Document:

Unassociated Document

    

    THIS
      NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
      COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
      FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO AMERICAN DAIRY, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
      

    

    

    7.75%
      CONVERTIBLE NOTE

    

    FOR
      VALUE
      RECEIVED, AMERICAN DAIRY, INC., a Utah corporation (the “Company”),
      hereby promises to pay to the order of _____________________, or its assigns
      (the “Holder”),
      without demand, the sum of ___________________ Dollars ($______________), with
      simple interest accruing at the rate described below.

    

    This
      Note
      has been entered into pursuant to the terms of a subscription agreement between
      the Company and the Holder, dated of even date herewith (the “Subscription
      Agreement”),
      and
      shall be governed by the terms of such Subscription Agreement. Unless otherwise
      separately defined herein, all capitalized terms used in this Note shall have
      the same meaning as is set forth in the Subscription Agreement. 

    

    ARTICLE
      I

    GENERAL
      PROVISIONS

    

    1.1 Payments.
      Subject
      to Section 4.7 hereof, interest payable on this Note shall accrue from the
      Closing Date at a rate per annum (the “Interest
      Rate”)
      equal
      to seven and three-fourths percent (7.75%), subject to adjustment pursuant
      to
      Section 1.2 (the “Interest”).
      Interest shall be compounded annually, and shall be payable on the Maturity
      Date
      (defined below) in common stock of the Company, $0.001 par value per share
      (“Common
      Stock”).
      Interest shall be computed for actual days elapsed on the basis of a 360 day
      year consisting of twelve 30-day months and be payable on the earlier of the
      Maturity Date, as hereinafter defined, or the date this Note is converted
      pursuant to Article 2. The principal of this Note (the “Principal”) and accrued
      but unpaid Interest thereon shall unless earlier converted be payable in full
      on
      the date that shall be thirty-six (36) months after the Closing Date (the
“Maturity
      Date”).

    

    Upon
      any
      conversion in part by the Holder in accordance with Article II, the Holder
      and
      the Company shall in good faith recalculate the outstanding Principal balance
      and the Interest payable with respect to the converted portion. Upon any full
      conversion by the Holder in accordance with Article II, all of the payments
      of
      Principal due hereunder shall terminate and no further Interest shall accrue.
      All payments in respect of the Principal shall be made in cash in U.S. dollars
      and in immediately available funds, and payments shall be applied first to
      Principal and then to charges and expenses owing under or in connection with
      this Note.

    

    The
      number of shares of Common Stock issuable in payment of Interest will be
      determined based on a ratio of one share of Common Stock for each $14.50 in
      accrued Interest. No fractional shares will be issued; therefore, in the event
      that the number of shares of Common Stock due hereunder is not a whole number,
      the Company shall round up to the nearest whole share the number of such shares
      due. 

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1.2
       Conversion
      Rights.
      The
      conversion rights set forth in Article II shall remain in full force and effect
      immediately from the date hereof and until the Note is paid in full regardless
      of the occurrence of an Event of Default. The Note shall be payable in full
      on
      the Maturity Date, except to the extent previously converted into Common Stock
      in accordance with Article II hereof.

    

     

    ARTICLE
      II

    CONVERSION
      RIGHTS

    

    The
      Holder shall have the right to convert the Principal and accrued and unpaid
      Interest due under this Note into shares of the Company’s Common Stock, as set
      forth below.

    

    2.1
       Conversion
      into the Company’s Common Stock.

    

    (a) The
      Holder shall have the right from and after the date of the issuance of this
      Note
      and then at any time until this Note is fully paid, to convert any outstanding
      and unpaid Principal portion of this Note, and accrued Interest on such portion,
      at the election of the Holder (the date of such conversion being a “Conversion
      Date”)
      into
      fully paid and non-assessable shares of Common Stock as such stock exists on
      the
      date of issuance of this Note, or any shares of capital stock of the Company
      into which such Common Stock shall hereafter be changed or reclassified, at
      the
      conversion price as defined in Section 2.1(b) hereof (the “Conversion
      Price”),
      determined as provided herein. Upon delivery to the Company of a completed
      Notice of Conversion, a form of which is annexed hereto, the Company shall
      issue
      and deliver to the Holder within five (5) business days from the Conversion
      Date
      (such third day being the “Delivery
      Date”)
      that
      number of shares of Common Stock for the portion of the Note and related
      Interest converted in accordance with the foregoing. The number of shares of
      Common Stock to be issued upon each conversion of this Note shall be determined
      by dividing that portion of the Principal of the Note and accrued Interest
      to be
      converted, by the Conversion Price.

    

    (b) Subject
      to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per
      share shall be $14.50.

    

    (c) The
      Conversion Price and number and kind of shares of Common Stock or other
      securities to be issued upon conversion determined pursuant to Section 2.1(a),
      shall be subject to adjustment from time to time upon the happening of certain
      events while this Note remains outstanding, as follows:

    

    (i) Reorganization,
      Consolidation, Merger, etc.
      In case
      at any time or from time to time, the Company shall (A) effect a reorganization,
      (B) consolidate with or merge into any other person or (C) transfer all or
      substantially all of its properties or assets to any other person under any
      plan
      or arrangement contemplating the dissolution of the Company, then, in each
      such
      case, as a condition to the consummation of such a transaction, proper and
      adequate provision shall be made by the Company whereby the Holder of this
      Note,
      on the conversion hereof as provided in this Article II, at any time after
      the
      consummation of such reorganization, consolidation or merger or the effective
      date of such dissolution, as the case may be, shall receive, in lieu of the
      Common Stock (or other securities) issuable on such conversion prior to such
      consummation or such effective date, the stock and other securities and
      property, including cash (collectively, the “Other
      Securities and Property”),
      to
      which such Holder would have been entitled upon such consummation or in
      connection with such dissolution, as the case may be, if such Holder had so
      converted this Note, immediately prior thereto, all subject to further
      adjustment thereafter as provided in Section 2.1(c)(iv).

    

    
      
         

      

      
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    (ii) Dissolution.
      In the
      event of any dissolution of the Company following the transfer of all or
      substantially all of its properties or assets, the Company, prior to such
      dissolution, shall at its expense deliver or cause to be delivered the stock
      and
      Other Securities and Property by the Holder of the Notes after the effective
      date of such dissolution pursuant to this Article II to a bank or trust company
      (a “Trustee”)
      having
      its principal office in New York, New York, as trustee for the Holder of the
      Notes.

    

    (iii) Continuation
      of Terms.
      Upon
      any reorganization, consolidation, merger or transfer (and any dissolution
      following any transfer) referred to in this Article II, this Note shall continue
      in full force and effect and the terms hereof shall be applicable to the Other
      Securities and Property receivable on the conversion of this Note after the
      consummation of such reorganization, consolidation or merger or the effective
      date of dissolution following any such transfer, as the case may be, and shall
      be binding upon the issuer of any Other Securities and Property, including,
      in
      the case of any such transfer, the person acquiring all or substantially all
      of
      the properties or assets of the Company, whether or not such person shall have
      expressly assumed the terms of this Note as provided in Section 2.1(c)(iv).
      In
      the event this Note does not continue in full force and effect after the
      consummation of the transaction described in this Article II, then only in
      such
      event will the Company’s securities and property (including cash, where
      applicable) receivable by the Holder of the Notes be delivered to the Trustee
      as
      contemplated by Section 2.1(c)(ii).

    

    (iv) Extraordinary
      Events Regarding Common Stock.
      In the
      event that the Company shall (A) issue additional shares of Common Stock as
      a
      dividend or other distribution on outstanding Common Stock, (B) subdivide its
      outstanding shares of Common Stock, or (C) combine its outstanding shares of
      Common Stock into a smaller number of shares of Common Stock, then, in each
      such
      event, the Conversion Price shall, simultaneously with the happening of such
      event, be adjusted by multiplying the then Conversion Price by a fraction,
      the
      numerator of which shall be the number of shares of Common Stock outstanding
      immediately prior to such event and the denominator of which shall be the number
      of shares of Common Stock outstanding immediately after such event, and the
      product so obtained shall thereafter be the Conversion Price then in effect.
      The
      Conversion Price, as so adjusted, shall be readjusted in the same manner upon
      the happening of any successive event or events described herein in this Section
      2.1(c)(iv). The number of shares of Common Stock that the Holder of this Note
      shall thereafter, on the conversion hereof as provided in Article II, be
      entitled to receive shall be adjusted to a number determined by multiplying
      the
      number of shares of Common Stock that would otherwise (but for the provisions
      of
      this Section 2.1(c)(iv)) be issuable on such conversion by a fraction of which
      (x) the numerator is the Conversion Price that would otherwise (but for the
      provisions of this Section 2.1(c)(iv)) be in effect, and (y) the denominator
      is
      the Conversion Price in effect on the date of such conversion.

    

    (v) Certificate
      as to Adjustments.
      In each
      case of any adjustment or readjustment in the shares of Common Stock (or Other
      Securities and Property) issuable on the conversion of the Notes, the Company
      at
      its expense will promptly cause its Chief Executive Officer or other appropriate
      designee to compute such adjustment or readjustment in accordance with the
      terms
      of the Note and prepare a certificate setting forth such adjustment or
      readjustment and showing in detail the facts upon which such adjustment or
      readjustment is based, including a statement of (A) the consideration received
      or receivable by the Company for any additional shares of Common Stock (or
      Other
      Securities and Property) issued or sold or deemed to have been issued or sold,
      (B) the number of shares of Common Stock (or Other Securities and Property)
      outstanding or deemed to be outstanding, and (C) the Conversion Price and the
      number of shares of Common Stock to be received upon conversion of this Note,
      in
      effect immediately prior to such adjustment or readjustment and as adjusted
      or
      readjusted as provided in this Note. The Company will forthwith mail a copy
      of
      each such certificate to the Holder of the Note and the Company’s transfer
      agent.

    

    
      
         

      

      
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    2.2 Method
      of Conversion.
      This
      Note may be converted by the Holder in whole or in part as described in Section
      2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this
      Note, a new Note containing the same date and provisions of this Note shall,
      at
      the request of the Holder, be issued by the Company to the Holder for the
      remaining Principal balance of this Note and Interest which shall not have
      been
      paid.

    

    2.3 Conversion
      of Note.

    

    (a) Upon
      the
      conversion of a Note or part thereof, the Company shall, at its own cost and
      expense, take all necessary action, including obtaining and delivering an
      opinion of counsel, to assure that the Company’s transfer agent shall issue
      stock certificates in the name of Holder (or its nominee) or such other persons
      as designated by Holder and in such denominations to be specified at conversion
      representing the number of shares of Common Stock issuable upon such conversion.
      The Company warrants that no instructions other than these instructions have
      been or will be given to the transfer agent of the Company’s Common Stock and
      that, unless waived by the Holder, the shares of Common Stock will be
      free-trading, and freely transferable, and will not contain a legend restricting
      the resale or transferability of such shares provided the shares of Common
      Stock
      are being sold pursuant to an effective registration statement covering such
      shares or are otherwise exempt from registration.

    

    (b) Nothing
      contained herein or in any document referred to herein or delivered in
      connection herewith shall be deemed to establish or require the payment of
      a
      rate of interest or other charges in excess of the maximum permitted by
      applicable law. 

    

    2.4 Reservation.
      During
      the period the conversion right exists, the Company will reserve from its
      authorized and unissued Common Stock a number of shares of Common Stock equal
      to
      100% of the amount of Common Stock issuable upon the full conversion of this
      Note and accrued Interest. The Company represents that upon issuance, such
      shares will be duly and validly issued, fully paid and non-assessable. The
      Company agrees that its issuance of this Note shall constitute full authority
      to
      its officers, agents, and transfer agents who are charged with the duty of
      executing and issuing stock certificates to execute and issue the necessary
      certificates for shares of Common Stock upon the conversion of this Note and
      accrued Interest.

    

    

    ARTICLE
      III

    EVENTS
      OF DEFAULT

    

    The
      occurrence of any of the following events of default (an “Event
      of Default”)
      shall,
      at the option of the Holder hereof, make all sums of Principal and Interest
      then
      remaining unpaid hereon and all other amounts payable hereunder immediately
      due
      and payable, upon demand, without presentment, or grace period, all of which
      hereby are expressly waived, except as set forth below:

    

    3.1 Failure
      to Pay Principal or Interest.
      The
      Company fails to pay any installment of Principal, Interest or other sum due
      under this Note when due, whether at the Maturity Date or upon any Conversion
      Date.

    

    3.2 Receiver
      or Trustee.
      The
      Company shall make an assignment for the benefit of creditors, or apply for
      or
      consent to the appointment of a receiver or trustee for it or for a substantial
      part of its property or business; or such a receiver or trustee shall otherwise
      be appointed.

    

    3.3 Bankruptcy.
      Bankruptcy, insolvency, reorganization or liquidation proceedings or other
      proceedings or relief under any bankruptcy law or any law, or the issuance
      of
      any notice in relation to such event, for the relief of debtors shall be
      instituted by or against the Company and if instituted against the Company
      are
      not dismissed within fifteen (15) days of initiation.

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    3.4 Delisting.
      Delisting of the Common Stock from the NYSE Archipelago Exchange (“ArcaEx”)
      or
      such other principal exchange on which the Common Stock is listed for trading;
      or notification from the ArcaEx or any Principal Market that the Company is
      not
      in compliance with the conditions for such continued listing on the ArcaEx
      or
      other Principal Market.

    

    3.5 Failure
      to Deliver Common Stock or Replacement Note.
      The
      Company’s failure to deliver Common Stock to the Holder pursuant to this Note
      and Section 2 of the Subscription Agreement, or, if required, a replacement
      Note.

    

    3.6 Non-Registration
      Event.
      The
      occurrence of a Non-Registration Event as described in Section 2(c) of the
      Registration Rights Agreement.

    

    3.7 Reservation
      Default.
      Failure
      by the Company to have reserved for issuance upon conversion of the Note and
      accrued Interest the amount of Common Stock.

    

    ARTICLE
      IV

    MISCELLANEOUS

    

    4.1 Failure
      or Indulgence Not Waiver.
      No
      failure or delay on the part of Holder hereof in the exercise of any power,
      right or privilege hereunder shall operate as a waiver thereof, nor shall any
      single or partial exercise of any such power, right or privilege preclude other
      or further exercise thereof or of any other right, power or privilege. All
      rights and remedies existing hereunder are cumulative to, and not exclusive
      of,
      any rights or remedies otherwise available.

