ALANCO TECHNOLOGIES, INC.
15575 North 83rd Way, Suite 3
Scottsdale, Arizona 85260
(480) 607-1010
PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held January 20, 2006
TO THE SHAREHOLDERS OF ALANCO TECHNOLOGIES, INC.
NOTICE HEREBY IS GIVEN that the Annual Meeting of Shareholders of Alanco
Technologies, Inc., an Arizona corporation ("Alanco" or the "Company"), will be
held at 15575 North 83rd Way, Suite 3, Scottsdale, Arizona 85260, on January 20,
2006, at 10:00 a.m., Mountain Standard Time, and at any adjournment or
postponement thereof, for the purpose of considering and acting upon the
following Proposals:
Proposal No. 1 ELECTION OF DIRECTORS.
Proposal No. 2 APPROVAL OF THE ALANCO 2005 STOCK OPTION PLAN.
Proposal No. 3 APPROVAL OF THE ALANCO 2005 DIRECTORS AND OFFICERS STOCK
OPTION PLAN.
Proposal No. 4 APPROVAL OF A PROPOSAL TO AUTHORIZE THE BOARD OF
DIRECTORS, ONLY IF NECESSARY, TO REVERSE SPLIT THE
COMPANY'S OUTSTANDING CLASS A COMMON STOCK ON A BASIS NOT
TO EXCEED ONE SHARE OF CLASS A COMMON STOCK FOR UP TO TEN
SHARES OUTSTANDING. IF THE BOARD OF DIRECTORS HAS NOT
EFFECTED THE ACTION CONTEMPLATED HERUNDER BY DECEMBER 31,
2008, THIS AUTHORIZATION WILL CEASE.
Holders of the outstanding Common Stock and Preferred Stock of the Company of
record at the close of business on November 25, 2005, will be entitled to notice
of and to vote at the Meeting or at any adjournment or postponement thereof.
All shareholders, whether or not they expect to attend the Annual Meeting of
Shareholders in person, are urged to sign and date the enclosed Proxy and return
it promptly in the enclosed postage-paid envelope which requires no additional
postage if mailed in the United States. The giving of a proxy will not affect
your right to vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS.
Scottsdale, Arizona ADELE L. MACKINTOSH
November 28, 2005 SECRETARY
ALANCO TECHNOLOGIES, INC.
15575 North 83rd Way, Suite 3
Scottsdale, Arizona 85260
(480) 607-1010
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 20, 2006
GENERAL INFORMATION
The enclosed Proxy is solicited by and on behalf of the Board of Directors of
Alanco Technologies, Inc., an Arizona corporation (the "Company"), for use at
the Company's Annual Meeting of Shareholders to be held at 15575 North 83rd Way,
Suite 3, Scottsdale, Arizona 85260, on the 20th day of January, 2006, at 10:00
a.m., Mountain Standard Time, and at any adjournment or postponement thereof. It
is anticipated that this Proxy Statement and the accompanying Proxy will be
mailed to the Company's shareholders on or before December 19, 2005.
The expense of soliciting proxies, including the cost of preparing, assembling
and mailing this proxy material to shareholders, will be borne by the Company.
It is anticipated that solicitations of proxies for the Meeting will be made
only by use of the mails; however, the Company may use the services of its
Directors, Officers and employees to solicit proxies personally or by telephone
without additional salary or compensation to them. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the proxy soliciting
materials to the beneficial owners of the Company's shares held of record by
such persons, and the Company will reimburse such persons for their reasonable
out-of-pocket expenses incurred by them in that connection.
Shares not voting as a result of a proxy not marked or marked to abstain will be
counted as part of total shares voting in order to determine whether or not a
quorum has been achieved at the Meeting. Shares registered in the name of a
broker-dealer or similar institution for beneficial owners to whom the
broker-dealer distributed notice of the Annual Meeting and proxy information and
which such beneficial owners have not returned proxies or otherwise instructed
the broker-dealer as to voting of their shares, will be counted as part of the
total shares voting in order to determine whether or not a quorum has been
achieved at the Meeting.
All shares represented by valid proxies will be voted in accordance therewith at
the Meeting unless such proxies have previously been revoked. Proxies may be
revoked at any time prior to the time they are voted by: (a) delivering to the
Secretary of the Company a written instrument of revocation bearing a date later
than the date of the proxy; or (b) duly executing and delivering to the
Secretary a subsequent proxy relating to the same shares; or (c) attending the
meeting and voting your proxy in person (although attendance at the Meeting will
not in and of itself constitute revocation of a proxy.)
The Company's Annual Report to Shareholders for the fiscal year ended June 30,
2005, has been previously mailed or is being mailed simultaneously to the
Company's shareholders, but does not constitute part of these proxy soliciting
materials.
