Unassociated Document


    SUPPLEMENTAL
      INDENTURE

     

    THIS
      SUPPLEMENTAL INDENTURE (this “Supplemental
      Indenture”),
      dated
      as of November 12, 2008, is entered into by and between American Dairy, Inc.,
      a
      Utah corporation (the “Company”),
      and
      The Bank of New York Mellon, as trustee (the “Trustee”)
      under
      each of the Citadel Indenture (as defined below) and the Other Indenture (as
      defined below), as applicable.
      Capitalized terms used herein but not otherwise defined herein shall have the
      respective meanings set forth in the Indentures (as defined below).


     

    WITNESSETH:

     

    WHEREAS,
      the Company and the Trustee have entered into an indenture dated as of June
      1,
      2007 (the “Citadel
      Indenture”),
      which
      sets forth the terms and conditions governing an aggregate principal amount
      of
      US$60,000,000 of 1.0% Guaranteed Senior Secured Convertible Notes due 2012
      heretofore issued by the Company (the “Citadel
      Notes”);

     

    WHEREAS,
      the Company and the Trustee have entered into an indenture dated as of June
      27,
      2007 (the “Other
      Indenture”),
      which
      sets forth the terms and conditions governing an aggregate principal amount
      of
      US$20,000,000 of 1.0% Guaranteed Senior Secured Convertible Notes due 2012
      heretofore issued by the Company (the “Other
      Notes”);

     

    WHEREAS,
      pursuant to each of the Citadel Indenture and the Other Indenture, which are
      collectively referred to herein as the "Indentures,"
      the
      Citadel Notes and the Other Notes are to be considered a single series of Notes,
      as set forth in the Indentures, and are collectively referred to as the
      "Combined Notes," and in each of the Indentures references to the "Indenture"
      shall mean the Citadel Indenture or the Other Indenture, as applicable, as
      supplemented hereby, and the "Notes" shall mean the Citadel Notes or the Other
      Notes, as applicable;

     

    WHEREAS,
      Section 8.02 of each of the Indentures provides that the Company and the Trustee
      may, from time to time and at any time, with the consent of the holders of
      the
      requisite aggregate principal amount, or the requisite number of holders, as
      the
      case may be, of the Combined Notes at the time outstanding, enter into
      indentures supplemental thereto for the purpose of changing certain provisions
      of such Indentures subject to the terms and conditions set forth therein;


     

    WHEREAS,
      the holders of the requisite aggregate principal amount, or the requisite number
      of holders, as the case may be, of the Combined Notes currently outstanding
      have
      consented (the evidence of such consent having been obtained and provided to
      the
      Trustee as required under each of the Indentures) to the execution of this
      Supplemental Indenture to each of the Indentures by the parties hereto;
      and

     

    WHEREAS,
      the Company has complied with the requirements under each of the Indentures
      to
      execute this Supplemental Indenture and, in connection therewith, has provided
      the Trustee with any requisite Officers’ Certificates and Opinions of Counsel to
      the satisfaction of the Trustee.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    NOW,
      THEREFORE, in consideration of the foregoing and for other good and valuable
      consideration, the receipt of which is hereby acknowledged, the Company and
      the
      Trustee mutually covenant and agree for the equal and ratable benefit of the
      holders of the Combined Notes as follows: 

     

    1. Amendments
      to the Indentures.
      Each of
      the Indentures is hereby amended as follows:

     

    
      
        1.1.
          Sections
          3.03, 3.04, 3.05, 3.06 and 3.07 shall be added to each of the Indentures
          as
          follows:

      

    

     

    “Section
      3.03. Repurchase
      of Notes by the Company at Option of the Holder.
      

    


