Document:

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                                                                    EXHIBIT 4.1

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "AGREEMENT") is dated as of
March 15, 2004, among Island Pacific, Inc., a Delaware corporation (the
"COMPANY"), and the purchasers identified on the signature pages hereto (each,
including its successors and assigns, a "PURCHASER" and collectively the
"PURCHASERS").

         WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:

                                    ARTICLE I
                                   DEFINITIONS

         1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:

                  "ACTUAL MINIMUM" means, as of any date, the maximum aggregate
         number of shares of Common Stock then issued or potentially issuable in
         the future pursuant to the Transaction Documents, including any
         Underlying Shares issuable upon exercise or conversion in full of all
         Warrants and Debentures, ignoring any conversion or exercise limits set
         forth therein, and assuming (i) any previously unconverted Debentures
         are held until the 26th month anniversary of their date of issuance,
         or, if earlier, until maturity, and all interest thereon is paid in
         shares of Common Stock.

                  "AFFILIATE" means any Person that, directly or indirectly
         through one or more intermediaries, controls or is controlled by or is
         under common control with a Person, as such terms are used in and
         construed under Rule 144 under the Securities Act.

                  "CAPITAL SHARES" means the Common Stock and any shares of any
         other class of common stock whether now or hereafter authorized, having
         the right to participate in the distribution of earnings and assets of
         the Company.

                  "CAPITAL SHARES EQUIVALENTS" means any securities, rights or
         obligations that are convertible into or exchangeable for or give any
         right to subscribe for or purchase, directly or indirectly, any Capital
         Shares or any warrants, options or other rights to subscribe for or

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         purchase, directly or indirectly, Capital Shares or any such
         convertible or exchangeable securities.

                  "CLOSING" means the closing of the purchase and sale of the
         Securities pursuant to SECTION 2.1.

                  "CLOSING DATE" means the Trading Day when all of the
         Transaction Documents have been executed and delivered by the
         applicable parties thereto, and all conditions precedent to (i) each
         Purchaser's obligations to pay the Subscription Amount have been
         satisfied or waived (ii) and the Company's obligations to deliver the
         Securities have been satisfied or waived.

                  "CLOSING PRICE" means $1.15, subject to adjustment for reverse
         and forward stock splits, stock dividends, stock combinations and other
         similar transactions of the Common Stock that occur after the date of
         this Agreement.

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON STOCK" means the common stock of the Company, par
         value $0.0001 per share, and any securities into which such common
         stock shall hereinafter have been reclassified into.

                  "COMPANY COUNSEL" means Solomon, Ward Seidenwurm & Smith, LLP.

                  "DEBENTURES" means, the 9% Convertible Debentures due 26
         months from their date of issuance issued by the Company to the
         Purchasers hereunder, in the form of EXHIBIT A.

                  "DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
         term in Section 3.1 hereof.

                  "EFFECTIVE DATE" means the date the initial Registration
         Statement is first declared effective by the Commission.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
         amended.

                  "FW" means Feldman Weinstein LLP with offices at 420 Lexington
         Avenue, Suite 2620, New York, New York 10170-0002, legal counsel to
         Omicron Master Trust.

                  "GAAP" shall have the meaning ascribed to such term in Section
         3.1(h) hereof.

                  "LIENS" shall have the meaning ascribed to such term in
         Section 3.1(a) hereof.

                  "LOSSES" means any and all losses, claims, damages,
         liabilities, settlement costs and expenses, including without
         limitation costs of preparation and reasonable attorneys' fees.

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                  "MATERIAL ADVERSE EFFECT" shall have the meaning assigned to
         such term in Section 3.1(b) hereof.

                  "PERSON" means an individual or corporation, partnership,
         trust, incorporated or unincorporated association, joint venture,
         limited liability company, joint stock company, government (or an
         agency or subdivision thereof) or other entity of any kind.

                  "PRINCIPAL MARKET" means initially the American Stock Exchange
         and shall also include the New York Stock Exchange, the NASDAQ
         Small-Cap Market or the NASDAQ National Market, whichever is at the
         time the principal trading exchange or market for the Common Stock,
         based upon share volume.

                  "PROCEEDING" means an action, claim, suit, investigation or
         proceeding (including, without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

                  "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
         Agreement, dated the Closing Date, among the Company and the
         Purchasers, in the form of EXHIBIT B.

                  "REGISTRATION STATEMENT" means a registration statement
         meeting the requirements set forth in the Registration Rights Agreement
         and covering the resale of the Underlying Shares by each Purchaser as
         provided for in the Registration Rights Agreement.

                  "REQUIRED APPROVALS" shall have the meaning ascribed to such
         term in Section 3.1(e) hereof.

                  "REQUIRED MINIMUM" means, as of any date, the maximum
         aggregate number of shares of Common Stock then issued or potentially
         issuable in the future pursuant to the Transaction Documents, including
         any Underlying Shares issuable upon exercise or conversion in full of
         all Warrants and Debentures, ignoring any conversion or exercise limits
         set forth therein, and assuming that (a) any previously unconverted
         Debenture is held until the 26th month anniversary of its date of
         issuance, or, if earlier, until maturity, and all interest is paid in
         shares of Common Stock and (b) the VWAP at all times on and after the
         date of determination equals 50% of the actual VWAP on the Trading Day
         immediately prior to the date of determination.

                  "ROTH OFFERING" shall have the meaning ascribed to such term
         in Section 4.7.

                  "RULE 144" means Rule 144 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same effect as such Rule.

                  "SEC REPORTS" shall have the meaning ascribed to such term in
         Section 3.1(h) hereof.

                  "SECURITIES" means the Debentures, Warrants and the Underlying
         Shares.

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                  "SECURITIES ACT" means the Securities Act of 1933, as amended.

                  "SERIES A WARRANT" shall mean the Series A Common Stock
         Purchase Warrant to be delivered pursuant to Section 2.2(a)(ii) in the
         form of EXHIBIT C attached hereto.

                  "SERIES B WARRANT" shall mean the Series B Common Stock
         Purchase Warrant to be delivered pursuant to Section 2.2(a)(v) in the
         form of EXHIBIT D attached hereto.

                  "SET PRICE" shall have the meaning ascribed to such term in
         the Debentures.

                  "SHAREHOLDER APPROVAL" means such approval as may be required
         by the applicable rules and regulations of the Principal Market (or any
         successor entity) from the shareholders of the Company with respect to
         the transactions contemplated by the Transaction Documents, including
         the issuance of all of the Underlying Shares and shares of Common Stock
         issuable upon exercise of the Warrants in excess of 19.9% of the
         Company's issued and outstanding Common Stock on the Closing Date.

                  "SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amount
         set forth below such Purchaser's signature block on the signature pages
         hereto and next to the heading "Subscription Amount" in United States
         dollars and in immediately available funds.

                  "SUBSIDIARY" means any subsidiary of the Company that is
         required to be listed in SCHEDULE 3.1(A).

                  "TRADING DAY" means any day during which the Principal Market
         shall be open for business.

                  "TRANSACTION DOCUMENTS" means this Agreement, the Debentures,
         the Warrants, the Registration Rights Agreement and any other documents
         or agreements executed in connection with the transactions contemplated
         hereunder.

                  "UNDERLYING SHARES" means the shares of Common Stock issuable
         upon conversion of the Debentures and upon exercise of the Warrants and
         issued and issuable in lieu of the cash payment of interest on the
         Debentures.

                  "UNDERLYING SHARES REGISTRATION STATEMENT" OR "REGISTRATION
         STATEMENT" means a registration statement meeting the requirements set
         forth in the Registration Rights Agreement and covering the resale of
         the Underlying Shares by each Purchaser as provided for in the
         Registration Rights Agreement.

                  "VWAP" means, for any Trading Date, the price determined by
         the first of the following clauses that applies: (a) if the Common
         Stock is then listed or quoted on a Principal Market, the daily volume
         weighted average price of the Common Stock for such date (or the
         nearest preceding date) on the Principal Market on which the Common
         Stock is then listed or quoted as reported by Bloomberg Financial L.P.
         (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m.
         Eastern Time); (b) if the Common Stock is not then listed or quoted on
         a Principal Market and if prices for the Common Stock are then quoted

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         on the OTC Bulletin Board, the volume weighted average price of the
         Common Stock for such date (or the nearest preceding date) on the OTC
         Bulletin Board; (c) if the Common Stock is not then listed or quoted on
         the OTC Bulletin Board and if prices for the Common Stock are then
         reported in the "Pink Sheets" published by the National Quotation
         Bureau Incorporated (or a similar organization or agency succeeding to
         its functions of reporting prices), the average of the most recent bid
         and ask price per share of the Common Stock so reported; or (d) in all
         other cases, the fair market value of a share of Common Stock as
         determined by a nationally recognized-independent appraiser selected in
         good faith by Purchasers holding a majority of the principal amount of
         Debentures then outstanding.

                  "WARRANTS" means collectively the Series A Common Stock
         Purchase Warrants and the Series B Common Stock Purchase Warrants
         delivered to the Purchasers at the Closing in accordance with Section
         2.2 hereof.

                  "WARRANT SHARES" means the shares of Common Stock underlying
         the Warrants.

                                   ARTICLE II
                                PURCHASE AND SALE

         2.1 Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and each Purchaser agrees to purchase, severally and not
jointly, the Debentures as set forth next to the respective Purchaser's name on
the signature pages hereto for an aggregate Subscription Amount among all
Purchasers of up to $3,500,000.00. On the Closing Date, each Purchaser shall
purchase, severally and not jointly, the principal amount of Debentures equal to
each Purchaser's Subscription Amount and the Company shall sell each such
principal amount of Debentures to each such Purchaser. The Closing shall take
place at the offices of FW or at such other location as the parties may agree.

         2.2 CLOSING CONDITIONS AND DELIVERIES. Upon satisfaction or waiver by
the party sought to be benefited thereby of the conditions and deliveries set
forth in this Section 2.2, the Closing shall occur.

                  (a) At or prior to the Closing, the Company shall deliver or
         cause to be delivered to each Purchaser the following:

                           (i) a Debenture with a principal amount equal to such
                  Purchaser's Subscription Amount, registered in the name of
                  such Purchaser;

                           (ii) a Series A Warrant registered in the name of
                  such Purchaser to purchase up to a number of shares of Common
                  Stock equal to 40% of such Purchaser's Subscription Amount
                  divided by the Closing Price with a term of exercise of 5
                  years and an exercise price per Warrant Share equal to the
                  Closing Price, subject to adjustment therein;

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                           (iii) a legal opinion of Company Counsel, in the form
                  of EXHIBIT E attached hereto, addressed to the Purchasers;

                           (iv) the Registration Rights Agreement duly executed
                  by the Company;

                           (v) a Series B Warrant registered in the name of such
                  Purchaser to purchase up to a number of shares of Common Stock
                  equal to such Purchaser's pro-rata portion of 8,500,000
                  (calculated based on such Purchaser's Subscription Amount and
                  the aggregate Subscription Amount of all Purchasers) with an
                  exercise price per Warrant Share equal to $5 subject to
                  adjustment therein; and

                           (vi) this Agreement duly executed by the Company.

                  (b) At or prior to the Closing, each Purchaser shall deliver
         or cause to be delivered to the Company the following:

                           (i) such Purchaser's Subscription Amount by wire
                  transfer to the instructions set forth on ANNEX 1 attached
                  hereto;

                           (ii) this Agreement duly executed by such Purchaser;
                  and

                           (iii) the Registration Rights Agreement duly executed
                  by such Purchaser.

                  (c) All representations and warranties of the other parties
         contained herein shall remain true and correct as of the Closing Date
         and all covenants of the other party shall have been performed;

                  (d) There shall have been no Material Adverse Effect (as
         defined in Section 3.1(b) hereof) with respect to the Company since the
         date hereof;

                  (e) From the date hereof to the Closing Date, trading in the
         Common Stock shall not have been suspended by the Commission (except
         for any suspension of trading of limited duration agreed to by the
         Company, which suspension shall be terminated prior to the Closing),
         and, at any time prior to the Closing Date, trading in securities
         generally as reported by Bloomberg Financial Markets shall not have
         been suspended or limited, or minimum prices shall not have been
         established on securities whose trades are reported by such service, or
         on the Principal Market, nor shall a banking moratorium have been
         declared either by the United States or New York State authorities.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the disclosure schedules delivered to the Purchasers concurrently herewith
(the "DISCLOSURE SCHEDULES") which Disclosure Schedules shall be deemed a part
hereof, or, other than with respect to Sections 3.1(g), 3.1(u), 3.1(v), 3.1(w),
3.1(z) and 3.1(dd), except as set forth in the SEC Reports, the Company hereby
makes the representations and warranties set forth below to each Purchaser.

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                  (a) SUBSIDIARIES. The Company has no direct or indirect
         subsidiaries. The Company owns, directly or indirectly, all of the
         capital stock or other equity interests of each Subsidiary free and
         clear of any lien, charge, security interest, encumbrance, right of
         first refusal or other restriction (collectively, "LIENS"), and all the
         issued and outstanding shares of capital stock of each Subsidiary are
         validly issued and are fully paid, non-assessable and free of
         preemptive and similar rights. If the Company has no subsidiaries, then
         references in the Transaction Documents to the Subsidiaries will be
         disregarded.

                  (b) ORGANIZATION AND QUALIFICATION. Each of the Company and
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable), with
         the requisite power and authority to own and use its properties and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any Subsidiary is in violation of any of the provisions of
         its respective certificate or articles of incorporation, bylaws or
         other organizational or charter documents. Each of the Company and the
         Subsidiaries is duly qualified to do business and is in good standing
         as a foreign corporation or other entity in each jurisdiction in which
         the nature of the business conducted or property owned by it makes such
         qualification necessary, except where the failure to be so qualified or
         in good standing, as the case may be, could not, individually or in the
         aggregate: (i) adversely affect the legality, validity or
         enforceability of any Transaction Document, (ii) have or result in or
         be reasonably likely to have or result in a material adverse effect on
         the results of operations, assets, prospects, business or condition
         (financial or otherwise) of the Company and the Subsidiaries, taken as
         a whole, or (iii) adversely impair the Company's ability to perform
         fully on a timely basis its obligations under any of the Transaction
         Documents (any of (i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT").

                  (c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
         corporate power and authority to enter into and to consummate the
         transactions contemplated by each of the Transaction Documents and
         otherwise to carry out its obligations hereunder or thereunder. The
         execution and delivery of each of the Transaction Documents by the
         Company and the consummation by it of the transactions contemplated
         hereby or thereby have been duly authorized by all necessary action on
         the part of the Company and no further consent or action is required by
         the Company other than Required Approvals. Each of the Transaction
         Documents has been (or upon delivery will be) duly executed by the
         Company and, when delivered in accordance with the terms hereof, will
         constitute the valid and binding obligation of the Company enforceable
         against the Company in accordance with its terms, subject to applicable
         bankruptcy, insolvency, fraudulent conveyance, reorganization,
         moratorium and similar laws affecting creditors' rights and remedies
         generally and general principles of equity. Neither the Company nor any
         Subsidiary is in violation of any of the provisions of its respective
         certificate or articles of incorporation, by-laws or other
         organizational or charter documents.

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                  (d) NO CONFLICTS. The execution, delivery and performance of
         the Transaction Documents by the Company and the consummation by the
         Company of the transactions contemplated thereby do not and will not:
         (i) conflict with or violate any provision of the Company's or any
         Subsidiary's certificate or articles of incorporation, bylaws or other
         organizational or charter documents, or (ii) subject to obtaining the
         Required Approvals, conflict with, or constitute a default (or an event
         that with notice or lapse of time or both would become a default)
         under, or give to others any rights of termination, amendment,
         acceleration or cancellation (with or without notice, lapse of time or
         both) of, any agreement, credit facility, debt or other instrument
         (evidencing a Company or Subsidiary debt or otherwise) or other
         understanding to which the Company or any Subsidiary is a party or by
         which any property or asset of the Company or any Subsidiary is bound
         or affected, or (iii) result, in a violation of any law, rule,
         regulation, order, judgment, injunction, decree or other restriction of
         any court or governmental authority to which the Company or a
         Subsidiary is subject (including federal and state securities laws and
         regulations), or by which any property or asset of the Company or a
         Subsidiary is bound or affected; except in the case of each of clauses
         (ii) and (iii), such as could not, individually or in the aggregate,
         have or result in a Material Adverse Effect.

                  (e) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor
         any Subsidiary is required to obtain any consent, waiver, authorization
         or order of, give any notice to, or make any filing or registration
         with, any court or other federal, state, local or other governmental
         authority or other Person in connection with the execution, delivery
         and performance by the Company of the Transaction Documents, other than
         (i) the filings required under SECTION 4.8, (ii) the filing with the
         Commission of the Underlying Shares Registration Statement, (iii) the
         notice and/or application(s) to each applicable Principal Market for
         the issuance and sale of the Debentures and Warrants and the listing of
         the Underlying Shares for trading thereon in the time and manner
         required thereby, and (iv) the filing of Form D with the Commission and
         applicable Blue Sky filings (collectively, the "REQUIRED APPROVALS").

                  (f) ISSUANCE OF THE SECURITIES. The Securities are duly
         authorized and, when issued and paid for in accordance with the
         applicable Transaction Documents, will be duly and validly issued,
         fully paid and non-assessable, free and clear of all Liens. The Company
         has reserved from its duly authorized capital stock a number of shares
         of Common Stock for issuance of the Underlying Shares at least equal to
         the Required Minimum on the date hereof. The Company has not, and to
         the knowledge of the Company, no Affiliate of the Company has sold,
         offered for sale or solicited offers to buy or otherwise negotiated in
         respect of any security (as defined in Section 2 of the Securities Act)
         that would be integrated with the offer or sale of the Securities in a
         manner that would require the registration under the Securities Act of
         the sale of the Securities to the Purchasers, or that would be
         integrated with the offer or sale of the Securities for purposes of the
         rules and regulations of any Principal Market.

                  (g) CAPITALIZATION. The number of shares and type of all
         authorized, issued and outstanding capital stock of the Company is set
         forth in the Disclosure Schedules attached hereto. No securities of the
         Company are entitled to preemptive or similar rights, and no Person has

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         any right of first refusal, preemptive right, right of participation,
         or any similar right to participate in the transactions contemplated by
         the Transaction Documents. Except as a result of the purchase and sale
         of the Securities, there are no outstanding options, warrants, script
         rights to subscribe to, calls or commitments of any character
         whatsoever relating to, or securities, rights or obligations
         convertible into or exchangeable for, or giving any Person any right to
         subscribe for or acquire, any shares of Common Stock, or contracts,
         commitments, understandings or arrangements by which the Company or any
         Subsidiary is or may become bound to issue additional shares of Common
         Stock, or securities or rights convertible or exchangeable into shares
         of Common Stock. The issuance and sale of the Securities will not
         obligate the Company to issue shares of Common Stock or other
         securities to any Person (other than the Purchasers) and will not
         result in a right of any holder of Company securities to adjust the
         exercise, conversion, exchange or reset price under such securities.
         All of the outstanding shares of capital stock of the Company are
         validly issued, fully paid and nonassessable, have been issued in
         compliance with all federal and state securities laws, and none of such
         outstanding shares was issued in violation of any preemptive rights or
         similar rights to subscribe for or purchase securities. No further
         approval or authorization of any stockholder, the Board of Directors of
         the Company or others is required for the issuance and sale of the
         Shares. Except as disclosed in the SEC Reports, there are no
         stockholders agreements, voting agreements or other similar agreements
         with respect to the Company's capital stock to which the Company is a
         party or, to the knowledge of the Company, between or among any of the
         Company's stockholders.

                  (h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
         all reports required to be filed by it under the Securities Act and the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the two years preceding the date hereof (or such shorter period as the
         Company was required by law to file such material) (the foregoing
         materials being collectively referred to herein as the "SEC REPORTS"
         and, together with the Schedules to this Agreement, the "DISCLOSURE
         MATERIALS") on a timely basis or has received a valid extension of such
         time of filing and has filed any such SEC Reports prior to the
         expiration of any such extension. The Company has identified and made
         available to the Purchasers a copy of all SEC Reports filed within the
         10 days preceding the date hereof. As of their respective dates, the
         SEC Reports complied in all material respects with the requirements of
         the Securities Act and the Exchange Act and the rules and regulations
         of the Commission promulgated thereunder, and none of the SEC Reports,
         when filed, contained any untrue statement of a material fact or
         omitted to state a material fact required to be stated therein or
         necessary in order to make the statements therein, in light of the
         circumstances under which they were made, not misleading. The financial
         statements of the Company included in the SEC Reports comply in all
         material respects with applicable accounting requirements and the rules
         and regulations of the Commission with respect thereto as in effect at
         the time of filing. Such financial statements have been prepared in
         accordance with generally accepted accounting principles applied on a
         consistent basis during the periods involved ("GAAP"), except as may be
         otherwise specified in such financial statements or the notes thereto,
         and fairly present in all material respects the financial position of
         the Company and its consolidated subsidiaries as of and for the dates

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         thereof and the results of operations and cash flows for the periods
         then ended, subject, in the case of unaudited statements, to normal,
         immaterial, year-end audit adjustments.

                  (i) MATERIAL CHANGES. Since the date of the latest audited
         financial statements included within the SEC Reports, except as
         specifically disclosed in the SEC Reports: (i) there has been no event,
         occurrence or development that has had or that could result in a
         Material Adverse Effect, (ii) the Company has not incurred any
         liabilities (contingent or otherwise) other than (A) trade payables and
         accrued expenses incurred in the ordinary course of business consistent
         with past practice and (B) liabilities not required to be reflected in
         the Company's financial statements pursuant to GAAP or required to be
         disclosed in filings made with the Commission, (iii) the Company has
         not altered its method of accounting or the identity of its auditors,
         (iv) the Company has not declared or made any dividend or distribution
         of cash or other property to its stockholders or purchased, redeemed or
         made any agreements to purchase or redeem any shares of its capital
         stock, and (v) the Company has not issued any equity securities to any
         officer, director or Affiliate, except pursuant to existing Company
         stock option or similar plans.

                  (j) LITIGATION. There is no action, suit, inquiry, notice of
         violation, proceeding or investigation pending or, to the knowledge of
         the Company, threatened against or affecting the Company, any
         Subsidiary or any of their respective properties before or by any
         court, arbitrator, governmental or administrative agency or regulatory
         authority (federal, state, county, local or foreign) (collectively, an
         "ACTION") which: (i) adversely affects or challenges the legality,
         validity or enforceability of any of the Transaction Documents or the
         Securities or (ii) could, if there were an unfavorable decision,
         individually or in the aggregate, have or reasonably be expected to
         result in a Material Adverse Effect. Neither the Company nor any
         Subsidiary, nor any director or officer thereof, is or has been the
         subject of any Action involving a claim of violation of or liability
         under federal or state securities laws or a claim of breach of
         fiduciary duty. The Company does not have pending before the Commission
         any request for confidential treatment of information. There has not
         been, and to the knowledge of the Company, there is not pending or
         contemplated, any investigation by the Commission involving the Company
         or any current or former director or officer of the Company. The
         Commission has not issued any stop order or other order suspending the
         effectiveness of any registration statement filed by the Company or any
         Subsidiary under the Exchange Act or the Securities Act.

                  (k) COMPLIANCE. Neither the Company nor any Subsidiary: (i) is
         in default under or in violation of (and no event has occurred that has
         not been waived that, with notice or lapse of time or both, would
         result in a default by the Company or any Subsidiary under), nor has
         the Company or any Subsidiary received notice of a claim that it is in
         default under or that it is in violation of, any indenture, loan or
         credit agreement or any other agreement or instrument to which it is a
         party or by which it or any of its properties is bound (whether or not
         such default or violation has been waived), (ii) is in violation of any
         order of any court, arbitrator or governmental body, or (iii) is or has
         been in violation of any statute, rule or regulation of any
         governmental authority, except in each case as could not, individually
         or in the aggregate, have or result in a Material Adverse Effect.

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                  (l) LABOR RELATIONS. No material labor dispute exists or, to
         the knowledge of the Company, is imminent with respect to any of the
         employees of the Company.

                  (m) REGULATORY PERMITS. The Company and the Subsidiaries
         possess all certificates, authorizations and permits issued by the
         appropriate federal, state, local or foreign regulatory authorities
         necessary to conduct their respective businesses as described in the
         SEC Reports, except where the failure to possess such permits could
         not, individually or in the aggregate, have or reasonably be expected
         to result in a Material Adverse Effect ("MATERIAL PERMITS"), and
         neither the Company nor any Subsidiary has received any notice of
         proceedings relating to the revocation or modification of any Material
         Permit.

                  (n) TITLE TO ASSETS. The Company and the Subsidiaries have
         good and marketable title in fee simple to all real property owned by
         them that is material to the business of the Company and the
         Subsidiaries and good and marketable title in all personal property
         owned by them that is material to the business of the Company and the
         Subsidiaries, in each case free and clear of all Liens, except for
         Liens as do not materially affect the value of such property and do not
         materially interfere with the use made and proposed to be made of such
         property by the Company and the Subsidiaries. And to the Company's
         knowledge, any real property and facilities held under lease by the
         Company and the Subsidiaries are held under valid, subsisting and
         enforceable leases of which the Company and the Subsidiaries are in
         compliance.

                  (o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
         have, or have rights to use, all patents, patent applications,
         trademarks, trademark applications, service marks, trade names,
         copyrights, licenses and other similar rights necessary or material for
         use in connection with their respective businesses as described in the
         SEC Reports and which the failure to so have could have a Material
         Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
         Neither the Company nor any Subsidiary has received a written notice
         that the Intellectual Property Rights used by the Company or any
         Subsidiary violates or infringes upon the rights of any Person. To the
         knowledge of the Company, all such Intellectual Property Rights are
         enforceable and there is no existing infringement by another Person of
         any of the Intellectual Property Rights.

                  (p) INSURANCE. The Company and the Subsidiaries are insured by
         insurers of recognized financial responsibility against such losses and
         risks and in such amounts as are reasonably prudent and customary in
         the businesses in which the Company and the Subsidiaries are engaged. A
         list of the Company's insurance contracts and policies are set forth on
         the Disclosure Schedules. To the best of Company's knowledge, such
         insurance contracts and policies are accurate and complete. Neither the
         Company nor any Subsidiary has any reason to believe it will not be
         able to renew its existing insurance coverage as and when such coverage
         expires or to obtain similar coverage from similar insurers as may be
         necessary to continue its business without a significant increase in
         cost.