SHARES OUTSTANDING AND VOTING RIGHTS
Voting rights are vested in the holders of the Company's Common Stock and
Preferred Stock. Only shareholders of record at the close of business on
November 25, 2005, are entitled to notice of and to vote at the Meeting or any
adjournment or postponement thereof. As of November 25, 2005, the Company had
28,745,227 shares of Class A Common Stock issued and outstanding, no shares of
Class B Common Stock issued and outstanding, 2,947,128 shares of Series A
Convertible Preferred Stock issued and outstanding and 69,692 shares of Series B
Convertible Preferred Stock issued and outstanding. Each Class A Common share is
entitled to one vote, each Series A Convertible Preferred share is entitled to
three votes (the equivalent number of common shares into which the Series A
Convertible Preferred Stock is convertible), and each Series B Convertible
Preferred share is entitled to thirteen votes (the equivalent number of common
shares into which the Series B Convertible Preferred Stock is convertible). If
the number of common shares into which the preferred stock is convertible (the
"common stock equivalent") is considered, the total shares eligible to vote,
including the common stock and the common stock equivalent, on the record date
are 38,492,607 shares, each of which is entitled to one vote on all matters to
1
be voted upon at the Meeting, including the election of Directors. No fractional
shares are presently outstanding. A majority of the Company's outstanding voting
stock represented in person or by proxy shall constitute a quorum at the
Meeting. The affirmative vote of a majority of the votes cast, providing a
quorum is present, is necessary to approve each proposal.
Each shareholder present, either in person or by proxy, will have cumulative
voting rights with respect to the election of Directors. Under cumulative
voting, each shareholder is entitled to as many votes as is equal to the number
of shares of Common Stock (or common stock equivalent) of the Company held by
the shareholder on the Record Date multiplied by the number of directors to be
elected, and such votes may be cast for any single nominee or divided among two
or more nominees. The seven nominees, or such fewer number of nominees as may
stand for election, receiving the highest number of votes will be elected to the
Board of Directors. There are no conditions precedent to the exercise of
cumulative voting rights. Unless otherwise instructed in any proxy, the persons
named in the form of proxy which accompanies this Proxy Statement (the "Proxy
Holders") will vote the proxies received by them for the Company's seven
nominees set forth in "Election of Directors" below. If additional persons are
nominated for election as directors, the Proxy Holders intend, unless otherwise
instructed in any proxy, to vote all proxies received by them in such manner in
accordance with cumulative voting as will assure the election of as many of the
Company's nominees as possible, and, in such event, the specific nominees for
whom votes will be cast will be determined by the Proxy Holders. If authority to
vote for any nominee of the Company is withheld in any proxy, the Proxy Holders
intend, unless otherwise instructed in such proxy, to vote the shares
represented by such proxy, in their discretion, cumulatively for one or more of
the other nominees of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND OF MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information with respect to each
shareholder known by Alanco to be the beneficial owner of more than 5% of the
outstanding Alanco common stock or common stock equivalent as of November 25,
2005. Information regarding the stock ownership of Robert R. Kauffman, Alanco
Chairman and Chief Executive Officer, and Donald E. Anderson, Alanco Director,
is also shown in the table in the following section, Current Directors and
Executive Officers.
Five Percent Owners
Class A Total Total
Common Common Total Stock,
Shares Stock Stock Options &
Owned Equivalent Exercisable Owned Warrants
Class A Percent Series A Total Owned Stock and Percent of
Common of Preferred Common Percent Options Options Common
Shares Class Shares Stock of and and Equivalent
Owned (5) Owned (4) Equivalent Class(5) Warrants Warrants Class (6)
--------- ------- --------- ---------- ---------- ----------- -------- -----------
Technology Systems 4,500,000 15.65% - 4,500,000 11.69% - 4,500,000 11.69%
International, Inc.(1)
Donald E. Anderson (2) 2,501,261 8.70% 1,012,062 5,537,447 14.39% 1,405,000 6,942.447 17.40%
Robert R. Kauffman (3) 642,000 2.23% 631,387 2,536,161 6.59% 2,827,500 5,363,661 12.98%
(1) Technology Systems International, Inc., a Nevada corporation, (TSIN) is an
independent, private company, which was issued 6,000,000 shares of Alanco
common stock in 2002 in connection with the acquisition of the assets of
TSIN effective in June 2002. The only Form 13D filed by TSIN was filed on
September 9, 2002, and indicated TSIN ownership of 6,000,000 Alanco common
shares. TSIN is currently in bankruptcy proceeding and to our knowledge, no
filings have been made by TSIN to adjust that initial Form 13D filing.
However, based on stock transfer records and information obtained from
public bankruptcy hearings, we believe the current TSIN ownership of Alanco
common stock is approximately 4.5 million shares. To our knowledge, no
person or entity owns in excess of 25% of the outstanding shares of TSIN.
The only TSIN shareholder that we are aware of who may beneficially control
a significant percentage of the outstanding shares of TSIN, and who could
potentially own more than 5% of the outstanding Alanco common stock
equivalent, is Richard C. Jones, who, to the best of our knowledge, owns
approximately 5.3 million TSIN shares, representing approximately 23% of
the outstanding TSIN shares. TSIN has previously indicated their intention
2
to distribute the shares of Alanco common stock in excess of certain
corporate litigation and liquidation expenses on a pro-rata basis to their
shareholders; however, the shares have not been distributed as of the date
of this Proxy Statement, and there is no assurance that the shares will be
distributed. The address of TSIN is c/o Jeffrey M. Proper, 3550 North
Central Avenue, Suite 1200, Phoenix, Arizona 85012.
(2) The number of shares, options and warrants owned includes The Anderson
Family Trust, owner of 1,748,161 shares of Alanco Class A Common Stock,
561,234 shares of Alanco Series A Convertible Preferred Stock and 725,000
exercisable warrants; Programmed Land, Inc., owner of 733,100 shares of
Alanco Class A Common Stock, 450,828 shares of Alanco Series A Convertible
Preferred Stock and 500,000 exercisable warrants, both of which Mr.
