SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this “
Agreement ”) is dated as of the
11 th
day of August, 2009 (the “
Effective Date ”) by and between American Dairy, Inc.,
a corporation incorporated in the State of Utah, with its principal
office at Star City International Building, 10 Jiuxianqiao Road,
C-16th Floor Chaoyang District, Beijing, China 100016 (the
“ Company ”), and the several purchasers
identified in the attached Exhibit A (individually, a
“ Purchaser ” and collectively, the “
Purchasers ”).
WHEREAS, the Company desires to issue and sell
to the Purchasers, 2,100,000 shares (the number of which shall be
adjusted from time to time to reflect any Adjustment Event that
occurred following the Closing) (the “ Shares ”)
of the authorized but unissued shares of common stock, US$0.001 par
value per share, of the Company (the “ Common Stock
”) for an aggregate purchase price of
US$63,000,000;
WHEREAS, the Purchasers wish to purchase the
Securities on the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, the Company and the Purchasers have
entered into a Bridge Loan Agreement and a Share Pledge Agreement
on July 28, 2009, pursuant to which (i) the Purchasers provided a
Bridge Loan to the Company; (ii) the Guarantor under the Share
Pledge Agreement pledged certain Common Stock to the Purchasers;
and (iii) the parties thereto agreed that the Purchasers shall have
the right to convert the Bridge Loan into certain shares of Common
Stock; and
WHEREAS, contemporaneously with and as a
condition to the execution of this Agreement, the parties hereto
are entering into a Registration Rights Agreement under which the
Company has agreed to provide certain registration rights under the
Securities Act, the Rules and Regulations promulgated thereunder
and applicable state securities laws.
NOW, THEREFORE, in consideration of the mutual
agreements, representations, warranties and covenants herein
contained, the parties hereto agree as follows:
1. Definitions
. As used in this Agreement, the following terms shall have the
following respective meanings:
“ 2009 Notes ” means the
7.75% convertible notes issued by the Company in an aggregate
principal amount of US$18.2 million due October 2, 2009 issued on
October 3, 2006, as restructured on November 12, 2008.
“ 2009 Warrants ” means the
warrants to purchase up to an aggregate of approximately 251,000
shares of Common Stock at any time prior to October 3, 2012, issued
by the Company on October 3, 2006 in connection with the 2009
Notes, as restructured on November 12, 2008.
“ 2012 Notes ” means the
1.00% guaranteed senior secured convertible notes issued by the
Company in the aggregate principal amounts of US$60.0 million and
US$20.0 million due 2012, issued on June 1, 2007 and June 27, 2007
respectively, as restructured on November 12, 2008.
“ Adjusted Benchmark Price ”
means, with respect to any time of determination, the Initial
Purchase Price as adjusted from time to time to reflect any
Adjustment Event that occurred during the period commencing from
the Closing until such time of determination.
“ Adjusted EPS ” means, with
respect to any fiscal year of determination, the diluted earnings
per share of Common Stock, which shall be calculated based on the
audited financial statements of the Company for the said fiscal
year on which the Company Auditor shall have prepared a report to
be included in the Company’s annual report on Form 10-K and
filed with SEC, provided , however , that the
Adjusted EPS shall be calculated without taking into account any
expenses recognized as a result of the transactions contemplated in
the Operative Agreements being treated as an embedded derivative or
any other non-cash charges to the earnings of the Company resulting
from the transactions contemplated in the Operative Agreements,
provided, further , that, for purposes of calculating the
number of shares for any fiscal year of determination, such number
shall be calculated to include any shares of Common Stock
repurchased from the Closing to the time of determination. For the
purpose of this Agreement, in case Adjusted EPS for any fiscal year
is below zero, Adjusted EPS for the said year shall be deemed as
US$0.01.
“ Adjusted Purchase Price ”
has the meaning set forth in Section 8.5.
“ Adjustment Event ” has the
meaning set forth in Section 9.9.
“ Affiliate ” of a party
means any corporation or other business entity controlled by,
controlling or under common control with such party. For this
purpose “control” shall mean direct or indirect
beneficial ownership of fifty percent (50%) or more of the voting
or income interest in such corporation or other business
entity.
“ Aggregate Purchase Price ”
has the meaning set forth in Section 2.1 below.
“ Agreement ” has the meaning
set forth in the preamble above.
“ Alternative Proposal ” has
the meaning set forth in Section 9.3 below.
“ Articles of Incorporation ”
has the meaning set forth in Section 3.1 below.
“ Bridge Loan ” means the
loan in the principal amount of US$16,000,000 provided by Sequoia
Capital China Growth Fund I, L.P. and its Affiliates to the Company
pursuant to the Bridge Loan Agreement.
