<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period and nine months ended December 31, 1999
-----------------
Commission file number 0-23049
-------
SVI HOLDINGS, INC.
------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 84-1131608
------------------------------- ---------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
12707 HIGH BLUFF DRIVE, SUITE 335, SAN DIEGO, CA 92130
------------------------------------------------------
(Address of principal executive offices including ZIP Code)
(Registrant's telephone number, including area code: (858) 481-0103
--------------
7979 IVANHOE AVENUE. SUITE 500, LA JOLLA, CALIFORNIA 92037
----------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $0.0001 Par Value - 33,059,587 shares as of January 31, 2000.
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<PAGE>
SVI HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and
March 31, 1999............................................. 3
Consolidated Statements of Operations for Three Months
Ended December 31, 1999 and 1998........................... 4
Consolidated Statements of Operations for Nine Months
Ended December 31, 1999 and 1998........................... 5
Consolidated Statements of Cash Flows for the nine months
Ended December 31, 1999 and 1998........................... 6
Notes to Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 18
PART II. OTHER INFORMATION............................................. 19
Item 1. Legal Proceedings............................................. 19
Item 5. Other Matters................................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................. 19
Signature ............................................................ 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
--------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,596,567 $ 13,006,153
Accounts receivable, net 9,756,203 3,310,008
Other receivables 792,185 2,994,836
Note receivable 13,875,487 13,608,000
Inventories 194,243 238,314
Prepaid expenses and other current assets 550,016 183,760
--------------- ---------------
Total current assets 26,764,701 33,341,071
Property and equipment, net 1,254,188 734,386
Capitalized software, net 34,439,952 14,053,186
Goodwill, net 23,482,780 4,534,570
Non-compete agreements, net 2,911,560 1,677,112
Deferred tax asset 772,395 762,910
Other assets 262,584 175,649
--------------- ---------------
Total assets $ 89,888,160 $ 55,278,884
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,021,331 $ 345,275
Accrued expenses 1,692,234 1,908,105
Line of credit 1,069,757 231,876
Short-term note payable 15,000,000 -
Current portion of long-term note payable 1,750,000 -
Income taxes payable 2,017,819 2,576,151
--------------- ---------------
Total current liabilities 22,551,141 5,061,407
Note payable 729,167 -
Due to stockholder 1,718,939 -
Long-term liabilities - 2,000,000
Deferred tax liability 9,473,203 805,433
--------------- ---------------
Total liabilities 34,472,450 7,866,840
--------------- ---------------
Stockholders' equity:
Preferred Stock, $.0001 par value; 5,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.0001 par value; 50,000,000 shares authorized;
32,928,087 and 29,741,278 shares issued and outstanding 3,330 2,987
Additional paid in capital 48,229,207 39,435,921
Due from stockholder (338,203) -
Treasury stock, at cost; shares-366,400 and 127,400, respectively (3,641,174) (951,404)
Retained earnings 11,925,071 9,885,138
Accumulated other comprehensive income (762,521) (960,598)
--------------- ---------------
Total stockholders' equity 55,415,710 47,412,044
--------------- ---------------
Total liabilities and stockholders' equity $ 89,888,160 $ 55,278,884
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Net sales $ 7,484,371 $ 4,609,054
Cost of sales 1,910,972 1,518,165
--------------- ---------------
Gross profit 5,573,399 3,090,889
Research and development 1,931,446 -
Depreciation and amortization 1,632,882 425,763
Selling, general and administration expenses 4,405,934 1,780,341
--------------- ---------------
Operating income (loss) (2,396,863) 884,785
--------------- ---------------
Other income (expense):
Interest income 272,509 140,889
Interest expense (447,302) (24,294)
Gain (loss) on foreign currency transactions 97,970 (68,148)
Other, net (159,610) 13,713
--------------- ---------------
Total other income (expense) (236,433) 62,160
--------------- ---------------
Income (loss) before provision for income taxes (2,633,296) 946,945
Provision (benefit) for income taxes (928,715) 343,491
--------------- ---------------
Income (loss) from continuing operations (1,704,581) 603,454
Discontinued operations:
Income from operations of IBIS Systems Ltd., net of
applicable income taxes of $165,288 - 724,779
--------------- ---------------
Net income (loss) $ (1,704,581) $ 1,328,233
=============== ===============
Basic earnings per common share:
Continuing operations $ (0.05) $ 0.02
Discontinued operations - 0.03
--------------- ---------------
Net income (loss) $ (0.05) $ 0.05
=============== ===============
Diluted earnings per common share:
Continuing operations $ (0.05) $ 0.02
Discontinued operations - 0.02
--------------- ---------------
Net income (loss) $ (0.05) $ 0.04
=============== ===============
Weighted-average common shares outstanding:
Basic 32,555,341 28,618,963
=============== ===============
Diluted 32,555,341 32,743,958
=============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Net sales $ 32,864,347 $ 13,087,064
Cost of sales 7,231,679 4,067,594
--------------- ---------------
Gross profit 25,632,668 9,019,470
Research and development 4,661,172 -
Depreciation and amortization 5,010,197 1,570,543
Selling, general and administration expenses 12,384,188 5,300,240
--------------- ---------------
Operating income (loss) 3,577,111 2,148,687
--------------- ---------------
Other income (expense):
Interest income 816,653 482,936
Interest expense (1,003,593) (66,556)
Loss on foreign currency transactions (749) (62,547)
Other, net 27,419 553,476
--------------- ---------------
Total other income (160,270) 907,309
--------------- ---------------
Income (loss) before provision for income taxes 3,416,841 3,055,996
Provision (benefits) for income taxes 1,376,908 1,346,714
--------------- ---------------
Income from continuing operations 2,039,933 1,709,282
Discontinued operations:
Income from operations of IBIS Systems Ltd., net of
applicable income taxes of $836,882 - 4,017,047
--------------- ---------------
Net income $ 2,039,933 $ 5,726,329
=============== ===============
Basic earnings per common share:
Continuing operations $ 0.06 $ 0.06
Discontinued operations - 0.14
--------------- ---------------
Net income $ 0.06 $ 0.20
=============== ===============
Diluted earnings per common share:
Continuing operations $ 0.05 $ 0.05
Discontinued operations - 0.13
--------------- ---------------
Net income $ 0.05 $ 0.18
=============== ===============
Weighted-average common shares outstanding:
Basic 32,120,916 28,387,094
=============== ===============
Diluted 32,681,528 32,284,928
=============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,039,933 $ 5,726,329
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 5,010,197 2,109,015
Stock-based compensation - 400,277
Loss on foreign currency transactions 749 -
Changes in deferred taxes (141,715) (249,347)
Loss on sale of fixed assets 15,517 9,991
Changes in assets and liabilities:
Accounts receivable and other receivables (4,923,173) (3,455,772)
Inventories 44,071 150,995
Prepaid expenses and other assets (168,080) (441,608)
Accounts payable and accrued expenses (3,228,019) (3,000,041)
Income tax payable (558,332) 319,696
--------------- ---------------
Net cash provided by (used for) operating activities (1,908,852) 1,569,535
--------------- ---------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (33,697,748) (2,103,292)
Purchase of furniture and equipment (333,968) (572,411)
Increase in note receivable (623,257) -
Proceeds from sale of fixed assets - 67,197
Capitalized software development costs (1,326,492) (2,201,881)
Loan to affiliate (5,301,201)
--------------- ---------------
Net cash used for investing activities (35,981,465) (10,111,588)
--------------- ---------------
Cash flows from financing activities:
Issuance of common stock 5,829,441 188,048
Increase (decrease) in amount due to stockholders, net 1,718,939 (14,552)
Purchased treasury stock - (666,904)
Proceeds from line of credit (net) 1,082,581 -
Proceeds from notes payable (net) 17,861,150 -
--------------- ---------------
Net cash provided by financing activities 26,492,111 (493,408)
--------------- ---------------
Effect of exchange rate changes on cash (11,380) (277,382)
--------------- ---------------
Net decrease in cash and cash equivalents (11,409,586) (9,312,843)
Cash and cash equivalents, beginning of period 13,006,153 14,468,578
--------------- ---------------
Cash and cash equivalents, end of period $ 1,596,567 $ 5,155,735
=============== ===============
Supplemental disclosure of cash flow information:
Interest paid $ 921,543 $ 93,948
Income taxes paid $ 2,158,814 $ 2,005,439
Supplemental schedule of non-cash investing and financing activities:
Received 178,500 treasury shares in connection with
the sale of IBIS $ 2,142,000 $ -
Received 12,500 treasury shares for exercise price of options $ 150,000 $ -
6
<PAGE>
Issued 55,000 and 52,000, respectively, shares of common stock in connection
with the acquisition of Todds of Lincoln. $ 402,182 $ 208,000
Acquired Triple-S Limited by incurring a short-term liability $ - $ 429,208
Issued 165,000 and 250,000, respectively, shares of common stock in
connection with the acquisition of Applied Retail Solutions, Inc. $ 2,000,000 $ 1,000,000
Received 45,000 shares in payment of interest due on note receivable $ 355,770 $ -
</TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - ORGANIZATION AND BASIS OF PREPARATION
The accompanying consolidated financial statements have been prepared from the
unaudited records of SVI Holdings, Inc. and subsidiaries (collectively, the
"Company"). The consolidated financial statements reflect all adjustments of a
normal recurring nature, which are in the opinion of management necessary for a
fair presentation of the results of the interim periods presented.
Beginning with reports for the quarter ended June 30, 1999, the Company has
voluntarily elected to file its financial statements in accordance with
Regulation S-X promulgated by the Securities and Exchange Commission instead of
Rule 310 of Regulation S-B promulgated by the Securities and Exchange
Commission.
Certain amounts in the prior periods have been reclassified to conform to the
presentation for three and nine months ended December 31, 1999. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. Accounting policies followed by the Company are described
in the notes to the financial statements in its Annual Report on Form 10-KSB for
the year ended March 31, 1999. The financial information included in this
quarterly report should be read in conjunction with the consolidated financial
statements and related notes thereto in the Company's Form 10-KSB for the year
ended March 31, 1999.
The results of operations for the three and nine months ended December 31, 1999
are not necessarily indicative of the results to be expected for the full year.
NOTE B - ACQUISITIONS AND RELATED PARTIES
Effective April 1, 1999, the Company acquired Island Pacific Systems Corporation
("Island Pacific"), a California corporation, for $35 million cash. The Company
also entered into three-year non-compete agreements with some of Island
Pacific's principals. The acquisition was funded by cash on hand; cash acquired
from the sale of IBIS Systems Pty. Ltd. ("IBIS"); approximately $4 million paid
by the majority stockholder upon exercise of options; a $2.3 million loan from a
major stockholder, with no stated maturity date and with interest at prime rate;
and two bank loans. The first bank loan is in the amount of $15 million, with
interest-only payments at the bank's prime rate plus .25% until March 2000 and
convertible thereafter to a fully-amortizing two-year loan. The second loan is
in the amount of $3.5 million and is a fully amortizing two-year loan with
interest at the bank's prime rate plus .50%. Island Pacific, founded in 1977, is
based in Irvine, California, and develops and markets retail industry
merchandising and management software systems. Island Pacific's software
automates the full scope of a retailer's operations from inventory planning and
purchasing through distribution and final sale of goods. Island Pacific's
products have been licensed to over 245 clients worldwide.
