SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 23, 1995
Digital Products Corporation
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(Exact name of registrant as specified in character)
Florida 0-9503 59-1141879
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
800 N.W. 33rd Street, Pompano Beach, Florida 33064
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(305) 783-9600
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<PAGE>
Item 5. Other Events
On October 23, 1995, Digital Products Corporation (the "Company") and Strategic
Technologies Inc. ("Strategic"), announced the execution of a definitive
Agreement and Plan of Merger dated as of October 13, 1995 (the "Merger
Agreement") providing for the merger (the "Merger") of a wholly owned subsidiary
of Strategic with and into the Company pursuant to which the Company will become
a wholly-owned subsidiary of Strategic. Pursuant to the transaction, each
outstanding share of Digital common stock will be converted into .379291 of a
share of Strategic common stock. Upon completion of the merger and a proposed
private placement of 500,000 shares of Strategic common stock, Strategic will
have approximately 10.9 million shares outstanding (11.9 million fully diluted),
of which 4.4 million shares and 600,000 options will be held by former Digital
shareholders.
It is anticipated that the merger will be consummated in or about March of 1996.
The transaction is conditioned on obtaining the approval of the shareholders of
both Strategic and the Company, the approval of the United States and Canadian
securities regulators and the listing of the Strategic common shares on the
Toronto Stock Exchange, as well as other conditions. The Merger Agreement is
attached hereto as Exhibit 1 and incorporated herein by reference.
In reaching its determination to approve the Merger Agreement, the Board of
Directors considered, among other things, the opinion of Marshall & Stevens
Incorporated, the Company's advisor as to the fairness, from a financial point
of view, of the consideration to be received by the shareholders of the Company
pursuant to the Merger. The opinion of Marshall & Stevens Incorporated is
attached hereto as Exhibit 2 and incorporated herein by reference.
In conjunction with the execution of the Merger Agreement certain principal
shareholders of both companies, including members of the Boards of the
companies, have executed a related Shareholders' Agreement whereby the
signatories have confirmed their intention to vote for and support the Merger
and to provide for certain post-closing governance matters relating to
Strategic. Strategic and Digital have also agreed to immediately begin joint
marketing of their respective product lines and integration of certain other
business operations. The Shareholders' Agreement is attached hereto as Exhibit
3 and incorporated herein by reference.
Strategic has been issued a one year warrant to acquire 500,000 shares of
Digital at $0.25 per share plus a conditional warrant to acquire an additional
1,500,000 Digital shares in consideration of agreeing to bear certain
transaction costs which warrants are exercisable in the event the transaction is
not consummated under certain circumstances. The Warrant Agreements are
attached hereto as Exhibits 4 and 5 and incorporated herein by reference.
In conjuction with the execution of the Merger Agreement, Strategic, the Company
and Richard A. Angulo, the President and Chief Executive Officer of the Company,
entered into a Conditional Employment Agreement dated as of October 13, 1995
which agreement will become effective
<PAGE>
as of the closing of the Merger. The Conditional Employment Agreement is
attached hereto as Exhibit 6 and incorporated herein by reference.
Attached hereto as Exhibit 7 is a press release issued on October 23, 1995 with
respect to the signing of the Merger Agreement.
Item 7. Financial Statement and Exhibits.
(c) Exhibits.
(1) Agreement and Plan of Merger dated as of October 13, 1995 among
the Company, Strategic, and Strategic Florida Inc.(with list of
omitted Schedules thereto).
(2) Opinion of Marshall & Stevens Incorporated dated October 13,
1995.
(3) Shareholders' Agreement dated as of October 13, 1995 among
Strategic, certain shareholders of Strategic, the Company and
certain shareholders of the Company.
(4) Warrant Agreement dated as of October 13, 1995 between the
Company and Strategic with respect to 500,000 shares of Common
Stock of the Company.
(5) Warrant Agreement dated as of October 13, 1995 between the
Company and Strategic with respect to 1,500,000 shares of Common
Stock of the Company.
(6) Conditional Employment Agreement dated as of October 13, 1995
among Strategic, the Company and Richard A. Angulo.
(7) Joint press release, dated October 23, 1995, of the Company and
Strategic.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized,
DIGITAL PRODUCTS CORPORATION
/s/ Richard A. Angulo
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Date: October 26, 1995 Richard A. Angulo
President and Chief Executive Officer
EXHIBIT 1
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AGREEMENT AND PLAN OF MERGER
DATED OCTOBER 13, 1995
AMONG
STRATEGIC TECHNOLOGIES INC.,
AND
STRATEGIC FLORIDA INC.
AND
DIGITAL PRODUCTS CORPORATION
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<PAGE>
T A B L E O F C O N T E N T S
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Page
ARTICLE 1
THE MERGER
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 2
Articles of Incorporation and By-Laws . . . . . . . . . . . . . . . . 3
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 3
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . 5
Effect of Merger on Digital Options . . . . . . . . . . . . . . . . . 7
Effect of Merger on Digital Warrants . . . . . . . . . . . . . . . . . 7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of Digital . . . . . . . . . . . . . . 8
Representations and Warranties of Strategic . . . . . . . . . . . . . 18
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . 27
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 5
ADDITIONAL AGREEMENTS
Preparation of Form F-4 and the Joint Proxy Statement; Stockholders'
Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Letter of Digital's Accountants . . . . . . . . . . . . . . . . . . . 34
Letter of Strategic's Accountants . . . . . . . . . . . . . . . . . . 34
Access to Information; Confidentiality . . . . . . . . . . . . . . . . 34
Best Efforts; Notification . . . . . . . . . . . . . . . . . . . . . . 35
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . 37
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . 39
Affiliates and Certain Stockholders . . . . . . . . . . . . . . . . . 39
Stockholder Litigation . . . . . . . . . . . . . . . . . . . . . . . . 39
Directorships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 6
CONDITIONS PRECEDENT
Conditions to Each Party's Obligation to Effect the Merger . . . . . . 40
Conditions to Obligations of Strategic and Merger Sub . . . . . . . . 40
Conditions to Obligations of Digital . . . . . . . . . . . . . . . . . 42
Frustration of Closing Condition . . . . . . . . . . . . . . . . . . . 43
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . 45
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Procedure for Termination, Amendment, Extension or Waiver . . . . . . 45
ARTICLE 8
GENERAL PROVISIONS
Nonsurvival of Representations and Warranties . . . . . . . . . . . . 46
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . 48
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Execution and Attestation . . . . . . . . . . . . . . . . . . . . . . 49
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") made as of October 13, 1995
AMONG:
STRATEGIC TECHNOLOGIES INC., a British Columbia, Canada
corporation
("Strategic")
AND:
STRATEGIC FLORIDA INC., a Florida corporation wholly owned
by Strategic
("Merger Sub")
AND:
DIGITAL PRODUCTS CORPORATION, a Florida corporation
("Digital")
WHEREAS:
(A) The boards of directors of each of Strategic and Digital have
determined that a business combination between them is in the best interests of
their respective companies and shareholders and presents an opportunity for
their respective companies to achieve long term strategic and financial benefits
and accordingly have agreed to effect the merger provided for herein upon the
terms and subject to the conditions set forth herein;
(B) Strategic and Digital executed a letter agreement dated August 1, 1995
as amended or extended on August 31, 1995, September 15, 1995, September 22,
1995 and October 6, 1995, respecting the business combination which this
Agreement is to supersede;
NOW THEREFORE, in consideration of the foregoing and of the representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE (1)
THE MERGER
The Merger
1.1 Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Florida Business Corporations Act (the
"Florida Code"), Merger Sub shall be merged with and into Digital at the
Effective Time of the Merger (as defined in Section 1.3). Following the
Effective Time of the Merger, the separate corporate existence of Merger Sub
shall cease and Digital shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Merger Sub in accordance with the Florida Code.
<PAGE>
Closing
1.2 The closing of the Merger (the "Closing") will take place at 10:00 a.m. on
a date to be specified by the parties (the "Closing Date"), which (subject to
satisfaction or waiver of the conditions set forth in Section 6.2 and Section
6.3) shall be no earlier than December 20th, 1995, and no later than the second
business day after satisfaction of the conditions set forth in Section 6.1, at
the offices of Lang Michener Lawrence & Shaw at the address set forth in Section
8.2, unless another date or place is agreed to in writing by the parties hereto.
Effective Time
1.3 Subject to the provisions of this Agreement, as soon as practicable
following the satisfaction or waiver of the conditions set forth in Article 6,
the parties shall file a certificate of merger, articles of merger or other
appropriate documents (in any such case, the "Certificate of Merger") executed
in accordance with the relevant provisions of the Florida Code and shall make
all other filings or recordings required under the Florida Code. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with the Secretary of State of the State of Florida, or at such other time as
Merger Sub and Digital shall agree should be specified in the Certificate of
Merger (the time the Merger becomes effective being hereinafter referred to as
the "Effective Time of the Merger").
Effects of the Merger
1.4 The Merger shall have the effects set forth in Section 607.1106 of the
Florida Code.
Articles of Incorporation and By-Laws
1.5 (a) The articles of incorporation of Digital, as in effect immediately
prior to the Effective Time of the Merger, shall not be amended as of the
Effective Time of the Merger and such articles of incorporation shall be
the articles of incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(b) The by-laws of Digital as in effect at the Effective Time of the
Merger shall be the by-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
Directors
1.6 The directors of Digital at the Effective Time of the Merger shall be
the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
Officers
1.7 The officers of Digital at the Effective Time of the Merger shall be
the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
<PAGE>
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Effect on Capital Stock
2.1 As of the Effective Time of the Merger, by virtue of the Merger and
without any action on the part of the holder of any shares of Digital Common
Stock or any shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each of the issued and outstanding 100
shares of capital stock of Merger Sub shall be converted into and become
one fully paid and non-assessable share of Common Stock, par value $0.025
per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock. Each share of Digital Common Stock
that is owned by Digital or by any subsidiary (as defined in Section 8.3)
of Digital shall automatically be cancelled and retired and shall cease to
exist, and no Strategic Common Stock or other consideration shall be
delivered in exchange therefor.
(c) Conversion of Digital Common Stock. Subject to Section 2.2(e), each
issued and outstanding share of Digital Common Stock (other than shares to
be cancelled in accordance with Section 2.1(b)) shall be converted into the
right to receive .379291 of a fully paid and non-assessable share of
Strategic Common Stock (the "Exchange Ratio"). As of the Effective Time of
the Merger, all such shares of Digital Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares of Digital Common Stock shall cease to have any rights with respect
thereto, except the right to receive the shares of Strategic Common Stock
to be issued or in consideration therefor upon surrender of such
certificate in accordance with Section 2.2.
(d) Adjustment of Exchange Ratio. If, prior to the Effective Time,
Strategic recapitalizes through a subdivision of its outstanding shares
into a greater number of shares, or a combination of its outstanding shares
into a lesser number of shares, or reorganizes, reclassifies or otherwise
changes its outstanding shares into the same or a different number of
shares or other classes, or declares a dividend on its outstanding shares
payable in shares of its capital stock or securities convertible into
shares of its capital stock, then the Exchange Ratio will be adjusted
appropriately so as to maintain the relative proportionate interests of the
holders of Strategic Common Stock and Digital Common Stock as of the date
of this Agreement.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Digital Common Stock outstanding immediately prior to
the Effective Time of the Merger held by a holder (if any) who is entitled
to demand, and who properly demands, appraisal for such shares in
accordance with Section 607.1302 to 607.1320 of the Florida Code
("Dissenting Shares") shall not be converted into a right to receive Common
Stock of Strategic Common Stock unless such holder fails to perfect or
otherwise loses such holder's right to appraisal, if any. If, after the
Effective time of the Merger, such holder fails to perfect or loses any
such right to appraisal, such shares shall be treated as if they had been
converted as of the Effective Time of the Merger into the right to receive
Strategic Common Stock pursuant to Section 2.1(c). Digital shall give
prompt notice to Strategic of any demands received by Digital for appraisal
of shares of Digital Common Stock, and Strategic shall have the right to
participate in and direct all negotiations and proceedings with respect to
such demands. Digital shall not, except with the prior written consent of
Strategic, make any payment with respect to, or settle or offer to settle,
any such demands.
<PAGE>
Exchange of Certificates
2.2 (a) Exchange Agent. As of the Effective Time of the Merger, Strategic
shall deposit with The Montreal Trust Company of Canada or such other bank
or trust company as may be designated by Strategic and reasonably
acceptable to Digital (the "Exchange Agent"), for the benefit of the
holders of shares of Digital Common Stock, for exchange in accordance with
this Article 2, through the Exchange Agent, certificates representing the
shares of Strategic Common Stock (such shares of Strategic Common Stock,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.1 in exchange for outstanding shares of Digital Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time of the Merger, the Exchange Agent shall mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time of the Merger represented outstanding shares of Digital
Common Stock (the "Certificates") whose shares were converted into the
right to receive shares of Strategic Common Stock pursuant to Section 2.1,
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Strategic may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Strategic
Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by
Strategic, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent,
the holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole shares of
Strategic Common Stock which such holder has the right to receive pursuant
to the provisions of this Article 2, and the Certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of record of
Digital Shares, a certificate representing the proper number of shares of
Strategic Common Stock may be issued to a person other than the person in
whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or
other taxes required by reason of the issuance of shares of Strategic
Common Stock to a person other than the registered holder of such
Certificate or establish to the satisfaction of Strategic that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the
Effective Time of the Merger to represent only the right to receive upon
such surrender the certificate representing shares of Strategic Common
Stock as contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Strategic Common Stock with a record
date after the Effective Time of the Merger shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of Strategic
Common Stock represented thereby until the surrender of such Certificate in
accordance with this Article 2. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
holder of the certificate representing whole shares of Strategic Common
Stock issued in exchange therefor, without interest, (i) the amount of
dividends or other distributions with a record date after the Effective
Time of the Merger theretofore paid with respect to such whole shares of
Strategic Common Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time of the Merger but prior to such surrender and with a payment
date subsequent to such surrender payable with respect to such whole shares
of Strategic Common Stock.
(d) No Further Ownership Rights in Digital Common Stock. All shares of
Strategic Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article 2 (including any
cash paid pursuant to Section 2.2(c)) shall be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the shares of
Digital Common Stock theretofore represented by such Certificates, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
of the Merger which may
<PAGE>
have been declared or made by Digital on such shares of Digital Common
Stock in accordance with the terms of this Agreement or prior to the date
of this Agreement and which remain unpaid at the Effective Time of the
Merger, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Digital
Common Stock which were outstanding immediately prior to the Effective Time
of the Merger. If, after the Effective Time of the Merger, Certificates
are presented to the Surviving Corporation or the Exchange Agent for any
reason, they shall be cancelled and exchanged as provided in this Article
2, except as otherwise provided by law.
(e) No Fractional Shares. No certificates or scrip representing
fractional shares of Strategic Common Stock shall be issued upon the
surrender for exchange of Certificates. Any holder of Digital Common Stock
who would otherwise receive a fractional share shall, upon surrender of
such shareholder's certificate or certificates representing Strategic
Common Stock, receive a share certificate adjusted to the next higher whole
number of Strategic Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months
after the Effective Time of the Merger shall be delivered to Strategic,
upon demand, and any holders of the Certificates who have not theretofore
complied with this Article 2 shall thereafter look only to Strategic for
payment of their claim for Strategic Common Stock and any dividends or
distributions with respect to Strategic Common Stock.
(g) No Liability. None of Strategic, Merger Sub, Digital or the Exchange
Agent shall be liable to any person in respect of any shares of Strategic
Common Stock (or dividends or distributions with respect thereto) or cash
from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificates
shall not have been surrendered prior to seven years after the Effective
Time of the Merger (or immediately prior to such earlier date on which any
shares of Strategic Common Stock, any dividends or distributions with
respect to Strategic Common Stock in respect of such Certificate would
otherwise escheat to or become the property of any Governmental Entity (as
defined in Section 3.1(d)), any such shares, cash, dividends or
distributions in respect of such Certificate shall, to the extent permitted
by applicable law, become the property of the Surviving Corporation, free
and clear of all claims or interest of any person previously entitled
thereto.
Effect of Merger on Digital Options
2.3 Digital shall cause all options to purchase shares of Digital Common
Stock (each, a "Digital Stock Option") to terminate as of the Effective Time (if
not exercised prior to such time) and the holder of any such Digital Stock
Option shall have no further rights except as otherwise provided in the
applicable Digital Stock Option agreement. Each stock option plan of Digital
shall automatically terminate at the Effective Time, and participants in such
plans shall have no further rights thereunder. Digital shall deliver to holders
of Digital Stock Options appropriate notices describing the treatment of the
options held by such holder.
Effect of Merger on Digital Warrants
2.4 As of the date of this Agreement, Digital has outstanding 750,000
warrants to purchase Digital Common Stock with the exercise price of $2.00 and
the termination date of November 22, 1996 (the "Acorn Warrants") and 1,955,000
warrants to purchase Digital Common Stock with the exercise price of $25.00 and
the termination date of February 7, 1997 (the "Class B Warrants"). As of the
Effective Time of the Merger, each of the Acorn Warrants and the Class B
Warrants shall be assumed by Strategic by written agreement in accordance with
the terms and conditions of such warrants. At least fifteen days prior to the
Effective Date, Digital shall send to each of the holders of the Acorn Warrants
and the Class B Warrants a notice containing a brief description of the Merger
and the effect of the Merger on such warrants, as well as a copy of the written
agreement of Strategic pursuant to which Strategic will assume such warrants as
of the Effective Time of the Merger.
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of Digital
3.1 Except as set forth on the Disclosure Schedule delivered by Digital to
Strategic prior to the execution of this Agreement and attached hereto (the
"Digital Disclosure Schedule") or except as disclosed in a document delivered to
Strategic and set forth on the Document Delivery index dated the date hereof,
Digital represents and warrants to Strategic and Merger Sub as follows:
(a) Organization, Standing and Corporate Power. Each of Digital and each
of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry
on its business as now being conducted. Each of Digital and each of its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed individually or in the aggregate would not have
a material adverse effect on Digital. Digital has delivered to Strategic
complete and correct copies of its articles of incorporation and by-laws
and the certificates of incorporation and by-laws of its subsidiaries, in
each case as amended to the date hereof.
(b) Subsidiaries. Digital's Form 10-K for the fiscal year ended March 31,
1995 lists each subsidiary of Digital. All the outstanding shares of
capital stock of each such subsidiary have been validly issued and are
fully paid and non-assessable and are owned by Digital, free and clear of
all pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens"). Except for the
capital stock of its subsidiaries, Digital does not own, directly or
indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture or other entity.
(c) Capital Structure. The authorized capital stock of Digital consists
of 50,000,000 shares of Digital Common Stock, par value $.025 per share.
At the close of business on October 6, 1995, (i) 11,589,267 shares of
Digital Common Stock were issued and outstanding, (ii) 40,061 shares of
Digital Common Stock were held by Digital in its treasury, (iii) 1,818,980
shares of Digital Common Stock were reserved for issuance pursuant to the
Stock Plans (as defined in Section 5.6) and (iv) 2,705,000 shares of
Digital Common Stock were reserved for issuance upon exercise of Digital's
outstanding share purchase warrants ("Digital Warrants"). Except as set
forth above, at the close of business on October 6, 1995, no shares of
capital stock or other voting securities of Digital were issued, reserved
for issuance or outstanding. All outstanding shares of capital stock of
Digital are, and all shares which may be issued pursuant to the Stock Plans
will be, when issued, duly authorized, validly issued, fully paid and non-
assessable and not subject to pre-emptive rights. There are no bonds,
debentures, notes or other indebtedness of Digital having the right to vote
(or, except for the Digital Warrants, convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
stockholders of Digital may vote. Except as set forth above, as of the
date hereof, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which Digital or any of its subsidiaries is a party or by which any of
them is bound obligating Digital or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of Digital or of any of
its subsidiaries or obligating Digital or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date
of this Agreement, there are not any outstanding contractual obligations of
Digital or any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of Digital or any of its subsidiaries.