Anderson claims beneficial ownership; and 20,000 shares of Alanco Class A
Common Stock and 180,000 exercisable options owned by Mr. Anderson. The
1,012,062 shares of Series A Convertible Preferred Stock beneficially owned
by Mr. Anderson represent 34.34% of the total Series A Convertible
Preferred shares outstanding. Mr. Anderson's address is 11804 North Sundown
Drive, Scottsdale, Arizona 85260.
(3) In addition to the shares shown above, Robert R. Kauffman, Alanco Chairman
and Chief Executive Officer, also beneficially owns 455,000 shares of TSIN
stock, representing an ownership position of less than 2% of the
outstanding TSIN shares. If TSIN distributes the shares of Alanco common
stock owned by TSIN to TSIN shareholders on a proportionate basis, Mr.
Kauffman may acquire additional shares of Alanco common stock, thereby
slightly increasing his percentage of Alanco common shares owned; but due
to matters as discussed in Footnote 1 above, we are unable to accurately
calculate the changes to Mr. Kauffman's ownership. The 631,387 shares of
Series A Convertible Preferred Stock beneficially owned by Mr. Kauffman
represent 21.42% of the total Series A Convertible Preferred shares
outstanding. The address for Mr. Kauffman is: c/o Alanco Technologies,
Inc., 15575 North 83rd Way, Suite 3, Scottsdale, Arizona 85260.
(4) Preferred Shares are Series A Convertible Preferred Stock, each share of
which is convertible into three (3) shares of Class A Common Stock. As of
November 25, 2005, there are 2,947,128 shares of Series A Convertible
Preferred Stock outstanding. The 5% owners do not own any shares of the
Series B Convertible Preferred Stock.
(5) The percentages for Class A Common Stock shown are calculated based upon
28,745,227 shares of Class A Common Stock outstanding on November 25, 2005.
The percentages for Total Common Stock Equivalent are calculated based upon
38,492,607 shares outstanding on November 25, 2005.
(6) In calculating the percentage of ownership, option and warrant shares are
deemed to be outstanding for the purpose of computing the percentage of
shares of common stock equivalent owned by such person, but are not deemed
to be outstanding for the purpose of computing the percentage of shares of
common stock equivalent owned by any other stockholders.
Current Directors and Executive Officers
The following table sets forth the number of exercisable stock options and the
number of shares of the Company's Common Stock and Preferred Stock beneficially
owned as of November 25, 2005, by individual directors and executive officers
and by all directors and executive officers of the Company as a group.
The number of shares beneficially owned by each director or executive officer is
determined under rules of the Securities and Exchange Commission, and the
information is not necessarily indicative of the beneficial ownership for any
other purpose. Unless otherwise indicated, each person has sole investment and
voting power (or shares such power with his or her spouse) with respect to the
shares set forth in the following table.
3
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
Securities of the Registrant Beneficially Owned (1)
Total
Class A Shares Series A Shares Total Shares Total Stock,
Common Owned Preferred Owned Common Owned Exerciseable Stock Options
Stock Percent Stock Percent Stock Percent Stock Owned + & Warrants
Name of Shares of Class Shares of Class Equivalent of Class Options & Options & Percent of
Beneficial Owner (2) Owned (7) Owned (7) Owned (7) Warrants (8) Warrants Class (9)
---------------------- --------- -------- ------------- --------- ---------- -------- ------------ ---------- -----------
Robert R. Kauffman (3) 642,000 2.23% 631,387 21.42% 2,536,161 6.59% 2,827,500 5,363,661 12.98%
Director/COB/CEO
John A. Carlson 250,644 0.87% 122,675 4.16% 618,669 1.61% 1,210,000 1,828,669 4.61%
Director/EVP/CFO
Harold S. Carpenter 305,541 1.06% 219,765 (5) 7.46% 964,836 2.51% 400,000 1,364,836 3.51%
Director
James T. Hecker 32,893 0.11% 25,652 (6) 0.87% 109,849 0.29% 300,000 409,849 1.06%
Director
Steven P. Oman 10,000 0.03% 12,629 0.43% 47,887 0.12% 285,000 332,887 0.86%
Director
Thomas C. LaVoy 55,265 0.19% 44,260 1.50% 188,045 0.49% 280,000 468,045 1.21%
Director
Donald E. Anderson (4) 2,501,261 8.70% 1,012,062 34.34% 5,537,447 14.39% 1,405,000 6,942,447 17.40%
Director
Greg M. Oester 57,888 0.20% 12,440 0.42% 95,208 0.25% 1,070,000 1,165,208 2.95%
President - TSIA
--------- ---------- ---------- ------------ ----------
Officers and Directors 3,855,492 13.41% 2,080,870 70.61% 10,098,102 26.23% 7,777,500 17,875,602 38.63%
as a Group (8 individuals) ========= ========== ========== ============ ==========
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally indicates voting
or investment power with respect to securities. In accordance with SEC
rules, shares that may be acquired upon conversion or exercise of stock
options, warrants or convertible securities which are currently
exercisable or which become exercisable within 60 days are deemed
beneficially owned. Except as indicated by footnote, and subject to
community property laws where applicable, the persons or entities named
in the table above have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned.
