$1,000,000 September 1, 2009
AMENDED AND RESTATED
CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, ALANCO TECHNOLOGIES, INC., an Arizona corporation
(the "Maker"), hereby promises to pay to ComVest Capital LLC, a Delaware
limited liability company ("ComVest"), or registered assigns (hereinafter,
collectively with ComVest, the "Payee"), the sum of One Million ($1,000,000)
Dollars (the "Principal"), with interest thereon, on the terms and conditions
set forth herein and in the Loan Agreement dated as of September 28, 2006 by
and between the Maker and ComVest (as same may be amended, modified,
supplemented and/or restated from time to time, the "Loan Agreement").
Capitalized terms defined in the Loan Agreement and not otherwise defined
herein shall have the meanings assigned thereto in the Loan Agreement.
Payments of principal of, interest on and any other amounts with respect
to this Convertible Term Note (this "Note") are to be made in lawful money of
the United States of America.
Principal and accrued interest of this Note may be convertible into common
stock of the Maker as provided in Section 3 below.
1. Payments.
(a) Interest. This Note shall bear interest ("Interest") on
Principal amounts outstanding from time to time at the rate of ten and one-half
(10.5%) percent per annum; provided, however, that during the continuance of
any Event of Default under the Loan Agreement, the interest rate hereunder
shall be increased to fifteen and one-half (15.5%) percent per annum. All
Interest shall be computed on the daily unpaid Principal balance of this Note
based on a three hundred sixty (360) day year, and shall be payable monthly in
arrears on the first day of each calendar month commencing October 1, 2009.
(b) Principal. The outstanding Principal of this Note shall be
payable (i) in two (2) monthly installments of $25,000 each due and payable on
September 1, 2009 and October 1, 2009, (ii) in three (3) further monthly
installments of $50,000 each due and payable on November 1, 2009, December 1,
2009 and January 1, 2010, (iii) in four (4) further monthly installments of
$100,000 each due and payable on the first day of each calendar month from
February 1, 2010 through and including May 1, 2010, and (iv) a final installment
due and payable on June 1, 2010, in an amount equal to the entire remaining
Principal balance of this Note.
(c) Non-Business Day. If any scheduled payment date as aforesaid
is not a business day in either the State of Florida or the State of Arizona,
then the payment to be made on such scheduled payment date shall be due and
payable on the next succeeding business day, with additional interest on any
Principal amount so delayed for the period of such delay.
2. Prepayment.
(a) Optional Prepayment of Principal. The Maker shall not prepay
any portion of the Principal without the Payee's prior written consent, which
consent may be withheld in the Payee's sole and absolute discretion.
(b) Mandatory Prepayments of Principal. The entire Principal
balance of this Note, and all accrued and unpaid Interest thereunder, (i) shall
be required to be prepaid upon the consummation of any Sale, and (ii) may be
required to be prepaid upon the occurrence of any Event of Default.
(c) Application of Payments. Any and all prepayments hereunder
shall be applied first to unpaid accrued Interest on the Principal amount being
prepaid, and then to Principal. Any and all prepayments of Principal hereunder
shall be applied to the installments under Section 1(b) above in the inverse
order of their maturity; provided, however, that any and all prepayments which
are deemed to occur by reason of partial conversions of Principal pursuant to
Section 3 below may, at the sole option of the Payee, be applied to such
installments in direct order of maturity.
3. Conversion.
(a) Optional Conversion. The Payee may, at its option, (i) at any
time and from time to time from and after the date of this Note through October
31, 2009, upon written notice to the Maker, convert up to $100,000 of Principal,
and/or any accrued Interest thereon, into shares of common stock of the Maker
("Common Stock") at a price of $.3474 per share of Common Stock, (ii) at any
time and from time to time from and after November 1, 2009 through December 31,
2009, up to an additional $100,000 of Principal, and/or any accrued Interest
thereon, into shares of Common Stock at a price per share equal to ninety (90%)
percent of the weighted average closing price for the Common Stock on the NASDAQ
capital market for the five (5) trading days before November 1, 2009, (iii) at
any time and from time to time from and after January 1, 2010 through February
28, 2010, up to an additional $100,000 of Principal, and/or any accrued Interest
thereon, into shares of Common Stock at a price per share equal to ninety (90%)
percent of the weighted average closing price for the Common Stock on the NASDAQ
capital market for the five (5) trading days before January 1, 2010, and (iv) at
any time and from time to time from and after the date of this Note, up to the
balance of Principal, and/or any accrued Interest thereon, into shares of Common
Stock at a price of $0.65 per share of Common Stock; and, subject to the time
limitations set forth herein, the Payee shall not be required to exercise any of
the conversion rights under the foregoing clauses (i), (ii), and/or (iii) prior
to exercise of the conversion rights under clause (iv). Each such conversion
price, as same may be adjusted from time to time in accordance herewith, is
referred to herein as a "Conversion Price". The date on which the Maker
receives a conversion election is herein referred to as the "Conversion Date."
