EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of November 16, 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
Secured Term Note in the aggregate principal amount of Six Hundred Thirty-Seven
Thousand Five Hundred Dollars ($637,500) (the "Note");
WHEREAS, the Company wishes to issue an option to the Purchaser to
purchase up to 1,125,000 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 and the Option (as
defined in Section 2(a)) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note 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 $637,500
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 and the Option and Common Stock
issuable upon exercise of the Option are referred to as the "Securities."
2. FEES AND OPTION. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser an
Option to purchase up to 1,125,000 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 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
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.
(b) Subject to the terms of Section 2(c) 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."
(c) The Closing Payment referred to in the preceding clause
(b) (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, in the form attached hereto
as Exhibit D (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 at the
Closing on the Closing Date, the Company will deliver to the Purchaser, among
other things, a Note representing the aggregate principal amount of $637,500,
and an Option in the Purchaser's name representing 1,125,000 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. Intentionally omitted.
3.4. BUDGET. Prior to December 15, 2005, Company shall provide
the Purchaser with a budget for the Company and its Subsidiaries prepared on a
consolidated and consolidating basis for each month beginning with November 2005
and ending with December 2006.
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, deliver and perform
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under (i) this Agreement, (ii) the Note and the Option to be issued in
connection 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 Funds 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, 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, collectively, (i) the Securities Purchase Agreement,
dated as of July 12, 2004 between the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "2004 Purchase Agreement") and
(ii) the Related Agreements referred to in the 2004 Purchase Agreement, as each
may be amended, modified or supplemented from time to time. The term "June 2005
Agreements" refers to, collectively, (i) the Securities Purchase Agreement,
dated as of June 15, 2005 between the Company and the Purchaser (the "June 2005
Purchase Agreement") and (ii) the Related Agreements referred to in the June
2005 Purchase Agreement, as each may be amended, modified or supplemented from
time to time.
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.
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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 67,922,909 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.
(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 or the Option, or the issuance of any of the 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 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 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
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(b) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Note is 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
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;
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(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.
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;
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(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;
(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
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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.
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.
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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.
10
4.19. FULL DISCLOSURE. Each of the Company and each of its
Subsidiaries has provided the Purchaser with its SEC Reports (defined below)
which contain all information requested by the Purchaser in connection with its
decision to purchase the Note 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 calendar 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. 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.
4.23. 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.
4.24. DILUTION. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon 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.
11
4.25. 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.
4.26. 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 any July
2004 Agreement, any June 2005 Agreement, any Midsummer Agreement, or, in any of
the foregoing cases, any other agreement related thereto, which breach or
violation has not been waived pursuant to that certain Amendment and Waiver by
and between the Company and the Purchaser, dated as of the date hereof.
4.27. 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.
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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. 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 and the Option to be purchased by
it under this Agreement and the Option Shares acquired by it upon the exercise
of the Option. 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 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.
5.4. ACQUISITION FOR OWN ACCOUNT. The Purchaser is acquiring
the Note and the Option 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 Option and the Securities and to protect its own
interests in connection with the transactions contemplated in this Agreement and
13
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 HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE 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 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."
(c) 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."
14
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's Common Stock is currently traded
in the Pink Sheets. On or before February 1, 2006, the Company shall secure the
quotation or listing of the shares of Common Stock issuable upon the exercise of
the Option on the Principal Market (as defined below) upon which shares of
Common Stock are quoted or listed (subject to official notice of issuance) and
shall maintain such quotation or listing so long as any other shares of Common
Stock shall be so quoted or listed. The Company will maintain the quotation or
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. For purposes hereof, the term
"Principal Market" means the NASD Over The Counter Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Markets System, AMEX or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange or
market for the Common Stock).
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.
6.4. REPORTING REQUIREMENTS. The Company will deliver, or
cause to be delivered, to the Purchaser each of the following, which shall be in
form and detail acceptable to the Purchaser:
6.4.1. As soon as available, and in any event within
ninety (90) days after the end of each fiscal year of the Company, each of the
Company's and each of its Subsidiaries' audited financial statements with a
report of independent certified public accountants of recognized standing
selected by the Company and reasonably acceptable to the Purchaser (the
"ACCOUNTANTS"), which annual financial statements shall be without qualification
and shall include each of the Company's and each of its Subsidiaries' balance
sheet as at the end of such fiscal year and the related statements of each of
the Company's and each of its Subsidiaries' income, retained earnings and cash
flows for the fiscal year then ended, prepared on a consolidating and
consolidated basis to include the Company, each Subsidiary of the Company and
each of their respective affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) if and when available, copies of any
management letters prepared by the Accountants; and (ii) a certificate of the
Company's President, Chief Executive Officer or Chief Financial Officer stating
that such financial statements have been prepared in accordance with GAAP and
whether or not such officer has knowledge of the occurrence of any Event of
Default (as defined in the Note) and, if so, stating in reasonable detail the
facts with respect thereto.
