Document:

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (“Agreement”) is made as of the ____ day of __________, 2011, by and among Emerald Dairy Inc., a Nevada corporation, with an address at 11990 Market Street, Suite 205, Reston, VA 20190 (the “Company”), and the Investors set forth on the signature pages affixed hereto (each an “Investor” and collectively the “Investors”).

Recitals:

A.           The Company and the Investors are executing and delivering this Agreement in connection with an offering of securities of the Company (the “Offering”), in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and/or Regulation D promulgated thereunder (“Regulation D”); and

B.           The Investors wish to purchase from the Company, and the Company wishes to sell and issue to the Investors, in one or more Closings to occur on or prior to October 31, 2011 (provided an initial Closing (as defined below) has been consummated on or before September 23, 2011), upon the terms and conditions stated in this Agreement, convertible promissory notes in an aggregate principal amount of up to $500,000, with an interest rate of fifteen percent (15%) per annum, scheduled to mature on the one-year anniversary of their date of issuance (the “Notes”), in substantially the form attached hereto as Exhibit A; and

C.           Pursuant to its terms, not more than $500,000 of Notes (the “Maximum Loan Amount”), may be purchased and sold in this Offering; and

 D.          The Notes will be secured by a pledge of up to 500,000 shares of the Common Stock of the Company (assuming all $500,000 in principal amount of Notes are sold hereunder, or such lesser pro rata portion thereof if less than $500,000 in principal amount of Notes are sold hereunder) (the “Pledged Shares”), which are beneficially owned by Yang Yong Shan, the Company’s Chief Executive Officer (the “Pledgor”), pursuant to the Pledge Agreement (the “Pledge Agreement”), in substantially the form attached hereto as Exhibit B.

In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.           Definitions.  In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth below:

“Affiliate” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common Control with, such Person.

 

  

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“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

“Commission” or “SEC” means the United States Securities and Exchange Commission.

“Common Stock” means the Company’s common stock, par value $0.001 per share, and any securities into which the common stock may be reclassified.

“Company’s Knowledge” means the actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

“Confidential Information” means trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, processes, procedures and techniques, research and development information, computer program code, performance specifications, support documentation, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information).

“Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Conversion Shares” means the shares of Common Stock to be issued upon any conversion of the Notes.

“Interest” means interest on the Loan Amount, at a rate of fifteen percent (15%) per annum.

“Intellectual Property” means all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals for any of the foregoing; and (v) proprietary computer software (including but not limited to data, data bases and documentation).

“Loan Amount” means up to a maximum of $500,000.

“Loan Origination Fee” means up to 50,000 shares of the Company’s Common Stock (assuming all $500,000 in principal amount of Notes are sold hereunder, or such lesser pro rata portion thereof if less than $500,000 in principal amount of Notes are sold hereunder), as further described in Section 3(e) hereof.

 

  

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“Loan Origination Shares” means the shares of the Company’s Common Stock issued as the Loan Origination Fee.

“Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), business, or prospects of the Company and its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform its obligations under the Transaction Documents.

“Notes” has the meaning set forth in the Recitals above.

“Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

“Pledge Agent” means Legend Merchant Group, Inc.

“Pledge Agreement” has the meaning set forth in the Recitals above.

“Pledged Shares” has the meaning set forth in the Recitals above.

“Pledgor” has the meaning set forth in the Recitals above.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“SEC Filings” has the meaning set forth in Section 4.6.

“Securities” means the Notes, the Conversion Shares, and the Loan Origination Shares.

“Subsidiary” of any Person means another Person, 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 Person.

“Transaction Documents” means this Agreement, the Notes, the Pledge Agreement, and certain other papers, agreements, documents, instruments and certificates necessary to carry out the purposes thereof.

“1933 Act” has the meaning set forth in the Recitals above.

“1934 Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

  

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2.           Purchase and Sale of Notes.  Subject to the terms and conditions of this Agreement, at each Closing (as defined in Section 3(a) below), the applicable Investors shall severally, and not jointly, purchase, and the Company shall sell and issue to such Investors, Notes in the respective amounts set forth opposite the Investors’ names on the signature pages attached hereto in exchange for payment by each Investor of its pro rata share of the Loan Amount; provided, however, that not more than $500,000 of Notes, in the aggregate, shall be purchased in this Offering.

3.           Closing.

(a)           At each closing (“Closing”), provided each of the conditions set forth in Section 6 hereof have been satisfied or waived by the appropriate party or parties, (i) the participating Investors shall deliver, or cause to be delivered, their pro rata share of the Loan Amount to the Company, in immediately available funds, and (ii) the Company shall deliver, or cause to be delivered, to each participating Investor a copy of such Investor’s Note.  For the purposes hereof, the date a Closing actually takes place shall be referred to as the “Closing Date.”  The Closing(s) shall take place at the offices of Blank Rome LLP, 405 Lexington Ave., New York, NY 10174, or at such other location and on such other date as the Company and the Investors shall mutually agree.

(b)           The Company shall have the right to conduct multiple Closings; provided, however, that (i) at the first Closing, which must take place on or before September 23, 2011, (ii) any Investor making an investment in the Notes shall become a party to this Agreement and the additional Transaction Documents, as applicable, (iii) any additional Closing(s) shall occur on or prior to October 31, 2011, and (iv) the Company shall not have the right to receive an aggregate investment in connection with this Offering of more than the Maximum Loan Amount.

(c)           The Company will use commercially reasonable efforts to deliver original Notes to the applicable Investors promptly following any Closing.

(d)           Following any Closing, the Company shall use commercially reasonable efforts to insure that the Pledgor delivers the appropriate number of Pledged Shares into the custody of the Pledge Agent as provided in the Pledge Agreement.

(e)           The Company will use commercially reasonable efforts to deliver the appropriate number of Loan Origination Shares to each participating Investor, on a Pro Rata Basis, promptly following any Closing.  For the purpose of this Agreement, “Pro Rata Basis” means such number of the Loan Origination Shares equal to the product of (i) the aggregate number shares of Common Stock comprising the Loan Origination Fee and (ii) the quotient of (x) the principal amount of the Investor’s Note acquired in the Offering and (y) $500,000.

4.           Representations and Warranties of the Company.  The Company hereby represents and warrants to the Investors that, except as set forth in the schedules delivered herewith (collectively, the “Disclosure Schedules”):

 

  

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4.1           Organization, Good Standing and Qualification.  Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own its properties.  Each of the Company and its Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or leasing necessary unless the failure to so qualify has not had and could not reasonably be expected to have a Material Adverse Effect.  The Company’s Subsidiaries are listed on Schedule 4.1 hereto.