To the extent that the Principal of this Note is converted only in part, then
such conversion shall be treated as a prepayment of the Principal amount
converted in accordance with Section 2(c) above.
(b) Mechanics of Conversion. Upon notice to the Maker of the
Payee's conversion election as provided in Section 3(a), the Maker shall, in
accordance with Section 3(c), issue to the Payee (or to the Payee's designee(s)
set forth in the Payee's conversion election) the number of shares of Common
Stock to which the Payee shall be entitled upon such conversion, and shall
deliver or cause to be delivered to the Payee or such designee(s) the
certificates representing such shares of Common Stock. All shares of Common
Stock issued or delivered upon any conversion hereunder shall, when issued or
delivered, be duly authorized, validly issued, fully paid and nonassessable.
In lieu of any fractional shares to which the Payee would otherwise be entitled,
the Maker shall pay cash equal to such fraction multiplied by the per share
Conversion Price.
(c) Issuance of Common Stock Upon Conversion. Within a reasonable
time, not exceeding five (5) Business Days after the Conversion Date, the Maker
shall deliver or cause to be delivered, to or upon the written order of the
Payee of this Note so converted, certificates representing the number of fully
paid and nonassessable shares of Common Stock into which this Note or the
applicable portion hereof has been converted in accordance with the provisions
of this Section 3. If so requested by the Maker, the Payee shall, within a
reasonable time (not exceeding five (5) Business Days after receipt by the Payee
of such certificates), surrender this Note to the Maker for cancellation,
against delivery of a replacement Note representing the remaining balance (if
any) of this Note which has not been converted. Subject to the following
provisions of this Section 3, such conversion shall be deemed to have occurred
on the Conversion Date, so that the Payee or the Payee's designee(s) shall be
treated for all purposes as having become the record holder of such shares of
Common Stock at such time.
(d) Taxes on Conversion. The issuance of certificates for shares
for Common Stock upon the conversion of this Note shall be made without charge
by the Maker to the converting Payee for any tax in respect of the issuance of
such certificates and such certificates shall be issued in the name of, or in
such names as may be directed by, the Payee; provided, however, that the Maker
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance or delivery of any such certificate in a name
other than that of the Payee, and the Maker shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Maker the amount of any such tax or
shall have established to the satisfaction of the Maker that any such tax has
been paid.
(e) Adjustment of Shares.
(i) Stock Dividends, Distributions or Subdivisions. In the
event that, at any time and from time to time from and after the date of this
Note, the Maker shall issue additional shares of Common Stock (or securities
convertible into Common Stock) in a stock dividend, stock distribution or
subdivision paid with respect to Common Stock, or declare any dividend or other
distribution payable in additional shares of Common Stock (or securities
convertible into Common Stock) or effect a split or subdivision of the
outstanding shares of Common Stock, then, concurrently with the effectiveness
of such stock dividend, stock distribution or subdivision, each then-effective
Conversion Price shall be proportionately decreased, and the number of shares of
Common Stock issuable upon conversion of this Note shall thus be proportionately
increased.
(ii) Combinations or Consolidations. In the event that, at any
time and from time to time from and after the date of this Note, the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then, concurrently
with the effectiveness of such combination or consolidation, each then-effective
Conversion Price shall be proportionately increased, and the number of shares of
Common Stock issuable upon conversion of this Note shall thus be proportionately
decreased.
(iii)Other Dividends or Distributions. If the Maker, at any
time or from time to time after the issuance of this Note, makes a distribution
to the holders of Common Stock which is payable in securities of the Maker other
than Common Stock, then, in each such event, provision shall be made so that the
Payee shall receive upon conversion of this Note, in addition to the number of
shares of Common Stock, the amount of such securities of the Maker which would
have been received if the portion of this Note so converted had been exercised
for Common Stock on the date of such event, subject to adjustments subsequent to
the date of such event with respect to such distributed securities which shall
be on terms as nearly equivalent as practicable to the adjustments provided in
this Section 3(e)(iii) and all other adjustments under this Section 3(e).
Nothing contained in this Section 3(e)(iii) shall be deemed to permit the
payment of any distribution in violation of the Loan Agreement.
(iv) Merger, Consolidation or Exchange. If, at any time or
from time to time after the date of this Note, there occurs any merger,
consolidation, arrangement or statutory share exchange of the Maker with or into
any other person or entity, then, in each such event, provision shall be made so
that the Payee shall receive upon conversion of this Note the kind and amount of
shares and other securities and property (including cash) which would have been
received upon such merger, consolidation, arrangement or statutory share
exchange by the Payee if the portion of this Note so converted had been
converted into shares of Common Stock immediately prior to such merger,
consolidation, arrangement or statutory share exchange, subject to adjustments
for events subsequent to the effective date of such merger, consolidation,
arrangement or statutory share exchange with respect to such shares and other
securities which shall be on terms as nearly equivalent as practicable to the
adjustments provided in this Section 3(e)(iv) and all other adjustments under
this Section 3(e). Nothing contained in this Section 3(e)(iv) shall be deemed
to permit any such transaction in violation of the Loan Agreement.
(v) Recapitalization or Reclassification. If, at any time or
from time to time after the date of this Note, the shares of Common Stock
issuable upon conversion of this Note are changed into the same or a different
number of securities of any class of the Maker, whether by recapitalization,
reclassification or otherwise (other than a merger, consolidation, arrangement
or statutory share exchange provided for elsewhere in this Section 3(e)), then,
in each such event, provision shall be made so that the Payee shall receive upon
conversion of this Note the kind and amount of securities or other property
which would have been received in connection with such recapitalization,
reclassification or other change by the Payee if the portion of this Note so
converted had been converted immediately prior to such recapitalization,
reclassification or change, subject to adjustments for events subsequent to the
effective date of such recapitalization, reclassification or other change with
respect to such securities which shall be on terms as nearly equivalent as
practicable to the adjustments provided in this Section 3(e)(v) and all other
adjustments under this Section 3(e).
(vi) Extraordinary Dividends or Distributions. If, at any time
or from time to time after the date of this Note, the Maker shall declare a
dividend or any other distribution upon the Common Stock payable otherwise than
out of current earnings, retained earnings or earned surplus and otherwise than
in shares of Common Stock, then each Conversion Price in effect immediately
prior to such declaration shall be reduced by an amount equal, in the case of a
dividend or distribution in cash, to the amount thereof payable per share of
Common Stock or, in the case of any other dividend or distribution, to the value
thereof per share of Common Stock at the time such dividend or distribution was
declared, as determined by the Board of Directors of the Maker in good faith.
Such reductions shall take effect as of the date on which a record is taken for
the purposes of the subject dividend or distribution, or, if a record is not
taken, the date as of which the holders of record of Common Stock entitled to
such dividend or distribution are to be determined. Nothing contained in this
Section 3(e)(vi) shall be deemed to permit the payment of any dividend or
distribution in violation of the Loan Agreement.
(vii)Certificate of Adjustment. Whenever a Conversion Price
and/or the number of shares of Common Stock or other property receivable upon
conversion of this Note is adjusted, the Maker shall promptly deliver to the
Payee a certificate of adjustment, setting forth each Conversion Price and/or
the shares of Common Stock or other property issuable after adjustment, a brief
statement of the facts requiring the adjustment and the computation by which the
adjustment was made. The certificate of adjustment shall be prima facie
evidence of the correctness of the adjustment.
(viii)Successive Application. The provisions of this Section
3(e) shall be applicable successively to each event described herein which may
occur subsequent to the date of this Note and prior to the conversion in full of
this Note.
(ix) Fractional Shares. No fractional shares of Common Stock
shall be issuable by reason of any adjustments made pursuant to this Section
3(e); and in lieu of any such fractional shares, the Maker shall pay cash
therefor in accordance with Section 3(b) above.
(f) No Impairment. The Maker will not, by amendment of its
Organic Documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder but will at all times in good
faith assist in the carrying out of all the provisions of this Section 3 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the Payee against impairment. In the event of
any merger or consolidation in which the Maker is not the surviving entity,
the Maker shall make appropriate arrangements in order that, upon any subsequent
conversion of this Note, the Payee shall become entitled to receive the same
securities or other consideration that the Payee would have received had such
conversion been made immediately prior to the consummation of such merger or
consolidation, subject to further adjustments, of the type provided in this
Note, with respect to any events relating to any such securities occurring
subsequent to the consummation of such merger or consolidation.
(g) Common Stock Reserved. The Maker shall at all times reserve
and keep available out of its authorized but unissued Common Stock such number
of shares of Common Stock as shall from time to time be sufficient to effect the
full conversion of this Note into Common Stock.
4. Events of Default. The occurrence or existence of an Event of
Default under the Loan Agreement shall constitute a default under this Note and
shall entitle the Payee to accelerate the entire indebtedness hereunder and take
such other action as may be provided for in the Loan Agreement and/or in any and
all other instruments evidencing and/or securing the indebtedness under this
Note, or as may be provided under the law.
5. Assignment. This Note shall be binding upon and shall inure to the
benefit of the respective successors and permitted assigns of the parties
hereto, provided that the Maker may not assign any of its rights or obligations
hereunder without the prior written consent of the Payee.
6. Waiver and Amendment. No waiver of a right in any instance shall
constitute a continuing waiver of successive rights, and any one waiver shall
govern only the particular matters waived. Neither any provision of this Note
nor any performance hereunder may be amended or waived except pursuant to an
agreement in writing signed by the party against whom enforcement thereof is
sought. Except as otherwise expressly provided in this Note, the Maker hereby
waives diligence, demand, presentment for payment, protest, dishonor,
nonpayment, default, notice of any and all of the foregoing, and any other
notice or action otherwise required to be given or taken under the law in
connection with the delivery, acceptance, performance, default, enforcement or
collection of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended, modified or subordinated (by forbearance or
otherwise) from time to time, without in any way affecting the liability of the
Maker. The Maker further waives the benefit of any exemption under the
homestead exemption laws, if any, or any other exemption, appraisal or
insolvency laws, and consents that the Payee may release or surrender, exchange
or substitute any personal property or other collateral security now held or
which may hereafter be held as security for the payment of this Note.
7. Governing Law. This Note shall be construed in accordance with and
governed by the laws of the State of New York, except to the extent superseded
by Federal enactments.
8. Consent to Jurisdiction; Waiver of Jury Trial. The Maker hereby
consents to the jurisdiction of all courts of the State of New York and the
United States District Court for the Southern District of New York, as well as
to the jurisdiction of all courts from which an appeal may be taken from such
courts, for the purpose of any suit, action or other proceeding arising out of
or with respect to this Note. The Maker hereby waives the right to interpose any
counterclaims (other than compulsory counterclaims) in any action brought by
the Payee hereunder, provided that this waiver shall not preclude the Maker from
pursuing any such claims by means of separate proceedings. THE MAKER HEREBY
EXPRESSLY WAIVES ANY AND ALL OBJECTIONS WHICH IT MAY HAVE AS TO VENUE IN ANY OF
SUCH COURTS, AND ALSO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY SUCH SUIT,
ACTION OR PROCEEDING. The Payee may file a copy of this Note as evidence of the
foregoing waiver of right to jury trial.
9. Usury Savings Clause. All agreements between the Maker and the
Payee are hereby expressly limited to provide that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the
Payee for the use, forbearance or detention of the indebtedness evidenced hereby
exceed the maximum amount which the Payee is permitted to receive under
applicable law. If, from any circumstances whatsoever, fulfillment of any
provision hereof or of the Loan Agreement or any Loan Document thereunder, at
the time performance of such provision shall be due, shall involve transcending
the limit of validity prescribed by law, then, ipso facto, the obligation to be
fulfilled shall automatically be reduced to the limit of such validity, and if
from any circumstance the Payee shall ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance of any of
the Maker's Obligations (as such term is defined in the Loan Agreement) to the
Payee, and not to the payment of interest hereunder. To the extent permitted by
applicable law, all sums paid or agreed to be paid for the use, forbearance or
detention of the indebtedness evidenced by this Note shall be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full, to the end that the rate or amount of interest on account
of such indebtedness does not exceed any applicable usury ceiling. As used
herein, the term "applicable law" shall mean the law in effect as of the date
hereof, provided, however, that in the event there is a change in the law which
results in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date. This provision shall control
every other provision of all agreements between the Maker and the Payee.
10. Collection Costs. In the event that the Payee shall place this Note
in the hands of an attorney for collection during the continuance of any Event
of Default, the Maker shall further be liable to the Payee for all costs and
expenses (including reasonable attorneys' fees) which may be incurred by the
Payee in enforcing this Note, all of which costs and expenses shall be
obligations under and part of this Note; and the Payee may take judgment for all
such amounts in addition to all other sums due hereunder.
11. Effect on Prior Note. This Note amends, restates and supercedes in
its entirety the Amended and Restated Convertible Term Note dated August 26,
2008 in the principal amount of $1,000,000 issued by the Maker to ComVest,
provided that this Note does not effect a novation of the outstanding
obligations under such prior Amended and Restated Convertible Term Note (all of
which obligations shall henceforth be evidenced by this Note).
IN WITNESS WHEREOF, the Maker has executed this Note on the date first
above written.
ALANCO TECHNOLOGIES, INC.
By:_______________________________________
Name:
Title:
