REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of October _____, 2006, by and among American Dairy, Inc., a corporation organized under the laws of State of Utah, with its principal executive office at C-16 Shin Chen International Building, No. 10, Jiu-shen Road, Zho Yan Chu, Beijing, People’s Republic of China (the “Company”), and the undersigned investors (individually, an “Investor” and collectively, the “Investors”). All terms used but not defined herein shall have the meaning ascribed thereto in the Subscription Agreement by and among the Company and the Investors dated of even date herewith (the “Subscription Agreement”).
WHEREAS, upon the terms and subject to the conditions of the Subscription Agreement, the Company has agreed to issue and sell to the Investors, and the Investors have agreed to purchase, (a) a minimum, in the aggregate, of $10,000,000 of 7.75% convertible notes of the Company (each, a “Note” and collectively, the “Notes”), and (b) warrants (the “Investor Warrants”) to purchase shares of the Company’s common stock, $0.001 par value per share (“Common Stock”); and
WHEREAS, to induce the Investor to execute and deliver the Subscription Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable state securities laws, with respect to the shares of the Company’s Common Stock issuable upon conversion of the Notes and as payment of interest thereon and the exercise of the Investor Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Investors hereby agree as follows:
As used in this Agreement, the following terms shall have the following meanings:
(a) “Investors” means the Investors and any transferee or assignee who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof.
(b) “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the “SEC”).
(c) “Registrable Securities” means the shares of the Company’s Common Stock issued or issuable upon (i) conversion of the principal amount of the Notes (the “Principal Conversion Shares”), (ii) conversion of interest payable on the Notes (the “Interest Conversion Shares”, and together with the Principal Conversion Shares, the “Conversion Shares”), and (iii) exercise of the Investor Warrants (the “Warrant Shares”), and any shares of capital stock issued or issuable as a dividend on or in exchange for or otherwise with respect to any of the foregoing.
(d) “Registration Statement” means a registration statement of the Company under the 1933 Act.
(a) Mandatory and Demand Registration.
(i) The Company shall prepare and, on or prior to the three-month anniversary of the Closing Date (the “Required Filing Date”), file with the SEC a Registration Statement on Form S-1 (or, if Form S-1 is not then available, on such form of Registration Statement as is then available to effect a registration of the Registrable Securities, subject to the consent of the Investors, which consent will not be unreasonably withheld) covering the resale of the Registrable Securities issued or issuable pursuant to the Subscription Agreement, which Registration Statement, to the extent allowable under the 1933 Act and the rules and regulations promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of or otherwise pursuant to the Notes and exercise of the Investor Warrants to prevent dilution resulting from stock splits, stock dividends or similar transactions. The number of shares of Common Stock initially included in such Registration Statement shall be no less than an amount equal to one hundred percent (100%) of the number of Conversion Shares that are issuable upon conversion of the Notes and interest thereon and any additional Notes (based on the Conversion Price as then in effect), and the number of Warrant Shares that are then issuable upon exercise of the Investor Warrants, without regard to any limitation on the Investor’s ability to convert the Notes or exercise the Investor Warrants. The Company acknowledges that the number of shares initially included in the Registration Statement represents a good faith estimate of the maximum number of shares issuable upon conversion of the Notes and interest thereon and upon exercise of the Investor Warrants. The date on which the Registration Statement actually gets filed shall be referred to herein as the “Filing Date.”