Exhibit 10.2


 


EXECUTION COPY


 


SECOND TERRITORY LETTER AGREEMENT


 


THIS SECOND TERRITORY LETTER
AGREEMENT (this “Agreement”) is made and entered into as of March 31,
2006, by and among: (i) Inverness Medical Innovations, Inc., a Delaware
corporation (“Inverness”); (ii) ACON Laboratories, Inc., a California
corporation (“ACON Labs”); AZURE Institute, Inc., a California
corporation (“Azure”), LBI Inc., a British Virgin Islands company (“LBI”),
Oakville Hong Kong Co., Ltd., a Hong Kong company (“Oakville”); and ACON
Biotech (Hangzhou) Co., Ltd., a wholly foreign owned enterprise (“WFOE”)
established in the People’s Republic of China (“PRC” or “China”) (“ACON Bio” and together with ACON
Labs. Azure, LBI, Oakville and ACON Bio, the “ACON Entities”; and (iii)
Karsson Overseas Ltd., a British Virgin Islands company (“Parent”). Unless
otherwise specified herein, each of the terms set forth below shall have the
meanings set forth in the Form of Acquisition Agreement (as defined below).


 


RECITALS


 


WHEREAS, Inverness, the ACON
Entities, and the Parent are, or will be, parties to various agreements
providing for Inverness’s purchase of the First Territory Business and the New
Facility (as such terms are defined in the First Territory and New Facility
Acquisition Agreement (as defined below));


 


WHEREAS, at the First
Closing (as defined in the First Territory and New Facility Acquisition
Agreement) and pursuant to the Acquisition Agreement dated as of February 24,
2006, by and among Inverness, the ACON Entities and the Parent (the “First
Territory and New Facility Acquisition Agreement”), the ACON Entities will
sell, transfer and assign to Inverness, and Inverness will purchase from the
ACON Entities, the assets, properties, interests and business of developing,
manufacturing, marketing and/or selling lateral flow immunoassay products and
directly related products in the United States, Canada, Europe (excluding
(i) Russia, (ii) the former Soviet Republics that are not part of the
European Union as of the date of this Agreement, and (iii) Turkey),
Israel, Australia, Japan and New Zealand; and the ACON Entities will transfer
and assign to Inverness and Inverness will assume from the ACON Entities
certain liabilities, in each case as and to the extent provided in the First Territory
and New Facility Acquisition Agreement;


 


WHEREAS, in connection with
the New Facility Closing (as defined in the First Territory and New Facility
Acquisition Agreement) and pursuant to the First Territory and New Facility
Acquisition Agreement, LBI will sell, transfer and assign to Inverness, and
Inverness will purchase from LBI, the entire ownership of Rich Horizons
International, Ltd., a British Virgin Islands company (“Rich Horizons”)
which at the time of such sale shall own ABON BioPharm (Hangzhou) Co., Ltd, a
Chinese limited liability company (“ABON”) and own and operate through
ABON the New Facility (including the research, development, manufacture and
testing equipment therein) and thereafter, certain ACON Entities will manage,
direct and oversee the operation of that portion of the New Facility which is
not yet Fully Functional (as defined in the First Territory and New Facility
Acquisition Agreement) until such time as each such portion is Fully Functional
and control of such portion of the New Facility has been transferred to


 


Second Territory Letter
Agreement


 

















 


Inverness, in each case as and to the extent
provided in the First Territory and New Facility Acquisition Agreement;


 


WHEREAS, in connection with
the First Closing, the parties will agree, subject to the matters set forth in
this Agreement, to enter into an agreement in the future pursuant to which the
ACON Entities (and such other entities as contemplated thereby) will agree to
sell, transfer and assign to Inverness, the assets, properties, interests and
business of developing, manufacturing, marketing and selling lateral flow
immunoassay products and directly related products in all countries in which
such business has not previously been sold, transferred and assigned to
Inverness pursuant to the First Territory and New Facility Acquisition
Agreement, such transaction to be effected pursuant to, and on the terms and
conditions of, an acquisition agreement in substantially the form attached
hereto as Exhibit A to be entered into in the future by and among
Inverness, the ACON Entities (and such other entities as contemplated thereby)
and the Parent (the “Form of Acquisition Agreement”);


 


WHEREAS, the execution and
delivery of this Agreement by Inverness, the ACON Entities and the Parent, pursuant
to which the parties agree on certain matters including the future due
diligence and agreement process and certain conditions to signing the Form of
Acquisition Agreement, are inducements and conditions precedent to the
consummation of the transactions contemplated in the First Territory and New
Facility Acquisition Agreement.


 


NOW,
THEREFORE, in consideration of the mutual promises and agreements set forth
herein and in the First Territory and New Facility Acquisition Agreement, and
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:


 


SECTION 1.           ACQUISITION AGREEMENT PLANNING
AND EXECUTION.


 


1.1.          Second Territory Planning Date. Upon the earlier to occur of (i) January 31,
2008 and (ii) such earlier date as Inverness and the ACON Entities may
mutually agree in writing (such date, the “Second Territory Planning Date”),
the ACON Entities and Inverness shall meet to discuss the following in
connection with the execution and delivery of the Form of Acquisition
Agreement:  (i)  reciprocal due
diligence on the ACON Entities and Inverness solely to determine whether there
has been a Material Adverse Effect (as defined below), in the case of the ACON
Entities, and an Inverness Material Adverse Effect (as defined below), in the
case of Inverness, (ii) such additional financial due diligence on the ACON
Entities and their Affiliates with respect to the Business relating solely to financial
information reasonably necessary to determine compliance with Section 4.3 or to
determine the Purchase Price of the Business, (iii) a discussion of the
scope and nature of transition services relating to the transfer of production
capacity of the Products (as defined in the Form of Acquisition Agreement) from
the Existing Facility (as defined in the Form of Acquisition Agreement) to the
New Facility (as defined in the Form of Acquisition Agreement), (iv) financial
information of the ACON Entities and Inverness reasonably related to the
execution of the Form of Acquisition Agreement and the consummation of the
transactions contemplated thereunder, (v) the proposed assignment of ACON
Intellectual Property that had been “dual-region” (i.e., First Territory
and Second Territory) to Inverness and the proposed license of other ACON
Intellectual Property to Inverness, (vi) the status of Inverness’ proposed debt
and/or equity financing as may be required


 


2

















 


in connection with the payment of the amounts due and payable to the
ACON Entities under the Form of Acquisition Agreement, and (vii) any other
item reasonably related to the execution of the Form of Acquisition Agreement
and the consummation of the transactions contemplated thereunder. Promptly
following the Second Territory Planning Date, each party will provide the other
party and its representatives with such reasonable access and information as is
necessary under (i) – (vii) above and any other information requested that is
reasonably related to the execution of the Form of Acquisition Agreement and
the consummation of the transactions contemplated thereunder.


 


For purposes of this Agreement, “Material Adverse
Effect” shall mean a material adverse effect on the assets, liabilities,
business, properties, condition (financial or otherwise), results of operations
or prospects of the Business; provided, however, that in no event
shall any of the following constitute a Material Adverse Effect for any purpose
pursuant to the Agreement: (i) with respect to the Business or the ACON
Entities, any change resulting from conditions affecting the in vitro
diagnostic industry in which the ACON Entities operate; (ii) any change
resulting from terrorist attacks, acts of war or acts of God; (iii) any
change resulting from the announcement and pendency of any of the transactions
contemplated by this Agreement; and (iv) any change resulting from
compliance by the ACON Entities or Inverness, as the case may be, with the
terms of, or the taking of any action expressly contemplated or permitted by
this Agreement, the First
Territory and New Facility Acquisition Agreement or any of the other Ancillary
Documents (as such term is defined in the First Territory and New Facility
Acquisition Agreement).


 


For purposes of this Agreement, “Inverness Material
Adverse Effect” shall mean a material adverse effect on the assets,
liabilities, business, properties, condition (financial or otherwise), results
of operations or prospects of Inverness’s operations provided, however,
that in no event shall any of the following constitute an Inverness Material
Adverse Effect for any purpose pursuant to the Agreement: (i) with respect
to the Inverness, any change resulting from conditions affecting the industries
in which the Inverness operates; (ii) any change resulting from terrorist
attacks, acts of war or acts of God; (iii) any change resulting from the
announcement and pendency of any of the transactions contemplated by this
Agreement; and (iv) any change resulting from compliance by the ACON
Entities or Inverness, as the case may be, with the terms of, or the taking of
any action expressly contemplated or permitted by this Agreement, or prevent or
hinder the consummation of the transactions contemplated by this Agreement, the First Territory and New Facility
Acquisition Agreement or any of the other Ancillary Documents (as such term is
defined in the First Territory and New Facility Acquisition Agreement).


 


1.2.          Second Territory Production Date. Commencing no later than six (6) months after the Second Territory Planning Date or such
earlier date as Inverness and the ACON Entities may mutually agree in writing
(such date, the “Second Territory Production Date”):


 


(a)          the ACON Entities shall provide to Inverness
(i) the diligence materials reasonably requested pursuant to Section 1.1,
as well as due diligence (1) relating to the purchase of the Business pursuant
to the Form of Acquisition Agreement, and (2) relating to disclosures on, or
omissions from, the draft disclosure schedules provided pursuant to Section
1.2(a), (ii) draft disclosure schedules of the ACON Entities pursuant to
the Form of Acquisition Agreement, (iii) a list of all employees who work
on the Business (as defined in the Form of


 


3

















 


Acquisition
Agreement) at anytime between the date hereof and the Second Territory
Production Date, (iv) all information (including know-how) reasonably
requested which relates to the development, manufacture, storage and testing of
the Products, (v) audited financial statements for the year ended December 31,
2007, including a manually signed unqualified audit opinion thereon by an
internationally recognized independent certified public accounting firm in form
and substance that will permit Inverness to comply with its filing requirements
under the federal securities laws, (vi) a
transition services plan for the transfer of production capacity for the
Products from the Existing Facility to the New Facility, (vii) a schedule
certified by appropriate executive and financial officers (or their equivalent)
of each of the ACON Entities and the Parent, as to the pre-tax profits and
revenues of the Business for the year-ended December 31, 2007 and for the
current year through the most recent calendar quarter, and (viii) any other
item reasonably requested which relates to the execution of the Form of
Acquisition Agreement, the ancillary agreements thereunder and the consummation
of the transactions contemplated thereunder; and


 


(b)         Inverness shall provide to the ACON Entities
(i) the diligence materials reasonably requested pursuant to Section 1.1,
(ii) draft disclosure schedules of Inverness pursuant to the Form of
Acquisition Agreement, (iii) financial information of Inverness reasonably
related to the execution of the Form of Acquisition Agreement and the
consummation of the transactions contemplated thereunder, and (iv)
documentation reasonably requested by the ACON Entities relating to Inverness’
proposed debt and/or equity financing as may be required in connection with the
payment of the amounts due and payable to the ACON Entities under the Form of
Acquisition Agreement.


 


1.3.          Acquisition Agreement Execution Date. Subject to the satisfaction of the
provisions in Sections 4 and 5 hereof, three (3) months after the Second
Territory Production Date or sooner if mutually agreed upon in writing by the
ACON Entities and Inverness, but no later than October 31, 2008 (such
date, the “Signing Date”), Inverness, the ACON Entities, Parent and such
other Affiliates of the ACON Entities and/or Parent as are involved in the
Business shall execute a definitive acquisition agreement (the “Definitive
Acquisition Agreement”) in substantially the same form as the Form of
Acquisition Agreement (the “Signing”). The parties agree to discuss and
consider a simultaneous signing and closing under the Definitive Acquisition
Agreement subject to applicable law. The parties acknowledge and agree to use
commercially reasonable efforts to restructure Article 1 of the Definitive
Acquisition Agreement and any related or cross-referenced sections of the
Definitive Acquisition Agreement in a mutually agreeable fashion recognizing
the benefit and costs to each party hereto. Prior to such date, the parties
shall meet or otherwise communicate from time to time to finalize such
Definitive Acquisition Agreement, disclosure schedules thereto and related
ancillary agreements, each of which ancillary agreements shall be based, as
appropriate, on similar agreements under the First Territory and New Facility
Acquisition Agreement.


 


SECTION 2.           COVENANTS OF THE ACON ENTITIES
AND PARENT


 


The
ACON Entities and Parent hereby covenant and agree with Inverness as follows:


 


2.1.          Cooperation. From the date hereof and prior to the Closing, each of the ACON
Entities and Parent will, and will cause its Affiliates to, use its
commercially reasonable


 


4

















 


efforts, and will reasonably cooperate with Inverness, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from
third parties as shall be required in order to provide the information
contemplated by Section 1 hereof and to effectuate the transactions
contemplated by the Form of Acquisition Agreement, and will otherwise use its
commercially reasonable efforts to cause the consummation of such transactions
in accordance with the terms and conditions thereof.


 


2.2.        Access.
From the Second Territory Planning Date, each of the parties shall, and shall
cause their Affiliates to (a) provide the other parties and its representatives
with such information as the requesting parties or its representatives may from
time to time reasonably request with respect to the items set forth in Section
1.2, (b) provide the requesting party and its representatives reasonable access
during regular business hours and upon reasonable notice to the properties,
books and records as the requesting party and its representatives may from time
to time reasonably request with respect to the items set forth in Section 1.1
and 1.2 and (c) permit Inverness and its representatives to discuss the
Business of the ACON Entities with ACON Entities’ officers and, with the prior
consent of the ACON Entities (which consent will not be unreasonably withheld),
the ACON Entities employees, accountants and advisors.


 


2.3.        Conduct of
Business. Except as may be otherwise expressly permitted by this Agreement
or with the prior written consent of Inverness, from the date hereof and prior
to the execution and delivery of the Form of Acquisition Agreement, the ACON Entities and Parent will, and
will cause their relevant Affiliates to: 
(a) operate the Business in the ordinary course of business in a manner
consistent with past practice and current growth expectations; (b) not sell,
lease, exchange, license or otherwise dispose of any of the material properties
or material assets (including, but not limited to rights with respect to
Intellectual Property Assets) of the Business to non-Affiliates, except in the
ordinary course of business in a manner consistent with past practice; and (c)
not enter into any agreement, arrangement or understanding that would (i)
restrict or limit Inverness or its Affiliates (other than, if applicable, the
entity that will hold the Business) in the operation of their respective businesses
after the Closing Date (as defined in the Form of Acquisition Agreement), (ii)
obligate Inverness or its Affiliates (other than, if applicable, the entity
that will hold the Business) to pay royalties or similar amounts with respect
to its businesses (other than the Business), or (iii) license or create any
rights in intellectual property or rights of Inverness or its Affiliates (other
than, if applicable, the entity that will hold the Business)  with respect thereto.


 


2.4.        Financial Statements. The ACON Entities and Parent will prepare a
statement of net assets as of December 31, 2007 and statement of revenues in
excess of direct expenses for the year then ended and cause such statements to
be audited by an internationally recognized independent certified public
accounting firm for delivery of such statements to Inverness on or prior to the
Second Territory Production Date. The foregoing financial statements shall be
prepared in accordance with United States generally accepted accounting
principles and in a manner consistent with the Historical Financial Statements
(as defined in the First Territory and New Facility Acquisition Agreement).


 


2.5.          Confidentiality. The ACON Entities, Parent and Inverness
will enter into a mutual confidentiality and nondisclosure agreement reasonably
acceptable to all parties prior to


 


5

















 


the Second Territory Planning Date (the “MNDA”); provided that
an agreement that is substantially similar to the Reciprocal Confidentiality and
Nondisclosure Agreement dated October 6, 2005, as amended to date, shall be
deemed reasonably acceptable to all parties.


 


2.6.          Covenant
of Good Faith and Fair Dealing. The parties acknowledge and agree that this
Agreement and the Form of Acquisition Agreement collectively identify as of the
date hereof all material terms, conditions and issues relating to the
acquisition of the Business and the consummation of the transactions
contemplated thereby. Each party hereby covenants that it will in good faith reach
commercially reasonable resolution on any additional terms, conditions and
issued that the parties identify in connection with their reciprocal diligence,
the performance of their obligations under this Agreement, changes in
applicable law, and the finalization and execution of the Definitive
Acquisition Agreement.


 


SECTION 3.           COVENANTS OF INVERNESS.


 


Inverness
hereby covenants and agrees with the ACON Entities and Parent as follows:


 


3.1.          Cooperation. From the date hereof and prior to each of the applicable Closings,
Inverness will, and will cause its Affiliates to, use its commercially
reasonable efforts, and will reasonably cooperate with the ACON Entities and
Parent, to secure all necessary consents, approvals, authorizations, exemptions
and waivers from third parties as shall be required in order to effectuate the
transactions contemplated hereby, and will otherwise use its reasonable best
efforts to cause the consummation of such transactions in accordance with the
terms and conditions hereof.


 


3.2.          Confidentiality. Inverness, the ACON Entities and Parent
will enter into the MNDA; provided that an agreement that is substantially
similar to the Reciprocal Confidentiality and Nondisclosure Agreement dated
October 6, 2005, as amended to date, shall be deemed reasonably acceptable to
all parties.


 


SECTION 4.           CONDITIONS TO INVERNESS’
OBLIGATION TO SIGN.


 


The obligations of Inverness to sign a Definitive Acquisition Agreement
shall be subject to the satisfaction (or waiver) on or prior to the Signing
Date of all of the following conditions:


 


4.1.          Covenants. The ACON Entities shall, on or before the Signing Date, have
performed in all material respects all of their obligations hereunder which by
the terms hereof are to be performed on or before the Signing Date, including
without limitation fulfilling the matters contemplated by Section 1.2 hereof.


 


4.2.          Absence of Material Change. There shall have been no Material Adverse
Effect with respect to the Business since the date hereof, whether or not in
the Ordinary Course of Business.


 


4.3.          Financial Condition. The pre-tax profits of the Business for (a)
the last full calendar year immediately proceeding the Signing, and (b) the
year to date through the most


 


6

















 


recent calendar quarter shall be equal to or greater than, in each
case, 10% of the revenues of the Business.


 


4.4.          Certificate
from Officers and Management Team. Each Acon Entity and Parent shall have
delivered to Buyer a certificate of an authorized officer (which may be a
member of the Management Team) and of both members of the Management Team,
dated as of the Signing Date to the effect that the statements set forth in
Sections 4.1, 4.2 and 4.3 are true and correct.


 


4.5.          Miscellaneous Deliveries. All reasonable actions to be taken by the
ACON Entities in connection with performance of the obligations contemplated
hereby and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to Inverness.


 


SECTION 5.           CONDITIONS TO THE ACON
ENTITIES OBLIGATION TO SIGN.


 


The obligations of the ACON
Entities to sign a Definitive Acquisition Agreement shall be subject to the
satisfaction (or waiver) on or prior to the Signing Date of the following
condition:


 


5.1.          Covenants. Inverness shall, on or before the Signing Date, have performed in all
material respects all of its obligations hereunder which by the terms hereof
are to be performed on or before the Signing Date, including without limitation
fulfilling the matters contemplated by Section 1.2 hereof.


 


5.2.          Absence of Material Change. There shall have been no Inverness Material
Adverse Effect with respect to Inverness since the date hereof, whether or not
in the Ordinary Course of Business; provided, however, that this
condition shall not apply in the event Inverness pays the Purchase Price in
cash. For the avoidance of doubt, if Inverness elects to pay the Purchase Price
in cash, an Inverness Material Adverse Effect shall be deemed not to have
occurred and this condition shall be deemed satisfied for all purposes.


 


5.3.          Certificate
from an Officer. Inverness shall have delivered to the ACON Entities and
Parent a certificate of an authorized officer, dated as of the Signing Date to
the effect that the statements set forth in Sections 5.1 and 5.2 are true and
correct.


 


5.4.          Miscellaneous Deliveries. All reasonable actions to be taken by the
Inverness in connection with performance of the obligations contemplated hereby
and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory in
form and substance to the ACON Entities.


 


SECTION 6.           TERMINATION.


 


6.1.          Termination. This Agreement may be terminated at any time prior to the Signing:


 


(a)           by the mutual written consent of the ACON
Entities and Inverness;


 


7

















 


(b)           by either the ACON Entities or Inverness by
written notice, without liability to the terminating party on account of such
termination (provided the terminating party is not otherwise in default or in
breach of this Agreement), if the Signing shall not have occurred on or before
January 31, 2009;


 


(c)           by either the ACON Entities or Inverness by
written notice, without liability to the terminating party on account of such
termination (provided the terminating party is not otherwise in default or in
breach of this Agreement), if there shall have been a material breach by the other
party of any of its representations, warranties, covenants or agreements
contained herein which is not capable of being cured prior to the Signing Date;


 


(d)           by Inverness, pursuant to written notice by
Inverness to the ACON Entities, if any of the conditions set forth in Section 4
of this Agreement have not been satisfied at or prior to the Signing, or if it
has become reasonably and objectively certain that any of such conditions,
other than a condition within the control of the ACON Entities, will not be
satisfied at or prior to the Signing, such written notice to set forth such
conditions which have not been or will not be so satisfied; provided,
that Inverness shall have previously provided (at least thirty (30) days prior
to delivery of such termination notice) the ACON Entities with written notice
of Inverness’s intention to terminate this Agreement;


 


(e)           by the ACON Entities, pursuant to written
notice by the ACON Entities to Inverness, if the condition set forth in Section
5 of this Agreement has not been satisfied at or prior to the Signing, or if it
has become reasonably and objectively certain that any of such conditions,
other than a condition within the control of Inverness, will not be satisfied
at or prior to the Signing, such written notice to set forth such conditions
which have not been or will not be so satisfied; provided, that the ACON
Entities shall have previously provided (at least thirty (30) days prior to
delivery of such termination notice) Inverness with written notice of the ACON Entities’
intention to terminate this Agreement; and


 


(f)            by either the ACON Entities or Inverness by
written notice pursuant to and in accordance with Sections 6.2(b) and 6.2(c).


 


6.2.          Effect of Termination.


 


(a)           In the event of the termination of this Agreement as
provided in Sections 6.1(a)-(e), written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made.


 


(b)           If (i) this Agreement is terminated by Inverness for any
reason other than as set forth in Sections 6.1(a)-(e) above or (ii)
Inverness elects not to purchase the Business for any reason other than the
failure of the ACON Entities and the Parent to comply with their covenants and
closing conditions in this Agreement, then Inverness shall pay to the ACON
Entities 15% of the Purchase Price (as defined in the Form of Acquisition
Agreement) as determined according to the Purchase Price mechanism in the Form
of Acquisition Agreement as of the most recent completed fiscal quarter (the “Termination
Fee”) in cash as liquidated damages. The Termination Fee which shall be the
sole remedy of the ACON Entities in law or in equity, shall be paid by wire
transfer of immediately available funds to an account designated


 


8

















 


by
the ACON Entities within three (3) business days of the later to occur of (i)
the calculation of such amount, or (ii) such termination.


 


(c)           If (i) this Agreement is terminated by the ACON
Entities for any reason other than as set forth in Sections 6.1(a)-(e)
above or (ii) the ACON Entities elect not to sell the Business to Inverness for
any reason other than the failure of Inverness to comply with its covenants in
this Agreement (except to the extent such non-compliance does not (x) restrict
Inverness’s ability to pay the Second Territory Business Price or (y) impact
the fulfillment of the condition’s to the ACON Entities obligation to close on
the sale of the Business), then the parties agree to arbitration pursuant Exhibit
B hereto. If the arbitrator determines that the ACON Entities and/or Parent
have breached their respective obligations under this Agreement, then Inverness
shall purchase the Business at a price equal to eighty-five percent (85%) of
the Purchase Price (as defined in the Form of Acquisition Agreement) as
determined according to the Purchase Price mechanism in the Form of Acquisition
Agreement as of the most recent completed fiscal quarter.


 


6.3.          Effect of Obligations.


 


(a)           If this agreement is terminated for any
reason other than pursuant to Section 6.2(c), all obligations of the parties
hereunder shall cease upon such termination; provided, however, that the
provisions of this Section 6 (Termination) and Section 8 (Miscellaneous) shall
survive any such termination of this Agreement.


 


(b)           If this agreement is terminated pursuant to
Section 6.2(c), all obligations of the parties shall continue to be of full
force and effect until such time as arbitrator determines if the ACON Entities
and/or Parent have breached their respective obligations under this Agreement
in accordance with Section 6.2(c) and Exhibit B.


 


(c)           Nothing herein shall relieve any party from
any liability for (i) any willful, material breach of a representation or
warranty contained herein (except for any representations and warranties that
are qualified by their terms as to materiality, which such representations and
warranties so qualified shall be true in all respects), (ii) any
intentional failure to perform and satisfy in all material respects all of the
agreements and covenants to be performed hereunder and under the agreements,
documents and instruments contemplated hereby at or prior to the Signing and
(iii) any intentional failure to perform and satisfy the conditions contained
in this Agreement and the other agreements, documents and instruments
contemplated hereby.


 


SECTION 7.           INVERNESS CHANGE OF CONTROL.


 


7.1.          Change of Control. If prior to January 1, 2009, Inverness
undergoes a merger or consolidation in which the shares of capital stock of
Inverness outstanding immediately prior to the date hereof no longer represent
at least a majority, by voting power, of the capital stock of the surviving or
resulting corporation (a “Change of Control”) then in the event a
Termination Fee is due and payable under Section 6.2(b) of this Agreement the
amounts payable by such surviving or resulting corporation shall equal two (2)
times the Termination Fee that would otherwise have been payable.


 


9

















 


7.2.          Payment Subsequent to Change of Control. If, after a Change of Control, either
Inverness or its successor elects to execute the Form of Acquisition Agreement
and consummate the transactions contemplated thereunder, the Purchase Price
payable thereunder shall be paid in cash.


 


SECTION 8.           MISCELLANEOUS.


 


8.1.          Law Governing; Dispute Resolution. This Agreement shall be construed under and
governed by the internal Laws of the State of Delaware without regard to its
conflict of laws provisions. The dispute resolution provisions contained in Exhibit
B hereto are incorporated herein by reference.


 


8.2.          Notices. Any notice, request, demand other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (i) if
delivered or sent by facsimile transmission, upon acknowledgment of receipt by
the recipient, (ii) if sent by an internationally recognized overnight courier,
properly addressed with postage prepaid, on the next business day (or Saturday
if sent for Saturday delivery) or (iii) if sent by registered or certified
mail, upon the sooner of receipt or the expiration of three (3) days after
deposit in United States post office facilities properly addressed with postage
prepaid. Notice to any ACON Entity (if given in accordance with this Section
8.2) shall be deemed notice to all ACON Entities. All notices will be sent to
the addresses set forth below or to such other address as such party may
designate by notice to each other party hereunder:


 


If to Inverness:


 


Inverness
Medical Innovations, Inc.


51
Sawyer Road, Suite 200


Waltham,
MA 02453


Attn:  General Counsel


Facsimile
Number (781) 647-3939


 


with a copy (which shall not constitute notice) to:


 


Goodwin
| Procter LLP 

Exchange Place

Boston, Massachusetts 02109


Attn:
Scott F. Duggan


Facsimile
Number: (617) 523-1231


 


If to the ACON Entities or Parent:


 


Acon
Laboratories, Inc.


4108
Sorrento Valley Boulevard,


San
Diego, CA 92121


Attn:
Steven Frankel


Facsimile
Number: (858) 535-2039


 


10

















 


with a copy (which shall not constitute notice) to:


 


Morrison
& Foerster LLP 

12531 High Bluff Drive, Suite 100 

San Diego, California 92130


Attn:
Steven G. Rowles


Facsimile
Number: (858) 523-2810


 


Any
notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.


 


8.3.          Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same document. The delivery of a counterpart
hereto by facsimile or other electronic transmission shall be deemed an
original.


 


8.4.          Amendments; Waivers. This Agreement may not be amended or
modified, nor may compliance with any condition or covenant set forth herein be
waived, except by a writing duly and validly executed by each of the parties
hereto, or, in the case of a waiver, the party waiving compliance. For purposes
of the foregoing, the consent or waiver of any provision by any ACON Entity
shall be deemed consent by all ACON Entities. No delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any such right, power
or privilege, or any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.


 


8.5.          Further Assurances. Inverness, ACON Entities and Parent shall
make any changes to the Form of Acquisition Agreement as shall be required in
order to comply with any change in law from the date hereof through the
execution and delivery of the definitive Acquisition Agreement.


 


8.6.          Equitable
Relief. The parties hereto acknowledge and agree that the Business and the
transactions contemplated hereby are unique and that the damages that may
result from any party’s failure to consummate the transactions contemplated by
this Agreement and that damages at law would be inadequate for such failure or breach.
Accordingly, each party acknowledges that the other parties will be entitled to
specific performance, an injunction or other appropriate equitable relief in
connection with any such failure or breach. Each party further acknowledges and
agrees that this Section 8.6
shall not, and shall not be deemed to, limit in any way any other rights or
remedies which the party requesting equitable relief may have at law or
otherwise due to such failure or breach.


 


8.7.          Binding Agreement. The parties acknowledge and agree that this
Agreement and their respective obligations hereunder are intended to be legally
binding obligations of the parties and shall be fully enforceable pursuant to
the terms hereunder, subject only to the conditions set forth in this Agreement;
provided, that the Form of Acquisition Agreement and Definitive
Acquisition Agreement attached hereto are not binding on, or binding


 


11

















 


obligations of, the parties hereto or thereto and the Definitive Acquisition
Agreement shall become binding only upon the execution and delivery thereof by
each of the parties thereto.


 


*****


 


12





















 


IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first set forth above.


