Yayi International Inc.  - Exhibit 4.1 - Filed by newsfilecorp.com






Exhibit 4.1

NEITHER THE NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. 

YAYI INTERNATIONAL INC. 

9% CONVERTIBLE PROMISSORY NOTE 

	US $_____________ 	________, 2010 


          FOR
VALUE RECEIVED, Yayi International Inc., a Delaware corporation (the
“Company”), promises to pay to [ ] (the “Holder”), the principal
sum of ___________________DOLLARS ($_________) (the “Principal”) in
lawful money of the United States of America, with interest payable
thereon at the rate of nine percent (9%) per annum. The principal amount hereof
and all accrued but unpaid interest thereon shall be paid in full to the Holder
on the three (3) year anniversary of the date of closing of the Minimum Amount
(the “Maturity Date”).

          Capitalized
terms used herein but not defined herein shall have the meaning ascribed to them
in that certain Securities Purchase Agreement, dated of even date herewith (the
“SPA”), pursuant to which the Holder is acquiring this Note.

          The
following is a statement of the rights of the Holder of this Note and the terms
and conditions to which this Note is subject, and to which the Holder, by
acceptance of this Note, agrees: 

          1.      Series.
This Note is one of a series of Notes of the Company in the aggregate principal
amount of a minimum of Six Million Dollars ($6,000,000) and up to a maximum of
Ten Million Dollars ($10,000,000) (collectively, the “Notes”) as
described in that certain Confidential Private Placement Memorandum, dated
August 30, 2010, delivered to the Holder in connection with the transactions
contemplated by the SPA (the “Memorandum”). 

          2.      Principal
Repayment. The outstanding principal amount of this Note shall be payable on
the Maturity Date, unless this Note has been earlier converted or
redeemed as described below. 




          3.     
Interest. 

                    (a)      Computation.
Interest (the “Interest”) shall accrue on the outstanding principal
amount of this Note from the date hereof until such principal amount is repaid
in full at the rate of nine percent (9%) per annum, payable semiannually in
arrears on the last day of the first and third calendar quarters (i.e.,
March 31 and September 30) commencing March 31, 2011, subject to earlier
conversion or redemption of the Note. For purposes of clarity, the initial
interest payment shall consist of accrued interest from the date of issuance of
the Note through March 31, 2011. All computations of the interest rate hereunder
shall be made on the basis of a 360-day year of twelve 30-day months. In the
event that any interest rate provided for herein shall be determined to be
unlawful, such interest rate shall be computed at the highest rate permitted by
applicable law. Any payment by the Company of any interest amount in excess of
that permitted by law shall be considered a mistake, with the excess being
applied to the principal of this Note without prepayment premium or penalty.


                    (b)     
Closing Escrow Holdback. At each Closing, an amount sufficient to satisfy
the payment to the Investors of one semiannual interest payment (which includes
accrued interest due on the principal amount of all notes from the date of
issuance of the Notes through March 31, 2011) due on the aggregate principal
amount of all Notes issued at such Closing shall be retained by the Escrow Agent
(all such amounts, collectively the “Holdback Amount”). Upon written
notification by the Investor Representative to the Escrow Agent that an Event of
Default has been declared by the Investor Representative under Section 6(a)
hereof with respect to a failure by the Company to make a semiannual payment of
Interest (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. The Investor Representative may deliver
an Interest Payment Notice only following complete fulfillment by the Investor
Representative of all procedures, and the lapse of applicable cure periods, set
forth herein relating to the declaration of an Event of Default under Section
6(a) hereof. Notwithstanding anything to the contrary contained herein, such a
disbursement shall cure the Event of Default that was the subject of the
Interest Payment Notice. Within thirty (30) days following any such disbursement
of the Holdback Amount, the Company shall deposit an additional amount equal to
the Holdback Amount with the Escrow Agent to be retained and disbursed upon
delivery of a future Interest Payment Notice. On the Maturity Date, 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 in
accordance with the Closing Escrow Agreement, and the Company’s obligation to
maintain funds in escrow shall cease. 