“ Bridge Loan Agreement ”
means the bridge loan agreement by and among the Company, Mr. Leng
You-Bin and Sequoia Capital China Growth Fund I, L.P. and its
Affiliates dated July 28, 2009.
“ Business Day ” means any
day except Saturday, Sunday and any day which shall be a federal
legal holiday or a day on which banking institutions in the State
of New York are authorized or required by Law or other governmental
action to close.
“ Buy-In ” has the meaning
set forth in Section 6.2(b) below.
“ Bylaws ” has the meaning
set forth in Section 3.1 below.
“ Closing ” has the meaning
set forth in Section 2.2 below.
“ Closing Date ” means the
date of the Closing.
“ Common Stock ” has the
meaning set forth in the recitals above.
“ Company ” has the meaning
set forth in the preamble above.
“ Company Auditor ” means
Grant Thornton, the Hong Kong member firm of Grant Thornton
International Ltd., or any of the four internationally recognized
and reputable accounting firms commonly known as the “Big
Four” the Company may designate from time to time.
“ Company Board ” has the
meaning set forth in section 3.6 below.
“ Company Shareholder Approval
” means any approval by the affirmative vote of the holders
of a number of shares of Common Stock present or represented by
proxy at a shareholder meeting of the Company.
“ Contract ” has the meaning
set forth in Section 3.3 below.
“ Effective Date ” has the
meaning set forth in the preamble above.
“ Environmental Laws ” has
the meaning set forth in Section 3.24 below.
“ EPS Target ” means (i)
US$3.00 for the fiscal year of 2009, as adjusted from time to time
to reflect any Adjustment Event that occurred during the period
commencing from the Closing until the end of fiscal year of 2009,
or (ii) US$4.30 for the fiscal year of 2010, as adjusted from time
to time to reflect any Adjustment Event that occurred during the
period commencing from the Closing until the end of fiscal year of
2010.
“ Equity Securities ” means,
with respect to any Person, any class of capital stock of, or other
profit or voting interests in such Person, and all securities
convertible into or rights to purchase capital stock of or such
interests in such Person, if any, including any Equity Security
Equivalent and any and all other equity securities of such Person
or securities convertible into or exchangeable for such securities
or issued as a distribution with respect to or in exchange for such
securities.
“ Equity Security Equivalent
” means, with respect to any Person, any security or
obligation, including any debt or preferred stock which is by its
terms, directly or indirectly, convertible into or exchangeable or
exercisable for shares of common stock or other capital stock of
such Person, and any option, warrant or other subscription or
purchase right with respect to common stock or such other capital
stock.
“ Exchange Act ” means the
Securities Exchange Act of 1934, as amended, and all of the rules
and regulations promulgated thereunder.
“ Expenses ” means the costs
and expenses of a party in connection with this Agreement and any
other Operative Agreement and the transactions contemplated hereby
and thereby, including all out-of-pocket expenses (including, all
fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its Affiliates)
incurred by a party or on its behalf in connection with or related
to the authorization, preparation, negotiation, execution and
performance of this Agreement and the other Operative Agreements,
and the transactions contemplated hereby and thereby.
“ Financial Statements ” has
the meaning set forth in Section 3.8 below.“ Floor Stock
Price ” means as of any time of determination, US$24.00,
as adjusted from time to time to reflect any Adjustment Event that
occurred during the period commencing from the Closing until such
time of determination.
“ Fully Diluted Basis ”
means, as of any time of determination, the shares of Common Stock
outstanding at such time assuming the conversion, exchange or
exercise of all Equity Securities outstanding at such date,
excluding unissued shares available for issuance under the
Company’s 2009 Stock Incentive Plan and assuming the 2012
Notes are duly repurchased and do not become convertible into
Common Stock.
“ GAAP ” has the meaning set
forth in Section 3.8 below.
“ Government Entity ” has the
meaning set forth in Section 3.3 below.
“ Group ” means the Company
and all its Subsidiaries.
“ Group Intellectual Property
” has the meaning set forth in Section 3.10(b)
below.
“ Initial Purchase Price ”
has the meaning set forth in Section 2.1 below.
“ Initial Shareholding Percentage
” has the meaning set forth in Section 2.1 below.
“ Irreparable Breach ” has
the meaning set forth in Section 10.9(c) below.
“ Issuance ” means, with
respect to any Person, sell, offer to sell, solicit offers to
purchase or sell any of the Equity Securities of such
Person.
“ Issuance Price ” means, (i)
with respect to any Issuance of Equity Securities other than Equity
Security Equivalents, the purchase price per share of Common Stock
in such Issuance, or (ii) with respect to any Issuance of Equity
Security Equivalents, the lower of (x) the purchase price per share
of Common Stock in such Issuance, and (y) the conversion, exchange
or exercise price per share of Common Stock for the Equity Security
Equivalents issued, determined as of the date of such
Issuance.