The Company is in the process of determining the appropriate values to be
assigned to the assets acquired and liabilities assumed in the acquisition of
Island Pacific. Accordingly, the Company's estimates of these values are subject
to revision upon the completion of the Company's evaluation which may result in
an adjustment to the current values assigned to such assets and liabilities.
The following unaudited pro forma consolidated results of continuing operations
for the quarter and nine months ended December 31, 1998 assume the Island
Pacific acquisition occurred as of April 1, 1998. The pro forma results are not
necessarily indicative of the actual results that would have occurred had the
acquisition been completed as of the beginning of the periods presented, nor are
they necessarily indicative of future consolidated results.
7
<PAGE>
Three months ended Nine months ended
December 31, 1998
-----------------------------------------
Total revenues $ 8,464,409 $ 25,280,256
Net income $ (970,394) $ (324,268)
Basic earnings per share $ ( 0.03) $ (0.01)
Diluted earnings per share $ ( 0.03) $ (0.01)
NOTE C - DISCONTINUED OPERATIONS
Effective January 1, 1999, the Company sold its IBIS subsidiary for cash
proceeds of $2,250,000, surrender of Company common stock valued at $2,142,000
and a note receivable of $13,608,000. The sale, which was recorded in the year
ended March 31, 1999, resulted in a gain of $274,055, net of applicable income
taxes of $753,043. Accordingly, the results of operations of IBIS for the three
months and nine months ended December 31, 1998 are restated as discontinued
operations. See Note F for further discussion.
NOTE D - TREASURY STOCK
During the nine months ended December 31, 1999, the Company acquired 178,500
shares of its common stock in connection with the sale of IBIS. The transaction
was recorded using the cost method. During the three months ended December 31,
1999, the Company acquired 45,000 shares of Company common stock surrendered in
payment of interest due on the IBIS note receivable. As of December 31, 1999,
the Company holds in treasury 366,400 shares of its common stock.
NOTE E - REPORTING COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") requires reporting and displaying comprehensive income and
its components in accordance with SFAS 130. The accumulated balance of other
comprehensive income is disclosed as a separate component of stockholders'
equity.
For the three months and nine months ended December 31, 1999 and 1998,
comprehensive income consisted of:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $ (1,704,581) $ 1,328,233 $ 2,039,933 $ 5,726,329
Other comprehensive income (loss):
Translation adjustment (59,561) 147,788 197,937 (277,383)
--------------- --------------- --------------- ---------------
Comprehensive income $ (1,764,002) $ 1,476,021 $ 2,237,870 $ 5,448,946
=============== =============== =============== ===============
</TABLE>
NOTE F - SUBSEQUENT EVENT
On January 18, 2000, the Company amended the promissory note and related
agreements received in connection with the sale of IBIS. The due date of the
note has been extended to May 15, 2000, and the note is now secured by 3,840,000
shares of the common stock of Integrity Holdings, Ltd. ("Integrity") instead of
all of the shares of IBIS. The Company also obtained the right to convert all or
a portion of the outstanding balance of the note into shares of Integrity valued
at $5.00 per share.
On January 13, 2000, Softline exercised outstanding options to purchase shares
of the Company's common stock for a net exercise price of $650,000.
8
<PAGE>
NOTE G - EARNINGS PER SHARE
Earnings per share for the three months and nine months ended December 31, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Continuing operations $ (1,704,581) $ 603,454 $ 2,039,933 $ 1,709,282
Discontinued operations - 724,779 - 4,017,047
--------------- --------------- --------------- ---------------
$ (1,704,581) $ 1,328,233 $ 2,039,933 $ 5,726,329
=============== =============== =============== ===============
Weighted average number of common shares 32,555,341 28,618,963 32,120,916 28,387,094
=============== =============== =============== ===============
Per share
Continuing operations $ (0.05) $ 0.02 $ 0.06 $ 0.06
Discontinued operations - 0.03 - 0.14
--------------- --------------- --------------- ---------------
Net income $ (0.05) $ 0.05 $ 0.06 $ 0.20
=============== =============== =============== ===============
DILUTED EARNINGS PER SHARE
Continuing operations $ (1,704,581) $ 603,454 $ 2,039,933 $ 1,709,282
Discontinued operations - 724,779 - 4,017,047
--------------- --------------- --------------- ---------------
Net income $ (1,704,581) $ 1,328,233 $ 2,039,933 $ 5,726,329
=============== =============== =============== ===============
Weighted average number of common and
Common equivalent shares assuming
issuance of all dilutive contingent shares:
Common stock 32,555,341 28,618,963 32,120,916 28,387,094
Stock options - 4,124,995 3,560,612 3,897,834
--------------- --------------- --------------- ---------------
Total 32,555,341 32,743,958 35,681,528 32,284,928
=============== =============== =============== ===============
Per share
Continuing operations $ (0.05) $ 0.02 $ 0.05 $ 0.05
Discontinued operations - 0.02 - 0.13
--------------- --------------- --------------- ---------------
Net income $ (0.05) $ 0.04 $ 0.05 $ 0.18
=============== =============== =============== ===============
</TABLE>
NOTE H - BUSINESS SEGMENTS AND GEOGRAPHIC DATA
The Company provides global enterprise software solutions for the retail
industry. In accordance with Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information," the
Company considers its business to consist of one reportable operating segment.
9
<PAGE>
The Company operates in four countries, the United States, Australia, South
Africa and the United Kingdom. The significant increase in United States and
United Kingdom based revenue results from the acquisition of Island Pacific,
effective April 1, 1999, and Applied Retail Solutions, Inc., effective July 1,
1998. Both acquired entities are based in California. The following is a summary
of local operations by geographic area:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
United States $ 4,626,664 $ 1,516,483 $ 17,995,974 $ 2,922,760
Australia 2,271,717 3,030,712 10,942,865 9,948,852
United Kingdom 585,990 61,859 2,834,770 215,452
United Kingdom
(discontinued operations) - 4,284,791 - 12,402,521
South Africa - - 1,090,738 -
--------------- --------------- --------------- ---------------
Total revenues $ 7,484,371 $ 8,918,301 $ 32,864,347 $ 25,489,585
=============== =============== =============== ===============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NOTE: All dollar amounts in this discussion other than earnings per share are
rounded to the nearest thousand.
INTRODUCTION
SVI Holdings, Inc. (the "Company") is a provider of computer and information
technology services to specialty businesses in domestic and international
markets. More recently, the Company has narrowed its focus to two distinct
portions of the information technology industry:
o Open architecture point of sale and retail management computer systems.
o PC education courseware and computer skills assessment products.
The Company is a holding company and operates solely through its wholly-owned
subsidiaries. The Company has four major operating subsidiaries as follows:
o Island Pacific Systems Corporation ("Island Pacific").
o Divergent Technologies Pty. Ltd. ("Divergent").
o Applied Retail Solutions, Inc. ("ARS").
o SVI Training Products, Inc. ("SVI Training").
ISLAND PACIFIC ACQUISITION
Effective April 1, 1999, the Company acquired all of the outstanding shares of
Island Pacific. Island Pacific, founded in 1977, is based in Irvine, California,
and develops and markets retail industry merchandising and management software
systems primarily in United States and the United Kingdom. The Company paid the
purchase price of $35 million cash using cash on hand; cash acquired from sale
of IBIS Systems Pty. Ltd. ("IBIS"); approximately $4 million paid by Softline
Limited ("Softline"), the Company's majority stockholder, upon exercise of
options; a $2.3 million loan from Claudav Holdings Ltd., B.V., a major
stockholder; and two bank loans. The bank loans are secured by certain shares of
the Company's subsidiaries. The first bank loan is in the amount of $15 million.
This loan requires interest only payments until March 2000, and the Company then
has an option to convert the loan to a fully-amortizing two-year loan. The
second bank loan is in the amount of $3.5 million and is fully amortizing over
two years. The secured loans bear interest at the bank's prime rate plus .25%
and .50%, respectively.
10
<PAGE>
DISCONTINUED OPERATIONS
Effective January 1, 1999, the Company sold its IBIS subsidiary for cash
proceeds of $2,250,000, surrender of Company common stock valued at $2,142,000
and a note receivable of $13,608,000. The sale resulted in a gain of $274,000,
net of applicable income taxes of $753,000, which was recorded in the year ended
March 31, 1999. Accordingly, the operating results of IBIS for the three months
and nine months ended December 31, 1998 are restated as discontinued operations.
SALE OF TRIPLE-S COMPUTERS PTY. LTD.
Effective October 1, 1999, the Company sold its Triple-S Computers Pty. Ltd.
subsidiary ("Triple-S") to Softline. Triple-S develops and installs retail point
of sale systems throughout Southern Africa. Softline agreed to transfer 64,341
shares of the Company's common stock valued at the October 1, 1999 closing price
of $8.50 per share as consideration for the acquisition. The disposition of
Triple-S was not material to the financial position or results of operations of
the Company.
FORWARD-LOOKING STATEMENTS
Certain statements in this report which are not historical facts are
forward-looking statements. Forward looking statements include, but are not
limited to, all statements about the Company's expectations of results in future
periods. All forward-looking statements in this report involve risks and
uncertainties which could cause actual results to differ materially from those
expressed or implied by such forward-looking statements. These risks and
uncertainties include the effects on results of operations of the acquisition of
Island Pacific, the effects of the Company's efforts to integrate operations and
development efforts of its subsidiaries, demand for the Company's existing and
future retail software products, the performance by the purchaser of IBIS under
the terms of the promissory note given to the Company, or in the absence of
performance, the value and the liquidity of the security for such note, the
availability of capital when needed on terms and conditions acceptable to the
Company, competition, technological developments, and other risk factors
identified from time to time in filings with the Commission. The Company urges
investors to review the "Risk Factors" set forth in the Company's Report on Form
10-KSB for the fiscal year ended March 31, 1999. The Company undertakes no
obligation to release publicly any revisions to forward-looking statements to
reflect events or circumstances after the date of this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
The following table sets forth for the three months ended December 31, 1999 and
December 31, 1998, the relative percentages that certain income and expense
items bear to net sales:
<TABLE>
<CAPTION>
Three months ended December 31,
------------------------------------------------------------------------
1999 1998
Amount Percentage Amount Percentage
--------------- --------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Net sales $ 7,484,000 100% $ 4,609,000 100%
Cost of sales 1,911,000 26% 1,518,000 33%
--------------- --------------- --------------- ---------------
Gross profit 5,573,000 74% 3,091,000 67%
Research and development 1,931,000 26% - 0%
Selling, general and administrative expenses 4,406,000 59% 1,780,000 39%
Other income 211,000 3% 86,000 2%
--------------- --------------- --------------- ---------------
Income before interest expense, income taxes,
Depreciation and amortization (553,000) -7% 1,397,000 30%
Interest expense 447,000 6% 24,000 1%
Depreciation and amortization 1,633,000 22% 426,000 9%
--------------- --------------- --------------- ---------------
Income (loss) before provision for income taxes (2,633,000) -35% 947,000 21%
Provision (benefit) for income taxes (928,000) 12% 344,000 7%
--------------- --------------- --------------- ---------------
Income (loss) from continuing operations (1,705,000) -23% 603,000 13%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Discontinued operations
Income from operations of IBIS Systems Ltd.,
Net of applicable income taxes of $165,000 - 725,000
--------------- ---------------
Net income (loss) $ (1,705,000) $ 1,328,000
=============== ===============
Basic earnings per share:
Continuing operations $ (0.05) $ 0.02
Discontinued operations - 0.03
--------------- ---------------
Net income (loss) $ (0.05) $ 0.05
=============== ===============
Diluted earnings per share:
Continuing operations $ (0.05) $ 0.02
Discontinued operations - 0.02
--------------- ---------------
Net income (loss) $ (0.05) $ 0.04
=============== ===============
</TABLE>
NET SALES
Net sales from continuing operations increased from $4,609,000 to $7,484,000 for
the comparative quarters ended December 31, 1998 and 1999, respectively. This
increase of $2,875,000 or 62% consists primarily of the inclusion in net sales
of $3,427,000 contributed from Island Pacific, a decrease of $783,000 in net
sales from Divergent, and an increase in net sales from SVI Training of
$113,000.