          4.     
Ranking. Except for the secured Indebtedness (as defined below) of the
Company and its Subsidiaries in existence on the date hereof as described in the
Memorandum (including the financial statements that form a part thereof), and
subject to the terms and conditions of this Note and the other Transaction
Documents, the obligations of the Company under this Note shall rank
senior with respect to all existing indebtedness of the Company
as of the date hereof and to any and all Indebtedness incurred
hereafter. “Indebtedness” shall mean: (i) all obligations of the
Company for borrowed money or with respect to deposits or advances of any kind,
(ii) all obligations of the Company evidenced by bonds, debentures, notes or
other similar instruments, (iii) all obligations of the Company for the deferred
purchase price of property or services, except current accounts payable arising
in the ordinary course of business and not overdue beyond such period as is
commercially reasonable for the Company’s business, (iv) all obligations of
the Company under conditional sale or other title retention agreements relating
to property purchased by the Company, (v) all payment obligations of the Company
with respect to interest rate or currency protection agreements, (vi) all
obligations of the Company as an account party under any letter of credit or in
respect of bankers’ acceptances, (vii) all obligations of any third party
secured by property or assets of such Person (regardless of whether or not the
Company is liable for repayment of such obligations), except for obligations to
secure Indebtedness incurred within the limitations of this Section 8(a); (viii)
all guarantees of the Company and (ix) the redemption price of all redeemable
preferred stock of the Company, but only to the extent that such stock is
redeemable at the option of the Holder or requires sinking fund or similar
payments at any time prior to the Maturity Date.  

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          5.      Conversion.


                    (a)     
  Generally. Each Holder of the Notes shall have the right, exercisable
  at any time prior to the Maturity Date, to convert all, but not less than all,
  of the principal amount then outstanding into shares of the Company’s common
  stock, par value $0.001 per share (the “Common Stock”) at a
  conversion price (the “Conversion Price”) equal to $2.00 per
  share (the Common Stock underlying the Notes being referred to herein as the
  “Shares”). Any accrued but unpaid Interest on such principal
  amount outstanding at the time of conversion shall be paid at the next scheduled
  payment date determined in accordance with Section 3 hereof.

                    (b)     
  Mechanics of Conversion. The conversion of this Note shall be conducted
  in the following manner: upon any conversion of all but not less than all of
  the outstanding principal amount of this Note: (i) the Holder shall deliver
  a completed and executed Notice of Conversion attached hereto as Exhibit
  A and surrender and deliver this Note, duly endorsed, to the Company’s
  office or such other address which the Company shall designate against delivery
  of the certificates presenting the Shares to be delivered; (ii) in exchange
  for the surrendered Note, the Company shall prepare and deliver irrevocable
  instructions addressed to the Company’s transfer and exchange agent, as
  applicable, to issue such required number of Shares as set forth in the Conversion
  Notice which Shares shall be delivered to the Holder within five (5) Business
  Days of the delivery of the documentation to the Company; and (iii) upon delivery
  of the Shares, this Note shall become fully paid and satisfied. The Company
  shall, upon the written request of the Holder, use its best efforts to deliver,
  or cause to be delivered, the Shares hereunder electronically through the Depository
  Trust and Clearing Corporation or another established clearing corporation performing
  similar functions, if available; provided, that, the Company may, but
  will not be required to, change its transfer agent if its current transfer agent
  cannot deliver the Shares electronically through the Depository Trust and Clearing
  Corporation. 

                    (c)      Adjustments
  to Conversion Price. 

                                        (i)      Adjustments
for Stock Splits and Combinations and Stock Dividends. If the
Company shall at any time or from time to time after the date hereof, effect a
stock split or combination of the outstanding Common Stock or pay a stock
dividend in shares of Common Stock, then the Conversion Price shall be
proportionately adjusted. Any adjustments under this Section 5(c)(i) shall be
effective at the close of business on the date the stock split or combination
becomes effective or the date of payment of the stock dividend, as applicable.


