SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to ss.240.14a-12
ISLAND PACIFIC, INC.
Name of Registrant as Specified In Its Charter
N/A
Name of Person(s) Filing Proxy Statement if other than the Registrant
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which such offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
July 14, 2004
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Island Pacific, Inc. (the "Company") on Wednesday, August 11, 2004 at 9:00
a.m., Pacific Daylight Time. The meeting will be held at the Company's office
located at 19800 MacArthur Boulevard, Suite 1200, Irvine, California 92612.
The matters to be voted upon at the meeting will be:
o To elect five directors;
o To amend and restate the Company's Amended and Restated
Certificate of Incorporation to increase the authorized shares
of common stock from 100,000,000 to 250,000,000;
o To adopt the 2004 Equity Incentive Plan ("2004 Plan");
o To ratify the sale and issuance of a Secured Convertible Term
Note and accompanying warrant to purchase shares of common
stock to an institutional investor for $7,000,000;
o To ratify the appointment of Singer Lewak Greenbaum &
Goldstein LLP as our independent public accountants for the
year ending March 31, 2005.
Please complete and sign the enclosed proxy card and return it
promptly. This will ensure that your shares are represented at the meeting even
if you cannot attend. Returning your proxy card to us will not prevent you from
voting in person at the meeting if you are present and wish to do so.
Thank you for your cooperation in returning your proxy card as promptly
as possible. We hope to see many of you at our meeting in Irvine.
Very truly yours,
Michael Silverman
Chairman of the Board
1
ISLAND PACIFIC, INC.
19800 MacArthur Boulevard
Irvine, CA 92612
(949) 476-2212
_______________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
_______________________________________
TO BE HELD ON AUGUST 11, 2004
_______________________________________
TO ALL STOCKHOLDERS:
An annual meeting of the stockholders of Island Pacific, Inc. (the
"Company") will be held on August 11, 2004 at 9:00 a.m., Pacific Daylight Time.
The meeting will be held at 19800 MacArthur Boulevard, Suite 1200, Irvine,
California 92612. The following items will be on the agenda:
1. To elect five directors to serve until the next Annual Meeting
of Stockholders and until their successors are elected and
qualified;
2. To amend and restate the Company's Amended and Restated
Certificate of Incorporation to increase the authorized shares
of common stock from 100,000,000 to 250,000,000;
3. To adopt the 2004 Equity Incentive Plan ("2004 Plan");
4. To ratify the sale and issuance of a Secured Convertible Term
Note and accompanying warrant to purchase shares of common
stock to a certain investor for $7,000,000;
5. To ratify the appointment of Singer Lewak Greenbaum &
Goldstein LLP as our independent public accountants for the
fiscal year ended March 31, 2005; and
6. To transact such other business as may properly come before
the meeting.
Only stockholders of record at the close of business on July 15, 2004
will be entitled to vote at this meeting.
Please execute and return the accompanying proxy card as soon as
possible. Any stockholder who signs and returns the accompanying proxy may
revoke it at any time before it is exercised.
By Order of the Board of Directors
Michael Silverman
Chairman of the Board
Irvine, California
July 14, 2004
2
ISLAND PACIFIC, INC.
19800 MacArthur Boulevard
Irvine, CA 92612
(949) 476-2212
_______________________________________
PROXY STATEMENT
_______________________________________
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 11, 2004
_______________________________________
INFORMATION CONCERNING SOLICITATION AND VOTING
_______________________________________
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Island Pacific, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on August 11, 2004, at 9:00 a.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at 19800 MacArthur Boulevard, Suite 1200,
Irvine, California 92612. The Company intends to mail this proxy statement and
accompanying proxy card on or about July 26, 2004, to all stockholders entitled
to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy card and any additional information furnished to stockholders. Copies
of solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of common stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of common stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of common stock and Series B Convertible
Preferred Stock ("Series B Preferred") at the close of business on July 15, 2004
will be entitled to notice of and to vote at the Annual Meeting. As of July 2,
2004 the Company had outstanding and entitled to vote 53,974,532 shares of
common stock and 2,517,323 shares of Series B Preferred convertible into
7,551,699 shares of common stock. Each holder of record of common stock and
Series B Preferred on July 15, 2004 will be entitled to one vote for each share
held, with the Series B Preferred voting on an as converted basis, on all
matters to be voted upon at the Annual Meeting.
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If the proxy is signed and returned without any direction given, shares
will be voted in accordance with the Board of Directors' recommendations. All
votes will be tabulated by the inspector of election appointed for the Annual
Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any stockholder granting a proxy pursuant to this solicitation has the
power to revoke it at any time before it is voted. A proxy may be revoked by
filing with the Company's Secretary at the Company's principal executive office,
19800 MacArthur Boulevard, Irvine, California 92612, a written revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not,
by itself, revoke a proxy.
If a proxy is provided but no instructions are given, the proxy will be
voted FOR each director nominated by management, FOR Proposal 2 relating to the
increase in authorized shares of common stock, FOR Proposal 3 relating to
adoption of 2004 Equity Incentive Plan, FOR Proposal 4 relating to the sale of
the $7,000,000 Secured Convertible Term Note and related warrant and FOR
Proposal 5 relating to ratification Singer Lewak Greenbaum & Goldstein LLP as
the Company's independent public accountants for the fiscal year ending March
31, 2005.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the Company's proxy statement
and form of proxy for the Company's 2005 Annual Meeting pursuant to Rule 14a-8
of the Securities and Exchange Commission must be received at the Company's
principal executive office, 19800 MacArthur Boulevard, Suite 1200, Irvine,
California 92612, by March 15, 2005.
Stockholders intending to present a proposal at the 2005 annual
meeting, but not to include the proposal in our proxy statement, or to nominate
a person for election as a director, must comply with the requirements set forth
in our By-laws. The By-laws require, among other things, that the Company
receive written notice from the record stockholder of intent to present such
proposal or nomination no more than 120 days and no less than 90 days prior to
the first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced more than 30
days prior to or delayed by more than 30 days after the anniversary of the
preceding year's annual meeting, notice by the stockholder to be timely must be
so delivered no more than 120 days and no less than 90 days prior to such annual
meeting or 10 days following the day on which public announcement of the date of
such meeting is first made. Therefore, the Company must receive notice of such a
proposal or nomination for the 2005 annual meeting no earlier than April 13,
2005 and not later than May 13, 2005.
A stockholder's notice to the Company must include a full description
of such proposal (including all information that would be required in connection
with such proposal under the SEC's proxy rules if such proposal were the subject
of a proxy solicitation and the written consent of each nominee for election to
the Board of Directors named therein (if any) to serve if elected) and the name,
address and number of shares of common stock held of record or beneficially as
of the record date for such meeting by the person proposing to bring such
proposal before the meeting.
Nothing in this section shall be interpreted or construed to require
the inclusion of information about any stockholder proposal in the Company's
proxy statement.
4
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the seven Board of Director positions as
fixed by the Board of Directors, which will result in two vacancies on the Board
of Directors. Two of the Company's former directors, Robert P. Wilkie and Ivan
M. Epstein, both of whom were "independent" directors, resigned effective as of
July 1, 2004. The Company is currently looking for two "independent" individuals
to fill these vacancies. Each director to be elected will hold office until the
next annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote. Shares represented by executed
proxies will be voted, if authority to do so is not withheld, for the election
of the five nominees named below. In the event that any nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected and
management has no reason to believe that any nominee will be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set
forth:
NAME AGE POSITION
Michael Silverman 59 Chairman of the Board
Michael Tomczak 49 President, Chief Operating Officer
and Director
Donald Radcliffe 59 Director
Lawrence Page 49 Executive Vice President - Special
Projects and Director
Ian Bonner 49 Director
Michael Silverman became a director in January 2001 and Chairman in
February 2004. Mr. Silverman founded Advanced Remote Communications Solutions,
Inc. (formerly known as Boatracs, Inc.) in 1990 and serves on its board of
directors. He previously served as its Chairman until May 2002, and as Chief
Executive Officer and President until October 1997, and from November 1999 to
May 2002. Mr. Silverman is a Chartered Accountant (South Africa) and has an
M.B.A. from Stanford University. Mr. Silverman is a member of the Audit and
Compensation Committees.
Michael Tomczak became our President, Chief Operating Officer and
director in June 2004 after our acquisition of Retail Technologies
International, Inc. ("RTI"). Mr. Tomczak served as RTI's CEO and President since
December 2002 and its CFO for the previous two years. Mr. Tomczak has been an
executive with high-growth firms for the past twelve years including having
served as Chief Financial Officer of a publicly traded technology company.
Previously, Mr. Tomczak served as head director of Ernst & Young's Sacramento
office's Entrepreneurial Services Group. Mr. Tomczak holds a Bachelor of Science
degree in business administration from Western Michigan University and is a
Certified Public Accountant in both California and Michigan.
5
Donald S. Radcliffe served as a director from May 1998 until October
2003 and became a director again in July 2004. He has been President of
Radcliffe & Associates since 1990. Radcliffe & Associates provides financial
consulting services to public companies and has provided us financial advisory
and public relations services. Since 1984 he has also been Executive Vice
President and Chief Operating and Financial Officer of World Wide Business
Centres, which is a privately held operator of shared office space facilities.
Mr. Radcliffe is a director of Integrity Software, Inc. Mr. Radcliffe received a
B.S. from Lehigh University and an M.B.A. from Dartmouth College. He is a
certified public accountant.
Lawrence Page became a director in March 2004 after our acquisition of
Page Digital Incorporated ("Page"). Mr. Page currently serves as Executive Vice
President - Special Projects. He served as Chief Technology Officer from January
2004 to June 2004 and as Chief Operating Officer from February 2004 to June
2004. He is the former Chief Executive Officer and Chairman of the board of
Page, which he founded in 1980. Mr. Page has over 25 years of direct commerce
experience. Mr. Page attended the California Institute of Technology for three
years, when he departed to pursue his business interests in the software
industry.
Ian Bonner became a director in May 1998. He is President and Chief
Executive Officer of Terraspring, Inc., a software and Internet infrastructure
company. From 1993 until April 2001, he held various positions with IBM
Corporation, including Vice President of Partner Marketing and Programs for the
IBM/Lotus/Tivoli Software Group. His responsibilities included the development
and implementation of marketing campaigns and programs designed to serve the
business partners of IBM, Lotus and Tivoli, including major accounts,
independent software vendors and global systems integrators. He also oversaw the
IBM BESTeam and the Lotus Business Partner programs which are designed to
provide enhanced opportunities, including education, marketing and training
support, to qualified providers of IBM's and Lotus's portfolio of network
solutions. Mr. Bonner received a Bachelor of Commerce from the University of the
Witwatersrand in 1976 and a graduate degree in Marketing Management and Market
Research and Advertising from the University of South Africa in 1978. Mr. Bonner
is a member of the Audit and Compensation Committees.
There are no family relationships among the directors. There are no
arrangements or understandings between any director and any other person
pursuant to which that director was or is to be elected.
COMMITTEES AND MEETINGS
During fiscal year 2004, the Board of Directors met 6 times and acted
by unanimous written consent 5 times. No director attended less than 75% of the
total of Board of Directors and committee meetings held during the director's
tenure on the Board of Directors and its committees. The Board of Directors has
a Compensation Committee and an Audit Committee.
The Compensation Committee's primary function is to establish the
compensation policies and recommend compensation arrangements for senior
management and directors to the Board of Directors. The Compensation Committee
also recommends the adoption of compensation plans, in which officers and
directors are eligible to participate, and the granting of stock options or
other benefits to executive officers. The Compensation Committee is composed
entirely of independent directors (as "independence" is defined in Section
121(A) of the listing standards of the American Stock Exchange). Current members
of the Compensation Committee are Ian Bonner, Donald Radcliffe and Michael
Silverman. The Compensation Committee met 4 times during the fiscal year ended
March 31, 2004.
6
The purpose of the Audit Committee is to assist the Board of Directors
in fulfilling its responsibilities for our financial reporting. The Audit
Committee recommends the engagement and discharge of independent auditors,
reviews the audit plan and the results of the audit with independent auditors,
reviews the independence of the independent auditors, reviews internal
accounting procedures and discharges such other duties as may from time to time
be assigned to it by the Board of Directors. The Audit Committee is composed
entirely of independent directors (as "independence" is defined in Section
121(A) of the listing standards of the American Stock Exchange). Current members
of the Audit Committee are Ian Bonner, Donald Radcliffe and Michael Silverman.
The Company is currently looking for two additional independent directors, one
of whom will be appointed to the Audit Committee. The Audit Committee met 4
times during Fiscal 2004.
The Company does not have a policy that requires members of the Board
of Directors to attend the Company's annual stockholders meeting. Four members
of the Board of Directors attended the Company's last annual stockholders
meeting.
DIRECTOR COMPENSATION
During Fiscal 2004, we issued the following options to purchase shares
of our common stock to our directors: (a) Ian Bonner and Michael Silverman each
5,000 options at exercise price of $2.55 per share, 5,000 options at $2.17 per
price, 5,000 options at $2.23 per share, 5,000 options at $1.34 per share and
5,000 options at $0.92 per share, all vesting immediately; (b) Ivan Epstein
5,000 options at exercise price of $2.55 per share, 5,000 options at $2.17 per
share and 5,000 options at $0.92 per share, all vesting immediately; and (c)
Robert Wilkie 5,000 options at exercise price of $2.55 per share, 5,000 options
at $2.17 per share, 5,000 options at $1.34 per share and 5,000 options at $0.92
per share, all vesting immediately. We also paid cash compensation totaling
$154,000 to Barry Schechter, who served as the Chairman of the Board until July
2003.
DIRECTOR INDEPENDENCE
The Board of Directors has determined that each of Messrs. Silverman
and Bonner are "independent" directors, as that term is currently defined in the
rules adopted by the Securities and Exchange Commission ("SEC") and the American
Stock Exchange ("AMEX"). AMEX rules require that the majority of our Board of
Directors be comprised of "independent" directors. Robert P. Wilkie and Ivan M.
Epstein, both of whom were "independent directors," resigned from the Company's
Board of Directors effective as of July 1, 2004. We are currently looking for
two "independent" directors to fill the vacancies left by Mr. Wilkie's and Mr.
Epstein's resignations.
COMMUNICATION WITH THE BOARD OF DIRECTORS
Stockholders may communicate with any of our directors by transmitting
correspondence by mail, facsimile or e-mail, addressed as follows: Chairman of
the Board of Directors, or Board of Directors c/o Corporate Secretary, Ran H.
Furman, 19800 MacArthur Boulevard, Suite 1200, Irvine, CA 92612. Fax: (949)
476-2212. e-mail: directors@islandpacific.com.
The communications will be transmitted to the identified director(s) as
soon as practicable, unless our Corporate Secretary in consultation with our
legal counsel determines there are safety or security concerns that mitigate
against further transmission of the communication. The Board of Directors or
identified director(s) shall be advised of any communication withheld for safety
or security reasons as soon as practicable.
BOARD OF DIRECTORS NOMINATION POLICY
The Board of Directors does not have a nominating committee. Rather,
the Board of Directors has adopted a formal written policy regarding the
nomination process and such related matters as may be required under the federal
securities laws. Under the nominating policy, the independent directors, meeting
in executive session, are responsible for identifying, evaluating, and
recommending individuals qualified to be appointed to the Board of Directors or
to stand for election to the Board of Directors at a meeting of the
stockholders.
7
In evaluating candidates for nomination to the Board of Directors, the
independent directors are to take into account the applicable requirements for
directors under the AMEX rules as well as the standards for serving on the Audit
Committee under the Securities Exchange Act of 1934 (the "Exchange Act"). The
independent directors may take into consideration such other factors and
criteria as they deem appropriate in evaluating a candidate, including his or
her judgment, skill, integrity, diversity, and business or other experience. The
independent directors may (but are not required to) consider candidates
suggested by management or other members of the Board of Directors.
Generally, the independent directors will consider candidates who have
experience as a board member or senior officer of a company or who are generally
recognized in a relevant field as a well-regarded practitioner, faculty member
or senior government officer. The independent directors will also evaluate
whether the candidates' skills and experience are complementary to the existing
Board of Directors members' skills and experience as well as the Board of
Directors' need for operational, management, financial, international,
technological or other expertise. The independent directors will interview
candidates that meet the criteria and the independent directors will then select
nominees that such independent directors believe best suit the Board of
Directors' needs.
The independent directors will consider qualified candidates for
director nominees suggested by stockholders. Stockholders can suggest qualified
candidates for director nominees by writing to the Company's Corporate
Secretary, Ran H. Furman, at 19800 MacArthur Boulevard, Suite 1200, Irvine,
California 92612. Submissions that are received that meet the criteria described
above will be forwarded to the independent directors for further review and
consideration. The independent directors do not intend to evaluate candidates
proposed by stockholders any differently than other candidates.
PROPOSAL 2
APPROVAL OF INCREASING AUTHORIZED SHARES
Currently, the Company's authorized capital stock under its Amended and
Restated Certificate of Incorporation (the "Certificate") is 100,000,000 shares
of common stock and 5,000,000 shares of preferred stock. As of July 2, 2004, of
the 100,000,000 shares of the Company's common stock presently authorized,
53,974,532 shares are issued and outstanding, 7,736,975 shares are reserved for
issuance under outstanding options,14,580,658 shares are reserved for issuance
under outstanding warrants, 19,115,405 shares are reserved for issuance upon
conversion of the Series A Convertible Preferred Stock ("Series A Preferred")
and 2,272,727 shares are reserved for issuance upon conversion of outstanding
debentures. As a result, there are now only 2,319,703 authorized shares of the
Company's common stock that are not reserved and that may be issued for any
future business purposes by the Company. In addition, the Company has
contractual obligations to issue additional shares of Common Stock to holders of
its Series A Preferred and Series B Preferred and to maintain sufficient shares
of common stock available for future issuances on exercise of options to certain
members of management pursuant to employment compensation arrangements, which
are not currently reserved.
Accordingly, the Board of Directors has approved for submission to the
Company's stockholders, and recommends that the Company's stockholders approve,
an amendment to the Company's Certificate to increase the number of authorized
shares of common stock from 100,000,000 to 250,000,000.
The additional 150,000,000 authorized shares of the Company's common
stock (the "Additional Shares") may be issued for any proper corporate purpose
approved by the Company's Board of Directors. The availability of additional
authorized shares will enable the Company's Board of Directors to act with
flexibility when and as the need arises to issue additional shares in the future
without the delays necessitated by having to obtain a stockholder vote and to
take advantage of changing market and financial conditions in a more timely
manner. Among the reasons for issuing additional shares would be to increase the
Company's capital through sales of the Company's common stock, to engage in
acquisitions and to satisfy contractual commitments.
8
The Additional Shares would also be used to satisfy contractual
obligations to Laurus Funds, Ltd., a Cayman Islands company ("Laurus") to
maintain sufficient shares for issuance upon conversion of Laurus' Secured
Convertible Term Note (the "Note") and exercise of its Common Stock Purchase
Warrant, both of which were issued pursuant to the Securities Purchase Agreement
between the Company and Laurus dated July 12, 2004 (the "Purchase Agreement").
Pursuant to the Purchase Agreement the Company sold and issued the Note and
Warrant to Laurus for $7,000,000. The Note is convertible into an aggregate of
12,500,000 shares of common stock at a price of $0.56 per share, which is 105%
of the closing stock price of $0.53 on July 9, 2004, the date immediately
preceding the transaction. The warrant is exercisable for 3,750,000 shares of
common stock at $0.71 per share, which is 115% of the 10-day average closing
price immediately preceding the transaction. For a further description of this
transaction see Proposal 4 below - RATIFY THE SALE AND ISSUANCE OF NOTE AND
WARRANT TO LAURUS.
The Company anticipates that it will require in the future a greater
number of authorized shares of common stock than is currently available under
its Certificate. The Company's management regularly reviews a range of possible
financing transactions, including the issuance of the Company's common stock.
Subject to market and other conditions, the Company may sell additional equity
in fiscal 2005 or issue additional equity for strategic acquisitions. Any such
equity sales may involve private placements, traditional underwritten offerings,
continuous equity offerings or other transactions.
If the amendment to the Company's Certificate is approved, while the
Company's Board of Directors generally may issue additional authorized shares of
the Company's common stock without further stockholder approval, under the AMEX
rules the Company may not effect certain transactions that could potentially
result in the issuance of a number of shares that is more than 20% of the
Company's currently outstanding shares of common stock without further
stockholder approval. In particular, under the AMEX listing standards, the
establishment or amendment of any option plan or arrangement governing option
grants to officers, directors, employees or consultants, an acquisition or
certain other corporate transactions involving the issuance or potential
issuance of shares at a price below market require stockholder approval.
The Company's Board of Directors has not proposed the increase in the
amount of authorized shares with the intention of discouraging tender offers or
takeover attempts of the Company. However, the availability of additional
authorized shares for issuance could render more difficult or discourage a
merger, tender offer, proxy contest or other attempt to obtain control of the
Company, which may adversely affect the ability of the Company's stockholders to
obtain a premium for their shares of the Company's common stock. Other than as
described in this proxy statement, the Company has no obligations to issue
additional shares of common stock. However, any additional issuance could have a
dilutive impact on the Company's existing stockholders.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the amendment to Company's Certificate to increase the
number of authorized shares to 250,000,000. Abstentions will be counted toward
the tabulation of votes cast in proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 2
- THE AMENDMENT OF THE COMPANY'S CERTIFICATE TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY TO 250,000,000.
PROPOSAL 3
APPROVAL OF 2004 EQUITY INCENTIVE PLAN
The Compensation Committee has recommended and the Board of Directors
has adopted, subject to stockholder approval, the 2004 Equity Incentive Plan,
attached as Appendix A ("2004 Plan"), authorizing 10,000,000 shares of common
stock that may be subject to options and stock bonuses (collectively, "Stock
Awards").
9
REASONS FOR THE PROPOSAL
The Company had a 1998 Stock Incentive Plan (the "1998 Plan") in place
until July 12, 2004. As of July 12, 2004 there were 7,365,872 shares reserved
for issuance under the 1998 Plan and 4,182,783 options issued and outstanding.
As of July 12, 2004 there were 1,381,886 issued and outstanding options under
the RTI 2003 Stock Incentive Plan that the Company assumed in connection with
its acquisition of RTI pursuant to the Amended and Restated Agreement of Merger
and Plan of Reorganization dated June 1, 2004 between the Company, RTI, IPI
Merger Sub, Inc., IPI Merger Sub II, Inc., Michael Tomczak and Jeffrey Boone.
Pursuant to post effective amendment no. 1 filed on July 12, 2004 and post
effective amendment no. 2 filed on July 14, 2004 to the registration statement
on Form S-8 filed on September 12, 2003 (Registration No. 333-108747), the
remaining 2,583,086 shares registered for issuance under the 1998 Plan were
deregistered and the 1998 Plan was suspended. Following the acquisitions of Page
in January 2004 and RTI in June 2004, the Company currently employs
approximately 225 people. The Company believes that it needs to be able to issue
options to provide incentives to new or existing employees, directors or
consultants to exert maximum efforts for the success of the Company and that the
remaining 2,583,086 shares available for issuance under the 1998 Plan are not
sufficient. Accordingly, the Board of Directors has approved for submission to
the Company's stockholders, and recommends that the Company's stockholders
approve, the adoption of the new 2004 Plan to provide additional shares of
common stock for new Stock Awards and replace the 1998 Plan with an updated
plan.
The Company's common shares are listed on the AMEX. Under the AMEX
rules, the Company generally must obtain stockholder approval as a condition to
listing shares reserved for options granted or to be granted to officers,
directors or key employees, subject to certain exceptions. The Company has
historically complied with these rules by granting options to existing officers,
directors and key employees under stockholder-approved plans. This strategy has
permitted those persons who are employees to receive tax-preferred incentive
stock options (see "Federal Income Tax Information" below), and has permitted
the classification of such options as performance-based compensation under
Section 162(m) of the Code where such grants were otherwise in compliance with
such Code section.
If this Proposal 3 is not approved by the stockholders, the Company's
ability to provide adequate equity incentives to current and future employees,
directors and consultants of the Company in the most tax preferred manner may be
jeopardized. In the event of non-approval, the Company will have to consider
other means to provide adequate equity incentives.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the 2004 Plan submitted for stockholder approval.
Abstentions will be counted toward the tabulation of votes cast in proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
The essential features of the 2004 Plan are outlined below:
GENERAL
Employees, directors and consultants to the Company and its parents or
subsidiaries (whether now or hereafter existing) are eligible to participate in
the 2004 Plan. The purpose of the 2004 Plan is to give employees, directors and
consultants of the Company and its subsidiaries an opportunity to benefit from
increases in the value of the Company's common stock. The Company believes that
the 2004 Plan will help the Company secure and retain the services of highly
qualified individuals, and to provide incentives to eligible persons to exert
maximum efforts toward the success of the Company.
The 2004 Plan provides for the granting of: (i) incentive stock options
("ISOs") and nonqualified stock options ("NSOs"), (ii) stock purchase awards and
(iii) stock bonuses (collectively, "Stock Awards"). Only employees are eligible
to receive ISOs. All other Stock Awards may be awarded to employees, directors
and consultants.
STOCK SUBJECT TO THE 2004 PLAN
An aggregate of 10,000,000 shares of common stock will be reserved for
issuance under the 2004 Plan. The Company's closing stock price as reported on
AMEX was $0.56 per share on July 13, 2004.
10
ADMINISTRATION
The Board of Directors will administer the 2004 Plan, but the Board of
Directors may, in its discretion, delegate administration of the plan to one or
more committees of one or more members of the Board of Directors. Subject to the
provisions of the 2004 Plan, the Board of Directors or such committee will have
complete discretion in determining the recipients of, terms and conditions for,
and number of Stock Awards granted under the 2004 Plan. The Board of Directors
intends to delegate administration of the Plan to the Compensation Committee.
INCENTIVE AND NONQUALIFIED STOCK OPTIONS
ISOs granted under the 2004 Plan must be granted with an exercise price
of at least 100% of the fair market value of the common stock on the date of
grant. NSOs must have an exercise price of at least 50% of the fair market value
of the common stock on the date of the grant. Options granted to the Ten Percent
Stockholders (as defined below) of the Company must have an exercise price of at
least 110% of the fair market value of the common stock. Under the 2004 Plan,
"Ten Percent Stockholder" means a person who owns or is deemed to own stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its affiliates.
Options must have a term of ten years or less, except options granted
to ten percent or greater stockholders must have a term of five years or less.
Vesting provisions for options granted under the 2004 Plan may vary but in each
case will provide for the vesting of at least 20% of the total number of shares
subject to the option per year. Upon termination of the option holder's status
as an employee, consultant or director of the Company, the holder may exercise
his or her then vested options for a period after termination determined by the
Board of Directors. The period must be at least three months (if the termination
is not the result of the option holder's death or disability), but will not
extend beyond the expiration date of the option; provided however that all NSOs
will terminate immediately upon the option holder's termination for cause and to
the extent permitted by applicable law all ISOs shall terminate or be converted
to NSOs and then terminate if the option holder's continuous service is
terminated for cause. If the termination is due to the death or disability of
the option holder, the exercise period must be at least one year following death
or disability, but will not extend beyond the expiration date of the option. The
option holder may pay the exercise price for options in cash, or in the
discretion of the Board of Directors, by any of the following methods:
o Delivery of other shares of common stock of the Company.
o According to a preferred payment schedule or other arrangement.
o Surrender of a sufficient number of options which have "built in
gain" equal to the exercise price of the options exercised. Built
in gain means the difference between the fair market value on the
exercise date and the exercise price.
o Any other legal form of payment approved by the Board of
Directors.
Tax rules applicable to ISOs may limit the availability of some of
these payment methods.
Options granted under the 2004 Plan are generally not transferable
except upon death or as otherwise determined by the Board of Directors and set
forth in the applicable option agreement.
The 2004 Plan allows option holders to satisfy tax withholding
obligations relating to the exercise of an option, to the extent permitted by
the option agreement, by paying the withholding tax in cash, by allowing the
Company to withhold shares issuable upon exercise, or by delivering other
unencumbered shares of common stock to the Company.
STOCK BONUSES AND STOCK PURCHASE AWARDS
The 2004 Plan also provides for the granting of stock bonuses and
awards for the purchase of common stock. The Board of Directors or committee
administering the 2004 Plan will establish the terms and conditions of these
grants and purchases, subject to the following conditions.
11
Stock Bonus Awards may be granted in consideration for past services
rendered to the Company or any other form of legal consideration acceptable in
the Board of Directors' discretion. Stock Purchase Awards may be granted in
consideration for cash or any other form of legal consideration acceptable in
the Board of Directors' discretion. In the event of the recipient's termination
of status as an employee, director or consultant to the Company, the Company
shall have the option to repurchase or otherwise reacquire all shares held by
such recipient which have not vested at the date of termination.
