EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of June
15, 2005, by and between ISLAND PACIFIC, INC., a Delaware corporation (the
"Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Three Million Two
Hundred Thousand Dollars ($3,200,000) (the "Note"), which Note is convertible
into shares of the Company's common stock, $0.0001 par value per share (the
"Common Stock") at an initial fixed conversion price per share of Common Stock
as set forth in the Note ("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase
up to 4,444,444 shares of the Company's Common Stock (subject to adjustment as
set forth therein) in connection with Purchaser's purchase of the Note;
WHEREAS, the Company wishes to issue an option to the Purchaser to purchase
up to 17,142,857 shares of the Company's Common Stock (subject to adjustment as
set forth therein) in connection with Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note, the Warrant (as defined in
Section 2(a)) and the Option (as defined in Section 2(b)) on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note, the Warrant and
the Option to Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, a Note in the aggregate principal amount of
$3,200,000 convertible in accordance with the terms thereof into shares of the
Company's Common Stock in accordance with the terms of the Note and this
Agreement. The Note purchased on the Closing Date shall be known as the
"Offering." A form of the Note is annexed hereto as Exhibit A. The Note will
mature on the Maturity Date (as defined in the Note). Collectively, the Note,
the Warrant and the Option and Common Stock issuable in payment of the Note,
upon conversion of the Note, upon exercise of the Warrant and upon exercise of
the Option are referred to as the "Securities."
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2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase up to 4,444,444 shares of Common Stock in connection with the Offering
(the "Warrant") pursuant to Section 1 hereof. The Warrant must be delivered on
the Closing Date. A form of Warrant is annexed hereto as Exhibit B. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted in respect of the Warrant and shares of
the Company's Common Stock issuable upon exercise of the Warrant (the "Warrant
Shares"); provided however, that all such representations and warranties are
made as of the Closing Date and the Company makes no undertaking to advise the
Purchaser of any changes to the representations and warranties after the Closing
Date.
(b) The Company will issue and deliver to the Purchaser an Option to
purchase up to 17,142,857 shares of Common Stock in connection with the Offering
(the "Option") pursuant to Section 1 hereof. The Option must be delivered on the
Closing Date. A form of Option is annexed hereto as Exhibit C. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted in respect of the Option and shares of
the Company's Common Stock issuable upon exercise of the Option (the "Option
Shares"); provided however, that all such representations and warranties are
made as of the Closing Date and the Company makes no undertaking to advise the
Purchaser of any changes to the representations and warranties after the Closing
Date.
(c) Subject to the terms of Section 2(d) below, the Company shall pay
to Laurus Capital Management, LLC, the manager of the Purchaser, a closing
payment in an amount equal to four percent (4.00%) of the aggregate principal
amount of the Note. The foregoing fee is referred to herein as the "Closing
Payment."
(d) The Closing Payment and the expenses referred to in the preceding
clause (c) (net of deposits previously paid by the Company) shall be paid at
closing out of funds held pursuant to a Funds Escrow Agreement of even date
herewith among the Company, Purchaser, and an Escrow Agent (the "Funds Escrow
Agreement") and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery, Payment, other Closing Conditions and Other
Conditions to Funding.
3.1. Closing. Subject to the terms and conditions herein, including,
without limitation, the closing conditions set forth in this Section 3, the
closing of the transactions contemplated hereby (the "Closing"), shall take
place on the date hereof, at such time or place as the Company and Purchaser may
mutually agree (such date is hereinafter referred to as the "Closing Date").
3.2. Delivery. Pursuant to the Funds Escrow Agreement in the form
attached hereto as Exhibit E, at the Closing on the Closing Date, the Company
will deliver to the Purchaser, among other things, a Note in the form attached
as Exhibit A representing the aggregate principal amount of $3,200,000, a
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Warrant in the form attached as Exhibit B in the Purchaser's name representing
4,444,444 Warrant Shares and an Option in the form attached as Exhibit C in the
Purchaser's name representing 17,142,857 Option Shares and the Purchaser will on
the Closing Date or such later date upon the satisfaction of terms and
conditions set forth in the Funds Escrow Agreement and Sections 3.3, 3.4 and 3.5
below, deliver to the Company, among other things, the amounts set forth in the
Disbursement Letter by certified funds or wire transfer.
