Exhibit 99.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of July
9, 2010, between Alanco Technologies, Inc., an Arizona corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), the Company desires to issue and sell
to each Purchaser, and each Purchaser, severally and not jointly, desires to
purchase from the Company, securities of the Company as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:
"Acquiring Person" shall have the meaning ascribed to such term in
Section 4.5.
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common
control with a Person as such terms are used in and construed under Rule
405 under the Securities Act.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day except any Saturday, any Sunday, any day
which is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by
law or other governmental action to close.
"Closing" means the closing of the purchase and sale of the Securities
pursuant to Section 2.1.
"Closing Date" means the Trading Day on which all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations to
pay the Subscription Amount and (ii) the Company's obligations to deliver
the Securities, in each case, have been satisfied or waived, but in no
event later than the third Trading Day following the date hereof.
1
"Closing Statement" means the Closing Statement in the form on Annex A
attached hereto.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the Class A common stock of the Company and any
other class of securities into which such securities may hereafter be
reclassified or changed.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries 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 exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"Company Counsel" means Steven P. Oman, Esq., with offices located at
8664 E. Chama Rd, Scottsdale, AZ 85255.
"Disclosure Schedules" means the Disclosure Schedules of the Company
delivered concurrently herewith.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted for such purpose, by a majority of the
non-employee members of the Board of Directors or a majority of the members
of a committee of non-employee directors established for such purpose, (b)
securities upon the exercise or exchange of or conversion of any Securities
issued hereunder and/or other securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date
of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities
or to decrease the exercise price, exchange price or conversion price of
such securities, and (c) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the disinterested
directors of the Company, provided that any such issuance shall only be to
a Person (or to the equityholders of a Person) which is, itself or through
its subsidiaries, an operating company or an asset in a business
synergistic with the business of the Company and shall provide to the
Company additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose primary
business is investing in securities.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"Indebtedness" shall have the meaning ascribed to such term in Section
3.1(z).
2
"Intellectual Property Rights" shall have the meaning ascribed to such
term in Section 3.1(o).
"Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such term
in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Per Share Purchase Price" equals $0.23, subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date of
this Agreement.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the final prospectus filed for the Registration
Statement.
"Prospectus Supplement" means the supplement to the Prospectus
complying with Rule 424(b) of the Securities Act that is filed with the
Commission and delivered by the Company to each Purchaser at the Closing.
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.8.
"Registration Statement" means the effective registration statement
with Commission file No. 333-163288 which registers the sale of the Shares,
the Warrants and the Warrant Shares to the Purchasers.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended or interpreted from time to
time, or any similar rule or regulation hereafter adopted by the Commission
having substantially the same purpose and effect as such Rule.
3
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Shares, the Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" means the shares of Common Stock issued or issuable to each
Purchaser pursuant to this Agreement.
"Short Sales" means all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include
the location and/or reservation of borrowable shares of Common Stock).
"Subscription Amount" means, as to each Purchaser, the aggregate
amount to be paid for Shares and Warrants purchased hereunder as specified
below such Purchaser's name on the signature page of this Agreement and
next to the heading "Subscription Amount," in United States dollars and in
immediately available funds.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a), and shall, where applicable, also include any direct or
indirect subsidiary of the Company formed or acquired after the date
hereof.
"Trading Day" means a day on which the principal Trading Market is
open for trading.
"Trading Market" means any of the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global
Market, the Nasdaq Global Select Market, the New York Stock Exchange or the
OTC Bulletin Board (or any successors to any of the foregoing).
"Transaction Documents" means this Agreement, the Warrants and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.
"Transfer Agent" means Computershare Trust Company, the current
transfer agent of the Company, with a mailing address of 350 Indiana
Street, Suite 800, Golden, CO 80401 and a facsimile number of (303)
262-0603, and any successor transfer agent of the Company.
"Variable Rate Transaction" shall have the meaning ascribed to such
term in Section 4.11(b).
"Warrants" means, collectively, the Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Warrants shall be exercisable June 9, 2010 and have a
term of exercise equal to three years, in the form of Exhibit A attached
hereto.
4
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase, up to an
aggregate of $500,000 of Shares and Warrants. Each Purchaser shall deliver to
the Company, via wire transfer or a certified check of immediately available
funds equal to such Purchaser's Subscription Amount as set forth on the
signature page hereto executed by such Purchaser and the Company shall deliver
to each Purchaser its respective Shares and a Warrant as determined pursuant to
Section 2.2(a), and the Company and each Purchaser shall deliver the other items
set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the
covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall
occur at the offices of Source Capital Group, Inc. or such other location as the
parties shall mutually agree.
