PURCHASEAND SALE AGREEMENT byand among COHERENT,INC., STOCKERYALE,INC. and STOCKERYALECANADA, INC. Datedas of October 13, 2009 TABLEOF CONTENTS

Schedule 9.2(g)	Schedule of Key Employees
Schedule 9.2(h)	Schedule of Consents
Schedule 9.2(i)	Schedule of Released Liens
Schedule 9.2(j)	Schedule of Certain Creditors (Payoff Letter)

 

(a)           all Equity Interests and the corporate charter and bylaws, qualifications to transact business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, records and ledgers, blank stock certificates and other documents relating to organization, maintenance and existence of any Subsidiaries of Seller;

 

(b)           the tangible personal property identified on Schedule 2.2(b);

 

(c)            the Registered Intellectual Property identified on Schedule 2.2(c);

 

(d)           all interests in real property other than pursuant to the Montreal Sublease;

 

(e)            the Contracts identified on Schedule 2.2(e);

 

(f)            the Permits identified on Schedule 2.2(f);

 

(g)           all insurance policies;

 

(h)           the claims, actions, causes of action, choses in action, rights of recovery, rights of setoff, rights of recoupment and rights of indemnification identified in Schedule 2.2(h), as well as all claims, actions, causes of action, choses in action, rights of recovery, rights of setoff, rights of recoupment and rights of indemnification that directly relate to or arise out of any Excluded Assets or Excluded Liabilities;

 

(i)            the books, records, ledgers, files, documents and correspondence, all customer, supplier, advertiser, circulation and other lists (including subscriber lists), all invoices and sales data, and all studies, reports and other printed or written materials or data identified in Schedule 2.2(i);

 

(j)            all assets of and rights under any Seller Employee Benefit Plans;

 

(k)           all cash and cash equivalents;

 

(l)            all refunds for Taxes; and

 

(m)          all rights of Seller and SYC under this Agreement, the Related Agreements and any other agreements, contracts, certificates or instruments executed and delivered by Seller or SYC in connection with this Agreement and the transactions contemplated hereby; and

 

(n)           the other assets identified on Schedule 2.2(n).

 

2.3           Assumed Liabilities. Upon the terms and subject to the conditions set forth in this Agreement (including the terms of Section 2.4), at the Closing, Buyer shall (or shall cause one or more of its Subsidiaries to) irrevocably assume from Seller and SYC, and Seller and SYC shall irrevocably assign to Buyer or one or more of its Subsidiaries, only the following Liabilities of Seller and SYC as of the Closing that relate to the Business (each, an “Assumed Liability” and collectively, the “Assumed Liabilities”):

 

(a)           all Liabilities of Seller and SYC under the Transferred Contracts identified on Schedule 2.1(c);

 

(b)           all Liabilities of Seller and SYC arising out of or in connection with the third party claims, actions, causes or action, choses in action, rights of recovery, rights of setoff, rights of recoupment and rights of indemnification against Seller and SYC identified on Schedule 2.3(b) (collectively, the “Assumed Claims”);

 

(c)           all accounts payable related to the Business identified on Schedule 2.3(c) which is dated as of the Financial Schedules Date, as well as accounts payable to the extent related to the Business that have arisen during the period of time between the Financial Schedules Date and the Closing;

 

(d)           all Liabilities that arise after the Closing with respect to periods commencing after the Closing relating to the Transferred Employees;

 

(e)            the Liabilities identified on Schedule 2.3(e).

 

2.4           Excluded Liabilities.  Buyer shall not assume (and shall not cause any of its Subsidiaries to assume) from Seller, SYC or any of their respective Subsidiaries any Liabilities other than the Assumed Liabilities.  Without limiting the generality of the foregoing, for all purposes of and under this Agreement, “Assumed Liabilities” shall not include any Liabilities of Seller, SYC or any of their respective Subsidiaries other than the Assumed Liabilities (each, an “Excluded Liability” and collectively, the “Excluded Liabilities”), and shall expressly exclude the following, in each case whether or not related to the Business:

 

(a)           all Liabilities that relate to or arise out of any Excluded Assets or other Excluded Liabilities;

 

(b)           all Liabilities under the Seller Employee Benefit Plans and all Employment Liabilities;

 

(c)           all Liabilities of Seller, SYC and their respective Subsidiaries for Taxes payable by Seller, SYC and their respective Subsidiaries, including Taxes that are the Liability of Seller, SYC and their respective Subsidiaries pursuant to and in accordance with the terms of Section 2.6 and Article VIII;

 

(d)           all Liabilities of Seller, SYC and their respective Subsidiaries arising out of or in connection with any third party claims, actions, causes or action, choses in action, rights of recovery, rights of setoff, rights of recoupment and rights of indemnification against Seller, SYC and their respective Subsidiaries other than the Assumed Claims;

 

(e)           all Liabilities of Seller and SYC for fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby;

 

(f)            Seller’s Retained Environmental Liabilities;

 

(g)           all Liabilities of Seller, SYC and any of their respective Subsidiaries under this Agreement and any other agreements, contracts, certificates or instruments executed and delivered by Seller, SYC or any of their respective Subsidiaries in connection with this Agreement and the Transactions contemplated hereby; and

 

(h)           the Liabilities identified on Schedule 2.4(h).

 

2.5           Consideration for Transferred Assets. 

 

(a)           Consideration.  The aggregate purchase price (the “Purchase Price”) for the Transferred Assets shall consist of (i) $15,000,000 in cash (the “Cash Portion”), (ii) the amount, if any, payable by Buyer or Seller in accordance with Section 2.10(f) hereof and (iii) assumption of the Assumed Liabilities.

 

(b)           Payment in Full.  (A) The delivery of the Cash Portion by Buyer (or one or more of its Subsidiaries), (i) minus the sum of the deposit of $750,000 of the Cash Portion in the Escrow Fund, (ii) plus the amount, if any, payable by Buyer or Seller in accordance with Section 2.10(f) (which may be a positive or negative number, which will result in an increase or a decrease in the cash amount paid, as applicable) and (iii) minus the payment of the amounts set forth in the Payoff Letter, and (B) the assumption of the Assumed Liabilities by Buyer (or one or more of its Subsidiaries) pursuant to and in accordance with the terms of this Agreement shall constitute payment in full for all of the Transferred Assets.  At or immediately following the Closing, Buyer will deposit $750,000 in the Escrow Fund.

 

(c)           Allocation of Transferred Assets, Assumed Liabilities and Purchase Price.  Within 60 days following the Closing Date, Buyer shall prepare a schedule setting forth Buyer (if applicable) and each Subsidiary of Buyer that will be purchasing Transferred Assets and/or assuming Assumed Liabilities pursuant to this Agreement (each, a “Buying Entity” and collectively, the “Buying Entities”) and which Transferred Assets such Buying Entities are purchasing and which Assumed Liabilities such Buying Entities are assuming.  Prior to the Closing, Seller shall prepare a schedule setting forth Seller and each Subsidiary of Seller that will be selling any Transferred Assets and/or assigning any Assumed Liabilities pursuant to this Agreement (each, a “Selling Entity” and collectively, the “Selling Entities”) and which Transferred Assets such Selling Entities are selling and which Assumed Liabilities such Selling Entities are assigning.  Within 60 days following the Closing Date, Buyer shall deliver to Seller a preliminary purchase price allocation among the Transferred Assets in accordance with Section 1060 of the Code (the “Preliminary Purchase Price Allocation”).  Within five (5) days after Seller's receipt of the Preliminary Purchase Price Allocation, the Preliminary Purchase Price Allocation shall be adjusted by the parties (or if the parties cannot agree within five (5) days, by a nationally or regionally recognized valuation firm mutually acceptable to Buyer and Seller (the “Appraiser”)).  The decision of the Appraiser with regard to the allocation of the Purchase Price among the Transferred Assets shall be final and binding on the Buying Entities and the Selling Entities, and the costs of the Appraiser shall be shared equally by the Buyer and Seller.  Each of Buyer and Seller, when reporting the transactions consummated hereunder in its own Tax Returns shall allocate the Purchase Price paid or received, as the case may be, in a manner that is consistent with the Final Allocation.  Additionally, each of Buyer and Seller will comply with, and furnish the information required by, Section 1060 of the Code, and any regulation thereunder.

 

2.6           Sales and Use Taxes.  Seller and SYC shall bear and pay any and all sales, use, goods and services, value added, transfer and other similar taxes arising out of the transfer of the Transferred Assets to Buyer or its designees pursuant hereto (the “Transfer Taxes”).  To the extent permitted by applicable Law, Buyer shall cooperate with Seller and SYC in minimizing such Transfer Taxes.  To the extent any Tax authority provides notice to Buyer of an audit of the Transfer Taxes, Buyer shall promptly notify Seller or any successor thereto and Seller and SYC or any successor thereto shall promptly assume responsibility for such audit and shall bear and pay when due any additional Transfer Taxes (plus interest and penalties determined to be due thereon) ultimately assessed with respect to the transfer of the Transferred Assets to Buyer or its designee pursuant hereto.  Buyer shall cause its Subsidiary, Coherent International LLC, to be the purchaser of the Transferred Assets of the Montreal Business.  Buyer represents that Coherent International LLC has made the appropriate registrations in the province of Quebec to obtain Goods and Services Tax and Quebec Sales Tax identification numbers and has obtained such identification numbers from the competent authorities.  SYC will, and Buyer shall cause Coherent International LLC to, undertake to file the joint elections provided for under subsection 167(1) of the Excise Tax Act (Canada) and article 75 of An Act respecting the Quebec sales tax  with the competent authorities by the due date for such filing.

 

2.7           Bulk Transfer Laws.  Buyer and Seller shall waive, to the fullest extent permitted by applicable Law, any and all bulk transfer or similar Laws that may apply to the transactions contemplated by this Agreement.  Notwithstanding the foregoing, Seller shall indemnify and hold Buyer and each of its designees who acquire Transferred Assets harmless from and against any and all Losses incurred by Buyer or such designee in respect of any such bulk transfer or similar Laws and Buyer’s or such designee’s noncompliance therewith or waiver thereof.

 

2.8           Closing. 

 

(a)           Closing Place, Time and Date.  Unless this Agreement is earlier terminated pursuant to Section 10.1, the closing of the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California at 10:00 a.m. PDT on the date which is two (2) Business Days following the satisfaction or waiver (to the extent permitted hereunder) of the conditions set forth in Article IX (other than those conditions that by their terms are not capable of being satisfied or waived until the Closing, but subject to the satisfaction or waiver (to the extent permitted hereunder) of such conditions at the Closing), or at such other place and such other location, time and/or date as the parties hereto shall mutually agree.  For all purposes of and under this Agreement, “Closing Date” shall mean and refer to the actual date on which the Closing shall occur pursuant to this Agreement.

 

(b)           Closing Deliveries.

 

(i)           At the Closing, Seller shall deliver, or cause to be delivered, to Buyer or its designees the following:

 

a)           the Transferred Assets;

 

b)          such executed deeds, bills of sale, assignments or other instruments of transfer and assignment, and releases (including releases or terminations of Liens on the Transferred Assets other than Permitted Liens) as are reasonably necessary to consummate the sale and transfer of the Transferred Assets contemplated by this Agreement, all in form and substance reasonably satisfactory to Buyer and its counsel;

 

c)           the copy of resolutions of the Seller Board and the board of directors of SYC authorizing the execution, delivery and performance of this Agreement, the Related Agreements and each other agreement, document or certificate to which it is a party and is required to be delivered pursuant hereto or in connection herewith and authorizing the consummation of the transactions contemplated hereby and thereby by Seller and SYC and a certificate of the secretary or clerk of Seller, dated the Closing Date, to the effect that such resolutions were duly adopted and are in full force and effect;

 

d)          duly executed counterparts to each of the Related Agreements and the Montreal Sublease;

 

e)           certificates satisfying the requirements of Treasury Regulation § 1.1445-2(b) that exempt the Buyer Entities from any requirement to withhold Taxes under Code § 1445; and

 

f)           any and all other documents, instruments, certificates and agreements contemplated by Article IX, by the Related Agreements or as Buyer may reasonably request in order to effectively transfer to Buyer or its designees all of the Transferred Assets pursuant hereto to the fullest extent permitted by applicable Law.

 

(ii)           At the Closing, Buyer shall deliver, or cause to be delivered, to Seller or SYC (as Seller may direct) the following:

 

a)           an amount in cash equal to the Cash Portion (subject to the adjustments set forth in Section 2.5(b) above), payable in immediately available funds by wire transfer to an account designated by Seller to Buyer in writing not later than two Business Days prior to the Closing Date;

 

b)          duly executed counterparts to each of the Related Agreements and Montreal Sublease;

 

c)           such executed assignment and assumption instruments as are reasonably necessary to consummate the assumption of the Assumed Liabilities contemplated by this Agreement, all in form and substance reasonably satisfactory to Seller and its counsel;

 

d)          the copy of resolutions of the Buyer Board, or the board of directors of its designees as may be appropriate, authorizing the execution, delivery and performance of this Agreement, and each other agreement, document or certificate to which it is a party and is required to be delivered pursuant hereto or in connection herewith and authorizing the consummation of the transactions contemplated hereby and thereby by Buyer and a certificate of the secretary of Buyer, dated the Closing Date, to the effect that such resolutions were duly adopted and are in full force and effect; and

 

e)           any and all other instruments, certificates and agreements contemplated by Article IX, by the Related Agreements or as Seller may reasonably request in order to effectively make Buyer or one or more of its designees responsible for all Assumed Liabilities pursuant hereto to the fullest extent permitted by applicable Law.

 

(c)           Effective Time.  The effective date of the transfer of the Transferred Assets from Seller to Buyer or its designees pursuant hereto shall be the close of business on the day immediately preceding the Closing Date (the “Effective Time”).  From and after the Effective Time, the Business shall be conducted and the Transferred Assets shall be held for the account and benefit, and at the risk, of Buyer or its designees, as applicable.

 

2.9           Non-Assignable Assets. 

 

(a)           Notwithstanding anything to the contrary set forth in this Agreement or any Related Agreement, this Agreement shall not constitute an agreement to assign any Contract or Permit that would otherwise be a Transferred Asset under this Agreement, or any benefit arising thereunder or resulting therefrom, if and to the extent that an attempted assignment, transfer or conveyance thereof, without the consent of a party thereto (other than Seller, SYC or any of their respective Subsidiaries) or Governmental Authority, as the case may be, would constitute a breach or other contravention thereof or in any way adversely affect the rights of Buyer or any of its designees thereunder (each, a “Non-Assignable Asset”).  Prior to the Closing, Seller and SYC shall, and shall cause each of their respective Subsidiaries to, use all commercially reasonable efforts to obtain the consent of any Persons and Governmental Authorities that may be required in order to assign, transfer and convey all of the Transferred Contracts and Transferred Permits to Buyer or its designees pursuant to this Agreement.  If such consent is not obtained prior to the Closing, or if an attempted assignment, transfer or conveyance thereof would be ineffective or would adversely affect the rights thereunder so that Buyer would not receive substantially all such rights, (i) Seller shall, and shall cause each other Selling Entity to, continue to use reasonable best efforts to obtain the consent of any Persons or Governmental Authorities that may be required to assign, transfer or convey each Non-Assignable Asset to Buyer or its designees, and (ii) Seller and Buyer shall cooperate in a mutually agreeable arrangement under which Buyer would obtain the benefits and assume the obligations thereunder in accordance with this Agreement, including by subcontracting, sub-licensing or sub-leasing to Buyer, or under which Seller would enforce for the benefit of Buyer, with Buyer assuming Seller’s obligations, any and all rights of Seller against a third party thereto.  Seller shall promptly pay to Buyer when received all monies received by Seller in respect of such Non-Assignable Assets or any benefit arising thereunder, except to the extent the same represents an Excluded Asset.  To the extent the benefits therefrom and obligations thereunder have been provided by alternative arrangements as provided above, any such Non-Assignable Asset shall be deemed to be a Transferred Asset, provided that Buyer shall not be responsible for any Liabilities (i) arising out of a claim of breach of such Non-Assignable Asset due to the establishment of the alternative arrangements, or (ii) arising out of such Non-Assignable Asset as a result of Seller’s action without Buyer’s approval in a manner inconsistent with the alternative arrangements.

 

(b)           In furtherance and not in limitation of Section 2.9(a), in the event that Seller is unable to obtain any required consent to the transfer at Closing to the Buyer of any Non-Assignable Asset and Seller and Buyer have failed to agree on alternate arrangements to an assignment reasonably satisfactory to Buyer, then (i) Seller shall remain a party to and shall continue to be bound by such Non-Assignable Asset, (ii) Buyer shall pay, perform and discharge fully all of the obligations of Seller thereunder from and after the Closing Date, upon the terms and subject to the conditions of such Non-Assignable Asset, (iii) Seller shall, without further consideration therefor, pay, assign and remit to Buyer promptly all monies, rights and other consideration received in respect of such Non-Assignable Asset on and after the Closing Date, and (iv) Seller shall, without further consideration therefor, exercise and exploit its rights and options under such Non-Assignable Asset in the manner and only to the extent directed by Buyer.  If and when any consent shall be obtained following the Closing Date with respect to the transfer by Seller to Buyer of any such Non-Assignable Asset or such Non-Assignable Asset shall otherwise become assignable following the Closing Date, Seller shall promptly assign all of its rights and obligations thereunder to Buyer, without further consideration therefor, and Buyer shall, without further consideration therefor, assume such rights and obligations, to the fullest extent permitted.  The existence of the provisions of this Section 2.9 shall not reduce or otherwise adversely affect any party’s ability to enforce any of its rights under this Agreement.

 

2.10         Closing Date Balance Sheet Adjustment. 

 

(a)           As promptly as practicable, and in any event not later than sixty (60) days after the Closing Date, Buyer shall prepare and deliver to Seller a written statement (the “Accounting Report”) setting forth Buyer’s good faith calculation of the Net Assets at Closing, which shall be based on Buyer’s review of the financial and other books and records of Seller, SYC and their respective Subsidiaries and such other documents as Buyer and Seller shall mutually agree.

 

(b)           Seller shall have the right to review the Accounting Report and, within thirty (30) days after the date of receipt of such Accounting Report, may deliver to Buyer a certificate (a “Dispute Notice”) setting forth its objections, if any, to the Accounting Report, together with a summary of the reasons therefor and calculations which, in its view, are necessary to eliminate such objections.  If Seller does not object within such thirty (30) day period, the determination of Net Assets at Closing as set forth in the Accounting Report shall be final and binding.

 

(c)           If Seller objects to the Accounting Report within such thirty (30) day period, Buyer and Seller shall negotiate in good faith and use their reasonable best efforts to resolve such objections by written agreement (the “Agreed Adjustments”) within fifteen (15) days of receipt by Buyer of the Dispute Notice.  If Buyer and Seller resolve such objections, the Accounting Report, as adjusted by the Agreed Adjustments, shall be the final and binding determination of the Net Assets at Closing.

 

(d)           If any such objections are not resolved by Agreed Adjustments within such fifteen (15) day period, then Buyer and Seller shall submit such unresolved objections to the national office of a nationally recognized accounting firm that is mutually acceptable to Buyer and Seller and that is not the current independent registered public accounting firm of either Buyer or Seller (the “Accounting Firm”).  The Accounting Firm shall act as an expert, not as an arbitrator, and shall be directed by Buyer and Seller to resolve such objections based solely on the written submissions of Buyer and Seller.  The Accounting Firm shall investigate only those items which are in dispute and shall not assign a value to any item that is (i) greater than the greatest value for such item claimed by either of Buyer or Seller or (ii) lower than the lowest value for such item claimed by either of Buyer or Seller.  The parties shall instruct the Accounting Firm to render its determination within 30 days of the referral of such matter thereto and to deliver written reports to each of Buyer and Seller setting forth its resolution of such unresolved objections.  The Accounting Report, after giving effect to any Agreed Adjustments and to the resolution of disputed matters by the Accounting Firm, shall be the final and binding determination of Net Assets at Closing.

 

(e)           The parties shall make available to the other parties to this Agreement and, if applicable, the Accounting Firm, (i) such books, records and other information (including work papers) as any of the foregoing may reasonably request to prepare or review the Accounting Report or any matters submitted to the Accounting Firm and (ii) those of its employees and representatives who were primarily responsible for the preparation of the Accounting Report or the Dispute Notice, as the case may be.  The fees and expenses of the Accounting Firm hereunder shall be paid by the party whose calculation or estimate of disputed items on an aggregate basis represents the greatest difference from the Accounting Firm’s determination of those items on an aggregate basis.

 

(f)           If Net Assets at Closing is greater than $4,561,072, and such difference is greater than $150,000, then Buyer shall promptly (and in any event within five (5) Business Days) pay such amount in excess of $150,000 to the Seller up to a maximum of $500,000 and (ii) if $4,561,072 is greater than the Net Assets at Closing, then Seller shall promptly (and in any event within five (5) Business Days) pay such amount in excess of $150,000 to the Buyer.

 

2.11         Further Action.  Seller shall, at any time and from time to time after the Closing Date, upon the request of Buyer, do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further deeds, assignments, transfers and other instruments of transfer and conveyance as may be required for the assigning, recording, transferring, granting and conveying to Buyer or its successors and assigns, or for aiding and assisting in collecting and reducing to possession, any or all of the Transferred Assets.

 

 

Except, with respect to any Section or subsection of this Article III, as set forth in the corresponding Section or subsection of the disclosure schedule delivered by Seller and SYC to Buyer on the date of this Agreement (the “Seller Disclosure Schedule”), Seller and SYC hereby represent and warrant to Buyer as is set forth in this Article III.  The number and section references in the Seller Disclosure Schedule shall correspond to the numbered and lettered paragraphs in the Agreement.  Information disclosed in a particular section or subsection of the Seller Disclosure Schedule shall be deemed to be disclosed and incorporated into any other section or subsection of the Seller Disclosure Schedule where such disclosure would otherwise be appropriate, but only to the extent that it is reasonably apparent from the express language of such disclosure that it applies to such other section or subsection. Headings, captions and cross-references in the Seller Disclosure Schedule are for convenience of reference only and shall in no way modify, limit or affect, or be considered in construing or interpreting any information provided herein.  The information contained in the Seller Disclosure Schedule is as of the date of the Agreement, but shall not alter the date as of which any representation or warranty is made pursuant to the Agreement. The inclusion of any information on any part of the Seller Disclosure Schedule shall not be deemed to be an admission or acknowledgement by the Seller, SYC or any of their respective Subsidiaries that such information is material or that such information includes any act or omission outside the ordinary course of business of the Seller or SYC. Nothing in the Seller Disclosure Schedule constitutes an admission of liability or obligation of the Seller or SYC or an admission against the interests of the Seller or SYC.

 

3.1           Organization and Standing.  Each Selling Entity (i) is a corporation or other legal entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its respective organization (to the extent the “good standing” concept is applicable in the case of any jurisdiction outside the United States), (ii) has the requisite corporate power and authority to carry on its respective business as it is presently being conducted and to own, lease or operate its respective properties and assets, and (iii) is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification necessary (to the extent the “good standing” concept is applicable in the case of any jurisdiction outside the United States), except in any jurisdictions other than the State of New Hampshire, the city of Montreal or the province of Quebec, where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Business Material Adverse Effect.  No Selling Entity is in violation of its certificate of incorporation, bylaws or other applicable constituent documents in any material respect.

 

3.2           Authorization; Board Approval. 

 

(a)           Each Selling Entity has all requisite corporate or other organizational power and authority to execute and deliver this Agreement and any Related Agreement to which it will be a party, to consummate the transactions contemplated by this Agreement and the Related Agreements and to perform its obligations hereunder and thereunder.  The execution and delivery by each Selling Entity of this Agreement and the Related Agreements to which it will be a party and the consummation by each Selling Entity of the transactions contemplated by this Agreement and the Related Agreements have been duly authorized by all necessary corporate action on the part of each Selling Entity, and no additional corporate or other actions or proceedings on the part of any Selling Entity is necessary to authorize, adopt or approve this Agreement and the Related Agreements and the transactions contemplated hereby and thereby.  This Agreement has been, and each of the Related Agreements upon their execution and delivery will be, duly executed and delivered by each Selling Entity party thereto and, assuming the due authorization, execution and delivery by Buyer, constitutes a legal, valid and binding obligation of each such Selling Entity, enforceable against such Selling Entity in accordance with its terms, except that such enforceability (a) may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws affecting or relating to creditors’ rights generally and (b) is subject to general principles of equity.

 

(b)           On October 7, 2009, by unanimous written consent of the entire Board of Directors of the Seller, the Seller Board unanimously approved this Agreement and the transactions contemplated hereby, including the transfer of the Transferred Assets.  As of the date hereof, the Seller Board has not rescinded or modified in any way the foregoing determinations and actions.

 

(c)           No action on the part of the stockholders of Seller is required to approve the sale of the Transferred Assets contemplated hereby.  The approval of the sole stockholder of SYC is required to approve the sale of the Transferred Assets contemplated hereby.

 

3.3          Non-contravention; Required Consents. 

 

(a)           The execution, delivery and performance of this Agreement and the Related Agreements by each Selling Entity party thereto, the consummation by each Selling Entity of the transactions contemplated by this Agreement and the Related Agreements and the compliance by each Selling Entity with any of the terms hereof and thereof do not and will not (i) violate or conflict with any provision of the certificates of incorporation or bylaws or other constituent documents of any of the Selling Entities, (ii) subject to obtaining such Consents identified in Section 3.3(a)(ii) of the Seller Disclosure Schedule, violate, conflict with, or result in the breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, any Contract to which any of the Selling Entities is a party or by which any of the Selling Entities or any of their respective properties or assets may be bound, (iii) violate or conflict with any Law or Order applicable to any of the Selling Entities or by which any of their properties or assets are bound or (iv) result in the creation of any Lien upon any of the Transferred Assets, except in the case of each of clauses (ii), (iii) and (iv) above, for such violations, conflicts, breaches, defaults, terminations, accelerations or Liens which would not, individually or in the aggregate, have a Business Material Adverse Effect.

 

(b)           No consent, approval, Order or authorization of, or filing or registration with, or notification to (any of the foregoing being a “Consent”), any Governmental Authority is required on the part of any of the Selling Entities in connection with the execution, delivery and performance of this Agreement and the Related Agreements by each Selling Entity party thereto, the consummation by each Selling Entity of the transactions contemplated by this Agreement and the Related Agreements and the compliance by each Selling Entity with any of the terms hereof and thereof.

 

3.4          Controls; Compliance. 

 

(a)           Seller and SYC have established and maintain, adhere to and enforce a system of internal accounting controls which are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP, including policies and procedures that (i) require the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Seller and SYC, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of Seller and SYC are being made only in accordance with appropriate authorizations of management and Seller Board and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of Seller and SYC that could have a material effect on Seller’s financial statements.  Except as Seller has disclosed in its quarterly and annual reports filed with the SEC (all of which have been remediated), neither Seller nor SYC (including any employee thereof) nor Seller’s independent auditors has identified or been made aware of (A) any significant deficiency or material weakness in the system of internal accounting controls utilized by Seller and SYC, (B) any fraud, whether or not material, that involves Seller’s management or other employees who have a role in the preparation of financial statements or the internal accounting controls utilized by Seller and SYC or (C) any claim or allegation regarding any of the foregoing.

 

(b)           Seller has established and maintains disclosure controls and procedures required by Rules 13a-15(e) or 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by Seller in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to Seller’s management to allow timely decisions regarding required disclosure.

 

3.5          Business Financial Statements.  Section 3.5 of the Seller Disclosure Schedule sets forth the following financial statements with respect to the Business: (i) unaudited balance sheet and income statement as of and for the years ended December 31, 2007 and 2008 for the SOF Business (the “SOF Business Financial Statements”); and (ii) unaudited balance sheet and income statement for the six-month period ended June 30, 2009 for the SOF Business (“SOF Interim Financial Statements”); (iii) the unaudited balance sheet and income statement as of and for the years ended December 31, 2007 and 2008 for the Montreal Business (the “Montreal Business Financial Statements”); and (iv) unaudited balance sheet and income statement as of and for the six-month period ended June 30, 2009 for the Montreal Business (“Montreal Interim Financial Statements” and together with the SOF Business Financial Statements, SOF Interim Financial Statements and Montreal Business Financial Statements, the “Business Financial Statements”).  The Business Financial Statements have been prepared in accordance with GAAP applied on a consistent basis (except as may be noted therein), and present fairly, in all material respects, the financial position and the results of operations of the SOF Business and the Montreal Business as of the respective dates thereof or for the periods then ended, except that such financial statements do not include footnotes that would be required by GAAP.

 

3.6          No Undisclosed Liabilities; Indebtedness.  There are no Liabilities related to the Business of any nature other than (a) Liabilities that are fully accrued or otherwise reserved against in the Balance Sheet, (b) Liabilities under this Agreement, (c) Liabilities incurred in connection with the transactions contemplated by this Agreement, (d) executory obligations under any Transferred Contract, and (e) other Liabilities that have not, individually or in the aggregate, had a Business Material Adverse Effect.  Assuming that the amounts set forth in the Payoff Letter are paid in full at the Closing, immediately after the Closing, neither Buyer nor SYC shall have any Indebtedness of the type described in clauses (i), (ii), (iv) and (vii) in the definition thereof.

 

3.7          Absence of Certain Changes.  Since June 30, 2009, except for actions expressly contemplated by this Agreement, the Business has been conducted, in all material respects, in the ordinary course consistent with past practice, and there has not been or occurred any of the following with respect to the Business:

 

(a)          any event, development, change, circumstance or condition that has had, individually or in the aggregate, a Business Material Adverse Effect (whether or not any events, developments, changes, circumstances or conditions occurring prior to June 30, 2009 caused or contributed to the occurrence of such Business Material Adverse Effect);

 

(b)           any sale, transfer or other disposition of any of the Transferred Assets, except in the ordinary course of business consistent with past practice and which are not, individually or in the aggregate, material to the Business;

 

(c)           any damage, destruction or other casualty loss (whether or not covered by insurance) with respect to any of the Transferred Assets;

 

(d)           any change in any method of accounting or accounting principles or practice, or Tax election, except for any such change required by reason of a change in GAAP or regulatory accounting principles;

 

(e)           (i) any incurrence or assumption of any long-term or short-term debt or issuance of any debt securities except for short-term debt incurred to fund operations of the Business in the ordinary course of business consistent with past practice, (ii) any assumption, guarantee or endorsement of the obligations of any other Person, (iii) any loan, advance or capital contribution to, or other investment in, any other Person (other than customary loans or advances to employees or direct or indirect wholly-owned Subsidiaries of Seller, in each case in the ordinary course of business consistent with past practice) or (iv) any mortgage or pledge of any assets, tangible or intangible, or any creation of any Lien thereupon;

 

(f)           any plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of any of the Selling Entities;

 

(g)           any payment, discharge or satisfaction of any claim, Lien, obligation or Liability of the Business, other than (i) Permitted Liens, (ii) the payment, discharge or satisfaction of claims, Liens, obligations or Liabilities reflected or reserved against in the Balance Sheet or (iii) in the ordinary course of business;

 

(h)           any disposition of or lapse of any right to the use of any of the Transferred Intellectual Property, or application therefor or any disposition of, or to Seller’s Knowledge any disclosure of any Trade Secrets or other confidential information constituting Transferred Intellectual Property to Persons not bound by confidentiality obligations;

 

(i)           the making of any capital expenditure or commitment in excess of $10,000 for additions to property, plant, equipment, intangible or capital assets or for any other purpose, other than for emergency repairs or replacements and other than commitments that may be canceled by Buyer without fee or penalty or any other payment with 30 days notice or less;

 

(j)            any entry related to the Business, into any Collective Bargaining Agreement, or any experience of any organized slowdown, work interruption, strike or work stoppage;

 

(k)           any granting by Seller or SYC of any increase in compensation or fringe benefits to any Business Employee, except for normal increases of cash compensation in the ordinary course of business consistent with past practice (other than to directors or officers of Seller), or any payment by Seller or SYC of any bonus to any Business Employee, except for bonuses made in the ordinary course of business consistent with past practice (other than to directors or officers of Seller), or any granting by Seller or SYC of any increase in severance or termination pay to any Business Employee or any entry by Seller or SYC into any currently effective employment, severance, termination or indemnification agreement with any Business Employee or any agreement with any Business Employee the benefits of which are contingent or the terms of which are materially altered upon the occurrence of the transactions contemplated hereby (other than offer letters and letter agreements entered into in the ordinary course of business consistent with past practice with Business Employees who are not officers and are terminable “at will” without Seller or SYC incurring any material liability or financial obligation) or any other change in the compensation or benefits structure applicable to the Business Employees in a manner that adversely affects in a material respect the cost structure of the Business;

 

(l)            any other transaction or Material Contract other than in the ordinary course of business consistent with past practice; or

 

(m)          any Contract, whether in writing or otherwise, to take any of the actions identified in this Section 3.7.

 

3.8          Compliance with Laws and Orders. 

 

(a)           The Business is being conducted in compliance with all applicable Laws and Orders.  Seller and SYC, in operating the Business, have complied with all U.S. export control Laws regarding any export of its products or technology, including the Export Administration Regulations (“EAR”) maintained by the U.S. Department of Commerce and the International Traffic in Arms Regulations (“ITAR”) maintained by the U.S. Department of State. The Business as currently conducted does not require any of the Buying Entities to obtain a license from the U.S. Departments of Commerce or State or an authorized body thereof under ITAR or EAR or other legislation regulating the development, commercialization or export of technology.

 

(b)           Since January 1, 2003, no Selling Entity has received any written notification, with respect to the Business, from any Governmental Authority (i) asserting that it is in material violation of any Law, (ii) threatening to revoke the Transferred Permits, or (iii) requiring it (A) to enter into or consent to the issuance of a cease and desist order, consent decree, written agreement, commitment or memorandum of understanding, or (B) to adopt any policy, procedure or resolution of its board of directors or similar undertaking that restricts the conduct of the Business, or (iv) other than disclosed in filings made by Seller with the SEC under the Exchange Act.

 

3.9          Permits. 

 

(a)           The Selling Entities have, and are in compliance in all material respects with the terms of, all Transferred Permits, and no suspension or cancellation of any such Transferred Permits is pending or, to the Knowledge of Seller, threatened.

 

(b)           The Permits identified on Schedule 2.1(d) are all of the Permits of Seller and SYC related to the Business and there are no Permits necessary for the conduct of the Business as currently conducted which have not been obtained by Seller or SYC.

 

3.10        Litigation; Orders. 

 

(a)           There is no Legal Proceeding with respect to the Business pending or, to the Knowledge of Seller, threatened against Seller, SYC or any of their respective properties that (i) involves an amount in controversy in excess of $10,000, (ii) seeks material injunctive relief, (iii) seeks to impose any legal restraint on or prohibition against or limit Seller’s or SYC’s (or, after the Closing Date, Buyer’s or any of its Subsidiaries’) ability to operate the Business substantially as it was operated immediately prior to the date of this Agreement or (iv) would, individually or in the aggregate with all other pending or threatened Legal Proceedings, have a Business Material Adverse Effect.

 

(b)           Neither Seller nor SYC is subject to any outstanding Order.

 

3.11        Material Contracts. 

 

(a)           For purposes of this Agreement, a “Material Contract” shall mean the following Contracts primarily relating to or used in the Business:

 

(i)           any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC, other than those agreements and arrangements described in Item 601(b)(10)(iii));

 

(ii)          any employment or consulting Contract providing for an annual base compensation in excess of $50,000;

 

(iii)         any Contract or plan, including any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the consummation of the transactions contemplated hereby or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement;

 

(iv)         any Contract providing for indemnification (other than a Contract with a customer, which is entered into by the Seller or SYC in the ordinary course of its business and substantially similar to the indemnification provisions set forth in other Contracts with customers, forms of which have been provided to or made available to Buyer or any guaranty (in each case, under which Seller or SYC has continuing obligations as of the date hereof);

 

(v)          any Contract containing any covenant (A) limiting the right of Seller or SYC to engage in any line of business, to make use of any material technology or to compete with any Person in any line of business, (B) granting any exclusive rights, (C) prohibiting Seller or SYC (or, after the Closing Date, Buyer or any of its Subsidiaries) from engaging in business with any Person or levying a fine, charge or other payment for doing so or (D) otherwise prohibiting or limiting the right of Seller or SYC to distribute or offer any products or services or to purchase or otherwise obtain any software, components, parts or subassemblies in each case, other than any such Contracts that (x) may be cancelled without material liability to Seller or SYC (or, after the Closing Date, to Buyer or any of its Subsidiaries) upon notice of ninety (90) days or less or (y) are not, individually or in the aggregate, material to the Business;

 

(vi)         any Contract (A) relating to the disposition or acquisition by Seller or SYC after the date of this Agreement of a material amount of assets or (B) pursuant to which Seller or SYC will acquire any material ownership interest in any other Person or other business enterprise other than Seller’s Subsidiaries;

 

(vii)        any dealer, distributor, joint marketing or development Contracts (as measured by continuing costs to be incurred by, and fees to be paid by, Seller or SYC) to solely or jointly develop or market any product, technology or service, and which may not be canceled without material liability to Seller or SYC upon notice of thirty (30) days or less;

 

(viii)       any Material IP License;

 

(ix)         any Contract (A) containing any financial penalty for the failure by Seller or SYC to comply with any support or maintenance obligation or (B) containing any obligation to provide support or maintenance for Seller Products for any period in excess of twelve (12) months, other than those obligations that are terminable by Seller or SYC on no more than thirty (30) days notice without material liability or financial obligation to Seller or SYC;

 

(x)          any Contracts containing any service obligation on the part of Seller or SYC, other than (A) warranties provided in the ordinary course of business consistent with past practice and (B) those obligations that are terminable by Seller or SYC on no more than thirty (30) days notice without material liability or financial obligation to Seller or SYC;

 

(xi)         any Contract authorizing another Person to provide support or maintenance to customers of the Business, including distributors or resellers that are obligated to provide such support or maintenance;

 

(xii)        any Contract to license any third party to manufacture or reproduce any Seller Products or any Contract to sell or distribute any Seller Products, except (A) agreements with distributors or sales representatives in the ordinary course of business consistent with past practice or (B) agreements allowing internal copies made or to be made by end-user customers in the ordinary course of business consistent with past practice;

 

(xiii)       any settlement Contract other than (A) releases immaterial in nature or amount entered into with former employees or independent contractors of Seller in the ordinary course of business or (B) settlement agreements for cash only (which has been paid);

 

(xiv)       any Contract which grants any right of first refusal, right of first offer or similar right with respect to any material assets, rights or properties;

 

(xv)        any Contract which limits the payment of dividends;

 

(xvi)       any Contract which relates to a joint venture, partnership, limited liability company agreement or other similar agreement or arrangement, or to the formation, creation or operation, management or control of any partnership or joint venture with any third parties;

 

(xvii)      any Contract which relates to an acquisition, divestiture, merger or similar transaction and which contains representations, covenants, indemnities or other obligations (including indemnification, “earn-out” or other contingent obligations) that are still in effect;

 

(xviii)     any Contract entered into since December 31, 2008 or prior to such date which remained unfilled and outstanding with a customer or purchase order from a Customer, in each case providing for payments from that customer of $100,000 or more;

 

(xix)        any Contract or subcontract still in effect that is subject to FAR;

 

(xx)         any other Contract that provides for payment obligations by Seller or SYC of $10,000 or more in any individual case that is not terminable by Seller or SYC (or, after the Closing Date, by Buyer or any of its Subsidiaries) upon notice of thirty (30) days or less without material liability to the Business and is not disclosed pursuant to clauses (i) through (xix) above; and

 

(xxi)        any Contract, or group of Contracts with a Person (or group of affiliated Persons), the termination or breach of which would have or would be reasonably expected to have a material adverse effect on any material product or service offerings of Seller or SYC or otherwise have a Business Material Adverse Effect and is not disclosed pursuant to clauses (i) through (xx) above.

 

(b)           Section 3.11(b) of the Seller Disclosure Schedule contains a complete and accurate list of all Material Contracts to or by which Seller or SYC is a party or is bound, and identifies each subsection of Section 3.11(a) that describes such Material Contract.  True, correct and complete copies of all of the Contracts identified on the Seller Disclosure Schedule and all standard terms and conditions of purchase for customer purchase orders have been made available to Buyer and its counsel prior to the date hereof.  There are no Contracts between Seller and/or SYC on the one hand, and any of Seller’s other Subsidiaries, on the other hand, related to the Business.

 

(c)           Each Material Contract is valid and binding on Seller (and/or each such Subsidiary of Seller party thereto) and is in full force and effect, and neither Seller nor SYC, nor, to the Knowledge of Seller, any other party thereto, is in breach of, or default under, any such Material Contract, and no event has occurred that with notice or lapse of time or both would constitute such a breach or default thereunder by Seller or SYC, or, to the Knowledge of Seller, any other party thereto.

 

3.12        Taxes. 

 

(a)           All material Tax Returns required by applicable Laws to be filed by or on behalf of Seller and SYC have been filed in accordance with all applicable Laws, and all such Tax Returns are true, correct and complete in all material respects.

 

(b)           Seller and SYC have paid (or have had paid on its behalf) or has withheld and remitted to the appropriate Governmental Authority all Taxes (including income Taxes, withholding Taxes and estimated Taxes) due and payable without regard to whether such Taxes have been assessed or has established in accordance with GAAP an adequate accrual for all Taxes (including Taxes that are not yet due or payable) through the end of the last period for which Seller and SYC ordinarily record items on their respective books, and regardless of whether the liability for such Taxes is disputed.  Seller has made available to Buyer complete and accurate copies of all income, franchise, and foreign Tax Returns of Seller and SYC and any amendments thereto, filed by or on behalf of Seller or SYC or any member of a group of corporations including Seller or SYC for the taxable years ending 2001 through 2008.

 

(c)           There are no Liens on the assets of Seller or SYC relating or attributable to Taxes, other than (i) Liens for Taxes which are not yet delinquent, or (ii) Liens for Taxes disclosed on Section 3.12(c) of the Seller Disclosure Schedule being contested in good faith by any appropriate proceedings for which adequate reserves have been established in accordance with GAAP, such contest effectively suspends collection of the contested obligation and the enforcement of any Lien securing such obligation and the failure to make payment pending such contest would not have a Business Material Adverse Effect.

 

(d)           To the extent applicable to the Transferred Assets or the Buyer’s ownership of the Transferred Assets or operation of the Business, neither Seller nor SYC have been delinquent in the payment of any Tax, nor is there any Tax deficiency outstanding, assessed or proposed against Seller or SYC.

 

(e)           As of the date of this Agreement, there are no Legal Proceedings now pending, or to the Knowledge of Seller, threatened against or with respect to Seller or SYC with respect to any Tax, and none of Seller or SYC knows of any audit or investigation with respect to any Liability of Seller or SYC for Taxes, and there are no agreements in effect to extend the period of limitations for the assessment or collection of any Tax for which Seller or SYC may be liable.

 

(f)           Seller and SYC have not executed any closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof, or any similar Laws.

 

(g)           Each of Seller and SYC has disclosed on its Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code or any similar Laws.

 

(h)           Neither Seller nor SYC have (i) ever been a party to a Contract or inter-company account system in existence under which Seller or SYC has, or may at any time in the future have, an obligation to contribute to the payment of any portion of a Tax (or pay any amount calculated with reference to any portion of a Tax) of any group of corporations of which Seller or SYC is or was a part (other than a group the common Buyer of which is Seller) and (ii) any Liability for Taxes of any Person (other than Seller or SYC) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law) as a transferee or successor, by contract or otherwise.

 

(i)           No written claim has been made during the past five (5) years by any appropriate Governmental Authority in a jurisdiction where neither Seller nor SYC filed Tax Returns that it is or may be subject to any taxation by that jurisdiction.

 

(j)           Neither Seller nor SYC has participated or engaged in transactions that constitute “reportable transactions” as such term is defined in Treasury Regulations Section 1.6011-4(b)(1) (other than such transactions that have been properly reported or are not yet required to have been reported), or transactions that constitute “listed transactions” as such term is defined in Treasury Regulations Section 1.6011-4(b)(2).

 

(k)           Neither Seller nor SYC has agreed or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar Laws by reason of a change in accounting method initiated by it or any other relevant party and neither Seller nor SYC has any Knowledge that the appropriate Governmental Authority has proposed any such adjustment or change in accounting method, nor is any application pending with any appropriate Governmental Authority requesting permission for any changes in accounting methods that relate to the business or assets of Seller or SYC.

 

(l)           Seller and SYC will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of (i) any installment sale or open transaction disposition made on or prior to the Closing Date or (ii) any prepaid amount received on or prior to the Closing Date.

 

(m)           Seller and SYC have delivered or made available to Buyer complete and accurate copies of all letter rulings, technical advice memoranda, and similar documents issued since January 1, 1996, by a Governmental Authority relating to federal, state, local or foreign Taxes due from or with respect to Seller or SYC.  Seller will deliver to Buyer all materials with respect to the foregoing for all matters arising after the date hereof through the Closing Date.

 

(n)           Section 3.12(n) of the Seller Disclosure Schedule contains a complete and accurate list of each jurisdiction in which Seller or SYC benefits from (i) exemptions from taxation, Tax holidays, reduction in Tax rate or similar Tax reliefs and (ii) other financial grants, subsidies or similar incentives granted by a Governmental Authority, whether or not relating to Taxes (together with the Tax incentives described in subclause (i), the “Incentives”) and describes the details of such Incentives.  Seller and SYC are in full compliance with all terms and conditions of any agreement or Order relating to such Incentives in such jurisdictions where such Incentives are available, and have received no written notice from any Governmental Authority claiming that such Incentives were not, or will not in the future, be available.

 

(o)           None of the assets of Seller or SYC is treated as “tax exempt use property,” within the meaning of Section 168(h) of the Code.

 

(p)           Section 3.12(p) of the Seller Disclosure Schedule contains a complete and accurate list of each Subsidiary for which an election has been made pursuant to Section 7701 of the Code and the Treasury regulations thereunder to be treated other than its default classification for U.S. Federal income tax purposes.  Except as disclosed on such Section, each Subsidiary will be classified for U.S. Federal income tax purposes according to its default classification.

 

(q)           During the two-year period ending on the date of this Agreement, neither Seller nor SYC was a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.

 

3.13        Employee Benefits. 

 

(a)           Neither Seller nor SYC nor any of their respective ERISA Affiliates has ever maintained, participated in or contributed to (or been obligated to contribute to (i) a Seller Employee Benefits Plan which was ever subject to Section 412 of the Code or Title IV of ERISA, (ii) a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA), (iii) a “multiple employer plan” as defined in ERISA or the Code, or (iv) a “funded welfare plan” within the meaning of Section 419 of the Code.  No Seller Employee Benefits Plan is funded by, associated with or related to a “voluntary employee’s beneficiary association” within the meaning of Section 501(c)(9) of the Code.

 

(b)           Each Seller Employee Benefit Plan that is intended to be “qualified” under Section 401 of the Code has been maintained, operated and administered in compliance in all material respects with its terms and with all applicable Laws and Collective Bargaining Agreements, including the applicable provisions of ERISA, the Code and the codes of practice issued by any Governmental Authority.  All Seller Employee Benefit Plans have been made available to Buyer.

 

(b)          No Consent of any Governmental Authority is required on the part of Buyer or any of its Affiliates in connection with the execution, delivery and performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby, except as would not have a Buyer Material Adverse Effect.

 

4.4           Litigation.  There are no Legal Proceedings pending or, to the knowledge of Buyer, threatened against or affecting Buyer or any of its properties except for Legal Proceedings that would not, individually or in the aggregate, have a Buyer Material Adverse Effect.  Buyer is not subject to any outstanding Order, except for Orders that would not, individually or in the aggregate with all other such Orders, have a Buyer Material Adverse Effect.

 

4.5           Ownership of Securities.  None of Buyer, its Subsidiaries, Associates or Affiliates owns or controls, beneficially or of record, any Equity Interests of the Seller and none of Buyer, its Subsidiaries, or current Associates or Affiliates has owned or controlled, beneficially or of record any Equity Interests of Seller in the three years prior to the date of this Agreement.

 

 

5.1           Affirmative Obligations of Seller.  Except (a) as expressly contemplated or permitted by this Agreement, (b) as set forth in Section 5.1 of the Seller Disclosure Schedule, or (c) as approved in advance by Buyer in writing, at all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to Article X and the Effective Time, Seller and SYC engaged in the Business shall (i) carry on the Business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and in compliance with all applicable Laws, (ii) pay the debts and Taxes relating to the Business when due, in each case subject to good faith disputes over such debts or Taxes, (iii) pay or perform all material obligations relating to the Business when due and (iv) use reasonable best efforts, consistent with past practices and policies, to (A) preserve intact the present business organization of Seller and SYC related to Business, (B) keep available the services of the present officers and employees engaged in the Business and (C) preserve the relationships with customers, suppliers, distributors, licensors and licensees of Seller and SYC related to the Business and others which have significant business dealings with Seller and SYC related to the Business.

 

5.2           Negative Obligations of Seller.  Except (i) as expressly contemplated or permitted by this Agreement, (ii) as set forth in Section 5.2 of the Seller Disclosure Schedule or (iii) as approved in advance by Buyer in writing, at all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to Article X and the Effective Time, Seller shall not (with respect to the Business), and shall not permit any other Selling Entity (with respect to the Business) to, do any of the following:

 

(a)          propose or adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of any of the Selling Entities;

 

(b)          (i) incur or assume any (i) Indebtedness for which Buyer, any Buyer Entity would be required to discharge following the Closing or (ii) mortgage or pledge any of the Transferred Assets, tangible or intangible, or create, incur, assume or suffer to exist any Lien thereupon;

 

(c)          except as may be required by applicable Laws, enter into, adopt, amend, modify or terminate any bonus, profit sharing, compensation, severance, pension, retirement, deferred compensation, employment, or other employee benefit agreement, trust, plan, fund or other arrangement for the compensation, benefit or welfare of any Business Employee in any manner or increase or decrease the compensation or fringe benefits of any Business Employee, pay any bonus or special remuneration (whether in cash, equity or otherwise) to any Business Employee, or pay any benefit not required by any plan or arrangement as in effect as of the date hereof;

 

(d)          hire any employees who would become Transferred Employees at Closing;

 

(e)          terminate any employees who would otherwise become Transferred Employees at Closing but for such termination or otherwise cause any such employees to resign;

 

(f)          enter into, amend or extend any Contracts with any independent contractors to provide services to the Business;

 

(g)          enter into, amend, or extend any Collective Bargaining Agreement;

 

(h)          acquire, lease, or license any material assets that would be Transferred Assets at Closing in any single transaction or series of related transactions, except transactions pursuant to existing Contracts identified in Schedule 2.1(c) or on the Seller Disclosure Schedule which are not material to the Business, individually or in the aggregate;

 

(i)          sell, transfer or dispose of any of the Transferred Assets except (i) transactions pursuant to existing Contracts identified in Schedule 2.1(c) or on the Seller Disclosure Schedule which are not material to the Business, individually or in the aggregate or (ii) in the ordinary course of business consistent with past practice;

 

(j)          except as may be required as a result of a change in applicable Laws or in GAAP, make any change in any of the accounting principles or practices used by it;

 

(k)          (i) make or change any Tax election, (ii) settle or compromise any material Tax liability, (iii) file any amended Tax Return, or (iv) consent to any extension or waiver of any limitation period with respect to any claim or assessment for Taxes, in each case to the extent related to the Transferred Assets;

 

(l)          enter into any IP Licenses or amend any IP Licenses or grant any release or relinquishment of any rights under any IP Licenses, in each case, related to the Business;

 

(m)         (i) enter into any lease or sublease of real property (whether as a lessor, sublessor, lessee or sublessee) or (ii) modify, amend or exercise any right to renew any lease or sublease of real property with respect to the Business;

 

(n)         grant any exclusive rights with respect to any Transferred Intellectual Property, divest any Transferred Intellectual Property, except if such divestiture or divestures, individually or in the aggregate, are not material to Seller, or materially modify Seller’s standard warranty terms for Seller Products or services or amend or modify any product or service warranty in any manner that is likely to be materially adverse to Seller or SYC;

 

(o)          (i) acquire (by merger, consolidation or acquisition of stock or assets) any other Person or any equity interest therein, (ii) enter into any Contract which would result in a Business Material Adverse Effect or (iii) authorize, incur or commit to incur any new capital expenditure(s) which, individually or in the aggregate, is or are material to the Business;

 

(p)          settle or compromise any pending or threatened Legal Proceeding or pay, discharge or satisfy or agree to pay, discharge or satisfy any claim, liability or obligation (absolute or accrued, asserted or unasserted, contingent or otherwise), other than the settlement, compromise, payment, discharge or satisfaction of Legal Proceedings, claims and other Liabilities the settlement, compromise, discharge or satisfaction of which does not include any obligation to be performed in connection with the Business or by Buyer or any of its Subsidiaries following the Effective Time that is not, individually or in the aggregate, material to the Business;

 

(q)          except as required by applicable Laws or GAAP, revalue in any material respect any of the properties or assets of the Business including writing-off notes or accounts receivable other than in the ordinary course of business consistent with past practice;

 

(r)          other than in the ordinary course of business consistent with past practice, enter into, renew, extend or terminate (i) any Material Contract or (ii) any Transferred Contract; or make any material change in any such Material Contract or agreement, contract, plan, arrangement or other transaction;

 

(s)         fail to maintain in full force and effect any material Transferred Permits;

 

(t)          relocate any employees engaged in the Business or any Transferred Tangible Property to real property other than the Montreal Subleased Property or the Salem Leased Property, or relocate other employees or personal property into the Montreal Subleased Property or the Salem Leased Property; or

 

(u)         enter into a Contract to do any of the foregoing or knowingly take any action which results or is reasonably likely to result in any of the conditions set forth in Article IX not being satisfied, or would make any of the representations or warranties of Seller contained in this Agreement untrue or incorrect in any material respect if made at such subsequent time, or that would materially delay such consummation.

 

 

6.1           Reasonable Best Efforts to Complete.  Upon the terms and subject to the conditions set forth in this Agreement, each of Buyer, Seller and SYC shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party or parties hereto in doing, all things reasonably necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including using its reasonable best efforts to:

 

(a)          cause the conditions set forth in Article IX to be satisfied or fulfilled;

 

(b)          obtain all necessary or appropriate consents, waivers and approvals, and provide all necessary notices, under any Contracts to which Seller, SYC or any of their respective Subsidiaries is a party in connection with this Agreement and the consummation of the transactions contemplated hereby;

 

(c)          make all necessary registrations, declarations and filings with Governmental Authorities in connection with this Agreement and the consummation of the transactions contemplated hereby, and obtain all necessary actions or non-actions, waivers, clearances, consents, approvals, orders and authorizations from Governmental Authorities in connection with this Agreement and the consummation of the transactions contemplated hereby;

 

(d)          execute or deliver any additional instruments reasonably necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement; and

 

Notwithstanding anything to the contrary herein, if the lessor under SYC’s Montreal leased premises conditions its grant of a consent (including by threatening to exercise a “recapture” or other termination right) upon, or otherwise requires in response to a notice or consent request regarding this Agreement, the payment of a consent fee, “profit sharing” payment or other consideration (including increased rent payments), or the provision of additional security (including a guaranty), the Selling Entities shall be solely responsible for making all such payments or providing all such additional security.

 

6.2           Anti-Takeover Laws.  In the event that any state anti-takeover or other similar statute or regulation is or becomes applicable to this Agreement or any of the transactions contemplated by this Agreement, Seller, at the direction of the Seller Board, shall use its best efforts to ensure that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms and subject to the conditions set forth in this Agreement, and otherwise to minimize the effect of such statute or regulation on this Agreement and the transactions contemplated hereby.

 

6.3           Access; Notice and Consultation. 

 

(a)          Subject to any restrictions imposed under applicable Laws, at all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to Article X and the Effective Time, Seller and SYC shall afford Buyer and its accountants, legal counsel and other representatives reasonable access during normal business hours, upon reasonable notice, to any assets, properties, contracts, books, records and personnel of the Business as Buyer may reasonably request; provided, however, that no information or knowledge obtained by Buyer in any investigation conducted pursuant to this Section 6.3 shall affect or be deemed to modify any representation or warranty of Seller or SYC set forth herein or the conditions to the obligations of Buyer to consummate the transactions contemplated by this Agreement, or the remedies available to the parties hereunder; and provided further, that the terms and conditions of the Confidentiality Agreement shall apply to any information provided to Buyer pursuant to this Section 6.3.

 

(b)          At all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to Article X and the Effective Time:

 

(i)           each of Buyer, on the one hand, and Seller and SYC, on the other hand, shall promptly notify the other upon becoming aware that any representation or warranty made by such party in this Agreement has become untrue or inaccurate in any material respect or that such party has breached or failed to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by such party under this Agreement.

 

(ii)          Seller and SYC shall promptly notify Buyer of (i) any notice or other communication received by Seller or SYC from any third party, subsequent to the date of this Agreement and prior to the Effective Time, alleging any material breach of or material default under any Material Contract or any Transferred Contract to which Seller, SYC or SYC is a party, or (ii) any notice or other communication received by Seller or SYC from any third party, subsequent to the date of this Agreement and prior to the Effective Time, alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement; provided, however, that no such notification shall affect or be deemed to modify any representation or warranty of Seller and SYC set forth herein or the conditions to the obligations of Buyer to consummate the transactions contemplated by this Agreement or the remedies available to the parties hereunder; and provided further, that the terms and conditions of the Confidentiality Agreement shall apply to any information provided to Buyer pursuant to this Section 6.3.

 

(iii)        Seller and SYC shall consult in good faith on a reasonably regular basis with the representatives of the Buyer to report material (individually or in the aggregate) operational developments with respect to the Business, the general status of relationships with customers, suppliers, distributors, licensors and licensees of the Business and others which have significant business dealings with the Business and the general status of ongoing operations pursuant to procedures reasonably requested by such representatives with respect to the Business. Seller and SYC acknowledge that any such consultation shall not constitute a waiver by Buyer of any rights it may have under this Agreement, and that the Buyer shall not have any liability or responsibility for any actions of Seller or SYC or any of their respective representatives with respect to matters that are the subject of such consultations.

 

(iv)        Seller shall promptly advise Buyer orally and in writing of any litigation commenced after the date hereof against Seller or any of its directors by any Seller stockholders (on their own behalf or on behalf of Seller) relating to this Agreement or the transactions contemplated hereby and shall keep Buyer reasonably informed regarding any such litigation.  Seller shall give Buyer the opportunity to consult with Seller regarding the defense or settlement of any such stockholder litigation and shall consider Buyer’s views with respect to such stockholder litigation and shall not settle any such stockholder litigation without the prior written consent of Buyer.

 

(v)          Seller shall make available to Buyer a copy of each report, schedule, proxy or information statement, registration statement and other document proposed to be filed by Seller with the SEC during such period pursuant to the requirements of federal securities Laws or federal or state Laws a reasonable period of time prior to the filing of such reports, schedules, proxy or information statements, registration statements and other documents (and in any event at least two (2) Business Days prior to the filing thereof with the SEC).

 

(c)          Notwithstanding anything to the contrary set forth in this Agreement, no information obtained pursuant to the access granted or notification provided pursuant to this Section 6.3 shall be deemed to (i) amend or otherwise modify in any respect any representation or warranty of the party hereto providing such access or notice, (ii) impair or otherwise prejudice in any manner rights of the party receiving such access or notice to rely upon the conditions to the obligations of such party to consummate the transactions contemplated by this Agreement, or (iii) impair or otherwise limit the remedies available to the party receiving such access or notice.

 

6.4           Confidentiality. 

 

(a)          Buyer and Seller hereby acknowledge that Buyer and Seller have previously executed a Confidentiality Agreement, dated April 24, 2009 (as amended from time-to-time, the “Confidentiality Agreement”), which will continue in full force and effect in accordance with its terms.  The parties hereby agree that the term “Proprietary Information,” as used in the Confidentiality Agreement shall be deemed to include (i) all exhibits, schedules, certificates and other documents executed or delivered in connection with this Agreement, the other Related Agreements and the consummation of the transactions contemplated hereby and thereby, (ii) all proprietary and confidential information concerning Seller and SYC, which includes all information with respect to the Business, and (iii) all documents and materials contained in Seller’s data room, or otherwise furnished or made available (directly or indirectly) to Buyer or its Affiliates; provided, however, that after the Closing, with respect to Buyer, the foregoing shall not apply to such information that (1) is solely related to the Transferred Assets or Assumed Liabilities and (2) is not also related to any business or assets of Seller (or a Subsidiary thereof) not transferred to Buyer (or a Subsidiary thereof) under this Agreement.  Following the Closing, Seller and SYC shall (and shall cause their respective Subsidiaries to) keep confidential and not disclose (other than to Buyer and its Subsidiaries) any non-public information related to the Transferred Assets or Assumed Liabilities.  In addition, notwithstanding any other provision of the Confidentiality Agreement and this Agreement, Buyer and its Affiliates and Seller and its Affiliates may include this Agreement and the other Related Agreements in or as an exhibit to any report, form or registration statement filed with or furnished to the SEC.