                                      -11-
<PAGE>

                  (q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
         forth in SEC Reports, none of the officers or directors of the Company
         and, to the knowledge of the Company, none of the employees of the
         Company is presently a party to any transaction with the Company or any
         Subsidiary (other than for services as employees, officers and
         directors), including any contract, agreement or other arrangement
         providing for the furnishing of services to or by, providing for rental
         of real or personal property to or from, or otherwise requiring
         payments to or from any officer, director or such employee or, to the
         knowledge of the Company, any entity in which any officer, director, or
         any such employee has a substantial interest or is an officer,
         director, trustee or partner.

                  (r) INTERNAL ACCOUNTING CONTROLS. The Company and the
         Subsidiaries maintain a system of internal accounting controls
         sufficient to provide reasonable assurance that (i) transactions are
         executed in accordance with management's general or specific
         authorizations, (ii) transactions are recorded as necessary to permit
         preparation of financial statements in conformity with GAAP and to
         maintain asset accountability, (iii) access to assets is permitted only
         in accordance with management's general or specific authorization, and
         (iv) the recorded accountability for assets is compared with the
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences. The Company has established disclosure
         controls and procedures (as defined in Exchange Act Rules 13a-15 and
         15b-15) for the Company and designed such disclosures controls and
         procedures to ensure that material information relating to the Company,
         including its subsidiaries, is made known to the certifying officers by
         others within those entities, particularly during the period in which
         the Company's Form 10-K or 10-Q, as the case may be, is being prepared.
         The Company's certifying officers have evaluated the effectiveness of
         the Company's controls and procedures as of a date within 90 days prior
         to the filing date of the Form 10-Q for the quarter ended December 31,
         2003 (such date, the "EVALUATION DATE"). The Company presented in the
         Form 10-Q for the quarter ended December 31, 2003 the conclusions of
         the certifying officers about the effectiveness of the disclosure
         controls and procedures based on their evaluations as of the Evaluation
         Date. Since the Evaluation Date, there have been no significant changes
         in the Company's internal controls (as such term is defined in Item
         307(b) of Regulation S-K under the Exchange Act) or, the Company's
         knowledge, in other factors that could significantly affect the
         Company's internal controls.

                  (s) SOLVENCY/INDEBTEDNESS. Based on the financial condition of
         the Company as of the Closing Date: (i) the fair saleable value of the
         Company's assets exceeds the amount that will be required to be paid on
         or in respect of the Company's existing debts and other liabilities
         (including known contingent liabilities) as they mature; (ii) the
         Company's assets do not constitute unreasonably small capital to carry
         on its business for the current fiscal year as now conducted and as
         proposed to be conducted including its capital needs taking into
         account the particular capital requirements of the business conducted
         by the Company, and projected capital requirements and capital
         availability thereof; and (iii) the current cash flow of the Company,
         together with the proceeds the Company would receive, were it to

                                      -12-
<PAGE>

         liquidate all of its assets, after taking into account all anticipated
         uses of the cash, would be sufficient to pay all amounts on or in
         respect of its debt when such amounts are required to be paid. The
         Company does not intend to incur debts beyond its ability to pay such
         debts as they mature (taking into account the timing and amounts of
         cash to be payable on or in respect of its debt). The Company has no
         knowledge of any facts or circumstances which lead it to believe that
         it will file for reorganization or liquidation under the bankruptcy or
         reorganization laws of any jurisdiction within one year from the
         Closing Date. The SEC Reports set forth as of the dates thereof all
         outstanding secured and unsecured Indebtedness of the Company or any
         Subsidiary, or for which the Company or any Subsidiary has commitments.
         For the purposes of this Agreement, "INDEBTEDNESS" shall mean (a) any
         liabilities for borrowed money or amounts owed in excess of $50,000
         (other than trade accounts payable incurred in the ordinary course of
         business), (b) all guaranties, endorsements and other contingent
         obligations, whether or not the same are or should be reflected in the
         Company's balance sheet or the notes thereto, except guaranties by
         endorsement of negotiable instruments for deposit or collection in the
         ordinary course of business, and (c) the present value of any lease
         payments in excess of $50,000 due under leases required to be
         capitalized in accordance with GAAP. Neither the Company nor any
         Subsidiary is in default with respect to any Indebtedness.

                  (t) CERTAIN FEES. No brokerage or finder's fees or commissions
         are or will be payable by the Company to any broker, financial advisor
         or consultant, finder, placement agent, investment banker, bank or
         other Person with respect to the transactions contemplated by this
         Agreement, and the Company has not taken any action that would cause
         any Purchaser to be liable for any such fees or commissions. The
         Company agrees that the Purchasers shall have no obligation with
         respect to any fees or with respect to any claims made by or on behalf
         of any Person for fees of the type contemplated by this Section with
         the transactions contemplated by this Agreement.

                  (u) PRIVATE PLACEMENT. Assuming the accuracy of the
         representations and warranties of the Purchasers set forth in Sections
         3.2(b)-(f), the offer, issuance and sale of the Securities to the
         Purchasers as contemplated hereby are exempt from the registration
         requirements of the Securities Act. The issuance and sale of the
         Securities hereunder does not contravene the rules and regulations of
         the Principal Market and no shareholder approval is required for the
         Company to fulfill its obligations under the Transaction Documents.

                  (v) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common
         Stock is registered pursuant to Section 12(g) of the Exchange Act, and
         the Company has taken no action designed to, or which to its knowledge
         is likely to have the effect of, terminating the registration of the
         Common Stock under the Exchange Act nor has the Company received any
         notification that the Commission is contemplating terminating such
         registration. The Company has not, in the 12 months preceding the date
         hereof, received notice from any Principal Market on which the Common
         Stock is or has been listed or quoted to the effect that the Company is
         not in compliance with the listing or maintenance requirements of such
         Principal Market. The Company is, and has no reason to believe it will
         not in the foreseeable future continue to be, in compliance with all
         such listing and maintenance requirements.

                                      -13-
<PAGE>

                  (w) REGISTRATION RIGHTS. The Company has not granted or agreed
         to grant to any Person any rights (including "piggy-back" registration
         rights) to have any securities of the Company registered with the
         Commission or any other governmental authority that have not been
         satisfied.

                  (x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
         Board of Directors have taken all necessary action, if any, in order to
         render inapplicable any control share acquisition, business
         combination, poison pill (including any distribution under a rights
         agreement) or other similar anti-takeover provision under the Company's
         Certificate of Incorporation (or similar charter documents) or the laws
         of its state of incorporation that is or could become applicable to the
         Purchasers as a result of the Purchasers and the Company fulfilling
         their obligations or exercising their rights under the Transaction
         Documents, including without limitation as a result of the Company's
         issuance of the Securities and the Purchasers' ownership of the
         Securities.

                  (y) SENIORITY. As of the Closing Date, no indebtedness of the
         Company is senior to the Debentures in right of payment, whether with
         respect to interest or upon liquidation or dissolution, or otherwise,
         other than indebtedness secured by purchase money security interests
         (which is senior only as to underlying assets covered thereby) and
         capital lease obligations (which is senior only as to the property
         covered thereby).

                  (z) DISCLOSURE. The Company confirms that neither it nor any
         other Person acting on its behalf has provided any of the Purchasers or
         their agents or counsel with any information that constitutes or might
         constitute material, nonpublic information. The Company understands and
         confirms that the Purchasers will rely on the foregoing representations
         in effecting transactions in securities of the Company. All disclosure
         provided to the Purchasers regarding the Company, its business and the
         transactions contemplated hereby, including the Schedules to this
         Agreement, furnished by or on behalf of the Company with respect to the
         representations and warranties made herein are true and correct with
         respect to such representations and warranties and do not contain any
         untrue statement of a material fact or omit to state any material fact
         necessary in order to make the statements made therein, in light of the
         circumstances under which they were made, not misleading. The Company
         acknowledges and agrees that no Purchaser makes or has made any
         representations or warranties with respect to the transactions
         contemplated hereby other than those specifically set forth in Section
         3.2 hereof.

                  (aa) TAX STATUS. The Company and each of its Subsidiaries has
         made or filed all federal, state and foreign income and all other tax
         returns, reports and declarations required by any jurisdiction to which
         it is subject (unless and only to the extent that the Company and each
         of its Subsidiaries has set aside on its books provisions reasonably
         adequate for the payment of all unpaid and unreported taxes) and has
         paid all taxes and other governmental assessments and charges that are
         material in amount, shown or determined to be due on such returns,
         reports and declarations, except those being contested in good faith

                                      -14-
<PAGE>

         and has set aside on its books provisions reasonably adequate for the
         payment of all taxes for periods subsequent to the periods to which
         such returns, reports or declarations apply. There are no unpaid taxes
         in any material amount claimed to be due by the taxing authority of any
         jurisdiction, and the officers of the Company know of no basis for any
         such claim. The Company has not executed a waiver with respect to the
         statute of limitations relating to the assessment or collection of any
         foreign, federal, statue or local tax. None of the Company's tax
         returns is presently being audited by any taxing authority.

                  (bb) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
         SECURITIES. The Company acknowledges and agrees that the Purchasers are
         acting solely in the capacity of arm's length purchasers with respect
         to this Agreement and the transactions contemplated hereby. The Company
         further acknowledges that no Purchaser is acting as a financial advisor
         or fiduciary of the Company (or in any similar capacity) with respect
         to this Agreement and the transactions contemplated hereby and any
         statement made by any Purchaser or any of their respective
         representatives or agents in connection with this Agreement and the
         transactions contemplated hereby is not advice or a recommendation and
         is merely incidental to the Purchasers' purchase of the Securities. The
         Company further represents to each Purchaser that the Company's
         decision to enter into this Agreement has been based solely on the
         independent evaluation of the Company and its representatives.

                  (cc) NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
         TRANSACTION. Neither the Company nor, to the knowledge of the Company,
         any of its directors or officers (i) has conducted or will conduct any
         general solicitation (as that term is used in Rule 502(c) of Regulation
         D) or general advertising with respect to the sale of the Debentures or
         the Warrants, or (ii) made any offers or sales of any security or
         solicited any offers to buy any security under any circumstances that
         would require registration of the Debentures, the Underlying Shares or
         the Warrants under the Securities Act or made any "directed selling
         efforts" as defined in Rule 902 of Regulation S.

                  (dd) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
         no disagreements of any kind presently existing, or reasonably
         anticipated by the Company to arise, between the accountants and
         lawyers formerly or presently employed by the Company and the Company
         is current with respect to any fees owed to its accountants and
         lawyers.

                  (ee) FORM S-3 ELIGIBILITY. The Company is eligible to register
         the resale of the Underlying Shares for resale by the Purchaser on Form
         S-3 promulgated under the Securities Act.

                  (ff) NO INTEGRATED OFFERING. Neither the Company, nor, to its
         knowledge, any of its Affiliates, nor any Person acting on its or their
         behalf has, directly or indirectly, made any offers or sales of any
         security or solicited any offers to buy any security, under
         circumstances that would cause this offering of the Securities to be

                                      -15-
<PAGE>

         integrated with prior offerings by the Company for purposes of the
         Securities Act or which could violate any applicable shareholder
         approval provisions, including, without limitation, under the rules and
         regulations of the Principal Market.

                  (gg) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to
         the knowledge of the Company, any agent or other person acting on
         behalf of the Company, has (i) directly or indirectly, used any corrupt
         funds for unlawful contributions, gifts, entertainment or other
         unlawful expenses related to foreign or domestic political activity,
         (ii) made any unlawful payment to foreign or domestic government
         officials or employees or to any foreign or domestic political parties
         or campaigns from corporate funds, (iii) failed to disclose fully any
         contribution made by the Company (or made by any person acting on its
         behalf of which the Company is aware) which is in violation of law, or
         (iv) violated in any material respect any provision of the Foreign
         Corrupt Practices Act of 1977, as amended.

         3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:

                  (a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
         organized, validly existing and in good standing under the laws of the
         jurisdiction of its organization with the requisite corporate or
         partnership power and authority to enter into and to consummate the
         transactions contemplated by the Transaction Documents and otherwise to
         carry out its obligations thereunder. The purchase by such Purchaser of
         the Securities hereunder has been duly authorized by all necessary
         action on the part of such Purchaser. Each of this Agreement and the
         Registration Rights Agreement have been duly executed by such
         Purchaser, and when delivered by such Purchaser in accordance with the
         terms hereof, will constitute the valid and legally binding obligation
         of such Purchaser, enforceable against it in accordance with its terms
         except (i) as limited by applicable bankruptcy, insolvency,
         reorganization, moratorium and other laws of general application
         affecting enforcement of creditors' rights generally and (ii) as
         limited by laws relating to the availability of specific performance,
         injunctive relief or other equitable remedies

                  (b) INVESTMENT INTENT. Such Purchaser is acquiring the
         Securities as principal for its own account for investment purposes
         only and not with a view to or for distributing or reselling such
         Securities or any part thereof, without prejudice, however, to such
         Purchaser's right, subject to the provisions of this Agreement, at all
         times to sell or otherwise dispose of all or any part of such
         Securities pursuant to an effective registration statement under the
         Securities Act or under an exemption from such registration and in
         compliance with applicable federal and state securities laws. Nothing
         contained herein shall be deemed a representation or warranty by such
         Purchaser to hold Securities for any period of time or limit such
         Purchaser's right to sell the Securities pursuant to the Registration
         Statement or otherwise in compliance with applicable federal and state
         securities laws. Such Purchaser is acquiring the Securities hereunder
         in the ordinary course of its business. Such Purchaser does not have
         any agreement or understanding, directly or indirectly, with any Person
         to distribute any of the Securities.

                                      -16-
<PAGE>

                  (c) PURCHASER STATUS. At the time such Purchaser was offered
         the Securities, it was, and at the date hereof it is, and on each date
         on which it exercises any Warrants or converts any Debentures it will
         be, an "accredited investor" as defined in Rule 501(a) under the
         Securities Act. Such Purchaser has not been formed solely for the
         purpose of acquiring the Securities. Such Purchaser is not a registered
         broker-dealer under Section 15 of the Exchange Act.

                  (d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
         or together with its representatives, has such knowledge,
         sophistication and experience in business and financial matters so as
         to be capable of evaluating the merits and risks of the prospective
         investment in the Securities, and has so evaluated the merits and risks
         of such investment. Such Purchaser is able to bear the economic risk of
         an investment in the Securities and, at the present time, is able to
         afford a complete loss of such investment.

                  (e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
         Securities as a result of any advertisement, article, notice or other
         communication regarding the Securities published in any newspaper,
         magazine or similar media or broadcast over television or radio or
         presented at any seminar or any other general solicitation or general
         advertisement.

                                   ARTICLE IV
                         OTHER AGREEMENTS OF THE PARTIES

         4.1 TRANSFER RESTRICTIONS.

                  (a) The Securities may only be disposed of in compliance with
         state and federal securities laws. In connection with any transfer of
         Securities other than pursuant to an effective registration statement
         or Rule 144, to the Company or to an Affiliate of a Purchaser, the
         Company may require the transferor thereof to provide to the Company an
         opinion of counsel selected by the transferor and reasonably acceptable
         to the Company, the form and substance of which opinion shall be
         reasonably satisfactory to the Company, to the effect that such
         transfer does not require registration of such transferred Securities
         under the Securities Act. As a condition of transfer, any such
         transferee shall agree in writing to be bound by the terms of this
         Agreement and shall have the rights of a Purchaser under this Agreement
         and the Registration Rights Agreement.

                  (b) Each Purchaser, severally and not jointly with the other
         Purchasers, agrees to the imprinting, so long as is required by this
         SECTION 4.1(B), of the following legend on any certificate evidencing
         Securities:

         [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
         SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
         THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
         ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,

                                      -17-
<PAGE>

         ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
         AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
         REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
         APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
         COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
         EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
         COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
         THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
         ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

                  The Company acknowledges and agrees that a Purchaser may from
         time to time pledge pursuant to a bona fide margin agreement or grant a
         security interest in some or all of the Securities and, if required
         under the terms of such arrangement, such Purchaser may transfer
         pledged or secured Securities to the pledgees or secured parties, so
         long as any such grant, pledge or transfer does not individually or in
         the aggregate violate the Securities Act or any rule or regulation
         promulgated thereunder. If required by the Company's transfer agent in
         order to effect a pledge, the Company shall cause its counsel, at no
         cost to the Purchasers, to issue an opinion of counsel to the Company's
         transfer agent. At the appropriate Purchaser's expense, the Company
         will execute and deliver such reasonable documentation as a pledgee or
         secured party of Securities may reasonably request in connection with a
         pledge or transfer of the Securities, including the preparation and
         filing of any required prospectus supplement under Rule 424(b)(3) of
         the Securities Act or other applicable provision of the Securities Act
         to appropriately amend the list of Selling Stockholders thereunder.

                  (c) Certificates evidencing Underlying Shares shall not
         contain any legend (including the legend set forth in Section 4.1(b)
         hereof): (i) while a registration statement (including the Underlying
         Shares Registration Statement) covering the resale of such security is
         effective under the Securities Act, or (ii) following any sale of such
         Underlying Shares pursuant to Rule 144, or (iii) if such Underlying
         Shares are eligible for sale under Rule 144(k), or (iv) if such legend
         is not required under applicable requirements of the Securities Act
         (including judicial interpretations and pronouncements issued by the
         staff of the Commission); PROVIDED, HOWEVER, in connection with the
         issuance of the Underlying Shares, each Purchaser, severally and not
         jointly with the other Purchasers, hereby agrees to adhere to and abide
         by all prospectus delivery requirements under the Securities Act and
         Commission Regulations. If all or any portion of a Debenture or Warrant
         is converted or exercised (as applicable) at a time when there is an
         effective registration statement to cover the resale of the Underlying
         Shares, or if such Underlying Shares may be sold under Rule 144(k) or
         if such legend is not otherwise required under applicable requirements
         of the Securities Act (including judicial interpretations thereof) then
         such Underlying Shares shall be issued free of all legends. The Company
         agrees that following the Effective Date or at such time as such legend
         is no longer required under this Section 4.1(c), it will, no later than

                                      -18-
<PAGE>

         five Trading Days following the delivery by a Purchaser to the Company
         or the Company's transfer agent of a certificate representing
         Underlying Securities issued with a restrictive legend, deliver or
         cause to be delivered to such Purchaser a certificate representing such
         shares that is free from all restrictive and other legends. The Company
         may not make any notation on its records or give instructions to any
         transfer agent of the Company that enlarge the restrictions on transfer
         set forth in this Section.

                  (d) In addition to such Purchaser's other available remedies,
         the Company shall pay to a Purchaser, in cash, as liquidated damages
         and not as a penalty, for each $1,000 of Underlying Shares (based on
         the VWAP of the Common Stock on the date such Securities are submitted
         to the Company's transfer agent) delivered for removal of the
         restrictive legend and subject to this Section 4.1(c), $10 per Trading
         Day (increasing to $20 per Trading Day 3 Trading Days after such
         damages have begun to accrue) for each Trading Day after such fifth
         Trading Day until such certificate is delivered without a legend.
         Nothing herein shall limit such Purchaser's right to pursue actual
         damages for the Company's failure to deliver certificates representing
         any Securities as required by the Transaction Documents, and such
         Purchaser shall have the right to pursue all remedies available to it
         at law or in equity including, without limitation, a decree of specific
         performance and/or injunctive relief.

         4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

         4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any Purchaser, the Company shall deliver to
such Purchaser a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.

         4.4 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the

                                      -19-
<PAGE>

offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Principal Market.

         4.5 RESERVATION AND LISTING OF SECURITIES.

                  (a) The Company shall maintain a reserve from its duly
         authorized shares of Common Stock for issuance pursuant to the
         Transaction Documents in such amount as may be required to fulfill its
         obligations in full under the Transaction Documents.

                  (b) If, on any date, the number of authorized but unissued
         (and otherwise unreserved) shares of Common Stock is less than 200% of
         (i) the Actual Minimum on such date, minus (ii) the number of shares of
         Common Stock previously issued pursuant to the Transaction Documents,
         then the Board of Directors of the Company shall use commercially
         reasonable efforts to amend the Company's certificate or articles of
         incorporation to increase the number of authorized but unissued shares
         of Common Stock to at least the Required Minimum at such time (minus
         the number of shares of Common Stock previously issued pursuant to the
         Transaction Documents), as soon as possible and in any event not later
         than the 75th day after such date; provided that the Company will not
         be required at any time to authorize a number of shares of Common Stock
         greater than the maximum remaining number of shares of Common Stock
         that could possibly be issued after such time pursuant to the
         Transaction Documents.

                  (c) The Company shall: (i) in the time and manner required by
         the Principal Market, prepare and file with such Principal Market an
         additional shares listing application covering a number of shares of
         Common Stock at least equal to the Required Minimum on the date of such
         application, (ii) take all steps reasonably necessary to cause such
         shares of Common Stock to be approved for listing on the Principal
         Market as soon as possible thereafter, (iii) provide to the Purchasers
         evidence of such listing, and (iv) use its commercially reasonably best
         efforts to maintain the listing of such Common Stock on such Principal
         Market or another Principal Market. In addition, the Company shall hold
         a special meeting of shareholders (which may also be at the annual
         meeting of shareholders) at the earliest practical date after the date
         the number of shares of Common Stock issuable pursuant to this
         Agreement exceeds 19.9% of the issued and outstanding shares of Common
         Stock on the Closing Date for the purpose of obtaining Shareholder
         Approval, with the recommendation of the Company's Board of Directors
         that such proposal be approved, and the Company shall solicit proxies
         from its shareholders in connection therewith in the same manner as all
         other management proposals in such proxy statement and all
         management-appointed proxyholders shall vote their proxies in favor of
         such proposal.

         4.6 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor

                                      -20-
<PAGE>

exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.

         4.7 FUTURE FINANCINGS. From the date hereof until 90 days after the
Effective Date of the initial Registration Statement relating to the Securities,
neither the Company nor any Subsidiary shall issue or sell any Capital Shares or
Capital Shares Equivalents; PROVIDED, HOWEVER, such 90 day period shall be 30
days as it solely relates to up to 34 million shares of Common Stock issued in a
firm commitment underwritten public offering by Roth Capital Partners, the
proceeds of which shall first be applied to the redemption of all of the
securities held at such time by The Sage Group, plc (or any Affiliates thereof)
(the "ROTH OFFERING"). Notwithstanding anything herein to the contrary, the 90
or 30 day period set forth in this Section 4.7, as applicable, shall be extended
for the number of Trading Days during such period in which (y) trading in the
Common Stock is suspended by any Principal Market, or (z) following the
Effective Date, the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Purchasers for the
resale of the Underlying Shares. Notwithstanding anything to the contrary
herein, this Section 4.7 shall not apply to the following (a) the granting or
issuance of shares of Common Stock or options to employees, officers and
directors of the Company pursuant to any stock option plan or employee incentive
plan or agreement duly adopted or approved by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the members of
a committee of non-employee directors established for such purpose, (b) the
exercise of a Debenture or any other security issued by the Company in
connection with the offer and sale of this Company's securities pursuant to this
Agreement, (c) the exercise of or conversion of any convertible securities,
options or warrants issued and outstanding on the date hereof, provided that
such securities have not been amended since the date hereof or (d) the issuance
of any securities in connection with acquisitions, strategic investments or
strategic partnering arrangements, the primary purpose of which is not to raise
capital. In addition, unless Shareholder Approval has been obtained and deemed
effective in accordance with Section 4.5(c), the Company shall not make any
issuance whatsoever of Capital Shares or Capital Shares Equivalents which would
cause any adjustment of the Set Price (other than pursuant to Section 4(c)(ii)
of the Debentures) to the extent the holders of Debentures would not be
permitted, pursuant to Section 4(a)(ii)(B) of the Debenture, to convert their
respective outstanding Debentures and exercise the Warrants in full.

         4.8 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date of this Agreement, issue
a press release or file a Current Report on Form 8-K reasonably acceptable to
each Purchaser disclosing all material terms of the transactions contemplated
hereby. The Company and the Purchasers shall consult with each other in issuing
any press releases with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, other than in any registration statement filed
pursuant to the Registration Rights Agreement and filings related thereto, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Principal Market, without the prior written consent of such Purchaser, except
to the extent such disclosure is required by law or Principal Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure.

                                      -21-
<PAGE>

         4.9 NON-PUBLIC INFORMATION. The Company covenants and agrees that it
will not and will instruct any other Person acting on its behalf to not provide
any Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

         4.10 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables, capital lease obligations, and accrued expenses in the ordinary course
of the Company's business and prior practices), to redeem any Company equity or
equity-equivalent securities or to settle any outstanding litigation. Prior to
the receipt of Shareholder Approval, the Company shall not declare or pay any
cash dividend on its shares of Common Stock while any Debentures remains
outstanding.

         4.11 REIMBURSEMENT. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company,
solely as a result of such Purchaser's acquisition of the Securities under this
Agreement and without causation by any other activity, obligation, condition or
liability on the part of, or pertaining to such Purchaser and not to the
purchase of Securities pursuant to this Agreement, the Company will reimburse
such Purchaser, to the extent such reimbursement is not provided for in Section
4.12, for its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations (and limitations thereon) of the Company under this paragraph shall
be in addition to any liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any Affiliates of the Purchasers
who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement except to the extent any covenant or warranty owing to the
Company is breached.

