EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of July 12, 2004, 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 Seven Million Dollars
($7,000,000) (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 of $0.56 per share of Common Stock ("Fixed
Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 3,750,000 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 Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant 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
$7,000,000 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 and
Warrant and Common Stock issuable in payment of the Note, upon conversion of the
Note and upon exercise of the Warrant are referred to as the "Securities."
2. FEES AND WARRANT. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant
to purchase up to 3,750,000 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
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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) 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 five and one-half percent (5.50%) of the aggregate
principal amount of the Note. The foregoing fee is referred to herein as the
"Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses) incurred in connection with the
preparation and negotiation of this Agreement and the Related Agreements (as
hereinafter defined), and expenses incurred in connection with the Purchaser's
due diligence review of the Company and its Subsidiaries (as defined in Section
6.8) and all related matters. Amounts required to be paid under this Section
2(c) will be paid on the Closing Date and shall be $39,500 for such expenses
referred to in this Section 2(c).
(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 AND PAYMENT.
3.1. CLOSING. Subject to the terms and conditions herein, 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 D, 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 $7,000,000 and a
Warrant in the form attached as Exhibit B in the Purchaser's name representing
3,750,000 Warrant Shares and the Purchaser will deliver to the Company, among
other things, the amounts set forth in the Disbursement Letter by certified
funds or wire transfer.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows (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):
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 and the Warrant to be issued in connection with this
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Agreement, (iii) the Master Security Agreement dated as of the date hereof
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 the date hereof 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 the date
hereof 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 and (viii) all
other agreements related to this Agreement and the Note and referred to herein
(the preceding clauses (ii) through (viii), 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, 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").
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 100,000,000 shares of common stock par value $0.0001 of which
53,974,532 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, all 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,
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neither the offer, issuance or sale of any of the Note or the Warrant, or the
issuance of any of the Note Shares or Warrant 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
and Warrant Shares will be duly and validly reserved for issuance as soon as
practicable after the Company files an amendment to its Charter increasing the
number of shares of Common Stock the Company is authorized to issue (the
"Charter Amendment") but in no event later than August 23, 2004 (the "Charter
Amendment Date"). 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 Warrant 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.
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.
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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 March 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.
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
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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 March 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;
(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;
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(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 had, or could 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
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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.
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 had, or could 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 and Warrant, 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. Any financial projections
and other estimates provided to the Purchaser by the Company or any of its
Subsidiaries were based on the Company's and its Subsidiaries' experience in the
industry and on assumptions of fact and opinion as to future events which the
Company or any of its Subsidiaries, at the date of the issuance of such
projections or estimates, believed to be reasonable.
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, 2003,
September 30, 2003 and December 31, 2003 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.
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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.
4.25. DILUTION. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant 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 .
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. NO SHORTING. The Purchaser nor any of its affiliates and
investment partners has not, will not and will not cause nor permit any person
or entity, directly or indirectly, to engage in Short Sales (as defined below),
sales against the box or similar transactions with respect to the Company's
Common Stock as long as the Note is outstanding. For purposes of this Agreement,
a "Short Sale" by the Purchaser shall mean a sale of Common Stock by the
Purchaser that is marked as a short sale and that is made at a time when there
is no equivalent offsetting long position in Common Stock held by the Purchaser.
For purposes of determining whether there is an equivalent offsetting long
position in Common Stock held by the Purchaser, shares underlying the Note that
have not yet been issued upon conversion of the Note and shares underlying the
Warrant that have not yet been issued upon exercise of the Warrant shall not be
deemed to be held long by the Purchaser.
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5.2. 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.
5.3. INVESTMENT 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 and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, 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 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.
5.4. 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.
5.5. ACQUISITION FOR OWN ACCOUNT. The Purchaser is acquiring the
Note and Warrant and the Note Shares and the Warrant 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.
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5.6. 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 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.
5.7. ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.8. 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 and the Warrant 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 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."
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 shall as promptly as practicable after
the filing of the Charter Amendment, but in no event later August 23, 2004,
secure the listing of the shares of Common Stock issuable upon conversion of the
Note and upon the exercise of the Warrant 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.
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 and the Warrant for general working capital purposes and
to repay that certain note between the Company and Silicon Valley National Bank
dated June 2, 2004 and that certain convertible debenture dated March 15, 2004
between the Company and Omicron Master Trust.
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;
15
(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
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
16
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.
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 tohave 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.
17
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 and Series B
Preferred Stock (each 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
(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.
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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 conversion of the Note and exercise of the Warrant.
6.15. MARGIN STOCK. The Company will not permit any of the proceeds
of the Note or the Warrant 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. Within thirty (30) days of the Closing
Date, the Company will establish a lock-box account with each of Silicon Valley
National Bank and California Bank & Trust to hold all of the cash, cash
equivalents, accounts, deposit accounts or other holdings of the Company and all
of its Subsidiaries (the "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 and that provides 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.
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.
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7.2. NO SHORTING
The Purchaser agrees that it will not and will not cause nor permit
any person or entity, directly or indirectly, to engage in "Short Sales",
hedging transactions, sales against the box or similar transaction with respect
to the Company's Common Stock as long as the Note is outstanding.
7.3. 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.
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").
20
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. 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.
21
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 Financial Officer
Facsimile: 000-000-0000
22
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 11.12 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 11.12 being untrue.
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
23
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:_____________________________
24
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
C-1
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-1