4.2           Authorization.  The Company has full power and authority and, except as described in Schedule 4.2, has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Transaction Documents, as applicable, (ii) the authorization of the performance of all obligations of the Company hereunder or thereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Securities.  The Pledged Shares are fully paid and non-assessable.  The Transaction Documents constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

4.3           Capitalization.  Schedule 4.3 sets forth (a) the authorized capital stock of the Company on the date hereof; (b) the number of shares of capital stock issued and outstanding; (c) the number of shares of capital stock issuable pursuant to the Company’s stock plans; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities (other than the Securities) exercisable for, or convertible into, or exchangeable for any shares of capital stock of the Company.  Except as described on Schedule 4.3, no Person is entitled to pre-emptive or similar statutory or contractual rights with respect to any securities of the Company.  Except as described on Schedule 4.3, 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 (other than the Investors) and will not result in the adjustment of the exercise, conversion, exchange or reset price of any outstanding security.  Except as described on Schedule 4.3, the Company does not have outstanding stockholder purchase rights or “poison pill” or any similar arrangement in effect giving any Person the right to purchase any equity interest in the Company upon the occurrence of certain events.

4.4           Valid Issuance.  The Notes and Loan Origination Shares have been duly and validly authorized and shall be free and clear of all encumbrances and restrictions (other than those created by the Investors), except for restrictions on transfer set forth in the Transaction Documents.  Upon the due conversion of the Notes, the Conversion Shares will be validly issued, fully paid and non-assessable free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws and except for those created by the Investors.  The Company has reserved a sufficient number of shares of Common Stock for issuance upon the conversion of the Notes, free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws and except for those created by the Investors.

 

  

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4.5           Consents.  Except as described in Schedule 4.5, the execution, delivery and performance by the Company of the Transaction Documents, and the offer, issuance and sale of the Securities, require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws or any other notices required thereby, all of which the Company undertakes to file within the applicable time periods.  Subject to the accuracy of the representations and warranties of each Investor set forth in Section 5 hereof, the Company has taken all action necessary to exempt (i) the issuance and sale of the Notes and Loan Origination Shares, (ii) the issuance of the Conversion Shares upon due conversion of the Notes, and (iii) the other transactions contemplated by the Transaction Documents from the provisions of any stockholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Articles of Incorporation, as amended, or Bylaws that is or could reasonably be expected to become applicable to the Investors as a result of the transactions contemplated hereby, including without limitation, the issuance of the Securities and the ownership, disposition or voting of the Securities by the Investors or the exercise of any right granted to the Investors pursuant to this Agreement or the other Transaction Documents.

4.6           Delivery of SEC Filings; Business.  The Company has made available to the Investors through the EDGAR system, true and complete copies of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “10-K”), and all other reports filed by the Company pursuant to the 1934 Act since the filing of the 10-K and prior to the date hereof (collectively, the “SEC Filings”).  Except as indicated in the SEC Filings, the SEC Filings are the only filings required of the Company pursuant to the 1934 Act for such period.  The Company and its Subsidiaries are engaged in all material respects only in the business described in the SEC Filings and the SEC Filings contain a complete and accurate description in all material respects of the business of the Company and its Subsidiaries, taken as a whole.

4.7           Use of Proceeds.  The proceeds from this Offering will be used primarily for existing indebtedness, general working capital purposes, and payment of expenses related to this Offering.

4.8           No Material Adverse Change.  Since March 31, 2011, except as identified and described on Schedule 4.8, or otherwise reported in SEC Filings, there has not been:

(a)           any change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the Company’s Quarterly Report of Form 10-Q for the fiscal quarter ended March 31, 2011, except for changes in the ordinary course of business which have not had and could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate;

 

  

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(b)           any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital stock of the Company, or any redemption or repurchase of any securities of the Company;

(c)           any material damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Company or its Subsidiaries;

(d)           any waiver, not in the ordinary course of business, by the Company or any Subsidiary of a material right or of a material debt owed to it;

(e)           any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company or a Subsidiary, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Company and its Subsidiaries taken as a whole (as such business is presently conducted and as it is proposed to be conducted);

(f)           any change or amendment to the Company’s Articles of Incorporation, as amended, or Bylaws, or material change to any material contract or arrangement by which the Company or any Subsidiary is bound or to which any of their respective assets or properties is subject;

(g)           any material labor difficulties or labor union organizing activities with respect to employees of the Company or any Subsidiary;

(h)           any material transaction entered into by the Company or a Subsidiary other than in the ordinary course of business;

(i)           the loss of the services of any key employee, or material change in the composition or duties of the senior management of the Company or any Subsidiary;

(j)           the loss or threatened loss of any customer which has had or could reasonably be expected to have a Material Adverse Effect; or

(k)           any other event or condition of any character that has had or could reasonably be expected to have a Material Adverse Effect.

4.9         SEC Filings.  At the time of filing thereof, the SEC Filings complied as to form in all material respects with the requirements of the 1934 Act and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

 

  

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4.10        No Conflict, Breach, Violation or Default.  Except as described in Schedule 4.10, the execution, delivery and performance by the Company of the Transaction Documents, and the offer, issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Articles of Incorporation, as amended, or the Company’s Bylaws, both as in effect on the date hereof (true and complete copies of which have been made available to the Investors), or (ii)(a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company, any Subsidiary or any of their respective assets or properties, or (b) any agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or a Subsidiary is bound or to which any of their respective assets or properties is subject.

4.11        Certificates, Authorities and Permits.  The Company and each Subsidiary possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it, and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or such Subsidiary, could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.

4.12       Litigation.  Except as described on Schedule 4.12, there are no pending actions, suits or proceedings against or affecting the Company, its Subsidiaries or any of its or their properties; and to the Company’s Knowledge, no such actions, suits or proceedings are threatened or contemplated.

4.13       Financial Statements.  The financial statements included in each SEC Filing present fairly, in all material respects, the consolidated financial position of the Company as of the dates shown and its consolidated results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with United States generally accepted accounting principles applied on a consistent basis (“GAAP”) (except as may be disclosed therein or in the notes thereto, and, in the case of quarterly financial statements, as permitted by Form 10-Q under the 1934 Act).  Except as set forth in the financial statements of the Company included in the SEC Filings filed prior to the date hereof or as described on Schedule 4.13, neither the Company nor any of its Subsidiaries has incurred any liabilities, contingent or otherwise, except those incurred in the ordinary course of business, consistent (as to amount and nature) with past practices since the date of such financial statements, none of which, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect.

4.14       Brokers and Finders.  Except as set forth on Schedule 4.14, no Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.

4.15       No Directed Selling Efforts or General Solicitation.  Neither the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.

 

  

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4.16       No Integrated Offering.  Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any Company security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(2) of the 1933 Act for the exemption from registration for the transactions contemplated hereby or would require registration of the Securities under the 1933 Act.

4.17       Private Placement.  Assuming the accuracy of the representations of the Investors set forth in Section 5 hereof, the offer and sale of the Securities to the Investors as contemplated hereby is exempt from the registration requirements of the 1933 Act.

4.18       Internal Controls.  Except as set forth in the SEC Filings, the Company is in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Company. The Company’s certifying officers have evaluated the effectiveness of the Company's controls and procedures as of the end of the period covered by the most recently filed periodic report under the 1934 Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the 1934 Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.