         4.12 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.12, each party (the "INDEMNIFYING PARTY") will indemnify and hold the
other parties and their directors, officers, shareholders, partners, employees
and agents (each, an "INDEMNIFIED PARTY") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Indemnified Party may
suffer or incur as a result of or relating to any breach of any of the

                                      -22-
<PAGE>

representations, warranties, covenants or agreements made by the Indemnifying
Party in this Agreement or in the other Transaction Documents. If any action
shall be brought against any Indemnified Party in respect of which indemnity may
be sought pursuant to this Agreement, such Indemnified Party shall promptly
notify the Indemnifying Party in writing, and the Indemnifying Party shall have
the right to assume the defense thereof with counsel of its own choosing. Any
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party except to the extent
that (i) the employment thereof has been specifically authorized by the
Indemnifying Party in writing, (ii) the Indemnifying Party has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Indemnifying
Party and the position of such Indemnified Party. The Indemnifying Party will
not be liable to any Indemnified Party under this Agreement (i) for any
settlement by an Indemnified Party effected without the Indemnifying Party's
prior written consent, which shall not be unreasonably withheld or delayed; or
(ii) to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to any Indemnified Party's breach of any of the
representations, warranties, covenants or agreements made by the Purchasers in
this Agreement or in the other Transaction Documents. In no event shall the
liability of any Purchaser hereunder be greater in amount than the dollar amount
of the net proceeds received by such Purchaser upon the sale of the Securities;
provided that this provision shall not limit the Company's rights and remedies
under any other provision pursuant to this Agreement, including but not limited
to, the Company's rights under Section 5.15.

         4.13 SHAREHOLDERS RIGHTS PLAN. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that any Purchaser is an "Acquiring Person" under the plan
or in any way could be deemed to trigger the provisions of such plan by virtue
of receiving Securities under the Transaction Documents.

         4.14. PARTICIPATION IN FUTURE FINANCING. From the date hereof until 6
months after the Effective Date, the Company shall not effect a financing of its
Capital Shares or Capital Shares Equivalents (a "SUBSEQUENT FINANCING") unless
(i) the Company delivers to each of such Purchasers a written notice at least 5
Trading Days prior to the closing of such Subsequent Financing (the "SUBSEQUENT
FINANCING NOTICE") of its intention to effect such Subsequent Financing, which
Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Financing is proposed to be
effected, and attached to which shall be a term sheet or similar document
relating thereto and (ii) such Purchaser shall not have notified the Company by
6:30 p.m. (New York City time) on the fifth (5th) Trading Day after its receipt
of the Subsequent Financing Notice of its willingness to provide (or to cause
its designee to provide), subject to completion of mutually acceptable
documentation, all or part of such financing to the Company on the same terms
set forth in the Subsequent Financing Notice. If one or more Purchasers shall
fail to so notify the Company of their willingness to participate in the
Subsequent Financing, the Company may effect the remaining portion of such
Subsequent Financing on the terms and to the Persons set forth in the Subsequent
Financing Notice; provided that the Company must provide the Purchasers with a
second Subsequent Financing Notice, and the Purchasers will again have the right

                                      -23-
<PAGE>

of first refusal set forth above in this Section 4.14, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not consummated
for any reason on the terms set forth in such Subsequent Financing Notice within
60 Trading Days after the date of the initial Subsequent Financing Notice with
the Person identified in the Subsequent Financing Notice. In the event the
Company receives responses to Subsequent Financing Notices from Purchasers
seeking to purchase more than the financing sought by the Company in the
Subsequent Financing such Purchasers shall have the right to purchase their Pro
Rata Portion (as defined below) of the Capital Shares or Capital Shares
Equivalents to be issued in such Subsequent Financing. "PRO RATA PORTION" is the
ratio of (x) the principal amount of Debentures purchased by a Purchaser and (y)
the sum of the aggregate principal amount of Debentures issued hereunder.
Notwithstanding anything to the contrary herein, this Section 4.14 shall not
apply to the following (a) the granting or issuance of shares of Common Stock or
options to employees, officers, consultants and directors of the Company
pursuant to any stock option plan or incentive plan or agreement or arrangement
duly adopted or approved by a majority of the non-employee members of the Board
of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, provided the primary
purpose of such plan, agreement or arrangement is not to raise capital, (b) the
exercise of a Debenture or any other security issued by the Company in
connection with the offer and sale of this Company's securities pursuant to this
Agreement, or (c) the exercise of or conversion of any convertible securities,
options or warrants issued and outstanding on the date hereof, provided that
such securities have not been amended since the date hereof, or (d) the issuance
of any securities in connection with acquisitions, strategic investments or
strategic partnering arrangements, the primary purpose of which is not to raise
capital, or (e) shares of Common Stock issued as part of the Roth Offering.

         4.15 LIMITATIONS ON SHORT SALES. Each Purchaser agrees, severally and
not jointly, that it will not enter into any Short Sales (as hereinafter
defined) from the period commencing on the Closing Date and ending on the date
that all of the Debentures have been converted and all of the Warrants have been
exercised. For purposes of this Section 3.2(h), a "SHORT Sale" by any Purchaser
shall mean a sale of Common Stock by such Purchaser that is marked as a short
sale and that is made at a time when there is no equivalent offsetting long
position in Common Stock held by such Purchaser. For purposes of determining
whether there is an equivalent offsetting long position in Common Stock held by
a Purchasers, in addition to shares of Common Stock held by such Purchaser,
Underlying Shares that have not yet been converted pursuant to such Purchaser's
Debenture and shares of Common Stock that have not yet been issued upon exercise
of such Purchaser's warrants of the Company, including the Warrant, shall be
deemed to be held long by such Purchaser.

         4.16 ADDITIONAL INVESTMENT.

                  (a) PURCHASER RIGHT. From the date hereof until 180 days after
         the Effective Date, each Purchaser may, in its sole determination and
         severally and not jointly with the other Purchasers, on one occasion,
         elect to purchase, in the ratio of such Purchaser's Subscription Amount
         on the Closing Date to the aggregate Subscription Amounts of all
         Purchasers on the Closing Date, additional Debentures and Warrants for
         an aggregate purchase price among all Purchasers of up to $2,000,000.

                                      -24-
<PAGE>

         Any additional investment will be on terms and prices identical those
         set forth in the Transaction Documents, MUTATIS MUTANDIS, except that
         (i) the conversion price for any debentures issued under this
         additional investment shall be equal to 115% of the average of the 10
         consecutive VWAPs immediately prior to the date the option is
         exercised, the exercise price of the warrants shall be equal to the
         average of the 10 consecutive VWAPs on the date the option is exercised
         and warrant coverage shall be determined based on the exercise price of
         the new warrants, and (ii) "Filing Date" in the registration statement
         shall be the earlier of (A) 45 days after all Purchasers have exercised
         their right to purchase additional debentures and warrants hereunder
         and (B) the later of the Company's fiscal quarter end and the 45th day
         following the date such a subsequent financing occurs with a Purchaser
         and the "Effectiveness Date" in the registration statement shall be 90
         days after the Filing Date. In order to effectuate a purchase and sale
         of the additional shares of Common Stock and Warrants, the Company and
         the Purchasers shall enter into the following agreements: (x) a
         securities purchase agreement identical to this Agreement, MUTATIS
         MUTANDIS and shall include updated disclosure schedules and (y) a
         registration rights agreement identical to the Registration Rights
         Agreement, MUTATIS MUTANDIS and shall include updated disclosure
         schedules. Any such additional Investment shall close within 10 Trading
         Days of notice to the Company by a Purchaser that such Purchaser elects
         to exercise its rights hereunder. The parties hereby agree and
         acknowledge that the rights granted hereunder to a Purchaser are
         independent and separate of the rights granted to any other Purchaser
         and a Purchasers election to exercise its right to an additional
         investment hereunder does not obligate any other Purchaser to also
         elect at such time nor does it waive any Purchaser's right to elect to
         exercise at a later date.

                  (b) COMPANY RIGHT. From the Effective Date until 180 days
         after the Effective Date ("COMPANY EXERCISE PERIOD"), if each VWAP
         during any 20 consecutive Trading Days during the Company Exercise
         Period exceeds $2.00, subject to adjustment for reverse and forward
         stock splits, stock dividends, stock combinations and other similar
         transactions of the Common Stock that occur after the date of this
         Agreement, the Company may, on one occasion, in its sole determination
         and by notice within 2 Trading Days' of the end of any Company Exercise
         Period, require the Purchasers to purchase, in the ratio of such
         Purchaser's Subscription Amount on the Closing Date to the aggregate
         Subscription Amounts of all Purchasers on the Closing Date, additional
         Debentures and Warrants for an aggregate purchase price among all
         Purchasers of up to $2,000,000. Any additional investment will be on
         terms and prices identical those set forth in the Transaction
         Documents, MUTATIS MUTANDIS, except that the conversion price of the
         debentures shall be the then Set Price of the Debentures and the
         exercise price of the warrants shall be the then Exercise Price of the
         Warrants. In order to effectuate a purchase and sale of the additional
         shares of Common Stock and Warrants, the Company and the Purchasers
         shall enter into the following agreements: (x) a securities purchase
         agreement identical to this Agreement, MUTATIS MUTANDIS and shall
         include updated disclosure schedules and (y) a registration rights
         agreement identical to the Registration Rights Agreement, MUTATIS
         MUTANDIS and shall include updated disclosure schedules. Any such
         additional Investment shall close within 10 Trading Days of notice to
         the Purchasers by a Company that the Company elects to exercise its
         rights hereunder. The Company's right hereunder shall be applied
         ratably to all Purchasers as set forth above. The Purchasers shall not

                                      -25-
<PAGE>

         be obligated to purchase such securities, notwithstanding this right,
         if a Material Adverse Effect has occurred during the period from the
         Closing Date to the date of such exercise or if a Purchaser reasonably
         believes that, based on the information contained in the disclosure
         schedules, a Material Adverse Effect will occur or if from the
         commencement of the Company Exercise Period until the additional
         investment is closed the Equity Conditions (as defined in the
         Debentures) are satisfied.

                  (c) Notwithstanding anything herein to the contrary, in the
         event a Purchaser exercises its right to purchase additional debentures
         and warrants pursuant to Section 4.16(a), the Company's right to cause
         such Purchaser shall be reduced by such amount. Notwithstanding
         anything herein to the contrary, in the event the Company exercises its
         right to purchase additional debentures and warrants pursuant to
         Section 4.16(b), the each Purchaser's right to cause the Company to
         issue additional debentures and warrants shall be reduced
         proportionally. Notwithstanding anything herein to the contrary, any
         per share dollar amounts expressed in the Transaction Documents shall
         be subject to adjustment for reverse and forward stock splits, stock
         dividends, stock combinations and other similar transactions of the
         Common Stock that occur after the date of this Agreement in the new
         transaction documents entered into pursuant to Sections 4.16(a) and
         (b).

         4.17 EQUAL TREATMENT OF PURCHASERS. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended to
treat for the Company the Debenture holders as a class and shall not in any way
be construed as the Purchasers acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.

         4.18 DELIVERY OF SECURITIES UPON CLOSING. The Company shall deliver the
Debentures and Warrants to the Purchasers within 3 Trading Days of the Closing
Date.

                                    ARTICLE V
                                  MISCELLANEOUS

         5.1 TERMINATION. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before March 26, 2004; provided that no such termination will affect the
right of any party to sue for any breach by the other party (or parties).

         5.2 FEES AND EXPENSES. The Company has agreed to reimburse $35,000 to
Omicron Master Trust ("OMICRON") (of which $10,000 has been received) as
reimbursement for its legal, administrative and due diligence fees and expenses
incurred to prepare and negotiate the Transaction Documents. Accordingly, in

                                      -26-
<PAGE>

lieu of the foregoing payments, the Company, on the Closing Date, will direct
that the aggregate amount that Omicron is to pay for the Debentures and Warrants
at the Closing, be reduced by $25,000. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of any Securities.

         5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

         5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day and an electronic confirmation of delivery is
received by the sender, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified in this Section on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, or (c) the Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service. The addresses for such notices and communications are those set
forth on the signature pages hereof, or such other address as may be designated
in writing hereafter, in the same manner, by such Person.

         5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and a majority in interest of the Purchasers (based on the then
outstanding principal amount of Debentures held by each Purchaser, and if no
Debentures are then outstanding, the number of unexercised Warrant Shares held
by each Purchaser) or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

         5.6 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

         5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder

                                      -27-
<PAGE>

without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement and the Registration Rights Agreement to any
Person to whom such Purchaser assigns or transfers any Securities.

         5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.12.

         5.9 GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of California, without regard to the principles of
conflicts of law thereof. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of San Diego,
California for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

         5.10 SURVIVAL. The representations and warranties contained herein
shall survive the earlier of (a) 18 months after the Closing Date and (b) the
date on which the Debentures and Warrants are no longer outstanding. The
agreements and covenants of the Company contained herein shall survive, as to a
Purchaser and unless otherwise set forth in the Transaction Documents, until
such Purchaser no longer holds any Securities.

         5.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

                                      -28-
<PAGE>

         5.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

         5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights, provided,
however, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such conversion or exercise notice.

         5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

         5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate. Without limiting the generality of the
foregoing, the Company expressly agrees that its breach of the next-to-last last
sentence of Section 4.7 would cause each Purchaser irreparable harm, and
consents to the granting of injunctive relief by any court having jurisdiction
to preclude any such issuance of securities.

         5.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

                                      -29-
<PAGE>

         5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.

         5.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only Omicron. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.

         5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such liquidated damages or
other amounts are due and payable shall have been canceled.

                             ***********************

                                      -30-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                                           ISLAND PACIFIC, INC.

                                           By: /S/ Ran Furman
                                               --------------------------
                                           Name: Ran Furman
                                           Title: Chief Financial Officer

                                           Address for Notice:
                                           ------------------
                                           3252 Holiday Court
                                           Suite 208
                                           La Jolla, CA 92037
                                           Attn: Ran Furman
                                           Tel:  858-550-3341
                                           Fax:  858-450-9736

With a copy to:                            Solomon, Ward Seidenwurm & Smith, LLP
                                           401 B Street, Suite 1200
                                           San Diego, CA 92101
                                           Attn: Harry J. Proctor
                                           Tel:  619-231-0303
                                           Fax:  619-231-4755

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]

                                      -31-
<PAGE>

                            PURCHASERS SIGNATURE PAGE

         IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

OMICRON MASTER TRUST                                    ADDRESS FOR NOTICE:
                                                        ------------------
By:  Omicron Capital L.P., as advisor                   c/o Omicron Capital L.P.
By:  Omicron Capital Inc., its general partner          810 Seventh Avenue,
                                                        39th Floor
                                                        New York, New York 10019
                                                        Attn: Brian Daly
By:   /s/ Bruce Bernstein                               Fax: (212) 803-5269
     --------------------
     Name:  Bruce Bernstein
     Title:  Managing Partner

Subscription Amount:  $1,750,000
Warrant Shares:  530,303
Tax Identification No.:  98-6053436

Subscription Amount:  1,750,000
Conversion Shares (@$1.32):
Warrant Shares (40% @ $1.15):

With a Copy to:
--------------
(which shall not constitute notice)                     Feldman Weinstein, LLP
                                                        420 Lexington Avenue
                                                        New York, New York 10170
                                                        Attn:  Robert F. Charron
                                                        Tel:  (212) 869-7000
                                                        Fax:  (212) 401-4741

                                      -32-
<PAGE>

                   PURCHASERS SIGNATURE PAGE IPI (CONT. . . )

Name of Investing Entity:  Midsummer Investment Ltd.
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY:  /s/ Scott D. Kaufman
Name of Authorized Signatory: Scott D. Kaufman
Title of Authorized Signatory: Managing Director, Midsummer Capital, LLC,
                               Acting as investment manager of Midsummer
                               Investment, Ltd.
Email Address of Authorized Entity:  sk@midsummercapital.com

Address for Notice of Investing Entity:
485 Madison Avenue
23rd Floor
New York, NY 10022

Address for Delivery of Securities for Investing Entity (if not same as above):

Subscription Amount:  $1,250,000
Conversion Shares (@ $1.32):  946,970
Warrant Shares (40% @ $1.15):  1,086,957

                                      -33-
<PAGE>

                                     ANNEX 1

                            Company Wire Instructions

                                      -34-
<PAGE>

                                                                       EXHIBIT A

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

Original Issue Date Set Price: $1.32        Original Issue Date:  March 15, 2004

                                                                $_______________

                            9% CONVERTIBLE DEBENTURE
                                DUE MAY 15, 2006

         THIS DEBENTURE is one of a series of duly authorized and issued
Debentures of Island Pacific, Inc., a Delaware corporation, having a principal
place of business at 3252 Holiday Court, Suite 208, La Jolla 92037 (the
"COMPANY"), designated as its 9% Convertible Debenture, due May 15, 2006 (the
"DEBENTURES").

         FOR VALUE RECEIVED, the Company promises to pay to ___________________
or its registered assigns (the "HOLDER"), the principal sum of $_______________
on May 15, 2006 or such earlier date as the Debentures are required or permitted
to be repaid as provided hereunder (the "MATURITY DATE") and to pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 9% per annum, payable quarterly on March 1, June
1, September 1 and December 1, beginning on the first such date after the
Original Issue Date and on each Conversion Date (as to that principal amount
then being converted), on each Monthly Redemption Date (as to that principal
amount then being redeemed) and on the Maturity Date (except that, if any such
date is not a Business Day, then such payment shall be due on the next
succeeding Business Day) (each such date, an "INTEREST PAYMENT DATE"), in cash
or shares of Common Stock at the Interest Conversion Rate, or a combination
thereof; PROVIDED, HOWEVER, payment in shares of Common Stock may only occur if
during the 20 Trading Days immediately prior to the applicable Interest Payment
Date all of the Equity Conditions have been met and the Company shall have given

                                      A-1
<PAGE>

the Holder notice in accordance with the notice requirements set forth below.
Subject to the terms and conditions herein, the decision whether to pay interest
hereunder in shares of Common Stock or cash shall be at the discretion of the
Company. Not less than 20 Trading Days prior to each Interest Payment Date, the
Company shall provide the Holder with written notice of its election to pay
interest hereunder either in cash or shares of Common Stock (the Company may
indicate in such notice that the election contained in such notice shall
continue for later periods until revised). Within 20 Trading Days prior to an
Interest Payment Date, the Company's election (whether specific to an Interest
Payment Date or continuous) shall be irrevocable as to such Interest Payment
Date. Subject to the aforementioned conditions, failure to timely provide such
written notice shall be deemed an election by the Company to pay the interest on
such Interest Payment Date in cash. Interest shall be calculated on the basis of
a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Payment of interest in shares of Common Stock shall otherwise occur pursuant to
Section 4(b) and for purposes of the payment of interest in shares only, the
Interest Payment Date shall be deemed the Conversion Date. Interest shall cease
to accrue with respect to any principal amount converted, provided that the
Company in fact delivers the Conversion Shares within the time period required
by Section 4(b)(i). Interest hereunder will be paid to the Person in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "DEBENTURE REGISTER"). Except as
otherwise provided herein, if at anytime the Company pays interest partially in
cash and partially in shares of Common Stock, then such payment shall be
distributed ratably among the Holders based upon the principal amount of
Debentures held by each Holder. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at the rate of 12% per annum (or such
lower maximum amount of interest permitted to be charged under applicable law)
("LATE FEE") which will accrue daily, from the date such interest is due
hereunder through and including the date of payment. EXCEPT AS SET FORTH IN
SECTION 5(A) OF THIS DEBENTURE, THE COMPANY MAY NOT PREPAY ANY PORTION OF THE
PRINCIPAL AMOUNT ON THIS DEBENTURE WITHOUT THE PRIOR WRITTEN CONSENT OF THE
HOLDER.

         This Debenture is subject to the following additional provisions:

         SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.

         SECTION 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and applicable federal and state securities laws and regulations. The Holder
hereof, by acceptance of this Debenture, agrees to be bound by the covenants
made by the original Holder contained in the Purchase Agreement. Prior to due
presentment to the Company for transfer of this Debenture, the Company and any

                                      A-2
<PAGE>

agent of the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

         SECTION 3. EVENTS OF DEFAULT.

                  (a) "EVENT OF DEFAULT", wherever used herein, means any one of
         the following events (whatever the reason and whether it shall be
         voluntary or involuntary or effected by operation of law or pursuant to
         any judgment, decree or order of any court, or any order, rule or
         regulation of any administrative or governmental body):

                           (i) any default in the payment of the principal of,
                  interest on or liquidated damages in respect of, any
                  Debentures, free of any claim of subordination, as and when
                  the same shall become due and payable (whether on a Conversion
                  Date or the Maturity Date or by acceleration or otherwise)
                  which default is not cured, if possible to cure, within 3 days
                  of notice of such default sent by the Holder;

                           (ii) the Company shall fail to observe or perform any
                  other covenant, agreement or warranty contained in, or
                  otherwise commit any breach of any of the Transaction
                  Documents (other than a breach by the Company of its
                  obligations to deliver shares of Common Stock to the Holder
                  upon conversion or interest payment which breach is addressed
                  in clause (x) below) which is not cured, if possible to cure,
                  within 5 days of notice of such default sent by the Holder
                  (except with respect to breaches pursuant to Sections 4.1, 4.8
                  and 4.9 of the Purchase Agreement and Section 3(a) of the
                  Warrant);

                           (iii) the Company or any of its subsidiaries shall
                  commence, or there shall be commenced against the Company or
                  any such subsidiary a case under any applicable bankruptcy or
                  insolvency laws as now or hereafter in effect or any successor
                  thereto, or the Company or any Subsidiary commences any other
                  proceeding under any reorganization, arrangement, adjustment
                  of debt, relief of debtors, dissolution, insolvency or
                  liquidation or similar law of any jurisdiction whether now or
                  hereafter in effect relating to the Company or any subsidiary
                  thereof or there is commenced against the Company or any
                  subsidiary thereof any such bankruptcy, insolvency or other
                  proceeding which remains undismissed for a period of 60 days;
                  or the Company or any subsidiary thereof is adjudicated
                  insolvent or bankrupt; or any order of relief or other order
                  approving any such case or proceeding is entered; or the
                  Company or any subsidiary thereof suffers any appointment of
                  any custodian or the like for it or any substantial part of
                  its property which continues undischarged or unstayed for a
                  period of 60 days; or the Company or any subsidiary thereof

                                      A-3
<PAGE>

                  makes a general assignment for the benefit of creditors; or
                  the Company shall fail to pay, or shall state that it is
                  unable to pay, or shall be unable to pay, its debts generally
                  as they become due; or the Company or any subsidiary thereof
                  shall call a meeting of its creditors with a view to arranging
                  a composition, adjustment or restructuring of its debts; or
                  the Company or any subsidiary thereof shall by any act or
                  failure to act expressly indicate its consent to, approval of
                  or acquiescence in any of the foregoing; or any corporate or
                  other action is taken by the Company or any subsidiary thereof
                  for the purpose of effecting any of the foregoing;

                           (iv) the Company shall default in any of its
                  obligations under any other Debenture or any mortgage, credit
                  agreement or other facility, indenture agreement, factoring
                  agreement or other instrument under which there may be issued,
                  or by which there may be secured or evidenced any indebtedness
                  for borrowed money or money due under any long term leasing or
                  factoring arrangement of the Company in an amount exceeding
                  $150,000, whether such indebtedness now exists or shall
                  hereafter be created and such default shall result in such
                  indebtedness becoming or being declared due and payable prior
                  to the date on which it would otherwise become due and
                  payable;

                           (v) the Common Stock shall not be eligible for
                  quotation on or quoted for trading on the Nasdaq SmallCap
                  Market, New York Stock Exchange, American Stock Exchange or
                  the Nasdaq National Market (each, a "PRINCIPAL MARKET") and
                  shall not again be eligible for and quoted or listed for
                  trading thereon within five Trading Days;

                           (vi) the Company shall be a party to any Change of
                  Control Transaction, shall agree to sell or dispose of all or
                  in excess of 45% of its assets in one or more transactions
                  (whether or not such sale would constitute a Change of Control
                  Transaction) or shall redeem or repurchase more than a de
                  minimis number of its outstanding shares of Common Stock or
                  other equity securities of the Company (other than redemptions
                  of Conversion Shares);

                           (vii) an Underlying Shares Registration Statement
                  shall not have been declared effective by the Commission on or
                  prior to the 180th calendar day after the Original Issue Date;

                           (viii) if, during the Effectiveness Period (as
                  defined in the Registration Rights Agreement), the
                  effectiveness of the Underlying Shares Registration Statement
                  lapses for any reason or the Holder shall not be permitted to
                  resell Registrable Securities (as defined in the Registration
                  Rights Agreement) under the Underlying Shares Registration

                                      A-4
<PAGE>

                  Statement, in either case, for more than 10 consecutive
                  Trading Days or 20 non-consecutive Trading Days during any 12
                  month period;

                           (ix) an Event (as defined in the Registration Rights
                  Agreement) shall not have been cured to the reasonable
                  satisfaction of the Holder prior to the expiration of thirty
                  days from the Event Date (as defined in the Registration
                  Rights Agreement) relating thereto (other than an Event
                  resulting from a failure of an Underlying Shares Registration
                  Statement to be declared effective by the Commission on or
                  prior to the Effectiveness Date (as defined in the
                  Registration Rights Agreement), which shall be covered by
                  Section 3(a)(vii));

                           (x) the Company shall fail for any reason to deliver
                  certificates to a Holder prior to the fifth Trading Day after
                  a Conversion Date pursuant to and in accordance with Section
                  4(b) or the Company shall provide notice to the Holder,
                  including by way of public announcement, at any time, of its
                  intention not to comply with requests for conversions of any
                  Debentures in accordance with the terms hereof; or

                           (xi) the Company shall fail for any reason to deliver
                  the payment in cash pursuant to a Buy-In (as defined herein)
                  within five days after notice thereof is delivered hereunder.

                  (b) If any Event of Default occurs and is continuing, the full
         principal amount of this Debenture, together with interest and other
         amounts owing in respect thereof, to the date of acceleration shall
         become at the Holder's election, immediately due and payable in cash.
         The aggregate amount payable upon an Event of Default shall be equal to
         the Mandatory Prepayment Amount. Interest shall continue to accrue on
         the Mandatory Prepayment Amount hereunder from the 5th day after such
         amount is due (being the date of an Event of Default) through the date
         of prepayment in full thereof in an amount equal to the Late Fee, to
         accrue daily from the date such payment is due hereunder through and
         including the date of payment. All Debentures for which the full
         Mandatory Prepayment Amount hereunder shall have been paid in
         accordance herewith shall promptly be surrendered to or as directed by
         the Company. The Holder need not provide and the Company hereby waives
         any presentment, demand, protest or other notice of any kind, and the
         Holder may immediately and without expiration of any grace period
         enforce any and all of its rights and remedies hereunder and all other
         remedies available to it under applicable law. Such declaration may be
         rescinded and annulled by Holder at any time prior to payment hereunder
         and the Holder shall have all rights as a Debenture holder until such
         time, if any, as the full payment under this Section shall have been
         received by it. No such rescission or annulment shall affect any
         subsequent Event of Default or impair any right consequent thereon.

