AMERICAN DAIRY, INC.
2009 STOCK INCENTIVE PLAN
 
1.
Purpose. 

 
The purpose of the American Dairy, Inc. 2008 Stock Incentive Plan (the “Plan”)
is to enhance the long-term stockholder value of American Dairy, Inc., a Utah
corporation (the “Company”), by offering opportunities to employees, directors,
officers, consultants, agents, advisors and independent contractors of the
Company and its Subsidiaries (as defined in Section  2) to participate in the
Company’s growth and success, and to encourage them to remain in the service of
the Company and its Subsidiaries and to acquire and maintain stock ownership in
the Company.
 
2.
Definitions. 

 
For purposes of the Plan, the following terms shall be defined as set forth
below:
 
2.1           “Award” means an award or grant made pursuant to the Plan,
including, without limitation, awards or grants of Options, Performance Options,
Performance Stock Awards,  and Restricted Stock Awards or any combination of the
foregoing.
 
2.2           “Board” means the Board of Directors of the Company.
 
2.3           “Cause” means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), as provided
under applicable law, in each case as determined by the Plan Administrator, and
its determination shall be conclusive and binding.
 
2.4           “Code” means the United States Internal Revenue Code of 1986, as
amended from time to time.
 
2.5           “Common Stock” means the common stock, par value $.01 per share,
of the Company.
 
2.6           “Corporate Transaction” means any of the following events:
 
(a)           Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation, or pursuant to
which shares of the Common Stock are converted into cash, securities or other
property (other than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate ownership of
capital stock of the surviving corporation immediately after the merger);
 
(b)           Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all of
the Company’s assets other than a transfer of the Company’s assets to a
majority-owned subsidiary corporation (as the term “subsidiary corporation” is
defined in Section 8.3) of the Company; or

 
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(c)           Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
 
2.7           “Disability” means “permanent and total disability” as that term
is defined for purposes of Section 22(e)(3) of the Code.
 
2.8           “Early Retirement” means early retirement as that term is defined
by the Plan Administrator from time to time for purposes of the Plan.
 
2.9           “Exchange Act” means the United States Securities Exchange Act of
1934, as amended.
 
2.10          “Fair Market Value” shall be established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq Global Market
or the Nasdaq Capital Market, the average of the high and low per share sales
prices for the Common Stock as reported by the Nasdaq Global Market or the
Nasdaq Capital Market (as the case may be) for a single trading day or (b) if
the Common Stock is listed on the New York Stock Exchange, the NYSE Arca
Exchange, or the American Stock Exchange, the average of the high and low per
share sales prices for the Common Stock as such price is officially quoted in
the composite tape of transactions on such exchange for a single trading day. If
there is no such reported price for the Common Stock for the date in question,
then such price on the last preceding date for which such price exists shall be
determinative of the Fair Market Value.  Notwithstanding anything in this Plan
to the contrary, to the extent applicable, the determination of the Fair Market
Value of a share of Common Stock shall be determined in a manner which complies
with Section 409A of the Code and the applicable Treasury Regulations
promulgated thereunder.
 
2.11           “Grant Date” means the date the Plan Administrator adopted the
granting resolution and all conditions precedent to the grant have been
satisfied; provided that conditions to the exercisability or vesting of Awards
shall not defer the Grant Date. If, however, the Plan Administrator designates
in a resolution a later date as the date an Award is to be granted, then such
later date shall be the “Grant Date.”
 
2.12           “Incentive Stock Option” means an Option to purchase Common Stock
granted under Section 7 with the intention that it qualify as an “incentive
stock option” as that term is defined in Section 422 of the Code.
 
2.13           “Nonqualified Stock Option” means an Option to purchase Common
Stock granted under Section 7 other than an Incentive Stock Option.
 
2.14           “Option” means the right to purchase Common Stock granted under
Section 7.
 
2.15           “Participant” means (a) the person to whom an Award is granted;
(b) for a Participant who has died, the personal representative of the
Participant’s estate, the person(s) to whom the Participant’s rights under the
Award have passed by will or by the applicable laws of descent and distribution,
or the beneficiary designated in accordance with Section 10; or (c) person(s) to
whom an Award has been transferred in accordance with Section 10.

 
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2.16           “Performance Option” means an Option subject to performance
requirements granted under Section 7.
 
2.17           “Performance Stock Award” means shares of Common Stock or units
denominated in Common Stock granted under Section 9, the rights of ownership of
which may be subject to restrictions and/or performance requirements prescribed
by the Plan Administrator.
 
2.18           “Plan Administrator” means the Compensation Committee of the
Board or any successor committee of the Board designated to administer the Plan
under Section 3.1.
 
2.19           “PRC” means the People’s Republic of China.
 
2.20           “Restricted Stock Award” means shares of Common Stock or units
denominated in Common Stock granted under Section 9, the rights of ownership of
which may be subject to restrictions prescribed by the Plan Administrator.
 
2.21           “Retirement” means retirement on or after the individual’s normal
retirement date under PRC law or the law of such individual’s other jurisdiction
of employment unless otherwise defined by the Plan Administrator from time to
time for purposes of the Plan.
 
2.22           “Securities Act” means the United States Securities Act of 1933,
as amended.
 
2.23           “Subsidiary”, except as provided in Section 8.3 in connection
with Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect subsidiary of the Company.
 
3.
Administration. 

 
3.1           Plan Administrator.  The Plan shall be administered by the
Compensation Committee of the Board or a successor committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) “outside
directors” as contemplated by Section 162(m) of the Code and (b) “non employee
directors” as contemplated by Rule 16b-3 under the Exchange Act. The Plan
Administrator may delegate the responsibility for administering the Plan with
respect to designated classes of eligible persons to different committees
consisting of one or more members of the Board, subject to such limitations as
the Board deems appropriate. Committee members shall serve for such term as the
Board may determine, subject to removal by the Board at any time. To the extent
consistent with applicable law, the Plan Administrator may authorize one or more
officers of the Company to grant Awards to designated classes of eligible
persons, within the limits specifically prescribed by the Plan Administrator.

 
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3.2           Administration and Interpretation by the Plan
Administrator.  Except for the terms and conditions explicitly set forth in the
Plan, the Plan Administrator shall have exclusive authority, in its discretion,
to determine all matters relating to Awards under the Plan, including the
selection of individuals to be granted Awards, the type of Awards, the number of
shares of Common Stock subject to an Award, all terms, conditions, restrictions
and limitations, if any, of an Award and the terms of any instrument that
evidences the Award. The Plan Administrator shall also have exclusive authority
to interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan’s administration. The Plan
Administrator’s interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company’s officers as it so determines.
 
4.
Stock Subject to the Plan. 

 
4.1           Authorized Number of Shares.  Subject to adjustment from time to
time as provided in Section 11.1, the number of shares of Common Stock that
shall be available for issuance under the Plan shall be: (a) 2,000,000 shares
plus (b) any authorized shares of Common Stock that, as of May 7, 2009, were
available for issuance under the American Dairy, Inc. 2003 Incentive Stock Plan
(the “Prior Plan”)  (or that thereafter become available for issuance under the
Prior Plan in accordance with its terms).  The maximum aggregate number of
shares of  Common Stock that may be issued under the Plan pursuant to the
exercise or vesting of Awards shall be the number determined pursuant to the
preceding sentence, as adjusted from time to time pursuant to Section
11.1.  Shares issued under the Plan shall be drawn from authorized and unissued
shares or shares now held or subsequently acquired by the Company as treasury
shares.
 
4.2           Limitations.  Subject to adjustment from time to time as provided
in Section 11.1, the number of shares of Common Stock that may be made subject
to Awards under the Plan to any individual shall be limited in accordance with
the requirements under Section 162(m) of the Code.
 
4.3           Reuse of Shares.  Any shares of Common Stock that have been made
subject to an Award that cease to be subject to the Award (other than by reason
of exercise or payment of the Award to the extent it is exercised for or settled
in shares), and/or shares of Common Stock subject to repurchase or forfeiture
which are subsequently reacquired by the Company, shall again be available for
issuance in connection with future grants of Awards under the Plan; provided,
however, that for purposes of Section 4.2, any such shares shall be counted in
accordance with the requirements of Section 162(m) of the Code.
 
5.
Eligibility. 

 
Awards may be granted under the Plan to those officers, directors and employees
of the Company and its Subsidiaries as the Plan Administrator from time to time
selects. Awards may also be granted to consultants, agents, advisors and
independent contractors who provide services to the Company and its
Subsidiaries.

 
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6.
Awards.

 
6.1           Form and Grant of Awards.  The Plan Administrator shall have the
authority, in its sole discretion, to determine the type or types of Awards to
be made under the Plan. Such Awards may include, but are not limited to,
Incentive Stock Options, Nonqualified Stock Options, Performance Options,
Performance Stock Awards and Restricted Stock Awards. Awards may be granted
singly or in combination.
 
6.2           Settlement of Awards.  The Company may settle Awards through the
delivery of shares of Common Stock, cash payments, the granting of replacement
Awards or any combination thereof as the Plan Administrator shall determine. Any
Award settlement, including payment deferrals, may be subject to such
conditions, restrictions and contingencies as the Plan Administrator shall
determine. The Plan Administrator may permit or require the deferral of any
Award payment, subject to such rules and procedures as it may establish, which
may include provisions for the payment or crediting of interest, or dividend
equivalents, including converting such credits into deferred stock equivalents.
 
6.3           Acquired Company Option Awards.  Notwithstanding anything in the
Plan to the contrary, the Plan Administrator may grant Awards under the Plan in
substitution for awards issued under other plans, or assume under the Plan
awards issued under other plans, if the other plans are or were plans of other
acquired entities (“Acquired Entities”) (or the parent of an Acquired Entity)
and the new Award is substituted, or the old award is assumed, by reason of a
merger, consolidation, acquisition of property or of stock, reorganization or
liquidation (the “Acquisition Transaction”). In the event that a written
agreement pursuant to which the Acquisition Transaction is completed is approved
by the Board and said agreement sets forth the terms and conditions of the
substitution for or assumption of outstanding awards of the Acquired Entity,
said terms and conditions shall be deemed to be the action of the Plan
Administrator without any further action by the Plan Administrator, except as
may be required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such awards shall be deemed to be Participants.
 
7.
Terms and Conditions of Options.

 
7.1           Grant of Options.  The Plan Administrator is authorized under the
Plan, in its sole discretion, to issue Options or Performance Options as
Incentive Stock Options or as Nonqualified Stock Options, which shall be
appropriately designated.
 
7.2           Option Exercise Price.  The exercise price for shares purchased
under an Option shall be as determined by the Plan Administrator, but shall not
be less than 100% of the Fair Market Value of the Common Stock on the Grant Date
with respect to Incentive Stock Options.
 
7.3           Term of Options.  The term of each Option shall be as established
by the Plan Administrator or, if not so established, shall be 10 years from the
Grant Date.

 
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7.4           Exercise and Vesting of Options.  The Plan Administrator shall
establish and set forth in each instrument that evidences an Option the time at
which, or the installments in which, the Option shall vest and become
exercisable, which provisions may be waived or modified by the Plan
Administrator at any time. To the extent that an Option has become exercisable,
the Option may be exercised from time to time by written notice to the Company,
in accordance with procedures established by the Plan Administrator, setting
forth the number of shares with respect to which the Option is being exercised
and accompanied by payment in full as described in Section 7.6. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than any number of shares at any one time for vested shares and any
number in its discretion for unvested shares (or the lesser number of remaining
shares covered by the Option).
 
7.5           Performance Options.  The Plan Administrator is authorized to
subject an Option to performance requirements (which may be based on continuous
service with the Company or the achievement of performance goals related to
profits or loss, revenue or profit growth or loss reduction, profit or loss
related return ratios, other balance sheet or income statement targets or
ratios, market share, project completion, operational or productivity efficiency
gains, cash flow, share price appreciation or total stockholder return, where
such goals may be stated in absolute terms or relative to comparison companies),
as the Plan Administrator shall determine, in its sole discretion, must be
satisfied as a condition of the Option becoming vested and exercisable.  Such
performance requirements shall be set forth in the instrument evidencing the
Award.
 
7.6           Payment of Exercise Price.  Except in the case that a cashless
exercise or same-day-sale is approved and implemented by the Plan Administrator,
the exercise price for shares purchased under an Option shall be paid in full to
the Company by delivery of consideration equal to the product of the Option
exercise price and the number of shares purchased. Such consideration must be
paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Participant for at least six months (or any shorter period necessary to avoid a
charge to the Company’s earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the United
States Federal Reserve Board. In addition, the exercise price for shares
purchased under an Option may be paid, either singly or in combination with one
or more of the alternative forms of payment authorized by this Section 7.6, or
by such other consideration as the Plan Administrator may permit.
 
7.7           Post-Termination Exercises.  The Plan Administrator shall
establish and set forth in each instrument that evidences an Option whether the
Option will continue to be exercisable, and the terms and conditions of such
exercise, if a Participant ceases to be employed by, or to provide services to,
the Company or its Subsidiaries, which provisions may be waived or modified by
the Plan Administrator at any time. If not so established in the instrument
evidencing the Option, the Option will be exercisable according to the following
terms and conditions, which may be waived or modified by the Plan Administrator
at any time.

 
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In case of termination of the Participant’s employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares vested at the date of such termination, only (a) within one
year if the termination of the Participant’s employment or services is
coincident with Retirement, Early Retirement at the Company’s request or
Disability or (b) within three months after the date the Participant ceases to
be an employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary if termination of the Participant’s
employment or services is for any reason other than Retirement, Early Retirement
at the Company’s request or Disability, but in no event later than the remaining
term of the Option. Any Option exercisable at the time of the Participant’s
death may be exercised, to the extent of the number of shares vested at the date
of the Participant’s death, by the personal representative of the Participant’s
estate, the person(s) to whom the Participant’s rights under the Option have
passed by will or the applicable laws of descent and distribution or the
beneficiary designated pursuant to Section 10 at any time or from time to time
within one year after the date of death, but in no event later than the
remaining term of the Option. Any portion of an Option that is not vested on the
date of termination of the Participant’s employment or services shall terminate
on such date, unless the Plan Administrator determines otherwise. In case of
termination of the Participant’s employment or services for Cause, the Option
shall automatically terminate upon first notification to the Participant of such
termination, unless the Plan Administrator determines otherwise. If a
Participant’s employment or services with the Company are suspended pending an
investigation of whether the Participant shall be terminated for Cause, all the
Participant’s rights under any Option likewise shall be suspended during the
period of investigation.
 
With respect to employees, unless the Plan Administrator at any time determines
otherwise, “termination of the Participant’s employment or services” for
purposes of the Plan (including without limitation this Section 7) shall mean
any reduction in the Participant’s regular hours of employment to less than
thirty (30) hours per week. A transfer of employment or services between or
among the Company and its Subsidiaries shall not be considered a termination of
employment or services. The effect of a Company approved leave of absence on the
terms and conditions of an Option shall be determined by the Plan Administrator,
in its sole discretion.
 
7.8           Prohibition on Option Repricing.  An option issued under the Plan
may not, without prior approval of the Company’s stockholders at a
duly-constituted meeting, be repriced by lowering the option exercise price or
by cancellation of an outstanding option with a subsequent replacement or
re-grant of an option with a lower exercise price.
 
8.
Incentive Stock Option Limitations.

 
To the extent required by Section 422 of the Code, Incentive Stock Options shall
be subject to the following additional terms and conditions:

 
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8.1           Dollar Limitation.  To the extent the aggregate Fair Market Value
(determined as of the Grant Date) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time during any calendar
year (under the Plan and all other stock option plans of the Company) exceeds
$100,000, such portion in excess of $100,000 shall be subject to delayed
exercisability or treated as a Nonqualified Stock Option as set forth by the
Plan Administrator in the agreement(s) evidencing the Option. In the event the
Participant holds two or more such Options that become exercisable for the first
time in the same calendar year, such limitation shall be applied on the basis of
the order in which such Options are granted.
 
8.2           10% Stockholders.  If an individual owns more than 10% of the
total voting power of all classes of the Company’s stock, then the exercise
price per share of an Incentive Stock Option shall not be less than 110% of the
Fair Market Value of the Common Stock on the Grant Date and the Option term
shall not exceed five years. The determination of 10% ownership shall be made in
accordance with Section 422 of the Code.
 
8.3           Eligible Employees.  Individuals who are not employees of the
Company or one of its parent corporations or subsidiary corporations may not be
granted Incentive Stock Options. For purposes of this Section 8.3, “parent
corporation” and “subsidiary corporation” shall have the meanings attributed to
those terms for purposes of Section 422 of the Code.
 
8.4           Term.  The term of an Incentive Stock Option shall not exceed 10
years.
 
8.5           Exercisability.  To qualify for Incentive Stock Option tax
treatment, an Option designated as an Incentive Stock Option must be exercised
within three months after termination of employment for reasons other than
death, except that, in the case of termination of employment due to Disability,
such Option must be exercised within one year after such termination. Disability
shall be deemed to have occurred on the first day after the Company has
furnished its opinion of Disability to the Plan Administrator. Employment shall
not be deemed to continue beyond the first 90 days of a leave of absence unless
the Participant’s reemployment rights are guaranteed by statute or contract.
 
8.6           Taxation of Incentive Stock Options.  In order to obtain certain
tax benefits afforded to Incentive Stock Options under Section 422 of the Code,
the Participant must hold the shares issued upon the exercise of an Incentive
Stock Option for two years after the Grant Date of the Incentive Stock Option
and one year from the date of exercise. A Participant may be subject to the
alternative minimum tax at the time of exercise of an Incentive Stock Option.
The Plan Administrator may require a Participant to give the Company prompt
notice of any disposition of shares acquired by the exercise of an Incentive
Stock Option prior to the expiration of such holding periods.
 
9.
Restricted Stock Awards and Performance Stock Awards. 

 
9.1           Grant of Restricted Stock Awards.  The Plan Administrator is
authorized to make Awards of Common Stock or Awards denominated in units of
Common Stock on such terms and conditions and subject to such restrictions
and/or requirements, as the Plan Administrator shall determine, in its sole
discretion, which terms, conditions and restrictions shall be set forth in the
instrument evidencing the Award. The terms, conditions and restrictions that the
Plan Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Restricted Stock Awards are
held during the periods they are subject to restrictions and the circumstances
under which forfeiture of the Restricted Stock Award shall occur by reason of
termination of the Participant’s employment or service relationship.

 
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9.2           Performance Stock Awards.  The Plan Administrator in its sole
discretion is authorized to subject Restricted Stock Awards to performance
restrictions and/or requirements which may be based on continuous service with
the Company or the achievement of performance goals related to profits or loss,
revenue or profit growth or loss reduction, profit or loss related return
ratios, other balance sheet or income statement targets or ratios, market share,
project completion, operational or productivity efficiency gains, cash flow,
share price appreciation or total stockholder return, where such goals may be
stated in absolute terms or relative to comparison companies. To the extent an
Award subject to performance goals is intended to be exempt under  Section
162(m) of the Code, unless otherwise permitted in compliance with Section 162(m)
of the Code, the Plan Administrator shall establish the performance goals (and
any applicable performance award formula) applicable to the Award no later than
the earlier of (a) the date ninety (90) days after the commencement of the
applicable performance period or (b) the date on which twenty five percent (25%)
of the performance period has elapsed, and, in any event, at a time when the
outcome of the performance goals remains substantially uncertain.
 
9.3           Issuance of Shares.  Upon the satisfaction of any terms,
conditions and restrictions prescribed in respect to a Restricted Stock Award,
or upon the Participant’s release from any terms, conditions and restrictions of
a Restricted Stock Award, as determined by the Plan Administrator, the Company
shall release, as soon as practicable, to the Participant or, in the case of the
Participant’s death, to the personal representative of the Participant’s estate
or as the appropriate court directs, the appropriate number of shares of Common
Stock.
 
9.4           Waiver of Restrictions.  Notwithstanding any other provisions of
the Plan, the Plan Administrator may, in its sole discretion, waive the
forfeiture period and any other terms, conditions or restrictions on any
Restricted Stock Award under such circumstances and subject to such terms and
conditions as the Plan Administrator shall deem appropriate; provided, however,
that the Plan Administrator may not adjust performance goals for any Restricted
Stock Award intended to be exempt under Section 162(m) of the Code for the year
in which the Restricted Stock Award is settled in such a manner as would
increase the amount otherwise payable to a Participant.
 
10.
Assignability.

 
No Awards granted under the Plan or any interest therein may be assigned,
pledged or transferred by the Participant other than by will or by the
applicable laws of descent and distribution, and, during the Participant’s
lifetime, such Award may be exercised only by the Participant or a permitted
assignee or transferee of the Participant (as provided below). Notwithstanding
the foregoing, and to the extent permitted by Section 422 of the Code, the Plan
Administrator, in its sole discretion, may permit such assignment, transfer and
exercisability and may permit a Participant to designate a beneficiary who may
exercise the Award or receive payment under the Award after the Participant’s
death; provided, however, that any Award so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the Award.

 
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11.
Adjustments. 

 
11.1           Adjustment of Shares.  In the event that, at any time or from
time to time, a stock dividend, stock split, spin-off, combination or exchange
of shares, recapitalization, merger, consolidation, distribution to stockholders
other than a normal cash dividend, or other change in the Company’s corporate or
capital structure results in (a) the outstanding shares, or any securities
exchanged therefor or received in their place, being exchanged for a different
number or class of securities of the Company or of any other corporation or (b)
new, different or additional securities of the Company or of any other
corporation being received by the holders of shares of Common Stock of the
Company, then the Plan Administrator shall make proportional adjustments in (i)
the maximum number and kind of securities subject to the Plan as set forth in
Sections 4.1;  (ii) the maximum number and kind of securities that may be made
subject to Awards to any individual as set forth in Section 4.2; and (iii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
 
11.2           Corporate Transaction.
 
(a)           Options.  Except as otherwise provided in the instrument that
evidences the Option, in the event of a Corporate Transaction, the Plan
Administrator shall determine whether provision will be made in connection with
the Corporate Transaction for an appropriate assumption of the Options
theretofore granted under the Plan (which assumption may be effected by means of
a payment to each Participant (by the Company or any other person or entity
involved in the Corporate Transaction), in exchange for the cancellation of the
Options held by such Participant, of the difference between the then Fair Market
Value of the aggregate number of shares of Common Stock then subject to such
Options and the aggregate exercise price that would have to be paid to acquire
such shares) or for substitution of appropriate new options covering stock of a
successor corporation to the Company or stock of an affiliate of such successor
corporation. If the Plan Administrator determines that such an assumption or
substitution will be made, the Plan Administrator shall give notice of such
determination to the Participants, and the provisions of such assumption or
substitution, and any adjustments made (i) to the number and kind of shares
subject to the outstanding Options (or to the options in substitution therefor),
(ii) to the exercise prices, and/or (iii) to the terms and conditions of the
stock options, shall be binding on the Participants. Any such determination
shall be made in the sole discretion of the Plan Administrator and shall be
final, conclusive and binding on all Participants. If the Plan Administrator, in
its sole discretion, determines that no such assumption or substitution will be
made, the Plan Administrator shall give notice of such determination to the
Participants, and each Option that is at the time outstanding shall
automatically accelerate so that each such Option shall, immediately prior to
the specified effective date for the Corporate Transaction, become 100% vested
and exercisable. All such Options shall terminate and cease to remain
outstanding immediately following the consummation of the Corporate Transaction,
except to the extent assumed by the successor corporation or an affiliate
thereof.

 
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(b)           Performance Stock Awards or Restricted Stock Awards.  Except as
otherwise provided in the instrument that evidences the Award, in the event of a
Corporate Transaction, the vesting of shares subject to Performance Stock Awards
or Restricted Stock Awards shall accelerate, and the forfeiture provisions to
which such shares are subject shall lapse, if and to the same extent that the
vesting of outstanding Options accelerates in connection with the Corporate
Transaction. If unvested Options are to be assumed, continued or substituted by
a successor corporation without acceleration upon the occurrence of a Corporate
Transaction, the forfeiture provisions to which such Performance Stock Awards or
Restricted Stock Awards are subject will continue with respect to shares of the
successor corporation that may be issued in exchange for such shares subject to
Performance Stock Awards or Restricted Stock Awards.
 
11.3           Further Adjustment of Awards.  Subject to Section 11.2, the Plan
Administrator shall have the discretion, exercisable at any time before a sale,
merger, consolidation, reorganization, liquidation or change in control of the
Company, as defined by the Plan Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to Participants,
with respect to Awards. Such authorized action may include (but shall not be
limited to) establishing, amending or waiving the type, terms, conditions or
duration of, or restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise and other modifications, and the Plan
Administrator may take such actions with respect to all Participants, to certain
categories of Participants or only to individual Participants. The Plan
Administrator may take such action before or after granting Awards to which the
action relates and before or after any public announcement with respect to such
sale, merger, consolidation, reorganization, liquidation or change in control
that is the reason for such action.
 
11.4           Limitations.  The grant of Awards will in no way affect the
Company’s right to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
 
11.5           Fractional Shares.  In the event of any adjustment in the number
of shares covered by any Award, each such Award shall cover only the number of
full shares resulting from such adjustment.
 
12.
Withholding. 

 
The Company may require the Participant to pay to the Company the amount of any
taxes or social insurance contributions that the Company is required to withhold
with respect to the grant, vesting or exercise of any Award. Subject to the Plan
and applicable law, the Plan Administrator may, in its sole discretion, permit
the Participant to satisfy withholding obligations, in whole or in part, (a) by
paying cash, (b) by electing to have the Company withhold shares of Common Stock
(up to the minimum required federal withholding rate), or (c) by transferring
shares of Common Stock to the Company (already owned by the Participant for the
period necessary to avoid a charge to the Company’s earnings for financial
reporting purposes), in such amounts as are equivalent to the Fair Market Value
of the withholding obligation. The Company shall have the right to withhold from
any shares of Common Stock issuable pursuant to an Award or from any cash
amounts otherwise due or to become due from the Company to the Participant an
amount equal to such taxes or social insurance contributions. The Company may
also deduct from any Award any other amounts due from the Participant to the
Company or a Subsidiary.

 
11

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13.
Amendment and Termination of Plan. 

 
13.1           Amendment of Plan.  The Plan may be amended only by the Board in
such respects as it shall deem advisable; however, to the extent required for
compliance with Section 422 of the Code or any applicable law or regulation,
stockholder approval will be required for any amendment that will (a) increase
the total number of shares available for issuance under the Plan, (b) modify the
class of persons eligible to receive Options, or (c) otherwise require
stockholder approval under any applicable law or regulation.
 
13.2           Termination of Plan.  The Board may suspend or terminate the Plan
at any time. The Plan will have no fixed expiration date; provided, however,
that no Incentive Stock Options may be granted more than 10 years after the
later of (a) the Plan’s adoption by the Board and (b) the adoption by the Board
of any amendment to the Plan that constitutes the adoption of a new plan for
purposes of Section 422 of the Code.
 
13.3           Consent of Participant.  The amendment or termination of the Plan
shall not, without the consent of the Participant, impair or diminish any rights
or obligations under any Award theretofore granted under the Plan. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Participant, be made in a manner so as to constitute a
“modification” that would cause such Incentive Stock Option to fail to continue
to qualify as an Incentive Stock Option.
 
14.
General. 

 
14.1           Evidence of Awards.  Awards granted under the Plan shall be
evidenced by a written agreement that shall contain such terms, conditions,
limitations and restrictions as the Plan Administrator shall deem advisable and
that are not inconsistent with the Plan.
 
14.2           Continued Employment or Services; Rights in Awards.  None of the
Plan, participation in the Plan or any action of the Plan Administrator taken
under the Plan shall be construed as giving any person any right to be retained
in the employ of the Company or limit the Company’s right to terminate the
employment or services of any person.
 
14.3           Registration.  The Company shall be under no obligation to any
Participant to register for offering or resale or to qualify for exemption under
the Securities Act, or to register or qualify under state securities laws, any
shares of Common Stock, security or interest in a security paid or issued under,
or created by, the Plan, or to continue in effect any such registrations or
qualifications if made.
 
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with U.S.
federal and state securities laws.

 
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Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company’s counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
 
As a condition to the exercise of an Award, the Company may require the
Participant to represent and warrant at the time of any such exercise or receipt
that such shares are being purchased or received only for the Participant’s own
account and without any present intention to sell or distribute such shares if,
in the opinion of counsel for the Company, such a representation is required by
any relevant provision of the aforementioned laws. At the option of the Company,
a stop-transfer order against any such shares may be placed on the official
stock books and records of the Company, and a legend indicating that such shares
may not be pledged, sold or otherwise transferred, unless an opinion of counsel
is provided (concurred in by counsel for the Company) stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on stock
certificates to ensure exemption from registration. The Plan Administrator may
also require such other action or agreement by the Participant as may from time
to time be necessary to comply with the federal and state securities laws.
 
14.4           No Rights As A Stockholder.  No Option or Award shall entitle the
Participant to any dividend, voting or other right of a stockholder unless and
until the date of issuance under the Plan of the shares that are the subject of
such Award, free of all applicable restrictions.
 
14.5           Compliance With Laws And Regulations.  No Shares of Common Stock
shall be issued pursuant to an Award unless such issuance complies with all
applicable laws and regulations. Notwithstanding anything in the Plan to the
contrary, the Board, in its sole discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
Participants who are officers or directors subject to Section 16 of the Exchange
Act without so restricting, limiting or conditioning the Plan with respect to
other Participants.
 
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an “incentive stock option” within the
meaning of Section 422 of the Code.
 
14.6           No Trust Or Fund.  The Plan is intended to constitute an
“unfunded” plan. Nothing contained herein shall require the Company to segregate
any monies or other property, or shares of Common Stock, or to create any
trusts, or to make any special deposits for any immediate or deferred amounts
payable to any Participant, and no Participant shall have any rights that are
greater than those of a general unsecured creditor of the Company.
 
14.7           Severability.  If any provision of the Plan or any Option is
determined to be invalid, illegal or unenforceable in any jurisdiction, or as to
any person, or would disqualify the Plan or any Option under any law deemed
applicable by the Plan Administrator, such provision shall be construed or
deemed amended to conform to applicable laws, or, if it cannot be so construed
or deemed amended without, in the Plan Administrator’s determination, materially
altering the intent of the Plan or the Option, such provision shall be stricken
as to such jurisdiction, person or Option, and the remainder of the Plan and any
such Option shall remain in full force and effect.

 
13

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14.8           Participants In Foreign Countries.  The Plan Administrator shall
have the authority to adopt such modifications, procedures and subplans as may
be necessary or desirable, after consideration of the provisions of the laws of
the PRC or other foreign countries in which the Company or its Subsidiaries may
operate, to ensure the viability of the benefits from Awards granted to
Participants employed in such countries and to meet the objectives of the
Plan.   The Plan Administrator may restrict the issuance of shares of Common
Stock pursuant to any Awards or delay the removal of restrictions on shares of
Common Stock pursuant to any Awards until it determines in its discretion
that  the Company or its Subsidiaries has satisfied the legal or
regulatory  procedures or requirements as may be necessary or desirable to
ensure the viability of the benefits of the Awards.
 
14.9           Choice Of Law.  The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the federal laws
of the United States, shall be governed by the laws of the State of Utah without
giving effect to principles of conflicts of laws.
 
15.
Effective Date. 

 
The Plan’s effective date is the date on which it is adopted by the Board, so
long as it is approved by the Company’s stockholders at any time within 12
months of such adoption.
 