2.2 Deliveries.
(a) On or prior to the Closing Date, the Company shall deliver or
cause to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, substantially in the
form of Exhibit B attached hereto;
(iii) a copy of the irrevocable instructions to the Company's
transfer agent instructing the transfer agent to deliver via the
Depository Trust Company Deposit Withdrawal Agent Commission System
("DWAC") Shares equal to such Purchaser's Subscription Amount divided
by the Per Share Purchase Price, registered in the name of such
Purchaser;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 35% of such
Purchaser's Shares, with an exercise price equal to $0.33, subject to
adjustment therein (such Warrant certificate may be delivered within
three Trading Days of the Closing Date); and
(v) the Prospectus and Prospectus Supplement (which may be
delivered in accordance with Rule 172 under the Securities Act).
(b) On or prior to the Closing Date, each Purchaser shall deliver
or cause to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser; and
5
(ii) such Purchaser's Subscription Amount by wire transfer to the
account as specified in writing by the Company.
(iii) In addition, each Purchaser shall cause his broker to issue
or deliver to the Company's transfer agent sufficient instructions to
allow for issuance of the DWAC Shares to the Purchaser's account.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of
the representations and warranties of the Purchasers contained herein
(unless as of a specific date therein);
(ii) all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the Closing Date shall have
been performed; and
(iii) the delivery by each Purchaser of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions
being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Company
contained herein (unless as of a specific date therein);
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the
Company's principal Trading Market (except for any suspension of
trading of limited duration agreed to by the Company, which suspension
shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or
New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case,
in the reasonable judgment of each Purchaser, makes it impracticable
or inadvisable to purchase the Securities at the Closing.
6
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the Disclosure Schedules and in the SEC Reports, which SEC Reports and
Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation or otherwise made herein, the Company hereby makes the following
representations and warranties to each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries of
the Company are set forth in the SEC Reports. The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens other than as
stated in the SEC Reports, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights
to subscribe for or purchase securities. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of them
in the Transaction Documents shall be disregarded.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the requisite
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company nor
any Subsidiary is in violation nor default of any of the provisions of
its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in: (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the results of operations, assets,
business, prospects or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material
respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and
no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
7
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action
on the part of the Company and no further action is required by the
Company, the Board of Directors or the Company's stockholders in
connection therewith other than in connection with the Required
Approvals. Each Transaction Document to which it is a party has been
(or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company 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)
insofar as indemnification and contribution provisions may be limited
by applicable law.
(d) No Conflicts. The execution, delivery and performance by the
Company of the Transaction Documents, the issuance and sale of the
Securities and the consummation by it of the transactions contemplated
hereby and thereby to which it is a party do not and will not (i)
conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) 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 Company 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
Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, 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 Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse
Effect.
(e) Filings, Consents and Approvals. The Company 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
in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than: (i) the filings
required pursuant to Section 4.4 of this Agreement, (ii) the filing
with the Commission of the Prospectus Supplement, (iii) application(s)
to each applicable Trading Market for the listing of the Securities
for trading thereon in the time and manner required thereby and (iv)
such filings as are required to be made under applicable state
securities laws (collectively, the "Required Approvals").