    (a)
      The
      Notes
      shall be repurchased by the Company at the option (the “Early
      Repurchase Option”)
      of the
      holder of the Notes, for cash, at a repurchase price equal to the Early
      Repurchase Amount (as defined below) in four (4) installments as set forth
      in
      Section 3.03(b); provided
      that (x)
      the Early Repurchase Option shall be exercised by a holder irrevocably and
      only
      once by giving a written notice (the “Early
      Repurchase Notice”)
      to the
      Trustee and the Company on or prior to 5:00 p.m., New York City time, on
      November 13, 2008; and (y) in consideration of the Early Repurchase Option
      provided hereby, upon and by the exercise thereof, each exercising holder shall
      be deemed to have agreed that, with respect to any Notes as to which such holder
      has exercised the Early Repurchase Option (the “Early
      Repurchase Notes”),
      such
      holder may not exercise such holder’s right to convert any of such Early
      Repurchase Notes into shares of Common Stock pursuant to Article 14 of this
      Indenture for so long as the Company is in compliance with its obligation to
      pay
      the Installment Payment Amount (as defined below) on each Installment Payment
      Date (as defined below) in accordance with the terms of this Indenture;
provided,
      however,
      that in
      the event that a holder of Early Repurchase Notes requests the right to convert,
      pursuant to Article 14 of this Indenture, in whole or in part, any Early
      Repurchase Notes in lieu of being entitled to receive any cash payment for
      Early
      Repurchase Notes as set forth hereinbelow, then the Company, in its sole
      discretion, shall have the right to permit such conversion in lieu of being
      obligated to make any such cash payment. Except as otherwise expressly provided
      in this Section 3, all outstanding Early Repurchase Notes will be considered
      Notes under the Indentures for all purposes.

     

    (b)
      “Early
      Repurchase Amount”
shall
      mean, with respect to the Early Repurchase Notes, an amount equal to the product
      of the principal amount of the Notes as to which such holder has exercised
      the
      Early Repurchase Option (the
      “Base
      Principal Amount”),
      multiplied by one hundred fifteen percent (115%). The Early Repurchase Amount
      shall be paid in United States Dollars.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    The
      Early
      Repurchase Amount shall be payable in four (4) installments on or prior to
      each
      of November
      14,
      2008 (the “First
      Payment Date”),
      April
      15, 2009 (the “Second
      Payment Date”),
      July
      15, 2009 (the “Third
      Payment Date”),
      and
      October 15, 2009 (the “Fourth
      Payment Date”,
      and
      each of such payment dates being an “Installment
      Payment Date”).
      The
      amount
      of the Early Repurchase Amount due on the Installment Payment Dates (the
“Installment
      Payment Amount”)
      shall
      be (i) with respect to each of the First Payment Date, the Second Payment Date
      and the Third Payment Date, one-sixth
      (1/6) of the Early Repurchase Amount, and (ii) with respect to the Fourth
      Payment Date, one-half (1/2) of the Early Repurchase Amount.
      In
      addition, any accrued and unpaid interest (including any default interest as
      set
      forth in Section 4.01 of this Indenture) through the date of the Early
      Repurchase Notice shall be paid together with the Installment Payment Amount
      due
      on the First Payment Date. In the event that the aggregate Installment Payment
      Amount, together with such accrued and unpaid interest, payable on the First
      Payment Date exceeds $11,000,000 (the “Initial
      Amount”),
      then
      with respect to any amounts by which such Installment Payment Amount, together
      with such accrued and unpaid interest, exceeds the Initial Amount (the
“Excess
      Amount”),
      the
      Company shall, after paying the Initial Amount on the First Payment Date, pay
      the Excess Amount on or prior to January 15, 2009 (the “Excess
      Amount Payment Date”).
      The
      payment of the Installment Payment Amount (including, for the avoidance of
      doubt, the Initial Amount and the Excess Amount) payable to each holder of
      Early
      Repurchase Notes on each date such amount is paid shall be the aggregate
      Installment Payment Amount due on such date multiplied by a fraction, (x) the
      numerator of which shall be the aggregate principal amount of the Early
      Repurchase Notes held by such holder on such date and (y) the denominator of
      which shall be the aggregate principal amount of all Early Repurchase Notes
      outstanding on such date. The Initial Amount paid by the Company shall first
      be
      applied towards each holder’s pro rata share of Base Principal Amount of the
      Early Repurchase Notes, and thereafter to each holder’s pro rata share of the
      accrued and unpaid interest to be paid as set forth hereinabove.

     

    (c)
      Purchases
      of the Early Repurchase Notes under this Section 3.03 shall be made by the
      Company upon:

     

    (i)delivery
      by a holder of the Early Repurchase Notes, or by the holder of beneficial
      interests therein, to the Company, with a copy to the Trustee (or other paying
      agent appointed by the Company), of a duly completed Early Repurchase Notice,
      in
      the form attached hereto as Exhibit
      F,
      not
      later than 5:00 p.m., New York City time on November 13, 2008; and 

     