 


	
   

  	
  INVERNESS:

  
	
   

  	
   

  
	
   

  	
  INVERNESS MEDICAL
  INNOVATIONS,

  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Ron
  Zwanziger

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title: CEO, President,
  Chairman

  



 


 


(signatures
continued)


 


 


[SIGNATURE PAGE TO SECOND TERRITORY LETTER
AGREEMENT]


 

















 


	
   

  	
  ACON ENTITIES:

  
	
   

  	
   

  	
   

  
	
   

  	
  ACON LABORATORIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Steven
  Frankel

  	
   

  
	
   

  	
   

  	
  Name: Steven Frankel

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AZURE INSTITUTE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Jinn-Nan
  Lin

  	
   

  
	
   

  	
   

  	
  Name: Jinn-Nan Lin

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LBI INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Guangqiong
  Zhang

  	
   

  
	
   

  	
   

  	
  Name: Guangqiong Zhang

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OAKVILLE HONG KONG CO.,
  LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Guangqiong
  Zhang

  	
   

  
	
   

  	
   

  	
  Name: Guangqiong Zhang

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  
	
   

  	
  ACON BIOTECH (HANGZHOU)
  CO.,

  LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Feng Lin

  	
   

  
	
   

  	
   

  	
  Name: Feng Lin

  
	
   

  	
   

  	
  Title: CEO

  
					



 


 


(signatures
continued)


 


 


[SIGNATURE PAGE TO SECOND TERRITORY LETTER
AGREEMENT]


 

















 


	
   

  	
  PARENT:

  
	
   

  	
   

  	
   

  
	
   

  	
  KARSSON OVERSEAS, LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Guangqiong
  Zhang

  	
   

  
	
   

  	
   

  	
  Name: Guangqiong Zhang

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SOLELY FOR PURPOSES OF SECTION 2.7:

  
	
   

  	
   

  	
   

  
	
   

  	
  GENCLONN BIOTECH
  (HANGZHOU)

  CO., LTD

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Feng Lin

  	
   

  
	
   

  	
   

  	
  Name: Feng Lin

  
	
   

  	
   

  	
  Title: CEO

  
					



 


 


[SIGNATURE PAGE TO SECOND TERRITORY LETTER
AGREEMENT]


 

















 


EXHIBIT
A


 


FORM
OF ACQUISITION AGREEMENT


 


by and among


 


INVERNESS
MEDICAL INNOVATIONS, INC.,


 


ACON LABORATORIES, INC.,


 


AZURE INSTITUTE, INC.,


 


LBI, INC.,


 


OAKVILLE HONG KONG CO., LTD.,


 


ACON
BIOTECH (HANGZHOU) CO., LTD.,


 


AND


 


KARSSON OVERSEAS LTD.


 


                      
    , 200  


 

















 


FORM
OF ACQUISITION AGREEMENT(1)


 


THIS ACQUISITION AGREEMENT (this “Agreement”)
is entered into as of             
    , 200   
by and among (i) Inverness Medical Innovations, Inc., a Delaware
corporation (“Buyer(2)”); (ii) ACON Laboratories, Inc., a California
corporation (“ACON Labs”), AZURE Institute, Inc., a California
corporation (“Azure”), LBI Inc., a British Virgin Islands company (“LBI”), Oakville Hong Kong Co., Ltd., a Hong Kong company (“Oakville”),
and ACON Biotech
(Hangzhou) Co., Ltd., a wholly foreign
owned enterprise (“WFOE”) established in the People’s Republic of China
(“PRC” or “China”) (“ACON Bio” and together with ACON Labs, Azure, LBI, Oakville and ACON Bio, “ACON” or
the “Seller Entities”); and (iii) Karsson Overseas Ltd., a British
Virgin Islands company (“Parent”) and direct or indirect parent of the
Seller Entities and other Affiliates of the Seller Entities that are parties to
agreements entered into connection with the transactions contemplated hereby.(3)


 


W I T N E S S E T H


 


WHEREAS, the Buyer, the Seller Entities, the Parent
and certain Affiliates thereof are parties to that certain First Territory and
New Facility Acquisition Agreement dated as of February 24, 2006 (the “FTNF
Acquisition Agreement”);


 


WHEREAS, on the date of the First Closing (as defined
in the FTNF Acquisition Agreement), the parties signatory hereto entered into
an agreement (the “Second Territory Letter Agreement”) pursuant to
which, and subject to the conditions set forth therein, Buyer would agree to
purchase from such persons, and such persons would agree to sell, transfer and
assign to Buyer, the Business (as defined below);


 


WHEREAS, the conditions to the parties’ execution of
this Agreement set forth in the Second Territory Letter Agreement have been
satisfied or waived and the parties desire to execute and deliver this
Agreement;


 


WHEREAS, on and after the date hereof the Second
Territory Letter Agreement shall be of no further force or effect;


 


WHEREAS, certain of the Seller Entities currently
develop and manufacture, among other things, lateral flow immunoassay products
and directly related products at an existing


 






(1)           The
parties acknowledge that changes in applicable Law between the First Territory
Closing under the FTNF Acquisition Agreement and the proposed date for
execution of this Acquisition Agreement may necessitate that this form of
Acquisition Agreement be revised to address such changes, if any.


 


(2)           For
purposes of compliance with PRC and other law of the Territory, the Buyer party
may be a PRC entity with respect to the Business or a portion thereof in the
PRC.  The parties agree to discuss the
structure of this Agreement in order to comply with PRC and other applicable
laws of the Territory.


 


(3)           Any other entity (i) affiliated with the Management Team or their
immediate family or (ii) affiliated with any director or officer of a Seller
Entity or Karsson, and (iii) with respect to each of (i) and (ii) above, such
entity is either actively involved in the conduct of the Business (as defined
herein) or owns Transferred Assets will be added as a Seller Entity.    


 

















 


facility in Hangzhou, China and sell these products to certain other
Seller Entities that market, distribute and sell these products in geographic
locations other than the United States, Canada, Europe (excluding
(i) Russia, (ii) the former Soviet Republics that were not part of
the European Union as of the date of the FTNF Acquisition Agreement, and
(iii) Turkey), Israel, Australia, Japan and New Zealand;


 


WHEREAS, certain of the Seller Entities own or have
the right to use certain intellectual property rights relating to lateral flow
immunoassay products;


 


WHEREAS, Genclonn Biotech (Hangzhou) Co., Ltd., an
Affiliate of the Seller Entities (“Genclonn”), supplies certain Seller
Entities with certain biological components and reagents used in the
manufacture of the lateral flow immunoassay products;


 


WHEREAS, certain Seller Entities will receive
consideration in the form of cash and securities of Buyer and such Seller
Entities and certain other persons will receive certain registration, and
regulatory rights as more fully described in the Investor Rights Agreement (as
defined herein) to be entered into among the Seller Entities, Buyer and certain
other persons; and


 


WHEREAS, the Buyer has a manufacturing facility located at Xia Sha, Hangzhou, Zhejiang, China
(the “New Facility”);


 


NOW, THEREFORE, in order to consummate said
transactions and in consideration of the mutual representations, warranties,
covenants and agreements, and upon the terms and subject to the conditions set
forth herein, the parties hereto agree as follows:


 


SECTION 1.           PURCHASE
AND SALE OF ASSETS.


 


1.1             Sale
of Assets.


 


(a)           Subject to
the provisions of this Agreement, at the Closing (as defined herein) the Seller
Entities shall sell, transfer and assign to Buyer, free and clear of any Liens
(as defined herein) other than Permitted Liens (as defined herein), all right,
title and interest (other than Intellectual Property Assets owned by a third
party unless such Intellectual Property Assets are the subject of licenses or
other agreements assigned hereunder) in and to all of the assets, properties,
interests and business of researching, developing, manufacturing, marketing
and/or selling lateral flow immunoassay products and all directly related
products, including, those listed on Schedule 1.1(a) (together with all
materials and components of such products) in the world to the extent not
previously transferred to Buyer (the “Territory”) (such properties,
interests and business, the “Business”, and such materials, components
and products, the “Products”) of the Seller Entities (except for the
Excluded Assets, as defined herein), of every kind and description, tangible
and intangible, real, personal or mixed, wherever located, and whether existing
as of the date of this Agreement or acquired prior to the Closing, including,
without limitation, the following:


 


(i)            the
manufacturing, testing and research and development equipment and related
assets located at the Existing Facility, used primarily in the Business and
listed on Schedule 1.1(a)(i);


 


2

















 


(ii)           all the
Seller Entities’ inventory, finished goods, stock in trade, work-in-progress,
and raw materials directly arising out of, relating to or resulting from the
Business (collectively, the “Inventory”);


 


(iii)          all
of Seller Entities’ tangible property and assets directly arising out of,
relating to or resulting from the Business listed in Schedule 1.1(a)(iii);


 


(iv)          (A) all of
Seller Entities’ goodwill directly arising from, related to or resulting from
the Business and (B) all Assigned ACON Intellectual Property Assets and
Licenses (each as defined herein);


 


(v)           (A) all of
the Seller Entities’ billed and unbilled accounts receivable, including without
limitation, trade accounts receivable, notes receivables, vendor credits, and
all other obligations from customers with respect to sales of goods or
services, whether or not evidenced by a note, of the Seller Entities directly
arising out of, relating to or resulting from the Business (including those
shown on the Financial Statements (as defined herein) that have not been
collected in the Ordinary Course of Business (as defined herein)) existing as
of the date hereof and as of the Closing Date (the “Receivables”), and
(B) in each case, solely to the extent related to an Assumed Liability, all
claims, warranties, guarantees, refunds, causes of action, rights of recovery,
rights of set-off and rights of recoupment of every kind and nature;


 


(vi)          all of
Seller Entities’ right, title and interest in and to (A) all Material
Contracts, except for Excluded Agreements (each as defined herein), (B) all
other agreements, contracts, understandings or arrangements by which a Seller
Entity is bound and which directly arises out of, relates to or results from
the Business, and (C) any
agreement, contract, understanding or arrangement, by which a Seller Entity or
any of its Affiliates (as defined herein) is bound that is entered into during
the period from the date hereof to the date of the Closing (the “Pre-Closing
Period”) and which directly arises out of, relates to or results from the
Business (a “Seller Contract”) to the extent that, prior to the Closing,
Buyer notifies the Seller Entities in writing that such Seller Contract is a
Transferred Contract (it being understood that if during the Pre-Closing Period
any Seller Entity enters into a Seller Contract without the prior written
consent of Buyer, then notwithstanding this clause (B), Buyer shall be entitled
to designate such Seller Contract as a Transferred Contract or an Excluded
Contract at any time (either before or after the Closing) within ten (10) days
after the date a Seller Entity provides Buyer with a copy of such Seller
Contract and notifies Buyer that such Seller Contract was entered into during
the Pre-Closing Period without Buyer’s consent) (such agreements, contracts,
understandings and arrangements included in (A), (B) and (C) above, the “Transferred
Contracts”);


 


(vii)         all
of Seller Entities’ right, title and interest in and to all unfilled, standing
or open customer purchase orders directly arising out of, relating to or
resulting from the Business existing as of the Closing that arose in the
Ordinary Course of Business (the “Assumed Orders”);


 


3

















 


(viii)        to
the extent assignable, all of Seller Entities’ right, title and interest in and
to all franchises, licenses, permits, certifications, approvals and
authorizations directly arising out of, relating to or resulting from the Business;


 


(ix)           Transferred
Contracts or other arrangements for housing and transportation for the
Transferred Second Territory Employees (each as defined herein);


 


(x)            (A)
solely to the extent related to an Assumed Liability, all claims (including
claims for infringement or misappropriation of ACON Intellectual Property
Assets and/or ACON In-Licensed Intellectual Property Assets or rights related
thereto included in the Transferred Assets (as defined herein)) and (B) solely
to the extent related to an Assumed Liability, causes of action of Seller
Entities against any other person, whether or not such claims and causes of
action have been asserted, and all rights of indemnity, warranty rights, rights
of contribution, rights to refunds, rights of reimbursement and other rights of
recovery of Seller Entities (regardless of whether such rights are currently
exercisable) directly relating to the Transferred Assets, the Assumed
Liabilities or the Business arising out of circumstances occurring on or after
the Closing; and


 


(xi)           all other
assets and properties of the Seller Entities directly arising out of, relating
to or resulting from the Business of every nature whatsoever tangible and
intangible, and wherever located, such as any business records, customer lists,
customer records, and histories, customer invoices, lists of suppliers and
vendors and all records relating thereto, list of sales agents, price lists,
engineering drawings, records with respect to production, engineering, product
development costs, advertising matter, catalogues, photographs, instruction
manuals, sales literature and materials, purchasing materials, media materials,
manufacturing and quality control records and procedures, research and
development files, design history files, regulatory documents (including
documents retained and/or submitted to regulatory agencies), data and
laboratory books and media materials and plates.(4)


 


Notwithstanding anything
to the contrary set forth herein, the Seller Entities reserve any and all
rights arising from, relating to or resulting from ACON Intellectual Property
Assets and ACON In-Licensed Intellectual Property Assets as reasonably
necessary or useful to conduct (i) their respective obligations
contemplated by this Agreement and the other Transaction Documents, and
(ii) the testing, monitoring, diagnosing, prognostication, treatment,
management or cure of diabetes.


 


The assets and property
of the Business of the Seller Entities being sold to and purchased by Buyer
under this Section 1.1(a) are herein referred to as the “Transferred
Assets.”


 


(b)           There
shall be excluded from such purchase and sale the following assets and property
(the “Excluded Assets”) of the Seller Entities:


 






(4)     ACON
shall not be required to transfer imported inventory where prohibited by
applicable law and shall be entitled to retain cash and cash equivalents.  


 


4

















 


(i)            all cash,
cash equivalents, bank accounts, bank deposits, liquid investments, deposits,
prepaid expenses, and insurance assets of Seller Entities;


 


(ii)           all assets
primarily relating to the business of researching, developing, manufacturing,
marketing and/or selling (A) non-lateral flow immunoassay technology and
products in the point of care testing field, (B) other non-lateral flow
immunoassay products or medical devices specifically designed for use in the
diagnostic or reference laboratory business, (C) all other non-lateral flow
immunoassay related technologies and related products (except for those
products directly related to lateral flow immunoassay products that constitute
Products), (D) all other non-lateral flow businesses of the Seller Entities,
and (E) products related to the testing, monitoring, diagnosis,
prognostication, treatment, management or cure of diabetes (collectively, the “Excluded
Businesses”);


 


(iii)          subject
to the rights afforded to Buyer under the Ancillary Agreements (as defined
herein), the Retained ACON Intellectual Property Assets;


 


(iv)          all rights
under each contract set forth on Schedule 1.1(b)(iv) and specifically
identified as a dual use contract (the “Dual Use Contracts”) or as
designated as an “Excluded Contract” pursuant to the last paragraph of
this Section 1.1;


 


(v)           all
contracts of the Seller Entities other than Transferred Contracts;


 


(vi)          all
employee benefit plans and arrangements, including all Employee Plans (as
defined herein);


 


(vii)         any
and all claims of the Seller Entities for prepaid Taxes or refunds of Taxes (as
defined herein) or rights to use tax attributes, including, but not limited to,
losses carried forward, tax credits, investment credits or depreciation
allowance, all arising from or relating to any period (or a portion of any
period) ending on or before the Closing;


 


(viii)        corporate
seals and chops, certificates of incorporation or business licenses, minute
books, stock transfer records, and other similar records related to the
corporate organization of the Seller Entities;


 


(ix)           all
personnel records and other records that the Seller Entities are required by
law to retain in their possession; provided, that copies of documents
relevant to Buyer’s operation and management of the Business, Transferred
Assets, Assumed Liabilities and Transferred Second Territory Employees are
furnished to Buyer;


 


(x)            any
deposits and advances, rebates and credits or claims of the Seller Entities
with respect to the Excluded Assets;


 


(xi)           any
intercompany or intracompany receivables or payables between the Seller
Entities and any of their respective Affiliates or Affiliates of such Affiliates;


 


5

















 


(xii)          the
manufacturing facility located at #398 TianMushan Road, Gudang Industrial
Park, in Hangzhou, China (the “Existing Facility”), including the
manufacturing, testing and research and development equipment and related
assets located therein that are not used primarily in the conduct of the
Business;


 


(xiii)         except
for claims to be assigned to Buyer pursuant to Section 1.1(a)(x), all claims
(including claims for infringement or misappropriation of ACON Intellectual
Property Assets and/or ACON In-Licensed Intellectual Property Assets or rights
related thereto included in the Transferred Assets (as defined herein)) and
causes of action of Seller Entities against any other person, whether or not such
claims and causes of action have been asserted, and all rights of indemnity,
warranty rights, rights of contribution, rights to refunds, rights of
reimbursement and other rights of recovery of Seller Entities (regardless of
whether such rights are currently exercisable) relating to the Excluded Assets,
the Excluded Liabilities or the Business arising out of circumstances occurring
prior to the Closing


 


(xiv)        all
Marks (other than those Marks owned and used by the Seller Entities in the
Business)


 


(xv)         all rights
under the Transaction Documents (as defined below); and


 


(xvi)        any
assets, properties, interests and businesses of any nature whatsoever in
respect of, related to or resulting from any business of the Seller Entities
(including without limitation the Excluded Businesses) other than developing,
marketing and/or selling the Products in the Territory, of every kind and
description, tangible and intangible, real, personal or mixed, wherever
located, and whether existing as of the date of this Agreement or acquired
prior to the Closing.


 


The Seller Entities shall
provide (or make available through an electronic data room) to the Buyer, in
their entirety, copies of all Material Contracts arising out of, related to and
resulting from the Business prior to the execution of this Agreement.
Notwithstanding the foregoing, in the event the Seller Entities fail to provide
(or make available through an electronic data room) any such Material Contract,
Buyer shall have the right, exercisable in its reasonable discretion, to
designate such Material Contract as a Transferred Contract or an Excluded
Contract.


 


1.2             Liabilities.


 


(a)           Buyer
shall assume, at the Closing, the following obligations and liabilities
(individually an “Assumed Liability” and collectively the “Assumed
Liabilities”): (i) the liabilities and obligations of the Seller Entities
under the Transferred Contracts and the Assumed Orders, but only to the extent
such obligations: (A) are to be performed after the Closing; (B) do not arise
from or relate to any breach by the Seller Entities of any provision of any of
the Transferred Contracts; and (C) do not arise from or relate to any event,
circumstance or condition occurring or existing on or prior to the Closing
that, with notice or lapse of time, would (and only to the extent they would)
constitute or result in a breach by the Seller Entities, Buyer or any of their
respective Affiliates of any of the Transferred Contracts (the “Contract


 


6

















 


Liabilities”),
and (ii) trade accounts payable (except for those arising from purchases of, or
otherwise arising from or related to purchases of, Inventory, materials,
components and the like) and accrued expenses of the Seller Entities as listed
on Schedule 1.2(a)(ii) as and to the extent included in the
determination of Working Capital pursuant to Section 2.3 hereto (“Assumed
Payables”) (iii) any current liability reflected on the Closing
Statement or similar liabilities incurred after the date of the Closing
Statement in the ordinary course of business, to the extent (A) it remains as a
liability of the Business on the Closing Date and is not yet due and payable on
such date, and (B) that it is included in the determination of Working Capital
pursuant to Section 2.3 hereto; (iv) all current liabilities arising after the
Closing Date directly relating to warranty and product liability claims, rebate
programs and returned products directly relating to the Business (subject to
Section 1.2(b) below); (v) all liabilities relating to the each of the
Transferred Second Territory Employees after their respective start dates; and
(vi) all liabilities arising out of or directly relating to ownership or
operation of the Business or the Transferred Assets after the Closing. Notwithstanding
anything in this Agreement to the contrary, except as provided in any Ancillary
Agreement, the Assumed Liabilities shall not include, and Buyer shall not
assume and shall not pay or be liable for (i) any liability under any Excluded
Contract or any contract other than a Transferred Contract or an Assumed Order;
(ii) any liability with respect to Taxes of the Seller Entities or Taxes
attributable to the Excluded Assets or Excluded Business for any period; (iii)
any Taxes attributable to the Transferred Assets and the Business arising from
or relating to any period (or a portion of any period) ending on or before the
Closing for the Business; and any Taxes arising as a result of, or relating to,
the transactions contemplated hereby except as otherwise expressly provided in
Section 1.8 hereof; (iv) any liability to any current or former employee or
independent contractor (to the extent not a party to a Transferred Contract) of
the Seller Entities or any of its Affiliates arising, in respect of Transferred
Employees, prior to their respective Start Dates (as defined below) and in
respect of all other former and current employees or independent contractors
(to the extent not a party to a Transferred Contract) of the Seller Entities or
their Affiliates, at any time before the Closing Date; (v) any liability under
any employee benefit plans or arrangements or Employee Plans of the Seller
Entities or any of their Affiliates; and (vi) any liability to the extent
relating to any period of time prior to and including the consummation of the
Closing.


 


The assumption of the
Assumed Liabilities by Buyer shall not enlarge any rights of third parties
under contracts or arrangements with Buyer or the Seller Entities or any of
their respective Affiliates or subsidiaries. No parties other than Buyer and
the Seller Entities shall have any rights under this Agreement.


 


Except as otherwise
provided for in the Transaction Documents, Buyer shall be responsible for
liabilities and obligations directly arising from, relating to or resulting
from the ownership and operation of the Business after the Closing Date.


 


(b)           Except for
the Assumed Liabilities, Buyer shall not assume or be bound by any obligations
or liabilities of the Seller Entities or any Affiliate of the Seller Entities of
any kind or nature whatsoever, whether known, unknown, accrued, absolute,
contingent or otherwise, now existing or hereafter arising (the “Excluded
Liabilities”). Except for the Assumed Liabilities, the Seller Entities
shall be responsible for and pay any and all obligations and liabilities of
every kind or nature whatsoever relating to (i) their operations prior to
the Closing,


 


7

















 


(ii) the Excluded
Assets or the Excluded Businesses, (iii) all liabilities of the Seller
Entities other than the Assumed Liabilities or (iv) any event, act,
omission, condition or any other state of facts to the extent occurring or
existing prior to or at the Closing (including, in each case, without
limitation, any obligation or liability relating to or associated with
infringement or misappropriation of ACON Intellectual Property Assets or ACON
In-Licensed Intellectual Property Assets, Tax matters, pension and benefits
matters, compliance with Laws or licensing requirements, personal injury and
property damage matters and environmental and worker health and safety
matters). Notwithstanding the foregoing, Buyer shall satisfy all product
liability obligations arising out of the Transferred Assets and the Business
except and to the extent that product liability insurance held in the Ordinary
Course of Business is available for any such claim.


 


1.3             Closing.
The closing of the purchase and sale of the Business provided for in this
Agreement (the “Closing”) shall be held at the offices of Goodwin
Procter LLP, Exchange Place, Boston, Massachusetts 02109 no later than five (5)
business days following the satisfaction or waiver of the conditions set forth
in Section 8, or at such other place or later date as may be fixed by mutual
agreement of Buyer and the Seller Entities (the “Closing Date”). The
Closing shall be deemed to occur as of 12:01 a.m. Pacific Standard Time on the
Closing Date.


 


1.4             Transfer
of Transferred Assets.


 


(a)           At the
Closing, the Seller Entities shall deliver or cause to be delivered to Buyer
good and sufficient instruments of transfer transferring to Buyer all right,
title and interest in and to all of the Transferred Assets. Such instruments of
transfer (i) shall be in the form which is usual and customary for transferring
the type of property involved under the Laws of the jurisdictions applicable to
such transfers, (ii) shall be in form and substance reasonably
satisfactory to Buyer and its counsel, (iii) shall effectively vest in
Buyer good, valid and marketable title in and to all of the Transferred Assets
free and clear of all mortgages, pledges, security interests, charges, liens,
restrictions, easements, covenants, assessments, claims, judgments and
encumbrances of any kind (collectively, “Liens”) other than Permitted
Liens, and (iv) where applicable, shall be accompanied by evidence of the
discharge of all Liens against the Transferred Assets, other than Permitted
Liens, as of the Closing Date.


 


(b)           For
purposes of this Agreement, “Permitted Liens” shall mean (i) Liens for
Taxes which are not then delinquent, (ii) Liens set forth on Schedule 1.4(b),
(iii) pledges or deposits of money securing statutory obligations under
workmen’s compensation, unemployment insurance, social security or public
liability laws or similar legislation (excluding Liens under ERISA); (iv)
pledges or deposits of money securing bids, tenders, contracts (other than
contracts for the payment of money) or leases to which any Seller Entity is a
party as lessee made in the Ordinary Course of Business; (v) inchoate and
unperfected workers’, mechanics’, vendors’ or similar liens arising in the
Ordinary Course of Business, (vi) carriers’, warehousemen’s, suppliers’ or
other similar possessory liens arising in the Ordinary Course of Business so
long as such Liens attach only to Inventory; and (vii) deposits securing, or in
lieu of, surety, appeal or customs bonds in proceedings to which any Seller
Entity is a party; (viii) with respect to any Intellectual Property Asset, all
Liens (other than Liens evidencing or securing financial obligations) of any
kind evidenced by the documents or other instruments true, correct and


 


8

















 


complete copies of which
were provided to Buyer (other than relating to commercial off-the-shelf
computer software having a cost of less than one thousand dollars ($1,000) per
seat or license, and other standard form non-exclusive licenses with respect to
Intellectual Property Assets available generally which licenses have a cost of
less than fifty thousand dollars ($50,000) per year) pursuant to which the
Seller Entities or their respective Affiliates acquired their right, title or
interest in or to such Intellectual Property Asset; and (ix) Liens which
do not, in the aggregate, exceed fifty thousand dollars ($50,000).


 


1.5             Delivery
of Records and Contracts. At the Closing and subject to the provisions of
Section 1.7, the Seller Entities shall deliver (delivery to the New Facility
shall be deemed delivery) or cause to be delivered to Buyer all of the
Transferred Contracts (including all of the Material Contracts other than
Excluded Contracts) and Assumed Orders, with such assignments thereof and
consents to assignments as are necessary to assure Buyer of the full benefit of
the same. The Seller Entities shall also deliver (delivery to the New Facility
shall be deemed delivery) or cause to be delivered to Buyer at the Closing or
as soon as reasonably practicable thereafter, but in any event within thirty
(30) days thereafter unless otherwise agreed to by Buyer and the Seller
Entities, or substantially concurrently with the removal of the Transferred
Assets, all of the Seller Entities’ business records, books and other data
relating to the Business to the extent the same constitute part of the Transferred
Assets, and the Seller Entities shall take all requisite steps to put Buyer in
actual possession and operating control of the Business of the Seller Entities
and their Affiliates. After the Closing, Buyer shall afford to the Seller
Entities and its accountants and attorneys, as may be reasonably requested
after the Closing, reasonable access to the books and records of the Seller
Entities delivered to Buyer under this Section 1.5 and shall permit the Seller
Entities, at the Seller Entities’ expense, to make extracts and copies
therefrom. The Seller Entities shall cause to be delivered to Buyer on or prior
to the Closing Date a complete copy (which may be electronic) of the documents
and information included in the electronic data room (if any) as of the
execution of this Agreement provided by the Seller Entities for review to Buyer
during the negotiation of this Agreement including an electronic index thereof.


 


1.6             Further
Assurances. The Seller Entities from time to time after the Closing at the
request of Buyer and without further consideration shall execute and deliver
further instruments of transfer and assignment (in addition to those delivered
under Sections 1.4 and 1.5) and take such other actions as Buyer may
reasonably require to effectively transfer and assign to, and vest in, Buyer
all right, title and interest in and to each of the Transferred Assets. The
Seller Entities shall execute all papers and otherwise reasonably cooperate (at
Buyer’s sole cost and expense) with Buyer and/or Buyer’s designees in
preparing, filing, prosecuting, obtaining, enforcing and/or defending any of
the Assigned ACON Intellectual Property Assets after the Closing Date.
Furthermore, if for any reason Buyer is unable (after using reasonable efforts)
to obtain the Seller Entities’ execution of any paper necessary to prepare,
file, prosecute, obtain, enforce and/or defend any of the Assigned ACON
Intellectual Property Assets after the Closing Date, each of Seller Entities
hereby grants to Buyer its limited power of attorney only for the purpose of
executing any such papers necessary to do same.