                                      A-5
<PAGE>

         SECTION 4. CONVERSION.

                  (a) (i) At any time after the Original Issue Date until this
                  Debenture is no longer outstanding, this Debenture shall be
                  convertible into shares of Common Stock at the option of the
                  Holder, in whole or in part at any time and from time to time
                  (subject to the limitations on conversion set forth in Section
                  4(a)(ii) hereof). The Holder shall effect conversions by
                  delivering to the Company the form of Notice of Conversion
                  attached hereto as ANNEX A (a "NOTICE OF CONVERSION"),
                  specifying therein the principal amount of Debentures to be
                  converted and the date on which such conversion is to be
                  effected (a "CONVERSION DATE") and shall contain a completed
                  schedule in the form of SCHEDULE 1 to the Notice of Conversion
                  (as amended on each Conversion Date, the "CONVERSION
                  SCHEDULE") reflecting the remaining principal amount of this
                  Debenture and all accrued and unpaid interest thereon
                  subsequent to the conversion at issue. If no Conversion Date
                  is specified in a Notice of Conversion, the Conversion Date
                  shall be the date that such Notice of Conversion is provided
                  hereunder. To effect conversions hereunder, the Holder shall
                  not be required to physically surrender Debentures to the
                  Company unless the entire principal amount of this Debenture
                  has been so converted. Conversions hereunder shall have the
                  effect of lowering the outstanding principal amount of this
                  Debenture plus all accrued and unpaid interest thereon in an
                  amount equal to the applicable conversion, which shall be
                  evidenced by entries set forth in the Conversion Schedule. The
                  Holder and the Company shall maintain records showing the
                  principal amount converted and the date of such conversions.
                  The Company shall deliver any objection to the figures
                  represented in the Conversion Schedules within 1 Business Day
                  of receipt of such notice. In the event of any dispute or
                  discrepancy, the records of the Holder shall be controlling
                  and determinative in the absence of manifest error. The Holder
                  and any assignee, by acceptance of this Debenture, acknowledge
                  and agree that, by reason of the provisions of this paragraph,
                  following conversion of a portion of this Debenture, the
                  unpaid and unconverted principal amount of this Debenture may
                  be less than the amount stated on the face hereof.

                           (ii) CERTAIN CONVERSION RESTRICTIONS.

                                    (A) The Company shall not effect any
                           conversion of this Debenture, and the Holder shall
                           not have the right to convert any portion of this
                           Debenture, pursuant to Section 4(a)(i) or otherwise,
                           or receive shares of Common Stock in lieu of interest
                           payments, to the extent that after giving effect to
                           such conversion, or receipt of shares of Common Stock
                           in lieu of interest payments, the Holder (together
                           with the Holder's affiliates), as set forth on the
                           applicable Notice of Conversion, would beneficially
                           own in excess of 4.99% of the number of shares of the
                           Common Stock outstanding immediately after giving

                                      A-6
<PAGE>

                           effect to such conversion. For purposes of the
                           foregoing sentence, the number of shares of Common
                           Stock beneficially owned by the Holder and its
                           affiliates shall include the number of shares of
                           Common Stock issuable upon conversion of this
                           Debenture with respect to which the determination of
                           such sentence is being made, but shall exclude the
                           number of shares of Common Stock which would be
                           issuable upon (A) conversion of the remaining,
                           nonconverted portion of this Debenture beneficially
                           owned by the Holder or any of its affiliates and (B)
                           exercise or conversion of the unexercised or
                           nonconverted portion of any other securities of the
                           Company (including, without limitation, any other
                           Debentures or the Warrants) subject to a limitation
                           on conversion or exercise analogous to the limitation
                           contained herein beneficially owned by the Holder or
                           any of its affiliates. Except as set forth in the
                           preceding sentence, for purposes of this Section
                           4(a)(ii), beneficial ownership shall be calculated in
                           accordance with Section 13(d) of the Exchange Act. To
                           the extent that the limitation contained in this
                           section applies, the determination of whether this
                           Debenture is convertible (in relation to other
                           securities owned by the Holder) and of which a
                           portion of this Debenture is convertible shall be in
                           the sole discretion of such Holder. To ensure
                           compliance with this restriction, the Holder will be
                           deemed to represent to the Company each time it
                           delivers a Notice of Conversion that such Notice of
                           Conversion has not violated the restrictions set
                           forth in this paragraph and the Company shall have no
                           obligation to verify or confirm the accuracy of such
                           determination. For purposes of this Section 4(a)(ii),
                           in determining the number of outstanding shares of
                           Common Stock, the Holder may rely on the number of
                           outstanding shares of Common Stock as reflected in
                           (x) the Company's most recent Form 10-Q or Form 10-K,
                           as the case may be, (y) a more recent public
                           announcement by the Company or (z) any other notice
                           by the Company or the Company's Transfer Agent
                           setting forth the number of shares of Common Stock
                           outstanding. Upon the written or oral request of the
                           Holder, the Company shall within two Trading Days
                           confirm orally and in writing to the Holder the
                           number of shares of Common Stock then outstanding. In
                           any case, the number of outstanding shares of Common
                           Stock shall be determined after giving effect to the
                           conversion or exercise of securities of the Company,
                           including this Debenture, by the Holder or its
                           affiliates since the date as of which such number of
                           outstanding shares of Common Stock was reported.

                                    (B) If the Company has not obtained
                           Shareholder Approval (as defined below), if required
                           by the applicable rules and regulations of the
                           Principal Market (or any successor entity), then the
                           Company may not issue upon conversion of the
                           Debentures, in the aggregate, in excess of 19.999% of

                                       A-7
<PAGE>

                           the number of shares of Common Stock outstanding on
                           the Trading Day immediately preceding the Original
                           Issue Date, less any shares of Common Stock issued
                           upon conversion of or as payment of interest on the
                           Debentures or upon prior exercise of this or any
                           other Warrant issued pursuant to the Purchase
                           Agreement (such number of shares, the "ISSUABLE
                           MAXIMUM"). PROVIDED, HOWEVER, any Warrant Shares
                           previously issued upon exercise of the Series A
                           Warrants shall not be included in any such
                           calculation unless the Exercise Price thereof is less
                           than the closing bid price of the Common Stock on the
                           Trading Day immediately prior to the Closing Date
                           (subject to adjustment for reverse and forward stock
                           splits, stock dividends, stock combinations and other
                           similar transactions of the Common Stock that occur
                           after the date of this Agreement). On any given date,
                           each Holder shall be entitled to a portion of the
                           Issuable Maximum equal to the product of (y) the
                           fraction determined by dividing the number of
                           Conversion Shares and Warrant Shares (notwithstanding
                           any conversion or exercise limitation set forth in
                           the Debentures or Warrants) then held by such Holder
                           as of such date by the aggregate number of such
                           Conversion Shares and Warrant Shares held by all
                           Holders as of such date and (z) the difference
                           between the Issuable Maximum and the number of shares
                           of Common Stock issued, in the aggregate among all
                           Holders, pursuant to any conversions of Debentures or
                           exercise of Warrants prior to such date. If on any
                           Conversion Date: (A) the applicable Set Price then in
                           effect is such that the shares issuable under this
                           Debenture on any Conversion Date together with the
                           aggregate number of shares of Common Stock that would
                           then be issuable upon conversion in full of all then
                           outstanding Debentures would exceed the Issuable
                           Maximum, and (B) the Company shall not have obtained
                           Shareholder Approval, then the Company shall issue to
                           the Holder requesting a conversion a number of shares
                           of Common Stock equal to such Holder's pro-rata
                           portion (which shall be calculated pursuant to the
                           terms above) of the Issuable Maximum and, with
                           respect to the remainder of the aggregate principal
                           amount of the Debentures (including any accrued
                           interest) then held by such Holder for which a
                           conversion in accordance with the applicable
                           conversion price would result in an issuance of
                           shares of Common Stock in excess of such Holder's
                           pro-rata portion (which shall be calculated pursuant
                           to the terms hereof) of the Issuable Maximum (the
                           "EXCESS PRINCIPAL"), the Company shall be prohibited
                           from converting such Excess Principal, and shall
                           notify the Holder of the reason therefor. This
                           Debenture shall thereafter be unconvertible until and
                           unless Shareholder Approval is subsequently obtained
                           or is otherwise not required, but this Debenture
                           shall otherwise remain in full force and effect. The
                           Company and the Holder understand and agree that
                           shares of Common Stock issued to and then held by the
                           Holder as a result of conversions of Debentures shall

                                      A-8
<PAGE>

                           not be entitled to cast votes on any resolution to
                           obtain Shareholder Approval pursuant hereto. For
                           clarity, the failure of the Company to actually
                           obtain Shareholder Approval shall not be a breach of
                           covenant or Event of Default under Section 3 of this
                           Debenture, provided, that any issuance of securities
                           which results in an adjustment to the Set Price
                           (other than pursuant to Section 4(c)(ii)) without the
                           Company having previously sought and voted on
                           Shareholder Approval as set forth in the Purchase
                           Agreement shall be a breach of covenant in the
                           Purchase Agreement and an Event of Default under
                           Section 3(a)(ii).

                           (iii) CONVERSION SHARES ISSUABLE UPON CONVERSION AND
                  PURSUANT TO INTEREST.

                                    (A) CONVERSION OF PRINCIPAL AMOUNT. The
                           number of shares of Common Stock issuable upon a
                           conversion shall be determined by the quotient
                           obtained by dividing (x) the outstanding principal
                           amount of this Debenture to be converted by (y) the
                           Set Price, and

                                    (B) PAYMENT OF INTEREST IN CONVERSION
                           SHARES. The number of shares of Common Stock issuable
                           upon payment of interest under this Debenture shall
                           be the number determined by (x) the product of (I)
                           the outstanding principal amount of this Debenture to
                           be converted and (II) the product of (aa) the
                           quotient obtained by dividing 9% by 360 and (bb) the
                           number of days for which such principal amount was
                           outstanding, divided by (y) the applicable Interest
                           Conversion Rate, PROVIDED, that if the Company shall
                           have elected to pay the -------- interest due on an
                           Interest Payment Date in cash pursuant to the terms
                           hereof, this subsection (B) shall not be used in the
                           calculation of the number of shares of Common Stock
                           issuable upon a conversion hereunder.

                                    (C) Notwithstanding anything to the contrary
                           contained herein, if on any Conversion Date:

                                            (1) the number of shares of Common
                                    Stock at the time authorized, unissued and
                                    unreserved for all purposes, or held as
                                    treasury stock, is insufficient to honor
                                    such conversion;

                                            (2) the Common Stock shall fail to
                                    be listed or quoted for trading on a
                                    Principal Market; or

                                            (3) the Company has failed to timely
                                    satisfy its conversion obligations
                                    hereunder.

                                      A-9
<PAGE>

                                    and, with respect to such delivery, no prior
                           demand has been made by the Holder pursuant to
                           Section 4(b)(ii) or Section 4(b)(iii), then, at the
                           option of the Holder, the Company, in lieu of
                           delivering shares of Common Stock pursuant to this
                           Section 4, shall deliver, within five Trading Days of
                           each applicable Conversion Date, an amount in cash
                           equal to the product of the number of shares of
                           Common Stock otherwise deliverable to the Holder in
                           connection with such Conversion Date and the highest
                           VWAP during the period commencing on the Conversion
                           Date and ending on the Trading Day prior to the date
                           such payment is made.

                  (b) (i) Not later than five Trading Days after any Conversion
                  Date, the Company will deliver to the Holder (A) a certificate
                  or certificates for the Shares of Common Stock which shall be
                  free of restrictive legends and trading restrictions (other
                  than those required by the Purchase Agreement) representing
                  the number of shares of Common Stock being acquired upon the
                  conversion of Debentures and (B) a bank check in the amount of
                  accrued and unpaid interest (if the Company has timely elected
                  or is required to pay accrued interest in cash). The Company
                  shall, upon request of the Holder, if available and if allowed
                  under applicable securities laws, use its best efforts to
                  deliver any certificate or certificates required to be
                  delivered by the Company under this Section electronically
                  through the Depository Trust Corporation or another
                  established clearing corporation performing similar functions.
                  If in the case of any Notice of Conversion such certificate or
                  certificates are not delivered to or as directed by the
                  applicable Holder by the fifth Trading Day after a Conversion
                  Date, the Holder shall be entitled by written notice to the
                  Company at any time on or before its receipt of such
                  certificate or certificates thereafter, to rescind such
                  conversion, in which event the Company shall immediately
                  return the certificates representing the principal amount of
                  Debentures tendered for conversion.

                           (ii) If the Company fails for any reason to deliver
                  to the Holder such certificate or certificates pursuant to
                  Section 4(b)(i) by the fifth Trading Day after the Conversion
                  Date, and, with respect to such delivery, no prior demand has
                  been made by the Holder pursuant to Section 4(a)(iii)(C) or
                  Section 4(b)(iii) the Company shall pay to such Holder, in
                  cash, as liquidated damages and not as a penalty, for each
                  $5,000 of principal amount being converted, $50 per Trading
                  Day (increasing to $100 per Trading Day after 3 Trading Days
                  and increasing to $200 per Trading Day 6 Trading Days after
                  such damages begin to accrue) for each Trading Day after such
                  fifth Trading Day until such certificates are delivered. The
                  Company's obligations to issue and deliver the Conversion
                  Shares upon conversion of this Debenture in accordance with
                  the terms hereof are absolute and unconditional, irrespective

                                      A-10
<PAGE>

                  of any action or inaction by the Holder to enforce the same,
                  any waiver or consent with respect to any provision hereof,
                  the recovery of any judgment against any Person or any action
                  to enforce the same, or any setoff, counterclaim, recoupment,
                  limitation or termination, or any breach or alleged breach by
                  the Holder or any other Person of any obligation to the
                  Company or any violation or alleged violation of law by the
                  Holder or any other person, and irrespective of any other
                  circumstance which might otherwise limit such obligation of
                  the Company to the Holder in connection with the issuance of
                  such Conversion Shares; PROVIDED, HOWEVER, such delivery shall
                  not operate as a waiver by the Company of any such action the
                  Company may have against the Holder. Nothing herein shall
                  limit a Holder's right to pursue actual damages or declare an
                  Event of Default pursuant to Section 3 herein for the
                  Company's failure to deliver certificates representing shares
                  of Common Stock upon conversion within the period specified
                  herein and such Holder shall have the right to pursue all
                  remedies available to it at law or in equity including,
                  without limitation, a decree of specific performance and/or
                  injunctive relief. The exercise of any such rights shall not
                  prohibit the Holders from seeking to enforce damages pursuant
                  to any other Section hereof or under applicable law.

                           (iii) In addition to any other rights available to
                  the Holder, if the Company fails for any reason to deliver to
                  the Holder such certificate or certificates pursuant to
                  Section 4(b)(i) by the fifth Trading Day after the Conversion
                  Date, and with respect to such delivery, no prior demand has
                  been made by the Holder pursuant to Section 4(a)(iii)(C) or
                  Section 4(b)(ii), if after such fifth Trading Day the Holder
                  is required by its brokerage firm to purchase (in an open
                  market transaction or otherwise) Common Stock to deliver in
                  satisfaction of a sale by such Holder of the Conversion Shares
                  which the Holder anticipated receiving upon such conversion (a
                  "BUY-IN"), then the Company shall (A) pay in cash to the
                  Holder (in addition to any remedies available to or elected by
                  the Holder) the amount by which (x) the Holder's total
                  purchase price (including brokerage commissions, if any) for
                  the Common Stock so purchased exceeds (y) the product of (1)
                  the aggregate number of shares of Common Stock that such
                  Holder anticipated receiving from the conversion at issue
                  multiplied by (2) the actual sale price of the Common Stock at
                  the time of the sale (including brokerage commissions, if any)
                  giving rise to such purchase obligation and (B) at the option
                  of the Holder, either reissue Debentures in principal amount
                  equal to the principal amount of the attempted conversion or
                  deliver to the Holder the number of shares of Common Stock
                  that would have been issued had the Company timely complied
                  with its delivery requirements under Section 4(b)(i). For
                  example, if the Holder purchases Common Stock having a total
                  purchase price of $11,000 to cover a Buy-In with respect to an
                  attempted conversion of Debentures with respect to which the
                  actual sale price of the Conversion Shares at the time of the
                  sale (including brokerage commissions, if any) giving rise to
                  such purchase obligation was a total of $10,000 under clause

                                      A-11
<PAGE>

                  (A) of the immediately preceding sentence, the Company shall
                  be required to pay the Holder $1,000. The Holder shall provide
                  the Company written notice indicating the amounts payable to
                  the Holder in respect of the Buy-In. Notwithstanding anything
                  contained herein to the contrary, if a Holder requires the
                  Company to make payment in respect of a Buy-In for the failure
                  to timely deliver certificates hereunder and the Company
                  timely pays in full such payment, the Company shall not be
                  required to pay such Holder liquidated damages under Section
                  4(b)(ii) in respect of the certificates resulting in such
                  Buy-In.

                           (iv) Notwithstanding anything herein to the contrary,
                  if after the Effective Date the VWAPs for any 15 consecutive
                  Trading Days exceeds the then Set Price by more than 200%
                  (such 15 Trading Day period not commencing until after the
                  Effective Date), the Company may, within 2 Trading Days of the
                  end of any such period, deliver a notice to the Holder (a
                  "FORCED NOTICE OF CONVERSION" and the date such notice is
                  received by the Holder, the "FORCED NOTICE OF CONVERSION
                  DATE") to cause the Holder to immediately convert all or part
                  (and if part, pro-rata in proportion to each Holders initial
                  purchase of the Debentures) of the then outstanding principal
                  amount of Debentures pursuant to Section 4(a)(i). The Company
                  may only effect a Forced Conversion Notice if all of the
                  Equity Conditions are met through the applicable Threshold
                  Period until the date of the applicable Forced Conversion. Any
                  Forced Conversion shall be applied ratably to all Holders
                  based on their initial purchases of Debentures pursuant to the
                  Purchase Agreement.

                  (c) (i) The conversion price in effect on any Conversion Date
                  shall be equal to $1.32 (subject to adjustment herein)(the
                  "SET PRICE").

                           (ii) If the Company, at any time while the Debentures
                  are outstanding: (A) shall pay a stock dividend or otherwise
                  make a distribution or distributions on shares of its Common
                  Stock or any other equity or equity equivalent securities
                  payable in shares of Common Stock (which, for avoidance of
                  doubt, shall not include any shares of Common Stock issued by
                  the Company pursuant to this Debenture, including as interest
                  thereon), (B) subdivide outstanding shares of Common Stock
                  into a larger number of shares, (C) combine (including by way
                  of reverse stock split) outstanding shares of Common Stock
                  into a smaller number of shares, or (D) issue by
                  reclassification of shares of the Common Stock any shares of
                  capital stock of the Company, then the Set Price shall be
                  multiplied by a fraction of which the numerator shall be the
                  number of shares of Common Stock (excluding treasury shares,
                  if any) outstanding before such event and of which the
                  denominator shall be the number of shares of Common Stock
                  outstanding after such event. Any adjustment made pursuant to
                  this Section shall become effective immediately after the
                  record date for the determination of stockholders entitled to

                                      A-12
<PAGE>

                  receive such dividend or distribution and shall become
                  effective immediately after the effective date in the case of
                  a subdivision, combination or re-classification.

                           (iii) If the Company, at any time while Debentures
                  are outstanding, shall issue rights, options or warrants to
                  all holders of Common Stock (and not to Holders) entitling
                  them to subscribe for or purchase shares of Common Stock or
                  Common Stock Equivalents at a price per share less than the
                  VWAP at the record date mentioned below, then the Set Price
                  shall be adjusted by multiplying the Set Price in effect
                  immediately prior to such record date by a fraction, of which
                  the denominator shall be the number of shares of the Common
                  Stock (excluding treasury shares, if any) outstanding on the
                  date of issuance of such rights or warrants plus the number of
                  additional shares of Common Stock offered for subscription or
                  purchase, and of which the numerator shall be the number of
                  shares of the Common Stock (excluding treasury shares, if any)
                  outstanding on the date of issuance of such rights or warrants
                  plus the number of shares which the aggregate offering price
                  of the total number of shares so offered would purchase at the
                  VWAP on the record date. Such adjustment shall be made
                  whenever such rights, options or warrants are issued, and
                  shall become effective immediately after the record date for
                  the determination of stockholders entitled to receive such
                  rights, options or warrants.

                           (iv) If the Company, any subsidiary thereof or The
                  Sage Group, Plc (or any Affiliates thereof), as applicable, at
                  any time while Debentures are outstanding, shall offer, sell,
                  grant any option to purchase or offer, sell or grant any right
                  to reprice its securities of the Company, or otherwise dispose
                  of or issue (or announce any offer, sale, grant or any option
                  to purchase or other disposition) any Common Stock or any
                  equity or equity equivalent securities (including any equity,
                  debt or other instrument that is at any time over the life
                  thereof convertible into or exchangeable for Common Stock)
                  (collectively, "COMMON STOCK EQUIVALENTS") entitling any
                  Person to acquire shares of Common Stock, at an effective
                  price per share less than 87% of the then Set Price ("DILUTIVE
                  ISSUANCE"), as adjusted hereunder (if the holder of the Common
                  Stock or Common Stock Equivalent so issued shall at any time,
                  whether by operation of purchase price adjustments, reset
                  provisions, floating conversion, exercise or exchange prices
                  or otherwise, or due to warrants, options or rights per share
                  which is issued in connection with such issuance, be entitled
                  to receive shares of Common Stock at an effective price per
                  share which is less than the Set Price, such issuance shall be
                  deemed to have occurred for less than the Set Price), then the
                  Set Price shall be reduced, only if such adjustment will
                  result in a reduction, to equal 115% of the lowest effective
                  price per share of such Dilutive Issuance. Such adjustment
                  shall be made whenever an event that causes a reduction
                  hereunder occurs. The Company shall notify the Holder in
                  writing, no later than the Business Day following the issuance
                  of any Common Stock or Common Stock Equivalent subject to this

                                      A-13
<PAGE>

                  section, indicating therein the applicable issuance price, or
                  of applicable reset price, exchange price, conversion price
                  and other pricing terms.

                           (v) If the Company, at any time while Debentures are
                  outstanding, shall distribute to all holders of Common Stock
                  (and not to Holders) evidences of its indebtedness or assets
                  or rights or warrants to subscribe for or purchase any
                  security, then in each such case the Set Price shall be
                  determined by multiplying such price in effect immediately
                  prior to the record date fixed for determination of
                  stockholders entitled to receive such distribution by a
                  fraction of which the denominator shall be the VWAP determined
                  as of the record date mentioned above, and of which the
                  numerator shall be such VWAP on such record date less the then
                  fair market value at such record date of the portion of such
                  assets or evidence of indebtedness so distributed applicable
                  to one outstanding share of the Common Stock as determined by
                  the Board of Directors in good faith. In either case the
                  adjustments shall be described in a statement provided to the
                  Holders of the portion of assets or evidences of indebtedness
                  so distributed or such subscription rights applicable to one
                  share of Common Stock. Such adjustment shall be made whenever
                  any such distribution is made and shall become effective
                  immediately after the record date mentioned above.

                           (vi) [RESERVED]

                           (vii) All calculations under this Section 4 shall be
                  made to the nearest cent or the nearest 1/100th of a share, as
                  the case may be. For purposes of this Section 4, the number of
                  shares of Common Stock deemed to be outstanding as of a given
                  date shall be the sum of the number of shares of Common Stock
                  (excluding treasury shares, if any) outstanding.

                           (viii) The Company agrees that it is prohibited from
                  taking any actions specified in Sections 4(c)(iii)-(v) which
                  would result in any adjustment to the Set Price prior to
                  submitting the transactions contemplated by the Purchase
                  Agreement to a vote for Shareholder Approval. Whenever the Set
                  Price is adjusted pursuant to any of Section 4(c)(ii) - (v),
                  the Company shall promptly mail to each Holder a notice
                  setting forth the Set Price after such adjustment and setting
                  forth a brief statement of the facts requiring such
                  adjustment.

                           (ix) If (A) the Company shall declare a dividend (or
                  any other distribution) on the Common Stock; (B) the Company
                  shall declare a special nonrecurring cash dividend on or a
                  redemption of the Common Stock; (C) the Company shall
                  authorize the granting to all holders of the Common Stock
                  rights or warrants to subscribe for or purchase any shares of
                  capital stock of any class or of any rights; (D) the approval
                  of any stockholders of the Company shall be required in
                  connection with any reclassification of the Common Stock, any

                                      A-14
<PAGE>

                  consolidation or merger to which the Company is a party, any
                  sale or transfer of all or substantially all of the assets of
                  the Company, of any compulsory share exchange whereby the
                  Common Stock is converted into other securities, cash or
                  property; (E) the Company shall authorize the voluntary or
                  involuntary dissolution, liquidation or winding up of the
                  affairs of the Company; then, in each case, the Company shall
                  cause to be filed at each office or agency maintained for the
                  purpose of conversion of the Debentures, and shall cause to be
                  mailed to the Holders at their last addresses as they shall
                  appear upon the stock books of the Company, at least 20
                  calendar days prior to the applicable record or effective date
                  hereinafter specified, a notice stating (x) the date on which
                  a record is to be taken for the purpose of such dividend,
                  distribution, redemption, rights or warrants, or if a record
                  is not to be taken, the date as of which the holders of the
                  Common Stock of record to be entitled to such dividend,
                  distributions, redemption, rights or warrants are to be
                  determined or (y) the date on which such reclassification,
                  consolidation, merger, sale, transfer or share exchange is
                  expected to become effective or close, and the date as of
                  which it is expected that holders of the Common Stock of
                  record shall be entitled to exchange their shares of the
                  Common Stock for securities, cash or other property
                  deliverable upon such reclassification, consolidation, merger,
                  sale, transfer or share exchange; PROVIDED, that the failure
                  to mail such notice or any defect therein or in the mailing
                  thereof shall not affect the validity of the corporate action
                  required to be specified in such notice. Holders are entitled
                  to convert Debentures during the 20-day period commencing the
                  date of such notice to the effective date of the event
                  triggering such notice.