4.20       Disclosures.  Neither the Company nor any Person acting on its behalf has provided the Investors or their agents or counsel with any information that constitutes or might constitute material, non-public information.

5.          Representations and Warranties of the Investors.  Each of the Investors hereby severally, and not jointly, represents and warrants to the Company that:

5.1         Organization and Existence.  Such Investor is an individual or a validly existing corporation, limited partnership, or limited liability company and has all requisite individual, corporate, partnership or limited liability company power and authority to invest in the Securities pursuant to this Agreement.

5.2         Authorization.  The execution, delivery and performance by such Investor of the Transaction Documents to which such Investor is a party have been duly authorized and will each constitute the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

 

5.3         Purchase Entirely for Own Account.  The Securities to be received by such Investor hereunder will be acquired for such Investor’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the 1933 Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the 1933 Act without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Securities for any period of time. Such Investor is not a broker-dealer registered with the SEC under the 1934 Act or an entity engaged in a business that would require it to be so registered.

  

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5.4         Investment Experience.  Such Investor acknowledges that it can bear the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby.

5.5        Disclosure of Information.  Such Investor has had an opportunity to receive all information related to the Company requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities.  Such Investor acknowledges that the Investor Company has access, through the EDGAR system, to copies of the Company’s SEC Filings.  Neither such inquiries nor any other due diligence investigation conducted by such Investor shall modify, amend or affect such Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.

5.6         Restricted Securities.  Such Investor understands that the Securities are characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act only in certain limited circumstances.

5.7         Legends.  It is understood that, except as provided below, certificates evidencing the Securities may bear the following or any similar legend:

(a)           “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.”

(b)           If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority.

5.8         Accredited Investor.  Such Investor is an “accredited investor” within the meaning of Rule 501(a) of Regulation D promulgated under the 1933 Act for the reasons checked on Schedule 1 hereto.

5.9         No General Solicitation.  Such Investor did not learn of the investment in the Securities as a result of any public advertising or general solicitation.

 

  

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5.10       Brokers and Finders.  Such Investor has not entered into an agreement with a broker or finder for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Investor, other than as described on Schedule 5.10.

5.11       Prohibited Transactions.  During the last thirty (30) days prior to the date hereof, neither such Investor nor any Affiliate of such Investor which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to such Investor’s investments or trading or information concerning such Investor’s investments, including in respect of the Securities, or (z) is subject to such Investor’s review or input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has, directly or indirectly, effected or agreed to effect any short sale, whether or not against the box, established any “put equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any other right (including, without limitation, any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derived any significant part of its value from the Common Stock or otherwise sought to hedge its position in the Securities (each, a “Prohibited Transaction”).  Prior to repayment of the Notes, such Investor shall not, and shall cause its Trading Affiliates to not, engage, directly or indirectly, in a Prohibited Transaction.  Such Investor acknowledges that the representations, warranties and covenants contained in this Section 5.11 are being made for the benefit of the Investors as well as the Company and that each of the other Investors shall have an independent right to assert any claims against such Investor arising out of any breach or violation of the provisions of this Section 5.11.

5.12       Reliance on Exemptions.  Such Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and such Investor’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Investor set forth herein in order to determine the availability of such exemptions and the eligibility of such Investor to acquire the Securities.

6.           Conditions to Closing.

6.1         Conditions to the Investors’ Obligations. The obligation of each Investor to purchase its pro rata share of the Notes at the Closing is subject to the fulfillment to such Investor’s satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived by such Investor in its sole discretion (as to itself only):

(a)          The representations and warranties made by the Company in Section 4 hereof qualified as to materiality shall be true and correct at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of a specific date, in which case such representation or warranty shall be true and correct as of such date, and, the representations and warranties made by the Company in Section 4 hereof not qualified as to materiality shall be true and correct in all material respects at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of a specific date, in which case such representation or warranty shall be true and correct in all material respects as of such specific date.

 

  

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(b)          The Company shall have performed in all material respects all obligations and covenants herein required to be performed by it on or prior to the Closing Date.

 

(c)          The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Notes, the issuance of the Loan Origination Shares, and the consummation of the other transactions contemplated by the Transaction Documents to be consummated on or prior to the Closing Date, all of which shall be in full force and effect.

 

(d)          The Company shall have delivered a Certificate, executed on behalf of the Company by its Chief Executive Officer or its Chief Financial Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in subsections (a), (b) and (c) of this Section 6.1.

(e)           No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents.

(f)           The Company shall have delivered a Certificate, executed on behalf of the Company by its Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board of Directors of the Company approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Securities, certifying the current versions of the Articles of Incorporation, as amended, and Bylaws of the Company and certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company.

(g)          No stop order or suspension of trading shall have been imposed by the SEC or any other governmental or regulatory body with respect to public trading in the Common Stock.

(h)          The Company shall have received not more than $500,000, in the aggregate, pursuant to the Offering.

6.2         Conditions to Obligations of the Company. The Company’s obligation to sell and issue the Notes and Loan Origination Shares at the Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived by the Company:

 

  

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(a)          The representations and warranties made by the Investors in Section 5 hereof, other than the representations and warranties contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date.  The Investment Representations shall be true and correct in all respects when made, and shall be true and correct in all respects on the Closing Date with the same force and effect as if they had been made on and as of said date.  The Investors shall have performed in all material respects all obligations and covenants herein required to be performed by them on or prior to the Closing Date.

(b)          No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents.

(c)           Each Investor shall have delivered, or caused to be delivered, their pro rata share of the Loan Amount to the Company.

(d)          The Company shall have received not more than $500,000, in the aggregate, pursuant to the Offering.

6.3         Termination of Obligations to Effect Closing; Effects.

(a)          The outstanding obligations of the Company, on the one hand, and the Investors, on the other hand, to effect the Closing shall terminate as follows:

(i)           Upon the mutual written consent of the Company and the Investors;

(ii)           By the Company if any of the conditions set forth in Section 6.2 shall have become incapable of fulfillment, and shall not have been waived by the Company;

(iii)           By an Investor (with respect to itself only) if any of the conditions set forth in Section 6.1 shall have become incapable of fulfillment, and shall not have been waived by the Investor;

(iv)           By the Company, if the initial Closing has not occurred on or before September 23, 2011; or

(v)           Automatically, with respect to any Notes not previously sold, on or before October 31, 2011;

provided, however, that, except in the case of clause (i) above, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations, warranties, covenants or agreements contained in this Agreement or the other Transaction Documents if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate its obligation to effect the Closing.

 

  

- 13 -

  

(b)           In the event of termination by any Investor of its obligations to effect the Closing pursuant to this Section 6.3, written notice thereof shall forthwith be given to the other Investors and the other Investors shall have the right to terminate their obligations to effect such Closing upon written notice to the Company and the other Investors.  Nothing in this Section 6.3 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.