“ knowledge of the Company ”
or any other similar term or knowledge qualifier means the
knowledge of any of the directors or officers of the
Company, in each case assuming due inquiry of the employees of the
Company whose job responsibilities would typically put such
employees in possession of the type of information to which the
term is intended to relate.
“ Law ” has the meaning set
forth in Section 3.3 below.
" LIBOR " shall mean the rate per annum
calculated as set forth below. With respect to each interest
period, LIBOR shall mean the rate for deposits in United States
dollars, for a period equal to three months, which appears on the
Dow Jones Market Service (formerly known as "Telerate") Page 3750
as of 11:00 a.m., London time, on such date (rounded upwards to the
nearest 1/1,000 of 1%). If such rate does not appear on Telerate
Page 3750 as of 11:00 a.m., London time, on such date, LIBOR shall
be the arithmetic mean of the offered rates (expressed as a
percentage per annum) for deposits in United States dollars for a
three-month period that appear on the Reuters Screen Libor Page as
of 11:00 a.m., London time, on such date, if at least two such
offered rates so appear. If fewer than two such offered rates
appear on the Reuters Screen Libor Page as of 11:00 a.m., London
time, on such date, the Purchasers shall request the principal
London office of any four major reference banks in the London
interbank market selected by the Purchasers to provide such bank's
offered quotation (expressed as a percentage per annum) to prime
banks in the London interbank market for deposits in United States
dollars for a three-month period as of 11:00 a.m., London time, on
such date for the amounts of not less than US$1,000,000. If at
least two such offered quotations are so provided, LIBOR shall be
the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, the Purchasers shall request any three
major banks in New York City selected by the Purchasers to provide
such bank's rate (expressed as a percentage per annum) for loans in
United States dollars to leading European banks for a three-month
period as of approximately 11:00 a.m., New York City time on such
date for amounts of not less than US$1,000,000. If at least two
such rates are so provided, LIBOR shall be the arithmetic mean of
such rates. LIBOR shall be determined conclusively by the
Purchasers or its agent (absent manifest error).
“ Lien ” has the meaning set
forth in Section 3.3 below.
“ Material Adverse Effect ”
has the meaning set forth in Section 3.4 below.
“ New Securities ” has the
meaning set forth in Section 8.3(b) below.
“ NYSE ” has the meaning set
forth in Section 3.19 below.
“ NYSE Rules ” has the
meaning set forth in Section 3.14 below.
“ Operative Agreements ”
means the Registration Rights Agreement and this
Agreement.
“ Participation Shares ”
means the shares of Common Stock issued pursuant to Section 8.3,
which shall be adjusted from time to time to reflect any Adjustment
Event that occurred during the period commencing from the time of
issuance of such said Participation Shares until any time of
determination.
“ Performance Adjustment Date
” has the meaning set forth in Section 8.5(b)
below.
“ Performance Adjustment Event
” means the EPS Target for the fiscal year of 2009 or 2010,
as applicable, is greater than the Adjusted EPS for the said
year.
“ Performance Adjustment Shares
” means the shares of Common Stock issued pursuant to Section
8.5, which shall be adjusted from time to time to reflect any
Adjustment Event that occurred during the period commencing
immediately after the end of the fiscal year with respect to which
the Performance Adjustment Shares are issued until any time of
determination.
“ Permitted Issuance ” means
any Issuance by the Company:
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the Issuance
Price of which shall exceed the Adjusted Purchase Price as of the
time of such Issuance;
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pursuant to any
stock or equity incentive plan or agreement approved by the Company
Board;
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to any
financial institutions in connection with commercial credit
arrangements, equipment financing or similar
transactions;
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pursuant to a
bona fide, firm underwritten public offering of the Company’s
securities;
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in connection
with a merger, acquisition or consolidation;
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to any
placement agent and/or its designees in connection with any
securities offering of the Company;
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resulting from
the application of anti-dilution provisions in respect of any other
Equity Securities of the Company;
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pursuant to any
Adjustment Event or Performance Adjustment Event; and
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upon the
exercise or conversion of, any Equity Securities of the Company
included in this definition of Permitted Issuance.
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“ Permitted Lien ” has the
meaning set forth in Section 3.10(a) below.
“ person ” or “
Person ” means an individual, corporation,
partnership, limited partnership, limited liability company,
syndicate, person (including a “person” as defined in
Section 13(d)(3) of the Exchange Act), trust, joint venture, joint
stock company, association or entity or Government Entity or other
entity of any kind, and shall include any successor (by merger or
otherwise) of such entity.
“ Purchaser ” has the meaning
set forth in the preamble above.
“ Purchaser Adjusted Shareholding
Percentage ” means, as of any time of determination, the
ratio to be determined by multiplying (i) the Initial Shareholding
Percentage by (ii) a fraction of which (x) the numerator is the
aggregate number of Securities held by the Purchasers and their
respective Affiliates as of such time, and (y) the denominator is
the aggregate number of Securities as of such time.