3.3. Refinancing. On or prior to the date of release to the Company of
funds held pursuant to the Funds Escrow Agreement, all indebtedness under the
Secured Term Note, dated as of April 18, 2005 issued by the Company in the
initial principal amount of $2,000,000 to Multi-Channel Holdings, Inc., a
Delaware corporation ("Multi-Channel") (as amended, modified and/or
supplemented, the "Existing Note") pursuant to the terms of the Note Purchase
Agreement, dated as of April 18, 2005 between the Company, Page Digital
Incorporated, IP Retail Technologies International, Inc., Sabica Ventures, Inc.
and Multi-Channel (as amended, modified and/or supplemented, together with all
other documentation relating thereto, the "Existing Note Documents") shall have
been repaid in full and all commitments in respect thereof shall have been
terminated and all Liens and guaranties in connection therewith shall have been
terminated (and all appropriate releases, termination statements or other
instruments of assignment with respect thereto shall have been obtained) to the
reasonable satisfaction of the Purchaser. The Purchaser shall have received
satisfactory evidence (including satisfactory pay-off letters, mortgage
releases, intellectual property releases and UCC-3 termination statements) that
the matters set forth in the immediately preceding sentence have been satisfied
as of the Closing Date.
3.4. AMEX Approval. On or prior to the date of release to the Company
of funds held pursuant to the Funds Escrow Agreement, the Company shall have
provided to the Purchaser evidence, reasonably satisfactory to the Purchaser,
that the Company has been granted an exemption by AMEX (the "Exemption") from
obtaining the approval of the Company's existing shareholders to the
transactions set forth herein to the extent such approval would otherwise be
required pursuant to the terms of Part 7 of the AMEX Company Guide.
3.5. Exemption Conditions. On or prior to the date of release to the
Company of funds held pursuant to the Funds Escrow Agreement, the Company shall
(i) mail all stockholders a notification letter, (ii) issue a press release, in
the case of each of caluses (i) and (ii) in form and substance, and in such
manner as may be required by AMEX to provide proper notice to its shareholders
of the Exemption by AMEX, and (iii) provide the Purchaser with evidence
reasonably satisfactory to the Purchaser that the Company shall have provided
AMEX with a copy of the executed audit committee resolution expressly
authorizing and approving the Company's reliance on the Exemption.
4. Representations and Warranties of the Company. Except as otherwise set
forth on the disclosure schedule delivered by the Company to Purchaser pursuant
to this Section 4 (the "Disclosure Schedule"), the Company hereby represents and
warrants to the Purchaser as set forth below (which representations and
warranties are supplemented by the Company's filings under the Securities
Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which
have been provided to the Purchaser). Any disclosure or exception set forth on
the Disclosure Schedule shall be deemed to apply to any representation or
warranty to which it is applicable regardless of whether or not such
representation or warranty is specifically referenced or cross-referenced:
4.1. Organization, Good Standing and Qualification. Each of the
Company and each of its Subsidiaries is a corporation, partnership or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of the
Company and each of its Subsidiaries has the corporate power and authority to
own and operate its properties and assets, to execute and deliver (i) this
Agreement, (ii) the Note, the Warrant and the Option to be issued in connection
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with this Agreement, (iii) the Master Security Agreement dated as of July 12,
2004 between the Company, certain Subsidiaries of the Company and the Purchaser
(as amended, modified or supplemented from time to time, the "Master Security
Agreement"), (iv) the Registration Rights Agreement relating to the Securities
dated as of the date hereof between the Company and the Purchaser, (v) the
Subsidiary Guaranty dated as of July 12, 2004 made by certain Subsidiaries of
the Company (as amended, modified or supplemented from time to time, the
"Subsidiary Guaranty"), (vi) the Stock Pledge Agreement dated as of July 12,
2004 among the Company, certain Subsidiaries of the Company and the Purchaser
(as amended, modified or supplemented from time to time, the "Stock Pledge
Agreement"), (vii) the Escrow Agreement dated as of the date hereof among the
Company, the Purchaser and the escrow agent referred to therein, (viii) the
Reaffirmation and Ratification Agreement dated as of the date hereof among the
Company, certain Subsidiaries of the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "Reaffirmation Agreement") and
(ix) all other agreements related to this Agreement and the Note and referred to
herein (the preceding clauses (ii) through (ix), collectively, the "Related
Agreements"), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the "Note Shares"), to issue and sell the Warrant
and the Warrant Shares, to issue and sell the Option and the Option Shares and
to carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. Each of the Company and each of
its Subsidiaries is duly qualified and is authorized to do business and is in
good standing as a foreign corporation, partnership or limited liability
company, as the case may be, in all jurisdictions in which the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so has not, or could not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and it Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect"). The term "July 2004 Agreements" refers to (i) the Securities
Purchase Agreement, dated as of July 12, 2004 between the Company and the Holder
(the "2004 Purchase Agreement") and (ii) the Related Agreements referred to in
the 2004 Purchase Agreement.