    

    4.2 Notices.
      All
      notices, demands, requests, consents, approvals, and other communications
      required or permitted hereunder shall be in writing and, unless otherwise
      specified herein, shall be (i) personally served, (ii) deposited in the mail,
      registered or certified, return receipt requested, postage prepaid, (iii)
      delivered by reputable air courier service with charges prepaid, or (iv)
      transmitted by hand delivery, telegram, or facsimile, addressed as set forth
      below or to such other address as such party shall have specified most recently
      by written notice. Any notice or other communication required or permitted
      to be
      given hereunder shall be deemed effective (i) upon hand delivery or delivery
      by
      facsimile, with accurate confirmation generated by the transmitting facsimile
      machine, at the address or number designated below (if delivered on a business
      day during normal business hours where such notice is to be received), or the
      first business day following such delivery (if delivered other than on a
      business day during normal business hours where such notice is to be received)
      or (ii) on the second business day following the date of mailing by express
      courier service, fully prepaid, addressed to such address, or upon actual
      receipt of such mailing, whichever shall first occur. The addresses for such
      communications shall be: (i) if to the Company, to: American Dairy, Inc., C-16
      Shin Chen International Building, No. 10, Jiu-shen Road, Zho Yan Chu, Beijing,
      People’s Republic of China, Attn: Roger Liu, telecopier number: (213) 225-6244,
      with a copy by telecopier only to: Hodgson Russ, LLP, 60 East 42nd
      Street,
      37th
      Floor,
      New York, NY 10165, Attn.: Jeffrey A. Rinde, Esq., telecopier number: (212)
      972-1677, and (ii) if to the Holder, to the one or more addresses and telecopier
      numbers indicated in the first paragraph of this Note.

     

    4.3 Amendment
      Provision.
      The
      term “Note” and all reference thereto, as used throughout this instrument, shall
      mean this instrument as originally executed, or if later amended or
      supplemented, then as so amended or supplemented.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    4.4 Assignability.
      This
      Note shall be binding upon the Company and its successors and assigns, and
      shall
      inure to the benefit of the Holder and its successors and assigns.

     

     4.5 Cost
      of Collection.
      If
      default is made in the payment of this Note, the Company shall pay the Holder
      hereof reasonable costs of collection, including reasonable attorneys’
fees.

     

     4.6 Governing
      Law.
      This
      Note shall be governed by and construed in accordance with the laws of the
      State
      of New York. Any action brought by either party against the other concerning
      the
      transactions contemplated by this Agreement shall be brought only in the state
      courts of New York or in the federal courts located in the state of New York.
      Both parties and the individual signing this Agreement on behalf of the Company
      agree to submit to the jurisdiction of such courts. The prevailing party shall
      be entitled to recover from the other party its reasonable attorney’s fees and
      costs.

     

    4.7 Redemption.
      This
      Note may not be redeemed or paid without the consent of the Holder except as
      described in this Note or in the Subscription Agreement.

     

     4.8 Stockholder
      Status.
      The
      Holder shall not have rights as a stockholder of the Company with respect to
      unconverted portions of this Note. However, the Holder will have all the rights
      of a stockholder of the Company with respect to the shares of Common Stock
      to be
      received by Holder after delivery by the Holder of a Conversion Notice to the
      Company.

    

    4.9 Entire
      Agreement.
      This
      Note, the Subscription Agreement and the other Transaction Documents (including
      all schedules and exhibits thereto) constitute the entire agreement among the
      parties hereto with respect to the subject matter hereof and thereof. There
      are
      no restrictions, promises, warranties or undertakings, other than those set
      forth or referred to herein and therein. This Note and the Subscription
      Agreement supersede all prior agreements and understandings among the parties
      hereto with respect to the subject matter hereof and thereof. In the event
      of a
      conflict between this Note and the Subscription Agreement, the terms of the
      Subscription Agreement shall be controlling.

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
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    IN
      WITNESS WHEREOF,
      the
      Company has caused this Note to be signed in its name by an authorized officer
      as of the ______ day of October, 2006.

    

    
      	
              Witness:

            	
              AMERICAN
                DAIRY, INC.

            
	 	
              By:_________________________________________

            
	 	
              Name:____________________

            
	
              ______________________________

            	
              Title:_____________________

            

    

    

    

    

     

    
      
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        7

        
          

        

      

      
         

      

    

    NOTICE
      OF CONVERSION

    

    (To
      be
      executed by the Registered Holder in order to convert the Note)

    

    The
      undersigned hereby elects to convert $________ of the Principal and accrued
      Interest with respect to such Principal of the Note issued by AMERICAN DAIRY,
      INC. on _________________, 200__ into shares of Common Stock of AMERICAN DAIRY,
      INC. according to the conditions set forth in such Note, as of the date written
      below.

    

    
      	
               

              Date
                of Conversion:

            	
               

              ______________________

            
	
               

              Conversion
                Price:

            	
               

              ______________________

            
	
               

              Common
                Stock To Be Delivered:

            	
               

              ______________________

            
	
               

              Signature:

            	
               

              _________________________________

            
	
               

              Print
                Name:

            	
               

              _________________________________

            
	
               

              Address:

            	
               

              _________________________________

              _________________________________

              _________________________________

            

    

    
       

      
        
           

        

          8Unassociated Document

    

    THIS
      WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
      AND
      THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO AMERICAN DAIRY, INC. THAT SUCH REGISTRATION IS NOT
      REQUIRED.

