INFORMATION STATEMENT
PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[ ] Definitive Information Statement
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MONTEREY BAY TECH, INC.
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(Name of Registrant As Specified In Charter)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11(Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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MONTEREY BAY TECH, INC.
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245 WESTRIDGE DRIVE
WATSONVILLE, CA 95076
INFORMATION STATEMENT
MARCH ___, 2005
GENERAL INFORMATION
This Information Statement has been filed with the Securities and Exchange
Commission and is being furnished, pursuant to Section 14C of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to the holders (the
"Stockholders") of common stock, par value $.001 per share (the "Common Stock")
of Monterey Bay Tech, Inc., a Nevada Corporation (the "Company") in connection
with the acquisition by the Company of SpaceLogic, Ltd, an Israeli corporation
(the "Transaction"). On February 17, 2005, we executed a Stock Purchase
Agreement with SpaceLogic and each of the stockholders of SpaceLogic (the "Stock
Purchase Agreement"). A complete copy of the Stock Purchase Agreement is
attached hereto as Exhibit "A".
Simultaneously with the closing of the Transaction, the Company will (a)
amend its Articles of Incorporation to change the name of the Company to
"SecureLogic Corp." and to increase the number of shares of common stock the
Company is authorized to issue to 100,000,000, (b) appoint four (4) new members
to the Company Board of Directors, and (c) adopt the Company's 2005 Incentive
Stock Option Plan (collectively, the "Additional Actions").
The Company's Board of Directors, on February 17, 2005, approved the
Transaction and the Additional Actions. In addition to approval by the Board of
Directors, the Additional Actions also require approval by a majority of the
voting power of all outstanding shares of the Company's Common Stock. Although
approval of the Transaction by a majority of the outstanding shares of the
Company's Common Stock was not required, the Board of Directors nevertheless
voted to seek such approval. In order to accelerate Stockholder approval and to
reduce the costs of obtaining Stockholder approval, our Board of Directors
elected to obtain such approval by seeking the written consent of the holders of
a majority in interest of our Common Stock (the "Consent").
On or about March 22, 2005, Stockholders who own in the aggregate
7,966,459 shares of our Common Stock, representing approximately 72.3% of our
outstanding shares (the "Majority Stockholders"), gave their written consent to
the Transaction and each of the Additional Actions.
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The elimination of the need for a special meeting of Stockholders to
approve the Transaction and the Additional Actions is made possible by Chapter
78 of the Nevada Revised Statutes (referred to herein as the "Nevada Corporation
Act" or the "NCA") which provides that the written consent of the holders of
outstanding shares of voting capital stock, having not less than the minimum
number of votes which would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted, may
be substituted for such a special meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND A PROXY.
Under certain rules of the Securities and Exchange Commission, the
Transaction and the Additional Actions may not be completed until 20 days after
the mailing of this Information Statement have elapsed. This Information
Statement is dated March ____, 2005, and is first being mailed or otherwise
distributed to our stockholders on or about March ____, 2005.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION 5
SUMMARY 7
The Companies 7
Terms of the Transaction 7
Our Majority Stockholders Consented;
No Further Stockholder Approval Required 8
Approval by the Board of Directors 8
Interests of Officers and Directors in the Transaction 8
What is Needed to Complete the Transaction 8
Termination of the Stock Purchase Agreement 8
Material United States Federal Income Tax Consequences of the
Transaction 8
Appraisal Rights 9
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS 9
THE TRANSACTION 10
Background of the Transaction 10
Purchase of the Stock of SpaceLogic 10
Our Majority Stockholders Consented;
No Further Stockholder Approval Required 10
Approval by the Board of Directors 11
Certain Effects of the Transaction 11
Interests of Officers and Directors in the Transaction 11
What is Needed to Complete the Transaction 11
Regulatory Matters 12
Change of Control 12
Material United States Federal Income Tax Consequences 12
Prior Commercial Relationships 12
THE ADDITIONAL ACTIONS 12
Amendment to Articles of Incorporation 12
Name Change 12
Increase in the Number of Shares of Common Stock Authorized 13
Appointment of New Directors 13
Adoption of 2005 Stock Option Plan 13
DESCRIPTION OF SPACELOGIC 13
General 13
Business Overview 13
Products and Services 14
Product Support 16
Distribution and Marketing 17
Product Development 17
Competition 17
Intellectual Property 18
Employees 18
Subsidiaries 19
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Properties 19
Selected Financial Information 19
SpaceLogic Management 19
Management Discussion and Analysis 21
THE STOCK PURCHASE AGREEMENTS 24
Purchase of SpaceLogic 24
Purchase and Sale of Stock in SpaceLogic 24
Effect of the Transaction 24
Consideration 24
Completion of the Transaction 24
Assets of the Company as of the Closing 24
Representations and Warranties 25
Indemnification 27
Covenants 27
Conditions to Completing the Transaction 29
Conditions to the Obligations of the Company 29
Conditions to the Obligation of SpaceLogic 31
Termination 31
Submission to Jurisdiction 32
Amendment and Waiver 32
Fees and Expenses 32
Purchase of Interest in SecureLogic, Ltd. 32
Purchase and Sale of Stock in SecureLogic 32
Effect of the SecureLogic Transaction 33
Consideration 33
Completion of the Transaction 33
APPRAISAL RIGHTS 33
PROFORMA FINANCIAL DATA 33
BENEFICIAL OWNERSHIP OF COMMON STOCK 34
RECORD DATE 34
EXPENSES OF INFORMATION STATEMENT 35
WHERE YOU CAN FIND MORE INFORMATION 35
INCORPORATION OF DOCUMENTS BY REFERENCE 36
Exhibit A -- STOCK PURCHASE AGREEMENTS
Exhibit B -- WRITTEN CONSENT OF STOCKHOLDERS
Exhibit C -- AMENDMENT TO ARTICLES OF INCORPORATION
Exhibit D -- 2005 INCENTIVE STOCK OPTION PLAN
Exhibit E -- SPACELOGIC, LTD. FINANCIAL STATEMENTS
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q: WHAT TRANSACTION HAS BEEN APPROVED?
A: We will acquire all of the issued and outstanding shares of SpaceLogic's
capital stock in exchange for 33,343,286 newly issued shares of our common
stock. In addition, we will acquire the 15% interest in SpaceLogic' SecureLogic,
Ltd subsidiary which is not already owned by SpaceLogic, in exchange for an
additional 3,520,472 newly issued shares of our common stock. In total, the
number of newly issued shares of our common stock to be issued for the
acquisition of SpaceLogic and the interest in SecureLogic not current owned by
SpaceLogic will be 36,863,758 shares.
Q. WHAT OTHER ACTIONS ARE TO BE TAKEN?
A: In connection with the closing of the Transaction, the Company (a) will
amend its Articles of Incorporation to change the name of the Company to
"SecureLogic Corp." and to increase the number of shares of common stock the
Company is authorized to issue to 100,000,000, (b) appoint four (4) new members
to the Company's Board of Directors, and (c) adopt the Company's 2005 Incentive
Stock Option Plan (collectively, the "Additional Actions").
Q: WHAT WILL BE THE EFFECT OF THE TRANSACTION AND THE ADDITIONAL ACTIONS?
A: As a result of the Transaction, SpaceLogic will become a wholly-owned
subsidiary of the Company and the current stockholders of SpaceLogic will hold
68.8% of the issued and outstanding shares of the Company. In addition, the
Company's Board of Directors will consist of at least four (4) individuals
designated by SpaceLogic, the name of the Company will change from "Monterey Bay
Tech, Inc." to "SecureLogic Corp." and the number of shares of common stock that
the Company is authorized to issue will increase to 100,000,000. You will
continue to own all of the shares of the Company you previously owned and
trading in our common stock on the OTC Bulletin Board will continue under a new
stock symbol.
Q: WHAT IS THE REASON FOR THE TRANSACTION?
A: The principal purpose of the Transaction is to enable the Company to
utilize some of it assets to capitalize on a new business opportunity.
Q: HAS THE BOARD OF DIRECTORS ALREADY APPROVED THE TRANSACTION?
A: Yes. After careful consideration, on February 17, 2005, each member of our
Board of Directors unanimously approved the Transaction and the Additional
Actions and has declared the Transaction to be fair and in the best interests of
the Company and its Stockholders.
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Q: WHY IS THERE NO STOCKHOLDER VOTE?
A: The Majority Stockholders of the Company, who together own approximately
72.3% of our outstanding Common Stock, have acted by written consent to approve
the Transaction and the Additional Actions. This action by written consent is
sufficient to ensure that Stockholders owning a majority of the Company's common
stock approved the Transaction and the Additional Actions without the vote of
any other stockholder. Accordingly, your approval is not required and is not
being sought.
Q: WHY DID I RECEIVE THIS INFORMATION STATEMENT?
A: Applicable laws require us to provide you with information regarding the
Transaction, even though your vote is neither required nor requested to complete
the Transaction.
Q: WHAT HAPPENS IF THE TRANSACTION IS NOT COMPLETED?
A: If the Transaction is not completed, none of the Additional Actions will
occur except for the adoption of the 2005 Incentive Stock Option Plan.
Q: WHEN WILL THE TRANSACTION BE COMPLETED?
A: We are working towards completing the Transaction as quickly as possible.
We currently anticipate completing the Transaction on or about April 25, 2005.
Q: WHAT WILL HAPPEN TO THE COMPANY'S ASSETS.
A. As a condition of the Agreement, certain of the Company's assets will be
utilized by the Company after the Closing to fund SpaceLogic's on-going working
capital needs. The balance of the Company's existing assets will either be
distributed to the pre-closing stockholders of the Company or shall be
transferred to a new entity formed for the benefit of the pre-closing
stockholders of the Company, as to be determined by the Board of Directors prior
to the Closing.
Q: WHAT DO I NEED TO DO NOW?
A: You do not need to do anything now. This Information Statement is for your
information only and it does not require or request you to take any action.
Q: WHO CAN HELP ANSWER MY OTHER QUESTIONS ABOUT THE TRANSACTION?
A: If you have any questions, require assistance or need additional copies of
this Information Statement or other related materials, you should contact:
Jonathan Kahn, Chief Executive Officer
Monterey Bay Tech, Inc.
245 Westridge Drive
Watsonville, CA 95076
(831) 761-6200
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SUMMARY
This summary highlights selected information from this Information Statement. It
may not contain all of the information that is important to you. To better
understand the Transaction, the Additional Actions and the related documents and
for a more complete description of the legal terms of the Transaction, you
should carefully read this Information Statement and the documents to which we
refer you to that are annexed to or incorporated by reference into this
Information Statement. Additional information about Monterey Bay Tech has been
filed with the Securities and Exchange Commission and is available as described
under "Where You Can Find More Information" on page 35.
THE COMPANIES
Monterey Bay Tech, Inc.
245 Westridge Drive
Watsonville, CA 95076
(831) 761-6200
We were formerly a technology holding company located in Watsonville,
California. Prior to April, 2004, we focused on providing software products that
align people, business and technology and served the consumer, small business
and corporate enterprise markets through two separate wholly-owned subsidiaries.
In April, 2004, we sold both of our operating subsidiaries, in two unrelated
transactions. Since April, 2004, we have not had an operating business and have
been actively engaged in seeking a new business opportunity for the Company. The
Company does not currently have a web site.
SpaceLogic, Ltd.
43 Hamelacha St.
Netanya, Israel 42505
Phone: (866) 838-1102
SpaceLogic is a software developer and systems integrator for the management of
airport security screening of baggage and passengers and airport baggage
handling. SpaceLogic also provides management software for warehouses and
distribution centers. SpaceLogic's Web site is located at www.space-logic.com.
Information on such Web site is not a part of this Information Statement.
TERMS OF THE TRANSACTION (SEE PAGE 24)
Pursuant to the Stock Purchase Agreement, we will acquire all of the issued and
outstanding common stock of SpaceLogic for a total of 33,343,286 newly issued
shares of our common stock. As of the closing of the Transaction, SpaceLogic
will become a wholly-owned subsidiary of the Company and the current
stockholders of SpaceLogic, as a group will become the majority stockholders of
the Company. In addition, at the Closing, we will also acquire the 15% interest
in SecureLogic, Ltd., which is not already owned by SpaceLogic, in exchange for
an additional 3,520,472 newly issued shares of our common stock. In total, at
the Closing, the Company will exchange a total of 36,863,758 newly issued shares
of common stock to acquire SpaceLogic and its SecureLogic subsidiary.
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OUR MAJORITY STOCKHOLDERS CONSENTED; NO FURTHER STOCKHOLDER APPROVAL REQUIRED
(SEE PAGE 10)
Although a majority vote of our Stockholders was not required to approve the
Transaction by the Nevada Corporation Act, our Board of Directors nevertheless
sought such approval. In addition, a majority vote of our Stockholders was
required to approve the Additional Actions. Under Nevada law, such approvals may
be provided in the form of a written consent of a majority of stockholders and
without a meeting of the stockholders. On March 22, 2005, the Majority
Stockholders, who together own 7,966,459 shares or approximately 72.3% of our
outstanding Common Stock, executed the written Consent approving the Transaction
and the Additional Actions. Accordingly, your approval of the foregoing is not
required, and is not being sought. A copy of the written stockholder's Consent
is included as Exhibit "B".
APPROVAL BY THE BOARD OF DIRECTORS (SEE PAGE 11)
After careful consideration, on February 17, 2005, the members of our Board of
Directors, have unanimously approved the Transaction and the Additional Actions
and have declared the Transaction to be fair and in the best interests of the
Company and its Stockholders.
INTERESTS OF OFFICERS AND DIRECTORS IN THE TRANSACTION (SEE PAGE 11)
After the Closing of the Transaction, none of our directors or executive
officers will be employed by or otherwise have any role in the management of
Company or any of its affiliates. No other party related or affiliated with the
Company has any interest in the Transaction.
WHAT IS NEEDED TO COMPLETE THE TRANSACTION (SEE PAGE 11)
Completion of the Transaction is subject to the satisfaction or waiver of
certain conditions. We do not believe that any material federal or state
regulatory approvals, filings or notices are required in connection with the
Transaction other than approvals, filings or notices required under federal
securities laws.
TERMINATION OF THE STOCK PURCHASE AGREEMENT (SEE PAGE 11)
The parties may mutually agree, at any time, to terminate the Stock Purchase
Agreement without completing the Transaction. Either party may terminate the
Stock Purchase Agreement if the Transaction is not consummated by April 30, 2005
and for other reasons.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION (SEE
PAGE 31)
Since no action is being taken in connection with the currently outstanding
shares of the Company's common stock, no gain or loss is anticipated to be
recognized by the Company's Stockholders in connection with the Transaction.
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APPRAISAL RIGHTS (SEE PAGE 33)
Pursuant to Nevada law, the Stockholders of the Company have no right to dissent
from the Transaction.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
This information statement and our filings with the Securities and
Exchange Commission that are incorporated by reference into this information
statement contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements include, but are not limited to, statements relating to Monterey Bay
Tech and SpaceLogic's anticipated financial performance, business prospects, new
developments and similar matters, and/or statements preceded by, followed by or
that include the words "believes," "could," "should," "expects," "anticipates,"
"estimates," "intends," "plans," "projects," "seeks," or similar expressions.
These forward-looking statements are necessarily estimates reflecting the best
judgment of our senior management and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. These forward-looking statements
are subject to risks, uncertainties and assumptions that could have a material
adverse effect on the Transaction and/or on our businesses, financial condition
or results of operations. In addition, investors should consider the other
information contained in or incorporated by reference into our filings with the
Securities and Exchange Commission, including our Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2003, especially in the Management's
Discussion and Analysis section, our most recent Quarterly Reports on Form
10-QSB and our Current Reports on Form 8-K. Other unknown or unpredictable
factors also could have material adverse effects on our future results,
performance or achievements. In light of these risks, uncertainties, assumptions
and factors, the forward-looking events discussed in this Information Statement
may not occur. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date stated, or if no
date is stated, as of the date of this Information Statement.
You should understand that the following important factors, in addition to
those discussed elsewhere in this document and in the documents incorporated
into this Information Statement by reference, could affect our future results
and could cause those results to differ materially from those expressed in the
forward-looking statements:
o our failure to consummate the Transaction;
o conditions in the United States economy generally and as they have
affected, and may in the future affect, us;
o the absence of reliable forecasts of our future results of
operations in light of current business conditions;
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o future regulatory and legislative actions and conditions affecting
SpaceLogic's operating areas;
o competition from others;
o product demand and market acceptance of SpaceLogic's product
offering;
o the ability to protect proprietary information and technology or to
obtain necessary licenses on commercially reasonable terms;
o acts of terrorism;
o war or political instability; and
o the risk factors and other items that are contained in our reports
and documents filed from time to time with the Securities and Exchange
Commission.
We are under no obligation, and we do not intend, to make publicly
available any update or other revisions to any of the forward-looking statements
contained in this information statement to reflect circumstances existing after
the date of this information statement or to reflect the occurrence of future
events even if experience or future events make it clear that any expected
results expressed or implied by those forward-looking statements will not be
realized.
THE TRANSACTION
BACKGROUND OF THE TRANSACTION
On December 19, 2004, the Board of Directors of the Company approved a
letter of intent for the purchase of all of the issued and outstanding capital
stock of SpaceLogic. On February 17, 2005, the Board of Directors of the Company
approved the Transaction and on February 17, 2005, the Company executed the
Stock Purchase Agreement.
PURCHASE OF THE STOCK OF SPACELOGIC
Pursuant to the Stock Purchase Agreement, the Company will purchase all of
the issued and outstanding capital stock of SpaceLogic from its stockholders. As
of the Closing of the Transaction, SpaceLogic will become a wholly-owned
subsidiary of the Company. In addition, at the Closing, we will acquire the 15%
interest of SpaceLogic's SecureLogic, Ltd. subsidiary which is not already owned
by SpaceLogic. As of the Closing, SecureLogic, Ltd. will become a wholly-owned
subsidiary of SpaceLogic.
OUR MAJORITY STOCKHOLDERS CONSENTED; NO FURTHER STOCKHOLDER APPROVAL REQUIRED
Under Nevada law, a majority vote of Monterey Bay Tech's Stockholders is
not required to approve the Transaction, however, our Board of Directors
nevertheless sought such approval. Under Nevada law, a majority vote of the
10
Company's stockholders is required to approval each of the Additional Actions.
Under Nevada law, such approval may be provided by written consent and without a
meeting of the stockholders. On March 22, 2005, the Majority Stockholders, who
together own 7,966,459 shares or approximately 72.3% of our outstanding Common
Stock, executed the written Consent approving the Transaction and each of the
Additional Actions. Accordingly, your approval of the Transaction and the
Additional Actions is not required, and is not being sought. A copy of the
written Stockholder Consent is included as Exhibit "B".
APPROVAL BY THE BOARD OF DIRECTORS
After careful consideration, on February 17, 2005, the members of our
Board of Directors, unanimously approved the Stock Purchase Agreement, the
Transaction and the Additional Actions, and have declared the Transaction to be
fair and in the best interests of the Company and its Stockholders.
CERTAIN EFFECTS OF THE TRANSACTION
As of the closing of the Transaction, SpaceLogic will become a
wholly-owned subsidiary of the Company and will be our sole operating
subsidiary. As of the Closing, the number of shares of the Company's common
stock issued and outstanding will increase from 50,000,000 to 100,000,000. Our
common stock will continue to be listed on the OTC Bulletin Board ("OTCBB").