3 




                                        (ii)     
Merger Sale, Reclassification, etc. In case of any (A)
consolidation or merger (including a merger in which the Company is the
surviving entity), (B) sale or other disposition of all or substantially all of
the Company’s assets or distribution of property to stockholders (other than
distributions payable out of earnings or retained earnings), or
reclassification, change or conversion of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the conversion of
this Note) or any similar corporate reorganization on or after the date hereof,
then and in each such case the Holder of this Note, upon the conversion hereof
at any time thereafter shall be entitled to receive, in lieu of the stock or
other securities and property receivable upon the conversion hereof prior to
such consolidation, merger, sale or other disposition, reclassification, change,
conversion or reorganization, the stock or other securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
converted this Note immediately prior thereto. 

                                        (iii)      Adjustments
for Issuance of Additional Shares of Common Stock.

                                        (A)     
In the event the Company, shall, at any time, from time to time, issue or sell
any additional shares of Common Stock (other than (i) pursuant to Common Stock
Equivalents (hereafter defined) granted or issued prior to the issuance date of
this Note or (ii) upon the exercise of a Series F Warrant) (“Additional
Shares of Common Stock”), at a price per share less than the Conversion
Price then in effect or without consideration, then the Conversion Price upon
each such issuance shall be adjusted to that price (rounded to the nearest cent)
determined by multiplying the Conversion Price then in effect by a fraction:


                                        (i)      the
numerator of which shall be equal to the sum of (x) the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus (y) the number of shares of Common Stock
(rounded to the nearest whole share) which the aggregate consideration for the
total number of such Additional Shares of Common Stock so issued would purchase
at a price per share equal to the Conversion Price then in effect, and 

                                        (ii)      the
denominator of which shall be equal to the number of shares of Common Stock
outstanding immediately after the issuance of such Additional Shares of Common
Stock. 

                                        (B)      The
provisions of paragraph (A) of Section 5(iii) shall not apply to any issuance of
Additional Shares of Common Stock for which an adjustment is provided elsewhere
in this Section 5. No adjustment of the number of Shares for which this Note
shall be convertible shall be made under this clause (iii) upon the issuance of
any Additional Shares of Common Stock which are issued pursuant to the exercise
of any Common Stock Equivalents, if any such adjustment shall previously have
been made upon the issuance of such Common Stock Equivalents pursuant to the
other provisions of this Section 5. 

4 




                                        (C)      Issuance
of Common Stock Equivalents. The provisions of this Section 5(iii) shall
apply if (a) the Company, at any time after the issuance date of this Note,
shall issue any securities convertible into or exchangeable for, directly or
indirectly, Common Stock (“Convertible Securities”), other than the Notes
and any Series A Preferred Stock issued to SAIF under the make-good provisions
of the Company’s Amended and Restated Certificate of Designation of Series A
Preferred Stock, or (b) any rights or warrants or options to purchase any such
Common Stock or Convertible Securities (collectively, the “Common Stock
Equivalents”), other than Series F Warrants, shall be issued or sold. If the
price per share for which Additional Shares of Common Stock may be issuable
pursuant to any such Common Stock Equivalent shall be less than the applicable
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall be less than the applicable Conversion Price in effect at the time of such
amendment or adjustment, then the applicable Conversion Price upon each such
issuance or amendment shall be adjusted as provided in the first sentence of
subsection (iii)(A) of this Section 5. No adjustment shall be made to the
Conversion Price upon the issuance of Common Stock pursuant to the exercise,
conversion or exchange of any Convertible Security or Common Stock Equivalent
where an adjustment to the Conversion Price was made as a result of the issuance
or purchase of any Convertible Security or Common Stock Equivalent. 

                                        (D)      Certain
Issues Excepted. Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment to the Conversion Price
under this Section 5 in connection with securities of the Company issued: (i) in
connection with a merger, acquisition or consolidation, (ii) in connection with
bona fide joint venture, strategic license or similar business partnering
arrangements (provided that the transaction or arrangement is not primarily for
the purpose of raising capital from Person whose primary business is investing
in securities), (iii) upon exercise of the Warrants issued together with the
Notes; (iv) upon exercise any warrants issued to the Investor Representatives
and its designees for the transactions contemplated hereby; and (v) in
connection with any share split, share dividend, recapitalization or similar
transaction by the Company for which adjustment is made pursuant to this Section
5. 

                    (e)     
Elimination of Fractional Interests. No fractional shares of Common Stock
shall be issued upon conversion of this Note, nor shall the Company be required
to pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated and that all issuances of
Common Stock shall be rounded up to the nearest whole share. 

          6.      Events
of Default. In the event that any of the following (each, an “Event of
Default”) shall occur: 

                    (a)      Non-Payment.
The Company shall default in the payment of the principal of, or accrued
interest on, this Note as and when the same shall become due and payable,
whether by acceleration or otherwise; or 

5 




                    (b)     
Default in Covenants. The Company shall default in any material manner in
the observance or performance of the affirmative or negative covenants or
agreements set forth in the SPA, this Note or that certain Registration Rights
Agreement, dated of even date herewith, between the Holder and the Company or
the Make Good Escrow, dated of even date herewith, among the Company, the Make
Good Pledger, the Investor Agent and Escrow Agent (collectively, the
“Transaction Documents”); or 

                    (c)      Breach
of Representations and Warranties. The Company materially breaches any
representation or warranty contained in the Transaction Documents; or 

                    (d)     
Exchange Act or Exchange Requirements. Any termination of registration or
suspension of the Company’s reporting obligations under the Exchange Act or
suspension from trading on the OTCBB (or any exchange on which the Common Stock
is traded or listed for quotation (it being agreed that the delisting of the
Common Stock from any national exchange shall not be an Event of Default if the
Common Stock is, within ten (10) Business Days of the effective date of such
delisting, quoted on the OTCBB), or the Company’s failure to file reports with
the SEC on a timely basis as required by the Exchange Act; or 

                    (e)     
Judgments. Any final, non-appealable judgment, decree or order for the
payment of money is entered against any of the Company or the Company’s
Subsidiaries in an amount equal to $5,000,000 or more and the same remains
unsatisfied or unbonded for more than thirty (30) days; or 

                    (f)      Nationalization.
The confiscation, expropriation or nationalization by any governmental authority
to which the Company or a Subsidiary is subject of any material property or
assets of the Company or its Subsidiaries, taken as a whole; or 

                    (g)     
Illegality of Notes. Any court of competent jurisdiction issues an order
declaring the Notes or any provision thereunder to be illegal; or 

                    (h)     
Cross Default. There occurs with respect to any agreement, indenture or
instrument under which the Company or its Subsidiaries have Indebtedness (as
defined hereafter) of $1,500,000 or more in the aggregate: (i) a default with
respect to any payment obligation thereunder that then entitles the holder
thereof to declare such Indebtedness to be due and payable prior to its stated
maturity, or (ii) any other default thereunder that entitles, and has caused,
the holder thereof to declare such Indebtedness to be due and payable prior to
its stated maturity; or 

6 




                    (i)      Bankruptcy.
The Company shall: (i) admit in writing its inability to pay its debts as they
become due; (ii) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for the Company or any of its
property, or make a general assignment for the benefit of creditors; (iii) in
the absence of such application, consent or acquiesce in, permit or suffer to
exist the appointment of a trustee, receiver, sequestrator or other custodian
for the Company or for any part of its property; or (iv) permit or suffer to
exist the commencement of any bankruptcy, reorganization, debt arrangement or
other case or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect of the Company,
and, if such case or proceeding is not commenced by the Company or converted to
a voluntary case, such case or proceeding shall be consented to or acquiesced in
by the Company or shall result in the entry of an order for relief; then, and so long as such
Event of Default is continuing (and the event which would constitute such Event
of Default, if curable, has not been cured) for a period of fifteen (15)
Business Days, with respect to an Event of Default declared under Section 6(a)
hereof, or for a period of thirty (30) Business Days, with respect to any other
Event of Default hereunder, by written notice to the Company by the Investor
Representative (with respect to this Note and all other Notes of the same
series, in the aggregate) or any Holder of this Note (with respect to this Note
only and not with respect to any other Note) all obligations of the Company
under this Note shall be immediately due and payable without presentment,
demand, protest or any other action nor obligation of the Holder of any kind,
all of which are hereby expressly waived, and Holder may exercise any other
remedies the Holder may have at law or in equity. If an Event of Default
specified in Section 6(i) above occurs, the principal of, and accrued interest
on, all the Notes shall automatically, and without any declaration or other
action on the part of any Holder, become immediately due and payable. 