                           (x) If, at any time while this Debenture is
                  outstanding, (A) the Company effects any merger or
                  consolidation of the Company with or into another Person, (B)
                  the Company effects any sale of all or substantially all of
                  its assets in one or a series of related transactions, (C) any
                  tender offer or exchange offer (whether by the Company or
                  another Person) is completed pursuant to which all holders of
                  Common Stock are permitted to tender or exchange their shares
                  for other securities, cash or property, or (D) the Company
                  effects any reclassification of the Common Stock or any
                  compulsory share exchange pursuant to which the Common Stock
                  is effectively converted into or exchanged for other
                  securities, cash or property (in any such case, a "FUNDAMENTAL
                  TRANSACTION"), then upon any subsequent conversion of this
                  Debenture, the Holder shall have the right to receive, for
                  each Underlying Share that would have been issuable upon such
                  conversion absent such Fundamental Transaction, the same kind
                  and amount of securities, cash or property as it would have
                  been entitled to receive upon the occurrence of such
                  Fundamental Transaction if it had been, immediately prior to
                  such Fundamental Transaction, the holder of one share of
                  Common Stock (the "ALTERNATE CONSIDERATION"). For purposes of
                  any such conversion, the determination of the Set Price shall
                  be appropriately adjusted to apply to such Alternate

                                      A-15
<PAGE>

                  Consideration based on the amount of Alternate Consideration
                  issuable in respect of one share of Common Stock in such
                  Fundamental Transaction, and the Company shall apportion the
                  Set Price among the Alternate Consideration in a reasonable
                  manner reflecting the relative value of any different
                  components of the Alternate Consideration. If holders of
                  Common Stock are given any choice as to the securities, cash
                  or property to be received in a Fundamental Transaction, then
                  the Holder shall be given the same choice as to the Alternate
                  Consideration it receives upon any conversion of this
                  Debenture following such Fundamental Transaction. To the
                  extent necessary to effectuate the foregoing provisions, any
                  successor to the Company or surviving entity in such
                  Fundamental Transaction shall issue to the Holder a new
                  debenture consistent with the foregoing provisions and
                  evidencing the Holder's right to convert such debenture into
                  Alternate Consideration. The terms of any agreement pursuant
                  to which a Fundamental Transaction is effected shall include
                  terms requiring any such successor or surviving entity to
                  comply with the provisions of this paragraph (c) and insuring
                  that this Debenture (or any such replacement security) will be
                  similarly adjusted upon any subsequent transaction analogous
                  to a Fundamental Transaction.

                           (xi) Notwithstanding the foregoing, no adjustment
                  will be made under this paragraph (c) in respect of (A) the
                  granting or issuance of shares of capital stock or of options
                  to employees, officers, directors and key consultants of the
                  Company pursuant to any stock option plan agreement or
                  arrangement duly adopted or approved by a majority of the
                  non-employee members of the Board of Directors of the Company
                  or a majority of the members of a committee of non-employee
                  directors established for such purpose, (B) upon the exercise
                  of this Debenture or any other Debenture of this series or of
                  any other series or security issued by the Company in
                  connection with the offer and sale of this Company's
                  securities pursuant to the Purchase Agreement, or (C) upon the
                  exercise of or conversion of any Convertible Securities,
                  options or warrants issued and outstanding on the Original
                  Issue Date, provided such securities have not been amended
                  since the date of the Purchase Agreement, or (D) issuance of
                  securities in connection with acquisitions, strategic
                  investments, or strategic partnering arrangements, the primary
                  purpose of which is not to raise capital, or (E) sales or
                  transfers of shares of Common Stock from The Sage Group, Plc
                  (or any Affiliates thereof) to the Company whereupon such
                  shares are cancelled.

                           (xii) At any time the Company either negatively
                  restates any of its financial statements relating to, or makes
                  any public disclosure that negatively revises or negatively
                  adds to any prior disclosure of, any material transactions of
                  the Company consummated prior to the Original Issue Date, the
                  Set Price shall be reduced, and only reduced, to equal the
                  lowest VWAP during the 5 Trading Days immediately following

                                      A-16
<PAGE>

                  any such public announcement. For clarification, if such VWAP
                  is above the then Set Price, no adjustment will occur
                  hereunder at such time.

                  (d) The Company covenants that it will at all times reserve
         and keep available out of its authorized and unissued shares of Common
         Stock solely for the purpose of issuance upon conversion of the
         Debentures and payment of interest on the Debentures, each as herein
         provided, free from preemptive rights or any other actual contingent
         purchase rights of persons other than the Holders, not less than such
         number of shares of the Common Stock as shall (subject to any
         additional requirements of the Company as to reservation of such shares
         set forth in the Purchase Agreement) be issuable (taking into account
         the adjustments and restrictions of Section 4(b)) upon the conversion
         of the outstanding principal amount of the Debentures and payment of
         interest hereunder. The Company covenants that all shares of Common
         Stock that shall be so issuable shall, upon issue, be duly and validly
         authorized, issued and fully paid, nonassessable and, if the Underlying
         Shares Registration Statement has been declared effective under the
         Securities Act, registered for public sale in accordance with such
         Underlying Shares Registration Statement.

                  (e) Upon a conversion hereunder the Company shall not be
         required to issue stock certificates representing fractions of shares
         of the Common Stock, but may if otherwise permitted, make a cash
         payment in respect of any final fraction of a share based on the VWAP
         at such time. If the Company elects not, or is unable, to make such a
         cash payment, the Holder shall be entitled to receive, in lieu of the
         final fraction of a share, one whole share of Common Stock.

                  (f) The issuance of certificates for shares of the Common
         Stock on conversion of the Debentures shall be made without charge to
         the Holders thereof for any documentary stamp or similar taxes that may
         be payable in respect of the issue or delivery of such certificate,
         provided that the Company shall not be required to pay any tax that may
         be payable in respect of any transfer involved in the issuance and
         delivery of any such certificate upon conversion in a name other than
         that of the Holder of such Debentures so converted and the Company
         shall not be required to issue or deliver such certificates unless or
         until the person or persons requesting the issuance thereof shall have
         paid to the Company the amount of such tax or shall have established to
         the satisfaction of the Company that such tax has been paid.

                  (g) Any and all notices or other communications or deliveries
         to be provided by the Holders hereunder, including, without limitation,
         any Notice of Conversion, shall be in writing and delivered personally,
         by facsimile, sent by a nationally recognized overnight courier service
         or sent by certified or registered mail, postage prepaid, addressed to
         the Company, at the address set forth above, FACSIMILE NUMBER
         ___________, ATTN: ____________ or such other address or facsimile
         number as the Company may specify for such purposes by notice to the

                                      A-17
<PAGE>

         Holders delivered in accordance with this Section. Any and all notices
         or other communications or deliveries to be provided by the Company
         hereunder shall be in writing and delivered personally, by facsimile,
         sent by a nationally recognized overnight courier service or sent by
         certified or registered mail, postage prepaid, addressed to each Holder
         at the facsimile telephone number or address of such Holder appearing
         on the books of the Company, or if no such facsimile telephone number
         or address appears, at the principal place of business of the Holder.
         Any notice or other communication or deliveries hereunder shall be
         deemed given and effective on the earliest of (i) the date of
         transmission, if such notice or communication is delivered via
         facsimile at the facsimile telephone number specified in this Section
         prior to 5:30 p.m. (New York City time), (ii) the date after the date
         of transmission, if such notice or communication is delivered via
         facsimile at the facsimile telephone number specified in this Section
         later than 5:30 p.m. (New York City time) on any date and earlier than
         11:59 p.m. (New York City time) on such date, (iii) four days after
         deposit in the United States mail, (iv) the Business Day following the
         date of mailing, if sent by nationally recognized overnight courier
         service, or (v) upon actual receipt by the party to whom such notice is
         required to be given.

         SECTION 5. REDEMPTION.

                  (a) OPTIONAL REDEMPTION. Subject to the provisions of this
         Section 5, the Company may, at any time, deliver a notice to the
         Holders (an "OPTIONAL REDEMPTION NOTICE" and the date such notice is
         deemed delivered hereunder, the "OPTIONAL REDEMPTION NOTICE DATE") of
         its irrevocable election to redeem all, but not less than all, of the
         then outstanding Debentures, for an amount, in cash, equal to the
         Optional Redemption Amount on the 30th Trading Day following the
         Optional Redemption Notice Date (such date, the "OPTIONAL REDEMPTION
         DATE" and such redemption, the "OPTIONAL REDEMPTION"). The Optional
         Redemption Amount is due in full on the Optional Redemption Date. The
         Company may only effect from the Optional Redemption Notice Date
         through to the Optional Redemption Date. The Holders may convert,
         pursuant to Section 4(a)(i) hereof, any shares of Debentures subject to
         an Optional Redemption at any time prior to the date that the Optional
         Redemption Amount and all amounts owing thereon are due and paid in
         full. The Company covenants and agrees that it will honor all Notice of
         Conversions tendered from the time of delivery of the Optional
         Redemption Notice through the date all amounts owing thereon are due
         and paid in full. The Company's right to redeem the Debentures shall be
         applied ratably to the Holders in proportion to each Holder's initial
         purchase of Debentures under the Purchase Agreement.

                  (b) MONTHLY REDEMPTION. On each Monthly Redemption Date, the
         Company shall redeem each Holder's Pro Rata Portion of the Monthly
         Redemption Amount plus accrued but unpaid interest, the sum of all
         liquidated damages and any other amounts then owing to such Holder in
         respect of the Debenture. For purposes of this subsection 5(b) only,

                                      A-18
<PAGE>

         "PRO RATA PORTION" is the ration of (x) the principal amount of this
         Debenture on the Original Issue Date and (y) the sum of the aggregate
         original principal amounts of the Debentures issued to all Holders. If
         any Holder shall no longer holds Debentures, then the Pro Rata Portion
         shall be recalculated to exclude such Holder's principal amount from
         clause (y) above and the Monthly Redemption Amount shall be allocated
         pro-rata among the remaining Holders. The Monthly Redemption Amount due
         on each Monthly Redemption Date shall, except as provided in this
         Section, be paid in cash. As to any Monthly Redemption and upon 20
         Trading Days' prior written irrevocable notice, in lieu of a cash
         redemption payment the Company may elect to pay 100% of a Monthly
         Redemption in Conversion Shares based on a conversion price equal to
         the lesser of (i) 90% of the average of the 20 VWAPs immediately prior
         to the applicable Monthly Redemption Date (subject to adjustment for
         any stock dividend, stock split, stock combination or other similar
         event affecting the Common Stock during such 20 Trading Day period) and
         (ii) the Set Price (the "MONTHLY CONVERSION PRICE"); PROVIDED, HOWEVER,
         that the Company may not pay the Monthly Redemption Amount in
         Conversion Shares unless, on the Monthly Redemption Date and during the
         20 Trading Day period immediately prior thereto, the Equity Conditions
         have been satisfied. The Holders may convert, pursuant to Section
         4(a)(i), any principal amount of the Debenture subject to a Monthly
         Redemption at any time prior to the date that the Monthly Redemption
         Amount and all amounts owing thereon are due and paid in full. Any
         principal amount of Debenture converted during any 20 day period until
         the date the Monthly Redemption Amount is paid shall be first applied
         to principal amount subject to the Monthly Redemption and such Holder's
         cash payment of the Monthly Redemption Amount on such Monthly
         Redemption Date shall be reduced accordingly. The Company covenants and
         agrees that it will honor all Notice of Conversions tendered up until
         such amounts are paid in full.

                  (c) REDEMPTION PROCEDURE. The payment of cash and/or issuance
         of Common Stock, as the case may be, pursuant to a Monthly Redemption
         shall be made on the Monthly Redemption Date and the payment of cash
         pursuant to an Optional Redemption shall be made on the Optional
         Redemption Date. If any portion of the cash payment for a Monthly
         Redemption or Optional Redemption shall not be paid by the Company by
         the respective due date, interest shall accrue thereon at the rate of
         18% per annum (or the maximum rate permitted by applicable law,
         whichever is less) until the payment of the Monthly Redemption Amount
         or Optional Redemption Amount, as applicable, plus all amounts owing
         thereon is paid in full. In addition, if any portion of the Monthly
         Redemption Amount or Optional Redemption Amount, as applicable, remains
         unpaid after such date, the Holders subject to such redemption may
         elect, by written notice to the Company given at any time thereafter,
         to invalidate AB INITIO such redemption, notwithstanding anything
         herein contained to the contrary. Notwithstanding anything to the
         contrary in this Section 6, the Company's determination to redeem in
         cash or shares of Common Stock shall be applied ratably among the
         Holders based upon the principal amount of Debentures initially

                                      A-19
<PAGE>

         purchased by each Holder, adjusted upward ratably in the event all of
         the shares of Debentures of any Holder are no longer outstanding.

         SECTION 6. DEFINITIONS. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:

                  "BUSINESS DAY" means any day except Saturday, Sunday and any
         day which shall be a federal legal holiday in the United States or a
         day on which banking institutions in the State of New York are
         authorized or required by law or other government action to close.

                  "CHANGE OF CONTROL TRANSACTION" means the occurrence after the
         date hereof of any of (i) an acquisition after the date hereof by an
         individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
         promulgated under the Exchange Act) of effective control (whether
         through legal or beneficial ownership of capital stock of the Company,
         by contract or otherwise) of in excess of 45% of the voting securities
         of the Company, or (ii) a replacement at one time or within a one year
         period of more than one-half of the members of the Company's board of
         directors which is not approved by a majority of those individuals who
         are members of the board of directors on the date hereof (or by those
         individuals who are serving as members of the board of directors on any
         date whose nomination to the board of directors was approved by a
         majority of the members of the board of directors who are members on
         the date hereof), or (iii) the execution by the Company of an agreement
         to which the Company is a party or by which it is bound, providing for
         any of the events set forth above in (i) or (ii).

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON STOCK" means the common stock, $0.0001 par value per
         share, of the Company and stock of any other class into which such
         shares may hereafter have been reclassified or changed.

                  "CONVERSION DATE" shall have the meaning set forth in Section
         4(a)(i) hereof.

                  "CONVERSION SHARES" means the shares of Common Stock issuable
         upon conversion of Debentures or as payment of interest in accordance
         with the terms hereof.

                  "EQUITY CONDITIONS" shall mean, during the period in question,
         (i) the Company shall have duly honored all conversions and redemptions
         scheduled to occur or occurring by virtue of one or more Conversion
         Notices, if any, (ii) all liquidated damages and other amounts owing in
         respect of the Debentures shall have been paid; (iii) there is an

                                      A-20
<PAGE>

         effective Registration Statement pursuant to which the Holder is
         permitted to utilize the prospectus thereunder to resell all of the
         shares issuable pursuant to the Transaction Documents, notwithstanding
         any conversion or exercise limitations contained therein (and the
         Company believes, in good faith, that such effectiveness will continue
         uninterrupted for the foreseeable future), (iv) the Common Stock is
         trading on the Principal Market and all of the shares issuable pursuant
         to the Transaction Documents are listed for trading on a Principal
         Market (and the Company believes, in good faith, that trading of the
         Common Stock on a Principal Market will continue uninterrupted for the
         foreseeable future), (v) there is a sufficient number of authorized but
         unissued and otherwise unreserved shares of Common Stock for the
         issuance of all of the shares issuable pursuant to the Transaction
         Documents, (vi) there is then existing no Event of Default or event
         which, with the passage of time or the giving of notice, would
         constitute and Event of Default and (vii) all of the shares issued or
         issuable pursuant to the transaction documents in full, ignoring for
         such purposes any conversion or exercise limitation therein, would not
         violate the limitations set forth in Sections 4(a)(ii)(A) and
         4(a)(ii)(B) and (ix) no public announcement of a pending or proposed
         Fundamental Transaction or acquisition transaction has occurred that
         has not been consummated.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
         amended.

                  "INTEREST CONVERSION RATE" means 90% of the lesser of (i) the
         average of the 20 VWAPs immediately prior to the applicable Interest
         Payment Date or (ii) the average of the 20 VWAPs immediately prior to
         the date the applicable interest payment shares are issued and
         delivered if after the Interest Payment Date.

                  "LATE FEES" shall have the meaning set forth in the second
         paragraph to this Debenture.

                  "MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal
         the sum of (i) the greater of: (A) 120% of the principal amount of
         Debentures to be prepaid, plus all accrued and unpaid interest thereon,
         or (B) the principal amount of Debentures to be prepaid, plus all
         accrued and unpaid interest thereon, divided by the Set Price on (x)
         the date the Mandatory Prepayment Amount is demanded or otherwise due
         or (y) the date the Mandatory Prepayment Amount is paid in full,
         whichever is less, multiplied by the VWAP on (x) the date the Mandatory
         Prepayment Amount is demanded or otherwise due or (y) the date the
         Mandatory Prepayment Amount is paid in full, whichever is greater, and
         (ii) all other amounts, costs, expenses and liquidated damages due in
         respect of such Debentures.

                  "MONTHLY CONVERSION PRICE" shall have the meaning set forth in
         Section 5(a) hereof.

                                      A-21
<PAGE>

                  "MONTHLY REDEMPTION" shall mean the redemption of the
         Debenture pursuant to Section 5(a) hereof.

                  "MONTHLY REDEMPTION AMOUNT" shall mean, as to a Monthly
         Redemption, $233,333 in the aggregate among all Holders.

                  "MONTHLY REDEMPTION DATE" means the 1st of each month,
         commencing on February 1, 2005 and ending upon the full redemption of
         this Debenture.

                  "OPTIONAL REDEMPTION AMOUNT" shall mean the sum of (i) 110% of
         the principal amount of the Debenture then outstanding, (ii) accrued
         but unpaid interest and (iii) all liquidated damages and other amounts
         due in respect of the Debentures.

                  "OPTIONAL REDEMPTION DATE" shall have the meaning set forth in
         Section 5(a).

                  "ORIGINAL ISSUE DATE" shall mean the date of the first
         issuance of the Debentures regardless of the number of transfers of any
         Debenture and regardless of the number of instruments which may be
         issued to evidence such Debenture.

                  "PERSON" means a corporation, an association, a partnership,
         organization, a business, an individual, a government or political
         subdivision thereof or a governmental agency.

                  "PURCHASE AGREEMENT" means the Securities Purchase Agreement,
         dated as of March 15, 2004, to which the Company and the original
         Holder are parties, as amended, modified or supplemented from time to
         time in accordance with its terms.

                  "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
         Agreement, dated as of the March 15, 2004, to which the Company and the
         original Holder are parties, as amended, modified or supplemented from
         time to time in accordance with its terms.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended,
         and the rules and regulations promulgated thereunder.

                  "SET PRICE" shall have the meaning set forth in Section
         4(c)(i).

                  "SHAREHOLDER APPROVAL" shall have the meaning set forth in the
         Purchase Agreement.

                  "TRADING DAY" means (a) a day on which the shares of Common
         Stock are traded on the Principal Market on which the shares of Common
         Stock are then listed or quoted, or (b) if the shares of Common Stock
         are not quoted on a Principal Market, a day on which the shares of
         Common Stock are quoted in the over-the-counter market as reported by

                                      A-22
<PAGE>

         the National Quotation Bureau Incorporated (or any similar organization
         or agency succeeding its functions of reporting prices); PROVIDED, that
         in the event that the shares of Common Stock are not listed or quoted
         as set forth in (a), (b) and (c) hereof, then Trading Day shall mean a
         Business Day.

                  "TRANSACTION DOCUMENTS" shall have the meaning set forth in
         the Purchase Agreement.

                  "UNDERLYING SHARES REGISTRATION STATEMENT" means a
         registration statement meeting the requirements set forth in the
         Registration Rights Agreement, covering among other things the resale
         of the Conversion Shares and naming the Holder as a "selling
         stockholder" thereunder.

                  "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Principal Market or the OTC Bulletin Board, the
         daily volume weighted average price of the Common Stock for such date
         (or the nearest preceding date) on the Principal Market (or OTC
         Bulletin Board) on which the Common Stock is then listed or quoted as
         reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30
         a.m. ET to 4:02 p.m. Eastern Time) using the VAP function; (b) if the
         Common Stock is not then listed or quoted on a Principal Market or the
         OTC Bulletin Board and if prices for the Common Stock are then reported
         in the "pink sheets" published by the National Quotation Bureau
         Incorporated (or a similar organization or agency succeeding to its
         functions of reporting prices), the most recent bid price per share of
         the Common Stock so reported; or (c) in all other cases, the fair
         market value of a share of Common Stock as determined by a nationally
         recognized independent appraiser selected in good faith by Purchasers
         holding a majority of the outstanding principal amount of Debentures.

         SECTION 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct debt obligation of the
Company. This Debenture ranks PARI PASSU with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there this
Debenture is outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holder, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holder; (b) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Conversion Shares to the extent permitted or required under the
Transaction Documents; (c) enter into any agreement with respect to any of the
foregoing; or (d) issue any variable priced equity securities or variable priced
equity linked securities.

                                      A-23
<PAGE>

         SECTION 8. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed Debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.

         SECTION 9. So long as any portion of this Debenture is outstanding, the
Company will not and will not permit any of its subsidiaries to, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness or liens of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom that is PARI PASSU or senior in any respect to the Company's
obligations under the Debentures.

         SECTION 10. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of San Diego,
California (the "CALIFORNIA COURTS"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the California Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or such
California Courts are improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Debenture and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

         SECTION 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of

                                      A-24
<PAGE>

this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.

         SECTION 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.

         SECTION 13. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.

                              *********************

                                      A-25
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.

                                    ISLAND PACIFIC, INC.

                                    By:_____________________________________
                                       Name:
                                       Title:

                                      A-26
<PAGE>

                                     ANNEX A

                              NOTICE OF CONVERSION

The undersigned hereby elects to convert principal and, if specified, interest
under the 9% Convertible Debenture of Island Pacific, Inc., (the "Company") due
on May 15, 2006 into shares of common stock, $0.0001 par value per share (the
"Common Stock"), of the Company according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.

Conversion calculations:
                           Date to Effect Conversion:

                           Principal Amount of Debentures to be Converted

                           Payment of Interest in Common Stock   |_| Yes  |_| No
                                    If yes, $ _______ of Interest Accrued on
                                    Account of Conversion at Issue

                           Number of shares of Common Stock to be Issued:

                           Applicable Conversion Price:

                           Signature:

                           Name:

                           Address:

                                      A-27
<PAGE>

                                   SCHEDULE 1

                               CONVERSION SCHEDULE

9% Convertible Debentures due on May 15, 2006 in the aggregate principal amount
of $____________ issued by Island Pacific, Inc. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.

                                     Dated:

<TABLE>
<CAPTION>
=============================== ========================= ======================= ===========================
                                                            Aggregate Principal
                                                              Amount Remaining
      Date of Conversion                                       Subsequent to
     (or for first entry,             Amount of                 Conversion
     Original Issue Date)             Conversion               (or original              Company Attest
                                                             Principal Amount)
------------------------------- ------------------------- ----------------------- ---------------------------
<S>                             <C>                       <C>                     <C>

------------------------------- ------------------------- ----------------------- ---------------------------

------------------------------- ------------------------- ----------------------- ---------------------------

------------------------------- ------------------------- ----------------------- ---------------------------

------------------------------- ------------------------- ----------------------- ---------------------------

------------------------------- ------------------------- ----------------------- ---------------------------

------------------------------- ------------------------- ----------------------- ---------------------------

------------------------------- ------------------------- ----------------------- ---------------------------

------------------------------- ------------------------- ----------------------- ---------------------------

=============================== ========================= ======================= ===========================
</TABLE>

                                                    A-28
<PAGE>

                                                                      EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                              ISLAND PACIFIC, INC.

                  THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that, for value
received, _____________ (the "Holder"), is entitled, upon the terms and subject
to the limitations on exercise and the conditions hereinafter set forth, at any
time on or after September 16, 2004 (the "INITIAL EXERCISE DATE") and on or
prior to the close of business on the fifth anniversary of the Initial Exercise
Date (the "TERMINATION DATE") but not thereafter, to subscribe for and purchase
from Island Pacific, Inc., a corporation incorporated in the State of Delaware
(the "COMPANY"), up to ____________ shares (the "WARRANT SHARES") of Common
Stock, par value $0.0001 per share, of the Company (the "COMMON STOCK"). The
purchase price of one share of Common Stock (the "EXERCISE PRICE") under this
Warrant shall be $1.15, subject to adjustment hereunder. CAPITALIZED TERMS USED
AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT
CERTAIN SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED MARCH
15, 2004, BETWEEN THE COMPANY AND THE INVESTORS SIGNATORY THERETO.

                                      C-1
<PAGE>

         1. TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part to an Affiliate of
the Holder, at the office or agency of the Company by the Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed. The transferee shall sign an
investment letter in form and substance reasonably satisfactory to the Company.
The Holder hereof, by acceptance of this Warrant, agrees to be bound by the
covenants made by the original Holder contained in the Purchase Agreement.