(2) COB is Chairman of the Board; CEO is Chief Executive Officer; EVP is
Executive Vice President; CFO is Chief Financial Officer. (3) In addition
to the shares shown above, Robert R. Kauffman, Alanco Chairman and Chief
Executive Officer, also beneficially owns
455,000 shares of TSIN stock, representing an ownership position of less
than 2% of the outstanding TSIN shares. If TSIN distributes the shares of
Alanco common stock owned by TSIN to TSIN shareholders on a proportionate
basis, Mr. Kauffman may acquire additional shares of Alanco common stock,
thereby slightly increasing his percentage of Alanco common shares owned;
but due to matters as discussed in Footnote 1 to the Five Percent Owners
table above, we are unable to accurately calculate the changes to Mr.
Kauffman's ownership. The 631,387 shares of Series A Convertible
Preferred Stock beneficially owned by Mr. Kauffman represent 21.42% of
the total Series A Convertible Preferred shares outstanding.
(4) The number of shares, options and warrants owned includes The Anderson
Family Trust, owner of 1,748,161 shares of Alanco Class A Common Stock,
561,234 shares of Alanco Series A Convertible Preferred Stock and 725,000
exercisable warrants; Programmed Land, Inc., owner of 733,100 shares of
Alanco Class A Common Stock, 450,828 shares of Alanco Series A
Convertible Preferred Stock and 500,000 exercisable warrants, both of
which Mr. Anderson claims beneficial ownership; and 20,000 shares of
Alanco Class A Common Stock and 180,000 exercisable options owned by Mr.
Anderson. The 1,012,062 shares of Series A Convertible Preferred Stock
beneficially owned by Mr. Anderson represent 34.34% of the total Series A
Convertible Preferred shares outstanding.
(5) Excludes 440,000 shares of Class A Common Stock, 301,391 shares of Series
A Convertible Preferred Stock and 230,000 warrants to purchase Class A
Common Stock owned by Heartland Systems Co., a company for which Mr.
Carpenter serves as an officer. Mr. Carpenter disclaims beneficial
ownership of such shares.
(6) Excludes 510,000 shares of Class A Common Stock, 333,402 shares of Series
A Convertible Preferred Stock and 255,000 warrants to purchase Class A
Common Stock owned by Rhino Fund LLLP. The fund is controlled by Rhino
4
Capital Incorporated, for which Mr. Hecker serves as Treasurer and
General Counsel. Mr. Hecker disclaims beneficial ownership of such
shares.
(7) The percentages for Class A Common Stock shown are calculated based upon
28,745,227 shares of Class A Common Stock outstanding on November 25,
2005. The percentages for Series A Convertible Preferred Stock are
calculated based upon 2,947,128 shares of Series A Convertible Preferred
Stock outstanding on November 25, 2005, each of which is convertible into
three (3) shares of Class A Common Stock. The percentages for Common
Stock Equivalent shares are calculated based upon 38,492,607 Common Stock
Equivalent shares outstanding as of November 25, 2005.
(8) Represents unexercised stock options and warrants issued to named
executive officers and directors. All options and warrants issued to the
executive officers and directors were exercisable at November 25, 2005.
Greg Oester also holds the following options: 75,000 options which become
exercisable in fiscal year 2006, 25,000 options which become exercisable
in fiscal 2007, and 50,000 options which become exercisable in fiscal
year 2008.
(9) The number and percentages shown include the shares of common stock
equivalent actually owned as of November 25, 2005 and the shares of
common stock that the identified person or group had a right to acquire
within 60 days after November 25, 2005. The percentages shown are
calculated based upon 38,492,607 Common Stock Equivalent shares
outstanding as of November 25, 2005. In calculating the percentage of
ownership, option and warrant shares are deemed to be outstanding for the
purpose of computing the percentage of shares of common stock equivalent
owned by such person, but are not deemed to be outstanding for the
purpose of computing the percentage of shares of common stock equivalent
owned by any other stockholders.
Meetings and Committees of the Board of Directors
The Board of Directors has a Compensation/Administration Committee, which was
formed in 1995 and is comprised of Messrs. Harold S. Carpenter and James T.
Hecker, who are independent directors of the Company. The
Compensation/Administration Committee recommends to the Board the compensation
of executive officers and serves as the Administrative Committee for the
Company's Stock Option Plans. The Compensation/Administration Committee met
three times during the fiscal year ended June 30, 2005.
The Board of Directors also has an Audit/Corporate Governance Committee. The
Audit Committee was originally formed in 1995. In September 2004, the Board of
Directors approved a name change for the committee to Audit/Corporate Governance
Committee to more accurately reflect the additional duties and responsibilities
of the committee as required by the Sarbanes-Oxley Act of 2002. The
Audit/Corporate Governance Committee, comprised of Messrs. Harold S. Carpenter,
James T. Hecker, and Thomas C. LaVoy, all of whom are independent non-employee
directors of the Company who have significant business experience and are deemed
to be financially knowledgeable, serves as a liaison between the Board and the
Company's auditor. The Audit/Corporate Governance Committee provides general
oversight of the Company's financial reporting and disclosure practices, system
of internal controls, and the Company's processes for monitoring compliance with
Company policies. The Audit/Corporate Governance Committee reviews with the
Company's independent auditors the scope of the audit for the year, the results
of the audit when completed, and the independent auditor's fee for services
performed. The Audit/Corporate Governance Committee also recommends independent
auditors to the Board of Directors and reviews with management various matters
related to its internal accounting controls. The Audit/Corporate Governance
Committee is comprised of independent members as defined under the National
Association of Securities Dealers listing standards. The Audit/Corporate
Governance Committee met three times during the fiscal year ended June 30, 2005.
All meetings held by the Board of Directors' committees were attended by each of
the directors serving on such committees.