“ Purchaser Party ” has the
meaning set forth in Section 10.1 below.
“ Registration Rights Agreement
” means that certain Registration Rights Agreement, dated as
of the Effective Date, between the Company and the
Purchasers.
“ Registration Statement ”
has the meaning set forth in Section 6.1(c) below.
“ Relevant Number ” means the
number of Participation Shares, Performance Adjustment Shares,
Repurchase Shares, Securities, and Shares, which are subject to the
adjustment for any Adjustment Event from time to time.
“ Relevant Price ” means the
Adjusted Benchmark Price, the Adjusted Purchase Price, the EPS
Targets, the Floor Stock Price, and the Initial Purchase Price,
which are subject to the adjustment for any Adjustment Event from
time to time.
“ Repurchase Benchmark Date ”
has the meaning set forth in Section 8.6.
“ Repurchase Consideration ”
means, with respect to any portion or all of the Repurchase Shares
the Company is purchasing as of any Repurchase Time, the sum of
Repurchase Principal plus the Repurchase Interest, both as of such
Repurchase Time.
“ Repurchase Interest ”
means, with respect to any portion or all of the Repurchase Shares
the Company is repurchasing as of any Repurchase Time, the sum of
(i) any interest accrued on the respective Repurchase Principal at
the rate of interest equal to the LIBOR as of the Repurchase
Benchmark Date plus 5% per annum, compounded annually, during the
period commencing on the date immediately following the date on
which the Repurchase Notice is mailed or delivered until and
including the earlier of (x) such Repurchase Time, or (y) the close
of the 120 th day following the date on which the Repurchase
Notice is mailed or delivered, and (ii) any interest accrued on the
respective Repurchase Principal at the rate of interest equal to
the three-month LIBOR as of the Repurchase Benchmark Date (as
specified on liborated.com) plus 10% per annum, for the period
commencing on the date that is 120 days following the date on which
the Repurchase Notice is mailed or delivered until the date of
payment for such Repurchase Shares, if any. Interest shall be
computed on the basis of a year having 360 days (comprised of
twelve months each having 30 days) and the actual days
elapsed.
“ Repurchase Notice ” has the
meaning set forth in Section 8.6(a).
“ Repurchase Principal ”
means, with respect to any portion or all of the Repurchase Shares
the Company is repurchasing as of any Repurchase Time,
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in the event
that any Performance Adjustment Event has occurred, 130% of the
product of (x) the number of such Repurchase Shares being
repurchased and paid for by the Company as of such Repurchase Time,
which shall be adjusted from time to time to reflect any Adjustment
Event that occurred during the period commencing from Repurchase
Benchmark Date until such Repurchase Time, and (y) the Adjusted
Purchase Price as of such Repurchase Time.
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in the event
that no Performance Adjustment Event has occurred, 100% of the
product of (x) the number of such Repurchase Shares being
repurchased and paid for by the Company as of such Repurchase Time,
as adjusted from time to time to reflect any Adjustment Event that
occurred during the period commencing from the Repurchase Benchmark
Date until such Repurchase Time, and (y) the Adjusted Purchase
Price as of such Repurchase Time.
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“ Repurchase Shares ” has the
meaning set forth in Section 8.6.
“ Repurchase Time ” has the
meaning set forth in Section 8.6(b).
“ Repurchase Triggering Price
” means 130% of the arithmetic mean of the Adjusted Benchmark
Prices during period of fifteen (15) consecutive Trading Days
commencing on the third anniversary of the Closing Date.
“ Reserved Shares ” means the
shares of Common Stock reserved as of the date hereof which may
become issuable in connection with:
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the 2009 Notes
and the 2012 Notes;
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the 2003 Stock
Incentive Plan;
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an aggregate of
1,045,983 warrants with an average exercise price of $5.06 per
warrant, as described in the Financial Statements for the 2008
fiscal year;
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the 2009 Stock
Incentive Plan; and
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the Issuance to
the Purchasers contemplated by the Operative Agreements.
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“ Rules and Regulations ”
means the rules and regulations of the SEC.
“ SEC ” means the Securities
and Exchange Commission.
“ SEC Documents ” has the
meaning set forth in Section 3.27 below.
“ SEC Filings ” has the
meaning set forth in Section 3.27 below.
“ Section 16 ” has the
meaning set forth in Section 9.5 below.
“ Securities ” means the
Shares, the Performance Adjustment Shares, and the Participation
Shares, if any, the number of which shall be adjusted from time to
time to reflect any relevant Adjustment Event pursuant to this
Agreement.
“ Securities Act ” means the
Securities Act of 1933, as amended, and all of the rules and
regulations promulgated thereunder.