         2. AUTHORIZATION OF SHARES. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).

         3. EXERCISE OF WARRANT.

                  (a) Except as provided in Section 4 herein, exercise of the
         purchase rights represented by this Warrant may be made at any time or
         times on or after the Initial Exercise Date and on or before the
         Termination Date by the surrender of this Warrant and the Notice of
         Exercise Form annexed hereto duly executed, at the office of the
         Company (or such other office or agency of the Company as it may
         designate by notice in writing to the registered Holder at the address
         of such Holder appearing on the books of the Company) and upon payment
         of the Exercise Price of the shares thereby purchased by wire transfer
         or cashier's check drawn on a United States bank or by means of a
         cashless exercise pursuant to Section 3(d), the Holder shall be
         entitled to receive a certificate for the number of Warrant Shares so
         purchased. Certificates for shares purchased hereunder shall be
         delivered to the Holder within five (5) Trading Days after the date on
         which this Warrant shall have been exercised as aforesaid. This Warrant
         shall be deemed to have been exercised and such certificate or
         certificates shall be deemed to have been issued, and Holder or any
         other person so designated to be named therein shall be deemed to have
         become a holder of record of such shares for all purposes, as of the
         date the Warrant has been exercised by payment to the Company of the
         Exercise Price and all taxes required to be paid by the Holder, if any,
         pursuant to Section 5 prior to the issuance of such shares, have been
         paid. If the Company fails to deliver to the Holder a certificate or
         certificates representing the Warrant Shares pursuant to this Section
         3(a) by the fifth Trading Day after the date of exercise, then the
         Holder will have the right to rescind such exercise. In addition to any
         other rights available to the Holder, if the Company fails to deliver
         to the Holder a certificate or certificates representing the Warrant
         Shares pursuant to an exercise by the fifth Trading Day after the date
         of exercise, and if after such fifth Trading Day the Holder is required
         by its broker to purchase (in an open market transaction or otherwise)
         shares of Common Stock to deliver in satisfaction of a sale by the
         Holder of the Warrant Shares which the Holder anticipated receiving
         upon such exercise (a "BUY-IN"), then the Company shall (1) pay in cash

                                      C-2
<PAGE>

         to the Holder the amount by which (x) the Holder's total purchase price
         (including brokerage commissions, if any) for the shares of Common
         Stock so purchased exceeds (y) the amount obtained by multiplying (A)
         the number of Warrant Shares that the Company was required to deliver
         to the Holder in connection with the exercise at issue times (B) the
         price at which the sell order giving rise to such purchase obligation
         was executed, and (2) at the option of the Holder, either reinstate the
         portion of the Warrant and equivalent number of Warrant Shares for
         which such exercise was not honored or deliver to the Holder the number
         of shares of Common Stock that would have been issued had the Company
         timely complied with its exercise and delivery obligations hereunder.
         For example, if the Holder purchases Common Stock having a total
         purchase price of $11,000 to cover a Buy-In with respect to an
         attempted exercise of shares of Common Stock with an aggregate sale
         price giving rise to such purchase obligation of $10,000, under clause
         (1) of the immediately preceding sentence the Company shall be required
         to pay the Holder $1,000. The Holder shall provide the Company written
         notice indicating the amounts payable to the Holder in respect of the
         Buy-In, together with applicable confirmations and other evidence
         reasonably requested by the Company. Nothing herein shall limit a
         Holder's right to pursue any other remedies available to it hereunder,
         at law or in equity including, without limitation, a decree of specific
         performance and/or injunctive relief with respect to the Company's
         failure to timely deliver certificates representing shares of Common
         Stock upon exercise of the Warrant as required pursuant to the terms
         hereof.

                  (b) If this Warrant shall have been exercised in part, the
         Company shall, at the time of delivery of the certificate or
         certificates representing Warrant Shares, deliver to Holder a new
         Warrant evidencing the rights of Holder to purchase the unpurchased
         Warrant Shares called for by this Warrant, which new Warrant shall in
         all other respects be identical with this Warrant.

                           (c) (i) The Company shall not effect any exercise of
                  this Warrant, and the Holder shall not have the right to
                  exercise any portion of this Warrant, pursuant to Section 3(a)
                  or otherwise, to the extent that after giving effect to such
                  issuance after exercise, the Holder (together with the
                  Holder's affiliates), as set forth on the applicable Notice of
                  Exercise, would beneficially own in excess of 4.99% of the
                  number of shares of the Common Stock outstanding immediately
                  after giving effect to such issuance. For purposes of the
                  foregoing sentence, the number of shares of Common Stock
                  beneficially owned by the Holder and its affiliates shall
                  include the number of shares of Common Stock issuable upon
                  exercise of this Warrant with respect to which the
                  determination of such sentence is being made, but shall
                  exclude the number of shares of Common Stock which would be
                  issuable upon (A) exercise of the remaining, nonexercised
                  portion of this Warrant beneficially owned by the Holder or
                  any of its affiliates and (B) exercise or conversion of the
                  unexercised or nonconverted portion of any other securities of
                  the Company (including, without limitation, any other
                  Debentures or Warrants) subject to a limitation on conversion
                  or exercise analogous to the limitation contained herein
                  beneficially owned by the Holder or any of its affiliates.
                  Except as set forth in the preceding sentence, for purposes of
                  this Section 3(c), beneficial ownership shall be calculated in
                  accordance with Section 13(d) of the Exchange Act. To the
                  extent that the limitation contained in this Section 3(c)

                                      C-3
<PAGE>

                  applies, the determination of whether this Warrant is
                  exercisable (in relation to other securities owned by the
                  Holder) and of which a portion of this Warrant is exercisable
                  shall be in the sole discretion of such Holder, and the
                  submission of a Notice of Exercise shall be deemed to be such
                  Holder's determination of whether this Warrant is exercisable
                  (in relation to other securities owned by such Holder) and of
                  which portion of this Warrant is exercisable, in each case
                  subject to such aggregate percentage limitation, and the
                  Company shall have no obligation to verify or confirm the
                  accuracy of such determination. For purposes of this Section
                  3(c), in determining the number of outstanding shares of
                  Common Stock, the Holder may rely on the number of outstanding
                  shares of Common Stock as reflected in (x) the Company's most
                  recent Form 10-Q or Form 10-K, as the case may be, (y) a more
                  recent public announcement by the Company or (z) any other
                  notice by the Company or the Company's Transfer Agent setting
                  forth the number of shares of Common Stock outstanding. Upon
                  the written or oral request of the Holder, the Company shall
                  within two Trading Days confirm orally and in writing to the
                  Holder the number of shares of Common Stock then outstanding.
                  In any case, the number of outstanding shares of Common Stock
                  shall be determined after giving effect to the conversion or
                  exercise of securities of the Company, including this Warrant,
                  by the Holder or its affiliates since the date as of which
                  such number of outstanding shares of Common Stock was
                  reported.

                           (ii) If the Company has not obtained Shareholder
                  Approval (as defined below) if required and, pursuant to
                  Section 11(b) herein the Exercise Price of this Warrant has
                  been reduced to be below the closing bid price of the Common
                  Stock on the Trading Day immediately prior to the Closing Date
                  (subject to adjustment for reverse and forward stock splits,
                  stock dividends, stock combinations and other similar
                  transactions of the Common Stock that occur after the date of
                  this Agreement), then the Company may not issue upon exercise
                  of this Warrant in the aggregate, in excess of 19.999% of the
                  number of shares of Common Stock outstanding on the Trading
                  Day immediately preceding the Closing Date, less any shares of
                  Common Stock issued upon conversion of or as payment of
                  interest on the Debentures or upon prior exercise of this or
                  any other Warrant issued pursuant to the Purchase Agreement
                  (such number of shares, the "ISSUABLE MAXIMUM"). If on any
                  attempted exercise of this Warrant, the issuance of Warrant
                  Shares would exceed the Issuable Maximum and the Company shall
                  not have previously obtained the vote of shareholders (the
                  "SHAREHOLDER APPROVAL"), if any, as may be required by the
                  applicable rules and regulations of the Principal Market (or
                  any successor entity) to approve the issuance of shares of
                  Common Stock in excess of the Issuable Maximum pursuant to the
                  terms hereof, then the Company shall issue to the Holder
                  requesting a Warrant exercise such number of Warrant Shares as
                  may be issued below the Issuable Maximum and, with respect to
                  the remainder of the aggregate number of Warrant Shares, this
                  Warrant shall not be exercisable until and unless Shareholder
                  Approval has been obtained. The Holder may, in its sole
                  discretion, limit the effect of any adjustment pursuant to
                  Section 11(b) to the extent it would otherwise cause this
                  provision to prevent the issuance of all of the Warrant
                  Shares.

                                      C-4
<PAGE>

                  (d) If at any time after one year from the date of issuance of
         this Warrant there is no effective Registration Statement registering
         the resale of the Warrant Shares by the Holder, then this Warrant may
         also be exercised at such time by means of a "cashless exercise" in
         which the Holder shall be entitled to receive a certificate for the
         number of Warrant Shares equal to the quotient obtained by dividing
         [(A-B) (X)] by (A), where:

                           (A)  =   the VWAP on the Trading Day immediately
                                    preceding the date of such election;

                           (B)  =   the Exercise Price of this Warrant, as
                                    adjusted; and

                           (X)  =   the number of Warrant Shares issuable upon
                                    exercise of this Warrant in accordance with
                                    the terms of this Warrant by means of a cash
                                    exercise rather than a cashless exercise.

                  (e) Subject to the provisions of this Section 3, if after the
         Effective Date the VWAP for twenty consecutive Trading Days (the
         "MEASUREMENT PRICE") exceeds 300% of the then Exercise Price (subject
         to adjustment herein) (the "THRESHOLD PRICE"), then the Company may, on
         one occasion and within two Trading Days of such period, call for
         cancellation of all or any portion of this Warrant for which a Notice
         of Exercise has not yet been delivered (such right, a "CALL"). To
         exercise this right, the Company must deliver to the Holder an
         irrevocable written notice (a "CALL NOTICE"), indicating therein the
         portion of unexercised portion of this Warrant to which such notice
         applies. If the conditions set forth below for such Call are satisfied
         from the period from the date of the Call Notice through and including
         the Call Date (as defined below), then any portion of this Warrant
         subject to such Call Notice for which a Notice of Exercise shall not
         have been received from and after the date of the Call Notice will be
         cancelled at 6:30 p.m. (New York City time) on the tenth Trading Day
         after the date the Call Notice is received by the Holder (such date,
         the "CALL DATE"). Any unexercised portion of this Warrant to which the
         Call Notice does not pertain will be unaffected by such Call Notice. In
         furtherance thereof, the Company covenants and agrees that it will
         honor all Notices of Exercise with respect to Warrant Shares subject to
         a Call Notice that are tendered from the time of delivery of the Call
         Notice through 6:30 p.m. (New York City time) on the Call Date. The
         parties agree that any Notice of Exercise delivered following a Call
         Notice shall first reduce to zero the number of Warrant Shares subject
         to such Call Notice prior to reducing the remaining Warrant Shares
         available for purchase under this Warrant. For example, if (x) this
         Warrant then permits the Holder to acquire 100 Warrant Shares, (y) a
         Call Notice pertains to 75 Warrant Shares, and (z) prior to 6:30 p.m.
         (New York City time) on the Call Date the Holder tenders a Notice of
         Exercise in respect of 50 Warrant Shares, then (1) on the Call Date the
         right under this Warrant to acquire 25 Warrant Shares will be
         automatically cancelled, (2) the Company, in the time and manner
         required under this Warrant, will have issued and delivered to the
         Holder 50 Warrant Shares in respect of the exercises following receipt
         of the Call Notice, and (3) the Holder may, until the Termination Date,
         exercise this Warrant for 25 Warrant Shares (subject to adjustment as
         herein provided and subject to subsequent Call Notices). Subject again
         to the provisions of this Section 10, the Company may deliver

                                      C-5
<PAGE>

         subsequent Call Notices for any portion of this Warrant for which the
         Holder shall not have delivered a Notice of Exercise. Notwithstanding
         anything to the contrary set forth in this Warrant, the Company may not
         deliver a Call Notice or require the cancellation of this Warrant (and
         any Call Notice will be void), unless, from the beginning of the 20
         consecutive Trading Days used to determine whether the Common Stock has
         achieved the Threshold Price through the Call Date, (i) the Measurement
         Price equals or exceeds the Threshold Price, (ii) the Company shall
         have honored in accordance with the terms of this Warrant all Notices
         of Exercise delivered by 6:30 p.m. (New York City time) on the Call
         Date, (iii) the Registration Statement shall be effective as to all
         Warrant Shares and the prospectus thereunder available for use by the
         Holder for the resale all such Warrant Shares and (iv) the Common Stock
         shall be listed or quoted for trading on the Principal Market.

         4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

         5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; PROVIDED, HOWEVER, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

         6. CLOSING OF BOOKS. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

         7. TRANSFER, DIVISION AND COMBINATION.

                  (a) Subject to compliance with any applicable securities laws
         and the conditions set forth in Sections 1 and 7(f) hereof and to the
         provisions of Section 4.1 of the Purchase Agreement, this Warrant and
         all rights hereunder are transferable, in whole or in part, upon
         surrender of this Warrant at the principal office of the Company,
         together with a written assignment of this Warrant substantially in the
         form attached hereto duly executed by the Holder or its agent or
         attorney and funds sufficient to pay any transfer taxes payable upon
         the making of such transfer. Upon such surrender and, if required, such
         payment, the Company shall execute and deliver a new Warrant or
         Warrants in the name of the assignee or assignees and in the
         denomination or denominations specified in such instrument of
         assignment, and shall issue to the assignor a new Warrant evidencing
         the portion of this Warrant not so assigned, and this Warrant shall

                                      C-6
<PAGE>

         promptly be cancelled. A Warrant, if properly assigned, may be
         exercised by a new holder for the purchase of Warrant Shares without
         having a new Warrant issued.

                  (b) This Warrant may be divided or combined with other
         Warrants upon presentation hereof at the aforesaid office of the
         Company, together with a written notice specifying the names and
         denominations in which new Warrants are to be issued, signed by the
         Holder or its agent or attorney. Subject to compliance with Section
         7(a), as to any transfer which may be involved in such division or
         combination, the Company shall execute and deliver a new Warrant or
         Warrants in exchange for the Warrant or Warrants to be divided or
         combined in accordance with such notice.

                  (c) The Company shall prepare, issue and deliver at its own
         expense (other
         than transfer taxes) the new Warrant or Warrants under this Section 7.

                  (d) The Company agrees to maintain, at its aforesaid office,
         books for the registration and the registration of transfer of the
         Warrants.

                  (e) If, at the time of the surrender of this Warrant in
         connection with any transfer of this Warrant, the transfer of this
         Warrant shall not be registered pursuant to an effective registration
         statement under the Securities Act and under applicable state
         securities or blue sky laws, the Company may require, as a condition of
         allowing such transfer (i) that the Holder or transferee of this
         Warrant, as the case may be, furnish to the Company a written opinion
         of counsel (which opinion shall be in form, substance and scope
         customary for opinions of counsel in comparable transactions) to the
         effect that such transfer may be made without registration under the
         Securities Act and under applicable state securities or blue sky laws,
         (ii) that the holder or transferee execute and deliver to the Company
         an investment letter in form and substance acceptable to the Company
         and (iii) that the transferee be an "accredited investor" as defined in
         Rule 501(a) promulgated under the Securities Act.

         8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.

         9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.

                                      C-7
<PAGE>

         10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.

         11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.

                  (a) STOCK SPLITS, ETC. The number and kind of securities
         purchasable upon the exercise of this Warrant and the Exercise Price
         shall be subject to adjustment from time to time upon the happening of
         any of the following. In case the Company shall (i) pay a dividend in
         shares of Common Stock or make a distribution in shares of Common Stock
         to holders of its outstanding Common Stock, (ii) subdivide its
         outstanding shares of Common Stock into a greater number of shares,
         (iii) combine its outstanding shares of Common Stock into a smaller
         number of shares of Common Stock, or (iv) issue any shares of its
         capital stock in a reclassification of the Common Stock, then the
         number of Warrant Shares purchasable upon exercise of this Warrant
         immediately prior thereto shall be adjusted so that the Holder shall be
         entitled to receive the kind and number of Warrant Shares or other
         securities of the Company which it would have owned or have been
         entitled to receive had such Warrant been exercised in advance thereof.
         Upon each such adjustment of the kind and number of Warrant Shares or
         other securities of the Company which are purchasable hereunder, the
         Holder shall thereafter be entitled to purchase the number of Warrant
         Shares or other securities resulting from such adjustment at an
         Exercise Price per Warrant Share or other security obtained by
         multiplying the Exercise Price in effect immediately prior to such
         adjustment by the number of Warrant Shares purchasable pursuant hereto
         immediately prior to such adjustment and dividing by the number of
         Warrant Shares or other securities of the Company that are immediately
         purchasable hereto immediately thereafter resulting from such
         adjustment. An adjustment made pursuant to this paragraph shall become
         effective immediately after the effective date of such event
         retroactive to the record date, if any, for such event.

                  (b) ANTI-DILUTION PROVISIONS. During the Exercise Period, the
         Exercise Price shall be subject to adjustment from time to time as
         provided in this Section 11(b). In the event that any adjustment of the
         Exercise Price as required herein results in a fraction of a cent, such
         Exercise Price shall be rounded up or down to the nearest cent.

                           (i) ADJUSTMENT OF EXERCISE PRICE. Except as set forth
                  in Section 11(b)(ii)(E), if and whenever the Company, any of
                  its Subsidiaries or The Sage Group, plc (or any Affiliates
                  thereof), as applicable, issues or sells, or in accordance
                  with Section 11(b) hereof is deemed to have issued or sold,
                  any shares of Common Stock for an effective consideration per
                  share of less than the then Exercise Price or for no
                  consideration (such lower price, the "BASE SHARE PRICE" and
                  such issuances collectively, a "DILUTIVE ISSUANCE"), then, the
                  Exercise Price shall be reduced to equal the Base Share Price,
                  PROVIDED, that for purposes hereof, all shares of Common Stock
                  that are issuable upon conversion, exercise or exchange of
                  Capital Share Equivalents shall be deemed outstanding
                  immediately after the issuance of such Common Stock. Such
                  adjustment shall be made whenever such shares of Common Stock
                  or Capital Share Equivalents are issued or sold.

                                      C-8
<PAGE>

                           (ii) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
                  purposes of determining the adjusted Exercise Price under
                  Section 11(b) hereof, the following will be applicable:

                                    (A) ISSUANCE OF RIGHTS OR OPTIONS. If the
                           Company in any manner issues or grants any warrants,
                           rights or options, whether or not immediately
                           exercisable, to subscribe for or to purchase Common
                           Stock or other securities exercisable, convertible
                           into or exchangeable for Common Stock ("CONVERTIBLE
                           Securities") (such warrants, rights and options to
                           purchase Common Stock or Convertible Securities are
                           hereinafter referred to as "OPTIONS") and the
                           effective price per share for which Common Stock is
                           issuable upon the exercise of such Options is less
                           than the Exercise Price ("BELOW BASE PRICE OPTIONS"),
                           then the maximum total number of shares of Common
                           Stock issuable upon the exercise of all such Below
                           Base Price Options (assuming full exercise,
                           conversion or exchange of Convertible Securities, if
                           applicable) will, as of the date of the issuance or
                           grant of such Below Base Price Options, be deemed to
                           be outstanding and to have been issued and sold by
                           the Company for such price per share and the maximum
                           consideration payable to the Company upon such
                           exercise (assuming full exercise, conversion or
                           exchange of Convertible Securities, if applicable)
                           will be deemed to have been received by the Company.
                           For purposes of the preceding sentence, the
                           "effective price per share for which Common Stock is
                           issuable upon the exercise of such Below Base Price
                           Options" is determined by dividing (i) the total
                           amount, if any, received or receivable by the Company
                           as consideration for the issuance or granting of all
                           such Below Base Price Options, plus the minimum
                           aggregate amount of additional consideration, if any,
                           payable to the Company upon the exercise of all such
                           Below Base Price Options, plus, in the case of
                           Convertible Securities issuable upon the exercise of
                           such Below Base Price Options, the minimum aggregate
                           amount of additional consideration payable upon the
                           exercise, conversion or exchange thereof at the time
                           such Convertible Securities first become exercisable,
                           convertible or exchangeable, by (ii) the maximum
                           total number of shares of Common Stock issuable upon
                           the exercise of all such Below Base Price Options
                           (assuming full conversion of Convertible Securities,
                           if applicable). No further adjustment to the Exercise
                           Price will be made upon the actual issuance of such
                           Common Stock upon the exercise of such Below Base
                           Price Options or upon the exercise, conversion or
                           exchange of Convertible Securities issuable upon
                           exercise of such Below Base Price Options.

                                    (B) ISSUANCE OF CONVERTIBLE SECURITIES. If
                           the Company in any manner issues or sells any
                           Convertible Securities, whether or not immediately

                                      C-9
<PAGE>

                           convertible (other than where the same are issuable
                           upon the exercise of Options) and the effective price
                           per share for which Common Stock is issuable upon
                           such exercise, conversion or exchange is less than
                           the Exercise Price, then the maximum total number of
                           shares of Common Stock issuable upon the exercise,
                           conversion or exchange of all such Convertible
                           Securities will, as of the date of the issuance of
                           such Convertible Securities, be deemed to be
                           outstanding and to have been issued and sold by the
                           Company for such price per share and the maximum
                           consideration payable to the Company upon such
                           exercise (assuming full exercise, conversion or
                           exchange of Convertible Securities, if applicable)
                           will be deemed to have been received by the Company.
                           For the purposes of the preceding sentence, the
                           "effective price per share for which Common Stock is
                           issuable upon such exercise, conversion or exchange"
                           is determined by dividing (i) the total amount, if
                           any, received or receivable by the Company as
                           consideration for the issuance or sale of all such
                           Convertible Securities, plus the minimum aggregate
                           amount of additional consideration, if any, payable
                           to the Company upon the exercise, conversion or
                           exchange thereof at the time such Convertible
                           Securities first become exercisable, convertible or
                           exchangeable, by (ii) the maximum total number of
                           shares of Common Stock issuable upon the exercise,
                           conversion or exchange of all such Convertible
                           Securities. No further adjustment to the Exercise
                           Price will be made upon the actual issuance of such
                           Common Stock upon exercise, conversion or exchange of
                           such Convertible Securities.

                                    (C) CHANGE IN OPTION PRICE OR CONVERSION
                           RATE. If there is a change at any time in (i) the
                           amount of additional consideration payable to the
                           Company upon the exercise of any Options; (ii) the
                           amount of additional consideration, if any, payable
                           to the Company upon the exercise, conversion or
                           exchange of any Convertible Securities; or (iii) the
                           rate at which any Convertible Securities are
                           convertible into or exchangeable for Common Stock (in
                           each such case, other than under or by reason of
                           provisions designed to protect against dilution), the
                           Exercise Price in effect at the time of such change
                           will be readjusted to the Exercise Price which would
                           have been in effect at such time had such Options or
                           Convertible Securities still outstanding provided for
                           such changed additional consideration or changed
                           conversion rate, as the case may be, at the time
                           initially granted, issued or sold.

                                    (D) CALCULATION OF CONSIDERATION RECEIVED.
                           If any Common Stock, Options or Convertible
                           Securities are issued, granted or sold for cash, the
                           consideration received therefor for purposes of this
                           Warrant will be the amount received by the Company
                           therefor, before deduction of reasonable commissions,
                           underwriting discounts or allowances or other
                           reasonable expenses paid or incurred by the Company
                           in connection with such issuance, grant or sale. In
                           case any Common Stock, Options or Convertible

                                      C-10
<PAGE>

                           Securities are issued or sold for a consideration
                           part or all of which shall be other than cash, the
                           amount of the consideration other than cash received
                           by the Company will be the fair market value of such
                           consideration, except where such consideration
                           consists of securities, in which case the amount of
                           consideration received by the Company will be the
                           fair market value (average of the closing bid and ask
                           price, if traded on any market) thereof as of the
                           date of receipt. In case any Common Stock, Options or
                           Convertible Securities are issued in connection with
                           any merger or consolidation in which the Company is
                           the surviving corporation, the amount of
                           consideration therefor will be deemed to be the fair
                           market value of such portion of the net assets and
                           business of the non-surviving corporation as is
                           attributable to such Common Stock, Options or
                           Convertible Securities, as the case may be. The fair
                           market value of any consideration other than cash or
                           securities will be determined in good faith by the
                           Board of Directors of the Company, or if the Holder
                           reasonably objects to such valuation, by an
                           investment banker or other appropriate expert of
                           national reputation selected by the Company and
                           reasonably acceptable to the holder hereof, with the
                           costs of such appraisal to be borne by the Company.

                                    (E) EXCEPTIONS TO ADJUSTMENT OF EXERCISE
                           PRICE. Notwithstanding the foregoing, no adjustment
                           will be made under this Section 11(b) in respect of
                           (1) the granting or issuance of shares of capital
                           stock or of options to employees, consultants,
                           officers and directors of the Company pursuant to any
                           stock option plan, agreement or arrangement duly
                           adopted or approved by a majority of the non-employee
                           members of the Board of Directors of the Company or a
                           majority of the members of a committee of
                           non-employee directors established for such purpose,
                           (2) upon the exercise of the Debentures or any
                           Debentures of this series or of any other series or
                           security issued by the Company in connection with the
                           offer and sale of this Company's securities pursuant
                           to the Purchase Agreement, or (3) upon the exercise
                           of or conversion of any convertible securities,
                           options or warrants issued and outstanding on the
                           Original Issue Date, provided that the securities
                           have not been amended since the date of the Purchase
                           Agreement, or (4) issuance of securities in
                           connection with acquisitions, strategic investments,
                           or strategic partnering arrangements, the primary
                           purpose of which is not to raise capital, or (5)
                           sales or transfers of shares of Common Stock from The
                           Sage Group, Plc (or any Affiliates thereof) to the
                           Company whereupon such shares are cancelled.

                                    (F) At any time the Company either
                           negatively restates any of its financial statements
                           relating to, or makes any public disclosure that
                           negatively revises or negatively adds to any prior
                           disclosure of, any material transactions of the
                           Company consummated prior to the date hereof, the Set
                           Price shall be reduced, and only reduced, to equal
                           the lowest VWAP during the 5 Trading Days immediately
                           following any such public announcement. For

                                      C-11
<PAGE>

                           clarification, if such VWAP is above the then Set
                           Price, no adjustment will occur hereunder at such
                           time.

                           (iii) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No
                  adjustment of the Exercise Price shall be made in an amount of
                  less than 1% of the Exercise Price in effect at the time such
                  adjustment is otherwise required to be made, but any such
                  lesser adjustment shall be carried forward and shall be made
                  at the time and together with the next subsequent adjustment
                  which, together with any adjustments so carried forward, shall
                  amount to not less than 1% of such Exercise Price.

         12. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("OTHER
PROPERTY"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event, or (b) cash
equal to the value of this Warrant as determined in accordance with the
Black-Sholes option pricing formula. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

                                      C-12
<PAGE>

         13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.