Net sales for the third quarter were significantly less than net sales in the
prior two quarters of fiscal 2000. The principal reasons for this decline were:
o Typical seasonal slowing in the retail systems industry due to
retailers' focus on the holiday shopping season.
o A reluctance of many customers to purchase new systems or make major
modifications to old systems prior to January 1, 2000, so as to avoid
potential Year 2000 problems (see "Year 2000 Readiness Disclosure"
below).
COST OF SALES
Cost of sales for the quarters ended December 31, 1999 and 1998 were $1,911,000
and $1,518,000, respectively. The increase of $393,000 or 26% resulted from
increases in related net sales.
GROSS PROFIT
Gross profit increased to $5,573,000 for the quarter ended December 31, 1999
from $3,091,000 for the quarter ended December 31, 1998. Gross profit as a
percentage of net sales increased from 67% to 74% over the comparative periods.
This increase in gross profit percentage resulted from a decline in lower margin
hardware-related sales. Gross profit for the 1998 period does not include the
IBIS discontinued operations.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended December 31, 1999 were
$1,931,000 or 26% of net sales. There were no research and development expenses
in the comparative 1998 period. The Company has commenced an active research and
development program to enhance its current products and to develop new retail
software products. A significant portion of these expenses during the third
quarter were related to development of a comprehensive suite of electronic
commerce products, which are expected to be introduced late in the fourth
quarter of fiscal 2000 and throughout fiscal year 2001. The Company expects
research and development expenses to increase in future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended December
31, 1999 were $4,406,000 compared to $1,780,000 for the same period ended
December 31, 1998. This increase of $2,626,000 or 147% resulted from the
addition of Island Pacific operational expenses. The increase in selling,
general and administrative expenses was greater than the corresponding increase
in net sales, causing the percentage of net sales represented by these expenses
to increase from 39% to 59% of net sales for the three month periods ended
December 31, 1998 and December 31, 1999.
12
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to $1,633,000 for the quarter ended
December 31, 1999 from $426,000 for the quarter ended December 31, 1998. This
increase of $1,207,000 or 284% is primarily related to the acquisition of Island
Pacific on April 1, 1999. This acquisition resulted in significant additions to
capitalized software and goodwill.
INTEREST INCOME AND EXPENSE
Interest expense was $447,000 and $24,000 for the quarters ended December 31,
1999 and 1998, respectively. The increase was due to interest paid or accrued on
the loans obtained in connection with the acquisition of Island Pacific.
Interest income was $273,000 for the quarter ended December 31, 1999 compared to
$141,000 for the quarter ended December 31, 1998. Interest income during the
1999 period consisted primarily of interest earned on the note payable from the
purchaser of IBIS. Interest income during the 1998 period consisted primarily of
interest earned from cash on hand.
NET INCOME
The Company reports a consolidated net loss of $1,705,000 for the quarter ended
December 31, 1999 versus a net income of $1,328,000 for the comparative quarter
ended December 31, 1998. Net income from the 1998 period includes $725,000 from
discontinued operations. Excluding discontinued operations, the net income for
the quarter ended December 31,1999 would have been $603,000. The changes in net
income are due to the following:
o Decrease of $670,000 in net income from Divergent.
o Decrease of $479,000 in net income from ARS.
o Increase of $106,000 in net income from SVI Training.
o Net loss of $1,148,000 from Island Pacific, which was acquired April
1, 1999.
o Increase in research and development expenses.
o Increase in amortization of software technology and goodwill.
The decreases in net income in Divergent and ARS, and the net loss from Island
Pacific, were caused by decreased sales in all of these divisions. The Company
believes these decreases were primarily due to major retailers' reluctance to
adopt new systems or major modifications prior to determining the actual impact
of Year 2000 problems. See "Year 2000 Readiness Disclosure" below.
BASIC EARNINGS PER SHARE
Basic earnings per share for the three months ended December 31, 1999 and 1998
were ($0.05) and $0.05 per share, respectively. The basic earnings per share for
the three months ended December 31, 1998 included $0.03 per share of income from
discontinued operations.
DILUTED EARNINGS PER SHARE
Diluted earnings per share for the three months ended December 31, 1999 and 1998
were ($0.05) and $0.04 per share, respectively. The quarter ended December 31,
1998 diluted earnings per share included $0.02 per share of income from
discontinued operations.
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
The following table sets forth for the nine months ended December 31, 1999 and
December 31, 1998, the relative percentages that certain income and expense
items bear to net sales:
<TABLE>
<CAPTION>
Nine months ended December 31,
------------------------------------------------------------------------
1999 1998
Amount Percentage Amount Percentage
--------------- --------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Net sales $ 32,864,000 100% $ 13,087,000 100%
Cost of sales 7,231,000 22% 4,068,000 31%
--------------- --------------- --------------- ---------------
Gross profit 25,633,000 78% 9,019,000 69%
13
<PAGE>
Research and development 4,661,000 14% - 0%
Selling, general and administrative expenses 12,384,000 38% 5,300,000 40%
Other income 843,000 3% 974,000 7%
--------------- --------------- --------------- ---------------
Income before interest expense, income taxes,
depreciation and amortization 9,431,000 29% 4,693,000 36%
Interest expense 1,004,000 3% 67,000 1%
Depreciation and amortization 5,010,000 15% 1,570,000 12%
--------------- --------------- --------------- ---------------
Income before provision for income taxes 3,417,000 10% 3,056,000 23%
Provision for income taxes 1,377,000 4% 1,347,000 10%
--------------- --------------- --------------- ---------------
Income from continuing operations 2,040,000 6% 1,709,000 13%
Discontinued operations
Income from operations of IBIS Systems Ltd.,
net of applicable income taxes of $837,000 - 4,017,000
--------------- ---------------
Net income $ 2,040,000 $ 5,726,000
=============== ===============
Basic earnings per share:
Continuing operations $ 0.06 $ 0.06
Discontinued operations - 0.14
--------------- ---------------
Net income $ 0.06 $ 0.20
=============== ===============
Diluted earnings per share:
Continuing operations $ 0.05 $ 0.05
Discontinued operations - 0.13
--------------- ---------------
Net income $ 0.05 $ 0.18
=============== ===============
</TABLE>
NET SALES
Net sales from continuing operations for the nine months ended December 31, 1999
increased by $19,777,000 or 151% to $32,864,000 from $13,087,000 for the
comparable period ended December 31, 1998. The increase is due to the following:
o Inclusion in net sales of $14,942,000 from Island Pacific.
o Increase of $2,620,000 in net sales of ARS, approximately $1,572,000
of which represents ARS net sales in the quarter ended June 30, 1999.
The Company acquired ARS during the second quarter of fiscal 1999, so
no net sales from ARS are included in the quarter ended June 30,
1998.
o Increase of $2,085,000 in net sales from Divergent. The increase was
offset by a reduction in net sales due to the completion of several
large contracts during the first quarter of fiscal 1999.
COST OF SALES
Cost of sales for the nine months ended December 31, 1999 increased $3,164,000
or 78% to $7,232,000 from $4,068,000 for the comparable period in 1998. The
increase was caused by increased net sales.
GROSS PROFIT
Gross profit for the nine months ended December 31, 1999 increased to
$25,633,000 from $9,019,000 for the comparative nine months ended December 31,
1998. Gross profit as a percentage of net sales increased from 69% to 78% over
the comparable periods. This increase is due to a decline in lower margin
hardware-related sales. Gross profit for the 1998 period does not include the
IBIS discontinued operations.
14
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the nine months ended December 31, 1999
were $4,661,000 or 14% of net sales. There were no research and development
expenses in the comparative 1998 period. The Company has commenced an active
research and development program to enhance its current products and develop new
retail software products to meet an expanding range of customer demands,
including the development of electronic commerce products. The Company expects
research and development expenses to increase in future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $7,084,000 or 134% to
$12,384,188 for the nine months ended December 31, 1999, from $5,300,000 for the
same period in the prior year. Selling, general and administrative expenses for
the nine month periods decreased slightly as a percentage of net sales, from 40%
in the 1998 period to 38% in the 1999 period. This decrease reflects increasing
economies of scale from increased operations, offset by the decrease in net
sales during the quarter ended December 31, 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for the nine months ended December 31,
1999 and 1998 were $5,010,000 and $1,570,000, respectively. This increase of
$3,440,000 or 219% is due to the acquisition of goodwill and capitalized
software from Island Pacific and ARS.
INTEREST INCOME AND EXPENSE
For the nine month periods ended December 31, 1999 and December 31, 1998,
interest expense was $1,004,000 and $67,000, respectively. This increase was due
to the loans obtained to acquire Island Pacific. Interest income during the nine
months ended December 31, 1999 was $817,000 compared to $483,000 for the nine
months ended December 31, 1998. Approximately 87% of the interest income during
the nine months ended December 31, 1999 consisted of income from the note
payable from the purchaser of IBIS.
NET INCOME
The Company reports consolidated net income of $2,040,000 and $5,726,000 for the
nine months ended December 31, 1999 and 1998, respectively. Net income from the
1998 period includes $4,017,000 from discontinued operations. Excluding the
discontinued operations, the net income for the nine months ended December 31,
1998 would have been $1,709,000. The changes in net income are due to the
following:
o Inclusion of net loss of $369,000 from Island Pacific, which was
acquired April 1, 1999.
o Increase of $794,000 in net income from Divergent.
o Absence of IBIS net income in the 1999 period.
o Decrease of $649,000 in net income from ARS.
BASIC EARNINGS PER SHARE
Basic earnings per share for the nine months ended December 31, 1999 and 1998
were $0.06 and $0.20 per share, respectively. The basic earnings per share for
the nine months ended December 31, 1998 included $0.14 per share of income from
discontinued operations.
