Yayi International Inc.  - Exhibit 10.4 - Filed by newsfilecorp.com






Exhibit 10.4

CLOSING ESCROW AGREEMENT 

          This
CLOSING ESCROW AGREEMENT, dated as of September 27, 2010 (this
“Agreement”), is entered into by and among Yayi International Inc., a
Delaware corporation (the “Company”), Euro Pacific Capital, Inc. (the
“Placement Agent”) and Escrow, LLC (the “Escrow Agent”). The
Placement Agent and the Company are sometimes each referred to herein as an
“Escrowing Party” and collectively, the “Escrowing Parties.” 

WITNESSETH: 

          WHEREAS,
the Company proposes to make a private offering pursuant to the Securities Act
of 1933, as amended (the “Offering”) of between $6,000,000 and
$10,000,000 (the “Offering Amount”) of Units of the Company, each
consisting of (i) a nine (9%) percent convertible promissory note (the
“Notes”) of the Company in the aggregate principal amount of $10,000 and
(ii) a Series F Warrant to purchase 1,250 shares of the Company’s common stock,
par value $0.001 per share (“Common Stock”), at an exercise price of
$2.50 per share, pursuant to a Securities Purchase Agreement, dated as of
September 27, 2010, by and among the Company, the investors party thereto (the
“Investors”) and, with respect to certain sections thereof, the Placement
Agent (the “Securities Purchase Agreement”); and 

          WHEREAS,
the Company and the Placement Agent desire to deposit all gross proceeds
received from subscriptions for the Units being sold in the Offering (the
“Escrowed Funds”) with the Escrow Agent, to be held in escrow until joint
written instructions are received by the Escrow Agent from the Company and the
Placement Agent, from time to time, at which time the Escrow Agent will disburse
the Escrowed Funds in accordance with such joint written instructions (a
“Closing”); and

          WHEREAS,
the Escrow Agent is willing to hold the Escrowed Funds in escrow subject to the
terms and conditions of this Agreement; and

          WHEREAS,
all capitalized terms used but not defined herein which are defined in the
Securities Purchase Agreement shall have the respective meanings given to such
terms in the Securities Purchase Agreement. 

          NOW,
THEREFORE, in consideration of the mutual agreements and covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the parties hereto hereby agree as follows: 

1.        Appointment of
Escrow Agent. The Company and the Placement Agent hereby appoint the Escrow
Agent as escrow agent in accordance with the terms and conditions set forth
herein and the Escrow Agent hereby accepts such appointment. 




2.        Delivery of the
Escrowed Funds.

         
2.1      The Placement Agent and/or the Company will
direct the Investors in the Offering to deliver the Escrowed Funds to the Escrow
Agent on or prior to the closing of the Offering, addressed to the following
account of the Escrow Agent: 

Domestic Wires 
Virginia
Commerce Bank 
Leesburg, VA 
ABA# 056005253 
Account Name: Escrow, LLC

Account #: 01194186 
Reference: Yayi International, Inc. 

International Wires

Correspondent Bank: Wells Fargo Bank 
San Francisco, CA 
SWIFT#
WFBIUS6S 
Credit Acct: 412-11-08146 
Virginia Commerce Bank 
FBO
Account Name: Escrow, LLC 
Account #: 01194186 

  Reference: Yayi International Inc. 

         
2.2      (a) All Investors’ checks shall be made
payable to “Escrow, LLC”, as agent for the Company, shall be delivered to the
Escrow Agent at the address set forth on Exhibit A hereto and shall be
accompanied by a written account of subscription in the form attached hereto as
Exhibit B and executed by each Investor (the “Subscription
Information”). The Escrow Agent shall, upon receipt of Subscription
Information, together with the related purchase price being paid by such
Investor therefore (the “Investment Amount”), deposit the related
Investment Amount of such Subscription Information in the Escrow Account for
collection; or (b) all funds to be wired shall be wired to the account set forth
in Section 2.1 above and written Subscription Information shall be faxed or
emailed to the Escrow Agent in accordance with the information provided on
Exhibit A. 