          7.     
Affirmative Covenants of the Company. The Company hereby agrees that, so
long as the Note remains outstanding and unpaid, or any other amount is owing to
the Holder hereunder, the Company will: 

                    (a)     
Corporate Existence and Qualification. Take the necessary steps to
preserve its corporate existence and its right to conduct business in all states
in which the nature of its business requires qualification to do business. 

                    (b)     
Books of Account. Keep its books of account in accordance with good
accounting practices. 

                    (c)      Insurance.
Maintain insurance with responsible and reputable insurance companies or
associations, as determined by the Company in its sole but reasonable
discretion, in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Company operates. 

                    (d)      Compliance
with Law. Comply with the charter and bylaws or other organizational or
governing documents of the Company, and any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other governmental authority, in
each case applicable to or binding upon the Company or any of its property or to
which each the Company or any of its property is subject. 

                    (e)      Taxes.
Duly pay and discharge all taxes or other claims, which might become a lien upon
any of its property except to the extent that any thereof are being in good
faith appropriately contested with adequate reserves provided therefore. 

                    (f)      Reservation
of Shares. At all times have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock and issuable upon
conversion of this Note to provide for the issuance of all of the Shares. Prior
to complete conversion of this Note, the Company shall not reduce the number of
shares of Common Stock reserved for issuance hereunder without the written
consent of the Holders except for a reduction proportionate to a reverse stock
split effected for a business purpose other than affecting the requirements of
this Section, which reverse stock split affects all shares of Common Stock
equally. 

7 




                    (g)
Use of Proceeds. Use the proceeds of the Notes for the purposes described
in the Memorandum. 

                    (h)
Notice of Known Events of Default. The Company shall furnish to the
Investor Representative a notice of any occurrence of an Event of Default, and
what action the Company is taking or proposes to take with respect thereto,
promptly after such Event of Default becomes known to the Company.

                    (i)
Further Assurances. The Company shall execute and deliver any and all
such further documents and take any and all such other actions as may be
reasonably necessary or appropriate to carry out the intent and purposes of this
Note and to consummate the transactions contemplated herein. 

          8.      Negative
Covenants of the Company. Except for the transactions completed by the SPA
and all related documents between and among the Company and its Subsidiaries,
and except as disclosed in the Memorandum, the Company hereby agrees that, so
long as this Note remains outstanding and unpaid, and as long as the aggregate
principal amount (including accrued but unpaid interest) of outstanding Notes is
not less than 85% of the Gross Proceeds it will not, nor will it permit any of
its Subsidiaries to, without the consent of the Investor Representative: 

                    (a)
Indebtedness for Borrowed Money. Except as set forth on Schedule
8(a) hereto, incur, or permit to exist, any Indebtedness (as defined below)
for borrowed money in excess of (i) US$10,000,000 during the twelve (12) month
period beginning on the date hereof, or (ii) US$15,000,000 during period
beginning on the date hereof and ending on the Maturity Date, except in the
ordinary course of the Company’s business. 

                    (b)
Loans; Investments. Lend or advance money, credit or property to or
invest in (by capital contribution, loan, purchase or otherwise) any Person in
excess of US$2,000,000 except: (i) investments in United States
Government obligations, certificates of deposit of any banking institution with
combined capital and surplus of at least $200,000,000; (ii) accounts receivable,
deposits and advance payment arising in the ordinary course of business; and
(iii) inter-company loans between and among the Company and its Subsidiaries.


                    (c)
Dividends and Distributions. Pay dividends or make any other distribution
on shares of the capital stock of the Company other than inter-company
dividends, and distributions between and among the Company and its Subsidiaries.