    

    Right
      to
      Purchase ______________ shares of Common Stock 

    of
      American Dairy, Inc.

    (subject
      to adjustment as provided herein)

    

    COMMON
      STOCK PURCHASE WARRANT

    

    
      	No. 00-
              	 	Issue  Date:
              October _____, 2006 

    

     

    

    AMERICAN
      DAIRY, INC.,
      a
      corporation organized under the laws of the State of Utah (the “Company”),
      hereby certifies that _______________________,
      or its
      assigns (the “Holder”),
      is
      entitled, subject to the terms set forth below, to purchase from the Company
      at
      any time after the date hereof (the “Issue
      Date”),
      until
      5:00 p.m., E.S.T on the date six (6) years from the date hereof (the “Expiration
      Date”), up to 20,690 fully paid and non-assessable shares of common stock of the
      Company, par value $0.001 per share (the “Common
      Stock”),
      at a
      per share price of $14.50. The afore described price per share, as adjusted
      from
      time to time as herein provided, is referred to herein as the “Exercise
      Price.”
The
      number and character of such shares of Common Stock and the Exercise Price
      are
      subject to adjustment as provided herein. The Company may reduce the Exercise
      Price without the consent of the Holder. Capitalized terms used and not
      otherwise defined herein shall have the meanings set forth in that certain
      Subscription Agreement (the “Subscription
      Agreement”),
      dated
      of even date herewith, entered into by the Company and Holders of the
      Warrants.

    

    As
      used
      herein the following terms, unless the context otherwise requires, have the
      following respective meanings:

    

      (a)
       The
      term
“Company”
shall
      include American Dairy, Inc. and any corporation which shall succeed or assume
      the obligations of American Dairy, Inc. hereunder.

    

      (b)
       The
      term
“Common
      Stock”
      includes (i) the Company’s Common Stock, $0.001 par value per share, as
      authorized on the date of the Subscription Agreement, and (ii) any other
      securities into which or for which any of the securities described in (i) may
      be
      converted or exchanged pursuant to a plan of recapitalization, reorganization,
      merger, sale of assets or otherwise.

    

      (c)
       The
      term
“Other
      Securities”
refers
      to any stock (other than Common Stock) and other securities of the Company
      or
      any other person (corporate or otherwise) which the holder of the Warrant at
      any
      time shall be entitled to receive, or shall have received, on the exercise
      of
      the Warrant, in lieu of or in addition to Common Stock, or which at any time
      shall be issuable or shall have been issued in exchange for or in replacement
      of
      Common Stock or Other Securities pursuant to Section 2 or
      otherwise.

    

      

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1. Exercise
      of Warrant.

    

    1.1. Number
      of Shares Issuable upon Exercise.
      From
      and after the Issue Date through and including the Expiration Date, the Holder
      hereof shall be entitled to receive, upon exercise of this Warrant in whole
      in
      accordance with the terms of Sub-section 1.2 or upon exercise of this Warrant
      in
      part in accordance with Sub-section 1.3, shares of Common Stock of the Company,
      subject to adjustment pursuant to Section 2. No
      fractional shares will be issued; therefore, in the event that the number of
      shares of Common Stock due hereunder is not a whole number, the Company shall
      round up to the nearest whole share the number of such shares due. 

    

    1.2. Full
      Exercise.
      This
      Warrant may be exercised in full by the Holder hereof by delivery of an original
      or facsimile copy of the form of subscription attached as Exhibit
      A
      hereto
      (the “Subscription
      Form”)
      duly
      executed by such Holder and surrender of the original Warrant to the Company
      at
      its principal office or at the office of its Warrant Agent (as provided
      hereinafter), accompanied by payment, in cash, wire transfer or by certified
      or
      official bank check payable to the order of the Company, in the amount obtained
      by multiplying the number of shares of Common Stock for which this Warrant
      is
      then exercisable by the Exercise Price then in effect.

    

    1.3. Partial
      Exercise.
      This
      Warrant may be exercised in part (but not for a fractional share) by surrender
      of this Warrant in the manner and at the place provided in Sub-section 1.2
      except that the amount payable by the Holder on such partial exercise shall
      be
      the amount obtained by multiplying (a) the number of whole shares of Common
      Stock designated by the Holder in the Subscription Form by (b) the Exercise
      Price then in effect. On any such partial exercise, the Company, at its expense,
      will forthwith issue and deliver to or upon the order of the Holder hereof
      a new
      Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon
      payment by such Holder of any applicable transfer taxes) may request, the whole
      number of shares of Common Stock remaining for which such Warrant may still
      be
      exercised.