8
(f) Issuance of the Securities; Registration. The Securities are
duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company. The Warrant Shares, when issued in accordance with the
terms of the Warrants, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock the
maximum number of shares of Common Stock issuable pursuant to this
Agreement and the Warrants. The Company has prepared and filed the
Registration Statement in conformity with the requirements of the
Securities Act, which became effective on December 30, 2009 (the
"Effective Date"), including the Prospectus, and such amendments and
supplements thereto as may have been required to the date of this
Agreement. The Registration Statement is effective under the
Securities Act and no stop order preventing or suspending the
effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus has been issued by the Commission
and no proceedings for that purpose have been instituted or, to the
knowledge of the Company, are threatened by the Commission. The
Company, if required by the rules and regulations of the Commission,
proposes to file the Prospectus, with the Commission pursuant to Rule
424(b). At the time the Registration Statement and any amendments
thereto became effective, at the date of this Agreement and at the
Closing Date, the Registration Statement and any amendments thereto
conformed and will conform in all material respects to the
requirements of the Securities Act and did not and will not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading; and the Prospectus and any amendments or
supplements thereto, at time the Prospectus or any amendment or
supplement thereto was issued and at the Closing Date, conformed and
will conform in all material respects to the requirements of the
Securities Act and did not and will not contain an untrue statement of
a material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
(g) Capitalization. The capitalization of the Company is as set
forth in the SEC Reports or on Schedule 3.1(g). Except as set forth in
a subsequently filed SEC Report, the Company has not issued any
capital stock since its most recently filed periodic report under the
Exchange Act, other than pursuant to the exercise of employee stock
options under the Company's stock option plans, the issuance of shares
of Common Stock to employees pursuant to the Company's employee stock
purchase plans and pursuant to the conversion and/or exercise of
Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. No Person has
any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated
by the Transaction Documents. Except as a result of the purchase and
sale of the Securities, and except as stated in the SEC Reports, there
are no outstanding options, warrants, scrip rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary
is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will
9
not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale
of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to
be filed by the Company under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the
foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, together with the Prospectus and
the Prospectus Supplement, being collectively referred to herein as
the "SEC Reports") on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of
the Securities Act and the Exchange Act, as applicable, and none of
the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. The Company has never been an issuer subject to Rule
144(i) under the Securities Act. The financial statements of the
Company included in the SEC Reports comply in all material respects
with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied on
a consistent basis during the periods involved ("GAAP"), except as may
be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material
respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit
adjustments, other than the potential RFID goodwill impairment as
disclosed in the most recent 10-Q filed with the SEC.
10
(i) Material Changes; Undisclosed Events, Liabilities or
Developments. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof,
(i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent
or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or disclosed in
filings made with the Commission, (iii) the Company has not altered
its method of accounting, (iv) the Company has not declared or made
any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock, other than as required with
respect to the Company's outstanding preferred stock, and (v) the
Company has not issued any equity securities to any officer, director
or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request
for confidential treatment of information. Except for the issuance of
the Securities contemplated by this Agreement or as set forth on
Schedule 3.1(i), no event, liability, fact, circumstance, occurrence
or development has occurred or exists or is reasonably expected to
occur or exist with respect to the Company or its Subsidiaries or
their respective business, prospects, properties, operations, assets
or financial condition that would be required to be disclosed by the
Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this
representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty which has not been dismissed with
prejudice. There has not been, and to the knowledge of the Company,
there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or
officer of the Company. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company, which could reasonably be expected to result
in a Material Adverse Effect. None of the Company's or its
Subsidiaries' employees is a member of a union that relates to such
employee's relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information
11
agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant in favor of any third party, and
the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with
respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours,
except where the failure to be in compliance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(l) Compliance. Neither the Company nor any Subsidiary: (i) is in
default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of
any judgment, decree or order of any court, arbitrator or governmental
body or (iii) is or has been in violation of any statute, rule,
ordinance or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws
applicable to its business and all such laws that affect the
environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably
be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of
any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them
and good and marketable title in all personal property owned by them
that is material to the business of the Company and the Subsidiaries,
in each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property
by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases with which the Company
and the Subsidiaries are in compliance.
12
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade
secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights necessary or material for use in
connection with their respective businesses as described in the SEC
Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any Subsidiary has received a notice (written or
otherwise) that any of the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement
by another Person of any of the Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. Neither
the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant
increase in cost.
(q) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company
or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $120,000 other
than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Sarbanes-Oxley; Internal Accounting Controls. The Company's
officer certifications concerning its internal controls appended to
its SEC Filings are accurate as if made on the date hereof and
incorporated herein by reference.
(s) Certain Fees. Except as set forth in the Prospectus
Supplement, no brokerage or finder's fees or commissions are or will
be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the
Transaction Documents. The Purchasers 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 transactions contemplated by the
Transaction Documents.
13
(t) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not
become an "investment company" subject to registration under the
Investment Company Act of 1940, as amended.
(u) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(v) Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. Except as set forth in the SEC Reports, the Company has
not, in the 12 months preceding the date hereof, received notice from
any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing
and maintenance requirements.
(w) Application of Takeover Protections. No control share
acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover
provision under the Company's certificate of incorporation (or similar
charter documents) or the laws of its state of incorporation is
applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under
the Transaction Documents, including without limitation as a result of
the Company's issuance of the Securities and the Purchasers' ownership
of the Securities. The previous sentence assumes that no Purchaser
currently owns sufficient shares so that the addition of the
Securities to be acquired hereunder would cause such Purchaser to own
20% or more of the Company's Class A Common Stock.
(x) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction
Documents, the Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that it believes constitutes or
might constitute material, non-public information which is not
otherwise disclosed in the Prospectus Supplement. The Company
understands and confirms that the Purchasers will rely on the
foregoing representation in effecting transactions in securities of
the Company. All of the disclosure furnished by or on behalf of the
Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules
to this Agreement, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact
14
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. The
press releases disseminated by the Company during the twelve months
preceding the date of this Agreement taken as a whole do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made and when made, not misleading. The Company acknowledges and
agrees that no Purchaser makes or has made any representations or
warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3.2 hereof.
(y) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
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 security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities
to be integrated with prior offerings by the Company for purposes of
any applicable shareholder approval provisions of any Trading Market
on which any of the securities of the Company are listed or
designated.
(z) Solvency. Based on the consolidated financial condition of
the Company as of the Closing Date, after giving effect to the receipt
by the Company of the proceeds from the sale of the Securities
hereunder, (i) the fair saleable value of the Company's assets exceeds
the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known
contingent liabilities) as they mature, (ii) the Company's assets do
not constitute unreasonably small capital to carry on its business as
now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements
and capital availability thereof, and (iii) the current cash flow of
the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts
on or in respect of its liabilities when such amounts are required to
be paid. The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it
to believe that it will file for reorganization or liquidation under
the bankruptcy or reorganization laws of any jurisdiction within one
year from the Closing Date.
(aa) Tax Status. Except for matters that would not, individually
or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns
and has paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been asserted
or threatened against the Company or any Subsidiary.
15
(bb) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf
of the Company, has (i) directly or indirectly, used any funds for
unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(cc) Accountants. The Company's accounting firm is set forth in
the SEC Reports. To the knowledge and belief of the Company, such
accounting firm (i) is a registered public accounting firm as required
by the Exchange Act and (ii) shall express its opinion with respect to
the financial statements to be included in the Company's Annual Report
for the year ending June 30, 2010.
(dd) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm's length purchaser with
respect to the Transaction Documents and the transactions contemplated
thereby. The Company further acknowledges that no Purchaser is acting
as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any
Purchaser or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers' purchase
of the Securities. The Company further represents to each Purchaser
that the Company's decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and
its representatives.
(ee) Acknowledgement Regarding Purchaser's Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Sections 3.2(e) and 4.13 hereof), it is
understood and acknowledged by the Company that: (i) none of the
Purchasers have been asked by the Company to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any
specified term; (ii) past or future open market or other transactions
by any Purchaser, specifically including, without limitation, Short
Sales or "derivative" transactions, before or after the closing of
this or future private placement transactions, may negatively impact
the market price of the Company's publicly-traded securities; (iii)
any Purchaser, and counter-parties in "derivative" transactions to
which any such Purchaser is a party, directly or indirectly, presently
may have a "short" position in the Common Stock, and (iv) each
Purchaser shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction.
The Company further understands and acknowledges that (y) one or more
Purchasers may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Warrant Shares
deliverable with respect to Securities are being determined, and (z)
such hedging activities (if any) could reduce the value of the
existing stockholders' equity interests in the Company at and after
the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
16
(ff) Regulation M Compliance. The Company has not, and to its
knowledge no one acting on its behalf has, (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
Company 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, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to
purchase any other securities of the Company, other than, in the case
of clauses (ii) and (iii), compensation paid to the Company's
placement agent in connection with the placement of the Securities.
3.2 Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser, hereby represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows (unless as of a
specific date therein):
(a) Organization; Authority. Such Purchaser is either an
individual or an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into
and to consummate the transactions contemplated by this Agreement and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and performance by such
Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate, partnership, limited
liability company or similar action, as applicable, on the part of
such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms, except: (i) as limited by
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) insofar as
indemnification and contribution provisions may be limited by
applicable law.
(b) Understandings or Arrangements. Such Purchaser is acquiring
the Securities as principal for its own account and has no direct or
indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to
sell the Securities pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities
laws). Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business.