FEDERAL INCOME TAX INFORMATION INCENTIVE STOCK OPTIONS
ISOs under the 2004 Plan are intended to be eligible for the favorable
federal income tax treatment accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the
participant or the Company by reason of the grant or exercise of an ISO.
However, the exercise of an ISO may increase the participant's alternative
minimum tax liability.
If a participant holds stock acquired through exercise of an ISO for at
least two years from the date on which the option is granted and at least one
year from the date on which the shares are transferred to the participant upon
exercise of the option, any gain or loss on a disposition of such stock will be
a long-term capital gain or loss if the participant held the stock for more than
one year.
Generally, if the participant disposes of the stock before the
expiration of either of these holding periods (a "disqualifying disposition"),
then at the time of disposition the participant will realize taxable ordinary
income equal to the lesser of (i) the excess of the stock's fair market value on
the date of exercise over the exercise price, or (ii) the participant's actual
gain, if any, on the purchase and sale. The participant's additional gain or any
loss upon the disqualifying disposition will be a capital gain or loss, which
will be long-term or short-term depending on whether the stock was held for more
than one year.
To the extent the participant recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONQUALIFIED STOCK OPTIONS AND STOCK BONUS AWARDS AND STOCK PURCHASE AWARDS
NSOs and Stock Bonus Awards and Stock Purchase Awards granted under the
2004 Plan generally have the following federal income tax consequences.
There are no tax consequences to the participant or the Company by
reason of the grant. Upon acquisition of the stock, the participant normally
will recognize taxable ordinary income equal to the excess, if any, of the
stock's fair market value on the acquisition date over the purchase price.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the participant elects to be taxed on receipt of the stock. With
respect to employees, the Company is generally required to withhold from regular
wages or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
the Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the participant.
Upon disposition of the stock, the participant will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon acquisition (or vesting) of the stock. Such gain or loss will be long-term
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to participants who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Securities
Exchange Act of 1934.
12
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS
Section 162(m) of the Code denies a deduction to any publicly-held
corporation for compensation paid to certain "covered employees" in a taxable
year to the extent that compensation to such covered employee exceeds $1
million. It is possible that compensation attributable to stock awards, when
combined with all other types of compensation received by a covered employee
from the Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with regulations issued under Section 162(m), compensation
attributable to stock options and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which such awards
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant, or (ii) the award
is granted (or exercisable) only upon the achievement (as certified in writing
by the compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the award is approved by stockholders.
Compensation attributable to stock bonuses will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors" and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if (i) the award is granted by a
compensation committee comprised solely of "outside directors," (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
or formula used to calculate the amount payable upon attainment of the
performance goal.)
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
PROPOSAL 4
RATIFY THE SALE AND ISSUANCE OF THE NOTE AND WARRANT TO LAURUS
Pursuant to the Purchase Agreement dated July 12, 2004 between the
Company and Laurus, the Company sold and issued the Note and Warrant to Laurus
for $7,000,000. Under the AMEX rules stockholder approval is required for any
transaction that could result in the issuance a number of shares of common stock
that is greater than 20% of the Company's outstanding common stock at less than
the market price. The shares issuable upon conversion of the Note are priced at
$0.56 (105% of the closing price on July 9, 2003 of $0.53) and the shares
issuable upon exercise of the Warrant have an exercise price of $0.71 (115% of
the 10-day average closing price immediately preceding the transaction).
However, the conversion price under the note is subject to adjustment if the
Company issues additional shares of Common Stock at price below the then
applicable conversion price under the Note, which could result in the issuance
of more than 20% of the outstanding shares of common stock of the Company at a
price below market. The Purchase Agreement provides that if conversion of the
Note would result in the issuance of more than 20% of the outstanding shares of
the common stock of the Company, the Company is required to promptly call a
stockholders meeting to approve such issuance. The Company has determined it is
in the best interests of the Company to have the Purchase Agreement, Note,
Warrant and related agreements approved at the Annual Meeting rather than be
obligated to call a meeting at some unspecified time in the future.
13
The Note matures on September 1, 2004 unless sooner paid or extended in
the sole discretion of Laurus. The Note accrues at a rate per annum (the
"Interest Rate") equal to the "prime rate" published in The Wall Street Journal
from time to time, plus two percent (2.0%). Interest under the Note will be
payable monthly in arrears commencing on August 1, 2004. The Interest Rate will
be calculated on the last day of each month (the "Determination Date") and be
subject to adjustment as follows: (1) if the shares issuable upon conversion of
the Note or exercise of the Warrant have been registered with the SEC under the
Securities Act of 1933, as amended (the "Securities Act") and the market price
of the Company's common stock for the five trading days immediately preceding
the Determination Date exceeds the then applicable conversion price for the Note
by at least 25%, then the Interest Rate for the succeeding calendar month shall
be reduced by 2% for each incremental 25% increase over the then applicable
conversion price and (2) if all of the conditions set forth in subparagraph (1)
have been satisfied except that the shares issuable upon conversion of the Note
or exercise of Warrant have not been registered, then the Interest Rate for the
succeeding calendar month shall be reduced by 1% for each incremental 25%
increase over the then applicable conversion price.
The initial conversion price under the note is $0.56, subject to
adjustment upon the Company's issuance of additional shares of common stock at a
price that is less than the then current fixed conversion price, a stock split
or combination, declaration of a dividend on the Company's common stock or
reclassification of the Company's common stock. The Company has the option to
redeem the Note by paying Laurus 125% of the principal amount due under the Note
together with all accrued and unpaid interest.
The Company's obligations under the Note are secured by all of the
assets of the Company, Page, IP Retail Technologies International, Inc.
(formerly known as IPI Merger Sub II, Inc.) and Sabica Ventures, Inc., all
wholly owned subsidiaries of the Company (collectively referred to herein as,
the "Subsidiaries"). The Company also pledged all of its interests in the
outstanding stock of the subsidiaries as security for its obligations under the
Note.
The Warrant grants Laurus the right to purchase up to 3,750,000 shares
of the Company's common stock at a price of $0.71 per share. The Warrant is
immediately exercisable and expires seven years after the date of grant. The
Company shall have the right to require exercise of the Warrant in whole or in
part if: (1) all of the obligations of the Company under the Note shall have
been irrevocably paid in full, (2) the Common Stock underlying the Warrant has
been registered on a registration statement declared effective by the Securities
Exchange Commission, and such registration statement remains effective, and (3)
the average closing price of the Common Stock for the ten (10) trading days
immediately prior to the proposed date of the mandatory exercise of the Warrant
is greater than three hundred percent (300%) of the then applicable exercise
price.
The Company is obligated to file a registration statement on Form S-3
(or if Form S-3 is not available another appropriate form) (the "Registration
Statement") registering the shares of Company common stock issuable upon
conversion of the Note or exercise of the Warrant (the "Underlying Shares")
pursuant to the Registration Rights Agreement between the Company and Laurus
dated July 12, 2004 (the "Registration Rights Agreement"). The Company is
required to file the registration statement within 60 days of July 12, 2004 (the
"Filing Date") and have the Registration Statement declared effective by the SEC
no later than 90 days after it is filed (the "Effectiveness Date"). If the
Registration Statement is not filed by the Filing Date; declared effective by
the Effectiveness Date, ceases to be effective for more than 30 days in any
calendar year or 10 consecutive calendar days or if the Company's common stock
is not listed or traded or is suspended from trading for three consecutive
trading days, the Company shall be required to pay Laurus liquidated damages
equal to 2% of original principal balance on the Note for each 30 day period
(with partial periods prorated) that such event continues. The Company is
obligated to keep the Registration Statement effective until the earlier of when
(1) all of the Underlying Shares have been sold or (2) such time as all of the
Underlying Shares such can be sold without registration or volume restrictions
under Rule 144(k) of the Securities Act (the "Effectiveness Period"). If there
is not an effective Registration Statement covering the Underlying Shares at any
time during the Effectiveness Period and the Company proposes to file a
registration statement for its own account or the account of others, the Company
will be obligated to include the Underlying Shares on that registration
statement.
Neither Laurus nor any of its respective affiliates, maintains or has
maintained in the past, any affiliation with the Company or its officers,
directors or affiliates.
14
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the sale and issuance of the Note and Warrant to
Laurus pursuant to the Securities Purchase Agreement and documents referenced
therein submitted for stockholder approval. Abstentions will be counted toward
the tabulation of votes cast in proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4
PROPOSAL 5
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
We used Singer Lewak Greenbaum & Goldstein LLP ("Singer Lewak") as our
principal independent public accounting firm during the year ended March 31,
2004. The Audit Committee, with the approval of the Board of Directors, has
selected Singer Lewak as its independent public accountants for fiscal 2005.
This appointment is being presented to the stockholders for ratification.
Although the Company is not required to obtain stockholder ratification of the
appointment of the independent auditors for the Company for the year ended March
31, 2005, the Company has elected to do so in order to provide the stockholders
with an opportunity to participate in this decision. In the event that the
stockholders do not ratify the appointment of Singer Lewak as the independent
auditor of the Company, the Board of Directors will consider the retention of
other independent auditors.
A representative of Singer Lewak is expected to attend the Annual
Meeting for the purpose of responding to appropriate questions from stockholders
and will be afforded an opportunity to make a statement if the representative
desires to do so.
During fiscal years ended March 31, 2004 and 2003, we retained our
principal auditors, Singer Lewak in several capacities. The fees for such
retentions are as follows:
(in thousands):
2004 2003
----------- -----------
Audit fees $ 262 $ 84
Audit-related fees 308 6
Tax fees 31 16
All other fees 9 --
----------- -----------
Total $ 610 $ 106
=========== ===========
AUDIT FEES
Audit Fees represent aggregate fees billed, including out-of-pocket
expenses, associated with the annual audits of our consolidated financial
statements and review of consolidated financial statements included in our Forms
10-Q.
AUDIT-RELATED FEES
Audit-Related Fees represent fees billed, including out-of-pocket
expenses, for services rendered during the fiscal years ended March 31, 2004 and
2003, for assistance with acquisitions and financing transactions and review of
all other documents filed with the Securities and Exchange Commission.
TAX FEES
Tax fees represent amounts billed primarily for tax compliance services
and include assistance with tax audits.
ALL OTHER FEES
All other fees represent the aggregate fees billed for services
rendered by our principal auditors, other than "audit fees," "audit-related
fees," and "tax fees," as defined above.
15
All of the audit and non-audit services listed above under the
categories "Audit Fees," "Audit-Related Fees," "Tax Fees" or "All Other Fees"
were pre-approved by the Audit Committee for the fiscal year ended March 31,
2004. Because pre-approval of audit and permitted non-audit services of the
independent auditor was a new requirement beginning in fiscal year 2004, none of
the non-audit services listed above under the categories "Audit-Related Fees,"
"Tax Fees" or "All Other Fees" were pre-approved by the Audit Committee for the
fiscal year ended March 31, 2003.
POLICY FOR APPROVING AUDIT AND PERMITTED NON-AUDIT SERVICES OF THE INDEPENDENT
AUDITOR
The Audit Committee has established procedures to pre-approve all audit
and permitted non-audit services provided by our independent auditor. These
services may include audit services, audit-related services, certain tax
services and other services. Under our policy, pre-approval is generally
provided for up to one year and any pre-approval is detailed as to the
particular service or category of services and is generally subject to a
specific budget. Although the rules of the SEC permit de minimis exceptions, it
is our policy to pre-approve all audit and permitted non-audit services
performed by our independent auditor. The Audit Committee has delegated
pre-approval authority to the Chairman of the Audit Committee when expedition of
services is necessary and such service has not been previously pre-approved
under our pre-approval policy or when, pursuant to our pre-approval policy,
pre-approval is required on a case-by-case basis. The Chairman is required to
report any such pre-approval decisions to the full Audit Committee at its next
regularly scheduled meeting.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to approve the ratification of the independent public
accountants. Abstentions will be counted towards the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes. Broker non votes are counted towards a quorum, but are not
counted for any other purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table shows beneficial ownership of shares of our common
stock as of June 30, 2004 (except as otherwise stated below) (i) by all persons
known by us to beneficially own more than 5% of such stock, (ii) by each
director, (iii) each of the named executive officers, and (iv) all directors and
executive officers as a group. Except as otherwise specified, the address for
each person is 19800 MacArthur Boulevard, 12th Floor, Irvine, California 92612.
As of June 30, 2004, there were 53,974,532 shares of common stock outstanding.
Each of the named persons has sole voting and investment power with respect to
the shares shown (subject to community property laws), except as stated below.
16
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership Percent Of Class*
---------------------- -------------------- ----------------
The Sage Group plc 28,013,752(2) 38.3%
Sage House
Benton Park Road
Newcastle upon Tyne NE7 7LZ, England
ICM Asset Management, Inc. 2,766,275(3) 5.0%
601 W. Main Ave., Suite 600
Spokane, WA 99201
Omicron Master Trust 7,106,199(4) 11.6%
c/o Omicron Capital L.P.
810 Seventh Avenue, 39th Floor
New York, New York 10019
Midsummer Investments, Ltd. 5,255,937(5) 8.9%
485 Madison Avenue
23rd Floor
New York, NY 10022
Michael Tomczak 3,775,848(6) 6.5%
Ran Furman 37,306(8) <1%
Jeffrey Boone 3,775,848(6) 6.5%
Steven Beck 1,920,754(7) 3.5%
Mike Dotson 37,610(8) <1%
Lawrence Page 1,755,784 3.3%
David S. Joseph 249,649 <1%
Michael Silverman 83,737(9) <1%
345 S. Reeves Drive, #203
Beverly Hills, CA 90212
Donald Radcliffe 9,410,500(10) 1.7%
575 Madison Avenue
New York, NY 10022
Ian Bonner 152,137(8) <1%
5527 Inverrary Court
Dallas, Texas 75287
Ivan M. Epstein 152,082(8) <1%
2 Victoria Eastgate Extension 13
Sandton 2148
South Africa
Robert P. Wilkie 42,777(8) <1%
16 Commerce Crescent
Eastgate Extension 13
Sandton 2148
South Africa
All directors and executive officers as 12,952,032(11) 20.1%
a group (11 persons)
* Percent of shares of common stock beneficially owned by each
investor is based upon 53,974,532 shares of our common stock
outstanding as of June 30, 2004, plus all shares of common
stock issuable to such investor within 60 days of June 30,
2004 pursuant to outstanding options, warrants and preferred
stock.
