Exhibit 10.1
 
 
OUTSIDE DIRECTOR AGREEMENT
 
This Outside Director Agreement (this “Agreement”) is entered into effective as
of August 1, 2010 (the “Effective Date”) by and between American Dairy, Inc., a
Utah corporation (the “Company”), and Sean Shao (the “Outside Director”).
 
The parties hereto agree as follows:
 
1.           Services.  The Outside Director agrees to service as a director on
the Company’s Board of Directors (the “Board”), as the Chair of the Audit
Committee of the Board and as a member of the Compensation and the
Nominating/Corporate Governance Committees of the Board, and in such capacities
to collaborate and provide advice and assistance to the Company as is mutually
agreed by the parties (collectively, the “Services”).
 
2.           Compensation.  In consideration for the Services, the Company
agrees to pay the Outside Director three thousand United States dollars ($3,000)
per month, net of any applicable withholdings, payable upon completion of each
monthly period.  In addition, in consideration for the Services, subject to
approval by the Compensation Committee of the Board, the Company will issue to
the Outside Director an option to purchase 12,000 shares of the Company’s Common
Stock pursuant to the Company’s 2009 Stock Incentive Plan, with an exercise
price per share equal to the fair market value at the time of grant and vesting
in four equal amounts on each three-month anniversary of the Effective Date
until all such shares are fully vested (provided the Outside Director continues
to provide the Services each such vesting date), as provided in this Agreement
and as specified in a stock option agreement between the Company and the Outside
Director.  The parties hereto acknowledge and agree that all compensation paid
by the Company to the Outside Director relates solely to the Outside Director’s
Services, and not pursuant to any separate consulting or other relationship with
the Company.
 
3.           Expenses.  The Company shall reimburse the Outside Director for
reasonable travel and related expenses incurred in the course of performing the
Services; provided, however, that any expenses in excess of $100 shall be
approved in advance by the Company.
 
4.           Term and Termination.  This Agreement shall have no term and may be
terminated (a) by either party for any reason upon five (5) days prior written
notice without further obligation or liability, or (b) by the Company
immediately upon the Outside Director’s breach of any material provision of this
Agreement.
 
5.           No Employment; Independence.  With respect to the Services, the
Outside Director’s relationship with the Company will be that of an independent
contractor and not that of an employee.  The Outside Director will not be
eligible for any employee benefits, nor will the Company make deductions from
payments made to the Outside Director for employment or income taxes, all of
which will be the Outside Director’s responsibility.  The Outside Director will
have no authority to enter into contracts that bind the Company or create
obligations on the part of the Company (except to the extent that the Outside
Director’s actions as part of the Board or Board committee create obligations on
the part of the Company) without the prior written authorization of the
Company.  It is the intent of the parties hereto that the Outside Director
(a) qualify as an “independent director” of the Board in accordance with NYSE
Rule 303A.02 and the provisions of the Board’s Corporate Governance Guidelines,
and (b) with respect to the Outside Director’s service on the Audit Committee of
the Board, satisfy the independence requirements of Rule 10A-3(b)(1).
 

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6.           Nondisclosure of Confidential Information.
 
(a)           Agreement Not to Disclose.  The Outside Director agrees not to use
any Confidential Information (as defined below) for the Outside Director’s own
use or for any purpose other than to carry out discussions concerning, and the
undertaking of, the Services.  The Outside Director shall not disclose any
Confidential Information to third parties outside the Company. The Outside
Director agrees to take all commercially reasonable measures to protect the
secrecy of and avoid disclosure by the Outside Director of Confidential
Information in order to prevent it from falling into the public domain or the
possession of persons other than those persons authorized under this Agreement
to have any such information.  The Outside Director further agrees to notify the
Company in writing of any actual or suspected misuse, misappropriation or
unauthorized disclosure of Confidential Information of which the Outside
Director may become consciously aware.  The Outside Director shall follow the
Company’s policies and procedures regarding insider trading and the disclosure
and use of material nonpublic information.
 
(b)           “Confidential Information” means any information of the Company,
technical data of the Company or know-how of the Company (whether disclosed
before or after the Effective Date), including, but not limited to, information
relating to business and product or service plans, financial projections,
customer lists, business forecasts, sales and merchandising, human resources,
patents, patent applications, computer programs, computer code, software source
documents, software design and architecture, testing procedures, product
requirements and specifications, research, inventions, processes, designs,
drawings, engineering, marketing or finance, in each case that is marked as
confidential or proprietary or which information would, under the circumstances,
appear to a reasonable person to be confidential or proprietary.  “Confidential
Information” does not include information, technical data or know-how of the
Company that becomes generally publicly available, not as a direct or indirect
result of any improper action or inaction of the Outside Director.
 