    (ii)(X)
      with
      respect to Early Repurchase Notes represented by Global Notes, book-entry
      transfer, effected in a manner acceptable to the Registrar and the Company
      and
      in accordance with the provisions of this Indenture, on each Installment Payment
      Date, of the interests in the Early Repurchase Notes being repurchased, in
      an
      amount equal to the applicable amount of such Early Repurchase Notes being
      repurchased on such Installment Payment Date (together with all necessary
      endorsements), such book-entry transfer being deemed to occur simultaneously
      with the receipt by such holder of the Installment Payment Amount due on such
      Installment Payment Date, and thereafter the Trustee shall cause the aggregate
      principal amount of the applicable Global Note to be reduced accordingly;
provided
      that
      such Early Repurchase Notes shall conform in all respects to the description
      thereof in the Early Repurchase Notice; and

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (Y)
      with
      respect to Early Repurchase Notes represented by Definitive Notes (1) to be
      repurchased on the First Payment Date, by delivery by the holder thereof to
      the
      Company, with a copy to the Trustee (or other paying agent appointed by the
      Company), together with the Early Repurchase Notice, of Definitive Notes
      representing the Early Repurchase Notes being repurchased on such First Payment
      Date (or, in the case of any lost or mutilated or stolen Notes, an indemnity
      as
      may be required by the Company and the Trustee as contemplated in Section 2.06
      of the Indenture); and (2) to be repurchased on any of the Second Payment Date,
      Third Payment Date or Fourth Payment Date, by delivery, following receipt of
      written notice from the Company to the holders of the Early Repurchase Notes
      (given at least fifteen (15) days in advance of the applicable Installment
      Payment Date, that confirms the Company’s intention to pay the Installment
      Payment Amount on such Installment Payment Date), at least two (2) Business
      Days
      prior to the applicable Installment Payment Date (or such other period as the
      Company may agree), to the Company, with a copy to the Trustee (or other paying
      agent appointed by the Company), of Definitive Notes representing the Early
      Repurchase Notes being repurchased on such Installment Payment Date (together
      with all necessary endorsements), in either such case such delivery being a
      condition to receipt by such holder of the Installment Payment Amount due on
      such Installment Payment Date; provided
      that
      such Early Repurchase Notes shall conform in all respects to the description
      thereof in the Early Repurchase Notice; and, provided,
      further,
      that in
      the event of any missing endorsement or other alleged defect in the delivery,
      the holder shall be provided with notice and a reasonable opportunity to cure
      any such defect.

     

    Upon
      any
      such surrender of Definitive Notes representing Early Repurchase Notes being
      repurchased on the applicable Installment Payment Date, the Company shall issue,
      and the Trustee shall authenticate, replacement Definitive Notes to the
      respective holders thereof, having an aggregate principal amount reflecting
      a
      reduction in the principal amount originally represented thereby to give effect
      to any Early Repurchase Notes repurchased on the applicable Installment Payment
      Date.

     

    Section
      3.04. Effect
      of Early Repurchase Notice.
      

    


    Subject
      to Section 3.07, upon delivery to the Company of the Early Repurchase Notice
      specified in Section 3.03 and so long as the Company is in compliance with
      its
      obligation to pay the respective Installment Payment Amount on each Installment
      Payment Date in accordance with the terms of this Indenture, (i) the payment
      obligations of the Company under this Indenture (including, without limitation,
      the obligations of the Company under Section 6.01 of this Indenture) with
      respect to the Early Repurchase Notes shall be the Early Repurchase Amount
      payable in respect of such Early Repurchase Notes; (ii) Interest on the Early
      Repurchase Notes shall accrue only through the date of the Early Repurchase
      Notice and shall cease to accrue thereafter; and (iii) a holder of the Early
      Repurchase Notes shall, upon delivery of the Early Repurchase Notice, (x) be
      entitled to receive solely the Early Repurchase Amount with respect to such
      Early Repurchase Notes pursuant to this Section, together with any accrued
      and
      unpaid Interest through the date of the Early Repurchase Notice, and (y) not
      be
      permitted to convert the Early Repurchase Notes held by it in accordance with
      Article 14 of this Indenture, except as provided in Section 3.03(a);
provided
      that
      except as otherwise set forth herein, such holder of Early Repurchase Notes
      shall be entitled to all other rights and privileges as a holder of Notes under
      this Indenture and the other Transaction Documents in respect of any such Early
      Repurchase Notes that remain outstanding until the Early Repurchase Amount
      has
      been paid in full.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    The
      Company will comply with the provisions of Rule 14e-1 and any other tender
      offer
      rules under the Exchange Act (including, without limitation, filing a Schedule
      TO or other schedule) to the extent then applicable in connection with the
      repurchase rights of the holders of Notes.

     

    The
      Early
      Repurchase Notice shall be irrevocable. 