(1) This table is based on information supplied by officers,
directors and principal stockholders. The inclusion in this
table of such shares does not constitute an admission that the
named stockholder is a direct or indirect beneficial owner of,
or receives the economic benefit of, such shares.
(2) Includes 71,812 shares issuable pursuant to outstanding
options exercisable within 60 days of June 30, 2004 and
19,018,025 shares issuable upon conversion of Series A
Convertible Preferred Stock within 60 days of June 1, 2004,
based on the July 1, 2004 conversion price of $0.87224.
17
(3) In addition to 28,328 shares held by ICM Asset Management
Inc., includes 851,627 shares held by Koyah Leverage Partners,
L.P., 228,197 shares held by Koyah Partners, L.P., and 72,829
shares held by Raven Partners, L.P. Also includes 1,257,925
shares issuable upon exercise of outstanding warrants held by
Koyah Leverage Partners, L.P., 309,784 shares issuable upon
exercise of outstanding warrants held by Koyah Partners, L.P.,
and 12,535 shares issuable upon exercise of outstanding
warrants held by Raven Partners, L.P. Koyah Ventures, LLC is
the general partner of Koyah Leverage Partners, L.P., Koyah
Partners, L.P. and Raven Partners, L.P., and as a result has
shared voting and dispositive power over shares held by all
three entities. Raven Ventures, LLC is an additional general
partner of Raven Partners, L.P. and as a result has shared
voting and dispositive power over shares held by Raven
Partners, L.P. ICM Asset Management, Inc. is the investment
advisor to Koyah Leverage Partners, L.P., Koyah Partners, L.P.
and Raven Partners, L.P., and as a result has shared voting
and dispositive power over shares held by all three entities.
Also includes 5,050 shares held by other clients of ICM Asset
Management, Inc. ICM Asset Management, Inc. has discretionary
authority over these shares held by its other clients and as a
result has shared voting and dispositive power over these
shares. James M. Simmons is the managing member of Koyah
Ventures, LLC and Raven Ventures, LLC and the President and
Chief Investment Officer and the controlling stockholder of
ICM Asset Management, Inc. and as a result has shared voting
and dispositive power over shares held by Koyah Leverage
Partners, L.P., Koyah Partners, L.P., Raven Partners, L.P.,
ICM Asset Management, Inc. and these other clients of ICM
Asset Management, Inc. Each of these entities or persons
disclaims beneficial ownership in these securities except to
the extent of such entity's or person's pecuniary interest in
these securities and disclaims membership in a group with any
other entity or person within the meaning of Rule 13d-5(b)(1)
under the Exchange Act.
(4) Includes 5,708,441 shares issuable pursuant to outstanding
warrants exercisable and 1,325,758 shares issuable upon
conversion of the 9% Debenture within 60 days of June 30,
2004. Omicron Capital, L.P., a Delaware limited partnership
("Omicron Capital"), serves as investment manager to Omicron,
a trust formed under the laws of Bermuda, Omicron Capital,
Inc., a Delaware corporation ("OCI"), serves as general
partner of Omicron Capital, and Winchester Global Trust
Company Limited ("Winchester") serves as the trustee of
Omicron. By reason of such relationships, Omicron Capital and
OCI may be deemed to share dispositive power over the shares
of our common stock owned by Omicron, and Winchester may be
deemed to share voting and dispositive power over the shares
of our common stock owned by Omicron. Omicron Capital, OCI and
Winchester disclaim beneficial ownership of such shares of our
common stock. Omicron Capital has delegated authority from the
board of directors of Winchester regarding the portfolio
management decisions with respect to the shares of common
stock owned by Omicron and, as of April 21, 2003, Mr. Olivier
H. Morali and Mr. Bruce T. Bernstein, officers of OCI, have
delegated authority from the board of directors of OCI
regarding the portfolio management decisions of Omicron
Capital with respect to the shares of common stock owned by
Omicron. By reason of such delegated authority, Messrs. Morali
and Bernstein may be deemed to share dispositive power over
the shares of our common stock owned by Omicron. Messrs.
Morali and Bernstein disclaim beneficial ownership of such
shares of our common stock and neither of such persons has any
legal right to maintain such delegated authority. No other
person has sole or shared voting or dispositive power with
respect to the shares of our common stock owned by Omicron, as
those terms are used for purposes under Regulation 13D-G of
the Exchange Act, Omicron and Winchester are not "affiliates"
of one another, as that term is used for purposes of the
Exchange Act, or of any other person named in this prospectus
as a selling stockholder. No person or "group" (as that term
is used in Section 13(d) of the Exchange Act, or the SEC's
Regulation 13D-G) controls Omicron and Winchester. Omicron's
beneficial ownership is limited to 4.99% pursuant to
limitations in the March 2004 Debentures and warrants sold on
March 15, 2004.
18
(5) Includes 4,308,698 shares issuable pursuant to outstanding
warrants exercisable and 946,970 shares issuable upon
conversion of the 9% Debenture within 60 days of June 30,
2004. Midsummer Capital, LLC is the investment manager to
Midsummer. By virtue of such relationship, Midsummer Capital,
LLC may be deemed to have dispositive power over the shares
owned by Midsummer. Midsummer Capital, LLC disclaims
beneficial ownership of such shares. Mr. Michel Amsalem and
Mr. Scott Kaufman have delegated authority from the members of
Midsummer Capital, LLC with respect to the shares of common
stock owned by Midsummer. Messrs. Amsalem and Kaufman may be
deemed to share dispositive power over the shares of our
common stock owned by Midsummer. Messrs. Amsalem and Kaufman
disclaim beneficial ownership of such shares of our common
stock and neither person has any legal right to maintain such
delegated authority. Midsummer's beneficial ownership is
limited to 4.99% pursuant to limitations in the March 2004
Debentures and warrants sold on March 15, 2004.
(6) Consist of shares issuable upon conversion of Series B
Convertible Preferred Stock within 60 days of June 30. 2004.
(7) Includes 1,620,754 shares of common stock issuable pursuant to
outstanding options exercisable within 60 days of June 30,
2004.
(8) Consists of outstanding options exercisable within 60 days of
June 30, 2004.
(9) Includes 46,110 shares of common stock issuable pursuant to
outstanding options exercisable within 60 days of June 30,
2004.
(10) Includes 541,000 options pursuant to outstanding options
exercisable within 60 days of June 30, 2004. Also includes
14,100 shares held by an entity for which Mr. Radcliffe has
sole voting and investment power. Also includes an aggregate
of 82,100 shares held by three entities for which Mr.
Radcliffe has shared voting and investment power. Excludes
124,500 shares held by Mr. Radcliffe's spouse, for which Mr.
Radcliffe disclaims beneficial ownership.
(11) Includes 3,170,776 shares of common stock issuable pursuant to
outstanding options exercisable and 7,551,696 shares of common
stock issuable upon conversion of Series B Convertible
Preferred Stock within 60 days of June 30, 2004.
CHANGE OF CONTROL
On November 14, 2003, The Sage Group Plc (the "Sage Group"), a company
organized under the laws of England, acquired substantially all the assets of
Softline Limited ("Softline"), including Softline's 141,000 shares of our Series
A Preferred, 8,923,915 shares of our common stock and 71,812 shares of our
common stock issuable on the exercise of options previously held by Softline. As
a result the Sage Group became the beneficial owner of 41.9% of our outstanding
common stock as of November 14, 2003 and remains the beneficial owner of 38.3%
of our common stock as of June 30, 2004. The total amount of consideration used
by the Sage Group to acquire its interest in our shares was ZAR 174,889,027
(equivalent to $26,818,946 based on an exchange rate of 0.14854 on November 14,
2003). All of the funds used for consideration were from the Sage Group's
working capital.
COMPLIANCE WITH SECTION 16(A) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires our officers, directors and persons who own more than
10% of a class of our securities registered under Section 12 of the Exchange Act
to file reports of ownership and changes in ownership with the SEC and the
National Association of Securities Dealers. Officers, directors and greater than
10% stockholders are required by SEC regulations to furnish us with copies of
all Section 16(a) forms they file.
Based solely on a review of copies of such reports furnished to us and
written representations that no Form 5 report was required for the fiscal year
ended March 31, 2004, we believe that all persons subject to the reporting
requirements of Section 16(a) complied with Section 16(a) during the fiscal year
ended March 31, 2004, except as follows: David Joseph was late in filing his
initial Form 3 report; Ivan Epstein and Robert Wilkie, each of whom were late in
filing Form 4 reports reporting two grants of options; Ian Bonner was late in
filing Form 4 reports reporting three option grants, exercises of two options
and the sale of 30,000 shares; Michael Silverman was late in filing Form 4
reports reporting three option grants and shares gifted; Donald Radcliffe was
late in filing Form 4 reports reporting two option grants and exercise of an
option; and Michael Lenaghan and George Brocco, our former officers, were late
in filing Form 4 reports reporting two option grants to each.
19
EXECUTIVE OFFICERS
The executive officers of the Company, the positions held by them and
their ages as of June 1 2004 are as follows:
NAME AGE POSITION
---- --- --------
Michael Tomczak 49 President, Chief Operating Officer
and Director
Jeffrey Boone 40 Chief Technology Officer Director
Ran H. Furman 35 Chief Financial Officer and Secretary
Steven Beck 63 Executive Vice President - Product
Visionary and Director
Lawrence Page 49 Executive Vice President - Special
Projects and Director
David Joseph 55 Senior Vice President, Sales and Marketing
Mike Dotson 37 Managing Director - Euopean Operations
Michael Tomczak became our President, Chief Operating Officer and
director in June 2004 after our acquisition of RTI. Mr. Tomczak served as RTI's
CEO and President since December 2002 and its CFO for the previous two years.
Mr. Tomczak has been an executive with high-growth firms for the past twelve
years including having served as Chief Financial Officer of a publicly traded
technology company. Previously, Mr. Tomczak served as head director of Ernst &
Young's Sacramento office's Entrepreneurial Services Group. Mr. Tomczak holds a
Bachelor of Science degree in business administration from Western Michigan
University and is a Certified Public Accountant in both California and Michigan.
Jeffrey Boone became the Chief Technology Officer of Island Pacific in
June 2004, following the acquisition of RTI. Mr. Boone served as Chief
Technology Officer of RTI since 2001. Previously, Mr. Boone served as VP of
Products and Technology and later CIO for Objective Systems Integrators ("OSI"),
before its acquisition by Agilent Technologies, where he directed product
development and information services. Before joining OSI, he held key technical
positions with Systems Center and IBM. Mr. Boone received his Bachelor of
Science degree in computer science from California State University, Sacramento.
Ran Furman joined Island Pacific in July 2003 from e.Digital
Corporation where he served as Chief Financial Officer since 2001. Prior to
that, he was a Managing Director at DP Securities, Inc. He was also a Senior
Vice President at Jesup & Lamont Securities between 1995 and 2000, and
previously held positions at Bank of Montreal/Nesbitt Burns and Deloitte &
Touche. He was awarded a Bachelor of Arts from the University of Washington and
an M.B.A. from Columbia Business School.
Steven Beck served as a director from April 2003 until July 2004. Mr.
Beck currently serves as Executive Vice President - Product Visionary. He served
as President from April 2003 to June 2004 and as Chief Operating Officer from
April 2003 to February 2004. He had been President and Chief Operating Officer
of our Retail Management Solutions division (formerly our Island Pacific
division) from September 2002 to March 2003. Since January 2002, he had served
as an independent consultant to various retailers. From March 1998 until January
2002, he was co-founder and Chief Operating Officer of Planalytics, the foremost
provider of past and future weather analytics to the retail industry, the
inventor of ARTHUR (a trademark of JDA), the most widely installed Merchandise
Planning System for retailers, an officer of The Limited, and President of
Dennison TRG. Mr. Beck received a B.A. from Adelphi University.
Lawrence Page became a director in March 2004 after our acquisition of
Page. Mr. Page currently serves as Executive Vice President - Special Projects.
He served as Chief Technology Officer from January 2004 to June 2004 and as
Chief Operating Officer from February 2004 to June 2004. He is the former Chief
Executive Officer and Chairman of the board of Page, which he founded in 1980.
Mr. Page has over 25 years of direct commerce experience. Mr. Page attended the
California Institute of Technology for three years, when he departed to pursue
his business interests in the software industry.
David S. Joseph became Senior Vice President of Sales and Marketing in
January 2004 after our acquisition of Page. He is the former Executive Vice
President and director of Page. Prior to joining Page he served as senior Vice
President of Sales at Computer Systems Dynamics, a software solution provider to
the retail lumber and building materials industry, which he joined in 1980. At
Page, Mr. Joseph was responsible for establishing markets for new products
through sales to major accounts such as IBM, Lands' End, FAO Schwarz and Hershey
Foods. He received a B.A. in English from Michigan State University and has
completed graduate level coursework in Computer Science.
20
Mike Dotson became Managing Director of our United Kingdom Operations
in April 2001. Prior to that appointment, Mr. Dotson held various positions with
Island Pacific's United Kingdom office since January 1998. Mr. Dotson received a
B.A. in Political Science and Economy from University of California at Irvine in
May 1988.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth summary information concerning the
compensation for the last three fiscal years received by each person who served
as Chief Executive Officer during the last completed fiscal year, the four other
most highly compensated persons serving as executive officers at the end of the
last completed fiscal year who earned more than $100,000 in salary and bonus in
the last completed fiscal year, and two other persons who were executive
officers during the last completed fiscal year and earned more than $100,000 in
salary and bonus but were not executive officers at the end of the last
completed fiscal year. These individuals are referred to as the "named executive
officers."
Long Term
Annual Compensation Compensation
------------------- ------------
Name and Other Annual Securities Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation($) Options/SARs Compensation($)(1)
------------------ ---- --------- -------- --------------- ------------ ------------------
Harvey Braun (2) 2004 598,000 -- -- -- --
(Former Chief 2003 163,000 -- -- 2,000,000 --
Executive Officer)
Steven Beck (3) 2004 651,000 -- -- -- --
(Executive Vice 2003 379,431 -- -- 2,000,000 --
President - Product
Visionary)
Ran Furman (4) 2004 100,000 -- -- 100,000 --
(Chief Financial
Officer and Secretary)
Kavindra Malik (5) 2004 212,000 -- -- 20,000 --
(Executive Vice 2003 41,000 11,000 -- 75,000 --
President)
Mike Dotson 2004 170,000 -- -- -- 7,000
(Vice President) 2003 154,000 -- -- -- 6,000
2002 143,000 -- -- 25,000 5,000
Cheryl Valencia (6) 2004 121,000 -- -- -- --
(Former Vice 2003 69,000 17,000 -- 40,000 --
President)
George Brocco (7) 2004 169,000 -- -- 50,000 00
(Former Vice
President)
---------
(1) We also provide certain compensatory benefits and other non-cash
compensation to the named executive officers. Except as set forth
above, our incremental cost of all such benefits and other
compensation paid in the years indicated to each such person was less
than 10% of his or her reported compensation and also less than
$50,000.
