HYPOR AGFEED BREEDING COMPANY INC.
DATED AS OF DECEMBER 11, 2009
TABLE OF CONTENTS
TABLE OF CONTENTS
TABLE OF CONTENTS
Exhibit A – Shareholders' Names, Addresses, Capital Contributions, Equity Interest and Number of Shares
Exhibit B – AgFeed Lease Agreement
Exhibit C – Hypor Production and Distribution Agreement
Exhibit D – 2009 Approved Annual Budget and Business Plan
Exhibit E – Form of Share Transfer Form
Schedule 1 – Exception to Business Activities of the Company
THIS SHAREHOLDERS AGREEMENT (this " Agreement ") is made and entered into as of December 11, 2009 (the " Effective Date "), by and between AgFeed Industries, Inc., a company formed under the laws of The British Virgin Islands (" AGFEED "), and Hypor B.V., a company incorporated under the laws of The Netherlands (" HYPOR "). AGFEED, HYPOR and any other parties that become a party hereto after the Effective Date are hereinafter sometimes referred to collectively as the " Shareholders ," and individually as a " Shareholder " of Hypor Agfeed Breeding Company Inc. (the " Company ").
WHEREAS, AGFEED is one of the largest commercial hog producers and one of the largest premix feed companies in the Peoples Republic of China (" PRC ");
WHEREAS, HYPOR is active in the field of breeding pigs and produces (great) grand parent stock and semen of same stock levels for production of great grand parent, grand parent and parent stock pigs and, in relation thereto, avails its expertise, know-how and other information in relation to the selection and the production of pigs (gilts and boars);
WHEREAS, in order to co-develop, co-operate and co-market a new genetic nucleus farm in Wuning, China to produce great grand parent, grand parent and parent stock pigs to supply farms owned by AGFEED and sell grand parent pigs and parent stock pigs to customers of AGFEED and third parties within the Territory (as defined in ARTICLE 1 ), AGFEED and HYPOR shall incorporate the Company as a Chinese Wholly Owned Foreign Entity (“ WOFE ”) with registered capital of Eighteen Million Five Hundred Thousand China Yuan Renminbi (18,500,000 RMB) and enter into this Agreement on the Effective Date under the laws of the State of Nevada, United States;
WHEREAS, AGFEED shall own 85% of the Shares (as defined in ARTICLE 1 ) and HYPOR own 15% of the Shares; and
WHEREAS, the Shareholders wish to enter into this Agreement to provide for, among other things, the respective rights and obligations of the Shareholders to each other and to the Company, and certain other matters.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements, promises and undertakings hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, the Shareholders, intending to be legally bound, hereby agree as follows:
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms . Unless the context otherwise requires or unless otherwise provided in this Agreement, capitalized terms used in this Agreement shall have the meanings ascribed to them in this Section 1.1 .
1.1.1 " Additional Capital Contribution " refers to the working capital needs of the Company that may arise from time-to-time and which a Shareholder is actually obligated to contribute or alternatively satisfy pursuant to Section 2.3.1 .
1.1.2 " Additional Shareholder " means any Person admitted as a Shareholder pursuant to Section 9.2 hereof.
1.1.3 " Affected Shareholder " has the meaning set forth in Section 7.5 .
1.1.4 " Affiliate " means, with respect to any Person, (a) any other Person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person; (b) any Person owning or controlling 10% or more of the outstanding voting securities of such Person; (c) any officer, director, manager, trustee or general partner of such Person; (d) any other Person that is owned by at least 80% of the same equity owners as such Person; and (e) any Person who is an officer, director, manager, trustee or general partner or holder of 10% or more of the voting securities of any Person described in clauses (a) through (c); provided that the Company shall not be deemed an Affiliate of any Shareholder or any Affiliate of any Shareholder. For purposes of this definition, " control ," when used with respect to any specified Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, by contract or otherwise, the term " controlled " has the meaning correlative to the foregoing.
1.1.5 " AGFEED " has the meaning set forth in the preamble to this Agreement.
1.1.6 " AgFeed Lease Agreement " means that Facilities Lease Agreement between the Company and AGFEED dated as of the Effective Date attached hereto as Exhibit B .
1.1.7 " Agreement " has the meaning set forth in the preamble to this Agreement. Terms such as "hereof," "hereto," "hereby," "hereunder" and "herein" refer to this Agreement as a whole, unless the context otherwise requires.
1.1.8 " Annual Budget and Business Plan " has the meaning set forth in Section 6.1 .
1.1.9 " Approved Annual Budget and Business Plan " has the meaning set forth in Section 6.1 . The 2009 Approved Annual Budget and Business Plan is attached hereto as Exhibit C .
1.1.10 " Approved Sale " means the sale of all or substantially all of the Company's Property or any sale of the Company in a single transaction or a series of related transactions to a third party or a group of third parties, other than to an Affiliate of a Shareholder, acting in concert (a) pursuant to which such third party or group desires to acquire all of the Shares (whether by merger, consolidation, recapitalization, reorganization or otherwise), in each case for cash or Marketable Securities (b) which has been approved by the Board pursuant to Section 5.2 and (c) pursuant to which all holders of Shares in the Company receive (whether in such transaction or, with respect to an asset sale, upon a subsequent liquidation) the same form and amount of consideration pro rata for its Shares or, if any Shareholders are given an option as to the form and amount of consideration to be received, all Shareholders are given the same option, in each as if the proceeds of such transaction were distributed pursuant to Section 3.1 .
1.1.11 " Assignee " means a Person who has acquired Shares as are assigned to such Person, but who has not been admitted as a substitute Shareholder.
1.1.12 " Basis " means, with respect to any Company's Property, the adjusted basis of such asset for U.S. federal income tax purposes.
1.1.13 " Board " means the Directors, or such of those Directors present at a duly convened meeting of the Directors at which a quorum is present, such quorum being a majority of the Directors.
1.1.14 " Bona Fide Offer " has the meaning set forth in Section 7.5.5 .
1.1.15 " Business Day " means any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed.
1.1.16 " Capital Contributions " means, with respect to any Shareholder the aggregate amount of money, services and the Fair Market Value of any Contributed Property contributed to the Company as consideration for the subscription for such Shareholder's Shares, or the value attributed to such money, services and the Fair Market Value of any Contributed Property being its reasonable present cash value, such cash value being not less than the amount to be credited for the issue of the Shareholder's Shares.
1.1.17 " CEO " has the meaning set forth in Section 5.2.1 .
1.1.18 " Code " means the United States Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law).
1.1.19 " Company " has the meaning set forth in the third WHEREAS to this Agreement.
1.1.20 " Contributed Property " shall mean property or other consideration contributed to the capital of the Company by a Shareholder in consideration for the issue of Shares.
1.1.21 " Contribution Date " has the meaning set forth in Section 2.3.1 .
1.1.22 " Contributing Shareholder " has the meaning set forth in Section 2.
1.1.23 " Debtor Relief Laws " has the meaning set forth in Section 12.1.4 .
1.1.24 " Defaulting Shareholder " has the meaning set forth in Section 12.2.3 .
1.1.25 " Designated Person " has the meaning set forth in Section 7.5 .
1.1.26 " Director " means a duly appointed director of the Company for the time being or a duly appointed alternate of any Director.
1.1.27 " Dissolution Even t " has the meaning set forth in Section 11.1
1.1.28 " Distributable Cash " means, with respect to any Fiscal Year or other applicable period, the Company’s cash position, if it is determined that (a) the Company has no current outstanding loans; (b) its retained earnings show a positive value under US GAAP accounting treatment for the most recent audited period; and (c) the Company’s cash position at the date of review exceeds the projected needs (or those mandated by law, contract or the Company's Indebtedness), including, without limitation, any amounts owed to HYPOR by the Company under the Production and Distribution Agreement or AGFEED under the Facilities Lease Agreement for the ensuing 6-month period or an amount which exceeds the cash reserves deemed reasonable by the Board.
1.1.29 "Effective Date " has the meaning set forth in the preamble to this Agreement.
1.1.30 " Encumbrances " means all claims, liens, charges, security interests, encumbrances, royalties, debentures, pledges, options, equitable rights and interests, net profit interests, rights of pre-emption, rights of first refusal, mortgages or any other third party rights and any agreement or arrangement to create any of the foregoing;
1.1.31 " Equity Interest " shall mean, as to any Shareholder, a percentage as determined by dividing the number of Shares issued to and owned by such Shareholder by the total number of Shares then issued and outstanding. The Equity Interest of each Shareholder initially shall be set forth opposite such Shareholder's name on Exhibit A . The combined Equity Interest of all Shareholders shall at all times equal 100%.
1.1.32 " Fair Market Value " means the fair market value of Shares that are subject to purchase under this Agreement which shall be determined, as of the date of the event giving rise to such determination, by mutual agreement between AGFEED and HYPOR. The Fair Market Value shall be computed as the amount which could reasonably be expected to be realized, based upon the Equity Interest, upon a sale of the Company at the time of the determination of Fair Market Value and shall exclude any and all expenses, costs and damages incurred by the Company as a result of the event giving rise to such determination. If AGFEED and HYPOR cannot agree upon the Fair Market Value within 30 days of the date of notice from (a) an Affected Shareholder (hereinafter defined) pursuant to Section 7.5 or (b) a non-breaching Shareholder of its election to exercise its purchase rights under Section 184.108.40.206 , the Fair Market Value shall be determined by independent appraisal by a mutually selected appraiser. If AGFEED and HYPOR are unable to agree on the independent appraiser, upon 5 days after the expiration of the 30-day period referenced above, either HYPOR or AGFEED may request that the American Arbitration Association appoint an arbitrator according to its rules who shall then select an appraiser. AGFEED and HYPOR shall each, within 10 days of the selection of the appraiser, submit written information to the appraiser and a proposed valuation of the Fair Market Value. The appraiser shall, within 30 days of his or her selection, determine which of the proposed valuations is closest to the appraiser's estimate of the Fair Market Value and such proposed valuation shall be used as the Fair Market Value for purposes of this Agreement. The appraiser's determination shall be final and binding and may be enforced by legal proceedings pursuant to this Agreement. The costs, including the compensation to the arbitrator and the appraiser, shall be borne equally by AGFEED and HYPOR.
1.1.33 " Fiscal Year " means the 12-month period ending on December 31 of each year or such other fiscal year as the Board may select in its reasonable discretion from time to time in accordance with the Code and the Treasury Regulations.
1.1.34 " Formation Documentation " has the meaning set forth in Section 1.2 .
1.1.35 “Formation Correction Resolution ” has the meaning set forth in Section 1.2 .
1.1.36 " Formation Defect " has the meaning set forth in Section 1.2 .
1.1.37 " Governmental Entity " means any U.S. federal, state or local, or any foreign government, governmental authority, regulatory or administrative agency, governmental commission, court, tribunal or arbitrator (or any department, bureau or division thereof).
1.1.38 " HYPOR " has the meaning set forth in the preamble to this Agreement.
1.1.39 " Indebtedness " means, with respect to any Person, any and all obligations of such Person (a) for borrowed money, (b) evidenced by notes, bonds, debentures or similar instruments, (c) under or relating to letters of credit (including any obligation to reimburse the letter of credit issuer with respect to amounts drawn on such instruments), (d) for the deferred purchase price of goods or services (other than trade payables or accruals incurred and paid in the ordinary course of the business), (e) under capital leases, (f) with respect to bank overdrafts or otherwise reflected as negative cash in financial statements of such Person, (g) for deferred compensation, (h) to pay any accrued dividends or dividends that have otherwise been declared and not yet paid, and (i) in the nature of guarantees of the obligations described in clauses (a) through (h) above of any other Person.
1.1.40 " Initial Capital Contribution " has the meaning set forth in Section 2.1 .
1.1.41 " Interim Budget " has the meaning set forth in Section 6.1 .
1.1.42 " IRS " means the Internal Revenue Service.
1.1.43 " Laws " means all laws, statutes, rules, regulations, codes, injunctions, judgments, orders, decrees, rulings, constitutions, ordinances, or common law of any federal, state, local or municipal Governmental Entity.
1.1.44 " Major Actions " has the meaning set forth in Section 5.2 .
1.1.45 " Non-Breaching Shareholder " has the meaning set forth in Section 220.127.116.11.
1.1.46 " Offer Notice " has the meaning set forth in Section 7.6 .
1.1.47 " Persons " means any individual, partnership, corporation, trust, limited liability company or other entity.
1.1.48 " PRC " has the meaning set forth in the first WHEREAS to this Agreement.
1.1.49 " Production and Distribution Agreement " means that Production and Distribution Agreement between the Company, HYPOR and AGFEED dated as of the Effective Date attached hereto as Exhibit C .
1.1.50 " Property " means all real and personal property owned by a Person from time to time during the term of its existence and any improvements thereto, and shall include both tangible and intangible property.
1.1.51 " Pro Rata Share " means the ratio of the number of Shares held by such Shareholder compared to the total number of Shares held by all the Shareholders or, where the context so requires, by a particular set of Shareholders.
1.1.52 " Remaining Shareholder " has the meaning set forth in Section 7.5 .
1.1.53 " Salaries " has the meaning set forth in Section 7.7 .
1.1.54 " Shareholders " has the meaning set forth in the preamble to this Agreement. Solely for purposes of the allocation and distribution provisions of Section 3.1 of this Agreement (and any definitions relating thereto), a Shareholder shall also include an Assignee who has not been admitted to the Company as a substitute Shareholder.
1.1.55 " Shares " means all of ordinary shares of a par value of US$0.0001 each of the Company.
1.1.56 " Subsidiary " means any Person that more than 50% of the voting rights or beneficial ownership of such Person is owned, either directly or indirectly, by the Company (or other specified Person).
1.1.57 " Tax(es) " means any U.S. federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, capital stock, franchise, profits, withholding, social security (or similar, including FICA), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any Shares, penalty or addition thereto.
1.1.58 " Territory " means the Provinces or Municipalities within the Peoples Republic of China commonly known as Anhui, Hubei, Zhejiang, Jiangsu, Jiangxi, Hunan, Guangxi, Fujian, Guangdong, Hainan Provinces and Shanghai.
1.1.59 " Transfer " (whether or not such term is capitalized) means, as a noun, any voluntary or involuntary transfer, sale, pledge, hypothecation, assignment or other disposition by a Shareholder of a Shareholder's Shares and, as a verb, voluntarily or involuntarily to transfer, sell, pledge, hypothecate, assign or otherwise dispose of a Shareholder's Shares.
1.1.60 " Trigger Event " has the meaning set forth in Section 7.5 .
1.1.61 " WOFE " has the meaning set forth in the third WHEREAS to this Agreement.
1.1.62 “WOFE Act” means The China Foreign Invested Enterprise Law of 2000 and accompanying Detailed Rules of 2001 for Implementation of China’s Foreign Invested Enterprise Law.
1.2 Company Documentation . The parties hereto acknowledge that the Company is to be incorporated under the laws of the PRC as a WOFE with registered capital of Eighteen Million Five Hundred Thousand China Yuan Renminbi (18,500,000 RMB). Appropriate formation documentation will be filed with the appropriate governmental authority in the PRC (the “ Formation Documentation ”). From a business perspective, the Company shall be a joint venture between AGFEED and HYPOR, two entities formed under Laws of The British Virgin Islands and The Netherlands, respectively. In order to reflect the business agreement of the parties hereto, the parties hereto desire to reflect their business agreement in the form of a joint venture agreement as evidenced by entering into this Agreement. Therefore, the parties hereto intend, to the fullest extent permitted by Law, that their business agreement and the business activities and operations of the Company (including any matters addressed in or regulated by the Formation Documentation, including without limitation, (a) rights, privileges, restrictions or conditions therein attaching to any Share or accruing in favor of or against any holder of the Shares and (b) any provisions therein relating to the management of the Company) be governed by and construed in accordance with the terms of this Agreement and not the Formation Documentation. If any conflict or inconsistency exists or arises between the terms of this Agreement and the Formation Documentation, to the fullest extent permitted by Law, this Agreement shall govern and prevail. To the extent that any matter addressed in the Formation Documentation conflicts with or is inconsistent with the provisions of this Agreement (a " Formation Defect "), the Shareholders agree (forthwith upon becoming aware of the same) to take all actions necessary, including the exercise of all voting rights in respect of the Shares and the passing of all necessary resolutions of the Shareholders, to effect such amendments to the Formation Documentation as may be necessary and appropriate to give full effect to the provisions of this Agreement and to correct the Formation Defect so that the Formation Documentation is in all relevant respects consistent with (and does not conflict with) this Agreement, and, without prejudice to the generality of the foregoing, each Shareholder shall take all actions necessary to promptly cause a meeting of all the holders of the Shares of the Company to be held for a Formation Correction Resolution to be passed by the holders of the Shares in the Company. For the purposes of this Agreement, " Formation Correction Resolution " means a resolution which amends and restates any of the Formation Documentation in order to correct a Formation Defect so that the Formation Documentation is in all relevant respects consistent with (and does not conflict with) this Agreement.
1.3 Interpretation and Rules of Construction . In this Agreement, except to the extent otherwise provided or that the context otherwise requires:
1.3.1 when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated;
1.3.2 the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement;
1.3.3 references to "dollars" or "$" are to United States dollars.
1.3.4 whenever the words "include," "includes" or "including" are used in this Agreement, they are deemed to be followed by the words "without being limited to";
1.3.5 the words "hereof," "herein" and "hereunder" and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;
1.3.6 all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein;
1.3.7 the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms;
1.3.8 references to a Person are also to its successors and permitted assigns; and
1.3.9 the use of "or" is not intended to be exclusive unless expressly indicated otherwise.
CAPITAL /PERCENTAGE INTERESTS/FUTURE FINANCING
2.1 Initial Capital Contributions . As specified in Exhibit A , the Shareholders shall contribute to the Company the relevant amounts or assets as set forth next to their name on Exhibit A under the column entitled "Initial Capital Contributions" (such Shareholder's " Initial Capital Contribution ") as consideration for the Company's allotment of the Shares set out against such Shareholder's Name set forth on Exhibit A .
2.2 Equity Interest/Cash Investment . Each Shareholder's (a) Capital Contributions, (b) Equity Interest in the Company and (c) Shares in the Company are set forth on Exhibit A . The Board shall amend Exhibit A from time to time to maintain the accuracy thereof, which shall be conclusive absent manifest error.
2.3 Additional Capital Commitments. Except as expressly set forth herein, no Shareholder shall be requested to make (a) a loan to the Company or (b) any additional contribution to the capital of the Company in consideration for an issue of further Shares.
2.3.1 AGFEED and HYPOR recognize that the Company may require additional capital from time to time, in addition to the Initial Capital Contribution, in order to accomplish the purpose and business for which it is formed. In the event that the Company shall require funds in excess of those available, the Company, through a Director or executive officer, shall request such Additional Capital Contributions be made to the Company first in the form of a market-interest bearing loan provided by a Shareholder or third party and thereafter convertible into an alternative other than a loan or Shareholder contribution not altering the original ownership Shares or Shares pursuant to the terms of this ARTICLE 2 (each, an " Additional Capital Contribution "), but only if such Additional Capital Contribution (a) has been authorized or directed by the Board in accordance with Section 5.2 , (b) has been provided for and agreed to in the Approved Annual Budget and Business Plan and then only in accordance with the timing and conditions of such Additional Capital Contribution set forth in the Approved Annual Budget and Business Plan, or (c) if the Company does not have enough money (from operating revenue, customer reimbursements or otherwise) to pay any amounts due to HYPOR under the Production and Distribution Agreement or AGFEED under the Facilities Lease Agreement . The Company, through a Director or executive officer, shall give written notice to AGFEED and HYPOR of (i) the date on which the Additional Capital Contribution is requested, which date (the " Contribution Date ") shall not be less than 15 days following the date of such notice, and (ii) the amount of Additional Capital Contribution recommended from each of them.
2.3.2 In the event a Shareholder agrees to pay the Additional Capital Contribution to the Company on the Contribution Date (a “ Contributing Shareholder ”), the Contributing Shareholder will be deemed to advance to the Company a loan equal to the Additional Capital Contribution furnished by the Contributing Shareholder, with the following results:
(a) the sum thus advanced shall constitute a loan to the Company;
(b) such loan and all accrued unpaid interest thereon shall be due not later than six (6) months after such advance is made; and
(c) the loan shall bear interest at LIBOR plus 3%, as determined at the time such advance is made.
2.3.3 AGFEED and HYPOR agree that the Board shall determine, pursuant to Section 5.2 , whether any loans made by a Contributing Shareholder under Section 2.3.2 and then outstanding at October 15 of each year or more than six (6) months after such advance is made (such determination not occur later than fifteen (15) days after such date or as the Board shall duly determine), as applicable, shall remain a loan or be converted to:
(a) an alternative other than a loan or Shareholder contribution not altering the original ownership Shares; or
(b) one-tenth (1/10) additional Shares in consideration for each $1 of Additional Capital Contribution made by the Contributing Shareholder then outstanding (excluding accrued interest) or such other amount of additional Shares as the Board may determine in accordance with Section 5.2 .
2.3.4 The Company shall amend Exhibit A to reflect the receipt by the Company of the Additional Capital Contributions and any other amounts received pursuant to Section 2.3.2 , and reflect the adjusted Equity Interests and Shares of the Shareholders.
DISTRIBUTIONS TO SHAREHOLDERS
3.1 Distributions . Except as provided upon the occurrence of a Dissolution Event in Section 11.2 , and subject to Section 3.2 and applicable Law, and if, upon conclusion of the annual financial statement audit of the Company, it is determined that the Company has no current outstanding loan, its retained earnings show a positive value based on US GAAP accounting treatment for the most recent audited period, and the Company’s cash position exceeds the reasonable cash reserves deemed necessary by the Board, then the Company shall make distributions by way of dividends from Distributable Cash to the Shareholders, pari passu, in accordance with their respective Equity Interest on an annual basis, unless otherwise approved under Section 5.2 .
3.2 Distribution of Assets in Kind . Except as otherwise provided herein, no Shareholder shall have the right to require any distribution of any Company's Property in kind. The Company's Property may be distributed in kind, at the election of the Board. If any of the Company's Property is distributed in kind, such Property shall be distributed pursuant to Section 3.1 on the basis of its fair market value as reasonably determined by the Board as of the date of such distribution, treating such distribution as a distribution of Distributable Cash in an amount equal to such fair market value.
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Shareholders . As of the Effective Date or the date on which such Person becomes an Additional Shareholder or