“ Shares ” has the meaning
set forth in recitals above.
“ Share Pledge Agreement ”
means, the share pledge agreement by and among Mr. Leng You-Bin,
Sequoia Capital China Growth Fund I, L.P. and its Affiliates dated
July 28, 2009.
“ Shareholding Percentage ”
means, as of any time of determination, with respect to any Person,
the ratio of the aggregate number of Securities held by such Person
at such time to the aggregate number of issued and outstanding
shares of Common Stock at such time, determined on a Fully Diluted
Basis.
“ Subsidiary ” of any entity
means another entity, an amount of the voting securities, other
voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its board of directors
or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or
indirectly by such first entity.
“ Superior Right ” means any
right of first refusal or registration right that is, in the good
faith judgment of the Company Board, more favorable than the
similar rights granted to the Purchasers pursuant to this Agreement
or any other Operative Agreement.
“ Trading Day ” means any day
during which securities are generally eligible for trading on the
NYSE.
“ Transfer Agent ” has the
meaning set forth in Section 6.2(b) below.
“ U.S. ” means the United
States of America.
“US$” means the United States
dollars.
2. Purchase and Sale of
Securities
2.1
Purchase and Sale . Subject to and upon the terms and
conditions set forth in this Agreement, the Company agrees to issue
and sell to each Purchaser, and each Purchaser hereby agrees to
purchase from the Company, on the Closing Date, the number of
Shares set forth opposite the name of such Purchaser in Exhibit A
hereto at a purchase price of US$30.00 per Share (such price as of
the Closing Date, the “ Initial Purchase Price
”). The total number of Shares to be purchased upon Closing
shall be 2,100,000, representing approximately 8.7% of the shares
of the Common Stock on a Fully Diluted Basis (the “
Initial Shareholding Percentage ”). The total purchase
price payable by Purchasers for the Shares that Purchasers are
hereby agreeing to purchase is US$63,000,000 (the “
Aggregate Purchase Price ”), which shall have included
the portion of purchase price payable by the Purchasers through
converting the principal of the Bridge Loan, with the amount of
US$16,000,000 pursuant to the Bridge Loan Agreement.
2.2
Closing . The closing of the transactions contemplated under
this Agreement (the “ Closing ”) shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom
LLP, 30th Floor, Tower 2, China World Trade Center, No. 1
Jianguomenwai Avenue, Beijing, China, at 9:00 AM Beijing time, on
August 27, 2009, Beijing Time or at such other location, date and
time as may be agreed upon between the Purchasers and the Company.
At the Closing, the Company shall deliver to the Purchasers the
stock certificates representing the number of Shares purchased by
the respective Purchaser, each to be registered in the name of the
respective Purchaser, against payment of the Aggregate Purchase
Price by (1) wire transfer of immediately available funds of
US$47,000,000 to such account or accounts as the Company shall
designate in writing; and (2) conversion of the full principal
amount of US$16,000,000 of the Bridge Loan pursuant to Section 2.5
of the Bridge Loan Agreement.
3. Representations and Warranties of the
Company . The Company hereby represents and warrants, as of the
Effective Date (except as to representations or warranties that
expressly speak as of a particular date other than the Effective
Date), to each of the Purchasers as follows:
3.1
Incorporation . The Company has been duly incorporated and
is a validly existing corporation in good standing under the laws
of Utah with full power and authority (corporate and other) to own,
lease and operate, as the case may be, its properties and conduct
its business as now conducted; and the Company is duly qualified to
transact business and is in good standing in each jurisdiction in
which the nature of the business conducted by it, or its ownership
or leasing of property, or its employment of employees or
consultants therein, makes such qualification necessary. The
Company has not received notification, written or otherwise, that
any proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification, and to the
Company’s knowledge, no proceeding has been instituted in any
such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or
qualification. The Company is in possession of and operating in
material compliance with all approvals, sanctions, orders,
clearances, no objections declarations, qualifications, licenses,
permits, certificates, consents, permissions, authorizations,
filings, franchises, registrations, concessions and other permits
(“ Approvals ”) from all relevant Government
Entity that are material to the conduct of its business, all of
which are valid and in full force and effect. The Company is not in
violation of its articles of incorporation (the “ Articles
of Incorporation ”) and bylaws (the “ Bylaws
”), complete and correct copies of which as in effect on the
Effective Date have been filed by the Company with the
SEC.