17
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and as of the date hereof it is, and on each date
on which it exercises any Warrants, it will be either: (i) an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable
of evaluating the merits and risks of the prospective investment in
the Securities, and has so evaluated the merits and risks of such
investment. Such Purchaser is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) Certain Transactions and Confidentiality. Other than
consummating the transactions contemplated hereunder, such Purchaser
has not, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, directly or indirectly executed any
purchases or sales, including Short Sales, of the securities of the
Company during the period commencing as of the time that such
Purchaser first received a term sheet (written or oral) as of the
Company or any other Person representing the Company setting forth the
material terms of the transactions contemplated hereunder and ending
immediately prior to the execution hereof. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage separate
portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser's assets, the
representation set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made
to it in connection with this transaction (including the existence and
terms of this transaction). Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a
representation or warranty, or preclude any actions, with respect to
the identification of the availability of, or securing of, available
shares to borrow in order to effect Short Sales or similar
transactions in the future.
The Company acknowledges and agrees that the representations contained in
Section 3.2 shall not modify, amend or affect such Purchaser's right to rely on
the Company's representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated hereby.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Warrant Shares. If all or any portion of a Warrant is exercised at a
time when there is an effective registration statement to cover the issuance or
resale of the Warrant Shares or if the Warrant is exercised via cashless
exercise, the Warrant Shares issued pursuant to any such exercise shall be
issued free of all legends. If at any time following the date hereof the
Registration Statement (or any subsequent registration statement registering the
sale or resale of the Warrant Shares) is not effective or is not otherwise
18
available for the sale or resale of the Warrant Shares, the Company shall
immediately notify the holders of the Warrants in writing that such registration
statement is not then effective and thereafter shall promptly notify such
holders when the registration statement is effective again and available for the
sale or resale of the Warrant Shares (it being understood and agreed that the
foregoing shall not limit the ability of the Company to issue, or any Purchaser
to sell, any of the Warrant Shares in compliance with applicable federal and
state securities laws). The Company shall use best efforts to keep a
registration statement (including the Registration Statement) registering the
issuance or resale of the Warrant Shares effective during the term of the
Warrants. Upon a cashless exercise of a Warrant, the holding period for purposes
of Rule 144 shall tack back to the original date of issuance of such Warrant.
4.2 Furnishing of Information. Until the earliest of the time that (i) no
Purchaser owns Securities or (ii) the Warrants have expired, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act even if the Company
is not then subject to the reporting requirements of the Exchange Act. As long
as any Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities, including without
limitation, under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act, including without limitation, within the
requirements of the exemption provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the closing of
such other transaction unless shareholder approval is obtained before the
closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 2:30 p.m.
(New York City time) on the date hereof, issue a press release disclosing the
material terms of the transactions contemplated hereby, and issue a Current
Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby, and including the Transaction Documents as exhibits thereto
within the time required by the Exchange Act. From and after the issuance of
such press release, the Company shall have publicly disclosed all material,
non-public information delivered to any of the Purchasers by the Company or any
of its subsidiaries, or any of their respective officers, directors, employees
or agents in connection with the transactions contemplated by the Transaction
Documents. The Company and each Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor any Purchaser shall issue any such press
release nor otherwise make any such public statement without the prior consent
of the Company, with respect to any press release of any Purchaser, or without
the prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
19
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (a) as required by federal
securities law in connection with the filing of final Transaction Documents
(including signature pages thereto) with the Commission and (b) to the extent
such disclosure is required by law or Trading Market regulations, in which case
the Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (b).
4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers. The previous sentence assumes that no Purchaser currently owns
sufficient shares so that the addition of the Securities to be acquired
hereunder would cause such Purchaser to own 20% or more of the Company's Common
Stock.
4.6 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement with the
Company regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.
4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and shall not use such proceeds for: (a) the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
(b) the redemption of any Common Stock or Common Stock Equivalents or (c) the
settlement of any outstanding litigation.
4.8 Indemnification of Purchasers. Subject to the provisions of this
Section 4.8, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
20
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by such Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
counsel, a material conflict on any material issue between the position of the
Company and the position of such Purchaser Party, in which case the Company
shall be responsible for the reasonable fees and expenses of no more than one
such separate counsel. The Company will not be liable to any Purchaser Party
under this Agreement (y) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (z) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents.
4.9 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.10 Listing of Common Stock. The Company hereby agrees to use best efforts
to maintain the listing or quotation of the Common Stock on the Trading Market
on which it is currently listed, and concurrently with the Closing, the Company
shall apply to list or quote all of the Shares and Warrant Shares on such
Trading Market and promptly secure the listing of all of the Shares and Warrant
Shares on such Trading Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Trading Market, it will
then include in such application all of the Shares and Warrant Shares, and will
take such other action as is necessary to cause all of the Shares and Warrant
Shares to be listed or quoted on such other Trading Market as promptly as
possible. The Company will then take all action reasonably necessary to continue
the listing and trading of its Common Stock on a Trading Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Trading Market.
21
4.11 Subsequent Equity Sales.
(a) From the date hereof until 30 days after the Closing Date,
neither the Company nor any Subsidiary shall issue, enter into any
agreement to issue or announce the issuance or proposed issuance of
any registered shares of Common Stock or Common Stock Equivalents.
(b) From the date hereof until 30 days after the Closing Date,
the Company shall be prohibited from effecting or entering into an
agreement to effect any issuance by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents for cash
consideration (or a combination of units hereof) involving a Variable
Rate Transaction. "Variable Rate Transaction" means a transaction in
which the Company (i) issues or sells 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 (A) at a
conversion price, exercise price or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations
for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a 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 or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities
at a future determined price. Any Purchaser shall be entitled to
obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages.
(c) Notwithstanding the foregoing, this Section 4.11 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction shall be an Exempt Issuance.
4.12 Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) 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 Purchaser by the Company
and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.13 Certain Transactions and Confidentiality. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that neither it nor any
Affiliate acting on its behalf or pursuant to any understanding with it will
execute any purchases or sales, including Short Sales of any of the Company's
securities during the period commencing with the execution of this Agreement and
ending at such time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company pursuant to the initial
press release as described in Section 4.4, such Purchaser will maintain the
22
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Notwithstanding the foregoing
and notwithstanding anything contained in this Agreement to the contrary, the
Company expressly acknowledges and agrees that (i) no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in effecting
transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.4, (ii) no
Purchaser shall be restricted or prohibited from effecting any transactions in
any securities of the Company in accordance with applicable securities laws from
and after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality to the
Company or its Subsidiaries after the issuance of the initial press release as
described in Section 4.4. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.
4.14 Delivery of Warrants After Closing. The Company shall deliver, or
cause to be delivered, the respective Warrant agreements or certificates
purchased by each Purchaser to such Purchaser within 3 Trading Days of the
Closing Date.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before July
14, 2010; provided, however, that no such termination will affect the right of
any party to sue for any breach by the other party (or parties).
5.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, the Prospectus and the Prospectus Supplement, contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the parties acknowledge have been merged into
such documents, exhibits and schedules.
23
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchasers holding at least 67% in
interest of the Shares then outstanding or, in the case of a waiver, by the
party against whom enforcement of any such waived provision is sought. No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers."
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
24
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then, in addition to the obligations of the Company under Section
4.8, the prevailing party in such action or proceeding shall be reimbursed by
the other party for its reasonable attorneys' fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Securities.
5.11 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a ".pdf" format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or ".pdf" signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of an exercise of a Warrant, the
25
applicable Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded exercise notice concurrently with the return to
such Purchaser of the aggregate exercise price paid to the Company for such
shares and the restoration of such Purchaser's right to acquire such shares
pursuant to such Purchaser's Warrant (including, issuance of a replacement
warrant certificate evidencing such restored right).
5.14 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by any of the Purchasers.
26
5.18 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto. In
addition, each and every reference to share prices and shares of Common Stock in
any Transaction Document shall be subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.
5.21 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.
(Signature Pages Follow)
27
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
ALANCO TECHNOLOGIES, INC. Address for Notice:
15575 North 83rd Way, Suite 3
Scottsdale, AZ 85260
By:__________________________________________ Fax: (480) 607-1010
Name: John A. Carlson
Title: Chief Financial Officer
With a copy to (which shall not constitute notice):
Steven P. Oman, Esq.
8664 E. Chama Rd
Scottsdale, AZ 85255
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
28
[PURCHASER SIGNATURE PAGES TO ALANCO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser: ___________________________
Name of Authorized Signatory: _____________________________________________
Title of Authorized Signatory: ____________________________________________
Email Address of Authorized Signatory:_____________________________________
Facsimile Number of Authorized Signatory: _________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription Amount: $_________________
Shares: _________________
Warrant Shares: __________________
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
29