 

(b)          Invention Disclosures.  Seller and SYC shall treat as confidential and not publicly disclose the Transferred Disclosures for so long as such Transferred Disclosures remain unpublished by Buyer or its Subsidiaries.

 

6.5           Public Disclosure.  Each of Buyer and Seller shall consult with the other before issuing any press release or making any public announcement or statement with respect to this Agreement or the transactions contemplated hereby, and shall not issue any such press release or make any such public announcement or statement without the prior written consent of the other party hereto, which consent shall not be unreasonably withheld; provided, however, that either Buyer or Seller may, without the prior consent of the other, issue any such press release or make any such public announcement or statement as may be required by Law or, in the case of Buyer, the rules and regulations of the Nasdaq, if such party first notifies and consults with the other regarding the timing and substance of such public announcement or statement.

 

6.6           Employee Matters. 

 

(a)          Seller shall consult with Buyer (and consider in good faith the advice of Buyer) prior to sending any notices or other communication materials to Business Employees regarding this Agreement and the transactions contemplated hereby and Seller shall not send any written notices or other written communication materials (including via electronic mail) to Business Employees regarding this Agreement or the transactions contemplated hereby without the prior written consent of Buyer (which consent will not be unreasonably withheld).

 

(b)          From and after the Effective Time, and to the extent permitted by applicable Law, Buyer shall recognize the prior service with Seller or SYC of each Transferred Employee in connection with all employee benefit plans, programs or policies of Buyer or its Affiliates in which Transferred Employees are eligible to participate following the Effective Time for purposes of eligibility and vesting and determination of level of benefits (but not for purposes of benefit accruals or benefit amounts under any defined benefit pension plan or to the extent that such recognition would result in duplication of benefits), subject to any applicable maximum accruals under Buyer’s employee benefit plans, programs or policies of Buyer or its Affiliates.  From and after the hiring of each Transferred Employee, Buyer shall use commercially reasonable efforts to: (i) cause any pre-existing conditions or limitations and eligibility waiting periods under any group health plans of Buyer or its Affiliates to be waived with respect to Transferred Employees and their eligible dependents to the extent such Transferred Employees and their eligible dependents were not subject to such preexisting conditions and limitations and eligibility waiting periods under the comparable Seller Employee Benefit Plan as of the time immediately preceding the Closing; and (ii) provide each Transferred Employee with credit for any deductibles paid under any Seller Employee Benefit Plan that provides medical, dental or vision benefits in the plan year in effect as of the Closing Date in satisfying any applicable deductible or out of pocket requirements under any medical, dental or vision plans of Buyer or its Subsidiaries that such employees are eligible to participate in after the Effective Time to the same extent that such expenses were recognized under the comparable Seller Employee Benefit Plan.  The provisions of this Section 6.6(b) are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder, and nothing herein shall be deemed to amend any Seller Employee Benefit Plan to reflect the terms of this Section 6.6(b).

 

(c)          To the extent any employment agreement of a Seller employee would permit such employee to resign for “good reason” (as defined in the applicable employment agreement) at any time on or after the date of the first public announcement of this Agreement, Seller shall use commercially reasonable efforts to negotiate and cause to be executed, to the fullest extent possible, individual amendments or waivers, as applicable, to such employment agreements prior to the Closing Date to prevent such employee from resigning for “good reason” at any time prior to the Closing Date; provided, however, that any such amendments or waivers shall be provided to Buyer for review prior to execution and shall be in a form reasonably acceptable to Buyer.

 

6.7           Non-Solicitation. 

 

(a)          Seller and SYC shall immediately cease any and all existing activities, discussions or negotiations with any Persons conducted heretofore with respect to any Seller Acquisition Proposal or Seller Acquisition Transaction.

 

(b)          At all times during the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to Article X and the Effective Time, Seller and SYC shall not, nor shall Seller or SYC authorize or permit any of their respective directors, officers or other employees, controlled Affiliates, or any investment banker, attorney or other advisor or representative retained by any of them to, directly or indirectly:

 

(i)           solicit, initiate, knowingly encourage or induce the making, submission or announcement of, a Seller Acquisition Proposal;

 

(ii)          furnish to any Person (other than Buyer or any designees of Buyer) any non-public information relating to Seller or SYC, or afford access to the business, properties, assets, books or records of Seller or SYC to any Person (other than Buyer or any designees of Buyer), or take any other action that is intended or would be reasonably expected to assist or facilitate any inquiries or the making of any proposal that constitutes or could lead to a Seller Acquisition Proposal or Seller Acquisition Transaction;

 

(iii)         participate or engage in discussions or negotiations with any Person with respect to a Seller Acquisition Proposal or Seller Acquisition Transaction;

 

(iv)        approve, endorse or recommend a Seller Acquisition Proposal or Seller Acquisition Transaction;

 

(v)         enter into any letter of intent, memorandum of understanding or other Contract contemplating or otherwise relating to a Seller Acquisition Proposal or Seller Acquisition Transaction;

 

(vi)        terminate, amend or waive any rights under any “standstill” or other similar agreement between Seller or SYC and any Person;

 

(c)          Seller shall promptly, and in all cases within twenty four (24) hours of its receipt, advise Buyer orally and in writing of any receipt by any director, officer or other employee, controlled Affiliate, or any investment banker, attorney or other advisor or representative retained by Seller or SYC of (i) any Seller Acquisition Proposal, (ii) any request for information that could lead to a Seller Acquisition Proposal, or (iii) any inquiry with respect to, or which could lead to, any Seller Acquisition Proposal, the terms and conditions of such Seller Acquisition Proposal, request or inquiry, and the identity of the Person or group making any such Seller Acquisition Proposal, request or inquiry, but only to the extent such disclosure will not result in a breach of a confidentiality obligation of Seller.

 

6.8           Real Estate Matters.  Buyer intends to enter into a direct lease of a portion of Seller’s Salem leased premises (the “Salem Leased Property”) commencing on the Closing Date.  Prior to the Closing Date, Buyer shall use commercially reasonable efforts, at Seller’s sole cost, to enter into a termination agreement with the lessor of the Salem Leased Property to terminate its lease as to the Salem Leased Property.  For a period of thirty (30) days after the Closing, at no additional cost, Buyer shall have the right to use, access and relocate Transferred Assets in other portions of Seller’s Salem leased premises.

 

6.9           Mail Handling.  Effective as of the Closing Date, Buyer shall have the right to open all mail and packages addressed to Seller or a Subsidiary and delivered to Buyer relating to the Transferred Assets or the Assumed Liabilities.  To the extent Buyer receives any mail or packages addressed to Seller or a Subsidiary and delivered to Buyer not exclusively relating to the Transferred Assets or Assumed Liabilities, Buyer shall promptly deliver such mail or packages to Seller.

 

6.10         Non-Solicitation of Employment.  For a period of five (5) years after the Closing Date, Seller and SYC shall not, and shall cause their respective Subsidiaries to not, solicit for employment any Transferred Employee; provided, however, that Seller shall not be deemed to have breached this Section 6.10 in connection with the results arising from Seller’s, SYC’s or any of their respective Subsidiaries’ placement or distribution of general employment advertising, internet postings, employee referrals, or other publications for general circulation that are not targeted at the Transferred Employees.  Notwithstanding anything in the immediately preceding sentence to the contrary, for a period of five (5) years after the Closing Date, Seller and SYC shall not hire any of the Transferred Employees unless such Transferred Employee has not been employed by Buyer or any of its Subsidiaries for a period of no less than six (6) months prior to such Transferred Employee’s hire date with Seller or SYC.

 

6.11         Non-Competition.  Seller and SYC agree that for a period of five (5) years commencing on the Closing Date, Seller and SYC will not and will cause their respective Subsidiaries not to make, have made or distribute, each, on a worldwide basis:

 

(a)           any Visible Lasers (“Visible Lasers” to be defined  for purposes of this Section 6.11 as 400-850 nm) with power levels greater than 150mW;

 

(b)           any Visible Laser modules which are based upon SYC’s beam shaping optics, or equivalent, which is owned or licensed to Seller, SYC or any of their respective Subsidiaries;

 

(c)           any Visible Laser modules which are based upon SYC’s beam shaping optics capability, or equivalent, which is owned or licensed to Seller, SYC or any of their respective Subsidiaries;

 

(d)           any Visible Laser modules and systems to the bio-instrumentation marketplace; and

 

(e)           any Visible Laser modules for existing applications to any of SYC’s customer accounts as of the Closing Date.

 

 

7.1           Transfer of Cash Portion Among the Selling Entities.  Within the 12-month period immediately following the Closing, none of the Selling Entities shall transfer, assign, convey or otherwise distribute to Seller, any of its Subsidiaries or any other Person any of the Cash Portion received by such Selling Entity in the transactions contemplated hereby if and to the extent that any such transfer, assignment, conveyance or distribution would have the effect of rendering such Selling Entity Insolvent.