 


1.7             Procedures
for Assets not Transferable. Notwithstanding anything to the contrary set
forth herein, with respect to the Dual Use Contracts and any of the contracts
or


 


9

















 


agreements or any other property or rights included in the Transferred
Assets is not assignable or transferable either by virtue of the provisions
thereof or under applicable Law without the consent of some party or parties
and any such consent is not obtained prior to the Closing, this Agreement and
the related instruments of transfer shall not constitute an assignment or
transfer thereof and, unless otherwise agreed between Buyer and the Seller
Entities with respect to such contract, Buyer shall not assume the Seller
Entities’ obligations with respect thereto, but the Seller Entities shall use
all commercially reasonable efforts to obtain any such consent for contracts
other than Dual Use Contracts as soon as possible after the Closing and
otherwise obtain for Buyer the practical benefit of such property or rights
(including Dual Use Contracts) and Buyer shall use all commercially reasonable
efforts to assist in that endeavor. In the event that any purchase order
included in the Transferred Assets is not assigned by any Seller Entity by
reason of the foregoing provisions of this Section 1.7, Buyer agrees to
purchase from such Seller Entity at the contract price all property thereunder
which such Seller Entity is obligated to purchase and such Seller Entity agrees
to sell the same to Buyer at such price. In the event that any sales order
included in the Transferred Assets is not assigned by the Seller Entity by
reason of the foregoing provisions of this Section 1.7, Buyer agrees to
sell to such Seller Entity any products required to complete such contracts at
the same price provided for therein and otherwise to complete such contracts on
behalf of such Seller Entity and such Seller Entity agrees to purchase the same
from Buyer at such price. In any such arrangement, Buyer shall have the sole
responsibility with respect to the completion of the work following the Closing
Date; shall bear all costs and expenses with respect thereto arising or
occurring after the Closing Date; shall be solely entitled to the benefits; and
shall be solely responsible for any breach of warranty with respect to Products
to the extent they are manufactured after the Closing Date. The Seller Entities
agree to contact the counterparties to the Dual Use Contracts promptly
following the date hereof, and in any event within ten (10) business days of
the date hereof to discuss such party’s Dual Use Contract(s) and the proposed
arrangements that are necessary in order to provide the Buyer with the full
benefits of such Dual Use Contract(s) in connection with the operation of the
Business. The Seller Entities shall keep Buyer reasonably informed of the
progress of such discussions and shall provide Buyer with (a) an opportunity to
participate in the discussion with the applicable counterparty and (b) any
proposed amendment to such Dual Use Agreement(s) in order to effectuate the
foregoing. Buyer agrees to provide such information and assistance to the
Seller Entities and the counterparties to such Dual Use Agreements as may be
reasonably requested except where such information is the subject of an
existing nondisclosure and/or non-use obligation.


 


1.8             Sales
and Transfer Taxes. Notwithstanding any provision of this Agreement which
is inconsistent or contrary, all sales, use, VAT, stamp duty, recording,
documentary and transfer taxes, fees and duties under applicable Law incurred
in connection with this Agreement or the transactions contemplated hereby,
including the sale and transfer of the Transferred Assets, will be borne and
paid one-half (1/2) by the Seller Entities and one-half (1/2) by the Buyer.


 


1.9             Withholding.
The Buyer shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any person such amounts as the
Buyer determines it is required to deduct and withhold under the Code or the
Treasury Regulations or any other provision of state, local or foreign Tax Law.
The amounts so deducted


 


10

















 


and withheld shall be treated for all purposes as having been paid to
such person in respect of which such deduction and withholding was made. If
Buyer determines that it may be required to withhold any amount with respect to
payments under this Agreement, it shall promptly notify the Seller Entities.
Buyer shall cooperate with the Seller Entities in determining whether or not
any such withholding is in fact required and shall consider in good faith any
facts or legal analysis provided to it by the Seller Entities regarding such
potential withholding obligation.


 


1.10           Governmental
Filings and Consents. The parties hereto agree that certain Governmental
Filings and Consents (as defined herein) set forth on Schedule 7.2
hereto may be necessary in connection with the consummation of the transactions
contemplated by this Agreement. Each party has agreed to take certain actions
with respect to such Governmental Filings and Consents including without
limitation the covenants of the Seller Entities and the Buyer set forth in
Sections 5.1 and 8.1, respectively. In the event the conditions to the
Closing set forth in Sections 9.1 and 9.2 hereof are otherwise satisfied
or waived and the filings set forth on Schedule 7.2 have been made
if required by applicable Law, the Buyer may request that the Seller Entities
consummate the transactions contemplated at the Closing; provided, however,
that to the extent such transactions require the consent or approval of the
Governmental Authority in the jurisdiction where the filings set forth on Schedule 7.2
hereof have been made, the Buyer and Seller Entities shall use commercially
reasonable efforts to consummate the transactions contemplated at the Closing
to the maximum extent permitted by applicable Law, with the payment
contemplated by Section 2.1 to be pro rated based upon revenues, and any
portion of such transactions that may not be completed at such date shall be
completed upon receipt of such consent or approval as is required under
applicable Law. The parties acknowledge and agree that the foregoing may
require certain amendments to the Ancillary Agreements to permit the Seller
Entities to continue to operate the Business in any such jurisdiction.


 


SECTION
2.           PURCHASE PRICE


 


2.1             Purchase
Price. In consideration of the sale by the Seller Entities to Buyer of the
Transferred Assets, subject to the assumption by Buyer of the Assumed
Liabilities, Buyer will pay the Purchase Price plus or minus, as the case may
be, the Working Capital Surplus or Working Capital Shortfall. The Purchase Price
shall be paid as follows:


 


(a)           at the
time the transfer of production facilities for Products to the New Facility is
Substantially Complete (as defined herein), Buyer shall deliver to the Seller
Entities an amount equal to 83.7% of the Purchase Price;


 


(b)           at the
time the transfer of production facilities for Products to the New Facility is
Fully Complete (as defined herein), Buyer shall deliver to the Seller Entities
an amount equal to 9.3% of the Purchase Price; and


 


(c)           on the
first anniversary of the Closing (the “Deferred Payment Date”), Buyer
shall pay to the Seller Entities an amount equal to Seven Percent (7%) of the
Purchase Price. Notwithstanding the foregoing, (x) if prior to the Deferred
Payment Date a claim has been made by Buyer pursuant to Section 12.1 which has
not been fully resolved, the Deferred Payment Date shall be deferred with
respect to an amount equal to the amount of such claim (if


 


11

















 


the amount of such claim
is less than the amount otherwise payable on the Deferred Payment Date) until
such time that Buyer determines in good faith that the claim subject to
indemnification has been resolved pursuant to Section 12, and (y) the Deferred
Payment is subject to offset as provided herein.


 


(d)           Subject to
Section 11.2 hereof, the payment of the Purchase Price on any payment date
shall be paid in the ratio of 71.43% in cash to 28.57% in Common Stock; provided,
that Buyer may pay cash in lieu of Common Stock for all or a portion of the
Purchase Price which would otherwise have been paid in Common Stock. In the
event that a portion of the Purchase Price is being paid in cash, the Buyer
shall deliver such cash to the Seller Entities by bank wire transfer pursuant
to wiring instructions set forth in a written notice delivered to Buyer not
less than five (5) business days prior to the Closing. In the event that a
portion of the Purchase Price is being paid in Common Stock, the Buyer shall
deliver such Common Stock to the Seller Entities pursuant to instructions set
forth in a written notice delivered to Buyer not less than five (5) business
days prior to the Closing.


 


(e)           On any
payment date, the number of shares of Common Stock to be issued shall be
determined by dividing the value of the common stock, par value $0.01 per
share, (the “Common Stock”) to be issued by the Buyer by a price per
share equal to the greater of (1)
the volume weighted average price (“VWAP”) of the Common Stock during the ten
(10) trading days preceding the issuance of such security by one (1) day, and
(2) ninety percent (90%) of the VWAP of the Common Stock during the ten (10)
trading days preceding the signing of this Agreement (the “Reference Price”).


 


(f)            Notwithstanding
anything to the contrary, the aggregate number of shares of Common Stock being
issued by the Buyer to the Seller Entities pursuant to Section 2.1 above
shall not exceed the lesser of (i)                shares,
or (ii) such number of shares as would require Buyer to obtain shareholder
approval for such issuance pursuant to the then-existing rules of any
applicable stock exchange or automated quotation system on which any of the
Buyer’s securities are then listed or quoted. In addition, the Buyer shall
issue the Common Stock payable pursuant to Section 2.1 to any Affiliate of
the Seller Entities as the applicable Seller Entity shall direct in writing; provided,
however, that (1) such issuance complies with all applicable Laws,
including all applicable foreign, federal and state securities laws; (2) such
issuance can be made without registration under applicable foreign, federal or
state securities Laws; (3) such issuance does not require any filing with any
Governmental Authority pursuant to the HSR Act; (4) such party becomes a party
hereto by execution of a Joinder Agreement in the form attached hereto to the
extent of the Common Stock so issued to such party; and (5) such party becomes
a party to the Investor Rights Agreement.


 


(g)           For
purposes of this Section 2.1:


 


(i)            “Purchase
Price” shall mean the greater of (A) two (2) times Revenue or (B) eleven
(11) times Pre-Tax Profit, in each case as calculated under GAAP consistently
applied and determined in accordance with paragraphs (ii) and (iii) below.


 


12






 













 


(ii)           “Revenue”
shall mean the revenue attributable to the Business of the Seller Entities for
the 12-month period beginning on the seventh calendar quarter commencing after
the First Closing (as defined in the FTNF Acquisition Agreement) (the “Purchase
Price Determination Period”) and reflected on the Purchase Price Financial
Statements (as such term is defined in Section 5.4(d)).


 


(iii)          “Pre-Tax
Profit” shall mean the pre-tax profit (including allocations of overhead
and other items contained therein) attributable to the Business of the Seller
Entities purchased at the Closing for the Purchase Price Determination Period
and reflected on the Purchase Price Financial Statements. Pre-Tax Profit shall
be determined excluding all costs and expenses of the Seller Entities incurred
in connection with the consummation of the transactions contemplated hereby
(i.e. the pre-tax profit will be adjusted upward as if such expenses had not
been incurred).


 


(iv)          For the
avoidance of doubt, the parties acknowledge that the amounts due under Sections
2.1(a) through 2.1(c) can not be calculated, and amounts can not be paid, until
such time as the Purchase Price Financial Statements are delivered to Buyer as
required by Section 5.4 hereof and Buyer has a reasonable opportunity to review
such financial statements.


 


2.2             Allocation
of Purchase Price. Buyer and the Seller Entities hereby agree on the
allocation of the Purchase Price among the Transferred Assets pursuant to the
methodology set forth on Schedule 2.2,(5) which allocation shall be
in accordance with Section 1060 of the Internal Revenue Code of 1986, as
amended (the “Code”), and the applicable Treasury Regulations (and any
similar provision of state, local or foreign law, as applicable; provided
that in the event of conflict with any such provisions such allocation shall be
made in accordance with Section 1060 of the Code). Such allocation shall be
binding upon Buyer and the Seller Entities for all tax purposes and the parties
shall file all Tax Returns (including amended Tax Returns and claims for
refund) and information reports, including IRS Form 8594, in a manner
consistent with such allocations.


 


2.3             Working
Capital Adjustment.


 


(a)           Within
ninety (90) days after the Closing Date, Buyer shall, with the assistance of
the Seller Entities, prepare and deliver to the Seller Entities a statement
calculating the Working Capital (as defined below), which statement will be
prepared consistent with the Seller Entities’ past accounting methods and
policies and otherwise in accordance with United States generally accepted
accounting principles (“GAAP”) consistently applied (the “Closing
Statement”). Unless the Seller Entities deliver the Dispute Notice (as
defined below) within thirty (30) days after receipt of the Closing Statement,
such Closing Statement shall be deemed the “Final Closing Statement,”
shall be binding upon all parties and shall not be subject to dispute or
review. If the Seller Entities disagree with the Closing Statement, the Seller
Entities shall, within thirty (30) days after receipt thereof, notify Buyer in
writing (the “Dispute Notice”),


 






(5)           Allocation
methodology in Second Territory transaction will be similar to allocation
methodology in FTNF Acquisition Agreement.


 


13

















 


which Dispute
Notice shall provide reasonable detail of the nature of each disputed item on
the Closing Statement. The Seller Entities and Buyer shall first use
commercially reasonable efforts to resolve such dispute among themselves and,
if the parties are able to resolve such dispute, the Closing Statement shall be
revised to the extent necessary to reflect such resolution, shall be deemed the
“Final Closing Statement” and shall be conclusive and binding upon all
parties and shall not be subject to dispute or review. If the parties are
unable to resolve the dispute within thirty (30) days after the Buyer’s receipt
of the Dispute Notice, the parties shall submit the dispute to a mutually
agreed upon internationally recognized certified public accounting firm
independent of both the Seller Entities and the Buyer (the “Accountants”).
The Accountants shall act as experts and not arbiters and shall determine only
those items in dispute on the Closing Statement. Promptly, but no later than
thirty (30) days after engagement, the Accountants shall deliver a written
report to Buyer and the Seller Entities as to the resolution of the disputed
items and the resulting calculation of the Closing Statement and Working
Capital. The Closing Statement as determined by the Accountants shall be deemed
the “Final Closing Statement” and shall be conclusive and binding upon
all parties and shall not be subject to dispute or review. Each of the parties
shall have the right to approve the fees for engagement of such Accountant. The
fees and expenses of the Accountants in connection with the resolution of
disputes pursuant to this Section 2.3 shall be borne one-half by Buyer and
one-half by the Seller Entities.


 


(b)           The
Purchase Price will be adjusted following the Closing as provided in this
paragraph. If the amount of the Working Capital reflected on the Final Closing
Statement is less than                       
dollars(6) ($                 )
(such difference, the “Working Capital Shortfall”), then the Seller
Entities shall jointly and severally pay to Buyer an amount equal to the
Working Capital Shortfall and as a result the Purchase Price shall be decreased
by an amount equal to the Working Capital Shortfall. The Seller Entities shall
make such payment to Buyer in cash within five (5) days after the Final Closing
Statement is determined and, if such payment is not made in full within such
five-day period, such payment shall thereafter bear interest at a rate equal to
ten percent (10%) per annum until paid in full. If the amount of the Working
Capital as reflected on the Final Closing Statement is equal to                   
dollars ($                       ),
then there will be no adjustment to the Purchase Price. If the amount of the
Working Capital reflected on the Final Closing Statement is greater than                     
dollars ($                 )
(such difference, the “Working Capital Surplus”), then the Buyer shall
pay to the Seller Entities an amount equal to the Working Capital Surplus and
as a result the Purchase Price shall be increased by an amount equal to the
Working Capital Surplus. The Buyer shall make such payment to the Seller
Entities in cash within five (5) days after the Final Closing Statement is
determined and, if such payment is not made in full within such five-day
period, such payment shall thereafter bear interest at a rate equal to ten
percent (10%) per annum until paid in full. The Buyer and the Seller Entities
shall provide the other party with wire transfer instructions necessary to permit
the payments of amounts due pursuant to this Section 2.3 within the time
required.


 


(c)           For
purposes of this Agreement, “Working Capital” means, with respect to the
Seller Entities as of the close of business on the Closing Date and in each
case as determined


 






(6)           Target working capital
balance to be equal to [TO BE DISCUSSED AT THE TIME OF DUE DILIGENCE]. 


 


14

















 


in accordance with
GAAP consistently applied, an amount equal to the sum of accounts receivable,
notes receivable, finished goods inventory, and prepayments less accounts
payable (except for those arising from purchases of raw materials or otherwise
arising from or related to purchases of inventory, materials, components and
the like) and accrued expenses of the Seller Entities arising out of, relating
to or resulting from the Business and determined in accordance with the
methodology set forth on Schedule 2.3.


 


2.4             Fractional
Shares of Common Stock. No fractional shares of Common Stock shall be issued
in connection with this Agreement, but in lieu thereof, if a Seller Entity
would otherwise be entitled to receive a fraction of a share of the Common
Stock, then such Seller Entity shall receive cash in an amount equal to such
fraction multiplied by the Reference Price.


 


2.5             Buyer
Default. If Buyer defaults in making a payment under this Article
2 when due under the terms of this Agreement, then all such amounts not
paid when due shall accrue interest at a rate equal to the prime rate as set
forth from time to time in The Wall Street
Journal plus two percent (2%). The rights and remedies of the
Seller Entities under this Section 2.5 are cumulative and not exclusive of
any rights, remedies, powers and privileges otherwise available to the Seller
Entities, including, without limitation, immediate initiation of arbitration to
collect all amounts due hereunder pursuant to the dispute resolution procedures
in Section 12.13.


 


SECTION 3.           REPRESENTATIONS
AND WARRANTIES OF THE SELLER ENTITIES.(7)


 


As a material inducement
to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, the Seller Entities hereby jointly and severally make to
Buyer, the representations and warranties contained in this Section 4 as
of the date hereof and as of the Closing Date. For purposes of this
Section 4, references to the “knowledge” of the Seller Entities or words
of similar import (and regardless of whether such word begins with an initial
capital) shall be deemed to include, the actual knowledge of Jixun Lin and Feng
Lin (collectively, the “Management Team”) and those other persons set
forth on Schedule 3.0) and such knowledge as should have been obtained
after reasonable inquiry by such persons of the employees, representatives and
advisors of the Seller Entities, including its attorneys and accountants.


 


3.1             Organization
and Qualifications of the Seller Entities. Each Seller Entity is an entity
duly organized, validly existing and in good standing (if applicable) under the
Laws of the jurisdiction of its organization with all requisite power and
authority to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or such
business is conducted by it. The copies of the organizational documents


 






(7)           The
representations and warranties of this Article may be revised in order to
conform to change in law and similar matters though it is the intent of the
parties that the final representations and warranties contained in the
definitive agreement are substantially similar to those set forth herein.  In addition, the parties acknowledge that
since no due diligence has been conducted in connection with this Agreement, no
disclosure schedules have been prepared.


 


15

















 


(including charter, articles of association and by-laws) of each Seller Entity (the “Seller
Organizational Documents”), each as amended to date, and previously
delivered to Buyer’s counsel, are complete and correct, and no amendments
thereto are pending. Each Seller Entity is qualified to do business as a
foreign corporation in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties requires such qualification, except
where the failure to be so licensed or qualified could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
For purposes of this Agreement, “Material Adverse Effect” shall mean a
material adverse effect on the assets, liabilities, business, properties,
condition (financial or otherwise), results of operations or prospects of the
Business; provided, however, that in no event shall any of the
following constitute a Material Adverse Effect for any purpose pursuant to the
Agreement: (i) with respect to the Business or the Seller Entities, any
change resulting from conditions affecting the in vitro diagnostic industry in
which the Seller Entities operate; (ii) any change resulting from
terrorist attacks, acts of war or acts of God; (iii) any change resulting from
the announcement and pendency of any of the transactions contemplated by this
Agreement; and (iv) any change resulting from compliance by the Seller Entities
or Buyer, as the case may be, with the terms of, or the taking of any action
expressly contemplated or permitted by this Agreement.


 


3.2             Authority
of Seller Entities. Each Seller Entity has full right, power and authority
to enter into this Agreement, the Amended ACON License, the Assignment and
Assumption Agreement, the Investor Rights Agreement, the Supply Agreement, the
Reagent Supply Agreements, the Transition Services Agreement, the Patent
Assignments, the Trademark Assignment, the Notices of Patent License, the
Copyright Assignment [other ancillary
agreements to be determined by the parties in the future to be
necessary/desirable] and each other agreement, document and
instrument to be executed and delivered by it pursuant to or as contemplated by
the Closing and to carry out the transactions contemplated hereby and thereby (collectively,
the “Ancillary Agreements”) and together with this Agreement (the “Transaction
Documents”). The execution, delivery and performance of the Transaction
Documents by each Seller Entity have been duly authorized by all necessary
action of such Seller Entity, and no other action on the part of such Seller
Entity is required in connection therewith. The Transaction Documents
constitute, or will when executed and delivered by such Seller Entity
constitute, valid and binding obligations of such Seller Entity, enforceable in
accordance with their respective terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other Laws affecting the
rights of creditors generally and subject to the rules of law governing (and
all limitations on) specific performance, injunctive relief and other equitable
remedies. Except as set forth on Schedule 3.2, no notice to, filing
with, authorization of, exemption by, or consent of, any Person is required for
the Seller Entities to consummate the transactions contemplated hereby (the “Required
Consents”). Except as set forth on Schedule 3.2, the execution,
delivery and performance by each Seller Entity of the Transaction Documents:


 


(a)           do not and
will not violate any provision of the charter, by-laws or Seller Organizational
Documents (as amended to date);


 


(b)           do not and
will not violate contravene or conflict in any material respect with any Laws,
order, writ, judgment, injunction, decree, determination or arbitration award


 


16

















 


binding upon or
applicable to any Seller Entity or require any Seller Entity to obtain any
approval, consent or waiver of, or to make any filing with, any person or
entity (governmental or otherwise) that has not been obtained or made;


 


(c)           do not and
will not result in a material breach of, constitute a material default under,
cancel or accelerate any material right or obligation under, require a consent
under, cause a termination under, or give rise to a right of termination of any
indenture or loan or credit agreement or any other material agreement,
contract, instrument, mortgage, Lien, lease, permit, authorization, whether
written or oral, to which any Seller Entity is a party or is bound, or result
in the creation or imposition of any Lien on any of the assets or the property
of such Seller Entity; and


 


(d)           do not and
will not result in any Lien on any of the Transferred Assets.


 


3.3             Title
to Properties; Liens; Condition of Properties.


 


(a)           The Seller
Entities own, license or lease all of the Transferred Assets and each Seller
Entity has and will convey to Buyer hereunder good, valid and marketable title
to all of its personal property, tangible and intangible, included in the
Transferred Assets. The tangible Transferred Assets are those listed, and are
located at the location(s) specified, on Schedule 1.1(a)(iii). Except as
set forth on Schedule 3.3(a), no financing statement under the
Uniform Commercial Code or any similar Law with respect to any of the Transferred
Assets is active in any jurisdiction, and the Seller Entities have not signed
any such active financing statement or any security agreement authorizing any
secured party thereunder to file any such financing statement.


 


(b)           The
Transferred Assets and Dual Use Contracts listed are in all material respects
all of the assets used or held for use in the Business as the same has been
operated prior to the date hereof and except as set forth on Schedule 3.3(b),
the Transferred Assets, together with the assets (other than Intellectual
Property Assets) to be made available and services to be provided to Buyer
pursuant to the Ancillary Agreements, constitute all of the assets (other than
Intellectual Property Assets) necessary for Buyer to continue to operate the
Business in all material respects as it has been operated prior to the Closing.
Except as set forth on Schedule 3.3(b), the Transferred Assets
(i) are in working order (reasonable wear and tear excepted, and in each
case taking into account age), (ii) have been and shall through the
Closing be maintained in a manner consistent with the past maintenance
practices of the Seller Entities, (iii) are suitable for the manufacture
and assembly of parts in accordance with the engineering specifications for
products of the Business and (iv) conform in all material respects with
all applicable Laws.


 


(c)           Upon
delivery to Buyer of the instruments of transfer referred to in Section 1.5
hereof, Buyer will receive good, valid and marketable title to all of the
Transferred Assets, free and clear of all Liens other than Permitted Liens.


 


17

















 


3.4             Financial
Statements; Undisclosed Liabilities.


 


(a)           Attached
hereto as Schedule 3.4(a) are (i) the statement of net assets acquired of
the Business as of                
    , 200    (8) (the “Base Balance
Sheet”), and the statement of revenues and direct expenses of the Business
for the year then ended audited by an internationally recognized certified
public accounting firm reasonably acceptable to Buyer[, the audit report of
which will satisfy Buyer’s obligation to file audited financial statements for
the Business on a Current Report on Form 8-K or any successor form](9) (the “Financial
Statements”), and (ii) an unaudited schedule setting forth revenue and
gross profits of the Business for the months of [all periods through second
most recent month end] (the “Financial Schedules”). The Financial
Statements have been audited by the Seller Entities’ independent certified
public accountants and have been reviewed by the Seller Entities’ chief
financial officer. The Financial Statements have been derived from a balance
sheet and income statement prepared in accordance with GAAP. The Financial
Schedules have been derived from an income statement prepared in accordance
with GAAP.


 


(b)           Except as
set forth in Schedule 3.4(b), the Financial Statements and Financial
Schedules (i) have been derived from financial statements prepared in
accordance with GAAP using the accrual method of accounting applied
consistently during the periods covered thereby (except that the Financial
Statements and Financial Schedules do not include footnote disclosure and are
subject to normal year-end audit adjustments that are not in the aggregate
material), (ii) are complete and correct in all material respects and present
fairly in all material respects the financial condition of the Business, at the
date of said statements and the results of its operations for the period
covered thereby, (iii) contain and reflect adequate provisions for all
reasonably anticipated liabilities with respect to the period then ended, and
(iv) with respect to Material Contracts and commitments for the sale of
products or other goods or services by the Seller Entities in the Business, contain
and reflect adequate reserves for all material losses and costs and expenses in
excess of expected receipts. The accounting policies, including without
limitation, those policies related to revenue recognition, utilized by the
Seller Entities in preparing the Seller Entities’ Financial Statements are in
conformity with GAAP.


 


(c)           As of the
date hereof and as of the Closing Date, the Seller Entities do not and will not
have any liabilities of any nature, whether accrued, absolute, contingent or
otherwise, asserted or unasserted, known or unknown (including without
limitation liabilities as guarantor or otherwise with respect to obligations of
others, or liabilities for taxes due or then accrued or to become due or
contingent or potential liabilities relating to activities of the Seller
Entities in the Business or the conduct of the Business prior to the date
hereof), whether or not of a type required to be shown on a balance sheet
prepared in accordance with GAAP, except liabilities (i) stated or adequately
reserved against on the Base Balance Sheet (only to the extent


 






(8)           Will
be for calendar year preceding the Purchase Price Determination Financial
Statements at such time Seller Entities will have delivered prior to Closing
two (2) years of historical audits.


 


(9)           In
the event the Buyer determines in its reasonable discretion that the
acquisition of the Business will not constitute a transaction that requires
audited financial statements, the bracketed portion of the representation and
warranty will be removed.  To the extent
the reporting requirements change for transactions such as those contemplated
by this Agreement, this representation and warranty will be modified to address
such changes.


 


18

















 


of the amount
provided for therein), or (ii) incurred in the ordinary course of business
consistent with the Seller Entities’ past customs and practices (the “Ordinary
Course of Business”) (including with respect to quantity and frequency) after
the date of this Agreement to the extent permitted by this Agreement.


 


(d)           As of the
date hereof and as of the Closing, except for the Assumed Liabilities, the
Seller Entities do not and will not have any indebtedness for borrowed money
(including without limitation, obligations under leases required to be
capitalized in accordance with GAAP) for which Buyer could become liable.


 


3.5             Receivables.
Receivables arising out of, relating to or resulting from the Business are and
will be at the Closing valid and enforceable claims, fully collectible in the
Ordinary Course of Business, subject to an appropriate reserve determined in a
manner consistent with past practices of the Seller Entities, and subject to no
setoff or counterclaim. Since the Base Balance Sheet Date, the Seller Entities
have collected their accounts receivable arising out of, relating to or
resulting from the Business in the Ordinary Course of Business.


 


3.6             Taxes.


 


(a)           With
respect to any Taxes, the nonpayment of which would result in a Lien on any of
the Transferred Assets or would result in Buyer becoming liable therefor:


 


(i)            Each
Seller Entity has timely filed all China and U.S. federal, state, provincial
and local and all other non-China and non-U.S. Tax Returns (as defined herein)
required to be filed by each such entity and has paid all Taxes due and owing
by it. All such Tax Returns are correct, accurate and complete in all material
respects and were prepared in compliance with all applicable laws and
regulations.


 


(ii)           No
Seller Entity has ever received notice of any audit or of any proposed
deficiencies from any Governmental Authority.


 


(iii)          There
are no waivers of applicable statutes of limitations with respect to any Taxes
owed by any Seller Entity for any year in effect.


 


(iv)          There
are no liens for Taxes (other than Taxes not yet due and payable) upon any of
the assets of any Seller Entity.


 


(v)           Schedule 3.6
lists any and all Tax Returns filed with respect to each Seller Entity for all
taxable periods for which the statute of limitations has not yet expired, and
identifies those Tax Returns that have been audited or are currently the
subject of audit.


 


(vi)          Seller
Entities have delivered to Buyer correct and complete copies of all Tax Returns
that have been filed for all taxable periods for which the statute of
limitations has not yet expired, and examination reports and statements of
deficiencies assessed against or agreed to by Seller Entity received since
December 31, 2002.


 


19

















 


(b)           As
used herein, “Taxes” shall mean any taxes of any kind, including but not
limited to those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, estimated,
value-added, property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, including any obligation
to indemnify or otherwise assume or succeed to the Tax liability of any other person,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any Governmental Authority.


 


(c)           As
used herein, “Tax Return” shall mean any return (including any
information statement), report, statement, schedule, notice, form or other
document or information relating to Taxes.


 


(d)           No
Transferred Asset is a United States real property interest within the meaning
of Code

Section 897(c)(1).


 


3.7             Inventories.
The Acquired Inventory is of the type, quantity and quality necessary to
conduct the Business in a manner consistent with past practices. Except as
described on Schedule 3.7, all of the items included in the
Inventory are of a quality and quantity saleable in the Ordinary Course of
Business of the Seller Entities at profit margins consistent with the Seller
Entities’ experience in prior years.


