PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the ___
day of August, 2007 by and among Alanco Technologies, Inc., an Arizona
corporation (the "Company"), and the Investors set forth on the signature pages
affixed hereto (each an "Investor" and collectively the "Investors").
Recitals
A. The Company and the Investors are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by the provisions of Regulation D ("Regulation D"), as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended; and
B. The Investors wish to purchase from the Company, and the
Company wishes to sell and issue to the Investors, upon the terms and conditions
stated in this Agreement, (i) an aggregate of 1,578,948 shares of the Company's
Class A Common Stock (together with any securities into which such shares may be
reclassified the "Common Stock") at purchase price of $1.90 per share, and (ii)
warrants to purchase an aggregate of 631,579 shares of Common Stock (subject to
adjustment) at an exercise price of $3.00 per share (subject to adjustment) in
the form attached hereto as Exhibit A (the "Warrants"); and
C. Contemporaneous with the sale of the Common Stock and
Warrants, the parties hereto will execute and deliver a Registration Rights
Agreement, in the form attached hereto as Exhibit B (the "Registration Rights
Agreement"), pursuant to which the Company will agree to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder, and applicable state securities laws.
In consideration of the mutual promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other
Person which directly or indirectly through one or more intermediaries Controls,
is controlled by, or is under common control with, such Person.
"Business Day" means a day, other than a Saturday or Sunday,
on which banks in New York City are open for the general transaction of
business.
"Common Stock Equivalents" means any securities of the Company
or a Subsidiary which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
"Company's Knowledge" means the actual knowledge of the
executive officers (as defined in Rule 405 under the 1933 Act) of the Company,
after due inquiry.
"Confidential Information" means trade secrets, confidential
information and know-how (including but not limited to ideas, formulae,
compositions, processes, procedures and techniques, research and development
information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information).
"Control" (including the terms "controlling", "controlled by"
or "under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Delivery Date" has the meaning set forth in Section 7.13.
"Effective Date" means the date on which the initial
Registration Statement is declared effective by the SEC.
"Effectiveness Deadline" means the date on which the initial
Registration Statement is required to be declared effective by the SEC under the
terms of the Registration Rights Agreement.
"Intellectual Property" means all of the following: (i)
patents, patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans and Internet
domain names, together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
"Material Adverse Effect" means a material adverse effect on
(i) the assets, liabilities, results of operations, condition (financial or
otherwise), business, or prospects of the Company and its Subsidiaries taken as
a whole, or (ii) the ability of the Company to perform its obligations under the
Transaction Documents.
"MFN Period" has the meaning set forth in Section 7.13.
"MFN Transaction" has the meaning set forth in Section 7.13.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"New Investor" has the meaning set forth in Section 7.13.
"New Offering" has the meaning set forth in Section 7.13.
"Per Share Purchase Price" has the meaning set forth in
Section 7.13.
"Per Share Selling Price" has the meaning set forth in Section
7.13.
"Other Offering" means the existing private placement offering
by the Company of up to 200,000 Units, each Unit consisting of five shares of
Common Stock and three-year warrants to acquire up to two shares of Common Stock
at a per share exercise price of $3.00 per share, for an aggregate offering
price of $2,200,000 and otherwise containing terms no more favorable to the
investors than the terms of the offering contemplated hereby.
"Person" means an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically listed
herein.
"Pinncle Offering" means the proposed sale of securities to
The Pinnacle Fund, L.P. and its Affiliates on terms no more favorable to the
investors than the terms of the offering contemplated hereby.
"Purchase Price" means Three Million One and 20/100th Dollars
($3,000,001.20).
"Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"SEC Filings" has the meaning set forth in Section 4.6.
"Securities" means the Shares, the Warrants and the Warrant
Shares.
"Series A Preferred Stock" means the Company's Series A
Convertible Preferred Stock and any securities into which such Series A
Preferred Stock may be reclassified.
"Series B Preferred Stock" means the Company's Series B
Convertible Preferred Stock and any securities into which such Series B
Preferred Stock may be reclassified.
"Shares" means the shares of Common Stock being purchased by
the Investors hereunder.
"Subsidiary" of any Person means another Person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Transaction Documents" means this Agreement, the Warrants and
the Registration Rights Agreement.
"Warrant Shares" means the shares of Common Stock issuable
upon the exercise of the Warrants.
"Variable Rate Transaction" has the meaning set forth in
Section 7.13.
"1933 Act" means the Securities Act of 1933, as amended, or
any successor statute, and the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute, and the rules and regulations promulgated
thereunder.
2. Purchase and Sale of the Shares and Warrants. Subject to the terms
and conditions of this Agreement, on the Closing Date, each of the Investors
shall severally, and not jointly, purchase, and the Company shall sell and issue
to the Investors, the Shares and Warrants in the respective amounts set forth
opposite the Investors' names on the signature pages attached hereto in exchange
for the aggregate Purchase Price as specified in Section 3 below.
3. Closing. The closing of the purchase and sale of the Shares and
Warrants (the "Closing") shall take place at the offices of Lowenstein Sandler
PC, 1251 Avenue of the Americas, 18th Floor, New York, New York 10020, no later
than the second Business Day after the conditions to Closing set forth herein
have been satisfied or waived, to the extent permitted by applicable law, or at
such other location and on such other date as the Company and the Investors
shall mutually agree.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the "Disclosure Schedules"):
4. 1 Organization, Good Standing and Qualification. Each of
the Company and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and to own its properties. Each of the Company and
its Subsidiaries is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property makes such qualification or leasing
necessary unless the failure to so qualify has not had and could not reasonably
be expected to have a Material Adverse Effect. The Company's Subsidiaries are
listed in the SEC Filings.
4.2 Authorization. The Company has full power and authority
and has taken all requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization, execution and
delivery of the Transaction Documents, (ii) the authorization of the performance
of all obligations of the Company hereunder or thereunder, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Securities. The Transaction Documents constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors' rights generally.
4.3 Capitalization. Schedule 4.3 sets forth (a) the authorized
capital stock of the Company on the date hereof; (b) the number of shares of
capital stock issued and outstanding; (c) the number of shares of capital stock
issuable pursuant to the Company's stock plans; and (d) the number of shares of
capital stock issuable and reserved for issuance pursuant to securities (other
than the Shares and the Warrants) exercisable for, or convertible into or
exchangeable for any shares of capital stock of the Company. All of the issued
and outstanding shares of the Company's capital stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights and were issued in full compliance with applicable state and federal
securities law and any rights of third parties. All of the issued and
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights, were issued in full compliance with applicable state and federal
securities law and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim, except for security interests granted to the Company's lenders as
described in the SEC Filings. No Person is entitled to pre-emptive or similar
statutory or contractual rights with respect to any securities of the Company.
Except as described in the SEC Filings or on Schedule 4.3, there are no
outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company or any of
its Subsidiaries is or may be obligated to issue any equity securities of any
kind and except as contemplated by this Agreement, neither the Company nor any
of its Subsidiaries is currently in negotiations for the issuance of any equity
securities of any kind. Except as described in the SEC Filings or on Schedule
4.3 and except for the Registration Rights Agreement and the registration rights
granted to the investors in the Other Offerings (the terms of which have been
disclosed to the Investors), there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the securityholders of the Company
relating to the securities of the Company held by them. Except as described in
the SEC Filings or on Schedule 4.3 and except for the Registration Rights
Agreement and the registration rights granted to the investors in the Other
Offerings (the terms of which have been disclosed to the Investors), no Person
has the right to require the Company to register any securities of the Company
under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person.
The issuance and sale of the Securities hereunder will not
obligate the Company to issue shares of Common Stock or other securities to any
other Person (other than the Investors) and will not result in the adjustment of
the exercise, conversion, exchange or reset price of any outstanding security.
Except as described in the SEC Filings, the Company does not
have outstanding stockholder purchase rights or "poison pill" or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
4.4 Valid Issuance. The Shares have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws. The Warrants have been duly and validly
authorized. Upon the due exercise of the Warrants, the Warrant Shares will be
validly issued, fully paid and non-assessable free and clear of all encumbrances
and restrictions, except for restrictions on transfer set forth in the
Transaction Documents or imposed by applicable securities laws and except for
those created by the Investors. The Company has reserved a sufficient number of
shares of Common Stock for issuance upon the exercise of the Warrants, free and
clear of all encumbrances and restrictions, except for restrictions on transfer
set forth in the Transaction Documents or imposed by applicable securities laws
and except for those created by the Investors.
4.5 Consents. The execution, delivery and performance by the
Company of the Transaction Documents and the offer, issuance and sale of the
Securities require no consent of, action by or in respect of, or filing with,
any Person, governmental body, agency, or official other than filings that have
been made pursuant to applicable state securities laws and post-sale filings
pursuant to applicable state and federal securities laws which the Company
undertakes to file within the applicable time periods. Subject to the accuracy
of the representations and warranties of each Investor set forth in Section 5
hereof, the provisions of any stockholder rights plan or other "poison pill"
arrangement, any anti-takeover, business combination or control share law or
statute binding on the Company or to which the Company or any of its assets and
properties may be subject and any provision of the Company's Articles of
Incorporation or Bylaws that is or could reasonably be expected to become
applicable to the Investors as a result of the transactions contemplated hereby
will not apply to (i) the issuance and sale of the Securities, (ii) the issuance
of the Warrant Shares upon due exercise of the Warrants, and (iii) the other
transactions contemplated by the Transaction Documents, including without
limitation, the issuance of the Securities and the ownership, disposition or
voting of the Securities by the Investors or the exercise of any right granted
to the Investors pursuant to this Agreement or the other Transaction Documents.
4.6 Delivery of SEC Filings; Business. The Company has made
available to the Investors through the EDGAR system, true and complete copies of
the Company's most recent Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2006 (as amended prior to the date hereof, the "10-KSB"), and all other
reports filed by the Company pursuant to the 1934 Act since the filing of the
10-KSB and prior to the date hereof (collectively, the "SEC Filings"). The SEC
Filings are the only filings required of the Company pursuant to the 1934 Act
for such period. The Company and its Subsidiaries are engaged in all material
respects only in the business described in the SEC Filings and the SEC Filings
contain a complete and accurate description in all material respects of the
business of the Company and its Subsidiaries, taken as a whole.
4.7 Use of Proceeds. The net proceeds of the sale of the
Shares and the Warrants hereunder shall be used by the Company for working
capital and general corporate purposes.
4.8 No Material Adverse Change. Since June 30, 2006, except
(i) as specifically provided in the Transaction Documents, (ii) for the Other
Offering, (iii) as identified and described in the SEC Filings or (iv) as
described on Schedule 4.8, there has not been:
(i) any change in the consolidated assets,
liabilities, financial condition or operating results of the Company from that
reflected in the financial statements included in the Company's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 2007, except for changes in the
ordinary course of business which have not had and could not reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate;
(ii) any declaration or payment of any dividend, or
any authorization or payment of any distribution, on any of the capital stock
of the Company, or any redemption or repurchase of any securities of the
Company, except for regular dividends paid on the Series A Preferred Stock and
the Series B Preferred Stock in accordance with their respective terms;
(iii) any material damage, destruction or loss,
whether or not covered by insurance to any assets or properties of the Company
or its Subsidiaries;
(iv) any waiver, not in the ordinary course of
business, by the Company or any Subsidiary of a material right or of a material
debt owed to it;
(v) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation by the Company or a Subsidiary,
except in the ordinary course of business and which is not material to the
assets, properties, financial condition, operating results or business of the
Company and its Subsidiaries taken as a whole (as such business is presently
conducted and as it is proposed to be conducted);
(vi) any change or amendment to the Company's
Articles of Incorporation or Bylaws, or material change to any material contract
or arrangement by which the Company or any Subsidiary is bound or to which any
of their respective assets or properties is subject;
(vii) any material labor difficulties or labor union
organizing activities with respect to employees of the Company or any
Subsidiary;
(viii) any material transaction entered into by the
Company or a Subsidiary other than in the ordinary course of business;
(ix) the loss of the services of any key employee, or
material change in the composition or duties of the senior management of the
Company or any Subsidiary;
(x) the loss or threatened loss of any customer which
has had or could reasonably be expected to have a Material Adverse Effect; or
(xi) any other event or condition of any character
that has had or could reasonably be expected to have a Material Adverse Effect.
4.9 SEC Filings; S-3 Eligibility.
(a) At the time of filing thereof, the SEC Filings
complied as to form in all material respects with the requirements of the 1934
Act and did 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.
(b) Each registration statement and any amendment
thereto filed by the Company since January 1, 2004 pursuant to the 1933 Act and
the rules and regulations thereunder, as of the date such statement or amendment
became effective, complied as to form in all material respects with the 1933 Act
and did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(c) The Company is eligible to use Form S-3 to
register the Registrable Securities (as such term is defined in the Registration
Rights Agreement) for sale by the Investors as contemplated by the Registration
Rights Agreement.
4.10 No Conflict, Breach, Violation or Default. The execution,
delivery and performance of the Transaction Documents by the Company and the
issuance and sale of the Securities will not conflict with or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under (i) the Company's Articles of Incorporation or the Company's Bylaws, both
as in effect on the date hereof (true and complete copies of which have been
made available to the Investors through the EDGAR system), or (ii)(a) any
statute, rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of their respective assets or properties, or (b) any agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or a Subsidiary is bound or to which any of their respective assets or
properties is subject.
4.11 Tax Matters. The Company and each Subsidiary has timely
prepared and filed all tax returns required to have been filed by the Company or
such Subsidiary with all appropriate governmental agencies and timely paid all
taxes shown thereon or otherwise owed by it. The charges, accruals and reserves
on the books of the Company in respect of taxes for all fiscal periods are
adequate in all material respects, and there are no material unpaid assessments
against the Company or any Subsidiary nor, to the Company's Knowledge, any basis
for the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company's
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property. Except as described on Schedule 4.11, there are
no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity.
4.12 Title to Properties. Except as disclosed in the SEC
Filings, the Company and each Subsidiary has good and marketable title to all
real properties and all other properties and assets owned by it, in each case
free from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.13 Certificates, Authorities and Permits. The Company and
each Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
4.14 Labor Matters.
(a) Except as set forth on Schedule 4.14, the Company is not a
party to or bound by any collective bargaining agreements or other agreements
with labor organizations. The Company has not violated in any material respect
any laws, regulations, orders or contract terms, affecting the collective
bargaining rights of employees, labor organizations or any laws, regulations or
orders affecting employment discrimination, equal opportunity employment, or
employees' health, safety, welfare, wages and hours.
(b) (i) There are no labor disputes existing, or to the
Company's Knowledge, threatened, involving strikes, slow-downs, work stoppages,
job actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) no demand for recognition or certification
heretofore made by any labor organization or group of employees is pending with
respect to the Company and (iv) to the Company's Knowledge, the Company enjoys
good labor and employee relations with its employees and labor organizations.
(c) The Company is, and at all times has been, in compliance
in all material respects with all applicable laws respecting employment
(including laws relating to classification of employees and independent
contractors) and employment practices, terms and conditions of employment, wages
and hours, and immigration and naturalization. There are no claims pending
against the Company before the Equal Employment Opportunity Commission or any
other administrative body or in any court asserting any violation of Title VII
of the Civil Rights Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C.
ss.ss. 1981 or 1983 or any other federal, state or local Law, statute or
ordinance barring discrimination in employment.
(d) Except as disclosed in the SEC Filings or as described on
Schedule 4.14, the Company is not a party to, or bound by, any employment or
other contract or agreement that contains any severance, termination pay or
change of control liability or obligation, including, without limitation, any
"excess parachute payment," as defined in Section 280G(b) of the Internal
Revenue Code.
(e) Except as specified in Schedule 4.14, each of the
Company's employees is a Person who is either a United States citizen or a
permanent resident entitled to work in the United States. To the Company's
Knowledge, the Company has no liability for the improper classification by the
Company of such employees as independent contractors or leased employees prior
to the Closing.
4.15 Intellectual Property.
(a) All Intellectual Property of the Company and its
Subsidiaries is currently in compliance with all legal requirements (including
timely filings, proofs and payments of fees) and is valid and enforceable. No
Intellectual Property of the Company or its Subsidiaries which is necessary for
the conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted has been or is now
involved in any cancellation, dispute or litigation, and, to the Company's
Knowledge, no such action is threatened. No patent of the Company or its
Subsidiaries has been or is now involved in any interference, reissue,
re-examination or opposition proceeding.
(b) All of the licenses and sublicenses and consent,
royalty or other agreements concerning Intellectual Property which are necessary
for the conduct of the Company's and each of its Subsidiaries' respective
businesses as currently conducted or as currently proposed to be conducted to
which the Company or any Subsidiary is a party or by which any of their assets
are bound (other than generally commercially available, non-custom,
off-the-shelf software application programs having a retail acquisition price of
less than $10,000 per license)(collectively, "License Agreements") are valid and
binding obligations of the Company or its Subsidiaries that are parties thereto
and, to the Company's Knowledge, the other parties thereto, enforceable in
accordance with their terms, except to the extent that enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors' rights
generally, and there exists no event or condition which will result in a
material violation or breach of or constitute (with or without due notice or
lapse of time or both) a default by the Company or any of its Subsidiaries under
any such License Agreement.
(c) The Company and its Subsidiaries own or have the
valid right to use all of the Intellectual Property that is necessary for the
conduct of the Company's and each of its Subsidiaries' respective businesses as
currently conducted or as currently proposed to be conducted and for the
ownership, maintenance and operation of the Company's and its Subsidiaries'
properties and assets, free and clear of all liens, encumbrances, adverse claims
or obligations to license all such owned Intellectual Property and Confidential
Information, other than licenses entered into in the ordinary course of the
Company's and its Subsidiaries' businesses. The Company and its Subsidiaries
have a valid and enforceable right to use all third party Intellectual Property
and Confidential Information used or held for use in the respective businesses
of the Company and
its Subsidiaries.
(d) Except as described in Schedule 4.15, the conduct
of the Company's and its Subsidiaries' businesses as currently conducted does
not infringe or otherwise impair or conflict with (collectively, "Infringe") any
Intellectual Property rights of any third party or any confidentiality
obligation owed to a third party, and, to the Company's Knowledge, the
Intellectual Property and Confidential Information of the Company and its
Subsidiaries which are necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted are not being Infringed by any third party. There is no
litigation or order pending or outstanding or, to the Company's Knowledge,
threatened or imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
Confidential Information of the Company and its Subsidiaries and the Company's
and its Subsidiaries' use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company's Knowledge, there is no
valid basis for the same.
(e) The consummation of the transactions contemplated
hereby and by the other Transaction Documents will not result in the alteration,
loss, impairment of or restriction on the Company's or any of its Subsidiaries'
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted.
(f) The Company and its Subsidiaries have taken
reasonable steps to protect the Company's and its Subsidiaries' rights in their
Intellectual Property and Confidential Information. Each employee, consultant
and contractor who has had access to Confidential Information which is necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted or as currently proposed to be conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company's standard forms thereof. Except under confidentiality obligations,
there has been no material disclosure of any of the Company's or its
Subsidiaries' Confidential Information to any third party.
4.16 Environmental Matters. Neither the Company nor any
Subsidiary is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company's Knowledge,
threatened investigation that might lead to such a claim.
4.17 Litigation. Except as described in the SEC Filings or on
Schedule 4.17, there are no pending actions, suits or proceedings against or
affecting the Company, its Subsidiaries or any of its or their properties; and
to the Company's Knowledge, no such actions, suits or proceedings are threatened
or contemplated. Except as described in the SEC Filings, neither the Company nor
any Subsidiary, nor any director or officer thereof, is or since January 1, 2002
has been the subject of any action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the Company's Knowledge, there is not
pending or contemplated, any investigation by the SEC involving the Company or
any current or former director or officer of the Company. The SEC has not issued
any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the 1933 Act or the 1934
Act.
4.18 Financial Statements. The financial statements included
in each SEC Filing present fairly, in all material respects, the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis ("GAAP") (except as
may be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-QSB under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on Schedule 4.18, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.
4.19 Insurance Coverage. The Company and each Subsidiary
maintains in full force and effect insurance coverage that is customary for
comparably situated companies for the business being conducted and properties
owned or leased by the Company and each Subsidiary, and the Company reasonably
believes such insurance coverage to be adequate against all liabilities, claims
and risks against which it is customary for comparably situated companies to
insure.
4.20 Compliance with Nasdaq Continued Listing Requirements.
The Company is in compliance with applicable Nasdaq continued listing
requirements. There are no proceedings pending or, to the Company's Knowledge,
threatened against the Company relating to the continued listing of the Common
Stock on Nasdaq and the Company has not received any notice of, nor to the
Company's Knowledge is there any basis for, the delisting of the Common Stock
from Nasdaq.
4.21 Brokers and Finders. No Person will have, as a result of
the transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company, other than as
described in Schedule 4.21.
4.22 No Directed Selling Efforts or General Solicitation.
Neither the Company nor any Person acting on its behalf has conducted any
general solicitation or general advertising (as those terms are used in
Regulation D) in connection with the offer or sale of any of the Securities or
the Other Offering.
4.23 No Integrated Offering. Neither the Company nor any of
its Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.24 Private Placement. The offer and sale of the Securities
to the Investors as contemplated hereby is exempt from the registration
requirements of the 1933 Act. The completion of the Other Offering will not
cause the offering of the Securities to violate Section 5 of the 1933 Act.
4.25 Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
4.26 Transactions with Affiliates. Except as disclosed in the
SEC Filings or as disclosed on Schedule 4.26, none of the officers or directors
of the Company and, to the Company's Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and 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
Company's Knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.27 Internal Controls. The Company is in material compliance
with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to
the Company. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in 1934
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which the
Company's most recently filed periodic report under the 1934 Act, as the case
may be, is being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the end of the
period covered by the most recently filed periodic report under the 1934 Act
(such date, the "Evaluation Date"). The Company presented in its most recently
filed periodic report under the 1934 Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company's internal controls (as such
term is defined in Item 308 of Regulation S-K) or, to the Company's Knowledge,
in other factors that could significantly affect the Company's internal
controls. The Company maintains and will continue to maintain a standard system
of accounting established and administered in accordance with GAAP and the
applicable requirements of the 1934 Act.
4.28 Disclosures. Neither the Company nor any Person acting on
its behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information, other than the terms of the transactions contemplated hereby. The
written materials delivered to the Investors in connection with the transactions
contemplated by the Transaction Documents do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
5. Representations and Warranties of the Investors. Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:
5.1 Organization and Existence. Such Investor is a validly
existing corporation, limited partnership or limited liability company and has
all requisite corporate, partnership or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance by
such Investor of the Transaction Documents to which such Investor is a party
have been duly authorized and each will constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
5.3 Purchase Entirely for Own Account. The Securities to be
received by such Investor hereunder will be acquired for such Investor's own
account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the 1933 Act, and such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same in violation of the 1933 Act without prejudice, however,
to such Investor's right at all times to sell or otherwise dispose of all or any
part of such Securities in compliance with applicable federal and state
securities laws. Nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of time. Such
Investor is not a broker-dealer registered with the SEC under the 1934 Act or an
entity engaged in a business that would require it to be so registered.
5.4 Investment Experience. Such Investor acknowledges that it
can bear the economic risk and complete loss of its investment in the Securities
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. Such Investor has had an
opportunity to receive all information related to the Company requested by it
and to ask questions of and receive answers from the Company regarding the
Company, its business and the terms and conditions of the offering of the
Securities. Such Investor acknowledges receipt of copies of the SEC Filings.
Neither such inquiries nor any other due diligence investigation conducted by
such Investor shall modify, limit or otherwise affect such Investor's right to
rely on the Company's representations and warranties contained in this
Agreement.
5.6 Restricted Securities. Such Investor understands that the
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or any similar
legend:
(a) "The securities represented hereby may not be
transferred unless (i) such securities have been registered for sale pursuant to
the Securities Act of 1933, as amended, (ii) such securities may be sold
pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel
reasonably satisfactory to it that such transfer may lawfully be made without
registration under the Securities Act of 1933 or qualification under applicable
state securities laws."
(b) If required by the authorities of any state in
connection with the issuance of sale of the Securities, the legend required by
such state authority.
5.8 Accredited Investor. Such Investor is an accredited
investor as defined in Rule 501(a) of Regulation D, as amended, under the
1933 Act.
5.9 No General Solicitation. Such Investor did not learn
of the investment in the Securities as a result of any general solicitation or
general advertising.
5.10 Brokers and Finders. No Person will have, as a result of
the transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.
5.11 Prohibited Transactions. During the last thirty (30) days
prior to the date hereof, neither such Investor nor any Affiliate of such
Investor which (x) had knowledge of the transactions contemplated hereby, (y)
has or shares discretion relating to such Investor's investments or trading or
information concerning such Investor's investments, including in respect of the
Securities, or (z) is subject to such Investor's review or input concerning such
Affiliate's investments or trading (collectively, "Trading Affiliates") has,
directly or indirectly, effected or agreed to effect any short sale, whether or
not against the box, established any "put equivalent position" (as defined in
Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (each, a "Prohibited
Transaction"). Prior to the earliest to occur of (i) the termination of this
Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline, such
Investor shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction. Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.11 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.11.
6. Conditions to Closing.
6.1 Conditions to the Investors' Obligations. The obligation
of each Investor to purchase the Shares and the Warrants at the Closing is
subject to the fulfillment to such Investor's satisfaction, on or prior to the
Closing Date, of the following conditions, any of which may be waived by such
Investor (as to itself only):
(a) The representations and warranties made by the
Company in Section 4 hereof qualified as to materiality shall be true and
correct at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct as of such
earlier date, and, the representations and warranties made by the Company in
Section 4 hereof not qualified as to materiality shall be true and correct in
all material respects at all times prior to and on the Closing Date, except to
the extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct in
all material respects as of such earlier date. The Company shall have performed
in all material respects all obligations and covenants herein required to be
performed by it on or prior to the Closing Date.
(b) The Company shall have obtained any and all
consents, permits, approvals, registrations and waivers necessary or appropriate
for consummation of the purchase and sale of the Securities and the consummation
of the other transactions contemplated by the Transaction Documents, all of
which shall be in full force and effect.
(c) The Company shall have executed and delivered the
Registration Rights Agreement.
(d) The Company shall have filed with Nasdaq a
Notification Form: Listing of Additional Shares for the inclusion of the Shares
and the Warrant Shares in the Nasdaq Capital Market, a copy of which shall have
been provided to the Investors.
(e) No judgment, writ, order, injunction, award or
decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority,
shall have been issued, and no action or proceeding shall have been instituted
by any governmental authority, enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents.
(f) The Company shall have delivered a Certificate,
executed on behalf of the Company by its Chief Executive Officer or its Chief
Financial Officer, dated as of the Closing Date, certifying to the fulfillment
of the conditions specified in subsections (a), (b), (e) and (i) of this
Section 6.1.
(g) The Company shall have delivered a Certificate,
executed on behalf of the Company by its Secretary, dated as of the Closing
Date, certifying the resolutions adopted by the Board of Directors of the
Company approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Securities, certifying the current
versions of the Articles of Incorporation and Bylaws of the Company and
certifying as to the signatures and authority of persons signing the Transaction
Documents and related documents on behalf of the Company.
(h) The Investors shall have received an opinion from
the Law Office of Steven P. Oman, P.C., the Company's counsel, dated as of the
Closing Date, in form and substance reasonably acceptable to the Investors and
addressing such legal matters as the Investors may reasonably request.
(i) No stop order or suspension of trading shall have
been imposed by Nasdaq, the SEC or any other governmental or regulatory body
with respect to public trading in the Common Stock.
(j) The Company shall have delivered to the Transfer
Agent irrevocable instructions to issue and deliver to the Investors a
certificate or certificates, registered in such name or names as the Investors
may designate, representing the Shares, copies of which shall have been provided
to the Investors.
6.2 Conditions to Obligations of the Company. The Company's
obligation to sell and issue the Shares and the Warrants at the Closing is
subject to the fulfillment to the satisfaction of the Company on or prior to the
Closing Date of the following conditions, any of which may be waived by the
Company:
(a) The representations and warranties made by the
Investors in Section 5 hereof, other than the representations and warranties
contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date. The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and covenants
herein required to be performed by them on or prior to the Closing Date.
(b) The Investors shall have executed and delivered
the Registration Rights Agreement.
(c) The Investors shall have delivered the Purchase
Price to the Company.
6.3 Termination of Obligations to Effect Closing; Effects.
(a) The obligations of the Company, on the one hand,
and the Investors, on the other hand, to effect the Closing shall terminate as
follows:
(i) Upon the mutual written consent of the
Company and the Investors;
(ii) By the Company if any of the conditions
set forth in Section 6.2 shall have become incapable of fulfillment, and shall
not have been waived by the Company;
(iii) By an Investor (with respect to itself
only) if any of the conditions set forth in Section 6.1 shall have become
incapable of fulfillment, and shall not have been waived by the Investor; or
(iv) By either the Company or any Investor
(with respect to itself only) if the Closing has not occurred on or prior to
August 10, 2007;
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party's seeking to
terminate its obligation to effect the Closing.
(b) In the event of termination by the Company or any Investor
of its obligations to effect the Closing pursuant to this Section 6.3, written
notice thereof shall forthwith be given to the other Investors by the Company
and the other Investors shall have the right to terminate their obligations to
effect the Closing upon written notice to the Company and the other Investors.
Nothing in this Section 6.3 shall be deemed to release any party from any
liability for any breach by such party of the terms and provisions of this
Agreement or the other Transaction Documents or to impair the right of any party
to compel specific performance by any other party of its obligations under this
Agreement or the other Transaction Documents.
7. Covenants and Agreements of the Company.
7.1 Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of providing for the exercise of the
Warrants, such number of shares of Common Stock as shall from time to time equal
the number of shares sufficient to permit the exercise of the Warrants issued
pursuant to this Agreement in accordance with their respective terms.
7.2 Reports. The Company will furnish to the Investors and/or
their assignees such information relating to the Company and its Subsidiaries as
from time to time may reasonably be requested by the Investors and/or their
assignees; provided, however, that the Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Investors, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Investor wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.
7.3 No Conflicting Agreements. The Company will not take any
action, enter into any agreement or make any commitment that would conflict or
interfere in any material respect with the Company's obligations to the
Investors under the Transaction Documents.
7.4 Insurance. The Company shall not materially reduce the
insurance coverages described in Section 4.19.
7.5 Compliance with Laws. The Company will comply in all
material respects with all applicable laws, rules, regulations, orders and
decrees of all governmental authorities.
7.6 Listing of Underlying Shares and Related Matters. Promptly
following the date hereof, the Company shall take all other necessary action to
cause the Shares and the Warrant Shares to be listed on the Nasdaq Capital
Market as promptly as practicable after the Closing Date. Further, if the
Company applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it shall include in such application the
Shares and the Warrant Shares and will take such other action as is necessary to
cause such Common Stock to be so listed. The Company will use commercially
reasonable efforts to continue the listing and trading of its Common Stock on
the Nasdaq Capital Market and, in accordance, therewith, will use commercially
reasonable efforts to comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of such market or
exchange, as applicable.
7.7 Termination of Covenants. The provisions of Sections 7.2
through 7.5 shall terminate and be of no further force and effect on the date on
which the Company's obligations under the Registration Rights Agreement to
register or maintain the effectiveness of any registration covering the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate.
7.8 Removal of Legends. Upon the earlier of (i) registration
for resale pursuant to the Registration Rights Agreement or (ii) Rule 144(k)
becoming available the Company shall (A) deliver to the transfer agent for the
Common Stock (the "Transfer Agent") irrevocable instructions that the Transfer
Agent shall reissue a certificate representing shares of Common Stock without
legends upon receipt by such Transfer Agent of the legended certificates for
such shares, together with either (1) a customary representation by the Investor
that Rule 144(k) applies to the shares of Common Stock represented thereby or
(2) a statement by the Investor that such Investor has sold the shares of Common
Stock represented thereby in accordance with the Plan of Distribution contained
in the Registration Statement, and (B) cause its counsel to deliver to the
Transfer Agent one or more blanket opinions to the effect that the removal of
such legends in such circumstances may be effected under the 1933 Act. From and
after the earlier of such dates, upon an Investor's written request, the Company
shall promptly cause certificates evidencing the Investor's Securities to be
replaced with certificates which do not bear such restrictive legends, and
Warrant Shares subsequently issued upon due exercise of the Warrants shall not
bear such restrictive legends provided the provisions of either clause (i) or
clause (ii) above, as applicable, are satisfied with respect to such Warrant
Shares. When the Company is required to cause an unlegended certificate to
replace a previously issued legended certificate, if: (1) the Transfer Agent
does not deliver the unlegended certificate to a nationally recognized overnight
courier service (the "Courier Service") for next day delivery within two (2)
Business Days of submission by that Investor of a legended certificate and
supporting documentation to the Transfer Agent as provided above and (2) prior
to the time such unlegended certificate is received by the Investor (other than
as a result of a delay in delivery by the Courier Service), the Investor, or any
third party on behalf of such Investor or for the Investor's account, purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Investor of shares represented by such
certificate (a "Buy-In"), then the Company shall pay in cash to the Investor
(for costs incurred either directly by such Purchaser or on behalf of a third
party) the amount by which the total purchase price paid for Common Stock as a
result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by such Investor as a result of the sale to which such Buy-In
relates. The Investor shall provide the Company written notice indicating the
amounts payable to the Investor in respect of the Buy-In.
7.9 Equal Treatment of Investors. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Investor by the Company and negotiated separately by each Investor, and is
intended for the Company to treat the Investors as a class and shall not in any
way be construed as the Investors acting in concert or as a group with respect
to the purchase, disposition or voting of Securities or otherwise.
7.10 Conversion of Series A Preferred Stock. As promptly as
practicable following the Closing, but in any event no later than the first
anniversary of the Closing, the Company shall use commercially reasonable
efforts to effect the conversion of its Series A Preferred Stock into Common
Stock on the terms specified in the "Conversion Plan" previously provided to the
Investors.
7.11 Issuance of the Warrants. No later than five (5) Business
Days after the Closing, the Company shall issue and deliver to each Investor the
Warrant purchased by such Investor hereunder, registered in such name as the
Investor may designate.
7.12 Subsequent Equity Sales. Neither the Company nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents on or
prior to October 31, 2007 unless the terms of such issuance include the
no-shorting covenant contained in Section 5.11 of this Agreement. This Section
7.12 shall not apply to the Other Offering or the Pinnacle Offering, so long as
such offerings are on terms no more favorable to the investors than the terms of
the offering contemplated hereby. In addition, this Section 7.12 shall not apply
to any Excluded Issuances (as defined in the Warrant). The Company shall use
commercially reasonable efforts to include a no-shorting covenant in the form of
Section 5.11 in the Other Offering and the Pinnacle Offering.
7.13 Purchase Price Adjustments.
(a) Subject to Section 7.13(d) below, if during the
MFN Period (defined below) the Company issues or sells any shares of its Common
Stock at a Per Share Selling Price (as defined below) lower than $1.90
(appropriately adjusted for any stock split, reverse stock split, stock dividend
or other reclassification or combination of the Common Stock occurring after the
date hereof) (the "Per Share Purchase Price"), the Per Share Purchase Price of
the Shares sold to the Investors hereunder shall be adjusted downward to equal
such lower Per Share Selling Price and the Investors shall be entitled to
receive additional shares of Common Stock as provided in Section 7.13(c). The
Company shall give to the Investors written notice of any such sale within 24
hours of the closing of any such issuance or sale. The term "Shares" as used in
this Agreement shall include shares issued to the Investors pursuant to this
Section 7.13.
(b) (i) For the purposes of this Section 7.13, the
term "Per Share Selling Price" shall include the amount actually paid by third
parties for each share of Common Stock without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. A sale of shares of Common Stock shall include
the sale or issuance of Common Stock Equivalents under which the Company is or
may become obligated to issue shares of Common Stock, and in such circumstances
the Per Share Selling Price of the Common Stock covered thereby shall also
include the exercise or conversion price thereof (in addition to the
consideration received by the Company upon such sale or issuance). In case of
any such security issued within the MFN Period in a "Variable Rate Transaction"
or an "MFN Transaction" (each as defined below), the Per Share Selling Price
shall be deemed to be the lowest conversion or exercise price in effect at any
time during the MFN Period in the case of a Variable Rate Transaction, or the
lowest adjustment price in effect at any time during the MFN Period in the case
of an MFN Transaction (regardless of whether shares of Common Stock are actually
issued at such price). If an adjustment is made in accordance with the preceding
sentence and the relevant conversion, exercise or adjustment price is
subsequently reduced at any time during the MFN Period below the price in effect
at the time such adjustment was made, further adjustments shall be made pursuant
hereto to reflect any such subsequent reductions. If shares are issued for a
consideration other than cash, the Per Share Selling Price shall be the fair
value of such consideration as determined in good faith by independent certified
public accountants mutually acceptable to the Company and the Investors.
(ii) The term "Variable Rate Transaction" shall mean
a transaction in which the Company issues or sells (a) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the Common Stock at any time
after the initial issuance of such debt or equity securities, or (y) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock (but
excluding standard stock split anti-dilution provisions), or (b) any securities
of the Company pursuant to an "equity line" structure which provides for the
sale, from time to time, of securities of the Company which are registered for
resale pursuant to the 1933 Act.
(iii) The term "MFN Transaction" shall mean a
transaction in which the Company issues or sells any securities in a capital
raising transaction or series of related transactions (the "New Offering") which
grants to the investor (the "New Investor") the right to receive additional
securities based upon future capital raising transactions of the Company on
terms more favorable than those granted to the New Investor in the New Offering.
(iv) The term "MFN Period" shall mean the period
ending on the close of business on October 31, 2007.
(c) If an adjustment of the Purchase Price is
required pursuant to Section 7.13(a), to effect such adjustment the Company
shall deliver to each Investor within three (3) Business Days of the closing of
the transaction giving rise to the adjustment ("Delivery Date") additional
shares of Common Stock in an amount equal to (i) the aggregate Purchase Price
paid by the Investor divided by the Per Share Selling Price determined under
Section 7.13(b), minus (ii) the total number of shares of Common Stock
originally purchased by that Investor hereunder; provided, however, that if at
the time of the closing of the transaction giving rise to the adjustment, the
Investor and its assignees hereunder collectively own less than all of the
Shares originally purchased by the Investor hereunder, the additional shares to
be delivered pursuant to this adjustment shall be pro rated by a fraction, the
numerator of which is the number of original Shares owned by the Investor and
such assignees at the time of the closing of the transaction giving rise to the
adjustment and the denominator of which is the total number of Shares originally
purchased by the Investor hereunder, and; provided, further, that for purposes
of calculating any such adjustment, the Investor or an assignee shall be deemed
to have sold a number of Shares equal to any short position in the Common Stock
maintained by the Investor or any such assignee, as the case may be, at the time
of the transaction giving rise to the adjustment. In the event the Company fails
to deliver the additional shares by the Delivery Date, the Company shall be
liable to the Investors and/or their assignees for liquidated damages in an
amount equal to 1.5% of the aggregate Purchase Price adjustment (in each
instance to such Investor or its assignees pro rata in accordance with its
participation in this offering) per 30-day period or pro rata for any portion
thereof following the Delivery Date until the delivery of the additional shares,
payable in cash.
(d) This Section 7.13 shall not apply to the Other Offering or
the Pinnacle Offering, so long as such offerings are on terms no more favorable
to the investors than the terms of the offering contemplated hereby. In
addition, this Section 7.13 shall not apply to any Excluded Issuances (as
defined in the Warrant).
8. Survival and Indemnification.
8.1 Survival. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.
8.2 Indemnification. The Company agrees to indemnify and hold
harmless each Investor and its Affiliates and their respective directors,
officers, employees and agents from and against any and all losses, claims,
damages, liabilities and expenses (including without limitation reasonable
attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending
or threatened and the costs of enforcement thereof) (collectively, "Losses") to
which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed on
the part of the Company under the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such Person.
8.3 Conduct of Indemnification Proceedings. Promptly after
receipt by any Person (the "Indemnified Person") of notice of any demand, claim
or circumstances which would or might give rise to a claim or the commencement
of any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be assigned
by a party hereto without the prior written consent of the Company or the
Investors, as applicable, provided, however, that an Investor may assign its
rights and delegate its duties hereunder in whole or in part to an Affiliate or
to a third party acquiring some or all of its Securities in a transaction
complying with applicable securities laws without the prior written consent of
the Company or the other Investors. The provisions of this Agreement shall inure
to the benefit of and be binding upon the respective permitted successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.2 Counterparts; Faxes. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement may
also be executed via facsimile, which shall be deemed an original.
9.3 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier. All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days' advance written notice to the other party:
If to the Company:
Alanco Technologies, Inc.
15575 North 83rd Way, Suite 3
Scottsdale, Arizona 85260
Attention: Chief Financial Officer
Fax: (480) 607-1515
With a copy to:
Steven P. Oman, Esq.
8664 E. Chama Road
Scottsdale, Arizona 85255
Fax: (480) 348-1471
If to the Investors:
to the addresses set forth on the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of Lowenstein Sandler PC not to exceed $35,000; it
being understood that Lowenstein Sandler PC has only rendered legal advice to
Investors affiliated with WS Ventures Management L.P. participating in this
transaction and not to the Company or any other Investor in connection with the
transactions contemplated hereby, and that each of the Company and each Investor
has relied for such matters on the advice of its own respective counsel. Such
expenses shall be paid not later than the Closing. The Company shall reimburse
the Investors upon demand for all reasonable out-of-pocket expenses incurred by
the Investors, including without limitation reimbursement of attorneys' fees and
disbursements, in connection with any amendment, modification or waiver of this
Agreement or the other Transaction Documents. In the event that legal
proceedings are commenced by any party to this Agreement against another party
to this Agreement in connection with this Agreement or the other Transaction
Documents, the party or parties which do not prevail in such proceedings shall
severally, but not jointly, pay their pro rata share of the reasonable
attorneys' fees and other reasonable out-of-pocket costs and expenses incurred
by the prevailing party in such proceedings.
9.6 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such Securities, and the Company.
9.7 Publicity. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. No later than the fourth trading day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices in the manner and time required by the SEC or Nasdaq.
9.8 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
9.9 Entire Agreement. This Agreement, including the Exhibits
and the Disclosure Schedules, and the other Transaction Documents constitute the
entire agreement among the parties hereof with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
and thereof.
9.10 Further Assurances. The parties shall execute and deliver
all such further instruments and documents and take all such other actions as
may reasonably be required to carry out the transactions contemplated hereby and
to evidence the fulfillment of the agreements herein contained.
9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial. This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
9.12 Independent Nature of Investors' Obligations and Rights.
The obligations of each Investor under any Transaction Document are several and
not joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
[signature page follows]
IN WITNESS WHEREOF, the parties have executed this Agreement
or caused their duly authorized officers to execute this Agreement as of the
date first above written.
The Company: ALANCO TECHNOLOGIES, INC.
By:_________________________
Name:
Title:
The Investors: WS OPPORTUNITY FUND INTERNATIONAL, LTD.
By: WS Ventures Management, L.P., Attorney-in-Fact
By: WSV Management, L.L.C., General Partner
By: ________________________________
Name: Patrick Walker
Title: Member
Aggregate Purchase Price: $1,337,980
Number of Shares: 704,200
Number of Warrants: 281,680
Address for Notice:
300 Crescent Court, Suite 1111
Dallas, Texas 75201
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn: John D. Hogoboom, Esq.
Telephone: 973.597.2500
Facsimile: 973.597.2400
WS OPPORTUNITY FUND, L.P.
By: WS Ventures Management, L.P., General Partner
By: WSV Management, L.L.C., General Partner
By: ________________________________
Name: Patrick Walker
Title: Member
Aggregate Purchase Price: $853,480
Number of Shares: 449,200
Number of Warrants: 179,680
Address for Notice:
300 Crescent Court, Suite 1111
Dallas, Texas 75201
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn: John D. Hogoboom, Esq.
Telephone: 973.597.2500
Facsimile: 973.597.2400
WS OPPORTUNITY FUND (Q.P.), L.P.
By: WS Ventures Management, L.P., General Partner
By: WSV Management, L.L.C., General Partner
By: ________________________________
Name: Patrick Walker
Title: Member
Aggregate Purchase Price: $808,541.20
Number of Shares: 425,548
Number of Warrants: 170,219
Address for Notice:
300 Crescent Court, Suite 1111
Dallas, Texas 75201
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attn: John D. Hogoboom, Esq.
Telephone: 973.597.2500
Facsimile: 973.597.2400
The Investors: