Exhibit 99.4
Source Capital Group, Inc.
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SUBJECT TO APPROVAL BY SOURCE CAPITAL GROUP LEGAL & DUE DILIGENCE COMPLETION
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May 14, 2010
Robert R. Kauffman
Alanco Technologies, Inc.
15575 N. 83rd Way, Suite 3
Scottsdale, AZ 85260
Source Capital Group, Inc. Proposed Offering Engagement Letter
To Mr. Kauffman:
The purpose of this engagement letter is to set forth the terms pursuant to
which Source Capital Group, Inc. whose address is 276 Post Road West, Westport,
CT 06880 (hereinafter referred to as "Source" or "SCG" or "Dealer Manager") will
act as the sole exclusive placement agent and financial advisor for a proposed
issuance, or series of issuances, of registered equity securities ("Proposed
Offering") of Alanco Technologies, Inc. whose address is 15575 N. 83rd Way,
Suite 3, Scottsdale, AZ 85260 (collectively, with its subsidiaries and
affiliates), (hereinafter referred to as the "Issuer" or the "Company"), in
connection with a issuance of securities from the Issuer's effective Form S-3
registration statement.
The terms of our agreement are as follows:
1. The Issuer hereby retains and engages Source, for the period beginning
on the date hereof and ending on the Closing Date of the Proposed Offering,
unless sooner terminated by either Issuer or Source with five (5) business days
written notice or extended in the mutual discretion of the Issuer and Source
(the "Engagement Period"), to act as the Issuer's sole exclusive placement
agent, financial advisor and/or dealer-manager in connection with the Proposed
Offering. The compensation for acting as the exclusive sole placement agent to
the Issuer and conditions of Source's engagement is stated hereunder. During the
Engagement Period and as long as Source is proceeding in good faith with
activities in connection with the Proposed Offering, the Issuer agrees not to
solicit, negotiate with or enter into any agreement with any other source of
financing (as it applies to issuance of securities from Issuer's effective Form
S-3 registration statement), any placement agent, financial advisor, dealer
manager or any other person or entity in connection with the Proposed Offering,
as the case may be.
2. In consideration for its services in the Proposed Offering, Source shall
be entitled to a cash fee equal to 8% of the dollar amount received by the
Issuer, in connection with a Proposed Offering, less any amounts received in
advance of the offering to cover actual expenses incurred by Source. The Company
shall pay Source for expenses incurred up to $10,000 to the extent that Source
provides the Company with supporting invoices/receipts of actual expenses
incurred that accrues to up to $10,000.
3. The Issuer shall only be responsible for and pay for the expenses
relating to the Proposed Offering, relating to filing fees relating to any
registration statement required to be filed as part of the Proposed Offering of
and any filing fees relating to the review of the Proposed Offering materials by
the Financial Industry Regulatory Authority, Inc. ("FINRA"); all fees and
expenses relating to the listing of such Shares on the exchange where the Common
Stock is (or will be) listed; all fees, expenses and disbursements relating to
the registration or qualification of the Shares under the "blue sky" securities
laws of any states or other jurisdictions; the costs of mailing and printing all
of the Proposed Offering documents, Registration Statements, Prospectuses and
all amendments, supplements and exhibits thereto and as many preliminary and
final Prospectuses as Source may reasonably deem necessary; the fees and
expenses of the Issuer's accountants and the fees and expenses of the Issuer's
legal counsel and other agents and representatives.
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4. Source may plan and arrange one or more "road show" trips for the
Issuer's management to market the Proposed Offering. The Issuer shall pay for
its own expenses, including, without limitation, travel and lodging expenses,
associated with such trips. During the 45-day period prior to the filing of the
Registration Statement, if applicable, with the Securities and Exchange
Commission ("Commission"), and at all times thereafter prior and following the
effectiveness of such Registration Statement, the Issuer and its officers,
directors and related parties will abide by all rules and regulations of the
Commission relating to public Proposed Offerings, including, without limitation,
those relating to public statements (i.e., "gun jumping") and disclosures of
material non-public information.
