Document:

EXHIBIT 10.4

 

OPTION AGREEMENT

 

Terms and Conditions

 

Term.  This Stock Option shall terminate and no
portion will be exercisable on the earliest of the following:  (i) the expiration date, (ii) 90
days after the Optionee ceases to be an employee of the Company or one of its
subsidiaries for reasons other than dismissal for Cause, disability or death, (iii) the
date the Optionee ceases to be an employee of the Company or one of its
subsidiaries if such termination of employment is because of dismissal for Cause,
(iv) 12 months from the date the Optionee ceases to be an employee if such
termination of employment is because the Optionee has become permanently
disabled (within the meaning of Section 22(e)(3) of the Code), or (v) 12
months from the date of death in the event of the death of the Optionee.  For purposes hereof, “Cause” shall mean a
determination by the Committee that the Optionee shall be dismissed as a result
of (i) any material breach by the Optionee of any agreement between the
Optionee and the Company; (ii) the conviction of, indictment for or plea
of nolo contendere by the Optionee to a felony or a crime involving moral
turpitude; or (iii) any material misconduct or willful and deliberate
non-performance (other than by reason of disability) by the Optionee of the
Optionee’s duties to the Company.  In the
case of a termination of employment, all vesting shall cease, and only the
portion of the Stock Option that has become vested and exercisable may be
exercised.

 

Manner of Exercise.

 

From time to time on or prior to the expiration of
this Stock Option, the Optionee may give notice to the Company of his election
to purchase some or all of the shares of Ezenia! Inc. (“Stock”) purchasable at
the time of such notice.  This notice
shall specify the number of shares of Stock to be purchased.

 

Payment
of the purchase price for the shares may be made by one or more of the
following methods:  (i) in cash, by
certified or bank check or other instrument acceptable to the Committee; or
(ii) by the Optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company cash or a check payable and acceptable to the Company to
pay the option purchase price, provided that in the event the Optionee chooses
to pay the option purchase price as so provided, the Optionee and the broker
shall comply with such procedures and enter into such agreements of indemnity
and other agreements as the Company shall prescribe as a condition of such payment
procedure.  Payment instruments will be
received subject to collection.

 

The shares of Stock
purchased upon exercise of this Stock Option shall be transferred to the
Optionee on the records of the Company or of the transfer agent upon compliance
to the satisfaction of the Committee with all requirements under applicable
laws or regulations in connection with such issuance and with the requirements
hereof and of the Plan.  The
determination of the Committee as to such compliance shall be final and binding
on the Optionee.  The Optionee shall not
be deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares of Stock subject to this Stock Option unless and until
this Stock Option shall have been exercised pursuant to the terms hereof, the
Company or the transfer agent shall have transferred the shares to the
Optionee, and the Optionee’s name shall have been entered as the stockholder of
record on the books of the Company. 
Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such shares of Stock.

 

Incorporation of Plan.  Notwithstanding anything herein to the
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Ezenia! Inc. 2004 Equity Incentive Plan.  Capitalized terms in this Agreement shall
have the meaning specified in the Plan, unless a different meaning is specified
herein.

 

Transferability. 
This Agreement is personal to the Optionee, is non-assignable and is
not transferable in any manner, by operation of law or otherwise, other than by
will or the laws of descent and distribution. 
This Stock Option is exercisable, during the Optionee’s lifetime, only
by the Optionee, and thereafter, only by the Optionee’s legal representative or
legatee.

 

Tax Withholding.  The Optionee shall, not later than the date
as of which the exercise of this Stock Option 

 

1

 

becomes
a taxable event for Federal income tax purposes, pay to the Company or make
arrangements satisfactory to the Committee for payment of any Federal, state,
and local taxes required by law to be withheld on account of such taxable
event.  The Company shall have the
authority to cause the minimum required tax withholding obligation to be
satisfied, in whole or in part, by withholding from shares of Stock to be
issued to the Optionee a number of shares of Stock with an aggregate Market
Value that would satisfy the withholding amount due.

 

No Obligation to Continue Employment.  Neither the Company nor any of its
subsidiaries is obligated by or as a result of the Plan or this Agreement to
continue the Optionee in employment and neither the Plan nor this Agreement
shall interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of the Optionee at any time.

 

2Exhibit 10.1

 

Execution Copy

 

SHARE PURCHASE AGREEMENT

 

among

 

PET LANE, INC.,

 

USANA HEALTH SCIENCES, INC.

 

and

 

YAOLAN LTD.

 

Dated: August 16, 2010

 

 

TABLE OF
CONTENTS

 

	
   

  	
   

  	
  Pages

  
	
   

  	
   

  	
   

  
	
  SECTION 1.

  	
  SALE AND PURCHASE OF SHARES

  	
  1

  
	
  1.1

  	
  Sale and Purchase of Shares

  	
  1

  
	
  1.2

  	
  Consideration

  	
  2

  
	
  1.3

  	
  Effectiveness of Registration Statement

  	
  4

  
	
  1.4

  	
  Purchase Price Adjustments

  	
  5

  
	
  SECTION 2.

  	
  THE CLOSING

  	
  6

  
	
  2.1

  	
  Time and Place of Closing

  	
  6

  
	
  2.2

  	
  Closing Deliveries by Seller

  	
  6

  
	
  2.3

  	
  Closing Deliveries by the Buyer

  	
  8

  
	
  SECTION 3.

  	
  REPRESENTATIONS AND WARRANTIES OF SELLER AND BABYCARE HOLDINGS

  	
  8

  
	
  3.1

  	
  Organization, Standing and Qualification of Seller

  	
  8

  
	
  3.2

  	
  Authorization of Seller

  	
  9

  
	
  3.3

  	
  Ownership and Transfer of Shares

  	
  9

  
	
  3.4

  	
  Brokers/Finders

  	
  10

  
	
  3.5

  	
  Organization, Standing and Qualification of BabyCare Companies

  	
  10

  
	
  3.6

  	
  Capitalization

  	
  10

  
	
  3.7

  	
  Subsidiaries

  	
  11

  
	
  3.8

  	
  Financial Statements

  	
  11

  
	
  3.9

  	
  Liabilities

  	
  11

  
	
  3.10

  	
  Title to Properties and Assets

  	
  12

  
	
  3.11

  	
  Proprietary Assets

  	
  12

  
	
  3.12

  	
  Material Contracts and Obligations

  	
  13

  
	
  3.13

  	
  Proceedings

  	
  15

  
	
  3.14

  	
  Compliance

  	
  15

  
	
  3.15

  	
  SFDA Regulatory Matters

  	
  16

  
	
  3.16

  	
  Compliance with Other Instruments and Agreements

  	
  18

  
	
  3.17

  	
  Disclosure

  	
  19

  
	
  3.18

  	
  Insurance

  	
  19

  
	
  3.19

  	
  Activities Since Balance Sheet Date

  	
  19

  

 

i

 

	
  3.20

  	
  Environmental Issues

  	
  20

  
	
  3.21

  	
  Customers,
  Distributors and Suppliers

  	
  21

  
	
  3.22

  	
  Tax Matters

  	
  22

  
	
  3.23

  	
  Interested Party Transactions

  	
  23

  
	
  3.24

  	
  Employee Matters

  	
  23

  
	
  3.25

  	
  No Other Business

  	
  24

  
	
  3.26

  	
  Minute Books

  	
  24

  
	
  3.27

  	
  Brokers/Finders

  	
  24

  
	
  3.28

  	
  Obligations of Management

  	
  24

  
	
  3.29

  	
  Insolvency

  	
  24

  
	
  3.30

  	
  Full Disclosure

  	
  25

  
	
  SECTION 4.

  	
  REPRESENTATIONS AND WARRANTIES OF BUYER AND USANA

  	
  25

  
	
  4.1

  	
  Organization and Good Standing

  	
  25

  
	
  4.2

  	
  Authority

  	
  25

  
	
  4.3

  	
  No Conflicts

  	
  25

  
	
  4.4

  	
  Valid Issuance of Consideration Shares

  	
  26

  
	
  4.5

  	
  Financial Capacity

  	
  26

  
	
  4.6

  	
  Brokers

  	
  26

  
	
  4.7

  	
  Full Disclosure

  	
  26

  
	
  SECTION 5.

  	
  ADDITIONAL AGREEMENTS

  	
  26

  
	
  5.1

  	
  Non-Solicitation

  	
  26

  
	
  5.2

  	
  Confidentiality

  	
  27

  
	
  5.3

  	
  Termination of Trademark License Agreement

  	
  28

  
	
  SECTION 6.

  	
  CONDITIONS TO CLOSING

  	
  28

  
	
  6.1

  	
  Conditions Precedent to Obligations of the Buyer

  	
  28

  
	
  6.2

  	
  Conditions Precedent to Obligations of Seller

  	
  30

  
	
  SECTION 7.

  	
  INDEMNIFICATION

  	
  30

  
	
  7.1

  	
  Survival of Representations and Warranties

  	
  30

  
	
  7.2

  	
  Indemnification by Seller

  	
  31

  
	
  7.3

  	
  Indemnification by the Buyer and USANA

  	
  31

  
	
  7.4

  	
  Procedures for Indemnification

  	
  31

  
	
  7.5

  	
  Limitations on Seller’s Indemnification
  Obligations

  	
  33

  
	
  7.6

  	
  Limitations on Buyer’s Indemnification Obligations

  	
  33

  

 

ii

 

	
  7.7

  	
  Remedies Exclusive

  	
  34

  
	
  SECTION 8.

  	
  MISCELLANEOUS PROVISIONS

  	
  34

  
	
  8.1

  	
  Amendments and Waivers

  	
  34

  
	
  8.2

  	
  Notices

  	
  34

  
	
  8.3

  	
  Governing Law

  	
  35

  
	
  8.4

  	
  Assignments Prohibited; Successors and Assigns

  	
  35

  
	
  8.5

  	
  No Third-Party Beneficiaries

  	
  35

  
	
  8.6

  	
  Counterparts

  	
  35

  
	
  8.7

  	
  Severability

  	
  36

  
	
  8.8

  	
  Entire Agreement

  	
  36

  
	
  8.9

  	
  Delays or Omissions; Waivers

  	
  36

  
	
  8.10

  	
  Interpretation

  	
  36

  
	
  8.11

  	
  Construction

  	
  37

  
	
  8.12

  	
  Expenses of the Parties

  	
  37

  
	
  8.13

  	
  Dispute Resolution; Venue; Service of Process

  	
  37

  
	
  8.14

  	
  Further Assurances

  	
  37

  
	
  8.15

  	
  Time of the Essence

  	
  37

  
	
   

  	
   

  	
   

  
	
  Schedule A-1 Details of Collective Accounts

  	
   

  
	
  Schedule A-2 Schedule of Designated Certificate Holders

  	
   

  
	
  Schedule B List of Key Employees

  	
   

  
	
  Schedule C List of Major Shareholders

  	
   

  
	
  Exhibit A Definitions

  	
   

  
	
  Exhibit B Form of Escrow Agreement

  	
   

  
	
  Exhibit C Form of BabyCare Holdings’ Registered Agent’s Certificate

  	
   

  
	
  Exhibit D Form of Seller’s Waivers

  	
   

  
	
  Exhibit E Form of YNML Technology Ltd. Marketing Services
  Agreement

  	
   

  
	
  Exhibit F Form of Guarantee Agreement

  	
   

  
	
  Exhibit G Reference Balance Sheet

  	
   

  
	
  Exhibit H Form of  Representation
  Letter

  	
   

  

 

iii

 

SHARE
PURCHASE AGREEMENT

 

THIS
SHARE PURCHASE AGREEMENT, dated as of August 16, 2010 (this “Agreement”), is entered into among:

 

·      Pet Lane, Inc.,
a corporation incorporated under the laws of Delaware with its principal
address at 2291 Via De Mercados, Suite E, Concord, CA 94520, U.S.A. (the “Buyer”);

 

·      USANA Health
Sciences, Inc., a corporation incorporated under the laws of Utah with its
principal address at 3838 West Parkway Blvd, Salt Lake City, Utah 84037, USA (“USANA”)

 

·      YaoLan Ltd., an
exempted company incorporated under the laws of the Cayman Islands with its
registered address at the offices of Offshore Incorporations (Cayman) Limited,
Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand
Cayman, KY1-1112, Cayman Islands (the
“Seller”).

 

RECITALS

 

A.            The
Seller owns 62,461 ordinary
shares of BabyCare Holdings, par value of US$1.00 each,
which constitutes all of the issued, allotted and outstanding share capital of BabyCare Holdings (the “Shares”);

 

B.            The
Seller is the beneficial owner of all the Equity Interests in BabyCare via a
series of equity and contractual arrangements involving the Seller, the Buyer and BabyCare Holdings.

 

C.            Buyer is a wholly-owned
subsidiary of USANA.

 

D.            BabyCare is engaged in
direct selling business (the “Business”) in the territory of the PRC.

 

E.            The Seller desires to sell to the Buyer, and the Buyer desires to purchase from the
Seller, all of the Shares upon the terms and subject to the conditions set
forth herein.

 

F.             All capitalized terms used
in this Agreement are defined in Exhibit A hereto.

 

NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual representations, warranties, covenants and promises contained
herein, the adequacy and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

 

AGREEMENT

 

SECTION 1.  SALE
AND PURCHASE OF SHARES

 

1.1          Sale and Purchase of Shares.  Upon the terms and subject to the conditions
contained herein, and in reliance on the representations and warranties made by
the Buyer herein, 

 

 

on the Closing Date, the Seller agrees to sell to
the Buyer, and the Buyer agrees to purchase from the Seller all the Shares constituting all of the issued and outstanding shares in the
share capital of BabyCare Holdings, free and
clear of all Encumbrances.