7.           Covenants and Agreements of the Company.

7.1         Reservation of Common Stock.  The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of providing for the conversion of the Notes, such number of shares of Common Stock as shall from time to time equal the Conversion Shares issuable from time to time.

7.2         Reports.  For such time as the Investors hold any of the Notes, the Company will furnish to the Investors and/or their assignees such information relating to the Company and its Subsidiaries as from time to time may reasonably be requested by the Investors and/or their assignees; provided, however, that the Company shall not disclose material nonpublic information to the Investors, or to advisors to or representatives of the Investors, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and any Investor wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.

7.3         No Conflicting Agreements.  The Company will not take any action, enter into any agreement or make any commitment that would conflict or interfere in any material respect with the Company’s obligations to the Investors under the Transaction Documents.

7.4         Compliance with Laws.  For such time as an Investor holds any of the Notes, the Company will comply in all material respects with all applicable laws, rules, regulations, orders and decrees of all governmental authorities.

7.5         Listing of Underlying Shares and Related Matters.  If the Company applies to have its Common Stock or other securities traded on any stock exchange or market, it shall include in such application the Conversion Shares, the Loan Origination Shares, and the Pledged Shares.

 

  

- 14 -

  

 

8.            Miscellaneous.

8.1         Successors and Assigns.  This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Investors, as applicable, provided, however, that an Investor may assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a third party acquiring some or all of its Securities in a private transaction without the prior written consent of the Company or the other Investors, after notice duly given by such Investor to the Company provided, that no such assignment or obligation shall affect the obligations of such Investor hereunder.  The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

8.2         Survival.  The representations, warranties, covenants and agreements contained in this Agreement shall survive the Closing of the transactions contemplated by this Agreement.

8.3         Counterparts; Faxes.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  This Agreement may also be executed via facsimile, which shall be deemed an original.

8.4         Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

8.5         Notices.  Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one Business Day after delivery to such carrier.  All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party:

If to the Company:

Emerald Dairy Inc.

11990 Market Street, Suite 205

Reston, VA 20190

Attn:  Shu Kaneko, Chief Financial Officer

Fax:  (678) 868-0633

  

- 15 -

  

   

With a copy to:

Blank Rome LLP

405 Lexington Ave.

New York, NY 10174

Attn: Jeffrey A. Rinde, Esq.

Fax: (212) 885-5000

If to the Investors:

To the addresses set forth on the signature pages hereto.

8.6         Expenses.  The parties hereto shall pay their own costs and expenses in connection herewith.  In the event that legal proceedings are commenced by any party to this Agreement against another party to this Agreement in connection with this Agreement or the other Transaction Documents, the party or parties which do not prevail in such proceedings shall severally, but not jointly, pay their pro rata share of the reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.

8.7         Amendments and Waivers.  Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investors.  Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, each future holder of all such Securities, and the Company.  Notwithstanding the foregoing, no consideration shall be offered or paid by the Company to any Investor to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the holders of the Notes.

8.8         Publicity.  No public release or announcement concerning the transactions contemplated hereby shall be issued by the Company or the Investors without the prior consent of the Company (in the case of a release or announcement by the Investors) or the Investors (in the case of a release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any securities exchange or securities market, in which case the Company or the Investors, as the case may be, shall allow the Investors or the Company, as applicable, to the extent reasonably practicable in the circumstances, reasonable time to comment on such release or announcement in advance of such issuance.

8.9         Severability.  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.  To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

 

  

- 16 -

  

8.10       Entire Agreement.  This Agreement, including the Exhibits and the Disclosure Schedules, and the other Transaction Documents constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof.

8.11       Further Assurances.  The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

8.12       Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.  This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof.  Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement.  Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

8.13       Independent Nature of Investors’ Obligations and Rights. The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document. The decision of each Investor to purchase Securities pursuant to the Transaction Documents has been made by such Investor independently of any other Investor. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Investor acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no Investor will be acting as agent of such Investor in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. Each Investor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that each of the Investors has been provided with the same Transaction Documents for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor.

  

- 17 -

  

8.14       Acceptance of Investment. Each Investor hereby acknowledges and agrees that at any time prior to the Closing Date, the Company, in its sole discretion, reserves the right to accept or reject any Investor’s purchase of Notes in whole or in part.

 

[The remainder of this page is left blank intentionally. Signature pages follow.]

 

  

- 18 -

  

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

	  	
EMERALD DAIRY INC.

	  	  	  
	  	
By:

	  
	  	  	
Name: Yang Yong Shan

	  	  	
Title: Chief Executive Officer

 

  

- 19 -

  

 

SECURITIES PURCHASE AGREEMENT

COUNTERPART SIGNATURE PAGE

 

By signing below, the undersigned agrees to the terms of the Securities Purchase Agreement and to purchase the Note set forth below.

 

	  	 	
INVESTOR:

	  	 	  	  
	
Principal amount of Note being purchased:

	 	  
	  	 	  	  
	
 

	 	  	  
	  	 	  	  
	Number of Loan Origination Shares:	 	
By:

	  
	  	 	  	
Name:

	  	 	  	
Title:

	  	 	  	  
	  	 	  	
Address:

	
 

	  	 	  	 	  
	  	 	  	
Facsimile:

	
 

	  	 	
with a copy to:

	  	
Please complete the following:

	 	 
	  	
1.

	
The exact name that your Note is to be registered in (this is the name that will appear on your Note). You may use a nominee name if appropriate:

	 	 
	 	 	 	 	 
	  	
2.

	
The relationship between the Investors and the Registered Holder listed in response to item 1 above:

	 	  
	 	 	 	 	 
	 	    3.	
The mailing address and facsimile number of the Registered Holder listed in response to item 1 above (if different from above):

	 	 
	  	 	Facsimile:	
                                  

	 	 	 	 	 	 
	  	
4.

	
(For United States Investors:)  The Social Security Number or Tax Identification Number of the Registered Holder listed in the response to item 1 above:

	 	  

 

  

- 20 -

  

 

Exhibit A

(Form of Convertible Promissory Note)

 

  

- 21 -

  

 

Exhibit B

 (Form of Pledge Agreement)

 

  

- 22 -

  

Schedule 1

Accredited Investor Status

 

	
Investor Name (please print):

	 	  

Please initial below the items which apply to your status as an Accredited Investor.

	 	 	An individual having a net worth with spouse (excluding automobiles, principal residence and furnishings) at the time of purchase, individually or jointly, in excess of $1,000,000.
	
 

	 
	  	 	  
	 	 	An individual whose individual net income was in excess of $200,000 in each of the two most recent years, or whose joint net income with his or her spouse was in excess of $300,000 in each of those years, and who reasonably expects his individual or joint income with such investor’s spouse to reach such level in the current year.
	
 

	 
	  	 	  
	 	 	A corporation or partnership, not formed for the specific purpose of acquiring the purchased securities, having total assets in excess of $5,000,000.
	
 

	 
	  	 	  
	 	 	A small business investment company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958.
	