The final Board committee is the Nominating/Independent Directors Committee,
which is comprised of Messrs. Harold S. Carpenter, James T. Hecker, Thomas C.
LaVoy, and Donald E. Anderson, all members of the Company's Board of Directors
who have been determined by the Board to meet the qualification as "independent"
director as set forth in Rule 10A-3 of the Exchange Act. Per Board resolution,
the Nominating/Independent Directors Committee approves all management
nominations for members of the Company's Board of Directors. In addition, the
Nominating/Independent Directors Committee meets in regularly scheduled
executive sessions at which only the independent directors are present.
The Company's Board of Directors held three meetings during the fiscal year
ended June 30, 2005, at which time all Directors were present. All current
members of the Board of Directors' committees are expected to be nominated for
reelection at a meeting of the Board of Directors following the annual meeting.
Compliance with Section 16(a) of Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers and Directors, and persons who own more than 10% of a registered class
5
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
Directors and greater than 10% shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon a review of the copies of such forms furnished to the Company, or
written representations that no Form 5's were required, the Company believes
that as of the date of filing of this Proxy Statement, all Section 16(a) filing
requirements applicable to its officers, Directors and greater than 10%
beneficial owners were satisfied, with the exception of Technology Systems
International, Inc., a Nevada corporation (TSIN), who, to the best of our
knowledge, continues to own approximately 4.5 million shares of the Company's
Class A Common Stock. TSIN is currently in Chapter 7 Bankruptcy proceedings and
has not, to our knowledge, filed any current Section 16 (d) forms.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid or accrued by the Company
for the services rendered during the fiscal years ended June 30, 2005, 2004 and
2003 to the Company's Chief Executive Officer, Chief Financial Officer, and
President of the Company's subsidiary, Alanco/TSI PRISM, Inc., an Arizona
corporation (ATSI), acquired effective June 1, 2002, whose salaries and bonus
exceeded $100,000 during the last fiscal year (collectively, the "Named
Executive Officers"). No stock appreciation rights ("SARs") have been granted by
the Company to any of the Named Executive Officers during the last three fiscal
years.
Annual Compensation Long-Term Compensation
--------------------------------- ----------------------
Name and Other (1) Securities (# shares)
Principal Annual Annual Underlying Options
Position Salary Bonus Compensation Granted during FY
$
-------------------------------- --------- -------- ------------ ----------------------
Robert R. Kauffman, C.E.O.
FY 2005 $183,750 None 17,400 100,000
FY 2004 180,000 None 17,400 650,000
FY 2003 180,000 None 17,400 150,000
John A. Carlson, C.F.O.
FY 2005 163,333 None 10,033 75,000
FY 2004 160,000 None 9,467 350,000
FY 2003 160,000 None 8,866 75,000
Greg M. Oester, President, ATSI
FY 2005 154,500 None None 35,000
FY 2004 146,625 None None 250,000
FY 2003 148,234 None None None
(1) Represents supplemental executive benefit reimbursement for the year
and Company matching for Alanco's 401(K) Profit Sharing Plan.
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 2005, to each of the Named Executive Officers and/or
Directors and to all other employees as a group. No stock appreciation rights
("SARs") have been granted by the Company.
INDIVIDUAL GRANTS
Number of
Securities
Underlying % of Total Exercise
Options Options Price Grant Expiration
Name Granted Granted ($/Sh) Date Date
---------------------- ------------ ------------- ---------------- ------------ ------------
Robert Kauffman 100,000 15.63% 0.75 2/16/05 2/16/15
John Carlson 75,000 11.72% 0.75 2/16/05 2/16/15
Donald Anderson 20,000 3.13% 0.75 2/16/05 2/16/15
Harold Carpenter 20,000 3.13% 0.75 2/16/05 2/16/15
Greg Oester 35,000 5.47% 0.75 2/16/05 2/16/15
Other Employees 390,000 60.94% $0.75 - $1.50 Various (1)
------------ -------------
Total 640,000 100.00%
============ =============
(1) These options expire ten years from the date of grant.
6
All options are granted at a price not less than "grant-date market." During the
fiscal year 673,750 previously granted stock options expired or were cancelled.
Aggregated Options and Warrants - Exercised in Last Fiscal Year and Values at
Fiscal Year End
The following table sets forth the number of exercised and unexercised options
and warrants held by each of the Named Executive Officers and/or Directors at
June 30, 2005, and the value of the unexercised, in-the-money options at June
30, 2005.
Unexercised Value of
Shares Options & Warrants Unexercised
Acquired On Value at Fiscal In-The-Money
Exercise During Realized Year End Options & Warrants
Name 2005 Fiscal Year $ (1) (Shares) (2) at FYE $ (3)
--------------- --------------- -------- ---------------- -----------------
Robert Kauffman 305,000 162,000 2,407,500 697,000
John Carlson 150,000 54,750 950,000 180,750
Harold Carpenter 195,000 115,900 320,000 29,800
James Hecker 21,000 14,910 220,000 33,600
Steven Oman 10,000 7,100 205,000 10,800
Thomas LaVoy 35,265 25,038 180,000 18,400
Donald Anderson 1,228,161 574,194 1,325,000 25,990
Greg Oester 45,000 7,800 985,000 50,500
(1) Calculated as the difference between closing price on the date exercised
and the exercise price, multiplied by the number of options exercised.