                    (d)
Liens. Create, assume or permit to exist, any lien on any of its property
or assets now owned or hereafter acquired except (i) liens in favor of the
Holder; (ii) liens granted to secure Indebtedness incurred within the
limitations of Section 8(a) hereof; (iii) liens incidental to the conduct
of its business or the ownership of its property and assets which were not
incurred in connection with the borrowing of money or the obtaining of advances
or credit and which do not materially impair the use thereof in the operation of
its business; (iv) liens for taxes or other governmental charges which are not
delinquent or which are being contested in good faith and for which a reserve
shall have been established in accordance with generally accepted accounting
principles; (v) purchase money liens granted to secure the unpaid purchase price
of any fixed assets purchased within the limitations of Section 8(g) hereof; and
(vi) liens established in connection with any bank loans. 

8 




                    (e)
Contingent Liabilities. Assume, endorse, be or become liable for or
guarantee the obligations of any Person, contingently or otherwise, excluding
however, the endorsement of negotiable instruments for deposit or collection in
the ordinary course of business or guarantees of the Company made within the
limitations of Section 8(a) hereof. 

                    (f)
Sales of Receivables; Sale - Leasebacks. Except as set forth on
Schedule 8(f) hereto, sell, discount or otherwise dispose of notes,
accounts receivable or other obligations owing to the Company, with or without
recourse, except for the purpose of collection in the ordinary course of
business; or sell any asset pursuant to an arrangement to thereafter lease such
asset from the purchaser thereof. 

                    (g)
Capital Expenditures; Capitalized Leases. Except as set forth on
Schedule 8(g) hereto, expend in the aggregate for the Company and
all its Subsidiaries in excess of US$5,000,000 in any fiscal year for Capital
Expenditures (as defined below), including payments made on account of
Capitalized Leases (as defined below). For purposes of the foregoing, Capital
Expenditures shall include payments made on account of any deferred purchase
price or on account of any indebtedness incurred to finance any such purchase
price. “Capital Expenditures” shall mean for any period, the aggregate
amount of all payments made by any Person directly or indirectly for the purpose
of acquiring, constructing or maintaining fixed assets, real property or
equipment which, in accordance with generally accepted accounting principles,
would be added as a debit to the fixed asset account of such Person, including,
without limitation, all amounts paid or payable with respect to Capitalized
Lease Obligations and interest which are required to be capitalized in
accordance with generally accepted accounting principles. “Capitalized
Lease” shall mean any lease the obligations to pay rent or other amounts
under which constitute Capitalized Lease Obligations. “Capitalized Lease
Obligations” shall mean as to any Person, the obligations of such Person to
pay rent or other amounts under a lease of (or other agreement conveying the
right to use) real and/or personal property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet of such
Person under generally accepted accounting principles and, for purposes of this
Note, the amount of such obligations shall be the capitalized amount thereof,
determined in accordance with generally accepted accounting principles. 

                    (h)
Nature of Business. Materially alter the nature of the Company’s business
or otherwise engage in any business other than the business engaged in or
proposed to be engaged in on the date of this Note. 

                    (i)
Stock of Subsidiaries. Sell or otherwise dispose of any Subsidiary or
permit a Subsidiary to issue any additional shares of its capital stock except
pro rata to its stockholders. 

                    (j)
  Accounting Changes. Make, or permit any Subsidiary to make any change
  in their accounting treatment or financial reporting practices except as required
  or permitted by generally accepted accounting principles in effect from time
  to time.

9 




                    (k)
Merger or Sale. 

                                   (i)      The
Company shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, consolidate or merge with or into another Person (whether or not the Company or such Subsidiary is the surviving
corporation), or sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company and its
Subsidiaries taken as a whole in one or more related transactions, to any other
Person, unless (A) either the Company or such Subsidiary is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company or such Subsidiary) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia, (B) the Person formed by or surviving any
such consolidation or merger (if other than the Company or such Subsidiary) or
the Person to which such sale, assignment, transfer, conveyance or other
disposition shall have been made (1) assumes in writing all the obligations of
the Company under the Notes and the other Transaction Documents and (2) causes
to be delivered to each Holder of any Notes an opinion of nationally recognized
independent counsel, or other independent counsel reasonably satisfactory to the
Investor Representative, to the effect that all agreements or instruments
effecting such assumption are enforceable in accordance with their terms and
comply with the terms hereof, and (C) immediately after such transaction, no
default or Event of Default exists. 

