ALANCO TECHNOLOGIES, INC.
ALANCO TECHNOLOGIES, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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For the transition period from to
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Commission file number 0-9347
ALANCO TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Arizona
(State or other jurisdiction of incorporation or organization)
86-0220694
(I.R.S. Employer Identification No.)
15575 N. 83rd Way, Suite 3, Scottsdale, Arizona 85260
(Address of principal executive offices) (Zip Code)
(480) 607-1010
(Issuer's telephone number)
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(Former name, former address and former fiscal
year, if changed since last report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of May 5, 2004 there were 22,848,200 shares,
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net of treasury shares, of common stock outstanding.
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Transitional Small Business Disclosure Format (Check one): Yes No X
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Forward-Looking Statements: Some of the statements in this Form 10-QSB Quarterly
Report, as well as statements by the Company in periodic press releases, oral
statements made by the Company's officials to analysts and shareholders in the
course of presentations about the Company, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Words or phrases denoting the anticipated results of future events such
as "anticipate," "believe," "estimate," "will likely," "are expected to," "will
continue," "project," "trends" and similar expressions that denote uncertainty
are intended to identify such forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (i) general economic and business conditions; (ii) changes
in industries in which the Company does business; (iii) the loss of market share
and increased competition in certain markets; (iv) governmental regulation
including environmental laws; and (v) other factors over which the company has
little or no control.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2004 (unaudited) and June 30, 2003...............3
Condensed Consolidated Statements of Operations (Unaudited)
For the three months ended March 31,
2004 and 2003..............................................4
Condensed Consolidated Statements of Operations (Unaudited)
For the nine months ended March 31,
2004 and 2003..............................................5
Changes in Certain Equity and Preferred Stock
Accounts (unaudited) For the nine months ended
March 31, 2004 and 2003....................................6
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended March 31,
2004 and 2003..............................................7
Notes to Condensed Consolidated Financial Statements
(Unaudited)......................................... 9
Note A - Basis of Presentation
Note B - Inventories
Note C - Contracts in Process
Note D - Deferred Revenue
Note E - Loss per Share
Note F - Equity
Note G - Industry Segment Data
Note H - Related Party Transactions
Note I - Line of Credit
Note J - Conversion of Debt to Equity
Note K - Litigation
Note L - Subsequent Event
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................15
PART II. OTHER INFORMATION
Item 6. Exhibits .............................................20
Signature ............................................20
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2004 AND JUNE 30, 2003
Mar 31, 2004 June 30, 2003
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(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 26,400 $ 97,700
Accounts receivable, net 811,800 808,500
Subscription receivable -- 899,200
Cost & est. earnings in excess of billings
on uncompleted projects 49,900 --
Inventories, net 2,119,400 1,278,700
Prepaid expenses and other current assets 142,100 53,100
------------ ------------
Total current assets 3,149,600 3,137,200
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PROPERTY, PLANT AND EQUIPMENT, NET 264,000 343,800
------------ ------------
OTHER ASSETS
Goodwill, net 5,356,300 5,351,300
Other intangible assets 746,600 911,700
Long-term notes receivable, net 96,000 291,000
Net assets held for sale 170,800 223,200
Other assets 48,900 61,200
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Total other assets 6,418,600 6,838,400
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TOTAL ASSETS $ 9,832,200 $ 10,319,400
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LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,560,200 $ 1,636,100
Credit line 787,500 874,000
Capital leases, current 5,700 24,600
Deferred revenue, current 59,500 76,000
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Total Current Liabilities 2,412,900 2,610,700
LONG TERM LIABILITIES
Notes payable and capital leases, long term 920,100 1,170,100
Deferred revenue, long term -- 25,200
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TOTAL LIABILITIES 3,333,000 3,806,000
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Preferred Stock - Series B, 500,000 shares
authorized, 58,600 and 54,500 shares
issued and outstanding, respectively 587,800 545,900
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SHAREHOLDERS' EQUITY
Preferred Stock - Series A Convertible,
5,000,000 shares authorized, 2,644,800
and 2,248,400 shares issued and outstanding,
respectively 3,157,000 2,653,200
Common Stock, 19,091,300 and 20,609,100 shares
issued and 18,591,300 and 15,612,200 shares
outstanding, respectively 65,204,700 65,014,000
Treasury Stock, 500,000 and 4,996,900 shares
at cost (375,200) (2,084,000)
Accumulated deficit (62,075,100) (59,615,700)
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Total shareholders' equity 5,911,400 5,967,500
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 9,832,200 $ 10,319,400
============ ============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31,
2004 2003
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NET REVENUES $ 1,221,100 $ 1,296,900
Cost of goods sold 780,000 797,400
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GROSS PROFIT 441,100 499,500
Selling, general and administrative expense 1,173,700 1,266,000
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OPERATING LOSS (732,600) (766,500)
OTHER INCOME & EXPENSES
Interest income (expense), net (21,500) (30,600)
Other income (expense), net 9,000 2,200
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LOSS FROM OPERATIONS (745,100) (794,900)
Series A preferred stock dividend - in kind (203,200) --
Series B preferred stock dividend - in kind (15,000) (13,800)
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (963,300) $ (808,700)
============ =============
NET LOSS PER SHARE - BASIC AND DILUTED
Net loss attributable to common shareholders $ (0.05) $ (0.04)
============ =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,875,500 20,059,100
============ ============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31,
2004 2003
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NET REVENUES $ 3,492,600 $ 6,604,100
Cost of goods sold 2,180,600 4,184,800
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GROSS PROFIT 1,312,000 2,419,300
Selling, general and administrative expense 3,445,900 3,977,000
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OPERATING LOSS (2,133,900) (1,557,700)
OTHER INCOME & EXPENSES
Interest expense, net (128,600) (84,400)
Other income, net 48,300 8,000
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LOSS FROM OPERATIONS (2,214,200) (1,634,100)
Series A preferred stock dividend - in kind (203,200) --
Series B preferred stock dividend - in kind (42,000) (38,400)
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (2,459,400) $ (1,672,500)
============ =============
NET LOSS PER SHARE - BASIC AND DILUTED
Net loss attributable to common shareholders $ (0.15) $ (0.09)
============ =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 16,479,500 18,210,400
============ =============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN CERTAIN SHAREHOLDERS' EQUITY AND PREFERRED
STOCK ACCOUNTS FOR THE NINE MONTHS ENDED MARCH 31, 2004 (Unaudited)
Common Stock Preferred Stock Preferred Stock Treasury Stock
Series A Series B
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
Balance @ 6/30/03 20,609,100 $ 65,014,000 2,248,400 $ 2,653,200 54,500 $ 545,900 4,996,900 $ (2,084,000)
Preferred dividends in kind -- -- 135,400 203,200 -- -- -- --
Preferred dividends in kind -- -- -- -- 4,100 41,900 -- --
Shares issued for services
and cancellation of put
option 183,700 68,800 -- -- -- -- -- --
Private Offerings 2,438,500 1,437,800 261,000 300,800 -- -- 522,000 (198,400)
Options/Warrants exercised 340,000 133,300 -- -- -- -- -- --
Debt restructure 538,900 458,000 -- -- -- -- -- --
Cancelled Treasury Stock (5,018,900) (1,907,200) -- -- -- -- (5,018,900) 1,907,200
----------- ------------ --------- ----------- ------ --------- ---------- -----------
Balances @ 03/31/04 19,091,300 $ 65,204,700 2,644,800 $ 3,157,200 58,600 $ 587,800 500,000 $ (375,200)
=========== ============ ========= =========== ====== ========= ========== ============
See accompanying notes to the consolidated financial statements
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31,
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Loss from operations $ (2,214,200) $ (1,634,100)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 257,600 319,400
Stock and warrants issued for services and
cancellation of stock put options charged to
interest expense 68,800 27,200
(Income)loss from assets held for sale (17,600) 3,400
Gain on disposal of asset (1,000) (43,400)
Changes in:
Accounts receivable, net (3,300) (89,800)
Costs and estimated earnings in excess of billings
on uncompleted contracts (49,900) (374,700)
Inventories, net (840,700) (203,700)
Prepaid expenses and other current assets (89,000) (34,100)
Accounts payable and accrued expenses 62,100 463,600
Deferred revenue (41,700) 20,100
Billings and estimated earnings in excess of costs
on uncompleted contracts -- (54,100)
Other assets 12,300 --
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Net cash used in operating activities (2,786,600) (1,600,200)
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CASH FLOWS FROM INVESTING ACTIVITIES
Net cash from assets held for sale 70,000 26,300
Collection of notes receivable 195,000 3,200
Purchase of property, plant and equipment (17,100) (46,300)
Proceeds from the sale of property, plant and equipment 5,200 20,000
Goodwill (5,000) (32,900)
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Net cash used in investing activities 248,100 (29,700)
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See accompanying notes to the consolidated financial statements
\
ALANCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, (Continued)
2004 2003
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances on borrowings 2,054,500 2,286,500
Repayment on borrowings (2,159,900) (2,274,800)
Subscriptions receivable 899,200 --
Proceeds from sale of Preferred Stock 102,400 --
Proceeds from sale of Common Stock 1,641,000 1,395,000
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Net cash provided by (used in) financing activities 2,467,200 1,406,700
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NET INCREASE (DECREASE) IN CASH (71,300) (223,200)
CASH AND CASH EQUIVALENTS, beginning of period 97,700 328,400
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CASH AND CASH EQUIVALENTS, end of period $ 26,400 $ 105,200
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Net cash paid during the period for interest $ 69,700 $ 78,500
============ ============
Non-Cash Activities:
Shares issued in payment of accounts payable $ 245,000 $ --
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Note received in exchange for assets $ -- $ 100,000
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Value of stocks and warrants issued for services $ 68,800 $ 60,200
============ ============
Preferred stock dividend, in kind $ 245,100 $ 38,400
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Value of treasury stock redeemed in preferred stock
and warrant issuance $ 198,400 $ --
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Value of treasury stock cancelled $ 1,907,200 $ --
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Conversion of debt to equity $ 250,000 $ --
============ ============
See accompanying notes to the consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2004
Note A - Basis of Presentation
Alanco Technologies, Inc., an Arizona corporation ("Alanco" or
"Company"), operates in two business Segments: Computer Data Storage Segment
and RFID Technology Segment.
The unaudited condensed consolidated balance sheet as of March 31, 2004
and the related unaudited condensed consolidated statements of operations and
cash flows for the nine months ended March 31, 2004 presented herein have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and in accordance
with the instructions to Form 10-QSB. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. Accounting principles assume the continuation of the Company as a going
concern. The Company's auditors, in their opinion on the financial statements
for the year ended June 30, 2003, expressed a concern about this uncertainty.
The accompanying financial statements do not include any adjustment that might
arise from the outcome of this assumption. In our opinion, the accompanying
condensed consolidated financial statements include all adjustments necessary
for a fair presentation of such condensed consolidated financial statements.
Such necessary adjustments consist of normal recurring items and the elimination
of all significant intercompany balances and transactions.
These interim condensed consolidated financial statements should be
read in conjunction with the Company's June 30, 2003, Annual Report on Form
10-KSB. Interim results are not necessarily indicative of results for a full
year. Certain reclassifications have been made to conform prior period
financials to the presentation in the current reporting period. The
reclassifications had no effect on net loss.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
All stock options issued to employees have an exercise price not less
than the fair market value of the Company's Common Stock on the date of grant.
In accordance with accounting for such options utilizing the intrinsic value
method under APB 25, there is no related compensation expense recorded in the
Company's financial statements for the three and nine months ended March 31,
2004 and 2003. Had compensation cost for stock-based compensation been
determined based on the fair value of the options at the grant dates consistent
with the method of SFAS 123, the Company's net loss and loss per share would
have been increased to the pro forma amounts presented below:
9 months ended March 31, 3 months ended March 31,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Net loss, as reported $ (2,459,400) $ (1,672,500) $ (688,600) $ (808,700)
Add: Stock-based Employee compensation
expense included in reported income,
net of related tax effects -- -- -- --
Deduct: Total stock-based Employee
compensation expense determined under
fair value based methods for all awards,
net of related tax effects $ (327,200) $ (109,700) $ (32,900) $ (16,000)
-------------- -------------- -------------- --------------
Pro forma net loss $ (2,786,600) $ (1,782,200) $ (721,500) $ (824,700)
============== ============== ============== ==============
Net loss per common share, basic and diluted
As reported $ (0.15) $ (0.09) $ (0.04) $ (0.04)
============== ============== ============== ==============
Pro forma $ (0.17) $ (0.10) $ (0.05) $ (0.04)
============== ============== ============== ==============
Weighted average common shares 16,479,500 18,210,400 17,875,500 20,059,100
============== ============== ============== ==============
During the quarter ended March 31, 2004, the Company granted employee
stock options to purchase 60,000 shares of the Company's Class A Common Stock at
an average purchase price of $0.54, market price on date granted. The fair value
of option grants is estimated as of the date of grant, in accordance with SFAS
123, utilizing the Black-Scholes option-pricing model, with the assumptions
utilized in the year-end financial statements.
Recent Accounting Pronouncements
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" (SFAS 150). This statement
affects the classification, measurement and disclosure requirements of the
following three types of freestanding financial instruments: 1) mandatory
redeemable shares, which the issuing company is obligated to buy back with cash
or other assets; 2) instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets, which includes put
options and forward purchase contracts; and 3) obligations that can be settled
with shares, the monetary value of which is fixed, tied solely or predominantly
to a variable such as a market index, or varies inversely with the value of the
issuers' shares. In general, SFAS 150 is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS 150 did not
have an impact on the Company's consolidated financial position or disclosures.
Note B - Inventories
Inventories have been recorded at the lower of cost or market. The
composition of inventories as of March 31, 2004, and June 30, 2003, are
summarized as follows:
March 31, June 30,
2004 2003
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(unaudited)
Raw materials and purchased parts $ 1,737,800 $ 1,007,000
Work-in-progress 329,700 260,400
Finished goods 209,700 199,700
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2,277,200 1,467,100
Less reserves for obsolescence (157,800) (188,400)
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$ 2,119,400 $ 1,278,700
============ ============
Note C - Contracts In Process
Costs incurred, estimated earnings and billings in the TSI PRISM
segment, related to contracts for the installation of TSI PRISM system in
process at March 31, 2004 and June 30, 2003 consist of the following.
March 31, June 30,
2004 2004
------------ ------------
Costs incurred on uncompleted contracts $ 66,400 $ --
Estimated gross profit earned to date 44,500 --
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Revenue earned to date 110,900 --
Less Billing to date (61,000) --
------------ ------------
Costs and estimated earnings in excess of
Billing (billing in excess of costs
and earnings) $ 49,900 $ --
============ ============
Note D - Deferred Revenue
Deferred Revenues at March 31, 2004 and June 30, 2003 consist of the
following:
March 31, June 30,
2004 2003
------------ ------------
Extended warranty revenue $ 59,500 $ 101,200
Less - current portion (59,500) (76,000)
------------ ------------
Deferred revenue - long term $ -- $ 25,200
============ ============
Note E - Loss Per Share
Basic loss per share of common stock was computed by dividing net loss
by the weighted average number of shares outstanding of common stock.
Diluted earnings per share are computed based on the weighted average
number of shares of common stock and dilutive securities outstanding during the
period. Dilutive securities are options and warrants that are freely exercisable
into common stock at less than the prevailing market price. Dilutive securities
are not included in the weighted average number of shares when inclusion would
increase the earnings per share or decrease the loss per share. As of March 31,
2004 there were 6,013,657 potentially dilutive securities outstanding.
Note F - Equity
During the nine months ended March 31, 2004, the Company issued a total
of approximately $2.1 million in Class A Common Stock. $1 million was raised by
the sale of units at $.65 per unit, consisting of one share of Class A Common
Stock and a warrant to purchase 5 shares. The warrants have a strike price of
$.75 per share and expire July 9, 2004, 120 days after the date the related S-3
registration statement became effective. $260,000 was raised by the private
placement of 400,000 shares of Class A Common Shares at $.65 per share and
approximately $133,000 was raised from the exercise of employee stock options
and warrants. In addition, $250,000 of common stock was issued by the conversion
of a portion of the Company's credit line into Class A Common Shares at $.50 per
share, as provided in the line of credit agreement, $68,800 was issued for
services rendered and $378,000, in settlement of approximately $495,000 of
recorded accounts payable and long term debt with a vendor of TSI. Expense
incurred during the nine months that were associated with the sale of common
shares amounted to approximately $75,000, resulting in net value of Common Stock
issued of approximately $2.02 million.
The Company also issued, during the first quarter of the current fiscal
year, $300,800 of Series A Preferred Stock. This completed a private placement
that had been initiated during the fourth quarter of the previous fiscal year.
The Series A Preferred Stock private placement is more fully explained in the
Form-10KSB for the year ended June 30, 2003.
Note G -Segment Data
Information concerning operations by industry segment follows (unaudited):
Nine Months ended 3/31 Three Months Ended 03/31
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenue
Data Storage $ 3,335,600 $ 3,070,100 $ 1,088,900 $ 977,600
TSI PRISM 157,000 3,534,000 132,200 319,300
------------ ------------ ------------ ------------
Total Revenue 3,492,600 6,604,100 1,221,100 1,296,900
------------ ------------ ------------ ------------
Gross Profit
Data Storage 1,227,700 1,300,700 363,800 406,300
TSI PRISM 84,300 1,118,600 77,300 93,200
------------ ------------ ------------ ------------
Total Gross Profit 1,312,000 2,419,300 441,100 499,500
------------ ------------ ------------ ------------
Gross Margin
Data Storage 36.8% 42.4% 33.4% 41.6%
TSI PRISM 53.7% 31.7% 58.5% 29.2%
Overall Gross Margin 37.6% 36.6% 36.1% 38.5%
Operating Expense
Data Storage 1,222,700 1,594,800 398,100 479,500
TSI PRISM 1,521,900 1,693,000 523,100 555,700
------------ ------------ ------------ ------------
Total Segment Operating Expense 2,744,600 3,287,800 921,200 1,035,200
Operating Profit/Loss
Data Storage 5,000 (294,100) (34,300) (73,200)
TSI PRISM (1,437,600) (574,400) (445,800) (462,500)
Corporate Expense (701,300) (689,200) (252,500) (230,800)
------------ ------------ ------------ ------------
Operating Loss $ (2,133,900) $ (1,557,700) $ (732,600) $ (766,500)
============ ============ ============ ============
Depreciation and Amortization
Data Storage 22,800 83,900 7,300 20,100
TSI PRISM 230,600 220,500 77,900 73,600
Corporate 4,200 15,000 600 2,100
------------ ------------ ------------ ------------
Total Depreciation and
Amortization $ 257,600 $ 319,400 $ 85,800 $ 95,800
============ ============ ============ ============
Note H - Related Party Transactions
The Company has a line of credit agreement ("Agreement"), more fully
discussed in the Company's Form 10-KSB for the year ended June 30, 2003, with a
private trust controlled by Mr. Donald Anderson, a greater than five percent
stockholder and a member of the Company's Board of Directors. During the current
quarter, the Company entered into an amendment to the Agreement with the private
trust that modified the Agreement and extended the existing line of credit to
July 1, 2005. See Note I below for additional discussion of the amendment to the
line of credit agreement.
Note I - Line of Credit
At March 31, 2004, the Company has an outstanding balance of
$1,287,500, of which $787,500 is presented as line of credit balance due and
$500,000 is presented as notes payable - long term portion. The outstanding
balance is under a $1.55 million line of credit agreement with a private trust
("Lender"), entered into in June 2002 and modified in April and October of 2003
(the "Agreement"). During the October 2003 negotiations, the Lender indicated a
desire to convert $250,000 of debt into equity as provided for in the Agreement
and agreed to complete the conversion by November 14, 2003. As compensation to
the Lender for amending and extending the Agreement, the Company agreed to
continue maintaining a $500,000 minimum outstanding balance subsequent to the
$250,000 conversion of debt to equity and to issue the Lender warrants to
purchase 50,000 shares of the Company's Class A Common Stock at $.60 per share,
the fair market value on the date of the Agreement. See Note H - Related Party
Transaction for additional discussion related to Lender and Mr. Donald Anderson,
a greater than five percent stockholder and a member of the Company's Board of
Directors.
Note J - Conversion of Debt to Equity
During January 2004, the Company entered into an agreement with EMS
Technologies, Inc. ("EMS") whereby TSI purchased various inventory and tooling
from EMS, resolved various obligations of both EMS and TSI, and converted
approximately $208,000 of accounts payable and $250,000 of long-term debt into
equity through the issuance of 539,000 shares of Class A Common Stock and the
assumption of certain liabilities. As part of the agreement, the Company
committed to file an appropriate Form S-3 registration statement pertaining to
the 539,000 shares issued. This entire agreement was later rescinded by mutual
agreement because of difficulties the agreement created under SEC regulations
relative to a Company S-3 registration statement then in the process of becoming
effective. In March of 2004, subsequent to the effective date of the S-3
registration statement, the parties again effected the agreement with the same
terms and conditions as were agreed in January 2004. A copy of the final
agreement is attached as an exhibit to this Form 10-QSB filing.
Note K - Litigation
The Company continues to be a defendant in litigation that relates to
the acquisition, in May of 2002, of substantially all the assets of Technology
Systems International, Inc., a Nevada corporation. No significant new activity
has occurred subsequent to our report of litigation in our Form 10-KSB filed for
the year ended June 30, 2003. The Company's management, in consultation with
legal counsel, believes the plaintiff's claims are without merit and the Company
will aggressively defend against the action. Litigation previously reported as
arising from an expired property lease between the Company's subsidiary, Arraid,
Inc. and Arraid Property L.L.C., a Limited Liability Company, has been deemed
immaterial.
Note L - Subsequent Events
In April of 2004, the Company raised $2,070,000 by the sale of
1,380,000 shares of Class A Common Stock, warrants to acquire up to 700,000
shares of Class A Common Stock at an exercise price of $1.60 and additional
warrants to acquire up to 700,000 shares at $2.00. The Company has committed to
file an S-3 Registration Statement to register the shares issued and the shares
underlying the warrants. The warrants with the $1.60 strike price will expire
120 days following the effective date of an S-3 Registration Statement covering
the underlying Common shares. The warrants with the $2.00 strike price will
expire 5 years following the effective date of an S-3 Registration Statement
covering the underlying Common shares.
In addition to the private placement discussed above, the Company
raised an additional approximately $1.4 million since March 31, 2004 by the
exercise of warrants and employee stock options.
Subsequent to March 31, 2004, the Company was notified that its Lender
had elected to exercise its right under section 6B of the Loan Agreement, as
amended, to convert $250,000 of the outstanding balance of the credit line into
500,000 shares of Alanco's Class A Common Stock. The effect of this conversion
will be to reduce the maximum credit line from $1.55 million to $1.3 million.
The Company adopted a Stockholders Rights Plan at its May 12, 2004
Board of Directors meeting. A copy of that Plan is attached as an exhibit to
this Form-10-QSB filing.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information, the statements contained herein are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by those
statements. These risks and uncertainties include, but are not limited to, the
following factors: general economic and market conditions; reduced demand for
information technology equipment; competitive pricing and difficulty managing
product costs; development of new technologies which make the Company's products
obsolete; rapid industry changes; failure by the Company's suppliers to meet
quality or delivery requirements; the inability to attract, hire and retain key
personnel; failure of an acquired business to further the Company's strategies;
the difficulty of integrating an acquired business; undetected problems in the
Company's products; the failure of the Company's intellectual property to be
adequately protected; unforeseen litigation; the ability to maintain sufficient
liquidity in order to support operations; the ability to maintain satisfactory
relationships with lenders and to remain in compliance with financial loan
covenants and other requirements under current banking agreements; and the
ability to maintain satisfactory relationships with suppliers and customers.
General
Information on industry segments is incorporated by reference from Note
G - Segment Reporting to the Condensed Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results
of operations are based upon the condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of our financial
statements requires the use of estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an ongoing basis, estimates are revalued, including
those related to areas that require a significant level of judgment or are
otherwise subject to an inherent degree of uncertainty. These areas include
allowances for doubtful accounts, inventory valuations, carrying value of
goodwill and intangible assets, estimated profit on uncompleted TSI PRISM
contracts in process, income and expense recognition, income taxes and
commitments and contingencies. Our estimates are based upon historical
experience, observance of trends in particular areas, information and/or
valuations available from outside sources and on various other assumptions that
we believe to be reasonable under the circumstances and which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual amounts may differ from these
estimates under different assumptions and conditions.
Accounting policies are considered critical when they are significant
and involve difficult, subjective or complex judgments or estimates. We
considered the following to be critical accounting policies:
Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Revenue recognition - The Company recognizes revenue from the Data
Storage Segment, net of anticipated returns, at the time products are shipped to
customers, or at the time services are provided. Revenue from material long-term
contracts (in excess of $250,000 and over a 90-day completion period) in both
the Data Storage Segment and the RFID Technology Segment are recognized on the
percentage-of-completion method for individual contracts, commencing when
significant costs are incurred and adequate estimates are verified for
substantial portions of the contract to where experience is sufficient to
estimate final results with reasonable accuracy. Revenues are recognized in the
ratio that costs incurred bear to total estimated costs. Changes in job
performance, estimated profitability and final contract settlements would result
in revisions to cost and income, and are recognized in the period in which the
revisions were determined. Contract costs include all direct materials,
subcontracts, labor costs and those direct and indirect costs related to
contract performance. General and administrative costs are charged to expense as
incurred. At the time a loss on a contract becomes known, the entire amount of
the estimated ultimate loss is accrued.
Long-lived assets and intangible assets - The Company reviews carrying
values at least annually or whenever events or circumstances indicate the
carrying values may not be recoverable through projected discounted cash flows.
Results of Operations
(A) Three months ended 3/31/2004 versus 3/31/2003
Revenues
Consolidated revenue for the quarter ended March 31, 2004 was
$1,221,100, compared to $1,296,900 for the comparable quarter of the previous
year, a decrease of $ 75,800, or 5.8%. The decrease is attributed to a decrease
of the RFID Technology revenue, which decreased from $ 319,300 for the quarter
ended March 31, 2003 to $132,200 in the comparable current year quarter, a
decrease of 58.6%. The Data Storage Segment revenues increased to $1,088,900, an
11.4% increase compared to $977,600 reported in the quarter ended March 31,
2003. The decrease in RFID Technology revenue resulted from prison contract and
funding postponements caused by fiscal budgetary constraints. The increase in
Data Storage Segment revenues resulted from increased demand for the Company's
data storage products.
Gross profit and Operating Expenses
Gross profit generated during the quarter amount to $441,100, a
decrease of $58,400 when compared to the same quarter of the prior year. Gross
margins decreased from 38.5% for the quarter ended March 31, 2003 to 36.1% for
the current quarter. The decrease in gross margin resulted primarily from a
change in product mix to lower gross margin products in the data storage
segment. Selling, general and administrative expenses for the current quarter
decreased to $1,173,700, a $92,300 decrease, or 7.3%, when compared to
$1,266,000 incurred in the comparable quarter of fiscal year 2003. The decrease
is attributable to cost control measures initiated by the Company in the Data
Storage Segment.
Operating Loss
The Operating Loss for the quarter was $732,600 compared to a loss of
$766,500 for the same quarter of the prior year, a decrease of 4.4%. The
decreased operating loss resulted from decreases in operating losses of both
Data Storage and TSI PRISM operating segments. The $445,800 operating loss
generated by the RFID Technology Segment was a decrease of $16,700 when compared
to an operating loss of $462,500 reported for the same quarter of the prior
year. Also reflecting an improvement from prior quarters, the Data Storage
Segment reported an operating loss of $34,300, a $38,900 decrease from the
$73,200 operating loss reported for the quarter ended March 31, 2003. The Data
Storage improvement in operating loss resulted from increased Data Storage
revenues and cost reduction programs instituted by the Company.
Interest and Dividends Expense
Interest expense for the quarter amounted to $21,500, a decrease of
$9,100 when compared to interest expense of $30,600 for the same quarter in the
prior year. The Company paid quarterly in-kind Series B Preferred Stock
dividends with values of $15,000 and $13,800 in fiscal year 2004 and 2003,
respectively. In addition, the Company declared and paid its first Series A
Preferred Stock dividend by issuing shares of in-kind stock valued at $203,200.
The Series A Preferred Stock provides for a stock dividend to be declared and
paid on a six-month interval. Some of the Series A Preferred Stock had been
issued during the fourth quarter of fiscal year ended June 30, 2003, and
therefore the dividend reflected a period greater than six months.
Net Loss Attributable to Common Stockholders
Net Loss Attributable to Common Stockholders for the quarter ended
March 31, 2004 amounted to $963,300, or ($.05) per share, compared to a loss of
$808,700, or ($.04) per share, in the comparable quarter of the prior year.
Although the Company has initiated cost control measures that have impacted the
current quarter, operating results have continued to be affected by unfavorable
economic conditions and reduced capital spending budgets that have adversely
affected Alanco's business in recent quarters. If the economic conditions in the
United States worsen or if a wider or global economic slowdown occurs, Alanco
may experience a material adverse impact on its operating results and business
conditions.
(B) Nine months ended 3/31/2004 versus 3/31/2003
Revenues
Consolidated revenue for the nine months ended March 31, 2004 was
$3,492,600, compared to $6,604,100 for the comparable period of the previous
year, a decrease of $3,111,500, or 47.1%. The decrease in revenue is attributed
to a decrease of the RFID Technology revenue, which decreased from $3,534,000
for the nine months ended March 31, 2003 to $157,000 in the comparable current
year nine-month period. The Data Storage Segment revenues increased to
$3,335,600, an 8.6% increase compared to $3,070,100 reported for the period
ended March 31, 2003. The decrease in RFID Technology revenue resulted from
prison contract award and funding postponements caused by fiscal budgetary
constraints that added further delays to the already lengthy state contract
procurement process. The increase in Data Storage Segment revenues resulted from
increased demand for the Company's data storage products.
Gross profit and Operating Expenses
Gross profit generated during the nine-month period ended March 31,
2004 amounted to $1,312,000, a decrease of $1,107,300, or 45.8% when compared to
the $2,419,300 for same period of the prior year. Gross margins increased to
37.6% for the quarter ended March 31, 2004 when compared to the gross margin of
36.6% for the same period of the prior year. The decrease in gross profit
resulted from the reduction in sales, while the increase in gross margin
resulted primarily from a change in product mix.
Selling, general and administrative expenses for the current nine-month
period decreased to $3,445,900, a $531,100, or 13.4%, decrease when compared to
$3,977,000 incurred in the comparable nine-month period of fiscal year 2003. The
decrease is attributable primarily to reduced sales commissions in the RFID
Technology Segment and cost control measures initiated by the Company in the
Data Storage Segment.
Operating Loss
The Operating Loss for the nine-month period was $2,133,900, an
increase of $576,200, or 37.0%, when compared to a loss from operations of
$1,557,700 for the same period of the prior year. The increased loss from
operations resulted from a $1,437,600 operating loss generated by the RFID
Technology Segment, an increase of $863,200, or 150.3%, compared to an operating
loss of $574,400 reported for the same period of the prior year. The Data
Storage Segment operating income of $ 5,000 was a significant improvement over
the $294,100 operating loss reported for the nine-month period ended March 31,
2003.
Interest and Dividends Expense
Interest expense for the nine-month period amounted to $128,600, an
increase of $44,200 when compared to interest expense of $84,400 for the same
period in the prior year. Included in interest expense for the current period is
$49,900, reflecting the value of shares issued to terminate a Common Stock put
option.
For the nine-month period the Company paid an in-kind Series B
preferred stock dividend with a value of $42,000, compared to $38,400 paid in
the previous fiscal year. In addition, the Company declared and paid its first
Series A Preferred Stock dividend by issuing shares of in-kind stock valued at
$203,200. The Series A Preferred Stock provides for a stock dividend to be
declared and paid on a six-month interval. Some of the Series A Preferred Stock
had been issued during the fourth quarter of fiscal year ended June 30, 2003,
and therefore the dividend reflected a period greater than six months.
Net Loss Attributable to Common Stockholders
The Net Loss Attributable to Common Stockholders for the nine-month
period ended March 31, 2004 was $2,459,400, or ($.15) per share, an increase of
$786,900 or 47.0%, compared to a loss of $1,672,500, or ($.09) per share, in the
comparable period of the prior year. Although the Company has initiated cost
control measures that have impacted the current nine-month period, operating
results, especially in the RFID Technology Segment, have continued to be
affected by unfavorable economic conditions and reduced capital spending that
have adversely affected Alanco's business in recent quarters. If the economic
conditions in the United States worsen or if a wider or global economic slowdown
occurs, Alanco may experience a material adverse impact on its operating results
and business conditions.
Liquidity and Capital Resources
The Company's current assets at March 31, 2004 exceeded current
liabilities by $736,700, resulting in a current ratio of 1.30 to 1. At June 30,
2003 the Company's current assets exceeded current liabilities by $526,500,
reflecting a current ratio of 1.20 to 1. The increase in the current ratio for
the period resulted from additional equity raised that was used to reduce the
credit line, offset by continuing operating losses. Accounts receivable of
$811,800 at March 31, 2004, reflects a status quo when compared to the $808,500
reported as consolidated accounts receivables at June 30, 2003. The accounts
receivable balance at March 31, 2004 represented forty-five days' sales in
receivables compared to twenty-nine days' sales at June 30, 2003. The increase
in days' sales in receivables resulted from a delay in final contract payments
in the RFID Technology Segment that had recognized the revenue during the
previous period.
Consolidated inventories at March 31, 2004 amounted to $2,119,400, an
increase of $840,700 when compared to $1,278,700 at June 30, 2003. $395,100 of
the increase resulted from Data Storage Segment increases required for
anticipated increases in Data Storage sales. The increase in the RFID Technology
inventory accounted for the remaining $445,000 increase and was the result of
necessary increases in inventory in anticipation of contract awards.
At March 31, 2004, the Company had a balance of $1,287,500 (including
$500,000 classified as long term notes payable) under a $1.55 million
formula-based revolving bank line of credit agreement with interest calculated
at prime plus 4%. The line of credit agreement formula is based upon current
asset values and is used to finance working capital. At March 31, 2004, the
Company had $262,500 available under the line of credit. See Line of Credit
Footnote I above for a discussion of certain modifications and extension of the
existing line of credit agreement executed during the quarter ended March 31,
2004.
Cash used in continuing operations for the nine-month period was
$2,856,600; an increase of $1,256,400 when compared to cash used in operations
of $1,600,200 for the comparable period ended March 31, 2003. The increase was
due primarily to increases in the loss from operations for the period and
increases in inventory balances due to anticipated contract awards.
During the nine months ended March 31, 2004, the Company collected
$899,200 in subscription receivables and $195,000 in notes receivable. Purchases
of additional equipment for the nine months ended March 31, 2004 amounted to
$17,100, compared to equipment purchases of $46,300 in the comparable period of
the prior year. Net proceeds from stock sales for the nine-month period amounted
to $1,641,000, compared to $1,395,000 in the comparable period of the prior
year. Repayment on borrowings during the period amounted to $2,159,900, while
advances from borrowings amounted to $2,054,500.
The Company believes that additional cash resources may be required for
working capital to achieve planned operating results for fiscal year 2004 and,
if working capital requirements exceed current availability, the Company
anticipates raising capital through additional borrowing or sale of stock. The
additional capital would supplement the projected cash flows from operations and
the line of credit agreement in place at March 31, 2004. If additional working
capital was required and the Company was unable to raise the required additional
capital, it may materially affect the ability of the Company to achieve its
financial plan. See Footnote F - Equity and Footnote L - Subsequent Events, for
additional information related to working capital raised by the Company during
the nine months ended March 31, 2004, necessary to achieve planned operating
results for the current fiscal year.
CONTROL AND PROCEDURES
The Company maintains disclosure controls and procedures designed to
ensure that it is able to collect the information it is required to disclose in
the reports it files with the Securities and Exchange Commission (SEC), and to
process, summarize and disclose this information within the time periods
specified in the rules of the SEC. Based on various evaluations of the Company's
disclosure controls and procedures, some of which occurred during the 90 days
prior to the filing date of this report, the Chief Executive and Chief Financial
Officers believe that these controls and procedures are effective to ensure that
the Company is able to collect, process and disclose the information it is
required to disclose in the reports it files with the SEC within the required
periods.
The Company also maintains a system of internal controls designed to
provide reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets. Access to assets is permitted only in accordance with management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Since the date of the most recent evaluation of the Company's internal
controls by the Chief Executive and Chief Financial Officers, there have been no
significant changes in such controls or in other factors that could have
significantly affected those controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
The Company continues to be a defendant in litigation that relates to
the acquisition, in May of 2002, of substantially all the assets of Technology
Systems International, Inc., a Nevada corporation. No significant new activity
has occurred subsequent to our report of litigation in our Form 10-KSB filed for
the year ended June 30, 2003. The Company's management, in consultation with
legal counsel, believes the plaintiff's claims are without merit and the Company
will aggressively defend the actions. Litigation previously reported as arising
from an expired property lease between the Company's subsidiary, Arraid, Inc.
and Arraid Property L.L.C., a Limited Liability Company, has been deemed
immaterial.
Item 2 - CHANGES IN SECURITIES
During the nine months ended March 31, 2004, the Company issued 261,000
shares of Series A Preferred Stock related to the offering more fully discussed
in Note F, 3,317,400 shares of Class A Common Stock in private transactions and
employee stock options exercised, and 183,700 shares of Common Stock for
services rendered and cancellation of put options.
Item 6. EXHIBITS
10.1 EMS Supply Agreement Amendment
10.2 Form of Investor Agreement
10.3 Shareholders Rights Agreement
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer and Chief Financial
Officer
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
ALANCO TECHNOLOGIES, INC.
(Registrant)
/s/ John A. Carlson
John A. Carlson
Executive Vice President and
Chief Financial Officer
EXHIBIT 31.1
Certification of
Chairman and Chief Executive Officer
of Alanco Technologies, Inc.
I, Robert R. Kauffman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Alanco
Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the period presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 14, 2004
/s/ Robert R. Kauffman
- ---------------------
Robert R. Kauffman
Chairman and Chief Executive Officer
EXHIBIT 31.2
Certification of
Vice President and Chief Financial Officer
of Alanco Technologies, Inc.
I, John A. Carlson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Alanco
Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the period presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 14, 2004
/s/ John A. Carlson
- ---------------------
John A. Carlson
Executive Vice President and Chief Financial Officer
EXHIBIT 32.1
Certification of
Chief Executive Officer and Chief Financial Officer
of Alanco Technologies, Inc.
This certification is provided pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and accompanies this quarterly report of Form 10-QSB
(the "Report") for the period ended March 31, 2004 of Alanco Technologies, Inc.
(the "Issuer").
Each of the undersigned, who are the Chief Executive Officer and Chief
Financial Officer, respectively, of Alanco Technologies, Inc., hereby certify
that, to the best of each such officer's knowledge:
(i) the Report fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)); and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Issuer.
Dated: May 14, 2004
/s/ Robert R. Kauffman
----------------------
Robert R. Kauffman
Chief Executive Officer
/s/ John A. Carlson
----------------------
John A. Carlson
Chief Financial Officer
Exhibit 10.1
ASSET PURCHASE AGREEMENT AND
SECOND AMENDMENT TO
SUPPLY AND LICENSE AGREEMENT
THIS ASSET PURCHASE AGREEMENT AND SECOND AMENDMENT TO SUPPLY AND
LICENSE AGREEMENT ("Second Amendment") is made this 23rd day of March, 2004,
between EMS TECHNOLOGIES, INC., a Georgia corporation ("EMS"), and TECHNOLOGY
SYSTEMS INTERNATIONAL, INC., an Arizona corporation ("TSI").
RECITALS:
EMS and Technology Systems International, Inc., a Nevada corporation
("Old TSI"), were parties to that certain Exclusive Supply Agreement, dated
December 23, 1998 (the "Original Supply Agreement"), providing for the supply by
EMS to Old TSI of certain products for use in personnel locator systems offered
by Old TSI for installation in prison systems.
TSI acquired substantially all of the assets and business of Old TSI
effective May 14, 2002, and Old TSI, EMS and TSI agreed to amend the Original
Supply Agreement pursuant to that certain Supply and License Agreement, dated
May 14, 2002, among said parties (the "First Amendment"). The Original Supply
Agreement, as amended by the First Amendment is referred to herein as the
"Supply Agreement".
TSI has purchased certain products from EMS for incorporation into the
prison monitoring system sold to the state of Illinois for installation at a
prison facility known as the Logan Facility, and TSI currently owes EMS a
disputed amount for said products of EMS.
The parties hereto wish to transfer to TSI assets currently held by EMS
and used in the production of the prison monitoring systems marketed by TSI, and
to resolve their disagreements and further amend the Supply Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the parties agree as follows:
1. Payment of Logan Facility Product Invoices. TSI shall pay $200,000
to EMS in full satisfaction of amounts due to EMS for all products previously
delivered by EMS for the Logan Facility, in the manner set forth in section 6
below.
2. MCAE Tooling. In satisfaction of TSI's obligations under section
2.c. of the First Amendment, TSI shall pay EMS the fixed amount of $50,000 for
the molds and related tooling located at the facilities of MCAE (or located at
the facilities of MCAE's subcontractor) used in connection with the housings and
related components for PASS and PAL units for TSI's monitoring systems
("Tooling"). Said amount shall be paid by TSI in the manner set forth in section
6 below. In addition to the fixed amount specified in the previous sentence, TSI
shall also pay to EMS for the Tooling the sum of $2.00 for each set of PASS or
PAL housing components produced from the Tooling after the first 2,000 of such
housing sets produced following the date hereof, but not more than $10,000
aggregately. Said per-housing set amount shall be paid by TSI to EMS with
respect to particular housing sets within 30 days after TSI takes delivery of
such housing sets. EMS warrants that upon receipt of such payment, TSI will have
full title to the Tooling, with the right to possess the Tooling free and clear
of any claims or liens by MCAE or others.
3. Warranty Credit. Without admitting any liability whatsoever, EMS
hereby grants TSI a credit against amounts due from TSI hereunder in the amount
of $50,000 in full satisfaction of any and all warranty or similar product
claims with respect to all products previously delivered by EMS under the Supply
Agreement. Said amount shall be credited in the manner set forth in section 6
below.
4. Purchase Obligation Fulfillment; C-Nodes. In satisfaction of the
parties' remaining obligations under section 1.a of the First Amendment
concerning the dollar amount of products to be purchased by TSI from EMS, TSI
shall pay to EMS the aggregate sum of $137,000 in the manner described in this
section. The parties anticipate that TSI will, as soon as practicable, take over
the responsibility to manufacture c-nodes for its requirements. Until such time,
EMS will continue to manufacture and sell c-nodes to TSI. For each c-node
manufactured by EMS and delivered as directed by TSI after the date hereof (at
the existing contract price of $15,790 per c-node), the amount of $4,000 shall
be credited against said $137,000 obligation. Thereafter, for each c-node
manufactured by TSI and installed in a prison monitoring system, TSI will pay to
EMS the sum of $1,250 as a royalty until the balance of the $137,000 obligation
is fully paid. The royalty amount shall be paid to EMS within fifteen days
following receipt of payment for the c-node from TSI's customer. With respect to
c-nodes purchased from EMS that are not purchased for installation at a
particular site (i.e., inventory c-nodes), TSI shall pay for the same on a
net-30 day basis.
5. Purchase of Inventory.
a. TSI shall purchase certain of EMS' inventory of
non-defective prison monitoring system parts, including the remaining c-node
inventory once TSI assumes manufacturing responsibility for c-nodes. The
inventory to be initially purchased, as well as the purchase price for the same,
is set forth on Exhibit "A" attached hereto (excluding c-node inventory), with
an aggregate purchase price of $193,262.51 (the sum of the individual parts
prices reflected on said Exhibit A plus $8,000.00), to be paid in the manner set
forth in section 6 below. The deferred balance for the inventory will be paid as
the inventory is consumed on a pro-rata basis, that is, the deferred balance to
be paid for each inventory part shall be determined by multiplying the price for
said part shown on Exhibit "A" by the fraction 29,315.51/193,262.51 (or 0.152).
TSI shall produce a quarterly report of what inventory remains, and shall pay
for any inventory used in the quarter in three equal quarterly installments
commencing 15 days after the end of the quarter. The initial payment trigger is
removing parts from the shelf, not when TSI's customer pays for the system. Any
balance owed with respect to the inventory would be due in full two years
following the date hereof, regardless of whether the inventory has at that time
been consumed by TSI. The inventory must be of good quality. Any inventory found
to be defective as it is used will be returned to EMS and the balance of the
obligation for the inventory reduced by TSI's purchase price for such returned
inventory. In addition, if the defective inventory makes other inventory
purchased from EMS obsolete because of the unavailability of parts to produce
components, then such other obsolete inventory may also be returned to EMS for
credit.
b. When TSI assumes production responsibility for c-nodes, the
remaining EMS c-node inventory shall also be purchased by TSI upon the same
conditions set forth in paragraph 5.a above; provided, however, the aggregate
purchase price for such inventory shall not be greater than $50,000. The full
purchase price for the c-node inventory shall be added to the deferred balance
for the initial inventory purchased, to be paid for when used in the manner
described above for the initial inventory purchased. EMS's current c-node
inventory, with the unit pricing to be paid by TSI hereunder, is attached hereto
as Exhibit "B". Said inventory list may be reduced as components are used by EMS
in producing c-nodes for sale to TSI as described in section 4 above, and may be
increased for any extra parts acquired by EMS due to quantity purchasing
obligations as EMS produces c-nodes for TSI.
6. The following table summarizes the payment obligations of TSI to EMS
set forth above:
- --------------------------- --------------- ----------------------------------------------------------
Item Fixed Amount Contingent Amount
- ----------------------------- --------------- --------------------------------------------------------
Illinois Invoices $200,000
- ----------------------------- --------------- --------------------------------------------------------
MCAE Tooling $50,000 Plus additional $10,000 payable $2.00 per housing set
after first 2,000 sets
- ----------------------------- --------------- --------------------------------------------------------
Warranty Credit ($50,000)
- ----------------------------- --------------- --------------------------------------------------------
C-Nodes $137,000 to be "paid" by crediting $4,000 per c-node
manufactured by EMS, and $1,250 royalty for each
c-node manufactured by TSI
- ----------------------------- --------------- --------------------------------------------------------
Inventory $193,262.51 Plus additional amount for remaining c-node inventory
when TSI assumes c-node manufacturing obligation
- ----------------------------- --------------- --------------------------------------------------------
TOTAL FIXED AMOUNT PAYABLE $393,262,51
- ----------------------------- --------------- --------------------------------------------------------
The total fixed initial amount payable of $489,893 shall be paid as follows:
$75,000 cash on or before the execution hereof, the receipt of which
is acknowledged
$29,315.51 cash on a deferred basis as the inventory is employed in
accordance with section 5 above
$288,947 balance in the form of 288,947 shares Class A common stock of
Alanco Technologies, Inc. to be issued upon the execution
hereof.
7. Conversion of Existing Promissory Note. Upon the date hereof, the existing
promissory note of Alanco Technologies, Inc in favor of EMS, dated May 14, 2002,
in the principal amount of $250,000 shall be satisfied in full by Alanco
Technologies issuing 250,000 shares of its Class A common Stock to EMS, plus
unpaid interest accrued to the date of conversion.
8. EMS Representations; Registration of Stock. EMS restates for the purposes of
this Amendment the representations set forth in Section 9 of the First
Amendment. Alanco Technologies, Inc shall file an S-3 registration statement
with the SEC for the resale in over-the-counter or privately negotiated
transactions of the shares of its Class A common stock issued to EMS under
sections 6 and 7 above within 45 days following the date hereof, without cost to
EMS, and shall use its best reasonable efforts to cause said registration to
become effective as soon as possible thereafter.
9. Access to Information. As long as EMS is owed monies by TSI hereunder, EMS
shall have the right to such information and reports concerning the operations
of TSI as set forth in the Original Supply Agreement.
10. Supply Agreement. Except as expressly modified by this Second Amendment, the
Supply Agreement shall remain in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed this Second Amendment
effective the date first above written.
EMS TECHNOLOGIES, INC.
a Georgia corporation
By: ______________________________________
Its: ______________________________________
TECHNOLOGY SYSTEMS INTERNATIONAL, INC.
an Arizona corporation
By: ______________________________________
Greg E. Oester
President
For the purpose of agreeing to sections 7 and 8 only:
ALANCO TECHNOLOGIES, INC.
an Arizona corporation
By: _____________________________________
John A. Carlson, Chief Financial Officer
Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
April 18, 2004 among Alanco Technologies, Inc., an Arizona corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each, 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"), the Company desires to issue and sell to each Purchaser,
and each Purchaser, severally and not jointly, desires to purchase from the
Company, certain 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 of the
Purchasers agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"Additional Investment Rights" means, collectively, the
Additional Investment Rights issued and sold under this Agreement, in
the form of Exhibit A.
"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. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Business Day" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
"Closing" means the closing of the purchase and sale of the
Shares, Additional Investment Rights and the Warrants pursuant to
Section 2.1.
"Closing Date" means the date of the Closing.
"Closing Price" 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 an Eligible Market or any other
national securities exchange, the closing price per share of the Common
Stock for such date (or the nearest preceding date) on the primary
Eligible Market or exchange on which the Common Stock is then listed or
quoted; (b) if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the closing bid price per share of the Common Stock for
such date (or the nearest preceding date) so quoted; (c) 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 closing bid 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 an independent appraiser selected in good faith
by Purchasers holding a majority of the Securities.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A common stock of the Company.
"Common Stock Equivalents" means, collectively, Options and
Convertible Securities.
"Company Counsel" means Steven P. Oman, Esq., counsel to the
Company.
"Convertible Securities" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for
Common Stock.
"Effective Date" means the date that the Registration
Statement is first declared effective by the Commission.
"Eligible Market" means any of the New York Stock Exchange,
the American Stock Exchange, the NASDAQ National Market or the NASDAQ
SmallCap Market.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means 30 days following the Closing Date.
"Lien" means any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction.
"Losses" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including, without
limitation, costs of preparation and reasonable attorneys' fees.
"Options" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
"Person" means any 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 any court or other federal, state,
local or other governmental authority or other entity of any kind.
"Per Unit Purchase Price" means $1.50.
"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.
"Prospectus" means the prospectus included in the 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 the 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 any Common Stock (including the
Shares and Underlying Shares) issued or issuable pursuant to the
Transaction Documents, together with any securities issued or issuable
upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing.
"Registration Statement" means each registration statement
required to be filed under Article VI, 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 144," "Rule 415," and "Rule 424" means Rule 144, Rule
415 and Rule 424, respectively, promulgated by the Commission pursuant
to the Securities Act, as such Rules 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.
"Securities" means the Shares, the Additional Investment
Rights, the Warrants and the Underlying Shares.
"Shares" means an aggregate of 1,380,000 shares of Common
Stock, which are being issued and sold to the Purchasers at the
Closing.
"Subsidiary" means any Person in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar
interest.
"Trading Day" means (a) any day on which the Common Stock is
listed or quoted and traded on its primary Trading Market, or (b) if
the Common Stock is not then listed or quoted and traded on any
Eligible Market, then a day on which trading occurs on the OTC Bulletin
Board (or any successor thereto), or (c) if trading ceases to occur on
the OTC Bulletin Board (or any successor thereto), any Business Day.
"Trading Market" means the NASDAQ SmallCap Market or any other
Eligible Market, or any national securities exchange, market or trading
or quotation facility on which the Common Stock is then listed or
quoted.
"Transaction Documents" means this Agreement, the Additional
Investment Rights, the Warrants, the Transfer Agent Instructions and
any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"Transfer Agent Instructions" means the Irrevocable Transfer
Agent Instructions, in the form of Exhibit E, executed by the Company
and delivered to and acknowledged in writing by the Company's transfer
agent.
"Underlying Shares" means the shares of Common Stock issuable
upon exercise of the Additional Investment Rights and the Warrants.
"Unit" means one Share, an Additional Investment right to
acquire 0.5 of a share of Common Stock, and a Warrant to acquire 0.5 of
a share of Common Stock.
"Warrants" means, collectively, the Warrants issued and sold
under this Agreement, in the form of Exhibit B.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at
the Closing the Company shall issue and sell to each Purchaser, and each
Purchaser shall, severally and not jointly, purchase from the Company, such
number of Units indicated below such Purchaser's name on the signature page of
this Agreement at the Per Unit Purchase Price. The Closing shall take place at
the offices of Proskauer Rose LLP immediately following the execution hereof, or
at such other location or time as the parties may agree.
2.2 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be delivered to
each Purchaser the following:
(i) one or more stock certificates, free and clear of all restrictive and
other legends (except as expressly provided in Section 4.1(b) hereof),
evidencing such number of Shares equal to the number of Units indicated
below such Purchaser's name on the signature page of this Agreement,
registered in the name of such Purchaser, or, alternatively, an
executed letter of instructions to the Company's Transfer Agent
requesting the prompt issuance of such shares to the Purchasers;
(ii) an Additional Investment Right, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to
acquire such number of Underlying Shares indicated below such
Purchaser's name on the signature page of this Agreement, on the terms
set forth therein;
(iii) a Warrant, registered in the name of such Purchaser, pursuant to which
such Purchaser shall have the right to acquire such number of
Underlying Shares indicated below such Purchaser's name on the
signature page of this Agreement, on the terms set forth therein;
(iv) a legal opinion of Company Counsel, in the form of Exhibit C, executed
by such counsel and delivered to the Purchasers; and
(v) duly executed Transfer Agent Instructions. The Transfer Agent
Instructions acknowledged by the Company's transfer agent shall be
delivered to the Purchasers upon the Closing.
(b) At the Closing, each Purchaser shall deliver or cause to be delivered
to the Company an amount equal to the Per Unit Purchase Price
multiplied by the number of Units indicated below such Purchaser's name
on the signature page of this Agreement, in United States dollars and
in immediately available funds, by wire transfer to an account
designated in writing to such Purchaser by the Company for such
purpose.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby represents
and warrants to each of the Purchasers as follows. For purposes of these
representations, the term "SEC Reports" means all reports required to filed by
the Company under the Exchange Act during the preceding 2 years.
(a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than
those listed in the SEC Reports. Except as disclosed in the SEC Reports, the
Company owns, directly or indirectly, all of the capital stock or comparable
equity interests of each Subsidiary free and clear of any Lien and all the
issued and outstanding shares of capital stock or comparable equity interests of
each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights.
(b) Organization and Qualification. Each of the Company and the Subsidiaries is
an entity duly 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 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 on a
consolidated basis, 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 and thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and 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, its Board of Directors or its stockholders. Each of the
Transaction Documents has been (or upon delivery will be) duly executed by the
Company and is, or 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.
(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 hereby and 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, (ii)
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 and the rules and regulations of any
self-regulatory organization to which the Company or its securities are
subject), or by which any property or asset of the Company or a Subsidiary is
bound or affected.
(e) Issuance of the Securities. The Securities (including the Underlying Shares)
are duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens and shall not be subject to
preemptive rights or similar rights of stockholders. The Company has reserved
from its duly authorized capital stock the maximum number of shares of Common
Stock issuable upon exercise of the Additional Investment Rights and the
Warrants.
(f) Capitalization. The number of shares and type of all authorized, issued and
outstanding capital stock, options and other securities of the Company (whether
or not presently convertible into or exercisable or exchangeable for shares of
capital stock of the Company) is set forth in the SEC Reports as of the dates
indicated in the SEC Reports. All outstanding shares of capital stock are duly
authorized, validly issued, fully paid and nonassessable and have been issued in
compliance with all applicable securities laws. Except as disclosed in the SEC
Reports, 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 exercisable 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. Except as disclosed in the SEC Reports, there are no anti-dilution
or price adjustment provisions contained in any security issued by the Company
(or in any agreement providing rights to security holders) and the issue and
sale of the Securities (including the Underlying Shares) 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. To the knowledge of the Company, except as specifically
disclosed in the SEC Reports, no Person or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 under the Exchange Act), or has the
right to acquire, by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the outstanding Common Stock,
ignoring for such purposes any limitation on the number of shares of Common
Stock that may be owned at any single time.
(g) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under 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 (together with any materials filed by the Company under the
Exchange Act, whether or not required) being collectively referred to herein as
the "SEC Reports" and, together with this Agreement and 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 delivered to each Purchaser
true, correct and complete copies 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 the
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 United
States 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 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. All material
agreements which are required to be disclosed in the SEC Reports have been
disclosed in the SEC Reports.
(h) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in the SEC
Reports and any news release issued by the Company, (i) there has been no event,
occurrence or development that, individually or in the aggregate, 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, except as disclosed in its SEC
Reports, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders, except dividend on the Company's
outstanding Preferred Stock, 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-based plans.
(i) Absence of Litigation. Except as disclosed in the SEC Reports, there is no
action, suit, claim, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries that could, individually or in the aggregate,
have a Material Adverse Effect.
(j) 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,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case as
could not, individually or in the aggregate, have or result in a Material
Adverse Effect.
(k) Title to Assets. The Company and the Subsidiaries have 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, except liens in favor of (i) the
Company's line of credit lender, (ii) EMS Technologies, Inc. with respect to
goods purchased for inclusion in the Company's Logan project, and (iii) nominal
office equipment lease interests. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are
in compliance.
(l) Certain Fees. Except as set forth on Schedule 3.1(l) [Need the schedule -
limited to $70,000], no brokerage fees, 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.
(m) Securities Placements. Neither the Company nor any Person acting on the
Company's behalf has sold or offered to sell or solicited any offer to buy the
Securities by means of any form of general solicitation or advertising. Neither
the Company nor any of its Affiliates nor any Person acting on the Company's
behalf has, directly or indirectly, at any time within the past six months, made
any offer or sale of any security or solicitation of any offer to buy any
security under circumstances that would (i) eliminate the availability of the
exemption from registration under Regulation D under the Securities Act in
connection with the offer and sale of the Securities as contemplated hereby or
(ii) cause the offering of the Securities pursuant to the Transaction Documents
to be integrated with prior offerings by the Company for purposes of any
applicable law, regulation or stockholder approval provisions, including,
without limitation, under the rules and regulations of any Trading Market. The
Company is not, and is not an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company is not a
United States real property holding corporation within the meaning of the
Foreign Investment in Real Property Tax Act of 1980.
(n) Form S-3 Eligibility. The Company is eligible to register its Common Stock
for resale by the Purchasers using Form S-3 promulgated under the Securities
Act.
(o) Listing and Maintenance Requirements. Except as disclosed in the SEC
Reports, the Company has not, in the two years preceding the date hereof,
received notice (written or oral) from any Trading 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 Trading Market,
and the Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(p) 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 each of 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 are
true and correct 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 the light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed. 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.
(q) Acknowledgment Regarding Purchasers' Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm's length purchaser 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, to
the Company's knowledge, any other Purchaser (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
advice given by any Purchaser or any of their respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby 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 transactions contemplated hereby by the Company and its representatives.
(r) 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 that are 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.
(s) 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 prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any
reason to believe that 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.
(t) 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
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.
(u) 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.
(v) Going Concern. The Company and the Subsidiaries have no knowledge (upon
receipt of the proceeds of this transaction) that Stemple & Cooper LLP, the
Company's independent public accountants, will issue an audit letter containing
a "going concern" opinion in connection with the Company's quarterly report on
Form 10-Q or annual report on Form 10-K pursuant to Section 13 or 15(d) under
the Exchange Act for the quarterly period ended December 31, 2003 or the fiscal
year ended June 30, 2004, respectively.
(w) 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 generally
accepted accounting principles 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.
3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, as
to itself only 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 hereunder
and thereunder. The purchase by such Purchaser of the Shares, the Additional
Investment Rights and the Warrants hereunder has been duly authorized by all
necessary action on the part of such Purchaser. This Agreement has been duly
executed and delivered by such Purchaser and constitutes the valid and
binding obligation of such Purchaser, enforceable against it in accordance
with its terms.
(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.
(c) Purchaser Status. At the time such Purchaser was offered the Shares, the
Additional Investment Rights and the Warrants, it was, and at the date
hereof it is, an "accredited investor" as defined in Rule 501(a) under the
Securities 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) No Short Positions or Stock Ownership. Each Purchaser has not, as of the
Closing Date, and will not during the two years following the Closing, enter
into any Short Sales. For purposes of this Section 3.2(e), a "Short Sale" by
a Purchaser means a sale of Common Stock that is marked as a short sale and
that is executed at a time when such Purchaser has no equivalent offsetting
long position in the Common Stock. For purposes of determining whether a
Purchaser has an equivalent offsetting long position in the Common Stock,
all Common Stock and all Common Stock that would be issuable upon conversion
or exercise in full of all Options then held by such Purchaser shall be
deemed to be held long by such Purchaser.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) Securities may only be disposed of pursuant to an effective registration
statement under the Securities Act or pursuant to an available exemption from
the registration requirements of the Securities Act, and in compliance with any
applicable state securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company or
pursuant to Rule 144(k), except as otherwise set forth herein, the Company may
require the transferor to provide to the Company an opinion of counsel selected
by the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register on the books of the Company
and with its transfer agent, without any such legal opinion, any transfer of
Securities by a Purchaser to an Affiliate of such Purchaser, provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(b) The Purchasers agree 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] HAVE [NOT] 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. NOTWITHSTANDING THE FOREGOING, 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 OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.
Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a Registration Statement covering the resale of
such Securities is effective under the Securities Act and the holder of the
securities and the broker or clearing house where such securities are held
undertake in writing to only sell the securities under such Registration
Statement and in compliance therewith, or (ii) following any sale of such
Securities pursuant to Rule 144, or (iii) if such Securities 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 the Purchasers
and their brokers have given the certification to the Company's legal counsel
described under clause (i) above, the Company shall cause its counsel to issue
the legal opinion included in the Transfer Agent Instructions to the Company's
transfer agent on the Effective Date. Following the Effective Date or at such
earlier time as a legend is no longer required for certain Securities, the
Company will as soon as practicable following the delivery by a Purchaser to the
Company or the Company's transfer agent of a legended certificate representing
such Securities, deliver or cause to be delivered to such Purchaser a
certificate representing such Securities that is free from all restrictive and
other legends. If the legended certificate is delivered to the Company, the
Company will forward the same to the Company's transfer agent with appropriate
instructions to remove the legend no later than three Trading Days following its
receipt of the Certificate. 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.
(c) The Company acknowledges and agrees that a Purchaser may from time to time
pledge or grant a security interest in some or all of the Securities in
connection with a bona fide margin agreement or other loan or financing
arrangement secured by the Securities and, if required under the terms of such
agreement, loan or arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. 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.
4.2 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
paragraph (c) of Rule 144 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 to
satisfy the provisions of Rule 144 applicable to the issuer of securities
relating to transactions for the sale of securities pursuant to Rule 144.
4.3 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 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 Trading Market.
4.4 Reservation and Listing of Securities. 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. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company
shall promptly take such actions as may be required to increase the number of
authorized shares. The Company shall in the time and manner required by its
Trading Market, prepare and file with such Trading Market an additional shares
listing application covering the number of shares of Common Stock issuable under
the Transaction Documents and shall take all steps necessary to cause such
shares of Common Stock to be approved for listing on its Trading Market as soon
as possible.
4.5 Subsequent Placements.
(a) From the date hereof until 120 calendar days following the Effective
Date, the Company will not, directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition of) any of
its or the Subsidiaries' equity or equity equivalent securities,
including without limitation any debt, preferred stock (other than
dividends in kind with respect to the Company's outstanding Preferred
Stock) or other instrument or security that is, at any time during its
life and under any circumstances, convertible into or exchangeable or
exercisable for Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a
"Subsequent Placement"), unless the Company shall have first complied
with this Section 4.5(a).
(i) The Company shall deliver to each Purchaser a written notice (the
"Offer") of any proposed or intended issuance or sale or exchange of
the securities being offered (the "Offered Securities") in a Subsequent
Placement, which Offer shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, and (y) offer to
issue and sell to or exchange with each Purchaser (A) a pro rata
portion of the Offered Securities based on such Purchaser's pro rata
portion of the Shares purchased hereunder compared to number of
outstanding shares of Common Stock of the Company (the "Basic Amount"),
and (B) with respect to each Purchaser that elects to purchase its
Basic Amount, any additional portion of the Offered Securities
attributable to the Basic Amounts of other Purchasers as such Purchaser
shall indicate it will purchase or acquire should the other Purchasers
subscribe for less than their Basic Amounts (the "Undersubscription
Amount").
(ii) To accept an Offer, in whole or in part, a Purchaser must deliver a
written notice to the Company prior to the end of the ten (10) Trading
Day period of the Offer, setting forth the portion of the Purchaser's
Basic Amount that such Purchaser elects to purchase and, if such
Purchaser shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Purchaser elects to
purchase (in either case, the "Notice of Acceptance"). If the Basic
Amounts subscribed for by all Purchasers are less than the total of all
of the Basic Amounts, then each Purchaser who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that
if the Undersubscription Amounts subscribed for exceed the difference
between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each
Purchaser who has subscribed for any Undersubscription Amount shall be
entitled to purchase on that portion of the Available Undersubscription
Amount as the Basic Amount of such Purchaser bears to the total Basic
Amounts of all Purchasers that have subscribed for Undersubscription
Amounts, subject to rounding by the Board of Directors to the extent
its deems reasonably necessary.
(b) The restrictions contained in paragraph (a) of this Section 4.5 shall
not apply to (A) any issuance of Common Stock or grant of Options to
employees, officers, directors of or consultants or advisors to the
Company, in each case, pursuant to a stock-based plan duly approved by
the Company's board of directors; (B) any existing creditor of the
Company in exchange for debt of the Company, (C) upon exercise,
conversion or exchange of any Common Stock Equivalents described in
Schedule 3.1(f) (provided that such exercise or conversion occurs in
accordance with the terms thereof, without amendment or modification);
or (D) the issuance of securities in connection with a joint venture or
development agreement or strategic partnership or similar agreement
approved by the Company's board of directors, the primary purpose of
which is not to raise equity capital.
4.6 Securities Laws Disclosure; Publicity. The Company shall, on or before 9:30
p.m., New York time on April 19, 2004, issue a press release acceptable to the
Purchasers disclosing all material terms of the transactions contemplated
hereby. Within the time required by the Exchange Act, and only if required by
the Exchange Act, the Company shall file a Current Report on Form 8-K with the
Commission (the "8-K Filing") describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such
Current Report on Form 8-K this Agreement and the form of both the Additional
Investment Rights and the Warrants, in the form required by the Exchange Act.
Thereafter, the Company shall timely file any filings and notices required by
the Commission or applicable law with respect to the transactions contemplated
hereby and provide copies thereof to the Purchasers promptly after filing.
Except with respect to the 8-K Filing and the press release referenced above (a
copy of which will be provided to the Purchasers for their review as early as
practicable prior to its filing), the Company shall, at least two Trading Days
prior to the filing or dissemination of any disclosure required by this
paragraph, provide a copy thereof to the Purchasers for their review. The
Company and the Purchasers shall consult with each other in issuing any press
releases or otherwise making public statements or filings and other
communications with the Commission or any regulatory agency or Trading Market
with respect to the transactions contemplated hereby. Notwithstanding the
foregoing, 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 Trading Market, without the prior written consent of such
Purchaser, except to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure. The Company shall not, and shall cause each of
its Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Purchaser with any material nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K. In the event of a breach of the foregoing covenant by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, a Purchaser shall have the right to make a
public disclosure, in the form of a press release, public advertisement or
otherwise, of such material nonpublic information without the prior approval by
the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Purchaser shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, shareholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Purchaser shall issue any press
releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Purchaser, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Purchaser shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Each press
release disseminated during the 12 months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact
or omit 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 are made, not misleading.
4.7 Use of Proceeds. Except as set forth on Schedule 4.7, the Company shall use
the net proceeds from the sale of the Securities hereunder for working capital
purposes and not (i) to redeem any Company equity or equity-equivalent
securities, or (ii) to settle any outstanding litigation.
4.8 Reimbursement. If any Purchaser or any of its Affiliates or any officer,
director, partner, controlling Person, employee or agent of a Purchaser or any
of its Affiliates (a "Related Person") becomes involved in any capacity in any
Proceeding brought by or against any Person in connection with or as a result of
the transactions contemplated by the Transaction Documents, the Company will
indemnify and hold harmless such Purchaser or Related Person for its reasonable
legal and other expenses (including the costs of any investigation, preparation
and travel) and for any Losses incurred in connection therewith, as such
expenses or Losses are incurred, excluding only Losses that result directly from
such Purchaser's or Related Person's negligence or willful misconduct,
inaccuracy in any Purchaser's representations herein, or due to any Purchaser's
violation of any federal or state securities laws or reglations. In addition,
the Company shall indemnify and hold harmless each Purchaser and Related Person
from and against any and all Losses, as incurred, arising out of or relating to
any breach by the Company of any of the representations, warranties or covenants
made by the Company in this Agreement or any other Transaction Document, or any
allegation by a third party that, if true, would constitute such a breach. The
conduct of any Proceedings for which indemnification is available under this
paragraph shall be governed by Section 6.4(c) below. The indemnification
obligations of the Company under this paragraph shall be in addition to any
liability that the Company may otherwise have and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Purchasers and any such Related Persons. The Company also
agrees that neither the Purchasers nor any Related Persons shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in connection with or as a result of the transactions
contemplated by the Transaction Documents, except to the extent that any Losses
incurred by the Company result from the negligence or willful misconduct of the
applicable Purchaser or Related Person in connection with such transactions,
inaccuracy in any Purchaser's representations herein, or due to any Purchaser's
violation of any federal or state securities laws or reglations. If the Company
breaches its obligations under any Transaction Document, then, in addition to
any other liabilities the Company may have under any Transaction Document or
applicable law, the Company shall pay or reimburse the Purchasers on demand for
all costs of collection and enforcement (including reasonable attorneys fees and
expenses). Without limiting the generality of the foregoing, the Company
specifically agrees to reimburse the Purchasers on demand for all costs of
enforcing the indemnification obligations in this paragraph.
ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Purchasers. The obligation of
each Purchaser to acquire Securities at the Closing is subject to the
satisfaction or waiver by such Purchaser, at or before the Closing, of each of
the following conditions:
(a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing as though made on and as of such
date; and
(b) Performance. The Company and each other Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by it at or prior to the Closing.
5.2 Conditions Precedent to the Obligations of the Company. The obligation of
the Company to sell Securities at the Closing is subject to the satisfaction or
waiver by the Company, at or before the Closing, of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties of the
Purchasers contained herein shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made on and as of
such date; and
(b) Performance. The Purchasers shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by the
Purchasers at or prior to the Closing.
ARTICLE VI
REGISTRATION RIGHTS
6.1 Shelf Registration
(a) As promptly as possible, and in any event on or prior to the Filing Date,
the Company shall prepare and file with the Commission a "Shelf" Registration
Statement covering the resale of all Registrable Securities for an offering to
be made on a continuous basis pursuant to Rule 415. The Registration Statement
shall be on Form S-3 (except if 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 as the Purchasers
may consent) and shall contain (except if otherwise directed by the Purchasers)
the "Plan of Distribution" attached hereto as Exhibit D.
(b) The Company shall use its best efforts to cause the Registration Statement
to be declared effective by the Commission as promptly as possible after the
filing thereof, and shall use its best efforts to keep the Registration
Statement continuously effective under the Securities Act until the second
anniversary of the Effective Date or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold publicly (the
"Effectiveness Period"). If the Company has not filed the Registration Statement
by the Filing Date, or responded to any questions or requests for modifications
issued by the SEC concerning the filed Registration Statement within ten (10)
days after the Company's receipt of such request, then the Company shall pay to
each Purchaser an amount in cash, as liquidated damages and not as a penalty,
equal to 0.5% of the aggregate purchase price paid by such Purchaser hereunder
for the first month and 1% for each month thereafter, prorated for any partial
month.
(c) The Company shall notify each Purchaser in writing promptly (and in any
event within one Trading Day) after receiving notification from the Commission
that the Registration Statement has been declared effective.
6.2 Registration Procedures. In connection with the Company's
registration obligations hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be incorporated
therein by reference), the Company shall (i) furnish to each Purchaser and any
counsel designated by any Purchaser (each, a "Purchaser Counsel", and Vertical
Ventures, LLC has initially designated Proskauer Rose LLP) 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
Purchasers and each Purchaser Counsel, 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 each
Purchaser Counsel, to conduct a reasonable investigation within the meaning of
the Securities Act. The Company shall not file a Registration Statement or any
such Prospectus or any amendments or supplements thereto to which Purchasers
holding a majority of the Registrable Securities shall reasonably object.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep the 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 amended or supplemented by any required Prospectus supplement,
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 ten days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Purchasers true and complete copies of all correspondence from and
to the Commission relating to the 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 the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented
applicable to the Company
(c) Notify the Purchasers of Registrable Securities to be sold and each
Purchaser Counsel as promptly as reasonably possible, and (if requested by any
such Person) confirm such notice in writing no later than one Trading Day
thereafter, of any of the following events: (i) the Commission notifies the
Company whether there will be a "review" of any Registration Statement; (ii) the
Commission comments in writing on any Registration Statement (in which case the
Company shall deliver to each Purchaser a copy of such comments and of all
written responses thereto); (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the Commission or any other
Federal or state governmental authority requests any amendment or supplement to
any Registration Statement or Prospectus or requests additional information
related thereto; (v) the Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included in any Registration
Statement become ineligible for inclusion therein or any statement made in any
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference is untrue in any material respect or any
revision to a Registration Statement, Prospectus or other document is required
so that it will not 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 the light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of any Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, as soon as possible.
(e) Furnish to each Purchaser and each Purchaser Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, promptly after the filing of such documents with the Commission.
(f) Promptly deliver to each Purchaser and each Purchaser Counsel, without
charge, two copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto. The Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Purchasers in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(g) (i) In the time and manner required by each Trading Market, prepare and file
with such Trading Market an additional shares listing application covering all
of the Registrable Securities; (ii) take all steps necessary to cause such
Registrable Securities to be approved for listing on each Trading Market as soon
as possible thereafter; (iii) provide to the Purchasers evidence of such
listing; and (iv) maintain the listing of such Registrable Securities on each
such Trading Market or another Eligible Market.
(h) Cooperate with the Purchasers 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 this Agreement, of all restrictive legends, and
to enable such Registrable Securities to be in such denominations and registered
in such names as any such Purchasers may request.
(i) Upon the occurrence of any event described in Section 6.2(c)(vii), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the 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 the 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 the light of the circumstances under which they were made, not misleading.
(j) Cooperate with any due diligence investigation undertaken by the Purchasers
in connection with the sale of Registrable Securities, including, without
limitation, by making available any documents and information; provided that the
Company will not deliver or make available to any Purchaser material, nonpublic.
(k) Comply with all applicable rules and regulations of the Commission.
6.3 Registration Expenses. The Company shall pay (or reimburse the Purchasers
for) all fees and expenses incident to the performance of or compliance with
this Agreement by the Company, including without limitation (a) all registration
and filing fees and expenses, including without limitation those related to
filings with the Commission and any Trading Market, (b) printing expenses
(including without limitation expenses of printing certificates for Registrable
Securities and of printing prospectuses requested by the Purchasers), (c)
messenger, telephone and delivery expenses, (d) fees and disbursements of
counsel for the Company, (e) fees and expenses of all other Persons retained by
the Company in connection with the consummation of the transactions contemplated
by this Agreement, and (f) all listing fees to be paid by the Company to the
Trading Market.
6.4 Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Purchaser, the
officers, directors, partners, members, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Purchaser
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, partners, members, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all Losses, as incurred, arising out of
or relating to any untrue or alleged untrue statement of a material fact
contained in the 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 the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that (i)
such untrue statements, alleged untrue statements, omissions or alleged
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5. The
Company shall notify the Purchasers promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement. In no event shall the liability of
the Company hereunder be greater in amount than the dollar amount received by
the Company upon issuance of the Shares.
(b) Indemnification by Purchasers. Each Purchaser 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 arising
solely out of any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or in any
amendment or supplement thereto, or arising solely out of any 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 the light of the circumstances under which they were made) not
misleading to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such
Purchaser to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (i) such untrue statements or
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5. In no
event shall the liability of any selling Purchaser hereunder be greater in
amount than the dollar amount of the net proceeds received by such Purchaser
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 it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely 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: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) 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
(iii) 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 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 such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying 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.
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 6.4(a) or (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 6.4(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 6.4(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 6.4(d), no Purchaser
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by such Purchaser from the sale
of the Registrable Securities subject to the Proceeding exceeds the amount of
any damages that such Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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.
6.5 Dispositions. Each Purchaser 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.
Each Purchaser further agrees that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Sections 6.2(c)(v), (vi) or
(vii), such Purchaser will discontinue disposition of such Registrable
Securities under the Registration Statement until such Purchaser's receipt of
the copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 6.2(j), 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.
6.6 Other Registrations. Other than the S-3 Registration Statement of the
Company currently under review by the SEC, the Company will not prepare and file
any 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
before the Registration Statement becomes effective.
ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated by the third Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).
7.2 Fees and Expenses. At the Closing, the Company shall pay to Vertical
Ventures, LLC up to $10,000 for their legal fees and expenses incurred in
connection with its due diligence and the preparation and negotiation of the
Transaction Documents. In lieu of the foregoing payment, Vertical Ventures, LLC
may retain the amount of actual fees of its counsel up to such amount at the
Closing and pay such amount directly to Proskauer Rose LLP. 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 the Securities.
7.3 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. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents. Notwithstanding anything to the contrary
herein, Securities may be assigned to any Person in connection with a bona fide
margin account or other loan or financing arrangement secured by such Company
Securities.
7.4 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 in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (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 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
deposit with a nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
addresses and facsimile numbers for such notices and communications are those
set forth on the signature pages hereof, or such other address or facsimile
number as may be designated in writing hereafter, in the same manner, by any
such Person.
7.5 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 each of the Purchasers 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. 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 Purchasers under Article VI and
that does not directly or indirectly affect the rights of other Purchasers may
be given by Purchasers holding at least a majority of the Registrable Securities
to which such waiver or consent relates.
7.6 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.
7.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. Any
Purchaser may assign its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers" including all representations
of the Purchasers in section 3.2 hereof. Notwithstanding anything to the
contrary herein, Securities may be assigned to any Person in connection with a
bona fide margin account or other loan or financing arrangement secured by such
Securities.
7.8 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 that each Related Person is an intended third party beneficiary
of Section 4.8 and each Indemnified Party is an intended third party beneficiary
of Section 6.4 and (in each case) may enforce the provisions of such Sections
directly against the parties with obligations thereunder.
7.9 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 laws of the
state of ARIZONA. The Company AND PURCHASERS Hereby Waive All Rights To A Trial
By Jury.
7.10 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and/or exercise of
the Securities, as applicable.
7.11 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.
7.12 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.
7.13 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.
7.14 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.
7.15 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.
7.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser hereunder or pursuant to either the Additional
Investment Rights or the Warrants, or any Purchaser enforces or exercises its
rights hereunder or 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
by 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.
7.17 Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
7.18 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. The decision of each Purchaser to purchase Shares pursuant
to this Agreement has been made by such Purchaser independently of any other
Purchaser and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or of the Subsidiary which may have been made or given
by any other Purchaser or by any agent or employee of any other Purchaser, and
no Purchaser or any of its agents or employees shall have any liability to any
other Purchaser (or any other Person) relating to or arising from any such
information, materials, statements or opinions. 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 acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. 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.
[Signature pages to follow]
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.
ALANCO TECHNOLOGIES, INC.
By: /s/Robert R. Kauffman
---------------------
Name: Robert R. Kauffman
Title: Chief Executive Officer
Address for Notice:
15575 North 83rd Waty, Suite 3
Scottsdale, AZ 85260
Facsimile No.: [ ]
Telephone No.: (480) 607-1010
Attn: Chief Financial Officer
With a copy to:
Steven P. Oman, Rsq.
10446 N. 74th Street, Suite 130
Scottsdale, AZ 85258
Facsimile No.: (480) 348-1471
Telephone No.: (480) 348-1470
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
VERTICAL VENTURES, LLC
By: /s/Joshua Silverman
-------------------
Name: Joshua Silverman
Title: Partner
Number of Units:
Underlying Shares subject to
Additional Investment Rights:
Underlying Shares subject to
Warrants:
Address for Notice:
Vertical Ventures, LLC
641 Lexington Ave, 26th Floor
New York, NY 10022
Facsimile No.: (212) 207-3452
Telephone No.: (212) 974-3070
Attn: Joshua Silverman
With a copy to: Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Facsimile No.: (212) 969-2900
Telephone No.: (212) 969-3000
Attn: Adam J. Kansler, Esq.
IROQUOIS CAPITAL LP
By: __________________________
Name:
Title:
Number of Units:
Underlying Shares subject to
Additional Investment Rights:
Underlying Shares subject to
Warrants:
Address for Notice:
Facsimile No.:
Telephone No.:
Attn:
OMICRON MASTER TRUST
By: __________________________
Name:
Title:
Number of Units: 460,000
Underlying Shares subject to
Additional Investment Rights: 230,000
Underlying Shares subject to
Warrants: 230,000
Address for Notice:
Omicron Master Trust
810 Seventh Avenue
39th Fl.
New York, NY 10019
Facsimile No.: 212-803-5264
Telephone No.: 212-805-1261
Attn: Brian Daly
CRANSHIRE CAPITAL, L.P.
By: /s/Mitchell P. Kopin
--------------------
Name: Mitchell P. Kopin
Title: President -Downsview Capital, L.P.,
The General Partner
Number of Units: 460,000
Underlying Shares subject to
Additional Investment Rights: 230,000
Underlying Shares subject to
Warrants: 230,000
Address for Notice:
Cranshire Capital, L.P.
666 Dundee Road, Suite 1901
Northbrook, IL 60062
Facsimile No.: (847) 562-9031
Telephone No.: (847) 562-9030
Attn: Mitchell P. Kopin
- -------------------------------------------------------------------------------
Exhibits:
A Form of Additional Investment Right
B Form of Warrant
C Opinion of Company Counsel
D Plan of Distribution
E Transfer Agent Instructions
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
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. NOTWITHSTANDING THE FOREGOING, 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.
ALANCO TECHNOLOGIES, INC.
ADDITIONAL INVESTMENT RIGHT
Additional Investment Right No. 4 Dated: April 18, 2004
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Cranshire Capital, L.P., or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of 230,000 shares of Class A common stock (the "Common Stock"), of
the Company (each such share, an "Additional Investment Right Share" and all
such shares, the "Additional Investment Right Shares") at an exercise price
equal to $1.60 per share (as adjusted from time to time as provided in Section
9, the "Exercise Price"), at any time and from time to time from and after the
date hereof and through and including the 120th calendar day following the
Effective Date, but not including the Effective Date (the "Expiration Date"),
and subject to the following terms and conditions. This Additional Investment
Right (this "Additional Investment Right") is one of a series of similar
Additional Investment Rights issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company and the
Purchasers identified therein (the "Purchase Agreement"). All such Additional
Investment Rights are referred to herein, collectively, as the "Additional
Investment Rights."
1. Definitions. In addition to the terms defined elsewhere in this Additional
Investment Right, capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Purchase Agreement.
2. Registration of Additional Investment Right. The Company shall register this
Additional Investment Right, upon records to be maintained by the Company for
that purpose (the "Additional Investment Right Register"), in the name of the
record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Additional Investment Right as the absolute owner
hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Additional Investment Right in the Additional
Investment Right Register, upon surrender of this Additional Investment Right,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at its address specified herein. Upon any such
registration or transfer, a new Additional Investment Right to purchase Common
Stock, in substantially the form of this Additional Investment Right (any such
new Additional Investment Right, a "New Additional Investment Right"),
evidencing the portion of this Additional Investment Right so transferred shall
be issued to the transferee and a New Additional Investment Right evidencing the
remaining portion of this Additional Investment Right not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the New
Additional Investment Right by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of an Additional Investment Right. Notwithstanding anything herein to the
contrary, a New Additional Investment Right may only be issued to an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
4. Exercise and Duration of Additional Investment Right.
(a) This Additional Investment Right shall be exercisable by the registered
Holder at any time and from time to time on or after the date hereof to and
including the Expiration Date. At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Additional Investment Right not exercised
prior thereto shall be and become void and of no value.
(b) The Holder may exercise this Additional Investment Right by delivering to
the Company (i) the original Additional Investment Right and an exercise notice,
in the form attached hereto (the "Exercise Notice"), appropriately completed and
duly signed, and (ii) payment of the Exercise Price for the number of Additional
Investment Right Shares as to which this Additional Investment Right is being
exercised, and the date such items are delivered to the Company (as determined
in accordance with the notice provisions hereof) is an "Exercise Date."
Execution and delivery of the original Additional Investment Right and Exercise
Notice shall have the same effect as cancellation of the original Additional
Investment Right and issuance of a New Additional Investment Right evidencing
the right to purchase the remaining number of Additional Investment Right
Shares.
5. Delivery of Additional Investment Right Shares.
(a) Upon exercise of this Additional Investment Right, the Company shall
promptly (but in no event later than three Trading Days after the Exercise Date)
issue or cause to be issued and cause to be delivered to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate for the Additional Investment Right Shares issuable upon such
exercise, free of restrictive legends unless a registration statement covering
the resale of the Additional Investment Right Shares and naming the Holder as a
selling stockholder thereunder is not then effective and the Additional
Investment Right Shares are not freely transferable without volume restrictions
pursuant to Rule 144 under the Securities Act. The Company shall forward the
appropriate request to its transfer agent for issuance of the Shares within
three Trading Days after the Company receives the Exercise Notice. The Holder,
or any Person so designated by the Holder to receive Additional Investment Right
Shares, shall be deemed to have become holder of record of such Additional
Investment Right Shares as of the Exercise Date. The Company shall, upon request
of the Holder, use its best efforts to deliver Additional Investment Right
Shares hereunder electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions.
(b) This Additional Investment Right is exercisable, either in its entirety or,
from time to time, for a portion of the number of Additional Investment Right
Shares. Upon surrender of this Additional Investment Right following one or more
partial exercises, the Company shall issue or cause to be issued, at its
expense, a New Additional Investment Right evidencing the right to purchase the
remaining number of Additional Investment Right Shares.
(c) The Company's obligations to issue and deliver Additional Investment Right
Shares in accordance with the terms hereof are absolute and unconditional,
irrespective 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
Additional Investment Right Shares. 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 Additional
Investment Right as required pursuant to the terms hereof.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Additional Investment Right shall be made
without charge to the Holder for any issue or transfer tax, withholding tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Additional Investment Right Shares or Additional
Investment Rights in a name other than that of the Holder or an Affiliate
thereof. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Additional Investment Right or
receiving Additional Investment Right Shares upon exercise hereof.
7. Replacement of Additional Investment Right. If this Additional Investment
Right is mutilated, lost, stolen or destroyed, the Company shall issue or cause
to be issued in exchange and substitution for and upon cancellation hereof, or
in lieu of and substitution for this Additional Investment Right, a New
Additional Investment Right, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Additional Investment
Right under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as
the Company may prescribe.
8. Reservation of Additional Investment Right Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for the
purpose of enabling it to issue Additional Investment Right Shares upon exercise
of this Additional Investment Right as herein provided, the number of Additional
Investment Right Shares which are then issuable and deliverable upon the
exercise of this entire Additional Investment Right, free from preemptive rights
or any other contingent purchase rights of persons other than the Holder (taking
into account the adjustments and restrictions of Section 9). The Company
covenants that all Additional Investment Right Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable. The Company will take all such action
as may be necessary to assure that such shares of Common Stock may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any securities exchange or automated quotation system upon which
the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Additional Investment
Right Shares issuable upon exercise of this Additional Investment Right are
subject to adjustment from time to time as set forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this
Additional Investment Right is outstanding, (i) pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clauses (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.
(b) Fundamental Transactions. If, at any time while this Additional Investment
Right is outstanding, (i) the Company effects any merger or consolidation of the
Company with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
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 (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a "Fundamental Transaction"), then the Holder shall
have the right thereafter to receive, upon exercise of this Additional
Investment Right, the same amount and kind 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 the number of Additional Investment Right Shares then issuable
upon exercise in full of this Additional Investment Right (the "Alternate
Consideration"). The aggregate Exercise Price for this Additional Investment
Right will not be affected by any such Fundamental Transaction, but the Company
shall apportion such aggregate Exercise 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 exercise of this Additional Investment Right
following such Fundamental Transaction. At the Holder's request, any successor
to the Company or surviving entity in such Fundamental Transaction shall issue
to the Holder a new Additional Investment Right consistent with the foregoing
provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. 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 the Additional Investment
Right (or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction. If the Company
completes a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange
Act or other analogous "going private" transaction, the Company (or any such
successor or surviving entity) will purchase this Additional Investment Right
from the Holder for a purchase price, payable in cash within five Trading Days
after such request (or, if later, on the effective date of such Rule 13e-3
transaction), equal to the Black-Scholes value of the remaining unexercised
portion of this Additional Investment Right on the date of such request.
(c) Number of Additional Investment Right Shares. Simultaneously with any
adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this
Section, the number of Additional Investment Right Shares that may be purchased
upon exercise of this Additional Investment Right shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Additional
Investment Right Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.
(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Additional Investment Right and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Additional Investment Right Shares
or other securities issuable upon exercise of this Additional Investment Right
(as applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company's Transfer Agent.
(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Additional Investment
Right prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
11. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Additional Investment Right (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the
"Maximum Percentage") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise). For such purposes, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Additional Investment Right Shares requested in such Exercise
Notice is permitted under this paragraph. By written notice to the Company, the
Holder may waive the provisions of this Section or increase or decrease the
Maximum Percentage to any other percentage specified in such notice, but (i) any
such waiver or increase will not be effective until the 61st day after such
notice is delivered to the Company, and (ii) any such waiver or increase or
decrease will apply only to the Holder and not to any other holder of Additional
Investment Rights.
12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Additional Investment Right Shares on the exercise of this
Additional Investment Right. If any fraction of a Additional Investment Right
Share would, except for the provisions of this Section, be issuable upon
exercise of this Additional Investment Right, the number of Additional
Investment Right Shares to be issued will be rounded down to the nearest whole
share.
13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and 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
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) 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 6:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of deposit with a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address and facsimile numbers for such notices or communications
shall be as set forth in the Purchase Agreement.
14. Additional Investment Right Agent. The Company shall serve as Additional
Investment Right agent under this Additional Investment Right. Upon 30 days'
notice to the Holder, the Company may appoint a new Additional Investment Right
agent. Any corporation into which the Company or any new Additional Investment
Right agent may be merged or any corporation resulting from any consolidation to
which the Company or any new Additional Investment Right agent shall be a party
or any corporation to which the Company or any new Additional Investment Right
agent transfers substantially all of its corporate trust or shareholders
services business shall be a successor Additional Investment Right agent under
this Additional Investment Right without any further act. Any such successor
Additional Investment Right agent shall promptly cause notice of its succession
as Additional Investment Right agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder's last address as shown on the Additional
Investment Right Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page hereof,
this Additional Investment Right may be assigned by the Holder. This Additional
Investment Right may not be assigned by the Company except to a successor in the
event of a Fundamental Transaction. This Additional Investment Right shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. Subject to the preceding sentence, nothing in this
Additional Investment Right shall be construed to give to any Person other than
the Company and the Holder any legal or equitable right, remedy or cause of
action under this Additional Investment Right. This Additional Investment Right
may be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) The Company will not, by amendment of its governing documents 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 Additional Investment
Right, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any Additional Investment Right Shares above the
amount payable therefor on such exercise, (ii) will take all such action as may
be reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Additional Investment Right Shares on
the exercise of this Additional Investment Right, and (iii) will not close its
shareholder books or records in any manner which interferes with the timely
exercise of this Additional Investment Right.
(c) Governing Law; Venue; Waiver Of Jury Trial. all questions concerning the
construction, validity, enforcement and interpretation of this Additional
Investment Right shall be governed by and construed and enforced in accordance
with the laws of the state of arizona the company and holder hereby waives all
rights to a trial by jury.
(d) The headings herein are for convenience only, do not constitute a part of
this Additional Investment Right and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Additional Investment
Right shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Additional
Investment Right shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Additional
Investment Right.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Additional Investment
Right to be duly executed by its authorized officer as of the date first
indicated above.
ALANCO TECHNOLOGIES, INC.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Additional Investment Right)
To: Alanco Technologies, Inc.
The undersigned is the Holder of Additional Investment Right No. _______
(the "Additional Investment Right") issued by Alanco Technologies, Inc.,
an Arizona corporation (the "Company"). Capitalized terms used herein and
not otherwise defined have the respective meanings set forth in the Additional
Investment Right.
1. The Additional Investment Right is currently exercisable to purchase a
total of ______________ Additional Investment Right Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Additional Investment Right Shares pursuant to the
Additional Investment Right.
3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $____________ to
the Company in accordance with the terms of the Additional Investment
Right.
4. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Additional Investment Right Shares in accordance with
the terms of the Additional Investment Right.
5. Following this exercise, the Additional Investment Right shall be
exercisable to purchase a total of ______________ Additional Investment
Right Shares.
Dated: , Name of Holder:
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face
of the Additional Investment Right)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Additional Investmen
t Right]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Additional Investment Right to purchase ____________ shares of Class A Common
Stock of Alanco Technologies, Inc. to which the within Additional Investment
Right relates and appoints ________________ attorney to transfer said right on
the books of Alanco Technologies, Inc. with full power of substitution in the
premises.
Dated: ,
(Signature must conform in all respects to
name of holder as specified on the face of the
Additional Investment Right)
Address of Transferee
In the presence of:
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
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. NOTWITHSTANDING THE FOREGOING, 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.
ALANCO TECHNOLOGIES, INC.
ADDITIONAL INVESTMENT RIGHT
Additional Investment Right No. 3 Dated: April 18, 2004
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Omicron Master Trust, or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of 230,000 shares of Class A common stock (the "Common Stock"), of
the Company (each such share, an "Additional Investment Right Share" and all
such shares, the "Additional Investment Right Shares") at an exercise price
equal to $1.60 per share (as adjusted from time to time as provided in Section
9, the "Exercise Price"), at any time and from time to time from and after the
date hereof and through and including the 120th calendar day following the
Effective Date, but not including the Effective Date (the "Expiration Date"),
and subject to the following terms and conditions. This Additional Investment
Right (this "Additional Investment Right") is one of a series of similar
Additional Investment Rights issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company and the
Purchasers identified therein (the "Purchase Agreement"). All such Additional
Investment Rights are referred to herein, collectively, as the "Additional
Investment Rights."
1. Definitions. In addition to the terms defined elsewhere in this Additional
Investment Right, capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Purchase Agreement.
2. Registration of Additional Investment Right. The Company shall register this
Additional Investment Right, upon records to be maintained by the Company for
that purpose (the "Additional Investment Right Register"), in the name of the
record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Additional Investment Right as the absolute owner
hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Additional Investment Right in the Additional
Investment Right Register, upon surrender of this Additional Investment Right,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at its address specified herein. Upon any such
registration or transfer, a new Additional Investment Right to purchase Common
Stock, in substantially the form of this Additional Investment Right (any such
new Additional Investment Right, a "New Additional Investment Right"),
evidencing the portion of this Additional Investment Right so transferred shall
be issued to the transferee and a New Additional Investment Right evidencing the
remaining portion of this Additional Investment Right not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the New
Additional Investment Right by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of an Additional Investment Right. Notwithstanding anything herein to the
contrary, a New Additional Investment Right may only be issued to an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
4. Exercise and Duration of Additional Investment Right.
(a) This Additional Investment Right shall be exercisable by the registered
Holder at any time and from time to time on or after the date hereof to and
including the Expiration Date. At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Additional Investment Right not exercised
prior thereto shall be and become void and of no value.
(b) The Holder may exercise this Additional Investment Right by delivering to
the Company (i) the original Additional Investment Right and an exercise notice,
in the form attached hereto (the "Exercise Notice"), appropriately completed and
duly signed, and (ii) payment of the Exercise Price for the number of Additional
Investment Right Shares as to which this Additional Investment Right is being
exercised, and the date such items are delivered to the Company (as determined
in accordance with the notice provisions hereof) is an "Exercise Date."
Execution and delivery of the original Additional Investment Right and Exercise
Notice shall have the same effect as cancellation of the original Additional
Investment Right and issuance of a New Additional Investment Right evidencing
the right to purchase the remaining number of Additional Investment Right
Shares.
5. Delivery of Additional Investment Right Shares.
(a) Upon exercise of this Additional Investment Right, the Company shall
promptly (but in no event later than three Trading Days after the Exercise Date)
issue or cause to be issued and cause to be delivered to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate for the Additional Investment Right Shares issuable upon such
exercise, free of restrictive legends unless a registration statement covering
the resale of the Additional Investment Right Shares and naming the Holder as a
selling stockholder thereunder is not then effective and the Additional
Investment Right Shares are not freely transferable without volume restrictions
pursuant to Rule 144 under the Securities Act. The Company shall forward the
appropriate request to its transfer agent for issuance of the Shares within
three Trading Days after the Company receives the Exercise Notice. The Holder,
or any Person so designated by the Holder to receive Additional Investment Right
Shares, shall be deemed to have become holder of record of such Additional
Investment Right Shares as of the Exercise Date. The Company shall, upon request
of the Holder, use its best efforts to deliver Additional Investment Right
Shares hereunder electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions.
(b) This Additional Investment Right is exercisable, either in its entirety or,
from time to time, for a portion of the number of Additional Investment Right
Shares. Upon surrender of this Additional Investment Right following one or more
partial exercises, the Company shall issue or cause to be issued, at its
expense, a New Additional Investment Right evidencing the right to purchase the
remaining number of Additional Investment Right Shares.
(c) The Company's obligations to issue and deliver Additional Investment Right
Shares in accordance with the terms hereof are absolute and unconditional,
irrespective 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
Additional Investment Right Shares. 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 Additional
Investment Right as required pursuant to the terms hereof.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Additional Investment Right shall be made
without charge to the Holder for any issue or transfer tax, withholding tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Additional Investment Right Shares or Additional
Investment Rights in a name other than that of the Holder or an Affiliate
thereof. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Additional Investment Right or
receiving Additional Investment Right Shares upon exercise hereof.
7. Replacement of Additional Investment Right. If this Additional Investment
Right is mutilated, lost, stolen or destroyed, the Company shall issue or cause
to be issued in exchange and substitution for and upon cancellation hereof, or
in lieu of and substitution for this Additional Investment Right, a New
Additional Investment Right, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Additional Investment
Right under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as
the Company may prescribe.
8. Reservation of Additional Investment Right Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for the
purpose of enabling it to issue Additional Investment Right Shares upon exercise
of this Additional Investment Right as herein provided, the number of Additional
Investment Right Shares which are then issuable and deliverable upon the
exercise of this entire Additional Investment Right, free from preemptive rights
or any other contingent purchase rights of persons other than the Holder (taking
into account the adjustments and restrictions of Section 9). The Company
covenants that all Additional Investment Right Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable. The Company will take all such action
as may be necessary to assure that such shares of Common Stock may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any securities exchange or automated quotation system upon which
the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Additional Investment
Right Shares issuable upon exercise of this Additional Investment Right are
subject to adjustment from time to time as set forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this
Additional Investment Right is outstanding, (i) pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clauses (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.
(b) Fundamental Transactions. If, at any time while this Additional Investment
Right is outstanding, (i) the Company effects any merger or consolidation of the
Company with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
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 (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a "Fundamental Transaction"), then the Holder shall
have the right thereafter to receive, upon exercise of this Additional
Investment Right, the same amount and kind 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 the number of Additional Investment Right Shares then issuable
upon exercise in full of this Additional Investment Right (the "Alternate
Consideration"). The aggregate Exercise Price for this Additional Investment
Right will not be affected by any such Fundamental Transaction, but the Company
shall apportion such aggregate Exercise 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 exercise of this Additional Investment Right
following such Fundamental Transaction. At the Holder's request, any successor
to the Company or surviving entity in such Fundamental Transaction shall issue
to the Holder a new Additional Investment Right consistent with the foregoing
provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. 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 the Additional Investment
Right (or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction. If the Company
completes a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange
Act or other analogous "going private" transaction, the Company (or any such
successor or surviving entity) will purchase this Additional Investment Right
from the Holder for a purchase price, payable in cash within five Trading Days
after such request (or, if later, on the effective date of such Rule 13e-3
transaction), equal to the Black-Scholes value of the remaining unexercised
portion of this Additional Investment Right on the date of such request.
(c) Number of Additional Investment Right Shares. Simultaneously with any
adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this
Section, the number of Additional Investment Right Shares that may be purchased
upon exercise of this Additional Investment Right shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Additional
Investment Right Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.
(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Additional Investment Right and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Additional Investment Right Shares
or other securities issuable upon exercise of this Additional Investment Right
(as applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company's Transfer Agent.
(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Additional Investment
Right prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
11. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Additional Investment Right (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the
"Maximum Percentage") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise). For such purposes, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Additional Investment Right Shares requested in such Exercise
Notice is permitted under this paragraph. By written notice to the Company, the
Holder may waive the provisions of this Section or increase or decrease the
Maximum Percentage to any other percentage specified in such notice, but (i) any
such waiver or increase will not be effective until the 61st day after such
notice is delivered to the Company, and (ii) any such waiver or increase or
decrease will apply only to the Holder and not to any other holder of Additional
Investment Rights.
12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Additional Investment Right Shares on the exercise of this
Additional Investment Right. If any fraction of a Additional Investment Right
Share would, except for the provisions of this Section, be issuable upon
exercise of this Additional Investment Right, the number of Additional
Investment Right Shares to be issued will be rounded down to the nearest whole
share.
13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and 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
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) 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 6:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of deposit with a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address and facsimile numbers for such notices or communications
shall be as set forth in the Purchase Agreement.
14. Additional Investment Right Agent. The Company shall serve as Additional
Investment Right agent under this Additional Investment Right. Upon 30 days'
notice to the Holder, the Company may appoint a new Additional Investment Right
agent. Any corporation into which the Company or any new Additional Investment
Right agent may be merged or any corporation resulting from any consolidation to
which the Company or any new Additional Investment Right agent shall be a party
or any corporation to which the Company or any new Additional Investment Right
agent transfers substantially all of its corporate trust or shareholders
services business shall be a successor Additional Investment Right agent under
this Additional Investment Right without any further act. Any such successor
Additional Investment Right agent shall promptly cause notice of its succession
as Additional Investment Right agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder's last address as shown on the Additional
Investment Right Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page hereof,
this Additional Investment Right may be assigned by the Holder. This Additional
Investment Right may not be assigned by the Company except to a successor in the
event of a Fundamental Transaction. This Additional Investment Right shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. Subject to the preceding sentence, nothing in this
Additional Investment Right shall be construed to give to any Person other than
the Company and the Holder any legal or equitable right, remedy or cause of
action under this Additional Investment Right. This Additional Investment Right
may be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) The Company will not, by amendment of its governing documents 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 Additional Investment
Right, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any Additional Investment Right Shares above the
amount payable therefor on such exercise, (ii) will take all such action as may
be reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Additional Investment Right Shares on
the exercise of this Additional Investment Right, and (iii) will not close its
shareholder books or records in any manner which interferes with the timely
exercise of this Additional Investment Right.
(c) Governing Law; Venue; Waiver Of Jury Trial. all questions concerning the
construction, validity, enforcement and interpretation of this Additional
Investment Right shall be governed by and construed and enforced in accordance
with the laws of the state of arizona the company and holder hereby waives all
rights to a trial by jury.
(d) The headings herein are for convenience only, do not constitute a part of
this Additional Investment Right and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Additional Investment
Right shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Additional
Investment Right shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Additional
Investment Right.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Additional Investment
Right to be duly executed by its authorized officer as of the date first
indicated above.
ALANCO TECHNOLOGIES, INC.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Additional Investment Right)
To: Alanco Technologies, Inc.
The undersigned is the Holder of Additional Investment Right No. _______ (the
"Additional Investment Right") issued by Alanco Technologies, Inc., an Arizona
corporation (the "Company"). Capitalized terms used herein and not otherwise
defined have the respective meanings set forth in the Additional Investment
Right.
1. The Additional Investment Right is currently exercisable to purchase a
total of ______________ Additional Investment Right Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Additional Investment Right Shares pursuant to the
Additional Investment Right.
3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $____________ to
the Company in accordance with the terms of the Additional Investment
Right.
4. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Additional Investment Right Shares in accordance with
the terms of the Additional Investment Right.
5. Following this exercise, the Additional Investment Right shall be
exercisable to purchase a total of ______________ Additional Investment
Right Shares.
Dated: , Name of Holder:
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face of
the Additional Investment Right)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Additional
Investment Right]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Additional Investment Right to purchase ____________ shares of Class A Common
Stock of Alanco Technologies, Inc. to which the within Additional Investment
Right relates and appoints ________________ attorney to transfer said right on
the books of Alanco Technologies, Inc. with full power of substitution in the
premises.
Dated: ,
(Signature must conform in all respects to
name of holder as specified on the face of the
Additional Investment Right)
Address of Transferee
In the presence of:
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
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. NOTWITHSTANDING THE FOREGOING, 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.
ALANCO TECHNOLOGIES, INC.
ADDITIONAL INVESTMENT RIGHT
Additional Investment Right No. 1 Dated: April 18, 2004
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Vertical Ventures, LLC, or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of 140,000 shares of Class A common stock (the "Common Stock"), of
the Company (each such share, an "Additional Investment Right Share" and all
such shares, the "Additional Investment Right Shares") at an exercise price
equal to $1.60 per share (as adjusted from time to time as provided in Section
9, the "Exercise Price"), at any time and from time to time from and after the
date hereof and through and including the 120th calendar day following the
Effective Date, but not including the Effective Date (the "Expiration Date"),
and subject to the following terms and conditions. This Additional Investment
Right (this "Additional Investment Right") is one of a series of similar
Additional Investment Rights issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company and the
Purchasers identified therein (the "Purchase Agreement"). All such Additional
Investment Rights are referred to herein, collectively, as the "Additional
Investment Rights."
1. Definitions. In addition to the terms defined elsewhere in this Additional
Investment Right, capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Purchase Agreement.
2. Registration of Additional Investment Right. The Company shall register this
Additional Investment Right, upon records to be maintained by the Company for
that purpose (the "Additional Investment Right Register"), in the name of the
record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Additional Investment Right as the absolute owner
hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Additional Investment Right in the Additional
Investment Right Register, upon surrender of this Additional Investment Right,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at its address specified herein. Upon any such
registration or transfer, a new Additional Investment Right to purchase Common
Stock, in substantially the form of this Additional Investment Right (any such
new Additional Investment Right, a "New Additional Investment Right"),
evidencing the portion of this Additional Investment Right so transferred shall
be issued to the transferee and a New Additional Investment Right evidencing the
remaining portion of this Additional Investment Right not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the New
Additional Investment Right by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of an Additional Investment Right. Notwithstanding anything herein to the
contrary, a New Additional Investment Right may only be issued to an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
4. Exercise and Duration of Additional Investment Right.
(a) This Additional Investment Right shall be exercisable by the registered
Holder at any time and from time to time on or after the date hereof to and
including the Expiration Date. At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Additional Investment Right not exercised
prior thereto shall be and become void and of no value.
(b) The Holder may exercise this Additional Investment Right by delivering to
the Company (i) the original Additional Investment Right and an exercise notice,
in the form attached hereto (the "Exercise Notice"), appropriately completed and
duly signed, and (ii) payment of the Exercise Price for the number of Additional
Investment Right Shares as to which this Additional Investment Right is being
exercised, and the date such items are delivered to the Company (as determined
in accordance with the notice provisions hereof) is an "Exercise Date."
Execution and delivery of the original Additional Investment Right and Exercise
Notice shall have the same effect as cancellation of the original Additional
Investment Right and issuance of a New Additional Investment Right evidencing
the right to purchase the remaining number of Additional Investment Right
Shares.
5. Delivery of Additional Investment Right Shares.
(a) Upon exercise of this Additional Investment Right, the Company shall
promptly (but in no event later than three Trading Days after the Exercise Date)
issue or cause to be issued and cause to be delivered to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate for the Additional Investment Right Shares issuable upon such
exercise, free of restrictive legends unless a registration statement covering
the resale of the Additional Investment Right Shares and naming the Holder as a
selling stockholder thereunder is not then effective and the Additional
Investment Right Shares are not freely transferable without volume restrictions
pursuant to Rule 144 under the Securities Act. The Company shall forward the
appropriate request to its transfer agent for issuance of the Shares within
three Trading Days after the Company receives the Exercise Notice. The Holder,
or any Person so designated by the Holder to receive Additional Investment Right
Shares, shall be deemed to have become holder of record of such Additional
Investment Right Shares as of the Exercise Date. The Company shall, upon request
of the Holder, use its best efforts to deliver Additional Investment Right
Shares hereunder electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions.
(b) This Additional Investment Right is exercisable, either in its entirety or,
from time to time, for a portion of the number of Additional Investment Right
Shares. Upon surrender of this Additional Investment Right following one or more
partial exercises, the Company shall issue or cause to be issued, at its
expense, a New Additional Investment Right evidencing the right to purchase the
remaining number of Additional Investment Right Shares.
(c) The Company's obligations to issue and deliver Additional Investment Right
Shares in accordance with the terms hereof are absolute and unconditional,
irrespective 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
Additional Investment Right Shares. 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 Additional
Investment Right as required pursuant to the terms hereof.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Additional Investment Right shall be made
without charge to the Holder for any issue or transfer tax, withholding tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Additional Investment Right Shares or Additional
Investment Rights in a name other than that of the Holder or an Affiliate
thereof. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Additional Investment Right or
receiving Additional Investment Right Shares upon exercise hereof.
7. Replacement of Additional Investment Right. If this Additional Investment
Right is mutilated, lost, stolen or destroyed, the Company shall issue or cause
to be issued in exchange and substitution for and upon cancellation hereof, or
in lieu of and substitution for this Additional Investment Right, a New
Additional Investment Right, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Additional Investment
Right under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as
the Company may prescribe.
8. Reservation of Additional Investment Right Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for the
purpose of enabling it to issue Additional Investment Right Shares upon exercise
of this Additional Investment Right as herein provided, the number of Additional
Investment Right Shares which are then issuable and deliverable upon the
exercise of this entire Additional Investment Right, free from preemptive rights
or any other contingent purchase rights of persons other than the Holder (taking
into account the adjustments and restrictions of Section 9). The Company
covenants that all Additional Investment Right Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable. The Company will take all such action
as may be necessary to assure that such shares of Common Stock may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any securities exchange or automated quotation system upon which
the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Additional Investment
Right Shares issuable upon exercise of this Additional Investment Right are
subject to adjustment from time to time as set forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this
Additional Investment Right is outstanding, (i) pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clauses (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.
(b) Fundamental Transactions. If, at any time while this Additional Investment
Right is outstanding, (i) the Company effects any merger or consolidation of the
Company with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
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 (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a "Fundamental Transaction"), then the Holder shall
have the right thereafter to receive, upon exercise of this Additional
Investment Right, the same amount and kind 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 the number of Additional Investment Right Shares then issuable
upon exercise in full of this Additional Investment Right (the "Alternate
Consideration"). The aggregate Exercise Price for this Additional Investment
Right will not be affected by any such Fundamental Transaction, but the Company
shall apportion such aggregate Exercise 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 exercise of this Additional Investment Right
following such Fundamental Transaction. At the Holder's request, any successor
to the Company or surviving entity in such Fundamental Transaction shall issue
to the Holder a new Additional Investment Right consistent with the foregoing
provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. 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 the Additional Investment
Right (or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction. If the Company
completes a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange
Act or other analogous "going private" transaction, the Company (or any such
successor or surviving entity) will purchase this Additional Investment Right
from the Holder for a purchase price, payable in cash within five Trading Days
after such request (or, if later, on the effective date of such Rule 13e-3
transaction), equal to the Black-Scholes value of the remaining unexercised
portion of this Additional Investment Right on the date of such request.
(c) Number of Additional Investment Right Shares. Simultaneously with any
adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this
Section, the number of Additional Investment Right Shares that may be purchased
upon exercise of this Additional Investment Right shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Additional
Investment Right Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.
(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Additional Investment Right and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Additional Investment Right Shares
or other securities issuable upon exercise of this Additional Investment Right
(as applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company's Transfer Agent.
(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Additional Investment
Right prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
11. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Additional Investment Right (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the
"Maximum Percentage") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise). For such purposes, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Additional Investment Right Shares requested in such Exercise
Notice is permitted under this paragraph. By written notice to the Company, the
Holder may waive the provisions of this Section or increase or decrease the
Maximum Percentage to any other percentage specified in such notice, but (i) any
such waiver or increase will not be effective until the 61st day after such
notice is delivered to the Company, and (ii) any such waiver or increase or
decrease will apply only to the Holder and not to any other holder of Additional
Investment Rights.
12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Additional Investment Right Shares on the exercise of this
Additional Investment Right. If any fraction of a Additional Investment Right
Share would, except for the provisions of this Section, be issuable upon
exercise of this Additional Investment Right, the number of Additional
Investment Right Shares to be issued will be rounded down to the nearest whole
share.
13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and 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
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) 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 6:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of deposit with a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address and facsimile numbers for such notices or communications
shall be as set forth in the Purchase Agreement.
14. Additional Investment Right Agent. The Company shall serve as Additional
Investment Right agent under this Additional Investment Right. Upon 30 days'
notice to the Holder, the Company may appoint a new Additional Investment Right
agent. Any corporation into which the Company or any new Additional Investment
Right agent may be merged or any corporation resulting from any consolidation to
which the Company or any new Additional Investment Right agent shall be a party
or any corporation to which the Company or any new Additional Investment Right
agent transfers substantially all of its corporate trust or shareholders
services business shall be a successor Additional Investment Right agent under
this Additional Investment Right without any further act. Any such successor
Additional Investment Right agent shall promptly cause notice of its succession
as Additional Investment Right agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder's last address as shown on the Additional
Investment Right Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page hereof,
this Additional Investment Right may be assigned by the Holder. This Additional
Investment Right may not be assigned by the Company except to a successor in the
event of a Fundamental Transaction. This Additional Investment Right shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. Subject to the preceding sentence, nothing in this
Additional Investment Right shall be construed to give to any Person other than
the Company and the Holder any legal or equitable right, remedy or cause of
action under this Additional Investment Right. This Additional Investment Right
may be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) The Company will not, by amendment of its governing documents 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 Additional Investment
Right, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any Additional Investment Right Shares above the
amount payable therefor on such exercise, (ii) will take all such action as may
be reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Additional Investment Right Shares on
the exercise of this Additional Investment Right, and (iii) will not close its
shareholder books or records in any manner which interferes with the timely
exercise of this Additional Investment Right.
(c) Governing Law; Venue; Waiver Of Jury Trial. all questions concerning the
construction, validity, enforcement and interpretation of this Additional
Investment Right shall be governed by and construed and enforced in accordance
with the laws of the state of arizona the company and holder hereby waives all
rights to a trial by jury.
(d) The headings herein are for convenience only, do not constitute a part of
this Additional Investment Right and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Additional Investment
Right shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Additional
Investment Right shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Additional
Investment Right.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Additional Investment
Right to be duly executed by its authorized officer as of the date first
indicated above.
ALANCO TECHNOLOGIES, INC.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Additional Investment Right)
To: Alanco Technologies, Inc.
The undersigned is the Holder of Additional Investment Right No. _______ (the
"Additional Investment Right") issued by Alanco Technologies, Inc., an Arizona
corporation (the "Company"). Capitalized terms used herein and not otherwise
defined have the respective meanings set forth in the Additional Investment
Right.
1. The Additional Investment Right is currently exercisable to purchase a
total of ______________ Additional Investment Right Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Additional Investment Right Shares pursuant to the
Additional Investment Right.
3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $____________ to
the Company in accordance with the terms of the Additional Investment
Right.
4. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Additional Investment Right Shares in accordance with
the terms of the Additional Investment Right.
5. Following this exercise, the Additional Investment Right shall be
exercisable to purchase a total of ______________ Additional Investment
Right Shares.
Dated: , Name of Holder:
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face of
the Additional Investment Right)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Additional
Investment Right]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Additional Investment Right to purchase ____________ shares of Class A Common
Stock of Alanco Technologies, Inc. to which the within Additional Investment
Right relates and appoints ________________ attorney to transfer said right on
the books of Alanco Technologies, Inc. with full power of substitution in the
premises.
Dated: ,
(Signature must conform in all respects to
name of holder as specified on the face of the
Additional Investment Right)
Address of Transferee
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
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. NOTWITHSTANDING THE FOREGOING, 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.
ALANCO TECHNOLOGIES, INC.
WARRANT
Warrant No. 4 Dated: April 18, 2004
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Cranshire Capital, L.P. or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of 230,000 shares of Class A common stock (the "Common Stock"), of
the Company (each such share, an "Warrant Share" and all such shares, the
"Warrant Shares") at an exercise price equal to $2.00 per share (as adjusted
from time to time as provided in Section 9, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
the date which is the five-year anniversary of the Effective Date (the
"Expiration Date"), and subject to the following terms and conditions. This
Warrant (this "Warrant") is one of a series of similar Warrants issued pursuant
to that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Purchasers identified therein (the "Purchase
Agreement"). All such Warrants are referred to herein, collectively, as the
"Warrants."
1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Purchase Agreement.
2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Warrant in the Warrant Register, upon surrender
of this Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Transfer Agent or to the Company at its address specified herein.
Upon any such registration or transfer, a new Warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new Warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of an Warrant. Notwithstanding anything herein to the contrary, a New Warrant
may only be issued to an "accredited investor" as defined in Rule 501(a) under
the Securities Act.
4. Exercise and Duration of Warrant.
(a) This Warrant shall be exercisable by the registered Holder at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of
this Warrant not exercised prior thereto shall be and become void and of no
value.
(b) The Holder may exercise this Warrant by delivering to the Company (i) the
original Warrant and an exercise notice, in the form attached hereto (the
"Exercise Notice"), appropriately completed and duly signed, and (ii) payment of
the Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised, and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an "Exercise
Date." Execution and delivery of the original Warrant and Exercise Notice shall
have the same effect as cancellation of the original Warrant and issuance of a
New Warrant evidencing the right to purchase the remaining number of Warrant
Shares.
5. Delivery of Warrant Shares.
(a) Upon exercise of this Warrant, the Company shall promptly (but in no event
later than three Trading Days after the Exercise Date) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder and
in such name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective and the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144 under the Securities Act. The Company shall forward the appropriate request
to its transfer agent for issuance of the Shares within three Trading Days after
the Company receives the Exercise Notice. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. The
Company shall, upon request of the Holder, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from time to time,
for a portion of the number of Warrant Shares. Upon surrender of this Warrant
following one or more partial exercises, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
(c) The Company's obligations to issue and deliver Warrant Shares in accordance
with the terms hereof are absolute and unconditional, irrespective 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 Warrant Shares. 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.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax, withholding tax, transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
Affiliate thereof. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable
upon exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes
a distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
(b) Fundamental Transactions. If, at any time while this Warrant is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) 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 (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 9(a) above) (in any
such case, a "Fundamental Transaction"), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind
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 the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "Alternate Consideration").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
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
exercise of this Warrant following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. 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 the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. If the Company completes a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act or other analogous
"going private" transaction, the Company (or any such successor or surviving
entity) will purchase this Warrant from the Holder for a purchase price, payable
in cash within five Trading Days after such request (or, if later, on the
effective date of such Rule 13e-3 transaction), equal to the Black-Scholes value
of the remaining unexercised portion of this Warrant on the date of such
request.
(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.
(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the transactions giving
rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a
copy of each such certificate to the Holder and to the Company's Transfer Agent.
(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
11. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Warrant (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum
Percentage") of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
exercise). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of an Exercise Notice hereunder will
constitute a representation by the Holder that it has evaluated the limitation
set forth in this paragraph and determined that issuance of the full number of
Warrant Shares requested in such Exercise Notice is permitted under this
paragraph. By written notice to the Company, the Holder may waive the provisions
of this Section or increase or decrease the Maximum Percentage to any other
percentage specified in such notice, but (i) any such waiver or increase will
not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver or increase or decrease will apply only to the
Holder and not to any other holder of Warrants.
12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded down to the nearest whole share.
13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and 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
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) 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 6:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of deposit with a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address and facsimile numbers for such notices or communications
shall be as set forth in the Purchase Agreement.
14. Warrant Agent. The Company shall serve as Warrant agent under this Warrant.
Upon 30 days' notice to the Holder, the Company may appoint a new Warrant agent.
Any corporation into which the Company or any new Warrant agent may be merged or
any corporation resulting from any consolidation to which the Company or any new
Warrant agent shall be a party or any corporation to which the Company or any
new Warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor Warrant agent under this
Warrant without any further act. Any such successor Warrant agent shall promptly
cause notice of its succession as Warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown on
the Warrant Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page hereof,
this Warrant may be assigned by the Holder. This Warrant may not be assigned by
the Company except to a successor in the event of a Fundamental Transaction.
This Warrant shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b) The Company will not, by amendment of its governing documents 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 action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company (i) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, (ii) will take all
such action as may be reasonably necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(c) Governing Law; Venue; Waiver Of Jury Trial. all questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by and construed and enforced in accordance with the laws of the state
of arizona the company and holder hereby waives all rights to a trial by jury.
(d) The headings herein are for convenience only, do not constitute a part of
this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
ALANCO TECHNOLOGIES, INC.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Warrant)
To: Alanco Technologies, Inc.
The undersigned is the Holder of Warrant No. _______ (the "Warrant") issued by
Alanco Technologies, Inc., an Arizona corporation (the "Company"). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $____________ to
the Company in accordance with the terms of the Warrant.
4. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the
Warrant.
5. Following this exercise, the Warrant shall be exercisable to purchase
a total of ______________ Warrant Shares.
Dated: , Name of Holder:
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Class A Common Stock of Alanco
Technologies, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Alanco
Technologies, Inc. with full power of substitution in the premises.
Dated: ,
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
Address of Transferee
In the presence of:
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
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. NOTWITHSTANDING THE FOREGOING, 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.
ALANCO TECHNOLOGIES, INC.
WARRANT
Warrant No. 2 Dated: April 18, 2004
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Iroquois Capital, LP or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of 100,000 shares of Class A common stock (the "Common Stock"), of
the Company (each such share, an "Warrant Share" and all such shares, the
"Warrant Shares") at an exercise price equal to $2.00 per share (as adjusted
from time to time as provided in Section 9, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
the date which is the five-year anniversary of the Effective Date (the
"Expiration Date"), and subject to the following terms and conditions. This
Warrant (this "Warrant") is one of a series of similar Warrants issued pursuant
to that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Purchasers identified therein (the "Purchase
Agreement"). All such Warrants are referred to herein, collectively, as the
"Warrants."
1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Purchase Agreement.
2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Warrant in the Warrant Register, upon surrender
of this Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Transfer Agent or to the Company at its address specified herein.
Upon any such registration or transfer, a new Warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new Warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of an Warrant. Notwithstanding anything herein to the contrary, a New Warrant
may only be issued to an "accredited investor" as defined in Rule 501(a) under
the Securities Act.
4. Exercise and Duration of Warrant.
(a) This Warrant shall be exercisable by the registered Holder at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of
this Warrant not exercised prior thereto shall be and become void and of no
value.
(b) The Holder may exercise this Warrant by delivering to the Company (i) the
original Warrant and an exercise notice, in the form attached hereto (the
"Exercise Notice"), appropriately completed and duly signed, and (ii) payment of
the Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised, and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an "Exercise
Date." Execution and delivery of the original Warrant and Exercise Notice shall
have the same effect as cancellation of the original Warrant and issuance of a
New Warrant evidencing the right to purchase the remaining number of Warrant
Shares.
5. Delivery of Warrant Shares.
(a) Upon exercise of this Warrant, the Company shall promptly (but in no event
later than three Trading Days after the Exercise Date) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder and
in such name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective and the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144 under the Securities Act. The Company shall forward the appropriate request
to its transfer agent for issuance of the Shares within three Trading Days after
the Company receives the Exercise Notice. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. The
Company shall, upon request of the Holder, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from time to time,
for a portion of the number of Warrant Shares. Upon surrender of this Warrant
following one or more partial exercises, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
(c) The Company's obligations to issue and deliver Warrant Shares in accordance
with the terms hereof are absolute and unconditional, irrespective 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 Warrant Shares. 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.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax, withholding tax, transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
Affiliate thereof. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable
upon exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes
a distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
(b) Fundamental Transactions. If, at any time while this Warrant is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) 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 (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 9(a) above) (in any
such case, a "Fundamental Transaction"), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind
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 the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "Alternate Consideration").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
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
exercise of this Warrant following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. 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 the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. If the Company completes a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act or other analogous
"going private" transaction, the Company (or any such successor or surviving
entity) will purchase this Warrant from the Holder for a purchase price, payable
in cash within five Trading Days after such request (or, if later, on the
effective date of such Rule 13e-3 transaction), equal to the Black-Scholes value
of the remaining unexercised portion of this Warrant on the date of such
request.
(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.
(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the transactions giving
rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a
copy of each such certificate to the Holder and to the Company's Transfer Agent.
(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
11. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Warrant (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum
Percentage") of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
exercise). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of an Exercise Notice hereunder will
constitute a representation by the Holder that it has evaluated the limitation
set forth in this paragraph and determined that issuance of the full number of
Warrant Shares requested in such Exercise Notice is permitted under this
paragraph. By written notice to the Company, the Holder may waive the provisions
of this Section or increase or decrease the Maximum Percentage to any other
percentage specified in such notice, but (i) any such waiver or increase will
not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver or increase or decrease will apply only to the
Holder and not to any other holder of Warrants.
12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded down to the nearest whole share.
13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and 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
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) 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 6:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of deposit with a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address and facsimile numbers for such notices or communications
shall be as set forth in the Purchase Agreement.
14. Warrant Agent. The Company shall serve as Warrant agent under this Warrant.
Upon 30 days' notice to the Holder, the Company may appoint a new Warrant agent.
Any corporation into which the Company or any new Warrant agent may be merged or
any corporation resulting from any consolidation to which the Company or any new
Warrant agent shall be a party or any corporation to which the Company or any
new Warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor Warrant agent under this
Warrant without any further act. Any such successor Warrant agent shall promptly
cause notice of its succession as Warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown on
the Warrant Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page hereof,
this Warrant may be assigned by the Holder. This Warrant may not be assigned by
the Company except to a successor in the event of a Fundamental Transaction.
This Warrant shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b) The Company will not, by amendment of its governing documents 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 action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company (i) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, (ii) will take all
such action as may be reasonably necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(c) Governing Law; Venue; Waiver Of Jury Trial. all questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by and construed and enforced in accordance with the laws of the state
of arizona the company and holder hereby waives all rights to a trial by jury.
(d) The headings herein are for convenience only, do not constitute a part of
this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
ALANCO TECHNOLOGIES, INC.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Warrant)
To: Alanco Technologies, Inc.
The undersigned is the Holder of Warrant No. _______ (the "Warrant") issued by
Alanco Technologies, Inc., an Arizona corporation (the "Company"). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $____________ to
the Company in accordance with the terms of the Warrant.
4. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the
Warrant.
5. Following this exercise, the Warrant shall be exercisable to purchase
a total of ______________ Warrant Shares.
Dated: , Name of Holder:
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Class A Common Stock of Alanco
Technologies, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Alanco
Technologies, Inc. with full power of substitution in the premises.
Dated: ,
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
Address of Transferee
In the presence of:
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
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. NOTWITHSTANDING THE FOREGOING, 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.
ALANCO TECHNOLOGIES, INC.
WARRANT
Warrant No. 2 Dated: April 18, 2004
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Iroquois Capital, LP or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of 100,000 shares of Class A common stock (the "Common Stock"), of
the Company (each such share, an "Warrant Share" and all such shares, the
"Warrant Shares") at an exercise price equal to $2.00 per share (as adjusted
from time to time as provided in Section 9, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
the date which is the five-year anniversary of the Effective Date (the
"Expiration Date"), and subject to the following terms and conditions. This
Warrant (this "Warrant") is one of a series of similar Warrants issued pursuant
to that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Purchasers identified therein (the "Purchase
Agreement"). All such Warrants are referred to herein, collectively, as the
"Warrants."
1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Purchase Agreement.
2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Warrant in the Warrant Register, upon surrender
of this Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Transfer Agent or to the Company at its address specified herein.
Upon any such registration or transfer, a new Warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new Warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of an Warrant. Notwithstanding anything herein to the contrary, a New Warrant
may only be issued to an "accredited investor" as defined in Rule 501(a) under
the Securities Act.
4. Exercise and Duration of Warrant.
(a) This Warrant shall be exercisable by the registered Holder at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of
this Warrant not exercised prior thereto shall be and become void and of no
value.
(b) The Holder may exercise this Warrant by delivering to the Company (i) the
original Warrant and an exercise notice, in the form attached hereto (the
"Exercise Notice"), appropriately completed and duly signed, and (ii) payment of
the Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised, and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an "Exercise
Date." Execution and delivery of the original Warrant and Exercise Notice shall
have the same effect as cancellation of the original Warrant and issuance of a
New Warrant evidencing the right to purchase the remaining number of Warrant
Shares.
5. Delivery of Warrant Shares.
(a) Upon exercise of this Warrant, the Company shall promptly (but in no event
later than three Trading Days after the Exercise Date) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder and
in such name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective and the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144 under the Securities Act. The Company shall forward the appropriate request
to its transfer agent for issuance of the Shares within three Trading Days after
the Company receives the Exercise Notice. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. The
Company shall, upon request of the Holder, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from time to time,
for a portion of the number of Warrant Shares. Upon surrender of this Warrant
following one or more partial exercises, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
(c) The Company's obligations to issue and deliver Warrant Shares in accordance
with the terms hereof are absolute and unconditional, irrespective 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 Warrant Shares. 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.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax, withholding tax, transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
Affiliate thereof. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable
upon exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes
a distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
(b) Fundamental Transactions. If, at any time while this Warrant is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) 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 (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 9(a) above) (in any
such case, a "Fundamental Transaction"), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind
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 the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "Alternate Consideration").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
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
exercise of this Warrant following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. 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 the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. If the Company completes a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act or other analogous
"going private" transaction, the Company (or any such successor or surviving
entity) will purchase this Warrant from the Holder for a purchase price, payable
in cash within five Trading Days after such request (or, if later, on the
effective date of such Rule 13e-3 transaction), equal to the Black-Scholes value
of the remaining unexercised portion of this Warrant on the date of such
request.
(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.
(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the transactions giving
rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a
copy of each such certificate to the Holder and to the Company's Transfer Agent.
(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
11. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Warrant (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum
Percentage") of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
exercise). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of an Exercise Notice hereunder will
constitute a representation by the Holder that it has evaluated the limitation
set forth in this paragraph and determined that issuance of the full number of
Warrant Shares requested in such Exercise Notice is permitted under this
paragraph. By written notice to the Company, the Holder may waive the provisions
of this Section or increase or decrease the Maximum Percentage to any other
percentage specified in such notice, but (i) any such waiver or increase will
not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver or increase or decrease will apply only to the
Holder and not to any other holder of Warrants.
12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded down to the nearest whole share.
13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and 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
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) 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 6:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of deposit with a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address and facsimile numbers for such notices or communications
shall be as set forth in the Purchase Agreement.
14. Warrant Agent. The Company shall serve as Warrant agent under this Warrant.
Upon 30 days' notice to the Holder, the Company may appoint a new Warrant agent.
Any corporation into which the Company or any new Warrant agent may be merged or
any corporation resulting from any consolidation to which the Company or any new
Warrant agent shall be a party or any corporation to which the Company or any
new Warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor Warrant agent under this
Warrant without any further act. Any such successor Warrant agent shall promptly
cause notice of its succession as Warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown on
the Warrant Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page hereof,
this Warrant may be assigned by the Holder. This Warrant may not be assigned by
the Company except to a successor in the event of a Fundamental Transaction.
This Warrant shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b) The Company will not, by amendment of its governing documents 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 action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company (i) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, (ii) will take all
such action as may be reasonably necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(c) Governing Law; Venue; Waiver Of Jury Trial. all questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by and construed and enforced in accordance with the laws of the state
of arizona the company and holder hereby waives all rights to a trial by jury.
(d) The headings herein are for convenience only, do not constitute a part of
this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
ALANCO TECHNOLOGIES, INC.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Warrant)
To: Alanco Technologies, Inc.
The undersigned is the Holder of Warrant No. _______ (the "Warrant") issued by
Alanco Technologies, Inc., an Arizona corporation (the "Company"). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $____________ to
the Company in accordance with the terms of the Warrant.
4. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the
Warrant.
5. Following this exercise, the Warrant shall be exercisable to purchase
a total of ______________ Warrant Shares.
Dated: ,Name of Holder:
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Class A Common Stock of Alanco
Technologies, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Alanco
Technologies, Inc. with full power of substitution in the premises.
Dated: ,
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
Address of Transferee
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
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. NOTWITHSTANDING THE FOREGOING, 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.
ALANCO TECHNOLOGIES, INC.
WARRANT
Warrant No. 3 Dated: April 18, 2004
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Omicron Master Trust or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of 230,000 shares of Class A common stock (the "Common Stock"), of
the Company (each such share, an "Warrant Share" and all such shares, the
"Warrant Shares") at an exercise price equal to $2.00 per share (as adjusted
from time to time as provided in Section 9, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
the date which is the five-year anniversary of the Effective Date (the
"Expiration Date"), and subject to the following terms and conditions. This
Warrant (this "Warrant") is one of a series of similar Warrants issued pursuant
to that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Purchasers identified therein (the "Purchase
Agreement"). All such Warrants are referred to herein, collectively, as the
"Warrants."
1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Purchase Agreement.
2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Warrant in the Warrant Register, upon surrender
of this Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Transfer Agent or to the Company at its address specified herein.
Upon any such registration or transfer, a new Warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new Warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of an Warrant. Notwithstanding anything herein to the contrary, a New Warrant
may only be issued to an "accredited investor" as defined in Rule 501(a) under
the Securities Act.
4. Exercise and Duration of Warrant.
(a) This Warrant shall be exercisable by the registered Holder at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of
this Warrant not exercised prior thereto shall be and become void and of no
value.
(b) The Holder may exercise this Warrant by delivering to the Company (i) the
original Warrant and an exercise notice, in the form attached hereto (the
"Exercise Notice"), appropriately completed and duly signed, and (ii) payment of
the Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised, and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an "Exercise
Date." Execution and delivery of the original Warrant and Exercise Notice shall
have the same effect as cancellation of the original Warrant and issuance of a
New Warrant evidencing the right to purchase the remaining number of Warrant
Shares.
5. Delivery of Warrant Shares.
(a) Upon exercise of this Warrant, the Company shall promptly (but in no event
later than three Trading Days after the Exercise Date) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder and
in such name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective and the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144 under the Securities Act. The Company shall forward the appropriate request
to its transfer agent for issuance of the Shares within three Trading Days after
the Company receives the Exercise Notice. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. The
Company shall, upon request of the Holder, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from time to time,
for a portion of the number of Warrant Shares. Upon surrender of this Warrant
following one or more partial exercises, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
(c) The Company's obligations to issue and deliver Warrant Shares in accordance
with the terms hereof are absolute and unconditional, irrespective 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 Warrant Shares. 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.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax, withholding tax, transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
Affiliate thereof. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable
upon exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes
a distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
(b) Fundamental Transactions. If, at any time while this Warrant is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) 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 (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 9(a) above) (in any
such case, a "Fundamental Transaction"), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind
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 the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "Alternate Consideration").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
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
exercise of this Warrant following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. 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 the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. If the Company completes a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act or other analogous
"going private" transaction, the Company (or any such successor or surviving
entity) will purchase this Warrant from the Holder for a purchase price, payable
in cash within five Trading Days after such request (or, if later, on the
effective date of such Rule 13e-3 transaction), equal to the Black-Scholes value
of the remaining unexercised portion of this Warrant on the date of such
request.
(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.
(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the transactions giving
rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a
copy of each such certificate to the Holder and to the Company's Transfer Agent.
(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
11. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Warrant (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum
Percentage") of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
exercise). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of an Exercise Notice hereunder will
constitute a representation by the Holder that it has evaluated the limitation
set forth in this paragraph and determined that issuance of the full number of
Warrant Shares requested in such Exercise Notice is permitted under this
paragraph. By written notice to the Company, the Holder may waive the provisions
of this Section or increase or decrease the Maximum Percentage to any other
percentage specified in such notice, but (i) any such waiver or increase will
not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver or increase or decrease will apply only to the
Holder and not to any other holder of Warrants.
12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded down to the nearest whole share.
13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and 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
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) 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 6:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of deposit with a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address and facsimile numbers for such notices or communications
shall be as set forth in the Purchase Agreement.
14. Warrant Agent. The Company shall serve as Warrant agent under this Warrant.
Upon 30 days' notice to the Holder, the Company may appoint a new Warrant agent.
Any corporation into which the Company or any new Warrant agent may be merged or
any corporation resulting from any consolidation to which the Company or any new
Warrant agent shall be a party or any corporation to which the Company or any
new Warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor Warrant agent under this
Warrant without any further act. Any such successor Warrant agent shall promptly
cause notice of its succession as Warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown on
the Warrant Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page hereof,
this Warrant may be assigned by the Holder. This Warrant may not be assigned by
the Company except to a successor in the event of a Fundamental Transaction.
This Warrant shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b) The Company will not, by amendment of its governing documents 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 action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company (i) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, (ii) will take all
such action as may be reasonably necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(c) Governing Law; Venue; Waiver Of Jury Trial. all questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by and construed and enforced in accordance with the laws of the state
of arizona the company and holder hereby waives all rights to a trial by jury.
(d) The headings herein are for convenience only, do not constitute a part of
this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
ALANCO TECHNOLOGIES, INC.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Warrant)
To: Alanco Technologies, Inc.
The undersigned is the Holder of Warrant No. _______ (the "Warrant") issued by
Alanco Technologies, Inc., an Arizona corporation (the "Company"). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $____________ to
the Company in accordance with the terms of the Warrant.
4. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the
Warrant.
5. Following this exercise, the Warrant shall be exercisable to purchase
a total of ______________ Warrant Shares.
Dated: ,Name of Holder:
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Class A Common Stock of Alanco
Technologies, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Alanco
Technologies, Inc. with full power of substitution in the premises.
Dated: ,
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
Address of Transferee
In the presence of:
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
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. NOTWITHSTANDING THE FOREGOING, 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.
ALANCO TECHNOLOGIES, INC.
WARRANT
Warrant No. 1 Dated: April 18, 2004
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Vertical Ventures, LLC or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of 140,000 shares of Class A common stock (the "Common Stock"), of
the Company (each such share, an "Warrant Share" and all such shares, the
"Warrant Shares") at an exercise price equal to $2.00 per share (as adjusted
from time to time as provided in Section 9, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
the date which is the five-year anniversary of the Effective Date (the
"Expiration Date"), and subject to the following terms and conditions. This
Warrant (this "Warrant") is one of a series of similar Warrants issued pursuant
to that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Purchasers identified therein (the "Purchase
Agreement"). All such Warrants are referred to herein, collectively, as the
"Warrants."
1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Purchase Agreement.
2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Warrant in the Warrant Register, upon surrender
of this Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Transfer Agent or to the Company at its address specified herein.
Upon any such registration or transfer, a new Warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new Warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of an Warrant. Notwithstanding anything herein to the contrary, a New Warrant
may only be issued to an "accredited investor" as defined in Rule 501(a) under
the Securities Act.
4. Exercise and Duration of Warrant.
(a) This Warrant shall be exercisable by the registered Holder at any time and
from time to time on or after the date hereof to and including the Expiration
Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of
this Warrant not exercised prior thereto shall be and become void and of no
value.
(b) The Holder may exercise this Warrant by delivering to the Company (i) the
original Warrant and an exercise notice, in the form attached hereto (the
"Exercise Notice"), appropriately completed and duly signed, and (ii) payment of
the Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised, and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an "Exercise
Date." Execution and delivery of the original Warrant and Exercise Notice shall
have the same effect as cancellation of the original Warrant and issuance of a
New Warrant evidencing the right to purchase the remaining number of Warrant
Shares.
5. Delivery of Warrant Shares.
(a) Upon exercise of this Warrant, the Company shall promptly (but in no event
later than three Trading Days after the Exercise Date) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder and
in such name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective and the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144 under the Securities Act. The Company shall forward the appropriate request
to its transfer agent for issuance of the Shares within three Trading Days after
the Company receives the Exercise Notice. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. The
Company shall, upon request of the Holder, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from time to time,
for a portion of the number of Warrant Shares. Upon surrender of this Warrant
following one or more partial exercises, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
(c) The Company's obligations to issue and deliver Warrant Shares in accordance
with the terms hereof are absolute and unconditional, irrespective 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 Warrant Shares. 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.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax, withholding tax, transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
Affiliate thereof. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable
upon exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes
a distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
(b) Fundamental Transactions. If, at any time while this Warrant is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) 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 (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 9(a) above) (in any
such case, a "Fundamental Transaction"), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind
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 the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "Alternate Consideration").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
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
exercise of this Warrant following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. 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 the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. If the Company completes a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act or other analogous
"going private" transaction, the Company (or any such successor or surviving
entity) will purchase this Warrant from the Holder for a purchase price, payable
in cash within five Trading Days after such request (or, if later, on the
effective date of such Rule 13e-3 transaction), equal to the Black-Scholes value
of the remaining unexercised portion of this Warrant on the date of such
request.
(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.
(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the transactions giving
rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a
copy of each such certificate to the Holder and to the Company's Transfer Agent.
(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including, without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
11. Limitation on Exercise. Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the Holder
upon any exercise of this Warrant (or otherwise in respect hereof) shall be
limited to the extent necessary to insure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum
Percentage") of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
exercise). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of an Exercise Notice hereunder will
constitute a representation by the Holder that it has evaluated the limitation
set forth in this paragraph and determined that issuance of the full number of
Warrant Shares requested in such Exercise Notice is permitted under this
paragraph. By written notice to the Company, the Holder may waive the provisions
of this Section or increase or decrease the Maximum Percentage to any other
percentage specified in such notice, but (i) any such waiver or increase will
not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver or increase or decrease will apply only to the
Holder and not to any other holder of Warrants.
12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded down to the nearest whole share.
13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and 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
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) 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 6:30
p.m. (New York City time) on any Trading Day, (iii) the Trading Day following
the date of deposit with a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address and facsimile numbers for such notices or communications
shall be as set forth in the Purchase Agreement.
14. Warrant Agent. The Company shall serve as Warrant agent under this Warrant.
Upon 30 days' notice to the Holder, the Company may appoint a new Warrant agent.
Any corporation into which the Company or any new Warrant agent may be merged or
any corporation resulting from any consolidation to which the Company or any new
Warrant agent shall be a party or any corporation to which the Company or any
new Warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor Warrant agent under this
Warrant without any further act. Any such successor Warrant agent shall promptly
cause notice of its succession as Warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown on
the Warrant Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page hereof,
this Warrant may be assigned by the Holder. This Warrant may not be assigned by
the Company except to a successor in the event of a Fundamental Transaction.
This Warrant shall be binding on and inure to the benefit of the parties hereto
and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b) The Company will not, by amendment of its governing documents 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 action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company (i) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, (ii) will take all
such action as may be reasonably necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(c) Governing Law; Venue; Waiver Of Jury Trial. all questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by and construed and enforced in accordance with the laws of the state
of arizona the company and holder hereby waives all rights to a trial by jury.
(d) The headings herein are for convenience only, do not constitute a part of
this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
ALANCO TECHNOLOGIES, INC.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Warrant)
To: Alanco Technologies, Inc.
The undersigned is the Holder of Warrant No. _______ (the "Warrant") issued by
Alanco Technologies, Inc., an Arizona corporation (the "Company"). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $____________ to
the Company in accordance with the terms of the Warrant.
4. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the
Warrant.
5. Following this exercise, the Warrant shall be exercisable to purchase
a total of ______________ Warrant Shares.
Dated: , Name of Holder:
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Class A Common Stock of Alanco
Technologies, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Alanco
Technologies, Inc. with full power of substitution in the premises.
Dated: ,
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
Address of Transferee
In the presence of:
Law Office of
STEVEN P. OMAN, P.C.
Gold Dust Corporate Center
10446 N. 74th Street, Suite 130
Scottsdale, Arizona 85258
e-mail: soman@omanlaw.net
Telephone: (480) 348-1470 Facsimile: (480) 348-1471
April 18, 2004
Vertical Ventures, LLC
641 Lexington Ave., 26th Floor
New York, NY 10022
Attn: Joshua Silverman
Iroquois Capital. LP
641 Lexington Avenue, 26th Floor
New York, NY 10022
Attn: John Silverman
Omicron Master Trust
810 Seventh Avenue, 39th Floor
New York, NY 10019
Attn: Brian Daly
Cranshire Capital, L.P.
666 Dundee Road, Suite 1901
Northbrook, IL 60062
Attn: Mitchell P. Kopin
Ladies and Gentlemen:
We have acted as counsel to Alanco Technologies Inc., an Arizona
corporation (the "Company"), in connection with the execution and delivery by
the Company of the Securities Purchase Agreement dated as of April 18, 2004 (the
"Agreement"), by and among the Company and the purchasers identified on the
signature pages thereto (the "Purchasers"). This opinion is given to you
pursuant to Section 2.2(a)(iv) of the Agreement. (Capitalized terms not
otherwise defined herein are defined as set forth in the Agreement.)
We have participated in the preparation and negotiation of the
Agreement and the Exhibits and Schedules thereto, and the other documents
referred to therein. We also have examined such certificates of public
officials, corporate documents and records and other certificates, opinions,
agreements and instruments and have made such other investigations as we have
deemed necessary in connection with the opinions hereinafter set forth.
Based on the foregoing and upon such investigation as we have deemed
necessary, we give you our opinion as follows:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Arizona. The Company has all
requisite power and authority, and all material governmental licenses,
authorizations, consents and approvals, required to own and operate its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted (all as described in the Company's Annual Report on
Form 10-K for its fiscal ended June 30, 2003).
2. Each of the following subsidiaries of the Company (the
"Subsidiaries") is a corporation, duly organized and in good standing under the
State of Arizona: Technology Systems International, Inc., Arraid, Inc. and
Excel/Meridian Data, Inc.
3. The Company has all requisite power and authority to execute,
deliver and perform the Agreement, Additional Investment Right, Warrant and each
other document or instrument executed by it, or any of its officers, in
connection herewith or therewith or pursuant hereto or thereto (collectively,
the "Transaction Documents"), to issue, sell and deliver the Securities pursuant
to the Transaction Documents, and to carry out and perform its obligations
under, and to consummate the transactions contemplated by, the Transaction
Documents.
4. All corporate action on the part of the Company, its directors and
its stockholders necessary for the authorization, execution and delivery by the
Company of the Transaction Documents, the authorization, issuance, sale and
delivery of the Securities pursuant to the Agreement, and the consummation by
the Company of the transactions contemplated by the Transaction Documents has
been duly taken. The Transaction Documents have been duly and validly executed
and delivered by the Company and constitute the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
their terms, except (a) that such enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and (b) that the remedies of specific performance and injunctive and
other forms of injunctive relief may be subject to equitable defenses.
5. The Company meets the eligibility requirements for the use of Form
S-3 for the registration of the Securities.
6. To our knowledge, the Company has filed all reports (the "SEC
Documents") required to be filed by it under Sections 13(a) and 15(d) of the
Exchange Act of 1934, as amended (the "Exchange Act").
7. Based in part upon the representations of the Purchasers contained
in the Securities Purchase Agreement, the Shares may be issued to the Purchasers
without registration under the Securities Act of 1933, as amended.
8. The execution, delivery and performance by the Company of, and the
compliance by the Company with the terms of, the Transaction Documents, the
issuance, sale and delivery of the Securities pursuant to the Agreement, and the
issuance and delivery of Conversion Stock do not (a) conflict with or result in
a violation of any provision of law, rule or regulation having applicability to
the Company or its Subsidiaries or of the certificate of incorporation or
by-laws or other similar organizational documents of the Company or its
Subsidiaries, (b) conflict with, result in a breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or result in or permit the termination or modification of, any agreement,
instrument, order, writ, judgment or decree known to us to which the Company of
its Subsidiaries is a party or is subject or (c) result in the creation or
imposition of any lien, claim or encumbrance on any of the Company's or its
Subsidiaries' assets or properties.
9. To our knowledge, there is no material claim, action, suit,
proceeding, arbitration, investigation or inquiry, pending or threatened, before
any court or governmental or administrative body or agency, or any private
arbitration tribunal, against the Company or its Subsidiaries, or any of its
officers, directors or employees (in connection with the discharge of their
duties as officers, directors and employees), or affecting any of its properties
or assets except as listed in the publically filed reports of the Company.
10. No consent, license, permit, waiver, approval or authorization of,
or designation, declaration, registration or filing with, any court,
governmental or regulatory authority, or self-regulatory organization, is
required in connection with the valid execution, delivery and performance by the
Company of the Documents, or the offer, sale, issuance or delivery of the
Securities or the consummation of the transactions contemplated thereby.
11. The Company is not an Investment Company within the meaning of the
Investment Company Act of 1940, as amended.
We express no opinion as to any matters governed by any laws other than
the law of the State of Arizona and the Federal laws of the United States of
America.
Very truly yours,
Steven P. Oman
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
Ms. Tammi Davis
Computershare Investor Services
350 Indian Street, Suite 800
Golden, CO 80401
RE: Securities Purchase Agreement, dated April 18, 2004 (the
"Agreement"), by and between Alanco Technologies, Inc. ("Alanco") and the
Purchasers named therein
Dear Ms. Davis:
Reference is made to the Securities Purchase Agreements (the
"Purchase Agreement"), dated as of April 18, 2004, among Alanco Technologies,
Inc., an Arizona corporation (the "Company") and the purchasers named therein
(the "Holders") pursuant to which the Company is issuing the Company's Class A
common stock, (the "Common Stock"), certain Additional Investment Rights (the
"Additional Investment Rights") which shall be exercisable into shares of Common
Stock, and certain Common Stock purchase warrants (the "Warrants") which shall
be exercisable into shares of Common Stock. The shares of Common Stock issued at
closing and issuable upon exercise of the Additional Investment Rights and
Warrants are collectively referred to herein as "Underlying Shares."
The Company has agreed with the Holders that it will instruct
you to: (A) issue the Underlying Shares free of all restrictive and other
legends if, at the time of such issue, (i) a registration statement covering the
resale of such Underlying Shares has been declared and is effective by the
Commission under the Securities Act, (ii) such Underlying Shares are eligible
for sale under Rule 144(k) or (iii) such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission); or (B) reissue the
Underlying Shares (if such shares were originally issued with a restrictive
legend) free of all restrictive and other legends (i) upon the effectiveness of
a registration statement covering the resale of the Underlying Shares or (ii)
following any sale of such Underlying Shares pursuant to Rule 144 or (iii) 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).
In furtherance of this instruction, upon the effectiveness of
the Registration Statement (as defined in the Purchase Agreement) we have
instructed our counsel to deliver to you their opinion letter in the form
attached hereto as Exhibit I to the effect that the Registration Statement has
been declared effective by the Commission and that Underlying Shares are freely
transferable by the Holders and accordingly may be issued (or reissued, as
applicable) and delivered to the Holders free of all restrictive and other
legends.
You need not require further letters from us or our counsel to
effect any future issuance or reissuance of shares of Underlying Shares to the
Holders as contemplated by the Purchase Agreement and this letter. This letter
shall serve as our standing irrevocable instructions with regard to this matter
Please be advised that the Holders have relied upon this
instruction letter as an inducement to enter into the Purchase Agreement. Please
execute this letter in the space indicated to acknowledge your agreement to act
in accordance with these instructions.
Very truly yours,
Alanco Technologies, Inc.
By:
Name: Robert R. Kauffman
Title: Chief Executive Officer
ACKNOWLEDGED AND AGREED:
Computershare Investor Services
By:
Name :
Title:
By:
Name :
Title:
4
Exhibit I
[Counsel's Letterhead]
[Transfer Agent]
Re: [ ]
To Whom It May Concern:
We are writing on behalf of our client, Alanco Technologies,
Inc., an Arizona corporation (the "Company"), in connection with the Company's
recent filing of a Registration Statement on Form S-3 (File No. ______) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to ____ shares of the Company's Class A common stock (the
"Registrable Securities"), issued or to be issued to the selling stockholders
(the "Selling Stockholders") listed in the selling stockholders table at pages
__ of the final prospectus, a copy of which is attached hereto as Exhibit A.
In connection with the foregoing, we advise you that the SEC
has entered an order declaring the Registration Statement effective under the
Securities Act of 1933, as amended (the "1933 Act"), on ___ __, 2004. We have no
knowledge that any stop order suspending its effectiveness has been issued or
that any proceedings for that purpose are pending before, or threatened by, the
SEC.
This letter shall serve as our standing opinion to you that
the Registrable Securities are freely transferable by the Holders pursuant to
the Registration Statement. You need not require further letters from us to
effect any future legend-free issuance or reissuance of shares of Common Stock
to the Holders as contemplated by the Company's Irrevocable Transfer Agent
Instructions dated ____, 2004. This letter shall serve as our standing opinion
with regard to this matter.
If you have any questions relating to the foregoing, please
feel free to call me at
- -----------------.
Very truly yours,
Exhibit 10.3
RIGHTS AGREEMENT
Agreement, dated as of May 12, 2004, between, ALANCO TECHNOLOGIES, INC.,
an Arizona corporation (the "Company"), and LAW OFFICE OF STEVEN P. OMAN, P.C.,
an Arizona professional corporation (the "Rights Agent"). On May 12, 2004 (the
"Rights Declaration Date"), the Board of Directors
of the Company authorized and declared a distribution of one Preferred Share
purchase right (a "Right") for each Common Share (as hereinafter defined) of the
Company outstanding as of the Close of Business (as hereinafter defined) on May
___, 2004 (the "Record Date"), each Right representing the right to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock (as
such number may be adjusted pursuant to the provisions of this Agreement),
having the rights, preferences and privileges set forth in the form of
Designation of Rights, Preferences and Privileges of Series A Junior
Participating Preferred Stock attached hereto as Exhibit A, upon the terms and
subject to the conditions herein set forth, and further authorized and directed
the issuance of one Right (as such number may be adjusted pursuant to the
provisions of this Agreement) with respect to each Common Share that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 25% or more of the Common Shares then outstanding, but shall
not include the Company, any Subsidiary of the Company or any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan, or any Person who
becomes the Beneficial Owner of 25% ,or more of the outstanding Common Shares of
the Company with the approval of a majority of the Continuing Directors.
Notwithstanding the foregoing, no Person shall be deemed to be an Acquiring
Person either (i) as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 25% or more
of the Common Shares of the Company then outstanding; provided, however, that if
a Person shall become the Beneficial Owner of 25% or more of the Common Shares
of the Company then outstanding by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the Beneficial Owner of
any additional Common Shares of the Company, then such Person shall be deemed to
be an Acquiring Person; or (ii) if within eight days after such Person would
otherwise become an Acquiring Person (but for the operation of this clause
(ii)), such Person notifies the Board of Directors that such Person did so
inadvertently and within two days after such notification, such Person is the
Beneficial Owner of less than 25% of the outstanding Common Shares; or (iii) by
reason of such Person being the Beneficial Owner of 25% or more of the
outstanding Common Shares as of the date hereof; provided, however, that any
such Person shall be deemed to be an Acquiring Person if, after the date hereof;
at any time while such Person is the Beneficial Owner of 25% or more of the then
outstanding Common Shares, such Person becomes the Beneficial Owner of any
Common Shares not beneficially owned by such Person on the date hereof, other
than in a transaction approved by a majority of the Continuing Directors then in
office.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to them in Rule 125-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly, for purposes of Section 13(d) of the Exchange Act and Rule 13d-3
thereunder (or any comparable or successor law or regulation);
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon the exercise
of conversion rights, exchange rights, rights (other than Rights), warrants or
options, or otherwise; provided, however, that a Person shall not be deemed
pursuant to this Section l(c)(ii)(A) the Beneficial Owner of, or to beneficially
own, (1) securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange, or (2)
securities which a Person or any of such Person's Affiliates or Associates may
be deemed to have the right to acquire pursuant to any merger or other
acquisition agreement between the Company and such Person (or one or more of its
Affiliates or Associates) if such agreement has been approved by the Board of
Directors of the Company prior to there being an Acquiring Person; or (B) the
right to vote pursuant to any agreement, arrangement or understanding; provided,
however. that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security under this Section 1(c)(ii)(B) if the agreement,
arrangement or understanding to vote such security arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (whether or not in
writing) (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of securities)
for the purpose of acquiring, holding, voting (except to the extent
contemplated. by the proviso to Section 1(c)(ii)(B)) or disposing of any
securities of the Company; provided, however, that in no case shall an officer
or director of the Company be deemed (x) the Beneficial Owner of any securities
beneficially owned by another officer or director of the Company solely by
reason of actions undertaken by such persons in their capacity as officers or
directors of the Company or (y) the Beneficial Owner of securities held of
record by the trustee of any employee benefit plan of the Company or any
Subsidiary of the Company for the benefit of any employee of the Company or any
Subsidiary of the Company, other than the officer or director, by reason of any
influence that such officer or director may have over the voting of the
securities held in the plan.
(d) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in Phoenix, Arizona are authorized
or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00
P.M., Phoenix, Arizona time, on such date; provided. however, that if such date
is not a Business Day it shall mean 5:00 P.M., Phoenix, Arizona time, on the
next succeeding Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of Class A Common Stock of the Company and shares of the
Preferred Stock of the Company which is convertible into shares of Class A
Common Stock of the Company (on an as converted basis). "Common Shares" when
used with reference to any Person other than the Company shall mean the Capital
Stock (or equity interest) with the greatest voting power of such other Person
or, if such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
(g) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while a member of the Board, who is not an
Acquiring Person, or any Affiliate or Associate of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who was a member of the Board prior to the date of this Agreement, or (ii) any
Person who subsequently becomes a member of the Board, while a member of the
Board, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination for election or election to
the Board is recommended or approved by a majority of the Continuing Directors.
(h) "Distribution Date" shall mean the earlier of (i) the
Close of Business on the tenth day after the Shares Acquisition Date (or such
later date as may be determined by action of a majority of Continuing Directors
then in office at any time within 30 days after the Shares Acquisition Date) or
(ii) the Close of Business on the tenth day (or such later date as may be
determined by action of a majority of Continuing Directors then in office) after
the date that a tender or exchange offer by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan), is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if; assuming the
successful consummation thereof; such Person would be the Beneficial Owner of
25% or more of the shares of Common Stock then outstanding.
(i) "Equivalent Shares" shall mean Preferred Shares and any
other class or series of capital stock of the Company which is entitled to
participate in dividends and other distributions, including distributions upon
the liquidation, dissolution or winding up of the Company, on a proportional
basis with the Common Shares. In calculating the number of any class or series
of Equivalent Shares for purposes of Section 11 of this Rights Agreement, the
number of shares, or fractions of a share, of such class or series of capital
stock that is entitled to the same dividend or distribution as a whole Common
Share shall be deemed to be one share.
(j) "Expiration Date" shall mean the earliest of (i) the Close
of Business on the Final Expiration Date, (ii) the Redemption Date, (iii) the
time at which the Board of Directors orders the exchange of the Rights as
provided in Section 24 hereof or (iv) the consummation of a transaction
contemplated by Section 13(d) hereof
(k) "Final Expiration Date" shall mean June 30, 2014.
(l) "Permitted Offer" shall mean a tender offer for all
outstanding Common Shares made in the manner prescribed by Section 14(d) of the
Exchange Act and the rules and regulations promulgated thereunder, provided.
however. that such tender offer occurs at a time when Continuing Directors are
in office and a majority of the Continuing Directors then in office has
determined that the offer is both adequate and otherwise in the best interests
of the Company and its stockholders (taking into account all factors that such
Continuing Directors deem relevant, including without limitation prices that
could reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value.)
(m) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(n) "Preferred Shares" shall mean the shares of Series C
Junior Participating Preferred Stock of the Company.
(o) "Purchase Price" shall have the meaning set forth in
Section 4(a) hereof.
(p) "Record Date" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(q) "Redemption Date" shall mean the time at which the Board
of Directors of the Company orders redemption of the Rights as provided in
Section 23 hereof.
(r) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(s) "Rights Declaration Date" shall have the meaning set forth
in the recitals at the beginning of this Agreement.
(t) "Section 13 Event" shall mean any event described in
clause (i), (ii) or (iii) of Section 13(a) hereof.
(u) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for the purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; provided that, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
(v) "Subsidiary" of any Person shall mean any corporation or
other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar authority of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or any corporation or other entity otherwise controlled by such
Person.
(w) "Total Exercise Price" shall have the meaning set forth in
Section 4(a) hereof.
(x) "Trading Day" shall have the meaning set forth in Section
11(d) hereof.
(y) A "Triggering Event" shall be deemed to have occurred upon
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such Plan), together
with all Affiliates and Associates of such Person, becoming an Acquiring Person
after the date hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agent as it may deem necessary or
desirable.
Section 3. Issuance of Rights Certificates.
--------------------------------------------------
(a) Until the Distribution Date, (i) the Rights will be
evidenced (subject to the provisions of Sections 3(b) and 3(c) hereof by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Rights Certificates) and not by
separate Rights Certificates and (ii) the right to receive Rights Certificates
will be transferable only in connection with the transfer of Common Shares.
Until the earlier of the Distribution Date or the Expiration Date, the surrender
for transfer of such certificates for Common Shares shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage prepaid mail, to each record holder of Common
Shares as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Rights Certificate, in
substantially the form of Exhibit B hereto (a "Rights Certificate"), evidencing
one Right for each Common Share so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per Common Share
has been made pursuant to Section 1l(a)(i), Section 11(i) or Section 11(p)
hereof, then at the time of distribution of the Rights Certificates, the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights. As of the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates and may be transferred by the transfer of the Rights
Certificates as permitted hereby, separately and apart from any transfer of one
or more Common Shares, and the holders of such Rights Certificates are listed in
the records of the Company or any transfer agent or registrar for the Rights
shall be the record holders thereof.
(b) The Company will send a copy of a Summary of Rights in
substantially the form of Exhibit C hereto (the "Summary of Rights"), to the
holders of its Common Shares when the Company sends its next Annual Report to
its shareholders following the date hereof.
(c) Unless the Board of Directors by resolution adopted at or
before the time of the issuance (including pursuant to the exercise of Rights
under the Company's benefit plans) of any Common Shares specifies to the
contrary, Rights shall be issued in respect of all Common Shares that are issued
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date or, in certain circumstances provided in Section 22 hereof,
after the Distribution Date. Certificates representing such Common Shares shall
also be deemed to be certificates for Rights. In the event that the Company
purchases or acquires any Common Shares after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Shares shall be deemed
canceled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates
---------------------------------------------
(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the form of Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date (or in the case of Rights issued with respect to
Common Shares issued by the Company after the Record Date, as of the date of
issuance of such Common Shares) and on their face shall entitle the holders
thereof to purchase such number of one-hundredths of a Preferred Share as shall
be set forth therein at the price set forth therein (such exercise price per one
one-hundredth of a Preferred Share being hereinafter referred to as the
"Purchase Price" and the aggregate exercise price of all Preferred Shares
issuable upon exercise of one Right being hereinafter referred to as the "Total
Exercise Price"), but the number and type of securities purchasable upon the
exercise of each Right and the Purchase Price shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Rights Certificate and the Rights represented hereby may
become null and void in the circumstances specified in Section
7(e) of the Rights Agreement.
Section 5. Countersignature and Registration.
----------------------------------------------------
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its President
or any Vice President, either manually or by facsimile signature, and by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature, and shall have affixed thereto the Company's seal (if any)
or a facsimile thereof. The Rights Certificates shall be manually countersigned
by the Rights Agent and shall not be valid for any purpose unless countersigned.
In case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
-------------------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- -----------------------------------------------------------------------
(a) Subject to the provisions of Sections 7(e), 14 and 24
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one-hundredths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Rights Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Rights Certificates to be transferred, split
up, combined or exchanged at the office of the Rights Agent designated for such
purposes. Neither the Rights Agent nor the Company shall be obligated to take
any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Sections 7(e), 14 and 24 hereof, countersign and deliver
to the person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will make and
deliver a new Rights Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights: Purchase Price. Expiration Date
----------------------------------------------------------------
of Rights.
- ---------
(a) Subject to Section 7(e) hereof, the registered holder of
any Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Rights Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the office of the Rights Agent designated for such purposes, together
with payment of the Purchase Price for each one-hundredth of a Preferred Share
as to which the Rights are exercised, at or prior to the Expiration Date.
(b) The Purchase Price for each one-hundredth of a Preferred
Share issuable pursuant to the exercise of a Right shall initially be $25.00 and
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and shall be payable in lawful money of the United States of America
in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the number of one-hundredths of
a Preferred Share (or other securities or property, as the case may be) to be
purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of such Rights Certificate in accordance with Section 9 hereof in
cash, or by certified check or cashier's check payable to the order of the
Company, the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the Preferred Shares (or
make available, if the Rights Agent is the transfer agent of the Preferred
Shares) a certificate or certificates for the number of one-hundredths of a
Preferred Share to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests or (B) if the Company shall
have elected to deposit the total number of one-hundredths of a Preferred Share
issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent of depositary receipts representing such
number of one-hundredths of a Preferred Share as are to be purchased (in which
case certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt thereof, deliver such cash to or
upon the order of the registered holder of such Rights Certificate. The payment
of the Purchase Price (as such amount may be reduced (including to zero)
pursuant to Section 11(a)(iv) hereof) may be made in cash or by certified bank
check or bank draft payable to the order of the Company. In the event that the
Company is obligated to issue other securities of the Company, pay cash and/or
distribute other property pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when
appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event or a Section
13 Event, any Rights beneficially owned by (i) an Acquiring Person or an
Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such (a "Post Transferee"), (iii) a transferee of
an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e) (a "Prior
Transferee") or (iv) any subsequent transferee receiving transferred Rights from
a Post Transferee or a Prior Transferee, either directly or through one or more
intermediate transferees, shall become null and void without any further action
and no holder of such Rights shall have any rights whatsoever with respect to
such Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to insure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights Certificates or to any other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or any of such Acquiring Person's Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates.
---------------------------------------------------------------
All Rights Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Rights Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the Rights Agent shall
so cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise hereof. The Rights Agent shall deliver
all canceled Rights Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Rights Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares.
------------------------------------------------
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of and to the extent of
its authorized and unissued shares of Preferred Stock not reserved for another
purpose (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities), the
number of Preferred Shares (and, following the occurrence of the Triggering
Event, Common Stock and/or other securities) that will be sufficient to permit
the exercise in full of all outstanding Rights.
(b) If the Company shall hereafter list any of its Preferred
Shares on a national securities exchange, then so long as the Preferred Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on a national securities exchange, the Company shall use its best efforts to
cause, from and after such time as the Rights become exercisable (but only to
the extent that it is reasonably likely that the Rights will be exercised), all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iv)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing and (iii)
cause such registration statement to remain effective (with a prospectus at all
dines meeting the requirements of the Securities Act) until the earlier of (A)
the date as of which the Rights are no longer exercisable for such securities
and (B) the date of expiration of the Rights. The Company may temporarily
suspend, for a period not to exceed ninety (90) days after the date set forth in
clause (i) of the first sentence of this Section 9(c), the exercisability of the
Rights in order to prepare and file such registration statement and permit it to
become effective. Upon any such suspension, the Company shall issue a public
announcement stating, and notify the Rights Agent, that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement and
notification to the Rights Agent at such time as the suspension is no longer in
effect. The Company will also take such action as may be appropriate under, or
to ensure compliance with, the securities or "blue sky" laws of the various
states in connection wit the exercisability of the Rights. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction, unless the requisite qualification in such jurisdiction
shall have been obtained, or an exemption therefrom shall be available, and
until a registration statement has been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such Preferred Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the original issuance or delivery of the
Rights Certificates or of any Preferred Shares upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Rights Certificates to a
person other than, or the issuance or delivery of certificates of depositary
receipts for the Preferred Shares in a name other than that of, the registered
holder of the Rights Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates or depositary receipts for Preferred
Shares upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Rights Certificate at the time
of surrender) or until it has been established to the Company's satisfaction
that no such tax is due.
Section 10. Preferred Shares Record Date.
-----------------------------------------
Each person in whose name any certificate for a number of one-hundredths of a
Preferred Share is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of Preferred Shares represented
thereby on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price multiplied by the number of one-hundredths of a Preferred Share
with respect to which the Rights have been exercised (and any applicable
transfer taxes, was made; provided, however that if the date of such surrender
and payment is a date upon which the Preferred Shares transfer books of the
Company are closed, such person shall be deemed to have become the record holder
of such shares on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Shares transfer books of the Company are
open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate shall not be entitled to any rights of a holder of Preferred
Shares for which the Rights shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
----------------------------------------------------------------------
Rights.
-------
The Purchase Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares (by reverse stock split or otherwise) into a smaller
number of Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event except as otherwise provided
in this Section 11(a) and Section 7(e) hereof; (1) each of the Rights
outstanding at the time of the record date for such dividend or the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted to that number of Rights (calculated to the nearest one
ten-thousandth (1/10,000) of a Right) equal to a fraction (the "Exchange
Ratio"), the numerator of which shall be the total number of Common Shares or
shares of capital stock issued in such reclassification of the Common Shares
outstanding immediately following such time and the denominator of which shall
be the total number of Common Shares outstanding immediately prior to such time,
and the number of Rights that shall thereafter be issued with respect to each
Common Share or share of such other capital stock that shall become outstanding
thereafter prior to the Distribution Date shall be equal to the total number of
outstanding Rights immediately after such event (as adjusted pursuant to this
cause (1)) divided by the total number of outstanding Common Shares or shares of
such other capital stock immediately after such event (subject to further
adjustment pursuant to the provisions of this Agreement); (2) the Purchase Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification shall be adjusted so
that the Purchase Price thereafter shall equal the result obtained by dividing
the Purchase Price in effect immediately prior to such time by the Exchange
Ratio; provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of such Right; and
(3) the number of Common Shares or shares of such other capital stock issuable
upon the exercise of each Right shall remain unchanged immediately after such
event, but, in the event of a reclassification, the kind of shares issuable upon
the exercise of each Right immediately after such reclassification shall be
adjusted to be the kind of shares of such other capital stock issued in such
reclassification, rather than Common Shares. If an event occurs which would
require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 1l(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section 1l(a)(ii) hereof.
(ii) Subject to Section 24 of this Agreement,
in the event a Triggering Event shall have occurred, then promptly following
such Triggering Event, proper provision shall be made so that each holder of
a Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive for each Right, upon exercise thereof in accordance with the
terms of this Agreement and payment of the then current Total Exercise Price,
in lieu of a number of one- hundredths of a Preferred Share, such number of
Common Shares of the Company as shall equal the result obtained by multiplying
the then current Purchase Price by the then number of one- hundredths of a
Preferred Share for which a Right was exercisable (or would have been
exercisable if the Distribution Date had occurred) immediately prior to the
first occurrence of a Triggering Event, and dividing that product by 50%
of the current per share market price (determined pursuant to Section 11(d)
hereof) for Common Shares on the date of occurrence of the Triggering Event
(such number of shares being hereinafter referred to as the "Adjustment
Shares").
(iii) The right to buy Common Shares of the Company
pursuant to Section 11(a)(ii) hereof shall not arise as a result of any Person
becoming an Acquiring Person through an acquisition of Common Shares pursuant
to a Permitted Offer.
(iv) In lieu of issuing Common Shares in accordance
with Section 11(a)(ii) hereof, the Company may, if the Board of Directors
determines that such action is necessary or appropriate and not contrary to the
interest of holders of Rights (and, in the event that the number of Common
Shares which are authorized by the Company's Articles of Incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit the exercise in full of the Rights, or
if any necessary regulatory approval for such issuance has not been obtained by
the Company, the Company shall): (A) determine the excess of (I) the value of
the Common Shares issuable upon the exercise of a Right (the "Current Value")
over (2) the Purchase Price (such excess, the "Spread") and (B) with respect to
each Right, make adequate provision to substitute for such Common Shares, upon
exercise of the Rights, (1) cash, (2) a reduction in the Purchase Price, (3)
other equity securities of the Company (including, without limitation, shares or
units of shares of any series of Preferred Stock which the Board of Directors of
the Company has deemed to have the same value as Common Shares (such shares or
units of shares of Preferred Stock are herein called "common stock
equivalents")), except to the extent that the Company has not obtained any
necessary stockholder or regulatory approval for such issuance, (4) debt
securities of the Company, except to the extent that the Company has not
obtained any necessary stockholder or regulatory approval for such issuance, (5)
other assets or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value, where such aggregate value has been determined by
the Board of Directors of the Company based upon the advice of a nationally
recognized investment banking firm selected by the Board of Directors of the
Company; provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Triggering Event and (y)
the date on which the Company's right of redemption pursuant to Section 23(a)
expires (the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of the
Purchase Price, Common Shares (to the extent available), except to the extent
that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, and then, if necessary, cash, which shares and/or
cash have an aggregate value equal to the Spread. If the Board of Directors of
the Company shall determine in good faith that it is likely that sufficient
additional Common Shares could be authorized for issuance upon exercise in full
of the Rights or that any necessary regulatory approval for such issuance will
be obtained, the thirty (30) day period set forth above may be extended to the
extent necessary, but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder approval for the
authorization of such additional shares or take action to obtain such regulatory
approval (such period, as it may be extended, the "Substitution Period"). To the
extent that the Company determines that some action need be taken pursuant to
the first and/or second sentences of this Section 11(a)(iv), the Company (x)
shall provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights and (y) may suspend the exercisability of
the Rights until the expiration of the Substitution Period in order to seek any
authorization of additional shares, to take any action to obtain any required
regulatory approval and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value thereof. In the
event of any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iv), the value of any "common stock
equivalent" shall be deemed to have the same value as the Common Shares on such
date. (b) In case the Company shall, at any time after the date of this
Agreement, fix a record date for the issuance of rights, options or warrants to
all holders of Common Shares or of any class or series of Equivalent Shares
entitling such holders (for a period expiring within forty-five (45) calendar
days after such record date) to subscribe for or purchase Common Shares or
Equivalent Shares or securities convertible into Common Shares or Equivalent
Shares at a price per share (or having a conversion price per share, if a
security convertible into Common Shares or Equivalent Shares) less than the then
current per share market price of the Common Shares or Equivalent Shares (as
defined in Section 11(d)) on such record date, then, in each such case, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Common Shares and
Equivalent Shares (if any) outstanding on such record date, plus the number of
Common Shares or Equivalent Shares, as the case may be, which the aggregate
offering price of the total number of Common Shares or Equivalent Shares, as the
case may be, so to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) would purchase at such current
market price, and the denominator of which shall be the number of additional
Common Shares or Equivalent Shares (if any) outstanding on such record date,
plus the number of additional Common Shares or Equivalent Shares, as the case
may be, to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Common
Shares and Equivalent Shares owned by or held for the account of the Company
shall to be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the making of a distribution to all
holders of the Common Shares or of any class or series of Equivalent Shares
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash
dividend, if any, or a dividend payable in Common Shares) or subscription
rights, options or warrants (excluding those referred to in Section 11(b)), then
in each such case, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
current market price (as determined pursuant to Section 11(d) hereof) of a
Common Share or an Equivalent Share on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a Common
Share or Equivalent Share, as the case may be, and the denominator of which
shall be such current market price (as determined pursuant to Section 11(d)
hereof) of a Common Share or Equivalent Share on such record date. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such record
date had not been fixed.
(d) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iv) hereof, the "current per share
market price" of any security (a "Security" for the purpose of this Section
11(d)) on any date shall be deemed to be the average of the daily closing prices
per share of such Security for the thirty (30) consecutive Trading Days (as such
term is hereinafter defined) immediately prior to such date, and for purposes of
computations made pursuant to Section 11 (a)(iv) hereof; the "current per share
market price" of any Security on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the ten (10) consecutive
Trading Days immediately prior to such date; provided, however, that in the
event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security of (i)
a dividend or distribution on such Security payable in shares of such Security
or securities convertible into such shares or (ii) any subdivision, combination
or reclassification of such Security, and prior to the expiration of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, after the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such case, the
current per share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing price
for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last sale price or, if such last sale
price is not reported, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations Market ("Nasdaq") or such other system then
in use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board
of Directors of the Company. If on any such date no market maker is making a
market in the Common Shares, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company shall be used.
The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day. If the
Common Shares are not publicly held or so listed or traded, "current per share
market price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be conclusive for all
purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Purchase Price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which requires such adjustment or
(ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a) or 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right and if required, the Purchase Price thereof, shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Shares contained in
Sections 11(a), (b), (c), (e), (h), (i), (1), (k), (1) and (m), and the
provisions of Sections 7, 9, 10, 13 an 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Section 11 (b), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of Preferred
Shares (calculated to the nearest one hundred-thousandth of a share) obtained by
(i) multiplying (x) the number of Preferred Shares covered by a Right
immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price as a result of the calculations made in Section
11(b) to adjust the number of Rights, in substitution for any adjustment in the
number of Preferred Shares purchasable upon the exercise of a Right. Each of the
Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one-hundredths of a Preferred Share for which a
Right was exercisable immediately prior to such adjustment Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof; if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment Rights Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
(and may bear, at the option of the Company, the adjusted Purchase Price) and
shall be registered in the names of the holders of record of Rights Certificates
on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Purchase Price per one one-hundredth of a Preferred Share and the
number of one-hundredths of a Preferred Share which were expressed in the
initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the par or stated value, if any, of the number
of one-hundredths of a Preferred Share issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue as
fully paid and nonassessable shares such number of one-hundredths of a Preferred
Share at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the number of one-hundredths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-hundredths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, prior to the Distribution Date, the Company shall be entitled
to make such reductions in the Purchase Price, in addition to those adjustment
expressly required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash
of any Preferred or Common Shares at less than the current market price, (iii)
issuance wholly for cash or Preferred or Common Shares or securities which by
their terms are convertible into or exchangeable for Preferred or Common Shares,
(iv) stock dividends or (v) issuance of rights, options or warrants referred to
in this Section 11, hereafter made by the Company to holders of its Preferred or
Common Shares shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, effect or permit to occur any Triggering Event
or Section 13 Event, if (i) at the time or immediately after such Triggering
Event or Section 13 Event there are any rights, warrants or other instruments or
securities outstanding or agreements in effect which would substantially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights or (ii) prior to, simultaneously with or immediately after such Section
13 Event, the stockholders of the Person who constitutes, or would constitute,
the "Principal Party" for purposes of Section 13(b) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares (by reverse stock split or otherwise) into a
smaller number of Preferred Shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such event,
except as otherwise provided in this Section 11 and Section 7(e) hereof; (1)
each of the Rights outstanding at the time of the record date for such dividend
or the effective date of such subdivision, combination or reclassification shall
be proportionately adjusted to that number of Rights (calculated to the nearest
one ten-thousandth (1/10,000) of a Right) equal to a fraction (the "Exchange
Fraction"), the numerator of which shall be the total number of Preferred Shares
or shares of capital stock issued in such reclassification of the Preferred
Shares outstanding immediately following such time and the denominator of which
shall be the total number of Preferred Shares outstanding immediately prior to
such time, and the number of Rights that shall thereafter be issued with respect
to each Common Share or share of other capital stock that shall be issued in a
reclassification of the Common Shares prior to the Distribution Date shall be
equal to the total number of outstanding Rights immediately after such event (as
adjusted pursuant to this clause (1)) divided by the total number of outstanding
Common Shares or shares of such other capital stock immediately after such event
(subject to further adjustment pursuant to the provisions of this Agreement);
(2) the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that the Purchase Price thereafter shall
equal the result obtained by dividing the Purchase Price in effect immediately
prior to such time by the Exchange Fraction; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (3) the number of one-hundredths of a Preferred
Share or share of such other capital stock issuable upon the exercise of each
Right shall remain unchanged immediately after such event but, in the event of a
reclassification, the kind of shares issuable upon the exercise of each Right
immediately after such reclassification shall be adjusted to be the kind of
shares of such other capital stock issued in such reclassification, rather than
Preferred Shares.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
-----------------------------------------------------------------------
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Preferred Shares a copy of
such certificate and (c) mail a brief summary thereof to each holder of a Rights
Certificate in accordance with Section 26 hereof. Notwithstanding the foregoing
sentence, the failure of the Company to make such certification or give such
notice shall not affect the validity of such adjustment or the force or effect
of the requirement for such adjustment. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment contained
therein and shall not be deemed to have knowledge of such adjustment unless and
until it shall have received such certificate.
Section 13. Consolidation, Merger, Sale or Transfer of Assets or
-----------------------------------------------------------------
Earning Power.
-------------
(a) In the event that, following the Shares Acquisition Date,
directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a
Subsidiary of the Company in a transaction the principal purpose of which is to
change the state of incorporation of the Company or which complies with Section
11(o) hereof);
(ii) any Person (other than a Subsidiary of the
Company in a transaction that complies with Section
11(o) hereof) shall consolidate with the Company, or merge with and into the
Company and the Company shall be the continuing or surviving corporation of such
consolidation or merger; or
(iii) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company or one or more of its wholly owned Subsidiaries in one or more
transactions, each of which complies with Section 11(0) hereof), then, and in
each such case, proper provision shall be made so that
a. each holder of a Right (except as
otherwise provided herein) shall thereafter have the right to receive, upon the
exercise thereof in accordance with the terms of this Agreement, such number of
validly authorized and issued, fully paid and nonassessable Common Shares of the
Principal Party (as hereinafter defined), free of any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Purchase Price by the number of
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Triggering Event has occurred prior to the first occurrence of a Section 13
Event, multiplying the number of such one-hundredths of a Preferred Share for
which a Right was exercisable immediately prior to the first occurrence of a
Triggering Event by the Purchase Price in effect immediately prior to such first
occurrence) and (2) dividing that product (which, following the first occurrence
of a Section 13 Event, shall be referred to as the "Total Exercise Price" for
each Right and for all purposes of this Agreement) by 50% of the current per
share market price (determined pursuant to Section 11(d) hereof) of the Common
Shares of such Principal Party on the date of consummation of such Section 13
Event; b. such Principal Party shall thereafter be liable for, and shall assume,
by virtue of such Section 13 Event all the obligations and duties of the
Company pursuant to this Agreement;
c. the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event;
d. such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
its Common Shares) in connection with the consummation of any such transaction
as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon exercise of the Rights.
(b) "Principal Party" shall mean, in the case of any
transaction described in clause (i), (ii) or (iii) of Section 13(a), the Person
or Acquiring Person referred to therein or such Person's or Acquiring Person's
successor, including, if applicable, the Company, if it is the surviving
corporation, provided, however, that in any such case, (i) if such Person is a
direct or indirect Subsidiary of another Person, "Principal Patty" shall refer
to such other Person and (ii) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, "Principal Party" shall refer to whichever
of such Persons is the issuer of the Common Shares having the greatest aggregate
value, and provided, further, that for purposes of transactions described in
clause (iii) hereof, "Principal Party" shall refer to that Person receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions.
(c) If, for any reason, the Rights cannot be exercised for
Common Shares of such Principal Party as provided in Section 13(a), then each
holder of Rights shall have the right to exchange its Rights for cash from such
Principal Party in an amount equal to the number of Common Shares that it would
otherwise be entitled to purchase times 50% of the current per share market
price, as determined pursuant to Section 11(d) hereof, of such Common Shares of
such Principal Party. If, for any reason, the foregoing formulation cannot be
applied to determine the cash amount into which the Rights are exchangeable,
then the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms, and based upon the total value of the
Company, shall determine such amount reasonably and with good faith to the
holders of Rights. Any such determination shall be final and binding on the
Rights Agent.
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction in clauses (i) and
(ii) or Section 13(a) if: (i) such transaction is consummated with a Person or
Persons who acquired Common Shares pursuant to a Permitted Offer (or a
wholly-owned Subsidiary of any such Person or Persons); (ii) the price per share
of Common Shares offered in such transaction is not less than the price per
share of Common Shares paid to all holders of Common Shares whose shares were
purchased pursuant to such Permitted Offer; and (iii) the form of consideration
being offered to the remaining holders of Common Shares pursuant to such
transaction is the same form as the form of consideration paid pursuant to such
Permitted Offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
(e) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized Common
Shares that have not been issued or reserved for issuance to permit the exercise
in full of the Rights in accordance with this Section 13 and unless prior
thereto the Company and such issuer shall have executed and delivered to the
Rights Agent a supplemental agreement confirming that such Principal Party
shall, upon consummation of such Section13 Event, assume this Agreement in
accordance with Sections 13(a) and (b) hereof, that all rights of first refusal
or preemptive rights in respect of the issuance of Common Shares of such
Principal Party upon exercise of outstanding Rights have been waived, that there
are no rights, warrants, instruments or securities outstanding or any agreements
or arrangements which, as a result of the consummation of such transaction,
would eliminate or substantially diminish the benefits intended to be afforded
by the Rights and that such transaction shall not result in a default by such
Principal Party under this Agreement, and further providing that, as soon as
practicable after the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under
the Securities Act with respect to the Rights and
securities purchasable upon exercise of the Rights on an appropriate form, use
its best efforts to cause such registration statement to become effective as
soon as practicable after such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration Date, and
similarly comply with applicable state securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights securities purchasable upon
exercise of the Rights on a national securities exchange or meet the eligibility
requirements for quotation on the Nasdaq SmallCap or Nasdaq National Market; and
(iii) deliver to holders of the Rights historical
financial statements for such Principal Party which
comply in all respects with the requirements for registration on Form 10 (or any
successor form) under the Exchange Act.
In the event that at any time after the occurrence of a
Triggering Event some or all of the Rights shall not have been exercised at the
time of a transaction described in this Section 13, the Rights which have not
theretofore been exercised shall thereafter be exercisable in the manner
described in Section 13(a) (without taking into account any prior adjustment
required by Section 11(a)(ii)).
(f) The provisions of this Section 13 shall similarly
apply to successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights. would have been otherwise issuable, as determined pursuant to
the second sentence of Section 11(d) hereof.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
that are integral multiples of one one-hundredth of a Preferred Share). In lieu
of fractional Preferred Shares that are not integral multiples of one
one-hundredth of a Preferred Share, the Company shall pay to the registered
holders of Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of a Common Share. For purposes of this Section 14(b), the current market
value of a Common Share shall be the closing price of a Common Share (as
determined pursuant to the second sentence of Section 11(d) hereof) for the
Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right.
Section 15. Rights of Action.
----------------------------
All rights of action in respect of this Agreement, excepting the rights of
action given to the Rights Agent under Section 18 hereof, are vested in the
respective registered holders of the Rights Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares); and any
registered holder of any Rights Certificate (or, prior to the Distribution Date,
of the Common Shares), without the consent of the Rights Agent or of the holder
of any other Rights Certificate (or, prior to the Distribution Date, of the
Common Shares), may, in his or her own behalf and for his or her own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, his or her right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performances
of the obligations under, and injunctive relief against actual or threatened
violations of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders.
---------------------------------------
Every holder of a Right, by accepting the same, consents and agrees with the
Company and the Rights Agent and will every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or offices of the Rights Agent designated for such purposes, duly
endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Rights Certificate Holder Not Deemed a Stockholder.
--------------------------------------------------------------
No holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------------------------
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
--------------------------------------------------------------
Rights Agent.
------------
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the shareholder services business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided. however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such Successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificate shall have the full force provided in the Rights Certificate and in
this Agreement.
Section 20. Duties of Rights Agent.
------------------------------------
The Rights Agent undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which the Company and the
holders of Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion or advice of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
opinion or advice.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current per share market price") be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own gross negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificate (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in the Rights Certificate;
not shall it be responsible for any change in the exercisability of the Rights
for any adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidences by Rights
Certificates after receipt by the Rights Agent of a certificate furnished
pursuant to Section 12 describing such change or adjustment); nor shall it by
any act hereunder be deemed to make and representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonable be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
anyone of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Chief Financial Officer, the Secretary or any Assistant
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date and officer of the Company actually receives such application, unless any
such offer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If' with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof , the Rights Agent shall not take any further action with respect
to such requested exercise or transfer without first consulting with the
Company.
Section 21 Change of Rights Agent.
----------------------------------
The Rights Agent or any successor Rights Agent may resign and be discharged from
its duties under this Agreement upon thirty (30) days' notice in writing mailed
to the Company and to each transfer agent of the Preferred Shares and the Common
Shares by registered or certified mail. The Company may remove the Rights Agent
or any successor Rights Agent upon thirty (30) days' notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Preferred Shares and the Common Shares by registered or
certified mail, and to the holders of the Rights Certificate by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning of incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such
notice, submit his on her Rights Certificate for inspection by the Company),
then the registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any state of the United States, in good standing, which is authorized under
such laws to exercise corporate trust or stockholder services powers and is
subject to supervision or examination by federal or state authority. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time by
it hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Preferred Shares and the
Common Shares, and mail a notice thereof in writing to the registered holders of
the Rights Certificates. Failure to give any notice provided for in this Section
21, however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates.
------------------------------------------------
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of Common Shares following the
Distribution Date and prior to the redemption or expiration of the Rights, the
Company (a) shall, with respect to Common Shares so issued or sold pursuant to
the exercise of stock options or under any employee plan or arrangement or upon
the exercise, conversion or exchange of the convertible subordinated debentures
of the Company outstanding at the date hereof or upon the exercise, conversion
or exchange of securities hereinafter issued by the Company and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of Rights
in connection with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued and this sentence shall be null and void ab
initio if, and to the extent that, such issuance or this sentence would create a
significant risk of or result in material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued or would
create a significant risk of or result in such options or employee plans or
arrangements; failing to qualify for otherwise available special tax treatment
and (ii) no such Rights Certificate shall be issued if and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof
Section 23. Redemption.
------------------------
(a) The Company may, at its option and with the approval of
the Board of Directors, at any time prior to the Close of Business on the
earlier of (i) the tenth day following the Shares Acquisition Date or such later
date as may be determined by action of a majority of Continuing Directors then
in office and publicly announced by the Company or (ii) the Final Expiration
Date, redeem all but not less than all the then outstanding Rights at a
redemption price of $0.001 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being herein referred to as the "Redemption
Price") and the Company may, at its option, pay the Redemption Price either in
Common Shares (based on the current per share market price thereof (as
determined pursuant to Section 11(d) hereof) at the time of redemption) or cash;
provided, however, if the Board of Directors of the Company authorizes
redemption of the Rights on or after the time a Person becomes an Acquiring
Person, then there must be Continuing Directors then in office and such
authorization shall require the concurrence of a majority of such Continuing
Directors.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of rights shall be to receive the Redemption Price.
Within ten (10) days after the action of the Board of Directors ordering the
redemption of the Rights, the Company shall give notice of such redemption to
the Rights Agent and the holders of the then outstanding Rights by mailing such
notice to all such holders at their last addressed as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the method
by which the payment of the Redemption Price will be made. Neither the Company
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange
--------------------------
(a) Subject to applicable laws, rules and regulations, and
subject to subsection (c) below, the Company may, at its option, by majority
vote of the Board of Directors and a majority vote of the Continuing Directors,
at any time and after the occurrence of a Triggering Event, exchange all or part
of the then outstanding and exercisable Rights (which shall not include Rights
that have become void pursuant to the provisions of Section 7(e) hereof) for
Common Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Ratio of Exchange"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (a) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Ratio of Exchange. The Company
shall give public notice of any such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Company shall mail a notice of any such exchange to all of
the holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with Section 24(a), the Company
shall either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of a majority of the Board of Directors, with respect to each Right (i) pay cash
in an amount equal to the Current Value (as hereinafter defined), in lieu of
issuing Common Shares in exchange therefore, or (ii) issue debt or equity
securities or a combination thereof, having a value equal to the Current Value,
in lieu of issuing Common Shares in exchange for each such Right, where the
value of such securities shall be determined by a nationally recognized
investment banking firm selected by the Board of Directors by majority vote of
the Board of Directors, or (iii) deliver any combination of cash, property,
Common Shares and/or other securities having a value equal to the Current Value
in exchange for each Right. For purposes of this Section 24(c) only, the Current
Value shall mean the product of the current per share market price of Common
Shares (determined pursuant to Section 11(d) on the date of the of the
occurrence of the event described above in subparagraph (a)) multiplied by the
number of Common Shares for which the Right otherwise would be exchangeable if
there were sufficient shares available. To the extent that the Company
determines that some action need be taken pursuant to clauses (i), (ii) or (iii)
of this Section 24(c), the Board of Directors may temporarily suspend the
exercisability of the Rights for a period of up to sixty (60) days following the
date on which the event described in Section 24(a) shall have occurred, in order
to seek any authorization of additional Common Shares and/or to decide the
appropriate form of distribution to be made pursuant to the above provision and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current per share market value of a whole Common Share
(as determined pursuant to the second sentence of Section 11(d) hereof).
(e) The Company may, at its option, by majority vote of the
Board of Directors, at any time before any Person has become an Acquiring
Person, exchange all or part of the then outstanding Rights for rights of
substantially equivalent value, as determined reasonably and with good faith by
the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms.
(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection (e) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of rights in exchange therefore as has
been determined by the Board of Directors in accordance with subsection (e)
above. The Company shall give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company shall mail a notice of such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the transfer agent for the Common Shares of
the Company. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Rights will be
effected.
Section 25. Notice of Certain Events.
-------------------------------------------
(a) In case the Company shall propose to effect or permit to
occur any Triggering Event described in Section 1 l(a)(ii)(A) or 1l(a)(ii)(B) or
a Section 13 Event, the Company shall give notice thereof to each holder of
Rights in accordance with Section 26 hereof at least twenty (20) days prior to
occurrence of such Triggering Event or such Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under Sections
11(a)(ii) and 13 hereof.
Section 26. Notices.
---------------------
Notices or demands authorized by this Agreement to be given or made by the
Rights Agent or by the holder of any Rights Certificate to or on the Company
shall be sufficiently given or made if sent by first class mai1, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Alanco Technologies, Inc.
15575 N. 83rd Way, Suite 3
Scottsdale, Arizona 85260
Attention: President
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid addressed (until another address is
filed in writing with the Company) as follows:
Law Office of Steven P. Oman, P.C.
10446 N. 74th Street, Suite 130
Scottsdale, Arizona 85258
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments.
----------------------------------------
Prior to the Distribution Date, the Company may supplement or amend this
Agreement in any respect without the approval of any holders of Rights and the
Rights Agent shall, if the Company so directs, execute such supplement or
amendment. From and after the Distribution Date, the Company and the Rights
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Rights and the Rights Agent shall, if the Company so
directs, execute such supplement or amendment. From and after the Distribution
Date, the Company and the Rights Agent may from time to time supplement or amend
this Agreement without the approval of any holders of Rights in order to (i)
cure any ambiguity, (ii) correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, (iii)
shorten or lengthen any time period hereunder (which lengthening or shortening,
following the first occurrence of an event set forth in the proviso to Section
23(a) hereof; shall be effective only if there are Continuing Directors and
shall require the concurrence of a majority of such Continuing Directors) or
(iv) to change or supplement the provisions hereunder in any manner that the
Company may deem necessary or desirable and that shall not adversely affect the
interests of the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, this Agreement may not
be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable or (B) any other time period unless
lengthening is for the purpose of protecting, enhancing or clarifying the rights
of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company that states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
Section 28. Successors.
-----------------------
All of the covenants and provisions of this Agreement by or for the benefit of
the Company or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
---------------------------------------------------------------------
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company (and, where specifically provided for
herein, the Continuing Directors) shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company (or, where specifically provided for
herein, the Continuing Directors), or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem the Rights or to amend the
Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board (or, where specifically provided
for herein, by the Continuing Directors) in good faith, shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights Certificates and all other parties and (y) not subject the Board or the
Continuing Directors to any liability to the holders of the Rights.
Section 30. Benefits of this Agreement.
---------------------------------------
Nothing in this Agreement shall be construed to give to any Person other than
the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, the Common Shares) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the rights Agent and
the registered holders of the Rights Certificate (and, prior to the Distribution
Date, the Common Shares).
Section 31. Severability.
-------------------------
If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in fill force and effect and shall
in no way be affected, impaired or invalidated; provided, however, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this Agreement,
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the close of business on the tenth day following the date
of such determination by the Board of Directors.
Section 32. Governing Law.
--------------------------
This Agreement and each Right and each Rights Certificate issued hereunder shall
be deemed to be a contract made under the laws of the State of Arizona and for
all purposes shall be governed by and construed in accordance with the laws of
such State applicable to contracts to be made and performed entirely within such
State.
Section 33. Counterparts.
-------------------------
This Agreement may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.
Section 34. Descriptive Headings.
---------------------------------
Descriptive headings of the several Sections of this Agreement are inserted for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ALANCO TECHNOLOGIES, INC
By: ____________________________________
Name: _________________________________
Title: __________________________________
LAW OFFICE OF STEVEN P. OMAN, P.C.
By: ____________________________________
Name: _________________________________
Title: __________________________________