 


3.8             Absence
of Certain Changes. Since the date of the Base Balance Sheet (except as
provided below), each Seller Entity has conducted its Business only in the
Ordinary Course of Business, and except as disclosed in Schedule 3.8
and except as changes in connection with the transactions expressly
contemplated under this Agreement, there has not been:


 


(a)           Any change
in the properties, assets, liabilities, business, condition (financial or
otherwise), results of operations of the Business which change by itself or in
conjunction with all other such changes, whether or not arising in the Ordinary
Course of Business, could reasonably be expected to have a Material Adverse
Effect on the Business;


 


(b)           Any
cancellation of any material debt or claim owing to, or waiver of any material
right of, the Seller Entities or any Affiliate arising from, relating to or
resulting from the Business;


 


(c)           Any
mortgage, encumbrance or Lien (other than a Permitted Lien) placed on any of
the Transferred Assets which will remain on the Closing Date);


 


(d)           Any
material obligation or liability of any nature (as guarantor or otherwise with
respect to the obligations of others), whether accrued, absolute, contingent or
otherwise, asserted or unasserted, known or unknown, incurred by the Seller
Entities arising out of, relating to or resulting from the Business other than
obligations and liabilities which are not Assumed Liabilities or were incurred
in the Ordinary Course of Business;


 


20

















 


(e)           Any
purchase, sale or other disposition, or any agreement or other arrangement for
the purchase, sale or other disposition of any of the Transferred Assets other
than in the Ordinary Course of Business;


 


(f)            Any
damage, destruction or loss, whether or not covered by insurance, which could
reasonably be expected to have a Material Adverse Effect on the Transferred
Assets or the Business;


 


(g)           Any labor
trouble or dispute or claim of unfair labor practices involving any Seller
Entity with respect to the Business or the related manufacturing operation at
the Existing Facility; any material change, or the obtaining of information
concerning a prospective change, with respect to the management of Business;
any change in the compensation (in the form of salaries, wages, incentive
arrangements or otherwise) payable or to become payable by any Seller Entity to
any of its officers, employees, agents or independent contractors rendering services
principally relating to the Business, or any bonus payment or arrangement made
to or with any of such officers, employees, agents or independent contractors;
any entering into or amending of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
officer, director or employee of any Seller Entity rendering services
principally relating to the Business;


 


(h)           Except for
employee turnover in the Ordinary Course of Business, any material change in
the personnel or in the responsibilities or reporting relationships of the
employees (i) of the Business or (ii) with respect to the development and
manufacture of lateral flow immunoassay products and related products at the
Existing Facility;


 


(i)            Any
change in the manner of keeping books, accounts or records, accounting methods
or practices, standard costs, credit practices or collection or pricing
policies used by the Business;


 


(j)            Any
change in any Seller Entity’s business relationship with any material supplier,
customer or other entity having business relations with such Seller Entity
arising out of, relating to or resulting from the Business including any
material increase or notice thereof in the cost of raw materials other than
such changes which have arisen in the Ordinary Course of Business;


 


(k)           Any other
transaction entered into by any Seller Entity that is individually or taken
together with all such other transactions material to the Business other than
transactions in the Ordinary Course of Business;


 


(l)            Any
material agreement or understanding whether in writing or otherwise, that would
result in any of the transactions or events or require any Seller Entity to
take any of the actions specified in paragraphs (a) through (k) above.


 


3.9             Intellectual
Property.


 


(a)           For
purposes of this Agreement,


 


21

















 


(i)            “ACON
Intellectual Property Assets” means, collectively, the Assigned ACON
Intellectual Property Assets and the Retained ACON Intellectual Property
Assets. “ACON Intellectual Property Assets” includes, without limitation, the
ACON Patents, ACON Marks, ACON Copyrights and ACON Trade Secrets.


 


(ii)           “Assigned
ACON Intellectual Property Assets” means all Intellectual Property Assets
owned by or purported to be owned by any or all of the Seller Entities and used
exclusively in the Business.


 


(iii)          “Retained
ACON Intellectual Property Assets” means all Intellectual Property Assets
owned by, purported to be owned by and/or licensed to any or all of the Seller
Entities and used in the Business that are not Assigned ACON Intellectual
Property Assets.


 


(iv)          “Buyer
Intellectual Property Assets” means all Intellectual Property Assets owned
by Buyer.


 


(v)           “Intellectual
Property Assets” means:


 


(A)          patents,
patent applications, patent rights, and inventions and discoveries and
invention disclosures (whether or not patented) (collectively, “Patents”);


 


(B)           trade
names, trade dress, logos, packaging design, slogans, Internet domain names,
registered and material unregistered trademarks and service marks and related
registrations and applications for registration (collectively, “Marks”);


 


(C)           registered
and material unregistered copyrights in both published and unpublished works,
and all copyright registrations and applications, and all derivatives,
translations, adaptations and combinations of the above (collectively, “Copyrights”);


 


(D)          know-how,
trade secrets, confidential or proprietary information (including without
limitation information regarding cell lines and biological reagents), research
in progress, algorithms, data, designs, processes, formulae, drawings,
schematics, blueprints, flow charts, models, strategies, prototypes,
techniques, customer lists and contact numbers/addresses, business strategies,
forecasts, testing procedures and testing results (collectively, “Trade
Secrets”);


 


(E)           other
intellectual property rights and/or proprietary rights relating to any of the
foregoing; and


 


(F)           goodwill,
franchises, licenses, permits, consents, approvals, and claims of infringement
against third parties.


 


22

















 


(b)           Schedule 3.9(b)
contains a complete and accurate list of all issued patents and filed
applications therefor within the definition of Patents that are owned,
purported to be owned or licensed by any or all of the Seller Entities and used
in the Business (“ACON Patents”), all registered marks or filed
applications therefor and all material unregistered marks within the definition
of Marks that are owned, purported to be owned or licensed by any or all of the
Seller Entities and used in the Business (“ACON Marks”), and all
registered copyrights and filed applications therefor and within the definition
of Copyrights that are owned, purported to be owned or licensed by any or all
of the Seller Entities and used in the Business (“ACON Copyrights”),
identifying (i) whether or not such Intellectual Property Assets are used
exclusively in the Business, (ii) the owner of such Intellectual Property
Assets, and, (iii) in the event that the owner is not a Seller Entity,
identifying the agreement under which the applicable Seller Entities are
granted rights to the applicable Intellectual Property Asset.


 


(c)           Except as
set forth on Schedule 3.9(c):


 


(i)            The
Seller Entities exclusively own or have exclusive (with respect to the
Business) license rights to all ACON Intellectual Property Assets and/or
Intellectual Property Assets that are the subject of a written license or other
agreement under which any Seller Entity is granted rights by a third party with
respect to the Business (such licenses or other agreements, the “Inbound
Licenses” and such Intellectual Property Assets, the “ACON In-Licensed
Intellectual Property Assets”), and all ACON Intellectual Property Assets and
ACON In-Licensed Intellectual Property Assets are free and clear of all Liens
other than Permitted Liens.


 


(ii)           The ACON
Intellectual Property Assets owned or purported to be owned by the Seller
Entities have not been held by a court of competent jurisdiction to be invalid
or unenforceable. All Patents, Marks, and Copyrights, in each case, filed or
registered (as applicable) or maintained by any Seller Entity and used in the
Business and which have been issued by, or registered or the subject of an application
filed with, as applicable, the U.S. Patent and Trademark Office, the U.S.
Copyright Office or in any similar office or agency anywhere in the world have
been duly filed or registered (as applicable) and maintained, including the
submission of all necessary filings and fees in accordance with the legal and
administrative requirements or the appropriate jurisdictions, and have not
lapsed, expired or been abandoned.


 


(iii)          All
ACON Patents owned or purported to be owned by any Seller Entity have been
prosecuted in good faith. No ACON Patent is subject to any maintenance fees or
taxes or actions falling due within ninety (90) days after the date of the
Closing. In each case where an ACON Patent is held by a Seller Entity by
assignment, the assignment has been duly recorded with the U.S. Patent and
Trademark Office and all other jurisdictions of registration. No ACON Patent owned by or
exclusively licensed to any Seller Entity has been or is now involved in any
interference, reissue, re examination or opposition proceeding other than any
such proceeding involving any Buyer Intellectual Property Asset. To the
knowledge of the Seller Entities, there is no published patent application of
any third party (other than Buyer) that could reasonably be the subject of an
interference with any ACON Patent.


 


23

















 


(iv)          There are
no pending, or, to the knowledge of the Seller Entities, threatened claims
against any Seller Entity or any of their respective employees alleging
(a) that the operation of the Business (including without limitation any
activity by any Seller Entity in connection therewith) infringes on or violates
the rights of others (other than Buyer) in or to any Intellectual Property
Assets (“Third Party Intellectual Property Assets”) or constitutes a
misappropriation of any Third Party Intellectual Property Asset or
(b) that any of the ACON Intellectual Property Assets or ACON In-Licensed
Intellectual Property Assets is invalid or unenforceable.


 


(v)           Neither the
operation of the Business (including without limitation any activity by any
Seller Entity in connection therewith) nor the manufacture, use and/or sale of
any Product sold in the Business infringes on or violates any Third Party
Intellectual Property Asset, other than the rights of any third party under any
Patent, or constitutes a misappropriation of any Third Party Intellectual
Property Asset, and to the knowledge of the Seller Entities, neither the
operation of the Business (including without limitation any activity by any
Seller Entity in connection therewith) nor the manufacture, use and/or sale of
any Product sold in the Business infringes on or violates the rights of any
third party under any Patent.


 


(vi)          All former
and current employees, consultants and contractors of the Seller Entities
performing technical, scientific and/or creative activities relating to the
Business have executed written instruments with the Seller Entities that assign
to the Seller Entities all rights, title and interest in and to any and all (A)
inventions, improvements, discoveries, writings or other works of authorship,
and information relating to the Business and (B) Intellectual Property Assets
relating thereto.


 


(vii)         To
the knowledge of the Seller Entities, (A) there is no material
infringement or violation by any person or entity of any of the ACON
Intellectual Property Assets or those ACON In-Licensed Intellectual Property
Assets over which a Seller Entity has primary enforcement rights and
(B) there is no any misappropriation by any person or entity of any of the
ACON Intellectual Property Assets or such ACON In-Licensed Intellectual
Property Assets.


 


(viii)        The
Seller Entities have taken reasonable and customary security measures to
protect the secrecy, confidentiality and value of all Trade Secrets owned,
purported to be owned or used by the Seller Entities in the Business (the “ACON
Trade Secrets”), including, without limitation, requiring each employee and
consultant of the Seller Entities and any other person with access to ACON
Trade Secrets to execute a binding confidentiality agreement, copies of which
(or in substantially a form which) have been provided to the Buyer and, to the
knowledge of the Seller Entities, there has not been any material breach by any
party to any such confidentiality agreement.


 


(ix)           As of the
Closing, other than the Assigned ACON Intellectual Property Assets and the
Retained ACON Intellectual Property Assets licensed to Buyer under the License
Agreement, neither any Seller Entity nor any Affiliate of any Seller Entity nor
the Management Team nor, to the knowledge of the Management Team, their


 


24

















 


family members owns or has rights to any Intellectual
Property Asset that is or would be infringed by the manufacture, use, sale,
offer for sale or importation by Buyer of any and all of the Products or
otherwise by the operation of the Business as currently conducted.


 


(d)           Licenses
Received. All Inbound Licenses are listed on Schedule 3.9(d), other
than licenses and agreements for commercial off-the-shelf computer software
having a cost of less than one thousand dollars ($1,000) per seat or
license, and other standard form non-exclusive licenses with respect to
Intellectual Property Assets available generally which licenses have a cost of
less than fifty
thousand dollars ($50,000) per year. Except as set forth on Schedule 3.9(d):
(i) all Inbound Licenses are in full force and effect, (ii) (A) none
of the Seller Entities and, (B) to the knowledge of the Seller Entities, none
of the other parties to such Inbound Licenses is in material default under any
such Inbound License, and (iii) all such Inbound Licenses are assignable
without the consent of the applicable licensor. True and complete copies of all
such Inbound Licenses, and any amendments thereto, have been made available to
the Buyer. To the knowledge of the Seller Entities, the licensors under each
Inbound License have all requisite power and authority to grant the rights
purported to be conferred thereby.


 


(e)           Licenses
Granted. All licenses or other agreements under which the Seller Entities have
granted rights to others in ACON Intellectual Property Assets or ACON
In-Licensed Intellectual Property Assets (“Outbound Licenses” and,
together with the Inbound Licenses, the “Licenses”) are listed on Schedule 3.9(e).
Except as set forth thereon, (i) all Outbound Licenses are in full force
and effect, (ii) (A)none of the Seller Entities and, (B) to the knowledge
of the Seller Entities, none of the other parties to such Outbound Licenses is
in material default under any such Outbound License, and (iii) all such
Outbound Licenses are assignable without the consent of the applicable
licensee. True and complete copies of all such Outbound Licenses, and any amendments
thereto, have been made available to the Buyer.


 


(f)            Schedule 3.9(f)
contains a complete and accurate list of all biological reagents incorporated
in any of the Products or used in the performance of any assay used in any
Product (the “Reagents”) identifying, with respect to each Reagent, (i)
the supplier of such Reagent, and, (ii) in the event that the supplier is not a
Seller Entity or Genclonn, identifying the license or agreement under which the
applicable Seller Entities are granted rights to the applicable Reagent or, if
purchased through purchase orders, so stating that such Reagent is so
purchased. All licenses or other agreements under which any Seller Entity or
Genclonn is granted rights to a Reagent are identified on Schedule 3.10.


 


3.10           Material
Contracts. Schedule 3.10 lists (or cross-references specifically to
an item or items on another Schedule which lists) all of the following
contracts, subcontracts, leases, commitments, plans, agreements,
understandings, instruments, notes, options, warranties, purchase order,
licenses, sublicenses, benefit plans or other legally binding commitment or
undertaking of any nature to which any Seller Entity is a party arising out of,
relating to or resulting from the Business or to which it is subject or to
which any of the Transferred Assets is bound (each a “Material Contract”
and collectively, “Material Contracts”):


 


25

















 


(a)           any
employment contract for any Proposed Second Territory Transferee or any contract
or agreement with any labor union;


 


(b)           any
contract or agreement involving the expenditure of more than fifty thousand
dollars ($50,000) whether or not such purchase in the Ordinary Course of
Business;


 


(c)           any
contract or agreement providing for the purchase of all or substantially all of
its requirements of a particular product from a supplier;


 


(d)           any
contract or agreement which by its terms does not terminate or is not
terminable without penalty within three (3) months after the date hereof;


 


(e)           any
contract or agreement for the sale or lease of Products not made in the
Ordinary Course of Business;


 


(f)            any
contract with any dealer, sales representative, sales agent or distributor;


 


(g)           any
indemnification, or any commitment to issue any such indemnification;


 


(h)           any
contract or agreement relating to the acquisition, transfer, development,
license, sharing or non-disclosure of any ACON Intellectual Property Asset or
ACON In-Licensed Intellectual Property Assets, including all Licenses;


 


(i)            any contract
or agreement expressly imposing any restriction or limitation on the right or
ability of any Seller Entity (i) to compete with any other Person or in
any line of business, (ii) to acquire any product or other asset or any
services from any other Person, or (iii) to develop, sell, supply, distribute,
offer, support, manufacture, market, service any product, component, raw
material, technology or asset to or for any other Person;


 


(j)            any
contract or agreement (i) to which any Governmental Authority is a party or
under which any Governmental Authority has any rights or obligations, or (ii)
directly or indirectly benefiting any Governmental Authority;


 


(k)           any
contract or agreement or court filing seeking or compromising a lawsuit or
other legal or administrative proceeding or claim involving the ACON
Intellectual Property Assets, the ACON In-Licensed Intellectual Property Assets
or Third Party Rights or entering any such settlement or compromise;


 


(l)            any
partnership, joint venture, or other similar contract, arrangement or agreement
between any Seller Entity and a third party;


 


(m)          any
material programs, agreements or arrangements with respect to advertising
allowances, trade discounts, volume discounts, store opening allowances,
extended dating or other similar discount, allowance or rebate programs; or


 


26

















 


(n)           any
contract, agreement, or understanding or arrangement not otherwise identified
in this Section 3.10 and material, which solely for purposes of this
Section 3.10(n) is (1) a contract involving an amount of fifty thousand
dollars ($50,000) or greater per year, or (2) involves the license,
transfer, restriction or ownership of any Intellectual Property Assets or any
asset or right that would constitute an Intellectual Property Asset.


 


Each Material Contract is
valid and is in full force and effect and constitutes the legal, valid and
binding obligation of the Seller Entities, as the case may be, and, to the
knowledge of the Seller Entities, the other parties thereto, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other Laws affecting the rights of
creditors generally and subject to the rules of law governing (and all
limitations on) specific performance, injunctive relief and other equitable
remedies. Neither the Seller Entities nor, to the knowledge of the Seller
Entities, any other party to any Material Contract, is in default in complying
with any material provisions thereof, and no condition or event or fact exists
which, with notice, lapse of time or both would likely constitute, to the
knowledge of the Seller Entities, such a default thereof on the part of the
Seller Entities or, to the knowledge of the Seller Entities, on the part of any
other party thereto. No contracting party to any Material Contract has notified
(whether orally or in writing) the Seller Entities of its intention to
terminate, cancel or modify such Material Contract or otherwise to reduce or change
its activity thereunder so as to affect adversely the benefits derived, or
currently expected to be derived, by the Seller Entities under such Material
Contract. True, correct and complete copies of all Transferred Contracts and
Material Contracts (other than commercial off the shelf computer software
having a cost of less than one thousand dollars ($1,000) per seat or license
and other standard form non-exclusive licenses with respect to Intellectual
Property Assets available generally which licenses have a cost of less than
fifty thousand dollars ($50,000) per year) have been delivered to Buyer on or
before the Closing Date.


 


3.11           Litigation.
Except as set forth in Schedule 3.11, there is no litigation,
material claim or governmental or administrative proceeding or investigation
pending or, to the knowledge of the Seller Entities, threatened against the
Seller Entities or any Affiliate of the Seller Entities directly relating to or
affecting the Business, any of the Transferred Assets or which would prevent or
hinder the consummation of the transactions contemplated by this Agreement.
With respect to each matter set forth therein, Schedule 3.11 sets
forth a description of the forums for the matter, the parties thereto and the
type and amount of relief sought.


 


3.12           Compliance
with Laws. Except as set forth on Schedule 3.12, each of the Seller
Entities is currently in compliance and has heretofore complied in all material
respects with all applicable laws, statutes, ordinances, orders, requirements,
rules and regulations (including, without limitation, environmental laws,
import, export, customs and labeling laws and zoning laws and ordinances) (“Laws”)
promulgated by any Governmental Authority and necessary or required for the
current conduct of the Business, and, except as disclosed in Schedule 3.12,
no Seller Entity has received any notice of a violation or alleged violation of
any Law or any license, permit or authorization that has not been heretofore
corrected and, to the knowledge of the Seller Entities, no such violation
exists which could have a Material Adverse Effect on the Business or the
Transferred Assets.


 


27

















 


3.13           Insurance.
The Business and the Transferred Assets are, and through the Closing Date will
be insured by policies of insurance of the type and in amounts customarily
carried by persons conducting business similar to the Business. There is no
claim by the Seller Entities pending under any such policies as to which
coverage has been questioned, denied or disputed by the insurer.


 


3.14           Product
Liability. There are no existing or, to the knowledge of the Seller
Entities, threatened product liability, warranty, failure to adequately warn or
any other similar claims against the Seller Entities for Products, except as
disclosed in Schedule 3.14. To the knowledge of the Seller
Entities, there are no statements, citations, correspondence or decisions by
any Governmental Authority stating that any Products are defective or unsafe or
fail to meet any product warranty or any standards promulgated by any such
Governmental Authority in any material respect. There have been no notices of
recall served on the Seller Entities by any such Governmental Authority with
respect to any Product. To the knowledge of the Seller Entities, there is no
(a) fact relating to any Product that could be reasonably likely to impose
upon the Seller Entities a duty to recall any Product or a duty to warn
customers of a defect in any Product or (b) latent or overt design, manufacturing
or other defect in any Product.


 


3.15           Finder’s
Fees. No Seller Entity has incurred or become liable for any broker’s
commission or finder’s fee relating to or in connection with this Agreement or
the transactions contemplated hereby.


 


3.16           Permits;
Burdensome Agreements.(10)


 


Schedule 3.16
lists all material permits, registrations, authorizations, licenses,
franchises, certifications and other approvals (collectively, the “Approvals”)
obtained by the Seller Entities from any third party, including, without
limitation, any industry standards association or Governmental Authority. Each
Approval is validly held by the Seller Entities is in full force and effect,
and the Seller Entities are operating in compliance therewith, except for such
noncompliance which could not reasonably be expected to have a Material Adverse
Effect on the Business. Except for the Approvals, no Product has been marketed,
advertised, sold or distributed as having or meeting any other certification,
standard or approval. The Approvals include, but are not limited to, those
required in order for the Seller Entities to conduct the Business under
Chinese, relevant foreign,  provincial,
municipal or local Laws pertaining to environmental protection, public health
and safety, worker health and safety, buildings, highways or zoning. Except as
set forth on Schedule 3.16, none of the Approvals is subject to
termination as a result of the execution of this Agreement by the Seller
Entities or the consummation of the transactions contemplated hereby, and, to
the knowledge of the Seller Entities, Buyer will not be required to obtain any
further Approvals to continue to conduct the


 






(10)         In order to enable
Inverness to engage in the Business, Inverness needs to obtain a number of
permits or licenses from the PRC government, including the GMP.  This will take 12 to 24 months to
obtain.  The parties can discuss whether,
after the First Territory closing, Acon Bio and Inverness can organize a team
to assist Inverness in obtaining the required permits or licenses.  Further, please note that Inverness should
designate ABON to be the holder of such permits or licenses, and that the
parties should agree at such time that ABON will pay all the required
government fees for such permits or licenses.


 


28

















 


Business after the
Closing. None of the Seller Entities are subject to or bound by any agreement,
judgment, decree or order which could reasonably be expected to have a Material
Adverse Effect on the Business or the Transferred Assets.


 


3.17           Employee
Benefit Programs.


 


(a)           Schedule
3.17 lists all of the employee benefit plans, programs and arrangements,
including all pension, retirement, profit-sharing, thrift, savings, severance,
stock-based deferred compensation, deferred compensation, welfare and fringe
benefit plans and employment or severance agreements in which any Transferred
Employee participates or to which any such Transferred Employee is a party
(collectively, the “Employee Plans”). The Seller Entities have made
available to Buyer copies of all Employee Plans and, where applicable, the most
recent summary plan descriptions with respect to the Employee Plans.


 


(b)           The
Employee Plans are in material compliance with applicable Laws and have been
administered in all material respects in accordance with their terms. There is
no pending or, to the knowledge of the Seller Entities, threatened legal
action, suit or claim relating to any Transferred Employee under an Employee
Plan or otherwise (other than ordinary course claims for benefits).


 


(c)           None of
the Employee Plans will obligate Buyer to assume or perform any obligation
thereunder as a result of the transactions contemplated by this Agreement, or
any agreement or document executed pursuant hereto, and Buyer will not become
obligated for any liability under any such Employee Plans, or any other
employee benefit plan of the Seller Entities or their Affiliates as a result of
the transactions contemplated by this Agreement.


 


(d)           [Additional
benefit representations to come in the future based upon location of
employees].


 


3.18           Environmental
Matters. Except as set forth in Schedule 3.18 and only with
respect to the Business, (i) the Seller Entities have no liability under,
nor has any Seller Entity ever violated in any material respect, any
Environmental Law (as defined below); (ii) any property owned, operated,
leased, or used by the Seller Entities (including the Existing Facility), and
any facilities and operations thereon are presently in compliance in all material
respects with all applicable Environmental Laws; (iii) the Seller Entities
have never entered into or been subject to any judgment, consent decree,
compliance order, or administrative order with respect to any environmental or
health and safety matter or received any request for information, notice,
demand letter, administrative inquiry, or formal or informal complaint or claim
with respect to any environmental or health and safety matter or the
enforcement of any Environmental Law; and (iv) the Seller Entities do not
have knowledge that any of the items enumerated in clause (iii) of this
paragraph will be forthcoming.


 


For purposes of this
Section 3.18, (i) ”Environmental Law” shall mean any
environmental or health and safety-related law, regulation, rule, ordinance, or
by-law at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted and (ii) “Seller
Entities” shall mean and include the Seller Entities, their


 


29

















 


predecessors and all
other entities for whose conduct the Seller Entities are or may be held
responsible under any Environmental Law.


 


3.19           Employment
Provisions. Schedule 3.19 sets forth a true and complete list
of all Second Territory Employees (as such term is defined herein), indicating
each Second Territory Employee’s full- or part-time status, position, annual
base salary or hourly rate and bonus potential. Except as set forth on Schedule 3.19,
all Second Territory Employees are employed at-will. Except as set forth on Schedule 3.19,
no Seller Entity is delinquent in payments to any of such Second Territory
Employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Except as set forth in Schedule 3.19,
upon termination of the employment of any Second Territory Employee, no Seller
Entity will by reason of the consummation of the transactions contemplated by
this Agreement or otherwise be liable to any Second Territory Employee for
so-called “severance pay” or any other termination-related payments; provided,
however, that in the event that any “severance pay” or any other
termination-related payments are set forth on Schedule 3.19, such
Schedule shall set forth in detail as to each employee all “severance pay” and
other payment that would be owed if such a termination occurred on or following
the Closing Date, including under any applicable Law. Except as set forth in Schedule 3.19,
no Seller Entity has, or within one (1) year has had, any policy, practice,
plan or program of paying severance pay or any form of severance compensation
in connection with the termination of employment. Except as set forth on Schedule 3.19,
each Seller Entity has in the past complied and is in compliance in all
material respects with all applicable Laws and regulations respecting labor,
employment, fair employment practices, terms and conditions of employment, and
wages and hours. Except as set forth in Schedule 3.19, no Seller
Entity has received notice of any investigation by any Governmental Authority
concerning each such Seller Entity’s compliance with any employment-related
Laws including, without limitation, Laws regarding the payment of wages,
payment of overtime pay, payment of minimum wages or workplace safety and
health. Except as set forth on Schedule 3.19, there are no
grievances, complaints or charges that have been filed against a Seller Entity
under any dispute resolution procedure (including, but not limited to, any
proceedings under any dispute resolution procedure under any collective
bargaining agreement) and no claim therefore has been asserted. Except as set
forth on Schedule 3.19, no collective bargaining agreements
relating to any Second Territory Employee is in effect or are currently being
or are about to be negotiated by the Seller Entities. To the knowledge of the
Seller Entities, the Transferred Second Territory Employees constitute all of
the employees necessary for Buyer to continue to operate the Business as it has
been operated prior to the Closing, and the Transferred Second Territory
Employees have the qualifications and abilities necessary for Buyer to continue
to operate the Business as it has been operated prior to the Closing.


 


3.20           Customers,
Distributors and Suppliers. Schedule 3.20 sets forth a true and
complete list of all customers, representatives, dealers or distributors
(whether pursuant to a commission, royalty or other arrangement) who accounted
for fifty thousand dollars ($50,000) or more of the sales of the Business for
the twelve (12) months ended on the last fiscal quarter preceding the date
hereof, showing with respect to each, the name, address and dollar value involved
(collectively, the “Customers and Distributors”). Schedule 3.20
also sets forth a true and complete list of all suppliers of the Business to
whom during the twelve (12) months ended


 


30

















 


on the last fiscal quarter preceding the date hereof the Seller
Entities made payments aggregating fifty thousand dollars ($50,000) or more,
showing with respect to each, the name, address and dollar value involved (the
“Suppliers”). The relationships of the Seller Entities with the
Customers and Distributors and Suppliers are good commercial working
relationships. Except as set forth on Schedule 3.20, no Customer and
Distributor or Supplier has canceled, materially modified or otherwise
terminated its relationship with the Seller Entities, or has during the last
twelve (12) months decreased materially its services, supplies or materials to
the Seller Entities or its usage or purchase of the services or products of the
Seller Entities nor, to the knowledge of the Seller Entities, and as of the
date hereof does any Customer and Distributor or Supplier have any plan or
intention to do any of the foregoing. Except as set forth on Schedule 3.20,
the Seller Entities are not a party to any oral or written agreement or
arrangement with any customer, supplier or distributor related to the offering
of discounts, extended warranties, service contracts, bundling of any Products,
rights of return or any other similar agreements or arrangements.


 


3.21           Certain
Regulatory Matters(11). As to
each Product subject to the Food, Drug and Cosmetic Act of 1938 (the “FDCA”)
or similar Law that is developed, manufactured, tested, distributed and/or
marketed by the Seller Entities (a “Medical Device”), such Product is
being developed, manufactured, tested, distributed and/or marketed in material
compliance with all applicable requirements under the FDCA and similar Laws,
including those relating to investigational use, premarket clearance or
marketing approval to market a Medical Device, good manufacturing practices,
labeling, advertising, record keeping, filing of reports and security, except
for failure in compliance that individually or in the aggregate would not be
likely to have a Material Adverse Effect. None of the Seller Entities have
received any notice or other communication from the U.S. Food and Drug
Administration (the “FDA”) or any other Governmental Authority (A)
contesting the premarket clearance or approval of, the uses of or the labeling
and promotion of any Products or (B) otherwise alleging any violation
applicable to any Product of any Law.


 


(a)           Except as
set forth on Schedule 3.21, no Product has been, or is under
consideration by senior management of the Seller Entities to be, recalled,
withdrawn, suspended, seized or discontinued (other than for commercial or
other business reasons) by the Seller Entities, in each case since January 1,
2002. To the knowledge of the Seller Entities, no proceedings in the United
States or outside of the United States have been completed or are pending
against the Seller Entities or any licensee of any Product which sought or are
seeking, as applicable,  the recall,
withdrawal, suspension, seizure or discontinuance of any Product.


 


(b)           As to each
Product of the Seller Entities for which a premarket approval application,
premarket notification, investigational device exemption or similar state or
foreign regulatory application has been approved, the Seller Entities are in
compliance in all material respects with 21 U.S.C. §§360 and 360e or 21 C.F.R.
Parts 812 or 814, respectively, and all similar Laws and all terms and
conditions of such licenses or applications. In addition, the Seller


 






(11)         Note that this
representation and warranty will be revised to incorporate appropriate
references to Chinese and other applicable law in the Territory, given that the
Products only will be sold in the Territory.


 


31

















 


Entities are in
substantial compliance with all applicable registration and listing
requirements set forth in 21 U.S.C. § 360 and 21 C.F.R. Part 807 and all
similar Laws.