    

    1.4. Company
      Acknowledgment.
      The
      Company will, at the time of the exercise of the Warrant, upon the request
      of
      the Holder hereof, acknowledge in writing its continuing obligation to afford
      to
      such Holder any rights to which such Holder shall continue to be entitled after
      such exercise in accordance with the provisions of this Warrant. If the Holder
      shall fail to make any such request, such failure shall not affect the
      continuing obligation of the Company to afford to such Holder any such
      rights.

    

    1.5. Trustee
      for Warrant Holders.
      In the
      event that a bank or trust company shall have been appointed as trustee for
      the
      Holder of the Warrants pursuant to Sub-section 2.2, such bank or trust company
      shall have all the powers and duties of a warrant agent (as hereinafter
      described) and shall accept, in its own name for the account of the Company
      or
      such successor person as may be entitled thereto, all amounts otherwise payable
      to the Company or such successor, as the case may be, on exercise of this
      Warrant pursuant to this Section 1.

    

    1.6. Delivery
      of Stock Certificates, etc. on Exercise.
      The
      Company agrees that the shares of Common Stock purchased upon exercise of this
      Warrant shall be deemed to be issued to the Holder hereof as the record owner
      of
      such shares as of the close of business on the date on which this Warrant shall
      have been surrendered and payment made for such shares as aforesaid. As soon
      as
      practicable after the exercise of this Warrant in full or in part, the Company,
      at its expense (including the payment by it of any applicable issue taxes),
      will
      cause to be issued in the name of and delivered to the Holder hereof, or as
      such
      Holder (upon payment by such Holder of any applicable transfer taxes) may direct
      in compliance with applicable securities laws, a certificate or certificates
      for
      the number of duly and validly issued, fully paid and non-assessable shares
      of
      Common Stock (or Other Securities) to which such Holder shall be entitled on
      such exercise.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    2. Adjustment
      for Reorganization, Consolidation, Merger, etc.

    

    2.1. Reorganization,
      Consolidation, Merger, etc.
      In case
      at any time or from time to time, the Company shall (a) effect a reorganization,
      (b) consolidate with or merge into any other person or (c) transfer all or
      substantially all of its properties or assets to any other person under any
      plan
      or arrangement contemplating the dissolution of the Company, then, in each
      such
      case, as a condition to the consummation of such a transaction, proper and
      adequate provision shall be made by the Company whereby the Holder of this
      Warrant, on the exercise hereof as provided in Section 1, at any time after
      the
      consummation of such reorganization, consolidation or merger or the effective
      date of such dissolution, as the case may be, shall receive, in lieu of the
      Common Stock (or Other Securities) issuable on such exercise prior to such
      consummation or such effective date, the stock and other securities and property
      (including cash) to which such Holder would have been entitled upon such
      consummation or in connection with such dissolution, as the case may be, if
      such
      Holder had so exercised this Warrant, immediately prior thereto, all subject
      to
      further adjustment thereafter as provided in this Section 2.

    

    2.2. Dissolution.
      In the
      event of any dissolution of the Company following the transfer of all or
      substantially all of its properties or assets, the Company, prior to such
      dissolution, shall at its expense deliver or cause to be delivered the stock
      and
      other securities and property (including cash, where applicable) receivable
      by
      the Holder of the Warrants after the effective date of such dissolution pursuant
      to this Section 2 to a bank or trust company (a “Trustee”)
      having
      its principal office in New York, NY, as trustee for the Holder of the
      Warrants.

    

    2.3. Continuation
      of Terms.
      Upon
      any reorganization, consolidation, merger or transfer (and any dissolution
      following any transfer) referred to in this Section 2, this Warrant shall
      continue in full force and effect and the terms hereof shall be applicable
      to
      the Other Securities and property receivable on the exercise of this Warrant
      after the consummation of such reorganization, consolidation or merger or the
      effective date of dissolution following any such transfer, as the case may
      be,
      and shall be binding upon the issuer of any Other Securities, including, in
      the
      case of any such transfer, the person acquiring all or substantially all of
      the
      properties or assets of the Company, whether or not such person shall have
      expressly assumed the terms of this Warrant as provided in this Section 2.
      In
      the event this Warrant does not continue in full force and effect after the
      consummation of the transaction described in this Section 2, then only in such
      event will the Company’s securities and property (including cash, where
      applicable) receivable by the Holder of the Warrants be delivered to the Trustee
      as contemplated by Sub-section 2.2.

    

    2.4. Extraordinary
      Events Regarding Common Stock.
      In the
      event that the Company shall (a) issue additional shares of the Common Stock
      as
      a dividend or other distribution on outstanding Common Stock, (b) subdivide
      its
      outstanding shares of Common Stock, or (c) combine its outstanding shares of
      the
      Common Stock into a smaller number of shares of the Common Stock, then, in
      each
      such event, the Exercise Price shall, simultaneously with the happening of
      such
      event, be adjusted by multiplying the then Exercise Price by a fraction, the
      numerator of which shall be the number of shares of Common Stock outstanding
      immediately prior to such event and the denominator of which shall be the number
      of shares of Common Stock outstanding immediately after such event, and the
      product so obtained shall thereafter be the Exercise Price then in effect.
      The
      Exercise Price, as so adjusted, shall be readjusted in the same manner upon
      the
      happening of any successive event or events described herein in this Section
      2.
      The number of shares of Common Stock that the Holder of this Warrant shall
      thereafter, on the exercise hereof as provided in Section 1, be entitled to
      receive shall be adjusted to a number determined by multiplying the number
      of
      shares of Common Stock that would otherwise (but for the provisions of this
      Sub-section 2.4) be issuable on such exercise by a fraction of which (a) the
      numerator is the Exercise Price that would otherwise (but for the provisions
      of
      this Sub-section 2.4) be in effect, and (b) the denominator is the Exercise
      Price in effect on the date of such exercise.