DILUTED EARNINGS PER SHARE
Diluted earnings per share for the nine months ended December 31, 1999 and 1998
were $0.05 and $0.18 per share, respectively. The nine months ended December 31,
1998 diluted earnings per share included $0.13 per share of income from
discontinued operations.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Since March 31, 1999, the Company has financed its operations using internally
generated cash, proceeds from the sale of IBIS, proceeds from the exercise of
options, bank loans, a loan from a stockholder, and a line of credit. At
December 31, 1999, the Company had cash and cash equivalents of $1,597,000, a
decrease of $11,409,000 from $13,006,000 of cash and cash equivalents at March
31, 1999. The largest factor contributing to this decrease was the acquisition
of Island Pacific for a net cash purchase price of $33,698,000. The Company paid
approximately $12,873,000 of the purchase price using cash on hand and financed
the remainder of the purchase price with loans. See "Island Pacific Acquisition
above." The Company has $3,900,000 of credit lines to support working capital
requirements. As of January 23, 2000, the outstanding balance on these lines is
$3,400,000. The Company has been using operating income and cash received from
the exercise of options to discharge the payments due on the bank loans and
lines of credit. Other than cash and cash equivalents and the unused portion of
the line of credit, the Company has no material unused sources of liquid assets.
OPERATING ACTIVITIES
Cash used for operating activities during the nine months ended December 31,
1999 was $1,909,000 consisting primarily of the following:
o Income tax payments of $2,159,000.
o Increase in accounts receivables of $4,923,000.
o Decrease in accounts payable and accrued expenses of $3,228,000.
offset by pre-tax income of $8,427,000 including non-cash expenses of
$5,010,000 for depreciation and amortization.
Accounts receivable increased from $3,310,000 at March 31, 1999 to $9,756,000,
due to the following factors:
o Inclusion of Island Pacific accounts receivable of $2,311,000 at
December 31, 1999. Island Pacific was acquired on April 1, 1999.
o Increase of $4,017,000 in Divergent accounts receivable. The increase
is primarily due to the non-recurring sale of technology rights in the
second quarter.
o Increase of $402,000 in ARS accounts receivable due to an increase in
sales since March 31, 1999.
INVESTING ACTIVITIES
Cash used for investing activities during the nine months ended December 31,
1999 was $35,984,000 consisting primarily of the net cash purchase price of
$33,698,000 for Island Pacific ($35,000,000 purchase price less $1,302,000 cash
acquired) and capitalized software development costs of $1,326,000.
FINANCING ACTIVITIES
Cash provided by financing activities during the nine months ended December 31,
1999 was $26,492,000 consisting primarily of the following:
o Issuance of stock for total proceeds of $5,829,000.
o A loan from a stockholder in the net amount of $1,719,000 used for the
purchase of Island Pacific.
o Proceeds from the line of credit of $1,083,000.
o Bank loans in the total amount of $18,500,000, reduced by $1,021,000 in
principal payments.
The Company has no material financial commitments other than the bank loans and
operating leases. The Company expects to increase expenditures for development
of new retail software products, especially e-commerce products. Capital
requirements in any particular period will depend on the timing of these
expenditures.
16
<PAGE>
RECENT EVENTS
On January 13, 2000, Softline exercised outstanding options to purchase shares
of the Company's common stock for a net exercise price of $650,000.
The promissory note of Kielduff Investments Limited ("Kielduff") due to the
Company in connection with the sale of IBIS was originally due October 1, 1999.
The note was secured by all of the outstanding stock of IBIS. During the third
quarter, Kielduff requested an extension of the maturity date on the note as it
had not completed a planned reorganization to provide the funds necessary to
retire the note. The Company agreed to extend the due date on the note to
February 15, 2000. In January 2000, Kielduff advised the Company that it wished
to proceed with its planned reorganization, although the reorganization would
take longer than originally projected and the reorganization would not generate
sufficient cash to repay the note by February 15, 2000.
After considering its alternatives, the Company determined to further amend the
terms of the note and the related agreements. The Company agreed to extend the
due date of the note to May 15, 2000. The Company further consented as a part of
the planned reorganization by Kielduff to Kielduff's transfer of the IBIS stock
to a wholly-owned subsidiary of Integrity Holdings, Ltd. ("Integrity"). The
common stock of Integrity currently trades on the inter-dealer network under the
symbol "INTY" with prices quoted in the National Quotation Bureau Pink Sheets.
The market for Integrity shares (Pre-reorganization) has been limited. Kielduff
received in consideration for such transfer 3,840,000 shares of Integrity common
stock (the "Integrity Shares"). The Company took a 100% security interest in the
Integrity Shares as a substitution of collateral securing the note. The Company
also obtained the right to convert all or any portion of the unpaid indebtedness
under the note to Integrity Shares valued at $5.00 per share.
If the Company obtains some or all of the Integrity Shares through conversion of
the note, the shares will be restricted securities and may not be resold absent
an effective registration statement for the sale of such shares, or an available
exemption from registration. The Company therefore obtained demand and
"piggyback" registration rights for the Integrity Shares in a separate agreement
with Integrity. While the Company may demand that Integrity file a resale
registration statement at any time, the Company cannot determine when or if such
a registration statement may be declared effective by the Securities and
Exchange Commission. The current trading volume in Integrity common stock is not
sufficient to support a sale of all of the Integrity Shares on the open market
within a short time. The Company anticipates that if it acquires such shares, it
will sell them over time on the open market or enter into an underwriting
agreement for the coordinated sale of such shares. The Company has no
arrangements for an underwriting of the Integrity Shares at this time.
The current balance payable to the Company on the Kielduff note is $13,608,000.
The Company accepted 45,000 shares of its common stock in October 1999 in
satisfaction of $355,770 in accrued interest through October 1, 1999. The
remainder of the interest on the note accrues until the due date of May 15, 2000
or earlier conversion. The Company considers it unlikely that it will achieve
significant liquidity from the Kielduff note or the option to convert that note
to Integrity Shares prior to the May 15, 2000 due date, and the Company cannot
accurately determine when it will obtain liquidity from such note or the
Integrity Shares.
The Company intended to use the proceeds of the Kielduff note to retire one of
the bank loans in the amount of $15,000,000 obtained in connection with the
acquisition of Island Pacific. This loan originally required interest only
payments of approximately $110,000 per month until December 1999, after which
the Company had an option to convert the loan to a two year amortizing term
loan. The bank agreed to extend the conversion date to March 2000. Principal and
interest payments on the converted loan will be approximately $680,000 per
month.
17
<PAGE>
FUTURE CAPITAL REQUIREMENTS
The Company has, at this time, sufficient cash or sources of cash to meet its
current and anticipated needs for the next twelve months. However, the
additional extension granted to Kielduff has strained the Company's cash
reserves. Accordingly, the Company is aggressively pursuing various strategies
for raising capital to meet actual and potential capital needs for the next
twelve months. Strategies being considered include further bank loans, a private
placement of securities and/or a capital infusion from Softline. The Company has
no current commitments for funding, and there is no guarantee that funding will
be available when needed, or on terms and conditions acceptable to the Company.
The Company believes the bank will further restructure payment obligations on
the bank loans if the Company is not able to raise significant funds prior to
March 2000, although there is no binding commitment from the bank to that
effect. Failure to obtain funding when needed could strain farther the cash
resources of the Company. If the Company is unable to raise sufficient capital
to meet it needs, it would likely reduce or eliminate new product research and
development, reallocate uses of cash and/or curtail certain activities. Any of
these actions could have a negative effect on results of operations.
YEAR 2000 READINESS DISCLOSURE
The Company completed its Year 2000 program in November 1999, and maintained
response teams on call 24 hours a day from December 31, 1999 through January 5,
2000. These teams received calls relating to very limited and minor problems.]
As of February 3, 2000, the Company's products, computing and communications
infrastructure systems have operated without Year 2000 related problems and
appear to be Year 2000 ready. The Company is not aware that any of its major
customers or third party suppliers have experienced significant Year 2000
related problems.
The Company believes all its critical systems are Year 2000 ready. However,
there is no guarantee that the Company has discovered all possible failure
points. Specific factors contributing to this uncertainty include a potential
for problems deriving from the leap year day of February 29, 2000, failure to
identify all systems which might have experienced problems, non-compliant third
parties whose systems and operations impact the Company, and other similar
uncertainties.
The Company's Year 2000 contingency plans are complete and will be implemented
if required. The Company will address any Year 2000 problems experienced by the
Company's customers through its normal maintenance and warranty procedures.
To date, the Company estimates Year 2000 compliance costs totaled $257,000. The
funding for these costs came from working capital. These costs did not have a
material adverse effect on results of operations.
The Company believes that customer anticipation of Year 2000 problems led to
decreased sales of new retail software systems and major modifications during
the months leading up to January 1, 2000, and negatively impacted results of
operations during those months. The Company believes that many customers and
potential customers who delayed purchasing new systems or major upgrades will
consider doing so in the year 2000, and that sales will therefore increase.
However, there is no guarantee that this will occur. Specific factors
contributing to this uncertainty include the actual Year 2000 readiness of
customers and potential customers, demand for new retail systems and major
upgrades, and competition from suppliers of competing products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not applicable due to Instruction 1. of Item 305(c) of Regulation S-K.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings, other
than ordinary routine litigation incidental to its business.
ITEM 5. OTHER MATTERS
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting pursuant to Rule 14a-8 of the Securities and Exchange Commission is
April 8, 2000. Unless a stockholder who wishes to bring a matter before the
stockholders at the Company's 2000 annual meeting notifies the Company of such
matter prior to June 22, 2000, management will have discretionary authority to
vote all shares for which it has proxies in opposition to such matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits 2.1 through 10.22 of the Form 10-KSB for the fiscal year ended March
31, 1999 are incorporated herein by reference.
Exhibit Description
------- -----------
10.23 Amendment to Note, incorporated by reference to
exhibit 2.1 of the Form 8-K filed November 1, 1999
10.24 Agreement and Amendment to Note, Pledge Agreement
and Settlement and Release Agreement (enclosed
herewith)
10.25 Registration Rights Agreement (enclosed herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K/A on November 16, 1999 attaching amended financial
statements associated with the acquisition of Island Pacific Systems
Corporation.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SVI Holdings, Inc.
Registrant
/s/ David L. Reese
-------------------------------
David L. Reese
Date: February 14, 2000 Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial officer.
AGREEMENT AND AMENDMENT TO NOTE, PLEDGE AGREEMENT,
AND SETTLEMENT AND RELEASE AGREEMENT
This Agreement and Amendment to Note, Pledge Agreement, and Settlement
and Release Agreement (this "Agreement") is executed effective November 1, 1999
between SVI HOLDINGS, INC., a Nevada corporation, having an address for notices
at 12707 High Bluff Drive, Suite 335, San Diego, CA 92130 ("SVI"), KIELDUFF
INVESTMENTS LIMITED, having an address for notices at The Martello Tower,
Portmarnock, Co Dublin, Ireland ("Kielduff"), JYRIS GROUP, having an address for
notices at Block A, Unit 3 Broomfield Business Park, Mallahide, County Dublin,
Ireland ("Jyris"), SOFTLINE LIMITED, a South African company, having an address
for notices at 16 Commerce Crescent, Eastgate Extension 13, Sandton 2144, South
Africa ("Softline"), SYSTEMS FOR BUSINESS INCORPORATED, a British Virgin Islands
corporation, having an address for notices at P.O. Box 141, La Tonnelle House,
Les Banques, St. Sampson, Guernsey, Channel Islands GY1 3HS ("Systems"), and
IBIS SYSTEMS LIMITED, a company incorporated under the laws of England, having
an address for notices at 2 Twyford Place, Lincolns Inn, Cressex, High Wycombe,
HP12 3RE ("Ibis"), who agree as follows:
1. RECITALS. This Agreement is made with reference to the following
recital of essential facts:
1.1. SVI and Kielduff entered into a Share Sale Agreement re
Ibis Systems Limited effective December 31, 1998 (the "Share Sale Agreement").
1.2. Pursuant to the Share Sale Agreement, Kielduff executed a
Promissory Note dated December 31, 1998 in the amount of $18,108,000 in favor of
SVI (the "Original Note").
1.3. The Original Note was amended pursuant to an Amendment to
Note dated September 1, 1999 and an Amendment to Note dated October 1, 1999,
both between SVI and Kielduff. The Original Note as amended is referred to as
the "Note."
1.4. In order to secure Kielduff's payment obligations under
the Note, Kielduff executed a Stock Pledge Agreement dated as of April 29, 1999
(the "Pledge Agreement"), under which Kielduff pledged to SVI all of the issued
and outstanding shares in the capital stock of Ibis represented by two (2)
shares (the "Ibis Shares").
1.5. Kielduff desires to sell the Ibis Shares to Jyris in
exchange for 3,840,000 shares of common stock of Integrity Holdings, Ltd. (the
"Integrity Shares").
1.6. Jyris is a wholly-owned subsidiary of Integrity Holdings,
Ltd. ("Integrity").
1.7. Under the terms of the Pledge Agreement, Kielduff may not
sell or otherwise dispose of the Ibis Shares without the prior written consent
of SVI.
1.8. SVI, Ibis, Systems and Softline are parties to a
Settlement and Release Agreement, dated as of December 31, 1998 (the "Settlement
Agreement") pursuant to which SVI agreed to pay a portion of the proceeds of the
Note to Systems and SVI, Softline and Systems agreed to release certain claims.
<PAGE>
1.9. SVI is willing to consent to and/or ratify the sale of
the Ibis Shares to Jyris on the terms and conditions set forth in this
Agreement.
2. CONSENT TO TRANSFER. Subject to the terms and conditions in this
Agreement, effective as of the Closing Date, SVI consents to and/or ratifies the
transfer of the Ibis Shares to Jyris.
3. CLOSING. The parties shall close the transaction contemplated by
this Agreement (the "Closing") on December 6, 1999 or such other date and time
as the parties may agree in writing. The Closing shall take place at offices of
Solomon Ward Seidenwurm & Smith, LLP, 401 B Street, Suite 1200, San Diego, CA
912101. The "Closing Date" shall be the date on which the Closing actually
occurs. At the Closing:
3.1. DELIVERY OF IBIS SHARES. The Pledgeholder (as defined in
the Pledge Agreement) shall release the Ibis Shares to Jyris, together with the
Assignments (as defined in the Pledge Agreement).
3.2. DELIVERY OF INTEGRITY SHARES. Jyris shall deliver to the
Pledgeholder the Integrity Shares, issued in the name of Kielduff, and Kielduff
shall deliver to the Pledgeholder Assignments with respect to the Integrity
Shares.
4. AMENDMENT TO PROMISSORY NOTE. Effective as of the Closing Date, the
Note is hereby amended as follows:
4.1. CONVERSION OPTION. Kielduff hereby grants to SVI the
option (the "Conversion Option") to cancel the unpaid indebtedness evidenced by
the Note, or any portion of such unpaid indebtedness, in exchange for Integrity
Shares. The Conversion Option may be exercised by SVI giving written notice to
Kielduff at any time (the "Conversion Notice"). If the Conversion Option is
exercised, such portion of Kielduff's indebtedness under the Note identified in
the Conversion Notice shall be canceled in exchange for Integrity Shares at
$5.00 per share (the "Conversion Price"), and such indebtedness shall be reduced
by the amount of the Conversion Price multiplied by the number of Integrity
Shares received by SVI.
4.2. AMENDMENT TO PLEDGE AGREEMENT. The Note shall continue to
be secured by the Pledge Agreement, as amended by this Agreement. All references
to the Pledge Agreement in the Note shall refer to the Amended Pledge Agreement.
4.3. PAYMENT EXTENSION. Paragraph 1 of the Note is hereby
deleted, and the following provision substituted in its place:
"Payments. All amounts of principal and interest due under this Note
shall be paid to Holder on or before May15, 2000."
2
<PAGE>
4.4. CONFIRMATION OF NOTE. All other terms and provisions of
the Note not amended remain in full force and effect, and Kielduff hereby
reaffirms all of its obligations under the Note.
5. AMENDMENT TO PLEDGE AGREEMENT. Kielduff's obligations under the
Note, as amended by this Agreement, will be secured by a pledge of the Integrity
Shares in favor of SVI. Effective as of the Closing Date, the Pledge Agreement
is hereby amended as follows:
5.1. SUBSTITUTION OF COLLATERAL. The Integrity Shares are
hereby substituted for the Ibis Shares as collateral under the Pledge Agreement.
All references to the "Shares" in the Pledge Agreement shall be deemed to refer
to the Integrity Shares.
5.2. DEFINITION OF "OBLIGATIONS". All references to the
"Obligations" under the Pledge Agreement shall refer to (a) Kielduff's
obligations to SVI under the Note (and all renewals, extensions, amendments, and
changes of, or substitutions or replacements to, any of the obligations under
the Note), (b) Kielduff's obligations under this Agreement, (c) the faithful
performance by Kielduff of all of its obligations under the Share Sale
Agreement, and (d) the obligations of Kielduff and/or its affiliates to pay to
SVI the sum of US$633,000 pursuant to a certain receivable owing to SVI.
5.3. DEFINITION OF "COMPANY". All references in the Pledge
Agreement to "the Company" shall refer to Integrity, rather than Ibis.
5.4. DELIVERY OF SHARES. At the Closing, Kielduff shall (a)
concurrently and validly endorse the share certificate(s) evidencing the
Integrity Shares in blank and deliver such certificate(s) to the Pledgeholder
(as defined in the Pledge Agreement), and (b) deliver to Pledgeholder a duly
executed Assignment Separate from Certificate with respect to each certificate
representing the Integrity Shares.
5.5. COVENANTS. The covenants contained in paragraph 6 of the
Pledge Agreement are deleted. In lieu thereof, the covenants contained in
paragraph 9 of this Agreement shall apply. The breach of any of the covenants
contained in paragraph 9 of this Agreement shall constitute a breach of the
Pledge Agreement.
5.6. KIELDUFF'S REPRESENTATIONS AND WARRANTIES. Kielduff
represents and warrants that the representations and warranties contained in
paragraph 5 of the Pledge Agreement continue to be true and accurate in all
respects. In addition, Kielduff represents and warrants to SVI as follows:
(a) Kielduff will as of the Closing be the legal and
beneficial owner and holder of the Integrity Shares, free and
clear of all encumbrances.
(b) The Integrity Shares have been duly authorized
and validly issued and are fully paid and nonassessable.
(c) There are no options, warrants, rights (including
conversion or preemptive rights) or agreements for the
purchase or acquisition from Kielduff of any of the Integrity
Shares.
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5.7. CONFIRMATION OF PLEDGE AGREEMENT. All other terms and
provisions of the Pledge Agreement not amended remain in full force and effect,
and Kielduff hereby reaffirms its obligations under the Pledge Agreement.
6. AMENDMENT TO SETTLEMENT AGREEMENT. Effective as of the Closing Date,
the Settlement Agreement is hereby amended as follows:
6.1. DEFINITION OF "LOAN NOTE". All references to the "Loan
Note" under the Settlement Agreement shall refer to the Note (as amended by this
Agreement and all prior amendments).
6.2. AMENDMENT TO PARAGRAPH 2. Paragraph 2 of the Settlement
Agreement is hereby amended and restated in its entirety to read:
"2. SETTLEMENT.
"2.1 Providing Kielduff shall have repaid in cash
$13,608,000 under the Loan Note together with all interest and
collection costs thereon unconditionally and without any right of
recovery, SVI shall pay to Systems all further sums it receives in cash
from Kielduff under the Loan.
"2.2 If SVI exercises the Conversion Option, the
decision of whether to sell the Integrity Shares acquired upon exercise
of the Conversion Option (the "Conversion Shares") and the terms of
such sale (including the timing, the number of shares to be sold, and
the sale price) shall be determined by SVI in its sole and absolute
discretion. If SVI sells the Conversion Shares, the proceeds of such
sale shall be allocated as follows: (a) SVI shall retain the first
amount equal to the full amount of the Obligations, plus all accrued
and unpaid interest thereon under the Loan Note through the date of the
exercise of the Conversion Option; and (b) SVI shall pay to Systems the
next $4,500,000, plus all accrued and unpaid interest thereon under the
Loan Note through the date of the exercise of the Conversion Option.
After the amounts described in the preceding sentence have been paid in
full, any excess proceeds and any unsold Conversion Shares shall be
divided equally between SVI and Systems.
"2.3 If SVI does not receive the sum of $13,608,000
together with all interest and collection costs thereon in accordance
with the Loan Note (either directly from Kielduff or upon the sale of
Conversion Shares), SVI shall have no obligation to pay Systems any
amount whatsoever."
6.3. CONFIRMATION OF SETTLEMENT AGREEMENT. All other terms and
provisions of the Settlement Agreement not amended remain in full force and
effect, and each party to the Settlement Agreement hereby reaffirms all of its
obligations under the Settlement Agreement.
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7. COVENANTS OF KIELDUFF AND JYRIS. Effective as of the Closing Date,
Kielduff and Jyris covenant that until all of the Obligations (as defined in the
Pledge Agreement) have been fully and finally satisfied, Kielduff and Jyris will
fully and completely comply with the following affirmative and negative
covenants:
7.1. Kielduff and Jyris shall promptly inform SVI in writing
as soon as they become aware of: (a) any material adverse changes in Integrity's
financial condition, and (b) all existing and all threatened litigation, claims,
investigations, administrative proceedings or similar actions effecting
Integrity which could materially effect the financial condition of Integrity.
7.2. Kielduff shall defend any proceeding which seeks to, or
threatens to, affect, challenge, or impair SVI's security interest in the
Collateral and shall indemnify and hold SVI harmless from and against any and
all costs and expenses incurred in connection with any such action or
proceeding, including attorneys' fees and costs, other than any such action or
claim of a creditor or creditors of the SVI.
7.3. Kielduff shall, promptly upon request by SVI, execute and
deliver any documents or instruments, provide any notices, execute and file any
financing statements or other documents, and take any other actions which are,
in the reasonable judgment of SVI, necessary or desirable to perfect or continue
the perfection and first lien priority of SVI's security interest in the
Collateral, and to protect the Collateral against any adverse claims (in
violation of the representations and warranties in paragraph 5 of the Pledge
Agreement), and pay all reasonable costs incurred by SVI in connection
therewith.
7.4. Kielduff shall pay when due all taxes, assessments, and
liens, if any, upon the Collateral. Kielduff may withhold any such payment or
may elect to contest any lien if Kielduff is in good faith conducting
appropriate proceedings to contest the obligation to pay, so long as SVI's
interest in the Collateral is not jeopardized. In any such contest, Kielduff
shall represent itself and SVI and shall satisfy any final adverse judgment
before enforcement against the Collateral. Kielduff shall name SVI as an
additional obligee under any surety bond furnished in the contest proceedings.