     

    Section
      3.05. Deposit
      of the Early Repurchase Amount.

     

    Prior
      to
      10:00 a.m. (New York City Time) on each Installment Payment Date, the Company
      shall pay to the holders of the Early Repurchase Notes the Installment Payment
      Amount due on such Installment Payment Date, in immediately available funds
      to
      the account(s) designated by such holders as set forth in the Early Repurchase
      Notice (it being acknowledged, for the avoidance of doubt, that the Company
      may
      pay such Installment Payment Amount prior to such Installment Payment Date).
      

     

    Upon
      payment of the Installment Payment Amount due on each Installment Payment Date,
      (i) a portion of the Early Repurchase Notes, in an amount equal to the
      applicable percentage of the Base Principal Amount being repurchased on such
      Installment Payment Date, will cease to be outstanding, (ii) subject to the
      other terms of this Indenture, all other rights of the holders of such Early
      Repurchase Notes under this Indenture will terminate as to the portion of Early
      Repurchase Notes so purchased, (iii) the Base Principal Amount of the Early
      Repurchase Notes not repurchased on such Installment Payment Date will continue
      to be outstanding, and (iv) all other rights of the holders of such Early
      Repurchase Notes under this Indenture will continue as to the portion of Early
      Repurchase Notes not so purchased, in all such cases whether or not book-entry
      transfer or physical delivery of such Early Repurchase Notes has been made
      or
      such Early Repurchase Notes have been delivered to the Trustee or paying agent,
      in each case, as of such Installment Payment Date.

     

    Section
      3.06. Notes
      Repurchased in Part.

     

    For
      any
      Early Repurchase Notes represented by Definitive Notes and repurchased pursuant
      to Section 3.03 of this Indenture only in part, the Company shall execute and
      the Trustee shall authenticate and make available for delivery to the holder
      thereof, at the expense of the Company, a new Note or Notes, of any authorized
      denomination, in an aggregate principal amount equal to the unrepurchased
      portion of such Early Repurchase Notes.

     

    Section
      3.07.
      Failure
      to Pay the Early Repurchase Amount

     

    (a)
      If
      the Company (i) fails to pay the applicable Installment Payment Amount within
      fifteen (15) days following the First Payment Date (except with respect to
      the
      Excess Amount, if any) or (ii) fails to pay the Excess Amount, if any, within
      fifteen (15) days following the Excess Amount Payment Date, and such failure
      shall be continuing, then any such failure will be an Event of Default under
      this Indenture, and either the Trustee or the holders of not less than
      twenty-five (25%) in aggregate of the Base Principal Amount of Early Repurchase
      Notes then outstanding, determined in accordance with Section 12.04 of this
      Indenture, by notice in writing to the Company (and to the Trustee if given
      by
      such holders), may declare the entire Early Repurchase Amount payable to the
      holders of the Early Repurchase Notes, net of any Installment Payment Amount
      already paid, to be due and payable immediately, anything contained in this
      Indenture to the contrary notwithstanding.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (b)
      Failure by the Company to pay the applicable Installment Payment Amount within
      fifteen (15) days following any of the Second Payment Date, the Third Payment
      Date or the Fourth Payment Date (any such payment date on which the Installment
      Payment Amount due on such date is not paid, the “Missed
      Payment Date”)
      shall
      not, solely by reason thereof, constitute a Default or an Event of Default
      hereunder; provided,
      that, unless
      the Installment Payment Amount due on such Missed Payment Date is paid within
      a
      period of fifteen (15) days after such Missed Payment Date, then Sections 3.03,
      3.04, 3.05 and 3.06 of this Indenture shall cease to have any force or effect
      with respect to any Early Repurchase Notes then outstanding and all Early
      Repurchase Notes shall cease to be Early Repurchase Notes and such Notes, and
      the holders thereof, shall automatically be entitled to all rights and
      privileges as a holder of Notes under this Indenture and other Transaction
      Documents in respect of such Notes, as if no Early Repurchase Notice had been
      delivered with respect to such Notes, including, without limitation, the
      conversion rights provided in Article 14 of the Indenture.

     

    (c)
      Notwithstanding anything to the contrary contained in this Indenture, the amount
      that can be declared to be due and payable immediately pursuant to Section
      3.07(a) or 3.07(b) shall be limited to the entire Early Repurchase Amount,
      net
      of any Installment Payment Amount already paid. 

     

    
      1.2
        Exhibit
        F
        shall be added to this Indenture as follows:

    

     

    “Exhibit
      F. Early
      Repurchase Notice

     

    TO:
      AMERICAN DAIRY, INC.

