
a majority in
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voting power of the outstanding Series C Shares) of Ordinary Shares
representing at least 25% of the fully-diluted share capital of the
Company immediately following the offering, at a price per share that
values the Company at no less than US$335,000,000 immediately prior to the
offering.
"SERIES C SHARES" means the Series C-1 Shares and the Series C-2
Shares.
"SERIES C-1 SHARES" means Series C-1 Preferred Shares, par value
US$0.01 per share, of the Company.
"SERIES C-2 SHARES" means Series C-2 Preferred Shares, par value
US$0.01 per share, of the Company.
"TAXES" means any national, provincial or local income, sales and
use, excise, franchise, real and personal property, gross receipt, capital
stock, production, business and occupation, disability, employment,
payroll, severance or withholding tax or charge imposed by any Government
Entity, any interest and penalties (civil or criminal) related thereto or
to the nonpayment thereof, and any loss or Tax Liability incurred in
connection with the determination, settlement or litigation of any
Liability arising therefrom.
"TAX RETURN" means any tax return, declaration, reports, estimates,
claim for refund, claim for extension, information returns, or statements
relating to Taxes, including any schedule or attachment thereto.
1.2 Interpretation. For all purposes of this Agreement, except as
otherwise expressly herein provided, (i) the terms defined in this Section 1
shall have the meanings assigned to them in this Section 1 and include the
plural as well as the singular, (ii) all references in this Agreement to
designated "Sections" and other subdivisions are to the designated Sections and
other subdivisions of the body of this Agreement, (iii) pronouns of either
gender or neuter shall include, as appropriate, the other pronoun forms, (iv)
the words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Section or other
subdivision, (v) all references in this Agreement to designated Schedules,
Exhibits and Annexes are to the Schedules, Exhibits and Annexes attached to this
Agreement, and (vi) any formula that purports to calculate the excess of one
value over another shall be deemed to yield a value equal to zero if there is no
excess.
SECTION 2 INDEMNITY
2.1 Indemnity. The Company hereby agrees to indemnify and hold harmless
each Holder (an "INDEMNIFIED PARTY"), from and against any and all Indemnifiable
Losses suffered by such Indemnified Party, directly or indirectly, as a result
of, or based upon or arising from any failure by the Company or any Group
Company prior to December 31, 2004 (i) to timely pay any Tax due and payable
thereby (or subject to withholding and remittance thereby), (ii) to timely file
any Tax Return, (iii) to comply with any Applicable Law relating to Taxes, or
(iv) to pay or fund any social welfare benefits that the Company or such Group
Company may be, or may have been, required by Applicable Law to pay or fund to
or on behalf of any of the prior or continuing employees thereof (each, an
"INDEMNIFIABLE EVENT").
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2.2 Procedures.
(a) Each Indemnified Party shall be entitled to select its own
counsel in defense of any action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (each, a "CLAIM") that may cause Indemnifiable Losses to such Indemnified
Party. The Company shall advance all reasonable expenses, including attorneys'
fees and all other related costs, expenses and obligations incurred in
connection with investigating or defending against a Claim (collectively, the
"DEFENSE EXPENSES"). Defense Expenses shall be paid by the Company to the
Indemnified Party as they are incurred but in any event no later than fifteen
(15) days after a written request and supporting documentation are supplied by
such Indemnified Party to the Company.
(b) If a Claim is asserted by any third party against an Indemnified
Party, such Indemnified Party may request the Company to defend the Claim on
behalf of the Indemnified Party by a written notice. If the Company fails to
defend the Indemnified Party upon such request, a recovery against the
Indemnified Party shall be conclusive in its favor against the Company,
provided, however, that, if the Company has not received reasonable notice of
the Claim or is not allowed to control its defense, judgment against the
Indemnified Party shall only constitute presumptive evidence against the
Company.
(c) All payments to be made by the Company to an Indemnified Party
hereunder shall be made in immediately available funds to a bank account
designated by such Indemnified Party. All payments to be made to the Indemnified
Party shall be made in U.S. Dollars. The Company covenants and agrees that (i)
it has full authority and resources to make any payment hereunder to or for the
account of the Company or any Holder in U.S. Dollars if so required; and (ii) it
shall make all payments hereunder irrespective of and without deduction for, any
counterclaim, defense, recoupment, or set-off; and (iii) any payment or
indemnity hereunder shall include an amount necessary to hold the recipient of
such payment or indemnity harmless on an after-Tax basis from all Taxes required
to be paid with respect to such payment or indemnity, taking into account any
Tax.
SECTION 3 REPRESENTATIONS AND WARRANTIES
The Company represents, warrants and covenants to each Investor that:
(a) It is duly organized and validly existing under the laws of the
jurisdiction of its formation and has the corporate power and authority to own
and operate its properties, to carry on its business as now conducted and as
proposed to be conducted and to perform each of its obligations under this
Agreement.
(b) Any corporate action necessary on the part of the Company and
its officers, directors and shareholders has been taken for the authorization,
execution, and delivery by it of this Agreement and the performance of its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with the terms hereof,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other remedies in the
nature of equitable remedies.