 
14

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AMERICAN DAIRY, INC.
 
2009 STOCK INCENTIVE PLAN
 
PERFORMANCE OPTION AGREEMENT
 
(Cashless Exercise)
 
American Dairy, Inc., a Utah corporation (the “Company”), has granted to the
Participant named on the Notice of Grant of Performance Options (the “Notice of
Grant”), which is attached hereto, an option (the “Option”) to purchase that
number of Shares set forth on the Notice of Grant at the exercise price per
Share set forth on the Notice of Grant (the “Exercise Price”), subject to all of
the terms, definitions and provisions in this Agreement and the Company’s 2009
Stock Incentive Plan (the “Plan”), which is incorporated herein by
reference.  Notwithstanding the foregoing, the grant of the Option contemplated
herein and the Notice of Grant are subject to and conditioned upon the approval
of the Plan by the Company’s shareholders at a duly constituted meeting, and
shall have no force or effect until such approval is received.  In the event of
a conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail.  The terms defined in the Plan shall have the same defined meanings in
this Agreement.
 
1.           Nature of Option.  This Option is not intended to qualify as an
Incentive Stock Option under Section 422 of the Code. This Option is intended to
be a Nonstatutory Stock Option.
 
2.           Vesting Schedule.  Subject to the Performance Conditions provided
in Section 3, the Option awarded by this Agreement shall vest in accordance with
the vesting provisions set forth in the Notice of Grant.  Shares scheduled to
vest on a certain date or upon the occurrence of a certain condition shall not
vest in Participant in accordance with any of the provisions of this Agreement,
unless Participant shall have been continuously an Employee from the Grant Date
until the date such vesting occurs.
 
3.           Performance Conditions.  The Option is subject to the performance
requirements set forth in the Notice of Grant, which must be satisfied as a
condition of the Option becoming vested and exercisable.
 
4.           Administrator Discretion.  The Plan Administrator, in its
discretion, may accelerate the vesting of the balance, or some lesser portion of
the balance, of the unvested Option at any time, subject to the terms of the
Plan.  If so accelerated, such Option shall be considered as having vested as of
the date specified by the Plan Administrator.
 
5.           Exercise of Option.  This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Agreement.

 
 

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This Option shall be exercisable in a manner and pursuant to such procedures as
the Plan Administrator may determine, which shall state the election to exercise
the Option, the number of Shares in respect of which the Option is being
exercised (the “Exercised Shares”), and such other representations and
agreements as may be required by the Company pursuant to the provisions of the
Plan (the “Exercise Notice”).  Such Exercise Notice shall be properly completed
and delivered in such manner as the Plan Administrator may determine (including
electronically).  Payment of the Exercise Price may only be made in such manner
as described below, and if appropriate, shall accompany the written
notice.  This Option shall be deemed to be exercised upon receipt by the Company
(or its designated representative) of the Exercise Notice and completion of
payment of the Exercise Price.
 
In connection with the payment procedure described in Section 6 below, the
Participant will be required to sell all of the Shares the Participant elects to
exercise and will not be permitted to retain any of the Exercised Shares.  No
Shares shall be issued pursuant to the exercise of this Option unless such
issuance and exercise complies with applicable laws.  This Option may not be
exercised for a fraction of a share.
 
6.           Method of Payment.  Notwithstanding any provisions in the Plan to
the contrary, the methods of exercise available to the Participant may be
restricted.  Subject to the discretion of the Plan Administrator, full payment
of the Exercise Price for the Shares to be purchased on exercise of the Option
may be subject to a mandatory “cashless” exercise method. Pursuant to the
cashless exercise method, upon the Participant’s delivery of a properly executed
Exercise Notice together with irrevocable instructions to a broker, agent or
other third party approved by the Company, such broker, agent or other third
party will simultaneously sell all of the Shares that the Participant is
entitled to upon exercise, use the proceeds to pay the Exercise Price (plus any
applicable fees and/or taxes) and remit the balance to the Participant in cash.
 
7.           Termination Period.   Subject to applicable laws, if the
Participant ceases to be an Employee, he or she may, but only within three (3)
months after the date Participant ceases to be an Employee, exercise this Option
to the extent that he or she was entitled to exercise it as of the date of such
cessation.  To the extent he or she was not entitled to exercise this Option as
of the date of such cessation, or if he or she does not exercise the Option
within the time specified herein, the Option shall terminate.
 
Notwithstanding the provisions above, if Participant ceases to be an employee as
a result of his or her Disability, he or she may, but only within twelve (12)
months from the date of such cessation, exercise his or her Option to the extent
he or she was entitled to exercise it at the date of cessation.  To the extent
that he or she was not entitled to exercise this Option at the date of such
cessation, or if he or she does not exercise such Option within the time
specified herein, the Option shall terminate.
 
In the event of the death of the Participant during the term of this Option and
while an employee, the Option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable, and may be exercised, at
any time within twelve (12) months following the date of death, by Participant’s
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance.

 
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Notwithstanding the foregoing, in no event may this Option be exercised after
the expiration date as provided above and may be subject to earlier termination
as provided in Section 13 of the Plan.
 
8.           Tax Obligations.   The Company and its Subsidiaries shall assess
tax and social insurance contribution liability and requirements in connection
with the Participant’s participation in the Plan, including, without limitation,
tax liability and social insurance contribution liability associated with the
grant or exercise of the Option or sale of the underlying Shares (the “Tax
Liability”).  These requirements may change from time to time as laws or
interpretations change.  Regardless of the Company’s or any Subsidiary’s actions
in this regard, the Participant hereby acknowledges and agrees that the Tax
Liability shall be the Participant’s ultimate responsibility and liability.  The
Participant agrees as a condition of his or her participation in the Plan to
make arrangements satisfactory to the Company and its Subsidiaries to enable it
to satisfy all withholding, payment and/or collection requirements associated
with the satisfaction of the Tax Liability, including authorizing the Company or
the Subsidiary to: (i) withhold all applicable amounts from the Participant’s
wages or other cash compensation due to the Participant, in accordance with any
requirements under the laws, rules, and regulations of the country of which the
Participant is a resident, and/or (ii) act as the Participant’s agent to sell
sufficient Shares for the proceeds to settle such requirements.  Furthermore,
the Participant agrees to pay the Company or the Subsidiary any amount the
Company or any Subsidiary may be required to withhold, collect or pay as a
result of the Participant’s participation in the Plan or that cannot be
satisfied by deduction from the Participant’s wages or other cash compensation
paid to the Participant by the Company or the Subsidiary or sale of the Shares
acquired under the Plan. The Participant acknowledges that he or she may not
participate in the Plan and the Company and the Subsidiary shall have no
obligation to deliver Shares until the Tax Liability has been satisfied by the
Participant.
 
9.           Rights as Stockholder.  Neither Participant nor any person claiming
under or through Participant shall have any of the rights or privileges of a
stockholder of the Company in respect of any Shares deliverable hereunder unless
and until certificates representing such Shares shall have been issued, recorded
on the records of the Company or its transfer agents or registrars, and
delivered to Participant.  After such issuance, recordation and delivery,
Participant shall have all the rights of a stockholder of the Company with
respect to voting such Shares and receipt of dividends and distributions on such
Shares.
 
10.           Acknowledgments.  In accepting the Option, the Participant
acknowledges that:
 
(a)           Any notice period mandated under applicable laws shall not be
treated as continuous service for the purpose of determining the vesting of the
Option; and the Participant’s right to receive Shares in settlement of the
Option after termination of service, if any, will be measured by the date of
termination of the Participant’s service and will not be extended by any notice
period mandated under applicable laws.  Subject to the foregoing and the
provisions of the Plan, the Company, in its sole discretion, shall determine
whether the Participant’s service has terminated and the effective date of such
termination.

 
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(b)           The Plan is established voluntarily by the Company.  It is
discretionary in nature and it may be modified, amended, suspended or terminated
by the Company at any time, unless otherwise provided in the Plan and this
Agreement.
 
(c)           All decisions with respect to future Option grants, if any, will
be at the sole discretion of the Company.
 