         
2.3      Any checks which are received by the Escrow
Agent that are made payable to a party other than the Escrow Agent shall be
returned directly to the Placement Agent together with any documents delivered
therewith. Simultaneously with each deposit of a check with the Escrow Agent,
the Placement Agent shall provide the Escrow Agent with the Subscription
Information to include the name, address and taxpayer identification number of
each Investor and of the aggregate principal amount of Units subscribed for by
such Investor. The Escrow Agent is not obligated, and may refuse, to accept
checks that are not accompanied by Subscription Information containing the
requisite information. 

         
2.4      In the event a wire transfer is received by
the Escrow Agent and the Escrow Agent has not received Subscription Information,
the Escrow Agent shall notify the Placement Agent. If the Escrow Agent does not receive the Subscription
Information by such Investor prior by close of business on the third Business
Day (days other than a Saturday or Sunday or other day on which the Escrow Agent
is not open for business) after notifying the Placement Agent of receipt of said
wire, the Escrow Agent shall return the funds to such Investor. 

-2- 




3.        Escrow Agent to
Hold and Disburse Escrowed Funds. The Escrow Agent will hold and disburse
the Escrowed Funds received by it pursuant to the terms of this Agreement, as
follows: 

         
3.1      Upon receipt of joint written instructions
from the Company and the Placement Agent, in substantially the form of
Exhibit C hereto, the Escrow Agent shall release the Escrowed Funds as
directed in such instructions. 

         
3.2      In the event this Agreement, the Escrowed
Funds or the Escrow Agent becomes the subject of litigation, the Company
authorizes the Escrow Agent, at its option, to deposit the Escrowed Funds with
the clerk of the court in which the litigation is pending, or a court of
competent jurisdiction if no litigation is pending, and thereupon the Escrow
Agent shall be fully relieved and discharged of any further responsibility with
regard thereto. The Company also authorizes the Escrow Agent, if it receives
conflicting claims to the Escrowed Funds, is threatened with litigation or if
the Escrow Agent shall desire to do so for any other reason, to interplead all
interested parties in any court of competent jurisdiction and to deposit the
Escrowed Funds with the clerk of that court and thereupon the Escrow Agent shall
be fully relieved and discharged of any further responsibility hereunder to the
parties from which they were received. 

         
3.3      In the event that the Escrow Agent does not
receive any instructions by a date that is 30 days from the date of this
Agreement (the “Escrow Termination Date”), all Escrowed Funds shall be
returned to the parties from which they were received, without interest thereon
or deduction therefrom. 

4.        Escrow
Holdback. 

         
4.1      Pursuant to the terms of the Notes, at each
Closing an amount sufficient to satisfy the payment to the Investors of one
semiannual payment of Interest (as defined in the Notes) due on the aggregate
principal amount of all Notes issued at such Closing, which includes accrued
Interest due on the principal amount of such Notes from the date of issuance
through March 31, 2011, shall be retained by the Escrow Agent (all such amounts,
collectively the “Holdback Amount”). Notwithstanding anything to the
contrary contained herein, upon written notification by the Placement Agent to
the Escrow Agent that an Event of Default (as defined in the Notes) has been
declared by the Placement Agent with respect to a failure by the Company to make
a semiannual interest payment in accordance with the Notes (the “Interest
Payment Notice”), the Escrow Agent shall disburse such portion of the
Holdback Amount to the Investors and in the amounts as set forth in such
Interest Payment Notice. 

         
4.2      Within thirty (30) days following the
disbursement of the Holdback Amount in accordance with Section 4.1 hereof, the
Company shall deposit an additional amount equal to the Holdback Amount with the Escrow Agent to be retained and
disbursed in accordance with Section 4.1 hereof. 

-3- 




         
4.3      It is acknowledged and agreed that the
Placement Agent may deliver an Interest Payment Notice only following complete
fulfillment by the Placement Agent of all procedures, and the lapse of
applicable cure periods, set forth in the Notes relating to the declaration of
an Event of Default under Section 6(a) of the Notes with respect to a failure by
the Company to make a quarterly interest payment in accordance with the terms of
the Notes. 