15
6.4.2. As soon as available and in any event within
forty five (45) days after the end of each fiscal quarter of the Company, an
unaudited/internal balance sheet and statements of income, retained earnings and
cash flows of the Company and each of its Subsidiaries as at the end of and for
such quarter and for the year to date period then ended, prepared on a
consolidating and consolidated basis to include all the Company, each Subsidiary
of the Company and each of their respective affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of the Company's President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Event of Default (as defined in the Note) not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto;
6.4.3. As soon as available and in any event within
twenty (20) days after the end of each calendar month, an unaudited/internal
statement of income of the Company and its Subsidiaries as at the end of and for
such month and for the year to date period then ended, prepared on a
consolidating and consolidated basis to include the Company, each Subsidiary of
the Company and each of their respective affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of the Company's President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Event of Default (as defined in the Note) not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto; provided, however, if the Company, in its discretion,
determines that such information constitutes material non-public information,
the Company may condition delivery of such information on Purchaser's execution
of a confidentiality agreement and acknowledgment from Purchaser that Purchaser
is prohibited from trading while in possession of such information pursuant to
Section 7.2 hereof;
6.4.4. Once the Company's revenue recognition
investigation is complete and the Company has filed its Form 10-K for the year
ended March 31, 2005 and the Forms 10-Q for quarters ended June 30, 2005 and
September 30, 2005 (the "Late Reports"), which Late Reports shall be filed by
January 23, 2005, and after the filing of the Late Reports, the Company shall
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. Promptly after
(i) the filing thereof, copies of the Company's most recent registration
statements and annual, quarterly, current or other regular reports which the
Company files with the Securities and Exchange Commission (the "SEC"), and (ii)
the issuance thereof, copies of such financial statements, reports and proxy
statements as the Company shall send to its stockholders; and
6.4.5. The Company shall deliver, or cause the
applicable Subsidiary of the Company to deliver, such other information as the
Purchaser shall reasonably request, subject to Purchaser executing a
non-disclosure agreement and otherwise complying with Regulation FD, under the
federal securities laws.
16
6.5. USE OF FUNDS. The Company agrees that after the payment
of any fees due pursuant to Section 2(b) above, it will use the proceeds from
the sale of the Note, the sale of a secured term note to Midsummer on or around
the date hereof (the "Midsummer Note") and the proceeds from the sale of the
Option Shares substantially as follows: (i) $600,000 to pay the royalty fees due
to Intuit Inc. pursuant to the RetailPro Software License Agreement between IP
Retail Technologies International, Inc. (as successor to Retail Technologies
International, Inc.) dated December 6, 2002, (ii) $250,000 to pay accrued but
unpaid legal expenses and (iii) for its general working capital purposes.
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
17
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and each of
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.
18
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.
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 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) and required to be paid by the Company pursuant
to terms of 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
19
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
(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 C 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 exercise of the Option.
6.15. MARGIN STOCK. The Company will not permit any of the
proceeds of the Note 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 Deposit Account Control
Agreements entered by the Company for the benefit of the Purchaser pursuant to
the July 2004 Agreements and the June 2005 Agreements 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")
shall be amended to the extent necessary to 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 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
21
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).
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 of the Note (together with all accrued and unpaid
interest and fees related thereto) (the "Exclusion Period").
10. MISCELLANEOUS.
22
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 (as
defined in the Note) and the continuance thereof, Purchaser may not assign its
rights hereunder to a competitor of the Company.
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.
23
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: 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 M&C Corporate Services Limited
X.X. Xxx 000 XX
Xxxxxx Xxxxx
Xxxxxx Xxxx
South Church Street
Grand Cayman, Cayman Islands
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: Xxxxx Xxxxxxxxx Name: _______________________________
Title: CEO Title: ______________________________
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