5. The Proposed Offering shall be conditioned upon, among other things, the
following:
(a) Satisfactory completion by Source of its due diligence
investigation and analysis of: (i) the Issuer's arrangements with its
officers, directors, employees, affiliates, customers and suppliers, (ii)
the audited historical financial statements of the Issuer as may be
required by the Act and rules and regulations of the Commission thereunder
for inclusion in the Registration Statement, if applicable, and (iii) the
Issuer's projected financial results for the fiscal years ending December
31, 2010 and December 31, 2011;
(b) The continued listing of the Common Stock on its current exchange
or migration to a higher exchange ("Trading Market");
(c) Source shall have received from outside counsel to the Issuer such
counsel's written opinion, addressed to Source, dated as of the Closing, in
customary form and substance reasonably satisfactory to Source;
(d) FINRA shall have raised no objection to the fairness and
reasonableness of the terms and arrangements of this Agreement. In
addition, the Company shall, if requested by Source, make or authorize
Source's counsel to make on the Company's behalf, an Issuer Filing with the
FINRA Corporate Financing Department pursuant to FINRA Rule 5110 and pay
all filing fees required in connection therewith.
(e) Prior to the Closing, the Company shall have furnished to Source
such further information, certificates and documents as Source may
reasonably request, including customary audit comfort letters (all
opinions, letters, evidence and certificates mentioned above or elsewhere
in this Agreement shall be deemed to be in compliance with the provisions
hereof only if they are in form and substance reasonably satisfactory to
counsel for Source); and
(f) Any Proposed Offering shall fund through an escrow account
established by Source and paid for by the Issuer.
6. The Issuer represents and warrants to Source as follows:
(a) The Issuer has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated hereunder and
otherwise to carry out its obligations hereunder. The execution and
delivery of this Agreement by the Issuer and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
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action on the part of the Issuer and no further action is required by the
Issuer, its board of directors or its stockholders in connection herewith.
This Agreement has been duly authorized and executed by the Issuer and,
when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Issuer enforceable
against the Issuer in accordance with its terms except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies, and (iii) that rights to indemnification and
contribution thereunder may be limited by federal or state securities laws
or public policy relating thereto.
(b) The execution, delivery and performance of this Agreement by the
Issuer do not and will not (i) conflict with or violate any provision of
the Issuer's or any subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien upon
any of the properties or assets of the Issuer or any subsidiary, 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 Issuer or subsidiary debt
or otherwise) or other understanding to which the Issuer or any subsidiary
is a party or by which any property or asset of the Issuer or any
subsidiary is bound or affected (except as may have been consented to or
waived), or (iii) conflict with or 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 Issuer or a Subsidiary is
subject (including federal and state securities laws and regulations), or
by which any property or asset of the Issuer or a Subsidiary is bound or
affected.
(c) The Issuer is not required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other "Person" (defined as an individual or
corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability Issuer, joint stock Issuer,
government (or an agency or subdivision thereof) or other entity of any
kind) in connection with the execution, delivery and performance by the
Issuer of this Agreement, other than such filings as are required to be
made under applicable Federal and state securities laws, by the Trading
Market.
(d) Except as otherwise provided in this Agreement, no brokerage or
finder's fees or commissions are or will be payable by the Issuer to any
broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the this Agreement. Source shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be
due in connection with the offer and sale of the Securities contemplated by
the this Agreement.
(e) The Issuer has not, and to its knowledge none of its officers or
directors have, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Issuer to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities (other than Source's
placement of the Securities), or (iii) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other securities of
the Issuer other than pursuant to this Agreement.
(f) To the knowledge of the Issuer, there are no affiliations with any
FINRA member firm among the Issuer's officers, directors or any five
percent (5%) or greater stockholder of the Issuer.
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(g) Source shall be a third party beneficiary of any representations
and warranties given to any investors in the Proposed Offering, which
representation and warranties shall be reasonably acceptable to Source.
7. Source reserves the right to reduce any item of its compensation or
adjust the terms thereof as specified herein in the event that a determination
and/or suggestion shall be made by FINRA to the effect that Source's aggregate
compensation is in excess of FINRA rules or that the terms thereof require
adjustment; provided, however, the aggregate compensation otherwise to be paid
to Source by the Issuer may not be increased above the amounts stated herein
without the approval of the Issuer.