 

	 
	  	 	  
	 	 	A self-directed benefit plan within the meaning of ERISA, with investment decisions made solely by persons who are accredited investors as defined in Rule 501(2) of Regulations D.
	
 

	 
	  	 	  
	 	 	A trust with total assets in excess of $5,000,000 not formed for the specific purpose of acquiring the purchased securities, whose purchase is directed by a sophisticated person (i.e., a person who has such knowledge and experience in financial and business matters that he, she or it is capable of evaluating the merits and risks of an investment in the purchased securities).
	
 

	 
	  	 	  
	
 

	 	
An entity in which all of the equity owners are accredited investors.

	
 

	 	
Other (describe):

	  
	 	 	 
	 	 	 

  

- 23 -Exhibit 10.2

 

PLEDGE AGREEMENT

PLEDGE AGREEMENT (this “Agreement”), dated as of this ____ day of __________, 2011, by and among Yang Yong Shan, a resident of the People’s Republic of China (the “Pledgor”), Emerald Dairy Inc., a Nevada corporation (the “Company”), Legend Merchant Group, Inc., a _______________, as Pledge Agent (the “Pledge Agent”) on behalf of the Pledgees set forth on Schedule A affixed hereto (each a “Pledgee” and collectively the “Pledgees”), and the Pledgees.

RECITALS

WHEREAS, concurrently herewith, the Company and the Pledgees are entering into a Securities Purchase Agreement in the form annexed hereto as Exhibit A (the “Purchase Agreement”), pursuant to which the Company is to issue to the Pledgees Convertible Promissory Notes in the aggregate principal amount of up to $500,000 (the “Notes”), in the denominations set forth on Schedule A affixed hereto (the “Offering”) (each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in the Purchase Agreement); and

WHEREAS, it is a condition precedent to the Pledgees making the loans represented by the Notes that the Pledgor shall have executed this Agreement and made the pledge in favor of the Pledgees of up to 500,000 shares of Common Stock (assuming all $500,000 in principal amount of Notes are sold in the Offering, or such lesser pro rata portion thereof if less than $500,000 in principal amount of Notes are sold in connection therewith) of the Company held by the Pledgor (as may be adjusted pursuant to Section 1(c) hereof) (the “Pledged Shares”); and

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto agree as follows:

1.           Pledge.  As collateral security for the due and punctual payment and performance by the Company of the Notes (all said obligations and all amounts payable hereunder hereinafter collectively called the “Obligations”), the Pledgor hereby collaterally pledges, hypothecates, assigns and grants to the Pledgees a security interest in the following (collectively, the “Pledged Collateral”):

(a)           the Pledged Shares, the certificates representing the Pledged Shares and the proceeds thereof, including, without limitation, all cash, securities, dividends and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; and

  

  

  

(b)           all securities hereafter delivered to the Pledge Agent in substitution for or in addition to any of the foregoing (pursuant to Section 5(b) of this Agreement), and all certificates and instruments representing or evidencing such securities and all cash, securities, dividends and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof.

(c)           Notwithstanding anything to the contrary set forth herein, upon a conversion by a Pledgee (the “Converting Pledgee”) of any amount outstanding under such Pledgee’s Note, pursuant to Section 2.1 thereof, a number of Pledged Shares shall be released by the Pledge Agent to the Pledgor (the “Released Shares”), calculated as follows:

A = B x C

where

A =           the number of Released Shares;

B =           the percentage that the converted amount of principal and accrued and unpaid interest in respect of the Pledgee’s Note represents to the aggregate outstanding principal and accrued and unpaid interest in respect of the Pledgee’s Note immediately prior to such conversion; and

C =           the aggregate number of Pledged Shares held by the Pledge Agent for the benefit of the Converting Pledgee immediately prior to such conversion.

Within two (2) Business Days of a Conversion Date (as defined in Section 2.1(c) of the Notes), the Company and the Converting Pledgee shall deliver a joint written instruction (in each case, a “Joint Instruction”) to the Pledge Agent instructing the Pledge Agent to deliver the Released Shares to the Pledgor.  The Pledge Agent agrees that upon receipt of the Joint Instruction executed by the Company and the Converting Pledgee and delivered in accordance with the terms set forth herein, the Pledge Agent will deliver the Released Shares to the Pledgor as soon as practicable.

2.           Pledge Absolute.  The Pledgor hereby agrees that this Agreement shall be binding upon the Pledgor and that the pledge of the Pledged Collateral hereunder shall be irrevocable and unconditional, irrespective of the validity, legality or enforceability of the Notes, or the Obligations, the absence of any action to enforce the same, or any waiver or consent by the Pledgees with respect to any provisions thereof.

3.           Representations and Warranties.

(a)           The Pledgor hereby represents and warrants as follows:

(i)           Authority. The Pledgor has full power, authority, capacity and legal right to enter into this Agreement, to pledge the Pledged Collateral pursuant hereto and to incur and perform the Obligations provided for herein.

  

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(ii)           Binding Agreement. This Agreement constitutes the legal, valid and binding obligation of the Pledgor, enforceable in accordance with its terms.

(iii)           No Conflicts; Governmental Approvals. There is no statute, regulation, rule, order or judgment, and no provision of any mortgage, indenture, contract or agreement binding upon the Pledgor or affecting the Pledgor’s property, which would prohibit, conflict with, or in any way prevent the execution, delivery or performance of the terms of this Agreement and the pledge of the Pledged Collateral pursuant hereto.  The execution, delivery and performance by the Pledgor of the terms of this Agreement and the pledge of the Pledged Collateral pursuant hereto does not require any filing with, or the consent or approval of, any governmental agency or regulatory authority.

(iv)           Title to Pledged Collateral. When any item of Pledged Collateral is pledged hereunder, the Pledgor will be the owner of such item of Pledged Collateral free and clear of all liens, security interests, charges and encumbrances of every kind and nature (other than those created hereunder); each share of stock comprising such item of Pledged Collateral will be fully paid and non-assessable; the Pledgor will have legal title to such Pledged Collateral and the Pledgor will have good and lawful authority to pledge, assign and deliver such item of Pledged Collateral in the manner hereby contemplated; and no consent or approval of any governmental body or regulatory authority, or of any securities exchange, will be necessary to the validity of the rights created hereunder. All action has been taken by the Pledgor to create and perfect a security interest in the Pledged Collateral, and the Pledgees have, or will have upon delivery of the Pledged Collateral, acquired a first and prior perfected security interest therein.

(v)           Valid Consideration.  The Pledgor acknowledges, and represents, that he will realize significant benefits by granting the pledge of the Pledged Collateral hereunder, including in his capacity as a shareholder and officer of the Company.

4.           Appointment of Pledge Agent; Delivery of Pledged Shares.

(a)           The Pledgees hereby appoint Pledge Agent as the agent of the Pledgees.  The Pledge Agent hereby accepts such appointment, and agrees to perform its obligations set forth herein.

(b)           Within thirty (30) days after the execution of this Agreement, the Pledgor shall deliver to the Pledge Agent original stock certificates representing the Pledged Shares, together with a stock power signed in blank by the Pledgor, bearing a medallion signature guarantee, or other signature guarantee acceptable to the Company’s transfer agent, for the purpose of retaining physical possession of the certificates representing or evidencing the Pledged Shares.  The Pledge Agent shall hold the Pledged Shares on behalf of and as agent for the Pledgees.  Upon such delivery, the Pledge Agent will execute and deliver to the Pledgees a Receipt and Acknowledgment in the form attached hereto as Exhibit B.  The Pledgees may, from time to time after there shall have occurred and during the continuation of any Event of Default (as defined in Section 4.1 of the Notes), at the Pledgees’ sole discretion and without notice to or consent of the Pledgor, take any or all of the following actions: (a) transfer all or any part of the Pledged Shares into the names of their nominees, with or without disclosing that the Pledged Shares are subject to the lien and security interest hereunder; (b) take control of any proceeds of any of the Pledged Shares; (c) exchange certificates or instruments representing or evidencing Pledged Shares for certificates or instruments of smaller or larger denominations for any purpose not inconsistent with its rights under this Agreement; and (d) direct the Pledge Agent to deliver possession of the Pledged Collateral in its possession to the Pledgees.

  

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(c)           The Pledge Agent agrees that upon receipt of the written notice set forth as Exhibit C hereto (“Written Notice”), executed by the Pledgees and delivered in accordance with the terms set forth in Section 6(a) hereof, the Pledge Agent will deliver the Pledged Shares in its possession to the Pledgees.  The Pledge Agent will do so notwithstanding any direction or statement of the Pledgor to the contrary.  Subject to the terms and conditions set forth in Section 6 hereof, the Pledgees shall be entitled to receive allocations of the Pledged Shares, or the proceeds thereof, as the case may be, on a Pro Rata Basis.  For the purpose of this Agreement, “Pro Rata Basis” means such portion of the Pledged Shares equal to the product of (i) the aggregate number of Pledged Shares and (ii) the quotient of (x) the principal amount of a Pledgee’s Note held at the time Written Notice is delivered to the Pledge Agent, and (y) the aggregate principal amount of all of the Notes held by all Pledgees at the time Written Notice is delivered to the Pledge Agent.  Any distribution of Pledged Shares to a Pledgee hereunder shall also include a distribution to such Pledgee of its Pro Rata Share of any additional Pledged Collateral.

(d)           The Pledge Agent agrees that it will not release the Pledged Collateral in its possession to the Pledgor until and unless it has received written notice from the Pledgees of the payment or satisfaction in full of the Obligations, such written notice not be unreasonably withheld and to be promptly delivered.

5.           Voting Rights; Dividends; Replacement of Collateral, Etc.

(a)           So long as there shall not have occurred and be a continuing Event of Default (as defined in Section 4.1 of the Notes), the Pledgor shall be entitled to exercise any and all voting rights and powers relating or pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement.

(b)           So long as there shall not have occurred and be a continuing Event of Default (as defined in Section 4.1 of the Notes), the Pledgor shall receive and be entitled to retain any and all cash dividends, if any, paid on the Pledged Collateral.  Any and all stock and/or liquidating dividends, distributions in property, redemptions or other distributions made on or in respect of the Pledged Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of any issuer or received in exchange for Pledged Collateral or any part thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which any issuer may be a party or otherwise, and any and all cash and other property received in payment of the principal of or in redemption of or in exchange for any Pledged Collateral (either at maturity, upon acceleration or call for redemption, or otherwise), shall become part of the Pledged Collateral and, if received by the Pledgor, shall be held in trust for the benefit of the Pledgees and shall forthwith be delivered to the Pledge Agent (accompanied by proper instruments of assignment and/or stock powers executed by the Pledgor in accordance with the Pledgees’ instructions) to be held subject to the terms of this Agreement.

  

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(c)           Upon the occurrence of an Event of Default (as defined in Section 4.1 of the Notes) and so long as such Event of Default shall be continuing, at the option of the Pledgees, (i) all rights of the Pledgor to exercise the voting rights and powers which the Pledgor is entitled to exercise pursuant to Section 5(a) hereof shall cease, and all such rights shall thereupon become vested in the Pledgees, and the Pledgees shall have the exclusive right and authority to exercise such voting and/or consensual rights and powers, on a Pro Rata Basis; and (ii) the Pledgees shall receive and be entitled to retain any and all cash dividends, if any, paid on the Pledged Collateral, on a Pro Rata Basis.  Any and all money and other property paid over to or received by the Pledgees pursuant to the provisions of Section 5(b) above shall be retained by the Pledgees as part of the Pledged Collateral and shall be applied in accordance with the provisions hereof.

6.            Remedies upon Events of Default.

(a)           During the continuation of an Event of Default (as defined in Section 4.1 of the Notes) then, in addition to having all the rights and remedies of a secured party under the Uniform Commercial Code in effect in the State of New York (the “UCC”), the Pledgees may, without being required to give any notice to the Pledgor, take any or all of the following actions: (i) apply the cash (if any) then held by it hereunder pursuant hereto to the payment in full of the Obligations, (ii) deliver to the Pledge Agent the written notice  set forth in, and in the form of, Exhibit C hereto, take possession of the Pledged Collateral, and, at any time following the Pledgor’s written consent pursuant to Section 9-620 of the UCC, take ownership of such amount of the Pledged Collateral which represents an amount equal to the unsatisfied Obligations, on a Pro Rata Basis, and (iii) sell the Pledged Collateral as described below.

(b)           In the event that a Pledgee elects to sell such Pledgee’s share, on a Pro Rata Basis, of the Pledged Collateral, such Pledgee agrees to use reasonable efforts to sell only such number of shares thereof, the anticipated proceeds of which most nearly approximate the amount of the Obligations then owing to such Pledgee, on a Pro Rata Basis.  Without limiting the foregoing, but subject to the terms of paragraph (e) below, in the event that a Pledgee elects to sell the Pledged Collateral it receives pursuant to this Agreement, such Pledgee shall have the power and right in connection with any such sale, exercisable at its option and in its absolute discretion, to sell, assign, and deliver the whole or any part of the Pledged Collateral it receives pursuant to this Agreement at a private or public sale for cash, on credit or for future delivery and at such price as the Pledgee deems to be satisfactory.  Notice of any public sale shall be sufficient if it describes the Pledged Collateral to be sold in general terms, and is published at least once in any newspaper then being circulated in New York, New York not less than seven (7) days prior to the date of sale.  All requirements of reasonable notice under this Section 6 shall be met if such notice is mailed, postage prepaid at least ten (10) days before the time of such sale or disposition, to the Pledgor at his address hereinafter set forth in Section 11 hereof.  Each Pledgee may, in its sole descretion, postpone or adjourn any sale of the Pledged Collateral it receives pursuant to this Agreement from time to time by an announcement at the time and place of the sale to be so postponed or adjourned without being required to give a new notice of sale.