7.5. Kielduff and Jyris shall not without the prior written
consent of the SVI:
(a) vote in favor of any action by Integrity to (i)
change the name or structure of Integrity or alter the
corporate, capital or legal structure of Integrity, including
the creation or acquisition of any subsidiaries; (ii) enter
into any transaction of merger or consolidation, or liquidate,
wind-up or dissolve itself (or suffer any liquidation or
dissolution); (iii) convey, sell, lease, sub-lease, encumber,
transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any part of its business,
property or assets, whether now owned or hereafter acquired;
or (iv) acquire by purchase or otherwise all or a substantial
portion of the business, property or assets of, or stock or
other evidence of beneficial ownership of, any person or any
division or line of business of any person;
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(b) create or suffer to exist any further security
interest in the Collateral;
(c) sell or otherwise dispose of the Collateral or
any interest in the Collateral;
(d) vote in favor of payments or distributions from
Integrity other than in the ordinary course of business;
(e) divert any corporate opportunity from Integrity;
(f) vote in favor of any action by Integrity to sell,
transfer, encumber or otherwise dispose of all or any of its
assets including intangible and intellectual property, except
in the ordinary course of business in a commercially
reasonable transaction involving only unrelated and
unaffiliated parties;
(g) incur any additional indebtedness other than in
the ordinary course of business in a commercially reasonable
transaction involving only unrelated and unaffiliated parties;
(h) vote in favor of any action by Integrity to
create, incur, assume or permit to exist any lien on or with
respect to any property or asset of any kind;
(i) vote in favor of any action by Integrity to enter
into, amend, restate, modify or terminate any contracts except
in the ordinary course of business in a commercially
reasonable transaction involving unrelated and unaffiliated
parties;
(j) vote in favor of any action by Integrity to
increase the compensation payable to any officer or employee
other than in the ordinary course of business consistent with
prior practices;
(k) vote in favor of any action by Integrity to make
any single item of capital expenditure in excess of $50,000;
(l) vote in favor of any action by Integrity to enter
into or permit to exist any transaction (including, without
limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any affiliate
of Kielduff, Integrity or Jyris, on terms that are less
favorable to such person than those that might be obtained at
the time from persons who are not such an affiliate;
(m) vote in favor of any action by Integrity to pay
any dividends or make any other distribution of assets to
shareholders;
(n) vote in favor of any action by Integrity to issue
shares of capital stock or other securities or options or
warrants to purchase such securities;
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(o) vote in favor of any action by Integrity to
engage in any business activities substantially different than
those in which Integrity is presently engaged;
(p) vote in favor of any action by Integrity to cease
operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, or change Integrity's name; or
(q) vote in favor of any action by Integrity to make
any loans or advances or to acquire any indebtedness.
7.6. Kielduff and Jyris will pro cure from Integrity and
furnish to SVI the following:
(a) QUARTERLY STATEMENTS. As soon as available and in
any event within 45 days after the end of each quarterly
fiscal period (except the last) of each fiscal year, copies of
the following, in each case setting forth in comparative form
the consolidated figures for the preceding fiscal year, all in
reasonable detail:
(i) consolidated balance sheets of Integrity
and its subsidiaries as of the close of the
three-month period then ended, setting forth in
comparative form the consolidated figures at the end
of the preceding fiscal year,
(ii) consolidated and consolidating
statements of income of Integrity and its
subsidiaries for the three-month period then ended,
setting forth in comparative form the consolidated
figures for the corresponding period of the preceding
fiscal year, and
(iii) consolidated and consolidating
statements of cash flows of Integrity and its
subsidiaries for the portion of the fiscal year
ending with such three-month period, setting forth in
comparative form the consolidated figures for the
corresponding period of the preceding fiscal year.
(b) ANNUAL STATEMENTS. As soon as available and in
any event within 90 days after the close of each fiscal year
of Integrity, copies of the following, in each case setting
forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and
accompanied by a report thereon of a firm of independent
public accountants of recognized national standing or a firm
reasonably acceptable to SVI:
(i) consolidated balance sheets of Integrity
and its subsidiaries as of the close of such fiscal
year, and
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(ii) consolidated and consolidating
statements of income and changes in shareholders
equity and cash flows of Integrity and its
subsidiaries for such fiscal year.
(c) SEC AND OTHER REPORTS. Promptly upon their
becoming available, one copy of each financial statement,
report, notice or proxy statement sent by Integrity to
stockholders generally and of each periodic or current report,
and any registration statement or prospectus filed by
Integrity or any of its subsidiaries with any securities
exchange or the SEC or any successor agency, and copies of any
orders in any proceedings to which Integrity or any of its
subsidiaries is a party, issued by any governmental agency,
federal or state, having jurisdiction over Integrity or any of
its subsidiaries.
8. REGISTRATION RIGHTS FOR THE INTEGRITY SHARES. It is a condition
precedent to SVI's obligations under this Agreement (including the granting of
SVI's consent to the transfer of the Ibis Shares to Jyris) that SVI shall have
entered into a Registration Rights Agreement with Integrity which provides that,
for so long as SVI owns or holds a security interest in shares of common stock
of Integrity, SVI shall be entitled to the registration rights set forth in this
paragraph 8.
8.1. Integrity shall agree to register the Integrity Shares
under the Securities Act of 1933 (the "Act") (other than on SEC Forms S-4 or
S-8) within ninety days after SVI delivers a written request for such
registration, including compliance with California blue sky laws. Integrity or
Kielduff shall bear all costs and expenses of such registration.
8.2. Integrity shall agree to promptly give to SVI written
notice of its decision to register any of its securities under the Act (other
than on SEC forms S-4 or S-8) and shall include in such registration (and any
related qualification under blue sky laws or other compliance) and in any
underwriting involved therein, any or all of Integrity Shares purchased by SVI
from Kielduff in exchange for the cancellation of indebtedness under the Note
which SVI specifies in a written request made within fifteen (15) days after
receipt of the written notice from Integrity.
8.3. Integrity shall agree to inform SVI in writing of the
initiation of each such registration and the completion thereof. Integrity shall
agree to:
(a) Keep such registration effective for so long as
any other selling shareholder registration statement of
Integrity is kept effective, or until SVI has completed the
distribution described in the registration statement relating
thereto, whichever first occurs;
(b) Furnish such reasonable number of prospectuses
and other documents incident thereto as from time to time SVI
may reasonably request; and
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(c) In connection with any underwritten registration,
Integrity will enter into any underwriting agreement
reasonably necessary to effect the offer and sale of the
shares purchased by SVI under this Agreement, provided such
underwriting agreement contains customary underwriting
provisions.
9. BOARD REPRESENTATION. For so long as SVI owns or holds a security
interest in shares of common stock of Integrity, Kielduff and Jyris shall use
their best efforts to nominate and elect two designees of SVI to the Board of
Directors of Integrity (the "Integrity Board") in accordance with this paragraph
9. In addition, Kielduff and Jyris shall use their best efforts to cause
Integrity to (a) reimburse any designee of SVI hereunder for all reasonable
expenses incurred as a director and to provide such compensation as may be
received by other non-employee directors of Integrity, including indemnity and
advancement of expenses to the fullest extent permitted under applicable law;
and (b) provide, at Integrity's expense, directors and officers liability
insurance coverage reasonably acceptable to SVI for any member of the Integrity
Board designated by SVI.
10. TERMINATION OF REPRESENTATIONS AND INDEMNITIES. As of the Closing
Date, the warranties, representations and indemnities provided by SVI under the
Share Sale Agreement including, without limitation, under the Deed of Indemnity
(Schedule 4), and under paragraph 5 and Schedule 2 to the Share Sale Agreement
are terminated, and SVI shall have no liability under any such warranties,
representations and indemnities. Kielduff and Jyris expressly waive any claims
they may have against SVI with respect to such warranties, representations and
indemnities.
11. WAIVER OF STATUTORY RIGHTS. The parties acknowledge that they may
hereafter discover facts different from, or in addition to, those now known or
believed to be true regarding the matters described in this Agreement, or
emanating therefrom, and agree that this Agreement shall remain in full force
and effect, notwithstanding the existence of any such difference or additional
facts. In this connection, each party expressly waives application of Section
1542 of the California Civil Code and any similar state or federal law.
California Civil Code Section 1542 provides as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his settlement
with the debtor."
12. TERMINATION OF COVENANT NOT TO COMPETE. As of the Closing Date, the
covenants of SVI set forth in paragraph 7 of the Share Sale Agreement are
terminated and of no further force and effect.
13. GOVERNING LAW. This Agreement is governed by and construed in
accordance with the laws of the State of California, irrespective of
California's choice-of-law principles.
14. FURTHER ASSURANCES. Each party to this Agreement shall execute and
deliver all instruments and documents and take all actions as may be reasonably
required or appropriate to carry out the purposes of this Agreement.
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15. VENUE AND JURISDICTION. All actions and proceedings arising in
connection with this Agreement must be tried and litigated exclusively in the
State and Federal courts located in the County of San Diego, State of
California, which courts have personal jurisdiction and venue over each of the
parties to this Agreement for the purpose of adjudicating all matters arising
out of or related to this Agreement. Each party authorizes and accepts service
of process sufficient for personal jurisdiction in any action against it as
contemplated by this paragraph by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices set forth
in this Agreement.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which is deemed an original and all of which together constitute one
document.
17. TIME OF ESSENCE. Time and strict and punctual performance are of
the essence with respect to each provision of this Agreement.
18. ATTORNEY'S FEES. The prevailing party(ies) in any litigation,
arbitration, mediation, bankruptcy, insolvency or other proceeding
("Proceeding") relating to the enforcement or interpretation of this Agreement
may recover from the unsuccessful party(ies) all costs, expenses, and actual
attorney's fees (including expert witness and other consultants' fees and costs)
relating to or arising out of (a) the Proceeding (whether or not the Proceeding
proceeds to judgment), and (b) any post-judgment or post-award proceeding
including, without limitation, one to enforce or collect any judgment or award
resulting from the Proceeding. All such judgments and awards shall contain a
specific provision for the recovery of all such subsequently incurred costs,
expenses, and actual attorney's fees.
19. MODIFICATION. This Agreement may be modified only by a contract in
writing executed by the party to this Agreement against whom enforcement of the
modification is sought.
20. HEADINGS. The paragraph headings in this Agreement: (a) are
included only for convenience, (b) do not in any manner modify or limit any of
the provisions of this Agreement, and (c) may not be used in the interpretation
of this Agreement.
21. PRIOR UNDERSTANDINGS. This Agreement and all documents specifically
referred to and executed in connection with this Agreement: (a) contain the
entire and final agreement of the parties to this Agreement with respect to the
subject matter of this Agreement, and (b) supersede all negotiations,
stipulations, understandings, agreements, representations and warranties, if
any, with respect to such subject matter, which precede or accompany the
execution of this Agreement.
22. INTERPRETATION. Whenever the context so requires in this Agreement,
all words used in the singular may include the plural (and vice versa) and the
word "person" includes a natural person, a corporation, a firm, a partnership, a
joint venture, a trust, an estate or any other entity. The terms "includes" and
"including" do not imply any limitation. For purposes of this Agreement, the
term "day" means any calendar day and the term "business day" means any calendar
day other than a Saturday, Sunday or any other day designated as a holiday under
California Government Code Sections 6700-6701. Any act permitted or required to
be performed under this Agreement upon a particular day which is not a business
day may be performed on the next business day with the same effect as if it had
been performed upon the day appointed. No remedy or election under this
Agreement is exclusive, but rather, to the extent permitted by applicable law,
each such remedy and election is cumulative with all other remedies at law or in
equity.