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    2.5. Certificate
      as to Adjustments.
      In each
      case of any adjustment or readjustment in the shares of Common Stock (or Other
      Securities) issuable on the exercise of the Warrants, the Company at its expense
      will promptly cause its Chief Executive Officer or other appropriate designee
      to
      compute such adjustment or readjustment in accordance with the terms of the
      Warrant and prepare a certificate setting forth such adjustment or readjustment
      and showing in detail the facts upon which such adjustment or readjustment
      is
      based, including a statement of (a) the consideration received or receivable
      by
      the Company for any additional shares of Common Stock (or Other Securities)
      issued or sold or deemed to have been issued or sold, (b) the number of shares
      of Common Stock (or Other Securities) outstanding or deemed to be outstanding,
      and (c) the Exercise Price and the number of shares of Common Stock to be
      received upon exercise of this Warrant, in effect immediately prior to such
      adjustment or readjustment and as adjusted or readjusted as provided in this
      Warrant. The Company will forthwith mail a copy of each such certificate to
      the
      Holder of the Warrant and any Warrant Agent of the Company (appointed pursuant
      to Section 8 hereof).

    

    3. Reservation
      of Stock, etc. Issuable on Exercise of Warrant; Financial
      Statements.
      The
      Company will at all times reserve and keep available, solely for issuance and
      delivery on the exercise of the Warrants, all shares of Common Stock (or Other
      Securities) from time to time issuable on the exercise of the Warrant. This
      Warrant entitles the Holder hereof to receive copies of all financial and other
      information distributed or required to be distributed to the holders of the
      Company’s Common Stock.

    

    4.
       Assignment;
      Exchange of Warrant.
      Subject
      to compliance with applicable securities laws, this Warrant, and the rights
      evidenced hereby, may be transferred by any registered holder hereof (a
“Transferor”).
      On
      the surrender for exchange of this Warrant, with the Transferor’s endorsement in
      the form of Exhibit
      B
      attached
      hereto (the “Transferor
      Endorsement Form”),
      the
      Company at its expense, but with payment by the Transferor of any applicable
      transfer taxes, will issue and deliver to or on the order of the Transferor
      thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
      and/or the transferee(s) specified in such Transferor Endorsement Form (each
      a
“Transferee”),
      calling in the aggregate on the face or faces thereof for the number of shares
      of Common Stock called for on the face or faces of the Warrant so surrendered
      by
      the Transferor. No such transfers shall result in a public distribution of
      the
      Warrant.

    

    5.
       Replacement
      of Warrant.
      On
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of this Warrant and, in the case of any such loss,
      theft or destruction of this Warrant, on delivery of an indemnity agreement
      or
      security reasonably satisfactory in form and amount to the Company or, in the
      case of any such mutilation, on surrender and cancellation of this Warrant,
      the
      Company at its expense, will execute and deliver, in lieu thereof, a new Warrant
      of like tenor.

    

    6.
       Registration
      Rights.
      The
      Holder of this Warrant has been granted certain registration rights by the
      Company. These registration rights are set forth in the Subscription Agreement
      and the Registration Rights Agreement. The terms of the Subscription Agreement
      and the Registration Rights Agreement are incorporated herein by this
      reference.

    
 

    7. Warrant
      Agent.
      The
      Company may, by written notice to the Holder of the Warrant, appoint an agent
      (a
“Warrant
      Agent”)
      for
      the purpose of issuing Common Stock (or Other Securities) on the exercise of
      this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section
      4, and replacing this Warrant pursuant to Section 5, or any of the foregoing,
      and thereafter any such issuance, exchange or replacement, as the case may
      be,
      shall be made at such office by such Warrant Agent.

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    8. Transfer
      on the Company’s Books.
      Until
      this Warrant is transferred on the books of the Company, the Company may treat
      the registered holder hereof as the absolute owner hereof for all purposes,
      notwithstanding any notice to the contrary.