 

1.2          Consideration.  Subject to the terms of this Agreement, as
full consideration for the sale, transfer, conveyance, and delivery of the
Shares and the execution and delivery of the Transaction Documents by the
Seller to the Buyer, the Buyer shall deliver to the Seller an aggregate
purchase price of no less than US$57,836,000 (the “Purchase
Price”), payable in the following manner:

 

(a)           Closing Payment.  In addition to any items the delivery of
which is made an express condition to the Buyer’s obligations at the Closing
pursuant to Section 2.2, and subject
to fulfillment, to the satisfaction of the Buyer on or prior to the Closing, or
waiver by the Buyer of each of the conditions set forth in Section 6, at the Closing, the Buyer shall pay and deliver the
Purchase Price to the Seller as follows:

 

(i)            Closing Cash
Payment.  The Buyer shall pay the amount
of the applicable Closing Cash Payment as indicated in Schedule A-1 to
the Seller by wire transfer of immediately available funds to the accounts
designated by the Seller in Schedule A-1 hereto (the “Collective Accounts”, and each, a “Collective
Account”).

 

(ii)           Consideration
Shares.  The Buyer shall deliver to the
Seller  certificates of USANA representing such number of Consideration Shares as
set forth against the name of the
Persons who are owners of the Seller and designated by the Seller in Schedule A-2
(the “Designated Certificate Holders”, and
each, a “Designated Certificate Holder”).  Each of such certificates shall bear the
following legend:

 

“THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “ACT”), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT AS TO THE SECURITIES UNDER SAID ACT, OR DELIVERY OF AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE
ACT OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144 UNDER THE ACT.”

 

(b)           Escrow Amount.

 

(i)            In addition to
the consideration provided in Section 1.2, as security for the
indemnification obligations of the Seller set forth in this Agreement and/or
any other Transaction Document, at the Closing, the Seller agrees that the
Buyer shall deliver the Escrow Amount to the Escrow Agent by wire transfer of
immediately available funds, which Escrow Amount shall be held in escrow for a
period of up to eighteen (18) months following the Closing in accordance with
the terms of an escrow agreement substantially in the form attached hereto as Exhibit B (the “Escrow Agreement”).  Unless
otherwise expressly stated hereunder, none of the

 

2

 

payments from the Escrow Amount shall be considered as liquidated damages for any breach
under this Agreement or any other Transaction Document.

 

(ii)           The Seller and
the Buyer agree that, in accordance with the Escrow Agreement, the Escrow Agent
shall release the Escrow Amount and any interest accrued thereon to the Seller on
the Survival Date, or such portion of the Escrow Amount in excess of the
aggregate amount of then-outstanding claims for indemnification made by all
Buyer Indemnified Persons against the Seller pursuant to Section 7
hereof; provided  however that no such release and payment shall
be made to the extent that the Escrow Amount would, following such release and
payment, be insufficient to satisfy any then-outstanding and unpaid claims for
indemnification made by a Buyer Indemnified Person against the Seller pursuant
to Section 7 hereof or any
then-outstanding payment that is demanded by Buyer pursuant to Section 1.4(d);
provided  further that to the extent any outstanding claim is
resolved in favor of the Seller, any amount of remaining Escrow Amount in
excess of any remaining unresolved claims or demanded payment shall be released
to the Seller immediately in accordance with the Escrow Agreement.

 

(iii)          Subject to the
foregoing, the Seller and the Buyer agree that the amounts in the Escrow Amount
shall be released to the Buyer to satisfy claims by the Buyer Indemnified
Persons when such claims become payable under Section 7 or any demand of payment by Buyer when such demand
of payment becomes payable under Section 1.4(d), and in accordance
with the Escrow Agreement.  The Seller
and the Buyer agree that they shall issue “joint instructions” (except that the
Escrow Agent shall immediately release the amount payable to the Buyer pursuant
to Section 1.4(d) solely upon the written instruction of the
Buyer) in order to effectuate the foregoing
releases and payments.

 

(iv)          Notwithstanding the
foregoing, the Seller and the Buyer agree that, in the event that the direct
selling license issued to BabyCare is cancelled or revoked by the PRC
Governmental Authority any time before the Survival Date and due to any reason
other than the acts of the Buyer, any BabyCare Company or USANA after the
Closing, the full amount of the Escrow Amount shall be released by the Escrow
Agent to the Buyer immediately upon receiving the notification of such
cancellation or revocation by BabyCare or the Buyer and the written instruction
of the Buyer delivered to the Escrow Agent.

 

(v)           The Seller and the Buyer agree to take any other
such actions, as may reasonably be required by the Escrow Agent or otherwise
under the Escrow Agreement in order to effectuate the foregoing
releases and payments.

 

(c)           Additional Cash
Payment.  Within two (2) Business
Days following the date of effectiveness of the Registration Statement, if the
Current Market Value of the Consideration Shares is less than US$12,836,000,
then the Buyer shall pay the Additional Cash Payment to the Seller by wire
transfer of immediately available funds to the Collective Account under the
name of YaoLan, Ltd.

 

(d)           Buyer’s Payment Obligation.  The Seller
hereby agrees that any payment made to the Seller by USANA on behalf of the
Buyer to fulfill the Buyer’s payment obligations 

 

3

 

under
this Agreement shall be deemed to be made by the Buyer itself pursuant to the
terms and conditions of this Agreement.

 

1.3          Effectiveness of Registration
Statement.

 

(a)           As soon as
practicable after the Closing, the Buyer shall cause USANA to prepare and file
with the U.S. Securities Exchange Commission (the “SEC”)
a registration statement registering the resale of all of the Consideration
Shares (the “Registration Statement”) under the
Securities Act of 1933, as amended (the “Securities Act”)
and in accordance with the following provisions of this Section 1.3.

 

(b)           The
Registration Statement shall be on Form S-3 or another appropriate form
permitting registration of the Consideration Shares, and the Buyer shall cause
USANA to use its commercially reasonable best efforts to cause the Registration
Statement to be declared effective under the Securities Act, as promptly as
practicable but in any event no later than the 120th day following
the Closing Date (or the next following Business Day if such date is not a Business
Day), and to keep such Registration Statement continuously effective under the
Securities Act until the earlier of (i) the resale of all of the
Consideration Shares in accordance with the Registration Statement and (ii) such
time as the Consideration Shares become eligible for resale pursuant to Rule 144
or any similar or analogous rule then in effect under the Securities Act,
but in no event later than the twelve (12) month anniversary of the Closing
Date (the “Effectiveness Period”). At the
time the Registration Statement is declared effective, the Designated Certificate Holders shall be named as selling
security holders in such Registration Statement and the related prospectus in
such a manner as, and to the extent necessary, to permit them to deliver such
prospectus to purchasers of the Consideration Shares in accordance with
applicable law. The Buyer shall not require the opinion of the Seller’s counsel before authorizing the transfer of the Consideration Shares or
the removal of the legends of restricted shares for resale pursuant to Rule 144
under the Securities Act or for distribution to partners or members of the Designated Certificate Holders.

 

(c)           Prior to the
effectiveness of the Registration Statement, the Designated
Certificate Holders and their Affiliates
shall be prohibited from doing anything, directly or indirectly, to influence
or manipulate the trading price of USANA’s common stock, including, without
limitation, through trading in USANA’s common stock or through offering,
seeking or proposing to acquire or sell USANA’s common stock, whether directly
or indirectly through a third party or through the use of derivative
instruments.

 

(d)           The Seller shall cause the Designated Certificate Holders, the BabyCare
Companies, and their respective Affiliates and Representatives to, (i) furnish in a timely manner to the Buyer upon the Buyer’s reasonable request such further
information, (ii) execute
and deliver to the Buyer such other
documents, and (iii) do such
other acts and things, all as the
Buyer may reasonably request for the purpose of
preparing and effectuating the Registration Statements as set forth above.

 

4

 

1.4          Purchase Price Adjustments.

 

(a)           As promptly as
practicable, but no later than ninety (90) days after the Closing Date, the
Buyer shall prepare and deliver to the Seller a written statement (the “Initial WC and Cash Statement”),
setting forth the Buyer’s determination of BabyCare’s Working Capital and Net
Cash as of the close of business on the Closing Date (such Working Capital and
Net Cash, respectively, the “Closing Date Working
Capital” and the “Closing Date Net Cash”)
prepared on the basis of, and using the same accounting policies, principles,
methodologies and preparations as, the Reference Balance Sheet.

 

(b)           The Seller
shall notify the Buyer in writing (the “Notice of Disagreement”)
within fifteen (15) Business Days after receiving the Initial WC and Cash
Statement if the Seller disagrees with the Buyer’s calculation of the Closing
Date Working Capital or the Closing Date Net Cash.  The Notice of Disagreement shall set forth in
reasonable detail the basis for such dispute, the dollar amounts involved and
the Seller’s good faith estimate of the Closing Date Working Capital or the
Closing Date Net Cash, as applicable.  If
the Seller does not deliver a Notice of Disagreement to the Buyer within such
fifteen (15) Business Day period, then the Initial WC and Cash Statement shall
be deemed to have been accepted by the Seller, shall become final and binding
upon the parties hereof and shall be deemed the Final WC and Cash Statement.

 

(c)           During the
thirty (30) Business Days immediately following the delivery of a Notice of
Disagreement, the Seller and the Buyer shall seek to resolve any differences
that they may have with respect to any matter specified in the Notice of
Disagreement.  If at the end of such
thirty (30) Business Day period the Seller and the Buyer have been unable to
agree upon a Final WC and Cash Statement, then the Seller and the Buyer shall
submit to the Independent Accounting Firm for review and resolution any and all
matters that remain in dispute with respect to the Notice of Disagreement.  The Buyer and the Seller shall cause the
Independent Accounting Firm to make a final determination (which determination
shall be binding on the parties hereto) of the Closing Date Working Capital or
the Closing Date Net Cash, as applicable, within thirty (30) Business Days from
such submission, and such final determination shall be deemed the Final WC and
Cash Statement.  The cost of the
Independent Accounting Firm’s review and determination shall be equally shared
by the parties.  During the thirty (30)
Business Day review by the Independent Accounting Firm, the Buyer and the
Seller will each make available to the Independent Accounting Firm such
individuals and such information, books and records as may be reasonably
required by the Independent Accounting Firm to make its final determination.

 

(d)           If (i) the
amount by which the Estimated Working Capital exceeds the amount of the Closing
Date Working Capital (as set forth in the Final WC and Cash Statement) (such
excess amount, the “WC Surplus”),
or (ii) the amount by which the Estimated Net Cash exceeds the amount of
the Closing Date Net Cash (as set forth in the Final WC and Cash Statement)
(such excess amount, the “Net Cash Surplus”),
then, within five (5) Business Days after the Final WC and Cash Statement
becomes or is deemed final and binding on the parties hereto, the Seller shall pay to the Buyer the WC Surplus or the Net Cash Surplus,
whichever is larger, together with interest accrued on such amount at the
Interest Rate from the Closing Date until the date of payment (collectively,
the “Adjustment Amount”), by wire transfer
of 

 

5

 

immediately available funds to the account
designated by the Buyer or from the Escrow
account, at the sole option of Buyer, provided that, no payment shall
be made pursuant to this subsection (d) if the Adjustment Amount is less
than US$100,000.

 

SECTION 2.  THE
CLOSING

 

2.1          Time and Place of Closing.  The closing of the purchase and sale provided
for in this Agreement (the “Closing”)
shall occur at the offices of Hogan Lovells
International LLP, Beijing, simultaneously with the execution of
this Agreement and the other agreements related to the transactions
contemplated hereby (the “Closing Date”).

 

2.2          Closing Deliveries by
Seller.  At the Closing, the Seller
shall deliver to the Buyer
each of the following items, all of which shall be in form and substance
reasonably acceptable to the Buyer.

 

(a)           (Good standing
certificates) a certificate of good standing of BabyCare
Holdings dated no earlier than ten (10) Business Days prior to the Closing
Date.

 

(b)           (Registered
agent’s certificate) a certificate of incumbency executed by BabyCare Holdings’ registered agent in the Cayman Islands, dated no
earlier than ten (10) Business Days prior to the Closing Date and in
substantially the form attached hereto as Exhibit C or other similar form that is acceptable to the
Buyer, attached with a true copy of each of the following items of BabyCare Holdings:

 

(i)            register of
members immediately prior to the Closing;

 

(ii)           register of
directors immediately prior to the Closing;

 

(iii)          register of
mortgages and charges immediately prior to the Closing; and

 

(iv)          applicable Constitutional Documents in effect immediately prior to the Closing.

 

(c)           (Corporate
resolutions) true copies of the board and shareholders resolutions, including
any class consents, of the Seller and BabyCare
Holdings, authorizing and approving, inter alia, (A) the Transactions; and
(B) the resignation and appointment of directors as contemplated
hereunder, certified by a director of the
Seller and BabyCare Holdings, as applicable.

 

(d)           (Intentionally Deleted)

 

(e)           (Consents) true
copies of duly executed Consents of all third parties required for the Seller
to consummate the Transaction, if any, in form and substance reasonably
satisfactory to the Buyer, including the
necessary Consents of the shareholders of the Seller in connection with the
consummation of the Transaction, unless such third party
has waived its consent rights in writing, certified by a director of the Seller.

 

6

 

(f)            (Governmental Approvals) true copies of all Governmental Approvals  necessary for the consummation of the Transactions
and the conduct of the Business, including but not limited to the Governmental Approvals
and Consents necessary for BabyCare’s
conduct of its direct selling business in the PRC as set forth in Section 6.1(e).

 

(g)           (Transaction Documents) each
Transaction Document, duly executed by each
party thereto (except the Buyer).

 

(h)           (Share
certificates) all original certificates issued by BabyCare
Holdings to the Seller, representing the total number of the Shares to be sold
by the Seller to the Buyer hereunder.

 

(i)            (Instruments of
transfer) instrument(s) of transfer with respect to the applicable number
of Shares to be sold to the Buyer hereunder, duly executed by the Seller.

 

(j)            (Updated
registers of members) a true copy of the updated register of members of BabyCare Holdings, certified by the registered office or a director
of BabyCare Holdings, showing all the Shares
have been sold and transferred by the Seller to the Buyer at the Closing.

