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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 8-K
CURRENT REPORT
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Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): June 15, 1998
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Magellan Technology, Inc.
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(Exact name of registrant as specified in its charter)
UTAH 0-18271 87-0284979
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(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation) Identification No.)
13526 South 110 West
Draper, Utah 84020
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(Address of principal executive officers, including zip code)
(801) 495-2211
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(Registrant's telephone number, including area code)
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1
<PAGE>
Item 2. Acquisition of Certain Assets of Digital Health, LLC
On June 15, 1998, the Registrant completed the acquisition of certain
licenses and technology of Digital Health, LLC in exchange for shares of
Magellan Technology, Inc. and a note payable. The acquisition was accounted for
as a purchase transaction.
The acquisition, consummated on June 15, 1998, included the following
actions and transactions:
(a) The Registrant acquired a certain license and technology assets of
Digital Health, LLC in exchange for the issuance by the Registrant
of 1,375,000 shares of common stock, par value $0.0002 per share,
representing 9% of the Registrant's outstanding common stock
("Common Stock"), to the owners Digital Health, LLC and
(b) $250,000 in cash. $15,000 paid at closing and 235,000 paid in
monthly installments of $15,000 beginning July 1, 1998.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired.
The Audited Financial Statements of Digital Health, LLC will be
filed within 60 days of the consummation date.
(b) Pro forma financial information.
The pro forma financial information of the Registrant and Digital
Health, LLC required pursuant to this Item 7(b) are filed as part
of this report as pages F-1 through F-5.
(c) Exhibits.
The following exhibits are included herein:
Reg. S-K
Exhibit No. Description Exhibit No.
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2 Acquisition Agreement 1
2
<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 thereunto duly authorized.
Magellan Technology, Inc.
/s/ Douglas M Angus
By ---------------------------
Douglas M. Angus, Vice President
Date: June 26, 1998
3
<PAGE>
Magellan Technology, Inc.
Pro Forma Financial Statements
For the year ended December 31, 1997
And the three months ended March 31, 1998
Table of Contents
Page
------
Balance Sheet March 31, 1998 F-2
Statement of Income December 31, 1997 F-3
Statement of Income March 31, 1998 F-4
Notes to Financial Statements F-5
4
<PAGE>
Magellan Technology, Inc.
Notes to Pro Forma condensed Combined Financial Statements
(Unaudited)
The following unaudited condensed pro forma combined balance sheet at March 31,
1998 and the pro forma combined statements of operations for the year ended
December 31, 1997 and the three months ended March 31, 1998 of Magellan
Technology, Inc. ("Magellan") and Digital Health, LLC ("Digital"), respectively,
assumes the acquisition of certain assets, licenses and technology, of Digital
by Magellan. It combines the historical balance sheets of Digital and Magellan.
The business combination has been accounted for as a purchase of Digital giving
effect to the acquisition of certain assets of Digital. The unaudited condensed
pro forma balance sheet should be read in conjunction with the historical
financial statements and related notes.
The following unaudited condensed pro forma combined statements of operations
for the year ended December 31, 1997 and three months ended March 31, 1998 for
Magellan and Digital, respectively, assumes the acquisition of Digital by
Magellan as of the beginning of the year and three months respectively.
The pro forma results of operations are not necessarily indicative of the
results of operations that would actually have been obtained if the transactions
had occurred as of the beginning of the year and three month periods. These
statements should be read in conjunction with the historical financial
statements and related notes.
F1
5
<PAGE>
CONSOLIDATED MAGELLAN TECHNOLOGY, INC.
Pro forma Condensed Combined Balance Sheet (Unaudited)
March 31, 1998
<TABLE>
<S>
<C> <C> <C> <C> <C>
Magellan
Technology Digital Health PRO FORMA
------------------------------------
Incorporated LLC Total Adjustments Combined
---------------- --------------- --------------- --------------- -------------
Current Assets 978,817 92,261 1,071,078 1,071,078
Net Asset in
Discontinued operation 1,324,829 1,324,829 1,324,829
Property Plant &
Equipment--Net 452,850 - 452,850 452,850
License & Technology 1,453,125 (1) 1,453,125
Goodwill-Net 327,685 - 327,685 327,685
================ =============== =============== =============== ================
Total Assets 3,084,181 92,261 3,176,442 1,453,125 4,629,567
================ =============== =============== =============== ================
Current Liabilities 3,906,128 139,876 4,046,004 180,000 (1) 4,226,004
Long term Liabilities 526,621 526,621 70,000 (1) 596,621
---------------- --------------- --------------- --------------- ----------------
Total Liabilities 4,432,749 139,876 4,572,625 250,000 4,822,625
---------------- --------------- --------------- --------------- ----------------
Common Stock:
Magellan
Technology, Inc. 3,111 3,111 225 (1) 3,336
Additional Paid-in
Capital 8,086,633 8,086,633 1,202,900 (1) 9,289,533
Retained Earnings
(Deficit) (9,438,312) (47,615) (9,485,927) (9,485,927)
---------------- --------------- --------------- --------------- ----------------
Total Stockholder's
Equity (1,348,568) (47,615) (1,396,183) 1,203,125 (193,058)
---------------- --------------- --------------- --------------- ----------------
---------------- --------------- --------------- --------------- ----------------
Total Liabilities and
Stockholder's Equity 3,084,181 92,261 3,176,442 1,453,125 4,629,567
================ =============== =============== =============== ================
</TABLE>
F2
6
<PAGE>
CONSOLIDATED MAGELLAN TECHNOLOGY, INC.
Pro forma Condensed Combined Statement of Operations (Unaudited)
Year Ended December 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
Magellan
Technology Digital Health PRO FORMA
---------------------------------------
Incorporated LLC Total Adjustments Combined
---------------- --------------- --------------- --------------- ----------------
Sales 319,611 1,104,220 1,423,831 1,423,831
Costs and Expenses:
Cost of Sales 57,180 348,295 405,475 405,475
Selling, General
& Administrative 2,764,150 615,687 3,379,837 3,379,837
Compensation
Expense 252,000 - 252,000 252,000
---------------- --------------- --------------- --------------- ----------------
Income(loss) from
operations (2,753,719) 140,238 (2,613,481) - (2,613,481)
Other Income
(Expense)
Earnings/Loss
from Investment
in SIS, LLC (68,960) (68,960) (68,960)
Interest Expense (161,843) (13,075) (174,918) (174,918)
Other Income
(Expense) (12,870) (12,870) (12,870)
---------------- --------------- --------------- --------------- ----------------
Net Loss (2,997,392) 127,163 (2,870,229) - (2,870,229)
================ =============== =============== =============== ================
Net Loss per Share (0.22) (0.19)
================ ================
Weighted Average
Number of Common
Shares Outstanding 13,685,000 15,060,000
================ ================
</TABLE>
F3
7
<PAGE>
CONSOLIDATED MAGELLAN TECHNOLOGY, INC.
Pro forma Condensed Combined Statement of Operations (Unaudited)
Three Months Ended March 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Magellan
Technology Digital Health PRO FORMA
---------------------------------------
Incorporated LLC Total Adjustments Combined
---------------- --------------- --------------- --------------- ----------------
Sales 242,617 366,848 609,465 609,465
Costs and Expenses:
Cost of Sales 46,719 110,107 156,826 156,826
Selling, General &
Administrative 567,347 222,711 790,058 790,058
Research &
Development 320,657 320,657 320,657
Depreciation and
Amortization 36,642 36,642 36,642
Compensation Expense 26,283
---------------- --------------- --------------- --------------- ----------------
Income(loss) from
operations (755,031) 34,030 (694,718) - (694,718)
Other Income(Expense)
Earnings/(Loss) from
Discontinued Operation (198) (198) (198)
Interest Expense (93,145) (2,150) (95,295) (95,295)
Other Income(Expense) - - -
---------------- --------------- --------------- --------------- ----------------
Net Loss (848,374) 31,880 (790,211) - (790,211)
================ =============== =============== =============== ================
Net Loss Per Share (0.05) (0.05)
================ ================
Weighted Average
Number of Common
Shares Outstanding 15,557,600 16,932,600
================ ================
</TABLE>
F4
8
<PAGE>
Magellan Technology, Inc.