(d)           The Participant’s participation in the Plan shall not create a
right to continued service with the Company (or any Subsidiary).
 
(e)           The Participant is voluntarily participating in the Plan.
 
(f)           The Option is an extraordinary item that does not constitute
compensation of any kind for service of any kind rendered to the Company (or any
Subsidiary), and which is outside the scope of the Participant’s employment
contract, if any.
 
(g)           The Option is not part of normal or expected compensation or
salary for any purpose, including, but not limited to, calculating any severance
payments, resignation, termination, redundancy, end-of-service payments,
bonuses, long-service awards, pension or retirement benefits or similar
payments.  This applies to any payment even in those jurisdictions requiring
such payments upon termination of employment.
 
(h)           In the event that the Participant is not an employee of the
Company, the Option grant will not be interpreted to form an employment contract
or relationship with the Company; and furthermore the Option grant will not be
interpreted to form an employment contract with any Subsidiary .
 
(i)           The future value of the underlying Shares is unknown and cannot be
predicted with certainty.  If the Participant obtains Shares upon exercise of
the Option, the value of those Shares may increase or decrease.
 
11.           Address for Notices.  Any notice to be given to the Company under
the terms of this Agreement shall be addressed to the Company at Star City
International Building, 10 Jiuxianqiao Road, C-16th Floor, Chaoyang District,
Beijing, China or at such other address as the Company may hereafter designate.
 
12.           Grant is Not Transferable.  This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Participant only by Participant.
 
13.           Binding Agreement.  Subject to the limitation on the
transferability of this grant contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
 
14.           Data Privacy Consent. The Participant hereby explicitly and
unambiguously consents to the collection, use and transfer, in electronic or
other form, of the Participant’s personal data as described in this document by
and among the Company and each Subsidiary for the exclusive purpose of
implementing, administering and managing the Participant’s  participation in the
Plan.

 
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(a)           The Participant understands that the Company (or any Subsidiary)
holds certain personal information about the Participant, including, but not
limited to, the Participant’s name, home address and telephone number, date of
birth, social insurance number or other identification number, salary,
nationality, job title, any shares or directorships held in the Company, details
of all Options or any other entitlement to Shares awarded, canceled, exercised,
vested, unvested or outstanding in the Participant’s favor, for the purpose of
implementing, administering and managing the Plan (“Data”).
 
(b)            The Participant understands that Data may be transferred to any
third parties assisting in the implementation, administration and management of
the Plan, that these recipients may be located in the Participant’s country or
elsewhere, and that the recipient’s country may have different data privacy laws
and protections than the Participant’s country.  The Participant understands
that he or she may request a list with the names and addresses of any potential
recipients of the Data by contacting the Participant’s local human resources
representative.  The Participant authorizes the recipients to receive, possess,
use, retain and transfer the Data, in electronic or other form, for the purposes
of implementing, administering and managing the Participant’s participation in
the Plan, including any requisite transfer of such Data as may be required to a
broker or other third party with whom the Participant may elect to deposit any
Shares acquired upon settlement of the Option.  The Participant understands that
Data will be held only as long as is necessary to implement, administer and
manage the Participant’s participation in the Plan.  The Participant understands
that he or she may, at any time, view Data, request additional information about
the storage and processing of Data, require any necessary amendments to Data or
refuse or withdraw the consents herein, in any case without cost, by contacting
in writing the Participant’s local human resources representative.  The
Participant understands, however, that refusing or withdrawing the Participant’s
consent may affect the Participant’s ability to participate in the Plan.  For
more information on the consequences of the Participant’s refusal to consent or
withdrawal of consent, the Participant understands that he or she may contact
the Participant’s local human resources representative.
 
15.           Additional Conditions to Issuance of Stock.  If at any time the
Company shall determine, in its discretion, that the listing, registration or
qualification of the Shares upon any securities exchange or under any national,
local or applicable law, or the consent or approval of any governmental
regulatory authority is necessary or desirable as a condition to the issuance of
Shares to Participant (or his or her estate), such issuance shall not occur
unless and until such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company.  The Company shall make all reasonable efforts to meet the
requirements of any such state or federal law or securities exchange and to
obtain any such consent or approval of any such governmental authority.
 
16.           Special Administration in China.  The grant of the Option, the
Participant’s ability to exercise the Option and sale of the Shares shall all be
contingent upon the Company or any Subsidiary obtaining approval from SAFE for
the related foreign exchange transaction and the establishment of a
SAFE-approved bank account. The receipt of funds by the Participant from the
sale of the Shares and the conversion of those funds to the local currency must
be approved by SAFE.  In order to comply with the SAFE regulations, the proceeds
from the sale of the Shares must be repatriated into China through a
SAFE-approved bank account set up and monitored by the Company.  

 
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17.           Currency Exchange Risk.    The Participant agrees and acknowledges
that the Participant shall bear any and all risk associated with the exchange or
fluctuation of currency associated with the Option, including without limitation
the exercise of the Option or sale of the Shares (the “Currency Exchange
Risk”).  The Participant waives and releases the Company and its Subsidiaries
from any potential claims arising out of the Currency Exchange Risk.
 
18.           Exchange Control Requirements.  The Participant agrees and
acknowledges that the Participant shall comply with any and all exchange control
requirements applicable to the Option and the sale of Shares and any resulting
funds including, without limitation, reporting or repatriation requirements.
 
19.           Plan Governs.  This Agreement is subject to all terms and
provisions of the Plan.  In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern.  Capitalized terms used and not defined in
this Agreement shall have the meaning set forth in the Plan.
 
20.           Administrator Authority.  The Plan Administrator shall have the
power to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules (including, but not limited
to, the determination of whether or not any Shares subject to the Option have
vested).  All actions taken and all interpretations and determinations made by
the Plan Administrator in good faith shall be final and binding upon
Participant, the Company and all other interested persons.  The Plan
Administrator shall not be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or this
Agreement.  The Plan Administrator shall, in its absolute discretion, determine
when such conditions have been fulfilled.
 
21.           Electronic Delivery.  The Company may, in its sole discretion,
decide to deliver any documents related to Options awarded under the Plan or
future Options that may be awarded under the Plan by electronic means or request
Participant’s consent to participate in the Plan by electronic
means.  Participant hereby consents to receive such documents by electronic
delivery and agrees to participate in the Plan through any on-line or electronic
system established and maintained by the Company or another third party
designated by the Company.
 
22.           Captions.  Captions provided herein are for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.
 
23.           Agreement Severable.  In the event that any provision in this
Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.

 
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24.           Modifications to the Agreement.  This Agreement constitutes the
entire understanding of the parties on the subjects covered.  Participant
expressly warrants that he or she is not accepting this Agreement in reliance on
any promises, representations, or inducements other than those contained
herein.  Modifications to this Agreement or the Plan can be made only in an
express written contract executed by a duly authorized officer of the Company.
 
25.           Amendment, Suspension or Termination of the Plan.  By accepting
this Award, Participant expressly warrants that he or she has received an Option
under the Plan, and has received, read and understood a description of the
Plan.  Participant understands that the Plan is discretionary in nature and may
be amended, suspended or terminated by the Company at any time.
 
26.           Governing Law.  Subject to applicable laws, this Agreement and all
determinations made and actions taken pursuant hereto, to the extent not
otherwise governed by the federal laws of the United States, shall be governed
by the laws of the State of Utah without giving effect to principles of
conflicts of laws.

 
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AMERICAN DAIRY, INC.
 
2009 STOCK INCENTIVE PLAN
 
NOTICE OF GRANT OF PERFORMANCE OPTION

 
Unless otherwise defined herein, the terms defined in the American Dairy, Inc.
2009 Stock Incentive Plan (the “Plan”) will have the same defined meanings in
this Notice of Grant of Performance Option (the “Notice of Grant”) and the
American Dairy, Inc. 2009 Stock Incentive Plan Performance Option Agreement
(together, the “Agreement”).
 