     

    The
      undersigned [registered holder of] [holder of beneficial interests in] the
      Notes
      specified in this notice, hereby (i) irrevocably acknowledges receipt of a
      notice from American Dairy, Inc. (the “Company”)
      regarding the right of holders to elect to require the Company to repurchase
      the
      Notes upon the exercise of the Early Repurchase Option, (ii) exercises the
      Early
      Repurchase Option and (iii) requests and instructs the Company to repurchase
      the
      Notes below designated from the undersigned, in accordance with the terms of
      the
      Indenture, at the Early
      Repurchase Amount with respect to such Notes:

    


    $
      __________ Principal Amount of the Notes to which this Early Repurchase Notice
      relates pursuant to Section 3.03 of the Indenture.

     

    Capitalized
      terms used herein but not defined shall have the meanings ascribed to such
      terms
      in the Indenture. The Early Repurchase Amount shall be paid by the Company
      in
      four (4) installments, pursuant to the terms and conditions specified in the
      Indenture.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    [Definitive
      Notes representing Notes that are the subject of this Early Repurchase Notice
      are being delivered, together with this Early Repurchase Notice, to the Company
      at the delivery address listed below.]

     

    The
      undersigned hereby authorizes and instructs the Company to pay, on each
      Installment Payment Date, the Installment Payment Amount due on such Installment
      Payment Date, in immediately available funds to the following account (or to
      such other account as such [registered holder of] [holder of beneficial
      interests in] the Early Repurchase Notes at the time provides written notice
      to
      the Company (with a copy to the Trustee):

     

    
      	
              Bank:
                ____________________________________________________

              Branch:
                __________________________________________________

              SWIFT
                Code

              (if
                applicable): _____________________________________________

              ABA
                Code 

              (if
                applicable): _____________________________________________

              Accountholder
                Name: _______________________________________

              Account
                Name:
                ____________________________________________

            


    

    


    The
      undersigned acknowledges that this notice is irrevocable.

     

    Dated:                                                                                  
      

     

    Signature(s):                                                                       

     

    NOTICE:
      The above signatures of the holder(s) hereof must correspond with the name
      as
      written upon the face of the Note in every particular without alteration or
      enlargement or any change whatever.

     

    Note
      Certificate Number (if applicable):        

     

    ISIN
      No.:
      _____________________________________________

    


    Principal
      amount to be repurchased (if less than all): $     

    


    Social
      Security or Other Taxpayer Identification
      Number:                                                  

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Date:
      ______________

     

    Your
      Signature:                                                                                                                                                         


     

    (Sign
      exactly as your name appears on the face of this Note)

     

    Delivery
      Address for Definitive Notes:

    


    American
      Dairy, Inc.

    
      	
            	c/o:	
                   

            


      	 	 	
                   

            


      	 	 	
                    

            


      	 	 	
                   

            


    

     

    1.3 The
      definition of Common Depositary, as set forth in Section 1.01 of the Other
      Indenture is deleted and replaced in its entirety by the following:

    


    “Common
      Depositary”
      means,
      with respect to the Other Notes issuable or issued in global form, The Bank
      of
      New York Depository (Nominees) Limited, or registered its successors or assigns,
      as the Common Depositary for Euroclear and Clearstream, or the Depositary Trust
      Company (“DTC”),
      with
      respect to the Other Notes, and any and all successors thereto appointed as
      depositary hereunder and having become such pursuant to the applicable
      provisions of this Indenture.”

     

    1.4 In
      addition to the foregoing, the Company and the Trustee may take such action
      and
      execute such documents, including such further indentures supplemental to the
      Other Indenture, to provide for Other Notes that are issued in Definitive Form
      to be transferred for beneficial interests in Global Notes that are held by
      the
      DTC or such other Common Depositary as shall be agreed between the Company,
      the
      Trustee and the holders of the Other Notes; provided,
      however,
      that
      there shall be no modifications to the terms of the Other Notes in any way
      except and to the extent necessary to exchange Definitive Notes for beneficial
      interests in Global Notes.

     

    2. Consents
      and Waivers.
      The
      Company’s obligations to comply with the terms and conditions set forth in each
      of the Indentures are hereby modified as follows:

     

    2.1. The
      Company and the Operating Subsidiaries shall be permitted to Incur Debt solely
      (a) for the purpose of making, and in such amount as is necessary to make,
      and
      the proceeds thereof shall be used for making, payment of the Early Repurchase
      Amount with respect to any Notes as to which the Early Repurchase Option has
      been exercised; provided,
      however,
      that
      such Debt and any refinancing thereof (collectively, the “Early
      Repurchase Debt”)
      shall
      not exceed $92,000,000 in aggregate principal amount, and (b) to fund working
      capital and capital expenditure requirements to expand the Company’s business
      operations, in an amount not to exceed $40,000,000 in aggregate principal amount
      (“Operations
      Debt”);
      provided,
      however,
      that
      the Company or the Operating Subsidiaries shall only be permitted to incur
      Operations Debt if, and to the extent that, for every $1.00 of Operations Debt
      incurred, the Company repurchases $1.00 of Early Repurchase Notes in addition
      to
      the portion of the Early Repurchase Amount payable on the First Payment Date
      (such Early Repurchase Notes being so repurchased hereinafter referred to as
      the
“Additional
      Repurchase Notes”)
      and
      (i) the purchase price for the Additional Repurchase Notes shall be paid not
      later than three (3) Business Days following the date that the Company, or
      the
      applicable Operating Subsidiary, receives proceeds from such Operations Debt;
      and (ii) the Company shall give written notice of such Incurrence of any
      Operations Debt to the holders of the Early Repurchase Notes promptly upon
      incurring such Operations Debt; and provided
      further
      that if
      the Company fails to repurchase the Additional Repurchase Notes according to
      the
      terms set forth in the foregoing proviso, and fails to cure such failure within
      fifteen (15) days thereafter, then such failure to so cure shall be an Event
      of
      Default and either the Trustee or the holders of not less than twenty-five
      percent (25%) in aggregate of the Base Principal Amount of the Early Repurchase
      Notes then outstanding, determined in accordance with Section 12.04 of this
      Indenture, by notice in writing to the Company (and to the Trustee if given
      by
      such holders), may declare the entire Early Repurchase Amount payable to the
      holders of the Early Repurchase Notes, net of any Installment Payment Amounts
      already paid, to be due and payable immediately, anything contained in the
      Indentures to the contrary notwithstanding.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    2.2. The
      Company’s obligations under Sections 4.09(a), 4.09(b) and 4.16 of each of the
      Indentures are hereby waived to the extent necessary for, and with respect
      to,
      the Incurring of the Early Repurchase Debt and Operations Debt.

     

    2.3. The
      Company and the Operating Subsidiaries shall be permitted to Incur, or suffer
      to
      exist, any Lien to the extent and only to the extent required by any lender
      of
      the Early Repurchase Debt or of Operations Debt, and Incurred solely in respect
      of the Early Repurchase Debt or of Operations Debt, and the Company’s
      obligations under Section 4.11 of each of the Indentures are hereby waived
      to
      the extent of such Liens Incurred in respect of the Early Repurchase Debt and
      Operations Debt, respectively. In addition, (A) the Company shall be permitted
      to pledge and grant a security interest in favor of the holders of the Company’s
      7.75% Convertible Notes due October 2, 2009 (the “7.75%
      Notes”)
      to the
      extent, and only to the extent, set forth in the form of Share Pledge Agreement
      attached hereto as Exhibit 2.3
      (the
“Second
      Share Pledge Agreement”),
      and
      (B) if, and to the extent that, any security interest with respect to equity
      interests in the Company’s subsidiaries formed under the laws of the People’s
      Republic of China, or any additional subsidiaries of the Company, or of its
      wholly owned subsidiary American Flying Crane Corporation, a Delaware
      corporation (“AFC”),
      in
      favor of the holders of the Notes, then the Company or AFC, as the case may
      be,
      shall grant a security interest in favor of the holders of the 7.75% Notes
      to
      the same relative extent as the interests granted by the Second Share Pledge
      Agreement, pursuant to an applicable share pledge agreement, and the foregoing
      interests granted by the Company or AFC, as the case may be, to the holders
      of
      the 7.75% Notes shall constitute a Permitted Lien under the
      Indentures.

     

    2.4. The
      Company shall be permitted to Incur the Early Repurchase Debt and Operations
      Debt, directly or indirectly, in whole or in part, from Mr. Leng You-Bin, a
      shareholder of the Company, on an unsecured basis, without the incurrence of
      any
      Lien, and in such event the Company’s obligations under Section 4.14(c) of each
      of the Indentures are hereby waived, but only to the extent that such
      obligations relate to the requirement to obtain a written opinion from an
      Independent Financial Advisor arising directly as a result of the Incurrence
      of
      such Early Repurchase Debt or Operations Debt from Mr. Leng
      You-Bin.

     

    
      
        
        

      

      
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    2.5. The
      Company’s obligations to comply with Section 4.26 of each of the Indentures are
      hereby waived to the extent that a Termination of Trading arises as a result
      of
      the Company’s failure to timely file its annual report(s) on Form 10-K for the
      fiscal year ended December 31, 2007 and, if applicable, December 31, 2008,
      or
      any quarterly reports on Form 10-Q for quarterly periods during such fiscal
      years, with the Commission as a result of the termination of the Company’s
      former auditors and the reaudit process described in the Company’s current
      report on Form 8-K filed with the Commission on March 17, 2008 (the
“Reaudit”);
      provided,
      however,
      that in
      the event that the Company fails to pay when due the applicable Installment
      Payment Amount that is payable on the Second Payment Date, or the Third Payment
      Date or the Fourth Payment Date (in each case a “Missed
      Payment Date”),
      then
      the foregoing waiver, to the extent it relates to the filing of the Company’s
      annual report on Form 10-K for the fiscal year ending December 31, 2008, shall
      be terminated and of no further force and effect.

     

    2.6. The
      Company’s obligations to comply with Sections 4.27, 4.30 and 4.33 of each of the
      Indentures are hereby waived, but only to the extent that any non-compliance
      with any of such Sections is due to or results from the Reaudit and the
      resulting delay in completing the Company’s audited financial statements for the
      fiscal year ended December 31, 2007 and, if applicable, the fiscal year ending
      December 31, 2008; provided,
      however,
      that in
      the event that the Company fails to pay when due the Installment Payment Amount
      that is payable on the applicable Missed Payment Date, then the foregoing waiver
      to the extent it relates to the financial statements for the fiscal year ending
      December 31, 2008 shall be terminated and of no further force and
      effect.

     

    2.7. The
      Company’s obligations to comply with Sections 4.09(b) and 4.16 of each of the
      Indentures with respect to maintenance of the Leverage Ratio and the
      Consolidated Tangible Net Worth, respectively, are hereby waived for the period
      commencing on the Issue Date and continuing through the end of the last Fiscal
      Quarter the results of which are reflected in the amended and/or delinquent
      reports required to be filed and actually filed by the Company with the
      Commission reflecting the Reaudit (the “Current
      Filings Period”);
      provided,
      however,
      that
      such waiver shall not apply to any breach by the Company of such obligations
      for
      periods commencing on or after the first day of the first full Fiscal Quarter
      following the Current Filings Period; and provided,
      further, that
      (i)
      in the event that the Company fails to pay when due the Installment Payment
      Amount that is payable on the applicable Missed Payment Date, then the foregoing
      waiver, to the extent it relates to any Fiscal Quarter ending on or after
      December 31, 2008, shall be terminated and of no further force and effect,
      and
      (ii) the Company shall deliver to the Trustee a compliance certificate, signed
      by the principal executive officer, principal financial officer or principal
      accounting officer, certifying as to the Leverage Ratio and the Consolidated
      Tangible Net Worth for the applicable Fiscal Quarter, within five (5) business
      days of the later of (i) such Missed Payment Date and (ii) the date which is
      the
      earlier of (x) the date on which the Company is required to file with the
      Commission under the Securities Exchange Act of 1934, as amended (including
      giving effect to any extensions permitted by Rule 12b-25), the Company’s Form
      10-K or Form 10-Q, as the case may be, relating to the most recently completed
      Fiscal Quarter ending on or after December 31, 2008 or (y) the date on which
      the
      Company files such Form 10-K or Form 10-Q, as the case may be, with the
      Commission. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    2.8. The
      Company’s obligations to comply with Section 4.25 of each of the Indentures, to
      make the payment described in clause (a) of the definition of Additional Amounts
      in Section 1.1 of each of the Indentures, and to pay Additional Interest
      pursuant to clause (a) of the definition of Additional Interest in Section
      1.1
      of each of the Indentures, are hereby waived; provided,
      however,
      that in
      the event that the Company fails to pay when due the Installment Payment Amount
      that is payable on the applicable Missed Payment Date, and a Qualifying IPO
      has
      not occurred by such Missed Payment Date, then the foregoing waiver shall
      terminate and be of no further force and effect, and the Company shall be
      obligated to pay (i) within fifteen (15) days of such Missed Payment Date,
      such
      Additional Amounts, and (ii) on each Interest Payment Date following such Missed
      Payment Date, such Additional Interest that has accrued but not been paid
      through such Interest Payment Date.