There are not any outstanding contractual obligations of Digital to vote or
to dispose of any shares of the capital stock of any of its subsidiaries.
<PAGE>
(d) Authority; Noncontravention. Digital has the requisite corporate
power and authority to enter into this Agreement and, subject to Digital
Stockholder Approval with respect to the Merger, to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by Digital and the consummation by Digital of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Digital, subject, in the case
of the Merger, to Digital Stockholder Approval. This Agreement has been
duly executed and delivered by Digital and constitutes a valid and binding
obligation of Digital, enforceable against Digital in accordance with its
terms. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material
benefit under, or result in the creation of any Lien upon any of the
properties or assets of Digital or any of its subsidiaries under, (i) the
articles of incorporation or by-laws of Digital or the comparable charter
or organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to Digital or any of its subsidiaries or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Digital or any of
its subsidiaries or their respective properties or assets, other than, in
the case of clause (ii), any such conflicts, violations, defaults, rights
or Liens that individually or in the aggregate would not (x) have a
material adverse effect on Digital, (y) impair the ability of Digital to
perform its obligations under this Agreement or (z) prevent the
consummation of any of the transactions contemplated by this Agreement. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any Federal, state, local or foreign government or any
court, administrative agency or commission or other governmental authority
or agency, domestic or foreign (a "Government Entity"), is required by or
with respect to Digital or any of its subsidiaries in connection with the
execution and delivery of this Agreement by Digital or the consummation by
Digital of the transactions contemplated by this Agreement, except for (1)
the filing with the Securities and Exchange Commission (the "SEC") of (A) a
proxy statement relating to Digital Stockholder Approval (such proxy
statement, together with the proxy statement relating to Strategic
Stockholder Approval, in each case as amended or supplemented from time to
time, the "Joint Proxy Statement"), and (B) such reports under Section
13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (2) the filing of the
Certificate of Merger with the Secretary of State of the State of Florida
and appropriate documents with the relevant authorities of other states in
which Digital is qualified to do business, (3) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under the laws of any foreign country in which Digital, Strategic
or any of their respective subsidiaries conducts any business or owns any
property or assets or (4) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as would not
individually or in the aggregate (A) have a material adverse effect on
Digital, (B) impair the ability of Digital to perform its obligations under
this Agreement or (C) prevent the consummation of any of the transactions
contemplated by this Agreement.
(e) SEC Documents; Undisclosed Liabilities. Digital has filed all
required reports, schedules, forms, statements and other documents with the
SEC since March 31, 1990 (the "SEC Documents"). As of their respective
dates, to the knowledge of Digital the SEC Documents filed with the SEC
between March 31, 1990 and September 30, 1993 complied in all material
respects with the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such
SEC Documents. To the knowledge of Digital, none of the SEC Documents
filed with the SEC between March 31, 1990 and September 30, 1993 contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent that information contained in any SEC
Document has been revised or superseded by a later Filed SEC Document (as
<PAGE>
defined in Section 3.1(g)). As of their respective dates, the SEC
Documents filed with the SEC after September 30, 1993 complied in all
material respects with the requirement of the Securities Act, or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC documents. None of the SEC
documents filed with the SEC after September 30, 1993 contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except to the extent that information containing any SEC Document has been
revised or superseded by a later filed SEC Document. The financial
statements of Digital included in the SEC Documents comply as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of Digital and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows (or changes in financial position prior to the
approval of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 95) for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Other
than with respect to ERISA (as defined in Section 3.1(j) below) and tax
matters, which are addressed by Section 3.1(j) and Section 3.1(k),
respectively, except as set forth in the Filed SEC Documents, neither
Digital nor any of its subsidiaries has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise and whether
or not required by generally accepted accounting principles to be
recognized or disclosed on a consolidated balance sheet of Digital and its
consolidated subsidiaries or in the notes thereto) which individually or in
the aggregate could reasonably be expected to have a material adverse
effect on Digital.
(f) Information Supplied. None of the information supplied or to be
supplied by Digital specifically for inclusion or incorporation by
reference in (i) the registration statement on Form F-4 to be filed with
the SEC by Strategic in connection with the issuance of Strategic Common
Stock in the Merger (the "Form F-4") or the Schedule 13E-3 will, at the
time the Form F-4 or Schedule 13E-3 is filed with the SEC, at any time it
is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) the Joint Proxy Statement
will, at the date it is first mailed to Digital's stockholders or at the
time of the Digital Stockholders Meeting (as defined in Section 5.1(b)),
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Joint Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder, except that no representation or warranty
is made by Digital with respect to statements made or incorporated by
reference therein based on information supplied by Strategic or Merger Sub
specifically for inclusion or incorporation by reference in the Joint Proxy
Statement.
(g) Absence of Certain Changes or Events. Except as disclosed in the SEC
Documents filed and publicly available prior to the date of this Agreement
(the "Filed SEC Documents"), since the date of the most recent audited
financial statements included in the Filed SEC Documents, Digital has
conducted its business only in the ordinary course, and there has not been
(i) any material adverse change in Digital, (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of Digital's capital stock, (iii)
any split, combination or reclassification of any of its capital stock or
any issuance or the authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital
stock, (iv) (x) any granting by Digital or any of its subsidiaries to any
executive officer or other employee of Digital or any of its subsidiaries
of any increase in compensation, except in the ordinary course of business
consistent with prior practice or as was required under employment
agreements in effect as of the date of the most recent audited financial
statements included in the Filed SEC Documents, (y) any
<PAGE>
granting by Digital or any of its subsidiaries to any such executive
officer of any increase in severance or termination pay, except as was
required under any employment, severance or termination agreements in
effect as of the date of the most recent audited financial statements
included in the Filed SEC Documents or (z) any entry by Digital or any of
its subsidiaries into any employment, severance or termination agreement
with any such executive officer, (v) any damage, destruction or loss,
whether or not covered by insurance, that has or could reasonably be
expected to have a material adverse effect on Digital or (vi) any change in
accounting methods, principles or practices by Digital materially affecting
its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles.
(h) Litigation. Except as disclosed in the Filed SEC Documents, there is
no suit, action or proceeding pending or, to the knowledge of Digital,
threatened against or affecting Digital or any of its subsidiaries (and
Digital is not aware of any basis for any such suit, action or proceeding)
that individually or in the aggregate could reasonably be expected to (i)
have a material adverse effect on Digital, (ii) impair the ability of
Digital to perform its obligations under this Agreement or (iii) prevent
the consummation of any of the transactions contemplated by this Agreement,
nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Digital or any of its
subsidiaries having, or which is reasonably likely to have, any effect
referred to in clause (i), (ii) or (iii) above.
(i) Absence of Changes in Benefit Plans. Except as disclosed in the Filed
SEC Documents, since the date of the most recent audited financial
statements included in the Filed SEC Documents, there has not been any
adoption or amendment in any material respect by Digital or any of its
subsidiaries of any collective bargaining agreement or any bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer or director
of Digital or any of its subsidiaries. Except as disclosed in the Filed
SEC Documents, there exist no employment, consulting, severance,
termination or indemnification agreements, arrangements or understandings
between Digital or any of its subsidiaries and any current or former
employee, officer or director of Digital or any of its subsidiaries.
(j) ERISA Compliance. Digital has no employee benefit plans as
contemplated by the Employee Retirement Income Security Act of 1974 or
other liability or obligation under such legislation which has not been
fulfilled.
(k) Taxes.
(i) Each of Digital and its subsidiaries has filed all tax returns
and reports required to be filed by it or requests for extensions to
file such returns or reports have been timely filed, granted and have
not expired, except to the extent that such failures to file or to
have extensions granted that remain in effect individually and in the
aggregate would not have a material adverse effect on Digital. All
returns filed by Digital and each of its subsidiaries are complete and
accurate in all material respects to the knowledge of Digital.
Digital and each of its subsidiaries has paid (or Digital has paid on
its behalf) all taxes shown as due on such returns, and the most
recent financial statements contained in the Filed SEC Documents
reflect an adequate reserve for all taxes payable by Digital and its
subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Digital or any of its subsidiaries that are not
adequately reserved for, except for deficiencies that individually or
in the aggregate would not have a material adverse effect on Digital,
and no requests for waivers of the time to assess any such taxes have
been granted or are pending.
<PAGE>
None of the Federal income tax returns of Digital and each of its
subsidiaries consolidated in such returns have been examined by and
settled with the United States Internal Revenue Service. The statute
of limitations on assessment or collection of any taxes due from
Digital or any of its subsidiaries has expired for all taxable years
of Digital or any of its subsidiaries through March 31, 1990.
(l) No Excess Parachute Payments; Section 162(m) of the Code.
(iii) Any amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer
or director of Digital or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any arrangement or Benefit Plan currently in
effect would not be characterized as an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Code).
(iv) The disallowance of a deduction under Section 162(m) of the Code
for employee remuneration will not apply to any amount paid or payable
by Digital or any subsidiary of Digital under any contract, plan,
program, arrangement or understanding.
(m) Voting Requirements. The affirmative vote of a majority of the votes
cast by the holders of the shares of Digital Common Stock entitled to vote
thereon at the Digital Stockholders Meeting with respect to the approval of
the Merger is the only vote of the holders of any class or series of
Digital's capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement.
(n) State Takeover Statutes. The Board of Directors of Digital has
approved the execution and delivery of this Agreement and the consummation
of the Merger and the other transactions contemplated by this Agreement,
and such approval is sufficient to render inapplicable to this Agreement,
the Merger and the other transactions contemplated by this Agreement the
provisions of take-over legislation in the Florida Code. To the best of
Digital's knowledge, no other state takeover statute or similar statute or
regulation applies or purports to apply to the Merger, this Agreement or
any of the transactions contemplated by this Agreement and no provision of
the articles of incorporation, by-laws or other governing instruments of
Digital or any of its subsidiaries would, directly or indirectly, restrict
or impair the ability of Strategic to vote, or otherwise to exercise the
rights of a stockholder with respect to, shares of Digital and its
subsidiaries that may be acquired or controlled by Strategic.
(o) Labour Matters. There are no collective bargaining or other labour
union agreements to which Digital or any of its subsidiaries is a party or
by which any of them is bound. To the best knowledge of Digital, since
December 1, 1992, neither Digital nor any of its subsidiaries has
encountered any labour union organizing activity, or had any actual or
threatened employee strikes, work stoppages, slowdowns or lockouts.
(p) Brokers; Schedule of Fees and Expenses. No broker, investment banker,
financial advisor or other person, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Digital.
(q) No Undisclosed Prior Valuations. Digital has not received any
valuations of the business of Digital in the 24 months before this
Agreement which have not been disclosed to Strategic.
(r) Accounting Matters. Neither Digital nor, to its best knowledge, any
of its affiliates has taken or agreed to take any action that (without
giving effect to any action taken or agreed to be taken by Strategic or any
of its affiliates) would prevent Strategic from accounting for the business
combination to be effected by the Merger as a purchase.
<PAGE>
(s) Compliance with Applicable Laws.
(i) Each of Digital and its subsidiaries has in effect all Federal,
state, local and foreign governmental approvals, authorizations,
certificates, filings, franchises, licenses, notices, permits and
rights ("Permits") necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted,
and there has occurred no default under any such Permit, except for
the lack of Permits and for defaults under Permits which lack or
default individually or in the aggregate would not have a material
adverse effect on Digital. Except as disclosed in the Filed SEC
Documents, to the knowledge of Digital, Digital and its subsidiaries
are in compliance with all applicable statutes, laws, ordinances,
rules, orders and regulations of any Governmental Entity, except for
possible noncompliance which individually or in the aggregate would
not have a material adverse effect on Digital.
(ii) To the best of Digital's knowledge, each of Digital and its
subsidiaries is, and has been, and each of Digital's former
subsidiaries, while subsidiaries of Digital, was in compliance with
all applicable Environmental Laws, except for possible noncompliance
which individually or in the aggregate would not have a material
adverse effect on Digital. The term "Environmental Laws" means any
Federal, state, local or foreign statute, code, ordinance, rule,
regulation, policy, guideline, permit, consent, approval, license,
judgment, order, writ, decree, directive, injunction or other
authorization, including the requirement to register underground
storage tanks, relating to: (1) emissions, discharges, Releases (as
defined below) or threatened Releases of Hazardous Material (as
defined below), into the environment, including ambient air, soil,
sediments, land surface or subsurface, buildings or facilities,
surface water, groundwater, publicly-owned treatment works, septic
systems or land; (2) the generation, treatment, storage, disposal,
use, handling, manufacturing, transportation or shipment of Hazardous
Material; or (3) pollution of the environment or the protection of
human health or safety.
(iii) During the period of ownership or operation by Digital and
its subsidiaries of any of their respective current or previously-
owned properties, there have been no Releases of Hazardous Material
in, on, under or affecting such properties or, to the knowledge of
Digital, any surrounding site, except in each case for those which
individually or in the aggregate would not have a material adverse
effect on Digital. Prior to the period of ownership or operation by
Digital and its subsidiaries of any of their respective current or
previously-owned properties, to the knowledge of Digital, no Hazardous
Material was generated, treated, stored, disposed of, used, handled or
manufactured at, or transported, shipped or disposed of from, such
current or previously-owned properties, and there were no Releases of
Hazardous Material in, on, under or affecting any such property or any
surrounding site, except in each case for those which individually or
in the aggregate would not have a material adverse effect on Digital.
The term "Release" has the meaning set forth in 42 U.S.C. (S)
9601(22). The term "Hazardous Material" means (1) hazardous
materials, pollutants, contaminants, constituents, medical wastes,
hazardous or infectious wastes and hazardous substances as those terms
are defined in the following statutes and their implementing
regulations: the Hazardous Materials Transportation Act, 49 U.S.C.
(S) 1801 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. (S) 6901 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act, 42 U.S.C. (S) 9601 et seq., the Occupational
Safety and Health Act, 29 U.S.C. (S) 651 et seq., the Clean Water Act,
33 U.S.C. (S) 1251 et seq., the Toxic Substances Control Act, 15
U.S.C. (S) 2601 et seq., and the Clean Air Act, 42 U.S.C. (S) 7401 et
seq.; (2) petroleum, including crude oil and any fractions thereof;
(3) natural gas, synthetic gas and any mixtures thereof; (4) asbestos
and/or asbestos-containing material; and (5) PCBs, or materials or
fluids containing PCBs.
<PAGE>
(t) Contracts; Debt Instruments.
(i) Except as disclosed in the Filed SEC Documents, there are no
contracts or agreements that are material to the business, properties,
assets, condition (financial or otherwise), results of operations or
prospects of Digital and its subsidiaries taken as a whole.
Neither Digital or any of its subsidiaries is in violation of or in
default under (nor does there exist any condition upon which the
passage of time or the giving of notice would cause such a violation
of or default under) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or
any other contract, agreement, arrangement or understanding to which
it is a party or by which it or any of its properties or assets is
bound, except for violations or defaults that individually or in the
aggregate would not have a material adverse effect on Digital.
(ii) Set forth on the Digital Disclosure Schedule is (x) a list of all
loan or credit agreements, notes, bonds, mortgages, indentures and
other agreements and instruments pursuant to which any indebtedness of
Digital or any of its subsidiaries in an aggregate principal amount in
excess of $25,000 is outstanding or may be incurred and (y) the
respective principal amounts currently outstanding thereunder. For
purposes of this Agreement, "indebtedness" shall mean, with respect to
any person, without duplication, (4) all obligations of such person
for borrowed money, or with respect to deposits or advances of any
kind to such person; (5) all obligations of such person evidenced by
bonds, debentures, note or similar instruments; (6) all obligations
of such person upon which interest charges are customarily paid;
(7) all obligations of such person under conditional sale or other
title retention agreements relating to property purchased by such
person; (8) all obligations of such person issued or assumed as the
deferred purchase price of property or services (excluding obligations
of supplies incurred in the ordinary course of such person's
business); (9) all capitalized lease obligations of such person;
(10) all obligations of others secured by any lien on property or
assets owned or acquired by such person, whether or not the
obligations secured thereby have been assumed; (11) all obligations
of such person under interest rate or currency hedging transactions
(valued at the termination value thereof); (12) all letters of credit
issued for the account of such person; and (13) all guarantees and
arrangements having the economic effect of a guarantee of such person
of any indebtedness of any other person.
(u) Title to Properties.
(i) Each of Digital and each of its subsidiaries has good and
marketable title to, or valid leasehold interests in, all its material
properties and assets except for such as are no longer used or useful
in the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for defects in title,
easements, restrictive covenants and similar encumbrances or
impediments that individually or in the aggregate would not materially
interfere with its ability to conduct its business as currently
conducted. All such material assets and properties, other than assets
and properties in which Digital or any of its subsidiaries has
leasehold interests, are free and clear of all Liens, except for Liens
that individually or in the aggregate would not materially interfere
with the ability of Digital and its subsidiaries to conduct business
as currently conducted.
(ii) Each of Digital and each of its subsidiaries is in compliance in
all material respects with the terms of all material leases to which
it is a party and under which it is in the occupancy, and all such
leases are in full force and effect. Each of Digital and each of its
subsidiaries enjoys peaceful and undisturbed possession under all such
material leases.
<PAGE>
(v) Intellectual Property. To the best of Digital's knowledge, Digital
and its subsidiaries own, or are validly licensed or otherwise have
the right to use, all patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, service marks, service mark
rights, copyrights and other proprietary intellectual property rights
and computer programs (collectively, "Intellectual Property Rights")
which are material to the conduct of the business of Digital and its
subsidiaries taken as a whole. The Digital Disclosure Schedule sets
forth a description of all Intellectual Property Rights which are
material to the conduct of the business of Digital and its
subsidiaries taken as a whole. Except as set forth on the Digital
Disclosure Schedule, no claims are pending or, to the knowledge of
Digital, threatened that Digital or any of its subsidiaries is
infringing or otherwise adversely affecting the rights of any person
with regard to any Intellectual Property Right. To the knowledge of
Digital, except as set forth on the Digital Disclosure Schedule, no
person is infringing the rights of Digital or any of its subsidiaries
with respect to any Intellectual Property Right.
(w) Insurance. Digital maintains in good standing the insurance policies
more particularly described on the Disclosure Schedule. Digital has
not been refused insurance by any carrier. Digital has not received
any notice of any claim or suit against it which exceeds or is outside
of the coverage of its insurance policies and Digital is not aware of
any facts which could lead to a claim or suit against it which could
reasonably be expected to exceed or fall outside the coverage of its
insurance policies.
Representations and Warranties of Strategic
3.2 Except as set forth on the Disclosure Schedule delivered by Strategic
to Digital prior to the execution of this Agreement and attached hereto (the
"Strategic Disclosure Schedule"), Strategic represents and warrants to Digital
as follows:
(a) Organization, Standing and Corporate Power. Each of Strategic, the
Material Subsidiaries and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of
Strategic, the Material Subsidiaries and Merger Sub is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
individually or in the aggregate would not have a material adverse effect
on Strategic. Strategic has delivered to Digital complete and correct
copies of its articles of incorporation and by-laws and the certificates of
incorporation and by-laws of its subsidiaries, in each case as amended to
the date hereof. All of the outstanding shares of capital stock of the
Merger Sub and the Material Subsidiaries have been validly issued and are
fully paid and non-assessable and are owned by Strategic, free and clear of
all pledges, claims, liens, charges, encumbrances and security interests of
every kind or nature whatsoever. The material subsidiaries of Strategic
are Tactical Technologies Inc., a British Columbia company, and Strategic
Monitoring Services, Inc., a Delaware company and Merger Sub (together, the
"Material Subsidiaries").
(b) Capital Structure. The authorized capital stock of Strategic consists
of 25,000,000 shares of Strategic Common Stock. At the close of business
on October 13, 1995, 6,054,451 shares of Strategic Common Stock were issued
and outstanding. Except as set forth above, at the close of business on
October 13, 1995, no shares of capital stock or other voting securities of
Strategic were issued, reserved for issuance or outstanding, except for
325,000 shares issuable pursuant to outstanding share purchase warrants
exercisable at $2.25 (Cdn.) per Strategic share (the "Strategic Warrants").
All outstanding shares of capital stock of Strategic are, and all shares
which may be issued pursuant to this Agreement, when issued, duly
authorized, validly issued, fully paid and non-assessable and not subject
to pre-emptive rights. There are no bonds, debentures, notes or other
indebtedness of Strategic having the right to vote (or, except for the
Strategic Warrants, convertible into, or exchangeable for, securities
<PAGE>
having the right to vote) on any matters on which stockholders of Strategic
may vote. Except as set forth above, as of the date hereof, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Strategic or
any Material Subsidiary is a party or by which any of them is bound
obligating Strategic or any Material Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of Strategic or any Material Subsidiary or
obligating Strategic or Merger Sub to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the date of this Agreement, there are
not any outstanding contractual obligations of Strategic or any Material
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock of Strategic or any Material Subsidiary. There are not any
outstanding contractual obligations of Strategic to vote or to dispose of
any shares of the capital stock of any Material Subsidiary. As of the date
of this Agreement, the authorized capital of Merger Sub consists of 1,000
shares of common stock, without par value, 100 of which have been validly
issued for $0.025 each, are fully paid and non-assessable and are owned by
Strategic free and clear of any lien.
(c) Authority; Noncontravention. Strategic and Merger Sub have the
requisite corporate power and authority to enter into this Agreement and,
subject to Strategic Stockholder Approval with respect to the issuance of
Strategic Common Stock and the Merger, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by Strategic and the consummation by Strategic of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Strategic, subject, in the
case of with respect to the issuance of Strategic Common Stock and the
Merger, to Strategic Stockholder Approval. This Agreement has been duly
executed and delivered by Strategic and constitutes a valid and binding
obligation of Strategic, enforceable against Strategic in accordance with
its terms. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material
benefit under, or result in the creation of any Lien upon any of the
properties or assets of Strategic or any of its subsidiaries under, (i) the
articles of incorporation or by-laws of Strategic or the comparable charter
or organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to Strategic or any of its subsidiaries or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Strategic or any
of its subsidiaries or their respective properties or assets, other than,
in the case of clause (ii), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have a
material adverse effect on Strategic, (y) impair the ability of Strategic
to perform its obligations under this Agreement or (z) prevent the
consummation of any of the transactions contemplated by this Agreement. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any Federal, state, local or foreign government or any
court, administrative agency or commission or other governmental authority
or agency, domestic or foreign (a "Government Entity"), is required by or
with respect to Strategic or any of its subsidiaries in connection with the
execution and delivery of this Agreement by Strategic or the consummation
by Strategic of the transactions contemplated by this Agreement, except for
(1) the filing with the Vancouver Stock Exchange and Securities and
Exchange Commission (the "SEC") of (A) a proxy statement relating to
Strategic Stockholder Approval (such proxy statement, together with the
proxy statement relating to Digital Stockholder Approval, in each case as
amended or supplemented from time to time, the "Joint Proxy Statement"),
and (B) such reports under the British Columbia Securities Act (the "BC
Act") and Section 13(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, (2) the filing of the
Certificate of Merger with the Secretary of State of the State of Florida
and appropriate documents with the relevant authorities of other states and
Provinces in which Strategic is qualified to do business, (3) such
consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under the laws of any foreign country in
which Strategic, Digital or any
<PAGE>
of their respective subsidiaries conducts any business or owns any property
or assets or (4) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as would not individually or in the
aggregate (A) have a material adverse effect on Strategic, (B) impair the
ability of Strategic to perform its obligations under this Agreement or (C)
prevent the consummation of any of the transactions contemplated by this
Agreement.
(d) BCSC and SEC Documents; Undisclosed Liabilities. Strategic has filed
all required reports, schedules, forms, statements and other documents with
the British Columbia Securities Commission ("BCSC") and the SEC (under
s.12(g) 3-2(b) of the 1934 Securities Exchange Act) since September 30,
1993 (the "Strategic SEC Documents"). As of their respective dates, the
Strategic SEC Documents complied in all material respects with the
requirements of the BC Act, the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such
Strategic SEC Documents, and none of the Strategic SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any
Strategic SEC Document has been revised or superseded by a later filed
Strategic SEC Document none of the Strategic SEC Documents contains any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Strategic included in the
Strategic SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the BCSC with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of
Strategic as of the dates thereof and the consolidated results of their
operations and cash flows (or changes in financial position for the periods
then ended (subject, in the case of unaudited statements, to normal year-
end audit adjustments). Except as set forth in the Filed Strategic SEC
Documents, neither Strategic nor Merger Sub has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise and whether or not required by generally accepted accounting
principles to be recognized or disclosed on a consolidated balance sheet of
Strategic and Merger Sub or in the notes thereto) which individually or in
the aggregate could reasonably be expected to have a material adverse
effect on Strategic.
(e) Information Supplied. None of the information supplied or to be
supplied by Strategic specifically for inclusion or incorporation by
reference in (i) the registration statement on Form F-4 to be filed with
the SEC by Strategic in connection with the issuance of Strategic Common
Stock in the Merger (the "Form F-4") or the Schedule 13E-3 (the "Schedule
13E-3") will, at the time the Form F-4 or Schedule 13E-3 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii)
the Joint Proxy Statement will, at the date it is first mailed to
Strategic's stockholders or at the time of the Strategic Stockholders
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading. The Joint Proxy Statement will comply as to form
in all material respects with the requirements of the B.C. Act and the
Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by Strategic with respect to statements
made or incorporated by reference therein based on information supplied by
Digital specifically for inclusion or incorporation by reference in the
Joint Proxy Statement.
<PAGE>
(f) Absence of Certain Changes or Events. Except as disclosed in the
Strategic SEC Documents filed and publicly available prior to the date of
this Agreement (the "Filed Strategic SEC Documents"), since the date of the
most recent audited financial statements included in the Filed Strategic
SEC Documents, Strategic has conducted its business only in the ordinary
course, and there has not been (i) any material adverse change in
Strategic, (ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to
any of Strategic's capital stock, (iii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, (iv) (x) any
granting by Strategic or any Material Subsidiary to any executive officer
or other employee of Strategic or any Material Subsidiary of any increase
in compensation, except in the ordinary course of business consistent with
prior practice or as was required under employment agreements in effect as
of the date of the most recent audited financial statements included in the
Filed Strategic SEC Documents, (y) any granting by Strategic or any
Material Subsidiary to any such executive officer of any increase in
severance or termination pay, except as was required under any employment,
severance or termination agreements in effect as of the date of the most
recent audited financial statements included in the Filed Strategic SEC
Documents or (z) any entry by Strategic or any Material Subsidiary into any
employment, severance or termination agreement with any such executive
officer, (v) any damage, destruction or loss, whether or not covered by
insurance, that has or could reasonably be expected to have a material
adverse effect on Strategic or (vi) any change in accounting methods,
principles or practices by Strategic materially affecting its assets,
liabilities or business, except insofar as may have been required by a
change in generally accepted accounting principles.
(g) Litigation. Except as disclosed in the Filed Strategic SEC Documents,
there is no suit, action or proceeding pending or, to the knowledge of
Strategic, threatened against or affecting Strategic or any Material
Subsidiary (and Strategic is not aware of any basis for any such suit,
action or proceeding) that individually or in the aggregate could
reasonably be expected to (i) have a material adverse effect on Strategic,
(ii) impair the ability of Strategic to perform its obligations under this
Agreement or (iii) prevent the consummation of any of the transactions
contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Strategic or any Material Subsidiary having, or which
is reasonably likely to have, any effect referred to in clause (i), (ii) or
(iii) above.
(h) Voting Requirements. The affirmative vote of a majority of the votes
cast by the holders of the shares of Strategic Common Stock entitled to
vote thereon at the Stockholders Meeting with respect to the approval of
the Merger is the only vote of the holders of any class or series of
Strategic's capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement.
(i) Labour Matters. There are no collective bargaining or other labour
union agreements to which Strategic or any Material Subsidiary is a party
or by which any of them is bound. To the best knowledge of Strategic,
since incorporation, neither Strategic nor any Material Subsidiary has
encountered any labour union organizing activity, or had any actual or
threatened employee strikes, work stoppages, slowdowns or lockouts.
(j) Brokers; Schedule of Fees and Expenses. No broker, investment banker,
financial advisor or other person is entitled to any broker's. finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Strategic.
(k) No Undisclosed Prior Valuations. Strategic has not received any
valuations of the business of Strategic in the 24 months before this
Agreement which have not been disclosed to Digital.
<PAGE>
(l) Accounting Matters. Neither Strategic nor, to its best knowledge, any
of its affiliates has taken or agreed to take any action that (without
giving effect to any action taken or agreed to be taken by Digital or any
of its affiliates) would prevent Digital from accounting for the business
combination to be effected by the Merger as a purchase.
(m) Interim Operations of Merger Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
(n) Benefit Plans. Neither Strategic nor any Material Subsidiary have any
employee benefit plans subject to ERISA.
(o) Taxes.
(i) Strategic and each Material Subsidiary has filed all tax returns
and reports required to be filed by it or requests for extensions to
file such returns or reports have been timely filed, granted and have
not expired, except to the extent that such failures to file or to
have extensions granted that remain in effect individually and in the
aggregate would not have a material adverse effect on Strategic. All
returns filed by Strategic and each Material Subsidiary are complete
and accurate in all material respects to the knowledge of Strategic.
Strategic and each Material Subsidiary has paid (or Strategic has paid
on its behalf) all taxes shown as due on such returns, and the most
recent financial statements contained in the Filed Strategic SEC
Documents reflect an adequate reserve for all taxes payable by
Strategic and each Material Subsidiary for all taxable periods and
portions thereof accrued through the date of such financial
statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Strategic or each Material Subsidiary that are not
adequately reserved for, except for deficiencies that individually or
in the aggregate would not have a material adverse effect on
Strategic, and no requests for waivers of the time to assess any such
taxes have been granted or are pending. None of the Canadian or
Federal U.S. income tax returns of Strategic and each Material
Subsidiary consolidated in such returns have been examined by and
settled with the United States Internal Revenue Service or applicable
Canadian taxation authority. The statute of limitations on assessment
or collection of any taxes due from Strategic or each Material
Subsidiary has expired for all taxable years of Strategic or each
Material Subsidiary through September 30, 1991.
(p) Compliance with Applicable Laws.
(i) Strategic and each Material Subsidiary has in effect all Federal,
Canadian Provincial, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices,
permits and rights ("Permits") necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit,
except for the lack of Permits and for defaults under Permits which
lack or default individually or in the aggregate would not have a
material adverse effect on Strategic. Except as disclosed in the
Filed Strategic SEC Documents, to the knowledge of Strategic,
Strategic and the Material Subsidiaries are in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations
of any Governmental Entity, except for possible noncompliance which
individually or in the aggregate would not have a material adverse
effect on Strategic.
<PAGE>
(ii) To the best of Strategic's knowledge, Strategic and each
Material Subsidiary is, and has been, in compliance with all
applicable Environmental Laws, except for possible noncompliance which
individually or in the aggregate would not have a material adverse
effect on Strategic. The term "Environmental Laws" means any U.S.
Federal, state, local or foreign statute, code, ordinance, rule,
regulation, policy, guideline, permit, consent, approval, license,
judgment, order, writ, decree, directive, injunction or other
authorization, including the requirement to register underground
storage tanks, relating to: (14) emissions, discharges, Releases (as
defined below) or threatened Releases of Hazardous Material (as
defined below), into the environment, including ambient air, soil,
sediments, land surface or subsurface, buildings or facilities,
surface water, groundwater, publicly-owned treatment works, septic
systems or land; (15) the generation, treatment, storage, disposal,
use, handling, manufacturing, transportation or shipment of Hazardous
Material; or (16) pollution of the environment or the protection of
human health or safety.
(iii) During the period of ownership or operation by Strategic and
each Material Subsidiary of any of their respective current or
previously-owned properties, there have been no Releases of Hazardous
Material in, on, under or affecting such properties or, to the
knowledge of Strategic, any surrounding site, except in each case for
those which individually or in the aggregate would not have a material
adverse effect on Strategic. Prior to the period of ownership or
operation by Strategic and each Material Subsidiary of any of their
respective current or previously-owned properties, to the knowledge of
Strategic, no Hazardous Material was generated, treated, stored,
disposed of, used, handled or manufactured at, or transported, shipped
or disposed of from, such current or previously-owned properties, and
there were no Releases of Hazardous Material in, on, under or
affecting any such property or any surrounding site, except in each
case for those which individually or in the aggregate would not have a
material adverse effect on Strategic. The term "Release" has the
meaning set forth in 42 U.S.C. (S) 9601(22). The term "Hazardous
Material" means (1) hazardous materials, pollutants, contaminants,
constituents, medical wastes, hazardous or infectious wastes and
hazardous substances as those terms are defined in the following
statutes and their implementing regulations: the Hazardous Materials
Transportation Act, 49 U.S.C. (S) 1801 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act, 42
U.S.C. (S) 9601 et seq., the Occupational Safety and Health Act, 29
U.S.C. (S) 651 et seq., the Clean Water Act, 33 U.S.C. (S) 1251 et
seq., the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq.,
and the Clean Air Act, 42 U.S.C. (S) 7401 et seq.; (2) petroleum,
including crude oil and any fractions thereof; (3) natural gas,
synthetic gas and any mixtures thereof; (4) asbestos and/or asbestos-
containing material; and (5) PCBs, or materials or fluids containing
PCBs.
(q) Contracts; Debt Instruments.
(i) Except as disclosed in the Filed Strategic SEC Documents,
there are no contracts or agreements that are material to the
business, properties, assets, condition (financial or otherwise),
results of operations or prospects of Strategic and the Material
Subsidiaries taken as a whole.
Neither Strategic or any Material Subsidiary is in violation of or in
default under (nor does there exist any condition upon which the
passage of time or the giving of notice would cause such a violation
of or default under) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or
any other contract, agreement, arrangement or understanding to which
it is a party or by which it or any of its properties or assets is
bound, except for violations or defaults that individually or in the
aggregate would not have a material adverse effect on Strategic.
<PAGE>
(ii) Set forth on Strategic Disclosure Schedule is (x) a list of
all loan or credit agreements, notes, bonds, mortgages, indentures and
other agreements and instruments pursuant to which any indebtedness of
Strategic or any Material Subsidiary in an aggregate principal amount
in excess of $25,000 is outstanding or may be incurred and (y) the
respective principal amounts currently outstanding thereunder. For
purposes of this Agreement, "indebtedness" shall mean, with respect to
any person, without duplication, (17) all obligations of such person
for borrowed money, or with respect to deposits or advances of any
kind to such person; (18) all obligations of such person evidenced by
bonds, debentures, note or similar instruments; (19) all obligations
of such person upon which interest charges are customarily paid;
(20) all obligations of such person under conditional sale or other
title retention agreements relating to property purchased by such
person; (21) all obligations of such person issued or assumed as the
deferred purchase price of property or services (excluding obligations
of supplies incurred in the ordinary course of such person's
business); (22) all capitalized lease obligations of such person;
(23) all obligations of others secured by any lien on property or
assets owned or acquired by such person, whether or not the
obligations secured thereby have been assumed; (24) all obligations
of such person under interest rate or currency hedging transactions
(valued at the termination value thereof); (25) all letters of credit
issued for the account of such person; and (26) all guarantees and
arrangements having the economic effect of a guarantee of such person
of any indebtedness of any other person.
(r) Title to Properties.
(i) Strategic and each Material Subsidiary has good and
marketable title to, or valid leasehold interests in, all its material
properties and assets except for such as are no longer used or useful
in the conduct of its businesses or as have been disposed of in the
ordinary course of business and except for defects in title,
easements, restrictive covenants and similar encumbrances or
impediments that individually or in the aggregate would not materially
interfere with its ability to conduct its business as currently
conducted. All such material assets and properties, other than assets
and properties in which Strategic or any Material Subsidiary has
leasehold interests, are free and clear of all Liens, except for Liens
that individually or in the aggregate would not materially interfere
with the ability of Strategic and any Material Subsidiary to conduct
business as currently conducted.
(ii) Strategic and each Material Subsidiary has complied in all
material respects with the terms of all material leases to which it is
a party and under which it is in the occupancy, and all such leases
are in full force and effect. Each of Strategic and each Material
Subsidiary enjoys peaceful and undisturbed possession under all such
material leases.
(s) Intellectual Property. To the best of Strategic's knowledge,
Strategic and each Material Subsidiary own, or are validly licensed or
otherwise have the right to use, all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, service
marks, service mark rights, copyrights and other proprietary
intellectual property rights and computer programs (collectively,
"Intellectual Property Rights") which are material to the conduct of
the business of Strategic and each Material Subsidiary taken as a
whole. Strategic Disclosure Schedule sets forth a description of all
Intellectual Property Rights which are material to the conduct of the
business of Strategic and each Material Subsidiary taken as a whole.
Except as set forth on Strategic Disclosure Schedule, no claims are
pending or, to the knowledge of Strategic, threatened that Strategic
or any Material Subsidiary is infringing or otherwise adversely
affecting the rights of any person with regard to any Intellectual
Property Right. To the knowledge of Strategic, except as set forth on
Strategic Disclosure Schedule, no person is infringing the rights of
Strategic or any Material Subsidiary with respect to any Intellectual
Property Right.
<PAGE>
(t) Insurance. Strategic maintains in good standing the insurance policies
more particularly described on the Disclosure Schedule. Strategic has
not been refused insurance by any carrier. Strategic has not received
any notice of any claim or suit against it which exceeds or is outside
of the coverage of its insurance policies and Strategic is not aware
of any facts which could lead to a claim or suit against it which
could reasonably be expected to exceed or fall outside the coverage of
its insurance policies.
