32. Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Text Block]

32. COMMITMENTS AND CONTINGENCIES

(1) Operating lease arrangements

The Group has entered into leasing arrangements relating to office premises and computer equipment that are classified as operating leases. There were no minimum future rental payments under non-cancellable operating leases having remaining terms in excess of one year.

Rent expenses incurred and expensed to consolidated statements of income and comprehensive income during the years ended December 31, 2012, 2011 and 2010 amounted to $399,800, $420,025 and $473,381, respectively.

(2) Capital commitments

Capital commitments for purchase of property, plant and equipment were $7,216,850 as of December 31, 2012.

(3) Purchase commitments

The Group has certain purchase commitments of $4,681,731 over four years relating to packaging materials in connection with the capital lease obligation disclosed in Note 26.

(4) Land use rights

All lands in the PRC are state-owned and no individual land ownership rights exist. The Group has obtained land use right certificates for the land on which its facilities are located.

(5) Other assets

Substantially all of the Group’s assets and operations are located in the PRC. The Company is self-insured for all risks.

(6) “Going private” proposal and related litigation

In October 2012, the Company’s Board of Directors received a preliminary, non-binding proposal from Mr. Leng You-Bin, its Chairman and Chief Executive Officer, and an affiliate of Morgan Stanley Private Equity Asia, Inc. (“MSPEA”), the private equity arm of Morgan Stanley, to acquire all of the outstanding shares of common stock of the Company not currently owned by Mr. LengYou-Bin, MSPEA and their respective affiliates in a going private transaction for $7.40 per share in cash, subject to certain conditions (the “Going Private Proposal”). The Going Private Proposal contemplated that Mr. Leng You-Bin and MSPEA would form an acquisition vehicle for the purpose of completing the acquisition, to be financed through a combination of debt and equity capital. The Company’s Board of Directors formed a Special Committee of independent directors (the “Special Committee”) to consider the Going Private Proposal which retained a financial advisor and legal counsel to assist it in this process.

In October 2012, certain alleged shareholders of the Company filed putative class and derivative actions on behalf of the Company against the members of its Board of Directors and certain entities associated with MSPEA. Three cases were brought in the Third Judicial District Court for Salt Lake County, Utah, which have been deemed related and are pending consolidation under the caption In re Feihe International Shareholder Litigation. Three cases were brought in the Superior Court of the State of California for Los Angeles County, which have been deemed related and are pending consolidation under the caption In re Feihe International, Inc. Shareholder Litigation. The plaintiffs in both the Utah and California cases have alleged breach of fiduciary duties and aiding and abetting in connection with the Going Private Proposal. The plaintiffs in both the Utah and California cases have requested rescission of the Going Private Proposal, to the extent implemented, an award of unspecified damages to the Company, certain other equitable and injunctive relief, and an award of plaintiffs’ costs and disbursements, including legal fees. Although the Company is unable to predict the final outcome of these proceedings, the Company does not believe that the final results will have a material effect on its consolidated financial condition, results or operations, or cash flows.