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23. PARTIAL INVALIDITY. Each provision of this Agreement is valid and
enforceable to the fullest extent permitted by law. If any provision of this
Agreement (or the application of such provision to any person or circumstance)
is or becomes invalid or unenforceable, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, are not affected by such invalidity
or unenforceability unless such provision or the application of such provision
is essential to this Agreement.
24. SUCCESSORS-IN-INTEREST AND ASSIGNS. Neither Kielduff nor Jyris may
voluntarily or by operation of law assign, hypothecate, delegate or otherwise
transfer or encumber all or any part of its rights, duties or other interests in
this Agreement without the prior written consent of SVI, which consent may be
withheld in SVI's sole and absolute discretion. Any such transfer in violation
of this paragraph is void. Subject to the foregoing and any other restrictions
on transferability contained in this Agreement, this Agreement is binding upon
and inures to the benefit of the successors-in-interest and assigns of each
party to this Agreement.
25. NOTICES. All notices or other communications required or permitted
to be given to a party to this Agreement shall be in writing and shall be
personally delivered, sent by certified mail, postage prepaid, return receipt
requested, or sent by an overnight express courier service that provides written
confirmation of delivery, to such party at its address as set forth above in the
introductory paragraph of this Agreement. Each such notice or other
communication shall be deemed given, delivered and received upon its actual
receipt, except that if it is sent by mail in accordance with this paragraph,
then it shall be deemed given, delivered and received three days after the date
such notice or other communication is deposited with the United States Postal
Service in accordance with this paragraph. Any party to this Agreement may give
a notice of a change of its address to the other party(ies) to this Agreement.
26. WAIVER. Any waiver of a provision under this Agreement must be in
writing. No such waiver constitutes a waiver of any other default or provision
concerning the same or any other provision of this Agreement. No delay or
omission by a party in the exercise of any of its rights or remedies constitutes
a waiver of (or otherwise impairs) such right or remedy. A consent to or
approval of an act does not waive or render unnecessary the consent to or
approval of any other or subsequent act.
27. DRAFTING AMBIGUITIES. Each party to this Agreement and its legal
counsel have reviewed and revised this Agreement. The rule of construction that
ambiguities are to be resolved against the drafting party or in favor of the
party receiving a particular benefit under an agreement may not be employed in
the interpretation of this Agreement or any amendment to this Agreement.
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28. INDEMNIFICATION OF PLEDGEHOLDER. The parties shall indemnify,
defend, and hold Pledgeholder harmless from and against any and all actions,
causes of action, claims, demands, expenses, and liabilities that Pledgeholder
may suffer or incur by virtue of its role as Pledgeholder under this Agreement;
provided, however, the foregoing indemnification will not relate to any such
matter arising out of the gross negligence or intentional misconduct of
Pledgeholder. Pledgeholder will not be liable to Kielduff, SVI or Integrity for
any action taken or omitted to be taken by Pledgeholder except for
Pledgeholder's own gross negligence or intentional misconduct.
SVI HOLDINGS, INC., SYSTEMS FOR BUSINESS INC.,
a Nevada corporation a British Virgin Islands corporation
By: /s/ Barry Schechter By: /s/ Peter Nagle
----------------------------- -----------------------------
Its: CEO Its: Vice President
----------------------------- -----------------------------
SOFTLINE LIMITED IBIS SYSTEMS LIMITED,
a South African company an England company
By: /s/ Ivan Epstein By: /s/ Peter Nagle
----------------------------- -----------------------------
Its: CEO Its: Managing Director
KIELDUFF INVESTMENTS LIMITED, JYRIS GROUP
an Ireland company
By: /s/ Peter Nagle By: /s/ Peter Nagle
----------------------------- -----------------------------
Its: Vice President Its: Vice President
----------------------------- -----------------------------
I ACCEPT THE OBLIGATIONS IMPOSED
UPON ME UNDER THIS AGREEMENT:
/s/ Norman L. Smith
- --------------------------------
Norman L. Smith, Esq., Pledgeholder
12
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as
effective of November 1, 1999, by and between Integrity Holdings, Ltd., a Nevada
corporation (the "Company"), and SVI Holdings, Inc., a Nevada corporation
("SVI"), who agree as follows:
RECITALS
--------
A. This Agreement is being entered into in connection with a certain
Agreement and Amendment to Note, Pledge Agreement, and Settlement and Release
Agreement (the "Amendment") executed effective November 1, 1999 between SVI,
Kielduff Investments Limited ("Kielduff"), Jyris Group ("Jyris"), Softline
Limited ("Softline"), Systems For Business Incorporated ("Systems"), and Ibis
Systems Limited ("Ibis").
B. In order to secure certain obligations of Kielduff to SVI, Kielduff
executed a Stock Pledge Agreement dated as of April 29, 1999 (the "Pledge
Agreement"), under which Kielduff pledged to SVI all of the issued and
outstanding shares of capital stock of Ibis (the "Ibis Shares").
C. Kielduff desires to sell the Ibis Shares to Jyris in exchange for
3,840,000 shares of common stock of the Company (the "Integrity Shares").
D. Jyris is a wholly-owned subsidiary of the Company.
E. Under the terms of the Pledge Agreement, Kielduff may not sell or
otherwise dispose of the Ibis Shares without the prior written consent of SVI.
F. Pursuant to the Amendment, SVI will allow the Integrity Shares to be
substituted for the Ibis Shares as collateral under the Pledge Agreement and
consent to the transfer of the Ibis Shares to Jyris; provided, that, among other
things, the Company grants SVI certain registration rights with respect to the
Integrity Shares, as set forth in this Agreement.
AGREEMENT
---------
1. REGISTRATION RIGHTS FOR THE INTEGRITY SHARES. For so long as SVI
owns or holds a security interest in the Integrity Shares, SVI shall be entitled
to the registration rights set forth in this Agreement.
2. DEMAND REGISTRATION.
2.1. DEMAND RIGHTS. If SVI requests in writing (a "Demand
Request") that the Company register an offering of Registrable Securities under
the Securities Act of 1933, by underwriters selected by SVI and reasonably
acceptable to the Company, the Company shall use its best efforts to effect the
registration and sale of such Registrable Securities, in accordance with the
intended method of disposition thereof, and in accordance with the procedures
set forth in paragraph 7.
<PAGE>
2.2. NUMBER OF DEMAND REGISTRATIONS. SVI shall be entitled to
request three registrations of Registrable Securities in which the Company shall
pay all Registration Expenses in connection with each such registration request.
A registration shall not count towards the maximum of three registration
requests held by SVI hereunder unless the registration statement for such
requested registration has become effective and an offering closed in which all
Registrable Securities requested to be included in such registration by SVI
shall have been sold. Provided, however, that the Company in any event shall pay
all Registration Expenses in connection with any requested registration whether
or not the registration statement becomes effective (unless the failure to
become effective is such as to require SVI to pay all Registration Expenses for
such aborted or withdrawn registration pursuant to paragraph 5 below, in which
case (i) SVI shall reimburse the Company for all such Registration Expenses
incurred and paid by the Company in connection with such registration, and (ii)
such withdrawn request shall not count as a requested registration hereunder).
Further provided, that if (i) SVI withdraws from or aborts more than one
registration in any consecutive 12-month period, and (ii) SVI is required to pay
Registration Expenses pursuant to paragraph 5 for more than one such withdrawn
or aborted registration, only one such registration shall not be counted.
2.3. OTHER SECURITIES AND PRIORITY. The registration statement
filed pursuant to the Demand Request may, subject to the prior written consent
of SVI, include other securities of the Company, provided that all Registrable
Securities for which SVI has requested registration shall be covered by such
registration statement and sold in such offering before any such other
securities are included and sold.
2.4. DEFERRAL OF REGISTRATION. If (i) in the good faith
judgment of the Board of Directors of the Company, the filing of a registration
statement as soon as practicable after receipt of the Demand Request would be
materially detrimental to the Company because there exist bona fide financing,
acquisition, or other activities of the Company, and the Board of Directors of
the Company concludes, as a result, that it is essential to defer the filing of
such registration statement at such time, and (ii) the Company shall furnish to
SVI a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
materially detrimental to the Company for such registration statement to be
filed in the near future and that it is essential to defer the filing of such
registration statement, then the Company may defer such filing for a period of
not more than 90 days after receipt of the Demand Request of SVI, provided that
the Company shall not defer its obligations in this manner for more than an
aggregate of 90 days in any twelve-month period, and provided further that SVI
shall be entitled to withdraw the request for registration and, if such request
is withdrawn, such registration shall not count as a requested registration
hereunder and the Company shall pay all Registration Expenses incurred in
connection with such withdrawn registration request.
2.5. INCLUSION OF OTHER SECURITIES. In any demand
registration, if the Company shall request inclusion of securities to be sold
for its own account, or if other persons entitled to incidental registrations
shall request inclusion in such registration, SVI shall offer to include such
securities in the underwriting and may condition such offer on the acceptance by
the Company or such other persons of the provisions of this Agreement. The
Company and all such other persons proposing to distribute securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriters selected by a majority in interest of SVI and reasonably
acceptable to the Company.
2
<PAGE>
3. PIGGYBACK REGISTRATION.
3.1. NOTICE AND PROCEDURES. If the Company proposes to
register any of its common stock either for its own account or for the account
of other security holders, the Company will:
(i) promptly give written notice thereof to SVI; and
(ii) use its best efforts to include in such registration and
in any underwriting involved therein, all Registrable Securities
specified in any written request from SVI received by the Company
within 15 days after such notice.
3.2. LIMITATIONS. The provisions of this paragraph 3 shall not
apply to any registration relating solely to employee benefit plans (as defined
under Rule 405 of the Securities Act), or a registration relating solely to
securities issued in connection with an acquisition or merger, or a registration
on any registration form that does not permit secondary sales.
3.3. UNDERWRITING. The right of SVI to participate in a
piggyback registration shall be conditioned upon SVI's agreement to enter into
an underwriting agreement in customary form with the underwriters selected by
the Company.
3.4. UNDERWRITERS' CUTBACK. Notwithstanding any other
provision of this paragraph 3, if the underwriters of any piggyback registration
advise the Company of the need for an Underwriters' Cutback, the underwriters
may (subject to the limitations set forth below) limit the number of Registrable
Securities to be included in the registration and sold; provided, however, that
Registrable Securities shall be included in any over allotment option granted to
the underwriters before inclusion of any shares to be sold by the Company. The
Company shall advise all holders of securities requesting registration of the
Underwriters' Cutback, and the number of shares of securities that are entitled
to be included in the registration and underwriting shall be allocated first to
the Company for securities being sold for its own account and thereafter as set
forth in paragraph 10.
3.5. OTHER PROVISIONS. If SVI requests participation in a
piggyback registration, and if the registration is for an underwritten offering,
the provisions of paragraph 2.5 shall also apply to such registration.