         
4.4      On the Maturity Date (as defined in the
Notes), or at any time prior to the Maturity Date when 75% of all Notes have
been converted, if the Company is not in breach of any of the Transaction
Documents, all remaining funds of the Holdback Amount, if any, shall be
disbursed to the Company promptly in accordance with this Closing Escrow
Agreement, and the Company’s obligation to maintain funds in escrow under this
Article 4 shall cease. 

5.        Exculpation and
Indemnification of Escrow Agent. 

         
5.1      The Escrow Agent shall have no duties or
responsibilities other than those expressly set forth herein. The Escrow Agent
shall have no duty to enforce any obligation of any person other than itself to
make any payment or delivery, or to direct or cause any payment or delivery to
be made, or to enforce any obligation of any person to perform any other act.
The Escrow Agent shall be under no liability to the other parties hereto or
anyone else, by reason of any failure, on the part of any other party hereto or
any maker, guarantor, endorser or other signatory of a document or any other
person, to perform such person’s obligations under any such document. Except for
amendments to this Agreement referenced below, and except for written
instructions given to the Escrow Agent relating to the Escrowed Funds, the
Escrow Agent shall not be obligated to recognize any agreement between or among
any of the parties hereto, notwithstanding that references hereto may be made
herein and whether or not it has knowledge thereof.

         
5.2      The Escrow Agent shall not be liable to the
Company or the Placement Agent or to anyone else for any action taken or omitted
by it, or any action suffered by it to be taken or omitted, in good faith and
acting upon any order, notice, demand, certificate, opinion or advice of counsel
(including counsel chosen by the Escrow Agent), statement, instrument, report,
or other paper or document (not only as to its due execution and the validity
and effectiveness of its provisions, but also as to the truth and acceptability
of any information therein contained), which is believed by the Escrow Agent to
be genuine and to be signed or presented by the proper person or persons. The
Escrow Agent shall not be bound by any of the terms thereof, unless evidenced by
written notice delivered to the Escrow Agent signed by the proper party or
parties and, if the duties or rights of the Escrow Agent are affected, unless it
shall give its prior written consent thereto. 

         
5.3      The Escrow Agent shall not be responsible for
the sufficiency or accuracy of the form, or of the execution, validity, value or
genuineness of, any document or property received, held or delivered to it
hereunder, or of any signature or endorsement thereon, or for any lack of
endorsement thereon, or for any description therein; nor shall the Escrow Agent
be responsible or liable to the Company, the Placement Agent, or to anyone
else in any respect on account of the identity, authority or rights, of the
person executing or delivering or purporting to execute or deliver any document
or property or this Agreement. The Escrow Agent shall have no responsibility
with respect to the use or application of the Escrowed Funds pursuant to the
provisions hereof. 

-4- 




         
5.4      The Escrow Agent shall have the right to
assume, in the absence of written notice to the contrary from the proper person
or persons, that a fact or an event, by reason of which an action would or might
be taken by the Escrow Agent, does not exist or has not occurred, without
incurring liability to the Company, the Placement Agent, or to anyone else for
any action taken or omitted to be taken or omitted, in good faith and in the
exercise of its own best judgment, in reliance upon such assumption. 

         
5.5      To the extent that the Escrow Agent becomes
liable for the payment of taxes, including withholding taxes, in respect of
income derived from the investment of the Escrowed Funds, or any payment made
hereunder, the Escrow Agent may pay such taxes; and the Escrow Agent may
withhold from any payment of the Escrowed Funds to the Company to the extent due
to the Company in accordance with the instructions delivered as set forth in
Exhibit C such amount as the Escrow Agent estimates to be sufficient to
provide for the payment of such taxes not yet paid, and may use the sum withheld
for that purpose. The Escrow Agent shall be indemnified and held harmless by the
Company against any liability for taxes and for any penalties in respect of
taxes, on such investment income or payments in the manner provided in Section
5.6. 