(2) Represents the number of securities underlying unexercised options
and warrants that were exercisable at 2005 Fiscal Year End. Greg Oester
also holds 125,000 options which become exercisable in fiscal year 2006.
(3) Calculated as the difference between the closing price of the Company's
Common Stock on June 30, 2005, and the exercise price for those options
exercisable on June 30, 2005, with an exercise price less than the
closing price, multiplied by the number of applicable options.
Option Grants Subsequent to Fiscal Year End
Number of
Underlying
Securities
Options Date of Date Expiration Option
Name Granted Grant Exercisable Date Price
------------------- ------------ -------- ------------ ---------- -----------
Robert R. Kauffman 400,000 (1) 9/13/05 9/13/05 9/13/15 $0.81
40,000 (1) 11/16/05 11/16/05 11/16/08 $0.46
John A. Carlson 200,000 (1) 9/13/05 9/13/05 9/13/15 $0.81
120,000 (1) 11/16/05 11/16/05 11/16/08 $0.46
Harold S. Carpenter 80,000 (2) 9/13/05 9/13/05 9/13/15 $0.81
James T. Hecker 80,000 (2) 9/13/05 9/13/05 9/13/15 $0.81
Steven P. Oman 80,000 (2) 9/13/05 9/13/05 9/13/15 $0.81
Thomas C. LaVoy 80,000 (2) 9/13/05 9/13/05 9/13/15 $0.81
40,000 (2) 11/16/05 11/16/05 11/16/08 $0.46
Donald E. Anderson 80,000 (2) 9/13/05 9/13/05 9/13/15 $0.81
Greg M. Oester 100,000 (3) 9/20/05 Varies (5) 9/20/15 $0.81
20,000 (1) 11/16/05 11/16/05 11/16/08 $0.46
Other Employees 860,000 (4) Various Various Various $0.70-$1.00
(1) Issued pursuant to the 2004 Stock Option Plan
(2) Issued pursuant to the 2004 Directors & Officers Stock Option Plan
(3) Issued pursuant to the 1999 Stock Option Plan
(4) Issued pursuant to the 2000, 2002 and 2004 Stock Option Plans
(5) 25% vest on 9/20/2005, 25% vest on 9/20/2006; and 50% vest on 9/20/2007
7
Employment Agreements and Executive Compensation
The Executive Officers are at-will employees without employment agreements.
Compensation of Directors
During Fiscal Year 2005, non-employee Directors were compensated for their
services in cash ($750 per meeting per day up to a maximum of $1,500 per
meeting) and through the grant of options to acquire shares of Class A Common
Stock as provided by the 1996, 1998, 1999, 2000, 2002, and 2004 Directors and
Officers Stock Option Plans (the "D&O Plans") which are described below. All
Directors are entitled to receive reimbursement for all out-of-pocket expenses
incurred for attendance at Board of Directors meetings.
The 1996 Directors and Officers Stock Option Plan was approved by the Board of
Directors on September 9, 1996. Shareholders approved the 1998, 1999, 2000,
2002, and 2004 Directors and Officers Stock Option Plans on November 6, 1998,
November 5, 1999, November 10, 2000, November 22, 2002, and November 19, 2004,
respectively. The purpose of the 1996, 1998, 1999, 2000, 2002, and 2004 D&O
Plans is to advance the business and development of the Company and its
shareholders by affording to the Directors and Officers of the Company the
opportunity to acquire a propriety interest in the Company by the grant of
Options to acquire shares of the Company's common stock. All Directors and
Executive Officers of the Company are eligible to participate in the 1996, 1998,
1999, 2000, 2002, and 2004 Plans. Newly appointed Directors receive options to
purchase shares of common stock at fair market value. Upon each subsequent
anniversary of the election to the Board of Directors, each non-employee
Director may receive an additional option to purchase shares of common stock at
fair market value.
Transactions with Management
Mr. Steve Oman, a member of the Board of Directors, received compensation in the
amount of approximately $91,000 for legal services to the Company for the fiscal
year ended June 30, 2005.
Under a Line of Credit Agreement, Mr. Donald Anderson, a member of the Board of
Directors, as trustee and beneficial owner of the Anderson Family Trust, was
granted 75,000 five-year warrants in March 2005 at a strike price of $0.90
valued at $23,200. In addition, the interest paid to the Anderson Family Trust
in fiscal year 2005 under the Line of Credit Agreement was approximately
$45,000.
AUDIT/CORPORATE GOVERNANCE COMMITTEE REPORT (1)
The Audit/Corporate Governance Committee of the Board of Directors is currently
comprised of three independent directors, and operates under a written charter
adopted by the Board. The members of the Audit/Corporate Governance Committee
are Harold S. Carpenter, a CEO with over 30 years senior management experience,
James T. Hecker, an attorney and CPA, and Thomas C. LaVoy, a CPA. All three
individuals are experienced in reading and understanding financial statements,
and, in fact, are deemed to be financial experts as defined by audit committee
requirements.
The Audit/Corporate Governance Committee is directly responsible for the
appointment, compensation, retention and oversight of the work of the
independent auditor engaged for the purpose of preparing an audit report or
performing other audit, review or attest services for the Company. The auditor
reports directly to the Audit/Corporate Governance Committee. The
Audit/Corporate Governance Committee has established "whistleblower" procedures
for the receipt, retention and treatment of complaints regarding accounting,
internal accounting controls or auditing matters, including procedures for the
confidential anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
Authority to engage independent counsel and other advisors has been given to the
Audit/Corporate Governance Committee as it determines is necessary to carry out
its duties. The Company provides appropriate funding for the Audit/Corporate
Governance Committee to compensate the outside auditors and any lawyers and
advisors it employs and to fund ordinary administrative expenses of the
Audit/Corporate Governance Committee that are necessary in carrying out its
duties.