(2) Mr. Braun was employed with us from January 2003 to May 2004.
(3) Mr. Beck began his employment with us in October 2002.
(4) Mr. Furman began his employment with us in August 2003.
(5) Mr. Malik began his employment with us in January 2002.
(6) Ms. Valencia was employed with us from September 2002 to November
2003.
(7) Mr. Brocco was employed with us from May 2003 to May 2004.
21
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth the information concerning individual
grants of stock options during the last fiscal year to the named executive
officers.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM($)
------------------------------------------------------------------------ -----------------------
DATE OF OPTIONS EXERCISE OR BASE EXPIRATION
NAME GRANT GRANTED (#) % OF TOTAL PRICE ($/SH.) DATE 5% 10%
---- ----- ----------- ---------- ------------- ---- -- ---
Ran Furman 08/04/03 94,041(1) 7.02% 3.19 08/04/13 189,000 478,000
Ran Furman 08/04/03 5,959(2) 0.44% 3.19 08/04/13 12,000 30,000
Kavindra Malik 05/01/03 20,000(1) 1.49% 0.98 05/01/13 12,000 31,000
George Brocco 05/16/03 40,000(1) 2.99% 1.12 05/16/13 28,000 71,000
George Brocco 06/10/03 10,000(1) 0.75% 2.17 06/10/13 14,000 35,000
(1) Options vest as to one-third of the shares on the first anniversary of
the grant and the remaining two-thirds of the shares in 24 equal
monthly installments after the first vesting date, subject to
continuing service.
(2) Options granted outside of the plan and vest on the first anniversary
of the grant, subject to continuing service.
The potential realizable value is calculated based on the term of the
option at its time of grant and the number of shares underlying the grant at
fiscal year end. It is calculated based on assumed annualized rates of total
price appreciation from the market price at the date of grant of 5% and 10%
(compounded annually) over the full term of the grant with appreciation
determined as of the expiration date. The 5% and 10% assumed rates of
appreciation are mandated by SEC rules and do not represent our estimate or
projections of future common stock prices. Actual gains, if any, on stock option
exercises are dependent on the future performance of the common stock and
overall stock market conditions. The amounts reflected in the table may not be
achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth the information concerning the fiscal
year end value of unexercised options held by the named executive officers. None
of the named executive officers exercised options during the last fiscal year.
FISCAL YEAR END OPTION VALUE
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FY END (#) VALUE OF UNEXPECTED IN-THE-MONEY OPTIONS
NAME EXERCISABLE/UNEXERCISABLE AT FY END EXERCISABLE/UNEXERCISABLE (1)
---- ------------------------- ---------------------------------------
Harvey Braun 2,000,000/-- 1,460,000/--
Steven Beck 1,620,754/-- 1,183,000/--
Ran Furman --/100,000 --/--
Kavindra Malik 29,167/65,833 8,000/14,000
Mike Dotson 34,138/5,862 6,000/2,000
George Brocco --/50,000 --/--
(1) Based upon the market price of $1.01 per share, determined on the basis
of the closing sale price per share of our common stock on the American
Stock Exchange on the last trading day of the 2004 fiscal year, less
the option exercise price payable per share.
22
LONG-TERM INCENTIVE PLANS
The Company does not have any long-term incentive plans, as those terms
are defined in SEC regulations. During the fiscal year ended March 31, 2004, the
Company did not adjust or amend the exercise price of stock options awarded to
the named executive officers. The Company has no defined benefit or actuarial
plans covering any named executive officer.
STOCK INCENTIVE PLAN
The Company has two stock incentive plans. Our Incentive Stock Option
Plan ("1989 Plan") terminated in October 1999. It provided for issuance of
incentive stock options to purchase up to 1,500,000 shares of common stock to
employees. 438,735 of such shares remain subject to option as of June 1, 2004.
The 1989 Plan was administered by the Board of Directors, which established the
terms and conditions of each option grant.
The 1998 Plan authorized the issuance of shares of common stock through
incentive stock options, non-statutory options, stock bonuses, stock
appreciation rights and stock purchase agreements. The 1998 Plan was amended in
August 2000 to increase the number of shares reserved for issuance from
3,500,000 to 4,000,000. The August 2000 amendments authorized a further
automatic annual increase in reserved shares to take place on the first trading
day of each fiscal year. The amount of the automatic annual increase was 2% of
the total number of shares of common stock outstanding on the last trading day
of the immediately prior fiscal year. The automatic annual increase cannot
however be more than 600,000 shares, and the Board of Directors may in its
discretion provide for a lesser increase. The 1998 Plan was further amended in
August 2002 to increase the number of shares reserved for issuance from
4,600,000 to 5,600,000. The August 2000 amendment also implemented a limit on
stock awards to any one person in excess of 500,000 shares in any calendar year,
which limit was increased to 1,000,000 shares in August 2002. Our stockholders
approved the August 2000 amendment at our annual meeting held November 16, 2000
and the August 2002 amendment at our annual meeting held September 19, 2002. On
April 1, 2003 and April 1, 2004, the automatic increase of 600,000 shares was
effected, so that the total number of shares reserved under the 1998 Plan was
7,365,872. The 1998 Plan was suspended with respect to the issuance of any
further options effective as of July 12, 2004. The exercise price of options is
determined by the Board of Directors, but the exercise price may not be less
than 100% of the fair market value on the date of the grant, in the case of
incentive stock options, or 85% of the fair market value on the date of the
grant, in the case of non-statutory stock options.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Both the 1989 Plan and the 1998 Plan have been approved by our
stockholders. In addition, from time to time we issue non-employee options and
warrants to service providers to purchase shares of our common stock, and these
grants have not been approved by our stockholders. The following table sets
forth information as of March 31, 2004 concerning securities that are authorized
under our equity compensation plans.
(a) (b) (c)
Number of
securities
remaining
available for
Number of future issuance
securities to Weighted- under equity
be issued upon average compensation
exercise of exercise price plans
outstanding of outstanding (excluding
options, options, securities
warrants and warrants and reflected in
Plan Category rights rights column (a))
------------------------------------------ -------------- -------------- --------------
Equity compensation plans approved by
security holders 4,788,942 $1.70 2,336,826
Equity compensation plans not approved by
security holders 18,382,245 $2.80 --
-------------- -------------- --------------
Total 23,171,187 $2.57 2,336,826
============== ============== ==============
23
(1) Does not include an automatic increase of 600,000 shares available for
issuance under the 1998 Plan on April 1, 2004, after which we had 2,936,826
shares available for grant under our 1998 Plan or the suspension of the 1998
Plan on July 12, 2004.
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Lawrence Page on January
30, 2004. The term of the agreement is two years. Under the agreement, Mr. Page
is entitled to $190,000 in annual compensation and was granted an option to
purchase 200,000 shares of our common stock. Mr. Page's right to purchase 66,666
of the shares subject to the option shall vest on the first anniversary date of
the agreement, thereafter, the option shall vest at the rate of 5,556 shares per
month during the second year of this agreement. The remaining unvested option
shares shall either: (i) vest at the second anniversary date of this agreement,
or (ii) vest at the rate of 5,556 shares per month if Mr. Page continues to be
our employee after the second anniversary date of this agreement in accordance
with and subject the 1998 Plan. If Mr. Page's employment with us is terminated
without cause during the term of the agreement, he will receive severance in the
amount of the greater of $190,000 or the balance of his base compensation for
the remaining term of the agreement. We also entered a non-competition agreement
with Mr. Page, pursuant to which Mr. Page agreed not to engage in any business
or activity that in any way competes with us for a period of two years after the
termination of his employment with us.
We entered into an employment agreement with David S. Joseph on January
30, 2004. The term of the agreement is two years. Under the agreement, Mr.
Joseph is entitled to $170,000 in annual compensation. He also received an
option to purchase 150,000 shares of our common stock. Mr. Joseph's right to
purchase 50,000 of the shares subject to the option shall vest at the first
anniversary date of this agreement, thereafter, the option shall vest at the
rate of 4,166 shares per month during the second year of this agreement. The
remaining unvested options shall either: (i) vest at the second anniversary date
of this agreement, or (ii) vest at the rate of 4,166 shares per month if Mr.
Joseph continues to be employed by us after the second anniversary date of this
agreement, all in accordance with and subject the 1998 Plan. If Mr. Joseph's
employment with us is terminated without cause during the term of the agreement,
he will receive severance in the amount of the greater of $170,000 or the
balance of his compensation payable over the remaining term of the agreement.
We entered into an employment agreement with Michael Tomczak on June 1,
2004. The term of the agreement is two years. Under the agreement, Mr. Tomczak
is entitled to $360,000 in annual compensation. He also received an option to
purchase 1,772,354 shares of our common stock. Mr. Tomczak's right to purchase
886,178 of the shares subject to the option shall vest at the first anniversary
date of this agreement, thereafter, the remaining option shall vest at the rate
of 73,848 shares per month during the second year of this agreement. If Mr.
Tomczak's employment with us is terminated without cause during the term of the
agreement, he will receive severance in the amount of the lesser of $360,000 or
the balance of compensation payable over the remaining term of the agreement,
but in no event should the amount be less than $180,000. We also entered into a
non-competition agreement with Mr. Tomczak, pursuant to which Mr. Tomczak agreed
not to engage in any business or activity that in any way competes with us for a
period of two years after the termination of his employment with us.
We entered into an employment agreement with Jeffrey Boone on June 1,
2004. The term of the agreement is two years. Under the agreement, Mr. Boone is
entitled to $240,000 in annual compensation. He also received an option to
purchase 1,572,354 shares of our common stock. Mr. Boone's right to purchase
786,179 of the shares subject to the option shall vest at the first anniversary
date of this agreement, thereafter, the remaining option shall vest at the rate
of 65,514 shares per month during the second year of this agreement. If Mr.
Boone's employment with us is terminated without cause during the term of the
agreement, he will receive severance in the amount of the lesser of $240,000 or
the balance of his compensation payable over the remaining term of the
agreement, but in no event should the amount be less than $120,000. We also
entered into a non-competition agreement with Mr. Boone, pursuant to which Mr.
Boone agreed not to engage in any business or activity that in any way competes
with us for a period of two years after the termination of his employment with
us.
24
We entered into an employment agreement with Barry M. Schechter
effective October 1, 2000. Under the employment agreement, Mr. Schechter had the
right to annual compensation of $325,000 for the first year of the agreement,
$350,000 for the second year of the agreement and $375,000 for the third year of
the agreement. In addition, Mr. Schechter was entitled to receive on each
anniversary of the date of the agreement, an option to purchase the number of
shares of common stock determined by dividing 150% of his base compensation for
the prior year by the closing price of our common stock on the anniversary date.
The agreement stated that options will be fully vested when issued and
exercisable for ten years after the date of the grant. This agreement was
terminated in July 2003 upon Mr. Schechter's resignation from the position of
Chairman of the Board. Mr. Schechter remains as a consultant to us. The expense
for Mr. Schechter's consulting services was $295,000 in the fiscal year ended
March 31, 2004.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION (1)
It is the duty of the Compensation Committee to review and determine
the salaries and bonuses of executive officers of the Company, including the
Chief Executive Officer, and to establish general compensation policies for such
individuals. The Compensation Committee was formed in April 1998. During the
2004 fiscal year, the Compensation Committee consisted of Ian Bonner and Michael
Silverman.
The primary compensation philosophy of the Company is to offer
competitive compensation packages that reflect the technical requirements of the
enterprise software business sector and reward employees for their direct
contribution to the Company's overall financial performance and growth during
the previous fiscal year.
The Company measures individual and group performance on the basis of
both qualitative and quantitative factors. The Company believes that the general
components of compensation should include a competitive base salary, performance
based bonuses where applicable and stock option grants tied to specific and
group performance.
EXECUTIVE COMPENSATION:
Base salaries are intended to be competitive with the enterprise
software market and include an internal evaluation of the responsibilities of
each position. Salaries for executive officers are reviewed annually. This
annual review includes a detailed review of all compensation elements in
relationship to the competitive market for similar executives, the Company's
historic financial performance and growth and the executive's direct
contribution to this performance. Other matters considered include any changes
in responsibility or any exceptional contribution.
The compensation policies for executives are designed to align salaries
and bonus compensation to the individual's performance in the short term and to
emphasize compensation from equity, primarily employee stock options, for
long-term incentives.
The Company's long-term incentive program consists solely of stock
option programs under which all executives and other employees are periodically
granted options to purchase common stock at the fair market value on the date of
the grant. The option programs are designed to provide employees with
significant compensation based on overall Company performance as reflected in
the stock price. Options are typically issued with ten-year lives and a
three-year vesting schedule to create an incentive for long-term employment.
Options are typically granted at the time of hire for new key employees and at
the time of promotion for certain employees.
25
CHIEF EXECUTIVE OFFICER COMPENSATION:
Compensation payments in excess of $1 million to each of the Chief
Executive Officer or four other most highly compensated executive officers are
subject to a limitation on deductibility for the Company under Section 162(m) of
the Internal Revenue Code. Certain performance-based compensation is not subject
to the limitation on deductibility. Cash compensation for the fiscal year ended
March 31, 2004 to the Chief Executive Officer and the four other most highly
compensated executive officers was below $1 million. The Company has issued
stock options to its Chief Executive Officer and certain other of its most
highly compensated executive officers. Prior to January 30, 2004, options
granted to these persons did not qualify as performance-based compensation. To
the extent these options are non-qualified stock options, or to the extent any
of these executive officers makes a disqualifying disposition of an incentive
stock option, the amount of the deduction which the Company will be entitled may
be limited to the extent the ordinary income recognized by the executive
together with all other compensation in a given year exceeds the $1 million
limitation in Section 162(m).
COMPENSATION COMMITTEE
Ian Bonner
Michael Silverman
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC and is not to be incorporated by reference in any filing of
the Company under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ian Bonner and Michael Silverman served as the members of the
Compensation Committee during the fiscal year ended March 31, 2004. No member of
the Company's Compensation Committee during the last completed fiscal year has
ever been an officer of the Company or any of its subsidiaries. During the last
completed fiscal year, no executive officer of the Company served as a member of
a compensation committee or board of directors of any entity that had one or
more of its executive officers serving as a member of the Company's Compensation
Committee.
REPORT OF THE AUDIT COMMITTEE (1)
The Audit Committee operates pursuant to a written charter, which has
been approved and adopted by the Board of Directors. During the fiscal year
ended March 31, 2004 and as of the date of the adoption of this report, the
Audit Committee was comprised of two directors, all of whom met the independence
and experience requirements of Section 121(A) of the current AMEX listing
standards. The Company is currently looking for two additional independent
directors, one of whom will be appointed to the audit committee.
The Audit Committee oversees the Company's financial reporting process
on behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the financial reporting process, including the
systems of internal controls. In fulfilling its oversight responsibilities, the
Audit Committee reviewed and discussed with management the audited financial
statements for the fiscal year ended March 31, 2004, including a discussion of
the acceptability and quality of the accounting principles, the reasonableness
of significant accounting judgments and critical accounting policies and
estimates, and the clarity of disclosures in the financial statements.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the acceptability and quality of the Company's accounting
principles and such other matters as are required to be discussed with the Audit
Committee under generally accepted auditing standards, including those matters
required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES. In addition, the Audit Committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and has discussed those disclosures and other
matters relating to independence with the auditors.
26
The Audit Committee discussed with the Company's independent auditors
the overall scope and plans for their respective audits. The Audit Committee
meets with the independent auditors, with and without management present, to
discuss the results of their examinations of the Company's internal controls,
and the overall quality of the Company's financial reporting. The decision to
engage the Company's current independent auditors was recommended by the Audit
Committee and approved by the Board of Directors.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Company's Board of Directors that the Company's
audited financial statements be included in the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 2004.
AUDIT COMMITTEE
Michael Silverman
Ian Bonner
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC and is not to be incorporated by reference in any filing of
the Company under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
STOCK PERFORMANCE GRAPH (1)
The following graph shows a comparison of total stockholder return of
an investment of $100 cash from March 31, 2000 through March 31, 2004 for (i)
the Company's common stock, (ii) the Morgan Stanley High Tech Index , and (iii)
the Russell 2000 Index.
All values assume reinvestment of the full amount of all dividends. No
cash dividends have been declared on the Company's common stock. Stockholder
returns over the indicated period should not be considered indicative of future
stockholder returns.
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR PAST FIVE FISCAL YEARS OF
ISLAND PACIFIC, INC.
TO MORGAN STANLEY HIGH TECH INDEX,
AND RUSSELL 2000 INDEX
9/30/1999 3/31/2000 3/31/2001 3/31/2002 3/30/2003 3/28/2004
--------- --------- --------- --------- --------- ---------
IPI $100.00 $71.18 $7.42 $4.83 $7.56 $0.00
Russell 2000 $100.00 $378.98 $322.10 $362.08 $260.62 $422.03
Morgan Stanley High Tech Index $100.00 $185.20 $189.80 $604.77 $296.98 $274.85
Russell 2000 $100.00 $105.92 $87.62 $118.79 $99.28 $111.60
IPI $13.88 $9.88 $1.03 $0.67 $1.05
Ticker: IPI 0.00% -28.82% -92.58% -95.17% -92.44% -100.00%
[graph of data above here]
CUMULATIVE TOTAL RETURN
3/31/99 3/31/00 3/31/01 3/31/02 3/30/03 3/31/04
------- ------- ------- ------- ------- -------
IPI $13.88 $9.88 $1.03 $.67 $1.05 $1.01
Russell 2000 $397.63 $539.09 $450.53 $506.46 $364.54 $590.31
Morgan Stanley High Tech Index $510.23 $1061.99 $524.28 $454.81 $287.47 $486.80
Russell 2000
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether
made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions since April 1, 2003 to
which we have been a party, in which any director, executive officer or holder
of more than 5% of our common stock had or will have a direct or indirect
interest, other than compensation arrangements with our directors and named
executive officers described above under "Executive Compensation." Certain of
these transactions will continue in effect and may result in conflicts of
interest between the Company and such individuals. Although these persons may
owe fiduciary duties to our stockholders, there is a risk that such conflicts of
interest may not be resolved in our favor.
In May and June 2001, we issued a total of $1.25 million in convertible
notes to a limited number of accredited investors related to ICM. The notes were
originally due August 30, 2001, and required interest at the rate of 12% per
annum to be paid until maturity, with the interest rate increasing to 17% in the
event of a default in payment of principal or interest. Any portion of the
unpaid amount of principal and interest was convertible at any time by the
investors into shares of common stock valued at $1.35 per share. We also agreed
to issue to the investors three-year warrants to purchase 250 common shares for
each $1,000 in notes purchased, at an exercise price of $1.50 per share.
In July 2002, the terms of the notes issued to the investors related to
ICM were amended. The investors agreed to replace the existing notes with new
notes having a maturity date of September 30, 2003. The interest rate on the new
notes was reduced to 8% per annum, increasing to 13% in the event of a default
in payment of principal or interest. We are required to pay accrued interest on
the new notes calculated from July 19, 2002, in quarterly installments beginning
September 30, 2002. In December 2002, the investors agreed to extend the accrued
interest payments on the new notes to September 30, 2003. The investors agreed
to reduce accrued interest and late charges on the original notes by $16,000,
and to accept the reduced amount in 527,286 shares of our common stock valued at
$0.41 per share, which was the average closing price of our shares on the
American Stock Exchange for the ten trading days prior to July 19, 2002. The new
notes were convertible at the option of the holders into shares of common stock
valued at $0.60 per share. In September 2003, the investors converted the
outstanding balance and accrued interest totaling $1.4 million into 2,287,653
shares of our common stock.
In July 2002, we also replaced the warrants previously issued to the
investors related to ICM to purchase an aggregate of 3,033,085 shares at
exercise prices ranging from $0.85 to $1.50, and expiring on various dates
between December 2002 and June 2004, with new warrants to purchase an aggregate
of 1,600,000 shares at $0.60 per share, expiring July 19, 2007. The replacement
warrants are not callable by us. No warrants have been exercised as of June 1,
2004.
Effective April 1, 2003, we sold our wholly-owned Training Products
subsidiary to its president, Arthur Klitofsky, for the sale price of $180,000
plus earn-out payments equal to 20% of the total gross revenues of Training
Products in each of its next two fiscal years, to the extent the revenues in
each of those years exceed certain targets. We received a promissory note for
the amount of $180,000 and the earn-out payments, if any, will be made in
quarterly installments following each fiscal year, bearing an annual interest
rate of 5%. In April 2004, we agreed to defer the payments due in January 2004
and April 2004 until April 2008. The balance of the note receivable was $153,000
as of July 1 ,2004.
In June 2003, we entered into a development and marketing license
agreement with 5R Online, Inc., a software and services company affiliated with
John Frabasile and Randy Pagnotta, two former officers (the "Former Officers").
Under this agreement, we obtain an exclusive right to sell and distribute this
company's software. In return, we committed to fund $1.2 million toward
development of this product. We also agreed to pay a royalty of 30% of the
software license sales up until we have recuperated all the development funding,
at which point the royalty will increase to 50% thereafter. We paid $640,000
toward this development but received no product. In April 2004, we filed a
federal court action against 5R Online, Inc. and the Former Officers.
On June 27, 2003, we sold an aggregate of 5,275,000 shares of common
stock at a $1.50 per share to various institutional investors in a private
placement transaction for an aggregate purchase price of $7.9 million (the "June
27, 2003 PIPE Transaction"). On November 7, 2003, we sold an aggregate of
3,180,645 shares of common stock at a price of $1.55 per share to various
institutional investors in a private placement transaction for an aggregate
purchase price of $4.9 million (the "November 7, 2003 PIPE Transaction" and
together with the June 27, 2003 PIPE Transaction, the "PIPE Transactions").
28
On November 14, 2003, the Sage Group acquired substantially all the
assets of Softline, who was our majority shareholder from October 1997 through
November 2003, including 141,000 shares of our Series A Convertible Preferred
Stock, 8,923,915 shares of our common stock and options exercisable for 71,812
shares of our common stock. As a result of this transaction the Sage Group
became the beneficial owner of 41.7% of our outstanding common stock as of
November 14, 2003 and remains the beneficial owner of 38.2% of our outstanding
common stock as of March 31, 2004. On September 17, 2003, an aggregate of
500,000 shares of common stock, consisting of accrued dividends on the Series A
Convertible Preferred Stock, were issued to institutional investors. Cumulative
preferred dividends were $2.2 million as of June 1, 2004.
The Sage Group was also assigned and assumed certain agreements of
Softline, including the rights and obligations respecting and arising from the
Option Agreement between Softline and Steven Beck, as trustee of a certain
management group of the Company. Under the Option Agreement the Optionees had
the right to purchase up to 8,000,000 shares of common stock of the Company and
such number of shares of Series A Convertible Preferred Stock convertible into
17,125,000 shares of common stock of the Company. The right to exercise the
Option was to be distributed as determined by the Company's Board of Directors
to the Optionees, who may have included Mr. Beck and other members of the
Company's management, as an incentive to continue service for the Company. The
option expired, unexercised, on March 24, 2004.
On January 30, 2004, we acquired Page for a total consideration of $7.0
million, consisting of $2.0 million in cash and 2,500,000 shares of our common
shares valued at $2.00. Upon the consummation of this transaction Lawrence Page
and David S. Joseph became executive officers of Island Pacific. Mr. Page
received a total consideration of $1.4 million and 1,755,784 shares of our
common stock in connection with the acquisition. Mr. Joseph received a total
consideration of $200,000 and 249,649 shares of our common stock in connection
with the acquisition. We also entered two year employment agreements with both
Mr. Page and Mr. Joseph. For a further description of the terms of these
employment agreements see "Employment Agreements" above.
During fiscal year 2004, we retained an entity owned by an immediate
family member of our former CEO to provide recruiting and marketing services.
The expense for this service was $138,000 in the fiscal year ended March 31,
2004.
We retained Radcliffe & Associates, an entity affiliated with Donald S.
Radcliffe, a director, to perform financial advisory services. During fiscal
year 2004, we incurred $22,000 in fees and costs to Radcliffe & Associates. We
also incurred $6,000 in expenses to this director for accounting services.
On March 15, 2004, we sold Omicron and Midsummer the March 2004
Debentures for an aggregate price of $3.0 million pursuant to a securities
purchase agreement (the "Purchase Agreement"). The March 2004 Debentures bear an
interest rate of 9% per annum, and provide for interest only payments on a
quarterly basis, payable, at our option, in cash or shares of our common stock.
The March 2004 Debentures mature on May 15, 2006. The March 2004 Debentures are
convertible into shares of our common stock at a conversion price of $1.32 per
share, subject to adjustment if we offer or sell any securities for an effective
per share price that is less than 87% of the then current conversion price,
negatively restate any of our financial statements or make any public disclosure
that negatively revises or supplements any prior disclosure regarding a material
transaction consummated prior to March 15, 2004 or trigger other customary
anti-dilution protections. If certain conditions are met, we have the option to
redeem the 9% Debentures at 110% of their face value, plus accrued but unpaid
interest.
We must redeem the March 2004 Debentures at the initial monthly amount
of $233,333 commencing on February 1, 2005. If the daily volume weighted average
price of our common stock on the American Stock Exchange exceeds $1.15 by more
than 200% for 15 consecutive trading days, we have the option to cause the
Purchasers to convert the then outstanding principal amount of the March 2004
Debentures into our common stock at the conversion price then in effect.
29
We also issued the Purchasers two warrants as follows: (1) Series A
Warrants to purchase up to an aggregate of 1,043,479 shares of our common stock
at an exercise price of $1.15 per share with a five-year term , exercisable at
anytime after September 16, 2004, subject to adjustment if we offer or sell any
securities for an effective per share price that is less than the then current
exercise price, negatively restate any of our financial statements or make any
public disclosure that negatively revises or supplements any prior disclosure
regarding a material transaction consummated prior to March 15, 2004 or trigger
other customary anti-dilution protections and (2) Series B Warrants to purchase
up to 8,500,000 shares of our common stock with an exercise price of $5 per
share, these warrants are immediately exercisable and expire on the earlier of
the six-month anniversary of the effective date of the registration statement
that is required to be filed or 18 months from March 15, 2004, subject to
adjustment upon the issuance or sale of securities in a public offering for an
effective per share price that is less than the then-current exercise price and
upon the trigger of other customary anti-dilution protections.
We previously sold the March 2003 Debentures to Omicron, Midsummer and
Islandia, L.P. ("Islandia") on March 31, 2003, MBSJ Investors, LLC on April 1,
2003 and the Crestview Investors on May 6, 2003 for an aggregate amount of $3.5
million for Omicron, Midsummer and Islandia, $400,000 for MBSJ and $300,000 for
the Crestview Investors. The March 2003 Debentures were convertible into shares
of our common stock at a conversion price equal to $1.0236 per share. We also
issued Omicron, Midsummer and Islandia 5-year warrants to purchase an aggregate
of 1,572,858 shares of common stock at an exercise price of $1.0236.
In August 2003, we exercised our rights to convert the March 2003
Debentures into an aggregate of 4,103,164 shares of common stock at the
conversion rate of $1.0236 pursuant to their terms. The conversions were
completed as of September 30, 2003.
Pursuant to an agreement dated June 1, 2004, we acquired RTI from
Michael Tomczak, Jeffrey Boone and Intuit in a merger transaction. On March 12,
2004, we, RTI, Merger Sub and the Shareholders entered the March 12, 2004 Merger
Agreement, which provided we would acquire RTI in a merger transaction in which
RTI would merge with and into Merger Sub. The merger consideration contemplated
by the March 12, 2004 Merger Agreement was a combination of cash and shares of
our common stock. The March 12, 2004 Merger Agreement was amended by the Amended
Merger Agreement dated June 1, 2004.