Participant:
 
Mailing Address:
     

 
Participant has been granted, subject to and conditioned upon the approval of
the Plan by the Company’s shareholders at a duly constituted meeting, a
Performance Option to purchase Shares of common stock, subject to the terms and
conditions of the Plan and this Agreement, as follows:
 
Date of Grant
   
Number of Shares Granted
 
Exercise Price per Share
   
Total Exercise Price
 
Type of Option
   
Term/Expiration Date
  

 
Vesting Schedule:
 
Subject to the terms of the Plan and the performance conditions described below,
this Performance Option will become exercisable in tranches on the vesting dates
set forth in the table below under the heading “Vesting Dates” (each a “Vesting
Date”).  As of each Vesting Date, the number of shares that become exercisable
under this Option (the “Option Shares”) shall be the product of (i) the number
of shares set forth above corresponding to the heading “Number of Shares Granted
and (ii) the percentage corresponding to the relevant Vesting Date set forth in
the table below under the heading “Vesting Percentage” (each a “Vesting
Percentage”).

 
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Vesting Date
 
Vesting Percentage
 
 
       
 
       

 
Performance Conditions

The vesting and exercisability of this  Performance Option is subject to the
following performance conditions:
 
The Option shall vest in tranches as of the Vesting Dates in accordance with the
Vesting Percentages set forth above if the Participant (a) continues to be
employed by the Company as of the relevant Vesting Date, and (b) with respect to
the period preceding the Vesting Date (each, a ”Relevant Period”), has met the
performance goals established by the Vice President of the Participant’s
business unit for the Relevant Period and received satisfactory performance
reviews conducted by the Chairman and the Vice Chairman (the “Performance
Criteria”).  The Plan Administrator shall have the right to adjust the
Performance Criteria at anytime if the Plan Administrator determines that
external changes or other unanticipated business conditions have materially
affected the fairness of the Performance Criteria and have unduly influenced the
Company’s ability to meet them.
 
If the Participant fails to satisfy the Performance Criteria in any Relevant
Period, the Option Shares that would otherwise vest on the corresponding Vesting
Date shall be forfeited and cancelled.
 
[Remainder of Page Intentionally Left Blank]

 
9

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By Participant’s signature and the signature of the Company’s representative
below, Participant and the Company agree that this Performance Option is granted
under and governed by the terms and conditions of the Plan and this
Agreement.  Participant has reviewed the Plan and this Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Agreement and fully understands all provisions of the Plan and
Agreement.  Participant hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Administrator upon any questions
relating to the Plan and Agreement.  Participant further agrees to notify the
Company upon any change in the residence address indicated below.
 

PARTICIPANT
 
AMERICAN DAIRY, INC.
               
Signature
 
By:
Liu Hua
               
Print Name
 
Title:
Vice Chairman, Treasurer and Secretary
       
PRC ID Card # and Address:
                             

 
[Signature Page to Performance Option Agreement]

 
 

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                                    For Use in U.S.
 
AMERICAN DAIRY, INC.
 
2009 STOCK INCENTIVE PLAN
 
PERFORMANCE OPTION AGREEMENT
 
American Dairy, Inc., a Utah corporation (the “Company”), has granted to the
Participant named on the Notice of Grant of Performance Options (the “Notice of
Grant”) which is attached hereto an option (the “Option”) to purchase that
number of Shares set forth on the Notice of Grant at the exercise price per
Share set forth on the Notice of Grant (the “Exercise Price”), subject to all of
the terms, definitions and provisions in this Agreement and the Company’s 2009
Stock Incentive Plan (the “Plan”), which is incorporated herein by
reference.  Notwithstanding the foregoing, the grant of the Option contemplated
herein and the Notice of Grant are subject to and conditioned upon the approval
of the Plan by the Company’s shareholders at a duly constituted meeting, and
shall have no force or effect until such approval is received.  In the event of
a conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail.  The terms defined in the Plan shall have the same defined meanings in
this Agreement.
 
1.           Nature of Option.  The Option will either be designated as an
Incentive Stock Option (“ISO”) or a Nonstatutory Stock Option (“NSO”). If
designated in the Notice of Grant as an ISO, this Option is intended to qualify
as an ISO under Section 422 of the Code. However, if this Option is intended to
be an ISO, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as an NSO.
 
2.           Vesting Schedule.  Subject to the Performance Conditions provided
in Section 3, the Option awarded by this Agreement shall vest in accordance with
the vesting provisions set forth in the Notice of Grant.  Shares scheduled to
vest on a certain date or upon the occurrence of a certain condition shall not
vest in Participant in accordance with any of the provisions of this Agreement,
unless Participant shall have been continuously an Employee from the Grant Date
until the date such vesting occurs.
 
3.           Performance Conditions.  The Option is subject to the performance
requirements set forth in the Notice of Grant, which must be satisfied as a
condition of the Option becoming vested and exercisable.
 
4.           Administrator Discretion.  The Plan Administrator, in its
discretion, may accelerate the vesting of the balance, or some lesser portion of
the balance, of the unvested Option at any time, subject to the terms of the
Plan.  If so accelerated, such Option shall be considered as having vested as of
the date specified by the Plan Administrator.
 
5.           Exercise of Option.  This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Agreement.

 
 

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This Option shall be exercisable in a manner and pursuant to such procedures as
the Plan Administrator may determine, which shall state the election to exercise
the Option, the number of Shares in respect of which the Option is being
exercised (the “Exercised Shares”), and such other representations and
agreements as may be required by the Company pursuant to the provisions of the
Plan (the “Exercise Notice”).  Such Exercise Notice shall be properly completed
and delivered in such manner as the Plan Administrator may determine (including
electronically).  Payment of the Exercise Price may only be made in such manner
as described below, and if appropriate, shall accompany the written
notice.  This Option shall be deemed to be exercised upon receipt by the Company
(or its designated representative) of the Exercise Notice and completion of
payment of the Exercise Price.
 
No Shares shall be issued pursuant to the exercise of this Option unless such
issuance and exercise complies with applicable laws.  Assuming such compliance,
for income tax purposes the Exercised Shares shall be considered transferred to
the Participant on the date the Option is exercised with respect to such
Exercised Shares.  This Option may not be exercised for a fraction of a share.
 
6.            Method of Payment.  Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Participant:
 
(a)           cash;
 
(b)           check;
 
(c)           delivery of a properly executed Exercise Notice together with
irrevocable instructions to an agent of the Company to sell the Shares and
promptly deliver to the Company that portion of the sale proceeds required to
pay the Exercise Price (and any applicable withholding taxes).
 
7.           Termination Period.   If the Participant ceases to be an Employee,
he or she may, but only within three (3) months after the date Participant
ceases to be an Employee, exercise this Option to the extent that he or she was
entitled to exercise it as of the date of such cessation.  To the extent he or
she was not entitled to exercise this Option as of the date of such cessation,
or if he or she does not exercise the Option within the time specified herein,
the Option shall terminate.
 
Notwithstanding the provisions above, if Participant ceases to be an Employee as
a result of his or her Disability, he or she may, but only within twelve (12)
months from the date of such cessation, exercise his or her Option to the extent
he or she was entitled to exercise it at the date of cessation.  To the extent
that he or she was not entitled to exercise this Option at the date of such
cessation, or if he or she does not exercise such Option within the time
specified herein, the Option shall terminate.
 
In the event of the death of the Participant during the term of this Option and
while an Employee, the Option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable, and may be exercised, at
any time within twelve (12) months following the date of death, by Participant’s
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance.

 
 

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Notwithstanding the foregoing, in no event may this Option be exercised after
the Expiration Date as provided above and may be subject to earlier termination
as provided in Section 13 of the Plan.
 
8.            Tax Obligations.
 
(a)           Withholding Taxes.  Notwithstanding any contrary provision of this
Agreement, no certificate representing the Shares shall be issued to
Participant, unless and until satisfactory arrangements (as determined by the
Plan Administrator) shall have been made by Participant with respect to the
payment of income, employment and other taxes which the Company determines must
be withheld with respect to such Shares.  To the extent determined appropriate
by the Company in its discretion, it shall have the right (but not the
obligation) to satisfy any tax withholding obligations by reducing the number of
Shares otherwise deliverable to Participant.  If Participant fails to make
satisfactory arrangements for the payment of any required tax withholding
obligations hereunder at the time of the Option exercise, Participant
acknowledges and agrees that the Company may refuse to honor the exercise and
refuse to deliver Shares if such withholding amounts are not delivered at the
time of exercise.
 