4. REGISTRATION ON FORM S-3. After the Company has qualified for the
use of Form S-3, and for so long as the Company continues to be so qualified, in
addition to the rights contained in the foregoing provisions of this Agreement,
SVI shall have the right to request registrations on Form S-3 or any comparable
or successor form. Each such request shall be in writing and shall state the
anticipated number of shares of Registrable Securities to be disposed of, the
anticipated gross proceeds of the offering, and the intended methods of
disposition of such shares by SVI, including whether sales are to be made on a
delayed or continuous basis pursuant to Rule 415. The Company shall not be
obligated to effect any registration pursuant to this paragraph 4 if (i) SVI,
3
<PAGE>
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other shares of common stock (if any) on Form S-3 at an aggregate price to the
public of less than $500,000, or (ii) the Company shall delay or defer
registration in accordance with paragraph 2.4, or (iii) the Company will be
required to obtain an audit (other than for its normal year-end audit) for such
registration to become effective. The Company shall only be required to effect
two registrations of Registrable Securities pursuant to this paragraph 4 in each
calendar year, provided, however, that if the offering is to be effected on a
continuous or delayed basis pursuant to Rule 415 (or any successor rule), and
the registration statement is kept effective for a period in excess of 180 days,
then the Company shall not be required to effect another registration in that
calendar year.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement, shall be borne by the Company; provided, however, that SVI shall bear
the Registration Expenses for any registration process begun pursuant to
paragraph 2 and subsequently withdrawn by SVI, unless such withdrawal is based
upon (i) material adverse information relating to the Company that is different
from the information known or available (upon request from the Company or
otherwise) to SVI at the time of the request for registration under paragraph 2,
or (ii) material adverse changes in the financial markets which result in a
significant decline in the public market price for the Company's common stock of
at least 20 percent from the date of the request to the date of such withdrawal.
All Selling Expenses relating to securities registered pursuant to this
Agreement shall be borne by the holders of such securities pro rata on the basis
of the number of shares of securities so registered on their behalf.
6. HOLDBACK AGREEMENTS.
6.1. BY SVI. If requested in writing by the Company and the
managing underwriter of an underwritten registered public offering by the
Company of its common stock, SVI shall agree not to sell or otherwise transfer
or dispose of any common stock of the Company held by SVI (other than those
included in the registration statement) for a period not to exceed 180 days
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that all officers and directors of the
Company and all other holders of rights to registration of any other security of
the Company enter into similar agreements identical in terms to that of SVI.
6.2. BY THE COMPANY. In connection with any underwritten
registration, the Company (i) shall not effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
90-day period after the effective date of any underwritten registration pursuant
to this Agreement, and (ii) shall use its reasonable best efforts to cause each
holder of at least two percent (on a fully-diluted basis) of its common stock,
or any securities convertible into or exchangeable or exercisable for Common
stock, purchased from the Company at any time after the date of this Agreement
(other than in a registered public offering or pursuant to stock options granted
under a stock option plan primarily for employees, officers or directors) to
agree not to effect any public sale or distribution (including sales pursuant to
Rule 144) of any such securities during such period.
4
<PAGE>
7. REGISTRATION PROCEDURES. In the case of each registration effected
by the Company pursuant to this Agreement, the Company will use its best efforts
to effect the registration and sale of Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
shall as expeditiously as possible:
(i) prepare and file a registration statement with respect to
such offering of Registrable Securities, and use its best efforts to
cause such registration statement to become effective,
(ii) notify SVI of the effectiveness of each registration
statement hereunder and prepare and file with the Securities and
Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period of not less than 180 days and comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance
with the intended methods of disposition the sellers thereof set forth
in such registration statement;
(iii) furnish to SVI such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by SVI;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as SVI reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions
of the Registrable Securities owned by SVI;
(v) notify SVI, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any fact necessary to make there statements therein not
misleading, and, at the request of SVI, the Company shall prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or
omit to state any fact necessary to make the statements therein not
misleading;
(vi) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company
are then listed and, if not so listed, to be listed on the NASD
automated quotation system and, if listed on the NASD automated
quotation system, use its best efforts to secure designation of all
such Registrable Securities covered by such registration statement as a
NASDAQ "national market system security" within the meaning of Rule
11a2-1 of the Securities and Exchange Commission or, failing that, to
secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for a
least two market makers to register as such with respect to such
Registrable Securities with the NASD;
5
<PAGE>
(vii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registrations statement;
(viii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other
actions as SVI or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable
Securities (including effecting a stock split or combination of
shares);
(ix) make available for inspection by SVI, any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any
such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by SVI or any such
underwriter, attorney, accountant or agent in connection with such
registration statement, provided that any recipient of such records,
documents or information executes such confidentiality agreement as the
Company reasonably requests;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve months beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration
statement, which earning statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(xi) if SVI, in its sole and exclusive judgment, might be deemed
to be an underwriter or controlling person of the Company, permit SVI
to participate in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished
to the Company in writing, which (i) with respect to matters relating
to SVI, should be included in the reasonable judgment of SVI and its
counsel, and (ii) with respect to matters relating to the Company,
should be included in the reasonable judgment of SVI, subject in the
case of clause (ii) to the approval of the Company and any managing
underwriter of the offering (which approval shall not be unreasonably
withheld);
(xii) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the sellers thereof to consummate the disposition
of such Registrable Securities; and
(xiii) in connection with any underwritten registration, obtain
a cold comfort letter from the Company's independent public accountants
in customary form and covering such matters of the type customarily
covered by cold comfort letters as SVI reasonably requests.
6
<PAGE>
8. INDEMNIFICATION.
8.1. BY THE COMPANY. The Company shall indemnify SVI, each of
its officers, directors, employees, agents, and Affiliates, and each
underwriter, and each of its officers, directors, employees, agents, and
Affiliates, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus (including any related registration statement,
notification, or the like) incident to any registration under this Agreement, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration, and
will reimburse such persons for any legal and any other expenses reasonably
incurred in connection with investigating and defending or settling any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by SVI or such
underwriter and stated to be specifically for use therein. It is agreed that the
indemnity agreement contained in this paragraph shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the prior written consent of the Company (which
consent shall not be unreasonably withheld).
8.2. BY SVI. In connection with the registration or sale of
shares of Registrable Securities pursuant to this Agreement, SVI shall indemnify
the Company, and each of its directors, officers, employees, agents, and
Affiliates, and each underwriter, and each of its directors, officers,
employees, agents, and Affiliates, against all claims losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement or prospectus, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and such directors, officers, partners, underwriters, or control person
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such clam, loss, damage, liability, or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement or prospectus, in reliance upon and in conformity with
written information furnished to the Company by SVI, and stated to be
specifically for use therein; provided, however, that the obligations of SVI
hereunder shall not apply to amounts paid in settlement of any such claims,
losses, damages, or liabilities if such settlement is effected without the prior
written consent of SVI, which consent shall not be unreasonably withheld; and
provided that in no event shall any indemnity under this paragraph 8.2 exceed
the net amount of proceeds from the offering received by SVI.
7
<PAGE>
8.3. PROCEDURE. Each party entitled to indemnification under
this paragraph 8 (the "Indemnified Party") shall give notice to the party or
parties required to provide indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of such claim or any litigation resulting therefrom, shall be reasonably
acceptable to the Indemnified Party. Failure to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this paragraph
to the extent such failure is not prejudicial. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
8.4. CONTRIBUTION. If the indemnification provided for in this
paragraph 8 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
8.5. CONFLICTING PROVISIONS. Notwithstanding the foregoing, to
the extent that the provisions on indemnification and contribution contained in
any underwriting agreement entered into in connection with a registration are in
conflict with the foregoing provisions, the provisions of the underwriting
agreement shall control.
9. INFORMATION BY SVI. SVI shall furnish to the Company in writing such
information regarding SVI and the distribution proposed by SVI as the Company or
underwriters may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification, or compliance
referred to in this Agreement.
10. ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other outstanding shares of common
stock of the Company (the "Other Shares") requested and entitled to be included
in a demand registration cannot be so included as a result of limitations on the
aggregate number of shares of Registrable Securities and Other Shares that may
be so included, or in case of an Underwriters' Cutback, the number of shares of
Registrable Securities and Other Shares that may be so included shall be
allocated among SVI and other selling stockholders pro rata on the basis of the
number of shares of Registrable Securities and Other Shares held by SVI and such
other selling stockholders. If SVI or other selling stockholder does not request
inclusion of the maximum number of shares of Registrable Securities and Other
Shares allocated to him pursuant to this procedure, the remaining portion of his
8
<PAGE>
allocation shall be reallocated among SVI and those other selling stockholders
whose allocations did not satisfy their requests pro rata on the basis of the
number of shares of Registrable Securities and Other Shares held by SVI and such
other selling stockholders, and this procedure shall be repeated until all of
the shares of Registrable Securities and Other Shares which may be included in
the registration on behalf of SVI and other selling stockholders have been so
allocated. Provided, however, the Company shall not limit the number of
Registrable Securities to be included in a registration pursuant to this
Agreement in order to include shares held by stockholders with no registration
rights or to include in that registration shares of stock issued to employees,
officers, directors, or consultants pursuant to any Company stock option plan,
and in such case all Registrable Securities covered by the registration shall be
sold before any such other securities are sold.
11. SURVIVAL OF RIGHTS. The right of SVI to request registration or
inclusion in any registration pursuant to this Agreement shall terminate on the
earlier of (i) such date as all shares of Registrable Securities have been sold
by SVI, or (ii) ten years from the date hereof.
12. DEFINITIONS. As used herein,
"Person" means an individual, corporation, partnership,
limited liability company, joint venture, sole proprietorship, trust or other
entity, business association or organization.
"Register," "registered" and "registration" refers to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933 and applicable rules and regulations
thereunder, and such other actions as may be required to cause such registration
statement to become effective or with respect to registration, qualification or
compliance under applicable state securities laws.
"Registration Expenses" means all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
fees and disbursements of custodians, fees and disbursements of counsel for the
Company and its independent certified public accountants, blue sky fees and
expenses, and reasonable fees and disbursements of one counsel chosen by SVI,
but shall not include Selling Expenses.
"Registrable Securities" means the Integrity Shares, plus any
shares issued as a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the Integrity Shares; provided, however,
that shares shall cease to be Registrable Securities if and when (a) they are
sold pursuant to Rule 144 under the Securities Act or a registration statement
under the Securities Act or (b) such shares are eligible for resale pursuant to
Rule 144 under the Securities Act without regard to any volume limitations
thereunder.
"Rule 144" means Rule 144 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
9
<PAGE>
"Rule 145" means Rule 145 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the SEC.
"Security" has the same meaning as in Section 2(1) of the
Securities of 1933, as amended.
"Selling Expenses" means all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities, and fees and disbursements of counsel for SVI (other than the fees
and disbursements of one counsel for SVI included in Registration Expenses).
"Underwriters' Cutback" means a reduction in the number of
shares to be included in any underwritten offering as the result of receipt of
written notice from the representative(s) of the underwriters to the effect that
the number of shares requested to be included in such registration exceeds the
number which, in the representative's judgment, can be sold in an orderly manner
in such offering within a price range acceptable to either the Company (in a
primary registration) or the majority of the holders initially requesting such
registration (in a secondary registration).
SVI HOLDINGS, INC.
By: ____________________________
Name: __________________________
Title: _________________________
INTEGRITY HOLDINGS, LTD.
By: ____________________________
Name: __________________________
Title: _________________________
10
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