          The
foregoing paragraph in this Section 8(k)(i) shall not apply to (x) a merger of
the Company with an Affiliate with no material assets, liabilities or operations
solely for the purpose of reincorporating the Company in another jurisdiction;
or (y) any consolidation or merger, or any sale, assignment, transfer,
conveyance, lease or other disposition of assets between or among the Company
and its Subsidiaries; provided, however, that such consolidation or
merger shall comply with subclauses (A) and (B) in the foregoing paragraph. 

                                   (ii)      Upon
any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company or any of its Subsidiaries permitted by Section 8(k)(i) hereof, the
successor corporation formed by such consolidation or into or with which the
Company or such Subsidiary is merged or to which such sale, assignment,
transfer, lease, conveyance or other disposition is made shall succeed to, and
be substituted for (so that from and after the date of such consolidation,
merger, sale, lease, conveyance or other disposition, the provisions of this
Note referring to the “Company,” or to a “Subsidiary” shall refer instead to the
successor corporation and not to the Company or such Subsidiary, as the case may
be), may exercise every right and power of the Company or such Subsidiary under
this Note with the same effect as if such successor Person had been named as the
Company or a Subsidiary herein and shall be bound by every obligation and
liability of the Company or such Subsidiary under this Note and the other
Transaction Documents, however, that the predecessor Person shall not be
relieved from the obligation to pay the principal of and interest on the Notes.


                    (l)
Transactions with Affiliates. Except for transactions contemplated by the
Transaction Documents or as otherwise approved by the Board (including a
majority of the independent directors then on the Board) or as disclosed in the
SEC Reports or the Memorandum, the Company shall not, and shall cause its
Subsidiaries not to enter into any transaction with any director, officer,
employee or holder of more than five percent of the outstanding capital stock of
any class or series of capital stock of the Company or any Subsidiary, member of
the family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or member of the family of any such person, is
a director, officer, trustee, partner or holder of more than five percent of the
outstanding capital stock thereof. 

10 




          9.       
Redemption. 

                     
(a)      At any time after one (1) year following
the First Closing Date, the Company shall have the option to redeem all but not
less than all of the outstanding principal amount of this Note by payment to the
Holder of one hundred and eight percent (108%) of such outstanding principal
amount (the “Redemption Amount”), together with accrued but unpaid
interest thereon to, but not including, the redemption date. 

                     
(b)      If the Company elects to redeem this Note in
accordance with the terms of this Section 9, it shall furnish to the Holder, at
least thirty (30) days but not more than sixty (60) days before a redemption
date, written notice of the Company’s intention to redeem the Note. The notice
shall state: (i) the redemption date; (ii) the Redemption Amount and the
redemption price; (iii) that this Note called for redemption must be surrendered
to the Company to collect the redemption price; and (iv) that, unless the
Company defaults in making such redemption payment, Interest on this Note called
for redemption ceases to accrue on the redemption date. The Holder shall be
permitted to convert this Note into Shares at any time following the date such
notice is given until the redemption date. 

                     
(c)      Upon notice to the Holder that this Note
has been called for redemption, the Redemption Amount will become irrevocably
due and payable on the redemption date at the redemption price. A notice of
redemption may not be conditional. 

          10.     
Holder Not Deemed a Stockholder. No Holder, as such, of this Note shall
be entitled to vote or receive dividends or be deemed the holder of shares of
the Company for any purpose, nor shall anything contained in this Note be
construed to confer upon the Holder hereof, as such, any of the rights at law of
a stockholder of the Company prior to the issuance to the Holder of the shares
of Common Stock which the Holder is then entitled to receive upon the due
conversion of this Note. 