Notes to Pro Forma condensed Combined Financial Statements
(Unaudited)
Year Ended December 31, 1997 and Three Months ended March 31, 1998
Pro Forma Adjustments
(1) Magellan issued common stock and $250,000 cash to acquire a license and
related technology assets from Digital Health, LLC. The value of the stock
and cash total $1,453,125, which is the value assigned to the license and
technology acquired.
F5
9
<PAGE>
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ACQUISITION AGREEMENT
BY AND AMONG
MAGELLAN TECHNOLOGY, INC.,
BIOMERIDIAN INTERNATIONAL, INC.
AND
DIGITAL HEALTH, L.L.C.
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TABLE OF CONTENTS
Page
1. The Acquisition and Transfer of Assets...............................14
(a) Agreement to Acquire and Transfer Assets....................14
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(i) Fixtures...........................................15
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(ii) Assets.............................................15
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(iii) Inventory..........................................15
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(iv) Contracts..........................................15
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(v) Goodwill...........................................15
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(vi) Warranties.........................................16
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(vii) License Agreements.................................16
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(viii) Intellectual Property..............................16
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(ix) Deposits...........................................16
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(x) Books and Records..................................16
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(b) Excluded Assets.............................................16
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(i) Scheduled Assets...................................16
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(ii) This Agreement.....................................16
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2. Payment of Liabilities...............................................17
(a) Prior to Closing............................................17
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(i) Liabilities........................................17
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(ii) Contracts..........................................17
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(iii) Warranty Claims....................................17
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(b) After May 1, 1998...........................................17
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(c) Excluded Liabilities........................................17
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(i) Excluded Assets....................................17
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(ii) Breach of Representation...........................17
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(iii) Contract Breach....................................18
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(iv) Violation of Statute...............................18
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(v) Non-Assumed Liabilities............................18
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(c) No Expansion of Third Party Rights..........................18
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3. Consideration........................................................18
4. Representations and Warranties Concerning Digital....................18
(a) Organization, Standing and Qualification....................19
----------------------------------------
(b) Affiliates..................................................19
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(c) No Defaults.................................................19
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(d) No Conflict.................................................19
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(e) Consents and Approvals......................................19
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(f) Related-Party Transactions..................................20
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(g) Safety Laws.................................................20
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(h) Compliance With Law.........................................20
(i) Financial Statements........................................20
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(j) Title to Acquired Assets....................................20
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(k) Leases......................................................21
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(l) Inventory...................................................21
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(m) Licenses....................................................21
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(n) All Assets..................................................21
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(o) Intellectual Property.......................................21
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(p) Liens.......................................................22
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(q) No Undisclosed Liabilities..................................22
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(r) Litigation..................................................23
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(s) Taxes.......................................................23
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(t) Employment Contracts........................................23
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(u) Labor Matters...............................................23
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(v) Employee Benefit Plans......................................23
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(i) Identification.....................................23
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(ii) Compliance.........................................24
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(iii) Qualification......................................24
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(iv) Funding Status.....................................24
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(v) Multiemployer Plans................................24
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(vi) PBGC...............................................24
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(vii) Retirees...........................................24
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(w) Environmental Matters.......................................25
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(x) No Adverse Change...........................................25
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(y) Discrimination..............................................26
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(z) Disputes and Charges........................................26
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(aa) Accuracy of Information Furnished...........................26
---------------------------------
(bb) Securities Law Compliance...................................26
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5. Representations, Warranties and Agreements of BII and Magellan.......27
(a) Organization Standing and Qualification.....................27
---------------------------------------
(b) Authority...................................................27
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(c) Magellan Common Stock.......................................27
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(d) SEC Documents...............................................28
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(e) No Adverse Change...........................................28
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(f) Conditions and Approvals....................................28
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12
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6. The Closing..........................................................28
7. Conditions of Performance............................................28
(a) BII's and Magellan's Conditions.............................28
-------------------------------
(b) Digital Conditions..........................................30
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8. Employees............................................................30
(a) Employment of Employees.....................................30
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(b) Employees Retained by Digital...............................30
-----------------------------
9. Indemnification......................................................30
10. Restrictive Covenants................................................31
(a) Proprietary Information.....................................31
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(b) Publicity...................................................31
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(c) Noncompetition..............................................31
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11. Other Covenants of Digital...........................................32
12. Termination and Amendment............................................32
(a) Pre-Closing.................................................32
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(b) Waiver......................................................32
------
13. Resolution of Disputes...............................................32
14. Miscellaneous........................................................33
(a) Survival of Representations and Warranties..................33
------------------------------------------
(b) Attorneys' Fees.............................................33
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(c) Brokers and Finders.........................................33
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(d) Severability................................................33
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(e) Notices.....................................................33
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(f) Entire Agreement............................................34
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(g) Counterparts and Telecopier Signatures......................35
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(h) Binding Effect..............................................35
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(i) Governing Law...............................................35
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13
<PAGE>
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "Agreement") is made this 15th day of
June , 1998, by and among Magellan Technology, Inc., a Utah
corporation ("Magellan"), BioMeridian International, Inc., a Utah corporation
("BII") and Digital Health, L.L.C., a Utah limited liability company
("Digital").
W I T N E S S E T H:
A. WHEREAS, Digital is in the business of the design, manufacture and
sale of equipment and software used for the purpose of meridian stress
assessment (the "Business");
B. WHEREAS, BII desires to acquire certain assets of Digital which
relate to the Business in exchange for voting common stock of Magellan (the
"Magellan Common Stock"), whereby BII shall immediately thereafter have control
of such assets and Business;
C. WHEREAS, the respective Boards of Directors of BII and Magellan have
approved and adopted this Agreement providing for the acquisition by BII of the
assets of the Business (the "Acquisition") in exchange for the Magellan Common
Stock, which is the only class of Magellan capital stock outstanding, and the
sole owner and manager of Digital has approved the sale of the assets and
Business of Digital to BII;
D. WHEREAS, it is intended that the Acquisition shall be recorded
for accounting purposes as a purchase; and
E. WHEREAS, BII, Magellan and Digital desire to make certain
representations, warranties and agreements in connection with the Acquisition
and also to prescribe various terms and conditions to the Acquisition.
14
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A G R E E M E N T :
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
1.The Acquisition and Transfer of Assets. The Acquisition and Transfer of Assets
(a) Agreement to Acquire and Transfer Assets(a) Agreement to Acquire and
Transfer . On the terms and subject to the conditions contained herein, BII
agrees to acquire from Digital and Digital agrees to transfer to BII, the
Business of Digital as a going concern as of May 1, 1998 and, specifically, the
assets, properties and rights relating to the Business set forth below. The
assets, properties, rights and Business are collectively referred to as the
"Acquired Assets." All of the Acquired Assets shall be transferred to and
acquired by BII free and clear of any liens, encumbrances or security interests,
other than the defects in Digital's ownership of such Acquired Assets which are
specifically set forth in this Agreement or in the Schedules hereto. The
Acquired Assets shall include, but not be limited to the following:
[i]Fixtures[i] Fixtures. The trade and other fixtures owned by Digital used
--------
in connection with the operation, maintenance and/or promotion of the
Business and listed on Schedule 1(a)(i) located at the principal place of
Business of Digital (the "Premises") at the Closing (the "Fixtures");
[ii] Assets[ii}Assets. All furnishings, furniture, tools, machinery and
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equipment owned by Digital and listed on Schedule 1(a)(ii) used in
connection with the Business, including, without limitation, any such assets
used in connection with the operation, maintenance and/or promotion of the
Business and located at the Premises at the Closing (the "Assets");
[iii]Inventory[iii] Inventory. The finished goods, raw materials, parts,
--------- ----------
supplies, ingredients, merchandise, stock in trade, packaging
materials, maintenance supplies and other inventory, (including supplies and
parts which have historically been expensed or otherwise not included on
Digital's books and records) located at the Premises at the Closing, including
merchandise and supplies in transit at the Closing (collectively, the
"Inventory");
[iv] Contracts[iv] Contracts. Digital's interests in all contracts and
--------- ---------
agreements relating to the Business, including without limitation, those
contracts set forth on Schedule l(a)(iv) to this Agreement (the "Contracts"); .