         14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

         15. NOTICE OF CORPORATE ACTION. If at any time:

                  (a) the Company shall take a record of the holders of its
         Common Stock for the purpose of entitling them to receive a dividend or
         other distribution, or any right to subscribe for or purchase any
         evidences of its indebtedness, any shares of stock of any class or any
         other securities or property, or to receive any other right, or

                  (b) there shall be any capital reorganization of the Company,
         any reclassification or recapitalization of the capital stock of the
         Company or any consolidation or merger of the Company with, or any
         sale, transfer or other disposition of all or substantially all the
         property, assets or business of the Company to, another corporation or,

                  (c) there shall be a voluntary or involuntary dissolution,
         liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).

                                      C-13
<PAGE>

         16. AUTHORIZED SHARES. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.

                  Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.

                  Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.

         17. MISCELLANEOUS.

                  (a) JURISDICTION. This Warrant shall constitute a contract
         under the laws of California, without regard to its conflict of law,
         principles or rules.

                  (b) RESTRICTIONS. The Holder acknowledges that the Warrant
         Shares acquired upon the exercise of this Warrant, if not registered,
         will have restrictions upon resale imposed by state and federal
         securities laws.

                  (c) NONWAIVER AND EXPENSES. No course of dealing or any delay
         or failure to exercise any right hereunder on the part of Holder shall
         operate as a waiver of such right or otherwise prejudice Holder's
         rights, powers or remedies, notwithstanding all rights hereunder
         terminate on the Termination Date. If the Company willfully and
         knowingly fails to comply with any provision of this Warrant, which
         results in any material damages to the Holder, the Company shall pay to
         Holder such amounts as shall be sufficient to cover any costs and

                                      C-14
<PAGE>

         expenses including, but not limited to, reasonable attorneys' fees,
         including those of appellate proceedings, incurred by Holder in
         collecting any amounts due pursuant hereto or in otherwise enforcing
         any of its rights, powers or remedies hereunder.

                  (d) NOTICES. Any notice, request or other document required or
         permitted to be given or delivered to the Holder by the Company shall
         be delivered in accordance with the notice provisions of the Purchase
         Agreement.

                  (e) LIMITATION OF LIABILITY. No provision hereof, in the
         absence of any affirmative action by Holder to exercise this Warrant or
         purchase Warrant Shares, and no enumeration herein of the rights or
         privileges of Holder, shall give rise to any liability of Holder for
         the purchase price of any Common Stock or as a stockholder of the
         Company, whether such liability is asserted by the Company or by
         creditors of the Company.

                  (f) REMEDIES. Holder, in addition to being entitled to
         exercise all rights granted by law, including recovery of damages, will
         be entitled to specific performance of its rights under this Warrant.
         The Company agrees that monetary damages would not be adequate
         compensation for any loss incurred by reason of a breach by it of the
         provisions of this Warrant and hereby agrees to waive the defense in
         any action for specific performance that a remedy at law would be
         adequate.

                  (g) SUCCESSORS AND ASSIGNS. Subject to applicable securities
         laws, this Warrant and the rights and obligations evidenced hereby
         shall inure to the benefit of and be binding upon the successors of the
         Company and the successors and permitted assigns of Holder. The
         provisions of this Warrant are intended to be for the benefit of all
         Holders from time to time of this Warrant and shall be enforceable by
         any such Holder or holder of Warrant Shares.

                  (h) AMENDMENT. This Warrant may be modified or amended or the
         provisions hereof waived with the written consent of the Company and
         the Holder.

                  (i) SEVERABILITY. Wherever possible, each provision of this
         Warrant shall be interpreted in such manner as to be effective and
         valid under applicable law, but if any provision of this Warrant shall
         be prohibited by or invalid under applicable law, such provision shall
         be ineffective to the extent of such prohibition or invalidity, without
         invalidating the remainder of such provisions or the remaining
         provisions of this Warrant.

                  (j) HEADINGS. The headings used in this Warrant are for the
         convenience of reference only and shall not, for any purpose, be deemed
         a part of this Warrant.

                              ********************

                                      C-15
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.

Dated:  March __, 2004
                                             ISLAND PACIFIC, INC.

                                             By: _____________________________
                                                 Name:
                                                 Title:

                                      C-16
<PAGE>

                               NOTICE OF EXERCISE

To:      Island Pacific, Inc.

         (1) The undersigned hereby elects to purchase ________ Warrant Shares
of Island Pacific, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

         (2) Payment shall take the form of (check applicable box):

                           [  ] in lawful money of the United States; or

                           [ ] the cancellation of such number of Warrant Shares
                           as is necessary, in accordance with the formula set
                           forth in subsection 3(d), to exercise this Warrant
                           with respect to the maximum number of Warrant Shares
                           purchasable pursuant to the cashless exercise
                           procedure set forth in subsection 3(d).

         (3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:

                  ----------------------------------------

The Warrant Shares shall be delivered to the following:

                  ----------------------------------------

                  ----------------------------------------

                  ----------------------------------------

         (4) ACCREDITED INVESTOR. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

                                  [PURCHASER]

                                  By: ______________________________
                                      Name:
                                      Title:

                                  Dated:  __________________________

                                      C-17
<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

         FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

_______________________________________________ whose address is

______________________________________________________________________________.

______________________________________________________________________________

                                                  Dated: ______________, _______

                  Holder's Signature: _______________________________

                  Holder's Address:   _______________________________

                                      _______________________________

Signature Guaranteed:  ______________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

                                      C-18
<PAGE>

                                                                      EXHIBIT D

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                              ISLAND PACIFIC, INC.

                  THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that, for value
received, _____________ (the "Holder"), is entitled, upon the terms and subject
to the limitations on exercise and the conditions hereinafter set forth, at any
time on or after March 15, 2004 (the "INITIAL EXERCISE DATE") and on or prior to
the close of business on the earlier of (i) the 6 month anniversary of the
Effective Date and (ii) the 18th month anniversary of the Closing Date (the
"TERMINATION DATE") but not thereafter, to subscribe for and purchase from
Island Pacific, Inc., a corporation incorporated in the State of Delaware (the
"COMPANY"), up to ____________ shares (the "WARRANT SHARES") of Common Stock,
par value $0.0001 per share, of the Company (the "COMMON STOCK"). The purchase
price of one share of Common Stock (the "EXERCISE PRICE") under this Warrant
shall be $5.00, subject to adjustment hereunder. CAPITALIZED TERMS USED AND NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT CERTAIN
SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED MARCH 15, 2004,
BETWEEN THE COMPANY AND THE INVESTORS SIGNATORY THERETO.

                                      D-1
<PAGE>

         1. TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part to an Affiliate of
the Holder, at the office or agency of the Company by the Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed. The transferee shall sign an
investment letter in form and substance reasonably satisfactory to the Company.
The Holder hereof, by acceptance of this Warrant, agrees to be bound by the
covenants made by the original Holder contained in the Purchase Agreement.

         2. AUTHORIZATION OF SHARES. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).

         3. EXERCISE OF WARRANT.

                  (a) Except as provided in Section 4 herein, exercise of the
         purchase rights represented by this Warrant may be made at any time or
         times on or after the Initial Exercise Date and on or before the
         Termination Date by the surrender of this Warrant and the Notice of
         Exercise Form annexed hereto duly executed, at the office of the
         Company (or such other office or agency of the Company as it may
         designate by notice in writing to the registered Holder at the address
         of such Holder appearing on the books of the Company) and upon payment
         of the Exercise Price of the shares thereby purchased by wire transfer
         or cashier's check drawn on a United States bank or by means of a
         cashless exercise pursuant to Section 3(d), the Holder shall be
         entitled to receive a certificate for the number of Warrant Shares so
         purchased. Certificates for shares purchased hereunder shall be
         delivered to the Holder within five (5) Trading Days after the date on
         which this Warrant shall have been exercised as aforesaid. This Warrant
         shall be deemed to have been exercised and such certificate or
         certificates shall be deemed to have been issued, and Holder or any
         other person so designated to be named therein shall be deemed to have
         become a holder of record of such shares for all purposes, as of the
         date the Warrant has been exercised by payment to the Company of the
         Exercise Price and all taxes required to be paid by the Holder, if any,
         pursuant to Section 5 prior to the issuance of such shares, have been
         paid. If the Company fails to deliver to the Holder a certificate or
         certificates representing the Warrant Shares pursuant to this Section
         3(a) by the fifth Trading Day after the date of exercise, then the
         Holder will have the right to rescind such exercise. In addition to any
         other rights available to the Holder, if the Company fails to deliver
         to the Holder a certificate or certificates representing the Warrant
         Shares pursuant to an exercise by the fifth Trading Day after the date
         of exercise, and if after such fifth Trading Day the Holder is required
         by its broker to purchase (in an open market transaction or otherwise)
         shares of Common Stock to deliver in satisfaction of a sale by the
         Holder of the Warrant Shares which the Holder anticipated receiving
         upon such exercise (a "BUY-IN"), then the Company shall (1) pay in cash

                                      D-2
<PAGE>

         to the Holder the amount by which (x) the Holder's total purchase price
         (including brokerage commissions, if any) for the shares of Common
         Stock so purchased exceeds (y) the amount obtained by multiplying (A)
         the number of Warrant Shares that the Company was required to deliver
         to the Holder in connection with the exercise at issue times (B) the
         price at which the sell order giving rise to such purchase obligation
         was executed, and (2) at the option of the Holder, either reinstate the
         portion of the Warrant and equivalent number of Warrant Shares for
         which such exercise was not honored or deliver to the Holder the number
         of shares of Common Stock that would have been issued had the Company
         timely complied with its exercise and delivery obligations hereunder.
         For example, if the Holder purchases Common Stock having a total
         purchase price of $11,000 to cover a Buy-In with respect to an
         attempted exercise of shares of Common Stock with an aggregate sale
         price giving rise to such purchase obligation of $10,000, under clause
         (1) of the immediately preceding sentence the Company shall be required
         to pay the Holder $1,000. The Holder shall provide the Company written
         notice indicating the amounts payable to the Holder in respect of the
         Buy-In, together with applicable confirmations and other evidence
         reasonably requested by the Company. Nothing herein shall limit a
         Holder's right to pursue any other remedies available to it hereunder,
         at law or in equity including, without limitation, a decree of specific
         performance and/or injunctive relief with respect to the Company's
         failure to timely deliver certificates representing shares of Common
         Stock upon exercise of the Warrant as required pursuant to the terms
         hereof.

                  (b) If this Warrant shall have been exercised in part, the
         Company shall, at the time of delivery of the certificate or
         certificates representing Warrant Shares, deliver to Holder a new
         Warrant evidencing the rights of Holder to purchase the unpurchased
         Warrant Shares called for by this Warrant, which new Warrant shall in
         all other respects be identical with this Warrant.

                           (c) (i) The Company shall not effect any exercise of
                  this Warrant, and the Holder shall not have the right to
                  exercise any portion of this Warrant, pursuant to Section 3(a)
                  or otherwise, to the extent that after giving effect to such
                  issuance after exercise, the Holder (together with the
                  Holder's affiliates), as set forth on the applicable Notice of
                  Exercise, would beneficially own in excess of 4.99% of the
                  number of shares of the Common Stock outstanding immediately
                  after giving effect to such issuance. For purposes of the
                  foregoing sentence, the number of shares of Common Stock
                  beneficially owned by the Holder and its affiliates shall
                  include the number of shares of Common Stock issuable upon
                  exercise of this Warrant with respect to which the
                  determination of such sentence is being made, but shall
                  exclude the number of shares of Common Stock which would be
                  issuable upon (A) exercise of the remaining, nonexercised
                  portion of this Warrant beneficially owned by the Holder or
                  any of its affiliates and (B) exercise or conversion of the
                  unexercised or nonconverted portion of any other securities of
                  the Company (including, without limitation, any other
                  Debentures or Warrants) subject to a limitation on conversion
                  or exercise analogous to the limitation contained herein
                  beneficially owned by the Holder or any of its affiliates.
                  Except as set forth in the preceding sentence, for purposes of
                  this Section 3(c), beneficial ownership shall be calculated in
                  accordance with Section 13(d) of the Exchange Act. To the
                  extent that the limitation contained in this Section 3(c)

                                      D-3
<PAGE>

                  applies, the determination of whether this Warrant is
                  exercisable (in relation to other securities owned by the
                  Holder) and of which a portion of this Warrant is exercisable
                  shall be in the sole discretion of such Holder, and the
                  submission of a Notice of Exercise shall be deemed to be such
                  Holder's determination of whether this Warrant is exercisable
                  (in relation to other securities owned by such Holder) and of
                  which portion of this Warrant is exercisable, in each case
                  subject to such aggregate percentage limitation, and the
                  Company shall have no obligation to verify or confirm the
                  accuracy of such determination. For purposes of this Section
                  3(c), in determining the number of outstanding shares of
                  Common Stock, the Holder may rely on the number of outstanding
                  shares of Common Stock as reflected in (x) the Company's most
                  recent Form 10-Q or Form 10-K, as the case may be, (y) a more
                  recent public announcement by the Company or (z) any other
                  notice by the Company or the Company's Transfer Agent setting
                  forth the number of shares of Common Stock outstanding. Upon
                  the written or oral request of the Holder, the Company shall
                  within two Trading Days confirm orally and in writing to the
                  Holder the number of shares of Common Stock then outstanding.
                  In any case, the number of outstanding shares of Common Stock
                  shall be determined after giving effect to the conversion or
                  exercise of securities of the Company, including this Warrant,
                  by the Holder or its affiliates since the date as of which
                  such number of outstanding shares of Common Stock was
                  reported.

                           (ii) If the Company has not obtained Shareholder
                  Approval (as defined below) if required, then the Company may
                  not issue upon exercise of this Warrant in the aggregate, in
                  excess of 19.999% of the number of shares of Common Stock
                  outstanding on the Trading Day immediately preceding the
                  Closing Date, less any shares of Common Stock issued upon
                  conversion of or as payment of interest on the Debentures or
                  upon prior exercise of this or any other Warrant issued
                  pursuant to the Purchase Agreement (such number of shares, the
                  "ISSUABLE Maximum"); PROVIDED, HOWEVER, any Warrant Shares
                  previously issued upon exercise of the Series A Warrants shall
                  not be included in any such calculation unless the Exercise
                  Price thereof is less than the closing bid price of the Common
                  Stock on the Trading Day immediately prior to the Closing Date
                  (subject to adjustment for reverse and forward stock splits,
                  stock dividends, stock combinations and other similar
                  transactions of the Common Stock that occur after the date of
                  this Agreement). If on any attempted exercise of this Warrant,
                  the issuance of Warrant Shares would exceed the Issuable
                  Maximum and the Company shall not have previously obtained the
                  vote of shareholders (the "SHAREHOLDER APPROVAL"), if any, as
                  may be required by the applicable rules and regulations of the
                  Principal Market (or any successor entity) to approve the
                  issuance of shares of Common Stock in excess of the Issuable
                  Maximum pursuant to the terms hereof, then the Company shall
                  issue to the Holder requesting a Warrant exercise such number
                  of Warrant Shares as may be issued below the Issuable Maximum
                  and, with respect to the remainder of the aggregate number of
                  Warrant Shares, this Warrant shall not be exercisable until
                  and unless Shareholder Approval has been obtained.

                                      D-4
<PAGE>

         4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

         5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; PROVIDED, HOWEVER, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

         6. CLOSING OF BOOKS. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

         7. TRANSFER, DIVISION AND COMBINATION.

                  (a) Subject to compliance with any applicable securities laws
         and the conditions set forth in Sections 1 and 7(f) hereof and to the
         provisions of Section 4.1 of the Purchase Agreement, this Warrant and
         all rights hereunder are transferable, in whole or in part, upon
         surrender of this Warrant at the principal office of the Company,
         together with a written assignment of this Warrant substantially in the
         form attached hereto duly executed by the Holder or its agent or
         attorney and funds sufficient to pay any transfer taxes payable upon
         the making of such transfer. Upon such surrender and, if required, such
         payment, the Company shall execute and deliver a new Warrant or
         Warrants in the name of the assignee or assignees and in the
         denomination or denominations specified in such instrument of
         assignment, and shall issue to the assignor a new Warrant evidencing
         the portion of this Warrant not so assigned, and this Warrant shall
         promptly be cancelled. A Warrant, if properly assigned, may be
         exercised by a new holder for the purchase of Warrant Shares without
         having a new Warrant issued.

                  (b) This Warrant may be divided or combined with other
         Warrants upon presentation hereof at the aforesaid office of the
         Company, together with a written notice specifying the names and
         denominations in which new Warrants are to be issued, signed by the
         Holder or its agent or attorney. Subject to compliance with Section
         7(a), as to any transfer which may be involved in such division or
         combination, the Company shall execute and deliver a new Warrant or
         Warrants in exchange for the Warrant or Warrants to be divided or
         combined in accordance with such notice.

                  (c) The Company shall prepare, issue and deliver at its own
         expense (other than transfer taxes) the new Warrant or Warrants under
         this Section 7.

                                      D-5
<PAGE>

                  (d) The Company agrees to maintain, at its aforesaid office,
         books for the registration and the registration of transfer of the
         Warrants.

                  (e) If, at the time of the surrender of this Warrant in
         connection with any transfer of this Warrant, the transfer of this
         Warrant shall not be registered pursuant to an effective registration
         statement under the Securities Act and under applicable state
         securities or blue sky laws, the Company may require, as a condition of
         allowing such transfer (i) that the Holder or transferee of this
         Warrant, as the case may be, furnish to the Company a written opinion
         of counsel (which opinion shall be in form, substance and scope
         customary for opinions of counsel in comparable transactions) to the
         effect that such transfer may be made without registration under the
         Securities Act and under applicable state securities or blue sky laws,
         (ii) that the holder or transferee execute and deliver to the Company
         an investment letter in form and substance acceptable to the Company
         and (iii) that the transferee be an "accredited investor" as defined in
         Rule 501(a) promulgated under the Securities Act.

         8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.

         9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.

         10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.

         11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.

                  (a) STOCK SPLITS, ETC. The number and kind of securities
         purchasable upon the exercise of this Warrant and the Exercise Price
         shall be subject to adjustment from time to time upon the happening of
         any of the following. In case the Company shall (i) pay a dividend in
         shares of Common Stock or make a distribution in shares of Common Stock
         to holders of its outstanding Common Stock, (ii) subdivide its
         outstanding shares of Common Stock into a greater number of shares,
         (iii) combine its outstanding shares of Common Stock into a smaller
         number of shares of Common Stock, or (iv) issue any shares of its
         capital stock in a reclassification of the Common Stock, then the

                                      D-6
<PAGE>

         number of Warrant Shares purchasable upon exercise of this Warrant
         immediately prior thereto shall be adjusted so that the Holder shall be
         entitled to receive the kind and number of Warrant Shares or other
         securities of the Company which it would have owned or have been
         entitled to receive had such Warrant been exercised in advance thereof.
         Upon each such adjustment of the kind and number of Warrant Shares or
         other securities of the Company which are purchasable hereunder, the
         Holder shall thereafter be entitled to purchase the number of Warrant
         Shares or other securities resulting from such adjustment at an
         Exercise Price per Warrant Share or other security obtained by
         multiplying the Exercise Price in effect immediately prior to such
         adjustment by the number of Warrant Shares purchasable pursuant hereto
         immediately prior to such adjustment and dividing by the number of
         Warrant Shares or other securities of the Company that are immediately
         purchasable hereto immediately thereafter resulting from such
         adjustment. An adjustment made pursuant to this paragraph shall become
         effective immediately after the effective date of such event
         retroactive to the record date, if any, for such event.

                  (b) ANTI-DILUTION PROVISIONS. During the Exercise Period, the
         Exercise Price shall be subject to adjustment from time to time as
         provided in this Section 11(b). In the event that any adjustment of the
         Exercise Price as required herein results in a fraction of a cent, such
         Exercise Price shall be rounded up or down to the nearest cent.

                           (i) ADJUSTMENT OF EXERCISE PRICE. Except as set forth
                  in Section 11(b)(ii)(E), if and whenever the Company, any of
                  its Subsidiaries or The Sage Group, plc (or any Affiliates
                  thereof), as applicable, issues or sells in a public offering,
                  or in accordance with Section 11(b) hereof is deemed to have
                  issued or sold, any shares of Common Stock in a public
                  offering, for an effective consideration per share of less
                  than the then Exercise Price or for no consideration (such
                  lower price, the "BASE SHARE PRICE" and such issuances
                  collectively, a "DILUTIVE ISSUANCE"), then, the Exercise Price
                  shall be reduced to equal the Base Share Price, PROVIDED, that
                  for purposes hereof, all shares of Common Stock that are
                  issuable upon conversion, exercise or exchange of Capital
                  Share Equivalents shall be deemed outstanding immediately
                  after the issuance of such Common Stock. Such adjustment shall
                  be made whenever such shares of Common Stock or Capital Share
                  Equivalents are issued or sold.

                           (ii) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
                  purposes of determining the adjusted Exercise Price under
                  Section 11(b) hereof, the following will be applicable:

                                    (A) ISSUANCE OF RIGHTS OR OPTIONS. If the
                           Company in any manner issues or grants any warrants,
                           rights or options, whether or not immediately
                           exercisable, to subscribe for or to purchase Common
                           Stock or other securities exercisable, convertible
                           into or exchangeable for Common Stock ("CONVERTIBLE
                           Securities") (such warrants, rights and options to
                           purchase Common Stock or Convertible Securities are
                           hereinafter referred to as "OPTIONS") and the
                           effective price per share for which Common Stock is
                           issuable upon the exercise of such Options is less
                           than the Exercise Price ("BELOW BASE PRICE OPTIONS"),
                           then the maximum total number of shares of Common

                                      D-7
<PAGE>

                           Stock issuable upon the exercise of all such Below
                           Base Price Options (assuming full exercise,
                           conversion or exchange of Convertible Securities, if
                           applicable) will, as of the date of the issuance or
                           grant of such Below Base Price Options, be deemed to
                           be outstanding and to have been issued and sold by
                           the Company for such price per share and the maximum
                           consideration payable to the Company upon such
                           exercise (assuming full exercise, conversion or
                           exchange of Convertible Securities, if applicable)
                           will be deemed to have been received by the Company.
                           For purposes of the preceding sentence, the
                           "effective price per share for which Common Stock is
                           issuable upon the exercise of such Below Base Price
                           Options" is determined by dividing (i) the total
                           amount, if any, received or receivable by the Company
                           as consideration for the issuance or granting of all
                           such Below Base Price Options, plus the minimum
                           aggregate amount of additional consideration, if any,
                           payable to the Company upon the exercise of all such
                           Below Base Price Options, plus, in the case of
                           Convertible Securities issuable upon the exercise of
                           such Below Base Price Options, the minimum aggregate
                           amount of additional consideration payable upon the
                           exercise, conversion or exchange thereof at the time
                           such Convertible Securities first become exercisable,
                           convertible or exchangeable, by (ii) the maximum
                           total number of shares of Common Stock issuable upon
                           the exercise of all such Below Base Price Options
                           (assuming full conversion of Convertible Securities,
                           if applicable). No further adjustment to the Exercise
                           Price will be made upon the actual issuance of such
                           Common Stock upon the exercise of such Below Base
                           Price Options or upon the exercise, conversion or
                           exchange of Convertible Securities issuable upon
                           exercise of such Below Base Price Options.

                                    (B) ISSUANCE OF CONVERTIBLE SECURITIES. If
                           the Company in any manner issues or sells any
                           Convertible Securities, whether or not immediately
                           convertible (other than where the same are issuable
                           upon the exercise of Options) and the effective price
                           per share for which Common Stock is issuable upon
                           such exercise, conversion or exchange is less than
                           the Exercise Price, then the maximum total number of
                           shares of Common Stock issuable upon the exercise,
                           conversion or exchange of all such Convertible
                           Securities will, as of the date of the issuance of
                           such Convertible Securities, be deemed to be
                           outstanding and to have been issued and sold by the
                           Company for such price per share and the maximum
                           consideration payable to the Company upon such
                           exercise (assuming full exercise, conversion or
                           exchange of Convertible Securities, if applicable)
                           will be deemed to have been received by the Company.
                           For the purposes of the preceding sentence, the
                           "effective price per share for which Common Stock is
                           issuable upon such exercise, conversion or exchange"
                           is determined by dividing (i) the total amount, if
                           any, received or receivable by the Company as
                           consideration for the issuance or sale of all such
                           Convertible Securities, plus the minimum aggregate

                                      D-8
<PAGE>

                           amount of additional consideration, if any, payable
                           to the Company upon the exercise, conversion or
                           exchange thereof at the time such Convertible
                           Securities first become exercisable, convertible or
                           exchangeable, by (ii) the maximum total number of
                           shares of Common Stock issuable upon the exercise,
                           conversion or exchange of all such Convertible
                           Securities. No further adjustment to the Exercise
                           Price will be made upon the actual issuance of such
                           Common Stock upon exercise, conversion or exchange of
                           such Convertible Securities.

                                    (C) CHANGE IN OPTION PRICE OR CONVERSION
                           RATE. If there is a change at any time in (i) the
                           amount of additional consideration payable to the
                           Company upon the exercise of any Options; (ii) the
                           amount of additional consideration, if any, payable
                           to the Company upon the exercise, conversion or
                           exchange of any Convertible Securities; or (iii) the
                           rate at which any Convertible Securities are
                           convertible into or exchangeable for Common Stock (in
                           each such case, other than under or by reason of
                           provisions designed to protect against dilution), the
                           Exercise Price in effect at the time of such change
                           will be readjusted to the Exercise Price which would
                           have been in effect at such time had such Options or
                           Convertible Securities still outstanding provided for
                           such changed additional consideration or changed
                           conversion rate, as the case may be, at the time
                           initially granted, issued or sold.