3.2
Subsidiaries . The SEC Documents disclose all the direct and
indirect subsidiaries of the Company. Each of the
Subsidiaries has been duly incorporated and is validly existing as
a legal person with limited liability and is in good standing under
all Laws of its respective jurisdiction with the legal right, power
and authority (corporate and other) to own or lease, as the case
may be, and to use and operate its properties and to conduct its
business in the manner presently conducted and as described in the
SEC Documents. The memorandum and articles of
association, charter or by-laws or other similar constituent
documents of each of the Subsidiaries complies with the
requirements of all Laws of its respective jurisdiction and are in
full force and effect. Each of the Subsidiaries is duly
qualified to transact business in each jurisdiction where such
qualification is required (by virtue of its business, ownership or
leasing of properties or otherwise); the liability of the Company
in respect of equity interests held in each Subsidiary is limited
to its investment therein.
3.3
Authority . The Company has all requisite corporate power
and authority to enter into the Operative Agreements and to perform
the transactions contemplated hereby and thereby. The Operative
Agreements have been duly authorized and, when executed and
delivered, each of the Operative Agreements will constitute the
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors’ rights generally and by general equitable
principles. The execution, delivery and performance of the
Operative Agreements and the consummation of the transactions
herein and therein contemplated will not result in (a) any
violation of the Articles of Incorporation or Bylaws of the Company
or (b) the creation of any pledge, lien, encumbrance, mortgage,
hypothecation, charge, security interest, easement, title defect,
conditional sale or other title retention agreement, judgment,
interest, equitable interest, setoff or claim of any kind or
nature, whether arising by agreement, Law or otherwise (“
Lien ”), other than a Permitted Lien, upon any assets
or property of the Company pursuant to the terms or provisions of,
or will not, in any material respect, conflict with, result in the
breach or violation of, or constitute a breach or violation of any
of the terms and provisions of, or constitute a default under any
contract, agreement, license, understanding, indenture, mortgage,
deed of trust, loan agreement, joint venture, lease (including
without limitation any sale and leaseback arrangement), franchise,
permit or other instrument or bond, debenture, note or other
evidence of indebtedness, to which the Company is a party or by or
to which it or its properties (including without limitation all
Group Intellectual Property) or assets are or may be bound or
subject (each, a “ Contract ”) or any law,
order, ruling, rule, regulation, writ, assessment, injunction,
judgment or decree of any government or governmental court, agency
or body, domestic or foreign, having jurisdiction over the Company
or over any of its respective properties (including without
limitation all Group Intellectual Property) or Contracts (“
Government Entity ”) or by or to which they or such of
its properties or Contracts are or may be bound or subject (each, a
“ Law ”). No consent, approval, authorization or
order of or qualification with any Government Entity is required
for the execution, delivery and performance of the Operative
Agreements and the consummation by the Company of the transactions
herein and therein contemplated, except such consents as may be
required by NYSE Rules.
3.4
Litigation; Contracts . Except as disclosed in the SEC
Documents, there are no actions, suits, claims, investigations or
proceedings pending or, to the Company’s knowledge,
threatened to which any member of the Group, or, to the
Company’s knowledge, to which any of its directors or
officers is a party, or to which any of its properties (including
without limitation all Group Intellectual Property) or any Contract
may be subject, at law or in equity, before or by any Government
Entity which, individually or in the aggregate, would reasonably be
expected to prevent or to materially impede or delay the
consummation of the transactions contemplated by this Agreement or
which would reasonably be expected to have, individually or in the
aggregate, a material adverse effect on or change in the condition
(financial or otherwise), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole (a
“ Material Adverse Effect ”). There are no
Contracts of a character required to be described or referred to in
the SEC Documents, and/or filed as an exhibit to, by the Securities
Act, the Exchange Act or the Rules and Regulations which have not
been accurately described in all material respects in the SEC
Documents, and/or filed as an exhibit to such SEC Documents. Except
to the extent disclosed in the SEC Documents, the Contracts
described in the SEC Documents are in full force and effect and are
valid agreements, enforceable by the Company or any Subsidiary of
the Company, as the case may be, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights
generally and by general equitable principles. No event has
occurred, and no circumstances or condition exists, that (with or
without notice or lapse of time) (a) has resulted or is reasonably
likely to result in a breach, default, violation or waiver of any
Contract described in the SEC Documents or any provision thereof;
(b) gives or is reasonably likely to give any party to any such
Contract the right to declare a breach, default or violation of or
exercise any remedy under such Contract; (c) gives or is reasonably
likely to give any party to any such Contract the right to cancel,
terminate, modify or be excused from performance of any obligations
under such Contract; or (d) has resulted or is reasonably likely to
result in a violation of any Law or in imposition of any fines,
penalties, damages, injunctions, prohibitions or other
sanctions.
3.5
Capitalization . All outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are
fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and have not been issued in
violation of any preemptive right, co-sale right, registration
right, right of first refusal or other rights to subscribe for or
purchase securities, and except as disclosed in the SEC Documents
and pursuant to the Share Pledge Agreement, free and clear of any
Lien, other than a Permitted Lien. The authorized capital stock of
the Company consists of 50,000,000 shares of Common Stock, of which
approximately 18,837,888 shares are outstanding on the date hereof.