(b)           Notice of Disqualifying Disposition of ISO Shares.  If the Option
granted to Participant herein is an ISO, and if Participant sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two (2) years after the Grant Date, or (ii) the date one
(1) year after the date of exercise, Participant shall immediately notify the
Company in writing of such disposition.  Participant agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized by Participant.
 
9.            Rights as Stockholder.  Neither Participant nor any person
claiming under or through Participant shall have any of the rights or privileges
of a stockholder of the Company in respect of any Shares deliverable hereunder
unless and until certificates representing such Shares shall have been issued,
recorded on the records of the Company or its transfer agents or registrars, and
delivered to Participant.  After such issuance, recordation and delivery,
Participant shall have all the rights of a stockholder of the Company with
respect to voting such Shares and receipt of dividends and distributions on such
Shares.
 
10.           No Guarantee of Continued Employment.  PARTICIPANT ACKNOWLEDGES
AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS AN EMPLOYEE AT THE WILL OF THE COMPANY (OR THE
PARENT OR SUBSIDIARY EMPLOYING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER.  PARTICIPANT
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE
FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN
ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR
SUBSIDIARY EMPLOYING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS AN
EMPLOYEE AT ANY TIME, WITH OR WITHOUT CAUSE.

 
 

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11.           Address for Notices.  Any notice to be given to the Company under
the terms of this Agreement shall be addressed to the Company at Star City
International Building, 10 Jiuxianqiao Road, C-16th Floor, Chaoyang District,
Beijing, Chinaor at such other address as the Company may hereafter designate in
writing.
 
12.           Grant is Not Transferable.  This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Participant only by Participant.
 
13.           Binding Agreement.  Subject to the limitation on the
transferability of this grant contained herein, this Agreement shall be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.
 
14.           Additional Conditions to Issuance of Stock.  If at any time the
Company shall determine, in its discretion, that the listing, registration or
qualification of the Shares upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory authority
is necessary or desirable as a condition to the issuance of Shares to
Participant (or his or her estate), such issuance shall not occur unless and
until such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Company.  The Company shall make all reasonable efforts to meet the requirements
of any such state or federal law or securities exchange and to obtain any such
consent or approval of any such governmental authority.
 
15.           Plan Governs.  This Agreement is subject to all terms and
provisions of the Plan.  In the event of a conflict between one or more
provisions of this Agreement and one or more provisions of the Plan, the
provisions of the Plan shall govern.  Capitalized terms used and not defined in
this Agreement shall have the meaning set forth in the Plan.
 
16.           Administrator Authority.  The Plan Administrator shall have the
power to interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules (including, but not limited
to, the determination of whether or not any Shares subject to the Option have
vested).  All actions taken and all interpretations and determinations made by
the Plan Administrator in good faith shall be final and binding upon
Participant, the Company and all other interested persons.  The Plan
Administrator shall not be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or this
Agreement.  The Plan Administrator shall, in its absolute discretion, determine
when such conditions have been fulfilled.
 
17.           Electronic Delivery.  The Company may, in its sole discretion,
decide to deliver any documents related to Options awarded under the Plan or
future Options that may be awarded under the Plan by electronic means or request
Participant’s consent to participate in the Plan by electronic
means.  Participant hereby consents to receive such documents by electronic
delivery and agrees to participate in the Plan through any on-line or electronic
system established and maintained by the Company or another third party
designated by the Company.
 
18.           Captions.  Captions provided herein are for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.

 
 

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19.           Agreement Severable.  In the event that any provision in this
Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.
 
20.           Modifications to the Agreement.  This Agreement constitutes the
entire understanding of the parties on the subjects covered.  Participant
expressly warrants that he or she is not accepting this Agreement in reliance on
any promises, representations, or inducements other than those contained
herein.  Modifications to this Agreement or the Plan can be made only in an
express written contract executed by a duly authorized officer of the Company.
 
21.           Amendment, Suspension or Termination of the Plan.  By accepting
this Award, Participant expressly warrants that he or she has received an Option
under the Plan, and has received, read and understood a description of the
Plan.  Participant understands that the Plan is discretionary in nature and may
be amended, suspended or terminated by the Company at any time.
 
22.           Governing Law.  Subject to applicable laws, this Agreement and all
determinations made and actions taken pursuant hereto, to the extent not
otherwise governed by the federal laws of the United States, shall be governed
by the laws of the State of Utah without giving effect to principles of
conflicts of laws.

 
 

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AMERICAN DAIRY, INC.
 
2009 STOCK INCENTIVE PLAN
 
NOTICE OF GRANT OF PERFORMANCE OPTION
 
Unless otherwise defined herein, the terms defined in the American Dairy, Inc.
2009 Stock Incentive Plan (the “Plan”) will have the same defined meanings in
this Notice of Grant of Performance Option (the “Notice of Grant”) and the
American Dairy, Inc. 2009 Stock Incentive Plan Performance Option Agreement
(together, the “Agreement”).
 
Participant:
 
Mailing Address:
     

 
Participant has been granted, subject to and conditioned upon the approval of
the Plan by the Company’s shareholders at a duly constituted meeting, a
Performance Option to purchase Shares of common stock, subject to the terms and
conditions of the Plan and this Agreement, as follows:
 
Date of Grant
 
Number of Shares Granted
 
Exercise Price per Share
 
Total Exercise Price
 
Type of Option
 
Term/Expiration Date
 

 
Vesting Schedule:
 
Subject to the terms of the Plan and the performance conditions described below,
this Performance Option will become exercisable in tranches on the vesting dates
set forth in the table below under the heading “Vesting Dates” (each a “Vesting
Date”).  As of each Vesting Date, the number of shares that become exercisable
under this Option (the “Option Shares”) shall be the product of (i) the number
of shares set forth above corresponding to the heading “Number of Shares Granted
and (ii) the percentage corresponding to the relevant Vesting Date set forth in
the table below under the heading “Vesting Percentage” (each a “Vesting
Percentage”).

 
 

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Vesting Date
 
Vesting Percentage
 
 
       
 
       

 
Performance Conditions

The vesting and exercisability of this  Performance Option is subject to the
following performance conditions:
 
The Option shall vest in tranches as of the Vesting Dates in accordance with the
Vesting Percentages set forth above if the Participant (a) continues to be
employed by the Company as of the relevant Vesting Date, and (b) with respect to
the period preceding the Vesting Date (each, a ”Relevant Period”), has met the
performance goals established by the Vice President of the Participant’s
business unit for the Relevant Period and received satisfactory performance
reviews conducted by the Chairman and the Vice Chairman (the “Performance
Criteria”).  The Plan Administrator shall have the right to adjust the
Performance Criteria at anytime if the Plan Administrator determines that
external changes or other unanticipated business conditions have materially
affected the fairness of the Performance Criteria and have unduly influenced the
Company’s ability to meet them.
 
If the Participant fails to satisfy the Performance Criteria in any Relevant
Period, the Option Shares that would otherwise vest on the corresponding Vesting
Date shall be forfeited and cancelled.
 
 [Remainder of Page Intentionally Left Blank]

 
2

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By Participant’s signature and the signature of the Company’s representative
below, Participant and the Company agree that this Performance Option is granted
under and governed by the terms and conditions of the Plan and this
Agreement.  Participant has reviewed the Plan and this Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Agreement and fully understands all provisions of the Plan and
Agreement.  Participant hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Administrator upon any questions
relating to the Plan and Agreement.  Participant further agrees to notify the
Company upon any change in the residence address indicated below.

PARTICIPANT
 
AMERICAN DAIRY, INC.
             
Signature
 
By:
Liu Hua
               
Print Name
 
Title:
Vice Chairman, Treasurer and Secretary
       
Address:
                              

 
 

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