Pursuant to the Amended Merger Agreement, the Merger was completed with
the following terms: (i) we assumed RTI's obligations under those certain
promissory notes issued by RTI on December 20, 2002 with an aggregate principal
balance of $2.3 million; (ii) the total consideration paid at the closing of the
Merger was $10.0 million paid in shares of our common stock and newly designated
Series B Preferred and promissory notes; (iii) the Shareholders and Intuit are
entitled to price protection payable if and to the extent that the average
trading price of our common stock is less than $0.76 at the time the shares of
our common stock issued in the Merger and issuable upon conversion of the Series
B Preferred are registered pursuant to the Registration Rights Agreement dated
June 1, 2004 between us, the Shareholders and Intuit; and (iv) the Merger
consisted of two steps, first, Merger Sub merged with and into RTI, Merger Sub's
separate corporate existence ceased and RTI continued as the surviving
corporation (the "Reverse Merger"), immediately thereafter, RTI merged with and
into Merger Sub II, RTI's separate corporate existence ceased and Merger Sub II
continued as the surviving corporation (the "Second-Step Merger").
As a result of the Merger, each Shareholder received 1,258,616 shares
of Series B Preferred and a promissory note payable monthly over two years in
the principal amount of $1,295,000 bearing interest at 6.5% per annum. As a
result of the Merger, Intuit, the holder of all of the outstanding shares of
RTI's Series A Preferred, received 1,546,733 shares of our common stock and a
promissory note payable monthly over two years in the principal amount of
$530,700 bearing interest at 6.5% per annum.
The Shareholders and Intuit were also granted registration rights.
Under the Registration Rights Agreement, we agreed to register the common stock
issuable upon conversion of the Series B Preferred issued to the Shareholders
within 30 days of the automatic conversion of the Series B Preferred into common
stock. The automatic conversion will occur upon us filing the Certificate of
Amendment with the Delaware Secretary of State increasing the authorized number
of shares of common stock after securing shareholder approval for the
Certificate of Amendment. Under the Registration Rights Agreement, Intuit is
30
entitled to demand registration or to have its shares included on any
registration statement filed prior the registration statement covering the
Shareholders' shares, subject to certain conditions and limitations, or if not
previously registered to have its shares included on the registration statement
registering the Shareholders' shares. The Shareholders and Intuit are entitled
to price protection payments of up to a maximum of $0.23 per share payable by
promissory note, if and to the extent that the average closing price of our
common stock for the 10 days immediately preceding the date the registration
statement covering their shares is declared effective by the Securities and
Exchange Commission is less than the 10 day average closing price as of June 1,
2004, which was $0.76.
Pursuant to the Amended Merger Agreement, The Sage Group, plc as well
as certain officers and directors signed voting agreements that provide they
will not dispose of or transfer their shares of our capital stock and that they
will vote their shares of our capital stock in favor of the Certificate of
Amendment and the Amended Merger Agreement and transactions contemplated
therein.
Upon the consummation of the Merger, Michael Tomczak, RTI's former
President and Chief Executive Officer, was appointed our President, Chief
Operating Officer and director and Jeffrey Boone, RTI's former Chief Technology
Officer, was appointed our Chief Technology Officer. We entered into two-year
employment agreements and non-competition agreements with Mr. Tomczak and Mr.
Boone. For a further description of the terms of these employment agreements see
"Employment Agreements" above.
Pursuant to the Purchase Agreement dated July 12, 2004 between the
Company and Laurus, the Company sold and issued the Note and Warrant to Laurus
for of $7,000,000. The principal amount due under the Note is $7,000,000 and the
initial conversion price is $0.56, subject to adjustment. The Warrant is
exercisable for 3,750,000 shares of common stock for $0.71 per share and has a
term of seven years. The Note matures on September 1, 2004 unless sooner paid or
extended in the sole discretion of Laurus. The Note accrues interest at a rate
per annum (the "Interest Rate") equal to the "prime rate" published in The Wall
Street Journal from time to time, plus two percent (2.0%), subject to
adjustment. The Company has the option to redeem the Note by paying Laurus 125%
of the principal amount due under the Note together with all accrued and unpaid
interest. The Company's obligations under the Note are secured by all of the
assets of the Company, Page, IP Retail Technologies International, Inc.
(formerly known as IPI Merger Sub II, Inc.) and Sabica Ventures, Inc., all
wholly owned subsidiaries of the Company. The Company also pledged all of its
interests in the outstanding stock of the subsidiaries as security for its
obligations under the Note.
OTHER MATTERS TO BE PRESENTED AT MEETING
Management does not know of any other matters to be brought before the
Annual Meeting. If any other matters not mentioned in this proxy statement are
properly brought before the meeting, the individuals named in the enclosed proxy
intend to vote such proxy in accordance with their best judgment on such
matters.
Financial information for the Company's fiscal year ended March 31,
2004 is available in the Company's March 31, 2004 Report on Form 10-K. The
Company will provide a copy of the latest Form 10-K or a Form 10-K for a prior
fiscal year without charge, to each record or beneficial owner of its common
stock on the record date, if so requested. If the stockholder asks the Company
to provide copies of exhibits to the Form 10-K, there will be a reasonable
charge for copies of the exhibits to the report. Requests for these copies
should be directed to the Company at 19800 MacArthur Boulevard, Suite 1200,
Irvine, California 92612, attention: Jackie O. Tran.
By Order of the Board of Directors
Michael Silverman
Chairman
July 14, 2004
31
Appendix A
ISLAND PACIFIC, INC.
2004 EQUITY INCENTIVE PLAN
ADOPTED ________, 2004
APPROVED BY SHAREHOLDERS ________, 2004
TERMINATION DATE: ________, 2014
1. PURPOSES AND RECITALS.
(a) PURPOSE. The purpose of this 2004 Equity Incentive Plan is to
provide incentives for Employees, Officers, Directors and Consultants of the
Company, and its Affiliates, to exert maximum efforts for the success of the
Company and its Affiliates.
(b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees of the Company and its Affiliates subject to the
limitations set forth in Section 5.
(c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible Stock Awards may be given an opportunity to benefit from
increases in value of the Common Stock of the Company through the granting of
(i) Options, (ii) Stock Purchase Awards, and (iii) Stock Bonus Awards.
2. DEFINITIONS.
"AFFILIATE" means any parent corporation or subsidiary corporation, whether
now or hereafter existing, as those terms are defined in Sections 424(e) and (f)
respectively, of the Code.
"BOARD" means the Board of Directors of the Company.
"CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that term in
Section 11(a). "CAUSE" means that, in the reasonable determination of the
Company: (a) a Participant has committed an act that materially injures the
business of the Company; (b) a Participant has refused or failed to follow
lawful and reasonable directions of the Board or the appropriate individual to
whom the Participant reports; (c) a Participant has willfully or habitually
neglected the Participant's duties with the Company; (d) a Participant has been
convicted of a felony that is likely to inflict or has inflicted material injury
on the business of the Company; or (e) a Participant has committed a material
fraud, misappropriation, embezzlement or other act of gross dishonesty that
resulted in material loss, damage or injury to the Company. Notwithstanding the
foregoing, Cause based on the conduct described in clause (b) or clause (c)
shall not exist unless the conduct described in such clause has not been cured
within fifteen (15) days following receipt by the Participant of written notice
from the Company or the Board, as the case may be, specifying the particulars of
the Participant's conduct constituting Cause. Cause shall also include any other
circumstance or event identified in an Option Agreement, Stock Bonus Award
Agreement, Stock Purchase Award Agreement, Employment Agreement or any other
agreement between the Participant and the Company or a Subsidiary. In the event
of any inconsistencies between any such agreement and the Plan, the causal
provisions in the agreement shall control unless otherwise set forth in such
agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means a committee of one or more members of the Board appointed
by the Board in accordance with subsection 3(c) of the Plan.
"COMMON STOCK" means the common stock of the Company.
"COMPANY" means Island Pacific, Inc., a Delaware corporation.
"CONSULTANT" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) serving as a member of the Board of
Directors of an Affiliate and who is compensated for such services. However, the
term "Consultant" shall not include Directors who are not compensated by the
Company for their services as Directors, and the payment of a director's fee by
the Company solely for services as a Director shall not cause a Director to be
considered a "Consultant" for purposes of the Plan.
1
"CONTINUOUS SERVICE" means that the Participant's service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the Participant
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the
Participant's service with the Company or an Affiliate, shall not terminate a
Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director shall not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave. Notwithstanding the foregoing, a leave of absence
shall be treated as Continuous Service for purposes of vesting in a Stock Award
only to such extent as may be provided in the Company's leave of absence policy
or in the written terms of the Participant's leave of absence.
"CORPORATE TRANSACTION" means the occurrence, in a single transaction or in
a series of related transactions, of any one or more of the following events:
(a) a sale or other disposition of all or substantially all, as
determined by the Board in its discretion, of the consolidated assets of the
Company and its Subsidiaries;
(b) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;
(c) a merger, consolidation or similar transaction involving (directly
or indirectly) the Company and, immediately after the consummation of such
merger, consolidation or similar transaction, the stockholders of the Company
immediately prior thereto do not Own, directly or indirectly, either (i)
outstanding voting securities representing more than fifty percent (50%) of the
combined outstanding voting power of the surviving Entity in such merger,
consolidation or similar or (ii) more than fifty percent (50%) of the combined
outstanding voting power of the parent of the surviving Entity in such merger,
consolidation or similar transaction, in each case in substantially the same
proportions as their Ownership of the outstanding voting securities of the
Company immediately prior to such transaction; or
(d) a merger, consolidation or similar transaction following which the
Company is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger, consolidation or similar transaction are
converted or exchanged by virtue of the merger, consolidation or similar
transaction into other property, whether in the form of securities, cash or
otherwise.
"COVERED EMPLOYEE" means the chief executive officer and the four (4) other
highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
"DIRECTOR" means a member of the Company's Board of Directors.
"DISABILITY" means the permanent and total disability of a person within
the meaning of Section 22(e)(3) of the Code.
"EMPLOYEE" means any person employed by the Company or an Affiliate.
Service as a Director or payment of a director's fee by the Company for such
service or for service as a member of the Board of Directors of an Affiliate
shall not be sufficient to constitute "employment" by the Company or an
Affiliate.
"ENTITY" means a corporation, partnership, limited liability company or
other entity.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE ACT PERSON" means any natural person, Entity or "group" (within
the meaning of Section 13(d) or 14(d) of the Exchange Act), except that
"Exchange Act Person" shall not include (a) the Company or any Subsidiary of the
Company, (b) any employee benefit plan of the Company or any Subsidiary of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary of the Company, (c) an underwriter
temporarily holding securities pursuant to an offering of such securities, or
(d) an Entity Owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their Ownership of stock of the
Company.
2
"FAIR MARKET VALUE" means, as of any date, the value of the Common Stock
determined as follows:
(a) If the Common Stock is listed on any established stock exchange or
traded on the American Stock Exchange, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common Stock) on
the last market trading day prior to the day of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable.
(b) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
"INCENTIVE STOCK OPTION" means an Option granted pursuant to the Plan which
is designated as an incentive stock option by the Board, and qualifies as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
"NON-EMPLOYEE DIRECTOR" means a Director who either (a) is not a current
Employee or Officer of the Company or its parent or Subsidiary, does not receive
compensation (directly or indirectly) from the Company or its parent or
Subsidiary for services rendered as a Consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (b) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
"NON-STATUTORY STOCK OPTION" means an Option granted pursuant to the Plan
which is not intended to or does not qualify as an Incentive Stock Option.
"OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
"OPTION" means an option to purchase Common Stock granted pursuant to the
Plan.
"OPTION AGREEMENT" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement is subject to the terms and conditions of the Plan.
"OPTIONHOLDER" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
"OTHER STOCK AWARD" means an award based in whole or in part by reference
to the Common Stock which is granted pursuant to the terms and conditions of
Section 7(c).
"OUTSIDE DIRECTOR" means a Director who either (a) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (b) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
"OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall be deemed to
"Own," to have "Owned," to be the "Owner" of, or to have acquired "Ownership" of
securities if such person or Entity, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or shares
voting power, which includes the power to vote or to direct the voting, with
respect to such securities.
"PARTICIPANT" means a person to whom a Stock Award is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
"PLAN" means this 2004 Equity Incentive Plan, as may be amended from time
to time.
3
"RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule
16b-3, as in effect when discretion is being exercised with respect to the Plan.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK AWARD" means any right granted under the Plan, including any Option,
any Stock Bonus, and Other Stock Award.
"STOCK AWARD AGREEMENT" means a written agreement between the Company and a
holder of a Stock Award evidencing the terms and conditions of an individual
Stock Award grant. Each Stock Award Agreement is subject to the terms and
conditions of the Plan.
"STOCK BONUS AWARD" means an award of shares of Common Stock which is
granted pursuant to the terms and conditions of Section 7(a).
"STOCK BONUS AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award Agreement evidencing the terms and conditions of
an individual Stock Bonus Award grant. Each Stock Bonus Award Agreement shall be
subject to the terms and conditions of the Plan.
"STOCK PURCHASE AWARD" means an award of the right to purchase shares of
Common Stock which is granted pursuant to the terms and conditions of Section 7
(b).
"STOCK PURCHASE AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Purchase Award evidencing the terms and
conditions of an individual Stock Purchase Award grant. Each Stock Purchase
Award Agreement shall be subject to the terms and conditions of the Plan.
"SUBSIDIARY" means, with respect to the Company, (a) any corporation of
which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, Owned
by the Company, and (ii) any partnership in which the Company has a direct or
indirect interest (whether in the form of voting or participation in profits or
capital contribution) of more than fifty percent (50%).
"TEN PERCENT STOCKHOLDER" means a person who Owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Plan shall be administered by the
Board unless and until the Board delegates administration to a Committee, as
provided in subsection 3(c). Any interpretation of the Plan by the Board and any
decision by the Board under the Plan shall be final and binding on all persons.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; what type or combination of types
of Stock Award shall be granted; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive Common Stock pursuant to a Stock Award, and the number
of shares with respect to which Stock Awards shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To effect, at any time and from time to time, with the
consent of any adversely affected Optionholder, (1) the reduction of the
exercise price of any outstanding Option under the Plan, or (2) any other action
that is treated as a repricing under generally accepted accounting principles.
(iv) To amend the Plan or as provided in Section 12.
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(v) To terminate or suspend the Plan as provided in Section 13.
(vi) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company and that are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to
a Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers possessed by
the Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or subcommittee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the full and exclusive
administration of the Plan.
(ii) SECTION 162 (M) AND RULE 16b-3 COMPLIANCE. In the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award, or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code, and/or (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
(d) DELEGATION TO AN OFFICER. The Board may delegate to one or more
Officers of the Company the authority to do one or both of the following (i)
designate Officers and Employees of the Company or any of its Subsidiaries to be
recipients of Stock Awards and (ii) determine the number of shares of Common
Stock to be subject to such Stock Awards granted to such Officers and Employees
of the Company; PROVIDED, HOWEVER, that the Board resolutions regarding such
delegation shall specify the total number of shares of Common Stock that may not
grant a Stock Award to himself or herself. Notwithstanding the foregoing, the
Board may not delegate the authority to an Officer to determine the Fair Market
Value of the Common Stock.