          11.     
Mutilated, Destroyed, Lost or Stolen Notes. In case this Note shall
become mutilated or defaced, or be destroyed, lost or stolen, the Company shall
execute and deliver a new note of like principal amount in exchange and
substitution for the mutilated or defaced Note, or in lieu of and in
substitution for the destroyed, lost or stolen Note. In the case of a mutilated
or defaced Note, the Holder shall surrender such Note to the Company. In the
case of any destroyed, lost or stolen Note, the Holder shall furnish to the
Company: (i) evidence to its satisfaction of the destruction, loss or theft of
such Note and (ii) such security or indemnity as may be reasonably required by
the Company to hold the Company harmless. 

          12.     
Waiver of Demand, Presentment, etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereunder, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder. The Company agrees that, in the event of an Event of
Default, to reimburse the Holder for all reasonable costs and expenses
(including reasonable legal fees of one counsel) incurred in connection with the
enforcement and collection of this Note. 

11 




          13.      Payment.
All payments with respect to this Note shall be made in lawful money of the
United States of America, at the address of the Holder as of the date hereof or
as designated in writing by the Holder from time to time. The receipt by the
Holder of immediately available funds shall constitute a
payment of principal and interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Note to the extent of the sum
represented by such payment. Payment shall be credited first to the accrued
interest then due and payable and the remainder applied to principal.

          14.      Assignment.
The rights and obligations of the Company and the Holder of this Note shall be
binding upon, and inure to the benefit of, the successors and permitted assigns
of the parties hereto. The Holder may assign, pledge or otherwise transfer this
Note or any interest therein with prior notice to the Company. Interest and
principal are payable only to the registered Holder of this Note on the books
and records of the Company. 

          15.      Waiver
and Amendment. Any provision of this Note, including, without limitation,
the due date hereof, and the observance of any term hereof, may be amended,
waived or modified (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the Investor Representative. 

          16.     
Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
given in accordance with the provisions of Section 6.3 of the SPA. 

          17.      Governing
Law. This Note shall be governed by and construed in accordance with the
laws of the State of New York, USA, excluding that body of law relating to
conflicts of laws.

          18.      Consent
to Jurisdiction. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Note (whether brought against a party hereto or its respective affiliates,
directors, officers, stockholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York.
Each party hereto hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City of New York, New York for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of this Note, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Note and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. EACH PARTY HERETO (INCLUDING ITS AFFILIATES,
AGENTS, OFFICERS, DIRECTORS AND EMPLOYEES) HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY. 

12 




          19.      Severability.
If one or more provisions of this Note are held to be unenforceable under
applicable law, such provisions shall be excluded from this Note, and the
balance of this Note shall be interpreted as if such provisions were so excluded
and shall be enforceable in accordance with its terms. 

          20.      Headings.
Section headings in this Note are for convenience only, and shall not be used in
the construction of this Note. 

[Signature Page Follows]

13 




          IN
WITNESS WHEREOF, the Company has caused this Note to be issued as of
the date first above written. 

YAYI INTERNATIONAL INC.

 

By:
________________________________
Name: Li Liu 
Title: Chief Executive
Officer 




Exhibit A 

YAYI INTERNATIONAL INC. 
NOTE CONVERSION NOTICE


         
Reference is made to the 9% Convertible Promissory Note in the original
principal amount of $___________ of Yayi International Inc., a Delaware
corporation (the “Company”), issued to the undersigned (the
“Note”).

          In
accordance with and pursuant to the terms of the Note, the undersigned hereby
elects to convert the entire outstanding principal amount due and owing under
the Note into shares of Common Stock, $0.001 par value per share, of the Company
(the “Common Stock”), by tendering the original of the Note for
cancellation. 

Please confirm the following
information: 

Principal Amount Outstanding under the
Note:______________________

Accrued but unpaid interest under the
Note:________________________

Conversion Price:
___________________________________________

Number of Shares to be issued:
_________________________________

Please issue the Shares into which the Note is being converted
in the following name and to the following address: 

	Issue to: 	 
	  	 
	Address: 	____________________________________
	 	____________________________________ 
	 	____________________________________ 
	 	 
	Facsimile Number: 	 
	  	 
	Authorization: 	 
		By: ________________________________
		Title: _______________________________
	 	 
	Dated: ____________________________________