    

    9. Notices.
      All
      notices, demands, requests, consents, approvals, and other communications
      required or permitted hereunder shall be in writing and, unless otherwise
      specified herein, shall be (i) personally served, (ii) deposited in the mail,
      registered or certified, return receipt requested, postage prepaid, (iii)
      delivered by reputable air courier service with charges prepaid, or (iv)
      transmitted by hand delivery, telegram, or facsimile, addressed as set forth
      below or to such other address as such party shall have specified most recently
      by written notice. Any notice or other communication required or permitted
      to be
      given hereunder shall be deemed effective (i) upon hand delivery or delivery
      by
      facsimile, with accurate confirmation generated by the transmitting facsimile
      machine, at the address or number designated below (if delivered on a business
      day during normal business hours where such notice is to be received), or the
      first business day following such delivery (if delivered other than on a
      business day during normal business hours where such notice is to be received)
      or (ii) on the second business day following the date of mailing by express
      courier service, fully prepaid, addressed to such address, or upon actual
      receipt of such mailing, whichever shall first occur. The addresses for such
      communications shall be: (i) if to the Company, to: American Dairy, Inc., C-16
      Shin Chen International Building, No. 10, Jiu-shen Road, Zho Yan Chu, Beijing,
      People’s Republic of China, Attn: Roger Liu, telecopier number: (213) 225-6244,
      with a copy by telecopier only to: Hodgson Russ, LLP, 60 East 42nd
      Street,
      37th
      Floor,
      New York, NY 10165, Attn.: Jeffrey A. Rinde, Esq., telecopier number: (212)
      972-1677, and (ii) if to the Holder, to the one or more addresses and telecopier
      numbers indicated in the first paragraph of this Warrant.

    

    10. Miscellaneous.
      This
      Warrant and any term hereof may be changed, waived, discharged or terminated
      only by an instrument in writing signed by the party against which enforcement
      of such change, waiver, discharge or termination is sought. This Warrant shall
      be construed and enforced in accordance with and governed by the laws of New
      York. Any dispute relating to this Warrant shall be adjudicated in New York
      County in the State of New York. The headings in this Warrant are for purposes
      of reference only, and shall not limit or otherwise affect any of the terms
      hereof. The invalidity or unenforceability of any provision hereof shall in
      no
      way affect the validity or enforceability of any other provision. In the event
      of a conflict between this Warrant and the Subscription Agreement, the terms
      of
      the Subscription Agreement shall be controlling.

    

    

    [THE
      REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY]

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      the
      Company has executed this Warrant as of the date first written
      above.

    

    
      	
              Witness:

            	
              AMERICAN
                DAIRY, INC.

               

            
	 	
              By:_______________________________________________

            
	 	
              Name:____________________

            
	
              ______________________________

            	
              Title:_____________________

            

    

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    Exhibit
      A

    

    FORM
      OF SUBSCRIPTION

    (to
      be
      signed only on exercise of Warrant)

    

    TO:
      AMERICAN DAIRY, INC.

    

    The
      undersigned, pursuant to the provisions set forth in the attached Warrant
      (No.____), hereby irrevocably elects to purchase (check applicable
      box):

    

    ___________
      shares of the Common Stock covered by such Warrant.

    

    The
      undersigned herewith makes payment of the full Exercise Price for such shares
      at
      the price per share provided for in such Warrant, which is $___________________,
      according to the latest certificate pursuant to Sub-section 2.5, in lawful
      money
      of the United States.

    

    The
      undersigned requests that the certificates for such shares be issued in the
      name
      of, and delivered to _____________________________________________________
      whose
      address is

    ____________________________________________________________________________________________________________________________________________________________

    

    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable upon exercise of the within Warrant shall be made
      pursuant to registration of the Common Stock under the Securities Act of 1933,
      as amended (the “Securities Act”), or pursuant to an exemption from registration
      under the Securities Act.

    

    
      	
               

               

              Dated:___________________
                

            	
               

               

              _______________________________________

              (Signature
                must conform to name of

              holder
                as specified on the face of the

              Warrant)

            
	 	 
	 	
              _______________________________________

              _______________________________________

              _______________________________________

              (Address)

            

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    Exhibit
      B

    

    

    FORM
      OF TRANSFEROR ENDORSEMENT

    (To
      be
      signed only on transfer of Warrant)

    

    For
      value
      received, the undersigned hereby sells, assigns, and transfers unto the
      person(s) named below under the heading “Transferees” the right represented by
      the within Warrant to purchase the percentage and number of shares of Common
      Stock of AMERICAN DAIRY, INC. to which the within Warrant relates specified
      under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each such
      person Attorney to transfer its respective right on the books of AMERICAN DAIRY,
      INC. with full power of substitution in the premises.

    

    
      	
              Transferees

            	
              Percentage
                Transferred

            	
              Number
                Transferred

            
	 	 	 
	
               

               

              Dated:
                _________________________________ 

            	
               

               

               

              ____________________________________________

              (Signature
                must conform to name of holder as specified on the face of the
                warrant)

            
	
               

               

              Signed
                in the presence of: 

               

              _______________________________________

              (Name)

            	
               

               

               

               

              ____________________________________________

              ____________________________________________

              (Address)

            
	
               

              Accepted
                and Agreed

               

              _______________________________________

              (Transferee)

            	
               

               

               

              ____________________________________________

              ____________________________________________

              (Address)

            

    

    
       

      
        
           

        

          8

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