 

(k)           (Updated
register of directors) a true copy of the updated register of directors of BabyCare Holdings, certified by the registered agent or a director of
BabyCare Holdings, showing such persons
designated by the Buyer having been appointed as the directors of BabyCare Holdings as of the Closing Date.

 

(l)            (Director
resignations) resignation letters of all the existing directors of each
BabyCare Company dated and effective on or prior to the Closing Date, and all
other documents and instruments duly executed to effect the change or
appointment of the directors of each BabyCare Company to such persons
designated by the Buyer, including release of claims from such existing
directors, reasonably acceptable to the Buyer.

 

(m)          (Employment
Agreement) the Employment Agreement duly executed by each Key Employee and the
applicable BabyCare Company.

 

(n)           (Intentionally Deleted)

 

(o)           (Seals and
chops; Books and Records) all seal and chops of each BabyCare Company,
including but not limited to common seal, company chop, finance chop and
contract chop (if any), and a list of all seals and chops belonging to each
BabyCare Company, certified by the President or Chief Executive Officer of the Seller, and all Books and Records of each BabyCare
Company.

 

(p)           (Change of bank
signatories) a true copy of the bank mandate or other equivalent item
evidencing the withdrawal of authorized signatory appointed or nominated by each
BabyCare Company prior to the Closing Date for purpose of operating its bank
account(s) and the appointment of such person(s) designated by the
Buyer as the sole and exclusive authorized signatory(ies) for such purpose.

 

7

 

(q)           (YNML Marketing Services Agreement)
the YNML Marketing Services
Agreement by and between BabyCare, Yaolan New Media Ltd. and YNML  in substantially the form of Exhibit E hereto duly
executed by each party thereto.

 

(r)            (Opinion of
Seller’s counsels) legal opinions from the
Seller’s Cayman Islands counsel addressed to the Buyer dated as of the
Closing, in form and substance satisfactory to the Buyer.

 

(s)            (Guarantee Agreement) the Guarantee Agreement(s) between the Buyer
and each of the shareholders of the Seller set forth in Schedule C (the “Major Shareholders”) in substantially the form of
Exhibit F hereto duly executed by each party thereto (except for the Buyer) (the “Guarantee Agreement”).

 

(t)            (Representation
Letter) The representation letter in substantially the form of Exhibit H
hereto duly executed by the Seller (the “Representation Letter”).

 

(u)           (Other
documents) such other certificates, instruments or documents required pursuant
to the provisions of this Agreement or otherwise necessary or appropriate to
transfer the Shares in accordance with the terms hereof and consummate the
Transaction, and to vest in the Buyer full and complete title to the Shares,
free and clear of all Encumbrances.

 

2.3          Closing Deliveries by the Buyer.  At the Closing, the Buyer shall deliver the
following items to the Seller:

 

(a)           (Purchase
Price)  the Closing Cash Payment and the
Consideration Shares to the Seller in accordance with Section 1.2(a) above;

 

(b)           (Escrow
Agreement)  the Escrow Agreement, duly
executed by the Buyer, to the Seller; and

 

(c)           (Other
documents) such other certificates, instruments or documents required pursuant
to the provisions of this Agreement or otherwise necessary or appropriate to
transfer the Shares in accordance with the terms hereof and consummate the
Transaction, and to vest in the Buyer full and complete title to the Shares,
free and clear of all Encumbrances.

 

SECTION 3.  REPRESENTATIONS
AND WARRANTIES OF SELLER AND BABYCARE HOLDINGS

 

Except
as set forth in the corresponding sections of the disclosure schedule of the Seller delivered to the Buyer concurrently with the execution and
delivery of this Agreement (the “Seller Disclosure Schedule”)
(provided, that if any fact or item disclosed in any section of the
Seller Disclosure Schedule shall be relevant to any other section of this
Agreement, then such fact or item shall be deemed to be disclosed with respect
to such other section of this Agreement, but only to the extent to which it is
readily apparent on its face that such fact or item relates), the Seller  hereby
represents and warrants to the Buyer that, as of the date hereof:

 

3.1          Organization, Standing and
Qualification of Seller.  The Seller is an exempted company duly
incorporated and in good standing under the laws of the Cayman Islands and has 

 

8

 

all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
conducted.  The
Seller is duly qualified to transact business and is in good standing
in each jurisdiction where such qualification is required.

 

3.2          Authorization of Seller.

 

(a)           All corporate
action on the part of the Seller and its
respective officers, directors, shareholders and Affiliates, and all
shareholder action, necessary for the authorization, execution, delivery and
performance of this Agreement, each Transaction
Document and Ancillary Document to which it is a party, the
performance of all obligations of the Seller hereunder and thereunder has been
taken.

 

(b)           This Agreement, each Transaction Document and Ancillary Document to which the Seller is a party will constitute (upon the execution and
delivery at the Closing) valid
and legally binding obligations of the Seller, enforceable in accordance with
their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors’ rights
generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.

 

(c)           The execution,
delivery and performance by the Seller of this
Agreement and each Transaction Document and Ancillary
Document to which it is a party, and the consummation of the Transactions
contemplated hereby and thereby: (i) will not result in any violation or
default or be in conflict with or constitute, with or without the passage of
time and giving of notice, a default under any provision of the Seller’s Constitutional Documents; (ii) will not result in the breach of
or constitute a default under any material contract, lease, license, franchise,
permit, indenture, mortgage, deed of trust, note, agreement or other instrument
to which the Seller is a party or by which it is bound; and (iii) will not
violate any Law or Order applicable to or bearing upon the Seller or its assets
or businesses.

 

(d)           The Seller is not required to obtain any Consent, including any Governmental Authority, from any
Person or any Governmental Authority in connection
with the execution, delivery and performance of this Agreement, each Transaction Document and Ancillary Document to which it is a
party or the consummation of the Transactions contemplated hereby or thereby.
There are no Proceedings pending, or to
the Knowledge of the Seller,
threatened against the Seller that would have the effect of preventing or
materially delaying the Seller from executing and delivering this Agreement or
consummating any of the transactions contemplated by this Agreement.

 

3.3          Ownership and Transfer of Shares.  The Seller is the legal and beneficial owner
of the Shares, free and clear of any and all Encumbrances.  The Seller has the corporate power and
authority to sell, transfer, assign and deliver the Shares as provided in this
Agreement, and such delivery will convey to the
Buyer good, legal and marketable title to the Shares, free and clear of
any and all Encumbrances.

 

9

 

3.4          Brokers/Finders.  Except as set forth in Section 3.4 of the Seller Disclosure Schedule, the Seller does not have any Contract, arrangement or understanding with
any broker, finder or similar agent with respect to the Transactions.

 

3.5          Organization, Standing and
Qualification of BabyCare Companies. Each BabyCare
Company is duly organized, validly existing and in good standing (or equivalent
status in the relevant jurisdiction) under, and by virtue of, the Laws of the
place of its incorporation or establishment and has all requisite power and
authority to own its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, and to perform each of its
obligations hereunder and under each of the other
Transaction Documents  and Ancillary Documents to which it is a party.  Each BabyCare Company is qualified to do
business and is in good standing (or equivalent status in the relevant
jurisdiction) in each jurisdiction where failure to be so qualified would
constitute a Material Adverse Effect.

 

3.6          Capitalization.

 

(a)           Capitalization of BabyCare Holdings.  As
of the date hereof and immediately prior
the Closing, the authorized share capital of BabyCare Holdings is US$200,000,
divided into 200,000 Shares, 62,461 of which are outstanding and held by the Seller.

 

(b)           Capitalization of BabyCare.  Immediately prior to the Closing, the
total investment of BabyCare is US$50,000,000 and its total
registered capital is US$20,000,000.  All of BabyCare’s
registered capital has been fully paid up and held by the Buyer of record free
of any Encumbrance.  All of the Equity
Interests in BabyCare were acquired and have been held by the Buyer in trust on
behalf of the Seller pursuant to the Trust
Agreement, which agreement will be assigned to BabyCare Holdings immediately
prior to Closing such that BabyCare Holdings will be the beneficial owner of
all such Equity Interests and then terminated upon Closing resulting in the
Buyer being the legal and beneficial owner of all such Equity Interests.

 

(c)           Options.  Except for the conversion privileges of the outstanding Shares and as disclosed in Section 3.6(c) of the
Seller Disclosure Schedule, there are no options,
warrants, conversion privileges or other rights, or agreements with respect to
the issuance thereof, presently outstanding to purchase any Equity Securities
of any BabyCare Company.  Except as noted in this Section 3.6(c) or otherwise set forth in the Seller Disclosure Schedule, no shares of
the outstanding share capital of any BabyCare
Company, or shares issuable upon exercise or exchange of any outstanding options
or other shares issuable by any BabyCare Company, are
subject to any preemptive rights, rights of first refusal or other rights to
purchase such shares (whether in favor of any
BabyCare Company or any other person).

 

(d)           Outstanding
Security Holders. A complete and current list of all outstanding
ultimate or beneficial shareholders and any other holders of the Equity
Securities of each BabyCare Company as of the date hereof and immediately prior
to the Closing is set forth in Section 3.6(d) of the Seller Disclosure Schedule, indicating
the type, class and number (in the case of
any outstanding options,
warrants or convertible securities, the applicable exercise or conversion price) of such Equity Securities held by each such holder.

 

10

 

(e)           Valid
Issuance.  All outstanding share
capital or registered capital of each BabyCare Company has been duly and
validly issued (or subscribed for), fully paid and non-assessable, and are free and clear of any Encumbrances,
except as otherwise set forth
herein or as disclosed in Section 3.6(e) of the Seller Disclosure
Schedule.  No
outstanding share, option, warrant, registered capital or other Equity Security
of any BabyCare Company was issued or subscribed to in violation of the
preemptive rights of any Person, terms of any Contract or any applicable Law,
including without being limited to applicable securities Laws and any exemption
therefrom, by which each such BabyCare Company at the time of issuance or
subscription was bound.  Except as set
forth in Section 3.6(e) of the Seller
Disclosure Schedule and as contemplated under
the Transaction Documents, (i) there is no resolution pending to
increase the share capital or registered capital of any BabyCare Company;
(ii) there is no outstanding Contract under which any Person purchases or
otherwise acquires, or has the right to purchase or otherwise acquire, any
interest in the share capital or registered capital of any BabyCare Company; (iii) there
is no dividend which has accrued or been declared but is unpaid by any BabyCare
Company; (iv) there is no outstanding or authorized equity appreciation,
phantom equity, equity plan or similar right with respect to any BabyCare
Company, and (v) neither of the BabyCare Companies is a party or subject to any Contract that affects or relates to the
voting or giving of written consents with respect to any of the Equity
Securities of such BabyCare Company.

 

3.7          Subsidiaries.  Section 3.7 of the Seller Disclosure Schedule contains a complete list of any subsidiaries
and branches of each BabyCare Company as of the date hereof and immediately
prior to the Closing.  Except as set
forth in such section of the Seller Disclosure Schedule, neither of the
BabyCare Companies has any subsidiary, nor
does any of them hold or control, directly or indirectly, any interest in any
other corporation, partnership, trust, joint venture, association or other
Entity, or maintain any other offices or
branches.

 

3.8          Financial Statements.  The
Seller has delivered to the Buyer the
Financial Statements.  Such Financial
Statements (i) have been prepared in accordance with the Books and Records
of each BabyCare Company, (ii) are true, correct and complete and present
fairly the financial condition of such BabyCare Company at the date or dates
therein indicated and the results of operations for the period or periods
therein specified, and (iii) have been prepared in accordance with the GAAP
applied on a consistent basis, except as to the unaudited consolidated
Financial Statements, for the omission of notes thereto and normal year-end
audit adjustments.  Specifically, but not
by way of limitation, the most recent balance sheets included within the
Financial Statements disclose all of each BabyCare Company’s debts, liabilities
and obligations of any nature, whether due or to become due, as of their
respective dates (including, without limitation, absolute liabilities, accrued
liabilities, and contingent liabilities) to the extent such debts, liabilities
and obligations are required to be disclosed on a balance sheet in accordance
with the GAAP, other
than current Liabilities that were incurred after the Balance Sheet Date in the
ordinary course of business consistent with its past practices that are not
material in the aggregate.  Each
BabyCare Company maintains a standard system of accounting established and
administered in accordance with the GAAP.

 

3.9          Liabilities.  Except as disclosed in the
Financial Statements and Section 3.9
of the Seller Disclosure Schedule, neither of the BabyCare
Companies has any Liabilities, including
any indebtedness for borrowed money, that it has
directly or indirectly created, incurred, 

 

11

 

assumed, or guaranteed, or with respect to which
such BabyCare Company has otherwise become directly or indirectly liable.

 

3.10        Title
to Properties and Assets.  Each
BabyCare Company has good and marketable title to, or valid rights to use, all
of its properties and assets (whether tangible or intangible) that it purports
to own (including as reflected in its balance sheets of the Financial
Statements) or that it currently uses (except for such assets as have been
spent, sold or transferred in the ordinary course of business since the Balance
Sheet Date), free and clear of any and all Encumbrances of any party other than
the lessors of such property and assets in the case that it is leased by any
BabyCare Company.  Such properties and
assets collectively represent in all material respects all properties and
assets necessary for the conduct of the business of the BabyCare Companies as
presently conducted and as proposed to be conducted, and have been properly
maintained and are in good working condition. 
Each BabyCare Company has been and is in compliance with all the leases
with respect to the property and assets it leases.

 

3.11        Proprietary Assets.

 

(a)           Ownership of
Proprietary Assets.  Each of the BabyCare
Companies owns all right, title and interest in and to, free and clear of all
Encumbrances, or has all necessary and valid rights to use, all of the
Proprietary Assets, and no item of Proprietary Assets is subject to any
outstanding injunction, judgment, order, decree, ruling or charge.  Except as set forth in Section 3.11(a) of the Seller Disclosure Schedule, each
Proprietary Assets is valid, enforceable, and subsisting, in full force and
effect, and has not been cancelled, expired or abandoned.  To the Seller’s Knowledge, there exists no
notice, claim or assertion that any item of Proprietary Assets is invalid and
is aware of any actual, threatened or pending claim, action, opposition,
re-examination, interference or cancellation proceeding with respect
thereto.  Section 3.11(a) of the Seller Disclosure Schedule  contains a complete and accurate list of each item of
Proprietary Assets, including without limitation the Proprietary Assets owned
by each BabyCare Company which is a patent, patent application, registered
trademark or service mark (or applications and renewals thereof), material
unregistered trademark or service mark (including domain name registrations),
trade name, domain name, registered copyright (or applications and renewals
thereof), material unregistered copyright and Software.

