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EXHIBIT 4.2
THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON
SHARES 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 UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ISLAND PACIFIC, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE TERM NOTE
-----------------------------
FOR VALUE
RECEIVED, ISLAND PACIFIC, INC., a Delaware corporation (the
"BORROWER"), hereby promises to pay to
LAURUS MASTER FUND, LTD., c/o Ironshore
Corporate Services Ltd., P.O. Box 1234
G.T., Queensgate House, South Church
Street, Grand Cayman, Cayman Islands, Fax:
345-949-9877 (the "HOLDER") or its
registered assigns or successors in
interest, on order, the sum of Three Million
Two Hundred Thousand Dollars ($3,200,000),
together with any accrued and unpaid
interest hereon, on to June 15, 2008 (the
"MATURITY DATE");
Capitalized
terms used herein without definition shall have the meanings
ascribed to such terms in that certain
Securities Purchase Agreement dated as of
the date hereof between the Borrower and
the Holder (the "PURCHASE AGREEMENT").
The following terms shall apply to this
Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1. Interest
Rate. Subject to Sections 4.11 and 5.6 hereof, interest
payable on the principal amount outstanding
under this Note shall accrue at a
rate per annum (the "Interest Rate") equal
to the "prime rate" published in The
Wall Street Journal from time to time, plus
one percent (1.0%). The Interest
Rate shall be increased or decreased as the
case may be for each increase or
decrease in the prime rate in an amount
equal to such increase or decrease in
the prime rate; each change to be effective
as of the day of the change in such
rate. Interest shall be (i) calculated on
the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on
July 1, 2005 and on the first
business day of each consecutive calendar
month thereafter until the Maturity
Date (and on the Maturity Date), whether by
acceleration or otherwise (each, a
"REPAYMENT DATE").
1.2. Minimum
Monthly Principal Payments. Amortizing payments of the
aggregate principal amount outstanding
under this Note at any time (the
"PRINCIPAL AMOUNT") shall begin on October
3, 2005 and shall recur on the first
business day of each succeeding month
thereafter until the Maturity Date (each,
an "AMORTIZATION DATE"). Subject to Article
3 below, beginning on the first
Amortization Date, the Borrower shall make
monthly payments to the Holder on
each Repayment Date, each in the amount of
$106,667, together with any accrued
and unpaid interest to date on such portion
of the Principal Amount plus any and
all other amounts which are then owing
under this Note, the Purchase Agreement
or any other Related Agreement but have not
been paid (collectively, the
"MONTHLY Amount"). Any Principal Amount
that remains outstanding on the Maturity
Date shall be due and payable on the
Maturity Date.
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ARTICLE II
CONVERSION REPAYMENT
2.1. (a) Payment
of Monthly Amount in Cash or Common Stock. Subject to
Sections 2.1, 2.2 and 3.2 hereof, the
Borrower shall have the sole option to
determine whether to satisfy payment of the
Monthly Amount on each Repayment
Date either in cash or in shares of Common
Stock (as defined in the Purchase
Agreement), or a combination of both. Each
month by the twentieth (20th) day
prior to a Repayment Date, the Borrower
shall deliver to the Holder a written
irrevocable notice in the form of Exhibit B
attached hereto electing to pay the
Monthly Amount payable on the next
Repayment Date in either cash or Common
Stock, or a combination of both (each, a
"REPAYMENT NOTICE") (the date by which
such notice is required to be given being
hereinafter referred to as the "NOTICE
DATE"); provided, however, a Repayment
Notice may provide that the Borrower's
election as set forth in such Repayment
Notice will remain in effect in respect
of each Repayment Date occurring after the
Repayment Date first subject of such
Repayment Notice unless otherwise revoked
by the Borrower in writing in which
case the Borrower will not be required to
deliver an additional Repayment Notice
during the period such election remains
applicable; provided, further, however,
that the Borrower shall not be permitted to
revoke a Repayment Notice in respect
of a Repayment Date after the applicable
Notice Date for such Repayment Date has
occurred. If a Repayment Notice is not
delivered to the Holder by the applicable
Notice Date for such Repayment Date, then
the Monthly Amount due on such
Repayment Date shall be paid in cash. Any
portion of the Monthly Amount paid in
cash on a Repayment Date, shall be paid to
the Holder an amount equal to one
hundred two percent (102%) of the cash
portion of the Monthly Amount then
payable in satisfaction of such obligation.
If the Borrower repays all or a
portion of the Monthly Amount in shares of
Common Stock, the number of such
shares to be issued for such Repayment Date
shall be the number determined by
dividing (x) the portion of the Monthly
Amount to be paid in shares of Common
Stock, by (y) the Fixed Conversion Price.
For purposes hereof, the initial
"FIXED CONVERSION PRICE" means $0.20.
(b) Monthly Amount Conversion Guidelines. Subject to Sections 2.1,
2.2
and 3.2 hereof, the Holder shall convert
into shares of Common Stock all or a
portion of the Monthly Amount (together
with accrued and unpaid interest and
applicable fees) due on each Repayment Date
according to the following
guidelines (collectively, the "Conversion
Criteria"): (i) the average closing
price of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market
for the five (5) consecutive trading days
immediately preceding such Notice Date
shall be greater than or equal to 110% of
the Fixed Conversion Price and (ii)
the sum of the amount of such conversion
plus the amount of the conversion into
shares of Common Stock of all or a portion
of the applicable "Monthly Amount"
(if any) as defined in the July 2004
Agreement (the "2004 Monthly Amount"), does
not in the aggregate exceed twenty percent
(20%) of the aggregate dollar trading
volume of the Common Stock for the twenty
two (22) trading days immediately
preceding the applicable Repayment Date. If
the Conversion Criteria are not met,
the Holder shall convert only such part of
the Monthly Amount (if any) which,
when added to amount of the 2004 Monthly
Amount to be converted into shares of
Common Stock, meets the Conversion
Criteria. Any part of the Monthly Amount due
on a Repayment Date that the Holder has not
been able to convert into shares of
Common Stock due to failure to meet the
Conversion Criteria, shall be paid by
the Borrower in cash at the rate of 102% of
the Monthly Amount otherwise due on
such Repayment Date, within three (3)
business days of the applicable Repayment
Date.
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(c) Subject to Sections 2.1, 2.2 and 3.2 hereof, if the average
closing price of the Common Stock on the
Principal Market is less than one
hundred ten percent (110%) of the Fixed
Conversion Price for the five (5)
trading days immediately preceding a
Repayment Date, then the Holder shall
convert into shares of Common Stock all or
a portion of the Monthly Amount
(together with accrued and unpaid interest
and applicable fees) at a conversion
price equal to ninety percent (90%) of the
volume weighted average price of the
Common Stock during the twenty (20) trading
days immediately prior to the
respective Repayment Date, provided,
however, that such conversion of the
Monthly Amount due on each Repayment Date
does not exceed twenty percent (20%)
of the aggregate dollar trading volume of
the Common Stock for the twenty (20)
trading days immediately preceding the
Repayment Date. Any part of the Monthly
Amount due on such Repayment Date that the
Holder has not been able to convert
into shares of Common Stock as set forth in
this Section 2.1(c) shall be paid in
cash at the rate of 102% of the Monthly
Amount otherwise due on such Repayment
Date, within three (3) business days of the
applicable Repayment Date. In no
event shall the conversion price for the
purposes of this Section 2.1(c) be less
than $0.10.
(d) Any amounts converted by the Holder pursuant to this Section
2.1
shall be deemed to constitute payments of
outstanding fees, interest and
principal arising in connection with
Monthly Amounts for the remaining Repayment
Dates, in chronological order.
2.2. Other
Monthly Conversion Guidelines. Notwithstanding anything to the
contrary herein, none of the Borrower's
obligations to the Holder shall be
converted into Common Stock unless (i)
either (x) an effective current
Registration Statement (as defined in the
Registration Rights Agreement)
covering the shares of Common Stock to be
issued in connection with satisfaction
of such obligations exists or (y) an
exemption from registration of the Common
Stock is available to pursuant to Rule 144
of the Securities Act, (ii) no Event
of Default hereunder exists and is
continuing, unless such Event of Default is
cured within any applicable cure period or
is otherwise waived in writing by the
Holder in whole or in part at the Holder's
option, (iii) the Common Stock is
listed for trading on the Principal market
and no suspension of trading of
Common Stock on the Principal Market is
pending or threatened and (iv) at each
such time a sufficient number of (A) Note
Shares, Warrant Shares and Option
Shares, (B) "Note Shares" and "Warrant
Shares", each as defined in the
Securities Purchase Agreement, dated as of
July 12, 2004 between the Company and
the Holder, (C) "Note Shares", "Warrant
Shares" and "Option Shares", each as
defined in the Securities Purchase
Agreement to be dated on or about June 10,
2005 between the Company and Midsummer
Investments, Ltd. ("Midsummer")
(including any shares underlying previously
issued securities of Midsummer),
have been duly and validly reserved for
issuance to the Holder and Midsummer, as
applicable.