         
5.6      The Escrow Agent and Placement Agent will be
indemnified and held harmless by the Company from and against all expenses,
including all reasonable counsel fees and disbursements, or loss suffered by the
Escrow Agent or Placement Agent in connection with any action, suit or
proceedings involving any claim, or in connection with any claim or demand,
which in any way, directly or indirectly, arises out of or relates to this
Agreement, the services of the Escrow Agent or Placement Agent hereunder, except
for claims relating to gross negligence or willful misconduct by Escrow Agent or
Placement Agent or breach of this Agreement by the Escrow Agent or Placement
Agent, or the monies or other property held by it hereunder. Promptly after the
receipt of the Escrow Agent or Placement Agent of notice of any demand or claim
or the commencement of any action, suit or proceeding, the Escrow Agent or
Placement Agent, as applicable, shall, if a claim in respect thereof is to be
made against an Escrowing Party, notify each of them thereof in writing, but the
failure by the Escrow Agent or Placement Agent, as applicable, to give such
notice shall not relieve any such party from any liability which an Escrowing
Party may have to the Escrow Agent or Placement Agent hereunder.

         
5.7      For purposes hereof, the term “expense or
loss” shall include all amounts paid or payable to satisfy any claim, demand or
liability, or in settlement of any claim, demand, action, suit or proceeding
settled with the express written consent of the Escrow Agent, and all costs and
expenses, including, but not limited to, reasonable counsel fees and
disbursements, paid or incurred in investigating or defending against any such
claim, demand, action, suit or proceeding.

-5- 




6.        Termination of
Agreement and Resignation of Escrow Agent. 

         
6.1      Termination. This Agreement shall
terminate with respect to the rights and obligations of the Escrow Agent and the
Escrowing Parties regarding the Escrowed Funds upon disbursement of all of the
Escrowed Funds in accordance with the terms hereof. This Agreement shall
terminate with respect to the rights and obligations of the Escrow Agent and the
Escrowing Parties regarding the Holdback Amount upon return of the Holdback
Amount to the Company in accordance with Section 4.4 hereof. 

         
6.2      Resignation.

                    
(a)      General. The Escrow Agent may resign at
any time and be discharged from its duties as Escrow Agent hereunder by giving
the Company and the Placement Agent at least twenty (20) business days written
notice thereof (the “Notice Period”). 

                    
(b)      Regarding the Escrowed Funds. Prior to
the Closing and with respect to the Escrowed Funds, upon providing the written
notice called for in Section 6.2(a) above, the Escrow Agent shall have no
further obligation hereunder except to hold as depositary the Escrowed Funds
that it receives until the end of the Notice Period. In such event, the Escrow
Agent shall not take any action, other than receiving and depositing the
Investors’ checks and wire transfers in accordance with this Agreement, until
the Company and the Placement Agent have jointly designated a banking
corporation, trust company, attorney or other person as successor escrow agent.
As soon as practicable after its resignation, the Escrow Agent shall, if it
receives written notice from the Company and the Placement Agent within the
Notice Period, turn over to a successor escrow agent appointed jointly by the
Company and the Placement Agent all Escrowed Funds (less such amount as the
Escrow Agent is entitled to retain pursuant to Section 7) upon presentation of
the document appointing the new escrow agent and its acceptance thereof. If no
new agent is so appointed within the Notice Period, the Escrow Agent shall
return the Escrowed Funds to the parties from which they were received without
interest or deduction.

                     (c)     
Regarding the Holdback Amount. Following the Closing and with respect to
the Holdback Amount, upon providing the written notice called for in Section
6.2(a) above, the Escrow Agent shall have no further obligation hereunder except
to hold as depositary the Holdback Amount. In such event, the Escrow Agent shall
not take any action with respect to the Holdback Amount until the Company and
the Placement Agent have jointly designated a banking corporation, trust
company, attorney or other person as successor escrow agent. As soon as
practicable after its resignation, the Escrow Agent shall, if it receives
written notice from the Company and the Placement Agent within the Notice
Period, turn over to a successor escrow agent appointed jointly by the Company
and the Placement Agent the entirety of the Holdback Amount only upon
presentation of the document appointing the new escrow agent and its acceptance
thereof. With respect to the Holdback Amount only, the Escrow Agent shall not be
permitted to fully resign until a successor escrow agent is designated and the
Holdback Amount turned over to such successor escrow agent. 