Once our name has been changed to "SecureLogic Corp." our common stock will
trade under a new trading symbol.
In addition, as of the Closing, certain assets of the Company will be
transferred to either a newly formed corporation to be owned by the pre-Closing
stockholders of the Company or a new entity formed for the benefit of the
pre-Closing stockholders of the Company.
INTERESTS OF OFFICERS AND DIRECTORS IN THE TRANSACTION
After the Closing of the Transaction, none of our directors or executive
officers will be employed by or otherwise have any role in the management of
Company or any of its affiliates following the Transaction. No other party
related or affiliated with the Company has any interest in the Transaction.
WHAT IS NEEDED TO COMPLETE THE TRANSACTION
Completion of the Transaction is subject to the satisfaction or waiver of
certain conditions. This conditions are enumerated below in the section entitled
"Stock Purchase Agreements" We do not believe that any material federal or state
regulatory approvals, filings or notices are required in connection with the
Transaction other than approvals, filings or notices required under federal
securities laws.
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REGULATORY MATTERS
We do not believe that any material federal or state regulatory approvals,
filings or notices are required in connection with the other than approvals,
filings or notices required under federal securities laws, including the
requirement that this Information Statement be distributed to our Stockholders.
CHANGE OF CONTROL
As of the Closing, there will be a change in control in the voting stock
of the Company and the current stockholders of SpaceLogic will, as a group, hold
the majority of the issued and outstanding common stock of the Company.
Additionally, as of the Closing, the current directors of the Company will
resign and four (4) directors nominated by SpaceLogic will be appointed as
directors of the Company. Prior to the Transaction, there has been no change of
control of the Company during the 18 month period proceeding the date hereof.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Since no action is being taken in connection with the currently
outstanding shares of the Company's common stock, no gain or loss is anticipated
to be recognized by the Company's Stockholders in connection with the
Transaction.
PRIOR COMMERCIAL RELATIONSHIPS
Except as set forth herein, there has been no contact between the Company
and SpaceLogic regarding any business relationship, including the purchase of
SpaceLogic.
THE ADDITIONAL ACTIONS
A. AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION
The Amendment to the Articles of Incorporation will be effective as of the
Closing. In the event that the Stock Purchase Agreement shall be terminated, the
Amendment will not be filed by the Company and the name change and increase in
our authorized capital will not occur.
1. NAME CHANGE
Pursuant to the terms of the Stock Purchase Agreement, on or about the
Closing of the Transaction, the Company is obligated to change its name to
"SecureLogic Corp." The Consent provides for an amendment to the Company's
Articles of Incorporation to change the name of the Corporation from "Monterey
Bay Tech, Inc." to "SecureLogic Corp." The form of Amendment to the Articles of
Incorporation that will be filed with the Nevada Secretary of State is attached
hereto as Exhibit "C" (the "Amendment").
The Board of Directors believes that it is prudent to change the name of
the Company to better reflect the Company's business activities following the
acquisition of SpaceLogic.
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2. INCREASE IN NUMBER OF SHARES OF COMMON STOCK AUTHORIZED
Pursuant to the terms of the Stock Purchase Agreement, on or about the
Closing of the Transaction, the Company is obligated to increase the number of
shares of common stock that the Company is authorized to issue from 50,000,000
shares to 100,000,000. The Consent provides that the Amendment will increase the
number of shares of common that the Company is authorized to issue to
100,000,000.
The Board of Directors believes that it is prudent to increase the
number of shares of common stock that the Company is authorized to issue since
it will allow the Company the ability to issue additional shares of common stock
for future corporate purposes including, but not limited to, acquisitions and
equity financings.
B. APPOINTMENT OF NEW DIRECTORS
Pursuant to the terms of the Stock Purchase Agreement, on or about the
Closing, the current directors of the Company will resign and the Board of
Directors of the Company will consist of four (4) new directors designated by
SpaceLogic, namely, Gary Koren, Shalom Dolev, Cathal Flynn, USN (Ret.) and Sean
Deson. The biographies of Messieurs Koren, Dolev and Deson and Admiral Flynn can
be found below.
C. ADOPTION OF 2005 STOCK OPTION PLAN
Pursuant to the terms of the Stock Purchase Agreement, the Company is
obligated to adopt a new incentive stock option plan. On March 22, 2005, the
Board of Directors approved the Company's 2005 Incentive Stock Option Plan and
the Consent provides that a majority of the Company's stockholders have
consented to the adoption of the Company's 2005 Incentive Stock Option Plan. A
total of 3,000,000 new shares of our common stock have been reserved for
issuance under the 2005 Incentive Stock Option Plan. Awards under the 2005
Incentive Stock Option Plan may be granted to any of our employees, directors or
consultants or those of our affiliates. Awards may consist of stock options
(both incentive stock options and non-statutory stock options) and stock awards.
Existing options granted under the Company's 1999 stock option plan will not be
effected by the adoption of the 2005 Incentive Stock Option Plan. A copy of the
Company's 2005 Incentive Stock Option Plan is attached as Exhibit "D".
DESCRIPTION OF SPACELOGIC
GENERAL
SpaceLogic, Ltd. ("SpaceLogic"), founded in 1998, is a software developer
and systems integrator specializing in the management of airport security
screening, airport baggage handling and warehouses and distribution centers.
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BUSINESS OVERVIEW
SpaceLogic's business is divided into three product groups: SpaceLogic,
SecureLogic and ChainLogic, each devoted to one of SpaceLogic's three primary
markets.
Airport Security Screening - The SecureLogic product group provides
innovative control software systems for efficient and effective 100% checked
baggage screening. SecureLogic's iScreen software systems integrate unique
security methodologies with state-of-the-art screening and baggage handling
technologies, providing a comprehensive control package for baggage screening
and passenger screening operations. The SecureLogic product line ensures
efficient and cost-effective automation of security screening and baggage
handling for an airport's checked baggage handling operation and enhances the
capabilities of airports to meet their significant managerial and control
challenges.
Baggage Handling and Early Baggage Systems - The SpaceLogic product
group's software toolkits and methodologies facilitate the streamlined
implementation and control of integrated baggage handling systems and include
superior solutions for storage of early check-in baggage. SpaceLogic provides
integrated systems that combine automated equipment controlled by its software
toolkits with the most advanced third party hardware systems, allowing for rapid
implementation of software for airport baggage handling systems. Special
emphasis is given to high quality and on-time supply of fully operational
turnkey systems.
Warehouse and Distribution Center Management Systems - The ChainLogic
product group provides comprehensive material handling solutions that integrate
computer systems, material handling equipment and storage equipment together
with human resources to ensure optimized warehouse and distribution center
management. ChainLogic has experienced long term successful cooperation with
some of the major international equipment manufacturers, including FKI Logistex,
Crisplant and White Systems. ChainLogic's modular toolkit approach enables the
integration of ChainLogic software into a customer's existing operational
environment. Toolkits are available on a licensed basis to system integrators or
equipment manufacturers.
PRODUCTS AND SERVICES
SecureLogic Products and Services
SecureLogic's iScreen product line provides a comprehensive management,
control and monitoring solution for the entire passenger and baggage screening
processing sequence, from check-in to checkpoint and includes the following
applications:
In-Line - for fully automated checked baggage screening operations
integrated in-line into the airports baggage handling systems.
In-Lobby - for non-automated hold baggage screening operations, typically
deployed in terminal lobbies including special checked baggage screening
operations (e.g. for odd-shaped/ oversized bags; curbside etc.).
14
Checkpoint (currently in development) - for carry-on and passenger
screening at the security checkpoints of airport terminals.
The iScreen product line for airports is the first product to meet airport
requirements by providing a system for 100% baggage screening at high detection
rates. It affords airport security managers the flexibility to easily adjust
screening procedures according to risk level and according to operational
considerations such as load level, capacity, and workforce. iScreen integrates
the various screening operations within the checked baggage security system with
the routing procedures necessary to safely screen and transport checked baggage
through an airport's baggage handling operation as well as the screening of
passengers and their carry-on items. The software supports the operation of
existing explosive detection systems, explosive trace detectors and automated
technologies screening machines as well as baggage handling controls and
hardware. Its modular programming structure ensures rapid and economical
deployment. Proprietary algorithms are utilized to establish a specific routing
plan for each checked bag through the airport's various explosive detection
systems and manual screening operations.
iScreen combines proprietary software with databases and procedures to
provide airport management with the advanced easy-to-use tools they need to
optimize the screening process for each and every bag. These tools are based on
a complex matrix of security and operational considerations. They monitor
real-time loads, screening equipment and screener availability for the
management and optimization of resources and screening capacities, at low and
high load intervals.
Additional product applications include efficient and effective screening
of baggage in terminals at seaports, border-crossings, or any other security
screening operation.
SpaceLogic is working closely with governmental regulators and airports
for the deployment of iScreen in several major airports. On January 18, 2005,
the United States Transportation Security Administration (TSA) issued a Notice
of Intent To Issue Single Source Contract to SpaceLogic to install iScreen in a
major US metropolitan airport for a 255 day pilot program.
SpaceLogic Software
BHLogic - The BHLogic software toolkit controls and routes airport baggage
from the point where it enters the baggage conveyor system to the point where
baggage is loaded into containers destined for the aircraft. BHLogic also
handles incoming baggage, routing it to claim devices where passengers pick up
their baggage or to transfer flights. The BHLogic software is implemented as a
toolkit that integrates into most hardware systems, allowing for rapid
implementation of software control systems for existing airport baggage handling
and transfer systems. BHLogic is compatible with airport subsystems such as
sorters (tilt trays, pushers, transfers), conveyors, automated early bag
storage, as well as automated identification systems (bar-code and RFID).
EBLogic - The EBLogic software product focuses on early bag storage
(luggage checked-in in advance of a flight) and serves as an integrated buffer
for early checked and transferred baggage. The EBLogic software is implemented
as a toolkit, integrating AS/RS (Automated Storage and Retrieval Systems) with
automated BHS.
15
BHLogic and EBLogic are complementary to the SecureLogic iScreen software
which enables integrated control of baggage and security screening systems at
airports around the world.
ChainLogic Software
FlowX - ChainLogic's warehouse management system software solution
optimizes the logistic operations of warehouses, distribution centers, retailers
and archives and record storage facilities. It is compatible with advanced
distribution and picking systems such as: carousels (horizontal and vertical),
vertical storage modules, sorters, conveyors, RF hand held terminals, automated
picking systems, pick-to-light systems and unitload/miniload systems.
FlowX can be rapidly customized to suit manufacturers' requirements for
the most advanced systems. FlowX can be integrated with sophisticated hardware
such as White System's Lightree III and Sortbar III, a light-directed picking
system, to increase accuracy and picking speed on systems that are based on
horizontal and vertical carousels.
FlowX allows warehouse managers using RF terminals, to organize all
distribution center and warehouse activities for even the most complicated
logistic systems. FlowX easily integrates with sorting and dispatching systems
such as those designed by FKI Logistex Crisplant.
Services
SpaceLogic provides a wide range of services, on either a time and
materials or fixed price basis, related to the engineering, design and
implementation of security screening systems and material handling systems,
project management of security screening and material handling projects,
installation, structural and electro/mechanical services for projects and
support services in the form of 24 hour hot-line, remote support by modem,
periodic inspections, preventive maintenance and on-site support (on-call).
PRODUCT SUPPORT
SpaceLogic employs 4 full-time support personnel who provide technical
support services to customers by email, on-site consultation, telephone, or fax.
Support services include resolving issues related to the performance of
SpaceLogic's systems and its interoperability with user's existing computer
systems and software, solving problems with software operation and suggesting
solutions to computing issues. SpaceLogic also provide customers with software
updates, error fixes and enhancements. SpaceLogic offers product support free of
charge to licensees for a period of 12 months from the date the software is
originally licensed and then charges an annual fee for product support of
approximately 15% of the original licensing fee for the software.
16
DISTRIBUTION AND MARKETING
SpaceLogic and SecureLogic Products
The SpaceLogic and SecureLogic product suites are sold both directly by
SpaceLogic's in-house sales and marketing personnel and through joint ventures
with strategic partners from relevant industries. Generally, in the future,
SpaceLogic intends to partner with suppliers of baggage handling hardware
systems, established airport security vendors and system integrators to supply
SpaceLogic's IBHS software package as well as integration, adaptation and system
configuration services to be provided by SpaceLogic.
ChainLogic Products
The ChainLogic product suite is sold within Israel primarily through
SpaceLogic's own direct sale channels. For sales within North American and
Western Europe SpaceLogic intends to seek strategic alliances with value added
integrators and consulting firms that develop and deliver value-added services
around SpaceLogic products. Sales for Mediterranean and Eastern European
countries will be conducted directly through SpaceLogic's own direct sale
channels.
PRODUCT DEVELOPMENT
SpaceLogic utilizes internal resources as well as contractors for the
development of its software products. SpaceLogic's future financial performance
will depend in part on the successful development of enhanced versions of its
existing software products, on the development, completion, and introduction of
new products and customer acceptance of those products. There is no assurance
that SpaceLogic will avoid difficulties that could delay or prevent the
successful development of, or marketing of, new products and/or enhancements of
existing products. There also can be no assurance that such products will yield
positive results or that such results can be obtained on a timely basis or
without the expenditure of substantial funds.
COMPETITION
SpaceLogic believes that it currently has no competitors for its IBHS and
iScreen product lines and recently the US Transportation Security Administration
issued a Notice of Intent to issue SpaceLogic a sole source contract for the
iScreen software. There can be no assurance that other companies involved in
systems integration of baggage handling systems will not seek to develop
competing software products.
SpaceLogic has numerous competitors for its baggage handling services and
systems integration business in the form of the various baggage handling
equipment providers, system integrators, explosive detection system providers
and other detection equipment manufacturers.
SpaceLogic has numerous competitors for its warehouse management software
products including major software vendors such as SAP, Oracle, Manhattan
Associates, Catalyst and Red Prairie.
17
INTELLECTUAL PROPERTY
SpaceLogic regards the protection of its patents, copyrights, service
marks, trademarks and trade secrets as critical to its future success.
SpaceLogic relies on a combination of copyright, trademark, service mark and
trade secret laws, patents and contractual restrictions to establish and protect
proprietary rights in products and services. Software products are generally
protected against copying pursuant to the U.S Copyright Act, international
copyright treaties, and license agreements.
SpaceLogic regards its software as proprietary and attempts to protect
them with copyrights, patents, trade secret laws, and internal nondisclosure
safeguards, as well as restrictions on disclosure and transferability that are
incorporated into software license agreements. Copyrights to software products
run for a period of at least 95 years from the first creation of the work in
accordance with the provisions of the US Copyright Act. SpaceLogic licenses its
software products to customers rather than transferring title. Despite these
restrictions, it may be possible for competitors or users to copy aspects of the
SpaceLogic's products or to obtain information that SpaceLogic regards as trade
secret. Computer software generally can be patented only with difficulty and
existing copyright laws afford only limited practical protection. On a regular
basis, SpaceLogic evaluates its development efforts to determine if patent
protection would be applicable. Patents run for a period of at least 20 years
from the application date of the patent. SpaceLogic currently has one US patent
application pending for screening systems for objects in transit.
Although SpaceLogic does not believe that any of its products infringe the
proprietary rights of third parties, there can be no assurance that third
parties will not claim infringement by SpaceLogic with respect to past, current
or future technologies. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause software upgrade delays or
require SpaceLogic to enter into royalty or licensing agreements. Such royalty
or licensing agreements might not be available on terms acceptable to SpaceLogic
or at all, as a result, any such claim could have a material adverse effect upon
our business, results of operations and financial condition.
EMPLOYEES
As of February 28, 2005, SpaceLogic employed 21 full-time employees in the
following departments: seven in research and development, eight in marketing,
sales and support and six in executive, general and administrative.
SpaceLogic's future success will depend in part on its continued ability
to attract, integrate, retain and motivate highly qualified technical and
managerial personnel and upon the continued service of its senior management and
key technical personnel. The competition for qualified personnel in its industry
and geographical location is intense and there can be no assurance that
SpaceLogic will be successful in attracting, integrating, retaining and
motivating a sufficient number of qualified personnel to conduct its business in
the future. From time to time, SpaceLogic also employs independent contractors
to support its research and development, marketing, sales, support and
administrative organizations. SpaceLogic has never had a work stoppage, and no
employees are represented under collective bargaining agreements. SpaceLogic
considers its relations with its employees to be good.
18
SUBSIDIARIES
SpaceLogic has one subsidiary, SecureLogic, Ltd, an Israeli corporation.
SpaceLogic owns 85% of the outstanding capital stock of SecureLogic.
PROPERTIES
SpaceLogic's executive offices consist of approximately 4,100 square feet
of office space in Netanya, Israel. This facility is leased pursuant to a lease
expiring in 2008, which is terminable earlier upon six months notice. The annual
rent is approximately $40,000. SpaceLogic believes that its current office space
is sufficient to cover foreseeable future growth.
SELECTED FINANCIAL DATA
Year Ended Year Ended
December 31, 2004 December 31, 2003
Consolidated Balance Sheet Data:
- --------------------------------
Total assets $ 935,000 $ 2,257,000
Total liabilities 1,836,000 3,022,000
Stockholders deficiency (901,000) (765,000)
Consolidated Statements of Operations
- -------------------------------------
Revenues $ 3,648,000 $ 4,850,000
Cost of revenues 2,003,000 2,695,000
Operating Income (loss) (88,000) 209,000
Net loss (136,000) (83,000)
Loss per share ($ 14.00) ($ 5.33)
Shares used in per share computations 10,000 10,000
SPACELOGIC MANAGEMENT
Gary Koren, Chief Executive Office
Mr. Koren is the founder of SpaceLogic and an experienced entrepreneur in
the high-tech industry. He has been the Chief Executive Officer of SpaceLogic
since its inception in 1998 and has over 25 years of professional experience in
systems engineering. In 1982, Mr. Koren founded Logistica Systems Ltd., serving
as Chief Executive Officer for over 15 years. Mr. Koren holds a BSc. in
Industrial and Management Engineering from the Technion, the Israel Institute of
Technology.
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Rear Admiral Cathal L. (Irish) Flynn, USN (Ret.), Vice President
Admiral Flynn has acted as a consultant to SpaceLogic since 2003 and now
serves as a Vice President of SecureLogic. Admiral Flynn has had a long and
distinguished career as a naval officer as well as in civilian and government
life. In the Navy, Admiral Flynn rose to the rank of Rear Admiral and commanded
many special operations units of the US Navy as well as serving as Deputy
Assistant Secretary of Defense for Special Operations. Following his retirement
from the Navy in 1990, Admiral Flynn joined Science Applications International
Corporation where he performed studies, analyses and identified applications for
advanced technology in military special operations, counter-terrorism, and
aviation security. From 1993 to 2000, Admiral Flynn was the Associate
Administrator for Civil Aviation Security in the Federal Aviation
Administration. In 2002, he was awarded a Lifetime Award for Service to the
Aviation Security Community by Aviation Security International. During his term
of service, the FAA introduced far-reaching changes of regulations to improve
air carrier and airport security programs within the United States and abroad.
Admiral Flynn is a graduate of the University of Dublin, Trinity College.
Shalom Dolev, Vice President
Mr. Dolev is SpaceLogic's Vice President for Security Systems. Mr. Dolev
has over 20 years experience in the field of airport security and is an expert
in security methodologies, with special emphasis in security technologies for
airport baggage handling. From 1992 to 1999, he served as a consultant for
various manufacturers of explosive detection equipment, including Vivid and
Magal. From 1985 to 1992, he was head of the Branch for Counter Terrorism and
Sabotage of the Israeli Security Agency. From 1982 to 1985, Mr. Dolev was
Security Officer of the Security Division of Ben Gurion International Airport,
Israel. He holds a BSc. degree in Electronics Engineering from Tel Aviv
University.
Michael Klein, Chief Operating Officer
Mr. Klein has been the Chief Operating Officer of SpaceLogic since its
establishment in 1998. From 1986 until 1998, Mr. Klein was responsible for sales
and projects management in the fields of baggage handling and automated
warehousing systems at Logistica Systems. Mr. Klein is a graduate in Mechanical
Engineering from the Technion, the Israel Institute of Technology and holds an
MBA from INSEAD in Fontainebleau, France.
Liron Segev, Adv., Director, Business Development & Legal Counsel, Secretary
Ms. Segev has acted as legal counsel and director of business development
for SpaceLogic since 2000 and coordinates all SpaceLogic's business development
activities. Prior to 2000, Ms. Segev served as a lawyer at various Israeli law
firms. Ms. Segev holds an LLB and B.A. (Business Administration) degrees from
the Interdisciplinary Center (IDC) in Herzliya, Israel.
20
Sean Deson, Director
Since January 2000, Mr. Deson has been the Managing Partner of Deson
Ventures, LLC, and Managing Director of Deson & Co., Inc. both finance and
investment firms principally focused on high technology companies. Additionally,
since November 2002, Mr. Deson has been the Managing Member of Treeline
Management, LLC, also a finance and investment firm principally focused on high
technology companies. From 1990 to 2000, Mr. Deson was employed by Donaldson,
Lufkin & Jenrette as an Investment Banker. His last position was as Senior Vice
President of the Internet Investment Banking Group. Mr. Deson has been a
director of Technology Flavors and Fragrances, Inc., a publicly traded company
with its stock listed on the Amex since June 1998, serves on its audit committee
and been a director of e-Centives, Inc. since August 2004, and also been a
director of ActiveWorlds Corp., both publicly traded companies. Mr. Deson earned
his BS in Computer Technology and his MBA in Finance, both with Distinction from
the University of Michigan, Ann Arbor.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis of Financial Conditions
and Results of Operations contains forward-looking statements. Forward-looking
statements reflect management's current expectations and are inherently
uncertain. Our actual results may differ significantly from management's
expectations.
The following discussion and analysis should be read in conjunction with
the audited financial statements of SpaceLogic, which are annexed as Exhibit "E"
to this Information Statement. This discussion should not be construed to imply
that the results discussed herein will necessarily continue into the future, or
that any conclusion reached herein will necessarily be indicative of actual
operating results in the future. Such discussions represent only the best
present assessment of management.
The following discussion compares SpaceLogic's results of operations for
the year ended December 31, 2004 and the year ended December 31, 2003. The
financial results for both the year ended December 31, 2004 and the year ended
December 31, 2003 have been translated into U.S. dollars using the same
representative exchange rate for the U.S. dollar of 4.308 NIS per $1.00. This
translation is made purely for the convenience of the reader and does not
represent the actual conversion rate as of December 31, 2003 and December 31,
2004.
For the year ended December 31, 2004, SpaceLogic's revenue was $3,648,000
compared to $4,850,000 for the year ended December 31, 2003, a decrease of 25%.
The primary reason for the decrease in revenues was the completion during 2003
of a long-term maintenance and integration services contract which expired in
early 2004, as well as, SpaceLogic's decision to focus on sales of its
proprietary secure advanced baggage handling systems to United States airports
versus the sale of maintenance and integration services to Israeli customers.
Gross profit for the year ended December 31, 2004 was $1,645,000 compared
to $2,155,000 for the year ended December 31, 2003, a decrease of 24%. The
decrease in gross profit in 2004 was primarily attributable to the decrease in
revenue. Gross profit as a percentage of revenue increased slightly from 44.4%
in 2003 to 45.1% in 2004 reflecting a slight shift from the sale of lower margin
maintenance and integration services to proprietary software used in secure
advanced baggage handling systems.
21
Operating expenses which includes research and development, sales and
marketing, and general and administration expenses, decreased to $1,733,000 for
the year ended December 31, 2004 from $1,945,000 for the year ended December 31,
2003, a decrease of 11%. This decrease was largely due to SpaceLogic's decision
to reduce general and administration costs in anticipation of lower revenue
resulting from the shift from maintenance and integration services to
proprietary secure advanced baggage handling systems and shift resources
otherwise invested in infrastructure into research and development activities
for such proprietary secure advanced baggage handling systems. Operating
expenses as a percentage of revenue increased from 40.1% in 2003 to 47.5% in
2004 reflecting SpaceLogic's decision to invest in its proprietary advanced
baggage handling products by keeping both research and development and sales and
marketing amounts consistent with prior years, despite a lower revenue base. Set
forth below are the details related to the components categories of operating
expenses.
Research and development costs for the year ended December 31, 2004 were
$662,000 as compared to $500,000 for the year ended December 31, 2003, an
increase of 32.4%. Research and development expense as a percentage of revenue
increased from 10.3% in 2003 to 18.1% in 2004, reflecting SpaceLogic's decision
to invest in new products related to its proprietary highly secure baggage
handling systems. Research and development costs as presented on SpaceLogic's
income statement of $505,000 reflect research and development expenses net of a
$157,000 Bi-national Research and Development ("BIRD") grant which was received
and invested in proprietary advanced baggage handling products in fiscal year
2004.
Selling and marketing expense for the year ended December 31, 2004 was
$571,000 as compared to $584,000 for the year ended December 31, 2003, a
decrease of 2%. Sales and marketing expenses as a percentage of sales increased
from 12.0% in 2003 to 15.7% in fiscal year 2004, reflecting SpaceLogic's
decision to expand selling activities for its proprietary secure advanced
baggage handling systems to United States based airports.
General and administrative expense for the year ended December 31, 2004
was $657,000 as compared to $861,000 for the year ended December 31, 2003, a
decrease of 24%. This decrease is largely due to SpaceLogic's decision to reduce
general and administration costs in anticipation of lower revenue resulting from
the shift from maintenance and integration services to proprietary advanced
baggage handling systems and shift resources otherwise invested in
infrastructure into research and development activities for such advanced
baggage handling systems. General and administrative expense as a percentage of
sales increased slightly from 17.8% in fiscal year 2003 to 18.0% in fiscal year
2004 as a result of the expense reduction and resource shifting discussed above.
Operating income decreased to a loss of $88,000 for the year ended
December 31, 2004 as compared to a profit of $209,000 for the year ended
December 31, 2003, a decrease of $297,000. This decrease is a result of
SpaceLogic's decision to focus on development and sales of its proprietary
secure advanced baggage handling systems in fiscal 2004 versus delivering
maintenance and integration services in 2003.
22
Financial expenses for the year ended December 31, 2004 was $10,000 as
compared to financial income of $84,000 for the year ended December 31, 2003, an
increase in financial expenses of $94,000. The increase in financial expenses is
due to a decrease in interest income resulting from lower amounts of cash held
in short-term deposits and decrease in the level of NIS interest rate.
Net loss for the year ended December 31, 2004 was $136,000 as compared to
a new loss of $53,000 for the year ended December 31, 2003, a decrease of
$83,000. This decrease is due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
To date, SpaceLogic has financed its operations primarily through
internally generated operating profits.
Net cash used in operating activities for the year ended December 31, 2004
was $861,000 as compared to net cash used in operating activities of $377,000
for the year ended December 31, 2003. The major effects on operating cash flows
for the period relative to the prior year were (i) operating losses relative to
an operating profit, (ii) a decrease in trade payable of $441,000, and (iii) a
decrease in billings in excess of costs and estimated earnings on uncompleted
contracts of $472,000.
Net cash provided by investing activities for the year ended December 31,
2004 was $333,000 primarily consisting of net short-term bank deposits of
$337,000.
Net cash provided by financing activities for the year ended December 31,
2004 was $1,000 as compared to net cash used in financing activities of $57,000
for the year ended December 31, 2003.
At December 31, 2004, SpaceLogic had approximately $18,000 of cash and its
current liabilities of approximately $1,500,000 exceeded its current assets of
$599,000, resulting in a net working capital deficit of approximately $900,000.
SpaceLogic expects that its net working capital deficit will grow as a result of
increased US marketing efforts, and costs associated with the Transaction, As
such, SpaceLogic, in advance of the Transaction, entered into a secured bridge
note from an affiliated party for an amount of $500,000 bearing interest at a
rate of 6% per annum. The bridge note was secured by substantially all of
SpaceLogic's assets, including its intellectual property, which are believed to
have value well in excess of the secured bridge note amount. The bridge note is
due and payable on the later of (a) the closing of the Transaction, or (b)
September 1, 2005.
As of the Closing of the Transaction, the Company will have no less than
$2,160,000 in cash, of which $1,000,000 is expected to be raised in a private
placement of the Company's common stock and the Company has payments receivable
pursuant to certain agreements and secured promissory notes in the aggregate
amount of approximately $3,400,000 which is expected to be received over the
next 25 months.
23
SpaceLogic believes that its operating cash flow coupled with the capital
made available from the Transaction will be sufficient to support its operations
for the foreseeable future. However, there can be no assurance that SpaceLogic
will not require significant amounts of additional capital in the foreseeable
future.
THE STOCK PURCHASE AGREEMENTS
PURCHASE OF SPACELOGIC
On February 17, 2005, Monterey Bay Tech, Inc. (the "Company"), SpaceLogic,
Ltd. ("SpaceLogic") and the stockholders of SpaceLogic (the "SpaceLogic
Stockholders") entered into Stock Purchase Agreement for the purchase from the
SpaceLogic Stockholders of all of the issued and outstanding shares of capital
stock of SpaceLogic (the "Transaction"). The following is a summary of certain
terms of the Stock Purchase Agreement and is qualified by reference to the
complete text of the agreement, which is incorporated by reference and included
as Exhibit "A".
PURCHASE AND SALE OF STOCK IN SPACELOGIC
At the closing of the Transaction (the "Closing"), the SpaceLogic
Stockholders will sell to the Company and the Company will purchase from the
SpaceLogic Stockholders, all of the issued and outstanding capital stock of
SpaceLogic.
EFFECT OF THE TRANSACTION
As of the Closing, SpaceLogic will cease being owned by the SpaceLogic
Stockholders and will become a wholly-owned subsidiary of the Company.
CONSIDERATION
The consideration to be paid to the SpaceLogic Stockholders by the
Company, at Closing, will be a total of 33,343,286 newly issued shares of the
Company's common stock.
COMPLETION OF THE TRANSACTION
As soon as practicable after all of the conditions set forth in the Stock
Purchase Agreement have been satisfied or waived, the closing of the Transaction
will occur.
ASSETS OF THE COMPANY AS OF THE CLOSING
As of the Closing, the Company is to have assets comprised of a net cash
balance of at least $2,160,000 plus rights to receive future payments in the
gross amount of $3,672,262. Prior to the Closing, all other assets of the
Company including, but not limited to, the stock owned by the Company in
24
International Microcomputer Software, Inc. and any cash in excess of the
required cash balance will either be distributed to the pre-Closing stockholders
of the Company or transferred to a newly formed entity, for the benefit of, or
to be owned by, the pre-Closing stockholders of the Company. In the event that
the transfer of such assets creates a tax liability to the Company, the
Company's cash balance as of the Closing, will be increased to reflect such tax
liability.
REPRESENTATIONS AND WARRANTIES
SpaceLogic and the SpaceLogic Stockholders have made certain
representations and warranties to the Company subject to disclosure schedules
and certain materiality thresholds.
o authority;
o organization and good standing;
o authorized capital;
o subsidiaries and affiliates;
o financial statements of SpaceLogic;
o absence of certain changes and events;
o No approval, notices or conflicts with instruments;
o accounts receivable;
o inventory;
o property;
o compliance with legal requirements;
o contracts;
o customers & suppliers;
o patents, trademarks;
o customers and suppliers;
o labor matters;
o insurance;
25
o litigation; claims and legal proceedings;
o environmental issues;
o employee benefit plans;
o licenses, permits, authorizations;
o brokers and finders;
o applicable laws;
o government contracts;
o corporate books and records;
o suppliers;
o absence of questionable payments;
o personnel;
o domain names;
o web sites;
o insider interests
o investment intent; and
o full disclosure.
The Company has made certain representations and warranties to SpaceLogic
and the SpaceLogic Stockholders, subject to disclosure schedules and certain
materiality thresholds. These include representations and warranties as to: o
organization, good standing;
o no approvals or notices required; no conflicts with instruments;
o authorized capital;
o legal proceedings;
o SEC filings;
26
o duly authorized;
o licenses, permits;
o assets;
o brokers and finders and
o future payments receivable.
The representations and warranties of the Company contained in the Stock
Purchase Agreement shall not survive the Closing and the representations and
warranties of SpaceLogic and the SpaceLogic Stockholders will survive the
closing for a period of three years.
INDEMNIFICATION
SpaceLogic and the SpaceLogic Stockholders have agreed to indemnify the
Company in respect of any losses, obligations, liabilities, damages, taxes and
claims arising out of the following:
o any breach of a representations, warranties contained in the Stock
Purchase Agreement or any of the other Operative Documents; and
o the nonperformance of any covenant or agreement contained in the
Stock Purchase Agreement or any of the other Operative Documents.
The Company has agreed to indemnify the Stockholders in respect of any
losses, obligations, liabilities, damages, taxes and claims arising out of the
following:
o any breach of a representations, warranties contained in the Stock
Purchase Agreement or any of the other Operative Documents; and
o the nonperformance of any covenant or agreement contained in the
Stock Purchase Agreement or any of the other Operative Documents.
The indemnification obligations of the parties under the Stock Purchase
Agreement will survive for the survival periods of the representations and
warranties contained in the Stock Purchase Agreement.
COVENANTS
In addition to the covenants of the Stock Purchase Agreement described
elsewhere herein, the Stock Purchase Agreement contains the following covenants.
Each party has agreed to maintain the confidentiality of any proprietary,
material non-public, confidential or secret information to the extent relating
to the party except as required by law.
27
Subject to their compliance with certain Securities and Exchange
Commission disclosure requirements, the parties have agreed to consult with each
other before making any public announcements about the Transaction.
The parties have agreed to use their reasonable commercial efforts to
satisfy all conditions precedent to the completion of the Transaction. Moreover,
the parties have agreed to cooperate with each other in connection with making
all necessary filings and submissions necessary to complete the Transaction,
including this information statement, and to take all necessary action to
deliver such other documents or instruments as may be reasonably necessary to
consummate the Transaction.
Except for the fees of Baytree Capital Associates, LLC and Ramot & Co,
each party has represented and warranted to each other that no broker or agent
was engaged or dealt with in connection with the Transaction, and each party has
agreed to indemnify and hold the other harmless from any broker's fees,
commissions or like payments asserted by any potential broker. The fees of Ramot
& Co. will be paid exclusively by the SpaceLogic Stockholders.
Until the Closing of the Transaction, SpaceLogic has agreed to continue to
conduct its business in accordance with its past practices. Moreover, until the
closing of the Transaction, SpaceLogic:
o shall conduct its business only in the ordinary course and shall not
materially change its operations;
o 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
o 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, or (iii) incur a
material amount of additional indebtedness or any other material liabilities or
enter into any other material transaction.
o shall not take certain other actions, including (i) forgiving or
canceling any material claims or rights, (ii) suffer 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, (iii) borrow or agree to borrow any funds, or
become subject to, any liabilities or obligations which exceed in the aggregate
$25,000, (iv) permit or allow any of its material property or assets to be
subject to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge, (v) write down the value of any material inventory, (vi)
dispose or permit to lapse any rights to the use of any trademark, trade name,
patent or copyright, or trade secrets of SpaceLogic, (vii) make any capital
expenditure in excess of $50,000.00, (vii) make any change in any method of
accounting or accounting practice, or (viii) pay, loan or advance to any of the
holders of capital stock of SpaceLogic, or any of its officers or directors.
28
Following the Closing, the Company has agreed to either maintain its
current current directors' and officers' liability insurance policy or obtain a
similar replacement directors' and officers' liability insurance policy
providing coverage for past acts of the Board of Directors prior to the Closing.
The Company has agreed to provide "piggyback registration rights" to the
SpaceLogic Stockholders, pursuant to which, in the event that the Company files
a registration statement to register the stock of any of the Company's
stockholders, the stock owned by the SpaceLogic Stockholders shall also be
included.
Following the Closing, in the event that any of the payments to be
received by the Company are not received within sixty (60) days of the
applicable payment date, the SpaceLogic Stockholders, as a group, shall be
entitled to receive additional shares of the Company's common stock equal to the
amount not received divided by $0.45.
The Company 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 the Company in the stead
of the Company, provided that such election by the Company shall not affect the
representations and warranties or duties and obligations (other than altering
the parties to the Transaction) made by the Company to SpaceLogic and the
SpaceLogic Stockholders.
Prior to the closing of the Transaction or the termination of the Stock
Purchase Agreement, neither the SpaceLogic nor the SpaceLogic Stockholders may
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.
CONDITIONS TO COMPLETING THE TRANSACTION
CONDITIONS TO THE OBLIGATION OF THE COMPANY
The obligation of the Company to complete the Transaction is subject
to the satisfaction or waiver of the following further conditions:
o the representations and warranties made by the SpaceLogic and the
SpaceLogic Stockholders in the Stock Purchase Agreement shall be true and
correct in all material respects when made and as of the Closing;
o SpaceLogic and the SpaceLogic Stockholders shall have performed in
all material respects its obligations, covenants and agreements contained in the
Stock Purchase Agreement;
29
o The Company shall have received a satisfactory legal opinion from
counsel to SpaceLogic;
o The SpaceLogic Stockholders shall have executed a valid consent
approving the Stock Purchase Agreement;
o All required consents of third parties shall have been obtained;
o SpaceLogic shall have delivered to the Company a certificate, dated
the Closing Date, stating that the representations and warranties of SpaceLogic
contained in the Stock Purchase Agreement are true and correct as of the Closing
Date;
o Each SpaceLogic Stockholders shall have delivered to the Company a
certificate, dated the Closing Date, stating that the representations and
warranties of the SpaceLogic Stockholders contained in the Stock Purchase
Agreement are be true and correct as of the Closing Date;
o The Company shall have completed its due diligence review of
SpaceLogic to its satisfaction;
o No event has occurred which would have a material adverse effect on
the business of SpaceLogic
o Each SpaceLogic Stockholders shall have delivered to the Company an
instrument releasing SpaceLogic from any all claims and obligations prior to the
Closing Date of SpaceLogic and an investment letter and receipt;
o Gary Koren and Shalom Dolev shall have each executed an employment
agreements with the Company and Michael Klein shall have executed an employment
agreement with SpaceLogic;
o SpaceLogic shall have nominated at least five individuals to join
the Board of Directors of the Company each reasonably acceptable to the Company
and Baytree Capital Associates;
o Each SpaceLogic Stockholders shall have delivered to the Company an
agreement not to sell any of the Company's common stock for a period of eighteen
(18) months;
o All stockholders and other agreements related to the capital stock
of SpaceLogic shall have been terminated; and
o The Company shall have entered into an agreement with the
stockholders of SecureLogic, Ltd. to acquire all shares of SecureLogic, Ltd. not
owned by SpaceLogic.
30
CONDITIONS TO THE OBLIGATIONS OF SPACELOGIC AND THE SPACELOGIC STOCKHOLDERS
The obligations of SpaceLogic and the SpaceLogic Stockholders to complete
the Transaction are subject to the satisfaction or waiver of the following
further conditions: o the representations and warranties made by the Company
Stockholders in the Stock Purchase Agreement shall be true and correct in all
material respects when made and as of the Closing;
o the Company shall have performed in all material respects its
obligations, covenants and agreements contained in the Stock Purchase Agreement;
o As of the Closing, the Company will have a cash balance of no less
than $2,160,000;
o the Company shall have delivered to SpaceLogic a certificate, dated
the Closing Date, stating that the representations and warranties of the Company
contained in the Stock Purchase Agreement are true and correct as of the Closing
Date;
o SpaceLogic shall have received satisfactory legal opinions from
counsel to the Company;
o Each of the directors of the Company shall have tendered a
resignation;
o SpaceLogic shall have completed its due diligence review of the
Company to its satisfaction;
o each of the principal stockholders of the Company shall have
delivered an agreement to SpaceLogic pursuant to which such stockholders agree
to a limitation on the sale of the stock in the Company, in a form to be
reasonably agreed upon by the parties;
o the Articles of Incorporation of the Company shall have been amended
to increase the number of shares of common stock that the Company authorized to
issue to 100,000,000; and
o SpaceLogic shall have received from Baytree Capital Associates, LLC
("Baytree") an agreement which provides that, in the event of the default of any
payment of a secured obligation to the Company, which results in a foreclosure
sale of the assets securing such payments, Baytree or its designee shall bid to
purchase such assets at any foreclosure sale.
TERMINATION
The parties to the Stock Purchase Agreement may mutually agree, at any
time before the Closing, to terminate the Stock Purchase Agreement. In addition:
o either party may terminate (if the terminating party is not then in
default), if the other party breaches any provision of the Agreement and such
breach is not cured within 30 days; provided, however, that SpaceLogic shall not
be allowed to terminate in the event of a breach by a SpaceLogic Stockholder.
31
o either party may terminate if the Closing has not occurred by April
30, 2005.
The provisions of the Stock Purchase Agreement relating to confidentiality
and non-disclosure will continue to apply if the Stock Purchase Agreement is
terminated.
SUBMISSION TO JURISDICTION
If any legal proceeding or other legal action relating to the Stock
Purchase Agreement is brought or otherwise initiated, the venue for it will be
the state courts of the State of California or the federal courts sitting in the
State of California, which will be deemed to be a convenient forum.
AMENDMENT AND WAIVER
The Stock Purchase Agreement may not be changed, amended or modified,
except by means of a written instrument executed by both parties.
FEES AND EXPENSES
Each party will pay all of its expenses incurred in connection with the
Transaction, whether or not consummated.
PURCHASE OF INTEREST IN SECURELOGIC, LTD.
On February 17, 2005, the Company and Shalom Dolev ("Dolev") entered into
Stock Purchase Agreement for the purchase from Dolev of the fifteen percent
(15%) interest in SecureLogic not already owned by SpaceLogic (the "SecureLogic
Transaction"). The following is a summary of certain terms of the Stock Purchase
Agreement and is qualified by reference to the complete text of the agreement,
which is incorporated by reference and included as Exhibit B.
PURCHASE AND SALE OF STOCK IN SECURELOGIC
At the closing of the SecureLogic Transaction (the "Closing"), Dolev will
sell to the Company and the Company will purchase from Dolev, the fifteen
percent (15%) interest in SecureLogic not currently owned by SpaceLogic.
32
EFFECT OF THE SECURELOGIC TRANSACTION
As of the Closing, SecureLogic will become a wholly-owned subsidiary of
SpaceLogic.
CONSIDERATION
The consideration to be paid to Dolev by the Company, at Closing, will be
a total of 3,520,472 newly issued shares of the Company's common stock.
COMPLETION OF THE TRANSACTION
The closing of the SecureLogic Transaction shall occur simultaneously with
the closing of the Transaction. occur.
APPRAISAL RIGHTS
Pursuant to Nevada law, the Stockholders of Monterey Bay Tech have no
right to dissent from the Transaction.
PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated balance sheet as
of December 31, 2004 was prepared as if the Transaction had occurred on such
date. The unaudited pro forma consolidated statement of operations for the year
ended December 31, 2004 gives effect to the Transaction as if it had occurred as
of January 1, 2004. The pro forma adjustments are based upon available
information, preliminary estimates and certain assumptions that we believe are
reasonable, and are described in the accompanying notes. The pro forma financial
statements should not be considered indicative of actual balance sheet data or
results that would have been achieved had the transaction described below been
consummated on the dates indicated and do not purport to indicate balance sheet
data or results of operations as of any future date or for any future period.
The unaudited pro forma financial information should be read in conjunction the
discussion under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements and
the notes thereto contained in our Form 10-KSB for the year ended December 31,
2003 and our Quarterly Report on Form 10-QSB for the nine months ended September
30, 2004.
Company SpaceLogic Pro Forma
(Unaudited) (Unaudited)
Revenue $ -- $ 3,648,000 $ 3,648,000
Earnings $ (969,821) $ (136,000) $ (1,105,821)
Earnings Per Share $ (0.09) $ (0.02)
Book Value $ 6,651,567 $ (901,000) $ 5,750,567
Book Value Per Share $ 0.60 $ 0.10
Dividends per share $ 0.00 $ 0.00
Shares Outstanding 11,019,266 52,892,477
(1) Pro Forma Book Value includes the expected net proceeds of $950,000 from a
private placement by the Company
33
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information known to the Company
with respect to beneficial ownership of our Common Stock as of December 31, 2004
by (i) each of our executive officers and directors, (ii) all of our executive
officers and directors as a group and (iii) each person who is known to us to
own, of record or beneficially, more than five percent of our common stock.
Where the persons listed have the right to acquire additional shares of common
stock through the exercise of options or warrants within 60 days, such
additional shares are deemed to be outstanding for the purpose of computing the
percentage of outstanding shares owned by such persons, but are not deemed to be
outstanding for the purpose of computing the percentage ownership interests of
any other person. Unless otherwise indicated, each of the Stockholders shown in
the table below has sole voting and investment power with respect to the shares
beneficially owned.
Name and Address of Beneficial Owner (1) Number of Common Shares Percentage Ownership(2)
- ---------------------------------------- ----------------------- -----------------------
DIRECTORS AND EXECUTIVE OFFICERS
Jonathan Kahn 2,234,375 (3) 20.3%
Darryl Lovato 2,061,176 (4) 18.7%
David Schargel 1,621,789(5) 14.7%
Paul Goodman 151,000(6) 1.4%
Brad Peppard 197,419(7) 1.8%
Alexandra Gonzalez 153,186(8) 1.4%
All directors and executive officers as a group
(6 persons) 6,418,945 58.3%
OTHER BENEFICIAL OWNERS
Benna Lovato 1,665,242 15.1%
Michael Gardner 1,350,775 12.3%
Marco Gonzalez 697,812 6.3%
All officers, directors and 5% owners as a group
10,137,625 94.5%
34
(1) The address of c/o Monterey Bay Tech's directors, other executives
and holders of more than 5% of its common stock is 245 Westridge Drive,
Watsonville, CA 95076.
(2) Based on 11,019,266 shares of common stock outstanding as of
December 31, 2004. Except as otherwise set forth in the footnotes to this table,
all shares are beneficially owned and sole investment and voting power is held
by the persons named above, to the best of the Company's knowledge. Shares of
Common Stock subject to options that are currently exercisable or exercisable
within 60 days of December 31, 2004 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person.
(3) Includes 470,934 shares of common stock issuable upon exercise of
options.
(4) Includes 395,934 shares of common stock issuable upon exercise of
options.
(5) Includes 100,000 shares of common stock issuable upon exercise of
options.
(6) Includes 150,000 shares of common stock issuable upon exercise of
options.
(7) Includes 188,400 shares of common stock issuable upon exercise of
options.
(8) Includes 153,186 shares of common stock issuable upon exercise of
options.
RECORD DATE
The close of business March __, 2005, has been fixed as the record date
for the determination of Stockholders entitled to receive this Information
Statement.
EXPENSES OF INFORMATION STATEMENT
The expenses of mailing this Information Statement will be borne by the
Company, including expenses in connection with the preparation and mailing of
this Information Statement and all documents that now accompany or may hereafter
supplement it. It is contemplated that brokerage houses, custodians, nominees,
and fiduciaries will be requested to forward the Information Statement to the
beneficial owners of the Common Stock held of record, on the Record Date, by
such persons and that the Company will reimburse them for their reasonable
expenses incurred in connection therewith.
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information including annual
and quarterly reports on Form 10-KSB and 10-QSB (the "1934 Act Filings") with
the Securities and Exchange Commission (the "Commission"). Reports and other
information filed by the Company can be inspected and copied at the public
35
reference facilities maintained at the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, DC 20549. Copies of such material can be obtained upon
written request addressed to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site on the Internet (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission through the Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
INCORPORATION OF DOCUMENTS BY REFERENCE
As allowed by the Securities and Exchange Commission's rules, this
Information Statement does not contain all of the information relating to us.
Some of the important business and financial information relating to us that may
be important is not included in this information statement, but rather is
"incorporated by reference" to documents that have been previously filed by us
with the Securities and Exchange Commission. The information incorporated by
reference is deemed to be a part of this Information Statement, except for any
information superseded by information contained directly in this Information
Statement. The documents contain important information about us and our
finances.
The following documents as filed with the Commission by the Company are
incorporated herein by reference:
(1) Quarterly Reports on Form 10-QSB for the quarters end March 31,
2004, June 30, 2004 and September 30, 2004;
(2) Annual Report on Form 10-KSB for the year ended December 31, 2003;
and
(3) Current reports on Form 8-K, filed on February 23, 2005, February 4,
2005, December 22, 2004, November 22, 2004, November 17, 2004, November 16, 2004
and October, 19, 2004.
In addition, all of our filings with the Securities and Exchange
Commission after the date of this Information Statement under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, shall be
deemed to be incorporated by reference until the closing of the Transaction. Any
statement contained in this Information Statement or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Information Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
information statement.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS INFORMATION
STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS INFORMATION STATEMENT. THIS INFORMATION
STATEMENT IS DATED MARCH __, 2005. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS INFORMATION STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN
SUCH DATE, AND THE MAILING OF THIS INFORMATION STATEMENT TO STOCKHOLDERS SHALL
NOT CREATE ANY IMPLICATION TO THE CONTRARY.
36
EXHIBITS
EXHIBIT A -- STOCK PURCHASE AGREEMENTS
EXHIBIT B -- WRITTEN CONSENT OF STOCKHOLDERS
EXHIBIT C -- AMENDMENT TO ARTICLES OF INCORPORATION
EXHIBIT D -- 2005 INCENTIVE STOCK OPTION PLAN
EXHIBIT E -- SPACELOGIC, LTD. FINANCIAL STATEMENTS
37
EXHIBIT A
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.
38
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.
39
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.
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
40
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.
41
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:
(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
42
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;
(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;
43
(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.
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.
44
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.
(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
45
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:
(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;
46
(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;
(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
47
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.
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.
48
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.
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.
49
(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.
(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.
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(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.
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.
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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.
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
52
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.
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.
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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.
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.
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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.
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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.
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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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
(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.
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(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.
(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.
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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;
(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.
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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.
(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.
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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.
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:
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(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
(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
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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.
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.
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(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.
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.
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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.
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.
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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.
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.
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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.
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
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/s/ Milton Gross
----------------------------
Milton Gross
65 Rotschild St.
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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STOCK PURCHASE AGREEMENT
This AGREEMENT made this 17th day of February, 2005, between by and among
Monterey Bay Tech, Inc., a Nevada corporation ("MBYI" or the "Purchaser"), and
Shalom Dolev (the "Stockholder").
RECITALS
A. WHEREAS, MBYI has entered into that certain Stock Purchase Agreement
of even date herewith for the purchase of all of the issued and outstanding
capital stock of SpaceLogic, Ltd., ("SpaceLogic") an Israeli corporation (the
"SpaceLogic Stock Purchase Agreement").
B. WHEREAS, SpaceLogic owns 85% of the issued and outstanding capital
stock of SecureLogic, Ltd. an Israeli corporation ("SecureLogic").
C. WHEREAS, Stockholder owns the remaining 15% of the issued and
outstanding capital stock of SecureLogic and together, SpaceLogic and
Stockholder own all of issued and outstanding capital stock of SecureLogic.
D. WHEREAS, simultaneously with the purchase of SpaceLogic, MBYI
desires to purchase all of Stockholder's capital stock in SecureLogic and
Stockholder desires to sell the same to MBYI.
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), Stockholder shall sell, convey, transfer, assign and deliver to
MBYI, and MBYI shall purchase from Stockholder 2,510 Ordinary Shares, ___ NIS
par value of SecureLogic (the "Shares").
1.2 THE CLOSING
The closing of this Agreement (the "Closing") shall occur simultaneously
with the Closing of the SpaceLogic Stock Purchase Agreement. 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.
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1.3 PURCHASE PRICE
Subject to the terms and conditions of this Agreement, the total purchase
price for the Shares shall be 3,520,472 (the "Purchase Price") newly-issued
shares of common stock of MBYI, par value $.001 per share (the "MBYI Common
Stock") to be paid to Stockholder. Stockholder specifically acknowledges that
the Purchase Price constitutes and represents a five percent (5%) pro rata
portion of the 36,863,578 shares of MBYI Common Stock which are designated as
the Consideration Shares in the SpaceLogic Stock Purchase Agreement and that the
Purchase Price hereunder shall not be in addition to the shares of MBYI Common
Stock to be issued pursuant to the SpaceLogic Stock Purchase Agreement, it being
the intent of the party that the total consideration for the purchase by MBYI of
SpaceLogic and SecureLogic will be 36,363,578 shares of MBYI Common Stock.
1.4 ASSISTANCE IN CONSUMMATION OF THE PURCHASE AND SALE OF STOCK
Stockholder and MBYI shall provide all reasonable assistance to, and shall
cooperate with, each other to bring about the consummation of the purchase and
sale of the Shares 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 contemplated
herein 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.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER.
Stockholder represents and warrants to MBYI that, as of the date hereof
and as of the Closing (which representations and warranties shall survive the
Closing to the extent provided in Section 7 hereof), all as follows in this
Article II
2.1 GOOD TITLE
Stockholder represents that he owns the Shares 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
SecureLogic is a corporation duly organized and validly existing under the
laws of the State of Israel. SecureLogic has all requisite power and authority
to own its assets, those properties and conduct those businesses presently owned
79
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 SecureLogic.
2.3 AUTHORIZATION
Stockholder has 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 Stockholder is a party will be, on the Closing Date, duly executed and
delivered by Stockholder, as applicable, and this Agreement is, and each
Operative Document to which Stockholder is a party will be, on the Closing Date,
a legal, valid and binding obligation of Stockholder, enforceable against
Stockholder in accordance with its 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.
2.4 AUTHORIZED CAPITALIZATION
SecureLogic's authorized capital stock consists solely of shares of
Ordinary Stock ___ NIS par value (the "Common Stock") of which 16,733 shares are
issued and outstanding on the date of this Agreement and entirely held by
Stockholder and SpaceLogic, Ltd. All issued and outstanding shares of
SecureLogic 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 SecureLogic 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. There are no voting trusts or other agreements
or understandings with respect to the capital stock of SecureLogic to which
Stockholder is a party or by which Stockholder is bound. Stockholder is not
indebted to SecureLogic and SecureLogic is not indebted to Stockholder.
2.5 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the
Operative Documents by Stockholder and the consummation of the transactions
contemplated hereby and thereby will not in any way which would (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 SecureLogic or Stockholder,
(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 SecureLogic
and Stockholder 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,
80
encumbrance, obligation or liability to which SecureLogic or Stockholder is 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 SecureLogic or upon the SecureLogic 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 SecureLogic, or (f) invalidate or adversely affect
any permit, license, authorization or status used in the conduct of the business
of SecureLogic
2.6 FULL DISCLOSURE
No information furnished by Stockholder to MBYI in this Agreement is false
or misleading in any material respect in light of the circumstances pursuant to
which such information was provided. Stockholder has not made any untrue
statement of a material fact nor (as Stockholder, knowingly) omitted to state a
material fact necessary in order to make the statements made or information
delivered in or pursuant to this Agreement, or in or pursuant to the Operative
Documents, or in or pursuant to closing certificates executed or delivered by
Stockholder in light of the circumstances in which they were made, not
materially misleading.
2.7 INVESTMENT REPRESENTATIONS
(a) Investment. 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 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. Stockholder understands that the MBYI Common Stock
received or to be received by 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 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. Stockholder acknowledges that Stockholder and
Stockholder's representatives are experienced in, and capable of, evaluating the
financial condition and prospects of corporations like MBYI. 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. Stockholder has no 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.
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ARTICLE III- REPRESENTATIONS AND
WARRANTIES OF MBYI
Except as is otherwise described in the applicable Schedules, MBYI
represents and warrants to Stockholder, 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
Stockholder 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.
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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 Stockholder 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
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 SPACELOGIC CLOSING
The Closing of the SpaceLogic Stock Purchase Agreement has occurred.
4.3 PERFORMANCE OF AGREEMENT
Stockholder 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.
4.4 STOCKHOLDER'S CERTIFICATES
Stockholder shall have delivered to MBYI a certificate, dated the Closing
Date, stating that the representations and warranties of Stockholder contained
in this Agreement which are qualified as to materiality 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.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDER
The obligations of Stockholder 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.
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.
83
5.2 SPACELOGIC CLOSING.
The Closing of the SpaceLogic Stock Purchase Agreement has occurred.
5.3 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.
5.4 OFFICERS' CERTIFICATE
MBYI shall have delivered to Stockholder a certificate, dated the Closing
Date, stating that the representations and warranties of MBYI contained in this
Agreement which are qualified as to materiality 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.
ARTICLE VI - TERMINATION
This Agreement may be terminated at any time prior to the Closing:
(a) by the mutual consent of Stockholder and MBYI
(b) by either Stockholder or MBYI in the event of a termination of the
SpaceLogic Stock Purchase Agreement.
ARTICLE VII - GENERAL
7.1 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.
7.2 AMENDMENT
MBYI and Stockholder 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.
84
7.3 INDEMNIFICATION AND SURVIVAL OF WARRANTIES
7.3.1 (a) Stockholder agrees 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, 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 Stockholder in this Agreement or
the Operative Documents or (ii) the nonperformance (whether partial or total) of
any covenants or agreements made by Stockholder in this Agreement or the
Operative Documents.
(b) MBYI agrees to indemnify and to hold harmless Stockholder and
his successors, assigns heirs, and legatees against and in respect of all
losses, damages, 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.
7.3.2 If any Person entitled to indemnification pursuant to Section
7.3.1 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.
7.3.3 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, the Surviving Corporation, MBYI and Stockholder
shall permit each other reasonable access, subject to the provisions of Section
85
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.
7.3.4 The representations and warranties of Stockholder contained in
this Agreement shall survive the Closing for a period of three (3) years from
the Closing.
7.3.5 Indemnity obligations hereunder of Stockholder shall be
limited in that the same shall be satisfied solely by offsetting any amounts due
from Stockholder against shares of MBYI Common Stock which are issuable to
Stockholder pursuant to Section 1.3 above, such shares to be valued at the time
that any such payment is to be made.
7.6 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.
7.7 HEADINGS
The headings preceding the text of Articles and Sections of this Agreement
are for convenience only and shall not be deemed parts thereof
7.8 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.
7.9 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 Stockholder shall be permitted to assign its
consideration payable hereunder to any third party. This Agreement is not
intended, nor shall it be construed, to confer any enforceable rights on any
Person not a party hereto.
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7.10 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.
Notices to MBYI and Stockholder 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 Stockholder:
Shalom Dolev
3 Hadas St.
Ramat-Gan, Israel
10.11 PUBLICITY
Until the Closing, Stockholder 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.
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
Stockholder:
/s/ Shalom Dolev
----------------------------
Shalom Dolev
3 Hadas St.
Ramat-Gan, Israel
87
EXHIBIT B
ACTION BY WRITTEN CONSENT
OF
THE STOCKHOLDERS
OF
MONTEREY BAY TECH, INC.
A NEVADA CORPORATION
MARCH 22, 2005
Pursuant to the authority of Section 78.320 of the Nevada Revised Statutes
("NRS"), the undersigned, constituting a majority of the stockholders of
Monterey Bay Tech, Inc. (the "CORPORATION") do by this writing consent to the
following actions and adopt the following resolutions:
APPROVAL OF ACQUISITION OF SPACELOGIC, LTD.
WHEREAS, the Corporation has negotiated with SpaceLogic, Ltd.
("SpaceLogic") and the stockholders of SpaceLogic for the acquisition of all of
the issued and outstanding shares of capital stock of SpaceLogic (the
"Transaction") pursuant to that certain Stock Purchase Agreement dated February
17, 2005 by and between the Corporation and SpaceLogic and the stockholders of
SpaceLogic as attached hereto as Exhibit A (the "Stock Purchase Agreement"); and
WHEREAS, the Corporation's Board of Directors has reviewed and unanimously
approved the Stock Purchase Agreement and the performance of all of the
Corporation's obligations under the Stock Purchase Agreement, including, without
limitation, to execute and deliver each of the agreements, instruments and other
documents referenced in the Stock Purchase Agreement;
WHEREAS, the Board of Directors recommends that the stockholders approve
the Transaction and recommends that such approval should be in the form of a
written consent of a majority of the stockholders of the Corporation.
NOW, THEREFORE, BE IT RESOLVED, that the terms and provisions of the Stock
Purchase Agreement and the Transaction, be and they hereby are approved;
RESOLVED, that the Transaction be approved on substantially the terms set
forth in the Purchase Agreement.
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APPROVAL OF AMENDMENT OF ARTICLES OF INCORPORATION TO INCREASE IN NUMBER OF
SHARES OF COMMON STOCK AUTHORIZED AND TO CHANGE THE CORPORATION'S NAME.
WHEREAS, pursuant to the Stock Purchase Agreement, the Corporation is
required to amend its Articles of Incorporation in substantially the form
attached hereto as Exhibit "B" to increase the number of shares of common stock
that the Corporation is authorized to issue from 50,000,000 shares of common
stock $0.001 par value to 100,000,000 shares of common stock $0.001 par value
and to amend its Articles of Incorporation to change the name of the Corporation
to "SecureLogic Corp." (collectively, the "Amendments").
WHEREAS, the Corporation's Board of Directors has unanimously approved the
Amendments;
WHEREAS, the Amendments will be filed immediately prior to the closing of
the Stock Purchase Agreement, and in the event that such closing shall occur,
the Amendments shall not be filed; and
NOW, THEREFORE, BE IT RESOLVED, that the Amendments, be and they hereby
are approved.
APPROVAL OF THE CORPORATION'S 2005 INCENTIVE OPTION PLAN
WHEREAS, pursuant to the Stock Purchase Agreement, the Corporation is
required to adopt a revised incentive option plan;
WHEREAS, the Corporation's Board of Directors has unanimously approved the
2005 Incentive Stock Plan, in the form attached hereto as Exhibit "C" (the
"Plan").
NOW, THEREFORE, BE IT RESOLVED, that the Plan, be and they hereby is
approved.
APPROVAL OF APPOINTMENT OF NEW DIRECTORS
WHEREAS, SpaceLogic, Ltd. has designated Gary Koren, Shalom Dolev, Cathal
Flynn and Sean Deson to be appointed to fill vacancies on the Board of Directors
of the Corporation as of the Closing of the Transaction;
NOW, THEREFORE, BE IT RESOLVED, that Gary Koren, Shalom Dolev, Cathal
Flynn and Sean Deson are hereby appointed to fill vacancies on the Board of
Directors of the Corporation effective solely upon the Closing of the
Transaction.
COUNTERPARTS
RESOLVED, that this Written Consent may be executed in counterparts.
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IN WITNESS WHEREOF, the undersigned hereby adopts, confirms and ratifies
in all respects, the foregoing resolution and directs the Secretary of the
Corporation to file this Action by Written Consent of Stockholders in the minute
book of the Corporation.
- ----------------------------------- -----------------------------------
Signature Signature
Print Name: _________________________ Print Name: _________________________
Representing __________________ shares of the Representing __________________ shares of the
outstanding stock of the Corporation outstanding stock ofthe Corporation
- ----------------------------------- -----------------------------------
Signature Signature
Print Name: _________________________ Print Name: _________________________
Representing __________________ shares of the Representing __________________ shares of the
outstanding stock of the Corporation outstanding stock ofthe Corporation
- ----------------------------------- -----------------------------------
Signature Signature
Print Name: _________________________ Print Name: _________________________
Representing __________________ shares of the Representing __________________ shares of the
outstanding stock of the Corporation outstanding stock ofthe Corporation
90
EXHIBIT C
CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
MONTEREY BAY TECH, INC.
Pursuant to NRS 78.385 of the Nevada Revised Statutes, the undersigned
corporation, Aladdin Systems Holdings, Inc. (the "Corporation") adopts the
following Articles of Amendment to its Articles of Incorporation.
1. Name of corporation: "Monterey Bay Tech, Inc."
2. The articles have been amended as follows:
Article First shall be amended to read:
The name of the Corporation shall be "SecureLogic Corp."
Article Fourth shall be amended to read:
The total number of shares which the corporation shall have
authority to issue is One Hundred One Million (101,000,000)
shares, having a par value of $.0001 per share, as follows:
Common. The aggregate number of common shares which this
Corporation shall have authority to issue is 100,000,000
shares of Common Stock, having a par value of $.0001 per
share. All common stock of the Corporation shall be of the
same class, common, and shall have the same rights and
preferences. Fully-paid common stock of this Corporation shall
not be liable to any further call or assessment.
Preferred. The Corporation shall be authorized to issue
1,000,000 shares of Preferred Stock having a par value of
$.0001 per share and with such rights, preferences and
designations determined by the board of directors.
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or such
greater proportion of the voting power as may be required in the case of a vote
by classes or series, or as may be required by the provisions of the articles of
incorporation have voted in favor of the amendment is 7,966,459 for/0 against.
Officers Signature /s/ Jonathan Kahn
-----------------------
Jonathan Kahn
CEO and Director
Date:
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EXHIBIT D
MONTEREY BAY TECH, INC.
2005 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2005 Stock Option/Stock Issuance Plan is intended to promote the
interests of Monterey Bay Tech, Inc., a Nevada corporation, by providing
eligible persons in the Corporation's employ or service with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to continue in such employ
or service.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity
programs:
(i) the Option Grant Program under which eligible persons may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock, and
(ii) the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply to both
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or
all administrative functions otherwise exercisable by the Board may be delegated
to the Committee. Members of the Committee shall serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
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B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any option or stock issuance
thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as
follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine,
(i) with respect to the grants made under the Option Grant Program, which
eligible persons are to receive the option grants, the time or times when those
grants are to be made, the number of shares to be covered by each such grant,
the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding, and (ii) with
respect to stock issuances made under the Stock Issuance Program, which eligible
persons are to receive such stock issuances, the time or times when those
issuances are to be made, the number of shares to be issued to each Participant,
the vesting schedule (if any) applicable to the issued shares and the
consideration to be paid by the Participant for such shares.
C. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Option Grant Program or to effect
stock issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
3,000,000 shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two.
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C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.
D. In the event that the Common Stock issuable under this Plain
has been registered under the 1933 Act, Options and Stock Issuances shall only
be granted to Eligible Person who have rendered or will render services to the
Corporation the nature of which is are not ineligible pursuant to Securities and
Exchange Commission Releases 33-7646 and 33-7647.
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator, but in no event shall such exercise price be less than
eighty-five percent (8 5%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, be payable:
(i) in cash or check made payable to the Corporation;
or
(ii) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
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(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions (A) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (B) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be
made on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as
shall be determined by the Plan Administrator and set forth in the
documents evidencing the option grant. However, no option shall have a
term in excess often (10) years measured from the option grant date.
C. VESTING. Options issued under the Plan may, in the discretion
of the Plan Administrator, be fully and immediately vested upon issuance
or may vest in one or more installments over the Participant's period of
Service or upon attainment of specified performance objectives.
D. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or
death:
(i) Should the Optionee cease to remain in Service for
any reason other than death, Disability or Misconduct, then the
Optionee shall have a period of three (3) months following the date
of such cessation of Service during which to exercise each
outstanding option held by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve (12)
months following the date of such cessation of Service during which
to exercise each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance shall have a twelve
(12)-month period following the date of the Optionee's death to
exercise such option.
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(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option
term.
(v) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more
than the number of vested shares for which the option is exercisable
on the date of the Optionee' s cessation of Service. Upon the
expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately upon
the Optionee's cessation of Service, terminate and cease to be
outstanding with respect to any and all option shares for which the
option is not otherwise at the time exercisable or in which the
Optionee is not otherwise at that time vested.
(vi) Should Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to remain outstanding.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option
remains outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following Optionee's cessation of Service or
death from the limited period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option
term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments in which
the Optionee would have vested under the option had the Optionee
continued in Service.
E. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and
become the recordholder of the purchased shares.
F. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at
the exercise price paid per share, any or all of those unvested shares.
The terms upon which such repurchase right shall be exercisable (including
the period and procedure for exercise and the appropriate vesting schedule
for the purchased shares) shall be established by the Plan Administrator
and set forth in the document evidencing such repurchase right.
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G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall
be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the exercise price paid shall not be less
than one hundred ten percent (110%) of the Fair Market value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
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III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan
at the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall not vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and any repurchase rights of the
Corporation with respect to the unvested option shares are concurrently assigned
to such successor corporation (or parent thereof) or (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to structure one or more outstanding options so that those options
shall automatically accelerate and vest in full (and any repurchase rights of
the Corporation with respect to the unvested shares subject to those options
shall immediately terminate) upon the occurrence of a Corporate Transaction,
whether or not those options are to be assumed in the Corporate Transaction.
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F. The Plan Administrator shall also have full power and
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to structure such option so that the
shares subject to that option will automatically vest on an accelerated basis
should the Optionee's Service terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which the option is assumed and
the repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the expiration or sooner termination of the option term. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately terminate
on an accelerated basis, and the shares subject to those terminated rights shall
accordingly vest at that time.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable $100,000 limitation is not exceeded. To the
extent such dollar limitation is exceeded, the accelerated portion of such
option shall be exercisable as a Non-Statutory Option under the Federal tax
laws.
H. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
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A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date.
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
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5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all
outstanding repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
ARTICLE FOUR
MISCELLANEOUS
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I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Option Grant Program or the purchase price
for shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments and secured by the purchased shares. However, any promissory note
delivered by a consultant must be secured by collateral in addition to the
purchased shares of Common Stock. In no event shall the maximum credit available
to the Optionee or Participant exceed the sum of (i) the aggregate option
exercise price or purchase price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the
Optionee or the Participant in connection with the option exercise or share
purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, and
shall be approved by the shareholders. If shareholder approval is not obtained
within twenty-four (24) months after the date of the Board's adoption of the
Plan, then all options previously granted under the Plan shall terminate and
cease to be outstanding, and no further options shall be granted and no shares
shall be issued under the Plan. Subject to such limitation, the Plan
Administrator may grant options and issue shares under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. All
options and unvested stock issuances outstanding at the time of a clause (i)
termination event shall continue to have full force and effect in accordance
with the provisions of the documents evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
pursuant to applicable laws and regulations.
B. Options may be granted under the Option Grant Program and
shares may be issued under the Stock Issuance Program which are in each instance
in excess of the number of shares of Common Stock then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such shareholder approval is not obtained within
twelve (12) months after the date the first such excess grants or issuances are
made, then (i) any unexercised options granted on the basis of such excess
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shares shall terminate and cease to be outstanding and (ii) the Corporation
shall promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise of
any option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX I
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Monterey Bay Tech, Inc., a Nevada
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Monterey Bay Tech, Inc. which shall by appropriate
action adopt the Plan.
G. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which is expected to result
in such person's death or to continue for a period of twelve (12) consecutive
months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
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J. FAIR MARKET VALUE be the mean of the high and low prices of
Common Stock on the relevant date (as of 4:00 P.M. Eastern Standard Time) as
reported by the exchange or quotation medium on which the Company's common stock
is listed or, if no sale was made on such date, or no quotes are available for
such day, the fair market value of a share of Common Stock shall be determined
by the Administrators by any method consistent with any applicable regulations
adopted by the Treasury Department relating to stock options.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of management
to which he or she reports, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and target bonuses
under any corporate-performance based bonus or incentive programs) by more
than fifteen percent (15%) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected without the individual's
consent.
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
N. 1933 ACT shall mean the Securities Act of 1933, as amended.
0. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
P. OPTION GRANT PROGRAM shall mean the option grant program in
effect under the Plan.
Q. OPTIONEE shall mean any person to whom an option is granted
under the Plan.
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R. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
T. PLAN shall mean the Corporation's 2005 Stock Option/Stock
Issuance Plan, as set forth in this document.
U. PLAN Administrator shall mean either the Board or the
Committee acting in its capacity as administrator of the Plan.
V. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant.
W. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
X. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
Y. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
Z. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
AA. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting
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APPENDIX B
MONTEREY BAY TECH, INC.
2005 STOCK OPTION/STOCK ISSUANCE PLAN
o GENERAL
o This appendix (the "APPENDIX") is intended to enable the Corporation
to issue options and stock (in this Appendix: an "AWARD" and
collectively: "AWARDS") in compliance with Amendment no. 132 of the
Ordinance (as defined below) and in particular with the provisions
of Section 102 and Section 3(i) of the Ordinance, as amended or
replaced from time to time.
o Any capitalized term not specifically defined in this Appendix shall
have such meaning as is ascribed to it in the Monterey Bay Tech,
Inc. 2005 Stock Option/Stock Issuance Plan (hereinafter, the "PLAN")
and shall be construed according to the interpretation given to it
in the Plan.
o The provisions of this Appendix shall apply only to Participants who
are residents of the state of Israel or those who are deemed to be
residents of the state of Israel for the payment of tax.
o The Plan and this Appendix are complementary to each other and shall
be deemed a single integrated document. Except as otherwise set
forth herein, the terms and conditions of the Plan shall remain
unchanged and in full force and effect, and shall govern the grant
of Awards to Israeli Employees and to Israeli Non-Employees (as such
terms are defined below).
o In the event of any inconsistencies or conflicting provisions
between the provisions of the Plan and the provisions of this
Appendix, whether explicit or implied, the provisions of this
Appendix shall prevail.
o DEFINITIONS
o "3(I) AWARD" means an Award granted pursuant to Section 3(i) of the
Ordinance to any person who is an Israeli Non-Employee.
o "102 AWARD" means an Award granted pursuant to Section 102 of the
Ordinance to any person who is an Israeli Employee.
o "102 CAPITAL GAIN AWARDS (102 CGA)" means a Trustee 102 Award
elected and designated by the Employing Company to qualify for
capital gain tax treatment in accordance with the provisions of
Section 102(b)(2) of the Ordinance.
o "102 ORDINARY INCOME AWARD (102 OIA)" means a Trustee 102 Award
elected and designated by the Employing Company to qualify for
ordinary income tax treatment in accordance with the provisions of
Section 102(b)(1) of the Ordinance.
o "CONTROLLING SHAREHOLDER" shall have the meaning ascribed to it in
Section 32(i) of the Ordinance.
107
o "EMPLOYING COMPANY" shall have the meaning ascribed to it in Section
102(a) of the Ordinance.
o "ISRAELI EMPLOYEE" means a person who is a resident of the state of
Israel or who is deemed to be a resident of the state of Israel for
the payment of tax, and who is an employee or an Office Holder
("Nose Missra") of the Corporation, or any Parent or Subsidiary of
the Corporation, in each case excluding a person who is a
Controlling Shareholder prior to the issuance of the relevant Award
or as a result thereof.
o "ISRAELI NON-EMPLOYEE" means a person who is a resident of the state
of Israel or who is deemed to be a resident of the state of Israel
for the payment of tax, and who is (i) a consultant, adviser,
service provider of the Corporation, or any Parent or Subsidiary of
the Corporation, who is not an Israeli Employee, or (ii) a
Controlling Shareholder (whether or not an employee of the
Corporation or any Parent or Subsidiary thereof).
o "ITA" means the Israeli Income Tax Authorities.
o "NON-TRUSTEE 102 AWARD" means an Award granted to an Israeli
Employee pursuant to Section 102(c) of the Ordinance, which is not
required to be held in trust by a Trustee.
o "ORDINANCE" means the 1961 Israeli Income Tax Ordinance [New
Version], as now in effect or as amended or replaced from time to
time.
o "SECTION 102" means section 102 of the Ordinance and any
regulations, rules, orders or procedures promulgated thereunder as
now in effect or as amended or replaced from time to time.
o "TRUSTEE" means any person or entity appointed by the Corporation,
any of its Parents or any of its Subsidiaries, as applicable and
approved by the ITA, to serve as a trustee, all in accordance with
the provisions of Section 102(a) of the Ordinance.
o "TRUSTEE 102 AWARD" means an Award granted pursuant to Section
102(b) of the Ordinance and held in trust by a Trustee for the
benefit of the Participant.
o ISSUANCE OF AWARDS
o Without derogating from the provisions of the Plan: (i) Israeli
Employees may be granted only 102 Awards; and (ii) Israeli
Non-Employees may be granted only 3(i) Awards. In each case, such
Awards shall be subject to the terms and conditions of the
Ordinance.
o The Employing Company may designate 102 Awards granted to Israeli
Employees pursuant to Section 102 as Non-Trustee 102 Awards or as
Trustee 102 Awards.
o TRUSTEE 102 AWARDS
o Awards granted pursuant to this Section ? are intended to constitute
Trustee 102 Awards and are subject to the provisions of Section 102
and the general terms and conditions specified in the Plan, except
for such provisions of the Plan applying to Awards under a different
tax law or regulation.
108
o Trustee 102 Awards may be granted only to Israeli Employees.
o Trustee 102 Awards shall be classified as either 102 CGA or 102 OIA,
subject to the terms and conditions of Section 102 and the
provisions of the Plan and this Appendix
o No Trustee 102 Awards may be granted under this Appendix, unless and
until the Employing Company's election of the type of Trustee 102
Awards granted to Israeli Employees, 102 CGA or 102 OIA (the
"Election"), is appropriately filed with the ITA.
After making an Election, the Corporation may grant only the type of
Trustee 102 Awards it has elected (i.e. 102 CGA or 102 OIA), and the
Election shall apply to all grants to Participants of Trustee 102 Awards
until such Election is changed pursuant to the provisions of Section
102(g) of the Ordinance. The Employing Company may change such Election
only after the passage of at least one year following the end of the year
during which the applicable Employing Company first granted Trustee 102
Awards in accordance with the previous Election.
For the avoidance of doubt, such Election shall not prevent the
Corporation from granting Non-Trustee 102 Awards or 3(i) Awards
simultaneously with the grant of Trustee 102 Awards.
o The grant of Trustee 102 Awards shall be conditioned upon the
approval (or the deemed approval pursuant to the provisions of
section 102(a) of the Ordinance) of the Plan, this Appendix and the
Trustee by the ITA.
o Trustee 102 Awards may be granted only after the passage of thirty
days (or a shorter period as and if approved by the ITA) following
the delivery by the appropriate Employing Company to the ITA of a
request for approval of the Plan (including this Appendix) and the
Trustee according to Section 102.
Notwithstanding the foregoing paragraph, if within ninety (90) days of
delivery of the abovementioned request, the appropriate ITA officer
notifies the Employing Company of his or her decision not to approve the
Plan or the Trustee, the Awards that were intended to be granted as a
Trustee 102 Awards shall be deemed to be Non-Trustee 102 Awards, unless
otherwise determined by the ITA officer.
o Anything herein to the contrary notwithstanding, all Trustee 102
Awards granted under this Plan shall be granted or issued to a
Trustee. The Trustee shall hold each such Trustee 102 Award, all
shares of the Corporation's Common Stock (hereinafter: "SHARES")
issued upon exercise thereof, and all other securities received
following any exercise or realization of rights, including bonus
shares, in trust for the benefit of the Participant in respect of
whom such Award was granted. All certificates representing Awards or
Shares issued to the Trustee under the Plan shall be deposited with
the Trustee, and shall be held by the Trustee until such time that
such Awards or Shares are released from the trust.
109
o With respect to 102 CGA and 102 OIA, the Awards or Shares issued
upon the exercise thereof and all rights related to them, including
bonus shares, will be held by the Trustee for such period of time as
required under Section 102 (currently, at least 24 months (in case
of a 102 CGA) and 12 months (in case of a 102 OIA), from the end of
the tax year in which such Award was deposited with the Trustee) or
a shorter period as approved by the ITA (hereinafter, the "HOLDING
PERIOD"), under the terms set forth in Section 102.
o In accordance with Section 102, the Participant shall not sell,
cause the release from trust, or otherwise dispose of, any Trustee
102 Award, any Share issued upon the exercise thereof, or any rights
related to them, including bonus shares, until the end of the
applicable Holding Period. Notwithstanding the foregoing but without
derogating from the provisions of the Plan and the terms and
conditions set forth in the Award Agreement, if any such sale,
release, or disposition occurs during the Holding Period, then the
provision of Section 102, relating to non-compliance with the
Holding Period, will apply and all sanctions under Section 102 shall
be borne by the Participant.
o Anything herein to the contrary notwithstanding, the Trustee shall
not release any Awards which were not already exercised into Shares
by the Participant, nor release any Shares issued upon exercise of
the Trustee 102 Awards or rights related thereto, including bonus
shares, prior to the full payment of the Exercise Price and
Participant's tax liability arising from the Trustee 102 Awards
which were granted to him or her.
o In the event that the requirements for the Trustee 102 Awards are
not met, then the Trustee 102 Awards shall be regarded as
Non-Trustee 102 Awards.
o Upon receipt of a Trustee 102 Award, the Participant will sign an
Award Agreement under which such Participant will agree to be
subject to the trust agreement between the Corporation and/or its
Subsidiaries and the Trustee, stating, inter alia, that the Trustee
will be released from any liability in respect of any action or
decision duly taken and executed in good faith in relation to this
Appendix, or any Trustee 102 Award or Share issued to him or her
thereunder.
o NON-TRUSTEE 102 AWARDS
o Awards granted pursuant to this Section ? are intended to constitute
Non- Trustee 102 Awards and are subject to the provisions of Section
102 and the general terms and conditions specified in the Plan,
except for such provisions of the Plan applying to Awards granted
under a different tax law or regulations.
o Non-Trustee 102 Awards may be granted only to Israeli Employees.
o Non-Trustee 102 Awards that shall be granted pursuant to the Plan
may be issued directly to the Israeli Employee or to a trustee
appointed by the administrator in his sole discretion. In the event
that the Administrator determines that Non-Trustee 102 Awards, and
Shares issued upon the exercise thereof, shall be deposited with a
trustee, the provisions of Sections ? and ? of this Appendix shall
apply, mutatis mutandis.
110
o In the event that an Israeli Employee who was granted a Non-Trustee
102 Award is an employee of the Corporation, or any Parent or
Subsidiary thereof, such employee will be obligated to provide his
employer, upon the termination of his employment for any reason,
with a security or guarantee to cover any future tax obligation
resulting from the grant, exercise or disposition of the Award or
the Shares issuable upon the exercise thereof, in the form
satisfactory to such employer in the latter's sole discretion.
o 3(I) AWARDS
o Awards granted pursuant to this Section ? are intended to constitute
3(i) Awards and are subject to the provisions of Section 3(i) of the
Ordinance and the general terms and conditions specified the Plan,
except for provisions of the Plan applying to Awards granted under a
different tax law or regulations.
o 3(i) Awards may be granted only to Israeli Non-Employees.
o 3(i) Awards that shall be granted pursuant to the Plan may be issued
directly to the Israeli Non-Employee or to a trustee appointed by
the administrator in his sole discretion. In the event that the
Administrator determines that 3(i) Awards, and Shares issued upon
the exercise thereof, shall be deposited with a trustee, the
provisions of Sections ? and ? of this Appendix shall apply, mutatis
mutandis.
o THE AWARD AGREEMENT
The terms and conditions upon which the Awards shall be issued and exercised,
shall be as specified in the Award Agreement to be executed pursuant to the Plan
and this Appendix. Each Award Agreement shall state, inter alia, the number of
Shares to which the Award relates, the type of Award granted thereunder (whether
a Trustee 102 Award and if so, whether a 102 CGA or 102 OIA, Non-Trustee 102
Award, or a 3(i) Award), the vesting provisions, the term of the Award, and the
exercise price. Any grant of Awards shall be conditioned upon the Participant's
undertaking to be subject to the provisions of Section 102 or Section 3(i), as
applicable.
o FAIR MARKET VALUE FOR ISRAELI TAX PURPOSES
Without derogating from Paragraph (J) of Appendix A of the Plan and solely for
the purpose of determining the tax liability pursuant to Section 102(b)(3) of
the Ordinance, if at the date of grant of a 102 CGA the Corporation's Shares are
listed on any established stock exchange or a national market system, or if the
Corporation's shares are registered for trading within ninety (90) days
following the date of grant of the 102 CGA, the fair market value of the Shares
at the date of grant shall be determined in accordance with the average value of
the Corporation's shares on the thirty (30) trading days preceding the date of
grant or on the thirty (30) trading days following the date of registration for
trading, as applicable.
o EXERCISE OF AWARDS
Awards shall be exercised in accordance with the provisions of the Plan and the
Award Agreement, and when applicable, in accordance with the requirements of
Section 102.
111
o ASSIGNABILITY AND SALE OF AWARDS
o Notwithstanding any other provision of the Plan to the contrary, no
Award, or any right with respect thereto or purchasable thereunder,
whether fully paid or not, shall be assignable, transferable or
given as collateral or any right with respect thereto granted to any
third party whatsoever, without the prior written consent of the
Administrator, and in any event subject to the provisions of the
Ordinance. Any purported assignment, transfer, grant of collateral,
or pledge of Awards or any right with respect thereto or
purchaseable thereunder, in contradiction to the provisions of this
Section, directly or indirectly, for an immediate effect or for a
future one, shall be null and void and cause the applicable Award to
immediately expire.
During the lifetime of the Participant all of such Participant's rights to
purchase Shares or to otherwise exercise an Award hereunder shall be
exercisable only by the Participant.
o Without derogating from Section ? above, for as long as Awards or
Shares purchased upon the exercise thereof are held by the Trustee
on behalf of the Participant, all rights of the Participant with
respect to such Awards and Shares shall be personal, and may not be
transferred, assigned, pledged or mortgaged, other than by will or
laws of descent and distribution.
Any purported assignment, transfer, grant of collateral, or pledge of an
Award or Share in contradiction to the provisions of this Section,
directly or indirectly, for an immediate effect or for a future one, shall
be null and void and cause the Award to expire immediately.
o INTEGRATION OF SECTION 102 AND TAX ASSESSING OFFICER'S PERMIT
o With respect to Trustee 102 Awards, the provisions of the Plan, this
Appendix and the Award Agreement shall be subject to the provisions
of Section 102 and the Tax Assessing Officer's permit (to the extent
that such permit is issued) (the "Permit"), and said provisions and
Permit shall be deemed an integral part of the Plan, this Appendix
and the Award Agreement.
o Any provision of Section 102 or the Permit which is necessary in
order to receive or to keep any tax benefit pursuant to Section 102,
which is not expressly specified in the Plan, this Appendix, or the
Award Agreement, shall be deemed to have been automatically
incorporated into this Appendix and considered binding upon the
Corporation and the Participants who are Israeli Employees or
Israeli Non-Employees.
o DIVIDENDS
Without derogating from the provisions of the Plan, a Participant shall be
entitled to receive dividends with respect to Shares issued upon the exercise of
his or her Awards (whether such Shares are held by the Participant or by the
Trustee for his or her benefit), in accordance with the provisions of the
Corporation's Certificate of Incorporation (including all amendments thereto),
subject to any applicable taxation on distribution of dividends and, when
applicable, subject to the provisions of Section 102.
112
o TAX CONSEQUENCES
o Any tax arising with respect to the grant or exercise of any Award,
the payment for, or disposition of, Shares covered thereby, or from
any other event or act in connection therewith (of the Corporation,
its Parents or Subsidiaries, the Trustee or the Participant), shall
be borne solely by the Participant. The Corporation, its Parents,
Subsidiaries, and the Trustee shall be entitled to withhold taxes
according to the requirements of any applicable laws, rules, and
regulations, including withholding taxes at source and particularly
regulation 7(b) of the Income Tax Regulations (tax benefits on the
issuance of shares to employees) 2003. The Participant shall
indemnify the Corporation, its Parents, Subsidiaries, and the
Trustee, as the case may be, and hold each of them harmless against
and from any and all liability for any such tax or interest or
penalty thereon, including without limitation, liabilities relating
to the necessity to withhold, or to have withheld, any such tax from
any payment made to the Participant.
o The Administrator or, when applicable, the Trustee shall not be
required to release any share certificate to a Participant until all
required tax payments have been fully made.
113
EXHIBIT E
SPACELOGIC LTD. AND ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
OF DECEMBER 31, 2004
(IN NEW ISRAELI SHEKELS)
114
SPACELOGIC LTD. AND ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
(IN NEW ISRAELI SHEKELS)
INDEX
PAGE
------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 2
CONSOLIDATED BALANCE SHEETS 3 - 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8 - 33
- - - - - - - - - - - - - - - - - - -
[GRAPHIC OMITTED]
|X| KOST FORER GABBAY & KASIERER |X| Phone: 972-4-8654000
2 PalYam St. Fax: 972-4-8654022
Haifa 33095, Israel
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF
SPACELOGIC LTD.
We have audited the accompanying consolidated balance sheets of Spacelogic
Ltd. ("the Company") and its subsidiary as of December 31, 2003 and 2004, and
the related consolidated statements of operations, changes in shareholders'
deficiency and cash flows for each of the three years in the period ended
December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiary as of December 31, 2003 and 2004 and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States.
Haifa, Israel KOST FORER GABBAY & KASIERER
March 1, 2005 A Member of Ernst & Young Global
-2-
SPACELOGIC LTD. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
2003 2004 2004
------ ------ -----------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NOTE NIS U.S. DOLLARS
---- --------------- --------
(In thousands)
CURRENT ASSETS:
Cash and cash equivalents 3 2,347 77 $ 18
Short-term bank deposits 4 2,423 971 225
Trade receivables (net of allowance for doubtful
accounts of NIS 8 as of December 31, 2003) 5 941 626 146
Other accounts receivable 6 331 490 113
Inventories 7 1,666 418 97
------ ------ ------
7,708 2,582 599
------ ------ ------
LONG-TERM INVESTMENTS, LOANS AND RECEIVABLES:
Long-term loan and receivable - related parties 8 165 -- --
Deposits in respect of long-term lease 65 8 2
Severance pay funds 2L 661 666 155
------ ------ ------
891 674 157
------ ------ ------
PROPERTY AND EQUIPMENT, NET 9 1,125 773 179
------ ------ ------
9,724 4,029 $ 935
====== ====== ======
March 1, 2005
- ------------------------- ----------------------- -------------------- -------------------
Date of approval of the Gary Koren Michael Klein Iftach Yeffet
financial statements CEO and Chairman of the COO and Director CFO and Director
Board of Directors
The accompanying notes are an integral part of the consolidated financial statements.
-3-
SPACELOGIC LTD. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
2003 2004 2004
------- ------- -------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NOTE NIS U.S. DOLLARS
---- ------------------- -------------
(In thousands)
CURRENT LIABILITIES:
Short-term bank credit and others 10 71 21 $ 5
Trade payables 11 2,997 1,098 255
Other accounts payable 12 6,599 5,342 1,240
Billings in excess of costs and estimated earnings on
uncompleted contracts 13 2,035 -- --
------ ----- --------
11,702 6,461 1,500
LONG-TERM LIABILITIES: ------ ----- --------
Long-term loans 14 -- 54 12
Accrued severance pay 2L 1,317 1,395 324
------ ----- --------
1,317 1,449 336
------ ----- --------
GUARANTEES, CHARGES, CONTINGENCIES AND COMMITMENTS 16
SHARHOLDERS' DEFICIENCY
Share capital 17
Ordinary shares of New Israeli Shekels (NIS)
0.01 par value
Authorized - 3,000,000 shares as of December
31, 2004 and 2003
Issued and outstanding - 10,000 shares as of December 31, 2004 and
2003 *- *- *-
Accumulated deficit (3,295) (3,881) (901)
(3,295) (3,881) (901)
-------- -------- --------
9,724 4,029 $ 935
======== ======== ========
*) Represents an amount lower than 1 thousand.
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
SPACELOGIC LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2003 2004 2004
-------- -------- -------- --------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NOTE NIS U.S. DOLLARS
----- -------------------------------- --------
(In thousands, except share and per share data)
Revenues
Long-term construction contract
(BGA 2000) 13,299 17,586 8,135 $ 1,888
Software and products 3,484 2,362 3,471 806
Spare parts -- -- 2,520 585
Maintenance services 798 914 994 231
Commissions 15 32 594 138
-------- -------- -------- --------
17,596 20,894 15,714 3,648
-------- -------- -------- --------
Cost of revenues
Long-term construction contract
(BGA 2000) 8,864 9,473 4,432 1,054
Software and products 2,452 1,784 2,313 502
Spare parts -- -- 1,476 342
Maintenance services 390 355 410 105
-------- -------- -------- --------
11,706 11,612 8,631 2,003
-------- -------- -------- --------
Gross profit 5,890 9,282 7,083 1,645
Research and development costs, net 18a 2,523 2,152 2,174 505
Selling and marketing expenses 2,843 2,518 2,459 571
General and administrative expenses 3,365 3,710 2,828 657
-------- -------- -------- --------
8,731 8,380 7,461 1,733
Operating income (loss) (2,841) 902 (378) (88)
Financial income (expenses), net 18b 586 363 (44) (10)
Other expenses 18c -- (813) -- --
-------- -------- -------- --------
Income (loss) before taxes on income (2,255) 452 (422) (98)
Taxes on income 15f (61) (680) (164) (38)
-------- -------- -------- --------
Net loss (2,316) (228) (586) $ (136)
======== ======== ======== ========
Basic and diluted net loss per share (in shekels) (232) (23) (59) $ (14)
======== ======== ======== ========
Number of shares used in computing basic and diluted
net income (loss) per share 10,000 10,000 10,000 10,000
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
CELOGIC LTD. AND ITS SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
- ------------------------------------------------------------------------------
SHARE ACCUMULATED
CAPITAL DEFICIT TOTAL
-------- -------- --------
NIS (in thousands)
Balance as of January 1, 2002 *- (751) (751)
Net loss - (2,316) (2,316)
-------- -------- --------
Balance as of December 31, 2002 *- (3,067) (3,067)
Net loss - (228) (228)
-------- -------- --------
Balance as of December 31, 2003 *- (3,295) (3,295)
Net loss - (586) (586)
-------- -------- --------
Balance as of December 31, 2004 *- (3,881) (3,881)
======== ======== ========
CONVENIENCE TRANSLATION (NOTE 2B)
--------------------------------
U.S. DOLLARS (in thousands)
Balance as of January 1, 2004 *- $ (765) $ (765)
Net loss - (136) (136)
-------- -------- --------
Balance as of December 31, 2004 *- $ (901) $ (901)
======== ======== ========
* Represents an amount lower than 1 thousand.
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
SPACELOGIC LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
2002 2003 2004 2004
------ ------- ------- ------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
--------------------------- ------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (2,316) (228) (586) $ (136)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities
Depreciation 337 329 259 60
Deferred taxes, net 391 280 -- --
Accrued severance pay, net 361 120 73 19
Inflation differences on long-term loan 18 (17) (1) *-
Accrued interest and exchange differences on
investment in long-term loan (109) 10 -- --
Write-down of long-term loan granted to related party -- 813 -- --
Loss from sale of equipment 2 22 87 20
Impairment of long-lived assets -- -- 25 5
Decrease in trade receivables 1,524 1,234 315 73
Decrease (increase) in other accounts receivable
(including long-term receivable) (97) (1,574) 1,292 300
Decrease (increase) in inventories (28) (23) 19 4
Increase (decrease) in trade payables 174 (2,301) (1,899) (441)
Increase (decrease) in other accounts payable 2,511 (118) (1,257) (293)
Decrease in billings in excess of costs and estimated
earnings on uncompleted contracts (825) (172) (2,035) (472)
------ ------ ------ ------
Net cash provided by (used in) operating activities 1,943 (1,625) (3,708) (861)
CASH FLOWS FROM INVESTING ACTIVITIES: ------ ------- ------- ------
Purchase of equipment (257) (260) (226) (52)
Proceeds from sales of equipment 17 102 207 48
Short-term bank deposits, net (4,729) 4,200 1,452 337
------ ------- ------- ------
Net cash provided by (used in) investing activities (4,969) 4,042 1,433 333
CASH FLOWS FROM FINANCING ACTIVITIES: ------ ------- ------- ------
Short-term bank credit, net 119 (107) (12) (3)
Long-term loan received -- -- 84 19
Repayment of long-term loans (225) (137) (67) (15)
------ ------- ------- ------
Net cash provided by (used in) financing activities (106) (244) 5 1
------ ------- ------- ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,132) 2,173 (2,270) (527)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 3,306 174 2,347 545
------ ------- ------- ------
CASH AND CASH EQUIVALENT AT THE END OF THE YEAR 174 2,347 77 $ 18
SUPPLEMENTAL DISCLUSRE OF CASH ====== ======= ======= ======
FLOW INFORMATION:
Interest paid 88 24 20 $ 5
====== ======= ======= ======
Income taxes paid 61 34 68 $ 16
====== ======= ======= ======
* Represents an amount lower than $1 thousand.
The accompanying notes are an integral part of the consolidated financial statements.
-7-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1:- GENERAL
A. Spacelogic Ltd. ("the Company") is a privately owned Israeli
corporation incorporated in 1998. The Company has been involved in
airport Baggage Handling Systems, as well as Automated Materials
Handling Systems. The Company is selling Warehouse Management
systems ("WMS") using its proprietary software for several years.
The Company has performed a project as a subcontractor of Crisplant
A/S ("Crisplant"), who was the principal contractor of constructing
the automatic-baggage-handling-system for Israeli Ben Gurion
Airport's new Terminal 3 ("BGA 2000"). The project ended in 2004 and
the terminal began operating in November 2004.
The Company and its subsidiary Securelogic Ltd. ("the Group")
developed a system for airports - Integrated Baggage Handling and
Security ("IBHS"). This solution meets new airport requirements by
providing 100% baggage screening at a rapid throughput rates and
high detection rates. As of balance sheet date the Company has not
yet generated revenues from the sale of the aforementioned system.
The Group is currently active in the development of additional
control systems, explosive detection systems and nuclear-based
explosive detection technologies in various environments such as in
lobby, check-points, cargo etc.
B. THE FINANCIAL POSITION OF THE COMPANY
As of December 31, 2004, the Company has an accumulated deficit in
the amount of NIS 3.9 million and a working capital deficiency in
the amount of NIS 3.9 million. According to management's projections
and business plans, the Company is expected to generate positive
cash flows from its operations which will enable it to continue
operating in the future.
C. STOCK PURCHASE AGREEMENT
On February 17, 2005 the Company signed an agreement with Monterey
Bay Tech Inc. (hereafter "MBYI"), a publicly traded US technology
holding company. According to the agreement, MBYI will acquire 100 %
of the equity of the Company and will become a wholly subsidiary of
the MBYI. The closing of this Agreement (the "Closing") shall occur
on March 31, 2005. At and as of the Closing MBYI shall have not less
than the sum of $2,160,000 of cash in its bank account.
-8-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the
United States ("U.S. GAAP") and were applied on a consistent basis,
as follows:
A. FINANCIAL STATEMENTS IN NEW ISRAELI SHEKELS (NIS)
The functional currency of the Group is the New Israeli Shekel
(NIS), as the NIS is the primary currency of the economic
environment in which the Group has operated and expects to continue
to operate in the foreseeable future. The majority of the Group's
operations are currently conducted in Israel and most of the
expenses are currently denominated and paid in new Israeli shekels
("NIS"). However, in 2004 and 2003 due to the performing of the BGA
2000 project mentioned In Note 1A above, approximately 70% and 80%
respectively of the revenues were denominated in Danish Kroner
(DKK).
Accordingly, amounts in currencies other than NIS have been
translated as follows:
Monetary balances - at the exchange rate in effect as of
balance sheet date.
Revenues and costs - at the exchange rates in effect as of the
date of recognition of the transactions.
All exchange gains and losses from the remeasurement
mentioned above are reflected in the statements of
operations in financial expenses (income), net.
B. CONVENIENCE TRANSLATION INTO U.S. DOLLARS
The financial statements as of December 31, 2004 and for the year
then ended, have been translated into U.S dollars using the
representative exchange rate of the U.S. dollar as of such date
(U.S.$ 1 = NIS 4.308). The translation was made solely for the
convenience of the readers. It should be noted that the translated
U.S. dollar figures should not be construed to represent amounts
receivable or payable in dollars, or convertible into dollars,
unless otherwise indicated in these statements.
C. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported and disclosure of
contingent assets and liabilities in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
-9-
D. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiary (the "Group").
Intercompany transactions and balances have been eliminated upon
consolidation.
E. CASH EQUIVALENTS
Cash equivalents are unrestricted, short-term, highly liquid
investments, that are readily convertible to cash with maturities of
three months or less at the date of acquisition.
-10-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
F. SHORT-TERM BANK DEPOSITS
Short-term bank deposits are deposits with maturities of more
than three months but less than one year and deposits that are
restricted. The short-term bank deposits are presented at
their cost, including accrued interest.
G. CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Group to
concentrations of credit risk consist principally of cash and
cash equivalents and trade receivables.
The majority of the Group's cash and cash equivalents and
deposits are invested in NIS instruments with major banks in
Israel. Management believes that the financial institutions
that hold the Group's investments are financially sound and
accordingly, minimal credit risk exists with respect to these
investments.
The Group performs ongoing credit evaluations of its customers
and to date, has not experienced any unexpected material
losses. An allowance for doubtful accounts is determined with
respect to specific accounts receivable that the management
evaluates to be uncollectible.
H. PROPERTY AND EQUIPMENT
1. Equipment are stated at cost, net of accumulated
depreciation.
2. Depreciation is calculated by the straight-line method
over the estimated useful lives of the assets at the
following annual rates:
%
-------
Motor vehicles 15
Office furniture and equipment
(including computers) 6 - 33
(mainly 33)
I. INVENTORIES
Inventories of spare parts used for providing services to
customers and inventories of work in process are stated at the
lower of cost or net realizable value. Cost of work in process
is determined on a specific basis.
J. IMPAIRMENT OF LONG-LIVED ASSETS
The Company's long-lived assets are reviewed for impairment in
accordance with SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to the future undiscounted cash flows expected to be
generated by the asset. If an asset is determined to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds its
fair value. As of December 31, 2004, impairment losses of NIS
25,000 have been identified.
-11-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
K. DEFERRED TAXES
The Company and its subsidiary account for income taxes in
accordance with Statement of Financial Accounting Standards
No.109, "Accounting for Income Taxes" ("SFAS No.109"). This
Statement prescribes the use of the liability method whereby
deferred tax assets and liability account balances are
determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company and its
subsidiary provide a valuation allowance, if necessary, to
reduce deferred tax assets to their estimated realizable
value.
L. SEVERANCE PAY
The liabilities of the Group for severance pay are calculated
based on the most recent salary of the employees as of the
balance sheet date in accordance with Israeli Severance Pay
Law.
The Company's obligation for severance pay is provided by
monthly deposits with insurance companies ("Severance pay
funds"). Severance pay funds presented in the balance sheet
include profits accumulated to balance sheet date. The amounts
deposited may only be withdrawn after fulfillment of the
obligations pursuant to Israeli Severance Pay Law or labor
agreements. The value of the deposited funds is based on the
cash surrendered value of these funds and includes immaterial
profits.
Severance pay expenses for the years ended December 31, 2004,
2003 and 2002 amounted to approximately NIS 263,000, NIS
240,000, and NIS 430,000, respectively.
M. REVENUE RECOGNITION
The Company generated revenues from a long-term contract of
construction of the baggage handling system in Ben Gurion
Airport ("BGA 2000") and from sale of its self developed
software relating to Warehouse Management Systems. The Company
also generated revenues from providing maintenance services
and support, from sale of spare parts and from commissions on
supplying spare parts.
1. Revenue from BGA 2000 Baggage Handling System ("BHS").
Revenue from the BGA 2000 BHS long-term construction
contract is recognized based on Statement of Position
81-1 "Accounting for Performance of Construction-Type
and Certain Production - Type Contracts" ("SOP 81-1")
whereby revenue is recognized according to the
percentage of completion method.
Sales and anticipated profit under the long-term
contract are recorded using the cost-to-cost method of
accounting, where by percentage of completion is
measured based on the ratio of costs incurred, to
estimated total project costs. This percentage of
completion approximates the percentage of completion
determined under engineering progress.
-12-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
M. REVENUE RECOGNITION (CONT.)
1. Revenue from BGA 2000 Baggage Handling System ("BHS")
(cont.)
Estimated gross profit from long-term contracts may
change due to changes in estimates resulting from
differences between actual performance and original
forecasts. Such changes in estimated gross profit are
recorded in results of operations when they are
reasonably determinable by management, on a cumulative
catch-up basis.
Amounts representing contract change orders, claims or
other items are included in sales only when they can be
reliably estimated and realization is probable.
The Company believes that the use of the percentage of
completion method is appropriate as the Company has the
ability to make reasonably dependable estimates of the
extent of progress towards completion, of contract
revenues and of contract costs. In addition, the
contract executed includes provisions that clearly
specify the enforceable rights regarding services to be
provided and received by the parties to the contracts,
the consideration to be exchanged and the manner and
terms of settlement. The Company expects to perform its
contractual obligations and its customer is expected to
satisfy its obligations under the contract.
2. Revenues from sale of software and products.
Revenues from sale of software are recognized in
accordance with Statement of Position 97-2, "Software
Revenue Recognition", as amended ("SOP 97-2"). SOP 97-2
generally requires revenue earned on software
arrangements involving multiple elements to be allocated
to each element based on the relative fair value of the
elements. However, the Company has adopted Statement of
Position 98-9, "Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain
Transactions", ("SOP 98-9"). SOP 98-9 requires that
revenue be recognized under the "residual method" when
Vendor Specific Objective Evidence ("VSOE") of fair
value exists for all undelivered elements and VSOE does
not exist for all of the delivered elements. Under the
residual method any discount in the arrangement is
allocated to the delivered elements. Revenues from sale
of software license are recognized when delivery of the
product has occurred, the fee is fixed or determinable,
collectibility is probable, vendor specific objective
evidence exists to allocate total fees to elements of
the arrangement and persuasive evidence of an
arrangement exists.
The Company also generated revenues also from products
sales which are recognized in accordance with Staff
Accounting Bulletin No. 104 "Revenue Recognition" when
delivery has occurred and, where applicable, after
installation has occurred, there is persuasive evidence
of an agreement, the fee is fixed or determinable and
collection of the related receivable is probable and no
further obligations exist. In cases where delivery has
occurred but the required installation has not been
performed, the Company does not recognize the revenue
until the installation is completed.
-13-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
M. REVENUE RECOGNITION (CONT.)
3. Revenues from maintenance services and support.
Revenues from maintenance services and support are
recognized on a straight-line basis over the term of the
maintenance services and support agreement.
4. Revenues from sale of spare parts.
Revenues from sale of spare parts are recognized when
delivery of the spare parts has occurred, the fee is
fixed or determinable, collectibility is probable and
persuasive evidence of an arrangement exists.
5. Revenues from commission
Revenue from commissions on supplying spare parts is
earned when the sale is consummated.
6. Deferred revenue
Deferred revenue includes unearned amounts received
under maintenance services and support contracts.
N. PROVISION FOR WARRANTIES
The Company estimates the costs that may be incurred under its
basic warranty and records a liability in the amount of such
costs at the time revenue is recognized. The specific terms
and conditions of those warranties vary depending upon the
product sold and the work preformed. Factors that affect the
Company's warranty liability include the anticipated work,
weighted average cost of employees, engineering estimates and
anticipated rates of warranty claims. The Company's management
periodically assesses the adequacy of its recorded warranty
liability based on the past experience of management and
adjusts the amount as necessary.
Changes in the Company's provision for warranty during the
year are as follows:
CONVENIENCE
TRANSLATION
(NOTE 2B)
------ -------
NIS U.S. DOLLARS
------ ------
(in thousands)
Balance, at January 1, 2004 881 $ 204
Warranties issued during the year 248 58
Warranties expired or settled
during the year (41) (9)
------ ------
Balance, at December 31, 2004 1,088 $ 253
====== ======
-14-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
O. RESEARCH AND DEVELOPMENT COSTS
Research and development costs, net of participations, are
charged to the statement of operations as incurred. SFAS NO.
86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires capitalization of
certain software development costs subsequent to the
establishment of technological feasibility. Based on the
product development process, technological feasibility is
established upon completion of a working model. Costs,
incurred by the Company between completion of the working
models and the point at which the products are ready for
general release, have been insignificant. Therefore, research
and development costs have been charged to the statement of
operations, as incurred.
P. PARTICIPATION IN RESEARCH AND DEVELOPMENT COSTS
Participation of the BIRD Foundation in funding approved
research and development projects is recognized at the time
the Company is entitled to such participation, on the basis of
the costs incurred. Such participation is included as a
deduction of research and development costs. The participation
received and accrued in 2004 amounted to NIS 674,000
($157,000).
Q. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheet for cash and
cash equivalents, short-term bank deposits, trade receivables,
other accounts receivable, short-term bank credit, long-term
loans, trade payables and other accounts payable approximates
their fair value.
R. NET LOSS PER SHARE
Net loss per share is computed based on the weighted average
number of Ordinary shares outstanding during each year, in
accordance with SFAS No. 128 "Income per Share".
S. IMPACT OF RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
1. In 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51
("FIN 46"). In December 2003, the FASB revised FIN 46 to
make certain technical corrections and address certain
implementation issues that had arisen. FIN 46 provides a
new framework for identifying Variable Interest Entities
("VIE's") and determining when a company should include
the assets, liabilities, non-controlling interests and
results of activities of a VIE in its consolidated
financial statements.
In general, a VIE is an entity that either (1) has an
insufficient amount of equity to carry out its principal
activities, without additional subordinated financial
support, (2) has a group of equity owners that are
unable to make significant decisions about the entity's
activities, or (3) has a group of equity owners that do
not have the obligation to absorb the entity's losses or
the right to receive returns generated by its
operations.
-15-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
S. IMPACT OF RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS
(CONT.)
FIN 46 requires the consolidation of a VIE by the primary
beneficiary. The primary beneficiary is the entity that
absorbs a majority of the entity's expected losses, receives a
majority of the entity's expected residual returns, or both,
as a result of ownership, contractual or other financial
interests in the entity. As the Company a nonpublic
enterprise, the interpretation is effective by the beginning
of the first annual beginning after December 15, 2004. The
adoption of FIN No. 46 to is not expected to have a material
impact on the Group's results of operations or financial
position.
2 In November 2004, the FASB issued Statement of Financial
Accounting Standard No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4." ("SFAS 151"). SFAS
151 amends Accounting Research Bulletin ("ARB") No. 43,
Chapter 4, to clarify that abnormal amounts of idle
facility expense, freight handling costs and wasted
materials (spoilage) should be recognized as
current-period charges. SFAS 151 is effective for
inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company does not expect that
the adoption of SFAS 151 will have a material effect on
its financial position or results of operations.
T. LINKED BALANCES
1. Balances linked to the Consumer Price Index ("CPI") are
included on the basis of the appropriate Index for each
linked asset or liability.
2. Changes in the Israeli CPI and the dollar exchange rates
are as follows:
REPRESENTATIVE
EXCHANGE
RATE OF CURRENT MONTH
AS OF ONE U.S. DOLLAR ISRAELI CPI
------------------------ ---------- -------------------
NIS POINTS (*)
---------- -------------------
December 31, 2004 4.308 107.4
December 31, 2003 4.379 106.2
December 31, 2002 4.737 108.2
CHANGES DURING THE YEAR % %
------------------------ ---------- -------------------
2004 (1.6) 1.2
2003 (7.6) (1.9)
2002 7.3 6.5
*) According to the index on an average basis of 2000 = 100.
-16-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3:- CASH AND CASH EQUIVALENTS
DECEMBER 31, DECEMBER 31,
2003 2004 2004
----- ----- -------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
---------------- ------------
(In thousands)
Cash 51 11 $ 2
Deposits in NIS 2,296 66 16
----- ----- -----
2,347 77 $ 18
===== ===== =====
NOTE 4:- SHORT-TERM BANK DEPOSITS
ANNUAL INTEREST
RATE AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2004 2004
-------- -------- -------- ------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
% NIS U.S. DOLLARS
-------- -------------------- ------------
(In thousands)
Deposits in NIS (1) 3.5 729 638 $ 148
Deposits in foreign currencies
(the majority DKK) 1.7-1.88 1,694 333 77
------ ------ ------
2,423 971 $ 225
====== ====== ======
(1) The deposits include a balance in the amount of NIS 323,000
that serves as collateral for a bank guarantee issued in favor
of a related company. In addition, a balance of NIS 294,000
serves as collateral for bank guarantees issued to secure
advances received from customers (see Note 16a).
-17-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5:- TRADE RECEIVABLES
DECEMBER 31, DECEMBER 31,
2003 2004 2004
----- ----- -------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
---------------- ------------
(In thousands)
Open accounts (1) 886 597 $139
Checks receivable 55 29 7
----- ----- ----
941 626 $146
===== ===== ====
(1) With respect to charges, see Note 16b.
NOTE 6:- OTHER ACCOUNTS RECEIVABLE
DECEMBER 31, DECEMBER 31,
2003 2004 2004
----- ----- -------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
---------------- ------------
(In thousands)
Related companies (1) 262 207 $ 48
Grant receivable from the Bird Foundation (2) -- 225 52
Government authorities 50 -- --
Deposits in respect of long-term lease -- 58 13
Other receivables 19 -- --
---- ---- ----
331 490 $113
==== ==== ====
(1) The amount bears no interest and is to be paid until December
31, 2005. (2) See Note 16d(3).
NOTE 7:- INVENTORIES
DECEMBER 31, DECEMBER 31,
2003 2004 2004
----- ----- -------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
---------------- ------------
(In thousands)
Work-in-process 1,386 157 $ 36
Spare parts 280 261 61
----- ----- -----
1,660 418 $ 97
===== ===== =====
-18-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8:- LONG-TERM LOAN AND RECEIVABLE - RELATED PARTIES
A. LONG-TERM LOAN
On January 8, 2001, the Company signed a convertible loan
agreement ("the investment") with a related company ("the
borrower") according to which the Company provided the
borrower with a loan of $ 150,000 for a period of six months.
The borrower is in the business of selling software for the
long-term care market. The loan bears an annual interest rate
of 8%. The Company has the option to convert the loan into
ordinary shares of the borrower according to a price of $
15.82 per share.
The repayment and conversion date for the convertible loan was
deferred to December 31, 2005.
Due to the borrower's deteriorated financial position, the
Company recorded in 2003 a provision for the impairment of the
loan. The write-off in amount of NIS 813,000 was recorded in
other expenses in the statement of operations.
B. LONG-TERM RECEIVABLE
In 2003, an amount of NIS 165,000 was due from a related
company. The amount is denominated in NIS, bears no interest
and is to be paid until December 31, 2005.
NOTE 9:- PROPERTY AND EQUIPMENT, NET
A. COMPOSITION
DECEMBER 31, DECEMBER 31,
2003 2004 2004
----- ----- -------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
-------------------- ------------
(In thousands)
Cost
Motor vehicles 898 692 $ 160
Office furniture and equipment 1,260 1,075 249
------- ------- -------
2,158 1,767 409
------- ------- -------
Accumulated depreciation (1,033) (994) (230)
------- ------- -------
Equipment, net 1,125 773 $ 179
======= ======= =======
Depreciation expenses for the years ended December 31, 2004,
2003 and 2002 amounted to NIS 259,000, NIS 329,000 and NIS
337,000 respectively. In addition, the Company recognized in
2004 an impairment loss of NIS 25,000.
B. As for charges, see Note 16b.
-19-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10:- SHORT-TERM BANK CREDIT AND OTHERS
ANNUAL
INTEREST
RATE AS OF
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2004
------------------ ------------------- ---------------------------------
CONVENIENCE
TRANSLATION
UNLINKED UNLINKED (NOTE 2B)
------------------- ----------------- UNLINKED
% NIS NIS U.S. $
------------------ ------------------- ---------------------------------
(IN THOUSANDS)
Short-term bank credit -- 12 -- $ --
Current maturities of long-term loans
(see Note 14)(1) 8.8 59 21 5
------------------- ---------------------------------
71 21 $ 5
=================== =================================
(1) With respect to collateral, see Note 16b.
NOTE 11:- TRADE PAYABLES
DECEMBER 31, DECEMBER 31,
2003 2004 2004
------------ ------------- ----------------------
CONVENIENCE
---------------------
TRANSLATION (NOTE 2B)
NIS U.S. DOLLARS
------------------------------ ----------------------
(In thousands)
Open accounts 2,226 873 $ 203
Checks payable 771 225 52
------------ ------------- ----------------------
2,997 1,098 $ 255
============ ============= ======================
-20-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12:- OTHER ACCOUNTS PAYABLE
DECEMBER 31, DECEMBER 31,
2003 2004 2004
------------ ------------- ----------------------
CONVENIENCE
TRANSLATION (NOTE 2B)
NIS U.S. DOLLARS
------------------------------ ----------------------
(In thousands)
Payroll and related expenses 507 417 $ 97
Provision for employees vacation leave 345 254 59
Government authorities 333 530 123
Related parties 250 673 156
Provision for warranty 881 1,088 253
Deferred revenue 2,453 579 134
Other payables (1) 1,830 1,801 418
------------ ------------- ----------------------
6,599 5,342 $ 1,240
============ ============= ======================
(1) On July 10, 2002, a financial lawsuit in the United States in
the amount of $ 50 million was filed by the Company against a
partner in a joint venture ("the partner") for breach of
commitments based on a collaboration agreement. The partner
filed a counter claim for the reimbursement of $ 418,000 which
was invested in the Joint Venture and deposited in the
Company's bank account. The Company recorded the amount
invested as a liability in the financial statements.
Management believes, based on its legal advisors, that the
chances the Company will be required to reimburse the partner
are remote.
NOTE 13:- BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED
CONTRACTS
DECEMBER 31,
DECEMBER 31, 2004
2003 2004 CONVENIENCE
---------------- ------------- ----------------------
TRANSLATION (NOTE
2B)
NIS U.S. DOLLARS
-------------------------------- ----------------------
(In thousands)
Cost incurred on uncompleted contracts 10,600 -- $ --
Estimated earnings 8,113 -- --
18,713 -- --
Less: Billings to date(1) (20,748) -- --
(2,035) -- $ --
(1) With respect to collateral, see Notes 4 and 16a.
-21-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14:- LONG-TERM LOANS
a. COMPOSITION:
DECEMBER 31,
2003 2004 DECEMBER 31,
ANNUAL -------------- ---------------- 2004
INTEREST RATE CONVENIENCE
AS OF TRANSLATION
DECEMBER 31, YEARS OF (NOTE 2B)
2004 MATURITY NIS U.S. DOLLARS
------------- ----------- ------------------------------- ------------
(In thousands)
From leasing companies Unlink 8.8% 2005-2009 59 5975 $ 17
Less - current maturities (59) (21) (5)
--------- --------- ------------
-- 54 $ 12
========= ========= ============
The maturities of these loans after December 31, 2004 are as
follows:
NIS
----------------------
(in thousands)
2005 - current maturities 21
2006 22
2007 21
2008 10
2009 1
----------------------
75
======================
b. With respect to collateral, see Note 16b.
-22-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15:- TAXES ON INCOME
a. APPLICABLE TAX LAWS:
The provisions of the Income Tax (Inflationary Adjustments)
Law, 1985 apply to the Company and its subsidiary. According
to the law, the results for tax purposes are measured based on
the changes in the Israeli CPI.
b. TAX LOSSES CARRYFORWARD:
As of December 31, 2004, the group has carryforward losses for
an indefinite period of approximately NIS 3 million.
c. FINAL TAX ASSESSMENTS:
The Company has tax assessments which are considered final
through 2000. The subsidiary has no final tax assessments
since inception (year 2000).
d. DEFERRED TAXES:
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The deferred taxes were computed
at the enacted tax rate that is expected to be in effect at
the time the differences are expected to reverse (30%).
Significant components of the Group's deferred tax assets are
as follows:
DEFERRED TAX ASSETS:
DECEMBER 31, DECEMBER 31,
2003 2004 2004
---------------- ---------------- CONVENIENCE
----------------------
TRANSLATION (NOTE 2B)
NIS U.S. DOLLARS
----------------------------------- ----------------------
(In thousands)
Short-term deferred tax assets-net:
Provision for employees vacation leave 127 98 $ 23
127 98 23
Valuation allowance (127) (98) (23)
---------------- ------------- ----------------------
-- -- --
---------------- ------------- ----------------------
Long-term deferred tax assets-net:
Accrued severance pay and others 188 249 58
Carryforward tax losses of the company -- 336 78
Carryforward tax losses of the subsidiary 613 578 134
---------------- ------------- ----------------------
801 1,163 270
Valuation allowance (801) (1,163) (270)
---------------- ------------- ----------------------
-- -- --
---------------- ------------- ----------------------
Net deferred tax -- -- $ --
================ ============= ======================
-23-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15:- TAXES ON INCOME (CONT.)
e. A reconciliation of theoretical tax expenses, assuming all
income is taxed at the statutory rate applicable to the income
of the Group, and the actual tax expenses, is as follows:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2002 2003 2004 2004
------------ ------------ ------------- -------------
CONVENIENCE
TRANSLATION (NOTE 2B)
NIS U.S. DOLLARS
--------------------------- --------------------------------
(In thousands)
Income (loss) before taxes on income (2,255) 452 (422) $ (98)
=========== =========== ============ =============
Statutory tax rate 36% 36% 35% 35%
=========== =========== ============ =============
Theoretical tax expense (tax benefit) (812) 163 (148) (34)
Nondeductible expenses 89 157 69 69
Valuation allowance in respect of
deferred taxes recorded in prior
years -- 280 -- --
Reversal of valuation allowance
recorded in prior years due to
change in estimate -- (314) (8) (2)
Deferred taxes for which valuation
allowance was provided 784 394 251 5
------------ ------------ ------------- --------------
Taxes on income in
the statements of
operations 61 680 164 $ 38
============ ============ ============= ==============
-24-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15:- TAXES ON INCOME (CONT.)
f. Taxes on income (tax benefits) included in the statements of
operations:
FOR THE YEAR ENDED DECEMBER 31,
2002 2003 2004 2004
------------ ----------- ----------- ------------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
-------------------------------------------- ------------------
(In thousands)
Deferred taxes (54) 280 -- $ --
Current taxes 115 400 164 38
61 680 164 $ 38
g. On June 29, 2004, the Knesset (Israeli parliament) passed the
Amendment to the Income Tax Ordinance (No. 140 and Temporary
Provision), 2004, which progressively reduces the tax rates
applicable to companies from 36% to 35% in 2004 to a rate of
30% in 2007. The change in the tax rate did not have a
material effect on the Company's financial position or results
of operations.
NOTE 16:- GUARANTEES, CHARGES, CONTINGENCIES AND COMMITTMENTS
a. GUARANTEES:
1. The Company has provided bank guarantees in the amount
of NIS 294,000 in order to secure advances received from
customers and NIS 83,000 to secure rental fees.
2. The Company has also deposited an amount of NIS 323,000
as collateral for a bank guarantee issued in favor of a
related company.
b. CHARGES:
1. As collateral for liabilities to banks, a charge in an
unlimited amount has been placed on trade receivables
and on future receivables from certain customers.
2. As collateral for a loan granted by a leasing company, a
fixed charge has been placed on motor vehicles (see Note
13).
3. For deposits serving as collateral for bank guarantees,
see Note 4.
c. CONTINGENT LIABILITIES:
The Company had committed to complete the project of BGA 2000
until December 6, 2003 otherwise a penalty amount between
$1,200 to $3,600 was to be paid for each day of delay to the
extent of 15% of the entire consideration. The Company
executed substantial delivery of the project in May 2004. It
is management's estimate that the Company is not exposed to
any liabilities for penalties on account of schedule delays
since it has fulfilled all its commitments according to the
abovementioned agreement and according to a notification
received in 2004 from the customer, the project was completed.
-25-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16:- GUARANTEES, CHARGES, CONTINGENCIES AND COMMITMENTS (CONT.)
d. COMMITMENTS
1. The future minimum lease commitments of the Company
under various non-cancelable operating lease agreements
in respect of motor vehicles are as of December 31, 2004
as follows:
NIS
--------------
(In thousands)
2005 221
2006 5
--------------
226
==============
2. The Company is committed to pay rent for a building
until December 2005. Future rental fees on account of
the lease as of December 31, 2004 aggregate to
approximately NIS 200,000 per annum. The Company
received an option to extend the lease for two
additional years. As for collateral see a (1) above.
Rent expenses for the years ended December 31, 2004,
2003 and 2002 amounted to NIS 254,000, NIS 287,000 and
NIS 58,000, respectively.
3. In June 2004, an Agreement was signed between the
Company and the Bird Foundation ("Bird") for Bird's
participation in the Company's expected research and
development budget of approximately $1,072,000 up to a
participation amount of $534,000. This research and
development is to be performed within 18 months. Through
December 31, 2004 BIRD's participation amounted to NIS
674,000 ($ 156,453).
Pursuant to the agreement, the Company is required to
pay royalties at the rate of 5% of sales of product
developed with funds provided by the BIRD Foundation, up
to an amount equal to 100-150% of BIRD Foundation's
research and development grants (dollar linked) related
to such projects. The obligation to pay these royalties
is contingent on actual sales of the products and in the
absence of such sales no payment is required. As of
December 31, 2004 the company's' contingent obligation
to Bird in respect of the aforementioned participation
amounted to NIS 674,000($ 156,453).
-26-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17:- SHARE CAPITAL
SHARE RIGHTS
The Ordinary shares confer their holders the right to vote, the
right to receive a dividend whether in cash or in Bonus shares, in
the distribution of assets or any other distribution and rights
concerning capital repayment and participation in the distribution
of the Company's surplus assets in the event of liquidation,
according to the ratio of amounts of capital that are outstanding or
credited as outstanding over the nominal value of the shares held by
them.
NOTE 18:- SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2002 2003 2004 2004
------------ -------------- ------------- --------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U. S. $
----------------------------------------------- --------------
(In thousands)
a. Research and development costs, net
Research and development costs 2,523 2,152 2,848 $ 662
Participation from BIRD - - (674) (157)
------------ -------------- ------------ ------------
2,523 2,152 2,174 $ 505
============ ============== ============ ============
b. Financial income (expense), net:
Interest income from short-term deposits 446 227 48 $ 11
Interest income from related companies 78 - - -
Foreign exchange gain (loss) 266 234 (38) (9)
Interest expenses on long-term loan (58) (22) (3) (1)
Interest expenses on short-term bank
credit (146) (68) (51) (11)
------------ -------------- ------------ ------------
586 371 (44) $ (10)
============ ============== ============ ============
c. Other expenses: Write-down of loan
granted to related party (Note 8a) - - 813 - -
------------ -------------- ------------ ------------
- - 813 - $ -
============ ============== ============ ============
-27-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19:- INFORMATION ON OPERATING SEGMENTS
a. The Group adopted Statement of Financial Accounting Standards
No.131 "Disclosures About of an Enterprise and Related
Information", ("SFAS No.131").
The Group operates in the three following reportable operating
segments:
o Baggage Handling Systems- the Company was involved in
the construction of the automatic-baggage-handling
system for Ben-Gurion Airport. In addition, in 2004 the
Company sold spare parts relating to the system
constructed and also received commissions in respect of
the aforementioned sales.
o WMS and Software - development, planning, implementation
and marketing of software for warehouses and
distribution centers.
o Maintenance services and support.
b. Measurement of revenues and segment profits and losses:
The measurement of revenues, profits or losses and assets of
the reportable operating segments is based on the same
accounting principles applied in these financial statements.
Segment profits (losses) reflect the income from operations of
the segment and do not include net financial income or expense
and income tax expenses (tax benefit) since those items are
not included in the measurement of segment profit or loss.
-28-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19:- INFORMATION ON OPERATING SEGMENTS ( CONT.)
c. Financial data relating to reportable operating segments:
YEAR ENDED DECEMBER 31, 2004
------------------------------------------------------------------------------------
BAGGAGE MAINTENANCE
HANDLING WMS AND SERVICES AND
SYSTEMS SOFTWARE SUPPORT OTHER ADJUSTMENTS TOTALS
------------------------------------------------------------------------------------
NIS (In thousands)
------------------------------------------------------------------------------------
Revenues from external customers 11,157 3,471 994 92 -- 15,714
========== ========== ========== ========= ========= ==========
Segment profit (loss) 1,637 198 498 92 (2,803)(1) (378)
========== ========== ========== ========= ========= ==========
Depreciation expense 133 41 22 -- 63 259
========== ========== ========== ========= ========= ==========
Investments in long-lived assets 66 113 35 -- 12 226
========== ========== ========== ========= ========= ==========
DECEMBER 31, 2004
------------------------------------------------------------------------------------
Segment assets 1,006 563 524 18 1,918(2) 4,029
========== ========== ========== ========= ========= ==========
(1) Unallocated expenses
(2) Unallocated assets
-29-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19:- INFORMATION ON OPERATING SEGMENTS ( CONT.)
c. Financial data relating to reportable operating segments:
YEAR ENDED DECEMBER 31, 2004
------------------------------------------------------------------------------------
BAGGAGE MAINTENANCE
HANDLING WMS AND SERVICES AND
SYSTEMS SOFTWARE SUPPORT OTHER ADJUSTMENTS TOTALS
------------------------------------------------------------------------------------
CONVENIENCE TRANSLATION (NOTE 2B) U.S. DOLLARS
------------------------------------------------------------------------------------
NIS (In thousands)
------------------------------------------------------------------------------------
Revenues from external customers 2,590 806 231 21 -- 3,648
========== ========== ========== ========= ========= ==========
Segment profit (loss) 380 46 116 21 (651)(1) (88)
========== ========== ========== ========= ========= ==========
Depreciation expense 30 10 5 -- 15 60
========== ========== ========== ========= ========= ==========
Investments in long-lived assets 15 26 8 -- 3 52
========== ========== ========== ========= ========= ==========
DECEMBER 31, 2004
CONVENIENCE TRANSLATION (NOTE 2B) U.S. DOLLARS
------------------------------------------------------------------------------------
Segment assets 234 131 122 4 444(2) 935
========== ========== ========== ========= ========= ==========
(1) Unallocated expenses
(2) unallocated assets
-30-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19:- INFORMATION ON OPERATING SEGMENTS ( CONT.)
c. Financial data relating to reportable operating segments:
YEAR ENDED DECEMBER 31, 2004
------------------------------------------------------------------------------------
BAGGAGE MAINTENANCE
HANDLING WMS AND SERVICES AND
SYSTEMS SOFTWARE SUPPORT OTHER ADJUSTMENTS TOTALS
------------------------------------------------------------------------------------
NIS (In thousands)
------------------------------------------------------------------------------------
Revenues form external customers 17,586 2,362 914 32 -- 20,894
========== ========== ========== ========= ========= ==========
Segment profit (loss) 5,268 (1,247) 559 32 (3,710)(1) 902
========== ========== ========== ========= ========= ==========
Depreciation expense 219 23 23 -- 64 329
========== ========== ========== ========= ========= ==========
Investments in long-lived assets 154 25 25 -- 56 260
========== ========== ========== ========= ========= ==========
DECEMBER 31, 2004
------------------------------------------------------------------------------------
Segment assets 2,083 3,229 570 -- 3,842(2) 9,724
========== ========== ========== ========= ========= ==========
(1) Unallocated expenses
(2) unallocated assets
-31-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19:- INFORMATION ON OPERATING SEGMENTS ( CONT.)
c. Financial data relating to reportable operating segments:
YEAR ENDED DECEMBER 31, 2004
------------------------------------------------------------------------------------
BAGGAGE MAINTENANCE
HANDLING WMS AND SERVICES AND
SYSTEMS SOFTWARE SUPPORT OTHER ADJUSTMENTS TOTALS
------------------------------------------------------------------------------------
NIS (In thousands)
------------------------------------------------------------------------------------
Revenues form external customers 13,299 3,484 798 15 -- 17,596
========== ========== ========== ========= ========= ==========
Segment profit (loss) 1,575 (1,474) 408 15 (3,365)(1) (2,841)
========== ========== ========== ========= ========= ==========
Depreciation expense 85 39 78 -- 135 337
========== ========== ========== ========= ========= ==========
(1) Unallocated expenses
d. Revenues from single customer that exceed 10% of total
revenues in the reported years:
Year ended December 31,
-------------------------------------
2002 2003 2004
---------- -------- -----------
Customer A 77% 80% 68%
-32-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 20:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a. Employment agreement with the Chief Executive Officer ("CEO")
In January 2000, the Company entered into a three-year
employment agreement with its CEO, which was extended in 2003
until June 2006. Pursuant to the employment agreement, the CEO
is entitled to a monthly base salary of NIS 26,100 linked to
the CPI, a monthly bonus of 0.45% from the Company's revenue
from sales and an annual bonus depending on the CEO's
achievements and the Company's profitability as authorized by
the Board of Directors.
b. Management and consulting fees to related companies
1. A management fee agreement between the Company and its
shareholders was signed in January 2000 and amended in
January 2003. Pursuant to this agreement, the
shareholders are entitled to monthly management fees of
$6,000, an annual amount of between 0-10% of the
turnover (excluding receipts from the financial lawsuit
against the partner in a joint venture as agreed upon
each specific year (see Note 11(1)) and an additional
amount over this maximum depending on the Company's
performances.
2. A consulting fee agreement between the Company and its
parent company (hereinafter - "consulting company") was
signed in January 2000. Pursuant to this agreement the
consulting company is entitled to monthly fees of
approximately NIS 75,000.
FOR THE YEAR ENDED DECEMBER 31,
2002 2003 2004 2004
----------- -------------- ---------------- -----------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
--------------------------------------------------- -----------------
(In thousands)
c. Income:
Interest from related companies 78 -- -- $ --
=========== ============== ================ =================
d. Expenses:
Salary and related expenses to
the Company's CEO 398 362 491 $ 114
Consulting and management fees to
parent company 1,776 1,957 1,862 432
Management fees to a related
company 84 272 356 83
Participation in general
expenses *) (157) (153) (203) (47)
----------- -------------- ---------------- -----------------
2,101 2,438 2,506 $ 582
=========== ============== ================ =================
*) In the ordinary course of business.
-33-
SPACELOGIC LTD. AND ITS SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 20:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES (CONT.)
DECEMBER 31, DECEMBER 31,
2003 2004 2004
--------------- ----------------- --------------------
CONVENIENCE
TRANSLATION
(NOTE 2B)
NIS U.S. DOLLARS
----------------------------------- --------------------
(In thousands)
e. Balances with related parties:
Other accounts receivable 262 207 $ 48
============== ================= ====================
Long-term receivable and loan 165 -- $ --
============== ================= ====================
Other accounts payable 250 673 $ 156
============== ================= ====================
f. For deposits serving as collateral for a bank guarantee issued
in favor of a related company - See Note 4(1).
-34-