 

(b)           Use of
Proprietary Assets.  The BabyCare Companies have
not interfered with, infringed upon, misappropriated or violated any rights of
third parties to the Proprietary Assets due to their use of Proprietary Assets,
and the BabyCare Companies have not received any charge, complaint, claim,
demand or notice alleging any such interference, infringement, misappropriation
or violation, nor is any BabyCare Company aware of any reasonable basis
therefor.  No third party has interfered
with, infringed upon, misappropriated or violated any rights of the BabyCare Companies
to any of the Proprietary Assets. Except as set forth in Section 3.11(b) of the Seller Disclosure Schedule, there are no
outstanding options, licenses or agreements of any kind granted by any BabyCare
Company relating to the Proprietary Assets owned by any BabyCare Company, and
such BabyCare Company is not bound by or a party to any options, licenses or
agreements of any kind with respect to the Proprietary Assets owned by any
other Person, except for standard end-user agreements with respect to
commercially available Proprietary Assets such as “off the shelf” computer
software all of which are valid and fully paid. 
Each BabyCare Company has used best efforts to protect its title and
ownership in 

 

12

 

the Proprietary Assets owned by such BabyCare
Company and the confidentiality of its trade secrets.  To the Seller’s Knowledge, there has been no
material disclosure of any trade secrets of any BabyCare Company by any Person
other than pursuant to the terms of a non-disclosure agreement, and, to the
Seller’s Knowledge, no party to any non-disclosure agreement relating to any
BabyCare Company’s trade secrets is in breach or default thereof.

 

(c)           Work Products
Owned by BabyCare Companies.  All personnel of each BabyCare Company,
including employees, agents, consultants, and contractors, who have contributed
to or participated in the conception and development of the Proprietary Assets
on behalf of such BabyCare Company with respect to the business of such
BabyCare Company, either (i) have been a party to a “work-for-hire”
arrangement or similar agreement with such BabyCare Company, in accordance with
applicable Laws, that has accorded such BabyCare Company full, effective,
exclusive, and original ownership of all tangible and intangible property and
related rights thereby arising, or (ii) have executed appropriate
instruments of assignment in favor of such BabyCare Company that have conveyed
to such BabyCare Company full, effective, and exclusive ownership of all
tangible and intangible property and related rights thereby arising.

 

(d)             Employees’ Invention.  To the Seller’s Knowledge, none of the officers or employees or consultants of any BabyCare Company is obligated under any
agreement or contract (including licenses, covenants or commitments of any
nature) or instrument, or subject to any judgment, decree or order of any court
or Governmental Authority or
instrumentality, that would interfere with the use of his best efforts to
promote the interests of such BabyCare Company or that would conflict with the
business as currently conducted or as proposed to be conducted by such BabyCare
Company, or that would prevent such officers or employees or consultants from
assigning to such BabyCare Company all Proprietary Assets conceived, developed
or reduced to practice in connection with services rendered to such BabyCare
Company.  Neither the execution nor
delivery of this Agreement or the other Transaction
Document or Ancillary
Document, nor the carrying on of the business as currently conducted or as proposed
to be conducted by any BabyCare Company, will, to the Seller’s Knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a violation or default under, any such Contract, judgment, decree
or order under which any of such officers or employees are currently
obligated.  To the Seller’s Knowledge,
neither of the BabyCare Companies is or will be
necessary to utilize any inventions of any of its officers or employees (or
people it currently intends to hire) made prior to or outside the scope of
their employment by such BabyCare Company.

 

3.12        Material Contracts and Obligations.

 

(a)           For purpose of this Section 3.12, a “Material Contract” means a
Contract (oral or
written) which any BabyCare Company is a party to or it is bound by, and which

 

(i)            has an aggregate value, cost or
amount, or imposes liability or contingent liability on any BabyCare Company,
in excess of US$100,000 or extends for more than one year beyond the Closing,

 

13

 

(ii)           cannot be terminated without having any Material
Adverse Effect on any BabyCare Company,

 

(iii)          is not readily able to be fulfilled or performed by a BabyCare Company on
time or without undue burden or unusual
expenditure of money or efforts,

 

(iv)          is entered into with an Interested Party of a BabyCare Company,

 

(v)           relates to the sale, issuance, grant, exercise, award, purchase, repurchase or
redemption, of, or voting rights or any other rights attached to, any Equity
Securities of a BabyCare Company,

 

(vi)          is entered into with a material customer or material supplier of a
BabyCare Company or with a Governmental Authority,

 

(vii)         involves Indebtedness, an extension of credit, a guaranty or assumption of any
obligation, or the grant of any Encumbrance,

 

(viii)        involves the acquisition or sale of a business, a merger, consolidation,
amalgamation, a partnership, joint venture, or similar arrangement,

 

(ix)          involves the purchase, lease or disposal of any real property,

 

(x)           involves the transfer or license of
any Proprietary Asset to or from a BabyCare Company (other than
licenses from commercially readily available “off the shelf” Software), or
obligates a BabyCare Company to share
or develop any Proprietary Asset with any other
Person,

 

(xi)          contains change in control, exclusivity, non-competition or similar clauses
that impair, restrict or impose conditions on a BabyCare Company’s right to
offer or sell products or services in specified areas, during specified periods
or otherwise,

 

(xii)         is not in the ordinary course of business of a BabyCare Company, or

 

(xiii)       is  otherwise material to the conduct and
operations of a BabyCare Company’s business and properties.

 

(b)             All Material Contracts are listed in Section 3.12 of the Seller Disclosure Schedule and have been
made available for inspection by or, if they are oral Contracts, have been
summarized in writing for the Buyer and its
counsels.  Each Material Contract is a
valid, binding and enforceable agreement of the parties thereto, the performance of which does not violate any applicable Law, and is and
has been in full force and effect, and the terms thereof have
been complied with by the relevant BabyCare Companies and, to the Seller’s Knowledge, by all the other
parties thereto.  There are no
circumstances likely to give rise to any breach of such terms, no grounds for
rescission, avoidance or repudiation of any of the Material Contracts and no
notices of violation, default, termination or intention to terminate (whether
or not such notice is in writing) have been received in respect of any Material
Contract.

 

14

 

3.13        Proceedings.

 

(a)           General.   There is no Proceeding
pending or, to the Seller’s Knowledge, threatened, against any BabyCare Company
or the business of the BabyCare Companies, and 
the Seller is not aware of any event or circumstance that may form a
basis for any such Proceeding.  The
foregoing includes, without limitation, Proceedings pending or threatened
against the BabyCare Companies or the business of the BabyCare Companies (or
any basis therefor known to the Seller or the BabyCare Companies) involving the
prior employment of any BabyCare Company’s
employees, their use in connection with the business of the BabyCare Companies
of any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with former
employers.  Neither of the BabyCare
Companies is a party or subject to the provisions of any Order, writ, injunction,
judgment or decree of any court or Governmental Authority.  There is no Proceeding by the BabyCare
Companies that is currently pending or that any BabyCare Company intends to
initiate.

 

(b)           Anti-Corruption Laws Matters.  To the Seller’s Knowledge,
there are no Proceedings pending or threatened against any BabyCare Company or
any director, officer, agent, employee, or any other Person acting for or on
behalf of such BabyCare Company, alleging a violation of any applicable Law, including but not limited to the Anti-Corruption Laws, (A) to obtain
favorable treatment in securing business, (B) to pay for favorable
treatment for business secured, or (C) to obtain special concessions or
for special concessions already obtained, for or in respect of such BabyCare
Company.

 

3.14        Compliance.

 

(a)           General Compliance.  Neither of the BabyCare Companies is in
violation, or has been in material violation at any time since its
incorporation of any applicable Law.  All
Consents from any Governmental
Authority and any third party which are required to be obtained or made by the
Seller or the BabyCare Companies under applicable Laws in connection with the due
and proper establishment of each BabyCare Company and the conduct of the business
or the consummation of the Transactions contemplated under the Transaction Documents, the absence of which would
be reasonably likely to have a Material Adverse Effect, have been obtained or
completed in accordance with the relevant Laws, are not in default, and are in
full force and effect.  Neither of the
BabyCare Companies is in receipt of any notice from any Governmental Authority
notifying revocation of any permits or licenses issued to it for noncompliance
or the need for compliance or remedial actions in respect of the activities carried
out directly or indirectly by it.  In
respect of Approvals, licenses or permits requisite for the conduct of any part
of the business of the BabyCare Companies which are subject to periodic
renewal,  none of the BabyCare Companies
and the Seller has any reason to believe that such requisite renewals will not
be timely granted by the relevant Governmental Authorities.

 

(b)           PRC Laws
Compliance by BabyCare.  BabyCare has been conducting
and will conduct its business
activities within the permitted scope of business, and has been operating or
will operate its business in full
compliance with all relevant PRC Laws
and with all requisite Governmental
Approvals granted by the competent PRC Governmental Authorities.  All Approvals from any PRC Governmental Authority,
including, without limitation, the direct selling license, and any third party
which are required to be obtained or made by BabyCare under 

 

15

 

applicable PRC Laws in connection with the due and
proper establishment of BabyCare and the conduct of its
business or the consummation of the Transactions contemplated hereunder
have been obtained or completed in accordance with the relevant PRC Laws, and
are in full force and effect and there exist no grounds on which any such Governmental Approval may be cancelled or revoked, or BabyCare or its Representatives may be subject
to Liability for default or violation of any Governmental Approvals, any misrepresentations
or failure to disclose information to the issuing PRC Governmental
Authorities.  Without
limiting the generality of the above, BabyCare has obtained all Governmental Approvals and Consents necessary for
the conduct of its direct selling business in the PRC as currently
conducted or as currently planned or contemplated to be conducted, which Governmental Approvals and Consents are in
full force and effect as of the date hereof and the Closing Date and will be in full force and
effect for at least eighteen (18) months following
the Closing.

 

(c)           Anti-Corruption Laws
Compliance.  Neither of
the BabyCare Companies or any of
their respective Representatives has violated the
Anti-Corruption Laws, nor has any of the above Persons offered, paid, promised
to pay, or authorized the payment of any money, or offered, given, promised to
give, or authorized the giving of anything of value, to any Government Official
or to any Person under circumstances where there is a high probability that all
or a portion of such money or thing of value would be offered, given or
promised, directly or indirectly, to any Government Official, for the purpose
of (A) influencing any act or decision of such Government Official in his
official capacity, (B) inducing such Government Official to do or omit to
do any act in relation to his lawful duty, (C) securing any improper
advantage, or (D) inducing such Government Official to influence or affect
any act or decision of any Governmental Authority, or for purpose of assisting any BabyCare Company in obtaining or
retaining business for or with, or directing business to any BabyCare Company.

 

(d)           Trade Organizations.  Section 3.14(d) of the Seller
Disclosure Schedule contains a complete and accurate list of all trade
organizations, associations, and other self-regulatory organizations to which
any BabyCare Company is a member. 
Neither of the BabyCare Companies is in violation, or has been in
material violation of any applicable rules, regulations, policies, or charters
of any trade organizations, association, and other self-regulatory organizations.

 

3.15        SFDA Regulatory Matters.

 

(a)             General SFDA Regulatory Matters. BabyCare has, since its incorporation, complied with all applicable Laws issued by SFDA
to the extent applicable to the business as currently conducted and as proposed
to be conducted.  All product manufacturing activities conducted by BabyCare in the PRC
comply and have complied, since its
incorporation, with all applicable good manufacturing practices
and other similar standards and requirements established by SFDA.  BabyCare is not
the subject of any investigation or administrative review by SFDA, nor
has any investigation, prosecution, or other enforcement action been threatened
by SFDA.  BabyCare has not received from SFDA any letter or other document asserting that it has violated any of the SFDA Regulations.  BabyCare has conducted its sales, marketing
and distribution activities in full compliance with all applicable SFDA
Regulations and has not engaged in or is not currently engaged in any pattern
of business activities with the objective of circumventing any of the SFDA
Regulations.

 

16

 

(b)           Industry
Permits.

 

(i)            Nutritional Supplement Product Registration and Approval.  Section 3.15(b)(i) of the Seller Disclosure
Schedule sets forth a list of all Products.  Each Product, where required under any of the
SFDA Regulations, is the subject of a Governmental
Approval for nutritional supplement product registration issued by SFDA
and each such Governmental Approval, where
required, remains valid and in full force and effect.  Section 3.15(b)(i) of the Seller Disclosure
Schedule  also sets forth each
such Governmental Approval for nutritional supplement product received by BabyCare, specifying the date on which each such approval was originally
issued and the length of the monitoring period established by SFDA with respect
to such approval.  None of the BabyCare Companies and the Seller
has any reason to believe that any renewal of such product registration and
approval will not be timely granted by SFDA. 
Each such product registration and approval listed in the Seller
Disclosure Schedule is valid and in full force and effect, and has been valid
and in full force and effect at all times during which BabyCare has been
engaged in sales of nutritional supplement subject to the jurisdiction of SFDA.

 

(ii)           Manufacturing
Permits.  BabyCare has
obtained all nutritional supplement-related
manufacturing permits from SFDA necessary for the conduct of its
manufacturing activities as previously and currently conducted and as proposed
to be conducted.  Section 3.15(b)(ii) of the Seller Disclosure
Schedule sets forth each such manufacturing permit received
by BabyCare, specifying the date on
which such permit was originally issued and applicable
date and period of renewal.  
None of the BabyCare Companies and the Seller has any reason to believe
that any renewal of such manufacturing permit will not be timely granted by SFDA.  Each such manufacturing permit listed in the
Seller Disclosure Schedule is valid and in full force and effect, and has been
valid and in full force and effect at all times during which BabyCare has been engaged in nutritional
supplement-related manufacturing activities subject to the jurisdiction
of SFDA.

 

(iii)          Distribution
Permits. BabyCare has obtained all nutritional
supplement-related distribution permits from SFDA necessary for the
conduct of its sales, marketing and distribution activities in relation to its Products as previously and currently
conducted and as proposed to be conducted. 
Section 3.15(b)(iii) of the Seller
Disclosure Schedule sets forth each such distribution permit received
by BabyCare, specifying the date on
which such permit was originally issued and the
applicable date and period of renewal thereof.  None of the BabyCare Companies and the Seller
has any reason to believe that any renewal
of such distribution permit will
not be timely granted by SFDA.  Each such distribution permit listed in the
Seller Disclosure Schedule is valid and in full force and effect, and has been
valid and in full force and effect at all times during which BabyCare has been engaged in nutritional
supplement-related sales, marketing and distribution activities subject
to the jurisdiction of SFDA.

 

(c)           Certifications
and Standards.

 

(i)            Good
Manufacturing Practices. 
BabyCare has obtained certifications of good manufacturing practices as
adopted in the PRC covering all operations of BabyCare where such certificates
are required under any applicable Law or any Contract by 

 

17

 

which BabyCare is bound.  Section 3.15(c)(i) of the Seller Disclosure
Schedule sets forth each good manufacturing practices
certificate received for each manufacturing facility of BabyCare, specifying the date on which such certificate was originally
issued and each applicable date and
period of renewal thereof.  All such good
manufacturing practices certificates are valid and in full force and effect and
have been valid and in full force and effect during any period during which
such certificates were required under applicable Laws.  None of the BabyCare Companies and the Seller
has any reason to believe that any renewal
of such good manufacturing practices certificate will not be timely granted by SFDA.

 

(ii)             Good Supply Practices.  BabyCare has obtained certifications of good
supply practices as adopted in the PRC covering all operations of BabyCare
where such certificates are required under applicable Laws or any Contract by
which BabyCare is bound.  Section 3.15(c)(ii) of the Seller Disclosure
Schedule sets forth each such good supply certificate
received by BabyCare, specifying the date on
which such certificate was originally issued and each applicable date and period of renewal thereof.  All such good supply certificates are valid
and in full force and effect and have been valid and in full force and effect
during any period during which such certificates were required under applicable
Laws.  None of the BabyCare Companies and
the Seller has any reason to believe that any renewal
of such good supply certificate listed in will
not be timely granted by SFDA.

 

(iii)          Research
Practices.  All
research and development activities conducted by or for BabyCare have, at all
times, complied with all applicable Laws. 
All research involving human subjects conducted by or for BabyCare have
(i) been conducted in compliance with all applicable Laws governing the
protection of human subjects, (ii) had obtained the Consent of an institutional
review board (if applicable and required), (iii) had the informed Consent of
the subjects, (iv) complied with medical privacy requirements (if applicable
and required), and (v) not involved any investigator who has been disqualified
as a clinical investigator by SFDA or any other agency or has been found by any
agency with jurisdiction to have engaged in scientific misconduct.

 

(iv)          Price Controls.  BabyCare has no Knowledge of any price adjustments or proposed price
adjustments by NDRC which would adversely affect the
current pricing of any Products marketed and sold by BabyCare.  Section 3.15(c)(iv) of the Seller Disclosure
Schedule sets forth a list of all Products for which
BabyCare has obtained premium pricing status from NDRC.

 

3.16        Compliance with Other Instruments and
Agreements. The Constitutional Documents of each BabyCare
Company are valid and have been duly approved or issued (as applicable) by
competent Governmental Authorities in the jurisdiction where such BabyCare
Company is incorporated.  Neither of the
BabyCare Companies is in nor shall the business as currently conducted or
proposed to be conducted result in violation, breach or default of any term or
provision of the Constitutional Documents, or of any term or provision of any
Contract to which such BabyCare Company is a party or by which it may be bound,
or of any provision of any Law applicable to or binding upon such BabyCare
Company.  None of the activities,
Contracts or rights of any BabyCare Company is ultra vires or
unauthorized.  The execution, delivery
and performance of and compliance with this Agreement and any other Transaction
Document and Ancillary Document and the consummation of the Transactions
contemplated hereby and thereby will not result in any such violation, breach
or default, or be in conflict with or constitute, with or without the passage
of time or the giving of notice or both, either a default under any BabyCare
Company’s Constitutional Documents or any Contract to which such BabyCare
Company is a party or by which it may be bound, or, to the Seller’s Knowledge,
a violation of any Law or an event which results in the creation of any
Encumbrance upon any asset of any BabyCare Company.

 

18

 

3.17        Disclosure.  The Seller has fully provided the Buyer with
all information necessary or desirable for the Buyer to decide whether to
purchase the Shares and all information that the Seller believes to be
reasonably necessary to enable the Buyer to make such decision.  No representations
or warranties made by the Seller in this Agreement and no
information or materials provided by the Seller to the Buyer in connection with
the negotiation or execution of this Agreement or any other Transaction
Document contains any untrue statement of a material fact, or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they are made, not
misleading.

 

3.18        Insurance. Except as set forth in Section 3.18 of the Seller Disclosure Schedule, BabyCare has
obtained and maintains the insurance coverage of the same types and at the same
coverage levels as other similarly situated companies in the same industry in
which BabyCare operates its business or possesses its properties and assets, in
accordance with its best commercial practices. 
To the Seller’s Knowledge, nothing has been done or omitted to be done
by or on behalf of BabyCare which would make any policy of insurance void or
voidable or enable the insurers to avoid the same and there is no claim
outstanding under any such policy and, to the Seller’s Knowledge, there are no
facts or circumstances likely to give rise to such claim or result in an
increased rate of premium.  All
information furnished in obtaining or renewing the insurance policies of
BabyCare was correct, full and accurate when given and any change in that
information required to be given was correctly given.  BabyCare is not
in default under any of these policies. 
BabyCare has not suffered any
uninsured losses or waived any rights of material or substantial value or
allowed any insurance to lapse.  No claim under any policy of insurance taken out
in connection with the business or assets of BabyCare is outstanding and, to the Seller’s Knowledge,
there are no facts or circumstances likely to give rise to such a claim.

 

3.19        Activities
Since Balance Sheet Date.
 Since the
Balance Sheet Date, except as contemplated in the Transaction
Documents, with respect to each BabyCare Company, there has not been:

 

(a)             any change in
the assets, liabilities, financial condition or operating results of such
BabyCare Company from that reflected in the Financial Statements, except
changes in the ordinary course of business of such BabyCare Company that have
not been adverse to such BabyCare Company;

 

(b)           any change in the contingent
obligations of such BabyCare Company by way of guarantee, endorsement,
indemnity, warranty or otherwise;

 

(c)           any damage, destruction or
loss, whether or not covered by insurance, adversely affecting the assets, properties,
financial condition, operating results, prospects or business of such BabyCare
Company (as presently conducted and as proposed to be conducted);

 

(d)           any waiver by such BabyCare
Company of a valuable right or of any debt;

 

(e)           any satisfaction or discharge
of any Encumbrance or payment of any Indebtedness or obligation by such
BabyCare Company, except such satisfaction, discharge or 

 

19

 

payment made in the ordinary course of business of
such BabyCare Company that do not constitute or result in, the aggregate, a
Material Adverse Effect;

 

(f)            any change or amendment to a
Material Contract or arrangement by which such BabyCare Company or any of its
assets or properties is bound or subject, except for changes or amendments
which are expressly provided for or disclosed in this Agreement;

 

(g)           any change in any
compensation arrangement or agreement with any present or prospective employee,
contractor or director other than normal
budgeted adjustments consistent with its past practices;

 

(h)           any sale, assignment or
transfer of any Proprietary Assets or other intangible assets of such BabyCare
Company;

 

(i)            any resignation or
termination of employment with any Key
Employees;

 

(j)            any mortgage, pledge,
transfer of a security interest in, or Encumbrance created by such BabyCare
Company, with respect to any of such BabyCare Company’s properties or assets,
except for Encumbrances for taxes not yet due or payable;

 

(k)           any debt, obligation, or
liability incurred, assumed or guaranteed by such BabyCare Company individually
in excess of US$50,000, or in excess of US$100,000  in the aggregate;

 

(l)            any declaration, setting
aside or payment or other distribution in respect of any of such BabyCare
Company’s Equity Securities, or any direct or indirect redemption, purchase or
other acquisition of any of such Equity Securities by such BabyCare Company;

 

(m)          any failure to conduct
business in the ordinary course of business;

 

(n)           any transactions with any Interested Party of any BabyCare Company;

 

(o)           any other event or condition
of any character which could reasonably be expected to constitute or result in
a Material Adverse Effect; or

 

(p)           any agreement or commitment
by the Seller or any BabyCare Company to do any of
the things described above.

 

3.20        Environmental
Issues.

 

(a)             Compliance with
Environmental Laws.  BabyCare is
currently in compliance with all Environmental Laws and has at all times
complied with all Environmental Laws.

 

(b)             Hazardous Substance.  BabyCare has not
engaged in or permitted nor, to the Seller’s Knowledge, has any
previous owner or occupier engaged in or permitted any operations or activities
upon the assets owned or used by BabyCare
involving the use, storage, handling, release, treatment, manufacture,
processing, deposit, transportation or disposal of any 

 

20

 

 

Hazardous
Substance, or any substance regulated by the Environmental Laws.  No discharge, release, leaching, emission or
escape into the Environment (including the assets owned or used by BabyCare) of
any Hazardous Substance or any substance regulated by the Environmental Laws
has occurred or is occurring in the conduct of the business or any former
business of BabyCare or in connection with or in relation to any assets of
BabyCare while such assets were in the ownership or under the control of
BabyCare and no such discharge, release, leaching, emission or escape has
occurred or is occurring for which BabyCare might otherwise be held liable.

 

(c)           Environmental Permits.  BabyCare has obtained all Environmental
permits for the carrying on of its business. 
All such Environmental permits are valid and subsisting and, to the
Seller’s Knowledge, there is no reason that any of them should be varied,
suspended, cancelled, revoked or not renewed upon expiry on substantially the
same terms.  BabyCare has at all times
complied with the terms and conditions of its Environmental permits.

 

(d)           No Environmental Proceedings.  There have not been nor are there pending or,
to the Seller’s Knowledge, threatened civil or criminal actions, notices of
violations, investigations, administrative proceedings or written
communications from any Governmental Authority under any Environmental Law
against BabyCare or any of its assets and, to the Seller’s Knowledge, there are
no facts or circumstances which may give rise to the same.

 

3.21          Customers, Distributors and
Suppliers.

 

(a)             Customers.  All Contracts with customers were entered
into by or on behalf of BabyCare and were entered into in the ordinary course
of business for usual quantities and at normal prices.  Each such Contract of BabyCare with a
customer involves commitments of not less than the published list price on the
standard Contract used by BabyCare.

 

(b)             Suppliers.  All Contracts with
suppliers were entered into by or on behalf of BabyCare and were entered into
in the ordinary course of business for usual quantities and at normal prices. Section 3.21(b) of the Seller Disclosure Schedule sets forth an accurate, correct and complete:

 

(i)            list of the 15 largest suppliers of BabyCare, determined on
the basis of costs of items purchased for the six
(6) month period ended June 28,
2010; and

 

(ii)           list of all sole source suppliers of BabyCare that received more than US$50,000
from BabyCare (on a annualized basis) for the fiscal year ended December 31,
2009.

 

(c)           Section 3.21(c) of the Seller Disclosure Schedule sets forth the pricing policy and all other material terms and policies related to the distribution and sale of the Products and BabyCare’s direct selling business.

 

21

 

(d)           BabyCare has not entered
into any Contract under which BabyCare is restricted from selling, licensing or
otherwise distributing any Products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.  There is no purchase commitment which provides
that any supplier will be the exclusive supplier of BabyCare or
distributor.  There is no purchase
commitment requiring any BabyCare Company to purchase the entire output of a
supplier.

 

(e)             BabyCare
has not received any notice or other communication, has not received any other
information indicating, and otherwise has no Knowledge, that any current
customer, supplier or distributor identified in the Seller Disclosure Schedule
may cease dealing with BabyCare, may otherwise materially reduce the volume of
business transacted by such Person with BabyCare or otherwise is materially
dissatisfied with the service BabyCare provides such Person.  The Seller and the BabyCare Companies have no
reason to believe that any such Person will cease to do business with BabyCare
after, or as a result of, consummation of the Transaction contemplated under the Transaction Documents, or that such Person is threatened with bankruptcy or
insolvency.  To the Seller’s Knowledge,
there exists no fact, condition or event which may, by itself or in the
aggregate, adversely affect its relationship with any such Person.

 

3.22        Tax
Matters.

 

(a)             General.  The provisions for Taxes in
the respective Financial Statement are sufficient for the payment of all
accrued and unpaid applicable Taxes of each BabyCare Company, whether or not
assessed or disputed as of the date of each such balance sheet.  Each BabyCare Company has duly and timely
filed all Tax Returns required to have been filed by it and all such Tax
Returns are true, correct, and complete in all material respects.  Each BabyCare Company has withheld and paid
all Taxes that are required to be withheld or due and payable (whether or not
shown on any Tax Return), including the Taxes in connection with any amounts
due or owing to any employee, independent contractor, creditor, stockholder or
other third party, and no Tax Encumbrances are currently in effect against any
of the assets of any BabyCare Company.  Neither
of the BabyCare Companies is subject to any waivers of applicable statutes of
limitations with respect to Taxes for any year.  Since the Balance Sheet Date, neither of the
BabyCare Companies has incurred any Taxes, assessments or governmental charges
other than in the ordinary course of business and each BabyCare Company has
made adequate provisions on its books of account for all Taxes, assessments and
governmental charges with respect to its business, properties and operations
for such period.  All preferential Tax treatments enjoyed by any
BabyCare Company on or prior to the Closing are
set forth in Section 3.22(a) of the Seller Disclosure Schedule
and have been in compliance with all
applicable Laws and will not be subject to any retroactive deduction or
cancellation except as a result of retroactive effects of changes in applicable
Laws.  Neither of the BabyCare Companies
is treated as a resident for Tax purposes of, or is otherwise subject to income
Tax in, a jurisdiction other than the jurisdiction in which it has been established.

 

(b)           TRE Representation.  The Seller and BabyCare Holdings are operated
and managed by their personnel residing in PRC. 
Management of daily operations and finance activities are performed in
Beijing, PRC.  The main accounting books,
minutes of board meetings, and other important assets of the Seller and
BabyCare Holdings were kept at an 

 

22

 

executive office located in Beijing, PRC.  Senior management personnel for both Seller
and BabyCare Holdings reside in PRC.  To
the Seller’s best Knowledge based on due inquiry, the companies would be deemed
to be PRC Tax Residence Enterprises according to Article 2, Paragraph 2 of
PRC Corporate Income Tax Law and Article 4 of Detailed Rules of PRC
Corporate Income Tax Law and with a broad application of the Circular Guoshuifa
2009 No.82 issued by the State Administration of Taxation in April of
2009.  Due to losses incurred by BabyCare
Holdings in the periods after January 1st, 2008, there are no outstanding
PRC tax liabilities exist at BabyCare Holdings as of the date hereof and the
Closing Date.

 

(c)           Tax Authority.  There have been
no examinations or audits of any Tax Returns by any applicable Governmental
Authority. No written claim has ever been made by any Governmental Authority in
a jurisdiction where the BabyCare Companies do not file Tax Returns that any
BabyCare Company is or may be subject to taxation by that jurisdiction.  Neither of the BabyCare Companies has received
notice of any proposed or determined Tax deficiency or assessment from any
Governmental Authority.  No issues
relating to Taxes of any BabyCare Company were raised by the relevant
Governmental Authorities in any completed audit or examination.

 

3.23          Interested Party
Transactions.  Except as disclosed in Section 3.23 of the Seller Disclosure Schedule, no Interested
Party (a) currently has or has had any
direct or indirect interests in any Contract to which any BabyCare
Company is a party or by which it or its properties may be bound or affected,
or in any Person with which any
BabyCare Company has a business relationship, or (b) is
indebted to any BabyCare Company nor is any BabyCare Company indebted (or
committed to make loans or extend or guarantee credit) to any Interested Party
(other than for accrued salaries, reimbursable expenses or other standard
employee benefits).

 

3.24        Employee Matters.

 

(a)             General.
Each BabyCare Company (i) is in compliance in all aspects with all
applicable Laws respecting employment, employment practices and terms and
conditions of employment, including without limitation the applicable PRC Laws
pertaining to welfare funds, social benefits, medical benefits, insurance,
retirement benefits and pensions; (ii) has
withheld and reported all amounts required by any applicable Law or any
Contract to be withheld and reported with respect to wages, salaries and other
payments to employees; (iii) is not liable for any arrear of wages, Tax or
penalty for failure to comply with any of the foregoing; and (iv) other
than as required by applicable Laws, is not liable for any payment to any trust
or fund governed by or maintained by or on behalf of any Governmental Authority
with respect to unemployment compensation benefits, social security or other
benefits or obligations for employees.  There
are no pending, threatened or reasonably anticipated Proceedings against any
BabyCare Company under any worker’s compensation policy or long-term disability
policy.  None of the BabyCare Companies
has direct or indirect liability with respect to any misclassification of any
person as an independent contractor rather than as an employee.

 

(b)           Employment
Relations.  Each employee, officer,
director and consultant of the BabyCare Companies has duly executed an employment agreement
containing confidentiality, non-compete and intellectual property rights
assignment provisions, which 

 

23

 

agreement is in full
force and effect and binding upon and enforceable against each such Person, and
to the Seller’s Knowledge, none of the employees, officers, directors or
consultants is in violation thereof. 
None of the BabyCare Companies and the Seller is aware that any Key
Employee intends to terminate his or her employment with any BabyCare Company,
nor does any BabyCare Company have a present intention to terminate the
employment of any Key Employee.  Except as set forth in Section 3.24(b) of the Seller
Disclosure Schedule, there is no share incentive, share option,
profit sharing, bonus or other incentive arrangement for or affecting any
current or former employee or worker of any BabyCare Company.  Except as required by applicable
Laws, none of the BabyCare Companies has or maintains any employee benefit
plan, employee pension plan, medical insurance, or life insurance to which any
BabyCare Company contributed or is obligated to contribute thereunder for
current or former employees of any BabyCare Company.

 

3.25          No
Other Business.

 

(a)           BabyCare
Holdings.  BabyCare Holdings was formed solely
to acquire and hold Equity Securities in BabyCare and since its
formation has not engaged in any other business and has not incurred any
Liability in the course of its
business of acquiring and holding its Equity Securities in BabyCare.

 

(b)           BabyCare.  BabyCare is
engaged solely in the Business since
its formation and has not engaged in any other business activities.

 

3.26        Minute
Books. The minute books of each BabyCare Company that have been made
available to the Buyer contain a complete summary of all meetings and actions taken
by directors, shareholders or owners of such BabyCare Company since its
formation, and reflect all transactions referred to in such minutes accurately
in all respects.

 

3.27        Brokers/Finders.  Neither of the BabyCare
Companies has any Contract, arrangement or understanding with any broker, finder
or similar agent with respect to the Transactions.

 

3.28        Obligations
of Management.  Except as
set forth in Section 3.28 of the Seller
Disclosure Schedule,  each Key Employees is currently devoting all
of his or her working time to the conduct of the business of the
BabyCare Companies.  Except as contemplated under this Agreement or other Transaction
Documents or Ancillary Document, none of the Key Employees is
planning to work less than full time at the BabyCare Companies in the future.  None of the Key Employees, directly or
indirectly, owns, manages, is engaged in, operates, controls, works for,
consults with, renders services for, does business with, maintains any interest
in (proprietary, financial or otherwise) or participates in the ownership, management,
operation, or control of, any Person whose products or activities are the same
as, similar to or in any way competitive with any of the Products or activities
of the Business as currently conducted or as currently contemplated by the BabyCare Companies to be conducted in the PRC.

 

3.29          Insolvency.  Both prior to and after the
Closing, (a) the aggregate assets of each BabyCare Company, at a fair
valuation, exceeds or will exceed the aggregate debt of each such entity, as
the debt becomes absolute and mature, and (b) none of the BabyCare
Companies has 

 

24

 

incurred or intends to
incur, and will not have incurred or intended to incur debt beyond its ability
to pay such debt as such debt becomes absolute and matures.  There has not been commenced against any
BabyCare Company an involuntary case under any applicable national, provincial,
city, local or foreign bankruptcy, insolvency, receivership or similar Law now or
hereafter in effect, or any Proceeding for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
such Person or for any substantial part of its property or for the winding up
or liquidation of its affairs.

 

3.30        Full
Disclosure. None of the representations and warranties
contained in this Section 3, when all such representations and
warranties are read together in their entirety, (i) contains any untrue
statement of fact or (ii) omits or will omit to state any fact necessary
to make such representations and warranties (in light of the circumstances
under which they were made) not misleading.

 

SECTION 4.  REPRESENTATIONS
AND WARRANTIES OF BUYER AND USANA

 

The
Buyer and USANA hereby jointly and severally make the following representations
and warranties to the Seller as of the date hereof.

 

4.1          Organization
and Good Standing.  Each of Buyer and USANA is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.  Each of Buyer
and USANA is duly qualified or licensed to conduct business and is in good
standing in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect.

 

4.2          Authority.  Each of Buyer and USANA has all necessary
power and authority to execute and deliver this Agreement and the other
Transaction Documents, to perform its obligations hereunder, and to consummate
the Transaction.  The execution and
delivery of this Agreement and the other Transaction Documents and the
consummation by each of Buyer and USANA of the Transaction have been duly and
validly authorized by all requisite action and no other corporate proceeding on
the part of each of Buyer and USANA is necessary to authorize this Agreement
and the other Transaction Documents or to consummate the Transaction.  This Agreement has been, and at Closing the
other Transaction Documents will be, duly and validly executed and delivered by
each of Buyer and USANA.   This Agreement
constitutes, and at Closing the other Transaction Documents will constitute,
the legal, valid and binding obligation of each of Buyer and USANA, enforceable
against each of Buyer and USANA in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws and equitable principles related to or limiting
creditors’ rights generally and by the availability of equitable remedies and
defenses.

 

4.3          No
Conflicts.  The
execution, delivery and performance of this Agreement and the other Transaction
Documents by each of Buyer and USANA do not and will not, with or without
notice or lapse of time, conflict with or violate either the Buyer’s or USANA’s
Certificate of Incorporation or bylaws or equivalent organizational documents,
or any Legal 

 

25

 

Requirement applicable to the Buyer or USANA or by
which any property or asset of the Buyer or USANA is bound or affected, except
where the existence of such conflict or violation would not, individually or in
the aggregate, have a Material Adverse Effect.

 

4.4          Valid
Issuance of Consideration Shares.  The Consideration Shares, when issued by USANA
and sold and delivered by Buyer to the Seller in accordance with Section 1.2(a)(ii) of
this Agreement, will be duly and validly issued, fully paid and non-assessable.

 

4.5          Financial
Capacity.  At the
Closing, the Buyer shall have sufficient funds, or shall have procured adequate
financing, to enable the Buyer to consummate the Transaction in accordance with
the terms and conditions hereof.

 

4.6          Brokers.  No broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or commission in connection
with the Transaction based upon arrangements made by or on behalf of the Buyer.

 

4.7          Full
Disclosure. None of the representations and warranties
contained in this Section 4, when all such representations and
warranties are read together in their entirety, (i) contains any untrue
statement of fact or (ii) omits or will omit to state any fact necessary
to make such representations and warranties (in light of the circumstances
under which they were made) not misleading.

 

SECTION 5.  ADDITIONAL
AGREEMENTS

 

5.1          Non-Solicitation.

 

(a)           Seller’s Non-Solicitation Covenants.  From and after
the Closing until the eighteen-month anniversary of the Closing Date, the Seller shall not, and shall cause each of its Major Shareholders not
to, directly or indirectly:

 

(i)            at any time, either for
itself or for any other Person, solicit or encourage, or take any action
intended to solicit or encourage, any employee, director, partner, independent
contractor or consultant of the Buyer or any Affiliate of the Buyer to
terminate, discontinue or alter his, her or its relationship with the Buyer or
any such Affiliate, or in any other way interfere with the relationship between
any such Person and the Buyer or any such Affiliate;

 

(ii)           at any time, employ or
otherwise engage as a contractor or consultant any Person employed or engaged
as a contractor or consultant by the Buyer or any Affiliate of the Buyer during
such Person’s employment or engagement with the Buyer or any such Affiliate or
for one year following termination of such employment or engagement; or

 

(iii)          at any time, divert or
attempt to divert from the Buyer or any Affiliate of the Buyer any business of
any kind in which they are engaged, or otherwise induce or attempt to induce
any supplier or customer of the Business to terminate, discontinue or alter
his, her or its relationship with the Buyer or any Affiliate of the Buyer.

 

26

 

(b)           Non-solicitation Covenants: Scope
and Choice of Law.

 

(i)            It is the intention of the
parties that these covenants be enforced to the greatest extent (but to no
greater extent), as to time, geography, and scope, as is permitted by the Laws
of that jurisdiction whose Law is found to be applicable to any acts in breach
of these covenants.  These covenants
shall be governed by and construed according to that Law (from among those
jurisdictions arguably applicable to this Agreement and those in which a breach
of this Agreement is alleged to have occurred or to be threatened) which best
gives them effect.  The prohibitions in
each of subsection (a)(i) to (a)(iii) of this Section 5.1 shall be deemed, and shall be construed as separate
and independent agreements between the Buyer and the
Seller.

 

(ii)           If any such agreement or any
part of such agreement is held invalid, void or unenforceable by any court of
competent jurisdiction, such invalidity, voidness, or unenforceability shall in
no way render invalid, void, or unenforceable any other part of them or any
separate agreement not declared invalid, void or unenforceable; and this
Agreement shall in such case be construed as if the invalid, void, or
unenforceable provisions were omitted.

 

(iii)          If any court of competent
jurisdiction shall determine that the provisions of this Section 5.1 exceed the time, geographic or scope limitations
permitted by applicable law, then such provisions shall nevertheless be
enforceable by such court against the Seller and/or the relevant shareholders of the Seller upon such shorter
term, or within such lesser geographic area or scope, as may be determined by
such court to be reasonable and enforceable.

 

(c)           Assignment by the Buyer.  The parties agree that the covenants of
Seller not to compete contained in this Section 5.1 may be assigned by the Buyer to any Person to whom
may be transferred the Shares or the Business of the BabyCare Companies by the sale or transfer of
their business and assets or otherwise. 
It is the parties’ intention that these covenants of the Seller shall inure to the benefit of any Person that may succeed to the
Business of the BabyCare Companies (as acquired by
the Buyer under this Agreement) with the same force and effect as if these
covenants were made directly with such successor.

 

(d)           Injunctive Relief.  The parties agree that in
the event of a breach by the Seller of any
of the covenants set forth in this
Section 5.1, monetary
damages alone would be inadequate to fully protect the Buyer from, and
compensate the Buyer for, the harm caused by such breach or threatened
breach.  Accordingly, the Seller agrees that if it breaches or threatens breach of any provision
of this Section 5.1, the Buyer shall be entitled to, in addition to any
other right or remedy otherwise available, injunctive relief restraining such
breach or threatened breach and to specific performance of any such provision
of this Section 5.1.  The Buyer
shall not be required to post a bond or other security in connection with, or
as a condition to, obtaining such relief before a court of competent
jurisdiction.

 

5.2          Confidentiality.

 

(a)           Each party shall, and shall cause its Representatives to maintain in strict confidence, and will cause their respective Representatives to maintain in strict
confidence, any written, oral, or other information obtained in
confidence from another party in connection with this Agreement or the
Transactions contemplated hereunder, unless (i) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (ii) the use
of such 

 

27

 

information is necessary or appropriate in making
any filing or obtaining any Consent or Government
Approval required for the consummation of the Transactions contemplated
hereunder, or (iii) the
furnishing or use of such information is required by applicable Legal Requirements.

 

(b)           If the Transactions contemplated
hereunder are not consummated for any reason, each party will return or destroy
as much of such written information as the other party may reasonably request.
Whether or not the Closing takes place, each
of the Seller and the BabyCare Companies waive any cause
of action, right, or claim arising out of the access of the Buyer or its Representatives to any trade secrets or other confidential information
of the Seller or the BabyCare Companies except for the
intentional competitive misuse by the Buyer of such trade secrets or
confidential information.

 

(c)           Without limiting the
foregoing, no party shall issue any press
release or make any public announcement relating to the Transaction without the prior written approvals of the Buyer and the Seller,
which approval shall not be unreasonably withheld or delayed; provided,
however, that this Section 5.2 shall not
restrict the Buyer from publically
announcing the terms of the Transaction as may be required by applicable Law, as long as a copy of such public announcement is
provided to the Seller in advance.

 

5.3          Termination
of Trademark License Agreement.  The
Seller agrees that it shall, as soon as possible but no later than two hundred
seventy (270) days after the Closing, at its own expense as to travel and
communications by Seller’s personnel, deliver to Buyer the documents, in the
form and substance satisfactory to Buyer, that provide (A) that Seller
undertakes to obtain from Discovery Toys, Inc. a waiver of its rights and
claims for all the outstanding royalties payable by BabyCare to the account of
Discovery Toys, Inc. and other rights or claims it may have as
contemplated under the Trademark License Agreement, and (B) that the
relevant provision regarding the payment arrangement under the Trademark
License Agreement has been amended to the satisfaction of Buyer.

 

SECTION 6.  CONDITIONS
TO CLOSING

 

6.1          Conditions
Precedent to Obligations of the Buyer.  The obligations of the Buyer to consummate
the Transaction are subject to the satisfaction of the following conditions,
unless waived by the Buyer in writing:

 

(a)           Representations
and Warranties.  The representations
and warranties of the Seller set forth in
this Agreement, or in any written statement or certificate that shall be
delivered to the Buyer under this Agreement shall be true and correct on and as
of the date made and as of the Closing Date as if made on the date thereof
(except to the extent such representation or warranty specifies an earlier
date).

 

(b)           Performance of Obligations.  Each
of the Seller and the BabyCare
Companies shall have performed all obligations and covenants required to be
performed by it under this Agreement and any other agreement or document
entered into in connection herewith prior to the Closing Date.

 

(c)           Corporate
Approval.  Each of the Seller
and the BabyCare Companies shall
have obtained the consent of
its directors and/or stockholders and/or
shareholders and shall 

 

28

 

have completed all action
required by all applicable Laws and its Constitutional Documents for the purpose
of approving this Agreement, the other Transaction Documents and the
consummation of the Transaction
in accordance with the terms and conditions hereunder and thereunder.

 

(d)           Consents and
Waivers for the Transactions.  Each of
the Seller and the BabyCare Companies shall have obtained any and
all Governmental Approvals and Consents necessary for
the consummation of the Transactions as
contemplated under the Transaction
Documents, including but not limited to the Consent
and waiver of the shareholders of
the Seller of any consent rights, rights of first refusal, preemptive rights and
all similar rights in connection with the consummation
of the Transactions.  Each
of such
Governmental Approvals and Consents shall
be in full force and effect as of the Closing, and copies of which shall have been
delivered to the Buyer on or prior
to the Closing.

 

(e)           Governmental Approvals
and Consents for the Business.  Each of
the BabyCare Companies shall have obtained any and all Governmental Approvals
and Consents necessary for the conduct of
the Business as currently conducted or as currently planned or contemplated to
be conducted, which Governmental Approvals and
Consents shall be in full force and
effect as of the Closing, and copies
of which shall have been delivered to the Buyer on or prior to the Closing.

 

(f)            Due Diligence. The Buyer shall have completed to its
satisfaction the business,
legal, financial due diligence investigation of the BabyCare
Companies.

 

(g)           Legal Requirements.  No Legal Requirement shall be in effect which
prohibits or materially restricts the consummation of the Transaction at the
Closing, or which otherwise adversely affects in any material respect the right
or ability of the Buyer to own, operate or control the Shares, in whole or material part, and no Proceeding is
pending or threatened in writing by a Governmental Authority which is
reasonably likely to result in a Legal Requirement having such an effect.

 

(h)           Execution
of Transaction Documents.  Each Transaction Document and Ancillary
Document shall have been duly executed and delivered by all the parties thereto (except the Buyer).

 

(i)            Pet Lane Asset Transfer. The Buyer
shall enter into an agreement with a third party transferee (the “Pet Lane Transferee”) in form and substance
satisfactory to the Buyer for, and consummate, the following transactions
(such agreement, the “Pet Lane Asset Transfer
Agreement”): (A) the transfer of all Excluded Pet Lane Assets
to the Pet Lane Transferee, and (B) the assumption of all Excluded Pet
Lane Liabilities by the Pet Lane Transferee. 
As a result of such agreement and consummation of the transactions
contemplated therein, the Buyer shall become the wholly-owned subsidiary of
USANA or USANA’s Affiliates, the Trust Agreement shall be terminated upon
Closing and the Management Services Agreement shall be terminated when the
Trust Agreement is terminated.

 

(j)            Discharge of Indebtedness and Removal of Encumbrances.  Each BabyCare Company shall have
fully paid, discharged or satisfied all Indebtedness (except for 

 

29

 

Indebtedness incurred in relation to the
leases listed in Section 3.12(b) of the Disclosure Schedule or
budgeted accounts payable incurred in its ordinary course of business) and
shall have removed or caused to be removed all Encumbrances created on any of
its assets, and evidence of such payment, discharge or satisfaction shall have
been provided to the Buyer to its satisfaction.

 

(k)           Assignment and Termination of Trust Agreement. The Seller shall have duly assigned all its rights and obligations under
the Trust Agreement to BabyCare Holdings to the satisfaction of Buyer, with
such Trust Agreement to be terminated upon Closing.

 

(l)            Closing
Deliveries.  The Seller  shall have
delivered to the Buyer all of the closing documents and agreements set forth in
Section 2.2.

 

6.2          Conditions
Precedent to Obligations of Seller.  The obligations
of the Seller to consummate the
Transactions are subject to the
satisfaction of the following conditions, unless waived by the Seller  in writing:

 

(a)           Representations and Warranties.  The representations and warranties of the
Buyer and USANA set forth in this Agreement, or in any written statement or
certificate that shall be delivered to the
Seller by the Buyer or USANA under this Agreement  shall be true and correct on and as of the date made and as of the
Closing Date as if made on the date thereof (except to the extent such
representation or warranty specifies an earlier date).

 

(b)           Performance of Obligations.  Each of the Buyer and USANA shall have
performed all obligations and covenants required to be performed by it under
this Agreement and any other agreement or document entered into in connection
herewith prior to the Closing Date.

 

SECTION 7. INDEMNIFICATION

 

7.1          Survival
of Representations and Warranties.

 

(a)           All representations and
warranties of the Seller  in this Agreement or any other Transaction Document shall survive the
Closing for a period of up to eighteen (18) months
following the Closing Date (the “Survival Date”);
provided,  that:

 

(i)            there shall be no expiration
date in the case of claims for fraud or willful misrepresentation by Seller;
and

 

(ii)           any claim for
indemnification based upon a breach of any such representation or warranty and
asserted prior to the Survival Date by written notice in accordance with Section 7.4 shall survive until final
resolution of such claim.

 

(b)           The representations and
warranties contained in this Agreement (and any right to indemnification for
breach thereof) shall not be affected by any investigation, verification or
examination by any party hereto or by any Representative of any such party or
by any such party’s Knowledge of any facts with respect to the accuracy or
inaccuracy of any such representation or warranty.

 

30

 

 

7.2          Indemnification
by Seller.  Subject to
the limitations set forth in this Section 7, the Seller shall indemnify, defend and hold harmless the Buyer and its
Representatives (collectively, the “Buyer Indemnified Persons”)  from and against any and all Damages, whether or not involving a third  party claim, including reasonable attorneys’ fees (collectively, the “Buyer Damages”), arising out of,
relating to or resulting from:

 

(a)           any breach of a
representation or warranty of the
Seller contained in this Agreement or in any other Transaction
Document;

 

(b)           any breach of a covenant or agreement of the
Seller  or BabyCare
Holdings (with respect to the covenant
or agreement of BabyCare Holdings, such
breach prior to the Closing)  contained in
this Agreement or in any other Transaction Document;
or

 

(c)           any and all
Taxes of the BabyCare Companies with respect to
any periods ending on or prior to the Closing Date (including without
limitation to its Tax obligations associated with the transactions contemplated
under this Agreement), or with respect to the portion through the Closing Date
of a period that commences before and ends after the Closing Date; any and all
costs and expenses incurred by the BabyCare
Companies in connection with compliance matters relating to Taxes covered by
this subsection (c), including
costs and expenses relating to Tax Return preparation and disputes with taxing
authorities; and any and all Taxes arising as a result of the transactions
contemplated by this Agreement, including share transfer Taxes.  In addition to the indemnification obligation
of Seller set forth under this provision, prior to the Survival Date the Seller
or its Representatives shall address any future tax inquiries as so provided if
any BabyCare Company is contacted by any PRC Governmental Authority or the
agent designated by any PRC Governmental Authority with respect to a PRC tax
audit associated with the transaction or with BabyCare Holdings’ operations
prior to the transaction.

 

7.3            Indemnification by the Buyer and USANA.  Subject to the limitations set forth in this Section 7, the Buyer and USANA shall jointly and severally
indemnify, defend and hold harmless the
Seller and its Representatives
(collectively, the “Seller Indemnified
Persons”) from and against any and all Damages, whether or not
involving a third  party claim,
including reasonable attorneys’ fees (collectively, the
“Seller Damages”), arising out of, relating to or resulting
from:

 

(a)           any breach of a
representation or warranty of the Buyer or USANA contained in this Agreement or
in any other Transaction Document; or

 

(b)           any breach of a covenant or agreement of the Buyer or USANA contained in this Agreement or
in any other Transaction Document.

 

7.4          Procedures
for Indemnification.  Promptly
after receipt by a party entitled to indemnification hereunder (the “Indemnitee”) of written notice of the assertion or the
commencement of any Proceeding by a third-party with respect to any matter
referred to in Sections 7.2 or 7.3, the Indemnitee shall give
written notice thereof to the party obligated to indemnify Indemnitee (the “Indemnitor”), which notice shall include a description of
the Proceeding, the amount thereof (if known and quantifiable) and the basis
for the Proceeding, and 

 

31

 

thereafter shall keep the Indemnitor reasonably
informed with respect thereto; provided,  that
failure of the Indemnitee to give the Indemnitor notice as provided herein
shall not relieve the Indemnitor of its obligations hereunder except to the
extent that the Indemnitor is prejudiced thereby.  A claim for indemnification for any matter
not involving a third-party Proceeding may be asserted by notice to the party
from whom indemnification is sought and shall be paid promptly after such
notice.  Any Indemnitor shall be entitled
to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to an Indemnitee’s claim for
indemnification at such Indemnitor’s expense, and at its option (subject to the
limitations set forth below) shall be entitled to assume the defense thereof by
appointing a reputable counsel reasonably acceptable to the Indemnitee to be
the lead counsel in connection with such defense; provided that:

 

(a)           the Indemnitee shall be
entitled to participate in the defense of such claim and to employ counsel of
its choice for such purpose; provided that the fees and expenses of such
separate counsel shall be borne by the Indemnitee (other than any fees and
expenses of such separate counsel that are incurred prior to the date the
Indemnitor effectively assumes control of such defense which, notwithstanding
the foregoing, shall be borne by the Indemnitor, and except that the Indemnitor
shall pay all of the fees and expenses of such separate counsel if the
Indemnitee has been advised by counsel that a reasonable likelihood exists of a
conflict of interest between the Indemnitor and the Indemnitee);

 

(b)           the Indemnitor shall not be
entitled to assume control of such defense (unless otherwise agreed to in
writing by the Indemnitee) and shall pay the fees and expenses of counsel
retained by the Indemnitee if (i) the claim for
indemnification relates to or arises in connection with any criminal or
quasi-criminal proceeding, action, indictment, allegation or investigation; (ii) the Indemnitee reasonably believes an adverse determination with
respect to the action, lawsuit, investigation, proceeding or other claim giving
rise to such claim for indemnification would be detrimental to or injure the
Indemnitee’s reputation or future business prospects; (iii) the claim seeks an injunction or equitable relief against the
Indemnitee; (iv) the
Indemnitee has been advised by counsel that a reasonable likelihood exists of a
conflict of interest between the Indemnitor and the Indemnitee; (v) upon petition by the Indemnitee, the appropriate court rules that the
Indemnitor failed or is failing to vigorously prosecute or defend such claim,
or (vi) the Indemnitee
reasonably believes that the Buyer Damages or the Seller Damages, as the case
may be, relating to the claim could exceed the maximum amount that such
Indemnitee could then be entitled to recover under the applicable provisions of
Section 7; and

 

(c)           if the Indemnitor shall
control the defense of any such claim, the Indemnitor shall obtain the prior
written consent of the Indemnitee before entering into any settlement of a
claim or ceasing to defend such claim if, pursuant to or as a result of such
settlement or cessation, injunctive or other equitable relief will be imposed
against the Indemnitee or if such settlement does not expressly and
unconditionally release the Indemnitee from all liabilities and obligations
with respect to such claim, without prejudice.

 

32

 

7.5          Limitations on Seller’s
Indemnification
Obligations.  Notwithstanding
anything herein to the contrary, the
Seller shall not be obligated to indemnify the Buyer under this Section 7:

 

(a)           unless the aggregate of all
the Buyer Damages exceeds US$100,000 (the “Seller’s Basket”), in which
case the Buyer shall be entitled to recover all the Buyer Damages, including
the amount equal to the Seller’s Basket; or

 

(b)           to the extent that the
aggregate of all the Buyer Damages exceeds the Escrow Amount (the “Seller’s Indemnification Cap”);

 

provided, that the Seller’s Indemnification Cap and the
Seller’s Basket shall not apply to any indemnification obligation of the Seller arising out of, relating to or resulting from

 

(i)            fraud or
intentional misrepresentation by the
Seller or BabyCare Holdings (with respect
to the actions of BabyCare Holdings, such
actions occurring prior to the Closing);
or

 

(ii)           a
breach of the representations and warranties by the Seller under Section 3.9
regarding liabilities relating to the Trademark License Agreement, including
any breach of the related disclosures by the Seller in Section 3.9 of the
Seller Disclosure Schedule regarding liabilities relating to the Trademark
License Agreement or covenants or agreements by the Seller contemplated under Section
5.3 hereof; and

 

provided  further that, Buyer Damages, if any, arising
from breach stated in Section 7.5(b)(ii) above will be included in calculating
the Seller’s Indemnification Cap applicable to Buyer Damages generally, even
though Buyer Damages arising from breach stated in Section 7.5(b)(ii) above are
not themselves limited by the Seller’s Indemnification Cap or the Seller’s
Basket; provided further that, if when any Buyer Damages arising from the
breach stated in Section 7.5(b)(ii) above, when added to any other Buyer
Damages (which are not related to the breach stated in the Section 7.5(b)(ii)
above), cause the Seller Indemnification Cap to be exceeded, the Buyer shall be
entitled to the entire Escrow Amount and the Seller shall immediately pay to
the Buyer the amount which exceeds the Seller Indemnification Cap; and

 

provided  further,
that in determining the amount of any indemnity, there shall be taken into
account any insurance proceeds or other similar recovery or offset realized,
directly or indirectly, by the party to be indemnified.

 

7.6          Limitations
on Buyer’s Indemnification Obligations.  Notwithstanding anything
herein to the contrary, the Buyer shall not be obligated to indemnify the Seller under this  Section 7:

 

(a)           unless the aggregate of all
Seller Damages exceeds US$100,000 (the “Buyer’s Basket”),
in which case the Seller shall be
entitled to recover all Seller Damages, including the amount equal to the Buyer’s
Basket; or

 

(b)           to the extent that the
aggregate of all Seller Damages exceeds the Escrow Amount (the “Buyer’s Indemnification Cap”);

 

provided,  that the Buyer’s
Indemnification Cap and the Buyer’s Basket shall not apply to any the Buyer
indemnification obligation arising out of, relating to or resulting from

 

(i)            fraud or
intentional misrepresentation by the Buyer; or

 

(ii)           a breach of the
Buyer’s obligations to deliver the Purchase Price in accordance with Section 1.2;

 

33

 

provided  further, that in determining the amount of
any indemnity, there shall be taken into account any insurance proceeds or
other similar recovery or offset realized, directly or indirectly, by the party
to be indemnified.

 

7.7          Remedies Exclusive.  The remedies provided for in
this Section 7 shall
constitute the sole and exclusive remedy for any post-Closing claims made for
breach of the representations and warranties contained in this Agreement, any other Transaction
Documents or Ancillary Document, except (a) in the event
and to the extent of any fraud or
intentional misrepresentation; and (b) with respect to any covenants (but
not representations or warranties) under this Agreement, any other Transaction
Documents or Ancillary Document, and, at the Buyer’s sole discretion, the
Buyer may seek indemnification from the Escrow Amount
or directly against the Seller
or its Affiliates in connection with a Buyer
Damage related to fraud or intentional misrepresentation.

 

SECTION 8.  MISCELLANEOUS
PROVISIONS

 

8.1          Amendments
and Waivers.  This
Agreement may not be amended, supplemented or modified, except by an agreement
in writing signed by each of the parties. 
Either  party may waive compliance by
the other party with any term or provision of this Agreement; provided,
that such waiver shall not operate as a waiver of, or estoppel with respect to,
any other or subsequent failure.

 

8.2          Notices.   Except as may be otherwise
provided herein, all notices, requests, waivers and other communications made
pursuant to this Agreement shall be in writing and shall be conclusively deemed
to have been duly given (a) when hand delivered to the other party, upon
delivery; (b) when sent by facsimile at the number set forth below, upon
receipt of confirmation of error-free transmission; (c) seven (7) Business Days
after deposit in the mail as air mail or certified mail, receipt requested,
postage prepaid and addressed to the other party as set forth below; or (d)
three (3) Business Days after deposit with an overnight delivery service,
postage prepaid, addressed to the parties as set forth below with next business  day delivery guaranteed, provided that the sending party receives a
confirmation of delivery from the delivery service provider.  Each person making a communication hereunder
by facsimile shall promptly confirm by telephone to the person to whom such
communication was addressed each communication made by it by facsimile pursuant
hereto but the absence of such confirmation shall not affect the validity of
any such communication. A party may change or supplement the addresses given
above, or designate additional addresses, for purposes of this Section 8.2 by giving, the other party written notice of the
new address in the manner set forth above.

 

If to the Seller or any BabyCare Company:

 

	
  Attention:

  	
   

  	
  Liji
  Yang, Chief Financial Officer

  
	
  Address:

  	
   

  	
  BabyCare Ltd.  4F, Bldg.
  A, East Gate Plaza  9 Dong Zhong St.

  
	
   

  	
   

  	
  Dong Cheng
  District  Beijing, 100027 PRC

  
	
  Telephone:

  	
   

  	
  +86-10-6419-8869

  
	
  Facsimile:

  	
   

  	
  +86-10-6418-2021

  

 

With
Copy To:

 

34

 

	
  Attention:

  	
   

  	
  Fraser
  Mendel

  
	
  Address:

  	
   

  	
  Schwabe
  Williamson & Wyatt

  
	
   

  	
   

  	
  1420
  5th Avenue, Suite 3400

  
	
   

  	
   

  	
  Seattle
  WA 98101, USA

  
	
  Telephone:

  	
   

  	
  +1-206-407-1573

  
	
  Facsimile:

  	
   

  	
  +1-206-292-0460

  

 

If to the Buyer or USANA:

 

	
  Attention:

  	
   

  	
  Jeffrey
  Yates, Chief Financial Officer

  
	
  Address:

  	
   

  	
  3838 West
  Parkway Boulevard

  
	
   

  	
   

  	
  Salt Lake City,
  Utah 84120, USA

  
	
  Telephone:

  	
   

  	
  +1 (801) 954-7100

  
	
  Facsimile:

  	
   

  	
  +1 (801) 954-7406

  

 

With
Copy To:

 

	
  Attention:

  	
   

  	
  Office
  of General Counsel

  
	
  Address:

  	
   

  	
  USANA
  Health Sciences, Inc.

  
	
   

  	
   

  	
  3838
  West Parkway Boulevard

  
	
   

  	
   

  	
  Salt
  Lake City, Utah 84120, USA

  
	
  Telephone:

  	
   

  	
  +1 (801) 954-7100

  
	
  Facsimile:

  	
   

  	
  +1 (801) 954-7817

  

 

8.3          Governing
Law.  This Agreement shall be
governed by and construed exclusively in accordance with the internal Laws of
the State of New York (as permitted by Section 5-1401 of the New York General
Obligations Law or any similar successor provision) without giving effect to
any choice of law rule that would cause the application of the Laws of any
jurisdiction other than the internal Laws of the State of New York to the
rights and duties of the parties hereunder

 

8.4          Assignments
Prohibited; Successors and Assigns.  None
of the Seller or the BabyCare
Companies shall assign, or permit an assignment (by operation of Law or
otherwise) of, its rights or obligations under or interest in this Agreement
without the prior written consent of the Buyer. 
Any purported assignment or other disposition by any of the Seller
or the BabyCare Companies, except as permitted herein, shall be null
and void.  Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and permitted assigns.

 

8.5          No
Third-Party Beneficiaries.  The
terms and provisions of this Agreement are intended solely for the benefit of
each party hereto and their respective successors and permitted assigns, and
the parties do not intend to confer third-party beneficiary rights upon any
other person.

 

8.6          Counterparts.  This Agreement may be executed (including,
without limitation, by facsimile signature) in one or more counterparts, with
the same effect as if the parties had 

 

35

 

signed the same document.  Each counterpart so executed shall be deemed
to be an original, and all such counterparts shall be construed together and
shall constitute one agreement.

 

8.7          Severability.  If any provision of this Agreement, or the
application of any such provision to any Person or set of circumstances, shall
be determined to be invalid, unlawful, void or unenforceable to any extent, the
remainder of this Agreement, and the application of such provision to Persons
or circumstances other than those as to which it is determined to be invalid,
unlawful, void or unenforceable, shall not be impaired or otherwise affected
and shall continue to be valid and enforceable to the fullest extent permitted
by law.

 

8.8          Entire
Agreement.  This
Agreement, together with all the other
Transaction Documents and Ancillary Documents,  and
all exhibits and schedules attached
hereto and thereto, contains the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, including the
letter re offer to acquire YaoLan Ltd. and underlying BabyCare business dated
January 21, 2010.  The parties
intend that this Agreement, together with the
other Transaction Documents and Ancillary Documents  ,
shall be the several, complete and exclusive embodiment of their agreement,
and that any evidence, oral or written, of a prior or contemporaneous agreement
that alters or modifies this Agreement shall not be admissible in any
proceeding concerning this Agreement. 
The express terms hereof control and supersede any course of performance
and/or usage of the trade inconsistent with any of the terms hereof.

 

8.9          Delays
or Omissions; Waivers. No delay or omission to exercise any right,
power or remedy accruing to any party hereto, upon any  breach or default of any party hereto under this
Agreement, shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of any similar breach of default thereafter occurring;
nor shall any waiver of any other breach or default theretofore or thereafter
occurring.  Any waiver, permit or
approval of any kind or character on the part of any party of any condition or
breach of default under this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing.  All remedies, either under this Agreement or
by laws or otherwise afforded to any party shall be cumulative and not
alternative.

 

8.10        Interpretation.  Unless otherwise indicated herein, with
respect to any reference made in this Agreement to a Section (or Article,  Subsection, Paragraph, Subparagraph or Clause), Exhibit or Schedule,
such reference shall be to a section (or article, subsection, paragraph,
subparagraph or clause) of, or an exhibit or schedule to, this Agreement.  The table of contents and any article,
section, subsection, paragraph or subparagraph headings contained in this
Agreement and the Recitals at the beginning of this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.  Whenever the words “include,”
“includes” or “including” are used in this Agreement, they shall be deemed, as
the context indicates, to be followed by the words “but (is/are) not limited
to.”  Words used herein, regardless of
the number and gender specifically used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context indicates is appropriate.  Where specific language is used to clarify or
illustrate by example a general statement contained herein, such specific
language shall not be 

 

36

 

deemed to modify, limit or restrict the construction
of the general statement which is being clarified or illustrated.

 

8.11        Construction.  The construction of this Agreement shall not
take into consideration the party who drafted or whose representative drafted
any portion of this Agreement, and no canon of construction shall be applied
that resolves ambiguities against the drafter of a document.  Each party acknowledges that: (a) it has read
this Agreement; (b) it has been represented in the preparation, negotiation and
execution of this Agreement by legal counsel of its own choice or has
voluntarily declined to seek such counsel; and (c) it understands the terms and
consequences of this Agreement and is fully aware of the legal and binding
effect of this Agreement.

 

8.12        Expenses
of the Parties.  Subject to
provisions contained herein relating to recovery of fees in connection with
legal actions or proceedings, each party shall bear the expenses incurred by
such party in connection with the negotiation and execution of this Agreement
and the consummation of the transactions contemplated hereby.

 

8.13        Dispute
Resolution; Venue; Service of Process.  The parties agree to negotiate in good faith
to resolve any dispute between them regarding this Agreement.  If the negotiations do not resolve the
dispute to the reasonable satisfaction of all parties within thirty (30) days, such dispute shall be resolved exclusively by the
federal courts located in Salt Lake County in the State of Utah, USA,
and each party hereto agrees to submit to the jurisdiction of said courts and
agrees that venue shall lie exclusively with such courts.  Each party hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection which such party may raise now, or hereafter have, to the laying of
the venue of any such suit, action or proceeding brought in such court and any
claim that any such suit, action or proceeding brought in such a court has been
brought in an inconvenient forum.  Each party
agrees that, to the fullest extent permitted by applicable law, a final
judgment in any such suit, action, or proceeding brought in such a court shall
be conclusive and binding upon such party, and may be enforced in any court of
the jurisdiction in which such party is or may be subject by a suit upon such
judgment, provided that service of process is effected upon such party
as permitted by applicable law.

 

8.14        Further
Assurances.  Each party
agrees (a) to furnish upon request to each other party such further
information, (b)  to execute and
deliver to each other party such other documents, and (c) to do such other
acts and things, all as another party may reasonably request for the purpose of
carrying out the intent of this Agreement and the transactions contemplated by
this Agreement.

 

8.15        Time of
the Essence.  With regard
to all dates and time periods set forth or referred to in this Agreement, time
is of the essence.

 

Signatures Follow On a Separate Page

 

37

 

IN
WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
on its behalf by their respective officers thereunto duly authorized all as of
the date first written above.

 

	
   

  	
  Buyer:

  
	
   

  	
   

  
	
   

  	
  Pet
  Lane, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

IN
WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
on its behalf by their respective officers thereunto duly authorized all as of
the date first written above.

 

	
   

  	
  USANA:

  
	
   

  	
   

  
	
   

  	
  USANA
  Health Sciences, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

IN
WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
on its behalf by their respective officers thereunto duly authorized all as of
the date first written above.

 

 

	
   

  	
  Seller:

  
	
   

  	
   

  
	
   

  	
  YaoLan
  Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

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