-6- 




7.        Form of
Payments by Escrow Agent. 

         
7.1      Any payments of the Escrowed Funds by the
Escrow Agent pursuant to the terms of this Agreement shall be made by wire
transfer unless directed to be made by check by the Escrowing Parties. 

         
7.2      All amounts referred to herein are expressed
in United States Dollars and all payments by the Escrow Agent shall be made in
such dollars. 

8.      
 Compensation. Escrow Agent shall be entitled to the following
compensation from the Company: 

         
8.1      Documentation Fee: The Company shall pay a
documentation fee to the Escrow Agent of $2,000, out of the proceeds of the
First Closing. 

         
8.2      Closing Fee: The Company shall pay a fee of
$500 to the Escrow Agent at each Closing. For purposes of this Section 8.2, a
Closing shall mean each time the Escrow Agent receives joint instructions from
the Company and the Placement Agent to disburse Escrowed Funds in accordance
with the terms of this Agreement. 

         
8.3      Interest: The Company and the Placement Agent
acknowledge and agree that the Escrow Account shall be a interest-bearing
account. 

9.        Notices.
All notices, requests, demands, and other communications provided herein shall
be in writing, shall be delivered by hand or by first-class mail, shall be
deemed given when received and shall be addressed to parties hereto at their
respective addresses first set forth on Exhibit A hereto. 

10.      Further Assurances.
From time to time on and after the date hereof, the Company and the Placement
Agent shall deliver or cause to be delivered to the Escrow Agent such further
documents and instruments and shall do and cause to be done such further acts as
the Escrow Agent shall reasonably request (it being understood that the Escrow
Agent shall have no obligation to make any such request) to carry out more
effectively the provisions and purposes of this Agreement, to evidence
compliance herewith or to assure itself that it is protected in acting
hereunder. 

11.      Consent to Service of
Process. The Company and the Placement Agent hereby irrevocably consent to
the jurisdiction of the courts of the State of New York and of any Federal court
located in such state in connection with any action, suit or proceedings arising
out of or relating to this Agreement or any action taken or omitted hereunder,
and waives personal service of any summons, complaint or other process and
agrees that the service thereof may be made by certified or registered mail
directed to it at the address listed on Exhibit A hereto. 

-7- 




12.      Miscellaneous. 

         
12.1      This Agreement shall be construed without
regard to any presumption or other rule requiring construction against the party
causing such instrument to be drafted. The terms “hereby,” “hereof,”
“hereunder,” and any similar terms, as used in this Agreement, refer to the
Agreement in its entirety and not only to the particular portion of this
Agreement where the term is used. The word “person” shall mean any natural
person, partnership, corporation, government and any other form of business of
legal entity. All words or terms used in this Agreement, regardless of the
number or gender in which they were used, shall be deemed to include any other
number and any other gender as the context may require. This Agreement shall not
be admissible in evidence to construe the provisions of any prior agreement.

         
12.2      This Agreement and the rights and obligations
hereunder of the parties to this Agreement may not be assigned. This Agreement
shall be binding upon and inure to the benefit of each party’s respective
successors, heirs and permitted assigns. No other person shall acquire or have
any rights under or by virtue of this Agreement. This Agreement may not be
changed orally or modified, amended or supplemented without an express written
agreement executed by the Escrow Agent and the Escrowing Parties. This Agreement
is intended to be for the sole benefit of the parties hereto and their
respective successors, heirs and permitted assigns, and none of the provisions
of this Agreement are intended to be, nor shall they be construed to be, for the
benefit of any third person. 