4.2. Subsidiaries. Each direct and indirect Subsidiary of the Company,
the direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.
4.3. Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date hereof
consists of 250,000,000 shares of common stock par value $0.0001 of which
64,922,909 are issued and outstanding and 5,000,000 shares of preferred stock
par value $0.0001, of which 141,000 are designated as Series A Preferred Stock,
all of which are issued and outstanding and 2,517,233 shares are designated as
Series B Preferred Stock, none of which are issued and outstanding. The
authorized capital stock of each Subsidiary of the Company is set forth on
Schedule 4.3.
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(b) Except as disclosed on Schedule 4.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; and (ii) shares
which may be granted pursuant to this Agreement and the Related Agreements,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements,
or arrangements or agreements of any kind for the purchase or acquisition from
the Company of any of its securities. Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of any of the Note, the Warrant or the
Option, or the issuance of any of the Note Shares, Warrant Shares or Option
Shares, nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of the Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued by the Company in compliance with all
applicable state and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the shares
of the Common Stock are as stated in the Company's Certificate of Incorporation
(the "Charter") and pursuant to applicable law. The Note Shares, Warrant Shares
and Option Shares have been duly and validly reserved for issuance. When issued
in compliance with the provisions of this Agreement and the Company's Charter,
the Securities will be validly issued, fully paid and nonassessable, and will be
free of any liens or encumbrances; provided, however, that the Securities may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or as otherwise required by such laws at the time a transfer
is proposed.
4.4. Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on the part of the Company
and each of its Subsidiaries (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Note, the Warrant and the Option has been
taken or will be taken prior to the Closing. This Agreement and the Related
Agreements, when executed and delivered and to the extent it is a party thereto,
will be valid and binding obligations of each of the Company and each of its
Subsidiaries, enforceable against each such person in accordance with their
terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with. The issuance of the Option and
the subsequent exercise of the Option for Option Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with
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4.5. Liabilities. Neither the Company nor any of its Subsidiaries has
any material contingent liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
4.6. Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
or any of its Subsidiaries is a party or by which it is bound which may involve:
(i) obligations (contingent or otherwise) of, or payments to, the Company in
excess of $50,000 (other than obligations of, or payments to, the Company
arising from purchase or sale agreements entered into in the ordinary course of
business); or (ii) the transfer or license of any patent, copyright, trade
secret or other proprietary right to or from the Company (other than licenses
arising from the purchase of "off the shelf" or other standard products); or
(iii) provisions restricting the development, manufacture or distribution of the
Company's products or services; or (iv) indemnification by the Company with
respect to infringements of proprietary rights.
(b) Since December 31, 2004, neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in excess of $50,000 or,
in the case of indebtedness and/or liabilities individually less than $50,000,
in excess of $100,000 in the aggregate; (iii) made any loans or advances to any
person not in excess, individually or in the aggregate, of $100,000, other than
ordinary course advances for travel expenses; or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
4.7. Obligations to Related Parties. Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Subsidiaries to
officers, directors, stockholders or employees of the Company or any of its
Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
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Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8. Changes. Since December 31, 2004, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the Company or
any of its Subsidiaries, which individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of business, in
the contingent obligations of the Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Subsidiaries to any stockholder, employee, officer or director of the Company or
any of its Subsidiaries, other than advances made in the ordinary course of
business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any of its
Subsidiaries;
(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
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(j) any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for immaterial amounts
and for current liabilities incurred in the ordinary course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company or any
of its Subsidiaries;
(l) any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has had, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through (m)
above.
4.9. Title to Properties and Assets; Liens, Etc. Except as set forth
on Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract from
the value of the property subject thereto or materially impair the operations of
the Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound except where such failure to be in
compliance, either individually or in the aggregate has not had, or could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
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4.10. Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes necessary for its business as now conducted and to the Company's
knowledge, as presently proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor is the
Company or any of its Subsidiaries aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company or any of its Subsidiaries, except
for inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company or any of its Subsidiaries.
4.11. Compliance with Other Instruments. Neither the Company nor any
of its Subsidiaries is in violation or default of (x) any material term of its
Charter or Bylaws, or (y) of any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by which it
is bound or of any judgment, decree, order or writ, which violation or default,
in the case of this clause (y), has had, or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant hereto
and thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
4.12. Litigation. Except as set forth on Schedule 4.12 hereto, there
is no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
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4.13. Tax Returns and Payments. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or any of its Subsidiaries on or before the Closing, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or are
being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14. Employees. Except as set forth on Schedule 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any of
its Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries, no
employee of the Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the Company or
any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company is
not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
10
4.15. Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Subsidiaries is presently under any obligation, and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, to the
Company's knowledge, no stockholder of the Company or any of its Subsidiaries
has entered into any agreement with respect to the voting of equity securities
of the Company or any of its Subsidiaries.
4.16. Compliance with Laws; Permits. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as has been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
4.17. Environmental and Safety Laws. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation except for such violations
that individually, or in the aggregate, have not had, or could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
Except as set forth on Schedule 4.17, no Hazardous Materials (as defined below)
are used or have been used, stored, or disposed of by the Company or any of its
Subsidiaries or, to the Company's knowledge, by any other person or entity on
any property owned, leased or used by the Company or any of its Subsidiaries.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; or
(b) any petroleum products or nuclear materials.
4.18. Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
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4.19. Full Disclosure. Each of the Company and each of its
Subsidiaries has provided the Purchaser with its SEC Reports (below) which
contain all information requested by the Purchaser in connection with its
decision to purchase the Note, the Warrant and the Option, including all
information the Company and its Subsidiaries believe is reasonably necessary to
make such investment decision. Neither this Agreement, the Related Agreements,
the exhibits and schedules hereto and thereto nor any other document delivered
by the Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions contemplated
hereby or thereby, as qualified by the statements of the Company in its SEC
Reports, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
4.20. Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21. SEC Reports. Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange Act").
The Company has furnished the Purchaser with copies of: (i) its Annual Reports
on Form 10-K for its fiscal years ended March 31, 2004; (ii) its quarterly
reports on Form 10-Q for the fiscal quarters ended June 30, 2004, September 30,
2004 and December 31, 2004 and (iii) its reports on Form 8-K which have been
filed during the fiscal year 2005 to date (collectively, the "SEC Reports").
Except as set forth on Schedule 4.21, each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective form
and none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.22. Listing. The Company's Common Stock is listed for trading on the
American Stock Exchange ("AMEX") and satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
Common Stock will be delisted from AMEX or that its Common Stock does not meet
all requirements for such continued listing.
4.23. No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or affiliates, nor to the Company's knowledge any person acting on
its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would cause the offering of the Securities pursuant to this Agreement or any of
the Related Agreements to be integrated with prior offerings by the Company for
purposes of the Securities Act which would prevent the Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or Subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.
4.24. Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or other order impeding the sale and delivery of
any of the Securities at such time as the Securities are registered for public
sale or an exemption from registration is available, except as required by state
and federal securities laws.
12
4.25. Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note,
exercise of the Warrant and exercise of the Option is binding upon the Company
and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
4.26. Patriot Act. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has been
designated, and is not owned or controlled, by a "suspected terrorist" as
defined in Executive Order 13224. The Company hereby acknowledges that the
Purchaser seeks to comply with all applicable laws concerning money laundering
and related activities. In furtherance of those efforts, the Company hereby
represents, warrants and agrees that: (i) none of the cash or property that the
Company or any of its Subsidiaries will pay or will contribute to the Purchaser
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no contribution or payment by the
Company or any of its Subsidiaries to the Purchaser, to the extent that they are
within the Company's and/or its Subsidiaries' control shall cause the Purchaser
to be in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchaser if any of these
representations ceases to be true and accurate regarding the Company or any of
its Subsidiaries. The Company agrees to provide the Purchaser any additional
information regarding the Company or any of its Subsidiaries that the Purchaser
reasonably deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. The Company
understands and agrees that if at any time it is discovered that any of the
foregoing representations are incorrect, or if otherwise required by applicable
law or regulation related to money laundering similar activities, the Purchaser
may undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser's investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if and as required by applicable law.
4.27. No Existing Defaults under Other Agreements. Neither the Company
nor any of its Subsidiaries is in breach or violation of any representation,
warranty, covenant, term, condition or agreement under the Existing Note and/or
the Existing Note Documents, or any other agreement related thereto.
4.28. Disclosure. Except for the information set forth on the
Disclosure Schedule, the Company confirms that neither it nor any other Person
acting on its behalf has provided the Purchaser or its agents or counsel with
any information that constitutes or might constitute material, nonpublic
information. The Company understands and confirms that the Purchaser will rely
on the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Purchaser regarding the Company, its
business and the transactions contemplated hereby, including the Schedules to
this Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with respect to
such representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges and agrees that Purchaser makes
no or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 5 hereof. The Company further agrees that no later than the date that it
files its annual report on Form 10-K for the fiscal year ended March 31, 2005,
the Company will publicly disclose all information set forth on the Disclosure
Schedule that constitutes material nonpublic information.
13
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1. Requisite Power and Authority. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.2. Purchaser Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note, the Warrant and the Option to be purchased by it under this Agreement
and the Note Shares, the Warrant Shares and Option Shares acquired by it upon
the conversion of the Note, the exercise of the Warrant and the exercise of the
Option, respectively. The Purchaser further confirms that it has had an
opportunity to ask questions and receive answers from the Company regarding the
Company's and its Subsidiaries' business, management and financial affairs and
the terms and conditions of the Offering, the Note, the Warrant, the Option and
the Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.
5.3. Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
14
5.4. Acquisition for Own Account. The Purchaser is acquiring the Note,
the Warrant and the Option and the Note Shares, the Warrant Shares and the
Option Shares for the Purchaser's own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection with
their distribution.
5.5. Purchaser Can Protect Its Interest. The Purchaser represents that
by reason of its, or of its management's, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant, the Option and the Securities and to protect its own
interests in connection with the transactions contemplated in this Agreement and
the Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Related Agreements.
5.6. Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.7. Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ISLAND PACIFIC, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) The Note Shares, the Warrant Shares and the Option Shares, if not
issued by DWAC system (as hereinafter defined), shall bear a legend which shall
be in substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ISLAND PACIFIC, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
15
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ISLAND
PACIFIC, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(d) The Option shall bear substantially the following legend:
"THIS OPTION AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS OPTION AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS OPTION MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS OPTION OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ISLAND
PACIFIC, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1. Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2. Listing. The Company shall secure the listing of the shares of
Common Stock issuable upon conversion of the Note, upon the exercise of the
Warrant and upon the exercise of the Option on the AMEX Market (the "Principal
Market") upon which shares of Common Stock are listed (subject to official
notice of issuance) and shall maintain such listing so long as any other shares
of Common Stock shall be so listed. The Company will maintain the listing of its
Common Stock on the Principal Market, and will comply in all material respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers ("NASD") and such
exchanges, as applicable.
6.3. Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
16
6.4. Reporting Requirements. The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
6.5. Use of Funds. The Company agrees that it will use the proceeds of
the sale of the Note, the Warrant and the Option for (i) its general working
capital purposes and (ii) to repay all obligations arising under the Existing
Note and Existing Note Documents.
6.6. Access to Facilities. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company, to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or any
of its Subsidiaries (unless such examination is not permitted by federal, state
or local law or by contract) and make copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent accountants of
the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7. Taxes. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company and its
Subsidiaries; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company and/or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company and its Subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.
6.8. Insurance. Each of the Company and its Subsidiaries will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
17
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and evidence
of the maintenance of such policies at least thirty (30) days before any
expiration date, (y) policy endorsements to its Liability Insurance issued by
Chubb (policy # 3578-26-61 NBO), which covers General Liability and Employee
Benefits Errors or Omissions and its Commercial Excess and Umbrella Insurance
issued by Chubb (policy #7979-84-13) naming Purchaser as "co-insured" or
"additional insured" and appropriate loss payable endorsements in form and
substance satisfactory to Purchaser, naming Purchaser as loss payee, and (z)
evidence that as to Purchaser the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide Purchaser with at least thirty (30) days notice prior to
cancellation. The Company and each Subsidiary shall instruct the insurance
carriers that in the event of any loss thereunder, the carriers shall make
payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an event of default with
respect to this Agreement or any of the Related Agreements, then the Company
and/or such Subsidiary shall be permitted to direct the application of such loss
recovery proceeds toward investment in property, plant and equipment that would
comprise "Collateral" secured by Purchaser's security interest pursuant to its
security agreement, with any surplus funds, upon an Event of Default which has
occurred and is continuing beyond any applicable grace period, to be applied
toward payment of the obligations of the Company to Purchaser. In the event that
Purchaser has properly declared an event of default with respect to this
Agreement or any of the Related Agreements, then all loss recoveries received by
Purchaser upon any such insurance thereafter may be applied to the obligations
of the Company hereunder and under the Related Agreements, in such order as the
Purchaser may determine. Any surplus (following satisfaction of all Company
obligations to Purchaser) shall be paid by Purchaser to the Company or applied
as may be otherwise required by law. Any deficiency thereon shall be paid by the
Company or the Subsidiary, as applicable, to Purchaser, on demand.
6.9. Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.
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6.10. Properties. Each of the Company and each of its Subsidiaries
will keep its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto; and each of
the Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.11. Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's
identity and the terms of this Agreement to its current and prospective debt and
equity financing sources.
6.12. Required Approvals. For so long as twenty-five percent (25%) of
the principal amount of the Note and the Secured Convertible Term Note, to be
dated on or about June 10, 2005 by the Company and issued to Midsummer
Investments, Ltd. (the "Midsummer Note") is outstanding, the Company, without
the prior written consent of the Purchaser, shall not, and shall not permit any
of its Subsidiaries to:
(a) directly or indirectly declare or pay any dividends, other than
dividends paid to the Company or any of its wholly-owned Subsidiaries or
dividends payable on the Company's Series A Preferred Stock (as issued and
outstanding on the date hereof) pursuant to the Company's Charter or any related
certificate of designation filed with the Delaware Secretary of State;
(b) liquidate, dissolve or effect a material reorganization (it being
understood that in no event shall the Company dissolve, liquidate or merge with
any other person or entity (unless the Company is the surviving entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this Agreement, any Related
Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of equipment
(not in excess of ten percent (10%) per annum of the fair market value of the
Company's assets) whether secured or unsecured other than (x) the Company's
indebtedness to the Purchaser, (y) indebtedness set forth on Schedule 6.12(e)
attached hereto and made a part hereof and any refinancings or replacements
thereof on terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced, and (z) any debt incurred in connection with the
purchase of assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to it in
excess of $50,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except the endorsement of
negotiable instruments by the Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (e); and
19
(f) create or acquire any Subsidiary after the date hereof unless (i)
such Subsidiary is controlled by the Company and (ii) such Subsidiary becomes
party to the Master Security Agreement, the Stock Pledge Agreement and the
Subsidiary Guaranty (either by executing a counterpart thereof or an assumption
or joinder agreement in respect thereof) and, to the extent reasonably required
by the Purchaser, satisfies each condition of this Agreement and the Related
Agreements as if such Subsidiary were a Subsidiary on the Closing Date.
6.13. Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14. Opinion
On the Closing Date, the Company will deliver to the Purchaser an opinion
acceptable to the Purchaser in substantially the form set forth on Exhibit D
from the Company's external legal counsel. The Company will provide, at the
Company's expense, such other legal opinions in the future as are deemed
reasonably necessary by the Purchaser (and acceptable to the Purchaser) in
connection with the conversion of the Note, exercise of the Warrant and exercise
of the Option.
6.15. Margin Stock. The Company will not permit any of the proceeds of
the Note, the Warrant or the Option to be used directly or indirectly to
"purchase" or "carry" "margin stock" or to repay indebtedness incurred to
"purchase" or "carry" "margin stock" within the respective meanings of each of
the quoted terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.
6.16. Lock-box Accounts. The Company shall enter into Deposit Account
Control Agreements with the Purchaser to secure the Purchaser's security
interest in the lock-box accounts with each of Silicon Valley National Bank and
California Bank & Trust Lock-box Accounts (the "Lock-box Accounts") and such
Deposit Account Control Agreements shall each provide that the Purchaser can
assume control of the Lock-box Accounts in the event of a material uncured
default by Company under this Agreement or any related agreement.
20
6.17. Authorization and Reservation of Shares. The Company shall at
all times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the conversion of the Note, the exercise of the Warrants
and the exercise of the Option.
6.18. Non-Public Information. The Company covenants and agrees that it
will not and will instruct any other Person acting on its behalf to not provide
any Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1. Confidentiality. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. The Company's Disclosure Schedule contains confidential information
of the Company and Purchaser agrees to keep all such information confidential
and not to disclose any such information to any other party without the prior
written consent of the Company or until such time as the Company publicly
discloses such information. The Company covenants and agrees that no later than
the date that it files its annual report on Form 10-K for the fiscal year ended
March 31, 2005, the Company will publicly disclose all confidential information
set forth on the Disclosure Schedule that remains material at such time.
7.2. Non-Public Information. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
7.3. Limitation on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions between the Purchaser and the Company,
the Purchaser may not acquire stock in the Company (including, without
limitation, pursuant to a contract to purchase, by exercising an option or
warrant, by converting any other security or instrument, by acquiring or
exercising any other right to acquire, shares of stock or other security
convertible into shares of stock in the Company, or otherwise, and such
contracts, options, warrants, conversion or other rights shall not be
enforceable or exercisable) to the extent such stock acquisition would cause any
interest (including any original issue discount) payable by the Company to the
Purchaser not to qualify as "portfolio interest" within the meaning of Section
881(c)(2) of the Code, by reason of Section 881(c)(3) of the Code, taking into
account the constructive ownership rules under Section 871(h)(3)(C) of the Code
(the "Stock Acquisition Limitation"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to the Company upon the
earlier to occur of either (a) the Company's delivery to the Purchaser of a
Notice of Redemption (as defined in the Note) or (b) the existence of an Event
of Default (as defined in the Note) at a time when the average closing price of
the Company's common stock as reported by Bloomberg, L.P. on the Principal
Market for the immediately preceding five trading days is greater than or equal
to 150% of the Fixed Conversion Price (as defined in the Note).
21
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1. Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by Company or any of its Subsidiaries
of any covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and Purchaser
relating hereto or thereto.
8.2. Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser or any of its Subsidiaries or breach of any
warranty by Purchaser or any of its Subsidiaries in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement; or (ii) any
breach or default in performance by Purchaser or any of its Subsidiaries of any
covenant or undertaking to be performed by Purchaser or any of its Subsidiaries
hereunder, under any Related Agreement or any other agreement entered into by
the Company and Purchaser and/or any of its Subsidiaries relating hereto.
9. Registration Rights.
9.1. Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
9.2. Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (together with all accrued and unpaid
interest and fees related thereto) (the "Exclusion Period").
22
10. Miscellaneous.
10.1. Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY
EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS
OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH
PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS
ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
10.2. Knowledge of the Company. For the purposes of this Agreement,
the Company shall only be deemed to have "knowledge" of a particular fact or
other matter, if an executive officer of the Company is actually aware of such
fact or matter, or a reasonably prudent individual operating in the capacity of
an executive officer of the Company could be expected to discover or otherwise
become aware of such fact or matter in the ordinary course of fulfilling the
responsibilities of an executive officer.
10.3. Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
10.4. Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Except upon the occurrence of an Event of Default and
the continuance thereof, Purchaser may not assign its rights hereunder to a
competitor of the Company.
23
10.5. Entire Agreement. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
10.6. Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
10.7. Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the Company.
10.8. Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
10.9. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent as follows:
IF TO THE COMPANY, TO: Island Pacific, Inc.
00000 XxxXxxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: 000-000-0000
24
WITH A COPY TO: Xxxxxxx Xxxx Seidenwurm & Xxxxx, LLP
000 X Xxxxxx
Xxxxx 0000
Xxx Xxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
IF TO THE PURCHASER, TO: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
X.X. Xxx 0000 G.T.
Xxxxxxxxxx Xxxxx, Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
Facsimile: 000-000-0000
WITH A COPY TO: Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
10.10. Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
10.11. Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
10.12. Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
10.13. Broker's Fees. Except as set forth on Schedule 10.13 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 10.13 being untrue.
25
10.14. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
26
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
ISLAND PACIFIC, INC. LAURUS MASTER FUND, LTD.
By:_______________________________ By:______________________________
Name:_____________________________ Name:____________________________
Title:____________________________ Title:___________________________
27
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPTION
X-0
XXXXXXX X
XXXX XX XXXXXXX
X-0
EXHIBIT E
FORM OF ESCROW AGREEMENT
E-1