(e) EFFECT OF BOARD'S DECISION. All determinations, interpretations
and constructions made by the Board in good faith shall not be subject to review
by any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate ten million
(10,000,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, or if any shares of Common Stock issued to a
Participant pursuant to a Stock Award are forfeited back to or repurchased by
the Company, including, but not limited to, any repurchase or forfeiture caused
by the failure to meet a contingency or condition required for the vesting of
such shares, then the shares of Common Stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan. If any
shares subject to a Stock Award are not delivered to a Participant because such
shares are withheld for taxes or the Stock Award is exercised through a
reduction of shares subject to the Stock Award (i.e., "net exercised"), the
number of shares that are not delivered shall revert to and again become
available for issuance under the Plan. If the exercise price of any Stock Award
is satisfied by tendering shares of Common Stock held by the Participant (either
by actual delivery or attestation), then the number of such tendered shares
shall revert to and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.
5
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted only to Employees, Officers, Directors or Consultants.
(b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock on the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) CONSULTANTS. A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("Form S-8") is not available to register either the offer or
the sale of Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, because the Consultant
is not a natural person, or because of any other rule governing the use of Form
S-8.
(d) SECTION 162(m). All Stock Awards granted pursuant to the Plan
shall comply with Section 162(m) of the Code.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions of the Plan by
reference in the Option or otherwise) the substance of each of the following
provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date of the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price
of each Nonstatutory Stock Option shall be not less than fifty (50%) of the Fair
Market Value of the Common Stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is exercised
or (ii) at the discretion of the Board (1) by delivery to the Company of other
Common Stock, (2) according to a deferred payment or other similar arrangement
with the Optionholder, (3) by a "net exercise" of the Option (as further
described below), (4) pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board that, prior to the issuance of Common
Stock, results in either the receipt of cash (or check) by the Company or the
receipt of irrevocable instructions to pay the aggregate exercise price to the
Company from the sales proceeds, or (5) in any other form of legal consideration
that may be acceptable to the Board. Unless otherwise specifically provided in
the Option, the purchase price of Common Stock acquired pursuant to an Option
that is paid by delivery to the Company of other Common Stock acquired directly
or indirectly from the Company, shall be paid only shares of Common Stock of the
Company that have been held for more than six (6) months (or such longer or
shorter period of time required to avoid a charge to earnings for financial
accounting purposes).
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In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid (1) the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement and (2) the treatment of the Option as a
variable award for financial accounting purposes.
In the case of a "net exercise" of an Option, the Company will not
require a payment of the exercise price of the Option from the Participant but
will reduce the number of shares of Common Stock issued upon the exercise by the
largest number of whole shares that has a Fair Market Value that does not exceed
the aggregate exercise price. With respect to any remaining balance of the
aggregate exercise price, the Company shall accept a cash payment from the
Participant. The shares of Common Stock so used to pay the exercise price of an
Option under a "net exercise" and any shares withheld for taxes will be
considered to have been withheld from the exercise of the Option. Accordingly,
the Option will not again be exercisable with respect to the shares deemed
withheld to satisfy the exercise price, the shares actually delivered to the
Participant or any shares withheld for purposes of tax withholding.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option shall not be transferable except by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Incentive Stock Option (to
the extent that the Optionholder was entitled to exercise such Incentive Stock
Option as of the date of termination of Continuous Service) but only within such
period of time ending on the earlier of (i) the date three (3) months following
the termination of the Optionholder's Continuous Service (or such longer or
shorter period specified in the Option Agreement) or (ii) the expiration of the
term of the Incentive Stock Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Incentive Stock
Option within the time specified in the Option Agreement, the Incentive Stock
Option shall terminate. Notwithstanding the foregoing, a Nonstatutory Option
shall terminate immediately upon the Optionholder's termination of Continuous
Service for Cause, and to the extent permitted by Section 422 of the Code and
any regulations promulgated thereunder, an Incentive Stock Option shall either
terminate immediately, or alternatively convert to a Non-Statutory Option and
then terminate immediately if an Optionholder's Continuous Service is terminated
for Cause.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may (but need not) provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in the Option
Agreement or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.
7
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination of Continuous
Service), but only within such period of time ending on the earlier of (i) the
date twelve (12) months following such termination of Continuous Service (or
such longer or shorter period specified in the Option Agreement or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate. The Company shall not be required to exercise its
repurchase option until at least six (6) months (or such longer or shorter
period of time required to avoid a charge to earnings for financial accounting
purposes) have elapsed following exercise of the Option unless the Board
otherwise specifically provides in the Option.
7. TERMS OF STOCK AWARDS OTHER THAN OPTIONS
(a) STOCK BONUS AWARDS. Each Stock Bonus Award Agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of Stock Bonus Award Agreements may change
from time to time, and the terms and conditions of separate Stock Bonus Award
Agreements need not be identical, PROVIDED, HOWEVER, that each Stock Bonus Award
Agreement shall include (through incorporation of provisions hereof by reference
in the agreement or otherwise) the substance of each of the following
provisions:
(i) CONSIDERATION. A Stock Bonus Award may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit or in any other form of legal consideration that may be
acceptable to the Board in its discretion.
(ii) VESTING. Shares of Common Stock awarded under the Stock
Bonus Award Agreement may, but need not, be subject to forfeiture to the Company
or a share repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire
(or receive via a forfeiture condition) any or all of the shares of Common Stock
held by the Participant which have not vested as of the date of termination of
Continuous Service under the terms of the Stock Bonus Award Agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the Stock Bonus Award Agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the Stock Bonus Award
Agreement, as the Board shall determine in its discretion, so long as Common
Stock awarded under the Stock Bonus Award remains subject to the terms of the
Stock Bonus Award Agreement.
8
(b) STOCK PURCHASE AWARDS. Each Stock Purchase Award Agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. At the Board's election, shares of Common Stock may be (i)
held in book entry form subject to the Company's instructions until any
restrictions relating to the Stock Purchase Award lapse; or (ii) evidenced by a
certificate, which certificate shall be held in such form and manner as
determined by the Board. The terms and conditions of Stock Purchase Award
Agreements may change from time to time, and the terms and conditions of
separate Stock Purchase Award Agreements need not be identical, PROVIDED,
HOWEVER, that each Stock Purchase Award Agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) PURCHASE PRICE. At the time of the grant of a Stock Purchase
Award, the Board will determine the price to be paid by the Participant for each
share subject to the Stock Purchase Award. To the extent required by applicable
law, the price to be paid by the Participant for each share of the Stock
Purchase Award will not be less than the par value of a share of Common Stock.
(ii) CONSIDERATION. At the time of the grant of a Stock Purchase
Award, the Board will determine the consideration permissible for payment of the
purchase price of the Stock Purchase Award. The purchase price of Common Stock
acquired pursuant to the Stock Purchase Award shall be paid either: (i) in cash
at the time of purchase or (ii) in any other form of legal consideration that
may be acceptable to the Board in its discretion.
(iii) VESTING. Shares of Common Stock acquired under a Stock
Purchase Award may, but need not, be subject to forfeiture to the Company or a
share repurchase option in favor of the Company in accordance with a vesting
schedule to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company shall have the
right, but not the obligation, to repurchase or otherwise reacquire, any or all
of the shares of Common Stock held by the Participant that have not vested as of
the date of termination of Continuous Service under the terms of the Stock
Purchase Award Agreement. At the Board's election, the repurchase price, if any,
paid by the Company may be at the lower of: (i) the Fair Market Value on the
relevant date; or (ii) the Participant's original cost. The Company shall not be
required to exercise its repurchase option until at least six (6) months (or
such longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes) have elapsed following the purchase of the
restricted stock unless otherwise determined by the Board or provided in the
Stock Purchase Award Agreement.
(v) TRANSFERABILITY. Rights to purchase or receive shares of
Common Stock granted under a Stock Purchase Award shall be transferable by the
Participant only upon such terms and conditions as are set forth in the Stock
Purchase Award Agreement, as the Board shall determine in its discretion, and so
long as Common Stock awarded under the Stock Purchase Award remains subject to
the terms of the Stock Purchase Award Agreement.
(c) OTHER STOCK AWARDS. Other forms of Stock Awards valued in whole or
in part by reference to, or otherwise based on, Common Stock may be granted
either alone or in addition to Stock Awards provided for under Section 6 and the
preceding provisions of this Section 7. Subject to the provisions of the Plan,
the Board shall have sole and complete authority to determine the persons to
whom and the time or times at which such Other Stock Awards will be granted, the
number of shares of Common Stock (or the cash equivalent thereof) to be granted
pursuant to such Awards and all other terms and conditions of such Awards.
8. SECURITIES LAW COMPLIANCE
The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to grant
Stock Awards and to issue and sell shares of Common Stock upon exercise of the
Stock Awards; PROVIDED, HOWEVER, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Stock Award or any
Common Stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of Common Stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell Common Stock
upon exercise of such Stock Awards unless and until such authority is obtained.
9
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Stock pursuant to Stock Awards shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Stock Award unless and until such Participant
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(e) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of Common Stock.
(f) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of the grant) of Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof that exceed such limit (according to the order in
which they were granted) shall be treated as Nonstatutory Stock Options,
notwithstanding any contrary provision of a Stock Award Agreement.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
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(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company (each a "Capitalization Adjustment"),
the Plan will be appropriately adjusted in the class(es) and maximum number of
securities subject to the Plan pursuant to subsection 4(a) and the outstanding
Stock Awards will be appropriately adjusted in the class(es) and number of
securities and price per share of Common Stock subject to such outstanding Stock
Awards. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to the completion of such dissolution or liquidation.
(c) CORPORATE TRANSACTION. In the event of a Corporate Transaction,
any surviving corporation or acquiring corporation may assume or continue any or
all Stock Awards outstanding under the Plan or may substitute similar stock
awards for Stock Awards outstanding under the Plan (it being understood that
similar stock awards include, but are not limited to, awards to acquire the same
consideration paid to the stockholders or the Company, as the case may be,
pursuant to the Corporate Transaction), and any reacquisition or repurchase
rights held by the Company in respect of Common Stock issued pursuant to Stock
Awards may be assigned by the Company to the successor of the Company (or the
successor's parent company), if any, in connection with such Corporate
Transaction. In the event that any surviving corporation or acquiring
corporation does not assume or continue all such outstanding Stock Awards or
substitute similar stock awards for all such outstanding Stock Awards, then with
respect to Stock Awards that have been not assumed, continued or substituted and
that are held by Participants whose Continuous Service has not terminated prior
to the effective time of the Corporate Transaction, the vesting of such Stock
Awards (and, if applicable, the time at which such Stock Awards may be
exercised) shall (contingent upon the effectiveness of the Corporate
Transaction) be accelerated in full to a date prior to the effective time of
such Corporate Transaction as the Board shall determine (or, if the Board shall
not determine such a date, to the date that is five (5) days prior to the
effective time of the Corporate Transaction), the Stock Awards shall terminate
if not exercised (if applicable) at or prior to such effective time, and any
reacquisition or repurchase rights held by the Company with respect to such
Stock Awards held by Participants whose Continuous Service has not terminated
shall (contingent upon the effectiveness of the Corporate Transaction) lapse.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11(a) relating to
Capitalization Adjustments, no amendment shall be effective unless approved by
the stockholders of the Company to the extent stockholder approval is necessary
to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any or
securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval, including, but
not limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to Covered Employees.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(d) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; PROVIDED, HOWEVER,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
11
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
12
ISLAND PACIFIC, INC.
19800 MacArthur Boulevard
Irvine, CA 92612
(949) 476-2212
___________________________________________
PROXY
___________________________________________
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 11, 2004
___________________________________________
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF
ISLAND PACIFIC, INC.
___________________________________________
The undersigned stockholder of Island Pacific, Inc. a Delaware
corporation (the "Company"), hereby appoints Michael Silverman, Chairman of the
Board, or in his absence, Ran H. Furman, Chief Financial Officer and Secretary,
my proxy to attend and represent me at the annual meeting of the stockholders of
the Company to be held on August 11, 2004 at 9:00 A.M. (PT), and at any
adjournment thereof, and to vote my shares on any matter or resolution which may
come before the meeting and to take any other action which I could personally
take if present at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR DIRECTOR AND FOR PROPOSALS 2, 3, 4 and 5.
1. ELECTION OF DIRECTORS
Management has nominated the following seven persons to stand for election. You
may vote "for" or you may withhold your vote from any of those persons
nominated.
a. Michael Silverman For _____
Withhold _____
b. Michael Tomczak For _____
Withhold _____
c. Donald Radcliffe For _____
Withhold _____
d. Lawrence Page For _____
Withhold _____
e. Ian Bonner For _____
Withhold _____
2. APPROVE INCREASE AUTHORIZED SHARES
Amendments to the Company's Restated Certificate of Incorporation to
increase the authorized shares from 100,000,000 to 250,000,000.
For _______________ Against _______________ Abstain _______________
3. APPROVE THE 2004 EQUITY INCENTIVE PLAN
Adoption of the 2004 Equity Incentive Plan ("2004 Plan") and
reservation of 10,000,000 shares for issuance under the 2004 Plan.
For _______________ Against _______________ Abstain _______________
4. RATIFY THE SALE AND ISSUANCE OF THE NOTE AND WARRANT TO LAURUS FOR
$7,000,000 PURSUANT TO THE PURCHASE AGREEMENT.
Ratify the sale and issuance of the Note and Warrant to Laurus for
$7,000,000.
For _______________ Against _______________ Abstain _______________
5. ENGAGEMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Ratification of the continued engagement of Singer Lewak Greenbaum &
Goldstein LLP as the Company's independent public accountants and auditors for
the fiscal year ending March 31, 2005.
For _______________ Against _______________ Abstain _______________
Failure to check any of these boxes for each proposal will give Michael
Silverman or Jackie O. Tran the authority to vote the proxy at his or her
discretion. This Proxy gives discretionary authority to my proxy to vote for me
on such other matters as may properly come before this meeting.
Number of Shares Owned:____________
Dated:_____________________________
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SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
YOUR VOTE IS IMPORTANT. Please vote, date and promptly return this proxy in the
enclosed return envelope which is postage prepaid if mailed in the United
States.