Except for the Reserved Shares or such rights that have been
expressly waived, there are no existing options, warrants, calls,
preemptive (or similar) rights, subscriptions or other rights,
agreements, arrangements or commitments of any character obligating
the Company to issue, transfer or sell, or cause to be issued,
transferred or sold, any Equity Securities of the Company, and
there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of its capital
stock or other equity interests. There are no voting
agreements or other similar arrangements with respect to the Common
Stock to which the Company is a party. The description of the
Company’s stock option plans, employee stock purchase plans
or similar arrangements, and the options or other rights granted
and exercised thereunder, set forth in the SEC Documents accurately
and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights. Except as
described in the SEC Documents or as have been expressly waived, no
person or entity has the right to require the Company to register
any securities of the Company under the Securities Act, whether on
a demand basis or in connection with the registration of securities
of the Company for its own account or for the account of any other
person or entity. The issuance and sale of the Securities hereunder
will not obligate the Company to issue shares of Common Stock or
other securities to any other person or entity (other than the
Purchasers) and, will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding security.
Except as disclosed in the SEC Documents and pursuant to the Share
Pledge Agreement, all of the shares of capital stock of any
Subsidiary directly or indirectly owned by the Company are owned
free and clear of any Liens, other than Permitted
Liens. Each of the outstanding shares of capital stock
of each of the Subsidiaries has been duly authorized and validly
issued and is fully paid or credited as fully paid and not subject
to unpaid calls. None of the outstanding shares of
capital stock or ownership interests in any Subsidiary was issued
in violation of preemptive right, co-sale right, registration
right, right of first refusal or other similar rights of any
security holder of such Subsidiary and there are no outstanding
rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, any shares of capital stock of, or direct
or indirect interests in, any Subsidiary.
3.6
Authorization . The Securities have been duly and validly
authorized for issuance and sale to the Purchasers pursuant to this
Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable,
and will be sold free and clear of any Lien. No approval or
authorization of any shareholder, the board of directors of the
Company (the “ Company Board ”) or others is
required for the issuance and sale of the Securities, except the
approval by the Company Board of the transactions as contemplated
hereby in this Agreement and any other Operative Agreement.
The Company and the Company Board have taken all
necessary action, if any, in order to render inapplicable any
control share acquisition, business combination or other similar
anti-takeover provision under the Laws of the State of Utah, the
Company’s organizational documents and any other agreement to
which the Company is bound, which is or could become applicable to
any of the Purchasers as a result of the transactions contemplated
by this Agreement, including, without limitation, the
Company’s issuance of the Securities and the
Purchasers’ respective ownership of the
Securities. The Company does not have a shareholder
rights plan or other “poison pill”
arrangement.
3.7
Auditors . The Company Auditor whose report on the audited
financial statements of the Company is filed with the SEC in the
Company’s annual report for the fiscal year ended December
31, 2008 on Form 10-K, as amended is an independent registered
public accounting firm as required by the Rules and Regulations. To
the Company’s knowledge, the Company Auditor has not engaged
in any “prohibited activities” (as defined in Section
10A of the Exchange Act) on behalf of the Company.
3.8
Financial Statements . The financial statements of the Group
contained in the SEC Documents, together with the related schedules
and notes (the “ Financial Statements ”): (a)
present fairly the financial position of the Group as of the dates
indicated and the results of operations and cash flows of the Group
for the periods specified; (b) have been prepared in compliance
with requirements of the Securities Act, the Exchange Act and the
Rules and Regulations, as applicable, and in conformity with
generally accepted accounting principles in the United States
(“ GAAP ”) applied on a consistent basis during
the periods presented and present fairly the information required
to be stated therein; and (c) describe accurately the controlling
principles used to form the basis for their presentation. There are
no financial statements (historical or pro forma) and/or related
schedules and notes that are required to be included in the SEC
Filings that are not included as required by the Securities Act,
the Exchange Act and/or the Rules and
Regulations. Except as set forth in the Financial
Statements, the Group has no material liabilities, contingent or
otherwise, other than liabilities incurred in the ordinary course
of business subsequent to March 31, 2009, and liabilities of the
type not required under GAAP to be reflected in the Financial
Statements.
3.9
No Changes . Subsequent to March 31, 2009, except as
described in the SEC Documents, there has not been (a) any change,
development or event that would reasonably be expected to result,
individually or in the aggregate, in a Material Adverse Effect, (b)
any transaction that is material to any member of the Group, (c)
any obligation, direct or contingent, that is material to any
member of the Group incurred by such member of the Group, (d) any
material change in the capital stock or outstanding indebtedness of
the Group (except the change in the outstanding indebtedness of the
Group due to the repurchase or repayment of 2012 Notes), (e) any
dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, (f) any loss or damage (whether or
not insured) that has been sustained or will have been sustained
that would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, (g) any waiver by the Group
member of a material right or of a material debt owed to it, (h)
any sale, assignment or transfer of any Group Intellectual Property
or (i) any arrangement or commitment by the Group member to do any
of the acts described in subsections (a) through (h)
above.