         
12.3      This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York. The
representations and warranties contained in this Agreement shall survive the
execution and delivery hereof and any investigations made by any party. The
headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect any of the terms thereof.

13.      Execution of
Counterparts. This Agreement may be executed in a number of counterparts, by
facsimile transmission or other electronic transmission, each of which shall be
deemed to be an original as of those whose signature appears thereon, and all of
which shall together constitute one and the same instrument. This Agreement
shall become binding when one or more of the counterparts hereof, individually
or taken together, are signed by all the parties. 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 
SIGNATURE PAGES
FOLLOW] 

-8- 




          IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement on the
day and year first above written. 

ESCROW AGENT: 

ESCROW, LLC 

By: /s/ Johnnie L.
Zarecor                                          
Name:
Johnnie L. Zarecor 
Title: Vice President


COMPANY: 

YAYI INTERNATIONAL INC. 

By: /s/ Li
Liu                                                            
 
Name: Li Liu 
Title: Chief Executive Officer 


PLACEMENT AGENT: 

EURO PACIFIC CAPITAL, INC.

By: /s/ Gordon
McBean                                          
 
Name: Gordon McBean 
Title: Head of Capital Markets 

 

 

Yayi Closing Escrow Agreement 




EXHIBIT A 
PARTIES TO AGREEMENT 


Yayi International Inc.
No. 9
Xingguang Road 
Northern Industrial Park of Zhongbei Town
Xiqing District,
Tianjin 300384, China 
Attention: President

  Fax: 86-22-2798-4358 

Escrow, LLC
215 Mockingbird Lane

Warrenton, VA 20186 
Attention: Johnnie L. Zarecor 
Telephone: (540)
347-2212 
Fax: (540) 347-2291 

  Email: jzarecor@escrowllc.net 

Euro Pacific Capital, Inc. 
88 Post
Road West, 3rd Floor 
Westport, CT 06880 
Attention: Mr. Thomas Tan


  Fax: (203) 662-9771 




EXHIBIT B 

SUBSCRIPTION INFORMATION 

	Name of Investor 	 
	  	 
	Address of Investor 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	$ Amount of Units Subscribed 	 
	 	 
	 	 
	Subscription Amount 	 
	Submitted Herewith 	 
	 	 
	 	 
	Taxpayer ID Number/ 	 
	Social Security Number 	 
	  	 
	 	 
	Signature of Investor 	 






EXHIBIT C 

DISBURSEMENT REQUEST 

          Pursuant
to that certain Agreement by and among Yayi International Inc., Euro Pacific
Capital, Inc., and Escrow, LLC, the Company and Placement Agent hereby request
disbursement of funds in the amount and manner described below from Virginia
Commerce Bank account number 01194186, styled Escrow, LLC. 

	 	Please disburse to: 	 
	 	  	 
	 	Amount to disburse: 	 
	 	  	 
	 	Form of distribution: 	 
	 	  	 
	 	Payee: 	 
	 	               
                         
         Name: 	 
	 	               
                         
         Address: 	 
	 	               
                         
         City/State: 	 
	 	               
                         
         Zip: 	 
	 	  	 
	 	  	 
	 	  	 
	 	Please disburse to: 	 
	 	  	 
	 	Amount to disburse: 	 
	 	  	 
	 	Form of distribution: 	 
	 	  	 
	 	Payee: 	 
	 	               
                         
         Name: 	 
	 	               
                         
         Address: 	 
	 	               
                         
         City/State: 	 
	 	               
                         
         Zip: 	 


Subscriptions Accepted From 

	 	Investor 	 	Amount 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	
        Total: 
	 	 
    







	 	Statement of event or condition which calls for
      this request for disbursement: 
	 	 
	 	 
	 	 


COMPANY: 

YAYI INTERNATIONAL INC. 

By:
_______________________________
      
Name:
       Title:

 

PLACEMENT AGENT: 

EURO PACIFIC CAPITAL, INC.

By:_______________________________
      
Name:
       Title: