SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
January 16, 2005 between Alanco Technologies, Inc., an Arizona corporation
(the "Company"), and Whalehaven Capital Fund, Ltd., a Bermuda limited
partnership ("Purchaser").
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 Purchaser, and
Purchaser, 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 the Purchaser agree
as follows:
ARTICLE 1
DEFINITIONS
ARTICLE 1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"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 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
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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.
"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 the date that is 150 days after 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 $0.60.
"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.
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"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
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 Warrants and the Underlying
Shares.
"Shares" means an aggregate of 1,500,000 shares of Common
Stock, which are being issued and sold to the Purchaser 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 Warrants,
the Transfer Agent Instructions and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
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"Underlying Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
"Unit" means one Share and 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 A.
ARTICLE 2
PURCHASE AND SALE
ARTICLE 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 the Purchaser shall purchase from the Company, 1,500,000 Units at the Per
Unit Purchase Price. The Closing shall take place at the offices of the Company
immediately following the execution hereof, or at such other location or time as
the parties may agree.
ARTICLE 2.2 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be delivered
to the Purchaser the following:
(i) one or more stock certificates evidencing 1,500,000
Shares registered in the name of such Purchaser (or the Company's
irrevocable instruction letter to its transfer agent authorizing the
issuance of such Shares to Purchaser;
(ii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire
750,000 Underlying Shares, on the terms set forth therein;
(b) At the Closing, Purchaser shall deliver or cause to be
delivered to the Company $900,000, 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 3
REPRESENTATIONS AND WARRANTIES
ARTICLE 3.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows. For purposes of these
representations, the term "SEC Reports" means all reports required to filed by
the Company under the Exchange Act.:
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(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.
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(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 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. 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 Purchaser true,
correct and complete copies of all SEC Reports filed within the 10 days
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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
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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, and (ii) 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 for the placement fees payable to Midtown
Partners, LLC, 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 Purchaser 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.
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(p) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided the Purchaser or its agents or counsel
with any information that constitutes or might constitute material, nonpublic
information. The Company understands and confirms that the Purchaser will rely
on the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Purchaser 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 Purchaser makes no or has made no representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 3.2.
(q) Acknowledgment Regarding Purchaser's Purchase of Securities. The
Company acknowledges and agrees that the Purchaser 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
Purchaser is not acting as a financial advisor or fiduciary of the Company with
respect to this Agreement and the transactions contemplated hereby and any
advice given by Purchaser or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
merely incidental to the Purchaser's purchase of the Securities. The Company
further represents to 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.
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(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) 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.
ARTICLE 3.2 Representations and Warranties of the Purchaser. Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization; Authority. 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 Purchaser of the Shares and the Warrants hereunder has been duly
authorized by all necessary action on the part of Purchaser. This Agreement has
been duly executed and delivered by Purchaser and constitutes the valid and
binding obligation of Purchaser, enforceable against it in accordance with its
terms.
(b) Investment Intent. 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 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 Purchaser to hold Securities for any
period of time.
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(c) Purchaser Status. At the time Purchaser was offered the Shares 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 Purchaser. 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. 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. 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
Purchaser means a sale of Common Stock that is marked as a short sale and that
is executed at a time when Purchaser has no equivalent offsetting long position
in the Common Stock. For purposes of determining whether 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 Purchaser shall be deemed to be held long by Purchaser.
ARTICLE 4
OTHER AGREEMENTS OF THE PARTIES
ARTICLE 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) Purchaser agrees to the imprinting, so long as is required by this
Section 4.1(b), of the following legend on any certificate evidencing
Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
11
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.
Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) following any sale of such Securities pursuant to Rule
144, or (ii) if such Securities are eligible for sale under Rule 144(k), or
(iii) 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).
(c) The Company acknowledges and agrees that 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, 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 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.
ARTICLE 4.2 Furnishing of Information. As long as 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 Purchaser, the Company shall deliver to Purchaser a written certification of
a duly authorized officer as to whether it has complied with the preceding
sentence. As long as Purchaser owns Securities, if the Company is not required
to file reports pursuant to such laws, it will prepare and furnish to the
Purchaser and make publicly available in accordance with paragraph (c) of Rule
144 such information as is required for the Purchaser 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.
ARTICLE 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
12
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 Purchaser or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market.
ARTICLE 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.
ARTICLE 4.5 Subsequent Placements. From the date hereof until the Effective
Date (the "Blockout Period"), 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").
ARTICLE 4.6 Securities Laws Disclosure; Publicity. 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. 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. 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 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,
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. Purchaser
shall not have any liability to the Company, its Subsidiaries, or any of its or
13
their respective officers, directors, employees, shareholders or agents for any
such disclosure. Subject to the foregoing, neither the Company nor 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) 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.
ARTICLE 4.7 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not to redeem
any Company equity or equity-equivalent securities.
ARTICLE 4.8 Reimbursement. If 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 regulations. In
addition, the Company shall indemnify and hold harmless 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 Purchaser and any such Related Persons. The Company
also agrees that neither the Purchaser 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
Purchaser or Related Person in connection with such transactions, inaccuracy in
any Purchaser's representations herein, or due to Purchaser's violation of any
federal or state securities laws or regulations. 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 Purchaser 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 Purchaser on demand for all costs of enforcing the
indemnification obligations in this paragraph.
14
ARTICLE 5
CONDITIONS
ARTICLE 5.1 Conditions Precedent to the Obligations of the Purchaser. The
obligation of Purchaser to acquire Securities at the Closing is subject to the
satisfaction or waiver by 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 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.
ARTICLE 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 Purchaser 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 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 the Purchaser at or prior to the Closing.
ARTICLE 6
REGISTRATION RIGHTS
ARTICLE 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).
(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 Closing Date or such earlier date when all Registrable
15
Securities covered by such Registration Statement have been sold publicly (the
"Effectiveness Period"). If the Registration Statement is not declared effective
by the Filing Date, then the Company shall pay to Purchaser an amount in cash,
as liquidated damages and not as a penalty, equal to 0.5% of the aggregate
purchase price paid by Purchaser hereunder for the first 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.
ARTICLE 6.2 Registration Procedures. In connection with the Company's
registration obligations hereunder, the Companyshall:
(a) (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
(b) Notify the Purchaser in writing no later than one Trading Day
thereafter, of any of the following events: (i) any Registration Statement or
any post-effective amendment is declared effective; (ii) 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; (iii) the Commission issues any stop order
suspending the effectiveness of any Registration Statement or initiates any
Proceedings for that purpose; (iv) 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 (vi) 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.
16
(c) 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.
(d) Furnish to Purchaser, 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.
(e) Promptly deliver to Purchaser, 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.
(f) (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.
(g) 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.
(h) Upon the occurrence of any event described in Section 6.2(b)(vi),
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.
(i) 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.
(j) Comply with all applicable rules and regulations of the Commission.
17
ARTICLE 6.3 Registration Expenses. The Company shall pay 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.
ARTICLE 6.4 Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless Purchaser, the
officers, directors, partners, members, and employees of Purchaser, each Person
who controls 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 Purchaser furnished in
writing to the Company by Purchaser expressly for use therein, or to the extent
that such information relates to Purchaser or Purchaser's proposed method of
distribution of Registrable Securities, or (ii) in the case of an occurrence of
an event of the type specified in Section 6.2(b)(iv)-(vi), the use by Purchaser
of an outdated or defective Prospectus after the Company has notified Purchaser
in writing that the Prospectus is outdated or defective and prior to the receipt
by Purchaser of the Advice contemplated in Section 6.5. The Company shall notify
the Purchaser 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 Purchaser. Purchaser shall 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
18
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 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 Purchaser furnished in writing to the Company by Purchaser expressly
for use therein or (ii) in the case of an occurrence of an event of the type
specified in Section 6.2(b)(iv)-(vi), the use by Purchaser of an outdated or
defective Prospectus after the Company has notified Purchaser in writing that
the Prospectus is outdated or defective. 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.
19
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), Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by Purchaser from the sale of
the Registrable Securities subject to the Proceeding exceeds the amount of any
damages that 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.
ARTICLE 6.5 Dispositions. 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. 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(b)(iv), (v) or (vi), Purchaser will discontinue disposition of such
20
Registrable Securities under the Registration Statement until Purchaser's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 6.2(i), 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.
ARTICLE 6.6 Other Registrations. Other than the S-3 Registration Statement
of the Company currently under review by the SEC, the Company will not file any
other S-3 registration statement before the Registration Statement becomes
effective.
ARTICLE 7
MISCELLANEOUS
ARTICLE 7.1 Termination. This Agreement may be terminated by the Company or
Purchaser, by written notice to the other party, 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.
ARTICLE 7.2 Fees and Expenses. 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.
ARTICLE 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 Purchaser 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.
ARTICLE 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 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 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
21
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.
ARTICLE 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 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.
ARTICLE 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.
ARTICLE 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.
Purchaser may assign its rights under this Agreement to any Person to whom
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 "Purchaser" including all representations of
the Purchaser 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.
ARTICLE 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.
ARTICLE 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 PURCHASER HEREBY WAIVE ALL RIGHTS
TO A TRIAL BY JURY.
ARTICLE 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.
ARTICLE 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
22
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.
ARTICLE 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.
ARTICLE 7.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever 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 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.
ARTICLE 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.
ARTICLE 7.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
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.
ARTICLE 7.16 Payment Set Aside. To the extent that the Company makes a
payment or payments to any Purchaser hereunder or pursuant to the Warrants or
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.
23
ARTICLE 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.
[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 Way, Suite 3
Scottsdale, AZ 85260
Facsimile No.: (480) 607-1515
Telephone No.: (480) 607-1010
Attn: Chief Financial Officer
WHALEHAVEN CAPITAL FUND LIMITED
By: /s/Evan Schemenauer
---------------------
Name: Evan Schemenauer
Title: Chief Operating Officer
Number of Units: 1,500,000
Underlying Shares subject to
Warrants: 750,000
Address for Notice:
Whalehaven Capital Fund, Ltd.
33 Prince Arthur Ave
Toronto, ON M5R 1B2
Facsimile No.: (416) 323-3693
Telephone No.: (416) 323-9962
Attn: Michael Finkelstein
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
Dated: January 16, 2005
Alanco Technologies, Inc., a Arizona corporation (the "Company"),
hereby certifies that, for value received, Whalehaven Capital Fund, Ltd., a
Bermuda limited partnership, or its registered assigns (the "Holder"), is
entitled to purchase from the Company up to a total of 750,000 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
$0.85 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 third anniversary of the date hereof (the
"Expiration Date"), and subject to the following terms and conditions. This
Warrant (this "Warrant") is issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company and the initial
Holder (the "Purchase Agreement").
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
1
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
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. 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. 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.
(b) 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
2
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
3
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.
4
(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
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
5
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. Redemption. This Warrant shall be redeemable at the option of the
Company at a price equal to: (i) $.01, multiplied by (ii) the number of Shares
issuable upon the exercise of this Warrant upon occurrence of the following
described event. The Company may redeem the warrant upon 10 days' written notice
to the Holder hereof, so long as (A) the closing price quoted on the Nasdaq
Small Cap Market, or if the Common Stock is not traded on the Nasdaq Small Cap
Market, on any exchange or trading system on which the Common Stock is trading,
is $1.60 or greater (as equitably adjusted for stock splits, dividends,
combinations, mergers or other events as contemplated in Section 6 below) for
twenty (20) consecutive trading days prior to the date of the notice of
redemption, and (B) the Common Stock underlying this Warrant is then registered
for resale by the Holder under the Securities Act of 1933 ("Securities Act") and
applicable rules and regulations of the Securities Exchange Commission ("SEC")
thereunder. If the Common Stock is/was not traded during the twenty (20) trading
days prior to the date of such notice, then the closing price for the last
publicly traded day shall be deemed to be the closing price for any and all (if
applicable) days during such twenty (20) trading day period.
13. 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.
14. 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.
15. 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
6
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.
16. 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.
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:
Title:
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
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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.
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2. The undersigned Holder hereby exercises its right to purchase
Warrant Shares pursuant to the Warrant.
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3. The Holder intends that payment of the Exercise Price shall be made in
immediately available funds, and shall pay the sum of $ to
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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
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Warrant.
5. Following this exercise, the Warrant shall be exercisable to purchase
a total of Warrant Shares.
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Dated: , Name of Holder:
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(Print)
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By:
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Name:
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Title:
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SS or Tax ID No.:
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(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
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Warrant to purchase shares of Class A Common Stock of Alanco
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Technologies, Inc. to which the within Warrant relates and appoints
attorney to transfer said right on the books of Alanco
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Technologies, Inc. with full power of substitution in the premises.
Dated: ,
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(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
Address of Transferee
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In the presence of:
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