3.10
Property
(a) Except
as set forth in the SEC Documents: (i) the Group has good and
marketable title to all properties and assets as described in the
SEC Documents as owned by it free and clear of any Lien, except for
Permitted Liens; and (ii) the Group has valid and enforceable
leases, including without limitation any leases that are the
subject of any sale and leaseback arrangement, for all properties
as described in the SEC Documents as leased by it, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors’ rights generally and by general equitable
principles. Except as set forth in the SEC Documents, the
Group owns or leases all such properties as are necessary to its
operations as now conducted or as proposed to be conducted. A
“ Permitted Lien ” means (i) any Liens for taxes
not yet due, (ii) any mechanics Lien or similar Lien for labor,
materials or supplies incurred in the ordinary course of business
for amounts that are not delinquent, (iii) any Lien that may arise
by operation of Law, and (iv) any Lien that individually, or when
aggregated with any other Liens, is not material.
(b) Except
as described in the SEC Documents, to the Company’s
knowledge, the Group owns or has valid, binding and enforceable
licenses or other rights to use the patents and patent
applications, inventions, copyrights, trademarks, service marks,
trade names, service names, technology or know-how (including trade
secrets and other unpatented and/or unpatentable proprietary
rights) necessary to conduct its business in the manner described
in the SEC Documents (collectively, the “ Group
Intellectual Property ”). The Group Intellectual Property
is free and clear of any Lien, except for Permitted Liens. No
member of the Group is obligated to pay a royalty, grant a license
or provide other consideration to any third party in connection
with the Group Intellectual Property other than as disclosed in the
SEC Documents. Except as disclosed in the SEC Documents (i) no
member of the Group has received any notice claiming infringement,
misappropriation, or other conflict with asserted intellectual
property rights of others resulting from the conduct of the
business of the Group, and (ii) no third party, including any
academic or governmental organization, possesses rights to the
Group Intellectual Property which, if exercised, would enable such
party to develop products competitive to those of the Group. The
Company has not received any notice and has no knowledge of (x) any
actual or potential infringement, misappropriation or other
violation by others of the Group Intellectual Property or (y) any
intellectual property of others that potentially conflicts or
interferes with the Group Intellectual Property. To the
Company’s knowledge, no claim of any patent or patent
application (assuming the claims of patent applications issue as
currently pending) included in the Group Intellectual Property is
unenforceable or invalid. The Group takes reasonable measures to
protect the confidentiality of trade secrets and other confidential
and proprietary information, including requiring all persons having
access thereto to execute written non-disclosure agreements. Except
as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect (i) the Group has at all times
complied with all applicable Laws, as well as its own rules,
policies, and procedures, relating to privacy, data protection, and
the collection and use of personal information collected, used, or
held for use by the Group, (ii) no claims have been asserted or, to
the Company’s knowledge, threatened against the Group
alleging a violation of any privacy or personal information or data
rights, and (iii) the Group takes reasonable measures to ensure
that such information is protected against unauthorized access,
use, modification, or other misuse.
3.11
Tax Returns . The Group has accurately prepared and filed
all U.S. federal, state, local and foreign tax returns
required to be filed by it. All taxes shown to be due and payable
on such returns, any assessment received, and all other taxes due
and payable by the Company have been paid or will be paid prior to
the time they become delinquent, or due provision has been made
therefor. All tax liabilities of the Group has been
adequately and properly provided for on the books and accounts of
the Company. Since the completion of the Company’s
acquisition of 100% of the issued and outstanding capital stock of
American Flying Crane, Inc., a Delaware corporation, on May 7,
2003, the federal income tax returns of the Company have not been
audited by the Internal Revenue Service. No deficiency assessment
or proposed adjustment of the Company’s income taxes is
pending by any federal, state, local or foreign taxation authority
and the Company has no knowledge of any proposed liability for any
tax to be imposed upon the properties of the Company for which the
Company has not established adequate reserves which are reflected
on the Financial Statements.
3.12
Transfer Taxes . On the Closing Date, all stock transfer or
other taxes (other than income taxes) which are required to be paid
in connection with the sale and transfer of the Shares to the
Purchasers will be, or will have been, fully paid or provided for
by the Company and all Laws imposing such taxes will be or will
have been fully complied with.
3.13
Internal Controls . Except as disclosed in the SEC
Documents, the Company has established and maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that: (a) transactions are executed in accordance with
management’s general or