  

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(c)           Because federal and state securities laws may restrict the methods of disposition of the Pledged Collateral which are readily available to the Pledgees, and specifically because a public sale thereof may be impossible or impracticable by reason of certain restrictions under the Securities Act of 1933, as amended, or under applicable Blue Sky or other state securities laws as now or hereafter in effect, the Pledgor agrees that the Pledgees may from time to time attempt to sell the Pledged Collateral by means of a private placement restricting the offering or sale to a limited number of prospective purchasers who meet suitability standards the Pledgees deem appropriate and who agree that they are purchasing for their own accounts for investment and not with a view to distribution, and the Pledgees’ acceptance of the highest offer obtained therefrom shall be deemed to be a commercially reasonable disposition of the Pledged Collateral; it being understood that the Pledgees are not obligated to accept the highest offer, and instead may accept the best offer in its commercially reasonable judgment, taking into account such things as the offeror’s ability to perform.  The Pledgees or their assigns may purchase all or any part of the Pledged Collateral and any purchaser thereof shall thereafter hold the same absolutely free from any right or claim of any kind.  To the fullest extent permitted by law, the Pledgees shall not be obligated to make any sale pursuant to notice (other than notice to the Pledgor in the manner described in the penultimate sentence of Section 6(b) hereof) and may, without notice or publication, adjourn any public or private sale by an adjournment at the time and place fixed for the sale, and such sale may be held at any time or place to which the same may be adjourned.  If any of the Pledged Collateral is sold by the Pledgees upon credit or for future delivery, the Pledgees shall not be liable for the failure of the purchaser to pay for the same and, in such event, the Pledgees may resell such Pledged Collateral and the Pledgor shall continue to be liable to the Pledgees for the full amount of the Obligations to the extent the Pledgees do not receive full and final payment in cash therefor.

(d)           Notwithstanding anything in this Agreement to the contrary, upon the occurrence of an Event of Default (as defined in Section 4.1 of the Notes) and so long as such Event of Default shall be continuing, any Pledgee may include in the written notice it delivers to the Pledge Agent pursuant to Section 4(c) hereof instructions that it will only take possession of such number of Pledged Shares at any time, which, together with the number of shares of Common Stock beneficially owned by such Pledgee and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted Note, and the unexercised or unconverted portion of any other securities of the Company (subject to a limitation on conversion or exercise analogous to the limitation contained herein)) would result in beneficial ownership by the Pledgee and its affiliates of not more than 4.9% of the outstanding shares of the Company’s Common Stock.  This notice shall not be deemed to be a waiver of the Pledgee’s right to receive additional Pledged Shares so long as such Event of Default shall be continuing.  For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (i) of the preceding sentence. This limitation may thereafter be waived by such Pledgee in its sole discretion; provided, however, such waiver may not be effective less than sixty-one (61) days from the date thereof.

  

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(e)           Notwithstanding anything to the contrary contained in this Agreement, the Purchase Agreement, or any document, instrument or agreement executed or delivered in connection herewith or therewith, with respect to the proceeds arising from any sale, transfer, assignment or other disposition of the Pledged Collateral by or for the benefit of a Pledgee pursuant to such Pledgee’s exercise of rights and remedies in accordance with the terms of this Section 6, such proceeds shall be applied as follows:

first to the payment of all reasonable and documented out-of-pocket costs and expenses (including reasonable attorneys fees) of such Pledgee in connection with the enforcement of the rights and remedies of such Pledgee under this Agreement;

second to the payment of the Obligations consisting of accrued interest owing to such Pledgee, on a Pro Rata Basis;

third to the payment of the Obligations consisting of principal owing to such Pledgee, on a Pro Rata Basis; and

finally to the payment to the Pledgor of the surplus, if any, of such proceeds.

For avoidance of doubt, in no event may such Pledgee retain, or be entitled to retain, for its own account or use, any such proceeds except in accordance with and to the extent set forth in the payment distribution described above in this Section 6(e).

7.           Pledgees Appointed Attorney-in-Fact. During the continuation of an Event of Default (as defined in Section 4.1 of the Notes), the Pledgor hereby appoints the Pledgees as the Pledgor's attorneys-in-fact for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that the Pledgees may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest.  Without limiting the generality of the foregoing, the Pledgees shall have the right and power to receive, endorse and collect all checks and other orders for the payment or other distribution payable or distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same.

  

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8.           Limitation on Pledgees’ Duty with Respect to Collateral. The Pledgees shall have no duty with respect to the Pledged Collateral in their possession or control or in the possession or control of the Pledge Agent, or with respect to any income thereon or to the preservation of rights pertaining thereto, other than the duty of reasonable care in the custody and preservation of the Pledged Collateral in the Pledge Agent’s possession or control.  A Pledgee shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession or control if the Pledged Collateral is accorded treatment substantially equivalent to that which such Pledgee accords its own property consisting of securities.

9.           No Waiver. No failure on the part of a Pledgee to exercise, and not delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy by a Pledgee preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  Whether to waive any right, power or remedy hereunder shall be determined in each Pledgee’s sole discretion.  All remedies hereunder are cumulative and not exclusive of any other remedies provided by law.

10.         Termination. This Agreement shall terminate when all amounts payable under the Notes have been paid and/or converted in full (pursuant to the terms and conditions of the Notes) at which time the Pledgees shall reassign and redeliver to the Pledgor, without recourse or warranty (other than a warranty that the Pledgees have not assigned or transferred the Pledged Collateral so reassigned and redelivered or its respective security interests therein), and at the sole cost and expense of the Pledgor, against receipt, such of the Pledged Collateral (if any) as shall not have been sold or transferred to satisfy all or any portion of the Obligations pursuant to the terms hereof and is then still held by it hereunder, together with appropriate instruments for reassignment and release.

11.         Addresses for Notices, Etc. Any notice, election, demand or other communication hereunder shall be in a signed writing and shall be deemed given or made when actually received by personal delivery or by facsimile transmission followed immediately by First Class mail, or two business days following the date when mailed by certified mail, postage prepaid, return receipt requested, to the appropriate party or parties, at the following addresses:

If to the Pledgor:

Mr. Yang Yong Shan

c/o Emerald Dairy Inc.

11990 Market Street, Suite 205

Reston, VA 20190

Fax:  (678) 868-0633

If to a Pledgee:

To the addresses set forth on Schedule A attached hereto

  

8

  

If to the Pledge Agent, to:

Legend Merchant Group, Inc.

    201 Mission Street, 2nd Floor

San Francisco, CA 94105

Attn.: D.W. Unsworth, Jr.

Fax: 415 957 9455

If to the Company, to:

Emerald Dairy Inc.

11990 Market Street, Suite 205

Reston, VA 20190

Attn.: Shu Kaneko, Chief Financial Officer

Fax:  (678) 868-0633

With a copy to:

Blank Rome LLP

405 Lexington Ave.

New York, NY 10174

Attn: Jeffrey A. Rinde, Esq.

Fax: (917) 332-3009

or, in each case, to such other address as the parties may hereinafter designate by like notice.

12.         Indemnity and Expenses. The Pledgor agrees to and hereby indemnifies the Pledgees from and against any and all claims, damages, losses, liabilities and expenses arising out of, or in connection with, or resulting from, this Agreement (including, without limitation, enforcement of this Agreement), including reasonable attorney’s fees and expenses.  The Pledgor will be responsible for paying all fees and expenses of the Pledge Agent.

13.         Further Assurances. The Pledgor agrees to do such further reasonable acts and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Pledgees may at any time reasonably request in connection with the administration or enforcement of this Agreement or related to the Pledged Collateral or any part thereof or in order to better assure and confirm unto the Pledgees their rights, powers and remedies hereunder.

14.         Binding Agreement; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective executors, administrators, successors and assigns, except that the Pledgor shall not assign this Agreement or any interest herein, or in the Pledged Collateral, or any part thereof, or otherwise pledge, encumber or grant any option with respect to the Pledged Collateral, or any part thereof, or any cash or property held by the Pledgees as Pledged Collateral under this Agreement, without the prior written consent of the Pledgees.

  

9

  

15.         Governing Law; Amendments.         This Agreement shall in all respects be construed in accordance with and governed by the laws of the State of New York, without giving effect to its conflict of laws rules.  No provision of this Agreement may be amended, waived or modified, nor may any of the Pledged Collateral be released, unless specifically provided for herein, except in a writing signed by the Pledgees.

16.         Expenses. The Pledgor hereby agrees to pay on demand all costs and expenses (including, without limitation, all reasonable fees and disbursements of counsel) incurred by the Pledgees in connection with the enforcement of the Pledgees’ rights under this Agreement and the safekeeping of any realization upon the Pledged Collateral.

17.         Submission to Jurisdiction.

(a)           The Pledgor hereby irrevocably submits to the nonexclusive jurisdiction of any federal or state court sitting in the State of New York in any action or proceeding arising out of or relating to this Agreement, and the Pledgor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in any such court.  The Pledgor irrevocably consents to the service of any and all process in any such action by proceeding by the mailing via registered or certified mail of copies of such process to the Pledgor at his address specified herein.

(b)           The Pledgor hereby irrevocably waives any objection which he may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any federal or state court sitting in the State of New York and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum.

(c)           Notwithstanding the foregoing, the Pledgees may sue the Pledgor in any jurisdiction where the Pledgor or any of his assets may be found and may serve legal process upon the Pledgor in any other manner permitted by law.

19.         Headings. Section headings used herein are for convenience only and shall not affect the construction of this Agreement.

20.         Execution of Counterparts. This Agreement may be executed in any number of copies and by different parties on separate counterparts, all of which when taken together shall constitute but one and the same agreement.

[The remainder of this page is left blank intentionally. Signature page follows.]

  

10

  

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.

	
PLEDGOR:

	 	
PLEDGE AGENT:

	  	 	  
	  	 	
LEGEND MERCHANT GROUP, INC.

	  	 	  
	
Yang Yong Shan

	 	  
	  	 	
By:

	  
	  	 	
Name:

	
PLEDGEES:

	 	
Title:

	 	 	 
	  	 	  
	  	 	
COMPANY:

	  	 	  
	
By:

	  	 	
EMERALD DAIRY INC.

	
Name:

	 	  
	
Title:

	 	  
	  	 	
By:

	  
	  	 	
Name:

	  	 	
Title:

	  	 	  
	
By:

	  	 	  
	
Name:

	 	  
	
Title:

	 	  
	  	 	  
	  	 	  
	
By:

	  	 	  
	
Name:

	 	  
	
Title:

	 	  

  

11

  

Schedule A

Pledgees

	  	 	
Principal Amount

	
Name and Address and Fax Number

	 	
of Note

	  	 	  
	  	 	  
	  	 	  
	
TOTAL:

	 	  

  

12

  

EXHIBIT A

Form of Securities Purchase Agreement

  

13

  

EXHIBIT B

 (Form of Pledge Agent’s Receipt and Acknowledgement)

[date]

	
Mr. Yang Yong Shan

	
Emerald Dairy Inc.

	
c/o Emerald Dairy Inc.

	
11990 Market Street, Suite 205

	
11990 Market Street, Suite 205

	
Reston, VA 20190

	
Reston, VA 20190

	
Attn.: Shu Kaneko, Chief Financial Officer

	
Pledgee:

	  
	  	  
	  	  
	  	  
	
Attention:

	  	  

 

	
  

	
Re:

	
Pledge Agreement, dated __________ __, 2011, by and among Yang Yong Shan, a resident of the People’s Republic of China (the “Pledgor”), __________________, as Pledge Agent (the “Pledge Agent”) on behalf of __________________ (the “Pledgees”), and the Pledgees.

 

Ladies and Gentlemen:

 

In accordance with Section 4 of the Pledge Agreement, the undersigned, as Pledge Agent, hereby acknowledges that it has received the Pledged Collateral in the form of certificates representing or evidencing the Pledged Collateral.  The Pledge Agent will retain physical possession of the certificates described below on behalf of and as agent for the Pledgees in accordance with the terms of the Pledge Agreement.

 

Certificate Nos. [                     ]

 

Capitalized words and phrases used herein and not otherwise defined shall have the respective meanings assigned to them in the Pledge Agreement.

  

	 	  	,
	 	 	

as Pledge Agent

	 
	 	 	 	 
	 	
By:

	  	 
	 	  	
Name:

	 
	 	  	
Title:

	 

  

14

  

EXHIBIT C

 (Form of Written Notice to Pledge Agent)

 

[date] 

 

	
Pledge Agent:

	  
	  	  
	  	  
	  	  
	  	  

 

	
  

	
Re:

	
Pledged Collateral – Certificate Nos. [                    ]

 

Dear ____________,

 

Reference is made to the Pledge Agreement dated __________ __, 2011, by and among Yang Yong Shan, a resident of the People’s Republic of China (the “Pledgor”), __________________, as Pledge Agent (the “Pledge Agent”) on behalf of ______________________ (the “Pledgees”), and the Pledgees, concerning the Pledged Collateral described above.  Please be advised that an Event of Default (as defined in the Pledge Agreement) has occurred and is continuing.

 

Accordingly, pursuant to the terms contained in Section 4(c) of the Pledge Agreement, this letter shall serve as the written notice described in such Section, and delivered in accordance with Section 6(a) of the Pledge Agreement.  You are hereby instructed to deliver the Pledged Collateral to the Pledgees at the addresses set forth below:

 

[addresses]

 

	  	
[Pledgees]

	  	  
	  	
By:

	  
	  	
Name:

	  	
Title:

	  	  
	  	
By:

	  
	  	
Name:

	  	
Title:

	  	  
	  	
By:

	  
	  	
Name:

	  	
Title:

  

15

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