     

    2.9. The
      Company’s obligations to pay Additional Interest accruing under clause (b) of
      the definition of Additional Interest in Section 1.1 of each of the Indentures
      is hereby waived; provided, however, that in the event that the Company fails
      to
      pay when due the Installment Payment Amount that is payable on the applicable
      Missed Payment Date, then the foregoing waiver shall terminate and be of no
      further force and effect, and the Company shall be obligated to pay to holders
      of the Early Repurchase Notes then outstanding such Additional Interest as
      may
      accrue under such clause (b) for the period commencing on the date of the Early
      Repurchase Notice, unless all of the shares of Common Stock underlying such
      holder’s Notes may be sold in reliance upon Rule 144 under the Securities Act of
      1933, as amended, without regard to limitation by volume by such
      holder.

     

    2.10. The
      Company’s obligations to pay Interest (other than the Additional Interest) under
      Section 4.01 of each of the Indentures are hereby waived; provided,
      however, that
      in
      the event that the Company fails to pay when due the Installment Payment Amount
      that is payable on the applicable Missed Payment Date, then the foregoing waiver
      shall terminate and be of no further force or effect, and the Company shall
      be
      obligated to pay (i) within fifteen (15) days from such Missed Payment Date,
      the
      Interest (other than the Additional Interest) accrued but unpaid through such
      Missed Payment Date and (ii) on each Interest Payment Date following such Missed
      Payment Date, the Additional Interest that has accrued but not been paid through
      such Interest Payment Date.

     

    2.11. To
      the
      extent that any actions taken or to be taken by the Company in undertaking,
      effecting and consummating the repurchase of the Early Repurchase Notes and
      the
      transactions contemplated by this Supplemental Indenture would not comply with
      or would be limited by the provisions of the Indentures, as modified or
      otherwise waived hereby, compliance with such provisions is hereby waived solely
      to the extent required to so effectuate and consummate.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    3. Ratification
      of Indenture; Supplemental Indenture Part of Indenture.
      Except
      as expressly amended hereby, each of the Indentures is ratified and confirmed
      in
      all respects and all the terms, conditions and provisions thereof shall remain
      in full force and effect. This Supplemental Indenture shall form a part of
      each
      of the Indentures for all purposes, shall be construed as a part thereof, and
      every holder of the Notes heretofore or hereafter authenticated and delivered
      shall be bound hereby. 

     

    4. Governing
      Law.
      THIS
      SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
      THE LAWS OF THE STATE OF NEW YORK.

     

    5. Trustee
      Makes No Representation.
      The
      Trustee makes no representation as to the validity or sufficiency of this
      Supplemental Indenture. 

     

    6. Counterparts. 

     

    6.1.
       The
      parties may sign any number of copies of this Supplemental Indenture. Each
      signed copy shall be an original, but all of them together represent the same
      agreement. One signed copy is enough to prove this Supplemental
      Indenture.

     

    6.2. This
      Supplemental Indenture may be executed in one or more counterparts and when
      a
      counterpart has been executed by each party, all such counterparts taken
      together shall constitute one and the same agreement. 

     

    7. Severability.
      In case
      any provision in this Supplemental Indenture shall be invalid, illegal or
      unenforceable, then (to the extent permitted by law) the validity, legality
      and
      enforceability of the remaining provisions shall not in any way be affected
      or
      impaired thereby.

     

    8. Effect
      of Headings.
      The
      section headings herein are for convenience only and shall not effect the
      construction thereof.

     

    [Signature
      page(s) to follow]

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
      to
      be duly executed as of the date first above written.

     

     

    
      	 	 	 
	 	AMERICAN
              DAIRY,
              INC.
	 
 	 
 	 
 
	 	By:  	/s/ Jonathan
              Chou 
	 	
              Name:
                Jonathan Chou

              Title:
                Chief Financial Officer

            


    

     

     

    
      
        	 	 	 
	 	AMERICAN
                FLYING
                CRANE CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ Jonathan
                Chou 
	 	
                Name:
                  Jonathan Chou

                Title:
                  Chief Financial Officer

              


      

    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	
              THE
                BANK OF NEW YORK MELLON,

              as
                Trustee under the Citadel Indenture and the Other
                Indenture

            
	 
 	 
 	 
 
	 	By:  	/s/ Lici
              Zhu
	 	
              Name:
                Lici Zhu

              Title:
                Assistant Vice President

            


    

     

    
      
        
        

      

      
        14