2.3. Optional
Redemption in Cash. The Borrower will have the option of
prepaying this Note ("OPTIONAL REDEMPTION")
by paying to the Holder a sum of
money equal to one hundred twenty five
percent (125%) of the principal amount of
this Note together with accrued but unpaid
interest thereon and any and all
other sums due, accrued or payable to the
Holder arising under this Note, the
Purchase Agreement, or any Related
Agreement (the "REDEMPTION AMOUNT")
outstanding on the day written notice of
redemption (the "NOTICE OF REDEMPTION")
is given to the Holder; provided that, at
the time of delivery of such Notice of
Redemption and during such Redemption
Period the Borrower's obligations to the
Holder shall be convertible into Common
Stock and such conversion shall not
otherwise be prohibited by the terms of
this Note. The Notice of Redemption
shall specify the date for such Optional
Redemption (the "REDEMPTION PAYMENT
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DATE") which date shall be ten (10)
business days after the date of the Notice
of Redemption (the "REDEMPTION PERIOD"). A
Notice of Redemption shall not be
effective with respect to any portion of
this Note for which the Holder has a
pending election to convert pursuant to
Section 3.1, or for conversions
initiated or made by the Holder pursuant to
Section 3.1 during the Redemption
Period. The Redemption Amount shall be
determined as if such Holder's conversion
elections had been completed immediately
prior to the date of the Notice of
Redemption. On the Redemption Payment Date,
the Redemption Amount must be paid
in good funds to the Holder. In the event
the Borrower fails to pay the
Redemption Amount on the Redemption Payment
Date as set forth herein, then such
Redemption Notice will be null and void.
Notwithstanding anything to the
contrary herein, an Optional Redemption
shall not be permitted unless from the
date of the Notice of Redemption to the
date the Optional Redemption is paid in
full (i) either (x) an effective current
Registration Statement (as defined in
the Registration Rights Agreement) covering
the shares of Common Stock to be
issued in connection with satisfaction of
such obligations exists or (y) an
exemption from registration of the Common
Stock is available to pursuant to Rule
144 of the Securities Act, (ii) no Event of
Default hereunder exists and is
continuing, unless such Event of Default is
cured within any applicable cure
period or is otherwise waived in writing by
the Holder in whole or in part at
the Holder's option, (iii) the Common Stock
is listed for trading on the
Principal Market and no suspension of
trading of Common Stock on the Principal
Market is pending or threatened and (iv) at
each such time a sufficient number
of (A) Note Shares, Warrant Shares and
Option Shares, (B) "Note Shares" and
"Warrant Shares", each as defined in the
Securities Purchase Agreement, dated as
of July 12, 2004 between the Borrower and
the Holder and (C) "Note Shares",
"Warrant Shares" and "Option Shares", each
as defined in the Securities Purchase
Agreement to be dated on or about June 10,
2005 between the Borrower and
Midsummer Investments, Ltd. ("Midsummer")
(including any shares underlying
previously issued securities of Midsummer),
have been duly and validly reserved
for issuance to the Holder and Midsummer,
as applicable.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's
Conversion Rights. The Holder shall have the right, but not
the obligation, to convert all or any
portion of the then aggregate outstanding
principal amount of this Note, together
with interest and fees due hereon, into
shares of Common Stock subject to the terms
and conditions set forth in this
Article III. The Holder may exercise such
right by delivery to the Borrower of a
written notice of conversion not less than
one (1) business day prior to the
date upon which such conversion shall
occur.
3.2. Conversion
Limitation.
Notwithstanding
anything contained herein to the contrary, the Holder shall
not be entitled to convert pursuant to the
terms of the Note an amount that
would (a) be convertible into that number
of shares of Common Stock which, when
added to the number of shares of Common
Stock otherwise beneficially owned by
such Holder including those issuable upon
exercise of warrants held by such
Holder would exceed 4.99% of the
outstanding shares of Common Stock of the
Borrower at the time of conversion or (b)
exceed twenty five percent (25%) of
the aggregate dollar trading volume of the
Common Stock for the five (5) day
4
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trading period immediately preceding
delivery of a Notice of Conversion to the
Borrower. For the purposes of the
immediately preceding sentence, beneficial
ownership shall be determined in accordance
with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The
conversion limitation described in this
Section 3.2 shall automatically be