 


(c)           No article
of any Product manufactured and/or distributed by the Seller Entities is (A)
adulterated within the meaning of 21 U.S.C. § 351 (or similar Laws), (B)
misbranded within the meaning of 21 U.S.C. § 352 (or similar Laws) or (C) a
product that is in violation of 21 U.S.C. § 360 or § 360e (or similar Law).


 


(d)           Neither
the Seller Entities, nor, to the knowledge of the Seller Entities, any officer,
employee or agent of the Seller Entities, has made an untrue statement of a
material fact or fraudulent statement to the FDA or any other Governmental
Authority, failed to disclose a material fact required to be disclosed to the
FDA or any other Governmental Authority, or committed an act, made a statement,
or failed to make a statement that, at the time such disclosure was made, could
reasonably be expected to provide a basis for the FDA or any other Governmental
Authority to invoke its policy respecting “Fraud, Untrue Statements of Material
Facts, Bribery, and Illegal Gratuities”, set forth in 56 Fed. Reg. 46191
(September 10, 1991) or any similar policy of any Governmental Authority.
Neither the Seller Entities, nor, to the knowledge of the Seller Entities, any
officer, employee or agent of the Seller Entities or any of its Subsidiaries,
has been convicted of any crime or engaged in any conduct for which debarment
is mandated by 21 U.S.C. § 335a (a) or any similar Law or authorized by 21
U.S.C. § 335a (b) or any similar Law. Neither the Seller Entities, nor, to the
knowledge of the Seller Entities, any officer, employee or agent of the Seller
Entities or any of their Subsidiaries, has been convicted of any crime or
engaged in any conduct for which such person or entity could be excluded from
participating in the U.S. health care programs under Section 1128 of the Social
Security Act of 1935, as amended (the “Social Security Act”) or any
similar Law.


 


(e)           Since
January 1, 2002 the Seller Entities have not received any written notice that
the FDA or any other Governmental Authority has (a) commenced, or threatened to
initiate, any action to withdraw its approval or request the recall of any, (b)
commenced, or threatened to initiate, any action to enjoin production of any or
(c) commenced, or threatened to initiate, any action to enjoin the production
of any Product produced at any facility where any Product is manufactured,
tested or packaged.


 


(f)            To the
knowledge of the Seller Entities, there are no facts, circumstances or
conditions that would reasonably be expected to form the basis for any
investigation, suit, claim, action or proceeding against or affecting the
Seller Entities regarding the Business relating to or arising under (a) the
FDCA or (b) the Social Security Act or regulations of the Office of the
Inspector General of the Department of Health and Human Services.


 


3.22           Certain
Business Practices. No director, officer, agent or employee of the Seller
Entities has, directly or indirectly, on behalf of the Seller Entities (solely
with respect to matters arising out of, relating to or resulting from the
Business) (a) made or agreed to make any contribution, payment or gift to any
government official, employee or agent where either the contribution, payment
or gift or the purpose thereof was illegal under applicable Law, (b)
established or maintained any unrecorded fund or asset for any purpose or made
any false entries on the books and records of the Seller Entities for any
reason, (c) made or agreed to make any


 


32

















 


contribution, or reimbursed any political gift or contribution made by
any other Person, to any candidate for federal, state, local or foreign public
office or (d) paid or delivered any fee, commission or any other sum of money
or item of property, however characterized, to any finder, agent, government
official or other party, in China, the United States or any other country,
which in any manner relates to the Transferred Assets or the Business, which in
each case the Seller Entities knew or had reason to believe to have been
illegal under any China, U.S., state, provincial, local or foreign Laws.


 


3.23           Investment
Representation.


 


(a)           Each
Seller Entity that receives Common Stock is an “accredited investor” as defined
in Regulation D under the Securities Act of 1933, as amended (the “Securities
Act”) has such knowledge and experience in financial and business matters
that such Seller Entity is capable of evaluating the relative risks and merits
of an investment in the Common Stock.


 


(b)           The Seller
Entity has had an opportunity to ask questions of and receive answers from the
Buyer, or a person or persons acting on the Buyer’s behalf, concerning the
terms and conditions of the Common Stock. In addition, each Seller Entity has
read or reviewed and is familiar with the Buyer’s annual report on Form 10-K
for the Buyer’s fiscal year ended December 31, 200  (12) (as to the
extent amended) and each subsequently filed report on Forms 10-K/A, 10-Q and
8-K as filed with the U.S. Securities and Exchange Commission (the “SEC”)
under the Exchange Act (as defined herein) and as the same may be amended.


 


(c)           Such
Seller Entity acquiring such shares represents that the Common Stock to be
issued hereunder are being acquired solely for such Seller Entity’s own
account, for investment and not with a view to or for the resale or
distribution thereof (except as such shares may be resold as contemplated by
Section 3.23(d) hereto); such Seller Entity has no present plans to enter into
any contract, undertaking, agreement, or arrangement relating thereto that
would render the Buyer unable to rely on the safe harbor set forth in
Regulation D under the Securities Act for the issuance of the Common Stock
hereunder.


 


(d)           Such
Seller Entity acquiring Common Stock understands that the shares of such Common
Stock to be issued hereunder have not been registered under the Securities Act
or under the securities laws of any state or other jurisdiction and are being
offered and issued in reliance upon exemptions for private offerings. Such
Seller Entity acquiring such Common Stock acknowledges and is aware that there
are substantial restrictions on the transferability of the Common Stock; the
Common Stock to be issued hereunder cannot be resold unless they are registered
under the Securities Act and qualified under any applicable securities law of
any state or other jurisdiction, or an exemption from such registration or
qualification is available. Each Seller Entity acknowledges that the sole
obligation of the Buyer to register shares of Common Stock under the Securities
Act are pursuant to the terms and conditions of the Investor Rights Agreement
and that the Buyer has no obligation to register any securities of Buyer other
than Common Stock pursuant to the Investor Rights Agreement.


 






(12)         Most recent Form 10-K
filing before signing this Agreement.


 


33

















 


3.24           Valuation
Representation. The Seller Entities warrant and represent that, as a result
of the transactions contemplated by this Agreement, no acquiring person
affiliated with the Seller Entities will hold voting securities of Buyer valued
at greater than $[56.7] million(13), as determined pursuant to the rules set
forth in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
15 U.S.C. sec. 18a, and the implementing regulations thereunder, 16 C.F.R.
Parts 801-803 (the “HSR Act”).


 


SECTION 4.           REPRESENTATIONS
AND WARRANTIES OF THE PARENT.


 


As a material inducement
to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, the Parent hereby makes to Buyer, the representations and
warranties contained in this Section 4 as of the date hereof and as of the
Closing Date.


 


4.1             Organization
and Qualifications of the Parent. The Parent is an entity duly organized,
validly existing and in good standing (if applicable) under the Laws of the
jurisdiction of its organization with all requisite power and authority to own
or lease its properties and to conduct its business in the manner and in the
places where such properties are owned or leased or such business is conducted
by it. The copies of the organizational documents (including charter, articles
of association and by-laws) of
Parent (the “Parent Organizational Documents”), each as amended to date,
and previously delivered to Buyer’s counsel, are complete and correct, and no
amendments thereto are pending.


 


4.2             Authority
of the Parent. The Parent has full right, power and authority to enter into
the Transaction Documents. The execution, delivery and performance of the
Transaction Documents by the Parent has been duly authorized by all necessary
action of the Parent, and no other action on the part of the Parent is required
in connection therewith. The Transaction Documents constitute, or will when
executed and delivered by the Parent constitute, valid and binding obligations
of the Parent, enforceable in accordance with their respective terms, except as
the same may be limited by bankruptcy, insolvency, reorganization, moratorium
or other Laws affecting the rights of creditors generally and subject to the
rules of law governing (and all limitations on) specific performance,
injunctive relief and other equitable remedies. Except as set forth on Schedule
4.2, no notice to, filing with, authorization of, exemption by, or consent
of, any Person is required for the Parent to consummate the transactions
contemplated hereby (each such notice, filing, authorization, exemption or
consent shall be deemed a Required Consent). The execution, delivery and performance
by the Parent of the Transaction Documents:


 


(a)           do not and
will not violate any provision of the charter, by-laws or Parent Organizational
Documents (as amended to date);


 


(b)           do not and
will not violate contravene or conflict in any material respect with any Laws,
order, writ, judgment, injunction, decree, determination or arbitration award
binding upon or applicable to the Parent or require the Parent to obtain any
approval, consent or waiver of, or to make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made;


 






(13)         Amount subject to change
for changes in applicable Law.


 


34

















 


(c)           do not and
will not result in a material breach of, constitute a material default under,
cancel or accelerate any material right or obligation under, require a consent
under, cause a termination under, or give rise to a right of termination of any
indenture or loan or credit agreement or any other material agreement, contract,
instrument, mortgage, Lien, lease, permit, authorization, whether written or
oral, to which the Parent is a party or is bound, or result in the creation or
imposition of any Lien on any of the assets or the property of the Parent or
the equity interests of the Parent; and


 


(d)           do not and
will not result in any Lien on any of the Transferred Assets.


 


4.3             Ownership
of Subsidiaries. Parent owns, and has the right to vote and control,
directly or indirectly, all of the Seller Entities and Genclonn.


 


SECTION
5.           COVENANTS OF THE
SELLER ENTITIES


 


The Seller Entities
hereby covenant and agree with Buyer as follows:(14)


 


5.1             Cooperation.
From the date hereof, each of the Seller Entities will, and will cause its
Affiliates to, use its commercially reasonable efforts, and will cooperate with
Buyer in all material respects, to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties (including any
consents required under or in connection with any Transferred Contract whether
prior to or after each of the applicable Closings) as shall be required in
order to effectuate the transactions contemplated hereby, and will otherwise
use its commercially reasonable efforts to cause the consummation of such
transactions in accordance with the terms and conditions hereof including
without limitation providing, and directing its independent accounting firm to
provide, to the Buyer all financial statements (including such firm’s audit
opinion thereon) pursuant to Section 5.4 to effect and pursue waivers, permits,
consents, approvals or other authorizations from Governmental Authorities, and
to effect all registrations, filings and notices with or to Governmental
Authorities, as may be required to consummate the transactions contemplated by
this Agreement and to otherwise comply with all applicable Laws and regulations
in connection with the consummation of the transactions contemplated by this
Agreement (collectively, “Governmental Filings and Consents”).


 


5.2             Conduct
of Business. Except as may be otherwise expressly permitted by this
Agreement or with the prior written consent of Buyer, from the date hereof and
prior to the Closing, the Seller Entities will, and will cause their relevant
Affiliates to:  (a) operate the Business
only in the Ordinary Course of Business; (b) use their commercially reasonable
efforts to preserve intact the Business organization; and (c) use their
commercially reasonable efforts to preserve their relationships and agreements
with their distributors, suppliers and customers, licensors and licensees and
others having business dealings with the Seller Entities in the Business in a
manner consistent with past practices. Except as may be otherwise expressly
permitted by this Agreement or with the prior written consent of Buyer which
shall not be


 






(14)         Seller
Entity covenants subject to revision based on further diligence to be conducted
on the Seller Entities and the then-current operations of the Business.


 


35

















 


unreasonably withheld or delayed, from the date hereof through the
Closing, the Seller Entities shall not, and will cause their Affiliates not to:


 


(i)            borrow
any funds or otherwise incur, whether directly or by way of guaranty or
otherwise, any indebtedness for borrowed money except to the extent such
indebtedness is an Excluded Liability;


 


(ii)           sell,
lease, exchange, license or otherwise dispose of any of the properties or
assets (including, but not limited to the Transferred Assets and rights with
respect to Intellectual Property Assets) of the Business, except for sales of
finished goods inventory in the Ordinary Course of Business;


 


(iii)          create,
or permit to be created, any Lien (other than a Permitted Lien) upon any of the
properties or assets of the Business;


 


(iv)          make any
increase in, or any commitment to increase, the compensation, benefits or other
payments payable or provided to, or to become payable to, any Second Territory
Employees other than in the Ordinary Course of Business;


 


(v)           alter the
manner of keeping its books, accounts or records or change any of the
accounting practices, principles or methods used by it in the Business except
as contemplated by the Transaction Documents;


 


(vi)          change the
terms of any of the receivables arising from, relating to or resulting from the
Business;


 


(vii)         be
or agree to be a party to any merger, consolidation or other business
combination;


 


(viii)        enter
into or modify any employment agreement or similar legally binding commitment
with any Second Territory Employees other than in the Ordinary Course of
Business;


 


(ix)           enter into
or modify, or engage in any negotiations with respect to, any collective
bargaining, union agreement or similar commitment with any Transferred Second
Territory Employees;


 


(x)            except
for employee turnover in the Ordinary Course of Business, any material change
in the personnel or in the responsibilities or reporting relationship of the
employees (A) of the Business or (B), with respect to the development and
manufacture of lateral flow immunoassay products and related products, of the
Existing Facility;


 


(xi)           make or
commit to any capital expenditure or acquire any property or assets (other than
raw materials, parts and components purchased in the Ordinary Course of
Business) for use in the Business which, individually or in the aggregate,
exceed fifty thousand dollars ($50,000) except to the extent any such capital
expenditure


 


36

















 


or acquisition, and any contract or agreement related
thereto, does not represent an Assumed Liability;


 


(xii)          enter
into any agreement or commitment with respect to the Business having a term in
excess of ninety (90) days except for agreements or commitments which are
terminable without cost or penalty within sixty (60) days by merely giving
notice to the other party;


 


(xiii)         enter
into any agreement or commitment that restricts the Seller Entities from
carrying on the Business anywhere in the world;


 


(xiv)        cancel
any debts or waive any claims or rights of substantial value arising from,
relating to or resulting from the Business;


 


(xv)         enter into
any contract or agreement that would constitute a Material Contract;


 


(xvi)        enter
into any manufacturing agreement with a third party except to the extent such
agreement is freely assignable at Buyer’s request to Buyer or ABON without such
third party’s consent;


 


(xvii)       amend
or modify any Material Contract or waive, delay the exercise of, release or
assign any right or claim under, any Material Contract;


 


(xviii)      create
any new or amend or modify or terminate any existing Employee Plans; or


 


(xix)         agree
or otherwise commit, whether in writing or otherwise, to do any of the
foregoing.


 


5.3             Access.
From the date hereof and prior to the Closing, the Seller Entities shall, and
shall cause their Affiliates to (a) provide Buyer and its representatives with
such information as Buyer or its representatives may from time to time
reasonably request with respect to the Business and the transactions
contemplated by this Agreement, (b) provide Buyer and its representatives
reasonable access during regular business hours and upon reasonable notice to
the properties, books and records of the Business as Buyer or its
representatives may from time to time reasonably request and (c) permit Buyer
and its representatives to discuss the Business of the Seller Entities with
Seller Entities’ officers and, with the prior consent of the Seller Entities
(which consent will not be unreasonably withheld), the Seller Entities
employees, distributors, suppliers, accountants and advisors.


 


37

















 


5.4             Financial
Statements.(15)


 


(a)           As soon as
reasonably practicable, but in any prior to            
   , 200  , the Seller Entities shall prepare and
deliver, or cause to be prepared and delivered, to Buyer the historical
financial information (including audited and, if applicable, unaudited
financial information), including a manually signed accountants’ report from
BDO Seidman LLP or such other independent auditing firm as may be agreed
between the parties (the “Audit Accountants”), of and relating to the
Business and related manufacturing operation at the Existing Facility, which
Buyer reasonably determines is required to be audited and filed by Buyer with
the SEC pursuant to Item 9.01 of the Current Report on Form 8-K (or any
successor form) as contemplated by the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and the rules and regulations promulgated
thereunder as such required financial information is modified by any relief
granted to Buyer by the SEC with respect to the scope of financial information
required to be filed together with an audit opinion thereon from the Audit
Accountants (as defined herein) in the form required by the SEC and applicable
stock exchange (the “Historical Financial Information”). The Seller
Entities covenant that the Historical Financial Information will be prepared in
accordance with GAAP as of the dates and for the periods indicated. The Seller
Entities will also cooperate in all reasonable respects with the Audit
Accountants in connection with this audit of the Historical Financial
Information. To the extent that the Audit Accountants are no longer registered
and in good standing with the Public Company Accounting Oversight Board, are
not permitted by applicable Law to render an audit opinion in connection with a
filing by the Company under the Exchange Act, or otherwise cannot or will not
complete the audit for reasons separate and apart from the Seller Entities and
the audit process contemplated hereby, the Seller Entities shall not be liable
for any failure to satisfy this covenant solely due to the failure of the Audit
Accountants to remain so registered or so permitted, but instead shall use
commercially reasonable efforts to cooperate with Buyer to find alternate means
to satisfy delivery of the Historical Financial Information as soon as
reasonably practicable. To the extent that any Governmental Authority
(including the SEC) or stock exchange requires any additional financial
statements or financial information or statements covering more than just the
Business, including but not limited to the Existing Facility and whether
historical or pro forma in nature, the Seller Entities shall use commercially
reasonable efforts to assist Buyer at Buyer’s sole expense with preparation and
presentation of such information as is required and shall provide such access
to financial information and personnel and cooperate with any independent
public accounting firm as is necessary to assist Buyer in fulfilling such
requirements.


 


(b)           The Seller
Entities will cooperate in all reasonable respects with Buyer in Buyer’s
preparation of the pro forma financial information relating to the acquisition
of the Business and related manufacturing operation at the Existing Facility
required pursuant to Item 9.01 of the Current Report on Form 8-K (or any
successor form) as contemplated by the Exchange Act and the rules and
regulations promulgated thereunder (the “Pro Forma


 






(15)         In
the event the Buyer determines in its reasonable discretion that the
acquisition of the Business will not constitute a transaction that requires
audited financial statements, this covenant will be removed.  To the extent the reporting requirements
change for transactions such as those contemplated by this Agreement, this
covenant will be modified to address such changes.


 


38

















 


Information,”
and together with the Historical Financial Information, the “Required
Information”), including without limitation providing such financial and
other information, records and documents relating to the Business and related
manufacturing operation at the Existing Facility as may be necessary to prepare
such Pro Forma Information, providing access to such of the Seller Entities’
personnel, advisors and accountants as may be necessary to prepare such Pro
Forma Information, and generally cooperating with Buyer’s reasonable requests
in order to facilitate such preparation.


 


(c)           The
parties further acknowledge that the foregoing financial information must be
filed by Buyer with the SEC under cover of an amendment to a Current Report on
Form 8-K (or any successor form) not less than seventy one (71) calendar days
after the initial filing of such Current Report on Form 8-K (or any successor
form), which initial filing must be filed by Buyer with the SEC not less than
four (4) days (as calculated under the SEC’s rules and regulations) after the
Closing Date. Accordingly, time is of the essence with respect to the
observance of this covenant. The parties also acknowledge that any Buyer
filings under the Securities Act that require the Required Information also
necessitate timely cooperation, including cooperation in the performance of
incremental audit procedures necessary under the Securities Act and the
delivery of a manually signed consent of the Audit Accountants, by the Seller
Entities, if required, to facilitate the execution and filing of an
accountant’s consent. The Seller Entities covenant and agree to promptly
cooperate from and after the Closing Date to facilitate such actions and will
use commercially reasonable efforts to cause the Audit Accountants to perform
such procedures and deliver any such consent from time to time as requested by
Buyer.


 


(d)           As soon as
reasonably practicable, but in any event within the earliest to occur of (i)
thirty (30) days prior to the date that payment is to be made under Section
2.1(a) and (ii) sixty (60) days of the date hereof,(16) the Seller Entities
shall, and shall cause the Audit Accountants to, prepare and deliver to Buyer
audited financial statements (including an audit opinion thereon of such Audit
Accountants) necessary for determination of the Purchase Price pursuant to
Section 2.1 (the “Purchase Price Financial Statements”). The Seller
Entities shall engage the Audit Accountants to perform the applicable
requirements of this Section 5.4. If the Closing does not occur, the costs of
auditing the Purchase Price Financial Statements shall be borne and paid by the
Buyer and if the Closing shall have occurred, the costs of auditing the
Purchase Price Financial Statements shall be borne and paid one-half (1/2) by
the Seller Entities and one-half (1/2) by Buyer.


 


(e)           If
required for Buyer to comply with its SEC financial statement reporting
requirements, as soon as reasonably practicable but in any event within
ten (10) days after the date hereof, the Seller Entities shall prepare and
deliver, or cause to be prepared and delivered, to Buyer and the Audit
Accountants the combining financial statements for the years-end December 31,
200   and 200   for the Seller Entities (other than LBI)
and Genclonn (the “Top Down Financial Statements”). Parent and Seller
Entities acknowledge that if required for Buyer to comply with its SEC
financial statement reporting requirements, then the Audit Accountants


 






(16)         Time periods subject to
further discussion and finalization by the parties at the time of due
diligence/transaction planning.


 


39

















 


must have such Top
Down Financial Statements in order to complete its audit of the Historical
Financial Information. If required for Buyer to comply with its SEC financial
statement reporting requirements, as soon as reasonably practicable, but in any
event prior to [the date set forth in Section 5.4(a)], the Seller Entities
shall cause to be prepared and delivered to Buyer interim financial statements
required to be filed by Buyer pursuant to the Securities Act and the Exchange
Act, including the rules and regulations promulgated thereunder.


 


5.5             Non-Solicitation.
The Seller Entities agree that from and after the Closing date hereof until the
third anniversary of the Closing, the Seller Entities shall not knowingly and
shall cause their Affiliates not to recruit any employees of the Buyer and its
Affiliates; provided, further, that a general advertisement in
the public media shall not constitute a violation of the non-recruitment
obligations of this Section 5.5. The Seller Entities agree that until the date
that is six (6) months after the Closing, the Seller Entities shall not
knowingly and shall cause their Affiliates not to knowingly hire any employees
of the Buyer and its Affiliates. In addition, the Seller Entities agree that
until the second anniversary of the Closing, the Seller Entities shall not
knowingly and shall cause their Affiliates not to knowingly hire any of the
persons listed on Schedule 5.5 and such other persons as may be
identified by Buyer within six (6) months following the Closing; provided,
that a maximum of twenty (20) persons may be listed on such Schedule.


 


5.6             Confidentiality.
The Seller Entities confirm that through the Closing they remain bound by the
Reciprocal Confidential and Nondisclosure Agreement dated               
    , 200     and as amended to date.(17)


 


5.7             Second
Territory Employee Matters(18).


 


(a)           Employees.
The Seller Entities represent that Schedule 5.7 lists all employees
who perform services for the Business and who the Buyer and Seller have agreed
will be employed by Buyer after the Closing (the “Second Territory Employees”)
by name and, to the extent applicable, accurately describes with respect to
each Second Territory Employee, his or her: (i) employment status,
(ii) job title, (iii) education, (iv) hire date, (v) [    ] and [   
] base salary, (vi) [    ]
and [    ] target bonus, (vii) [    ] and [   
] housing allowance, (viii) fiscal year [    ] vacation entitlement (days) and vacation
amount, and (ix) a description and the amount of all the other compensation.
Schedule 5.7 contains a list of other significant and fringe
benefits such as medical and life insurance coverage and equity incentive
programs to which any of the Second Territory Employees are entitled. Subject
to Section 5.10, Buyer will offer employment to each of the Second
Territory Employees. Buyer shall not offer employment to any employee of the
Seller Entities not designated on Schedule 5.7.


 


(b)           Termination
of Employment. On or immediately after the date Buyer or one of its
Affiliates offers employment to a Second Territory Employee, the applicable
Seller


 






(17)         New CA to be entered into
in connection with Second Territory planning/production process.


 


(18)         Subject to revision based
on applicable Laws.


 


40

















 


Entity shall
notify that Second Territory Employee of its intention to terminate such
individual’s employment as of the Closing. Seller Entities agree that for
purposes of Section 5.5 of this Agreement, each Second Territory Employee shall
be deemed to be an employee of Buyer regardless of whether such individual
becomes a Transferred Second Territory Employee.


 


(c)           Employment
of Transferred Second Territory Transferred Employees By Buyer. Each Second
Territory Transferee who accepts, in a manner reasonably acceptable to Buyer,
an offer of employment from Buyer or its designee prior to the Closing Date (a
“Transferred Second Territory Employee”) will become employed by Buyer
or its designee as of his/her designated start date with Buyer (each such
individual’s “Start Date”), which shall be on the Closing Date.
Effective on his or her Start Date, each Transferred Second Territory Employee
will be under the exclusive supervision of Buyer or an Affiliate of Buyer and,
except as otherwise required by applicable Law, subject to Buyer’s policies and
procedures. Prior to such individual’s Start Date, each Transferred Second
Territory Employee shall be under the exclusive supervision of Seller Entities
and subject to Seller Entities’ policies and procedures. Notwithstanding
anything to the contrary herein, to the extent that any Transferred Second
Territory Employee remains or otherwise performs services on Seller Entities’
premises on or after the Start Date, such person shall comply with the terms of
Seller Entities’ rules and regulations applicable to vendors, customers and
other general visitors regarding such premises. Seller Entities shall provide
Buyer with a copy of such policies on or prior to the Start Date. For the
avoidance of doubt, all such Transferred Second Territory Employees shall be
subject to Buyer’s, not Seller Entities’, written employee policies. If any
person not designated as a “critical employee” on Schedule 9.1(g)
does not accept Buyer’s offer of employment, then the Seller Entities shall use
their reasonable best efforts to provide a substitute, mutually agreed upon
with Buyer, who will accept Buyer’s offer of employment.


 


(d)           Reservation
of Rights; No Third Party Rights. Subject to applicable Law, nothing
contained in the Agreement shall restrict the ability of Buyer or an Affiliate
of Buyer to terminate the employment of any Transferred Second Territory
Employee for any reason at any time on or after his or her start date except
that Buyer shall not terminate any such employee other than for cause for a
period of four (4) months from the Closing. Subject to applicable Law, except
as set forth in this Agreement, neither Buyer nor any of its Affiliates shall
be required to maintain any specific benefit plan or other compensation or
employee benefit plan, program, policy or practice following the Closing Date.
Nothing in this Agreement is intended to or shall create any rights in any
person, including, without limitation any Transferred Second Territory
Employee, who is not a party to this Agreement.


 


(e)           Immigration/Visa
Status of Transferred Employees. The parties shall cooperate to ensure that
Transferred Second Territory Employees who are not citizens of the country in
which they are domiciled have proper visas to commence work with Buyer or an
Affiliate of Buyer on the Closing Date or as soon as practicable thereafter.


 


(f)            Offer
of Employment. Not less than five (5) days prior to the Closing Date, Buyer
shall offer (or shall cause one of its Affiliates to offer) employment, pursuant
to a procedure mutually agreed upon by Buyer and Seller Entities, to each
Second Territory Employee who is employed by Seller Entities or their
Affiliates on the date such offer is made,


 


41

















 


contingent upon
the Closing and upon each such Second Territory Employee satisfying Buyer’s
hiring requirements at the time he or she seeks to commence active employment
at Buyer on his or her Start Date. The Seller Entities and Buyer shall jointly
cooperate to encourage the Second Territory Employees to accept on or before
the Closing Date the written offers of employment made by Buyer. Buyer shall
not take any actions or make any communications with or to the Second Territory
Employees prior to the Closing Date regarding their future employment with
Buyer without the prior written consent of the Seller Entities. The Seller
Entities shall permit Buyer, with the Seller Entities’ prior written consent,
to have reasonable access to the Second Territory Employees in furtherance of
this common goal.


 


(g)           [Provisions
for Second Territory Employees in Other Countries].(19)


 


5.8             Employee
Benefit Matters. Buyer hereby agrees that following the applicable Closing
Date it shall, or it shall cause its Affiliate to, provide the Transferred
Second Territory Employees with compensation (salary, bonus opportunity and
incentive compensation opportunity) that is no less in the aggregate than that
provided to such Employees immediately prior to the applicable Closing Date.


 


(a)           Subject
to Section 5.7(d), Buyer shall, or shall cause its Affiliate to, provide
the Transferred Second Territory Employees with employee benefits plans,
programs and arrangements (including, without limitation, retirement benefits,
health and medical benefits) that are substantially comparable to the employee
benefits and plans, programs and arrangements provided to similarly situated
(taking into account the position, tenure, geographic location and other
relevant factors) employees of Buyer and its Subsidiaries.


 


(b)           From
and after the Closing Date Buyer shall, to the extent permissible under each
employee benefit plan, policy or arrangement, (i) provide all Transferred
Second Territory Employees with service credit for purposes of eligibility,
participation, vesting and levels of benefits (but not benefit accrual) under
any employee benefit or compensation plan, program or arrangement adopted,
maintained or contributed to by Buyer or any of its Affiliates in which
Transferred Second Territory Employees are eligible to participate, for all
periods of employment with the Seller Entities (or their predecessor entities)
prior to the Closing Date (provided such credit does not result in the
duplication of benefits for any Transferred Second Territory Employee), (ii) cause
or, to the extent any plan is insured, use commercially reasonable efforts to
cause its insurance carrier to cause, any pre-existing conditions or
limitations, eligibility waiting periods or required physical examinations
under any welfare benefit plans of Buyer or any of its Affiliates to be waived
with respect to the Transferred Second Territory Employees and their eligible
dependents, to the extent waived under the corresponding plan in which the
applicable Transferred Second Territory Employee participated immediately prior
to the Closing Date and, with respect to life insurance coverage, up to the
Transferred Second Territory Employee’s current level of insurability, and
(iii) give the Transferred Second Territory Employees and their eligible
dependents credit for the plan year in which the Closing Date (or commencement
of participation in a plan of Buyer or any of its Affiliates), occurs towards


 






(19)         Subject to due diligence
as to where Second Territory employees that Inverness may hire are located.