[v] Goodwill[v] Goodwill. All goodwill of the Business as a going concern;
-------- --------
[vi] Warranties[vi] Warranties. Any and all of Digital's rights under any
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express or implied warranties received from third parties, to the extent
assignable, with respect to the condition, quality, use, merchantability, or
fitness for a particular purpose, of any portion of the Acquired Assets;
15
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[vii] License Agreements[vii] License Agreements. All of Digital's right,
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title and interest in and under the licenses set forth on Schedule l(a)(vii)
(the "Licenses") and all goodwill pertaining thereto including, without
limitation, all right, title and interest in the Section 510(k) Marketing
Approval which relates to the Galvanic Skin Response Device, CB29A, dated July
21, 1995;
[viii] Intellectual Property[viii] Intellectual Property. All Digital's
---------------------- -----------------------
trade or brand names, business names, trade styles and other source or business
identifiers relating to the Business, including without limitation, the names
"Digital Health," "Omega AcuBase" and other names used by Digital, service
marks, copyrights, designs, patents, patent applications, trade secrets or
proprietary formula; all software owned by Digital; and all proprietary
techniques, processes, methods of production and commercialization,
formulations, specifications and know-how pertaining to or useful in relation to
the composition, production and sale of products and services sold in the
Business (collectively, the "Intellectual Property"), including any licenses of
the foregoing;
[ix] Deposits[ix] Deposits. All deposits and prepayments made by Digital
--------- --------
relating to the Business, including deposits with lessors or utility companies,
prepaid insurance or other deposits or credits including, without limitation,
the deposits and prepayments set forth on Schedule l(a)(ix);
[x] Books and Records[x] Books and Records. All books and records relating
------------------ -------------------
to the Business, including without limitation, all of Digital's books and
records regarding the Acquired Assets and their operation, condition,
maintenance and repair and all of Digital's books and records relating to the
customers of Digital and the Contracts with customers or vendors.
[b] Excluded Assets[b] Excluded Assets. The following items of property
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("Excluded Assets") associated with the Business, as the same exist as of the
Closing, are hereby excluded from the transactions contemplated hereby:
[i] Scheduled Assets[i] Scheduled Assets. All assets, contracts and
agreements listed on Schedule l(b)(i);
[ii] ThisAgreement[ii] This Agreement. The rights of Digital under this
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Agreement.
2. Payment of Liabilities. Payment of Liabilities
16
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[a] Prior to Closing[a] Prior to Closing. Other than those liabilities
------------------ ------------------
which are specifically identified on Schedule 2(a) hereto and which BII shall
assume and pay, Digital shall pay when due, and will discharge or perform, as
appropriate, any and all liabilities and obligations of Digital relating to the
Acquired Assets and the operation of the Business prior to May 1, 1998
(excepting only those obligations disputed by Digital in good faith and set
forth on Schedule 2(a) hereto), including the following:
[i] Liabilities[i] Liabilities. All liabilities, bank debt, obligations,
------------ -------------
taxes, employment obligations and trade payables of Digital ("Payables") arising
in the regular and ordinary course of the Business up to and including May 1,
1998 to the extent that the same are unpaid and undischarged as of May 1, 1998;
[ii] Contracts[ii] Contracts. All liabilities and obligations of Digital
----------- -----------
arising out of any Contract prior to May 1, 1998;
[iii] Warranty Claims[iii] Warranty Claims. All warranty claims arising out
----------------- -----------------
of the conduct of the Business prior to May 1, 1998; provided, however, BII
shall assist Digital in responding to and resolving any such claim.
[b] After May 1, 1998[b] After May 1, 1998. Except as provided in
--------------------- ---------------------
Subsection 2(c), from and after May 1, 1998, BII shall assume, pay discharge or
perform, as appropriate, all liabilities and obligations arising out of the
ownership of the Business and the Acquired Assets.
[c] Excluded Liabilities[c] Excluded Liabilities. In no event shall BII
---------------------- ----------------------
assume or incur any liability or obligation under this Section 2, or otherwise,
in respect of any of the following:
[i] Excluded Assets[i] Excluded Assets. Any liability or obligation under
----------------- ----------------
or in connection with the Excluded Assets;
[ii] Breach of Representation[ii] Breach of Representation. Any liabilities
------------------------ ------------------------
to the extent that their existence or magnitude constitute or results in a
breach of a representation, warranty or covenant made by Digital to BII herein
or make the information contained in any Schedule hereto incorrect in any
material respect;
17
<PAGE>
[iii] Contract Breach[iii] Contract Breach. Any liabilities (whether
----------------- ----------------
asserted before or after May 1, 1998) for or arising in connection with any
undisclosed breach of representation, warranty, or covenant, or for any claim
for indemnification, contained in any Contract, to the extent that such breach
or claim arose out of or by virtue of Digital's performance or nonperformance
thereunder prior to May 1, 1998, it being understood that, as between Digital
and BII, (1) this Subsection 2(c)(iii) shall apply notwithstanding any
provisions which may be contained in any form of consent to the assignment of
any such Contract or document, or any novation agreement, which, by its terms,
imposes such liabilities upon BII and which assignment or novation agreement is
accepted by BII notwithstanding the presence of such a provision, and (2) the
failure by Digital to discharge any such liability shall entitle BII to
indemnification in accordance with the provisions of Section 10 hereof;
[iv] Violation of Statute[iv] Violation of Statute. Any liabilities arising
--------------------- ----------------------
out of or in connection with any violation by Digital of a statute or
governmental rule, regulation, directive or any other requirement; and
[v] Non-Assumed Liabilities[v] Non-Assumed Liabilities. Without limitation
----------------------- -----------------------
by the specific enumeration of the foregoing, any liabilities not expressly
assumed by BII pursuant to the provisions of Subsection 2(a) hereof.
[c] No Expansion of Third Party Rights[c] No Expansion of Third Party Rights.
-------------------------------------- ------------------------------
The assumption by BII of the liabilities as provided in this Section 2
shall not expand the rights or remedies of any third party against BII or
Digital as compared to the rights and remedies which such third party would have
had against Digital had BII not assumed such liabilities.
3. In connection with the acquisition and transfer of the Acquired Assets
at the Closing, Digital shall receive 1,375,000 shares of Magellan Common Stock,
1,125,000 shares of which will be delivered at Closing and 250,000 shares of
which will be deposited in escrow for a oneByear period to secure the
indemnities of Digital pursuant to Section 9(a) hereof. In the event sales of
BII for the period from May 1, 1998 through December 31, 1998 equal or exceed
$5,000,000 and earnings before income taxes equal or exceed $1,250,000
(determined in accordance with generally accepted accounting principals
("GAAP"), consistently applied), Digital shall receive an additional 125,000
shares of Magellan Common Stock. Finally, Digital shall be paid the sum of
$250,000 in 16 monthly installments of $15,000 each, commencing June 1, 1998 and
one installment of $10,000.
4. Representations and Warranties Concerning Digital. Representations
and Warranties . To further induce BII and Magellan to enter into this
Agreement, Digital represents and warrants that the following statements
concerning the affairs of Digital are true, correct and complete as of the date
hereof, and will be true, correct and complete as of the date of the Closing.