                                    (D) CALCULATION OF CONSIDERATION RECEIVED.
                           If any Common Stock, Options or Convertible
                           Securities are issued, granted or sold for cash, the
                           consideration received therefor for purposes of this
                           Warrant will be the amount received by the Company
                           therefor, before deduction of reasonable commissions,
                           underwriting discounts or allowances or other
                           reasonable expenses paid or incurred by the Company
                           in connection with such issuance, grant or sale. In
                           case any Common Stock, Options or Convertible
                           Securities are issued or sold for a consideration
                           part or all of which shall be other than cash, the
                           amount of the consideration other than cash received
                           by the Company will be the fair market value of such
                           consideration, except where such consideration
                           consists of securities, in which case the amount of
                           consideration received by the Company will be the
                           fair market value (average of the closing bid and ask
                           price, if traded on any market) thereof as of the
                           date of receipt. In case any Common Stock, Options or
                           Convertible Securities are issued in connection with
                           any merger or consolidation in which the Company is
                           the surviving corporation, the amount of
                           consideration therefor will be deemed to be the fair
                           market value of such portion of the net assets and
                           business of the non-surviving corporation as is
                           attributable to such Common Stock, Options or
                           Convertible Securities, as the case may be. The fair
                           market value of any consideration other than cash or
                           securities will be determined in good faith by the
                           Board of Directors of the Company, or if the Holder
                           reasonably objects to such valuation, by an

                                      D-9
<PAGE>

                           investment banker or other appropriate expert of
                           national reputation selected by the Company and
                           reasonably acceptable to the holder hereof, with the
                           costs of such appraisal to be borne by the Company.

                                    (E) EXCEPTIONS TO ADJUSTMENT OF EXERCISE
                           PRICE. Notwithstanding the foregoing, no adjustment
                           will be made under this Section 11(b) in respect of
                           (1) the granting or issuance of shares of capital
                           stock or of options to employees, consultants,
                           officers and directors of the Company pursuant to any
                           stock option plan, agreement or arrangement duly
                           adopted or approved by a majority of the non-employee
                           members of the Board of Directors of the Company or a
                           majority of the members of a committee of
                           non-employee directors established for such purpose,
                           (2) upon the exercise of the Debentures or any
                           Debentures of this series or of any other series or
                           security issued by the Company in connection with the
                           offer and sale of this Company's securities pursuant
                           to the Purchase Agreement, or (3) upon the exercise
                           of or conversion of any convertible securities,
                           options or warrants issued and outstanding on the
                           Original Issue Date, provided that the securities
                           have not been amended since the date of the Purchase
                           Agreement, or (4) issuance of securities in
                           connection with acquisitions, strategic investments,
                           or strategic partnering arrangements, the primary
                           purpose of which is not to raise capital, or (5)
                           sales or transfers of shares of Common Stock from The
                           Sage Group, Plc (or any Affiliates thereof) to the
                           Company whereupon such shares are cancelled.

                           (iii) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No
                  adjustment of the Exercise Price shall be made in an amount of
                  less than 1% of the Exercise Price in effect at the time such
                  adjustment is otherwise required to be made, but any such
                  lesser adjustment shall be carried forward and shall be made
                  at the time and together with the next subsequent adjustment
                  which, together with any adjustments so carried forward, shall
                  amount to not less than 1% of such Exercise Price.

         12. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("OTHER
PROPERTY"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, at
the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property receivable upon
or as a result of such reorganization, reclassification, merger, consolidation

                                      D-10
<PAGE>

or disposition of assets by a Holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event, or (b) cash
equal to the value of this Warrant as determined in accordance with the
Black-Sholes option pricing formula. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

         13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.

         14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

         15. NOTICE OF CORPORATE ACTION. If at any time:

                  (a) the Company shall take a record of the holders of its
         Common Stock for the purpose of entitling them to receive a dividend or
         other distribution, or any right to subscribe for or purchase any
         evidences of its indebtedness, any shares of stock of any class or any
         other securities or property, or to receive any other right, or

                  (b) there shall be any capital reorganization of the Company,
         any reclassification or recapitalization of the capital stock of the
         Company or any consolidation or merger of the Company with, or any
         sale, transfer or other disposition of all or substantially all the
         property, assets or business of the Company to, another corporation or,

                                      D-11
<PAGE>

                  (c) there shall be a voluntary or involuntary dissolution,
         liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).

         16. AUTHORIZED SHARES. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.

                  Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.

                                      D-12
<PAGE>

                  Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.

         17. MISCELLANEOUS.

                  (a) JURISDICTION. This Warrant shall constitute a contract
         under the laws of California, without regard to its conflict of law,
         principles or rules.

                  (b) RESTRICTIONS. The Holder acknowledges that the Warrant
         Shares acquired upon the exercise of this Warrant, if not registered,
         will have restrictions upon resale imposed by state and federal
         securities laws.

                  (c) NONWAIVER AND EXPENSES. No course of dealing or any delay
         or failure to exercise any right hereunder on the part of Holder shall
         operate as a waiver of such right or otherwise prejudice Holder's
         rights, powers or remedies, notwithstanding all rights hereunder
         terminate on the Termination Date. If the Company willfully and
         knowingly fails to comply with any provision of this Warrant, which
         results in any material damages to the Holder, the Company shall pay to
         Holder such amounts as shall be sufficient to cover any costs and
         expenses including, but not limited to, reasonable attorneys' fees,
         including those of appellate proceedings, incurred by Holder in
         collecting any amounts due pursuant hereto or in otherwise enforcing
         any of its rights, powers or remedies hereunder.

                  (d) NOTICES. Any notice, request or other document required or
         permitted to be given or delivered to the Holder by the Company shall
         be delivered in accordance with the notice provisions of the Purchase
         Agreement.

                  (e) LIMITATION OF LIABILITY. No provision hereof, in the
         absence of any affirmative action by Holder to exercise this Warrant or
         purchase Warrant Shares, and no enumeration herein of the rights or
         privileges of Holder, shall give rise to any liability of Holder for
         the purchase price of any Common Stock or as a stockholder of the
         Company, whether such liability is asserted by the Company or by
         creditors of the Company.

                  (f) REMEDIES. Holder, in addition to being entitled to
         exercise all rights granted by law, including recovery of damages, will
         be entitled to specific performance of its rights under this Warrant.
         The Company agrees that monetary damages would not be adequate
         compensation for any loss incurred by reason of a breach by it of the
         provisions of this Warrant and hereby agrees to waive the defense in
         any action for specific performance that a remedy at law would be
         adequate.

                  (g) SUCCESSORS AND ASSIGNS. Subject to applicable securities
         laws, this Warrant and the rights and obligations evidenced hereby
         shall inure to the benefit of and be binding upon the successors of the
         Company and the successors and permitted assigns of Holder. The
         provisions of this Warrant are intended to be for the benefit of all

                                      D-13
<PAGE>

         Holders from time to time of this Warrant and shall be enforceable by
         any such Holder or holder of Warrant Shares.

                  (h) AMENDMENT. This Warrant may be modified or amended or the
         provisions hereof waived with the written consent of the Company and
         the Holder.

                  (i) SEVERABILITY. Wherever possible, each provision of this
         Warrant shall be interpreted in such manner as to be effective and
         valid under applicable law, but if any provision of this Warrant shall
         be prohibited by or invalid under applicable law, such provision shall
         be ineffective to the extent of such prohibition or invalidity, without
         invalidating the remainder of such provisions or the remaining
         provisions of this Warrant.

                  (j) HEADINGS. The headings used in this Warrant are for the
         convenience of reference only and shall not, for any purpose, be deemed
         a part of this Warrant.

                              ********************

                                      D-14
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.

Dated:  March __, 2004
                                            ISLAND PACIFIC, INC.

                                            By: ______________________________
                                                Name:
                                                Title:

                                      D-15
<PAGE>

                               NOTICE OF EXERCISE

To:      Island Pacific, Inc.

         (1) The undersigned hereby elects to purchase ________ Warrant Shares
of Island Pacific, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

         (2) Payment shall take the form of (check applicable box):

                           [  ] in lawful money of the United States; or

                           [ ] the cancellation of such number of Warrant Shares
                           as is necessary, in accordance with the formula set
                           forth in subsection 3(d), to exercise this Warrant
                           with respect to the maximum number of Warrant Shares
                           purchasable pursuant to the cashless exercise
                           procedure set forth in subsection 3(d).

         (3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:

                  ----------------------------------------

The Warrant Shares shall be delivered to the following:

                  ----------------------------------------

                  ----------------------------------------

                  ----------------------------------------

         (4) ACCREDITED INVESTOR. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

                                  [PURCHASER]

                                  By: ______________________________
                                      Name:
                                      Title:

                                  Dated:  __________________________

                                      D-16
<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

         FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

_______________________________________________ whose address is

______________________________________________________________________________.

______________________________________________________________________________

                                                  Dated: ______________, _______

                  Holder's Signature: _______________________________

                  Holder's Address:   _______________________________

                                      _______________________________

Signature Guaranteed:  ______________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

                                      D-17<PAGE>

EXHIBIT 4.2

                          REGISTRATION RIGHTS AGREEMENT

                  This Registration Rights Agreement (this "AGREEMENT") is made
and entered into as of March 15, 2004, among Island Pacific, Inc., a Delaware
corporation (the "COMPANY"), and the purchasers signatory hereto (each such
purchaser is a "PURCHASER" and all such purchasers are, collectively, the
"PURCHASERS").

                  This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"PURCHASE AGREEMENT").

                  The Company and the Purchasers hereby agree as follows:

     1. DEFINITIONS

         CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN THAT ARE
DEFINED IN THE PURCHASE AGREEMENT SHALL HAVE THE MEANINGS GIVEN SUCH TERMS IN
THE PURCHASE AGREEMENT. As used in this Agreement, the following terms shall
have the following meanings:

                  "EFFECTIVENESS DATE" means, with respect to the initial
         Registration Statement to be filed hereunder, the 90th calendar day
         (120th calendar day in the event of a "full review" by the Commission)
         following the Closing Date and, with respect to any additional
         Registration Statements which may be required pursuant to Section 3(c),
         the 60th calendar day following the date on which the Company first
         knows, or reasonably should have known, that such additional
         Registration Statement is required hereunder; PROVIDED, HOWEVER, in the
         event the Company is notified by the Commission that one of the above
         Registration Statements will not be reviewed or is no longer subject to
         further review and comments, the Effectiveness Date as to such
         Registration Statement shall be the fifth Trading Day following the
         date on which the Company is so notified if such date precedes the
         dates required above.

                  "EFFECTIVENESS PERIOD" shall have the meaning set forth in
         Section 2(a).

                  "FILING DATE" means, with respect to the initial Registration
         Statement to be filed hereunder, the 30th day following the Closing
         Date and, with respect to any additional Registration Statements which
         may be required pursuant to Section 3(c), the 15th day following the
         date on which the Company first knows, or reasonably should have known
         that such additional Registration Statement is required hereunder

                  "HOLDER" or "HOLDERS" means the holder or holders, as the case
         may be, from time to time of Registrable Securities.

                                       1
<PAGE>

                  "INDEMNIFIED PARTY" shall have the meaning set forth in
         Section 5(c) hereof.

                  "INDEMNIFYING PARTY" shall have the meaning set forth in
         Section 5(c) hereof.

                  "PROSPECTUS" means the prospectus included in a Registration
         Statement (including, without limitation, a prospectus that includes
         any information previously omitted from a prospectus filed as part of
         an effective registration statement in reliance upon Rule 430A
         promulgated under the Securities Act), as amended or supplemented by
         any prospectus supplement, with respect to the terms of the offering of
         any portion of the Registrable Securities covered by a Registration
         Statement, and all other amendments and supplements to the Prospectus,
         including post-effective amendments, and all material incorporated by
         reference or deemed to be incorporated by reference in such Prospectus.

                  "REGISTRABLE SECURITIES" means all of the shares of Common
         Stock issuable upon conversion in full of the Debentures, assuming for
         such purposes that all of the Debentures are held until the 26th month
         anniversary of their date of issuance, and the lowest possible
         conversion price in effect during the period between the applicable
         Closing and the filing date of the Registration Statement (assuming the
         Monthly Conversion Price is then applicable) and interest is paid in
         shares only until the Maturity Date, exercise in full of the Warrants,
         together with any securities issued or issuable upon any stock split,
         dividend or other distribution recapitalization or similar event with
         respect to the foregoing or in connection with any anti-dilution
         provisions in the Debentures.

                  "REGISTRATION STATEMENT" means the registration statements
         required to be filed hereunder and any additional registration
         statements contemplated by Section 3(c), including (in each case) the
         Prospectus, amendments and supplements to such registration statement
         or Prospectus, including pre- and post-effective amendments, all
         exhibits thereto, and all material incorporated by reference or deemed
         to be incorporated by reference in such registration statement.

                  "RULE 415" means Rule 415 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same purpose and effect as such
         Rule.

                  "RULE 424" means Rule 424 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same purpose and effect as such
         Rule.

                                       2
<PAGE>

                  "WARRANTS" shall mean the Common Stock purchase warrants
         issued to the Purchasers pursuant to the Purchase Agreement.

     2. SHELF REGISTRATION

         (a) On or prior to each Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering the resale of 130%
of the Registrable Securities on such Filing Date for an offering to be made on
a continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (unless the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (unless
otherwise directed by the Holders and except to the extent the Company
determines that modifications thereto are required under applicable law)
substantially the "Plan of Distribution" attached hereto as ANNEX A. Subject to
the terms of this Agreement, the Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
applicable Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until the
date when all Registrable Securities covered by such Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "EFFECTIVENESS PERIOD").

         (b) If: (i) a Registration Statement is not filed on or prior to its
Filing Date (if the Company files a Registration Statement without affording the
Holders the opportunity to review and comment on the same as required by Section
3(a), the Company shall not be deemed to have satisfied clause (i)), or (ii) the
Company fails to file with the Commission a request for acceleration in
accordance with Rule 461 promulgated under the Securities Act, within five
Trading Days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration Statement will not
be "reviewed," or not subject to further review, or (iii) prior to its Effective
Date, the Company fails to file a pre-effective amendment and otherwise respond
in writing to comments made by the Commission in respect of such Registration
Statement within 15 Trading Days after the receipt of comments by or notice from
the Commission that such amendment is required in order for a Registration
Statement to be declared effective, or (iv) a Registration Statement filed or
required to be filed hereunder is not declared effective by the Commission by
its Effectiveness Date, or (v) after the Effective Date, a Registration
Statement ceases for any reason to remain continuously effective as to all
Registrable Securities for which it is required to be effective, or the Holders
are not permitted to utilize the Prospectus therein to resell such Registrable
Securities for 5 consecutive Trading Days or in any individual case an aggregate
of 15 Trading Days during any 12 month period (which need not be consecutive
Trading Days) (any such failure or breach being referred to as an "EVENT", and
for purposes of clause (i) or (iv) the date on which such Event occurs, or for
purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such 15 Trading Day

                                       3
<PAGE>

period is exceeded, or for purposes of clause (v) the date on which such 5 or 15
Trading Day period, as applicable, is exceeded being referred to as "EVENT
DATE"), then, on each such Event Date and every monthly anniversary thereof
until the applicable Event is cured, the Company shall pay to each Holder an
amount in cash, as liquidated damages and not as a penalty, equal to 2.0% per
month of (i) the Subscription Amount paid by such Holder pursuant to the
Purchase Agreement for Securities then held by such Holder, and (ii) if the
Warrants are "in the money" and then held by the Holder, the value of any
outstanding Warrants (valued at the difference between the average VWAP during
the applicable month and the Exercise Price multiplied by the number of shares
of Common Stock the Warrants are exercisable into). If the Company fails to pay
any liquidated damages pursuant to this Section in full within seven days after
the date payable, the Company will pay interest thereon at a rate of 15% per
annum (or such lesser maximum amount that is permitted to be paid by applicable
law) to the Holder, accruing daily from the date such liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full. The
liquidated damages pursuant to the terms hereof shall apply on a pro-rata basis
for any portion of a month prior to the cure of an Event and shall be in lieu of
any and all of the penalties or liquidated damages that might otherwise arise by
reason of such Event unless such Event constitutes an Event of Default under the
Debentures.

     3. REGISTRATION PROCEDURES

         In connection with the Company's registration obligations hereunder,
the Company shall:

         (a) Not less than five Trading Days prior to the filing of each
Registration Statement or any related Prospectus or any amendment or supplement
thereto (excluding any document that would be incorporated or deemed
incorporated therein by reference), the Company shall, (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) will be
subject to the review of such Holders, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities shall reasonably and in good faith
object, provided, the Company is notified of such objection in writing no later
than 5 Trading Days after the Holders have been so furnished copies of such
documents.

         (b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to a Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep a Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be

                                       4
<PAGE>

amended or supplemented by any required Prospectus supplement (subject to the
terms of this Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424; (iii) respond as promptly as reasonably possible, and in any event
within 15 Trading Days, to any comments received from the Commission with
respect to a Registration Statement or any amendment thereto and as promptly as
reasonably possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to a Registration Statement;
and (iv) comply in all material respects with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by a Registration Statement during the applicable period in
accordance (subject to the terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in such Registration Statement as
so amended or in such Prospectus as so supplemented.

         (c) If during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 85% of the number of shares of Common Stock then
registered in a Registration Statement, then the Company shall file as soon as
reasonably practicable but in any case prior to the applicable Filing Date, an
additional Registration Statement covering the resale of by the Holders of not
less than 130% of the number of such Registrable Securities.

         (d) Notify the Holders of Registrable Securities to be sold (which
notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an
instruction to suspend the use of the Prospectus until the requisite changes
have been made) as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than five Trading Days prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later than one Trading Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to a
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes the
financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to a
Registration Statement, Prospectus or other documents so that, in the case of a
Registration Statement or the Prospectus, as the case may be, it will not

                                       5
<PAGE>

contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
(vi) the occurrence or existence of any pending corporate development with
respect to the Company that the Company believes may be material and that, in
the determination of the Company, makes it not in the best interests of the
Company to allow continued availability or the Registration Statement or
Prospectus.

         (e) Promptly deliver to each Holder, without charge, as many copies of
the Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. Subject
to the terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.

         (f) Use commercially reasonable efforts to register or qualify the
resale of such Registrable Securities as required under applicable securities or
Blue Sky laws of each State within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period; provided, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or subject the Company to any material tax in
any such jurisdiction where it is not then so subject.

         (g) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.

         (h) Upon the occurrence of any event contemplated this Section 3, as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to a Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither a Registration Statement nor such Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. If the
Company notifies the Holders in accordance with clauses (ii) through (vi) of
Section 3(d) above to suspend the use of the use of any Prospectus until the
requisite changes to such Prospectus have been made, or the Company otherwise
notifies the Holders of its election to suspend the availability of a
Registration Statement and Prospectus pursuant to clause (vi) of Section 3(d),
then the Holders shall suspend use of such Prospectus. The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as promptly
as is practicable, except that in the case of suspension of the availability of

                                       6
<PAGE>

a Registration Statement and Prospectus pursuant to clause (vi) of Section 3(d),
the Company shall not be required to take such action until such time as it
shall determine that the continued availability of the Registration Statement
and Prospectus is no longer not in the best interests of the Company. The
Company shall be entitled to exercise its right under this Section 3(h) to
suspend the availability of a Registration Statement and Prospectus, subject to
the payment of liquidated damages pursuant to Section 2(b), for a period not to
exceed 45 consecutive days or for multiple periods not to exceed 60 days in any
12 month period.

         (i) Comply with all applicable rules and regulations of the Commission.

         (j) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

         (k) The Company may require, at any time prior to the third Trading Day
prior to the Filing Date, each Holder to furnish to the Company a statement as
to the number of shares of Common Stock beneficially owned by such Holder and,
if requested by the Commission, the controlling person thereof, within three
Trading days of the Company's request. During any periods that the Company is
unable to meet its obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company's request, any liquidated
damages that are accruing as to such Holder at such time shall be tolled and any
Event that may otherwise occur as to such Holder solely because of such delay
shall be suspended, until such information is delivered to the Company.

     4. REGISTRATION EXPENSES. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Principal Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state securities or
Blue Sky laws reasonably agreed to by the Company in writing (including, without
limitation, fees and disbursements of counsel for the Company in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as requested by the Holders), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the Holders),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, and (v) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of

                                       7
<PAGE>

the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.

     5. INDEMNIFICATION

         (a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, investment advisors and employees of each of them,
each Person who controls any such Holder (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and reasonable attorneys' fees) and expenses (collectively, "Losses"), as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in a Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions or alleged untrue statements or omissions are
based upon information regarding such Holder furnished in writing to the Company
by such Holder expressly for use therein, or to the extent that such information
relates to such Holder or such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in a Registration Statement, such Prospectus or
such form of Prospectus or in any amendment or supplement thereto or (2) in the
case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(e). The Company shall notify the Holders promptly of
the institution, threat or assertion of any Proceeding arising from or in
connection with the transactions contemplated by this Agreement of which the
Company is aware.

         (b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising out of or based upon any untrue statement of a

                                       8
<PAGE>

material fact contained in any Registration Statement, any Prospectus, or any
form of prospectus, or in any amendment or supplement thereto, or arising out of
or based upon: (i) such Holder's failure to comply with the prospectus delivery
requirements of the Securities Act or (ii) any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading to the extent, but only to the extent, such untrue statement or
omission is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in such Registration Statement or such
Prospectus or to the extent that (1) such untrue statements or omissions are
based upon information regarding such Holder furnished in writing to the Company
by such Holder expressly for use therein, or to the extent such information
relates to such Holder or such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in the Registration Statement, such Prospectus or
such form of Prospectus or in any amendment or supplement thereto or (2) in the
case of an occurrence of an event of the type specified in Section
3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(e). In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.

         (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PArty"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that such failure shall have prejudiced the
Indemnifying Party.

         An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a material conflict of interest is
likely to exist if the same counsel were to represent such Indemnified Party and
the Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the expense of one such counsel for each
Holder shall be at the expense of the Indemnifying Party). The Indemnifying

                                       9
<PAGE>

Party shall not be liable for any settlement of any such Proceeding effected
without its written consent, which consent shall not be unreasonably withheld.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.

         Subject to the terms of this Agreement, all fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).

         (d) CONTRIBUTION. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

         The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

                                       10
<PAGE>

         The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

     6. MISCELLANEOUS

         (a) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and Holders
of at least 51% of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of all of the Registrable Securities to which such waiver or consent
relates; PROVIDED, HOWEVER, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.

         (b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of
its subsidiaries has entered, as of the date hereof, nor shall the Company or
any of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities, that would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. Except as and to the extent specified in
Schedule 6(b) hereto, neither the Company nor any of its subsidiaries has
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that have not been satisfied in
full.

         (c) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent
specified in Schedule 6(c) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders to
include securities of the Company in the Registration Statement without the
prior written consent of the Holders, which consent shall not be unreasonably
withheld. Except as and to the extent specified in Schedule 6(c), the Company
shall not file any other registration statement until after the Effective Date.

         (d) COMPLIANCE. Each Holder covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as applicable to
it in connection with sales of Registrable Securities pursuant to the
Registration Statement.

         (e) DISCONTINUED DISPOSITION. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Sections 3(d)(ii), (iii) or
(vi), such Holder will forthwith discontinue disposition of such Registrable

                                       11
<PAGE>

Securities under a Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(h), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph. The Company agrees and acknowledges
that any periods during which the Holder is required to discontinue the
disposition of the Registrable Securities hereunder shall be subject to the
provisions of Section 2(b).

         (f) PIGGY-BACK REGISTRATIONS. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered; provided, that, the Company shall not be
required to register any Registrable Securities pursuant to this Section 6(f)
that are eligible for resale pursuant to Rule 144(k) promulgated under the
Securities Act.

         (g) NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement.

         (h) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
all of the Holders of the then-outstanding Registrable Securities. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.

         (i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

         (j) GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law thereof. Each

                                       12
<PAGE>

party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of San Diego, California, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of this Agreement, then the
prevailing party in such Proceeding shall be reimbursed by the other party for
its attorneys fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Proceeding.

         (k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

         (l) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.

         (m) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

         (n) INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

                              ********************

                                       13
<PAGE>

               IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.

                                    ISLAND PACIFIC, INC.

                                    By:  /s/ Ran Furman
                                       ----------------------------
                                    Name: Ran Furman
                                    Title:  Chief Financial Officer

                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]

                                       14
<PAGE>

                     [SIGNATURE PAGE OF HOLDERS TO IPI RRA]

                           OMICRON MASTER TRUST
                           By: Omicron Capital L.P., as subadvisor
                           By: Omicron Capital Inc., its general partner

                           By: /s/ Bruce Bernstein
                               ----------------------------------------------
                               Bruce Bernstein, Managing Partner

                           MIDSUMMER INVESTMENTS, LTD.
                           By:  Midsummer Capital, LLC, as investment manager

                           By: /s/ Scott Kaufman
                               ----------------------------------------------
                           Title:  Managing Director

                                       15
<PAGE>

                                     ANNEX A
                                     -------

                              PLAN OF DISTRIBUTION
                              --------------------

         Each Selling Stockholder (the "SELLING STOCKHOLDERS") of the common
stock ("COMMON STOCK") of [ISSUER] (the "COMPANY") and any of their pledgees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of Common Stock on the American Stock Exchange or any other stock
exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. A
Selling Stockholder may use any one or more of the following methods when
selling shares:

                  o        ordinary brokerage transactions and transactions in
                           which the broker-dealer solicits purchasers;

                  o        block trades in which the broker-dealer will attempt
                           to sell the shares as agent but may position and
                           resell a portion of the block as principal to
                           facilitate the transaction;

                  o        purchases by a broker-dealer as principal and resale
                           by the broker-dealer for its account;

                  o        an exchange distribution in accordance with the rules
                           of the applicable exchange;

                  o        privately negotiated transactions;

                  o        settlement of short sales;

                  o        broker-dealers may agree with the Selling
                           Stockholders to sell a specified number of such
                           shares at a stipulated price per share;

                  o        a combination of any such methods of sale;

                  o        through the writing or settlement of options or other
                           hedging transactions, whether through an options
                           exchange or otherwise; or

                  o        any other method permitted pursuant to applicable
                           law.

         The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), if available, rather
than under this prospectus.

         Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer

                                       16
<PAGE>

acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each Selling Stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.

         In connection with the sale of our common stock or interests therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

         The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.

         The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.

         Because Selling Stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each Selling Stockholder has advised us that they have not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Stockholders.

         We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under

                                       17
<PAGE>

applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

         Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to our common stock for a period
of two business days prior to the commencement of the distribution. In addition,
the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M,
which may limit the timing of purchases and sales of shares of our common stock
by the Selling Stockholders or any other person. We will make copies of this
prospectus available to the Selling Stockholders and have informed them of the
need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale.

                                       18

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