8. The Issuer agrees that no solicitation material apart from, if
applicable, the Registration Statement will be used by it in connection with the
Proposed Offering or filed with the Commission or any federal, state or local
governmental or regulatory authority by or on behalf of the Issuer without
Source's prior approval, which approval may not be unreasonably delayed,
withheld or denied.
9. The Issuer agrees that it will not issue press releases or engage in any
other publicity, without Source's prior written consent, commencing on the date
hereof and continuing for a period of forty (40) days from the Closing of the
Proposed Offering, other than normal and customary releases issued in the
ordinary course of the Issuer's business. The Issuer covenants to adhere to all
"gun jumping" and "quiet period" rules and regulations of the Commission prior
to, during and following the filing of the Registration Statement, if
applicable, and the consummation of the Proposed Offering.
10. During the Engagement Period or until the Closing, the Issuer agrees to
cooperate with Source and to furnish, or cause to be furnished, to Source, any
and all information and data concerning the Issuer, its subsidiaries and the
Proposed Offering that Source deems appropriate, including, without limitation,
the Issuer's acquisition plans and plans for raising capital or additional
financing (the "Information"). The Issuer shall provide Source reasonable access
during normal business hours from and after the date of execution of this
Agreement until the date of the Closing to all of the Issuer's and its
subsidiaries assets, properties, books, contracts, commitments and records and
to the Issuer's and its subsidiaries officers, directors, employees, appraisers,
independent accountants, legal counsel and other consultants and advisors. The
Issuer represents and warrants to Source that all Information: (i) made
available by the Issuer to Source or its agents and representatives, (ii)
contained in any preliminary or final Prospectus prepared by the Issuer in
connection with the Proposed Offering, and (iii) contained in any filing by the
Issuer with any court or governmental regulatory agency, commission or
instrumentality, will be complete and correct in all material respects and will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading in light of the
circumstances under which such statements are made. The Issuer further
represents and warrants to Source that all such Information will have been
prepared by the Issuer in good faith and will be based upon assumptions which,
in light of the circumstances under which they were made, are reasonable. The
Issuer acknowledges and agrees that in rendering its services hereunder, Source
will be using and relying on such information (and information available from
public sources and other sources deemed reliable by Source) without independent
verification thereof by Source or independent appraisal by Source of any of the
Issuer's assets. The Issuer acknowledges and agrees that this engagement letter
and the terms hereof are confidential and will not be disclosed to anyone other
than the officers and directors of the Issuer and the Issuer's accountants,
advisors and legal counsel. Except as contemplated by the terms hereof or as
required by applicable law, Source shall keep strictly confidential all
non-public Information concerning the Issuer provided to Source. No obligation
of confidentiality shall apply to Information that: (a) is in the public domain
as of the date hereof or hereafter enters the public domain without a breach by
Source, (b) was known or became known by Source prior to the Issuer's disclosure
thereof to Source, (c) becomes known to Source from a source other than the
Issuer, and other than by the breach of an obligation of confidentiality owed to
the Issuer, (d) is disclosed by the Issuer to a third party without restrictions
on its disclosure or (e) is independently developed by Source. Source's
obligations of confidentiality hereunder shall extend to its employees.
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11. This engagement letter shall be deemed to have been made and delivered
in New York City and both this engagement letter and the transactions
contemplated hereby shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York, without regard to the conflict of laws principles thereof.
12. Each of Source and the Issuer: (i) agrees that any legal suit, action
or proceeding arising out of or relating to this engagement letter and/or the
transactions contemplated hereby shall be instituted exclusively in New York
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (ii) waives any objection which it may have
or hereafter to the venue of any such suit, action or proceeding, and (iii)
irrevocably consents to the jurisdiction of the New York Supreme Court, County
of New York, and the United States District Court for the Southern District of
New York in any such suit, action or proceeding. Each of Source and the Issuer
further agrees to accept and acknowledge service of any and all process which
may be served in any such suit, action or proceeding in the New York Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York and agrees that service of process upon the Issuer
mailed by certified mail to the Issuer's address shall be deemed in every
respect effective service of process upon the Issuer, in any such suit, action
or proceeding, and service of process upon Source mailed by certified mail to
Source's address shall be deemed in every respect effective service process upon
Source, in any such suit, action or proceeding. Notwithstanding any provision of
this engagement letter to the contrary, the Issuer agrees that neither Source
nor its affiliates, and the respective officers, directors, employees, agents
and representatives of Source, its affiliates and each other person, if any,
controlling Source or any of its affiliates, shall have any liability (whether
direct or indirect, in contract or tort or otherwise) to the Issuer for or in
connection with the engagement and transaction described herein except for any
such liability for losses, claims, damages or liabilities incurred by us that
are finally judicially determined to have resulted from the bad faith or gross
negligence of such individuals or entities. Source will act under this
engagement letter as an independent contractor with duties to the Issuer.
Because Source will be acting on the Issuer's behalf in this capacity, it is
Source's practice to receive indemnification. A copy of Source's standard
indemnification form is attached to this engagement letter as Exhibit A.
[Signature Page Follows]
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We are delighted at the prospect of working with you and look forward to a
successful Proposed Offering. If you are in agreement with the foregoing, please
execute and return two copies of this engagement letter to the undersigned. This
engagement letter may be executed in counterparts and by facsimile transmission.
Regards,
SOURCE CAPITAL GROUP, INC.
By: ___________________________
Name: Richard Kreger
Title: Senior Managing Director
By: ___________________________
Name: Russ Newton
Title: Chief Financial Officer
ACCEPTED AND AGREED TO AS OF THE DATE FIRSTABOVE WRITTEN:
ALANCO TECHNOLOGIES, INC.
By: ___________________________
Name: Robert R. Kauffman
Title: Chief Executive Officer
[Signature Page to Engagement Letter]
[Exhibit A, Indemnification Letter Begins on Next Page]
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This Exhibit A is a part of and is incorporated into the Proposed Offering
Engagement Letter dated May 14, 2010 between the Issuer and Source Capital
Group, Inc. ("Source"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings provided in the Agreement.
The Issuer agrees to indemnify and hold harmless Source, its affiliates and each
person controlling Source (within the meaning of Section 15 of the Securities
Act), and the directors, officers, agents and employees of Source, its
affiliates and each such controlling person (Source, and each such entity or
person. an "Indemnified Person") from and against any losses, claims, damages,
judgments, assessments, costs and other liabilities (collectively, the
"Liabilities"), and shall reimburse each Indemnified Person for all fees and
expenses (including the reasonable fees and expenses of one counsel for all
Indemnified Persons, except as otherwise expressly provided herein)
(collectively, the "Expenses") as they are incurred by an Indemnified Person in
investigating, preparing, pursuing or defending any claim, action, proceeding or
investigation, whether or not any Indemnified Person is a party thereto
(collectively, the "Actions"), (i) caused by, or arising out of or in connection
with, any untrue statement or alleged untrue statement of a material fact
contained in any offering documents prepared by the Issuer (including any
amendments thereof and supplements thereto) (the "Offer Documents") or by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading (other than untrue statements or alleged untrue statements
in, or omissions or alleged omissions from, information relating to an
Indemnified Person furnished in writing by or on behalf of such Indemnified
Person expressly for use in the Offer Documents) or (ii) otherwise arising out
of or in connection with advice or services rendered or to be rendered by any
Indemnified Person pursuant to the Agreement, the transactions contemplated
thereby or any Indemnified Person's actions or inactions in connection with any
such advice, services or transactions; provided, however, that, in the case of
clause (ii) only, the Issuer shall not be responsible for any Liabilities or
Expenses of any Indemnified Person that have resulted primarily from such
Indemnified Person's (x) gross negligence, bad faith or willful misconduct in
connection with any of the advice, actions, inactions or services referred to
above or (y) use of any offering materials or information concerning the Issuer
in connection with the offer or sale of the Securities in the Transaction which
were not authorized for such use by the Issuer and which use constitutes
negligence, bad faith or willful misconduct. The Issuer also agrees to reimburse
each Indemnified Person for all Expenses as they are incurred in connection with
enforcing such Indemnified Person's rights under the Agreement, which includes
this Exhibit A.
Upon receipt by an Indemnified Person of actual notice of an Action against such
Indemnified Person with respect to which indemnity may be sought under the
Agreement, such Indemnified Person shall promptly notify the Issuer in writing;
provided that failure by any Indemnified Person so to notify the Issuer shall
not relieve the Issuer from any liability which the Issuer may have on account
of this indemnity or otherwise to such Indemnified Person, except to the extent
the Issuer shall have been prejudiced by such failure. The Issuer shall, if
requested by Source, assume the defense of any such Action including the
employment of counsel reasonably satisfactory to Source, which counsel may also
be counsel to the Issuer. Any Indemnified Person shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person unless: (i) the Issuer has failed promptly to assume the
defense and employ counsel or (ii) the named parties to any such Action
(including any impeded parties) include such Indemnified Person and the Issuer,
and such Indemnified Person shall have been advised in the reasonable opinion of
counsel that there is an actual conflict of interest that prevents the counsel
selected by the Issuer from representing both the Issuer (or another client of
such counsel) and any Indemnified Person; provided that the Issuer shall not in
such event be responsible hereunder for the fees and expenses of more than one
firm of separate counsel for all Indemnified Persons in connection with any
Action or related Actions, in addition to any local counsel. The Issuer shall
not be liable for any settlement of any Action effected without its written
consent (which shall not be unreasonably withheld). In addition, the Issuer
shall not, without the prior written consent of Source (which shall not be
unreasonably withheld), settle, compromise or consent to the entry of any
judgment in or otherwise seek to terminate any pending or threatened Action in
respect of which indemnification or contribution may be sought hereunder
(whether or not such Indemnified Person is a party thereto) unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Person from all Liabilities arising out of such Action for
which indemnification or contribution may be sought hereunder. The
indemnification required hereby shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
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In the event that the foregoing indemnity is unavailable to an Indemnified
Person other than in accordance with the Agreement, the Issuer shall contribute
to the Liabilities and Expenses paid or payable by such Indemnified Person in
such proportion as is appropriate to reflect (i) the relative benefits to the
Issuer, on the one hand, and to Source and any other Indemnified Person, on the
other hand, of the matters contemplated by the Agreement or (ii) if the
allocation provided by the immediately preceding clause is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Issuer, on the one hand, and Source and any other Indemnified Person, on the
other hand, in connection with the matters as to which such Liabilities or
Expenses relate, as well as any other relevant equitable considerations;
provided that in no event shall the Issuer contribute less than the amount
necessary to ensure that all Indemnified Persons, in the aggregate, are not
liable for any Liabilities and Expenses in excess of the amount of fees actually
received by Source pursuant to the Agreement. For purposes of this paragraph,
the relative benefits to the Issuer, on the one hand, and to Source on the other
hand, of the matters contemplated by the Agreement shall be deemed to be in the
same proportion as (a) the total value paid or contemplated to be paid to or
received or contemplated to be received by the Issuer in the transaction or
transactions that are within the scope of the Agreement, whether or not any such
transaction is consummated, bears to (b) the fees paid to Source under the
Agreement. Notwithstanding the above, no person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Securities Act of
1933, as amended, shall be entitled to contribution from a party who was not
guilty of fraudulent misrepresentation.
The Issuer also agrees that no Indemnified Person shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Issuer for
or in connection with advice or services rendered or to be rendered by any
Indemnified Person pursuant to the Agreement, the transactions contemplated
thereby or any Indemnified Person's actions or inactions in connection with any
such advice, services or transactions except for Liabilities (and related
Expenses) of the Issuer that have resulted primarily from such Indemnified
Person's gross negligence, bad faith or willful misconduct in connection with
any such advice, actions, inactions or services.
The reimbursement, indemnity and contribution obligations of the Issuer set
forth herein shall apply to any modification of the Agreement and shall remain
in full force and effect regardless of any termination of, or the completion of
any Indemnified Person's services under or in connection with, the Agreement.
ACCEPTED AND AGREED TO AS OF THE DATE FIRSTABOVE WRITTEN:
Alanco Technologies, Inc. Source Capital Group, Inc.
By: ___________________________ By: _____________________________
Robert R. Kauffman Richard Kreger
Chief Executive Officer Senior Managing Director
By: _____________________________
Russ Newton
Chief Financial Officer