 


42

















 


applicable deductibles
and annual out-of-pocket limits for expenses incurred prior to the Closing Date
(or commencement of participation in a plan of Buyer or any of its Affiliates).


 


5.9             Books
and Records. For a period of five (5) years from the date of the Closing:


 


(a)           The Seller
Entities and their Affiliates shall not dispose of or destroy any of the books
and records of any of the Seller Entities and their Affiliates relating to the
Business for periods prior to the Closing (“Retained Books and Records”)
without first offering to turn over possession thereof to the Buyer by written
notice to the Buyer at least thirty (30) days prior to the proposed date of
such disposition or destruction.


 


(b)           From and
after the Closing, the Seller Entities and their Affiliates shall allow the
Buyer and its agents reasonable access to all Retained Books and Records during
normal working hours at such Seller Entities’ and their Affiliates’ principal
place of business or at any location where any Retained Books and Records are
stored, and the Buyer shall have the right, at its own expense, to make copies
of any Retained Books and Records; provided, however, that any such access or
copying shall be had or done in such a manner so as not to interfere with the
normal conduct of the Seller Entities’ and their Affiliates’ business.


 


5.10           Tax
Matters. Each Seller Entity agree, upon request (i) to use their reasonable
and diligent efforts to obtain any certificate or other document from any
Governmental Authority or any other person or make such filings with any such
Governmental Authority, in each case, as may be necessary to mitigate, reduce
or eliminate any Tax that could be imposed on the Buyer or such entity
(including, but not limited to, with respect to the transactions contemplated
by this Agreement), and (ii) to provide Buyer with all information that Buyer
and/or such entity may be required to report pursuant to Code Section 6043 and
all Treasury Regulations promulgated thereunder. Each Seller Entity agrees to
use their reasonable and diligent efforts to cooperate with and assist the
Buyer as the Buyer structures its acquisition of the Business; provided,
however, that the foregoing shall not require any Seller Entity to take
any action that could reasonably be expected to result in adverse consequences
to such Seller Entity.


 


5.11           Inventory;
Packaging; Corporate Name. The Seller Entities and their Affiliates hereby
acknowledge and agree that after the Closing Date, Buyer may use of those
tradenames, service names, trademarks, service marks, trade dress, logos, and
corporate names (including the trade name ACON, and including product
packaging, product labels and associated documentation and marketing materials)
in each case that are proprietary to the Seller Entities and are used by the
Seller Entities as of the Closing Date in making, using and distributing
Products, solely for purposes of making, using and distributing Products for [twelve (12)] months after the Closing
Date in order to use materials or service customer requests.


 


5.12           Buyer
Securities. The Seller Entities shall not and no acquiring person
affiliated with the Seller Entities shall acquire any voting securities of
Buyer if such acquisition would result in the ownership of voting securities of
the Buyer valued at greater than $[56.7](20)


 






(20)         Amount subject to change
for changes in applicable Law.


 


43

















 


million by an acquiring person affiliated with the Seller Entities, as
determined pursuant to the rules set forth in the HSR Act.


 


5.13           Intellectual
Property Matters.


 


(a)           As soon as
practical after the date hereof and prior to the Closing Date, the Seller
Entities shall have caused Oakville, ACON Bio and any Affiliate thereof to make
all necessary filings with the appropriate Government Authorities, including
without limitation, the PRC
Ministry of Commerce, the PRC Ministry of Science and Technology and the State
Intellectual Property Office in order to effectuate (1) any assignment or
license among any such entities of any and all Assigned ACON Intellectual
Property Assets or Retained ACON Intellectual Property Assets or Retained ACON
Intellectual Property Assets to be transferred or licensed to the Buyer or its
designated party under this Agreement or any Ancillary Agreement, and (2) the
assignment or license of any and all Assigned ACON Intellectual Property Assets
to the Buyer or its designee pursuant to this Agreement and pursuant to the
Ancillary Agreements.  The Seller Entities shall have also caused
Oakville, ACON Bio and any Affiliate thereof to copy Buyer or its designated
agent on all correspondence between such parties and such Governmental
Agency and shall enable Buyer or its designated agent to participate in
any discussions between such parties and the Governmental Authority.


 


(b)           The Seller
Entities shall have also caused Oakville, ACON Bio and any Affiliate thereof to
diligently prosecute the applicable filings with such Governmental Authority. Prior
to the effectiveness of the assignment of the Assigned ACON Intellectual
Property Assets under this Agreement, none of the Seller Entities shall (i)
make, use, sell, offer to sell or import any products or services that would be
covered by the Assigned ACON Intellectual Property Assets (other than as
otherwise permitted under this Agreement or the Ancillary Agreements), (ii)
license or otherwise authorize any Person to exercise any of the rights set
forth in the foregoing clause (i), (iii) sell, assign or transfer the Assigned
ACON Intellectual Property Assets to any Person and/or (iv) directly or
indirectly commence, authorize or assist in any suit or other proceeding
(including asserting any claim or counterclaim against, or participate in or
join or otherwise aid), other than as required by Law, in any claim or action
against Buyer to the extent based on a claim of infringement of the Assigned
ACON Intellectual Property Assets.


 


(c)           Prior to
the effectiveness of the licensing of the Retained ACON Intellectual Property
Assets under any Ancillary Agreement, none of the Seller Entities shall (i)
make, use, sell, offer to sell or import any products or services that would be
covered by such Retained ACON Intellectual Property Assets in a manner which would
infringe Buyer’s rights under the applicable Ancillary Agreement upon the
effectiveness of such licensing, (ii) license or otherwise authorize any Person
to exercise any of the rights set forth in the foregoing clause (i) in a manner
which would infringe Buyer’s rights under the applicable Ancillary Agreement
upon the effectiveness of such licensing, (iii) sell, assign or transfer to any
Person any such Retained ACON Intellectual Property Assets in any manner that
does not subject such Retained ACON Intellectual Property Assets to the
applicable Ancillary Agreement and/or (iv) directly or indirectly commence,
authorize or assist in any suit or other proceeding (including asserting any
claim or counterclaim against, or participate in or join or otherwise aid),
other than as required


 


44

















 


by Law, in any
claim or action against Buyer to the extent based on a claim of infringement of
the Retained ACON Intellectual Property Assets.


 


SECTION
6.           COVENANTS OF THE
PARENT.


 


6.1             Performance
and Compliance. The Parent shall cause the Seller Entities and the
Subsidiaries, and each Affiliate of the foregoing to perform, and comply with,
in all respects all of their obligations and covenants required to be performed
or complied with hereunder by any such Seller Entity, Subsidiary or Affiliate.
In the event any assets, property or interest reasonably necessary for the
operation of the Business is not owned or held for use by a Seller Entity and
assigned, transferred or licensed to Buyer or its designee pursuant to the
terms of this Agreement or any Ancillary Agreement, but is owned or held for
use by the Parent or any Affiliate thereof, then the Parent shall, and shall
cause its Affiliates to, promptly transfer to Buyer such assets, property or
interest without further consideration. In the event any assets, property or
interest reasonably necessary for the production of Products at the Existing
Facility is not owned or held for use by ABON as of the Closing, but is owned
or held for use by the Parent or any Affiliate thereof, then the Parent shall,
and shall cause its Affiliates to, promptly transfer to ABON such assets,
property or interest without further consideration, provided that if
under PRC law consideration is required to be paid for such assets, property or
interest, then the Purchase Price shall be reduced by the amount of such
consideration and any stamp duty, VAT or other taxes required to be paid in
connection with such transfer.


 


SECTION
7.           REPRESENTATIONS AND
WARRANTIES OF BUYER.


 


Buyer hereby represents
and warrants to the Seller Entities as follows:


 


7.1             Organization.
Buyer is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware with full corporate power and authority
to own or lease its properties and to conduct its business in the manner and in
the places where such properties are owned or leased or such business is
conducted by it The copies of the certificate of incorporation and by-laws of
Buyer, each as amended to date, are complete and correct, and no amendments
thereto are pending.


 


7.2             Authority.
Buyer has full right, power and authority to enter into the Transaction
Documents. The execution, delivery and performance by Buyer have been duly
authorized by all necessary action of Buyer, and no other action on the part of
Buyer is required in connection therewith. The Transaction Documents
constitute, or will when executed and delivered by Buyer constitute, valid and
binding obligations of Buyer, enforceable in accordance with their respective
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other Laws affecting the rights of creditors
generally and subject to the rules of law governing (and all limitations on)
specific performance, injunctive relief and other equitable remedies. Except as
set forth on Schedule 7.2, no notice to, filing with, authorization of,
exemption by, or consent of, any Person is required for Buyer to consummate the
transactions contemplated hereby. Except as set forth on Schedule 7.2,
the execution, delivery and performance by Buyer of the Transaction Documents:


 


45

















 


(a)           do not and
will not violate contravene or conflict with any Laws, order, writ, judgment,
injunction, decree, determination or arbitration award binding upon or
applicable to Buyer or require Buyer to obtain any approval, consent or waiver
of, or to make any filing with, any person or entity (governmental or
otherwise) that has not been obtained or made; and


 


(b)           do not and
will not result in a breach of, constitute a default under, cancel or
accelerate any right or obligation under, require a consent under, cause a
termination under, or give rise to a right of termination of any indenture or
loan or credit agreement or any other material agreement, contract, instrument,
mortgage, Lien, lease, permit or authorization, whether written or oral, to
which Buyer is a party or by which the property of Buyer is bound or affected,
or result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets of Buyer.


 


7.3             Litigation.
There is no litigation, claim or governmental or administrative proceeding or
investigation pending or, to the knowledge of Buyer, threatened against Buyer
or any Affiliate of Buyer which would, individually or in the aggregate, to
have a Buyer Material Adverse Effect or prevent or hinder the consummation of
the transactions contemplated by this Agreement or any Ancillary Agreement. For
purposes of this Agreement,  “Buyer
Material Adverse Effect” shall mean a material adverse effect on the
assets, liabilities, business, properties, condition (financial or otherwise),
results of operations or prospects of the Buyer’s operations provided, however,
that in no event shall any of the following constitute a Buyer Material Adverse
Effect for any purpose pursuant to the Agreement: (i) with respect to the
Buyer, any change resulting from conditions affecting the industries in which
the Buyer operates; (ii) any change resulting from terrorist attacks, acts
of war or acts of God; (iii) any change resulting from the announcement and
pendency of any of the transactions contemplated by this Agreement; and (iv)
any change resulting from compliance by the Seller Entities or Buyer, as the
case may be, with the terms of, or the taking of any action expressly
contemplated or permitted by this Agreement, or prevent or hinder the
consummation of the transactions contemplated by this Agreement or any
Ancillary Agreement.


 


7.4             Finder’s
Fees. Buyer has not incurred or become liable for any broker’s commission
or finder’s fee relating to or in connection with this Agreement or the
transactions contemplated hereby.


 


7.5             Capitalization;
Buyer Common Stock.


 


(a)           The
authorized capital stock of Buyer consists solely of 50,000,000 shares of Buyer
Common Stock and             
shares of preferred stock.   Buyer
has sufficiently authorized Common Stock available for issuance to permit Buyer
to consummate the transactions contemplated by the Agreement.


 


(b)           The Common
Stock (i) will be, when delivered, duly authorized, validly issued, fully paid
and nonassessable, (ii) will not, when delivered, be subject to preemptive
rights created by statute, Buyer’s constitutive documents or any agreement to
which Buyer is a party or by which Buyer is bound, and (iii) will, when
delivered, be free of Liens (except for any Liens created as a result of the
Investor Rights Agreement).  Assuming the truth and accuracy of the


 


46

















 


representations
and warranties made by the Seller Entities in Section 3.23, the issuance to the
Seller Entities of the shares will not require registration under the
Securities Act.


 


7.6             Securities
Matters; Financial Statements.


 


(a)           As of
their respective filing dates, (i) the Annual Report on Form 10-K for the year
ended                
     , 200   [immediately preceding year end] and all Form 10-Q and Form
8-K filings made by it subsequent to that date and on or prior to the Closing
Date, as each may have been or may be amended, other than on Form 8-K
filings furnished and not filed (the “Buyer SEC Documents”) complied in
all material respects with the requirements of the Exchange Act, and
(ii) none of the Buyer SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading except to the extent that information
contained in any Buyer SEC Document has been revised or superseded by a
subsequently filed Buyer SEC Document filed prior to the date hereof. 
Except to the extent that information contained in any such report, schedule,
form, statement or other document has been revised or superseded by a
subsequently filed report, schedule, form, statement or other document filed
prior to the date hereof, all required reports, schedules, forms, statements
and other documents that Buyer was required to file with the SEC under the
Exchange Act after the beginning of the prior fiscal year and prior to the date
hereof complied, as of their respective filing dates, in all material respects,
with the requirements of the Exchange Act, and none of such reports, schedules,
forms, statements or other documents contained, as of their respective filing
dates, any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
Except for the execution and delivery of the Transaction Documents and the
consummation of the transactions to take place pursuant hereto and or prior to
the Closing Date, since the date of the most recent Buyer SEC Documents, there
has not been any event or development relating to Buyer which, individually or
in the aggregate could reasonably be expected to have a Buyer Material Adverse
Effect, whether or not in the Ordinary Course of Business.


 


(b)           The
financial statements of Buyer, including the notes thereto, included in the
Buyer SEC Documents, as amended (the “Buyer Financial Statements”),
complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto as of their respective dates and
fairly present the financial condition and the results of operations, changes
in stockholders’ equity and cash flow of Buyer and its subsidiaries on a
consolidated basis as at the respective dates of and for the periods referred
to in the Buyer Financial Statements, all in accordance with GAAP consistently
applied, except as otherwise noted therein and as otherwise permitted for
financial statements filed as part of a Quarterly Report on Form 10-Q and
subject, in the case of unaudited statements, to normal year-end adjustments
that would not be material in amount of effect.


 


(c)           Each of
the principal executive officer of the Buyer and the principal financial
officer of the Buyer (or each former principal executive officer of the Buyer
and each former principal financial officer of the Buyer, as applicable) has
made all certifications required by Rule 13a-14 or 15d-14 under the
Exchange Act or Sections 302 and 906 of the Sarbanes


 


47

















 


Oxley Act of 2002
(“SOX”) and the rules and regulations of the SEC promulgated thereunder
with respect to the Buyer SEC Documents, and to the knowledge of the Buyer, the
statements contained in such certifications are true and correct. For purposes
of this Section 7.6(c), “principal executive officer” and “principal
financial officer” shall have the meanings given to such terms in SOX. Neither
the Buyer nor any of its Subsidiaries has, since the effective date of Section
402 of SOX, arranged any outstanding, “extensions of credit” to directors or
executive officers within the meaning of Section 402 of SOX.


 


(d)           The Buyer
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that: 
(i) transactions are executed in accordance with management’s
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability; (iii) access assets is permitted
only in accordance with management’s general or specific authorization; and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.


 


(e)           The Buyer
has in place the “disclosure controls and procedures” (as defined in
Rules 13a-15(c) and 15d-(e) of the Exchange Act) required in order for the
principal executive officer of the Buyer and the principal financial officer of
the Buyer to engage in the review and evaluation process mandated by the
Exchange Act and the rules promulgated thereunder. The Buyer’s “disclosure
controls and procedures” are reasonably designed to ensure that all information
(both financial and non-financial) required to be disclosed by the Buyer in the
reports that it files or submits under the Exchange Act is recorded, processes,
summarized and reported within the time periods specified in the rules and
forms of the SEC, and that all such information is accumulated and communicated
to the Buyer’s management as appropriate to allow timely decisions regarding
required disclosure and to make the certifications of the principal executive
officer of the Buyer and the principal financial officer of the Buyer required
under the Exchange Act with respect to such reports. Buyer acknowledges that it
has the responsibility to establish and maintain sufficient internal accounting
controls and disclosure controls and procedures as described in
Sections 7.6(d) and (e) with respect to the Business transferred
hereunder.


 


(f)            Other
than as described in the Buyer SEC Documents, since the beginning of the prior fiscal
year, the Buyer has not received from its independent auditors any oral or
written notification of a (x) ”reportable condition” or (y) ”material
weakness” in the Buyer’s internal controls. For purposes of this Agreement, the
terms “reportable condition” and “material weakness” shall have the meanings
assigned to them in the Statements of Auditing Standards 60, as in effect
on the date of such notification.


 


SECTION
8.           COVENANTS OF BUYER.


 


Buyer hereby covenants
and agrees with the Seller Entities as follows:


 


8.1             Cooperation
by Buyer. From the date hereof and prior to the Closing, Buyer will, and
will cause its Affiliates to, use its commercially reasonable efforts, and will
cooperate


 


48

















 


with the Seller Entities in all material respects, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from
third parties as shall be required in order to effectuate the transactions
contemplated hereby, and will otherwise use its commercially reasonable efforts
to cause the consummation of such transactions in accordance with the terms and
conditions hereof, including without limitation, to effect and pursue
Governmental Filings and Consents, including without limitation those set forth
on Schedule 7.2.


 


8.2             Books
and Records. For a period of seven (7) years from the date of the Closing:


 


(a)           Buyer
shall not dispose of or destroy any of the books and records that were
transferred to Buyer pursuant to the terms hereof that relate to the Business
for periods prior to the Closing (“Transferred Books and Records”)
without first offering to turn over possession thereof to the Seller Entities
by written notice to the Seller Entities at least thirty (30) days prior to the
proposed date of such disposition or destruction.


 


(b)           From and
after the Closing, Buyer shall allow the Seller Entities and their agents
reasonable access to all Transferred Books and Records during normal working
hours at Buyer’s principal place of business or at any location where any
Transferred Books and Records are stored, and the Seller Entities shall have
the right, at their own expense, to make copies of any Transferred Books and
Records; provided, however, that any such access or copying shall be had or
done in such a manner so as not to interfere with the normal conduct of Buyer’s
business.


 


8.3             Further
Assurances. At any time or from time to time after the date of the Closing,
Buyer shall, at the request of the Seller Entities or their counsel, execute
and deliver any further instruments or documents and take all such further
action as the Seller Entities or their counsel may reasonably request in order
to evidence or otherwise facilitate the consummation of the transactions
contemplated hereby.


 


8.4             Confidentiality.
Except as provided in Sections 5.4 and 13.5, and to the extent necessary to
comply with applicable Law and the rules and regulations of, any listing
agreement with, any stock exchange, Buyer confirms that through the Closing it
remains bound by the Reciprocal Confidential and Nondisclosure Agreement dated               
       , 200    and as
amended to date.


 


8.5             Non-Solicitation.
Buyer agrees that from and after the date hereof until the third anniversary of
the Closing, Buyer shall not knowingly and shall cause its Affiliates not to
recruit any employees of the Seller Entities and their Affiliates (other than
Second Territory Employees); provided, that a general advertisement in
the public media shall not constitute a violation of the non-recruitment
obligations of this Section 8.5.


 


8.6             Financing.
To the extent necessary to pay all or any portion of the Purchase Price, Buyer
shall use commercially reasonable efforts to close a Financing on terms
reasonably acceptable to Buyer five (5) business days prior to each
time a payment is required to be made pursuant to Section 2 herein,
provided that any such Financing shall not contain terms and conditions which
are adverse to or otherwise prejudice the rights of the Seller Entities or
otherwise limit Buyer’s ability to fulfill its obligations under this
Agreement. Buyer shall use


 


49

















 


commercially reasonable efforts to satisfy, on or prior to each payment
date, all requirements that are conditions to its consummation of such
Financing and to the drawing down of the cash proceeds under the Financing
required to fund the cash payment to the Seller Entities on such payment date.
“Financing” means a debt and/or equity financing and/or financings as
may be necessary to pay all amounts as may be required in connection with the
payment of the amounts that may become due and payable to the Seller Entities
under Section 2. Without limiting the generality of the foregoing, Buyer shall
(i) notify the Seller Entities and deliver any executed amendments to any
financing commitment letter, (ii) provide to the Seller Entities copies of
any financing commitment letters at least five (5) days prior to the close of
the Financing contemplated by such commitment letter and any definitive agreements
entered into by Buyer or any of its Affiliates in connection with any such
Financing and all executed amendments or modifications regarding any such
letters or agreements, (iii) notify the Seller Entities of any assertion
by any lender under any financing commitment letter or any other commitment
letter or definitive agreements entered into in relation to a Financing that
any condition contained in the financing commitment letter or definitive
agreements entered into in relation to a Financing has not been satisfied or
waived or cannot be a satisfied or waived at the time such condition is
required to be satisfied and discuss with the Seller Entities at the Seller
Entities’ reasonable request the status of any Financing.


 


8.7             Financial
Matters. Subject to timely delivery of the Historical Financial Information
in accordance with Section 5.4(a) and compliance with Section 5.4(b), Buyer
shall prepare and timely file the Form 8-K filings (including amendments
thereto) required to be filed with the SEC as a result of the transactions
contemplated hereby. Without limiting the obligations of the parties contained
in this Agreement, in the event of a delay or failure to file the
Form 8-K’s referred to in this Section 8.7, the parties hereto agree
to use commercially reasonable efforts to address in a commercially reasonable
manner the impact of such failure on the Buyer and its stakeholders.


 


8.8             Receivables
Matters. Buyer shall use reasonable commercial efforts to collect all of
the Receivables following the Closing. Buyer shall keep the Seller Entities
reasonably informed of the status of the collection of any such Receivables. At
the time of making of any claim pursuant to Section 12 below with respect
to nonpayment of any Receivables, Buyer shall take all action and execute all
documents necessary to assign any non-collected Receivables on the date of such
claim to the Seller Entities, free and clear of any encumbrances and together
with all related documentation, in which case the Seller Entities will have all
rights to pursue all lawful collection activities and remedies with respect to
such assigned Receivables.


 


SECTION
9.           CONDITIONS TO
CLOSING.


 


9.1             Conditions
to Buyer’s Obligations. The obligations of Buyer to effect the transactions
contemplated by the Closing shall be subject to the satisfaction (or waiver) on
or prior to the Closing Date of all of the following conditions:


 


(a)           Representations;
Warranties; Covenants. Each of the representations and warranties of the
Seller Entities contained in Section 4 shall be true and correct in all
material respects (except for such representations and warranties that are
qualified by their terms as to


 


50

















 


materiality, which
representations and warranties to the extent so qualified shall be true in all
respects) as though made on and as of the First Closing; and the Seller
Entities shall, on or before the First Closing, have performed in all material
respects all of their obligations hereunder which by the terms hereof are to be
performed on or before the First Closing.


 


(b)           No
Material Change. There shall have been no Material Adverse Effect with
respect to the Business since the date hereof, whether or not in the Ordinary
Course of Business.


 


(c)           No
Litigation. There shall have been no determination by Buyer, acting in good
faith, that the consummation of the transactions contemplated by this Agreement
in connection with the Closing has become materially impracticable by reason of
the institution or threat by any person or any Governmental Authority of
litigation, proceedings or other action against Buyer or the Seller Entities or
any of their Affiliates.


 


(d)           Consents.
Subject to the provisions of Section 1.7, the Buyer and each of the Seller
Entities (i) shall have made all filings with and notifications of Governmental
Authorities, regulatory agencies and other entities required to be made by the
Seller Entities in connection with the execution and delivery of this
Agreement, the performance of the transactions contemplated hereby in
connection with the Closing and the continued operation of the Business by
Buyer subsequent to the Closing; and (ii) shall have received all
authorizations, waivers, consents and permits, including all of those set forth
on Schedule 6.2 and all Required Consents [Buyer to provide schedule at execution](21),
in form and substance reasonably satisfactory to Buyer, from all third parties,
including, without limitation, applicable Governmental Authorities, regulatory
agencies, lessors, lenders and contract parties, required to permit the
continuation of the Business and the consummation of the transactions
contemplated by this Agreement in connection with the Closing, including the
transfer to Buyer of the Business and Transferred Assets and to avoid a breach,
default, termination, acceleration or modification of any Material Contract.
Without limiting the generality of the foregoing, the Seller Entities shall
have delivered to Buyer copies of all consents and notices required under any
Transferred Contract or Approvals.


 


(e)           Certificate
from Officers and Management Team. Each Seller Entity shall have delivered
to Buyer a certificate of an authorized officer (which may be a member of the
Management Team) and of both members of the Management Team, dated as of the
Closing to the effect that the statements set forth in paragraphs (a), (b), (c)
and (d) above in this Section 9.1 are true and correct.


 


(f)            Employment
Matters. Of the Second Territory Employees identified on Schedule 9.1(f),
all of those employees identified as a “critical employee” on Schedule
9.1(f) and the requisite percentage(as set forth on Schedule 9.1(f))
of all other Second Territory Employees


 






(21)         See earlier comments in
footnote 10.


 


51

















 


identified on Schedule
9.1(f) shall have accepted Buyers’ offer of employment as set forth on
such.(22)


 


(g)           Transferred
Assets. The Seller Entities shall have delivered to Buyer the Transferred
Assets, including all Material Contracts, Licenses and Leases pursuant to a
Bill of Sale, Assignment and Assumption Agreement in the form attached hereto
as Exhibit B (the “Assignment and Assumption Agreement”).


 


(h)           Opinion
of Counsel. Buyer shall have received from [counsel to each Seller Entity
appropriate to opine on customary legal matters], counsel to the Seller
Entities, opinions as of the Closing Date, in the forms attached hereto as Exhibits
C-1 and C-2, respectively.


 


(i)            Investor
Rights Agreement. Each Seller Entity and member of the Management Team who
is receiving Common Stock as partial payment of the Purchase Price shall have
each (to the extent each such person or entity is not already a party to such
Agreement) executed and delivered to the Buyer an Instrument of Accession to
the Investor Rights Agreement in the form attached hereto as Exhibit D
(the “Investor Rights Agreement”) and such Investor Rights Agreement
shall be in full force and effect.


 


(j)            Financial
Information. The Audit Accountants shall not have informed the Buyer that
the Audit Accountants have reasonably determined that the Historical Financial
Information can not be audited, prepared and delivered to Buyer in accordance
with the terms and conditions of this Agreement.(23)


 


(k)           Supply
Agreements. The Seller Entities shall have caused ACON Bio to have executed
and delivered to Buyer a Transitional Supply Agreement in the form attached
hereto as Exhibit E-1 (the “Supply Agreement”) and such Supply
Agreement shall be in full force and effect. The Seller Entities shall have
caused Genclonn to have executed and delivered to Buyer a Transitional Reagent
Supply Agreement in the form attached hereto as Exhibit E-2 (the “Reagent
Supply Agreement”) and such Reagent Supply Agreement shall be in full force
and effect.


 


(l)            Intellectual
Property. The Seller Entities shall have caused Oakville and ACON Bio and
any Affiliate thereof to have executed and delivered to Buyer intellectual
property assignments in the forms attached hereto as Exhibit G (the “Patent
Assignment”), Exhibit H (the “Trademark Assignment”) and Exhibit
I-1 and I-2 (the “Notices of Patent License Assignment”),
respectively, with respect to Assigned ACON Intellectual Property Assets and
such Patent Assignment, Trademark Assignment and Notices of Patent License
Assignment shall each be in full force and effect together with any other
documents requested by Buyer prior to the Closing Date or required to enable
the Buyer to register and effect such assignments under applicable Laws. The
Seller Entities shall have caused Oakville, ACON Bio and any Affiliate


 






(22)         Subject
to due diligence.


 


(23)         The
parties shall cooperate to request that the SEC concur in the number of years
to be presented and the content of the Required Information prior to the
execution of this Agreement in definitive form.


 


52

















 


thereof to have
delivered to the satisfaction of Buyer all necessary approvals from all
Governmental Authorities, including without limitation, the PRC Ministry of
Commerce and the PRC Ministry of Science and Technology (i) in connection with
any assignment or licenses of Intellectual Property Assets among the Seller
Entities and (ii) in connection with any assignment or licenses of Intellectual
Property Assets to any Buyer designated entity pursuant to the transactions
contemplated by this Agreement and the Ancillary Agreements.


 


(m)          License.
The Seller Entities shall have caused Oakville and ACON Bio to have executed
and delivered to Buyer an amendment to the ACON License (as such term is defined
in the FTNF Acquisition Agreement) in the form attached hereto as Exhibit J
(the “Amended ACON License”) with respect to Retained ACON Intellectual
Property Assets and such Amended ACON License shall be in full force and
effect.


 


(n)           Transition
Services Agreement. The Seller Entities shall have, and shall have caused
those Seller Entities pursuant thereto and Genclonn to have executed and
delivered to Buyer a Transition Services Agreement in the form attached hereto
as Exhibit L (the “Transition Services Agreement”) and such
Transition Services Agreement shall be in full force and effect.


 


(o)           Miscellaneous
Deliveries. All actions to be taken by the Seller Entities in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
the Buyer.


 


(p)           Production
Capacity. The transition of production capacity from the Existing Facility
to the New Facility for the Products shall be Substantially Complete as such
term is defined on Schedule 9.1(p).


 


(q)           Other
Deliveries. The Seller Entities shall have executed (where applicable) and
delivered to the Buyer (or shall have caused to be executed and delivered to
the Buyer by the appropriate person) the following:


 


(i)            certified
copies of votes of the board of directors and the equityholders authorizing
each Seller Entity’s execution of this Agreement and each of the agreements,
documents and instruments contemplated hereby to which it is a party;


 


(ii)           a copy of
each Seller Entity’s Seller Organizational Documents, including in the case of
each Seller Entity not formed in California, its charter, memorandum and/or
articles of association certified by the appropriate Governmental Authority (if
applicable), and, specifically in the case of ACON Labs and Azure, by the
Secretary of State of California, in the case of Oakville by the Companies
Registry in Hong Kong and in the case of ACON Bio, by the local Administration
of Industry and Commerce;


 


(iii)          certificates
issued, in the case of ACON Labs and Azure, by the Secretary of State of
California, in the case of LBI, by the Registrar of Corporate Affairs in the
British Virgin Islands, and, in the case of each other Seller Entity (except
for


 


53

















 


ACON Bio), by a similar office in the state or
province in which each of the Seller Entities does business certifying that
each such Seller Entity is in good standing in such jurisdiction or in the case
of Oakville, has continuing registration in Hong Kong, as of the most recent
practicable date;


 


(iv)          a copy of
ACON Bio’s business license showing the chop of the local Administration of
Industry and Commerce confirming that ACON Bio has passed its most recent
annual inspection;


 


(v)           true and
correct copies of each of the agreements, documents and instruments
contemplated hereby and all agreements, documents, instruments and certificates
delivered or to be delivered in connection therewith; and


 


(vi)          certificate
of the Secretary or, in the case of ACON Bio, Legal Representative, of each
Seller Entity, certifying that the resolutions of each such Seller Entity and
Seller Entity’s Seller Organizational Documents in paragraphs (i) and (ii)
above are in full force and effect and have not been amended or modified, and
that the officers of such Seller Entity are those persons named in the
certificate.


 


9.2             Conditions
to the Seller Entities’ Obligations. The obligation of the Seller Entities
to effect the transactions contemplated by this Agreement in connection with
the Closing shall be subject to the satisfaction (or waiver) on or prior to the
Closing Date of all of the following conditions:


 


(a)           Representations;
Warranties; Covenants. Each of the representations and warranties of Buyer
contained in Section 7 shall be true and correct in all material respects
(except for such representations and warranties that are qualified by their
terms as to materiality, which representations and warranties as so qualified
shall be true in all respects) as though made on and as of the First Closing;
Buyer shall, on or before the First Closing, have performed in all material
respects all of its obligations hereunder which by the terms hereof are to be
performed or before the First Closing; and Buyer shall have delivered to the
Seller Entities a certificate of Buyer dated on the First Closing to such
effect.


 


(b)           No
Litigation. There shall have been no determination by the Seller Entities,
acting in good faith, that the consummation of the transactions contemplated by
this Agreement in connection with the Closing has become materially
impracticable by reason of the institution or threat by any person or any
Governmental Authority of material litigation, proceedings or other action
against Buyer or the Seller Entities or any of their Affiliates.


 


(c)           No
Material Change. There shall have been no Buyer Material Adverse Effect
with respect to the Buyer since the date hereof, whether or not in the Ordinary
Course of Business.


 


(d)           Consents.
The Buyer shall have (i) received all authorizations, waivers, consents and
permits, in form and substance reasonably satisfactory to the Seller Entities,
from all third parties, including, without limitation, applicable Governmental
Authorities, lessors, lenders and contract parties, required to permit the
consummation of the transactions


 


54

















 


contemplated by
this Agreement in connection with the Closing, including the transfer to Buyer
of the Business and Transferred Assets, and (ii) completed any amendment,
supplement or other modification to any credit agreements which otherwise
prohibit the consummation of the terms of this Agreement, and such amendments,
supplements or other modifications must be in form and substance reasonably
satisfactory to Seller Entities.


 


(e)           Supply
Agreements. The Buyer shall have executed and delivered to ACON Bio the
Supply Agreement and such Supply Agreement shall be in full force and effect.
The Buyer shall have executed and delivered to Genclonn the Reagent Supply
Agreement and such Reagent Supply Agreement shall be in full force and effect.


 


(f)            License.
Buyer shall have executed and delivered to Oakville and ACON Bio the Amended
ACON License and such Amended ACON License shall be in full force and effect.


 


(g)           Transition
Services Agreement. Buyer shall have executed and delivered to ACON Bio the
Transition Services Agreement and such Transition Services Agreement shall be in
full force and effect.


 


(h)           Purchase
Price. Buyer shall have delivered, contemporaneously with the Closing, all
portions of the Purchase Price as set forth in Section 2.1.


 


(i)            Amendment
to Credit Agreement. The Seller Entities shall have approved, in their
reasonable discretion, the amendment to or consent under Buyer’s (or its
Affiliates’) senior credit facility, which amendment or consent permits the
consummation of the transactions contemplated by this Agreement, including
without limitation the making of all payments hereunder.


 


(j)            Opinion
of Counsel. The Seller Entities shall have received from Goodwin Procter
LLP, counsel to the Buyer, an opinion as of the Closing Date, in substantially
the form attached hereto as Exhibit M.


 


(k)           Historical
Financial Information. The Seller Entities and the Audit Accountants shall
not have reasonably determined that the Historical Financial Information can
not be audited, prepared and delivered to Buyer in accordance with the terms
and conditions of this Agreement other than an inability to audit such
financial statements arising by reason of the Seller Entities’ failure to
cooperate with the Audit Accountants and Buyer as provided in Sections 5.4.


 


(l)            Equipment
Maintenance. The Existing Facility shall include all equipment, necessary
for the development, manufacture, testing, maintenance, storage and shipping of
products in the same manner as currently used in the Existing Facility and all
such equipment shall be of quality equal to or greater than the highest quality
equipment used in the Existing Facility.


 


(m)          Other
Deliveries. The Buyer shall have executed and delivered to the Seller
Entities the following:


 


55

















 


(i)            copies of
votes of the board of directors of the Buyer authorizing the execution of this
Agreement and each of the other agreements, documents or instruments
contemplated hereby to which Buyer is a party;


 


(ii)           a copy of
the certificate of incorporation and by-laws of the Buyer which, in the case of
the certificate of incorporation, is certified as of a recent date by the
Secretary of State of the State of Delaware;


 


(iii)          certificates
issued by the Secretary of State of the State of Delaware certifying that the
Buyer is validly existing and in good standing in the State of Delaware as of
the most recent practicable date;


 


(iv)          true and
correct copies of each of the agreements, documents and instruments
contemplated hereby to which the Buyer is a party, and all agreements,
documents, instruments and certificates delivered or to be delivered in
connection therewith by the Buyer; and


 


(v)           a
certificate of the Secretary of the Buyer certifying that the resolutions,
certificate of incorporation and by-laws in paragraphs (i) and (ii) above are
in full force and effect and have not been amended or modified, and that the
officers of the Buyer are those persons named in the certificate.


 


SECTION
10.         TERMINATION PRIOR TO
CLOSING


 


10.1           Termination.
This Agreement may be terminated at any time prior to the Closing:


 


(a)           by the
mutual written consent of Buyer and the Seller Entities;


 


(b)           by either
the Seller Entities or Buyer by written notice, without liability to the
terminating party on account of such termination (provided the terminating
party is not otherwise in default or in breach of this Agreement), if the
Closing shall not have occurred on or before March 31, 2009;


 


(c)           by either
the Seller Entities or Buyer by written notice, without liability to the
terminating party on account of such termination (provided the terminating
party is not otherwise in default or in breach of this Agreement), if there
shall have been a material breach by the other party of any of its
representations, warranties, covenants or agreements contained herein which has
not been cured within thirty (30) days after notice thereof by the other party;


 


(d)           by Buyer,
pursuant to written notice by Buyer to the Seller Entities, if any of the
conditions set forth in Section 9.1 of this Agreement have not been satisfied
at or prior to the Closing, or if it has become reasonably and objectively
certain that any of such conditions, other than a condition within the control
of the Seller Entities, will not be satisfied at or prior to the Closing, such
written notice to set forth such conditions which have not been or will not be
so satisfied; provided, that Buyer shall have previously provided (at
least thirty (30) days prior to


 


56

















 


delivery of such
termination notice) the Seller Entities with written notice of Buyer’s
intention to terminate this Agreement;


 


(e)           by the
Seller Entities, pursuant to written notice by the Seller Entities to Buyer, if
any of the conditions set forth in Section 9.2 of this Agreement have not been
satisfied at or prior to the Closing, or if it has become reasonably and
objectively certain that any of such conditions, other than a condition within
the control of Buyer, will not be satisfied at or prior to the Closing a, such
written notice to set forth such conditions which have not been or will not be
so satisfied; provided, that the Seller Entities shall have previously
provided (at least thirty (30) days prior to delivery of such termination
notice) the Buyer with written notice of the Seller Entities’ intention to
terminate this Agreement; or


 


(f)            By Buyer,
pursuant to written notice by Buyer to Seller Entities, if Buyer elects to pay
Termination Fee pursuant to Section 10.2(b).


 


10.2       Effect
of Termination. 


 


(a)           In the
event of the termination of this Agreement as provided in Sections 10.1(a)-(e),
written notice thereof shall forthwith be given to the other party or parties
specifying the provision hereof pursuant to which such termination is made.


 


(b)           If this
Agreement is terminated by Buyer as provided in Section 10.1(f) above,
then subject to Section 11.1, Inverness shall pay to the Seller Entities 15% of
the Purchase Price (the “Termination Fee”) in cash as liquidated
damages. The Termination Fee which shall represent liquidated damages and shall
be the sole remedy of the Seller Entities in law or in equity with respect to
Buyer’s performance or failure to perform under this Agreement in the event
Buyer terminates this Agreement pursuant to Section 10.1(f), shall be
paid by wire transfer of immediately available funds to an account designated
by the Seller Entities within three (3) business days of the later to occur of
(i) the calculation of such amount, or (ii) such termination.


 


(c)           If (i)
this Agreement is terminated by the Seller Entities for any reason other than
as set forth in Sections 10.1(a)-(e) above or (ii) the Seller Entities
elect not to sell the Business to Buyer for any reason other than the failure
of Inverness to comply with its covenants in this Agreement (except to the
extent such non-compliance does not (x) restrict Buyer’s ability to pay the
Purchase Price or (y) impact the fulfillment of the condition’s to the Seller
Entities obligation to close on the sale of the Business, then the parties
agree to arbitration pursuant Section 12.13. If the arbitrator determines that
the Seller Entities and/or Parent have breached their respective obligations
under this Agreement, then Buyer shall purchase the Business at a price equal
to eighty-five percent (85%) of the Purchase Price notwithstanding anything
herein to the contrary.


 


10.3           Effect
on Obligations. All obligations of the parties hereunder shall cease upon
any termination pursuant to Section 10.1, provided, however, that (a) the
provisions of this Section 10 (Termination), Section 5.6
(Confidentiality), Section 8.4 (Confidentiality), and Section 12
(Miscellaneous) hereof shall survive any termination of this Agreement; (b)
nothing herein shall relieve any party from any liability for (i) any willful,
material breach of a


 


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representation or warranty contained herein (except for any
representations and warranties that are qualified by their terms as to
materiality, which such representations and warranties so qualified shall be
true in all respects), (ii) any intentional failure to perform and satisfy in
all material respects all of the agreements and covenants to be performed
hereunder and under the agreements, documents and instruments contemplated
hereby at or prior to either the Closing and (iii) any intentional failure to
perform and satisfy the conditions contained in this Agreement and the other
agreements, documents and instruments contemplated hereby; and (c) any party
may proceed as further set forth in Section 10.3 below.


 


10.4           Right
to Proceed.Anything in this Agreement to the contrary notwithstanding, if
any of the conditions specified in Section 9.1 hereof have not been satisfied,
Buyer shall have the right to proceed with the transactions contemplated hereby
without waiving any of its rights hereunder, and if any of the conditions
specified in Section 9.2 hereof have not been satisfied, the Seller Entities
shall have the right to proceed with the transactions contemplated hereby
without waiving any of its rights hereunder.


 


SECTION 11.         CHANGE
IN CONTROL.


 


11.1         Change of
Control. If prior to January 1, 2009, [Inverness Medical Innovations, Inc.]
undergoes a merger or consolidation in which the shares of capital stock of
[Inverness Medical Innovations, Inc.]outstanding immediately prior to the date
hereof no longer represent at least a majority, by voting power, of the capital
stock of the surviving or resulting corporation (a “Change of Control”)
then in the event a Termination Fee is due and payable under Section 10.2(b) of
this Agreement the amounts payable by such surviving or resulting corporation
shall equal two (2) times the Termination Fee that would otherwise have been
payable.


 


11.2         Payment
Subsequent to Change of Control. If, after a Change of Control, either
[Inverness Medical Innovations, Inc.] or its successor elects to consummate the
transactions contemplated thereunder, the Purchase Price payable thereunder
shall be paid in cash.


 


SECTION
12.         INDEMNIFICATION.


 


12.1           Indemnification
by the Seller Entities. Each Seller Entity and its successors and permitted
assigns will subsequent to the Closing jointly and severally indemnify and hold
harmless Buyer, its subsidiaries and their respective officers, directors,
employees, agents, consultants, representatives, successors, transferors and
assignees (individually, a “Buyer Indemnified Party” and collectively,
the “Buyer Indemnified Parties”) from and against and in respect of all
losses, liabilities, obligations, damages, deficiencies, actions, suits,
proceedings, demands, assessments, orders, judgments, fines, Taxes, penalties,
costs and expenses (including the reasonable fees, disbursements and expenses
of attorneys, accountants and consultants) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts
paid in investigation, defense or settlement of the foregoing) sustained,
suffered or incurred by or made against (collectively “Losses” and
individually a “Loss”) any Buyer Indemnified Party arising out of, based
upon or in connection with the following provided, however, that
Losses arising out of any breach of the Seller Entities’ representations,
warranties


 


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and covenants shall not include losses in the nature of incidental or
consequential damages, lost profits (except to the extent that such profits are
profits of the Business as it existed as of the Closing and such profits were
lost as a direct result of such breach), diminution in value, damage to
reputation or goodwill or other items of a speculative nature (the “Consequential
Damages”):


 


(a)           fraud or
an intentional misrepresentation by any Seller Entity of any of their
representations or warranties in this Agreement, any Ancillary Agreement or in
any Schedule, Exhibit, certificate, financial statement, agreement or other
instrument delivered under or in connection with this Agreement;


 


(b)           any breach
of any representation or warranty made by any Seller Entity in this Agreement
or in a certificate delivered under Section 9.1(e);


 


(c)           any breach
of any covenant or agreement made by any Seller Entity in this Agreement;


 


(d)           any of the
Excluded Liabilities;


 


(e)           the
ownership or operation of the Business prior to the Closing;


 


(f)            other
than as set forth in Section 1.2(b), any claims or obligations (including
without limitation, claims for personal injury, death or property damage)
relating to, directly resulting from or in connection with the Products that
are sold by a Seller Entity or an Affiliate thereof prior to the Closing; and


 


(g)           notwithstanding
whether there is a breach of any of the representations and warranties set
forth in Section 3 hereof (including without limitation, Section 3.9),
except as provided by Section 1.8 hereof, any liability for (i) Taxes (or the
nonpayment thereof) of the Seller Entities; and (ii) all Taxes of any person
(other than the Seller Entities) imposed on any Buyer Indemnified Party as a
transferor or successor, by contract, pursuant to any Law or otherwise which
relate to an event or transaction occurring before the Closing.


 


Losses described in or
arising under clauses (a) through (g) of this Section 12.1 are
collectively referred to as “Buyer Indemnifiable Losses.”  Claims under clauses (a) through (g) of this
Section 12.1 are collectively referred to as “Buyer Indemnifiable Claims”.


 


12.2           Limitations
on Indemnification.


 


(a)           Maximum
Indemnification. Subject to the exceptions set forth in subsection (d)(ii)
of this Section 12.2, the obligation of the Seller Entities to indemnify Buyer
Indemnified Parties in respect of any Buyer Indemnifiable Losses described in
or arising under Section 12.1(b) and (c) (“Representation, Warranty and
Covenant Losses”) shall be limited, in the aggregate, to an amount equal to
fifteen percent (15%) of the Purchase Price (the “Representation, Warranty
and Covenant Cap”).


 


(b)           Basket.
Subject to the exceptions set forth in subsection (d)(ii) of this
Section 12.2, no indemnification shall be payable with respect to
Representation, Warranty and


 


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Covenant Losses
except to the extent the cumulative amount of all Representation, Warranty and
Covenant Losses under Section 12.1(b) exceeds [amount to be proportionate to amount of basket in FTNF Acquisition
Agreement] ($[             ])
in the aggregate (the “Basket”), whereupon the total amount of such
Representation, Warranty and Covenant Losses in excess thereof shall be
recoverable in accordance with the terms hereof.


 


(c)           Inconsequential
Damages. The Seller Entities shall not be liable hereunder for individual
Representation, Warranty and Covenant Losses that are less than ten thousand
dollars ($10,000) and any such Representation, Warranty and Covenant Losses
shall not be considered for purposes of determining the Basket; provided,
that if individual Representation, Warranty and Covenant Losses arise out of
the same or substantially similar facts or circumstances or are part of a
series of individual claims then all such individual claims shall be aggregated
for purposes of determining whether such Representation, Warranty and Covenant
Losses exceed the ten thousand dollars ($10,000) threshold provided in this
Section 12.2(c).


 


(d)           Time
Limitation. No indemnification shall be payable to a Buyer Indemnified
Party with respect to any claim relating to Representation, Warranty and
Covenant Losses asserted after the date that is eighteen (18) months after the
Closing Date to the extent that such Representation, Warranty and Covenant
Losses arise out of, relate to or result from representations and warranties
made at the Closing (the “Indemnification Cut-Off Date”) except for
Losses described in or arising under Section 12.1(b) involving a breach by
the Seller Entity of any of the SOL Representations (as defined in Section
12.6); provided that any claim for indemnification as to which notice has been
given prior to the Indemnification Cut-Off Date
shall survive such expiration until final resolution of such claim.


 


(e)           No
Limitation on Certain Claims. Notwithstanding anything herein to the
contrary, (i) Buyer Indemnified Parties shall be entitled to dollar-for-dollar
indemnification from the first dollar and shall not be subject to the Basket,
or the Representation, Warranty and Covenant Cap, or any limitation (other than
as provided by law) as to time in seeking indemnification with respect to
Losses described in or arising under Sections 12.1(a), (d), (e), (f), or (g),
and (ii) Buyer Indemnified Parties shall be entitled to indemnification and
shall not be subject to any limitation (other than as provided by law) as to
time in seeking indemnification with respect to Losses described in or arising
under Section 12.1(c).


 


In the event that any
Buyer Indemnified Party sustains, incurs or is finally determined to have
sustained or incurred any Loss for which it is entitled to indemnification
under this Section 12, in addition to all other rights or remedies that Buyer
may have, such Buyer Indemnified Party shall be entitled to claim against the
Deferred Payment or any other payment due to any Buyer Indemnified Party in
accordance with the terms of Section 12.7.


 


12.3           Indemnification
by Buyer. Buyer and its successors and permitted assigns agree subsequent
to the Closing to indemnify and hold harmless the Seller Entities
(individually, a “Seller Indemnified Party” and collectively, the “Seller
Indemnified Parties”) from and against and in respect of all Losses arising
out of, based upon or in connection with:


 


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(a)           fraud or
an intentional misrepresentation by Buyer of any of its representations, or
warranties in this Agreement, any Ancillary Agreement or in any Schedule,
Exhibit, certificate, financial statement, agreement or other instrument
delivered under or in connection with this Agreement;


 


(b)           any breach
of any representation or warranty made by Buyer in this Agreement or in a
certificate delivered under Section 9.2(a);


 


(c)           any breach
of any covenant or agreement made by Buyer in this Agreement;


 


(d)           any of the
Assumed Liabilities whether or not existing or arising from circumstances
existing or events occurring prior to or after the Closing Date;


 


(e)           the
ownership or operation of the Business after the Closing; and


 


(f)            any
claims or obligations (including without limitation, claims for personal
injury, death or property damage) relating to, directly resulting from or in
connection with the Products that are sold by Buyer or an Affiliate thereof
after the Closing.


 


Losses described in or
arising under clauses (a) through (f) of this Section 12.3 are
collectively referred to as “Seller Indemnifiable Losses.”  Claims under clauses (a) through (f) of this
Section 12.3 are collectively referred to as “Seller Indemnification Claims”.


 


12.4           Time
Limitations on Indemnification by Buyer. No indemnification shall be payable
to a Seller Indemnified Party with respect to any claim asserted after the
Indemnification Cut-Off Date which relates to the Seller Indemnifiable Losses
described in or arising under Section 12.3(b) except for Seller Indemnifiable
Losses arising out of any SOL Representations; provided that any claim
for indemnification as to which specific notice has been given prior to the
Indemnification Cut-Off Date shall survive such expiration until final
resolution of such claim. The Seller Indemnified Parties shall be entitled to
indemnification and shall not be subject to any limitations (other than as
provided by law) as to time in seeking indemnification with respect to losses
described in or arising under Sections 12.3(a), (c), (d), (e), (f), (g), and (h).


 


12.5           Notice;
Defense of Claims.


 


(a)           Notice
of Claims. Promptly after receipt by an indemnified party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the indemnified party shall give notice thereof in writing (a “Claim
Notice”) to the indemnifying party, but the omission to so notify the
indemnifying party promptly will not relieve the indemnifying party from any
liability except (i) to the extent that the indemnifying party shall have been
materially prejudiced as a result of the failure or delay in giving such Claim
Notice and (ii) that no indemnification will be payable to an indemnified party
with respect to any claim for which the Claim Notice is given after expiration
of the period for which such claim may be made pursuant to Section 12.2(c) or
12.4 (as the case may be) of this Agreement. Such Claim Notice shall state the
information then available regarding the amount


 


61

















 


and nature of such
claim, liability or expense and shall specify the provision or provisions of
this Agreement under which the liability or obligation is asserted.


 


(b)           Third
Party Claims. With respect to third party claims, if within thirty (30)
days after receiving the Claim Notice the indemnifying party gives written
notice (the “Defense Notice”) to the indemnified party stating that
(i) it may be liable under the provisions hereof for indemnity in the
amount of such claim if such claim were successful and (ii) that it disputes
and intends to defend against such claim, liability or expense at its own cost
and expense, then counsel for the defense shall be selected by the indemnifying
party (subject to the consent of the indemnified party which consent shall not
be unreasonably withheld) and the indemnified party shall not be required to
make any payment with respect to such claim, liability or expense as long as
the indemnifying party is conducting a good faith and diligent defense at its
own expense; provided, however, that the assumption of defense of
any such matters by the indemnifying party shall relate solely to the claim,
liability or expense that is subject or potentially subject to indemnification.


 


The indemnifying party
shall have the right, with the consent of the indemnified party, which consent
shall not be unreasonably withheld, to settle all identifiable matters related
to claims by third parties which are susceptible to being settled provided the
indemnifying parties’ obligation to indemnify the indemnified party therefore
will be fully satisfied. The indemnifying party shall keep the indemnified
party apprised of the status of the claim, liability or expense and any
resulting suit, proceeding or enforcement action, shall furnish the indemnified
party with all documents and information that the indemnified party shall
reasonably request and shall consult with the indemnified party prior to acting
on major matters, including settlement discussions. Notwithstanding anything
herein stated, the indemnified party shall at all times have the right to fully
participate in such defense at its own expense directly or through counsel; provided,
however, if the named parties to the action or proceeding include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate under applicable standards
of professional conduct, the expense of separate counsel for the indemnified
party shall be paid by the indemnifying party.


 


If no Defense Notice is
given by the indemnifying party, or if diligent good faith defense is not being
or ceases to be conducted by the indemnifying party, the indemnified party
shall, at the expense of the indemnifying party, undertake the defense of (with
counsel selected by the indemnified party), and shall have the right to
compromise or settle such claim, liability or expense. If such claim, liability
or expense is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request
and shall cooperate with the indemnifying party in such defense.


 


(c)           Non-Third
Party Claims. With respect to non-third party claims, if within thirty (30)
days after receiving the Claim Notice the indemnifying party does not give
written notice to the indemnified party that it contests such indemnity, the
amount of indemnity payable for such claim shall be as set forth in the Claim
Notice. If the indemnifying party provides written notice to the indemnified
party within such thirty (30)-day period that it contests such indemnity, the
parties shall attempt in good faith to reach an agreement with regard thereto


 


62

















 


within thirty (30)
days of delivery of the indemnifying party’s notice. If the parties cannot
reach agreement within such 30-day period, the matter shall be submitted to the
International Centre for Dispute Resolution for arbitration pursuant to Section
13.11.


 


12.6           Survival
of Representations, Warranties and Covenants. Each of the representations,
warranties, agreements, covenants and obligations herein or in any schedule,
exhibit or certificate delivered by any party to any other party incident to
the transactions contemplated hereby are material, shall be deemed to have been
relied upon by the other party and shall survive the Closing until the
Indemnification Cut-Off Date, except for the representations and warranties
made in Sections 3.3(a) (first sentence), 3.3(c),  3.6 and 3.18, in the case of the Seller
Entities, and Section 7.6 with respect to the Buyer which shall survive until
the expiration of the applicable statute of limitations, if any (collectively,
the “SOL Representations”). The expiration of any representation or
warranty shall not affect any claim made prior to the date of such expiration.
All covenants herein not fully performed shall survive the Closing and continue
thereafter until fully performed. Any investigation, audit or other examination
that may have been made or may be made at any time by or on behalf of the party
to whom any such representation or warranty is made shall not limit or diminish
such representations and warranties, and the parties may rely on the
representations and warranties set forth in this Agreement (as modified by the
Schedules and referenced therein).


 


12.7           Set-Off.
In the event Buyer has made a claim under this Section 12 against any Seller
Entity or any other party thereto, and such claim has not yet been resolved as
of the date of any payment due from Buyer to a Seller Entity hereunder, Buyer
may deposit in an escrow account with a third party commercial bank reasonably
acceptable to a Seller Entity and pursuant to an escrow agreement containing
customary terms consistent with this Section 12.7, an amount equal to the
lesser of the aggregate amount claimed in good faith by Buyer or the amount
otherwise payable by Buyer as of such date to be held in escrow until such
claim is resolved in accordance with the terms hereof with disbursements
thereafter of such amounts to such parties in accordance with the resolution of
such claim. If any Seller Entity or any Affiliate thereof fails to make any
payment with respect to any indemnification claim in accordance with this
Section 12 when such indemnification claim has been fully resolved pursuant to
the terms of this Section 12.7, Buyer may, in addition to any other rights
hereunder, upon seven (7) days notice to the Seller Entities, set-off the
amount of such claim against any amounts payable by Buyer to the Seller
Entities under this Agreement, (including, without limitation, payments to be
made pursuant to the Section 2 hereof). Notwithstanding anything in this
Section 12.7 to the contrary, the Buyer and each Seller Entity agree that any
claim for indemnification by Buyer shall be charged first against any amounts
being held in escrow pursuant to this Section 12.7 and if such amounts are not
sufficient to satisfy the entire amounts payable to Buyer then the amounts
shall be charged to amounts owing to the Seller Entities under Section 2 in the
order of the installments owing thereunder.


 


12.8           Subrogation.
To the extent that either party hereto (the “Indemnitor”) makes or is
required to make any indemnification payment to the other party hereto (the “Indemnified
Party”), the Indemnitor shall be entitled to exercise, and shall be
subrogated to, any rights and remedies (including rights or indemnity, rights
of contribution and other rights of recovery) that the Indemnified Party or any
of the Indemnified Party’s Affiliates may have against any other


 


63

















 


Person with respect to any Losses, circumstances or matter to which
such indemnification payment is directly or indirectly related. The Indemnified
Party shall permit the Indemnitor to use the name of the Indemnified Party and
the names of the Indemnified Party’s Affiliates in any transaction or in any
proceeding or other Matter involving any of such rights or remedies; and the
Indemnified Party shall take such actions as the Indemnitor may reasonably
request for the purpose of enabling the Indemnitor to perfect or exercise the
Indemnitor’s right of subrogation hereunder.


 


12.9           Exclusivity.
The right of Buyer hereunder to assert indemnification claims and receive
indemnification payments pursuant to this Section 12 shall be the Buyer’s
exclusive right and remedy for monetary damages exercisable by the Buyer with
respect to any breach by any of the Seller Entities of any representation,
warranty or covenant. Buyer shall be entitled to seek equitable relief with
respect to any breach by any of the Seller Entities of any covenants.


 


12.10         Calculation
of Losses. For purposes of computing the amount of Losses incurred by any
person, there shall be deducted (a) an amount equal to the amount of Taxes of
such person that are actually reduced directly as a result of such Losses, and
(b) an amount equal to the amount of any insurance proceeds, indemnification
payments, contribution payments or reimbursements actually received by such
person or any of such person’s Affiliates in connection with such Losses or the
circumstances giving rise thereto. If subsequent to an indemnification payment
any person or any of such person’s Affiliates receives any insurance proceeds,
indemnification payments, contribution payments or reimbursements that would
have otherwise reduced the amount of the Loss, then such party shall promptly
deliver such amounts to the Indemnitor for such original payment.


 


12.11. Infringement
Litigation(24).


 


(a)           Definitions
for this Section 12.11:


 


(i)            “Damages”
shall mean any and all costs, expenses, disbursements, damages, liabilities,
penalties, fines and/or other amounts (including royalty payments) paid,
awarded, incurred or to which Buyer or its Affiliates becomes obligated to pay
to in connection with the performance, payment or collection of any injunction,
judgment, settlement or compromise or award associated with Infringement
Litigation.


 


(ii)           “Historical
Damages” shall mean any and
all Damages (other than Legal Fees) paid, awarded, incurred or to which Buyer
or its Affiliates becomes obligated to pay as a result of all acts or omissions
occurring prior to final disposition of Infringement Litigation.


 


(iii)          “Infringement
Litigation” shall mean the
litigation described on Schedule 11.11.


 






(24)         Provision
will be included for any pending Intellectual Property infringement litigation
that is significant to the Business, and deleted if there is no such pending
Intellectual Property infringement litigation.


 


64

















 


(iv)          “Legal
Fees” shall mean any and all fees, expenses, disbursements and/or other
amounts incurred by counsel, consultants and experts in connection with
Infringement Litigation.


 


(v)           “Related
Products” shall mean any product sold or manufactured by the Seller
Entities that are determined to infringe on any Intellectual Property Assets
asserted in Infringement Litigation.


 


(vi)          “Royalty
Damages” shall mean any and
all Damages (such as an ongoing royalty payment or payment for a fully paid up
license) paid, awarded, incurred or to which Buyer or its Affiliates becomes
obligated to pay as a result of, and is calculated on the basis of, future
sales of Related Products.


 


(vii)         “Royalty
Damages Amount” shall mean the amount equal to the product of (A) the
royalty rate (expressed as a percentage of future sales of the applicable
Related Products) paid, awarded, incurred or to which Buyer or its Affiliates
becomes obligated to pay as Royalty Damages, multiplied by (B) the total sales
of such Related Products in the calendar year ending December 31, 200    .


 


(b)           Buyer’s
Control of Infringement Litigation. The Seller Entities acknowledge and
agree that Buyer has a material interest in Infringement Litigation and that
its outcome may impact the value of the assets and ongoing business being
acquired by Buyer. Accordingly, following the Closing, Buyer shall be entitled,
in its sole discretion, to all of the following rights with respect to such Infringement
Litigation: (i) to select and manage counsel; (ii) to conduct, determine
strategy for, enter into and conduct alternative dispute resolution; (iii)  to settle, compromise, discharge or otherwise
resolve (including through alternative dispute resolution); and (iv) to
otherwise manage and take actions. In exercising such rights set forth above in
this Section 12.11(b), Buyer shall use commercially reasonable efforts to (1)
defend the Infringement Litigation, and (2) assert such defenses, cross-complaints,
counterclaims and/or patent reexaminations as Buyer determines are appropriate
in its reasonable discretion. Buyer will afford the Seller Entities an
opportunity to consult with Buyer with respect to matters set forth above in
this Section 12.11(b) and with respect to any settlement offer and Buyer’s
decision whether or not to accept or reject the offer. Such consultation,
however, shall not affect Buyer’s right and ability to settle, compromise,
discharge or otherwise resolve Infringement Litigation as it sees fit, without
the need for the consent of the Seller Entities; provided, however,
that in the event of any settlement, compromise, discharge or other resolution
associated with Infringement Litigation that would result in payment of any
damages or other amounts to any third party, Buyer shall obtain the Seller
Entities’ prior written consent to any such settlement, compromise, discharge
or other resolution, such consent not to be unreasonably withheld or delayed.
The Seller Entities agree to, and Parent shall cause its Affiliates to,
reasonably cooperate with Buyer in connection with Infringement Litigation and
to make available such records and information, and such officers and
employees, during normal business hours, as Buyer may reasonably request as
necessary to assist with Infringement Litigation.


 


(c)           Payment
of Litigation Fees. Notwithstanding anything to the contrary in this
Agreement, (A) the Seller Entities agree that they are responsible for and
shall pay or


 


65

















 


otherwise
indemnify Buyer for all Legal Fees incurred by Seller Entities prior to the
Closing relating to Infringement Litigation and (B) the Seller Entities and
Buyer agree that each is responsible for and shall promptly pay one-half (1/2)
of all Legal Fees incurred by or on behalf of the Seller Entities and Buyer
after the Closing relating to Infringement Litigation; provided, however,
that the maximum liability of the Seller Entities under this
Section 12.11(c)(i) shall not exceed [                                           
($                  )].(25)
Buyer may, at its discretion, arrange to have all invoices, charges, fees,
damages or other Legal Fees related to Infringement Litigation, for which the
Seller Entities are responsible to pay, billed directly to the Seller Entities
and not to Buyer, or in the alternative Buyer may pay any such amounts and
thereafter seek reimbursement from the Seller Entities, which they shall
promptly provide. All invoices shall be in reasonable detail to allow the
Seller Entities to determine that such costs are appropriately related to
Infringement Litigation.


 


(d)           Payment
of Historical Damages. If the Buyer or Seller Entities are obligated to pay
Historical Damages, (i) the Seller Entities agree that they are responsible for
and shall pay or otherwise indemnify Buyer for all Historical Damages to the
extent resulting from acts or omissions occurring prior to the Closing and (ii)
the Buyer agrees that it is responsible for and shall pay or otherwise indemnify
the Seller Entities for all Historical Damages to the extent resulting from
acts or omissions occurring after the Closing.


 


(e)           Payment
of Royalty Damages. If the Buyer or Seller Entities are obligated to pay
Royalty Damages, the Buyer agrees that it is responsible for and shall pay or
otherwise indemnify the Seller Entities for all Royalty Damages.
Notwithstanding the foregoing, if the Buyer is obligated to pay Royalty Damages
pursuant to this Section 12.11(e), then the Purchase Price shall be reduced by
an amount equal to eleven (11) times the Royalty Damages Amount. If such
reduction results in a Purchase Price, as recalculated, that is less than the
Purchase Price paid or to be paid under Section 2.1 hereof, the Seller Entities
shall promptly pay the Buyer an amount equal to such difference.


 


(f)            Information
Rights. For the duration of any Infringement Litigation and subject to
reasonable constraints imposed by attorney-client privilege, Buyer shall
provide the Seller Entities with all information, documents and materials
related to such Infringement Litigation as the Seller Entities may reasonably
request, so long as the provision of such information, documents or materials
does not compromise or affect the privileges (such as the attorney-client
privilege and the work product doctrine) that may otherwise attach to such
information, documents or materials.


 


(g)           Survival.
Notwithstanding anything to the contrary in this Agreement, the agreements and
covenants made by each entity in this Section 12.11 shall survive the Closing
and any liabilities that any party has have or may have pursuant to this
Section 11.11 shall not terminate or expire in any manner whatsoever.


 






(25)         Amount to be
proportionate to amount in FTNF Acquisition Agreement.


 


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(h)           In the
event of any dispute arising in relation to this Section 12.11, the parties
agree that the resolution of such dispute shall be resolved in accordance with
the procedures set forth in Section 13.13 hereof.


 


SECTION
13.         MISCELLANEOUS.


 


13.1           Law
Governing. This Agreement shall be construed under and governed by the
internal Laws of the State of Delaware without regard to its conflict of laws
provisions.


 


13.2           Maximum
Rate. Anything herein to the contrary notwithstanding, if during any period
for which interest is computed hereunder, the applicable interest rate,
together with all fees, charges and other payments which are treated as
interest under applicable law, as provided for herein, would exceed the maximum
rate of interest which may be charged, contracted for, reserved, received or
collected by any Seller Entity in connection with this Agreement under
applicable law (the “Maximum Rate”), the Person shall not be obligated
to pay, and such recipient shall not be entitled to charge, collect, receive,
reserve or take, interest in excess of the Maximum Rate, and during any such
period the interest payable hereunder shall be limited to the Maximum Rate.


 


13.3           Bulk
Sales Waiver. Buyer hereby waives compliance by the Seller Entities within
any applicable bulk sales legal requirements in connection with the
transactions contemplated hereby.


 


13.4           Notices.
Any notice, request, demand other communication required or permitted hereunder
shall be in writing and shall be deemed to have been given (i) if
delivered or sent by facsimile transmission, upon acknowledgment of receipt by
the recipient, (ii) if sent by an internationally recognized overnight courier,
properly addressed with postage prepaid, on the next business day (or Saturday
if sent for Saturday delivery) or (iii) if sent by registered or certified
mail, upon the sooner of receipt or the expiration of three (3) days after
deposit in United States post office facilities properly addressed with postage
prepaid. Notice to any Seller Entity (if given in accordance with this Section
13.4) shall be deemed notice to all Seller Entities. All notices will be sent
to the addresses set forth below or to such other address as such party may
designate by notice to each other party hereunder:


 


If to Buyer:


 


Inverness Medical
Innovations, Inc.

51 Sawyer Road, Suite 200

Waltham, MA 02453

Attn:  General Counsel

Facsimile Number (781) 647-3939


 


67

















 


with a copy (which
shall not constitute notice) to:


 


Goodwin Procter LLP

Exchange Place

Boston, MA 02109

Attn:  Scott F. Duggan

Facsimile Number (617) 523-1231


 


If to the Seller
Entities or the Management Team:


 


Acon Laboratories, Inc.


4108 Sorrento Valley
Boulevard

San Diego, CA 92121


Attn: Steven Frankel


Facsimile Number: (858)
535-2039


 


with a copy (which
shall not constitute notice) to:


 


Morrison & Foerster
LLP 

12531 High Bluff Drive, Suite 100 

San Diego, California 92130


Attn: Steven G. Rowles


Facsimile Number: (858)
523-2810


 


Any notice given
hereunder may be given on behalf of any party by its counsel or other
authorized representative.


 


13.5           Entire
Agreement. This Agreement, including the Schedules and Exhibits referred to
herein, the Ancillary Agreements and the other writings specifically identified
herein or contemplated hereby or delivered in connection with the transactions
contemplated hereby, is complete, reflects the entire agreement of the parties
with respect to its subject matter, and supersedes all previous written or oral
negotiations, commitments and writings, including, without limitation, the
Second Territory Letter Agreement.


 


13.6           Assignability.
This Agreement shall be assignable, in whole or in part, by Buyer to any direct
or indirect subsidiary of Buyer although no such assignment shall relieve Buyer
of any liabilities or obligations under this Agreement. As contemplated by
Section 1.11 hereof, in the event an assignment of certain of Buyer’s rights
hereunder is reasonably necessary in order to receive the consent of any
Governmental Authority to the transactions contemplated hereby in a
jurisdiction listed on Schedule 7.2 hereto, the Buyer may so assign as and
to the extent reasonably necessary to receive such consent and the parties
hereto shall use commercially reasonable efforts to effect such assignment.
Neither this Agreement nor any right or obligation hereunder may be assigned or
delegated by the Seller Entities without the prior written consent of Buyer in
its sole discretion; provided, however, that the Seller Entities
may freely assign or pledge their rights to payment hereunder to an Affiliate
of the Seller Entities if (1) any such assignment, pledge, or issuance of
Common Stock, complies in with all applicable


 


68

















 


Laws, including all applicable foreign, federal and state securities
Laws; (2) any such assignment, pledge or issuance of Common Stock, can be made
without registration under applicable foreign, federal or state securities
laws; (3) any such assignment, pledge or issuance of Common Stock, does not
require any filing with any Governmental Agency pursuant to the HSR Act; (4)
upon any such assignment, pledge or issuance of Common Stock, such party
becomes a party to the Investor Rights Agreement; and (5) such party becomes a
party hereto by execution of a Joinder Agreement in the form attached hereto to
the extent of the consideration so assigned, pledged or issued to such party.
This Agreement and the obligations of the parties hereunder shall be binding
upon and enforceable by, and shall inure to the benefit of, the parties hereto
and their respective successors, executors, administrators, estates, heirs and
permitted assigns, and no others. Notwithstanding anything herein to the
contrary, Buyer, without the prior consent of the Seller Entities, may assign
this Agreement and its rights and benefits hereunder and may delegate its
duties hereunder to lenders providing financing to the Buyer and/or any of its
Affiliates.


 


13.7           Publicity
and Disclosures. None of the Seller Entities, Buyer or any of their
respective subsidiaries or Affiliates shall issue or cause the publication of
any press release or other announcement or disclosure (including, without
limitation, any such announcement or disclosure to employees or customers of
the Seller Entities) with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of Buyer, in the case of
a desired press release or announcement by the Seller Entities, or of the Seller
Entities in the case of a desired press release or announcement by Buyer, in
any such case which consent shall not be unreasonably withheld, conditioned or
delayed. Notwithstanding the foregoing, the Seller Entities and Buyer or an
Affiliate may release such disclosures as are required by any applicable Law or
regulation, including pursuant to applicable requirements of the securities
laws or any stock exchange (including the American Stock Exchange) or
self-regulatory organization or any listing agreement with the foregoing, in
each case so long as written notice is given to the Seller Entities at least
twenty-four (24) hours prior to any such disclosure. Solely for purposes of
this Section 13.7, consent of ACON Labs shall represent consent of the Seller Entities.


 


13.8           Captions
and Gender. The captions in this Agreement are for convenience only and
shall not affect the construction or interpretation of any term or provision
hereof. The use in this Agreement of the masculine pronoun in reference to a
party hereto shall be deemed to include the feminine or neuter pronoun, as the
context may require.


 


13.9           Monetary
Amounts. All references to monetary amounts, unless otherwise specified to
the contrary, are expressed in United States dollars.


 


13.10         Certain
Definitions. For purposes of this Agreement, the term:


 


(a)           “Affiliate”
(whether or not such word has an initial capital) of a person shall mean a
person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the first
mentioned person;


 


(b)           “control”
(including the terms “controlled by” and “under common control with”)
means the possession, directly or indirectly or as trustee or executor, of the
power to


 


69

















 


direct or cause
the direction of the management policies of a person, whether through the
ownership of stock, as trustee or executor, by contract or credit arrangement
or otherwise;


 


(c)           “person”
means an individual, corporation, partnership, association, limited liability
company, trust or any unincorporated organization; and


 


(d)           “subsidiary”
means any Affiliate of a person that is controlled by such person.


 


13.11         Execution
in Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which shall constitute
one and the same document. The delivery of a counterpart hereto by facsimile or
other electronic transmission shall be deemed an original.


 


13.12         Amendments;
Waivers. This Agreement may not be amended or modified, nor may compliance
with any condition or covenant set forth herein be waived, except by a writing
duly and validly executed by each of the parties hereto, or, in the case of a
waiver, the party waiving compliance. For purposes of the foregoing,  the consent or waiver of any provision by any
Seller Entity shall be deemed consent by all Seller Entities. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party of
any such right, power or privilege, or any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege.


 


13.13         Dispute
Resolution. If a dispute arises out of, relates to, or is connected with
this Agreement, or the breach thereof, and if the dispute cannot be settled
through negotiation, the parties agree first to try in good faith to settle the
dispute by mediation in accordance with the International Mediation Rules of
the International Centre for Dispute Resolution (“ICDR”) before
resorting to arbitration, litigation, or other dispute resolution procedure.
The mediation will be held in Chicago, Illinois. The mediation will be
conducted by a single mediator. The mediation will take place within thirty
(30) calendar days of the appointment of a mediator. Within five (5) calendar
days of the submission of a written demand for mediation by either party, the
parties will exchange lists of three (3) proposed mediators. The parties will
have five (5) calendar days to make any good faith objection to any of the
proposed mediators. The resulting list of proposed mediators will be submitted
to the ICDR and, within five (5) business days, the ICDR will appoint one of
the proposed mediators. Upon the lapse of the thirty (30) days, either party
may require that the parties proceed with the arbitration, in lieu of
mediation.


 


Except with respect to
injunctive relief, which may be sought in a court of competent jurisdiction, as
more specifically set forth below, and except as otherwise expressly provided
for in Sections 3.4 and 3.5 with respect to financial and accounting
disputes, all disputes, claims, or controversies arising out of or relating to,
or in connection with this Agreement or any other agreement executed and
delivered pursuant to this Agreement or the negotiation, validity or
performance hereof and thereof or the transactions contemplated hereby and
thereby that are not resolved by mutual agreement shall be resolved solely and
exclusively by binding arbitration to be conducted before the ICDR or its
successor. The arbitration shall be held in Chicago, Illinois before a single
arbitrator and shall be conducted in accordance with the rules and regulations


 


70

















 


promulgated by the ICDR
unless specifically modified herein. Within five (5) business days of the
submission of a written demand for arbitration, each party may submit the names
of three (3) proposed arbitrators to the ICDR. Within
five (5) business days of receiving the names of each parties’
proposed arbitrators, the ICDR shall send simultaneously to each party to the
dispute an identical list of ten (10) names of persons to be chosen as an
arbitrator for the dispute. This list shall include the
six (6) arbitrator names provided by the parties, and
four (4) names chosen by the ICDR. Each party shall have
five (5) business days from the transmittal date in which to strike
up to four (4) names objected to, number the remaining names in order of
preference, and return the list to the ICDR. From among the persons who have
been approved on both lists, and in accordance with the designated order of
mutual preference to the extent possible, the ICDR will appoint one of the
proposed arbitrators within five (5) business days of receipt of the ranked
list from the parties. The arbitrator shall apply the substantive laws of the
State of Delaware without regard to conflicts of laws principles. The
interpretation and enforcement of this Section, and any order or award entered
hereunder, shall be governed by the Federal Arbitration Act, without reference
to the Delaware Uniform Arbitration Act.


 


The parties covenant and
agree that the arbitration hearing shall commence within six (6) months of the
date on which the arbitrator is appointed. In connection with the arbitration
proceeding, the arbitrator shall have the power to order the production of
documents by each party and any third-party witnesses. In addition, each party
may take up to three depositions as of right, and the arbitrator may in his or
her discretion allow additional depositions upon good cause shown by the moving
party. However, the arbitrator shall not have the power to order the answering
of interrogatories or the response to requests for admission. In connection
with any arbitration, each party shall provide to the other, no later than
fifteen (15) days before the date of the arbitration, the identity of all
persons that may testify at the arbitration and a copy of all documents that
may be introduced at the arbitration, considered by the arbitrator, or used by
a party’s witness, or used or considered by any expert. The arbitrator’s
decision and award shall be made and delivered within eight (8) months of the
date on which the arbitrator is appointed. The arbitrator’s decision shall set
forth a reasoned basis for any award of damages or finding of liability. The
arbitrator shall not have the power to award damages in excess of actual
compensatory damages and shall not multiply actual damages or award punitive
damages or any other damages that are specifically excluded under this
Agreement, and each party hereby irrevocably waives any claim to such damages.
The arbitrator, however, is authorized to award declaratory relief, regardless
of whether the request for declaratory relief involves an actual use or
controversy. The arbitrator shall, upon a finding that it is impracticable to
meet one or more of the deadlines set forth in this Section consistent with his
or her primary obligation justly to determine the controversy before him or her
in a timely and reasonable manner, have discretion to alter such deadlines.


 


The parties covenant and
agree that they will participate in the arbitration in good faith, that they
will share equally the fees and expenses of the International Centre for
Dispute Resolution and that they will each bear their own attorneys’ fees and
expenses, except as otherwise provided herein. The arbitrator may in his or her
discretion assess costs and expenses (including the reasonable attorneys’ fees
and expenses of the prevailing party) against any party to a proceeding. Any
party unsuccessfully refusing to comply with an order of the arbitrators shall
be liable for costs and expenses, including attorneys’ fees, incurred by the
other party in


 


71

















 


enforcing the award. This
Section 13.13 applies equally to requests for temporary, preliminary or
permanent injunctive relief, except that in the case of temporary or
preliminary injunctive relief any party may proceed in court without prior
arbitration for the limited purpose of avoiding immediate and irreparable harm.


 


The parties submit to the
non-exclusive jurisdiction of any state or federal court located in the State
of Illinois, the United States of America, for the resolution of any dispute or
enforcement of any right arising out of or relating to this Agreement,
including enforcement of this agreement to arbitrate and confirmation or
enforcement of any award rendered by the arbitrator, and the parties waive any
objection to the venue, personal jurisdiction, or convenience as a forum of
these courts for such purpose. The decision of the arbitrator shall be final
and binding on the parties and enforceable in accordance with the New York
Convention on the Recognition and Enforcement of Arbitral Awards.


 


Each of the parties
hereto hereby consents to service of process by registered mail at the address
to which notices are to be given. Each of the parties hereto agrees that its or
his submission to jurisdiction and its or his consent to service of process by
mail are made for the express benefit of the other parties hereto.


 


13.14         Fees
and Expenses. Except as otherwise expressly provided herein to the
contrary, each of parties hereto will bear its own expenses in connection with
the negotiation and the consummation of the transactions contemplated by this
Agreement and the agreements entered into in connection herewith. No expenses
of the Seller Entities, relating in any way to the purchase and sale of the
Business, the Transferred Assets or the New Facility Equity Interests hereunder
and the transactions contemplated hereby, including without limitation legal,
accounting or other professional expenses, shall in any way be charged to or
paid by Buyer, or accrued by or reflected in any account of the Seller Entities
as of the Closing being assumed by Buyer as an Assumed Liability.


 


13.15         Equitable
Relief. The Seller Entities acknowledge and agree that the Business is
unique and that the damages that may result from the Seller Entities’ failure
to consummate the transactions contemplated by this Agreement and that damages
at law would be inadequate for such failure or breach. Accordingly, the Seller
Entities acknowledge that Buyer will be entitled to specific performance, an
injunction or other appropriate equitable relief in connection with any such
failure or breach. The Seller Entities further acknowledge and agree that this
Section 13.15 shall not, and shall not be deemed to, limit in any way any other
rights or remedies which Buyer may have at law or otherwise due to such failure
or breach.


 


13.16         Further
Assurances. The Seller Entities shall, and shall cause each of their
Affiliates, from time to time after the Closing, at the request of the Buyer
and without further consideration, execute and deliver further instruments or
documents to take such other action as the Buyer may reasonably require to more
effectively transfer and assign to the Buyer the Business and the Transferred
Assets purchased hereunder and all rights thereto and to fully implement the
provisions of this Agreement and otherwise facilitate the consummation of the
transactions contemplated by this Agreement.


 


72

















 


[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]


 


73

















 


IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed as of the date first
set forth above.


 


	
   

  	
  BUYER:

  
	
   

  	
   

  
	
   

  	
  INVERNESS MEDICAL
  INNOVATIONS,

  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


 


(signatures continued)


 


[SIGNATURE
PAGE TO ACQUISITION AGREEMENT]


 


74

















 


	
   

  	
  SELLER ENTITIES:

  
	
   

  	
   

  
	
   

  	
  ACON LABORATORIES, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AZURE INSTITUTE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LBI INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OAKVILLE HONG KONG CO.,
  LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  ACON BIOTECH (HANGZHOU)
  CO.,

  LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PARENT:

  
	
   

  	
   

  	
   

  
	
   

  	
  KARSSON OVERSEAS, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


[SIGNATURE
PAGE TO ACQUISITION AGREEMENT]


 

















 


JOINDER AGREEMENT(26)


 


The undersigned each hereby agrees to be bound by the terms of, and
hereby become a party to, the Acquisition Agreement, dated as of           
       , 200    by and among
the Buyer and the Seller Entities solely for the purpose and to the extent
necessary to guarantee the Seller Entities’ indemnification obligations set
forth in Section 11 of the Acquisition Agreement such that the Buyer shall be
able to recover from either of the undersigned any amounts it is entitled to
under Section 11. The liability of the undersigned under such guarantee shall
be limited to the amount of cash and Common Stock (valued at the Reference
Price) distributed to the undersigned by any of the Seller Entities.


 


IN WITNESS WHEREOF, this
JOINDER AGREEMENT has been duly executed by or on behalf of the undersigned, as
a sealed instrument under the laws of the State of Delaware, as of the date
below written.


 


 


	
   

  	
  Signature:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Print Name) 

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date: 

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Accepted:

  
	
   

  	
   

  	
   

  
	
   

  	
  INVERNESS MEDICAL
  INNOVATIONS,

  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  
						



 






(26)         Joinder Agreement is to
be signed on the execution date of the acquisition agreement by Karsson and the
management team.


 

















 


EXHIBIT B


 


Dispute Resolution Provisions


 


If a dispute arises out of, relates to, or is
connected with this Agreement, or the breach thereof, and if the dispute cannot
be settled through negotiation, the parties agree first to try in good faith to
settle the dispute by mediation in accordance with the International Mediation
Rules of the International Centre for Dispute Resolution (“ICDR”) before
resorting to arbitration, litigation, or other dispute resolution procedure.
The mediation will be held in Chicago, Illinois. The mediation will be
conducted by a single mediator. The mediation will take place within
thirty (30) calendar days of the appointment of a mediator. Within
five (5) calendar days of the submission of a written demand for
mediation by either party, the parties will exchange lists of
three (3) proposed mediators. The parties will have five (5) calendar days to make
any good faith objection to any of the proposed mediators. The resulting list
of proposed mediators will be submitted to the ICDR, and, within five (5) business days, the ICDR will
appoint one of the proposed mediators. Upon the lapse of the thirty (30) days,
either party may require that the parties proceed with the arbitration, in lieu
of mediation.


 


Except
with respect to injunctive relief, which may be sought in a court of competent
jurisdiction, as more specifically set forth below, all disputes, claims, or
controversies arising out of or relating to, or in connection with this
Agreement or any other agreement executed and delivered pursuant to this
Agreement or the negotiation, validity or performance hereof and thereof or the
transactions contemplated hereby and thereby that are not resolved by mutual
agreement shall be resolved solely and exclusively by binding arbitration to be
conducted before the ICDR or its successor. The arbitration shall be held in
Chicago, Illinois before a single arbitrator and shall be conducted in
accordance with the rules and regulations promulgated by the International
Centre for Dispute Resolution unless specifically modified herein.


 


Within
five (5) business days of the
submission of a written demand for arbitration, each party may submit the names
of three (3) proposed arbitrators to the ICDR. Within
five (5) business days of receiving the names of each parties’
proposed arbitrators, the ICDR shall send simultaneously to each party to the
dispute an identical list of ten (10) names of persons to be chosen as an
arbitrator for the dispute. This list shall include the
six (6) arbitrator names provided by the parties, and
four (4) names chosen by the ICDR. Each party shall have
five (5) business days from the transmittal date in which to strike
up to four (4) names objected to, number the remaining names in order of
preference, and return the list to the ICDR. From among the persons who have
been approved on both lists, and in accordance with the designated order of mutual preference
to the extent possible, the ICDR will appoint one of the proposed arbitrators
within five (5) business days of receipt of the ranked list from the parties.


 


The
arbitrator shall apply the substantive laws of the State of Delaware without
regard to conflicts of laws principles. The interpretation and enforcement of
this Section, and any order or award entered hereunder, shall be governed by
the Federal Arbitration Act, without reference to the Delaware Uniform
Arbitration Act.


 


The
parties covenant and agree that the arbitration hearing shall commence within
six (6) months of the date on which the arbitrator is appointed. In connection
with the arbitration proceeding,


 

















 


the
arbitrator shall have the power to order the production of documents by each
party and any third-party witnesses. In addition, each party may take up to
three depositions as of right, and the arbitrator may in his or her discretion
allow additional depositions upon good cause shown by the moving party.
However, the arbitrator shall not have the power to order the answering of
interrogatories or the response to requests for admission. In connection with
any arbitration, each party shall provide to the other, no later than fifteen
(15) days before
the date of the arbitration, the identity of all persons that may testify at
the arbitration and a copy of all documents that may be introduced at the
arbitration, considered by the arbitrator, used
by a party’s witness, or used or considered by any expert. The arbitrator’s decision and award shall be made
and delivered within eight (8) months of the date on which the arbitrator is
appointed. The arbitrator’s decision shall set forth a reasoned basis for any
award of damages or finding of liability. The arbitrator shall not have the
power to award damages in excess of actual compensatory damages and shall not
multiply actual damages or award punitive damages or any other damages that are
specifically excluded under this Agreement, and each party hereby irrevocably
waives any claim to such damages. The arbitrator, however, is authorized to
award declaratory relief, regardless of whether the request for declaratory
relief involves an actual case or controversy. The arbitrator shall, upon a
finding that it is impracticable to meet one or more of the deadlines set forth
in this Section consistent with his or her primary obligation justly to
determine the controversy before him or her in a timely and reasonable manner,
have discretion to alter such deadlines.


 


The
parties covenant and agree that they will participate in the arbitration in
good faith, that they will share equally the fees and expenses of the
International Centre for Dispute Resolution and that they will each bear their
own attorneys’ fees and expenses, except as otherwise provided herein. The
arbitrator may in his or her discretion assess costs and expenses (including
the reasonable attorneys’ fees and expenses of the prevailing party) against
any party to a proceeding. Any party unsuccessfully refusing to comply with an
order of the arbitrators shall be liable for costs and expenses, including
attorneys’ fees, incurred by the other party in enforcing the award. The
provisions of this Exhibit B apply equally to requests for temporary,
preliminary or permanent injunctive relief, except that in the case of
temporary or preliminary injunctive relief any party may proceed in court
without prior arbitration for the limited purpose of avoiding immediate and
irreparable harm.


 


The
parties submit to the non-exclusive jurisdiction of any state or federal court
located in the State of Illinois, the United States of America, for the
resolution of any dispute or enforcement of any right arising out of or
relating to this Agreement, including enforcement of this agreement to
arbitrate and confirmation or enforcement of any award rendered by the
arbitrator, and the parties waive any objection to the venue, personal
jurisdiction, or convenience as a forum of these courts for such purpose. The
decision of the arbitrator shall be final and binding on the parties and
enforceable in accordance with the New York Convention on the Recognition and
Enforcement of Arbitral Awards.


 


Each of the parties hereto hereby consents to service
of process by registered mail at the address to which notices are to be given. Each
of the parties hereto agrees that its or his submission to jurisdiction and its
or his consent to service of process by mail are made for the express benefit
of the other parties hereto.