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
Conduct of Business
4.1 (a) Conduct of Business by Digital. Subject to the Interim
Procedures Agreement of even date, during the period from the date of
this Agreement to the Effective Time of the Merger, Digital shall, and
shall cause its subsidiaries to, carry on their respective businesses
in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent
therewith, use all reasonable efforts to preserve intact their current
business organizations, keep available the services of their current
officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, distributors and others
having business dealings with them to the end that their goodwill and
ongoing businesses shall be unimpaired at the Effective Time of the
Merger. Notwithstanding the foregoing, Strategic acknowledges that
the operations of DPC/International Business Solutions, Inc. have been
substantially discontinued and that the operations of BGIS Systems,
Co. may be sold or otherwise disposed of by Digital. Without limiting
the generality of the foregoing, during the period from the date of
this Agreement to the Effective Time of the Merger, Digital shall not,
and shall not permit any of its subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other
than dividends and distributions by a direct or indirect wholly owned
subsidiary of Digital to its parent, (y) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (z) purchase, redeem or otherwise
acquire any shares of capital stock of Digital or any of its
subsidiaries or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities for other
than nominal consideration;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than (x) the issuance of Digital Common Stock upon the exercise
of Employee Stock Options (as defined in Section 5.6) outstanding on
the date of this Agreement and in accordance with their present terms
and (y) the issuance of Digital Common Stock upon exercise of any
warrants by the holders thereof in accordance with their present
terms);
(iii) amend its articles of incorporation, by-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division
thereof or (y) any assets that individually or in the aggregate are
material to Digital and its subsidiaries taken
<PAGE>
as a whole, except purchases of inventory in the ordinary course of
business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets, except sales in the ordinary course of business consistent
with past practice of inventory or of furniture, fixtures and
equipment that are no longer used by or useful to Digital or its
subsidiaries;
(vi) (x) incur any indebtedness, except for short-term borrowings
incurred in the ordinary course of business consistent with past
practice and except for intercompany indebtedness between Digital and
any of its subsidiaries or between such subsidiaries, or (y) make any
loans, advances or capital contributions to, or investments in, any
other person, other than to Digital or any direct or indirect wholly
owned subsidiary of Digital;
(vii) make or agree to make any new capital expenditure or capital
expenditures which individually is in excess of $10,000 or in the
aggregate are in excess of $50,000;
(viii) make any tax election that could reasonably be expected to
have a material adverse effect on Digital or settle or compromise any
income tax liability;
(ix) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of Digital included in the Filed SEC
Documents or incurred since the date of such financial statements in
the ordinary course of business consistent with past practice;
(x) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which Digital or any
subsidiary is a party of waive, release or assign any material rights
or claims thereunder;
(xi) take any action that (without giving effect to any action
taken or agreed to be taken by Strategic or any of its affiliates)
would prevent Strategic from accounting for the business combination
to be effected by the Merger as a purchase;
(xii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Conduct of Business by Strategic. Subject to the Interim Procedures
Agreement of even date, during the period from the date of this Agreement
to the Effective Time of the Merger, Strategic shall, and shall cause its
subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them to the end that
their goodwill and ongoing businesses shall be unimpaired at the Effective
Time of the Merger. Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the Effective Time of
the Merger, Strategic shall not and shall not permit any of its
subsidiaries to:
(i) (x) declare, set aside or pay and dividends on, or make any
other distributions in respect of, any capital stock of Strategic or
(y) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of Strategic's capital stock (other
than exchanges in the ordinary course respecting Strategic's Warrant);
<PAGE>
(ii) take any action that (without giving effect to any action
taken or agreed to be taken by Digital or any of its affiliates) would
prevent Strategic from accounting for the business combination to be
effected by the Merger as a purchase;
(iii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities,
without the consent of Digital except for Strategic's right hereby
granted to issue up to 500,000 shares for gross proceeds of not less
than (Cdn.)$750,000 and a per share price of not less than 80% of the
then current market price of Strategic's common stock, which shall be
the average of the daily closing prices for the 30 consecutive
business days ending on the day before the closing of such stock
issuance (the "Strategic Interim Financing");
(iv) amend its articles of incorporation, by-laws or other
comparable charter or organizational documents;
(v) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division
thereof of (y) any assets that individually or in the aggregate are
material to Strategic and its subsidiaries taken as a whole, except
purchases of inventory in the ordinary course of business consistent
with past practice, in each case if any such action could reasonably
be expected to (A) delay materially the date of mailing of the Joint
Proxy Statement or, (B) if it were to occur after such date of
mailing, require an amendment of the Joint Proxy Statement; or
(vi) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets, except sales in the ordinary course of business consistent
with past practice of inventory or of furniture, fixtures and
equipment that are no longer used by or useful to Strategic or its
subsidiaries;
(vii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(c) Other Actions. Digital and Strategic shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or
that could reasonably be expected to, result in (i) any of the
representations and warranties that are not so qualified becoming untrue in
any material respect or (iii) except as otherwise permitted by Section 4.2,
any of the any conditions to the Merger set forth in Article 6 not being
satisfied.
(d) Advice of Changes. Digital and Strategic shall promptly advise the
other party orally and in writing of any change or event having, or which,
insofar as can reasonable be foreseen, would have, a material adverse
effect on such party or on the truth of their respective representations
and warranties.
No Solicitation
4.2 (a) Digital shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorize or permit any officer, director or employee of
or any investment banker, attorney or other advisor or representative of,
Digital or any of its subsidiaries to, directly or indirectly, (i) solicit,
initiate or encourage the submission of, any takeover proposal or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any takeover proposal; provided,
however, that prior to the Digital Stockholders Meeting to the extent
required by the fiduciary obligations of the Board of Directors of Digital,
as determined in good faith by the Board of Directors based on the advice
of outside counsel, Digital may, (A) in response to an unsolicited request
therefor, furnish information with respect to Digital to any person
pursuant to a
<PAGE>
customary confidentiality agreement (as determined by Digital's outside
counsel) and discuss such information (but not the terms of any possible
takeover proposal) with such person and (B) upon receipt by Digital of a
takeover proposal, following delivery to Strategic of the notice required
pursuant to Section 4.2(c), participate in negotiations regarding such
takeover proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding sentence by
any officer, director or employee of Digital or any of its subsidiaries or
any investment banker, attorney or other advisor or representative of
Digital or any of its subsidiaries, whether or not such person is
purporting to act on behalf of Digital or any of its subsidiaries or
otherwise, shall be deemed to be a breach of this Section 4.2(a) by
Digital. For purposes of this Agreement, "takeover proposal" means any
proposal for a merger or other business combination involving Digital or
any of its subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in, any voting securities of, or
a substantial portion of the assets of Digital or any of its subsidiaries,
other than the transactions contemplated by this Agreement.
(b) Neither the Board of Directors of Digital nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in
a manner adverse to Strategic or Merger Sub, the approval or recommendation
of such Board of Directors or any such committee of this Agreement or the
Merger, (ii) approve or recommend, or propose to approve or recommend, any
takeover proposal or (iii) enter into any agreement with respect to any
takeover proposal. Notwithstanding the foregoing, in the event the Board
of Directors of Digital receives a takeover proposal that, in the exercise
of its fiduciary obligations (as determined in good faith by the Board of
Directors based on the advice of outside counsel), it determines to be a
superior proposal, the Board of Directors may (subject to the following
sentences) withdraw or modify its approval or recommendation of this
Agreement and the Merger, approve or recommend any such superior proposal,
enter into an agreement with respect to such superior proposal or terminate
this Agreement, in each case at any time after the second business day
following Strategic's receipt of written notice (a "Notice of Superior
Proposal") advising Strategic that the Board of Directors has received a
superior proposal, specifying the material terms and conditions of such
superior proposal and identifying the person making such superior proposal.
In the event the Board of Directors of Digital takes any of the foregoing
actions with respect to such superior proposal, Digital shall, concurrently
with the taking of any such action, permit the exercise by Strategic of the
Termination Warrant pursuant to Section 5.9(b). For purposes of this
Agreement, "superior proposal" means a bona fide takeover proposal to
acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than 50% of the shares of Digital Common Stock then
outstanding or all or substantially all the assets of Digital, and
otherwise on terms which the Board of Directors of Digital determines in
its good faith reasonable judgment to be more favourable to Digital's
stockholders than the Merger (based on the written opinion, with only
customary qualifications, of Digital's independent financial advisor that
the value of the consideration provided for in such proposal is superior to
the value of the consideration provided for in the Merger) and for which
financing, to the extent required, is then committed or which, in the good
faith reasonable judgment of the Board of Directors, is reasonably capable
of being financed by such third party.
(c) In addition to the obligations of Digital set forth in paragraph
(b) above, Digital promptly shall advise Strategic orally and in writing of
any request for information or of any takeover proposal or any inquiry with
respect to or which could lead to any takeover proposal, the identity of
the person making any such takeover proposal or inquiry and the material
terms and conditions thereof. Digital will keep Strategic generally
informed of the status and details of any such request, takeover proposal
or inquiry.
<PAGE>
ARTICLE 4
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ADDITIONAL AGREEMENTS
Preparation of Form F-4 and the Joint Proxy Statement; Stockholders' Meetings
5.1 (a) The Strategic Common Stock to be issued in the Merger shall be
registered under the Securities Act. As soon as practicable following the
date of this Agreement, Digital and Strategic shall prepare and file with
the SEC and any necessary Canadian regulatory authorities the Joint Proxy
Statement and Strategic shall prepare and file with the SEC the Form F-4,
in which the Joint Proxy Statement will be included as a prospectus, and
Digital shall prepare and file with the SEC the Schedule 13E-3. Each of
Digital and Strategic shall use its best efforts to have the Form F-4
declared effective under the Securities Act and any applicable state
securities or blue sky laws as promptly as practicable after such filing.
Digital will use its best efforts to cause the Joint Proxy Statement to be
mailed to Digital's stockholders, and Strategic will use its best efforts
to cause the Joint Proxy Statement to be mailed to Strategic's
stockholders, in each case as promptly as practicable after the Form F-4 is
declared effective under the Securities Act. Strategic shall also take any
action (other than qualifying to do business in any jurisdiction in which
it is not now so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of Strategic Common Stock
in the Merger and under the Stock Plans and Digital shall furnish all
information concerning Digital and the holders of Digital Common Stock and
rights to acquire Digital Common Stock pursuant to the Stock Plans as may
be reasonably requested in connection with any such action.
(b) Digital will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Digital Stockholders' Meeting") for the purpose of
approving the Merger. Strategic will, as promptly as practicable following
the date of this Agreement, duly call, give notice of, convene and hold a
meeting of its stockholders (the "Strategic Stockholders' Meeting") for the
purpose of approving (i) the issuance of the Strategic Common Stock in the
Merger, and (ii) the creation of a Strategic Stock Plan to issue 600,000
options exercisable for 5 years at $1.55 Cdn. per Strategic share to such
persons as are mutually agreed by Digital and Strategic (the "Strategic
Stock Plan"). Digital and Strategic will, through their respective Boards
of Directors, recommend to their respective stockholders approval of the
foregoing matters, except to the extent that the Board of Directors of
Digital shall have withdrawn or modified its approval or recommendation of
this Agreement or the Merger as permitted by Section 4.2(b). Strategic and
Digital will use reasonable efforts to hold the Digital Stockholders'
Meeting and the Strategic Stockholders' Meeting on the same day and use
their best efforts to hold such Meetings as soon as practicable after the
date hereof.
(c) Digital shall use its best efforts to obtain the opinion of
Marshall & Stevens Incorporated, dated on or about the date that is 10
business days prior to the mailing of the Joint Proxy Statement, to the
effect that, as of such date, the Exchange Ratio is fair to Digital's
stockholders from a financial point of view, and shall cause a signed copy
of such opinion to be delivered to Strategic.
(d) Strategic shall use its best efforts to obtain the opinion of CWC
Capital L.P., dated on or about the date that is 10 business days prior to
the mailing of the Joint Proxy Statement, to the effect that, as of such
date, the Exchange Ratio is fair to Strategic's stockholders from a
financial point of view, and shall cause a signed copy of such opinion to
be delivered to Digital.
<PAGE>
Letter of Digital's Accountants
5.2 Digital shall use its best efforts to cause to be delivered to
Strategic a letter of Richard Eisner & Co., LLP, Digital's independent public
accountants, dated a date within two business days before the date on which the
Form F-4 shall become effective and a letter of Richard Eisner & Co., LLP, dated
a date within two business days before the Closing Date, each addressed to
Strategic, in form and substance reasonably satisfactory to Strategic and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form F-4.
Letter of Strategic's Accountants
5.3 Strategic shall use its best efforts to cause to be delivered to
Digital a letter of Deloitte & Touche, Chartered Accountants, Strategic's
independent public accountants, or such other public accountants as are
acceptable to Digital, dated a date within two business days before the date on
which the Form F-4 shall become effective and a letter of such accountants,
dated a date within two business days before the Closing Date, each addressed to
Digital, in form and substance reasonably satisfactory to Digital and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Form F-4.
Access to Information; Confidentiality
5.4 (a) Each of Digital and Strategic shall, and shall cause each of its
respective subsidiaries to, afford to the other party and to the officers,
employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal
business hours during the period prior to the Effective Time of the Merger
to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of Digital and
Strategic shall, and shall cause each of its respective subsidiaries to,
furnish promptly to the other party (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of Federal, state or Canadian securities laws
and (ii) all other information concerning its business, properties and
personnel as such other party may reasonably request. Except as required
by law, each of Digital and Strategic will hold and will cause its
respective officers, employees, accountants, counsel, financial advisors
and other representatives and affiliates to hold, any non-public
information in confidence until such time as such information becomes
publicly available (otherwise than through the wrongful act of any such
person) and shall use its best efforts to ensure that such persons do not
disclose such information to others without the prior written consent of
Digital or Strategic, as the case may be. In the event of the termination
of this Agreement for any reason, Digital and Strategic shall promptly
return or destroy all documents containing non-public information so
obtained from the other party or any of its subsidiaries and any copies
made of such documents. In addition, Strategic and Digital shall not, and
shall cause their respective advisors and agents not to, use any such non-
public information for any purpose except in furtherance of the
transactions contemplated by this Agreement.
(b) Neither Strategic nor any of its subsidiaries will solicit or
employ any employees of Digital or any of its subsidiaries as long as they
are employed by Digital or such subsidiary during the period prior to the
Effective Time of the Merger (except as contemplated by this Agreement)
and, in the event of termination of this Agreement for any reason, for a
period of two years after the date of termination.
Best Efforts; Notification
5.5 (a) Upon the terms and subject to the conditions set forth in this
Agreement, unless, to the extent permitted by Section 4.2(b), the Board of
Directors of Digital approves or recommends a superior proposal, each of
the parties agrees to use its 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 parties in doing, all things necessary, proper or advisable
to consummate and make effective, in the most expeditious manner
practicable, the
<PAGE>
Merger and the other transactions contemplated by this Agreement, including
(i) the obtaining of all necessary actions or non-actions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties including those holding
Digital options or warrants and (iii) the execution and delivery of any
additional instruments necessary to consummate transactions contemplated
by, and to fully carry out the purposes of, this Agreement. In connection
with and without limiting the foregoing, Digital and its Board of Directors
shall (A) take all action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the
Merger, this Agreement or any of the other transactions contemplated by
this Agreement and (B) if any state takeover or similar statute or
regulation becomes applicable to the Merger, this Agreement or any other
transaction contemplated by this Agreement, take all action necessary to
ensure that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger and the other transactions contemplated
by this Agreement. Notwithstanding the foregoing, the Board of Directors
of Digital shall not be prohibited from taking any action permitted by
Section 4.2.
(b) Digital shall give prompt notice to Strategic, and Strategic or
Merger Sub shall give prompt notice to Digital, of (i) any representation
or warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; provided,
however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
Stock Options
5.6 (a) As soon as practicable following the date of this Agreement, the
Board of Directors of Digital (or, if appropriate, any committee
administering the Stock Plans) shall adopt such resolutions or take such
other actions as may be required to effect the following:
(i) terminate all options to purchase shares of Digital Common
Stock (each, a "Digital Stock Option") at the Effective Time; and
(ii) terminate each stock option plan of Digital at the Effective
Time.
(b) As soon as practicable after the Effective Time of the Merger,
Strategic shall deliver to those persons who will be holders of Strategic
Stock Options appropriate notices setting forth such holders' rights
pursuant to Section 5.1(b) and the agreements evidencing the grants of such
Strategic Stock Options.
(c) Strategic agrees to use reasonable efforts to take such actions as are
necessary for the establishment of the Strategic Stock Plan, including the
reservation, issuance and listing of Common Stock of Strategic.
(d) A holder of a Strategic Option may exercise such Strategic Option in
whole or in part in accordance with its terms by delivering a properly
executed notice of exercise to Strategic, together with the consideration
therefor and the Federal or Canadian withholding tax information, if any,
required in accordance with the Strategic Stock Plan.
<PAGE>
(e) As promptly as practicable but in no event later than 180 days after
the Effective Date of the Merger, Strategic shall file a registration
statement on Form S-8 with the SEC covering all of the Strategic Stock
Options, and shall keep such registration statement effective until all of
the shares of common stock underlying such options have been sold or such
options have terminated.
Benefit Plans
5.7 (a) Except as provided in Section 5.6 and subject to the provisions of
ERISA and the Code, Strategic agrees to cause the Surviving Corporation to
maintain for a period of at least six months after the Effective Time of
the Merger the Benefit Plans of Digital and its subsidiaries in effect on
the date of this Agreement or to provide benefits to employees of Digital
and its subsidiaries that are comparable in the aggregate to those in
effect on the date of this Agreement, and thereafter Strategic will cause
the employees of the Surviving Corporation to have benefit plans that are
at least comparable to those provided to the employees of Strategic.
Strategic will cause each employee benefit plan of the Surviving
Corporation or Strategic covering such employees of Digital and its
subsidiaries to recognize the service of such employees with Digital and
its subsidiaries prior to the Closing Date, but only for purposes of
eligibility to participate and vesting under any such plan.
(b) After the Effective Time of the Merger, Strategic intends to grant to
key employees of Strategic options to purchase Strategic Common Stock under
the Strategic Stock Plan.
Indemnification and Insurance
5.8 (a) Strategic and Merger Sub agree that all rights to indemnification for
acts or omissions occurring at or prior to the Effective Time of the Merger
now existing in favour of the current or former directors or officers of
Digital and its subsidiaries as provided in Digital's certificate of
incorporation or by-laws shall survive the Merger and shall continue in
full force and effect in accordance with their terms for a period of not
less than five years from the Effective Time of the Merger.
(b) In the event the Surviving Corporation or any of their successors or
assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers all or substantially all of its properties and
assets to any person, then and in each such case, proper provisions shall
be made so that the successors and assigns of Strategic or the Surviving
Corporation, as the case may be, shall assume the obligations set forth in
this Section 5.8.
(c) This Section 5.8 shall survive the consummation of the Merger at the
Effective Time of the Merger, is intended to benefit the persons
indemnified pursuant to Section 5.8(a), and shall be binding on all
successors and assigns of Strategic and the Surviving Corporation.
Fees and Expenses
5.9 (a) All fees and expenses incurred after August 1, 1995 in connection with
the Merger, this Agreement and the transactions contemplated by this
Agreement ("Expenses") shall be shared equally by Strategic and Digital if
the Merger is not consummated. Notwithstanding the foregoing, Strategic
hereby covenants to advance and fund up to $275,000 U.S. of Digital's
Expenses hereunder, inclusive of the first $60,000 U.S. funded to the date
hereof and with the balance to be funded commencing 45 days from the date
of execution hereof. Digital's Expenses shall be paid promptly (within 15
days) on receipt by Strategic of the invoices received by Digital in regard
to Expenses subject always to Strategic's right to dispute the
reasonableness of such Expenses but only after making payment of same to
Digital. For purposes of this paragraph, "Expenses" shall mean all out-of-
pocket fees and expenses incurred or paid by or on behalf of Strategic or
Digital in connection with the Merger or the consummation of any of the
transactions contemplated by this Agreement, including all fees and
<PAGE>
expenses of counsel, investment banking firms, accountants, experts and
consultants to Strategic or Digital.
(b) Pursuant to a letter agreement dated August 1, 1995, Digital has
issued to Strategic a warrant to purchase 500,000 shares of Digital Common
Stock exercisable at a price of $0.25 (the "Initial Warrant") in
consideration of the partial funding of Digital's Expenses to the extent of
$60,000 U.S. by Strategic. Digital shall allot and issue to Strategic on
execution hereof a second warrant (the "Second Warrant") to purchase
1,500,000 shares of Digital Common Stock exercisable at a price of $0.25.
Subject to paragraph 5.9(c), the Initial Warrant and the Second Warrant
(together, the "Termination Warrants") are exercisable if this Agreement
terminates without consummation of the Merger as a result of any of the
following events in (i) to (vi): (i) the Board of Directors of Digital
withdraws or modifies its approval or recommendation of this Agreement or
the Merger, approves or recommends another takeover proposal, enters into
an agreement with respect to another takeover proposal or terminates this
Agreement (other than as a result of a willful and material breach of this
Agreement by Strategic or Merger Sub (which breach shall not have been
cured within five business days following Strategic's receipt of written
notice of such breach from Digital)), (ii) the requisite approval of
Digital's stockholders for the Merger is not obtained at the Digital
Stockholders' Meeting; (iii) more than 2 1/2% of shares of Digital become
subject to dissent; (iv) the Digital Stockholders' Meeting does not occur
prior to the termination of this Agreement pursuant to Section 7.1(b)(ii);
or (v) there is a material breach of any representation, warranty or
covenant hereof by Digital which is not remedied prior to the Effective
Time; and/or (vi) the Merger is terminated by virtue of failure to meet the
conditions precedent to closing set forth in Section 6.2(d), Section
6.3(e), and/or Section 6.1(d). In the event of the termination of this
Merger Agreement pursuant to one of the foregoing events, Strategic may
recover any of Digital's Expenses funded by Strategic from Digital solely
through the exercise of the Termination Warrants and the application of
such funded Expenses to the exercise price which would otherwise be payable
by Strategic to Digital upon the exercise of the Termination Warrants. Any
Expenses incurred by Strategic in excess of such exercise price (i.e., any
Expenses in excess of $500,000) shall not be recovered by Strategic from
Digital. Subject to paragraph 5.9(c), any portion of the Termination
Warrants desired to be exercised by Strategic in excess of the funded
portion of Digital's Expenses shall be paid by Strategic in cash.
(c) The Second Warrant shall only be exercisable by Strategic to the
extent of the incurred and paid Expenses of Digital (i.e. the balance of
the Second Warrant shall not be exercisable for a cash payment by
Strategic) in the event the Merger terminates for any reason other than
those set forth in subsections 5.9(b)(i), (ii), (iv) or section 6.3(e).
(d) In the event the Merger terminates as a result of an event set forth
in subsection 5.9(b)(i), (ii), (iv) or Section 6.3(e), the Second Warrant
may be exercisable to the extent of the incurred and paid expenses of
Digital and the balance of the Second Warrant may be exercisable for a cash
payment by Strategic.
Public Announcements
5.10 Strategic and Merger Sub, on the one hand, and Digital on the other
hand, will consult with each other before issuing, and provide each other the
opportunity to review, comment upon and concur with, any press release or other
public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by agreement with any stock exchange or by law.
Affiliates and Certain Stockholders
5.11 (a) Prior to the Closing Date, Digital shall deliver to Strategic a letter
identifying all persons who are, at the time the Merger is submitted for
approval to the stockholders of Digital, "affiliates" of Digital for
purposes of Rule 145 under the Securities Act.
<PAGE>
(b) Digital shall deliver to Strategic on the date of the Joint Proxy
Statement and on the Closing Date letters, in each case dated as of such
respective dates and identifying all persons who are, as of such respective
dates, beneficial owners of five percent or more of Digital Common Stock.
Stockholder Litigation
5.12 Digital shall give Strategic the opportunity to participate in the
defense or settlement of any stockholder litigation against Digital and its
directors relating to the transactions contemplated by this Agreement; provided,
however, that no such settlement shall be agreed to without Strategic's consent,
which consent shall not be unreasonably withheld.
Directorships
5.13 As of the Effective Time of the Merger, Strategic's Board of Directors
shall be expanded to nine directors and Col. Clinton Pagano (Ret.), Michael
Marino, Richard Angulo and Thomas P. Gallagher shall be elected as directors of
Strategic.
ARTICLE 6
CONDITIONS PRECEDENT
Conditions to Each Party's Obligation to Effect the Merger
6.1 The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. Each of Digital Stockholder Approval and
Strategic Stockholder Approval (with respect to both the issuance of
Strategic Common Stock in the Merger and the Strategic Stock Plan) shall
have been obtained.
(b) TSE. The shares of Strategic Stock issuable to Digital's stockholders
pursuant to this Agreement and under the Stock Plans shall have been
approved for trading on The Toronto Stock Exchange subject to official
notice of issuance.
(c) No Injunctions or Restraints. No statute, rule, regulation, executive
order, decree, temporary restraining order, preliminary or permanent
injunction or other order enacted, entered, promulgated, enforced or issued
by any court of competent jurisdiction or other Governmental Entity or
other legal restraint or prohibition preventing the consummation of the
Merger shall be in effect.
(d) Form F-4. The Form F-4 and Schedule 13e-3 shall have become effective
under the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order. Strategic shall have received all state
securities authorizations necessary to issue the Strategic Stock pursuant
to this Agreement and under the Stock Plans.
Conditions to Obligations of Strategic and Merger Sub
6.2 The obligations of Strategic and Merger Sub to effect the Merger are
further subject to satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Digital set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of
Digital set forth in this Agreement that are not so qualified shall be true
and correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date as though
<PAGE>
made on and as of the Closing Date, except to the extent such
representations and warranties speak as of an earlier date, and Strategic
shall have received a certificate signed on behalf of Digital by the chief
executive officer and the chief financial officer of Digital to such
effect.
(b) Performance of Obligations of Digital. Digital shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Strategic shall
have received a certificate signed on behalf of Digital by the chief
executive officer and the chief financial officer of Digital to such
effect.
(c) Certificates; Letters from Digital Affiliates. Digital shall have
delivered to Strategic certified copies of resolutions duly adopted by
Digital's Board of Directors and stockholders evidencing the taking of all
corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Strategic and its
counsel shall reasonably request prior to the date of the Stockholders
Meeting.
(d) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding and there shall not be
pending or if pending, have been adversely amended from the date hereof by
any other person, any suit, action or proceeding which has a reasonable
likelihood of success, in such case (i) challenging the acquisition by
Strategic or Merger Sub of any shares of Digital Common Stock, seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or seeking to obtain from
Digital, Strategic or Merger Sub any damages that are material in relation
to Digital and its subsidiaries taken as a whole or Strategic and its
subsidiaries taken as a whole, as applicable, (ii) seeking to prohibit or
limit the ownership or operation by Digital, Strategic or any of their
respective subsidiaries of any material portion of the business or assets
of Digital, Strategic or any of their respective subsidiaries, or to compel
Digital, Strategic or any of their respective subsidiaries to dispose of or
hold separate any material portion of the business or assets of Digital,
Strategic or any of their respective subsidiaries, as a result of the
Merger or any of the other transactions contemplated by this Agreement,
(iii) seeking to impose limitations on the ability of Strategic to acquire
or hold, or exercise full rights of ownership of, any shares of Digital
Common Stock or common stock of the Surviving Corporation, including the
right to vote Digital's Common Stock, or Common Stock of the Surviving
Corporation, on all matters properly presented to the stockholders of
Digital or the Surviving Corporation, respectively, (iv) seeking to
prohibit Strategic or any of its subsidiaries from effectively controlling
in any material respect the business or operations of Digital or its
subsidiaries or (v) which otherwise could reasonably be expected to have a
material adverse effect on Digital or Strategic. In addition, there shall
not be any statute, rule, regulation, judgment or order enacted, entered,
enforced or promulgated that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (ii) through
(iv) above.
(e) Approval of Digital Board of Directors. The Board of Directors of
Digital or any committee thereof shall not have withdrawn or modified in a
manner adverse to Strategic or Merger Sub its approval or recommendation of
the Merger or this Agreement, or approved or recommended any takeover
proposal, (ii) Digital shall not have entered into any agreement with
respect to any superior proposal in accordance with Section 4.2(b) of this
Agreement, (iii) Strategic shall not have received a Notice of Superior
Proposal from Digital or two business days shall not have elapsed from the
date of such receipt or (iv) the Board of Directors of Digital or any
committee thereof shall not have resolved to take any of the foregoing
actions referred to in clause (i) or (ii) above.
(f) Fairness Opinion. Strategic shall have received the opinion of CWC
Capital L.P., dated on or about the date that is 10 business days prior to
the mailing of the Joint Proxy Statement, to the effect that, as of such
date, the Exchange Ratio is fair to Strategic's Stockholders from a
financial point of view, a signed copy of which opinion shall have been
delivered to Digital.
(g) Digital Dissenters. No more than 2 1/2% of the outstanding shares of
Digital Common Stock immediately prior to the Merger shall constitute
Dissenting Shares in accordance with Section 2.1(d).
<PAGE>
Conditions to Obligations of Digital
6.3 The obligation of Digital to effect the Merger is further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Strategic and the Material Subsidiaries set forth in this Agreement that
are qualified as to materiality shall be true and correct, and the
representations and warranties of Strategic and the Material Subsidiaries
set forth in this Agreement that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations speak as of an
earlier date, and Digital shall have received a certificate signed on
behalf of Strategic by the chief executive officer of Strategic to such
effect.
(b) Performance of Obligations of Strategic and Merger Sub. Strategic and
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and Digital shall have received a certificate signed on
behalf of Strategic by the chief executive officer of Strategic to such
effect.
(c) Certificates. Strategic shall have delivered to Digital certified
copies of resolutions duly adopted by Strategic's and Merger Sub's
respective Board of Directors and stockholders of Strategic evidencing the
taking of all corporate action necessary to authorize the execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail as Digital
and its counsel shall reasonably request prior to the date of Strategic's
Stockholders Meeting.
(d) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding and there shall not be
pending by any other person any suit, action or proceeding which has
reasonable likelihood of success, in each case (i) challenging the
acquisition by Strategic or Merger Sub of any shares of Digital Common
Stock, seeking to restrain or prohibit the consummation of the Merger or
any of the other transactions contemplated by this Agreement or seeking to
obtain from Digital, Strategic or Merger Sub any damages that are material
in relation to Digital and its subsidiaries taken as a whole or Strategic
and Merger Sub taken as a whole, as applicable, (ii) seeking to prohibit or
limit the ownership or operation by Digital, Strategic or any of their
respective subsidiaries of any material portion of the business or assets
of Digital, Strategic or any of their respective subsidiaries to compel
Digital, Strategic or any of their respective subsidiaries to dispose of or
hold separate any material portion of the business or assets of Digital,
Strategic or any of their respective subsidiaries, as a result of the
Merger or any of the other transactions contemplated by this Agreement,
(iii) seeking to impose limitations on the ability of Strategic to acquire
or hold, or exercise full rights of ownership of, any shares Digital Common
Stock or common stock of the Surviving Corporation including the right to
vote the Digital Common Stock, or Common Stock of the Surviving
Corporation, on all matters properly presented to the stockholders of
Digital or the Surviving Corporation, respectively, (iv) seeking to
prohibit Strategic or Merger Sub from effectively controlling in any
material respect the business or operations of Digital or its subsidiaries
or (v) which otherwise could reasonably be expected to have a material
adverse effect on Digital or Strategic. In addition, there shall not be
any statute, rule, regulation, judgment or order enacted, entered, enforced
or promulgated that is reasonably likely to result, directly or indirectly,
in any of the consequences referred to in clauses (ii) through (iv) above.
(e) Fairness Opinion. Digital shall have received the opinion of Marshall
& Stevens Incorporated dated on or about the date that is 10 business days
prior to that mailing of the Joint Proxy Statement, to the effect that, as
of such date, the Exchange Ratio is fair to Digital, a signed copy of which
opinion shall have been delivered to Strategic.
(f) Strategic Interim Financing. Strategic shall have received the
proceeds of the Strategic Interim Financing.
<PAGE>
(g) Tax Opinion. Strategic shall have caused to be delivered to Digital
an opinion of U.S. counsel confirming that the Merger can be effected on a
tax-deferred basis to Digital shareholders as outlined in the memorandum of
Deloitte & Touche dated October 5, 1995.
Frustration of Closing Condition
6.4 None of Digital, Strategic and Merger Sub may rely on the failure of
any condition set forth in Sections 6.1, 6.2 or 6.3, as the case may be, to be
satisfied if such failure was caused by such party's failure to act in good
faith or to use its best efforts to consummate the Merger and the other
transactions contemplated by this Agreement, as required by Section 5.5.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Termination
7.1 This Agreement may be terminated at any time prior to the Effective
Time of the Merger, whether before of after approval of matters presented in
connection with the Merger by the stockholders of Digital
(a) by mutual written consent of Strategic, Merger Sub and Digital;
(b) by either Strategic or Digital:
(i) if, upon a vote at a duly held Digital Stockholders Meeting or
Strategic Stockholders Meeting or any adjournment thereof, any
required approval of the stockholders of Digital or Strategic, as the
case may be, shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before April
30, 1996, unless the failure to consummate the Merger is the result of
a willful and material breach of this Agreement by the party seeking
to terminate this Agreement; provided, however, that the passage of
such period shall be tolled for any part thereof (but not exceeding 60
calendar days in the aggregate) during which any party shall be
subject to a non-final order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or
the calling or holding of the Stockholders Meeting or the Strategic
Stockholders Meeting;
(iii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable; or
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in
this Agreement which (A) would give rise to the failure of a condition
set forth in Section 6.2(a) or (b) or Section 6.3(a) or (b), as
applicable, and (B) cannot be or has not been cured within 30 day
after the giving of written notice to the breaching party of such
breach (a "Material Breach") (provided that the terminating party is
not then in Material Breach of any representation, warranty, covenant
or other agreement contained in this Agreement); or
(v) by Digital in accordance with the provisions of Section 4.2(b).
<PAGE>
Effect of Termination
7.2 In the event of termination of this Agreement by either Digital or
Strategic as provided in Section 7.1, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of
Strategic, Sub or Digital, other than the provisions of Section 3.1(p), Section
3.2(j), the last two sentences of Section 5.4, Section 5.9, this Section 7.2 and
Article 8 and except to the extent that such termination results from the
willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
Amendment
7.3 This Agreement may be amended by the parties at any time before or
after any required approval of matters presented in connection with the Merger
by the stockholders of Digital and at any time before or after any required
approval of matters presented in connection with the issuance of shares of
Strategic Common Stock in the Merger and the Strategic Stock Plan by the
stockholders of Strategic; provided, however, that after any such approval,
there shall be made no amendment that by law requires further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
Extension; Waiver
7.4 At any time prior to the Effective Time of the Merger, the parties may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties, (b) waive any inaccuracies in the representations and
warranties of the other parties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.3, waive compliance by the other parties with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
Procedure for Termination, Amendment, Extension or Waiver
7.5 A termination of this Agreement pursuant to Section 7.1, an amendment
of this Agreement pursuant to Section 7.3 or an extension or waiver pursuant to
Section 7.4 shall, in order to be effective, require in the case of Strategic,
Merger Sub or Digital, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
ARTICLE 8
GENERAL PROVISIONS
Nonsurvival of Representations and Warranties
8.1 None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective Time
of the Merger. This Section 8.1 shall not limit any covenant or agreement of
the parties which by its terms contemplates performance after the Effective Time
of the Merger.
<PAGE>
Notices
8.2 All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Strategic, to
Building A, Unit 102 17802 66th Avenue
Surrey, British Columbia
V3S 7X1
Telecopy: (604) 576-0436
Attention: Mr. Douglas H. Blakeway
with a copy to:
Lang Michener Lawrence & Shaw, to
2500 Three Bentall Centre, P.O. Box 49200
595 Burrard Street
Vancouver, British Columbia
V7X 1L1
Telecopy: (604) 685-7084
Attention: Mr. Bernhard Zinkhofer, Esq.
(b) if to Digital, to
800 N.W. 33rd Street
Pompano Beach, Florida
USA 33064
Telecopy: (305) 783-9609
Attention: Mr. Richard Angulo
with a copy to Mason, Briody, Gallagher & Taylor
104 Carnegie Centre
Suite 201
Princeton, New Jersey
08540
Attention: Thomas P. Gallagher, Esq.
Definitions
8.3 For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "indebtedness" has the meaning assigned thereto in Section 3.1(t)(ii);
(c) "material adverse change" or "material adverse effect" means, when
used in connection with Digital or Strategic, any change or effect that is
materially adverse to the business, properties, assets,
<PAGE>
condition (financial or otherwise), results of operations or prospects of
such party and its subsidiaries taken as a whole;
(d) "person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity;
(e) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person;
(f) "superior proposal" has the meaning assigned thereto in Section 4.2;
(g) "takeover proposal" has the meaning assigned thereto in Section 4.2;
and
(h) "taxes" has the meaning assigned thereto in Section 3.1(k).
Interpretation
8.4 When a reference is made in this Agreement to an Article, Section,
Exhibit or Schedule, such reference shall be to an Article or Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined herein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
Counterparts
8.5 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
Entire Agreement; No Third-Party Beneficiaries
8.6 This Agreement (including the documents and instruments referred to
herein)
(a) constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect
to the subject matter of this Agreement, and
(b) except for the provisions of Article 2, Section 5.6, Section 5.7 and
Section 5.8, are not intended to confer upon any person other than the
parties any rights or remedies.
<PAGE>
Governing Law
8.7 This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Florida, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
Assignment
8.8 Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law
or otherwise by any of the parties without the prior written consent of the
other parties, except that Merger Sub may assign, in its sole discretion, any of
or all its rights, interests and obligations under this Agreement to Strategic
or to any direct or indirect wholly owned subsidiary or Strategic, but no such
assignment shall relieve Merger Sub of any of its obligations under this
Agreement. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and permitted assigns.
Enforcement
8.9 The parties agree that irreparable damage would occur in the event
that any of the provisions of Section 5.4 of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of Section 5.4 of this Agreement in any court of
the United States located in the State of Florida state Court. In addition,
each of the parties hereto
(a) consents to submit itself to the personal jurisdiction of any Federal
court located in the State of Florida or any Florida state court in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and
(c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other
than a Federal court sitting in the State of Florida.
<PAGE>
Execution and Attestation
IN WITNESS WHEREOF, Strategic, Merger Sub and Digital have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date below written.
STRATEGIC TECHNOLOGIES INC.
by:
Attest: /s/ Douglas H. Blakeway
-----------------------------
Douglas H. Blakeway,
Chairman and Chief Executive
Officer
/s/ Bernhard Zinkhofer Execution Date: October 18,
----------------------
Bernhard Zinkhofer, 1995
Secretary
STRATEGIC FLORIDA INC.
by:
Attest: /s/ Douglas H. Blakeway
------------------------------
Douglas H. Blakeway,
President and Chief Executive
Officer
/s/ Berhnard Zinkhofer Execution Date: October 18,
----------------------
Bernhard Zinkhofer, 1995
Secretary
DIGITAL PRODUCTS CORPORATION
by:
Attest: /s/ Richard Angulo
------------------
Richard Angulo,
President and Chief Executive
Officer
/s/ Thomas P. Gallagher Execution Date: October 20,
-----------------------
Thomas P. Gallagher 1995
Secretary
<PAGE>
Digital Products Corporation Disclosure Schedule
(Schedules omitted)
Section 3.1(d) NONCONTRAVENTION
Section 3.1(g) CERTAIN CHANGES OR EVENTS
Section 3.1(h) LITIGATION
Section 3.1(i) ABSENCE OF CHANGE IN BENEFIT PLANS
Section 3.1(k) TAXES
Section 3.1(t)(i) MATERIAL CONTACTS
Section 3.1(t)(ii) INDEBTEDNESS
Section 3.1(v) INTELLECTUAL PROPERTY
Section 3.1(w) INSURANCE
<PAGE>
Strategic Technologies Inc Disclosure Schedule
(Schedules Omitted)
1. LITIGATION
2. INSURANCE
3. CONTRACTS, INDEBTEDNESS
EXHIBIT 2
---------
October 13, 1995 File Reference: 11-11120
The Board of Directors
Digital Products Corporation
800 N.W. 33rd Street
Pompano Beach, Florida 33064
Attention: Mr. Richard Angulo
President
Gentlemen:
Marshall & Stevens, Inc. was retained by the Board of Directors of Digital
Products Corporation, ("Digital") for the purpose of expressing an opinion as to
the fairness, from a financial point of view, to the shareholders of Digital of
a proposed merger between Strategic Technologies, Inc. (Strategic), Strategic
Florida Inc. (Merger Sub) and Digital.