(c)           Exceptions.  Notwithstanding the foregoing, the Outside Director
shall have no liability hereunder to the Company with regard to any Confidential
Information that:
 
(i)           is disclosed with the prior written approval of the Company;
 
(ii)           is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided, however, that the
Outside Director shall provide prompt notice of such court order or requirement
to the Company to enable the Company or its appropriate subsidiary to seek a
protective order or otherwise prevent or restrict such disclosure; or
 

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(iii)           is disclosed by the Outside Director to legal counsel of the
Company, of the Board, of any committee of the Board, or of the Outside
Director, in connection with seeking legal advice regarding compliance with law
or regulation or fulfillment of the Outside Director’s duties as a Director of
the Company.
 
7.           No Duplication; Return of Materials.  The Outside Director agrees,
except as otherwise expressly authorized by the Company, not to make any copies
or duplicates of any Confidential Information.  Any materials or documents that
have been furnished by the Company to the Outside Director in connection with
the Services shall be promptly returned by the Outside Director to the Company,
accompanied by all copies of such documentation, within ten days of (a) the
termination of the Services, or (b) the written request of the Company, except
that the Outside Director may keep one copy of all meeting minutes and consents
of the Board and of all Board committees of which the Outside Director was a
member covering the period during which the Outside Director was on the Board.
 
8.           No Rights Granted.  Nothing in this Agreement shall be construed as
granting any rights under any patent, copyright or other intellectual property
right of the Company, nor shall this Agreement grant the Outside Director any
rights in or to the Confidential Information, except the limited right to use
the Confidential Information in connection with the Services.
 
9.           No Conflicts.  The Outside Director represents that the Outside
Director’s compliance with the terms of this Agreement and provision of the
Services hereunder will not violate any duty which the Outside Director may have
to any other person or entity (such as a present or former employer), including
obligations concerning providing services to others, confidentiality of
proprietary information and assignment of inventions, ideas, patents or
copyrights, and the Outside Director agrees that the Outside Director will not
do anything in the performance of Services hereunder that would violate any such
duty.  In addition, the Outside Director agrees that, during the term of this
Agreement, prior to performing any services for or otherwise participating in a
company developing or commercializing services, methods or products that may be
competitive with the Company, the Outside Director shall first notify the
Company in writing.  It is understood that, in such event, the Company will
review whether the Outside Director’s activities are consistent with the Outside
Director remaining a member of the Board.
 
10.           Miscellaneous.  Any term of this Agreement may be amended or
waived only with the written consent of the parties hereto.  This Agreement,
together with the stock option agreement and related documents contemplated in
Section 2, constitutes the entire agreement of the parties and supersedes all
prior agreements and negotiations, oral or written, with respect to the subject
matter hereof or thereof.  Any notice required or permitted by this Agreement
shall be in writing and delivered by certified mail, return receipt requested,
personally delivery, any form of private or governmental express mail or
delivery service providing receipted delivery, or facsimile or other electronic
transmission, and shall be deemed sufficient upon the earlier of actual receipt,
the date shown on a conformation of facsimile or other electronic transmission,
the date reflected on a signed delivery receipt, or two (2) business days
following tender of delivery or dispatch by express mail or delivery service, if
such notice is addressed to the party to be notified at such party’s address or
facsimile number as set forth below (or as subsequently modified by written
notice).  If any provision of this Agreement is held by a court of law to be
illegal, invalid or unenforceable, that provision shall be deemed amended to
achieve as nearly as possible the same economic effect as the original
provision, and the legality, validity and enforceability of the remaining
provisions of this Agreement shall not be affected or impaired thereby.  The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Utah, without giving effect to the
principles of conflict of laws.  This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.  Execution and delivery of this
Agreement by facsimile or other electronic transmission shall be deemed for all
purposes to be due execution and delivery.
 
[Signature page follows]
 

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The parties have executed this Agreement as of the date first written above.
 

 
AMERICAN DAIRY, INC.
 
 
By:  /s/ Leng You-Bin                                             
Leng You-Bin
Chief Executive Officer and President
 
Address:        Star City International Building,
10 Jiuxianqiao Road, C-16th Floor
Chaoyang District, Beijing, China, 100016
Facsimile:  86 10 64311050

 

 
SEAN SHAO
 
 
s/ Sean Shao                                                         
Signature
 
Address:
 
 
Facsimile:
 

 
[Signature page to Outside Director Agreement]
 
 
 

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