Document:

Exhibit 4.1

 

Execution Copy

 

 

SECURITIES PURCHASE AGREEMENT

 

 

Dated as of February 22, 2005

 

 

by and between

 

 

MITEK SYSTEMS, INC.,

 

as the Company,

 

 

and

 

 

JOHN H. HARLAND COMPANY,

 

as the Purchaser

	 
	 	 	 
	

	 

TABLE OF CONTENTS

 

Page

	
Article I. DEFINITIONS
	 	
1

	 	
1.1
	
Definitions
	 	
1

	 	
1.2
	
Other Definitions
	 	
4

	 	 	 
	
Article II. SALE AND PURCHASE
	 	
5

	 	
2.1
	
Purchase and Sale of Common Stock and Warrants
	 	
5

	 	
2.2
	
First Closing
	 	
5

	 	
2.3
	
Second Closing
	 	
5

	 	
2.4
	
Conditions to Second Closing
	 	
6

	 	
2.5
	
Use of Proceeds
	 	
7

	 	 	 
	
Article III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	
7

	 	
3.1
	
Corporate Existence and Power
	 	
7

	 	
3.2
	
Authorization; No Contravention
	 	
8

	 	
3.3
	
Governmental Authorization; Third Party Consents
	 	
8

	 	
3.4
	
Binding Effect
	 	
8

	 	
3.5
	
Capitalization
	 	
8

	 	
3.6
	
Reports; Financial Statements
	 	
10

	 	
3.7
	
Litigation
	 	
10

	 	
3.8
	
Liabilities
	 	
11

	 	
3.9
	
No Default or Breach; Contractual Obligations
	 	
11

	 	
3.10
	
Employee Benefit Plans
	 	
11

	 	
3.11
	
Title to Properties; Liens
	 	
12

	 	
3.12
	
Licenses, Permits, Etc.
	 	
12

	 	
3.13
	
Intellectual Property Rights
	 	
12

 

	 
	 	 	 
	

	 

	 	
3.14
	
Compliance with Applicable Law
	 	
14

	 	
3.15
	
Absence of Certain Changes
	 	
14

	 	
3.16
	
Broker’s, Finder’s or Similar Fees
	 	
14

	 	
3.17
	
Regulatory Compliance
	 	
14

	 	
3.18
	
Insurance
	 	
15

	 	
3.19
	
Trading
	 	
15

	 	
3.20
	
Full Disclosure
	 	
15

	 	 	 
	
Article IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
	 	
15

	 	
4.1
	
Organization and Qualification
	 	
15

	 	
4.2
	
Authority
	 	
15

	 	
4.3
	
Acquisition of Common Shares and Warrants for Investment
	 	
16

	 	
4.4
	
No Brokers
	 	
16

	 	 	 
	
Article V. COVENANTS
	 	
16

	 	
5.1
	
Notification of Certain Matters
	 	
16

	 	
5.2
	
Form D
	 	
17

	 	
5.3
	
Board of Directors
	 	
17

	 	 	 
	
Article VI. INDEMNIFICATION
	 	
17

	 	
6.1
	
Indemnification
	 	
17

	 	
6.2
	
Notification
	 	
17

	 	
6.3
	
Investigations
	 	
18

	 	 	 
	
Article VII. MISCELLANEOUS
	 	
18

	 	
7.1
	
Survival of Representations and Warranties
	 	
18

	 	
7.2
	
Amendments and Waivers
	 	
18

	 	
7.3
	
Notices
	 	
19

 

	 
	 	ii	 
	

	 

	 	
7.4
	
Successors and Assigns
	 	
19

	 	
7.5
	
No Third Party Beneficiaries
	 	
20

	 	
7.6
	
Counterparts
	 	
20

	 	
7.7
	
Descriptive Headings, Etc.
	 	
20

	 	
7.8
	
Severability
	 	
20

	 	
7.9
	
Governing Law
	 	
20

	 	
7.10
	
Remedies; Specific Performance
	 	
20

	 	
7.11
	
Entire Agreement
	 	
21

	 	
7.12
	
Consent to Jurisdiction; Waiver of Jury
	 	
21

	 	
7.13
	
Further Assurances
	 	
21

	 	
7.14
	
Construction
	 	
21

	 
	 	iii	 
	

	 

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT, dated February 22, 2005, by and between MITEK SYSTEMS, INC., a Delaware corporation (the “Company”), and JOHN H. HARLAND COMPANY, a Georgia corporation (the “Purchaser”).

 

BACKGROUND

 

A.  The Purchaser has formulated a process and method to facilitate the material reduction of counterfeit and identity/maker fraud as it relates to checks and financial institution documents (the “Process”). Signature verification is contemplated as a component of the Process. The Company has expertise in, among other things, signature verification.

 

B.  Pursuant to that certain Development Agreement, dated as of the date hereof, by and between Harland Financial Solutions, an Oregon corporation and a Subsidiary of the Purchaser, and the Company, and the ancillary documents contemplated thereby (collectively, the “Technology Agreements”), the Company will participate with the Purchaser in the development and reduction to practice of the Process and its commercialization.

 

C.  In connection with the transactions contemplated by the Technology Agreements, pursuant to the terms of this Agreement, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, (i) shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) and (ii) warrants (the “Warrants”) to purchase, subject to terms and conditions set forth in the form of Warrant attached hereto as Exhibit A, shares of Common Stock.

 

NOW, THEREFORE, in consideration of the agreements and obligations contained in this Agreement, the parties hereby agree as follows:

 

ARTICLE I.

 

DEFINITIONS

 

1.1  Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated:

 

“Affiliate” shall mean any Person who is an “affiliate” as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. 

 

“Agreement” means this Agreement as the same may be amended, supplemented or modified in accordance with the terms hereof. 

 

“Amended Certificate” means an amendment to the Certificate of Incorporation, reflecting that the authorized Common Stock of the Company consists of at least 30,000,000 shares. 

 

“Board of Directors” means the Board of Directors of the Company. 

	 
	 	1	 
	

	 

 

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in the State of California are authorized or required by law or executive order to close.

 

“Bylaws” means the bylaws of the Company in effect on the date hereof, as the same may be amended from time to time.

 

“Certificate of Incorporation” means the amended and restated certificate of incorporation of the Company in effect on the date hereof, as the same may be amended and/ or restated from time to time.

 

“Code” means the Internal Revenue Code of 1986, as amended, or any successor statute thereto.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Company Material Adverse Effect” means a material and adverse effect on the business, operations, assets, liabilities, financial condition, or the results of operations of the Company and its Subsidiaries, taken as a whole, or the legality or enforceability of the transactions contemplated by this Agreement, or the ability of the Company to timely perform its obligations under this Agreement. 

 

“Copyrights” has the meaning set forth in the definition of Intellectual Property.

 

“Disclosure Letter” means the disclosure letter delivered by the Company to the Purchaser on the date hereof. The Disclosure Letter will be arranged in sections and paragraphs corresponding to the numbered sections and lettered paragraphs contained in Article III (and elsewhere, as appropriate). The Disclosure Letter shall be considered a part of this Agreement.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder.

 

“GAAP” means United States generally accepted accounting principles in effect from time to time.

 

“Governmental Authority” means the government of any nation, state, city, locality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

 

“Governmental Order” means any order, writ, rule, judgment, injunction, decree, stipulation, determination, award, citation or notice of violation entered by or with any Governmental Authority.

	 
	 	2	 
	

	 

 

“Intellectual Property” means all intellectual property rights owned or used by the Company and its Subsidiaries arising from or in respect of the following, whether protected, created or arising under the laws of the United States or any other jurisdiction: (i) all patents and applications therefor, including continuations, divisionals, continuations-in-part, or reissues of patent applications and patents issuing thereon (collectively, “Patents”), (ii) all trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, Internet domain names and corporate names and general intangibles of a like nature, together with the goodwill associated with any of the foregoing, and all applications, registrations and renewals thereof (collectively, “Marks”), (iii) copyrights and registrations and applications therefor, works of authorship and mask work rights (collectively, “Copyrights”), (iv) discoveries, concepts, ideas, research and development, know-how, formulae, inventions,
compositions, manufacturing and production processes and techniques, technical data, procedures, designs, drawings, specifications, databases, and other proprietary and confidential information, including customer lists, supplier lists, pricing and cost information, and business and marketing plans and proposals of the Company and its Subsidiaries, in each case excluding any rights in respect of any of the foregoing that comprise or are protected by Copyrights or Patents (collectively, “Trade Secrets”), and (v) all Software of the Company and its Subsidiaries.

 

“Intellectual Property Licenses” means (i) any grant to a third Person of any right to use any of the Intellectual Property, and (ii) any grant to the Company or any Subsidiary of a right to use a third Person’s intellectual property rights.

 

“Knowledge,” with respect to the Company, means (i) all facts known by any officer or director of the Company or any Subsidiary, after due inquiry and reasonable diligence with respect to the matters at hand, and (ii) all facts that any of the foregoing Persons should have known with respect to the matters at hand if such Person had made due inquiry and exercised reasonable diligence.

 

“Lender” means Laurus Master Fund, Ltd., a Cayman Islands company.

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or other security interest or preferential arrangement of any kind or nature whatsoever (excluding preferred stock and equity related preferences).

 

“Marks” has the meaning set forth in the definition of Intellectual Property.

 

“Patents” has the meaning set forth in the definition of Intellectual Property.

 

“Person” means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.

 

“Software” means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, and (iv) all documentation including user manuals and other
training documentation related to any of the foregoing.

	 
	 	3	 
	

	 

 

“Subsidiaries” means, as of the relevant date of determination, with respect to any Person, a Person of which 50% or more of the voting power of the outstanding voting equity securities or 50% or more of the outstanding economic equity interest is held, directly or indirectly, by such Person. Unless otherwise qualified, or the context otherwise requires, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.

 

“Taxes” means any federal, state, provincial, county, local, foreign and other taxes (including income, profits, windfall profits, alternative, minimum, accumulated earnings, personal holding company, capital stock, premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, withholding, employment, unemployment compensation, payroll and property taxes, import duties and other governmental charges and assessments), whether or not measured in whole or in part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated with contesting any proposed adjustments related to any of the foregoing.

 

“Trade Secrets” has the meaning set forth in the definition of Intellectual Property.

 

1.2  Other Definitions. The meanings of the following terms can be found in the Sections of this Agreement indicated below:

 

	
Term
	
Section

	 	 
	
Claim
	
Section 3.7

	
Common Shares
	
Section 2.1

	
Common Stock
	
Background

	
Company
	
Preamble

	
Company SEC Reports
	
Section 3.6

	
Contracts
	
Section 3.9

	
Indemnified Party
	
Section 6.1

	
Indemnifying Party
	
Section 6.1

	
Intellectual Property Right
	
Section 3.14

	
Investment Company Act
	
Section 3.17

	
Liabilities
	
Section 3.8

	
Loss
	
Section 6.1

	
Orders
	
Section 3.2

	
OTCBB
	
Section 3.19

	
Plan
	
Section 3.10

	
Process
	
Background

	
Purchaser
	
Preamble

	
Sarbanes-Oxley Act
	
Section 3.6

 

	 
	 	4	 
	

	 

	
Technology Agreements
	
Background

	
Termination Date
	
Section 7.1

	
Warrants
	
Section 2.1

 

ARTICLE II.

 

SALE AND PURCHASE

 

2.1  Purchase and Sale of Common Stock and Warrants. Subject to the terms and conditions of this Agreement, the Company agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, on the date hereof and, subject to certain terms and conditions, at the Second Closing (as hereinafter defined) TWO MILLION ONE HUNDRED FORTY-TWO THOUSAND EIGHT HUNDRED FIFTY SEVEN (2,142,857) shares of Common Stock (the “Common Shares”) and THREE HUNDRED TWENTY ONE THOUSAND FOUR HUNDRED TWENTY EIGHT (321,428) Warrants to purchase shares of Common Stock (the “Warrant Shares”), for an aggregate price in immediately available United States funds of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000). The Purchaser agrees, so long as required by law, that the certificates representing the Common Shares and the Warrant Shares shall bear a legend in substantially the following form:

 

“The shares represented by this certificate are “restricted securities” as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered, sold or otherwise transferred, pledged or hypothecated except in a transaction registered under the Securities Act or in a transaction exempt from such registration.”

 

2.2  First Closing. On the date hereof, the Company shall deliver to the Purchaser a certificate representing ONE MILLION SEVENTY-ONE THOUSAND FOUR HUNDRED TWENTY-EIGHT (1,071,428) Common Shares, and Warrants, substantially in the form of Exhibit A, exercisable for ONE HUNDRED SIXTY THOUSAND SEVEN HUNDRED FOURTEEN (160,714) Warrant Shares against payment by Purchaser of the aggregate purchase price of SEVEN
HUNDRED FIFTY THOUSAND DOLLARS ($750,000.00) by wire transfer of immediately available funds to a bank account to be designated by the Company prior to the date hereof. 

 

2.3  Second Closing. 

 

(a)  If the Company shall adopt and file with the Secretary of State of the State of Delaware on or before August 31, 2005 the Amended Certificate, then the Company shall give written notice (the “Second Closing Notice”) of the Second Closing (as defined below) to the Purchaser not less than ten (10) days prior to the Second Closing, but in no event shall the Second Closing Notice be delivered later than August 31, 2005. At the Second Closing, subject to the terms and conditions of this
Agreement, the Company shall deliver to the Purchaser a certificate representing ONE MILLION SEVENTY-ONE THOUSAND FOUR HUNDRED TWENTY-EIGHT (1,071,428) Common Shares, and Warrants, substantially in the form of Exhibit A, exercisable for ONE HUNDRED SIXTY THOUSAND SEVEN HUNDRED FOURTEEN (160,714) Warrant Shares against payment by Purchaser of the aggregate purchase price of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000.00) by wire transfer of immediately available funds to a bank account to be designated by the Company prior to the Second Closing Date. The Common Shares and the Warrants referenced in this Section 2.3(a) are sometimes referred to herein as the “Second Closing Securities.” 

	 
	 	5	 
	

	 

 

(b)  The purchase and sale of the Second Closing Securities (the “Second Closing”) shall take place remotely via the exchange of documents and signatures at 10:00 a.m. pacific coast time on the date set forth by the Company in the Second Closing Notice, or at such other date and time as the Company and the Purchaser shall mutually agree, orally or in writing (such date, the “Second Closing
Date”). 

 

2.4  Conditions to Second Closing. The obligations of the Purchaser to purchase the Second Closing Securities at the Second Closing shall be subject to the satisfaction or waiver of each of the following conditions on or before the Second Closing Date: 

 

(a)    No Material Adverse Effect. Neither a Company Material Adverse Effect, nor a development reasonably likely to result in a Company Material Adverse Effect, shall have occurred from the date of this Agreement through the Second Closing Date. 

 

(b)    Representations Accurate. All representations and warranties made by the Company contained herein shall continue to be true and correct. The representations and warranties will continue to be qualified by disclosure in the Company’s SEC Reports (as defined below) made prior to the Second Closing and by the Company’s Disclosure Letter, which the Company may supplement or amend on or prior to the Second Closing with respect to any matter that if existing or occurring at or prior to
the date hereof, would have been required to be set forth or described in the Company’s Disclosure Letter. No supplement or amendment to any information set forth in the Disclosure Letter involving a matter or event that constitutes, or involves a development reasonably likely to constitute, a Material Adverse Effect shall have any effect for the purpose of determining satisfaction of the conditions set forth in this Section 2.4, unless and until such supplement or amendment has been accepted in writing by the Purchaser in its absolute and sole discretion, in which case such supplement or amendment shall only effect the satisfaction of the conditions set forth in this Section 2.4. With respect to any matter or event that does not constitute, or involvement a development reasonably likely to constitute, a Material Adverse Effect, then such supplement or amendment shall be effective for the purpose of determining satisfaction of the conditions set forth in this Section 2.4. For the avoidance of
doubt, if Purchaser elects not to consummate the Second Closing as a result of any supplement to, or amendment of, the Disclosure Letter, Purchaser shall remain entitled to claim indemnification pursuant to Article VI with respect to any representation or warranty that was not true and correct as of the date hereof or that becomes not true and correct after the date hereof attributable to the fault or breach of the Company. 

 

(c)    Performance. The Company shall have performed and complied with all agreements and conditions contained herein required to be performed or complied with by it on or before the Second Closing.    

	 
	 	6	 
	

	 

 

(d)    Amended Certificate. The Purchaser shall have received a copy of the Amended Certificate, as filed with the Secretary of State of the State of Delaware, which Amended Certificate shall be in full force and effect at the Second Closing. 

 

(e)    Compliance Certificate. The Purchaser shall have received, on the Second Closing Date, a certificate signed by a senior officer of the Company stating that the conditions specified in Sections 2.4(a), (b), (c), and (d) have been satisfied on or prior to the Second Closing Date.

 

(g)    Secretary’s Certificate. The Purchaser shall have received, on the Second Closing Date, a certificate signed by the Secretary of the Company certifying the resolutions of the Board of Directors, and the shareholders, of the Company approving the Amended Certificate. 

 

(h)    Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated hereby at the Second Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in form and substance to the Purchaser, and the Purchaser (or its counsel) shall have received all such counterpart original and certified or other copies of such documents as reasonably requested.

 

(i)    Purchase Permitted by Applicable Law. The purchase of and payment for the Second Closing Securities to be acquired by the Purchaser hereunder and the consummation of the transactions contemplated hereby (a) shall not be prohibited by any applicable law or governmental regulation and (b) shall not subject Purchaser to any penalty, or, in its reasonable judgment, other onerous condition under or pursuant to any applicable law or governmental regulation. 

 

2.5    Use of Proceeds. The Company shall use the proceeds from the sale of the Common Shares and the Warrants for working capital purposes.

 

ARTICLE III.

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as otherwise disclosed in the Company SEC Reports (as defined below) or the Disclosure Letter, the Company represents and warrants to the Purchaser as follows: 

 

3.1  Corporate Existence and Power. Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each of the Company and its Subsidiaries (a) has all requisite power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently, or is proposed to be, engaged, and (b) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction in which its ownership, lease or
operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified or in good standing would not reasonably be expected to have a Company Material Adverse Effect. The Company has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Warrant to be issued in connection with this Agreement.

	 
	 	7	 
	

	 

 

3.2  Authorization; No Contravention. The execution, and delivery by the Company of this Agreement and the Warrants, the performance by the Company of its obligations hereunder and thereunder and the consummation by the Company of the transactions contemplated hereby and thereby, including the issuance of the Common Shares and the Warrants on the date hereof and at the Second Closing, and, upon exercise of the Warrants, the issuance of the Warrant Shares, to the Purchaser, (a) have been, with respect to the issuance of the Common Shares and the Warrants on the date hereof, and will be prior to
the Second Closing, with respect to the Second Closing Securities, duly authorized by all necessary corporate action of the Company, (b) do not contravene the terms of the Certificate of Incorporation or the Bylaws, (c) do not violate, conflict with or result in any breach, default or contravention of (or with due notice or lapse of time or both would result in any breach, default or contravention of), or the creation of any Lien under, any material contractual obligation of the Company or its Subsidiaries or any requirements of law applicable to the Company or its Subsidiaries, and (d) do not violate any Governmental Order against, or binding upon, the Company. 

 

3.3  Governmental Authorization; Third Party Consents. No approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other Person, and no lapse of a waiting period under a requirement of law, is necessary or required to be obtained or made by the Company in connection with the execution, delivery or performance (including the sale, issuance and delivery of the Common Shares and Warrants) by, or enforceability against, the Company of this Agreement, the Warrants, or the transactions contemplated hereby or
thereby. 

 

3.4  Binding Effect. This Agreement has been duly executed and delivered by the Company, and the Common Shares and the Warrants will be duly executed or delivered, as applicable, by the Company. Assuming due authorization, execution and delivery by the Purchaser, this Agreement constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity). The Common Shares and the Warrants will constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

 

3.5   Capitalization.

 

(a)  The authorized capital stock of the Company consists of (i) 20,000,000 shares of Common Stock of which 11,389,481 shares are issued and outstanding; and (ii) 1,000,000 shares of preferred stock, par value $0.001 per share, of which no shares are issued and outstanding. 

 

(b)

	 
	 	8	 
	

	 

 

(i)    Assuming the accuracy of Purchaser’s representations under this Agreement, the Common Shares, when issued and sold to the Purchaser after payment therefor as provided for herein, will (A) be validly issued, fully paid and non-assessable, (B) be issued in compliance with an exemption from registration under all applicable federal and state securities laws, (C) not be subject to any preemptive rights or similar rights that have not been satisfied, and (D) be free and clear of all other
Liens. 

 

(ii)    The Warrant Shares issuable upon exercise of the Warrants to be purchased by the Purchaser on the date hereof have been duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Warrants, will (i) be validly issued, fully paid and non-assessable, (ii) be issued in compliance with an exemption from registration under all applicable federal and state securities laws, (iii) not be subject to any preemptive rights or similar rights that have not been satisfied,
and (iv) be free and clear of all other Liens.

 

(iii)    The Warrant Shares issuable upon exercise of the Warrants to be purchased by the Purchaser on the Second Closing Date will be, on or prior to such date, duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Warrants, will (i) be validly issued, fully paid and non-assessable, (ii) be issued in compliance with an exemption from registration under all applicable federal and state securities laws, (iii) not be subject to any preemptive rights or similar rights that have not been satisfied, and (iv) be
free and clear of all other Liens.

 

(c)  All outstanding shares of the Company’s capital stock have been duly authorized, validly issued, fully paid and non-assessable, were issued in compliance with the registration requirements of, or pursuant to valid exemptions from registration under, all applicable federal and state securities laws and none of the shares of capital stock of the Company have been issued in violation of any preemptive rights. 

 

(d)  

 

(i)  The Company has reserved 3,180,107 shares of Common Stock for issuance upon exercise of stock options granted to directors, officers and other employees of, and consultants to, the Company. Of such reserved shares of Common Stock, no shares have been issued pursuant to restricted stock purchase agreements, options to purchase 2,028,719 shares have been granted and are currently outstanding, and 1,151,588 shares remain available for issuance to directors, officers and other employees of, and consultants to, the Company.

 

(ii)  The Company has reserved 1,060,000 shares of Common Stock for issuance upon exercise of warrants, including warrants held by the Lender.

 

(iii)  The Company has reserved 3,896,104 shares of Common Stock for issuance upon conversion of the Secured Convertible Term Note held by the Lender.

 

(e)  Except as described in Section 3.5(c) above, there are no options, warrants, subscriptions, calls, convertible securities or other rights or arrangements obligating the Company to issue or sell any shares of capital stock of, or any other equity interest in, the Company. There are no outstanding contractual obligations to repurchase, redeem or otherwise acquire any shares of capital stock of the Company.

	 
	 	9	 
	

	 

 

3.6  Reports; Financial Statements.

 

(a)  As of the respective dates of their filing with the Commission, all reports, registration statements and other filings, together with any amendments thereto, filed by the Company with the Commission since December 26, 2002 (the “Company SEC Reports”), complied, in all material respects, with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations of the Commission promulgated thereunder. The Company SEC Reports did not at the time they were filed
with the Commission contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.

 

(b)  The consolidated financial statements (including, in each case, any related schedules or notes thereto) contained in or incorporated by reference in the Company SEC Reports (i) have been prepared in accordance with the published rules and regulations of the Commission and generally accepted accounting principles consistently applied during the periods involved (except as may be indicated in the notes thereto) and (ii) fairly present in all respects the consolidated financial position of the Company and its subsidiaries as of the respective dates thereof and the consolidated results of operations, statements of stockholders’ equity and cash flows for the periods indicated, except
that any unaudited interim financial statements were or will be subject to normal and recurring year-end adjustments and may omit footnote disclosure as permitted by regulations of the Commission.

 

(c)  The Company and its Subsidiaries employ disclosure controls and procedures that are designed with the objective of causing information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act to be recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to be accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, as appropriate to allow timely decisions regarding disclosure.

 

(d)  The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-15 and 15d-15 under the Exchange Act) as required by and in compliance with the Exchange Act; the principal executive officers (or their equivalents) and principal financial officers (or their equivalents) of the Company have made all certifications required by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and any related rules and regulations of the Commission, and
the statements contained in any such certification are complete and correct; and the Company is otherwise in compliance with all material applicable, effective provisions of the Sarbanes-Oxley Act.

 

3.7  Litigation. There are no actions, suits, proceedings, claims, arbitrations or investigations (collectively, “Claims”) pending or, to the Knowledge of the Company, threatened, at law, in equity, in arbitration or before any Governmental Authority against the Company or its Subsidiaries that would reasonably be expected to have a Company Material Adverse Effect. No Governmental Order has been
issued by any court or other Governmental Authority against the Company purporting to enjoin or restrain the execution, delivery or performance by it of this Agreement. 

	 
	 	10	 
	

	 

 

3.8  Liabilities. The Company and its Subsidiaries have no direct or indirect liabilities or obligations of any nature, including any liability for Taxes, whether absolute, accrued, contingent or otherwise (“Liabilities”), which are not fully reflected or reserved against in the consolidated balance sheet, dated December 31, 2004, contained in the most recent Company SEC Report, except for
Liabilities incurred in the ordinary course of business consistent with past practice since the date of such consolidated financial statements, or as set forth in the Disclosure Letter.

 

3.9  No Default or Breach; Contractual Obligations. All of the Company’s material contracts, agreements, understandings and arrangements, whether written or oral (collectively, the “Contracts”) are adequately described, to the extent required, in the Company SEC Reports. Except as described in the Company SEC Reports, all such Contracts are valid, subsisting, in full force and effect and binding
upon the Company and the other parties thereto. To the Knowledge of the Company, no other party to any such Contract is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default by such other party thereunder, except as would not be reasonably expected to have a Company Material Adverse Effect.

 

3.10  Employee Benefit Plans.

 

(a)  The Company SEC Reports describe all material employee benefit plans (including any “multiple employer plan” within the meaning of the Code or ERISA), arrangements, policies, programs, agreements or commitments maintained by the Company (collectively, the “Plans”). Except as would not reasonably be expected to have a Company Material Adverse Effect, each Plan (and related trust, insurance contract or fund) has been established and administered in accordance with its terms, and
complies in form and in operation with the applicable requirements of ERISA and the Code and other applicable law and regulation. 

 

(b)  Except as would not reasonably be expected to have a Company Material Adverse Effect, no claim with respect to the administration or the investment of the assets of any Plan (other than routine claims for benefits) is pending and all contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Plan.

 

(c)  Except as would not reasonably be expected to have a Company Material Adverse Effect, each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period since its adoption; each trust created under any such Plan is exempt from tax under Section 501(a) of the Code and has been so exempt since its creation.

	 
	 	11	 
	

	 

 

(d)  Except as would not reasonably be expected to have a Company Material Adverse Effect, there are no unfunded obligations under any Plan which are not fully reflected on the Financial Statements.

 

3.11  Title to Properties; Liens. The Company and its Subsidiaries have good and marketable title to all real properties (if any) and all other properties and assets owned by them, in each case free from Liens that would affect the value thereof or interfere with the use made or to be made thereof by them, and the Company and its Subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially and adversely interfere with the use made or to be made thereof by them.

 

3.12  Licenses, Permits, Etc. The Company and its Subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit.

 

3.13  Intellectual Property Rights.

 

(a)  The Company is the sole and exclusive owner of all right, title and interest in and to all of the Patents, Marks, Copyrights and Trade Secrets, and each of the other Copyrights in any works of authorship prepared by or for the Company or its Subsidiaries that have resulted from or arise out of any work performed by or on behalf of the Company or its Subsidiaries or by any employee, officer, consultant or contractor of any of them. The Company is the sole and exclusive owner of all right, title and interest in and to all formulations, know-how, trademarks and trade dress used and proposed to be used by the Company or its Subsidiaries in the manufacture, marketing, sale and distribution
of the products the Company and its Subsidiaries manufacture, market, sell and distribute. The Company or its Subsidiaries are the sole and exclusive owners of, or have valid and continuing rights to use, sell and license, as the case may be, all Intellectual Property used, sold or licensed by the Company or its Subsidiaries, free and clear of all Liens or obligations to others. To the Knowledge of the Company, all of the Company’s or its Subsidiaries’ rights in and to the Intellectual Property are valid and enforceable.

 

(b)  To the Company’s Knowledge, the Intellectual Property owned, used, practiced or otherwise commercially exploited by the Company or its Subsidiaries, and the Company’s or its Subsidiaries’ present and currently proposed business practices and methods do not constitute an unauthorized use or misappropriation of any patent, trademark, copyright, trade secret or other similar right, of any Person and do not infringe, constitute an unauthorized use of, or violate any other right of any Person including obligations under any non-disclosure agreements or other obligations to which the Company or its Subsidiaries or any of their present or former employees is a party.

 

(c)  Except with respect to licenses of commercial off-the-shelf Software, neither the Company nor any of its Subsidiaries is required, obligated, or under any liability whatsoever, to make any payments by way of royalties, fees or otherwise to any owner, licensor of, or other claimant to any Intellectual Property, or other third party, with respect to the use thereof, and neither the Company nor any of its Subsidiaries are party to any royalty-free or fully paid-up license for any Intellectual Property owned or licensed by a third party.

	 
	 	12	 
	

	 

 

(d)  Each of the Intellectual Property Licenses is in full force and effect and is the legal, valid and binding obligation of the Company and/or its Subsidiaries, enforceable against them in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally. Neither the Company nor any Subsidiary is in default under any Intellectual Property License, nor, to the Knowledge of the Company, is any other party to any Intellectual Property License in default thereunder, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder.
No party to any of the Intellectual Property Licenses has exercised any termination rights with respect thereto.

 

(e)  No Trade Secret or any other non-public, proprietary information of the Company has been authorized to be disclosed or, to the Knowledge of the Company, has been actually disclosed by the Company or its Subsidiaries to any third party other than pursuant to a non-disclosure agreement restricting the disclosure and use of the Intellectual Property. The Company or its Subsidiaries have taken adequate security measures to protect the secrecy, confidentiality and value of all the Trade Secrets of the Company and its Subsidiaries and any other confidential information, including, but not limited to invention disclosures, not covered by any patents owned or patent applications filed by the
Company or its Subsidiaries.

 

(f)  As of the date hereof:

 

(i)  neither the Company nor its Subsidiaries are the subject of any pending or threatened legal proceedings which involve a claim of infringement, unauthorized use, or violation by any Person against the Company or its Subsidiaries or challenging the ownership, use, validity or enforceability of, any Intellectual Property, and neither the Company nor its Subsidiaries have received notice of any such threatened claim; 

 

(ii)  to the Knowledge of the Company, there are no facts or circumstances that would form the basis for any claim of infringement, unauthorized use, or violation by any Person against the Company or its Subsidiaries, or challenging the ownership, use, validity or enforceability of any material Intellectual Property used or required by the Company or its Subsidiaries; and

 

(iii)  to the Knowledge of the Company, no Person is infringing, violating, misusing or misappropriating any Intellectual Property used or required by the Company or its Subsidiaries, and no such claims have been made against any Person by the Company or its Subsidiaries. 

 

(g)  The consummation of the transactions contemplated hereby will not result in the loss or impairment of the Company’s or its Subsidiaries’ right to own or use any of the Intellectual Property.

 

(h)  No present or former employee, consultant or independent contractor has any right, title or interest, directly or indirectly, in whole or in part, in any Intellectual Property owned or used by the Company or its Subsidiaries. No employee, consultant or independent contractor of the Company or its Subsidiaries is, as a result of or in the course of such employee’s, consultant’s or independent contractor’s engagement by the Company or its Subsidiaries, in default or breach of any material term of any employment agreement, non-disclosure agreement, assignment of invention agreement or similar agreement.

	 
	 	13	 
	

	 

 

3.14  Compliance with Applicable Law. The business of the Company and its Subsidiaries are in compliance in all material respects with all applicable federal, state, local and foreign governments’ laws and regulations (including all applicable environmental laws and regulations), except where any failures to be so in compliance would not reasonably be expected to result in a Company Material Adverse Effect. 

 

3.15  Absence of Certain Changes. Since September 30, 2003, the Company and its Subsidiaries have conducted their respective businesses in the ordinary and usual course and, since such date, there has not been any condition, event or occurrence which had or would reasonably be expected to have a Company Material Adverse Effect.

 

3.16  Broker’s, Finder’s or Similar Fees. There are no brokerage commissions, finder’s fees or similar fees or commissions payable by the Company in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Company or any action taken by any such Person.

 

3.17  Regulatory Compliance.

 

(a)  Neither the Company nor any Subsidiary is or, after giving effect to the issuance of the Common Shares and the Warrants and the application of the net proceeds therefrom, will be an “investment company” as defined, and subject to regulation, under the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “Investment Company Act”). 

 

(b)  Assuming the representations and warranties of the Purchaser set forth in Article IV hereof are true and correct in all respects, the subscription and sale of the Common Shares and Warrants pursuant to this Agreement is exempt from the registration requirements of the Securities Act. 

 

(c)  None of the Company or any of its Affiliates has, directly or indirectly engaged in any form of general solicitation or general advertising in connection with the offering of the Common Shares and Warrants (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(2); and the Company has not entered into any arrangement with respect to the distribution of the Common Shares and Warrants, except for this Agreement, and the Company hereby agrees not to enter into any such arrangement.

 

(d)  None of the Company or any of its Affiliates has, directly or indirectly, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any “security” (as defined in the Securities Act) which is or will be integrated with the sale of any of the Common Shares and Warrants in a manner that would require the registration under the Securities Act of the Common Shares or Warrants.

	 
	 	14	 
	

	 

 

3.18  Insurance. The Company has general commercial, product liability, fire and casualty insurance policies with coverage which the Company believes are customary for companies similarly situated to the Company in the same or similar business.

 

3.19  Trading. The Company’s Common Stock is traded on the OTC Bulletin Board (“OTCBB”) and satisfies all requirements for the continuation of such trading. The Company has not received any notice that its Common Stock will be ineligible to be traded on the OTCBB or that its Common Stock does not meet all requirements for such continued trading 

 

3.20  Full Disclosure. The Company has provided the Purchaser with all information requested by the Purchaser in connection with its decision to purchase the Common Shares and Warrants, including all information the Company believes is reasonably necessary to make such investment decision. Neither this Agreement, nor any exhibits or schedules hereto, nor any other document delivered by the Company to the Purchaser or its attorneys or agents in connection herewith or with the transactions contemplated hereby, contain any untrue statement of a material fact nor omit to state a material fact
necessary in order to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. Any financial projections and other estimates provided to the Purchaser by the Company were based on the Company’s experience in the industry and on assumptions of fact and opinion as to future events which the Company, at the date of the issuance of such projections or estimates, believed to be reasonable. 

 

ARTICLE IV.

 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The Purchaser hereby represents and warrants to the Company that: 

 

4.1  Organization and Qualification. The Purchaser is a corporation, duly organized, validly existing and in good standing under the laws of the State of Georgia and has all the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted.

 

4.2  Authority. The Purchaser has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby to be consummated by the Purchaser. The execution, delivery and performance of this Agreement by the Purchaser and the consummation by the Purchaser of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no other corporate proceedings on the part of the Purchaser are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the Purchaser and (assuming the due authorization, execution and delivery hereof by the Company), constitute the legal, valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether considered in a proceeding at law or in equity).

	 
	 	15	 
	

	 

 

4.3  Acquisition of Common Shares and Warrants for Investment.

 

(a)  The Purchaser represents and warrants to the Company that: (i) the Purchaser is acquiring the Common Shares and Warrants in the ordinary course of its business and for its own account for investment only and with no present intention of distributing any of such Common Shares or Warrants or any arrangement or understanding with any other persons regarding the distribution of such Common Shares or Warrants; (ii) the Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Common Shares or Warrants except in compliance with the Securities Act and any
applicable state securities laws; (iii) the Purchaser, or its representatives, if any, have been furnished with, or have had access to, all materials relating to the business, finances and operations of the Company (including all reports filed with the Commission) and materials relating to the offer and sale of the Common Shares and Warrants which have been requested by the Purchaser; and the Purchaser or its representatives, if any, have been afforded the opportunity to ask questions of the Company; and neither such inquiries nor any other due diligence investigations conducted by the Purchaser, or its representatives, if any, shall modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained herein; and (iv) the Purchaser understands that its investment in the Common Shares and Warrants involves a significant degree of risk including a risk of total loss of Purchaser’s investment.

 

(b)  The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Common Shares or Warrants or the fairness or suitability of the investment in the Common Shares and Warrants nor have such authorities passed upon or endorsed the merits of the offering of the Common Shares and Warrants. 

 

(c)  The Purchaser is an “accredited investor” (as defined in Rule 501(a) of Regulation D promulgated under the Securities Act). The Purchaser is not an affiliate of the Company.

 

4.4  No Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission from the Company in connection with the purchase of Common Shares and Warrants by the Purchaser provided for in this Agreement based upon arrangements made by or on behalf of the Purchaser. 

 

ARTICLE V.

 

COVENANTS

 

The Company hereby, covenants and agrees with the Purchaser as follows: 

 

5.1  Notification of Certain Matters. The Company shall promptly provide the Purchaser with copies of all filings made by the Company with the Commission, any other governmental authority or stock exchange in connection with this Agreement and the transactions contemplated hereby. 

	 
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5.2  Form D. The Company agrees to file a Form D with respect to the Common Shares and Warrants as required under Regulation D and to provide a copy thereof to the Purchaser promptly after such filing.

 

5.3  Board of Directors. So long as Purchaser owns at least twenty percent (20%) of the shares of Common Stock it purchases hereunder together with the shares of Common Stock issuable upon exercise of the Warrants, Purchaser may designate an observer, without voting rights, who will be entitled to attend all meetings of the Board of Directors, all committees thereof, and stockholders. Any observer designated by Purchaser shall be entitled to notice of all meetings of the Board of Directors and committees thereof and to information provided to any directors and stockholders. Any such observer
shall execute and deliver to the Company a mutually-agreeable non-disclosure agreement and shall agree to be bound by any insider trading policy applicable to members of the Board of Directors. Prior to the date hereof, the Company has provided to Purchaser a copy of any such insider trading policy and, after the date hereof, the Company shall provide to Purchaser any changes to, or revisions of, such policy. 

 

ARTICLE VI.

 

INDEMNIFICATION

 

6.1  Indemnification. Except as otherwise provided in this Article VI, each party hereto (the “Indemnifying Party”) agrees to indemnify, defend and hold harmless the other party hereto and its affiliates and their respective officers, directors, agents, employees, subsidiaries, partners, members and controlling persons (each, an “Indemnified Party”) to the fullest extent permitted by law from and against any and all losses, damages, expenses (including reasonable fees, disbursements and other charges of counsel incurred by the Indemnified Party in any action between the Indemnifying Party and the Indemnified Party or between the Indemnified Party and any third party or otherwise) or other liabilities (collectively, “Losses”) resulting from or arising out of any breach of any representation or warranty, covenant or agreement by the Company in this Agreement, including as a result of any Claim by the Indemnified Party or a third party with respect to any such breach. 

 

6.2  Notification. Each Indemnified Party under this Article VI shall, promptly after the receipt of notice of the commencement of any Claim by a third party against such Indemnified Party in respect of which indemnity may be sought from the Indemnifying Party under this Article VI, notify the Indemnifying Party in writing of the commencement thereof. The omission of any Indemnified Party to so notify the Indemnifying Party of any such action shall not relieve the Indemnifying Party from any liability which it may have to such Indemnified Party (a) other than pursuant to this Article VI or (b)
under this Article VI unless, and only to the extent that, such omission results in the Indemnifying Party’s forfeiture of substantive rights or defenses. In case any such Claim shall be brought against any Indemnified Party, and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to assume the defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its reasonable judgment (King & Spalding LLP or Duane Morris LLP being deemed satisfactory to the parties hereto); provided, however, that any Indemnified Party may, at its own expense,
retain separate counsel to participate in such defense at its own expense. Notwithstanding the foregoing, in any Claim in which both the Indemnifying Party, on the one hand, and an Indemnified Party, on the other hand, are, or are reasonably likely to become, a party, such Indemnified Party shall have the right to employ separate counsel and to control its own defense of such Claim if, in the reasonable opinion of counsel to such Indemnified Party, either (x) one or more defenses are available to the Indemnified Party that are not available to the Indemnifying Party or (y) a conflict or potential conflict exists between the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, that would make such separate representation advisable; provided, however, that the Indemnifying Party shall not be liable for the fees and expenses of more than one counsel to all Indemnified Parties. The Indemnifying Party agrees that it will not, without the prior written consent of the Indemnified Party, settle, compromise or consent to the entry of any judgment in any pending or threatened Claim relating to the matters contemplated hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Party from all liability arising or that may arise out of such Claim. The Indemnifying Party shall not be liable for any settlement of any Claim effected against an Indemnified Party without its written consent. The rights accorded to an Indemnified Party hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by separate agreement or otherwise; provided, however, that notwithstanding the foregoing or anything to the contrary contained in this Agreement, nothing in this Article VI shall restrict or limit any rights that any Indemnified Party may have to seek equitable relief.

	 
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6.3    Investigations. The respective representations and warranties of the parties contained herein or in the Warrant and the rights to indemnification set forth herein shall not be deemed waived or otherwise affected by any investigation made, or any knowledge acquired, by a party hereto. 

 

ARTICLE VII.

 

MISCELLANEOUS

 

7.1  Survival of Representations and Warranties. All of the representations, warranties and indemnities made herein shall survive the execution and delivery of this Agreement. No Claim may be made following the date that is ninety (90) days after the receipt by Purchaser of audited financial statements of the Company for the fiscal year ending September 30, 2006 (or, if such fiscal year changes and no such audited consolidated financial statements are available, then the successor fiscal year) (such ninetieth day, the “Termination Date”). If the Company is required to file such financial statements with the Commission, the Purchaser shall be deemed to receive such financial statements on the date such financial statements are filed with the Commission. Neither party shall have any liability under Article VI to the other party hereto with respect to any representation, warranty or indemnity, unless such party provides notice of the Claim to the other party on or before the Termination Date, specifying the factual basis of the Claim in reasonable detail, to the extent known. 

 

7.2  Amendments and Waivers. The provisions of this Agreement may not be amended, modified, supplemented or terminated, and waivers or consents to departures from the provisions hereof may not be given, without the written consent of the Company and the Purchaser.

	 
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7.3  Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, telecopier, any courier guaranteeing overnight delivery or first class registered or certified mail, return receipt requested, postage prepaid, addressed to the applicable party at the address set forth below or such other address as may hereafter be designated in writing by such party to the other parties in accordance with the provisions of this Section:

 

If to the Company, to:

Mitek Systems, Inc.

14145 Danielson Street, Suite B

Poway, California 92064

Telecopy: 858-513-4622

Attention: James B. DeBello

 

With a copy to:

Duane Morris LLP

101 West Broadway, Suite 900

San Diego, California 92101

Telecopy: 619-744-2201

Attention: James A. Mercer III, Esq.

 

If to the Purchaser, to:

John H. Harland Company

2939 Miller Road 

Decatur, Georgia 30035

Telecopy: 770-593-5619

Attention: John C. Walters

 

With a copy to:

King & Spalding LLP

191 Peachtree Street

Atlanta, Georgia 30303

Telecopy: 404-572-5100 

Attention: Alan J. Prince, Esq. 

    William G. Roche, Esq.

 

All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; on the next business day, if timely delivered to a courier guaranteeing overnight delivery; and five days after being deposited in the mail, if sent first class or certified mail, return receipt requested, postage prepaid.

 

7.4  Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns of each party; provided, however, that neither the Company, on the
one hand, nor the Purchaser, on the other hand, shall assign or delegate any of the rights or obligations created under this Agreement without the prior written consent of the other party.

	 
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7.5  No Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns, and, except for the provisions of Article VI relating to Indemnified Parties, nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever or by reason of this Agreement.

 

7.6  Counterparts. This Agreement may be executed in two or more counterparts, each of which, when so executed and delivered, shall be deemed to be an original, but all of which counterparts, taken together, shall constitute one and the same instrument.

 

7.7  Descriptive Headings, Etc. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. Unless the context of this Agreement otherwise requires: (a) words of any gender shall be deemed to include each other gender; (b) words using the singular or plural number shall also include the plural or singular number, respectively; (c) 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, and Section and paragraph references are to the Sections and paragraphs of this Agreement unless otherwise specified; (d) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (e) “or” is not exclusive; and (f) provisions apply to successive events and transactions. 

 

7.8  Severability. If any one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the other remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law. 

 

7.9  Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Georgia (without giving effect to conflict of law principles).

 

7.10  Remedies; Specific Performance. The parties hereto acknowledge that money damages would not be an adequate remedy at law if any party fails to perform in any material respect any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to seek to compel specific performance of the obligations of any other party under this Agreement, without the posting of any bond, in accordance with the terms and conditions of this Agreement in any court of the United States or any State thereof
having jurisdiction, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. Except as otherwise provided by law, a delay or omission by a party hereto in exercising any right or remedy accruing upon any such breach shall not impair the right or remedy or constitute a waiver of or acquiescence in any such breach. No remedy shall be exclusive of any other remedy. All available remedies shall be cumulative.

	 
	 	20	 
	

	 

 

7.11  Entire Agreement. This Agreement together with the Technology Agreements and any exhibits and schedules attached hereto and thereto, constitute the entire understanding of the parties with respect to the subject matter hereof and thereof, and any other prior or contemporaneous agreements, whether written or oral, with respect hereto or thereto are expressly superseded hereby. 

 

7.12  Consent to Jurisdiction; Waiver of Jury. Each party to this Agreement hereby irrevocably and unconditionally agrees that any legal action, suit or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby may be brought in the United States District Court for the Northern District of Georgia or any Georgia state court located in DeKalb County, Georgia, and hereby irrevocably and unconditionally expressly submits to the personal jurisdiction and venue of such courts for the purposes thereof and hereby irrevocably and unconditionally waives
any claim (by way of motion, as a defense or otherwise) of improper venue, that it is not subject personally to the jurisdiction of such court, that such courts are an inconvenient forum or that this Agreement or the subject matter may not be enforced in or by such court. Each of the parties hereby irrevocably waives trial by jury in any action, suit or proceeding, whether at law or equity, brought by any of them in connection with this Agreement or the transactions contemplated hereby.

 

7.13  Further Assurances. Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

7.14  Construction. The parties acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its, his or her legal counsel and that this Agreement shall be construed as if jointly drafted by the Company and the Purchaser.

 

 

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IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the date first above written.

 

	 	 	 
	 	MITEK SYSTEMS, INC.
	 
 	 
 	 
 
		By:  	/s/ JAMES B. DEBELLO
	 	

James B. DeBello
	 	CEO & President

	 	 	 
	 	JOHN H. HARLAND COMPANY
	 
 	 
 	 
 
	 	By:  	/s/ JOHN C. WALTERS
	 	

 John C. Walters
	 	S.V.P. & General Counsel

 

	
	 	 	 
	

	 

EXHIBIT A

 

FORM OF WARRANT

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MITEK SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Right to Purchase up to __________ Shares of Common Stock of

Mitek Systems, Inc.

(subject to adjustment as provided herein)

 

COMMON STOCK PURCHASE WARRANT

 

	
No. _________________
	
Issue Date: _________, 2005

MITEK SYSTEMS, INC., a corporation organized under the laws of the State of Delaware, hereby certifies that, for value received, JOHN H. HARLAND COMPANY, a corporation organized under the laws of the State of Georgia, or assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., San Diego time, through the close of business _____________, 2012 (the "Expiration Date"), up to _________ fully paid and nonassessable shares of Common Stock (as hereinafter defined), at the price per share of $0.70 (the “Exercise Price”). The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to
adjustment as provided herein.

 

As used herein the following terms, unless the context otherwise requires, have the following respective meanings: 

 

(a)  The term "Company" shall include Mitek Systems, Inc. and any corporation which shall succeed, or assume the obligations of, Mitek Systems, Inc. hereunder.

 

(b)  The term "Common Stock" includes (i) the Company's common stock, par value $0.001 per share; and (ii) any other securities into which or for which any of the securities described in (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.

 

(c)  The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 

	 
	 		 
	

	 

 

1.   Exercise of Warrant. 

 

1.1  Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the Company, subject to adjustment pursuant to Section 3 and 4.

 

1.2  Fair Market Value. For purposes hereof, the "Fair Market Value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: 

 

(a)  If the Company's Common Stock is traded on the American Stock Exchange or another national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock Market, Inc.("Nasdaq"), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date.

 

(b)  If the Company's Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date.

 

(c)  Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided.

 

(d)  If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date.

 

1.3  Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 

	 
	 	 	 
	

	 

 

2.   Procedure for Exercise.

 

2.1  Delivery of Stock Certificates, Etc., on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will
cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.

 

2.2  Exercise. Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with Section (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per
the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

 

	 	
X=Y
	
(A-B)

	 	 	
   A

 

	 	
Where X =

 
	
the number of shares of Common Stock to be issued to the Holder

 

	 	
Y =

 
	
the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

 

	 	
A =

 
	
the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation)

 

	 	
B =

 
	
Exercise Price (as adjusted to the date of such calculation)

 

	 
	 	 	 
	

	 

 

3.   Effect of Reorganization, Etc.; Adjustment of Exercise Price.

 

3.1  Reorganization, Consolidation, Merger, Etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after
the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4.

 

3.2  Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant pursuant to Section 3.1.

 

3.3  Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including,
in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company's securities and property (including cash, where applicable) receivable by the Holders of the Warrant will be delivered to the Holder as contemplated by Section 3.2.

 

4.   Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date
of such exercise.

	 
	 	 	 
	

	 

 

5.   Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company
for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof).

 

6.   Reservation of Stock, Etc., Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant.

 

7.   Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") in whole or in part. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, the provision of a legal opinion from the Transferor's
counsel (at the Company’s expense) that such transfer is exempt from the registration requirements of applicable securities laws, and with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor.

	 
	 	 	 
	

	 

 

8.   Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

 

9.   Intentionally Omitted.

 

10.  Warrant Agent. The Company may, by written notice to each Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

 

11.  Transfer on the Company's Books. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

 

12.  Notices, Etc. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company.

 

13.  Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

 

14.  Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of State of Georgia without regard to principles of conflicts of laws. Any action brought concerning the transactions contemplated by this Warrant shall be brought only in the Georgia state courts located in DeKalb County, Georgia or in the United States District Court for the
Northern District of Georgia. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision hereof. The
Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party.

 

	
	 	 	 
	

	 

IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. 

 

	 	 	
Mitek Systems, Inc. 

	 	 	 
	
WITNESS:
	 	 
	 	 	
By:
	 
	 	 	
Name:
	 
	 	 	
Title:
	 

	 
	 	 	 
	

	 

EXHIBIT A

 

FORM OF SUBSCRIPTION

 

(To Be Signed Only On Exercise Of Warrant)

 

	
TO:
	
Mitek Systems, Inc. 
	 
	 	 	 
	 	 	 
	 	 	 
	 	
Attention:    Chief Financial Officer

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

 

	 	 	
________ shares of the Common Stock covered by such Warrant; or

	 	 	 
	 	 	
the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2.

	 

The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes):

 

	 	 	
$__________ in lawful money of the United States; and/or

	 	 	 
	 	 	
the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or

	 
	 	 	 
	 	 	
the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2.

	 
	 

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _________________________________________ whose address is ____________________________________________.

 

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act.

 

	
Dated:
	 	 	 
	 	 	
(Signature must conform to name of holder as specified on the face of the Warrant)

	 	 	 
	 	 	
Address:
	 
	 	 	 	 

	
 

	 	A-1 	 
	

	 

EXHIBIT B

 

FORM OF TRANSFEROR ENDORSEMENT

 

(To Be Signed Only On Transfer Of Warrant)

 

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Mitek Systems, Inc. into which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of Mitek Systems, Inc. with full power of substitution in the premises.

 

	
 

Transferees
	 	
 

Address
	 	
Percentage
Transferred
	 	
Number
Transferred

	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

	
Dated:
	 	 	 
	 	 	
(Signature must conform to name of holder as specified on the face of the Warrant)

	 	 	 
	 	 	
Address:
	 
	 	 	 	 

	
 
	
SIGNED IN THE PRESENCE OF:

	 	 
	 	 
	 	
(Name)

	
ACCEPTED AND AGREED:
	 
	
[TRANSFEREE]
	 
	 	 
	 	 
	 	 
	
(Name)
	 

	 
	 	 B-1Exhibit 10.1

                            STOCK PURCHASE AGREEMENT

      This Stock Purchase Agreement (this "Agreement") is made and entered into
as of February 17, 2005 by and among Monterey Bay Tech, Inc., a Nevada
corporation ("MBYI" or the "Purchaser"), SpaceLogic, Ltd., an Israeli
corporation ("SpaceLogic"), the stockholders of SpaceLogic set forth on Schedule
"A" hereto (the "Stockholders") and Shalom Dolev, a shareholder of SecureLogic,
Ltd., an Israeli corporation (solely for the purposes of the representations and
warranties set forth in Article II hereof),

                                    RECITALS

      A. WHEREAS, the Stockholders hold 10,000 Ordinary Shares, New Israeli
Shekels ("NIS").01 per share, which represent all of the issued and outstanding
capital stock of SpaceLogic (the "SpaceLogic Stock").

      B. WHEREAS, subject to the terms and conditions set forth herein, the
Stockholders wish to sell to MBYI and MBYI desires to purchase from the
Stockholders all of the SpaceLogic Stock for the purchase price set forth below.

      C. WHEREAS, SpaceLogic owns 85% of SecureLogic, Ltd., an Israeli
corporation ("SecureLogic (Israel)").

      D. WHERAS, MBYI desires to purchase, pursuant to a separate agreement, the
remaining 15% of SecureLogic (Israel) from the Shalom Dolev, the SecureLogic
(Israel) stockholder, other than SpaceLogic, (the "Remaining SecureLogic
(Israel) Stockholder").

                                    AGREEMENT

      In consideration of the terms hereof, the parties hereto agree as follows:

                     ARTICLE I - PURCHASE AND SALE OF STOCK

      1.1 PURCHASE AND SALE OF STOCK

      Subject to the terms and conditions hereof, on the Closing Date (as
defined below), the Stockholders shall sell, convey, transfer, assign and
deliver to MBYI, and MBYI shall purchase from the Stockholders (the
"Transaction"), all of the issued and outstanding common shares of SpaceLogic.

<PAGE>

      1.2 THE CLOSING

      The closing of this Agreement (the "Closing") shall occur on March 31,
2005 (the "Closing Date") at 10:00 a.m. local time at the offices of Cyruli
Shanks & Zizmor, LLP, or such other time or location as the parties hereto shall
agree. At the Closing, each of the parties hereto shall deliver all such
documents, instruments, certificates and other items as may be required under
this Agreement or the Operative Documents (as defined in Section 2.3 hereof) or
otherwise.

      1.3 PURCHASE PRICE

      Subject to the terms and conditions of this Agreement, the total purchase
price for the SpaceLogic Stock and the Remaining SecureLogic (Israel) Stock
together (the "Purchase Price") shall be 36,863,578 newly issued shares (the
"Consideration Shares") of common stock of MBYI, par value $.001 per share (the
"MBYI Common Stock") to be paid to the Stockholders, on a pro rata basis, in
accordance with the Stockholders respective ownership of SpaceLogic; provided
that, the Remaining SecureLogic (Israel) Stockholder shall receive 3,520,472 of
the Consideration Shares, pursuant to a separate agreement, as set forth on
Exhibit "A".

            1.3.1 NO FRACTIONAL SECURITIES

      No certificates or scrip representing fractional MBYI Common Stock shall
be issued pursuant to this Article I and no MBYI dividend, stock split or
interest shall relate to any fractional security, and such fractional interests
shall not entitle the owner thereof to vote or to any rights of a security
holder. In lieu of any such fractional securities, each Stockholder who would
otherwise have been entitled to a fraction of a share of Consideration Shares
will be paid cash for an amount equal to such fraction.

      1.4 ASSISTANCE IN CONSUMMATION OF THE PURCHASE AND SALE OF STOCK

      The Stockholders, MBYI and SpaceLogic shall provide all reasonable
assistance to, and shall cooperate with, each other to bring about the
consummation of the purchase and sale of the SpaceLogic Stock and the other
transactions contemplated herein as soon as possible in accordance with the
terms and conditions of this Agreement.

      1.5 TAX AND ACCOUNTING CONSEQUENCES

      It is intended by the parties hereto that the Transaction shall constitute
a reorganization within the meaning of Section 368 of the Code. The parties
hereto adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.

<PAGE>

                   ARTICLE II - REPRESENTATIONS AND WARRANTIES
                       OF SPACELOGIC AND THE STOCKHOLDERS

      As of the date of this Agreement and as of the Closing, (a) SpaceLogic
represents and warrants to MBYI, (b) the Stockholders, to the best of each such
Stockholders' knowledge, represent and warrant to MBYI, jointly and severally
with each other Stockholder (but not with SpaceLogic) and (c) the Remaining
Securelogic (Israel) Stockholder represents and warrants to MBYI, solely with
respect to the representations and warranties made herein pertaining to
SecureLogic, all as follows in this Article II, such representations and
warranties intended to apply to both SpaceLogic and its Subsidiaries, as and
when applicable (which representations and warranties shall survive the Closing
to the extent provided in Section 10.3 hereof):

      2.1 GOOD TITLE

      The Stockholders represent that they own all of the issued and outstanding
shares of SpaceLogic Stock free and clear of any lien, encumbrance, adverse
claim, restriction on sale or transfer (other than restrictions imposed by
applicable securities laws), preemptive right or option.

      2.2 ORGANIZATION, GOOD STANDING

      SpaceLogic is a corporation duly organized and validly existing under the
laws of the State of Israel. SpaceLogic has all requisite power and authority to
own its assets, those properties and conduct those businesses presently owned or
conducted by it, and is duly qualified to do business as it is now being
conducted and is in good standing in the jurisdiction where the property owned,
leased or used by it or the conduct of its business makes such qualification
necessary, except where the lack of such qualification does not have a material
adverse effect on upon the business, business prospects, assets, operations or
financial condition SpaceLogic (a "Material Adverse Effect").

      2.3 AUTHORIZATION

      SpaceLogic has full corporate power and authority and the Stockholders
have the full power, right and authority to enter into this Agreement and each
of the documents to which it or he is a party (collectively, the "Operative
Documents"), and to carry out the transactions contemplated hereby and thereby.
This Agreement has been, and each Operative Document to which SpaceLogic or the
Stockholders are a party will be, on the Closing Date, duly executed and
delivered by each of SpaceLogic and the Stockholders, as applicable, and this
Agreement is, and each Operative Document to which SpaceLogic or the
Stockholders are a party will be, on the Closing Date, a legal, valid and
binding obligation of each of SpaceLogic and the Stockholders, as applicable,
enforceable against each of them in accordance with their respective terms of
this Agreement and each such Operative Document, subject, as to enforceability,
to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other laws of general applicability affecting the rights of creditors and to
general principles of equity.

<PAGE>

      2.4 AUTHORIZED CAPITALIZATION

      SpaceLogic's authorized capital stock consists solely of 3,000,000shares
of SpaceLogic Ordinary Shares, NIS 0.01 per share ("SpaceLogic Common Stock") of
which 10,000 shares are issued and outstanding on the date of this Agreement and
entirely held by the Stockholders. All issued and outstanding shares of
SpaceLogic Common Stock are validly issued, fully paid and nonassessable. There
are no outstanding or authorized subscriptions, options, warrants, calls,
rights, commitments or other agreements of any character which obligate or may
obligate SpaceLogic to issue any additional shares of any of its capital stock
or any securities convertible into or evidencing the right to subscribe for any
shares of any such capital stock. Except as set forth in Schedule 2.4, (a) there
are no voting trusts or other agreements or understandings with respect to the
capital stock of SpaceLogic to which SpaceLogic is a party or by which
SpaceLogic is bound and (b) there are no such agreements or understandings to
which any of the Stockholders are a party or by which any of the Stockholders
are bound. Except as set forth in Schedule 2.4, the Stockholders are not
indebted to SpaceLogic and SpaceLogic is not indebted to the Stockholders.

      2.5 SUBSIDIARIES AND AFFILIATES

      Except for SecureLogic and as set forth in Schedule 2.5, SpaceLogic has no
Subsidiaries. As used in this Agreement, "Subsidiary", when used in reference to
any Person (as defined in Section 2.6 of this Agreement), shall mean any
corporation of which outstanding securities having ordinary voting power to
elect a majority of the Board of Directors of such corporation are owned
directly or indirectly by such Person. Except as set forth in Schedule 2.5,
SpaceLogic does not own, directly or indirectly, any ownership, equity, profits
or voting interest in, or otherwise control, any corporation, partnership, joint
venture or other entity, and has no agreement or commitment to purchase any such
interest.

      2.6 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS

      Except as set forth in Schedule 2.6, the execution, delivery and
performance of this Agreement and the Operative Documents by SpaceLogic and the
Stockholders and the consummation of the transactions contemplated hereby and
thereby will not in any way which would result in a Material Adverse Effect, (a)
constitute a violation (with or without the giving of notice or lapse of time,
or both) of any provision of law or any judgment, decree, order, regulation or
rule of any court or other governmental authority applicable to SpaceLogic or
the Stockholders, (b) require any consent, approval or authorization of, or
declaration, filing or registration with, any person, corporation, partnership,
joint venture, association, organization, other entity or governmental or
regulatory authority (a "Person") (the consent of all such Persons to be duly
obtained by SpaceLogic and the Stockholders at or prior to the Closing), (c)
result in a default (with or without the giving of notice or lapse of time, or
both) under, acceleration or termination of, or the creation in any party of the
right to accelerate, terminate, modify or cancel, any agreement, lease, note or
other restriction, encumbrance, obligation or liability to which SpaceLogic or
the Stockholders are a party or by which either of them is bound or to which any
of their assets are subject, (d) result in the creation of any lien or
encumbrance upon the assets of SpaceLogic or upon the SpaceLogic Common Stock,
(e) conflict with or result in a breach of or constitute a default under any
provision of the Certificate of Incorporation or By-Laws of SpaceLogic, or (f)
invalidate or adversely affect any permit, license, authorization or status used
in the conduct of the business of SpaceLogic.

<PAGE>

      2.7 FINANCIAL STATEMENTS

      SpaceLogic has delivered to MBYI a consolidated audited financial
statements including a balance sheet, statement of operations and retained
earnings of the Company, and statements of cash flows and equity of the Company
and its Subsidiaries, together with the related notes thereto for the 12-month
period ending December 31, 2003 (collectively, the "Audited Financial
Statements") and consolidated unaudited financial statements including a balance
sheet, statement of operations and retained earnings of the Company and its
Subsidiaries, and statements of cash flows and equity of the Company, together
with the related notes thereto for the 12-month period ending December 31, 2004
(collectively, the "2004 Financial Statements"). The Audited Financial
Statements and the 2004 Financial Statements each are complete and correct in
all material respects and fairly present the financial condition of SpaceLogic
as of the dates thereof and the results of their operations for the fiscal years
and periods ended on such dates and each has been prepared on a basis consistent
with prior accounting periods and in accordance with United States generally
accepted accounting principles and the rules of the Public Company Accounting
Oversight Board consistently applied. The Audited Financial Statements and the
2004 Financial Statements each present fairly the financial position, results of
operations and changes in financial position of SpaceLogic as of the dates and
for the periods indicated.

      SpaceLogic has no material liability or obligation of any nature
(absolute, contingent or otherwise) which is not fully reflected or reserved
against in the Financial Statements, except for liability reserves or
obligations incurred since the date of the 2004 Financial Statements (i) in the
ordinary course of business and consistent with past practice and not in excess
of $25,000 in the aggregate or $5,000 individually or (ii) specifically set
forth in Schedule 2.7.

      2.8 ABSENCE OR CERTAIN CHANGES OR EVENTS

      Except as specifically set forth in the Schedule 2.8, the 2004 Financial
Statements or as specifically contemplated by this Agreement, since January 1,
2004, neither SpaceLogic nor any of its officers or directors in their
representative capacity on behalf of SpaceLogic has:

<PAGE>

            (a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business;

            (b) forgiven or canceled any indebtedness or waived any claims or
rights of material value (including, without limitation, any indebtedness owing
by the Stockholders or any officer, director or employee of SpaceLogic);

            (c) suffered any material adverse change in its working capital,
assets, liabilities (absolute, accrued, contingent or otherwise), earnings or
reserves or in its financial condition, business, business prospects or
operations;

            (d) borrowed or agreed to borrow any funds, assumed or become
subject to, whether directly or by way of guarantee or otherwise, any obligation
or liability (absolute or contingent), or incurred any liabilities or
obligations (absolute, accrued, contingent or otherwise) which exceed in the
aggregate $25,000 (counting obligations or liabilities arising from one
transaction or a series of similar transactions, and all periodic installments
or payments under any lease or other agreement providing for periodic
installments or payments, as a single obligation or liability), except
liabilities and obligations reflected in the balance sheet contained within the
2004 Financial Statements (the "2004 Balance Sheet") or incurred since the date
of the 2004 Balance Sheet in the ordinary course of business and consistent with
past practice which do not exceed $25,000 in the aggregate, or increased, or
experienced any change in any assumptions underlying or methods of calculating,
any bad debt, contingency or other reserves;

            (e) permitted or allowed any of its material property or assets
(real, personal or mixed, tangible or intangible) to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or charge,
except for (i) assessments for current taxes not yet due and payable, (ii)
landlord's liens for rental payments and other lease-related performance
incurred in the ordinary course of business and not yet due and payable, and
(iii) mechanics', materialmen's, carriers' and other similar liens securing
indebtedness that was incurred in the ordinary course of business and is not yet
due and payable;

            (f) written down the value of any material inventory (including
write-downs by reason of shrinkage or markdown) or written off as uncollectible
any material notes or accounts receivable;

            (g) sold, transferred or otherwise disposed of any of its properties
or assets (real, personal or mixed, tangible or intangible), except in the
ordinary course of business and consistent with past practice;

            (h) disposed of or permitted to lapse any rights to the use of any
trademark, trade name, patent or copyright, or trade secrets of SpaceLogic;

            (i) made any capital expenditure or commitment to make a capital
expenditure for additions to property, plant, equipment or intangible capital
assets in excess of $50,000.00;

<PAGE>

            (j) made any change in any method of accounting or accounting
practice;

            (k) issued any capital stock or other securities or declared, paid
or set aside for payment any dividend or other distribution in respect of its
capital stock or redeemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock or other securities of SpaceLogic, or
otherwise permitted the material withdrawal by any of the holders of capital
stock of SpaceLogic of any cash or other assets (real, personal or mixed,
tangible or intangible), in compensation, indebtedness or otherwise, other than
payments of compensation in the ordinary course of business and consistent with
past practice;

            (l) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible), with the exception of travel or other employment related advances,
to, or entered into any agreement or arrangement with, any of the holders of
capital stock of SpaceLogic, or any affiliate of such holder or any of its
officers or directors, except for compensation paid to officers at rates not
exceeding the rate of compensation as of January 1, 2004;

            (m) entered into or agreed to enter into, or otherwise suffered to
be outstanding, any power of attorney of SpaceLogic or any obligations or
liabilities (whether absolute, accrued, contingent or otherwise) of SpaceLogic,
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any other Person;

            (n) received notice of, or otherwise obtained knowledge of: (i) any
claim, action, suit, arbitration, proceeding or investigation involving, pending
against or threatened against SpaceLogic before or by any court or governmental
or non-governmental department, commission, board, bureau, agency or
instrumentality, or any other Person; (ii) any valid basis for any material
claim, action, suit, arbitration, proceeding, investigation or the application
of any fine or penalty materially adverse to SpaceLogic before or by any Person;
or (iii) any outstanding or unsatisfied judgments, orders, decrees or
stipulations to which SpaceLogic is a party which relate directly to the
transactions contemplated herein or which would otherwise have a material
adverse effect upon the business, business prospects, assets or financial
condition of SpaceLogic, or

            (o) agreed, whether in writing or otherwise, to take any action
described in this Section 2.8 not otherwise specifically disclosed pursuant to
this Section 2.8.

<PAGE>

      2.9 TAXES

      SpaceLogic has (a) duly and timely filed, with Israeli and other
appropriate governmental agencies (domestic and foreign) all tax returns,
information returns and reports for all Taxes (as defined below) required to
have been filed with respect to SpaceLogic and (b) paid in full or provided for
all Taxes, interest and other governmental charges which are shown to be due on
such returns or reports. "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, but not limited to, income, excise, gross
receipts, property, sales, use, ad valorem, transfer, franchise, profit,
license, withholding, payroll, employment, severance, stamp, occupation,
windfall profit, social security and unemployment or other taxes imposed by the
Israeli government, the United States or any agency or instrumentality thereof,
any state, county, local or foreign government, or any agency or instrumentality
thereof, and any interest or fines, and any and all penalties or additions
relating to such taxes, charges, fees, levies or other assessments. Furthermore,
except as described in Schedule 2.9, (i) the reserves and provisions for Taxes
reflected in the 2004 Balance Sheet are adequate; (ii) no unresolved claim for
assessment or collection of Taxes has been asserted or threatened against
SpaceLogic and no audit or investigation by governmental authorities is under
way with respect to Taxes, interest or other governmental charges; (iii) no
state of facts exists or has existed which would constitute a reasonable basis
for the assessment against SpaceLogic of any additional tax liability with
respect to any period for which tax returns have been filed; and (iv) SpaceLogic
has not filed or entered into any election, consent or extension agreement or
any waiver that extends any applicable statute of limitations.

      2.10 PROPERTY

      (a) SpaceLogic owns no real property.

      (b) Schedule 2.10 contains a complete and accurate list of each item of
personal property having a fair market value in excess of $5,000 which is owned,
leased, rented or used by SpaceLogic (the "Personal Property"); provided,
however, that such list need not describe the Listed Intellectual Property or
the Intellectual Property Licenses (both terms as defined in Section 2.17
hereof). SpaceLogic has delivered to MBYI true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies or licenses
of any portion of the Personal Property. The Personal Property include all
properties and assets (whether real, personal or mixed, tangible or intangible)
(other than, in the case of the Personal Property, property rights with an
individual value of less than $5,000, the Listed Intellectual Property and the
Intellectual Property Licenses) (i) reflected in the 2004 Balance Sheet
purchased by SpaceLogic since the date of the 2004 Balance Sheet (except for
such properties or assets sold since the date of the 2004 Balance Sheet in the
ordinary course of business and consistent with past practice) or (ii) used in
the business of SpaceLogic as presently conducted.

      (c) Except as set forth on Schedule 2.10(c), each lease of any portion of
real property leased by SpaceLogic is valid, binding and enforceable in
accordance with its terms against the parties thereto and against any other
Person with an interest in such real property. SpaceLogic has performed all
obligations imposed upon it thereunder; and neither SpaceLogic nor any other
party thereto is in default thereunder nor is there any event which with notice
or lapse of time, or both, would constitute a default thereunder. Except as set
forth on Schedule 2.6, no consent is required from any Person under any lease of
the real property in connection with the consummation of the transactions
described in this Agreement and the Operative Documents, and SpaceLogic has not
received notice that any party to any such lease intends to cancel, terminate or
refuse to renew the same or to exercise or decline to exercise any option or
other right thereunder. SpaceLogic has not granted any lease, sublease, tenancy
or license of, or entered into any rental agreement or Contract of sale with
respect to, any portion of the real property.

<PAGE>

      (d) Except as described in Schedule 2.10, SpaceLogic's plant, structures
and Personal Property are in good operating condition and repair, normal wear
and tear excepted, are adequate for the uses to which they are being put and
comply in all material respects with applicable safety and other laws and
regulations.

      (e) Except as set forth in Schedule 2.10, the Personal Property is free
and clear of all liens, and, other than leased Personal Property, which is so
noted on the list supplied pursuant to paragraph (b) of this Section 2.10,
SpaceLogic owns such Personal Property.

      (f) Except as set forth in Schedule 2.10, to the knowledge of the
Stockholders, each lease, license, rental agreement, contract of sale or other
agreement to which the Personal Property is subject is valid, binding and
enforceable in accordance with its terms against the parties thereto, SpaceLogic
has performed all material obligations imposed upon it thereunder, and neither
SpaceLogic nor any other party thereto is in default thereunder, nor is there
any event which with notice or lapse of time, or both, would constitute a
default thereunder, except in the event that any such default would not
constitute a Material Adverse Effect. Except as set forth in Schedule 2.10, no
consent is required from the owner or lessor under any lease of Personal
Property in connection with the consummation of the transactions described in
this Agreement and the Operative Documents, and SpaceLogic has not received
notice that any party to any such lease, license, rental agreement, contract of
sale or other agreement intends to cancel, terminate or refuse to renew the same
or to exercise or decline to exercise any option or other right thereunder.
SpaceLogic has not granted any leases, subleases, tenancies or licenses of any
portion of the Personal Property, except as described in Schedule 2.10.

      (g) Neither the whole nor any portion of any assets or property of
SpaceLogic are subject to any currently outstanding governmental decree or order
to be sold or is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the
knowledge of the Stockholders, has any such condemnation, expropriation or
taking been proposed.

      2.11 CONTRACTS

      Schedule 2.11 contains a complete and accurate list of all material
contracts, oral or written, to which SpaceLogic is a party or by which
SpaceLogic is bound, including, without limitation, security agreements,
conditional sales agreements, instruments relating to the borrowing of money,
and broker or distributorship agreements; provided, however, that Schedule 2.11
does not include: (a) purchase orders received by SpaceLogic in the ordinary
course of its business from its customers; (b) purchase orders issued by
SpaceLogic in the ordinary course of its business to its suppliers and
subcontractors involving less than $5,000 individually and $15,000 in the
aggregate; or (c) other contracts cancelable within 30 days without penalty or
involving less than $5,000 individually and $15,000 in the aggregate. Except as
set forth in Schedule 2.11, all material contracts are valid, binding and
enforceable in accordance with their terms against each party thereto, are in
full force and effect, SpaceLogic has performed all material obligations imposed
upon it thereunder, and neither SpaceLogic nor any other party thereto is in
material default thereunder, nor is there any event which with notice or lapse
of time, or both, would constitute a material default thereunder. True and
complete copies of each such contracts have been heretofore delivered to MBYI.
Except as specifically set forth in Schedule 2.11, SpaceLogic has no:

<PAGE>

            (a) agreements, contracts, commitments or restrictions requiring
SpaceLogic to make any charitable contribution;

            (b) outstanding sales or service contracts, commitments or proposals
of SpaceLogic which are expected by SpaceLogic to result in any loss or the
realization of less than SpaceLogic's usual and customary margins upon
completion or performance thereof, in excess of the inventory reserve provided
in the 2004 Balance Sheet, or any outstanding contracts, bids, or sales or
service proposals quoting prices which SpaceLogic, based upon SpaceLogic's
current operations, expects not to result in a profit;

            (c) material contracts with directors, officers, Stockholders,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not, except as provided by law to the contrary
without regard to the express terms of such contract, cancelable by it within 30
days' notice without liability, penalty or premium, any agreement or arrangement
providing for the payment of any bonus or commission based on sales or earnings,
or any compensation agreement or arrangement affecting or relating to former
employees of SpaceLogic;

            (d) employment agreement, whether express or implied, or any other
agreement for services that contains any severance or termination pay
liabilities or obligations;

            (e) collective bargaining or union contracts or agreements;

            (f) restriction by agreement from carrying on its business anywhere
in the world, or restriction by agreement from providing services to any
customer or potential customer which restriction is material to the business of
SpaceLogic;

            (g) material liability or obligation with respect to the return of
inventory or merchandise other than on account of a defective condition,
incorrect quantities or missed delivery dates;

<PAGE>

            (h) debt obligation for borrowed money, including guarantees of or
agreements to acquire any such debt obligation of others in excess of $5,000
individually or $25,000 in the aggregate;

            (i) loans outstanding to any Person other than expense advances to
employees not in excess of $1,000 individually or $2,500 in the aggregate;

            (j) powers of attorney outstanding or any obligations or liabilities
(whether absolute, accrued, contingent or otherwise) as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any Person;

            (k) notice of or any knowledge that any party to a material contract
to which it is a party intends to cancel, terminate or refuse to renew such
contract or to exercise or decline to exercise any option or right thereunder;

            (l) material disagreement with any of its suppliers or customers;
and

            (m) equipment leases other than leases previously disclosed pursuant
to Section 2.8.

      2.12 CUSTOMERS AND SUPPLIERS

      Schedule 2.12 sets forth: (a) a list of the customers of SpaceLogic
accounting for 5% or more of SpaceLogic's sales during calendar year 2004
showing the approximate total sales by SpaceLogic to each such customer during
the fiscal year last ended and (b) a current list of the suppliers of SpaceLogic
from whom SpaceLogic has purchased more than 5% of the goods purchased by
SpaceLogic in calendar year 2004. SpaceLogic has no reasonable basis to expect
any material modification to its relationship with any customer or supplier
named in Schedule 2.12. Except as set forth in Schedule 2.12, SpaceLogic has not
had any customer who accounted, directly or indirectly, for more than 5% of its
sales during calendar years 2003 and 2004, and SpaceLogic has no supplier from
whom it has purchased more than 5% of the goods or services which it purchased
during calendar bound by, any contract which prohibits the use or publication by
SpaceLogic of the name of any party to such contract and SpaceLogic is not a
party to or bound by, any contract which prohibits or in any way restricts
SpaceLogic from freely providing services to any other customer of SpaceLogic or
any potential customer of SpaceLogic or MBYI. Except as set forth in Schedule
2.12, none of SpaceLogic's customers has canceled or substantially reduced or,
to the knowledge of SpaceLogic, is currently attempting or threatening to cancel
a contract of more than $20,000 or materially reduce utilization of the services
provided by SpaceLogic. Schedule 2.12 sets forth all of SpaceLogic's material
vendor authorizations and vendor relationships.

      2.13 ORDERS, COMMITMENTS AND RETURNS

      SpaceLogic has order backlog as specified in Schedule 2.13. There were no
outstanding claims against SpaceLogic as of the date hereof to return
merchandise or credits against licensing fees with an aggregate value in excess
of $5,000 by reason of alleged over shipments, defective merchandise, missed
delivery dates, warranty claims, incorrect quantities or otherwise, or of
merchandise in the hands of customers under an understanding that such
merchandise would be returnable.

<PAGE>

      2.14 LITIGATION; CLAIMS AND LEGAL PROCEEDINGS

      Except as set forth in Schedule 2.14, SpaceLogic is not a party to or the
subject of any pending litigation, claims, decrees, orders, stipulations or
governmental investigation or otherwise disclosed herein, and there are no
lawsuits, claims, assessments, investigations, or similar matters, against or
affecting SpaceLogic, its management or its properties. SpaceLogic has complied
in all material respects with all laws, statutes, ordinances, regulations,
rules, decrees or orders applicable to it.

      Except as set forth in Schedule 2.14, there are no material claims,
actions, suits, arbitrations or proceedings pending or involving or threatened
against, or investigations involving, SpaceLogic before or by any court or
governmental or nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the best of the knowledge of SpaceLogic
and the Stockholders, there is no valid basis for any material claim, action,
suit, arbitration, proceeding or investigation (other than as noted in Schedule
2.14) adverse to the business, business prospects, assets, operations or
condition (financial or other) of SpaceLogic before or by any Person. There are
no outstanding or unsatisfied judgments, orders, decrees or stipulations to
which SpaceLogic is a party which involve the transactions contemplated herein
or which would have a Material Adverse Effect.

      2.15 LABOR MATTERS

      There are no material disputes, employee grievances or disciplinary
actions pending or to the knowledge of SpaceLogic threatened or involving
SpaceLogic or any of its present or former employees. SpaceLogic has, to its
knowledge, substantially complied with all provisions of all applicable law
relating to employment and employment practices, terms and conditions of
employment, workers compensation, wages and hours, where the failure to comply
with which would have a Material Adverse Effect upon the business, business
prospects, assets, operations or condition (financial or other) of SpaceLogic.
SpaceLogic is not engaged in any unfair labor practice and has no liability for
any arrears of wages or penalties for failure to comply with any such provisions
of law. There is no labor strike, dispute, slowdown or stoppage pending or
affecting SpaceLogic, and SpaceLogic has not experienced any work stoppage or
other labor difficulty. No collective bargaining agreement is binding on
SpaceLogic. SpaceLogic has no knowledge of any organizational efforts presently
being made on behalf of any labor union with respect to employees of SpaceLogic,
and SpaceLogic has not been requested by any group of employees or others to
enter into any collective bargaining agreement or other agreement with any labor
union or other employee organization.

<PAGE>

      2.16 EMPLOYEE BENEFIT PLANS

      Except as set forth in Schedule 2.16, SpaceLogic has no bonus, deferred
compensation, incentive, severance pay, pension, profit-sharing, retirement,
stock purchase, stock option or any other employee benefit plan, employee fringe
benefit plan, arrangement or practice with regard to present or former employees
as to which SpaceLogic has any liability ("Employee Benefit Plan").

      2.17 PATENTS, TRADEMARKS

      (a) Set forth in the Schedule 2.17, is a true and complete list of all
inventions, patents, trademarks, trade names, brand names, copyrights, Software
Products (as defined in paragraph (b) of this Section 2.17), trade secrets and
formulae (collectively, the "Listed Intellectual Property") of any kind now used
in the business of SpaceLogic except mass-market third-party software packages
used by SpaceLogic. Schedule 2.17 contains a complete list of all licenses or
agreements, to which SpaceLogic with respect to any of the Listed Intellectual
Property (the "Intellectual Property Licenses"); such list indicates the
specific Listed Intellectual Property affected by each such Intellectual
Property License. Except as set forth in Schedule 2.17, neither SpaceLogic's
operations nor any Listed Intellectual Property or Intellectual Property License
infringes or provides any basis to believe that SpaceLogic's operations or any
Listed Intellectual Property or Intellectual Property License would infringe
upon any validly issued trademark, trade name, service mark, copyright or, any
validly issued or pending patent or other right of any other Person, nor is
there, the best of SpaceLogic's knowledge any infringement by any other Person
of any of the Listed Intellectual Property. Except as specifically set forth in
Schedule 2.17, the consummation of the transactions contemplated hereby and by
the Operative Documents will not alter or impair SpaceLogic's rights to use any
of the Listed Intellectual Property or under any Intellectual Property License.
To SpaceLogic's knowledge the manner in which SpaceLogic has manufactured,
packaged, shipped, advertised, labeled and sold its products substantially
complies with all applicable laws and regulations pertaining thereto, the
failure to comply with which would have a Material Adverse Effect upon the
business, business prospects, assets, operations or financial condition of
SpaceLogic.

      (b) Except as specifically set forth in Schedule 2.17, SpaceLogic is the
sole and exclusive owner or licensee of:

            (i) the Listed Intellectual Property, the Intellectual Property
Licenses and the technology, know-how and processes now used by SpaceLogic, or
used in connection with any product now being manufactured and sold by
SpaceLogic; and

            (ii) all rights, title and interest in and to the computer software
products listed in Schedule 2.17, with all modifications, enhancements and
additions thereto, including, without limitation, all rights in and to all
versions thereof and all source code, object code, manuals and other
documentation and related materials thereof (collectively, the "Software
Products"). Without limiting the generality of the above, the Software Products
shall also include all of SpaceLogic's related programs, trade secrets,
algorithms and processes relating to the Software Products or such programs,
SpaceLogic's copyright in and to each of the Software Products and all works
derivative therefrom (including the registrations of copyright listed in
Schedule 2.17), all current, enhanced and developmental versions of the source
and object code and any variations thereof, all user and programmer
documentation, all design specifications, all maintenance and installation job
control language, all system documentation (including all flow charts, systems
procedures and program component descriptions), all procedures for modification
and preparation for the release of enhanced versions and all test data available
(excluding all proprietary information of third parties) with respect to the
Software Products.
<PAGE>

      (c) Except as set forth in Schedule 2.17, each of the Intellectual
Property Licenses is valid, binding and enforceable in accordance with its terms
against the parties thereto (subject, as to enforceability, to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other laws of
general applicability affecting the rights of creditors and to general
principles of equity), SpaceLogic has performed all obligations imposed upon it
thereunder, and SpaceLogic is not in default thereunder, nor is there any event
which with notice or lapse of time, or both, would constitute a default
thereunder. Except as set forth in Schedule 2.17, SpaceLogic has not received
notice that any party to any of the Intellectual Property Licenses intends to
cancel, terminate or refuse to renew the same or to exercise or decline to
exercise any option or other right thereunder. No licenses, sublicenses,
covenants or agreements have been granted or entered into by SpaceLogic in
respect of any of the Listed Intellectual Property except the Intellectual
Property Licenses. No director, officer, Stockholders or employee of SpaceLogic
owns, directly or indirectly, in whole or in part, any of the Listed
Intellectual Property. None of the officers of SpaceLogic and none of
SpaceLogic's employees, and to be the best of SpaceLogic's knowledge none of its
consultants, agents, representatives or advisers has entered into any agreement
regarding know-how, trade secrets, assignment of rights in inventions, or
prohibition or restriction of competition or solicitation of customers, or any
other similar restrictive agreement or covenant, with any Person other than
SpaceLogic.

      (d) Except as set forth in Schedule 2.17, to Spacelogic's knowledge no
Person has asserted any claim of infringement or other interference with
third-party rights with respect to the Listed Intellectual Property. Except as
set forth in Schedule 2.17, (i) SpaceLogic has not disclosed any source code
regarding the Software Products to any Person other than to an employee of
SpaceLogic, (ii) SpaceLogic has at all times maintained reasonable procedures to
protect and has enforced all trade secrets of SpaceLogic; (iii) neither
SpaceLogic nor any escrow agent which has entered into an agreement with
SpaceLogic is under any contractual or other obligation to disclose the source
code or any other proprietary information included in or relating to the
Software Products, nor to SpaceLogic's knowledge is any other party to the
Intellectual Property Licenses or any escrow agent under any such obligation to
disclose any source code or other proprietary information included in or
relating to Software Products, if any, that are licensed to SpaceLogic, or to
any Person, and no event has taken place or any related change in SpaceLogic's
business activities, which would give rise to such obligation, and (iv)
SpaceLogic has not deposited any source code regarding the Software Products
into any source code escrows or similar arrangements. If, as disclosed in
Schedule 2.17, SpaceLogic has deposited any source code to Software Products
into source code escrows or similar arrangements, no event has occurred that has
formed the basis for a release of such source code from such escrows or
arrangements.
<PAGE>

      2.18 ACCOUNTS RECEIVABLE

      All accounts receivable of SpaceLogic reflected in the 2004 Financial
Statements, or existing at the Closing, represent sales actually made in the
ordinary course of business, as recognized in accordance with United States
generally accepted accounting principals. Except as described in Schedule 2.18,
SpaceLogic has no reason to believe that any such account receivable is not or
shall not, be collected in the amounts shown. Except as described in Schedule
2.18, SpaceLogic's bad debt reserves and sales return allowances as reflected in
the 2004 Financial Statements are adequate based on SpaceLogic's bad debts and
sales returns experience to date. Set forth in Schedule 2.18 is a full and
complete list of all accounts receivable of SpaceLogic existing as of the
Closing Date.

      2.19 INVENTORY

      Except as set forth in Schedule 2.19, SpaceLogic has no inventory.

      2.20 CORPORATE BOOKS AND RECORDS

      SpaceLogic has furnished to MBYI or its representatives for their
examination true and complete copies of its (a) Articles of Association of
SpaceLogic and its Subsidiaries, including all amendments thereto, (b) the
minute books of SpaceLogic and its Subsidiaries, and (c) the register books of
SpaceLogic and its Subsidiaries.

      2.21 LICENSES, PERMITS, AUTHORIZATIONS, ETC.

      Except as identified in Schedule 2.21, SpaceLogic has received all
currently required governmental approvals, authorizations, consents, licenses,
orders, registrations and permits of all agencies, whether federal, state, local
or foreign, the failure to obtain which would, in the aggregate, have a material
adverse effect on SpaceLogic's business, business prospects, assets, operations
or condition (financial or other) ("Material Regulatory Consents"). SpaceLogic
has not received any notification of any failure by it to have obtained any
Material Regulatory Consents.

      2.22 APPLICABLE LAWS

      Except as described in Schedule 2.22, SpaceLogic to the best of its
knowledge has complied, and is in compliance with, all applicable laws, rules,
regulations, ordinances, decrees and orders applicable to the operation of its
business, to its employees, or to the Real Property and the Personal Property,
the failure to comply with which would, in the aggregate, have a material
adverse effect on the business, assets or operations of SpaceLogic, including,
without limitation, all such laws, rules, regulations, ordinances, decrees and
orders relating to antitrust, consumer protection, currency exchange,
environmental protection, equal opportunity, health, occupational safety,
pension, securities and trading-with-the-enemy matters. SpaceLogic has not
received any notification of any asserted present or past unremedied failure by
SpaceLogic to comply with any of such laws, rules, regulations, ordinances,
decrees or orders.
<PAGE>

      2.23 INSURANCE

      SpaceLogic maintains such policies of insurance, as are appropriate to
SpaceLogic's operations, property, and assets, in such amounts and against such
risks as are customarily carried and insured against by owners of comparable
businesses, properties and assets. All such current policies of insurance are in
full force and effect. SpaceLogic is not in default, as to the payment of
premiums or otherwise, under the terms of any such policy. Schedule 2.23 sets
forth a complete list of all policies of insurance which SpaceLogic maintains
and, with respect to such policies, the name of the insurer, the risk insured
against, the amount of coverage and the amount of any deductible and a summary
of all claims under each such policy for the past two years. No coverage
provided in such policies of insurance shall be diminished, lost or otherwise
adversely affected as a result of the transactions contemplated in this
Agreement.

      2.24 BROKERS AND FINDERS

      SpaceLogic represents and warrants, and each of the Stockholders represent
and warrant, that with the exception of Baytree Capital Associates, LLC and
Ramot & Co. neither the Stockholders nor any director, officer, agent or
employee acting on behalf of SpaceLogic or the Stockholders has retained any
broker or finder in connection with the transactions contemplated by this
Agreement and the Operative Documents. The Stockholders shall be solely
responsible for any fees payable to Ramot & Co.

      2.25 GOVERNMENT CONTRACTS

      SpaceLogic has never been, nor as a result of the consummation of the
transactions contemplated by this Agreement is it reasonable to expect that it
will be, suspended or debarred from bidding on contracts or subcontracts for any
agency of the United States government, nor has such suspension or debarment
been threatened or action for such suspension or debarment been commenced.
SpaceLogic has not been nor is it now being audited or investigated by the
Israeli government or any of its agencies or the United States Government
Accounting Office, the United States Department of Justice, the United States
Department of Defense or any of its agencies, the United States Department of
Homeland Defense or any of its agencies, including but not limited to, the
Transportation Security Administration, the Defense Contract Audit Agency or the
inspector general of any agency of the United States government, nor has such
audit or investigation been threatened. To SpaceLogic's knowledge, there is no
valid basis for SpaceLogic's suspension or debarment from bidding on contracts
or subcontracts for any agency of the Israeli government or any of its agencies
or the United States government and to SpaceLogic's knowledge there is no valid
basis for a claim pursuant to an audit or investigation by the United States
Government Accounting Office, the United States Department of Justice, the
United States Department of Defense or any of its agencies, the United States
Department of Homeland Defense or any of its agencies, the Defense Contract
Audit Agency or the inspector general of any agency of the United States
government. SpaceLogic has never had a contract or subcontract terminated for
default, nor has it ever been determined to be non-responsible, by any agency of
the United States government. Except as set forth on Schedule 2.25, SpaceLogic
has no outstanding agreements, contracts or commitments which require it to
obtain or maintain a government security clearance.
<PAGE>

      2.26 ABSENCE OF QUESTIONABLE PAYMENTS

      Neither SpaceLogic nor to its knowledge, any director, officer, agent,
employee or other Person acting on behalf of SpaceLogic has used any SpaceLogic
funds for unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activity to government officials or
others. Neither SpaceLogic nor to its knowledge any current director, officer,
agent, employee or other Person acting on behalf of SpaceLogic has accepted or
received, in connection with such position, unlawful contributions, payments,
gifts or expenditures.

      2.27 PERSONNEL

      Schedule 2.27 sets forth a true and complete list of:

      (a) the names and current rates of pay of all directors and elected and
appointed officers of SpaceLogic and the family relationships, if any, among
such persons;

      (b) the current rates of pay for all non-executive employees of SpaceLogic
by classification, and all labor union contracts (if any); and

      (c) all group insurance programs in effect for employees of SpaceLogic.

      SpaceLogic is not in material default with respect to any of its
obligations referred to in clause (c) above.

      2.28 DOMAIN NAMES

      Schedule 2.28 sets forth all Internet domain names registered to
SpaceLogic and its Subsidiaries, whether or not such domain names are currently
in use. SpaceLogic has no knowledge of any third party regarding ownership of
any such domain names or the alleged infringement of any rights of any such
parties by SpaceLogic's ownership of such domain names.
<PAGE>

      2.29 WEB SITES

      The information contained on SpaceLogic's Web sites regarding SpaceLogic,
its employees, business and products is accurate in all material respects, does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made not misleading.

      2.30 ENVIRONMENTAL ISSUES

      To its knowledge, SpaceLogic is in compliance in all material respects
with applicable United States, Israeli, state and local laws, statutes,
regulations, orders, directives and decisions rendered by any legislature,
department, administrative or regulatory agency (collectively, "Environmental
Laws") relating to the protection of the environment, occupational health and
safety or the use, storage, disposal, transport, handling, remediation or
corrective action of any pollutants, contaminants, chemicals, deleterious
substances or industrial, toxic or hazardous wastes or substances ("Hazardous
Substances").

      SpaceLogic has not used or permitted to be used, except in compliance in
all material respects with all Environmental Laws, its office space, to store,
deposit, dispose or of handle any Hazardous Substances.

      SpaceLogic has obtained all permits, licenses and other authorizations
which are required in connection with the conduct of its business under all
applicable Environmental Laws the failure of which to do so would have a
Material Adverse Effect.

      SpaceLogic has never received any notice of any civil, criminal or
administrative actions, suits, demands, claims, hearings, notices of demand
letters, requests for information, notices of violation, investigations or
proceedings pending or threatened against SpaceLogic in connection with the
conduct of its business relating to any Environmental Laws.

      2.31 INSIDER INTERESTS

      SpaceLogic represents and warrants, and each Stockholder represents and
warrants to such Stockholder's knowledge, that except as set forth in Schedule
2.31 neither the Stockholders nor any officer of SpaceLogic has any interest
(other than as a stockholder of SpaceLogic) (a) in any property, real or
personal, tangible or intangible, used in or directly pertaining to the business
of SpaceLogic, including, without limitation, inventions, patents, trademarks or
trade names, or (b) in any agreement, contract, arrangement or obligation
relating to SpaceLogic, its present or prospective business or its operations,
except for an Employment Agreement, if any, to be entered into between any of
the Spaceholder Stockholders with MBYI at the Closing.
<PAGE>

      2.32 FULL DISCLOSURE

      No information furnished by SpaceLogic or the Stockholders to MBYI in this
Agreement (including, but not limited to, the Financial Statements, all
information in the Schedules and the other Exhibits hereto and title Operative
Documents) is false or misleading in any material respect in light of the
circumstances pursuant to which such information was provided. None of the
Stockholders has made any untrue statement of a material fact nor (as the
Stockholders, knowingly) omitted to state a material fact necessary in order to
make the statements made or information delivered in or pursuant to this
Agreement, including, but not limited to, all Schedules and Exhibits hereto, or
in or pursuant to the Operative Documents, or in or pursuant to closing
certificates executed or delivered by the Stockholders or SpaceLogic, in light
of the circumstances in which they were made, not materially misleading.

      2.33 INVESTMENT REPRESENTATIONS

      Each Stockholder represents on his or her own behalf:

      (a) Investment. Each Stockholder shall receive the MBYI Common Stock with
no intention of distributing or reselling the MBYI Common Stock or any part
thereof, or interest therein, in any transaction which would be in violation of
the securities laws of the United States or any state thereof, without
prejudice, however, to the Stockholder's rights at all times to sell or
otherwise dispose of all or any part of the MBYI Common Stock under an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or under an exemption from such registration requirements
available under the Securities Act and applicable state securities laws.

      (b) Exempt Transaction. Such Stockholder understands that the MBYI Common
Stock received or to be received by the Stockholder pursuant to this Agreement
has not been registered under the Securities Act by reason of its sale in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, and that the Stockholder
will have to hold the MBYI Common Stock and bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration.

      (c) Experience. Such Stockholder acknowledges that the Stockholder and the
Stockholder's representatives are experienced in, and capable of, evaluating the
financial condition and prospects of corporations like MBYI. The Stockholder has
had access to the records of MBYI and has had the opportunity to ask questions
concerning MBYI and an investment in the MBYI Common Stock.

      (d) No Intention to Dispose of Stock. No Stockholder has any current plan
or intention, or is under any binding commitment or contract, to sell, exchange
or otherwise dispose of the MBYI Common Stock received hereunder.
<PAGE>

                        ARTICLE III- REPRESENTATIONS AND
                               WARRANTIES OF MBYI

      Except as is otherwise described in the applicable Schedules, MBYI
represents and warrants to SpaceLogic and the Stockholders, as of the date of
this Agreement and as of the Closing, all as follows in this Article III:

      3.1 ORGANIZATION, GOOD STANDING

      MBYI is a corporation duly organized, validly existing and in good
standing under the laws of the States of Nevada, and has all requisite corporate
power and authority to own, operate and lease their properties and assets and to
carry on their businesses as now conducted.

      3.2 AUTHORITY

      MBYI has full corporate power and authority to execute, deliver and
perform this Agreement and the Operative Documents to which either is a party
and to carry out the transactions contemplated hereby and thereby. This
Agreement has been, and each Operative Document to which MBYI is a party will
be, on the Closing Date, duly executed and delivered by MBYI, and this Agreement
is, and each Operative Document to which MBYI is a party will be, on the Closing
Date, a legal, valid and binding obligation of MBYI, enforceable against MBYI in
accordance with its terms, subject as to enforceability, to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other laws of
general applicability affecting the rights of creditors and to general
principles of equity.

      3.3 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS

      The execution, delivery and performance of this Agreement and the
Operative Documents by MBYI, the issuance of the MBYI Common Stock to the
Stockholders and the consummation of the transactions contemplated hereby and by
the Operative Documents will not (a) constitute a violation (with or without the
giving of notice or lapse of time, or both) of any provision of law or any
judgment, decree, order, regulation or rule of any court or other governmental
authority applicable to MBYI, (b) require any consent, approval or authorization
of, or declaration, filing or registration with, any Person, (c) result in a
default (with or without the giving of notice or lapse of time, or both) under,
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any agreement, lease, note or other
restriction, encumbrance, obligation or liability to which MBYI is a party or by
which either is bound or to which any of their assets are subject, (d) result in
the creation of any material lien or encumbrance upon the assets of MBYI or the
MBYI Common Stock delivered as the Purchase Price, (e) conflict with or result
in a breach of or constitute a default under any provision of the charter
documents of MBYI, or (f) invalidate or adversely affect any permit, license,
authorization or status used in the conduct of the business of MBYI. Except as
set forth on Schedule 3.3, no consent, approval, order, authorization or
registration qualification, designation, license, license, declarations or
filing with any state of federal governmental authority or any other Person is
required on the part of MBYI in connection with the execution and delivery of
this Agreement, the issuance of the MBYI Common Stock as the Purchase Price or
the consummation of the transactions contemplated herein.
<PAGE>

      3.4 AUTHORIZED CAPITAL.

      The authorized capital stock of MBYI consists (a) 50,000,000 shares of
common stock, $0.001 par value ("MBYI Common Stock") and (b) 1,000,000 shares of
preferred stock, $0.001 par value ("MBYI Preferred Stock").

      As of the date hereof, there are no shares of MBYI Preferred Stock issued
and outstanding, there are 11,049,267 shares of MBYI Common Stock issued and
outstanding and as of the Closing, there will be no more than 16,528,899 shares
of MBYI Common Stock issued and outstanding, without giving effect to delivery
of the Purchase Price and 550,963 four (4) year warrants to purchase one share
of MBYI Common Stock at $1.50 per share.

      Except as set on Schedule 3.4, hereof, there are no additional outstanding
subscriptions, options, including by way of employee or similar options, calls,
contracts, commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement and also including any rights plan or
other anti-takeover agreement, obligating MBYI to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of MBYI Preferred Stock
or MBYI Common stock or obligating MBYI to grant, extend or enter into any
agreement or commitment except for as otherwise herein. Schedule 3.4 sets forth
the fully diluted capital structure of MBYI as of the Closing.

      3.5 LEGAL PROCEEDINGS

      There are no claims, actions, suits, arbitrations, proceedings or
investigations involving, pending or, to the knowledge of MBYI, threatened
against MBYI before or by any court or governmental, regulatory,
quasi-governmental agency or non-governmental department, commission, board,
bureau, agency or instrumentality, or any other Person, and, to the knowledge of
MBYI, there is no valid basis for any such claim, action, suit, arbitration,
proceeding or investigation. There are not outstanding or unsatisfied judgments,
orders, decrees or stipulations to which MBYI is a party which involved the
transactions contemplated herein or which would have a material adverse effect
on MBYI.

      3.6 SEC FILINGS

      MBYI has filed with the Securities and Exchange Commission true and
complete copies of the MBYI's Annual Report on Form 10-KSB for the year ended
December 31, 2003 and all forms, reports, schedules, statements and other
documents required to be filed by MBYI under the Securities Act, or the
Securities Exchange Act, from and after the filing thereof (the "MBYI SEC
Documents"). The MBYI SEC documents, at the time filed, (a) did not contain any
untrue statement of a material fact or omit 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, and (b)
complied in all material respects with the applicable requirements of the
Securities Exchange Act, and the Securities Act, as the case may be, and the
applicable rules and regulations promulgated thereunder. The MBYI SEC Documents
accurately reflect the consolidated financial position of MBYI and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then-ended.
<PAGE>

      3.7 BROKERS AND FINDERS

      Neither MBYI, nor any director, officer, agent or employee acting on
behalf of MBYI, has retained any broker or finder in connection with the
transactions contemplated by this Agreement and the Operative Documents other
than Baytree Capital Associates, LLC.

      3.8 DULY AUTHORIZED.

      As of the Closing, the issuance of the MBYI Common Stock comprising the
Purchase price to the Stockholders will be duly authorized and, when issued in
accordance with the terms of this Agreement, validly issued, fully paid and
nonassessable.

      3.9 LICENSES, PERMITS, AUTHORIZATIONS, ETC.

      MBYI has received all currently required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign, the failure to obtain which
would, in the aggregate, have a material adverse effect on MBYI's business,
business prospects, assets, operations or condition (financial or other). MBYI
has not received any notification of any failure by it to have obtained any of
such governmental approvals, authorizations, consents, licenses, orders,
registrations or permits.

      3.10 ASSETS AS OF CLOSING.

      As of the Closing, MBYI shall have assets comprised of (a) a net cash
balance in its accounts of no less than $$2,160,000 after payment of all of
MBYI's liabilities or obligations of any nature (absolute, contingent or
otherwise), except any outstanding liabilities of MBYI necessarily related to
the operation of a public company, such as accrued fees of its transfer agent,
such aggregate amounts not to exceed $10,000 (the "Cash Balance"), (b) the right
to receive payments in the gross amount of $3,672,262 under those certain
agreements and instruments which are described in Schedule 3.10 hereto (the
"Future Payments Receivable") and (c) any such further amounts as may be
necessary to fulfill MBYI's obligations under Section 7.16 below.
<PAGE>

      3.11 FUTURE PAYMENTS RECEIVABLE.

      The Future Payments Receivable set forth in Schedule 3.10 hereto are
binding and unconditional commitments of third parties for which there is no
right of set-off and which will not result in any repayment obligation on the
part of MBYI or dilution to the equity holders of SpaceLogic. Those Future
Payments Receivable designated on Schedule 3.10 as "secured" (the "Secured
Obligations"), represent payments to be received under those certain Secured
Promissory Notes dated April 19, 2004 made to MBYI by International
Microcomputer Software, Inc. ("IMSI") and secured by all of the issued and
outstanding stock of Allume Systems, Inc. (formerly, Aladdin Systems, Inc.)
pursuant to that certain Pledge Agreement between IMSI and MBYI dated April 19,
2004 and that certain Security Agreement between IMSI and MBYI dated April 19,
2004.

      The Future Payment Receivable designated as "IMSI cash escrow" (the
"Escrow") represents cash being held in escrow by Commerce Bank, N.A. ("Commerce
Bank") pursuant to the terms of both (a) an Escrow Agreement dated April 19,
2004 by and between MBYI, IMSI and Commerce Bank (the "Escrow Agreement") and
(b) the Stock Purchase Agreement by and between MBYI (then, "Aladdin Systems
Holdings, Inc.") and IMSI dated January 21, 2004 (the "IMSI/MBYI Stock Purchase
Agreement"). MBYI has not been notified by IMSI of any claim against the Escrow
and MBYI has no knowledge of any valid basis pursuant to which IMSI may properly
claim any set-off against the Escrow.

                ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS
                                     OF MBYI

      The obligations of MBYI to perform and observe the covenants, agreements
and conditions hereof to be performed and observed by them at or prior to the
Closing Date shall be subject to the satisfaction of the following conditions on
or prior to the Closing Date, which condition may be expressly waived in writing
by MBYI

      4.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES

      The representations and warranties of SpaceLogic and the Stockholders
contained herein (including applicable Exhibits or Schedules) and in the
Operative Documents shall have been true in all material respects when made and
shall be true in all material respects as of the Closing Date as though made on
that date, except as affected by transactions contemplated hereby and except to
the extent that such representations and warranties are made as of a specified
date, in which case such representations and warranties shall be true as of the
specified date.

      4.2 PERFORMANCE OF AGREEMENT

      SpaceLogic and the Stockholders shall have performed all obligations and
agreements and complied with all covenants and conditions contained in this
Agreement or any Operative Document to be performed and complied with by them at
or prior to the Closing Date.
<PAGE>

      4.3 OPINION OF COUNSEL

      MBYI shall have received an opinion of counsel to SpaceLogic, in the form
of Exhibit 4.3 with such customary changes and modifications as SpaceLogic shall
reasonably request in light of the nature of the transactions contemplated
hereby.

      4.4 STOCKHOLDERS APPROVAL

      The Stockholders shall have executed a valid consent approving this
Agreement and the transactions contemplated hereby in accordance with the
applicable provisions of the Israeli Law concerning stockholder consents in lieu
of stockholder meetings.

      4.5 CONSENTS TO TRANSACTION

      SpaceLogic shall have received written consents from each of the parties
(other than SpaceLogic) to those agreements, leases, notes or other documents
identified in the Disclosure Binder and Schedule 2.6 as requiring such consents,
which consents shall in all respects be satisfactory to MBYI in its sole and
absolute discretion

      4.6 OFFICERS' CERTIFICATE

      SpaceLogic shall have delivered to MBYI a certificate of its President or
a Vice President, dated the Closing Date, stating that the representations and
warranties of SpaceLogic contained in this Agreement shall be true and correct
on and as of the Closing Date as though such representations and warranties were
made anew on and as of the Closing Date.

      4.7 STOCKHOLDERS' CERTIFICATES

      Each Stockholder shall have delivered to MBYI a certificate, dated the
Closing Date, stating that the representations and warranties of such
Stockholder contained in this Agreement shall be true and correct on and as of
the Closing Date as though such representations and warranties were made anew on
and as of the Closing Date.

      4.8 DUE DILIGENCE

      MBYI shall have completed its due diligence review to its satisfaction,
and their investigations shall not have revealed any facts or circumstances
which, in their sole and absolute judgment, reflect in a material adverse way on
the business, business prospects, assets, operations or condition (financial or
other) of SpaceLogic.
<PAGE>

      t 6 0 4.9 MATERIAL CHANGE

      From September 30, 2004 to the Closing Date, SpaceLogic shall not have
suffered any Material Adverse Effect.

      4.10 STOCKHOLDER RELEASES/INVESTMENT LETTER

      Each Stockholder shall have delivered to MBYI (x) an instrument dated the
Closing Date releasing SpaceLogic from any and all (i) claims prior to the
Closing Date of such Stockholder against SpaceLogic from and (ii) obligations
prior to the Closing Date of SpaceLogic to such Stockholder, except for
obligations arising under this Agreement or the transactions contemplated hereby
and (y) an investment letter and receipt in the form annexed as Exhibit 4.10.

      4.11 INTENTIONALLY DELETED.

      4.12 EMPLOYMENT AGREEMENTS

      Gary Koren shall have entered into an employment agreement as Chief
Executive Officer of MBYI, Shalom Dolev as Vice President of Security Systems of
MBYI, and Michael Klein as Chief Operation Officer of SpaceLogic, all in the
form attached hereto as Exhibit 4.12.

      4.13 BOARD OF DIRECTORS NOMINEES.

      SpaceLogic shall have nominated at least five (5) individuals, reasonably
acceptable to MBYI and Baytree Capital Associates, LLC, including such number of
independent directors as required by the Sarbanes-Oxley Act of 2002, to join the
Board of Directors.

      4.14 LOCK-UP LETTER

      Each Stockholder shall have executed a lock-up letter, in the form set
forth in Exhibit 4.14 hereto restricting the sale of the MBYI Common Stock
received as the Purchase Price for a period of eighteen (18) months following
the Closing.

      4.15 TERMINATION OF STOCKHOLDER AGREEMENTS

      All stockholder agreements and other agreements related to the SpaceLogic
Stock have been terminated.

      4.16 SECURELOGIC (ISRAEL) STOCK PURCHASE AGREEMENT.

      MBYI and the Remaining SecureLogic (Israel) Stockholder have entered into
a Stock Purchase Agreement consistent with the terms and conditions herein and
reasonably acceptable to MBYI.
<PAGE>

                 ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS
                  OF THE SPACELOGIC STOCKHOLDERS AND SPACELOGIC

      The obligations of the Stockholders and SpaceLogic to perform and observe
the covenants, agreements and conditions hereof to be performed and observed by
them at or prior to the Closing Date shall be subject to the satisfaction of the
following conditions on or prior to the Closing Date, which conditions may be
expressly waived in writing by on behalf of SpaceLogic, by the President of
SpaceLogic and by the Stockholders who collectively hold at least 75% of the
SpaceLogic Stock.

      5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES

      The representations and warranties of MBYI contained herein and in the
Operative Documents shall have been true in all material respects when made and
shall be true in all material respects as of the Closing Date as though made on
that date, except as affected by transactions contemplated hereby and except and
to the extent that such representations and warranties are made as of a
specified date, in which case such representations and warranties shall be true
in all material respects as of the specified date.

      5.2 PERFORMANCE OF AGREEMENT

      MBYI shall have performed all obligations and agreements and complied with
all covenants and conditions contained in this Agreement or any Operative
Document to be performed and complied with by them at or prior to the Closing
Date.

      5.3 CASH BALANCE

      At and as of the Closing, the Cash Balance shall be no less than the sum
of (i) $$2,160,000 plus (ii) the amount (including zero, if applicable)
determined, in writing, by MBYI's certified public accountants pursuant to the
provisions of Section 7.16 below.

      5.4 OFFICERS' CERTIFICATE

      MBYI shall have delivered to SpaceLogic a certificate, dated the Closing
Date, stating that the representations and warranties of MBYI contained in this
Agreement shall be true and correct on and as of the Closing Date as though such
representations and warranties were made anew on and as of the Closing Date.

      5.5 OPINION OF COUNSEL

      SpaceLogic shall have received an opinion of counsel to MBYI, in the form
of Exhibit 5.5 with such customary changes and modifications as MBYI shall
reasonably request in light of the nature of the transactions contemplated
hereby.

      5.6 RESIGNATIONS

      SpaceLogic shall have received resignations effective as of the Closing of
all of the directors and officers of MBYI.
<PAGE>

      5.7 DUE DILIGENCE

      SpaceLogic shall have completed its due diligence review to its
satisfaction, and their investigations shall not have revealed any facts or
circumstances which, in their sole and absolute judgment, reflect in a material
adverse way on the assets or condition (financial or other) of MBYI.

      5.8 LEAK-OUT AGREEMENTS.

      Each MBYI Principal Stockholder, as listed on Schedule 5.8 hereof, shall
have executed a "Leak-Out" agreement, in the form set forth in Exhibit 5.8
hereto, or in such other form reasonably acceptable to the parties limiting the
sale of the MBYI Common Stock held by each such MBYI Principal Stockholder for a
period of eighteen (18) months following the Closing. The number of shares held
by each of such MBYI Principal Stockholders is set forth on Schedule 5.8
opposite such MBYI Principal Stockholder's name.

      5.9 AUTHORIZED CAPITAL

      The Certificate of Incorporation of MBYI has been amended to increase the
number of shares of common stock that MBYI authorized to issue to 100,000,000.

      5.10 RECEIPT OF SIDE LETTER REGARDING FUTURE PAYMENTS RECEIVABLE.

      SpaceLogic shall have received from Baytree Capital Associates, LLC
("Baytree") an agreement (the "Baytree Agreement"), which provides that, in the
event of the default of any payment of a Secured Obligation by IMSI, which
results in a foreclosure sale of the capital stock of Allume Systems, Inc.,
Baytree or its designee shall bid to purchase Allume Systems, Inc., at any
auction or sale of the same, in an amount equal to at least the remaining amount
of the Future Payments Receivable, excluding the those Future Payments
Receivable referenced in Section 7.17 below.

                      ARTICLE VI - CONDITIONS PRECEDENT TO
                           OBLIGATIONS OF ALL PARTIES

      The obligations of all parties to perform and observe the covenants,
agreements and conditions hereof to be performed and observed by them at or
prior to the Closing Date shall be subject to the satisfaction of the following
conditions on or prior to the Closing Date, which conditions may be expressly
waived in writing by MBYI, SpaceLogic and the Stockholders.
<PAGE>

      6.1 LEGAL PROCEEDINGS

      No order of any court or administrative agency shall be in effect which
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened which would enjoin, restrain,
condition or prevent consummation of this Agreement or any Operative Document.

      6.2 APPROVALS AND CONSENTS

      Except as set forth in Schedule 6.2, all transfers of permits or licenses,
all approvals, applications or notices to public agencies, federal, state, local
or foreign, the granting or delivery of which is necessary for the consummation
of the transactions contemplated hereby or for the continued operation of
SpaceLogic, shall have been obtained, and all waiting periods specified by law
shall have passed. All other consents, approvals and notices referred to in this
Agreement shall have been obtained or delivered.

                             ARTICLE VII - COVENANTS
            7.1 CONDUCT OF BUSINESS BY SPACELOGIC PENDING THE CLOSING

      A. Prior to the Closing, unless MBYI shall otherwise agree or as otherwise
contemplated by this Agreement:

      (a) SpaceLogic shall conduct its business only in the ordinary course and
shall not materially change its operations;

      (b) SpaceLogic shall not (i) amend its Certificate of Incorporation or
By-Laws or (ii) split, combine, reclassify, redeem, purchase or otherwise
acquire its outstanding capital stock or declare, set aside or pay any dividend
payable in cash, stock or property;

      (c) SpaceLogic shall not (i) issue or agree to issue any additional shares
of, or rights of any kind to acquire any shares of, its capital stock of any
class, (ii) acquire or dispose of any fixed assets or acquire or dispose of any
other assets other than in the ordinary course of business, (iii) incur a
material amount of additional indebtedness or any other material liabilities or
enter into any other material transaction, (iv) take any other of the actions
listed in Section 2.8 hereof, or (v) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;

      (d) SpaceLogic shall use its best efforts to preserve its business
organization and distribution network, to keep available the services of its
present officers and key employees, to preserve the good will of those having
business relationships with it and to continue its existing relationships with
its lenders, suppliers, customers and key employees; and

      (e) SpaceLogic shall promptly notify MBYI of any material adverse change
in the assets, properties, business, results of operations, properties or
financial condition of SpaceLogic.
<PAGE>

      B. Prior to the Closing, unless SpaceLogic shall otherwise agree or as
otherwise contemplated by this Agreement:

      (a) MBYI shall not (i) amend its Certificate of Incorporation or By-Laws
or (ii) split, combine, reclassify, redeem, purchase or otherwise acquire its
outstanding capital stock or, except as set forth herein, declare, set aside or
pay any dividend payable in cash, stock or property;

      (c) Except as provided for herein. MBYI shall not (i) issue or agree to
issue any additional shares of, or rights of any kind to acquire any shares of,
its capital stock of any class, (ii) acquire or dispose of any fixed assets or
acquire or dispose of any other assets other than in the ordinary course of
business, (iii) incur a material amount of additional indebtedness or any other
material liabilities or enter into any other material transaction, (iv) take any
other of the actions listed in Section 2.8 hereof, or (v) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing; and

      (e) MBYI shall promptly notify SpaceLogic of any Material Adverse Effect.

      7.2 ACCESS AND INFORMATION

      Subject to MBYI's compliance with Section 7.7 hereof, SpaceLogic shall
afford MBYI and its respective accountants, counsel and other representatives
full access during normal business hours throughout the period prior to the
Closing to all of SpaceLogic's properties, books, contracts, commitments and
records (including, but not limited to, tax returns), and, during such period,
SpaceLogic shall furnish promptly to MBYI all information concerning
SpaceLogic's business, properties and personnel as MBYI may reasonably request;
provided, however, that no investigation pursuant to this Section 7.2 shall
affect any representations or warranties made herein or the conditions to the
obligations of MBYI to consummate this Agreement. Subject to their compliance
with Section 7.7 hereof, SpaceLogic and the Stockholders shall also be permitted
to conduct such investigation of MBYI as is reasonable and necessary to evaluate
the financial condition and prospects of, and the risk of investment in, the
MBYI Common Stock.

      7.3 ADVICE OF CLAIMS

      From the date of this Agreement to and including the Closing Date, each
party hereto shall promptly advise all other parties hereto in writing of the
commencement or threat of any claims, litigation or proceedings against or
affecting any party hereto, of which such party has knowledge.

      7.4 COOPERATION

      Each party hereto will fully cooperate with the other parties, their
counsel and accountants in connection with any steps required to be taken as
part of its obligations under this Agreement. Each party will use its best
efforts to cause all conditions to this Agreement to be satisfied as promptly as
possible and to obtain all consents and approvals necessary for the due and
punctual performance of this Agreement and for the satisfaction of the
conditions hereof. No party will undertake any course of action inconsistent
with this Agreement or which would make any representations, warranties or
agreements made by such party in this Agreement or any of the Operative
Documents untrue or any conditions precedent to this Agreement unable to be
satisfied at or prior to the Closing.
<PAGE>

      7.5 INFORMATION IN DISCLOSURE DOCUMENTS

      Each party covenants that, other than with respect to information
furnished by the other parties for use therein, none of the information to be
included in the materials to be furnished to the Stockholders by or on behalf of
the Board of Directors or management of the parties to this agreement in
connection with the approval of this Agreement by the Stockholders, or other
parties hereto will contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.

      7.6 NO OFFERS

      Unless this Agreement terminates pursuant to Article IX hereof, neither
SpaceLogic nor the Stockholders shall, directly or indirectly, take (nor allow
its officers, directors, employees, investment bankers, attorneys, accountants
or other agents or affiliates to take) any action to encourage, solicit,
initiate or otherwise facilitate the submission by a third party of, or
negotiate or enter into any agreement with a third party with respect to, a
proposal to acquire, directly or indirectly, any of the capital stock of
SpaceLogic or substantially all the assets of SpaceLogic or the business of
SpaceLogic, and SpaceLogic shall immediately cease any current negotiations.

      7.7 CONFIDENTIALITY

      In connection with the transactions contemplated herein, MBYI and
SpaceLogic are furnishing each other and the Stockholders with certain
information, which is either nonpublic, confidential or proprietary in nature.
All such information furnished by one party to the other or its representatives
is hereinafter referred to as the "Confidential Information". As used in this
Agreement, the "representatives" of any party shall mean such party's officers,
employees, agents or other representatives, including, without limitation,
attorneys, accountants, consultants and financial advisors. In consideration of
each party's being furnished with the Confidential Information of the other,
each party agrees that:

            (a) The Confidential Information will be kept confidential and
except as required by law will not, without the prior written consent of the
party supplying the information, be disclosed by the receiving party or its
representatives in any manner whatsoever, in whole or in part, and will not be
used by the receiving party or its representatives directly or indirectly for
any purpose other than evaluating and facilitating the transactions contemplated
herein; provided, however, that upon the execution of this Agreement by MBYI,
the Stockholders and SpaceLogic, MBYI and its representatives will be free to
use the Confidential Information to the extent required by law in any subsequent
filings with federal or state authorities relating to the transactions
contemplated herein. Each party agrees to transmit the Confidential Information
only to those of its representatives who need to know the Confidential
Information for the purpose of advising it regarding any of the purposes for
which it is permitted to use the Confidential Information under the terms of
this Agreement, who are informed by the party supplying such information of the
confidential nature of the Confidential Information and who are directed by such
party to comply with the terms of this Agreement. Each party will be responsible
for any material breach of this Agreement by its representatives.
<PAGE>

            (b) Without the prior written consent of the other parties to this
Agreement, no party or any of its representatives will disclose to any other
person the fact that the Confidential Information has been made available, or
any of the terms, conditions or other facts with respect to the transactions
contemplated herein, including the status thereof, except as required by law or
permitted under the terms of this Agreement.

            (c) In the event the parties do not proceed with the transactions
contemplated herein, the Confidential Information and all copies thereof will be
destroyed or returned promptly without retaining any copies thereof. Analyses,
notes, studies or other documents prepared by any party or its representatives
for the purpose of assisting it in connection with the transactions contemplated
herein will be held by the receiving party and kept confidential and subject to
the terms of this Agreement or, at the election of the other party, destroyed.

            (d) This Section 7.7 shall be inoperative as to such portions of the
Confidential Information which (i) are or become generally available to the
public other than as a result of a disclosure by the receiving party or its
representatives which is not required by law; (ii) become available to the
receiving party from a source with no obligation of confidentiality to the other
party; (iii) describe technology independently developed by the receiving party;
or (iv) were known to the receiving party on a non-confidential basis prior to
its disclosure to the receiving party by the supplying party or one of its
representatives.

            (e) In the event that a receiving party or any of its
representatives is requested or becomes legally compelled (by written or oral
interrogatories, subpoena, civil or criminal investigative demand or similar
process) to disclose any of the Confidential Information for purposes not
permitted by this Agreement, the receiving party will provide the supplying
party with prompt written notice so that the supplying party may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement. In the event that such protective order or other
remedy is not obtained, or that the supplying party waives compliance with the
provisions of this Agreement, the receiving party will furnish only that portion
of the Confidential Information which is legally required, and will exercise
good faith efforts to obtain reliable assurance that confidential treatment will
be accorded the Confidential Information.
<PAGE>

            (f) Each party agrees that the other parties shall be entitled to
equitable relief, including injunction and specific performance, in the event of
any breach of the provisions of clause (a), (b), (c) or (e) of this Section 7.7.
Such remedies shall not be deemed to be the exclusive remedies for a breach of
this Section 7.7 by any party or its representatives but shall be in addition to
all other remedies available at law or equity.

            (g) It is further understood and agreed that no failure or delay by
any party in exercising any right, power or privilege under this Section 7.7
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise of such any right, power or
privilege hereunder.

      7.8 CERTAIN PROVISIONS RELATED TO CONSENTS

      SpaceLogic shall use commercially reasonable efforts prior to and after
the Closing to obtain all consents that are required in connection with the
transactions contemplated by this Agreement and the other Operative Documents.
SpaceLogic shall not obtain any consent that will affect SpaceLogic to its
economic detriment. SpaceLogic shall cooperate as reasonably necessary or
desirable to secure the third party consents, including, without limitation,
providing to such third party information, including financial information;
provided, however, that SpaceLogic shall not be required to incur any liability
or obligation in connection therewith, other than for the underlying matter for
which such consent was obtained as in effect immediately prior to such consent.

      7.9 FURTHER ACTS

      After the Closing Date, each party hereto, at the request of and without
any further cost or expense to the other parties, will take any further actions
necessary or desirable to carry out the purposes of this Agreement or any
Operative Document, to maintain for MBYI full title to all properties, assets
and rights of SpaceLogic and to effect the transfer of the Stock to MBYI and to
effect the issuance of the MBYI Stock to the Stockholders and to consummate any
other transaction contemplated herein.

      7.10 NOTICE OF CERTAIN EVENTS.

      SpaceLogic shall promptly notify MBYI of:

      (a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement or any other Operative Document;
<PAGE>

      (b) any notice or other communication from any Governmental Agency in
connection with the transactions contemplated by this Agreement or any other
Operative Document; and

      (c) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge, threatened against, relating to or involving or otherwise
affecting SpaceLogic if pending on the date of this Agreement or that relate to
the consummation of the transactions contemplated by this Agreement or any other
Operative Document.

      7.11 SEC COMPLIANCE.

      Following the Closing Date, at all times SpaceLogic shall continue to
comply with all of the provisions applicable to it of the Exchange Act, unless
and until MBYI has sold all or substantially all of its assets in a transaction
requiring the approval of its stockholders or merged with and into another
issuer.

      7.12 SARBANES-OXLEY ACT OF 2002.

      Unless and until MBYI lists a class of its securities on the New York or
American Stock Exchange, it shall comply with all of the provisions of the
Sarbanes-Oxley Act of 2002.

      7.13 INVESTOR RELATIONS.

      MBYI shall appoint a public relations firm and an investor relations firm
reasonably satisfactory to Baytree LLC for a period of three (3) years following
the Closing.

      7.14 DIRECTORS' AND OFFICERS' INSURANCE.

      MBYI shall either (a) maintain MBYI's current directors' and officers'
liability insurance policy or (b) obtain a replacement directors' and officers'
liability insurance policy providing the same or greater amount of coverage,
provided that, any such policy shall provide coverage for past acts of the Board
of Directors of MBYI prior to the Closing.

      7.15 PIGGYBACK REGISTRATION RIGHTS.

      (a) If MBYI proposes to make a registered public offering of any of its
securities under the Act (other than a registration statement (i) on Form S-4,
S-8, or any successor form thereto or (ii) filed in connection with an offering
made solely to employees of the MBYI), whether or not for its own account, the
MBYI shall, not less than 15 days prior to the proposed filing date of the
registration statement, give written notice of the proposed registration to each
Stockholder and, at the written request of a Stockholder delivered to the MBYI
within 15 days after receipt of notice, shall include in the registration (a
"Piggyback Registration"), all MBYI Common Stock as may have been designated in
each Stockholder's request. Each Stockholder will be permitted to withdraw all
or any of its securities from a registration statement at any time prior to the
effective date of such registration statement.
<PAGE>

      (b) Notwithstanding Section 7.15(b) above, if the managing underwriter or
underwriters of such offering advise that the total amount of securities
proposed to be included in a registration statement by MBYI, the Stockholders,
and any other persons having rights to participate in such registration, will
adversely affect the success of the offering, the amount of securities to be
included therein for the account of all other persons other than MBYI and any
persons having registration rights senior to those of the Stockholders will be
reduced (to zero if necessary) pro rata in proportion to the number of shares
held by each such person to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters.

      (c) MBYI shall pay all expenses incurred in connection with all
registrations pursuant to Section 7.15 hereof, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, underwriting discounts, fees and expenses (other
than such Stockholder's pro rata portion of any underwriting discounts, selling
commissions and special counsel fees or more than one counsel for the selling
stockholders or the equivalent thereof), printing expenses, messenger and
delivery expenses, and fees and expenses of counsel for MBYI and all independent
certified public accountants and other persons retained by MBYI.

      7.16 TRANSFER OF EXCLUDED ASSETS

      Notwithstanding anything to the contrary contained herein, on or before
the Closing, certain assets of MBYI, as set forth in Schedule 7.16 herein (the
"Excluded Assets") shall be transferred to or be distributed to the pre-closing
stockholders of MBYI as a dividend or pursuant to a mechanism to be determined
by MBYI; provided that, in the event that any such transfer shall trigger a tax
liability to MBYI, the Cash Balance, as defined above, shall be increased to
reflect such tax liability related to such transfer in an amount as determined,
in writing, by MBYI's certified public accountants.

      7.17 ADDITIONAL SHARES REGARDING CERTAIN FUTURE PAYMENTS RECEIVABLES

      A. In the event that, as of the Closing, the amount of the Future Payments
Receivable actually due and payable to MBYI shall be less than the amount set
forth in Schedule 3.10, the Cash Balance shall be deemed to be increased by the
amount by which the Future Payments Receivable shall be less than as set forth
in Schedule 3.10.

      B. In the event that any of the Future Payments Receivables due from IMSI
on or about June 2, 2005 (in the amount of $666,667) and October 19, 2005 (in
the amount of $75,000), and the Future Payments Receivable due from Aladdin
Knowledge Systems due on January 5, 2007 (in the amount of $130,000) shall not
be received in full within sixty (60) days of the applicable payment date, the
Purchase Price shall be deemed to be increased by one (1) share of MBYI Common
Stock for each $0.45 not paid by IMSI, such additional shares of MBYI Common
Stock to be issued to the SpaceLogic Stockholders on a pro rata basis.
<PAGE>

      C. In the event that payment of any of the Secured Obligations due from
IMSI shall be not be received in full within sixty (60) days of the applicable
payment date; and further, provided that, MBYI shall not receive payment of an
equivalent amount via the mechanism set forth in the Baytree Agreement, the
Purchase Price shall be deemed to be increased by one (1) share of MBYI Common
Stock for each $0.45 not paid by IMSI, such additional shares of MBYI Common
Stock to be issued to the SpaceLogic Stockholders on a pro rata basis.

      7.18 RIGHT OF MBYI TO EFFECT TRANSACTION WITH NEWLY FORMED SUBSIDIARY.

      MBYI shall have the right and option, at its discretion, prior to the
Closing, to effect the Transaction with SecureLogic, [Inc.], a newly formed
Delaware corporation ("SecureLogic"), wholly-owned by MBYI in the stead of MBYI,
provided that such election by MBYI shall not affect the representations and
warranties or duties and obligations (other than altering the parties to the
Transaction) made by MBYI to SpaceLogic and the Stockholders. MBYI shall
exercise such right by providing notice thereof to SpaceLogic, prior to the
Closing, in accordance with the notice provisions herein.

                                 ARTICLE VIII -
                         DOCUMENTS DELIVERED AT CLOSING

      8.1 DOCUMENTS AT CLOSING.

      At the Closing, the following documents shall be delivered:

      (a) SpaceLogic shall deliver, or shall cause to be delivered, to MBYI the
following:

            (i) a certificate executed by the President and Secretary of
SpaceLogic to the effect that all representations and warranties made by
SpaceLogic under this Agreement are true and correct as of the Closing, the same
as though originally given to MBYI on said date;

            (ii) such other instruments, documents and certificates, if any, as
are required to be delivered pursuant to the provisions of this Agreement;

            (iii) certified copies of resolutions adopted by the directors of
SpaceLogic authorizing this transaction;

            (iv) SpaceLogic's certified audit for the period ended December 31,
2004; and
<PAGE>

            (v) all other items, the delivery of which is a condition precedent
to the obligations of MBYI as set forth herein.

      (b) MBYI will deliver or cause to be delivered to SpaceLogic:

            (i) stock certificates representing the shares of MBYI Common Stock
to be issued to the Stockholders as the Purchase Price;

            (ii) a certificate of the President of MBYI, to the effect that all
representations and warranties of MBYI made under this Agreement are true and
correct as of the Closing, the same as though originally given to SpaceLogic on
said date;

            (iii) certified copies of resolutions adopted by MBYI's board of
directors authorizing the transaction contemplated hereunder and all related
matters described herein;

            (iv) certificate from the jurisdiction of incorporation of MBYI
dated at or about the Closing Date that MBYI is in good standing under the laws
of said state;

            (v) such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement; and

            (vi) resignations of the officers and directors of MBYI.

                            ARTICLE IX - TERMINATION

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

      (a) by the mutual consent of SpaceLogic and MBYI

      (b) by either SpaceLogic or MBYI if the other parties shall have
substantially and materially breached their agreements hereunder; provided,
however, that SpaceLogic may not terminate this Agreement for a breach by the
Stockholders. Furthermore, this Agreement shall not be terminated (nor shall any
other action be taken) for any breach hereunder, unless the party seeking
termination shall have provided to all other parties written notice describing
the breach with sufficient specificity to permit cure thereof and the other
parties shall have a reasonable opportunity (of not less than 30 days) to cure
such breach. In the event of such cure, the cured breach shall be deemed a
nullity and no action of any nature arising out of such nullified breach,
against the breaching party shall be permitted; or

      (c) by either SpaceLogic or MBYI if the Closing has not occurred by April
30, 2005; provided that the party electing to terminate has used its best
efforts to consummate the Closing prior to April 30, 2005.
<PAGE>

      In the event of any termination pursuant to this Article IX (other than
pursuant to clause (a) above), written notice setting forth the reasons therefor
shall forthwith be given by the terminating party to the other parties hereto.
Such termination shall not prejudice any party's right to seek remedies for
another party's breach of this Agreement. All provisions of this Agreement
regarding confidentiality and non-disclosure shall survive the termination of
this Agreement.

                               ARTICLE X - GENERAL

      10.1 EXPENSES

      Whether or not the transactions contemplated by this Agreement are
consummated, each party shall pay its own fees and expenses incident to the
negotiation, preparation and carrying out of this Agreement and the Operative
Documents (including legal and accounting fees and expenses), provided that,
should any action be brought hereunder, the attorneys' fees and expenses of the
prevailing party shall be paid by the other party to such action.

      10.2 AMENDMENT

      SpaceLogic, MBYI and the Stockholders may amend, modify or supplement this
Agreement at any time, but only in writing duly executed on behalf of each of
the parties to be bound thereby.

      10.3 INDEMNIFICATION AND SURVIVAL OF WARRANTIES

            10.3.1 (a) SpaceLogic and the Stockholders agree to indemnify, MBYI,
its successors and assigns, and the officers, directors, affiliates, employees,
controlling Persons and agents of the foregoing, and to hold each of them
harmless against and in respect of any and all losses, damages, Taxes, penalties
or other additions to Taxes, costs and expenses, including attorneys' and
accountants' fees incurred by any of them by reason of (i) a breach of any of
the representations or warranties made by SpaceLogic or the Stockholders in this
Agreement or the Operative Documents or (ii) the nonperformance (whether partial
or total) of any covenants or agreements made by SpaceLogic or the Stockholders
in this Agreement or the Operative Documents.

            (b) MBYI agrees to indemnify and to hold harmless the Stockholders
and his successors, assigns heirs, and legatees against and in respect of all
losses, damages, Taxes, penalties or other additions to Taxes, costs and
expenses, including attorneys' and accountants' fees incurred by any of them by
reason of (i) a breach of any of the representations or warranties made by MBYI
in this Agreement or the Operative Documents or (ii) the nonperformance (whether
partial or total) of any covenants or agreements made by MBYI in this Agreement
or the Operative Documents. The representations and warranties of MBYI contained
in this Agreement shall not survive the Closing.
<PAGE>

            10.3.2 If any Person entitled to indemnification pursuant to Section
10.3.1 hereof (an "Indemnitee") is threatened in writing with any claim, or any
claim is presented in writing to, or any action or proceeding is formally
commenced against, any of the Indemnitees which may give rise to the right of
indemnification hereunder, the Indemnitee will promptly give written notice
thereof to each indemnifying party; provided, however, that any delay by an
Indemnitee in so notifying the indemnifying party shall not relieve the
indemnifying party of any liability to any of the Indemnitees hereunder except
to the extent that the indemnifying party shall have been actually prejudiced as
a result of such failure.

            10.3.3 The indemnifying party or parties, by delivery of written
notice to an Indemnitee within 30 days of notice of claim to indemnity from an
Indemnitee, may elect to assume the defense of such claim, action or proceeding
at the expense of the indemnifying party; provided, however, that (a) unless
such written notice shall be accompanied by a written agreement of each
indemnifying party acknowledging the liability of the indemnifying parties to
the Indemnitees as a result of this Agreement for any indemnified damage which
any Indemnitee might incur or suffer as a result of such claim, action or
proceeding or the contesting thereof, each indemnifying party shall be jointly
and severally liable for the attorneys' fees and expenses of the Indemnitee, if
any, incurred in connection with defending such claim; (b) counsel undertaking
such defense shall be reasonably acceptable to the Indemnitee; (c) the
indemnifying parties shall mutually elect to contest such claim, action or
proceeding and shall conduct and settle such contest in a joint manner, and if
the indemnifying parties shall fail at any time to agree, the Indemnitee shall
have no obligation to contest such claim, action or proceeding and (d) if the
Indemnitee requests in writing that such claim, action or proceeding not to be
contested, then it shall not be contested but shall not be covered by the
indemnities provided herein. The indemnifying parties may settle an
indemnifiable matter after delivering a written description of the proposed
settlement to and receiving consent from the Indemnitee. In the event the
Indemnitee unreasonably declines to consent to such settlement, then the
Indemnitee shall have no right to indemnification beyond the amount of the
proposed settlement. In the event the indemnifying parties jointly elect to
contest an indemnifiable matter, MBYI and the Stockholders shall permit each
other reasonable access, subject to the provisions of Section 7.9 hereof, to
their respective books and records and shall otherwise cooperate in connection
with such claim. If the indemnifying parties do not jointly elect to contest an
indemnifiable matter, they shall cooperate with the Indemnitee to the extent any
of them has knowledge of facts or circumstances relating to such matter, and the
Indemnitee shall have the exclusive right to prosecute, defend, compromise,
settle or pay any claim, but the Indemnitee shall not be obligated to do so;
provided, however, that, should the Indemnitee elect not to exercise its right
exclusively to prosecute, defend, compromise, settle or pay such claim, any
indemnifying party may elect to do so at its sole expense.

            10.3.4 The representations and warranties of SpaceLogic and the
Stockholders contained in this Agreement shall survive the Closing for a period
of three (3) years from the Closing.
<PAGE>

            10.3.5 Indemnity obligations hereunder of SpaceLogic and the
Stockholders shall be limited in that the same shall be satisfied solely by
offsetting any amounts due from the Stockholders against shares of MBYI Common
Stock which are issuable to the Stockholders pursuant to Section 1.3 above, such
shares to be valued at the time that any such payment is to be made.

      10.6 COUNTERPARTS

      This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

      10.7 HEADINGS

      The headings preceding the text of Articles and Sections of this Agreement
are for convenience only and shall not be deemed parts thereof

      10.8 APPLICABLE LAW

      This Agreement, including all matters of construction, validity and
performance, shall be governed by and construed and enforced in accordance with
the laws of the state of Delaware, as applied to contracts executed and to be
fully performed in such state by citizens of such state.

      10.9 PARTIES IN INTEREST; ASSIGNMENT

      All the terms and provisions of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
permitted assigns of the parties hereto, whether herein so expressed or not, but
neither this Agreement nor any of the rights, interests or obligations hereunder
of any party hereto shall be assigned without the prior written consent of the
other parties; provided that (a) any Stockholder shall be permitted to assign
its consideration payable hereunder to any third party and (b) any Stockholder
which is a corporation may assign its rights and obligations under this
Agreement to the principal stockholder of such corporation, or to the principal
stockholder of the parent corporation of such stockholder. This Agreement is not
intended, nor shall it be construed, to confer any enforceable rights on any
Person not a party hereto.

      10.10 NOTICES

      Any notice or demand desired or required to be given hereunder shall be in
writing given by personal delivery or certified or registered mail, reputable
overnight courier service, telegram or confirmed facsimile transmission,
addressed as respectively set forth below or to such other address as any party
shall have previously designated by such a notice, The effective date of any
notice or request shall be three days from the date it is mailed by the
addressor, upon delivery of the courier package if it is sent by courier, upon
delivery to a telegraph company properly addressed with charges prepaid, upon
confirmation of a successful facsimile transmission, or in any event upon
personal delivery.
<PAGE>

      Notices to MBYI, SpaceLogic and the Stockholders shall be sent as follows:

      Monterey Bay Tech, Inc.
      245 Westridge Drive
      Watsonville, CA 95076-4159
      Fax: (831) 761-6201
      Attention: Jonathan Kahn, CEO

      with copies to:

      Cyruli Shanks & Zizmor, LLP
      420 Lexington Avenue
      Suite 2020
      New York, NY 10170
      Attention: Paul Goodman

      To SpaceLogic and the Stockholders:

      43 Hamelacha St.
      Netanya, Israel 42505
      Attn: Gary Koren

      As set forth below each Stockholders name.

      with copies to:

      Fischer, Behar, Chen & Co.
      3 Daniel Frisch Street
      Tel Aviv 64731
      Israel
      Attn: Reuven Behar, Adv.

      10.11 PUBLICITY

      Until the Closing, neither SpaceLogic nor the Stockholders shall make or
issue, or cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of MBYI.

      Except as required by law, MBYI shall not make any public announcements
regarding the transaction contemplated herein without the consent of SpaceLogic,
not to be unreasonably withheld. Any press release or other public disclosure,
and any Form 8-K report prepared for filing by MBYI, shall be reviewed and
commented on by SpaceLogic prior to its publication, such review and comment by
SpaceLogic to be completed within one (1) business day.
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.

                                          MONTEREY BAY TECH, INC.

                                          By:/s/ Jonathan Kahn
                                          ---------------------------
                                          Its: Chief Executive Officer

                                          SPACELOGIC, LTD.

                                          By: /s/ Gary Koren
                                          ---------------------------
                                          Its: President

                                          THE STOCKHOLDERS:

                                          /s/ Gary Koren
                                          ----------------------------
                                          Gary Koren
                                          10 Almog St.
                                          P.O.B. 1551

                                          Arsuf, Israel

                                          /s/ Michael Klein
                                          ----------------------------
                                          Michael Klein
                                          5/24 Hataniem St.

                                          Herzelia, Israel

                                          /s/ Milton Gross
                                          ----------------------------
                                          Milton Gross
                                          65 Rotschild St.

<PAGE>

                                          Kadima, Israel

                                          /s/ Iftach Yeffet
                                          ----------------------------
                                          Iftach Yeffet
                                          18 Ela St.
                                          Mazkeret-Batya, Israel

                                          The Remaining SecureLogic
                                          (Israel) Stockholder, for
                                          purposes of Article II only
                                          of this Agreement as
                                          specified therein.

                                          /s/ Shalom Dolev
                                          ----------------------------
                                          Shalom Dolev
                                          3 Hadas St.
                                          Ramat-Gan, Israel

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