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(c) The execution, delivery, and performance by the Company of this
Agreement requires no Consent of any third party and (i) will not result in any
violation of, be in conflict with, or constitute a default under, with or
without the passage of time or the giving of notice, any provision of its
constitutional documents as in effect at the date hereof, any Applicable Law, or
any material contract or obligation to which it is a party or by which it is
bound, or (ii) accelerate or constitute an event entitling the holder of any
indebtedness of the Company to accelerate the maturity of any such indebtedness
or to increase the rate of interest presently in effect with respect to such
indebtedness, or (iii) result in the creation of any Encumbrance upon any of the
properties or assets of the Company.
(d) No breach or default, alleged breach or default, or event which
would (with the passage of time, notice or both) constitute a breach or default
under any agreement, undertaking or instrument to which the Company is a party
or by which the Company may be bound (including, inter alia this Agreement) has
occurred, or as a result of this Agreement, or the performance hereof, will
occur.
(e) No litigation, arbitration or administrative proceedings are at
present current or pending, or to the knowledge of the Company, threatened,
which would have a material adverse effect upon the ability of the Company to
fulfill its obligations hereunder.
SECTION 4 MISCELLANEOUS
4.1 Termination. This Agreement shall terminate immediately prior to the
consummation of a Series C QPO.
4.2 Binding Effect; Assignment. This Agreement shall be binding upon and
shall be enforceable by each party, its successors and permitted assigns. Each
Holder shall have the right to assign all or part of its rights under this
Agreement to any of its Affiliates to the extent the Holder transfers any Equity
Securities thereto. Except as provided in the preceding sentence, no party may
assign any of its rights or obligations hereunder without the prior written
approval of the other party.
4.3 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to conflicts
of laws principles thereunder.
4.4 Dispute Resolution.
(a) Any dispute, controversy or claim (each, a "DISPUTE") arising
out of or relating to this Agreement, or the interpretation, breach, termination
or validity hereof, shall be resolved at the first instance through consultation
between the parties to such Dispute. Such consultation shall begin immediately
after any party has delivered written notice to any other party to the Dispute
requesting such consultation.
(b) If the Dispute is not resolved within sixty (60) days following
the date on which such notice is given, the Dispute shall be submitted to
arbitration upon the request of any party to the Dispute with notice to each
other party to the Dispute (the "ARBITRATION NOTICE").
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(c) The arbitration shall be conducted in Hong Kong under the
auspices of the Hong Kong International Arbitration Centre (the "CENTRE"). There
shall be three (3) arbitrators. The claimants in the Dispute shall collectively
choose one arbitrator, and the respondents shall collectively choose one
arbitrator. The Secretary General of the Centre shall select the third
arbitrator, who shall be qualified to practice law in New York. If any of the
members of the arbitral tribunal have not been appointed within thirty (30) days
after the Arbitration Notice is given, the relevant appointment shall be made by
the Secretary General of the Centre.
(d) The arbitration proceedings shall be conducted in English and
Chinese. The arbitration tribunal shall apply the Arbitration Rules of the
United Nations Commission on International Trade Law, as in effect at the time
of the arbitration. However, if such rules are in conflict with the provisions
of this Section 4.4, including the provisions concerning the appointment of
arbitrator, the provisions of this Section 4.4 shall prevail.
(e) Each party to the arbitration shall cooperate with each other
party to the arbitration in making full disclosure of and providing complete
access to all information and documents requested by such other party in
connection with such arbitration proceedings, subject only to any
confidentiality obligations binding on such party.
(f) The award of the arbitration tribunal shall be final and binding
upon the parties, and the prevailing party may apply to a court of competent
jurisdiction for enforcement of such award.
(g) The arbitrator shall decide any dispute submitted by the parties
to the arbitration strictly in accordance with the substantive law of the State
of New York and shall not apply any other substantive law.
(h) Any party to the Dispute shall be entitled to seek preliminary
injunctive relief, if possible, from any court of competent jurisdiction pending
the constitution of the arbitral tribunal.
(i) During the course of the arbitration tribunal's adjudication of
the dispute, this Agreement shall continue to be performed except with respect
to the part in dispute and under adjudication.
4.5 Language. The governing version of this Agreement is the English
language version. Any translation of this Agreement into Chinese or any other
language is for the convenience of the parties only.
4.6 Amendments. Except as otherwise permitted herein, this Agreement and
its provisions may be amended, changed, waived, discharged or terminated only by
a writing signed by each of the parties.
4.7 Notices. All notices, claims, certificates, requests, demands and
other communications under this Agreement shall be made in writing and shall be
delivered to any party hereto by hand or sent by facsimile, or sent, postage
prepaid, by reputable overnight courier services at the address given for such
party on the signature pages hereof (or at such other address for such party as
shall be specified by like notice), and shall be deemed given when so delivered
by hand, or if sent by facsimile, upon receipt of a confirmed transmittal
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receipt, or if sent by overnight courier, five (5) calendar days after delivery
to or pickup by the overnight courier service.
4.8 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
the other party may reasonably request to give effect to the terms and intent of
this Agreement.
4.9 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior written or oral understandings or agreements.
4.10 Severability. If any provision of this Agreement shall be held
invalid or unenforceable to any extent, the remainder of this Agreement shall
not be affected thereby and shall be enforced to the greatest extent permitted
by law.
4.11 Remedies Cumulative. The rights and remedies available under this
Agreement or otherwise available shall be cumulative of all other rights and
remedies and may be exercised successively.
4.12 Counterpart Execution. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
4.13 No Third Party Beneficiary. Nothing in this Agreement is intended to
confer upon any Person other than the parties hereto and their respective
successors and permitted assigns any rights, benefits, or obligations hereunder.
[The remainder of this page has been left intentionally blank.]
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IN WITNESS WHEREOF the parties hereto have caused their duly authorized
representatives to execute this Agreement as of the first date written above.
FOCUS MEDIA HOLDING LIMITED
By: /s/ Jiang Nanchun
-----------------------------------
Name: Jiang Nanchun [CHINESE CHARACTERS]
Capacity: CEO
Address for notice:
28th Floor, Zhao Feng World Trade Building,
No. 369 Jiangsu Road,
Shanghai, China
Attn: Jiang Nanchun [CHINESE CHARACTERS]
Tel: 86-21-32124661
Fax: 86-21-52400228
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GS FOCUS HOLDING LIMITED
By: /s/ David Chou
------------------------------
Name: David Chou
Capacity: Authorized Signatory
Address for notice:
68/F Cheung Kong Center
2 Queen's Road Central
Hong Kong
Attn: David Chou
Tel: 852-2978-1151
Fax: 852-2978-0440
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3I group plc
By: /s/ Cheng Sim Tan
-----------------------------
Name: Cheng Sim Tan
Capacity: Authorized Signatory
Address for notice:
Suite 1903, 19/F
Two International Finance Centre
8 Finance Street
Central, Hong Kong
Attn: Cheng Sim Tan
Tel: 852-2901-8188
Fax: 852-2537-7886
with a copy to:
3i Investments plc
80 Raffles Place
#33-20 UOB Plaza 2
Singapore 048624
Attn: Cheng Sim Tan
Tel: 65-6438-3131
Fax: 65-6536-2429
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3I ASIA pacific technology lp
Acting by its manager, 3i Investment plc
By: /s/ Cheng Sim Tan
--------------------------------
Name: Cheng Sim Tan
Capacity: Authorized Signatory
Address for notice:
Suite 1903, 19/F
Two International Finance Centre
8 Finance Street
Central, Hong Kong
Attn: Cheng Sim Tan
Tel: 852-2901-8188
Fax: 852-2537-7886
with a copy to:
3i Investments plc
80 Raffles Place
#33-20 UOB Plaza 2
Singapore 048624
Attn: Cheng Sim Tan
Tel: 65-6438-3131
Fax: 65-6536-2429
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3I ASIA pacific 2004-06 lp
Acting by its manager, 3i Investment plc
By: /s/ Cheng Sim Tan
-------------------------------
Name: Cheng Sim Tan
Capacity: Authorized Signatory
Address for notice:
Suite 1903, 19/F
Two International Finance Centre
8 Finance Street
Central, Hong Kong
Attn: Cheng Sim Tan
Tel: 852-2901-8188
Fax: 852-2537-7886
with a copy to:
3i Investments plc
80 Raffles Place
#33-20 UOB Plaza 2
Singapore 048624
Attn: Cheng Sim Tan
Tel: 65-6438-3131
Fax: 65-6536-2429
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KTB/UCI CHINA VENTURES LIMITED
By: /s/ Wei Yu
---------------------------------
Name: Wei Yu [CHINESE CHARACTERS]
Capacity: CEO
Address for notice:
28th Floor, Zhao Feng World Trade Building,
No. 369 Jiangsu Road,
Shanghai, China
Attn: Wei Yu [CHINESE CHARACTERS]
Tel: 86-21-32124668
Fax: 86-21-52400958
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Max Wealth Enterprises Limited
By: /s/ Nei Shen
---------------------------------
Name: Nei Shen [CHINESE CHARACTERS]
Capacity: Director
Address for notice:
8A, No. 2 Conduit Road, Mid Levels,
Hong Kong
Attn: Neil Shen [CHINESE CHARACTERS]
Tel: 852-2169-0911
Fax: 852-2169-0920
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SCHEDULE A - INVESTORS
1. 3i Asia Pacific Technology LP, a limited partnership duly organized and
existing under the laws of England
2. 3i Asia Pacific 2004-06 LP, a limited partnership duly organized and
existing under the laws of England
3. KTB/UCI China Ventures I Limited, an international business company
organized and existing under the laws of the British Virgin Islands
4. Max Wealth Enterprises Limited, an international business company
organized and exiting under the laws of the British Virgin Islands
Tax Indemnity Agreement
SCHEDULE A
1