Description of the Transactions
It is our understanding that the opinion contained in this letter will be used
pursuant to the proposed transaction as described in the Agreement and Plan of
Merger, dated October 13, 1995, (the Agreement) among Strategic, Merger Sub and
Digital. Important financial characteristics of the merger and the Agreement
include the following:
- Strategic is a British Columbia, Canada Corporation, publicly held and
traded on the Vancouver Stock Exchange. Merger Sub is a Florida
Corporation wholly owned by Strategic. Digital is a Florida
Corporation, publicly held and traded on the OTC Bulletin Board.
- The closing of the merger shall be no earlier than December 20, 1995
and no later than the second business day after satisfaction of
conditions precedent as contained in sections 6.1, 6.2 and 6.3 of the
Agreement.
- The outstanding common stock of Digital shall be converted into the
right to receive .379291 shares of Strategic Common Stock. All
Digital treasury stock will be cancelled, all Digital options to
purchase Digital shares will be terminated and all Digital warrants to
purchase Digital shares will be assumed by Strategic.
- The authorized, issued and outstanding capital stock of Digital, as of
August 31, 1995, consists of 11,589,267 shares of common stock. The
authorized, issued and outstanding capital stock of Strategic, as of
August 1, 1995 consists of 6,054,451 shares of common stock. The
total number of Strategic's authorized, issued and outstanding capital
stock upon completion of the merger
<PAGE>
and a proposed private placement of 500,000 shares of Strategic common
stock is estimated at 10,950,156 shares.
- Conditions precedent to the merger include that the shares issued to
Digital's stockholders shall be approved for trading on the Toronto
Stock Exchange.
- The Canadian to United States dollar monetary exchange rate, for the
purpose of this study is 1.3713.
Scope
For the purposes of this Opinion we have made such reviews, studies, and
analysis as we deemed necessary and pertinent including, but not limited to, the
following:
- Discussions with the management of Strategic and Digital;
- Strategic's historical financial statements for the fiscal years
ending September 30, 1990 through September 30, 1994 as audited by
Doane Raymond;
- Strategic's internally prepared pro forma financial statements
reflecting the merger of Digital and Strategic for the year ending
September 30, 1994 and the interim three months ending period as of
and for the interim period ending June 30, 1995;
- Digital's form 10-K and 10-Q filed with the Securities and Exchange
Commission for the years ending March 31, 1992 through 1995 and the
10Q for the first quarter ending June 30, 1995.
- The letter of intent dated July 31, 1995 between Strategic and
Digital;
- The Agreement and Plan of Merger, dated September 15, 1995 among
Strategic, Strategic Florida and Digital;
- Publicly held actively traded companies with business operations
similar to Strategic and Digital;
- Acquisition data of companies with business operations similar to
Strategic and Digital;
- The economic environment of the industry and markets in which
Strategic and Digital operate;
- Historical trading activity in the common stock of Digital and
Strategic;
- Such other financial studies, analysis and investigation as we deem
relevant for purposes of this Opinion.
<PAGE>
In rendering this Opinion we have relied, without independent verification, on
the accuracy and completeness of all financial and other information which was
publicly available or provided by Digital and Strategic.
Conclusion
Based upon the investigation and analysis described in this letter, it is our
opinion that the proposed merger, as of the date of this letter, is fair, from a
financial point of view, to the shareholders of Digital.
The opinions expressed in this letter are contingent upon the assumptions
contained in this letter, the statement of Assumptions and Limiting Conditions
attached to this letter and upon business and market conditions as they exist at
the date of this letter, and involves assumptions and uncertainties, not all of
which can be qualified or ascertained prior to any actual or proposed
transaction.
Yours very truly,
MARSHALL & STEVENS INCORPORATED
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
Title
No investigation of legal title was made, and we render no opinion as to
ownership of Digital or the underlying assets.
Date of Value
The date of this analysis is October 13, 1995. The dollar amount of any value
reported is based on the purchasing power of the U.S. dollar as of that date.
The financial analysts assumes no responsibility for economic or physical
factors occurring subsequent to the date of value which may affect the opinions
reported.
Visitation
Digital was visited in the course of this appraisal assignment. When the date
of the analysis differs from the transaction or effective date, the financial
analyst has assumed no material change in the operations of Strategic and/or
Digital or the underlying assets, unless otherwise noted in the report. The
scope of this study did not include a visit to the headquarters of Strategic.
Non Financial Expertise
No opinion is intended to be expressed for matters which require legal or
specialized expertise, investigation or knowledge, beyond that customarily
employed by financial analysts.
Information and Data
Information supplied by others that was considered in this valuation is from
sources believed to be reliable, and no further responsibility is assumed for
its accuracy. We reserve the right to make such adjustments to the valuation
and analysis herein reported based upon consideration of additional or more
reliable data subsequent to the issuance of this letter.
In rendering this Opinion we have relied, without independent verification, on
the accuracy and completeness of all financial and other information which was
publicly available or furnished to us by Digital and/or Strategic. Further, we
have assumed that:
- The acquisition and the financing will be consummated on the terms and
conditions substantially as described in the Agreement.
- That the projections, as provided by management, and shown in Exhibit
B attached to this letter, were reasonably prepared on a basis
reflecting the best available estimates and judgment of Strategic and
Digital's management at the time of preparation as to Digital's future
performance.
- As advised by the management of Digital, that there has been no
material adverse change in the business, prospects, or financial
condition of Digital subsequent to the date of the latest financial
statements made available to us or to the time the information was
provided to us.
<PAGE>
Confidentiality/Advertising
It is understood that this letter is for the information of the Board of
Directors of Digital only and may be published in its entirety in the
registration statement/proxy statement to be distributed to shareholders of
Digital in connection with the merger so long as we give our prior written
consent to any summary of, excerpt from or reference to such opinion. This
letter is not to be quoted or referred to, in whole or in part, in any other
document, nor shall this letter be used for any other purposes without the prior
written consent of Marshall & Stevens Incorporated.
Litigation Support
Depositions, expert testimony, attendance in court, and all preparations/support
for same, arising from this analysis and opinion shall be provided by Marshall &
Stevens Incorporated subject to arrangements for such services having been
agreed to by the parties.
Management
The opinion of value expressed herein assumes the continuation of prudent
management policies of both Digital and Strategic over whatever period of time
that is deemed reasonable and necessary to maintain the character and integrity
of Digital and/or Strategic.
Purpose
All opinions are presented as Marshall & Stevens Incorporated's considered
opinion based on the facts and data obtained during the course of the
investigation. The opinion letter has been prepared for the sole purpose stated
herein and shall not be used for any other purpose.
Unexpected Conditions
We assume there are no hidden or unexpected conditions associated with Digital
and Strategic that might adversely affect value. Further, we assume no
responsibility for changes in market condition which may require an adjustment
in the analysis.
Hazardous Substance
Hazardous substances, if present within a business, can introduce an actual or
potential liability that may adversely affect the marketability and value of the
subject companies or the underlying assets. In this analysis, no consideration
has been given to such liability or its impact on value.
EXHIBIT 3
---------
SHAREHOLDERS' AGREEMENT
AMONG
Strategic TECHNOLOGIES INC.
and
Certain Shareholders of Strategic TECHNOLOGIES INC.
and
DIGITAL PRODUCTS CORP.
and
Certain Shareholders of DIGITAL PRODUCTS CORP.
DATED FOR REFERENCE THE 13th DAY OF OCTOBER, 1995
<PAGE>
TABLE OF CONTENTS
1 SHAREHOLDERS' REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . 2
1.1 Ownership and control of shares . . . . . . . . . . . . . . 2
1.2 No Knowledge of Objection . . . . . . . . . . . . . . . . . 2
1.3 No Current Intention to Sell Shares . . . . . . . . . . . . 2
2 VOTING OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Support of Merger . . . . . . . . . . . . . . . . . . . . . 3
2.2 Additional Merger Covenants of Strategic . . . . . . . . . . 4
2.3 Additional Covenants of Shareholders . . . . . . . . . . . . 4
3 GENERAL AND INTERPRETATION PROVISIONS . . . . . . . . . . . . . . . . 5
3.1 Applicable Laws and Attornment . . . . . . . . . . . . . . . 5
3.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 No Partnership . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.6 Enurement . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . 8
3.10 Execution . . . . . . . . . . . . . . . . . . . . . . . . . 8
Schedule "A" Particulars of Shareholders of Strategic and Digital
<PAGE>
SHAREHOLDERS' AGREEMENT
-----------------------
THIS AGREEMENT dated for reference the 13th day of October, 1995.
AMONG:
Strategic TECHNOLOGIES INC., Building A, Unit 102 17802 66th
Avenue, Surrey, British Columbia V3S 7X1 Telephone: (604)
576-8658; Telecopier: (604) 576-0436
("Strategic")
OF THE FIRST PART
AND:
THOSE SHAREHOLDERS OF Strategic more particularly described
on Schedule "A" hereto, all c/o the facsimile numbers set
opposite their names
(herein collectively the "Strategic Shareholders")
OF THE SECOND PART
AND:
DIGITAL PRODUCTS CORPORATION, 800 N.W. 33rd St., Pompano
Beach, Florida USA 33064 Telephone (305) 783-9600;
Telecopier (305) 784-3109
("Digital")
OF THE THIRD PART
AND:
THOSE SHAREHOLDERS OF DIGITAL PRODUCTS CORPORATION more
particularly described on Schedule "A" hereto, all c/o the
facsimile numbers set opposite their names
(herein collectively the "Digital Shareholders")
OF THE FOURTH PART
<PAGE>
WHEREAS:
(A) Strategic and Digital are parties to a merger letter agreement dated
August 1, 1995, as amended or extended August 31, 1995, September 15, 1995,
September 22, 1995 and October 6, 1995 to be superseded by an Agreement and Plan
of Merger of even date (the "Merger Agreement") between the companies which
proposes a merger whereby Digital will, on closing of the Merger (the "Effective
Time") become a wholly-owned subsidiary of Strategic and Digital shareholders
will receive Strategic shares in exchange for their Digital stock;
(B) each of the Digital Shareholders and the Strategic Shareholders
(herein collectively, the "Shareholders" or individually a "Shareholder") wish
to support the Merger and further to provide for certain matters of management
pertaining thereto;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises
and of the mutual covenants and agreements hereinafter set forth, the parties
hereto agree each with the other as follows:
ARTICLE 1
SHAREHOLDERS' REPRESENTATIONS
1.1 Ownership and control of shares
Each of the Strategic Shareholders represents to and covenants with
each of the other Strategic Shareholders and all the Digital Shareholder that he
beneficially owns or controls and exercises voting control over or has the right
to acquire the number of shares of Strategic set forth opposite his name on
Schedule "A" and each Digital Shareholder hereby makes a reciprocal
representation to the other Digital Shareholders and the Strategic Shareholders
respecting the number of Digital shares owned, controlled or which such person
has the right to acquire.
1.2 No Knowledge of Objection
Each Shareholder represents to all the other Shareholders that such
Shareholder is not aware of any other shareholders of Digital or Strategic who
object to or intend to actively oppose the Merger.
1.3 No Current Intention to Sell Shares
Each Shareholder represents to the other Shareholders that such
Shareholder does not have any current intention to sell any Digital or Strategic
Shares owned or controlled by such Shareholder.
<PAGE>
ARTICLE 2
VOTING OF SHARES
2.1 Support of Merger
Each of the Shareholders agrees and covenants with each of the other
Shareholders that:
(a) he will vote all his shares in the capital of each of Strategic and
Digital (together, the "Merger Companies") in favour of the Merger at
any meeting of the shareholders of Digital or Strategic or any
adjournment thereof convened to consider the Merger;
(b) in the event he acquires, directly or indirectly, beneficial ownership
of or voting control over any additional shares of any of the Merger
Companies, he will vote such additional shares in favour of the
Merger;
(c) he will not exercise any statutory right of dissent nor encourage any
other person to exercise any statutory right of dissent with respect
to the Merger;
(d) he will not prior to the Effective Time sell, transfer or otherwise
dispose of any more than 2% of the number of Digital Shares or
Strategic Shares owned by him including any Digital Shares or
Strategic Shares acquired after the date of this Agreement and before
the Effective Date, unless:
(i) this Agreement is earlier terminated in accordance with
Sec.3.2; or
(ii) such Digital Shares or Strategic Shares are sold to another
Shareholder; or
(iii) the transferee shall have executed an agreement to become a
Shareholder party to this Agreement;
(e) he will not do or perform any act or conduct himself in a manner
inconsistent with the terms of this Agreement and will use his best
efforts to encourage other Shareholders of each of the Merger
Companies to vote their Share in favour of the Merger; and
(f) he will execute any proxies, powers of attorney, and all other written
assurances, without further consideration, as may be necessary to
effect the intent of this Agreement and will permit the
representatives of Digital or Strategic to contact third parties
including brokerages to verify and ensure compliance with the terms
hereof.
<PAGE>
2.2 Additional Merger Covenants of Strategic
(a) Strategic hereby covenants and agrees with the Shareholders and
Digital that for a period of two years from the Effective Time it will
only effect the following special business or corporate matters of
Strategic with the approval of at least two of the four Digital
appointees to Strategic's Board of Directors as contemplated by the
Merger Agreement:
(i) the appointment of auditors of Strategic and Digital other
than Deloitte & Touche;
(ii) any relocation of Digital's Pompano Beach offices;
(iii) any equity financing of Strategic in excess of $2,000,000
(Cdn.);
(iv) any expansion of the size of the Board of Directors beyond
nine; and
(v) any significant corporate acquisition or divestiture
($2,000,000 (Cdn.) threshold) or any corporate
reorganization or alteration of authorized share capital or
similar fundamental corporate change.
Strategic shall nominate and keep nominated as directors at all general
shareholders meetings of Strategic for two years from the Effective Time the
nine directors of Strategic holding office at the Effective Time or their
replacements as contemplated by Sec.2.3.
(b) Strategic further agrees to:
(i) adopt a Board Policy Statement to implement the foregoing
covenants, which statement may not be amended or terminated
without the consent of 75% of the directors of Strategic;
(ii) indemnify and save harmless any of the Shareholders who act
as directors of Strategic after the Effective Time for any
good faith actions as directors, subject to the provisions
of the British Columbia Company Act requiring prior judicial
approval for such indemnification, and further agrees to pay
the actual legal fees and expenses of any of the
Shareholders who seek and obtain any injunctive or other
relief from a court of competent jurisdiction requiring that
Strategic modify, abandon or reverse any action or proposed
action which is determined to be a breach of this Agreement;
(iii) establish an Executive Compensation Committee of the Board
of Directors of Strategic comprised of two of the former
Digital Directors and two current Directors of Strategic who
shall review the compensation of the four highest paid
senior officers of the Company
<PAGE>
annually and make recommendation to the Board respecting
modification to such compensation arrangements.
2.3 Additional Covenants of Shareholders
(a) Each of the Shareholders agrees to vote any Strategic shares owned or
controlled by them for a two-year period after the Effective Time to
elect and keep elected the nine directors of Strategic who will hold
office as of the Effective Time being the five existing Strategic
directors, plus the four Digital appointees contemplated by the Merger
Agreement. In the event of the death, incapacity, resignation, or
unwillingness to serve as a director of any of the nine aforesaid
individuals or the written request of seven of the nine directors not
to elect one of the nine aforesaid individuals, Strategic shall
nominate as a replacement a person nominated in the case of a
Strategic appointee, by the remaining Strategic appointees, or if a
Digital appointee is unable to act, then by the remaining Digital
appointees and such replacement appointees shall be nominated for
election by Strategic in its annual proxy materials and voted in
favour of by the Shareholders and each of the Shareholders agrees to
vote any Strategic shares owned or controlled by them for the two-year
period after the Effective Time in favour of such persons.
(b) Each of the Shareholders who are intended under the Merger Agreement
to become or remain directors of Strategic after the Effective Time
hereby acknowledge their consent and preparedness to act as directors
of Strategic and confirm the reasonableness of Strategic's post-
closing covenants contemplated by Sec.2.2 hereof and confirm their
intention to use their best efforts to cause Strategic to comply with
the provisions thereof.
ARTICLE 3
GENERAL AND INTERPRETATION PROVISIONS
3.1 Applicable Laws and Attornment
This Agreement will in all respects be governed by and be construed in
accordance with the laws of the State of Florida and the laws of the United
States applicable in the State of Florida.
3.2 Termination
This Agreement will terminate on the earliest of:
(a) with respect to any Shareholder, at the time he disposes all of or
substantially all of his Shares of both Strategic and Digital,
providing he does so after the Effective Time;
<PAGE>
(b) two years after the Effective Time;
(c) on March 15, 1996 or such later date as agreed to by Digital and
Strategic under the terms of the Merger Agreement, if the Effective
Time has not occurred on or before that date;
(d) on the termination of the Merger Agreement if that date is prior to
the Effective Time; or
(e) on that date mutually consented to in writing by all the parties.
3.3 No Partnership
Nothing in this Agreement shall be deemed in any way or for any
purpose to constitute any party a partner of any other party to this Agreement
in the conduct of any business or otherwise as a member of a joint venture or
joint enterprise with any other party to this Agreement or to deem any party
acting in concert with another as contemplated by securities legislation.
3.4 Notices
Unless otherwise specified herein, any notice required to be given
hereunder by any party will be deemed to have been well and sufficiently given
if delivered personally or if sent by prepaid registered mail, telex, telecopy
to, or delivered at, the address of the other party hereinafter set forth:
(a) If to Digital:
DIGITAL PRODUCTS CORPORATION
800 N.W. 33rd St.
Pompano Beach, Florida USA 33064
Telephone (305) 783-9600; Telecopier (305) 784-3109
with a copy to:
Mason, Briody, Gallagher & Taylor
104 Carnegie Center, Suite 201
Princeton, New Jersey 08540
Attention: Thomas P. Gallagher/Barbara J. Comly
------------------------------------------------
<PAGE>
(b) If to STRATEGIC:
STRATEGIC TECHNOLOGIES INC.
Building A, Unit 102
17802 66th Avenue, Surrey, British Columbia V3S 7X1
Telephone: (604) 576-8658; Telecopier: (604) 576-0436
with a copy to:
Lang Michener Lawrence & Shaw
Barristers and Solicitors
Suite 2500, 595 Burrard Street
Vancouver, British Columbia, V7X 1L1
Attention: Bernhard Zinkhofer
Fax: (604) 685 - 7084
(c) If to any Shareholder, at the facsimile number set forth on Schedule
"A" hereto. If a Shareholder does not have a facsimile number,
delivery shall be made by ordinary mail at the Shareholder's address
listed in Schedule "A",
or at such other address as the other party may from time to time direct in
writing. Any such notice will be deemed to have been received, if mailed,
telexed or telecopied, 72 hours after the time of mailing, telexing or
telecopying, and if delivered, upon the date of delivery, provided that if such
day is not a business day, then the notice will be deemed to have been given and
received on the first business day following such day. If normal mail service,
telex service or telegraph service is interrupted by strike, slowdown, force
majeure or other cause, a notice sent by the impaired means of communication
will not be deemed to be received until actually received, and the party sending
the notice shall utilize any other such services which have not been so
interrupted or will deliver such notice in order to ensure prompt receipt
thereof.
3.5 Time
Time will be of the essence hereof.
3.6 Enurement
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors, heirs and personal
representatives, as the case may be. The obligations of the parties under this
Agreement are non-assignable.
<PAGE>
3.7 Severability
If any one or more of the provisions contained in this Agreement is
invalid, illegal or unenforceable in any respect in any jurisdiction, the
validity, legality, and enforceability of such provision or provisions will not
in any way be affected or impaired thereby in any other jurisdiction and the
validity, legality and enforceability of the remaining provisions contained
herein will not in any way be affected or impaired thereby.
3.8 Counterparts
This Agreement may be executed by the parties in separate counterparts each
of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument. A faxed
signature shall be deemed an original copy for purposes hereof.
3.9 Further Assurances
The parties hereto shall with reasonable diligence do all such things
and provide all such reasonable assurances as may be required to consummate any
transaction contemplated hereby, and each party shall execute and deliver such
further documents or instruments required by any other party as may be
reasonably necessary or desirable to effect the purpose of this Agreement and
carry out its provisions.
3.10 Execution
This Agreement is binding on each of the parties at the time this
Agreement (or a counterpart hereof) is executed.
<PAGE>
THE PARTIES HAVE EXECUTED this agreement and Schedule "A" hereto effective
the day and year first above written.
STRATEGIC TECHNOLOGIES INC.
by:
/s/ Douglas H. Blakeway
-----------------------
Douglas H. Blakeway,
Chairman and Chief Executive
Officer
Attest:
/s/ Bernie Zinkhofer
--------------------
Bernhard Zinkhofer,
Secretary
Execution Date: October 18, 1995
DIGITAL PRODUCTS CORPORATION
by:
/s/ Richard Angulo
------------------
Richard Angulo,
President and Chief Executive
Officer
Attest:
/s/ Thomas P. Gallagher Execution Date: October 20,
-----------------------
Thomas P. Gallagher 1995
Secretary
<PAGE>
SCHEDULE "A"
This is Schedule "A" to the Shareholders' Agreement among Strategic
Technologies Inc., certain Strategic Shareholders, Digital Products Corp. and
certain Digital Shareholders.
<TABLE><CAPTION>
Name, Address and Fax
Number of Strategic Number of
Shareholder Securities Signature Date
<S> <C> <C> <C>
Doug Blakeway and 670,877 shares /s/ Doug Blakeway October 18, 1995
Geni D Ventures Inc. 274,350 warrants
Bernie Zinkhofer 54,870 shares /s/ Bernie Zinkhofer October 18, 1995
3,750 warrants
Jack Stott 11,427 shares /s/ Jack Stott October 18, 1995
Ken Tolmie 64,857 shares /s/ Ken Tolmie October 18, 1995
2,500 warrants
Bud Boyer 267,540 shares /s/ Bud Boyer October 18, 1995
37,810 warrants
</TABLE>
<TABLE><CAPTION>
Name, Address and Fax
Number of Digital Number of
Shareholder Securities Signature Date
<S> <C> <C> <C>
Richard Angulo 850,000 shares /s/ Richard Angulo October 20, 1995
486,140 options
Clinton Pagano 150,000 shares /s/ Clinton Pagano October 20, 1995
132,340 options
John E. Dell 629,127 shares /s/ John E. Dell October 20, 1995
396,500 options
Mike Marino 50,000 shares /s/ Mike Marino October 20, 1995
120,250 options
Mason, Briody, 120,000 shares /s/ Thomas P. Gallagher October 20, 1995
Gallagher & Taylor 0 options
</TABLE>
EXHIBIT 4
---------
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT,
OR, IF AN EXEMPTION FROM REGISTRATION SHALL BE AVAILABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Void after 5:00 p.m. New York Time, on October 12, 1996
Warrant to Purchase 500,000 Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
DIGITAL PRODUCTS CORPORATION
This is to certify that, in consideration for the execution by
Strategic Technologies, Inc. (the "Holder") of a letter agreement dated August
1, 1995 as amended on August 31, 1995, September 15, 1995, September 22, 1995
and October 6, 1995 ("Letter of Intent") relating to a proposed merger
transaction between the Holder and Digital Products Corporation (the "Company")
pursuant to the terms of a Merger Agreement dated October 13, 1995 between the
Holder, Strategic Florida Inc. ("Merger Sub") and the Company (the "Merger
Agreement), the Holder is entitled to purchase, subject to the provisions of
this Warrant, from the Company, 500,000 fully paid, validly issued and
nonassessable shares of Common Stock, $.025 par value, of the Company ("Common
Stock") at a price of $.25 per share on or before October 12, 1996 (the
"Expiration Date") only if one of the conditions set forth in paragraph 1 below
is met. The number of shares of Common Stock to be received upon the exercise
of this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price".
1. EXERCISE OF WARRANT.
(a) The Warrant may be exercised as to the Warrant Shares if, before
the Expiration Date, the Merger Agreement has been terminated without
consummation of the Merger as a result of any of the following events in (i) to
(vi): (i) the Board of Directors of the Company withdraws or modifies its
approval or recommendation of the Merger Agreement or the Merger, approves or
recommends another takeover proposal, enters into an agreement with respect to
another takeover proposal or terminates the Merger Agreement (other than as a
result of a willful and material breach of the Merger Agreement by the Holder or
Merger Sub
<PAGE>
(which breach shall not have been cured within five business days following the
Holder's receipt of written notice of such breach from the Company, (ii) the
requisite approval of the Company's stockholders for the Merger is not obtained
at the Company Stockholders' Meeting; (iii) more than 2 1/2% of shares of the
Company become subject to dissent; (iv) the Company Stockholders' Meeting does
not occur prior to the termination of the Merger Agreement pursuant to Section
7.1(b)(ii) of the Merger Agreement; or (v) there is a material breach of any
representation, warranty or covenant thereof by the Company which is not
remedied prior to the Effective Time (as defined in the Merger Agreement) and/or
(vi) the Merger is terminated by virtue of failure to meet the conditions
precedent to closing set forth in Section 6.2(d), Section 6.3(e), and/or Section
6.1(d) of the Merger Agreement.
(b) This Warrant may be exercised by presentation and surrender
hereof to the Company at its principal office with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form, provided however, in lieu of
all or a portion of such cash payment, the Holder may receive a credit against
such purchase price in an amount equal to the PaidExpenses. As soon as
practicable after each such exercise of the Warrants, but no later than seven
(7) days from the date of such exercise, the Company shall issue and deliver to
the Holder a certificate or certificates for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder. Upon receipt by the
Company of this Warrant at its office, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be physically delivered to the Holder.
(c) Compliance with the Securities Act. (1) The Holder may exercise
----------------------------------
its Warrants if it is an "accredited investor" or a "qualified institutional
buyer", as defined in Regulation D and Rule 144A under the Securities Act,
respectively, provided each of the following conditions is satisfied:
(a) The Holder establishes to the reasonable satisfaction of the
Company that it is an "accredited investor" or "qualified
institutional buyer"; and
(b) The Holder represents that it is acquiring the underlying
common stock for its own account and that it is not acquiring
such underlying common stock with a view to, or for offer or sale
in connection with, any distribution thereof (within the meaning
of the Securities Act) that would be in violation of the
securities laws of the United States or any state thereof, but
subject, nevertheless, to the disposition of its property being
at all times within its control.
(2) In the event of a proposed exercise that does not qualify
under Section (c)(1), the Holder may exercise its Warrants only if:
(i) the Holder gives written notice to the Company of its
intention to exercise, which notice (A) shall describe the manner and
circumstances of the proposed transaction in reasonable detail and (B)
shall designate the counsel for the Holder, which counsel shall be
satisfactory to the Company;
<PAGE>
(ii) counsel for the Holder shall render an opinion, in form
and substance satisfactory to the Company, to the effect that such
proposed exercise may be effected without registration under the
Securities Act or under applicable Blue Sky laws; and
(iii) the Holder complies with Section (c)(1)(b) above.
(d) This Warrant may not be assigned in whole or in part without the
prior written consent of the Company.
(3) All stock certificates issued pursuant to the exercise of
the Warrants shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. SUCH SHARES
MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE
REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE SECURITIES
LAWS.
2. RESERVATION OF SHARES. The Company shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of the Warrants.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. The
Company shall issue to the Holder the largest of whole shares purchasable upon
exercise of this Warrant. The Company shall not be required to make any cash or
other adjustment in respect of such fraction of a share to which the Holder
would otherwise be entitled.
4. LOSS OF WARRANT. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
<PAGE>
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (ii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock immediately prior to such
action. Such adjustment shall be made each time any event listed above shall
occur.
(b) If the Company shall issue rights, options or warrants
exercisable into Common Stock to all holders of its Common Stock entitling them
to subscribe for, purchase or receive shares of Common Stock, the Exercise Price
shall be subject to adjustment as follows. If the price at which Common Stock
is issuable pursuant to such rights, options or warrants (the "Subscription
Price") is less than the current market price of the Common Stock (as defined in
Subsection (h) below) on the record date for such distribution, the Exercise
Price in effect immediately prior to such issuance shall be multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock which the aggregate Subscription Price of the total
number of shares of Common Stock issuable upon exercise of such rights, options
or warrants would purchase at the then current market price of the Common Stock,
and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock
issuable upon exercise of such rights, options or warrants. If the Subscription
Price is greater than or equal to the current market price (as defined in
Subsection (h) below) of the Common Stock on the record date for such
distribution, but less than the then effective Exercise Price, the Exercise
Price in effect immediately prior to such issuance shall be multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock which the aggregate Subscription Price of the total
number of shares of Common Stock issuable upon exercise of such rights or
options would purchase at the Exercise Price in effect immediately prior to such
issuance and the denominator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
issuable upon exercise of such rights, options or warrants. If the Subscription
Price is greater than or equal to the current market price of the Common Stock
on the record date for such distribution, and greater than or equal to the then
effective Exercise Price, then there shall be no adjustment under this
Subsection. Such adjustment shall be made each time such rights, warrants or
options are issued and shall become effective immediately after the record date
for the determination of Shareholders entitled to receive such rights, warrants
or options; and to the extent that any such rights, warrants or options expire
or are redeemed without the exercise or conversion thereof, the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the basis of the issuance of only the number of shares of
Common Stock actually issued.
<PAGE>
(c) If the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above),then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Subsection (h) below),
less the fair market value (as determined by the Company's Board of Directors)
of said assets or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made each time such a record date is
fixed. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date for the determination
of shareholders entitled to receive such distribution.
(d) If the Company shall issue shares of its Common Stock,
(excluding shares issued (i) in any transactions described in Subsection (a)
above, (ii) upon exercise of existing stock options granted to the Company's
employees, (iii) upon exercise of this Warrant, and (iv) to the shareholders of
any corporation which merges into the Company in proportion to their
stockholdings of such corporation immediately prior to such merger, or (v) in a
bona fide public offering pursuant to a firm commitment underwriting) and if no
adjustment is required under any other subjection of this Section 6 (without
regard to the Subsection (j) below), the Exercise Price shall be subject to
adjustment as follows. If the price at which Common Stock is issued (the
"Offering Price") is less than the current market price of the Common Stock (as
defined in Subsection (h) below) on the record date for such distribution, the
Exercise Price in effect immediately prior to such issuance shall be multiplied
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock which the aggregate Offering Price of the total number of
shares of Common Stock so issued would purchase at the then current market price
of the Common Stock, and the denominator of which shall be the number of shares
of Common Stock outstanding on such record date plus the number of shares of
Common Stock so issued. If the Subscription Price is greater than or equal to
the current market price (as defined in Subsection (h) below) of the Common
Stock on the date of such issuance, but less than the then effective Exercise
Price, the Exercise Price in effect immediately prior to such issuance shall be
multiplied by a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock which the aggregate Offering Price of the
total number of shares of Common Stock so issued would purchase at the Exercise
Price in effect immediately prior to such issuance and the denominator of which
shall be the number of shares outstanding on such record date plus the number of
shares of Common Stock so issued. If the Offering Price is greater than or
equal to the current market price of the Common Stock on the record date for
such distribution, and greater than or equal to the then effective Exercise
Price, then there shall be no adjustment under this Subsection. Such adjustment
shall be made each time such an issuance is made.
<PAGE>
(e) If the Company shall issue any securities convertible into
or exchangeable into Common Stock (excluding securities issued in transactions,
described in Subsections (b) and (d) above) the Exercise Price shall be subject
to adjustment as follows. If the price at which Common Stock is issuable
pursuant to such convertible securities (the "Conversion Price") is less than
the current market price on the record date for such distribution, the Exercise
Price in effect immediately prior to such issuance shall be multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock which the aggregate Conversion Price of the total number
of shares of Common Stock issuable upon conversion of the convertible securities
would purchase at the then current market price of the Common Stock, and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common Stock issuable upon
conversion of such convertible securities. If the Conversion Price is greater
than or equal to the current market price (as defined in Subsection (h) below)
of the Common Stock on the record date for such distribution, but less than the
then effective Exercise Price, the Conversion Price in effect immediately prior
to such issuance shall be multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock which the aggregate
Conversion Price of the total number of shares of Common Stock issuable upon
conversion of the securities at the Exercise Price in effect immediately prior
to such issuance and the denominator of which shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares of Common
Stock issuable upon conversion of such convertible securities. If the
Conversion Price is greater than or equal to the current market price of the
Common Stock on the record date for such distribution, and greater than or equal
to the then effective Exercise Price, then there shall be no adjustment under
this Subsection. Such adjustment shall be made each time such convertible
securities are issued and shall become effective immediately after the record
date for the determination of holders entitled to receive such convertible
securities; and to the extent that any such convertible securities expire or are
redeemed without the conversion thereof, the Exercise Price shall be readjusted
to the Exercise Price which would then be in effect had the adjustments made
upon the basis of the issuance of only the number of shares of Common Stock
actually issued.
(f) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (a), (b), (c), (d) and (e) above,
the number of Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Shares initially
issuable upon exercise of this Warrant by the Exercise Price in effect on the
date hereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(g) For purposes of any computation respecting consideration
received pursuant to Subsections (d) and (e) above, the following shall apply:
(1) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by the Company
for any underwriting of the issue or otherwise in connection
therewith;
<PAGE>
(2) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of
Directors of the Company (irrespective of the accounting
treatment thereof), whose determination shall be conclusive; and
(3) in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to
be received by the Company upon the conversion or exchange
thereof the consideration in each case to be determined in the
same manner as provided in clauses (1) and (2) of this Subsection
(g).
(h) For the purpose of any computation under Subsections (b),
(c), (d) and (e) above, the current market price per share of Common Stock at
any date shall be deemed to be the lower of (i) the average of the mean of the
high and low bid prices for 30 consecutive business days before such date or
(ii) the mean of the high and low bid price on the business day immediately
preceding such date, as reported by the National Association of Securities
Dealers, Inc. or other similar organization if the National Association of
Securities Dealers, Inc. is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors in good
faith in the exercise of their best business judgment taking into account all
relevant information known to them.
(j) All calculations under this Section 6 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section 6 to the contrary notwithstanding, the Company shall be
entitled , but shall not be required, to make such changes in the Exercise Price
in addition to those required by this Section 6, as it shall determine, in its
sole discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any Federal
Income tax liability to the holders of the Common Stock or securities
convertible into Common Stock (including warrants).
(k) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to the Holder, at its last address appearing in the Warrant Register.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 6, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
<PAGE>
(m) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (a) to (j), inclusive above.
(n) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
7. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office, an officer's certificate showing the adjusted Exercise
Price determined as herein provided, setting forth in reasonable detail the
facts requiring such adjustment, including a statement of the number of
additional shares of Common Stock, if any, and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such officer's certificate shall be made available at all reasonable times
for inspection by the holder or any holder of a Warrant executed and delivered
pursuant to Section 1 and the Company shall, forthwith after each such
adjustment, mail a copy by certified mail of such certificate to the Holder or
any such holder.
8. NOTICES TO WARRANT HOLDER. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior to the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
<PAGE>
9. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than the merger with the Holder
or a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale, lease or
conveyance to another corporation of the property of the Company as an entirety,
the Company shall, as a condition precedent to such transaction, cause effective
provisions to be made so that the Holder shall have the right thereafter by
exercising this Warrant, at any time prior to the expiration of the Warrant, to
purchase the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital reorganization and other
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which said holder would have received if he had exercised
this Warrant immediately prior to such transaction. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section 9 shall similarly apply to successive
reclassification, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Subsection (a) of Section 6 hereof.
10. TERMINATION. This Warrant shall terminate and become void on the
Expiration Date.
IN WITNESS WHEREOF, Digital has duly executed this Warrant as of the
date first above written.
Attest: DIGITAL PRODUCTS CORPORATION
By: /s/ Thomas P. Gallagher By: /s/ Richard A. Angulo
----------------------- ------------------------------
Secretary Richard A. Angulo, President
and Chief Executive Officer
[SEAL]
EXHIBIT 5
---------
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT,
OR, IF AN EXEMPTION FROM REGISTRATION SHALL BE AVAILABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
Void after 5:00 p.m. New York Time, on October 12, 1996.
Warrant to Purchase 1,500,000 Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
DIGITAL PRODUCTS CORPORATION
This is to certify that, in consideration for the execution by
Strategic Technologies, Inc. (the "Holder") of an Agreement and Plan of Merger
dated October 13, 1995 ("Merger Agreement") relating to a proposed merger
transaction between the Holder, Strategic Florida Inc. ("Merger Sub") and
Digital Products Corporation (the "Company"), the Holder is entitled to
purchase, subject to the provisions of this Warrant, from the "Company", up to
1,500,000 fully paid, validly issued and nonassessable shares of Common Stock,
$.025 par value, of the Company ("Common Stock") at a price of $.25 per share on
or before October 12, 1996 (the "Expiration Date") only if one of the conditions
set forth in paragraph 1 below is met. The number of shares of Common Stock to
be received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock are subject to the provisions of Section 1(b) hereof and
may be adjusted from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price".
1. EXERCISE OF WARRANT.
(a) The Warrant may be exercised as to the number of Warrant Shares
set forth in Section 1(b) hereof only if, before the Expiration Date, the Holder
has paid the expenses of the Company incurred to date (the "Paid Expenses") and
the Merger Agreement has been terminated without consummation of the Merger as a
result of any of the following events in (i) to (vi): (i) the Board of Directors
of the Company withdraws or modifies its approval or recommendation of the
Merger Agreement or the Merger, approves or recommends another takeover
proposal, enters into an agreement with respect to another takeover proposal or
terminates the Merger Agreement (other than as a result of a willful and
material breach of the Merger Agreement by the Holder or Merger Sub (which
breach shall not have been cured
<PAGE>
within five business days following the Holder's receipt of written notice of
such breach from the Company, (ii) the requisite approval of the Company's
stockholders for the Merger is not obtained at the Company Stockholders'
Meeting; (iii) more than 2 1/2% of shares of the Company become subject to
dissent; (iv) the Company Stockholders' Meeting does not occur prior to the
termination of the Merger Agreement pursuant to Section 7.1(b)(ii) of the Merger
Agreement; or (v) there is a material breach of any representation, warranty or
covenant thereof by the Company which is not remedied prior to the Effective
Time (as defined in the Merger Agreement) and/or (vi) the Merger is terminated
by virtue of failure to meet the conditions precedent to closing set forth in
Section 6.2(d), Section 6.3(e), and/or Section 6.1(d) of the Merger Agreement.
(b) In the event the Merger terminates for any reason other than
those set forth in subsection 5.9(b) (i), (ii), (iv) or Section 6.3(e) of the
Merger Agreement, this Warrant may only be exercisable to the extent of the Paid
Expenses. In the event the Merger terminates as a result of an event set forth
in subsection 5.9(b) (i), (ii), (iv) or Section 6.3(e) of the Merger Agreement,
this Warrant may be exercisable in full.
(c) This Warrant may be exercised by presentation and surrender hereof
to the Company at its principal office, with the Purchase Form annexed hereto
duly executed and accompanied by payment of the Exercise Price for the number of
Warrant Shares specified in such form or through a credit against the Paid
Expenses as set forth in Section 1(b) above. As soon as practicable after each
such exercise of the Warrants, but no later than seven (7) days from the date of
such exercise, the Company shall issue and deliver to the Holder a certificate
or certificates for the Warrant Shares issuable upon such exercise, registered
in the name of the Holder. Upon receipt by the Company of this Warrant at its
office in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
(d) Compliance with the Securities Act. (1) The Holder may exercise
----------------------------------
its Warrants if it is an "accredited investor" or a "qualified institutional
buyer", as defined in Regulation D and Rule 144A under the Securities Act,
respectively, provided each of the following conditions is satisfied:
(a) The Holder establishes to the reasonable satisfaction of the
Company that it is an "accredited investor" or "qualified
institutional buyer"; and
(b) The Holder represents that it is acquiring the underlying
common stock for its own account and that it is not acquiring
such underlying common stock with a view to, or for offer or sale
in connection with, any distribution thereof (within the meaning
of the Securities Act) that would be in violation of the
securities laws of the United States or any state thereof, but
subject, nevertheless, to the disposition of its property being
at all times within its control.
<PAGE>
(2) In the event of a proposed exercise that does not qualify
under Section (d)(1), the Holder may exercise its Warrants only if:
(i) the Holder gives written notice to the Company of its
intention to exercise, which notice (A) shall describe the manner and
circumstances of the proposed transaction in reasonable detail and (B)
shall designate the counsel for the Holder, which counsel shall be
satisfactory to the Company;
(ii) counsel for the Holder shall render an opinion, in form
and substance satisfactory to the Company, to the effect that such
proposed exercise may be effected without registration under the
Securities Act or under applicable Blue Sky laws; and
(iii) the Holder complies with Sections (d)(1)(b) above.
(e) This Warrant may not be assigned in whole or in part without the
prior written consent of the Company.
(3) All stock certificates issued pursuant to the exercise of
the Warrants shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. SUCH SHARES
MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE WITH THE
REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE SECURITIES
LAWS.
2. RESERVATION OF SHARES. The Company shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of the Warrants.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. The
Company shall issue to the Holder the largest number of whole shares purchasable
upon exercise of the Warrant. The Company shall not be required to make any
cash or other adjustment in respect of such fraction of a share to which the
Holder would otherwise be entitled.
4. LOSS OF WARRANT. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
<PAGE>
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (ii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock immediately prior to such
action. Such adjustment shall be made each time any event listed above shall
occur.
(b) If the Company shall issue rights, options or warrants
exercisable into Common Stock to all holders of its Common Stock entitling them
to subscribe for, purchase or receive shares of Common Stock, the Exercise Price
shall be subject to adjustment as follows. If the price at which Common Stock
is issuable pursuant to such rights, options or warrants (the "Subscription
Price") is less than the current market price of the Common Stock (as defined in
Subsection (h) below) on the record date for such distribution, the Exercise
Price in effect immediately prior to such issuance shall be multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock which the aggregate Subscription Price of the total
number of shares of Common Stock issuable upon exercise of such rights, options
or warrants would purchase at the then current market price of the Common Stock,
and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock
issuable upon exercise of such rights, options or warrants. If the Subscription
Price is greater than or equal to the current market price (as defined in
Subsection (h) below) of the Common Stock on the record date for such
distribution, but less than the then effective Exercise Price, the Exercise
Price in effect immediately prior to such issuance shall be multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock which the aggregate Subscription Price of the total
number of shares of Common Stock issuable upon exercise of such rights or
options would purchase at the Exercise Price in effect immediately prior to such
issuance and the denominator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
issuable upon exercise of such rights, options or warrants. If the Subscription
Price is greater than or equal to the current market price of the Common Stock
on the record date for such distribution, and greater than or equal to the then
effective Exercise Price, then there shall be no adjustment under this
Subsection. Such adjustment shall be made each time
<PAGE>
such rights, warrants or options are issued and shall become effective
immediately after the record date for the determination of Shareholders entitled
to receive such rights, warrants or options; and to the extent that any such
rights, warrants or options expire or are redeemed without the exercise or
conversion thereof, the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the basis of the
issuance of only the number of shares of Common Stock actually issued.
(c) If the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Subsection (h) below),
less the fair market value (as determined by the Company's Board of Directors)
of said assets or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made each time such a record date is
fixed. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date for the determination
of shareholders entitled to receive such distribution.
(d) If the Company shall issue shares of its Common Stock,
(excluding shares issued (i) in any transactions described in Subsection (a)
above, (ii) upon exercise of existing stock options granted to the Company's
employees, (iii) upon exercise of this Warrant, and (iv) to the shareholders of
any corporation which merges into the Company in proportion to their
stockholdings of such corporation immediately prior to such merger, or (v) in a
bona fide public offering pursuant to a firm commitment underwriting) and if no
adjustment is required under any other subjection of this Section 6 (without
regard to the Subsection (j) below), the Exercise Price shall be subject to
adjustment as follows. If the price at which Common Stock is issued (the
"Offering Price") is less than the current market price of the Common Stock (as
defined in Subsection (h) below) on the record date for such distribution, the
Exercise Price in effect immediately prior to such issuance shall be multiplied
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock which the aggregate Offering Price of the total number of
shares of Common Stock so issued would purchase at the then current market price
of the Common Stock, and the denominator of which shall be the number of shares
of Common Stock outstanding on such record date plus the number of shares of
Common Stock so issued. If the Subscription Price is greater than or equal to
the current market price (as defined in Subsection (h) below) of the Common
Stock on the date of such issuance, but less than the then effective Exercise
Price, the Exercise Price in effect immediately prior to such issuance shall be
multiplied by a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock which the aggregate Offering Price of the
total number of shares of Common Stock so issued would purchase at the Exercise
Price in effect immediately prior to such issuance and the denominator of which
shall be the number of shares outstanding on such record date plus the
<PAGE>
number of shares of Common Stock so issued. If the Offering Price is greater
than or equal to the current market price of the Common Stock on the record date
for such distribution, and greater than or equal to the then effective Exercise
Price, then there shall be no adjustment under this Subsection. Such adjustment
shall be made each time such an issuance is made.
(e) If the Company shall issue any securities convertible into
or exchangeable into Common Stock (excluding securities issued in transactions,
described in Subsections (b) and (d) above) the Exercise Price shall be subject
to adjustment as follows. If the price at which Common Stock is issuable
pursuant to such convertible securities (the "Conversion Price") is less than
the current market price on the record date for such distribution, the Exercise
Price in effect immediately prior to such issuance shall be multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock which the aggregate Conversion Price of the total number
of shares of Common Stock issuable upon conversion of the convertible securities
would purchase at the then current market price of the Common Stock, and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common Stock issuable upon
conversion of such convertible securities. If the Conversion Price is greater
than or equal to the current market price (as defined in Subsection (h) below)
of the Common Stock on the record date for such distribution, but less than the
then effective Exercise Price, the Conversion Price in effect immediately prior
to such issuance shall be multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock which the aggregate
Conversion Price of the total number of shares of Common Stock issuable upon
conversion of the securities at the Exercise Price in effect immediately prior
to such issuance and the denominator of which shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares of Common
Stock issuable upon conversion of such convertible securities. If the
Conversion Price is greater than or equal to the current market price of the
Common Stock on the record date for such distribution, and greater than or equal
to the then effective Exercise Price, then there shall be no adjustment under
this Subsection. Such adjustment shall be made each time such convertible
securities are issued and shall become effective immediately after the record
date for the determination of holders entitled to receive such convertible
securities; and to the extent that any such convertible securities expire or are
redeemed without the conversion thereof, the Exercise Price shall be readjusted
to the Exercise Price which would then be in effect had the adjustments made
upon the basis of the issuance of only the number of shares of Common Stock
actually issued.
(f) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (a), (b), (c), (d) and (e) above,
the number of Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Shares initially
issuable upon exercise of this Warrant by the Exercise Price in effect on the
date hereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(g) For purposes of any computation respecting consideration
received pursuant to Subsections (d) and (e) above, the following shall apply:
<PAGE>
(1) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by the Company
for any underwriting of the issue or otherwise in connection
therewith;
(2) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of
Directors of the Company (irrespective of the accounting
treatment thereof), whose determination shall be conclusive; and
(3) in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to
be received by the Company upon the conversion or exchange
thereof the consideration in each case to be determined in the
same manner as provided in clauses (1) and (2) of this Subsection
(g).
(h) For the purpose of any computation under Subsections (b),
(c), (d) and (e) above, the current market price per share of Common Stock at
any date shall be deemed to be the lower of (i) the average of the mean of the
high and low bid prices for 30 consecutive business days before such date or
(ii) the mean of the high and low bid price on the business day immediately
preceding such date as reported by the National Association of Securities
Dealers, Inc., or other similar organization if the National Association of
Securities Dealers, Inc., is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors in good
faith in the exercise of their best business judgment taking into account all
relevant information known to them.
(j) All calculations under this Section 6 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section 6 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the Exercise Price
in addition to those required by this Section 6, as it shall determine, in its
sole discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any Federal
Income tax liability to the holders of the Common Stock or securities
convertible into Common Stock (including warrants).
(k) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to the Holder, at its last address appearing in the Warrant Register.
The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 6, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
<PAGE>
(m) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (a) to (j), inclusive above.
(n) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
7. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office, an officer's certificate showing the adjusted Exercise
Price determined as herein provided, setting forth in reasonable detail the
facts requiring such adjustment, including a statement of the number of
additional shares of Common Stock, if any, and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such officer's certificate shall be made available at all reasonable times
for inspection by the holder or any holder of a Warrant executed and delivered
pursuant to Section 1 and the Company shall, forthwith after each such
adjustment, mail a copy by certified mail of such certificate to the Holder or
any such holder.
8. NOTICES TO WARRANT HOLDER. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior to the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
9. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than the merger contemplated by
the Merger Agreement or a merger with a subsidiary in which merger the Company
is the continuing corporation and which does not result in any reclassification,
capital reorganization or other change of
<PAGE>
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant, at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which said holder would have received if he had exercised this Warrant
immediately prior to such transaction. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section 9 shall similarly apply to successive
reclassification, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Subsection (a) of Section 6 hereof.
10. TERMINATION. This Warrant shall terminate and become void on the
Expiration Date.
IN WITNESS WHEREOF, Digital has duly executed this Warrant as of the
date first above written.
Attest: DIGITAL PRODUCTS CORPORATION
By: /s/ Thomas P. Gallagher By: /s/ Richard A. Angulo
----------------------- ------------------------------------
Secretary Richard A. Angulo, President
and Chief Executive Officer
[SEAL]
EXHIBIT 6
---------
CONDITIONAL EMPLOYMENT AGREEMENT
THIS AGREEMENT is made the 13th day of October, 1995
BETWEEN:
Strategic TECHNOLOGIES INC. ("Strategic")
AND:
DIGITAL PRODUCTS CORPORATION ("Digital")
AND:
RICHARD A. ANGULO (the "Executive")
WHEREAS Digital and Strategic have agreed to merge pursuant to an Agreement and
Plan of Merger dated October 13, 1995 (the "Merger Agreement");
AND WHEREAS the Executive is currently the Chief Executive of Digital and the
parties have agreed that conditional upon completion of the merger that the
Executive will serve as the Chief Operating Officer of Strategic and Chief
Executive Officer of Digital.
NOW THEREFORE THIS AGREEMENT WITNESSETH:
1. Engagement:
-----------
At the Effective Time as defined in the Merger Agreement the Executive shall be
appointed a Director of and Vice-President and Chief Operating Officer of
Strategic and will also continue to serve as the Chief Executive Officer of
Digital. The Executive hereby agrees to serve Digital and Strategic in the
foregoing offices subject to the terms hereof.
2. Terms of Employment and Strategic Guarantee:
--------------------------------------------
The Executive shall be remunerated and the parties shall be governed by the
terms of the Executive Employment Agreement dated July 3, 1995 except as
hereinafter amended. The parties acknowledge that the engagement of the
Executive by Strategic shall be for nominal consideration and the Executive
shall continue to be remunerated by Digital. Strategic does hereby guarantee
the due performance by Digital of all of its covenants pursuant to the
Employment Agreement as hereby amended.
3. Amendment to Employment Agreement Terms:
---------------------------------------
(a) Paragraph 5 (b) of the Employment Agreement is deleted on the
Effective Date, as defined in the Merger Agreement, and the following
new paragraph 5 (b) is substituted in its place instead:
<PAGE>
(b) Executive will receive an annual bonus in an amount up to Two
Hundred and Fifty Thousand Dollars ($250,000.00 US) based on the
annual net income of Strategic on a consolidated basis calculated
from the Effective Date as follows:
(i) Five per cent (5%) of the first One Million Dollars
($1,000,000.00 US) of Strategic net income before taxes
on a consolidated basis;
(ii) Four per cent (4%) of the next One Million Dollars
($1,000,000.00 US) of Strategic net income before taxes
on a consolidated basis;
(iii) Three per cent (3%) of the next One Million Dollars
($1,000,000.00 US) of Strategic net income before taxes
on a consolidated basis; and
(iv) Two per cent (2%) on any amount in excess of Three
Million Dollars ($3,000,000.00 US) of Strategic net
income before taxes on a consolidated basis to the
maximum bonus of $250,000 US.
(b) Strategic and Digital hereby agreed to indemnify the Executive with
respect to any good faith actions taken by the Executive in connection
with the services provided hereunder and particularly with respect to
the negotiation, execution and consummation of the merger transaction
between Strategic and Digital.
(c) Digital and Strategic acknowledge that the Executive shall have the
right to elect to terminate this Agreement and thereby cease his
engagement to render services to Digital and Strategic by notice in
writing to Strategic and Digital if any of the following events occur
during the term of the Employment Agreement:
(a) The Executive ceases to have the duties and authority of the
offices herein provided or such duties are modified so that they
are not commensurate with the usual duties generally applicable
to such offices;
(b) The Executive is required to relocate his place of employment
outside of Pompano Beach, Florida (although this right shall not
affect Strategic's or Digital's right to relocate the Pompano
Beach facilities, in which event arrangements will be negotiated
to provide home office or similar facilities for the Executive to
continue to render services in the Pompano Beach area); or
(c) There is any reduction in the Executive's base salary, benefits
or bonus hereunder.
In the event of a termination pursuant to one of the foregoing sub-paragraphs
the Executive shall be entitled to receive a lump sum payment equal to the
aggregate annual salary for the balance of the Term discounted to a present
value at an assumed interest rate of eight per cent (8%) p.a. provided, however,
that notwithstanding the foregoing, in the event that any payment or benefit
received, or to be received, by the Executive (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with Digital) would
not be deductible as a result of Section 280G of the Internal Revenue Code of
1986, as amended, by Digital, an affiliate or other person making such payment
or providing such benefit, then
<PAGE>
the total payments shall be reduced to the extent necessary to make the payment
fully deductible.
4. General Provisions:
------------------
(a) This Agreement shall be construed and enforced under the laws of the
State of Florida.
(b) Notices shall be deliverable hereunder:
if to Strategic: Building A, Unit 102
or to Digital 17802 - 66th Avenue
Surrey, BC V3S 7X1
Fax: 604-576-0436
Attention: Doug Blakeway
-------------------------
with a copy to: Lang Michener Lawrence and Shaw
2500-595 Burrard Street
Vancouver, BC V7X 1L1
Fax: 604-685-7084
Attention: Bernhard Zinkhofer
------------------------------
if to Executive: 511 N.W. 85 Way
Pembroke Pines, Florida
U.S.A. 33024
All notices shall be deemed to have been properly given when delivered
personally to the foregoing addresses.
<PAGE>
IN WITNESS WHEREOF the parties have caused this Agreement to be executed
effective the date first above written.
STRATEGIC TECHNOLOGIES INC.
Per:/s/ Douglas Blakeway
--------------------
Execution Date: October 18, 1995
----------------
DIGITAL PRODUCTS CORPORATION
Per: /s/ Thomas P. Gallagher
-----------------------
Execution Date: October 20, 1995
----------------
/s/ Richard A. Angulo
- ---------------------
RICHARD A. ANGULO
Execution Date: October 20, 1995
----------------
EXHIBIT 7
---------
STRATEGIC TECHNOLOGIES INC. DIGITAL PRODUCTS CORPORATION
("STRATEGIC") ("Digital")
Building A, Unit 102 17802 66th Avenue 800 N.W. 33rd St.
Surrey, British Columbia V3S 7X1 Pompano Beach, Florida
Telephone: (604) 576-8658 USA 33064
Telecopier: (604) 576-0436 Telephone: (305) 783-9600
Contact: Doug H. Blakeway Telecopier: (305) 783-9609
VSE Trading Symbol: STI Contact: Richard A. Angulo
OTC Electronic Bulletin Board: SGTKF OTC Electronic Bulletin Board: DIPC
NEWS RELEASE
October 23, 1995
STRATEGIC TECHNOLOGIES INC. AND DIGITAL PRODUCTS CORP.
SIGN FORMAL MERGER AGREEMENT
Vancouver, British Columbia: Douglas H. Blakeway, President and CEO of
Strategic, and Richard A. Angulo, President and CEO of Digital, announce that
further to the August 1, 1995 agreement in principle to merge the two Companies
a Definitive Agreement and Plan of Merger has been executed between the
Companies whereby Digital will become a wholly owned subsidiary of STRATEGIC.
Pursuant to the transaction, each outstanding share of Digital common stock will
be converted into .379291 of a share of Strategic common stock. Upon completion
of the merger and a proposed private placement of 500,000 shares of Strategic
common stock, Strategic will have approximately 10.9 million shares outstanding
(11.9 million fully diluted), of which 4.4 million shares and 600,000 options
will be held by former Digital shareholders. Digital and Strategic have the
number two and three market share positions in the North American Electronic
Supervision and Offender Monitoring business. The combined companies are
expected to have gross revenues in the $14 million US per annum range.
In conjunction with the Definitive Agreement and Plan of Merger certain
principal shareholders of both Companies, including members of the Boards of the
Companies, have executed a related Shareholders' Agreement whereby the
signatories have confirmed their intention to vote for and support the merger
and to provide for certain post-closing governance matters relating to
Strategic. Strategic and Digital have also agreed to immediately begin joint
marketing of their respective product lines and integration of certain other
business operations.
Strategic has been issued a one year warrant to acquire 500,000 shares of
Digital at $0.25 per share plus a conditional warrant to acquire an additional
1,500,000 Digital shares in consideration of agreeing to bear certain
transaction costs (exercisable in the event of non-consummation).
<PAGE>
It is anticipated that the merger will be consummated early 1996. The
transaction is conditioned on obtaining the approval of the shareholders of both
Strategic and Digital, the approval of United States and Canadian securities
regulators and the listing of the Strategic common shares on the Toronto Stock
Exchange, as well as other conditions.
Upon consummation of the merger the Board of Directors will consist of nine
persons, including Strategic's five existing directors and four Digital
directors. Douglas H. Blakeway will become Chairman of the Board of Directors
and CEO, and Richard A. Angulo will become the Vice-President and COO upon the
effective date of the merger.
Douglas Blakeway stated "We are pleased that the Companies were able to
expeditiously reach a Definitive Merger Agreement and that significant
shareholders of both Companies have agreed to support the merger."
Richard A. Angulo stated "The formal Merger Agreement represents a significant
milestone for Digital. We look forward to working with Strategic as both
parties are of the view that the expanded product line now available to
customers of both Companies will enhance the competitive position of both
Companies in the marketplace."
In-residence monitoring of offenders is fast becoming a preferable alternative
to the serious problem of prison overcrowding in Canada and the United States.
Strategic is the only Canadian manufacturer of electronic supervision equipment
for use in court ordered home curfew programs. Strategic markets its leading
edge technology under the name SureTrac and SureTalk in Canada, the United
States and Australia. Digital is a major provider of global information
management solutions to the criminal justice and corrections industry, the
construction trade.
Further information will be released as the transaction progresses.
ON BEHALF OF THE BOARD ON BEHALF OF THE BOARD
STRATEGIC Technologies, Inc. Digital Products Corporation
Per: Per:
Douglas H. Blakeway Richard A. Angulo
President & Chief Executive Officer President & Chief Executive Officer