18
<PAGE>
(a) Organization, Standing and Qualification(a) Organization, Standing and
----------------------------------------- --------------------------
Qualification. Digital is duly organized, validly existing and in good standing
- -------------
as a limited liability company under the laws of the State of Utah and except as
set forth on Schedule 4(a), is authorized and qualified to own and operate its
properties and assets and conduct its Business in all jurisdictions where such
properties and assets are owned and operated and such Business conducted. Except
as set forth on Schedule 4(a), Digital has duly filed any and all certificates
and reports required to be filed to date by the laws of Utah and any other
applicable law, except where the failure to file would not have a material
adverse effect on the Business or its financial condition. Digital has all
franchises, permits, licenses, and any similar authority necessary for the
conduct of its Business as now being conducted by it, except where the lack of
such would not materially adversely affect the Business, or its financial
condition. Digital is not in default in any material respect under any of such
franchises, permits, licenses or other similar authority.
[b] Affiliates[b] Affiliates. Digital has no affiliates and no other
----------- -------------
investment in any entity. Digital is not a participant in any joint venture,
partnership or other similar arrangement.
[c] No Defaults[c] No Defaults. Digital is not in default under or in
------------ ---------------
violation of any provisions of its Articles of Organization or Operating
Agreement. Digital is not in default under or in violation of any material
restriction, lien, encumbrance, indenture, contract, lease, sublease, loan
agreement, note or other obligation or liability relating to Digital's Business,
except as set forth in Schedule 4(c) hereto.
[d] No Conflict[d] No Conflict. Neither the execution and delivery of this
------------ ------------
Agreement nor consummation of the transactions contemplated hereby will conflict
with or result in a material breach of or constitute a default under any
provision of the Articles of Organization or Operating Agreement, any law, rule,
regulation, judgment, decree, order or other requirement, or any restriction,
lien, encumbrance, indenture, contract, lease, sublease, loan agreement, note or
other obligation or liability to which Digital is a party or by which it is
bound, or to which any of its assets are subject, or result in the creation of
any material lien or encumbrance upon said assets, except as set forth in
Schedule 4(d) hereto.
[e] Consents and Approvals[e] Consents and Approvals. Except as set forth
---------------------- ----------------------
on Schedule 4(e) hereto, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby do not
require Digital to obtain any consent, approval or action of, or make any filing
with or give notice to any corporation, person or firm or any public,
governmental or judicial authority except: (i) such as have been duly obtained
or made, as the case may be, and are in full force and effect on the date
hereof, and (ii) those which the failure to obtain would have no material
adverse effect on the transactions contemplated hereby or on the Company's
Business or financial condition.
19
<PAGE>
[f] Related-Party Transactions[f] Related-Party Transactions. No employee,
--------------------------- --------------------------
officer, or member of Digital or member of his or her immediate family is
indebted to Digital, nor is Digital indebted (or committed to make loans or
extend or guarantee credit) to any such individuals. To Digital's knowledge,
none of such individuals has any direct or indirect ownership interest in any
firm or corporation with which Digital is affiliated or with which Digital has a
Business relationship, or any firm or corporation that competes with Digital,
except that employees, officers, or members of Digital and members of their
immediate families may own stock in publicly traded companies that may compete
with Digital. Except as set forth on Schedule 4(f), no member of the immediate
family of any officer or director of Digital is directly or indirectly
interested in any material contract with Digital.
[g] Safety Laws[g] Safety Laws. To the knowledge of Digital, Digital is not
----------- -------------
in violation of any applicable statute, law or regulation relating to
occupational health and safety, and to Digital's knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
[h] Compliance With Law[h] Compliance With Law. Except as set forth on
-------------------- --------------------
Schedule 4(h), neither Digital nor any of its members, officers, fiduciaries,
agents or employees, is in violation of any applicable law, rule, regulation or
requirement of any governmental authority in any way relating to Digital's
Business. Consummation of the transactions contemplated hereby will be in
compliance with all presently applicable laws, rules, regulations and
requirements of all governmental authorities, including foreign governmental
authorities, without the necessity for any license or permit or other action or
permission in the nature thereof, or any registration with, or consent of, any
governmental authority.
[i] Financial Statements[i] Financial Statements. The Financial Statements
-------------------- --------------------
of Digital, dated December 31, 1996 and 1997 and April 30, 1998, attached hereto
as Schedule 4(i), are correct and complete and present fairly in all material
respects the financial condition of Digital as of the dates described therein,
and have been prepared in accordance with GAAP, consistently applied.
[j] Title to Acquired Assets[j] Title to Acquired Assets. Digital has good
------------------------- -------------------------
title to and possession of the Acquired Assets, and except as described in
Schedule 4(j), the Acquired Assets are free and clear of all liens, claims,
security interests, encumbrances, restrictions and rights, title and interests
in others. Except as set forth in Schedule 4(j), there are no existing
agreements, options or commitments or rights with, to or in any third party to
acquire any of the Acquired Assets of Digital or any interest therein, except
for those entered into in the ordinary course of Business and not materially
adversely affecting the properties, assets or rights of Digital.
20
<PAGE>
[k] Leases[k] Leases. Digital enjoys exclusive, peaceful and undisturbed
------- -------
possession under all leases to which it is a party. All such leases are
identified on the attached Schedule 4(k), are valid and enforceable in
accordance with their terms against Digital and to Digital's knowledge against
the other parties thereto, and to the knowledge of Digital, no party thereto is
in default thereunder.
[l] Inventory[l] Inventory. The Inventory was acquired and has been
--------- ---------
maintained in the ordinary course of the Business practices of Digital, and is
valued at reasonable amounts based on the ordinary course of Business. Except as
set forth on Schedule 4(l), none of the Inventory listed in the Financial
Statements is obsolete, unusable, materially damaged, or unsalable in the
ordinary course of Business.
[m] Licenses[m] Licenses.Except as set forth on Schedule 4(m), each License
--------- ---------
is, and at the Closing shall be, in full force and effect and has not been
assigned (except to BII hereunder), modified, supplemented or amended, and
neither Digital nor, to Digital's knowledge, the licensor under any such License
is in default under any of the Licenses, and, to Digital's knowledge, no
circumstances or state of facts presently exists (other than this Agreement)
which, with the giving of notice or passage of time, or both, would permit the
licensor under any License to terminate any License.
[n] All Assets[n] All Assets. Except as set forth on Schedule 4(n), the
----------- -----------
Acquired Assets comprise substantially all of the assets used in connection with
the Business.
21
<PAGE>
[o] Intellectual Property[o] Intellectual Property. Digital owns all trade
--------------------- ---------------------
names, inventions, discoveries, ideas, research, engineering, methods,
practices, processes, systems, formulae, designs, drawings, products, projects,
improvements, developments, knowBhow, and trade secrets which are used in the
conduct of the Business, whether registered or unregistered, including the
patents, patent applications and copyrights which are set forth on Schedule 4(o)
(collectively, the "Proprietary Rights"). To the knowledge of Digital, Digital
created or developed such Proprietary Rights and such Proprietary Rights are not
subject to any restriction, lien, encumbrance, right, title or interest in
others. All of the foregoing Proprietary Rights that are not in the public
domain stand solely in the name of Digital and not in the name of any
shareholder, member, officer, agent, partner or employee or anyone else known to
Digital, and none of the same have any right, title, interest, restriction, lien
or encumbrance therein or thereon or thereto. To the knowledge of Digital,
Digital's ownership and use of the Proprietary Rights does not and will not
infringe upon, conflict with or violate in any material respect any patent,
copyright, trade secret or other lawful proprietary right of any other party,
and no claim is pending or threatened to the effect that the operations of
Digital infringe upon or conflict with the asserted rights of any other person
under any proprietary right, and to the knowledge of Digital, there is no
reasonable basis for any such claim (whether or not pending or threatened). No
claim is pending or, to the knowledge of Digital, threatened to the effect that
any such proprietary rights owned or licensed by Digital, or which Digital
otherwise has the right to use, is invalid or unenforceable by Digital, and, to
Digital's knowledge, there is no reasonable basis for any such claim (whether or
not pending or threatened). Digital has not been advised, nor, to the knowledge
of Digital, is there any basis for any claim that Digital's proprietary rights
are infringed by proprietary rights of any third party. Except as set forth in
Schedule 4(o), Digital has not granted or assigned to any other person or entity
any right to manufacture, have manufactured, assemble or sell the products or
proposed products or to provide the services or proposed services of Digital.
[p] Liens[p] Liens. Except as set forth on the attached Schedule 4(p), no
------ -------
one other than Digital has any right, title, interest, lien, claim, security
interest, restriction or encumbrance in, on or to the businesses conducted by,
or the properties and assets of, Digital.
[q] No Undisclosed Liabilities[q] No Undisclosed Liabilities. Except as set
--------------------------- ---------------------------
forth on Schedule 4(q), there are no material liabilities or obligations of
Digital, including, without limitation, contingent liabilities for the
performance of any obligation, except for (A) liabilities or obligations which
are disclosed or fully provided for in Digital's Financial Statements, (B)
liabilities or obligations disclosed in this Agreement or in any exhibit or
schedule to this Agreement, (C) liabilities not in excess of $10,000 in the
aggregate and (D) liabilities incurred in the ordinary course of Business and
consistent with past practice since the date of the Financial Statements.
22
<PAGE>
[r] Litigation[r] Litigation. There are no suits or proceedings at law or
----------- ------------
in equity, or before or by any governmental agency or arbitrator, pending, or to
the knowledge of Digital, threatened, anticipated or contemplated, which in any
way materially affect Digital, and there are no unsatisfied or outstanding
judgments, orders, decrees or stipulations which in any way affect Digital or
its properties or assets or to which it is or may become a party, except as set
forth in Schedule 4(r) hereto. There are no claims against Digital pending, or
to the knowledge of Digital, threatened, anticipated, or contemplated which, if
valid, would constitute or result in a breach of any representation, warranty or
agreement set forth herein.
[s] Taxes[s] Taxes. Except as disclosed in Schedule 4(s) hereto, (i)
------ -----
Digital has duly filed all federal, state, local and other tax returns and
reports required to be filed by Digital (including sales and use tax returns) on
or prior to the date hereof with respect to all taxes withheld by or imposed
upon Digital; (ii) all such returns or reports reflect the liability for such
taxes of Digital as computed therein for the periods indicated, and all taxes
shown on such returns or reports and all assessments received by Digital have
been paid, or fully reserved for, to the extent that such taxes have become due;
(iii) there are no waivers or agreements by Digital for the extension of time
for the assessment of such taxes; and (iv) there are no material questions of
taxation which are, as at the date hereof, the subject of dispute with any
taxing authority.
[t] Employment Contracts[t] Employment Contracts. Digital has no written
---------------------- ---------------------
contracts of employment with any of its shareholders, employees or sales
representatives, and no verbal contracts of employment which cannot be
terminated without default by Digital on 30 days' notice.
[u] Labor Matters[u] Labor Matters. Digital is not party to nor subject to
------------- -------------
any collective bargaining agreement, nor is any union organizing action or
certification vote pending or threatened.
(v) Employee Benefit Plans(v) Employee Benefit Plans.
------------------------ ------------------------
[i] Identification[i] Identification. Schedule 4(v)contains a complete and
-------------- --------------
accurate list of all employee benefit plans (the "Employee Benefit Plans")
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") (A) sponsored by Digital, (B) to which Digital
contributes on behalf of its employees, (C) with respect to which Digital
participates on behalf of its employees or (D) previously sponsored or
contributed to by Digital on behalf of its employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan;
23
<PAGE>
[ii] Compliance[ii] Compliance.To the knowledge of Digtal, (a) each
Employee ----------- ---------- Benefit Plan has been administered and
maintained in compliance with all Laws in all material respects; (b) no Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any Governmental Authority; (c)
no prohibited transactions (within the meaning of Section 4975 of the Code) have
occurred with respect to any Employee Benefit Plan, and (d) no pending or, to
the knowledge of Digital, threatened claims, suits or other proceedings exist
with respect to any Employee Benefit Plan other than normal benefit claims filed
by participants or beneficiaries;
[iii] Qualification[iii] Qualification. Except as set forth on Schedule
------------- -------------
4(v), a favorable determination letter or ruling has been received from the
Internal Revenue Service as to the current qualified status of each Employee
Benefit Plan intended to be qualified within the meaning of Section 401(a) of
the Code and/or tax-exempt within the meaning of Section 501(a) of the Code. No
proceedings exist or, to Digital Shareholder's knowledge, have been threatened
against Digital that would result in the revocation of any such favorable
determination letter or ruling;
[iv] Funding Status[iv] Funding Status. No accumulated funding deficiency
-------------- --------------
(within the meaning of Section 412 of the Internal Revenue Code), whether
waivable or waived, exists with respect to any Employee Benefit Plan. With
respect to each Employee Benefit Plan subject to Title IV of ERISA, the assets
of each such plan are at least equal to the liabilities that result if all
employees were fully vested and terminated employment and the plan is terminated
as of the date of the Closing. With respect to each Employee benefit Plan
described in Section 501(c)(9) of the Code, the assets of such plan are at least
equal in value to the present value of accrued benefits under such plan as of
the date hereof;
[v] Multiemployer Plans[v] Multiemployer Plans. Digital has never been
--------------------- --------------------
obligated to contribute to a multiemployer plan within the meaning of Section
3(37) of ERISA;
[vi] PBGG[vi] PBGG. To the knowledge of Digital, no facts or circumstances
----- -----
exist that would result in the imposition of liability against BII by the
Pension Benefit Guaranty Corporation as a result of any act or omission by
Digital. No reportable event (within the meaning of Section 4043 of ERISA) for
which the notice requirement has not been waived has occurred with respect to
any Employee Benefit Plan subject to the requirements of Title IV of ERISA;
[vii] Retirees[vii] Retirees. Digital does not have, except as may be
--------- ---------
required by law, any obligation or commitment to provide medical, dental or life
insurance benefits to or on behalf of any of its employees who may retire or any
of its former employees who have retired from employment with Digital, including
those receiving disability benefits.
24
<PAGE>
[w] Environmental Matters[w] Environmental Matters. Except to the extent,
---------------------- ----------------------
if any, that would not have a material adverse effect on Digital, (i) Digital
has not received notice of any violation of or investigation relating to any
U.S. federal, state, or local environmental or pollution law, regulation, or
ordinance with respect to assets now or previously owned or operated by Digital
that has not been fully and finally resolved; (ii) all permits, licenses and
other authorizations which are required under U.S., federal, state, provincial
and local laws with respect to pollution or protection of the environment
("Environmental Laws") relating to assets now owned or operated by Digital or
any of its affiliates, including Environmental Laws relating to actual or
threatened emissions, discharges or releases of pollutants, contaminants or
hazardous or toxic materials or wastes ("Pollutants"), have been obtained and
are effective, and, with respect to assets previously owned or operated by
Digital, were obtained and were effective during the time of Digital's
operation; (iii) to the knowledge of Digital, no conditions exist on, in or
about the properties now or previously owned or operated by Digital or any
third-party properties to which any Pollutants generated by Digital were sent or
released that could give rise on the part of Digital to liability under any
Environmental Laws, claims by third parties under Environmental Laws or under
common law or the occurrence of costs to avoid any such liability or claim; and
(iv) to the knowledge of Digital, all operators of Digital's assets are in
compliance with all terms and conditions of such Environmental Laws, permits,
licenses and authorizations, and are also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such laws or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder, relating to Digital's assets.
[x] No Adverse Change[x] No Adverse Change. Since the date of the last
------------------ ------------------
Financial Statements provided to BII, there has not been with respect to the
Business:
(i) any material adverse change in the properties, assets, business,
affairs, material contracts or prospects of Digital or, to the knowledge of
Digital are any such changes threatened, anticipated or contemplated;
(ii) any actual or, to the knowledge of Digital, threatened, anticipated or
contemplated damage, destruction, loss, conversion, termination, cancellation,
default or taking by eminent domain or other action by governmental authority,
which has affected or may hereafter materially affect the properties, assets,
business, affairs, contracts or prospects of Digital;
(iii) any material and adverse dispute pending or threatened, or, to the
knowledge of Digital, anticipated or contemplated of any kind with any customer,
supplier, source of financing, employee, landlord, subtenant or licensee of
Digital which has not been disclosed in writing to BII, or any pending or
threatened, or, to the knowledge of Digital, anticipated or contemplated
occurrence or situation of any kind, nature or description which is reasonably
likely to result in any material reduction in the amount, or any change in the
terms or conditions, of business with any substantial customer, supplier or
source of financing;
25
<PAGE>
(iv) any pending or threatened, or to the knowledge of Digital, anticipated
or contemplated occurrence or situation of any kind, nature or description
peculiar to the Business of Digital and materially and adversely affecting its
properties, assets, business, affairs or prospects; or
(v) except as set forth on Schedule 4(x), any reduction of capital,
redemption of interests or distribution with respect to limited liability
interests by Digital.
[y] Discrimination[y] Discrimination. Digital has not received any written
-------------- --------------
claim of any unfair labor practice or illegal discrimination on the basis of
race, color, religion, sex, national origin, age or handicap in its employment
conditions or practices which, to the knowledge of Digital, has not been fully
resolved. To the knowledge of Digital, Digital has not engaged in any unfair
labor practice or illegal discrimination on the basis of race, color, religion,
sex, national origin, age or handicap in its employment conditions or practices.
[z] Disputes and Charges[z] Disputes and Charges. There are no existing or,
------------------- --------------------
to the knowledge of Digital, any threatened disputes, grievances, harassment
charges, controversies or other employment or labor troubles affecting Digital.
[aa] Accuracy of Information Furnished[aa] Accuracy of Information
-------------------------------------- -------------------------
Furnished. Digital has not made any material misstatement of fact or omitted to
- ---------
state any material fact furnished necessary or desirable to make complete,
accurate and not misleading the representations, warranties and agreements set
forth herein, or in any Exhibit or Schedule hereto or certificate or other
document furnished in connection herewith.
[bb] Securities Law Compliance[bb] Securities Law Compliance. To induce BII
------------------------- -------------------------
to enter into this Agreement, Digital represents and warrants to BII the
following statements are true, correct and complete as of the date hereof and
will be true and complete as of the date of the Closing.
(i) Digital has been represented by such legal and tax counsel and others
as Digital has found necessary to consult concerning this transaction, and such
representation has included an examination of applicable documents and an
analysis of tax, financial and securities law aspects. Digital, together with
such counsel and advisors, have sufficient knowledge and experience in business
and financial matters to evaluate the information furnished and the merits and
risks of information contemplated by this Agreement and to make an informed
investment decision with respect thereto;
(ii) BII and Magellan have made available to Digital, its counsel and
advisors, prior to the date hereof, the opportunity to ask questions of and to
receive answers from BII and Magellan and their representatives, concerning the
terms and conditions of the Acquisition and access to obtain any information,
documents, financial statements and records relative to BII, its business and an
investment in Magellan, and necessary to verify the accuracy of any information
furnished. All materials and information requested by Digital, its counsel and
advisors, including any information requested to verify any information
furnished to Digital, has been made available and examined;
26
<PAGE>
(iii) Digital is receiving Magellan Common Stock for its own account, for
investment purposes only, and not with a view to or for the transfer,
assignment, resale or distribution thereof in whole or in part, except that the
issuance of BII Common Stock may be distributed to the owners of Digital. There
is no prearranged plan to dispose of the Magellan Common Stock. Digital
understands the meaning and legal consequences of the foregoing representations
and warranties. Digital is not an "underwriter" of the securities as that term
is defined in Section 2(11) of the Securities Act of 1933 (the "1933 Act") and
Digital will not take or cause any action to be taken that would cause Digital
to be deemed an "underwriter" of the securities;
(iv) Digital understands that the issuance of Magellan Common Stock to
Digital has not been registered under the 1933 Act nor pursuant to the
provisions of the securities or other laws of any applicable jurisdictions.
Digital further understands that the Magellan Common Stock cannot be sold,
assigned or otherwise disposed of until such sale, assignment or disposition is
registered or an exemption from registration is available.
5. Representations, Warranties and Agreements of BII and Magellan.
Representations, . BII and Magellan represent and warrant that:
(a) Organization Standing and Qualification(a) Organization Standing and
---------------------------------------- --------------------------
Qualification. BII and Magellan are duly organized and validly existing and in
- -------------
good standing under the laws of the State of Utah, and are authorized and
qualified to own and operate their respective properties and assets and conduct
their respective businesses in all jurisdictions where such properties and
assets are owned and operated and such respective business conducted, except
where failure to so qualify would not have a material adverse effect on the
business or financial condition of BII and Magellan.
[b] Authority[b] Authority. BII and Magellan have full right, power and
---------- ---------
authority to execute, deliver and perform the terms of this Agreement. This
Agreement has been duly authorized by BII and Magellan and constitutes the
binding obligations of BII and Magellan enforceable in accordance with their
terms.
[c] Magellan Common Stock[c] Magellan Common Stock. The Magellan Common
---------------------- ----------------------
Stock issued to pursuant to this Agreement will be duly authorized, validly
issued and fully paid and non-assessable.
27
<PAGE>
[d] SEC Documents[d] SEC Documents. Magellan has filed with the SEC all
-------------- --------------
required documents, and will file all required SEC Documents between the date
hereof and the Closing (all such documents are collectively referred to as the
"Magellan SEC Documents"). As of their respective dates, the Magellan SEC
Documents complied or will comply in all material respects with the requirements
of the 1933 Act or the Exchange Act, as the case may be, and none of the
Magellan SEC Documents contained or will contain any untrue statement of a
material fact or omitted or will omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Magellan included or to be included in the Magellan 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 GAAP (except, in the case of the
unaudited statements, as permitted by Form 10BQ of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly present the consolidated financial position
of Magellan and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and statements of cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
[e] No Adverse Change[e] No Adverse Change. Since March 31, 1998, there has
----------------- -----------------
been no material adverse change in the business, properties or financial
condition of Magellan and its subsidiaries, taken as a whole.
[f] Conditions and Approvals[f] Conditions and Approvals. Magellan has
-------------------------- -------------------------
obtained all necessary consents, approvals, authorizations or estoppels of any
other person or governmental or regulatory authority required to be obtained to
authorize and permit Digital to acquire the Magellan Common Stock. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein by BII and Magellan and the performance of the covenants and
agreements herein, will not, with or without the giving of notice or the lapse
of time, or both, (i) violate or conflict with any of the provisions of any
Articles of Incorporation or Bylaws of Magellan or BII; (ii) violate, conflict
with or result in a breach or default under or cause termination of any terms or
conditions of any material mortgage, indenture, contract, license, permit,
instrument, trust document or other agreement, document or instrument to which
Magellan or BII is party or by which Magellan or BII or any of their respective
properties may be bound; or (iii) violate any law or regulation.
6. The Closing. The Closing. The Closing of the transactions contemplated
herein shall take place at the offices of Parr Waddoups Brown Gee & Loveless on
or before June 15, 1998, or at such other time or place as shall be fixed by the
mutual consent of the parties.
7. Conditions of Performance. Conditions of Performance
[a] BII's and Magellan's Conditions[a] BII's and Magellan's Conditions. The
------------------------------- -------------------------------
obligation of BII and Magellan to consummate this Agreement is subject to the
satisfaction at the Closing, or waiver by BII and Magellan in writing, of each
of the following conditions:
28
<PAGE>
(i) BII shall have received the agreement of the employees of Digital
identified on Schedule 7(a)(i) that said employees will accept employment with
BII under mutually acceptable terms and conditions;
(ii) At the Closing date, no governmental agency or body, or other person
or entity, shall have instituted or threatened any action to restrain or
prohibit any of the transactions contemplated by this Agreement;
(iii) The representations and warranties of Digital contained in this
Agreement or in any certificate or document delivered to BII and Magellan
pursuant hereto shall be deemed to have been made again at the Closing and shall
then be true in all material respects; Digital shall have performed and complied
with all agreements and conditions required by this Agreement to be performed or
complied with in all material respects by Digital prior to or at the Closing;
Digital shall not be in default under any of the provisions of this Agreement;
and BII and Magellan shall have been furnished with one or more closing
certificates of Digital dated as of the Closing date, in substantially the form
of Schedule 7(a)(iii) certifying (A) to the fulfillment of the conditions set
forth in this Subsection 7(a)(iii) and the due performance of such covenants and
agreements, (B) that no material adverse change has occurred in Digital's
Business, affairs, operations, properties, assets or condition since the date of
the last financial statements provided to BII and Magellan, (C) that the
representations and warranties set forth in this Agreement are true and correct
as of the Closing, and (D) that Digital is not a party to any litigation or has
knowledge of any claim, brought or threatened, seeking to recover damages or to
prevent Digital from continuing to use Digital assets or to conduct Business in
the manner as the same were used or conducted prior thereto, and which
litigation or claim is likely to result in any judgment, order, decree or
settlement which will materially and adversely affect the financial condition or
Business of Digital;
(iv) BII and Magellan shall have received bills of sale and such other
instruments of transfer as may be deemed reasonably necessary by BII to transfer
to BII title to the Acquired Assets, including, without limitation, all rights
to use the 510(k) marketing approval for the CB29 patient interface device in
connection with the WindowsBbased products distributed by BII;
(v) BII shall have received assignments of the Contracts substantially in
the form of Schedule 7(a)(v) with respect to each Contract;
(vi) Digital shall deliver to BII and Magellan at the Closing, certificates
of search of the Uniform Commercial Code for filings of Digital in form and
substance satisfactory to BII and Magellan.
(vii) Digital shall have executed and delivered such other documents,
instruments, certificates or agreements (including the Escrow Agreement provided
for in paragraph 3 hereof), as shall be reasonably necessary to consummate this
transaction;
(viii) All proceedings taken in connection with the transactions
contemplated herein and all instruments and documents required in connection
therewith or incident thereto shall be satisfactory in form to Parr Waddoups
Brown Gee & Loveless, legal counsel for BII and Magellan.
29
<PAGE>
[b] Digital Conditions[b] Digital Conditions. The obligation of Digital to
------------------ ------------------
consummate this Agreement is subject to the satisfaction at the Closing, or
waiver by Digital in writing, of each of the following conditions:
(i) The representations and warranties of BII and Magellan contained in
this Agreement or in any closing certificate or document delivered to Digital
pursuant hereto shall be deemed to have been made again at the Closing and shall
then be true in all material respects; BII and Magellan shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing;
(ii) BII shall have executed and delivered such other documents,
instruments, certificates or agreements as shall be reasonably necessary to
consummate this transaction;
(iii) All proceedings taken in connection with the transactions
contemplated herein and all instruments and documents required in connection
therewith or incident thereto shall be satisfactory in form to Thor B. Roundy,
Esq., legal counsel for Digital, at the following address:
Thor B. Roundy, Esq.
230 South 500 East, Suite 270
Salt Lake City, Utah 84102
8. Employees. Employees
[a] Employment of Employees[a] Employment of Employees. BII shall notify
------------------------ ------------------------
Digital which employees of Digital it will hire, and, at a time mutually
agreeable to the parties, BII shall offer employment to all of such employees at
salary levels and benefits to be determined by BII, in its sole discretion.
[b] Employees Retained by Digital[b] Employees Retained by Digital. Except
---------------------------- -----------------------------
as provided in Subsection 8(a), Digital shall retain responsibility for all
Digital employees and for payment of all related obligations, including
severance pay, sick leave, accrued vacation, satisfaction of obligations arising
under Digital's benefit plans and any other employment obligations. BII shall
have no obligation with respect to employment matters involving the operation of
the Business prior to June 15, 1998 and Digital shall have no
obligation with respect to employment matters involving the operation of the
Business to the extent they relate to the period after June 15,
1998.
9. Indemnification. Indemnification
(a) Digital agrees to indemnify, defend and hold BII and Magellan harmless
from any claims, liabilities, lawsuits, demands, actions, damages and expenses
(including reasonable attorneys' fees) arising from or out of any breach of the
agreements, covenants, representations or warranties of Digital contained in
this Agreement. This indemnity shall continue in full force and effect
subsequent to and notwithstanding the expiration or termination of this
Agreement. Digital shall deposit 250,000 shares of Magellan Common Stock with an
escrow agent satisfactory to Digital, BII and Magellan to be held, released and
distributed as set forth in an Escrow Agreement of even date.
30
<PAGE>
(b) BII and Magellan agree to indemnify, defend and hold Digital harmless
from any claims, liabilities, lawsuits, demands, actions, damages and expenses
(including reasonable attorneys' fees) arising from or out of any breach of the
agreements, covenants, representations or warranties of BII and Magellan
contained in this Agreement. This indemnity shall continue in full force and
effect subsequent to and notwithstanding the expiration or termination of this
Agreement.
10. Restrictive Covenants. Restrictive Covenants
[a] Propietary Information[a] Propietary Information. Digital acknowledges
---------------------- ----------------------
that information of a confidential or secret nature is utilized by Digital in
the Business and that Digital may possess confidential information relating to
the business of any affiliates, customers or suppliers of Digital ("Proprietary
Information").
Such Proprietary Information includes, but is not limited to, any
information regarding inventions, marketing plans, product plans, business
strategies, financial information, forecasts, personnel information, customer
lists, software, hardware, processes, formulas, development or experimental
work, work in process, business, trade secrets, or any other secret or
confidential matter relating to the products, projects, programs, sales,
customer lists, price lists, or data, or Business of Digital which is not
generally known to the public. At all times hereafter, Digital will keep all
such Proprietary Information in confidence and trust, and will not use or
disclose any of such Proprietary Information (except as may be required by law
or to legal counsel or accountants) without the prior written consent of BII.
Digital further agrees that at the Closing hereunder, Digital will deliver to
BII only, and shall not retain for its own or others' use, any and all documents
and any other material and all copies thereof relating to Digital's products,
projects, programs, or Business of which Digital has knowledge, or which contain
any Proprietary Information.
[b] Publicity[b] Publicity. Digital agrees not to disclose to any person or
---------- ---------
entity, (except as may be required by law or to legal counsel or accountants)
without the prior written consent of BII, any of the terms of this Agreement at
any time prior to the Closing or thereafter, except as may be necessary for the
performance of their obligations hereunder or the operation of Digital in the
ordinary course of Business. Magellan shall disclose and publicize this
transaction in a press release the content of which shall be reasonably
satisfactory to Digital or as required by law.
[c] Noncompetition[c] Noncompetition. Without the prior written consent of
-------------- --------------
BII, from and after the Closing, Digital agrees not to engage in any Competitive
Business in any geographic area anywhere in the world where BII then engages or
proposes to engage in the Business for a period of 36 months from the date of
the Closing. In addition, Digital shall cause Vaughn Cook to enter into a
noncompetition agreement on substantially the terms provided herein which shall
be delivered at the Closing. As used herein the term "Competitive Business"
means the Business or any other business activity which would compete with the
Business and shall include participation as an owner, shareholder, partner or in
any other capacity.
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11. Other Covenants of Digital. Other Covenants of Digital. Digital
warrants and agrees that all present members and officers of Digital will from
time to time hereafter execute whatever minutes of meetings or other instruments
and take whatever actions BII may reasonably deem necessary or desirable to
effect, or to carry out the intent and purposes of the transactions contemplated
hereby.
12. Termination and Amendment. Termination and Amendment
[a] Pre-Closing[a] Pre-Closing. This Agreement may be terminated by BII or
----------- ------------
Digital at any time prior to the time fixed for Closing in Section 6 hereof upon
written notice to the other party:
(i) If the representations, warranties and agreements or conditions of this
Agreement to be complied with or performed by Digital (in the case of BII) or
BII (in the case of Digital) on or before the Closing shall not have then been
complied with or performed in some material respect and such material
noncompliance or nonperformance shall not have been waived by the party giving
notice of termination or shall not have been cured by the defaulting party, or
cure thereof commenced and diligently prosecuted thereafter by such party within
ten (10) days after written notice of such material noncompliance or
nonperformance is given by the nondefaulting party;
(ii) If any governmental action is commenced to prevent the consummation of
the transactions contemplated hereby; or
(iii) By mutual consent of the parties.
[b] Waiver[b] Waiver. Any representations, warranties, agreements or
------ ------
conditions of this Agreement may be waived at any time by the party entitled to
the benefit thereof by action taken and evidenced by a written waiver executed
by any such party.
13. Resolution of Disputes. Resolution of Disputes. Any claim, dispute, or
controversy between the Parties arising in connection with or relating to this
Agreement or the making, performance or interpretation thereof shall, if not
settled by negotiation, be submitted to nonbinding mediation under the Procedure
for Mediation of Business Disputes of the Center for Public Resources, Inc. then
in effect. Any demand for mediation shall be made in writing and served upon the
other Party in the same manner as otherwise provided for notice in this
Agreement. The demand shall set forth with reasonable specificity the basis of
the dispute and the performance or relief sought. The Parties shall, within
thirty (30) days of receipt of a demand to mediate, confer and select a
mediator. The mediation shall take place at a time and location in Salt Lake
City, Utah mutually agreeable to the Parties and the mediator, but not later
than 60 days after a demand for mediation is received.
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14. Miscellaneous. Miscellaneous
(a) Survival of Representations and Warranties(a) Survival of
---------------------------------------------------- -----------
Representations and Warranties. All representations and warranties made by BII,
- ------------------------------
Magellan and Digital in this Agreement, or in any certificate, schedule,
exhibit, statement or document or instrument furnished hereunder or in
connection with the negotiation, execution and performance of this Agreement
shall survive the Closing for a period of 24 months, except that (i) tax
representations and warranties shall survive until the last to expire of the
applicable statute of limitations date, (ii) title and authorization
representations shall survive indefinitely and (iii) environmental warranties
shall survive until the last to expire of the applicable statute of limitations
date.
[b] Attorney's Fees[b] Attorney's Fees. In any action or proceeding arising
out of or related to this Agreement, the prevailing party shall be entitled to
its reasonable attorneys' fees and related costs, including fees and costs
incurred prior to formal initiation of an action or proceeding, and including
fees and costs incurred for collecting or attempting to collect any judgment or
award.
[c] Brokers and Finders[c] Brokers and Finders. Each of the parties hereto
------------------- --------------------
represents and warrants that it has dealt with no broker or finder in connection
with any of the transactions contemplated by this Agreement. In the event that
any additional finder's fee or broker's commission shall become payable by any
party hereto as a result of such party's misrepresentation or breach of
warranty, such fee and commission shall be the sole and exclusive responsibility
and liability of such party with no right of contribution by any other party. In
the event that any finder's fee or broker's commission shall become payable by
any party, other than as set forth herein, as a result of such party's
misrepresentation or breach of warranty, the breaching party shall indemnify,
defend and hold all other parties harmless in respect of all claims, losses,
expenses and obligations (including reasonable attorney's fees) to the extent
that the same arise or result from such finder's fee or broker's commission.
[d] Severability[d] Severability. If any term or provision of this
----------- ------------
Agreement, including the schedules and exhibits hereto, or the application
thereof to any person, property or circumstances, shall to any extent be invalid
or unenforceable, the remainder of this Agreement, including the schedules and
exhibits or the application of such term or provision to persons, property or
circumstances other than those as to which it is invalid and unenforceable,
shall not be affected thereby, and each term and provision of this Agreement and
the exhibits shall be valid and enforced to the fullest extent permitted by law.
[e] Notices[e] Notices. Any notices, requests or consents hereunder shall
------ --------
be deemed given, and any instrument delivered, two days after they have been
mailed by first class mail, postage prepaid, or 12 hours after such notice has
been sent by telecopier or telegram, telegraphic charges prepaid, or upon
receipt if delivered personally, as follows:
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To Digital:
Digital Health, L.L.C.
253 Ridge Road
Orem, Utah 84057
Attn: Vaughn Cook
Telecopier: (801) 224-2167
With simultaneous copy to:
Thor B. Roundy, Esq.
230 South 500 East, Suite 270
Salt Lake City, Utah 84102
Telecopier: (801) 364-8815
To BII:
BioMeridian International, Inc.
216 North Orem Boulevard
Orem, Utah 84057
Attn: Douglas M. Angus
Telecopier: (801) 226B1147
To Magellan:
Magellan Technology, Inc.
13526 South 110 West
Draper, Utah 84020
Attn: Douglas M. Angus
Telecopier: (801) 495B2266
With simultaneous copy to:
Parr Waddoups Brown Gee & Loveless
185 South State Street, Suite 1300
Salt Lake City, Utah 84111
Attn: Richard G. Brown, Esq.
Telecopier: (801) 532B7750
except that any of the foregoing may from time to time by written
notice to the others designate another address which shall thereupon
become its effective address for the purposes of this Section.
[f] Entire Agreement[f] Entire Agreement. This Agreement, including the
----------------- ----------------
exhibits, schedules and documents referred to herein which are a part hereof,
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein and may be amended only by a written instrument
executed by all parties who are affected by any proposed amendment, or their
respective successors or assigns. There are no restrictions, promises,
warranties, covenants, or undertakings other than those expressly set forth or
referred to herein. Any Section headings or table of contents contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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(g) Counterparts and Telecopier Signatures(g) Counterparts and Telecopier
--------------------------------------- ---------------------------
Signatures. This Agreement may be executed simultaneously in two or more
- ----------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. A signature sent via
telecopier shall be considered as an original.
[h] Binding Effect[h] Binding Effect. This Agreement shall inure to the
--------------- ----------------
benefit of and be binding upon the parties hereto and their respective
successors, but shall not inure to the benefit of anyone other than the parties
signing this Agreement and their respective successors.
[i] Governing Law[i] Governing Law. This Agreement shall be governed by the
------------- -------------
laws of the State of Utah.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first B above written.
"Magellan"
Magellan Technology, Inc.,
a Utah corporation
/s/ William A. Fresh
By ------------------------------
Its CEO and Chairman of the Board
-----------------------------
"BII"
BioMeridian International, Inc.,
a Utah corporation
By /s/ William A. Fresh
-------------------------------
Its CEO, Biomeridian
------------------------------
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"Digital"
Digital Health, L.L.C.,
a Utah limited liability company
By /s/ Vaughn Cook
------------------------------
Its President
------------------------------
/s/ Vaughn Cook
------------------------------
Vaughn Cook
/s/ Kathryn Cook
------------------------------
Kathryn Cook
DELTA FINANCIAL TRUST
/s/ Vaughn Cook
By ---------------------------
Vaughn Cook, Trustee
/s/ Kathryn Cook
By ---------------------------
Kathryn Cook, Trustee