The Audit/Corporate Governance Committee provides general oversight of the
Company's financial reporting and disclosure practices, system of internal
controls, and the Company's processes for monitoring compliance by the Company
with Company policies. The Audit/Corporate Governance Committee reviews with the
Company's independent auditors the scope of the audit for the year, the results
of the audit when completed, and the independent auditor's fee for services
performed. The Audit/Corporate Governance Committee also recommends independent
auditors to the Board of Directors and reviews with management various matters
related to its internal accounting controls. During the last fiscal year, there
were three meetings of the Audit/Corporate Governance Committee.
8
Management is responsible for the Company's internal controls and the financial
reporting process. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with the auditing standards of the Public Company Accounting
Oversight Board (United States) and issuing a report thereon. The
Audit/Corporate Governance Committee is responsible for overseeing and
monitoring the quality of the Company's accounting and auditing practices.
The members of the Audit/Corporate Governance Committee are not professionally
engaged in the practice of auditing or accounting and may not be experts in the
fields of accounting or auditing, or in determining auditor independence.
Members of the Audit/Corporate Governance Committee rely, without independent
verification, on the information provided to them and on the representations
made by management and the independent accountants. Accordingly, the
Audit/Corporate Governance Committee's oversight does not provide an independent
basis to determine that management has maintained procedures designed to assure
compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit/Corporate Governance Committee's considerations and
discussions referred to above do not assure that the audit of the Company's
financial statements has been carried out in accordance with auditing standards
generally accepted in the United States, that the financial statements are
presented in accordance with accounting principles generally accepted in the
United States of America or that the Company's auditors are in fact
"independent."
Review of Audited Financial Statements
In this context, the Audit/Corporate Governance Committee reviewed and discussed
the Company's audited financial statements with management and with the
Company's independent auditors. Management represented to the Audit/Corporate
Governance Committee that the Company's consolidated financial statements were
prepared in accordance with auditing standards of the Public Company Accounting
Oversight Board (United States). Discussions about the Company's audited
financial statements included the auditor's judgments about the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments and the clarity of disclosures in its financial
statements. The Audit/Corporate Governance Committee also discussed with the
auditors other matters required by Statement on Auditing Standards, ("SAS") No.
61 "Communication with Audit Committees," as amended by SAS No. 90, "Audit
Committee Communications."
The Company's auditors provided to the Committee written disclosures required by
the Independence Standards Board Standard No. 1 "Independence Discussion with
Audit Committee." The Audit/Corporate Governance Committee discussed with the
auditors their independence from the Company, and considered the compatibility
of non-audit services with the auditor's independence.
Audit Fees
The aggregate fees billed by Semple & Cooper, LLP, the Company's independent
auditor, for professional services rendered for the audit of the Company's
annual financial statements for the fiscal years ended June 30, 2005 and 2004
and the review of the financial statements included in the Company's Forms
10-QSB for such fiscal years were approximately $96,900 and $78,500,
respectively.
Financial Information Systems Design and Implementation
There were no fees billed for the professional services described in Paragraph
(c)(4)(ii) of Rule 2-01 of Regulation S-X rendered by Semple & Cooper, LLP for
the fiscal year ended June 30, 2005.
All Other Fees
Semple & Cooper, LLP billed the Company during fiscal year 2005 and 2004 a total
of approximately $10,000 and $10,000, respectively, for tax preparation and tax
consulting services. The Audit Committee has considered whether the provision of
these services is compatible with maintaining the principal accountant's
independence.
Audit Committee Pre-Approval Policies and Procedures
The 2005 and 2004 audit services provided by Semple & Cooper, LLP were approved
by our Audit/Corporate Governance Committee. The Audit/Corporate Governance
Committee implemented pre-approval policies and procedures related to the
provision of audit and non-audit services. Under these procedures, the
9
Audit/Corporate Governance Committee pre-approves both the type of services to
be provided by our independent accountants and the estimated fees related to
these services. During the approval process, the Audit/Corporate Governance
Committee considers the impact of the types of services and related fees on the
independence of the auditor. These services and fees must be deemed compatible
with the maintenance of the auditor's independence, in compliance with the SEC
rules and regulations. Throughout the year, the Audit/Corporate Governance
Committee and, if necessary, the Board of Directors, reviews revisions to the
estimates of audit and non-audit fees initially approved.
Recommendation
Based on the Audit/Corporate Governance Committee's discussion with management
and the auditors, and the Audit/Corporate Governance Committee's review of the
representations of management and the report of the auditors to the
Audit/Corporate Governance Committee, the Audit/Corporate Governance Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-KSB for the year ended June
30, 2005, filed with the Securities and Exchange Commission.
AUDIT/CORPORATE GOVERNANCE COMMITTEE
James T. Hecker
Harold S. Carpenter
Thomas C. LaVoy
-------------------------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the commission and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the
date hereof and irrespective of any general incorporation language in any such
filing.
Proposal No. 1 ELECTION OF DIRECTORS
The Articles of Incorporation presently provide for a Board of Directors of not
more than nine members. The number of Directors of the Company has been fixed at
seven by the Company's Board of Directors. The Company's Board of Directors
recommends the election of the seven nominees listed below to hold office until
the next Annual Meeting of Shareholders or until their successors are elected
and qualified or until their earlier death, resignation or removal. The persons
named as "proxies" in the enclosed form of Proxy, who have been designated by
Management, intend to vote for the seven nominees for election as Directors
unless otherwise instructed in such proxy. If at the time of the Meeting, any of
the nominees named below should be unable to serve, which event is not expected
to occur, the discretionary authority provided in the Proxy will be exercised to
cumulatively vote for the remaining nominees, or for a substitute nominee or
nominees, if any, as shall be designated by the Board of Directors.
Nominees
All nominees for Director have been approved by the Company's
Nominating/Independent Directors Committee. The following table sets forth the
name and age of each nominee for Director, indicating all positions and offices
with the Company presently held by him, and the period during which he has
served as such:
Year
Name Age Position First Director
---- --- -------- --------------
Harold S. Carpenter 71 Director 1995
James T. Hecker 48 Director 1997
Robert R. Kauffman 65 Director/C.O.B./C.E.O. 1998
Thomas C. LaVoy 45 Director 1998
Steven P. Oman 56 Director 1998
John A. Carlson 58 Director/E.V.P./C.F.O. 1999
Donald E. Anderson 71 Director 2002
Business Experience of Nominees
Robert R. Kauffman: Mr. Kauffman was appointed as Chief Executive Officer and
Chairman of the Board effective July 1, 1998. Mr. Kauffman was formerly
President and Chief Executive Officer of NASDAQ-listed Photocomm, Inc., from
1988 until 1997 (since renamed Kyocera Solar, Inc.). Photocomm was the nation's
largest publicly owned manufacturer and marketer of wireless solar electric
10
power systems with annual revenues in excess of $35 million. Prior to Photocomm,
Mr. Kauffman was a senior executive of the Atlantic Richfield Company (ARCO)
whose varied responsibilities included Senior Vice President of ARCO Solar,
Inc., President of ARCO Plastics Company and Vice President of ARCO Chemical
Company. Mr. Kauffman earned an M.B.A. in Finance at the Wharton School of the
University of Pennsylvania, and holds a B.S. in Chemical Engineering from
Lafayette College, Easton, Pennsylvania.
Harold S. Carpenter: Mr. Carpenter is presently the President of Superiorgas
Co., Des Moines, Iowa, which is engaged in the business of trading and brokering
bulk refined petroleum products with gross sales of approximately $500 million
per year. He is also the General Partner of Superiorgas L.P., an investment
company affiliated with Superiorgas Co. Mr. Carpenter founded these companies in
1984 and 1980, respectively. Mr. Carpenter is also the President of Carpenter
Investment Company, Des Moines, Iowa, which is a real estate investment company
holding properties primarily in central Iowa. From 1970 until 1994, Mr.
Carpenter was the Chairman of the George A. Rolfes Company of Boone, Iowa, which
manufactured air pollution control equipment. Mr. Carpenter graduated from the
University of Iowa in 1958 with a Bachelor of Science and Commerce degree.
James T. Hecker: Mr. Hecker is both an Attorney and a Certified Public
Accountant. Since 1987, Mr. Hecker has been Vice President, Treasurer and
General Counsel of Rhino Capital Incorporated, Evergreen, Colorado, a private
capital management company which manages a $60 million portfolio. He also
served, since 1992, as a trustee of an $11 million charitable trust. From 1984
to 1987, Mr. Hecker was the Controller of Northern Pump Company, Minneapolis,
Minnesota, a multi-state operating oil and gas company with more than 300
properties, with responsibility of all accounting and reporting functions. Prior
to that, from 1981 to 1984, Mr. Hecker was Audit Supervisor of Total Petroleum,
Inc., Denver, Colorado, responsible for all phases of internal audit and
development of audit and systems controls. Mr. Hecker received a J.D. degree
from the University of Denver in 1992, and a B.B.A. degree in Accounting and
International Finance from the University of Wisconsin in 1979. He is a member
in good standing of the Colorado and the American Bar Associations, the Colorado
Society of CPAs, and the American Institute of CPAs.
Steven P. Oman: Mr. Oman was appointed to the Board in June 1998. Since 1991,
Mr. Oman has been in the private practice of law in Phoenix, Arizona. From 1986
to 1991, Mr. Oman served as Vice President and General Counsel of Programmed
Land, Inc., a Scottsdale-based diversified holding company engaged in real
estate, including ownership, development, marketing and management of
properties, as well as non-real estate subsidiaries involved in the electronics
and automotive industries. Prior to that, from 1978 to 1986, Mr. Oman was
President and General Counsel of Charter Development, Inc., a real estate
development firm in St. Paul, Minnesota. Mr. Oman received a J.D. degree, cum
laude, in 1975 from William Mitchell College of Law, St. Paul, Minnesota, and a
Bachelor of Mechanical Engineering degree from the University of Minnesota,
Institute of Technology, Minneapolis, Minnesota, in 1970.
Thomas C. LaVoy: Thomas C. LaVoy has served as Chief Financial Officer of
SuperShuttle International, Inc., since July 1997 and as Secretary since March
1998. From September 1987 to February 1997, Mr. LaVoy served as Chief Financial
Officer of NASDAQ-listed Photocomm, Inc. Mr. LaVoy was a Certified Public
Accountant with the firm of KPMG Peat Marwick from 1980 to 1983. Mr. LaVoy has a
Bachelor of Science degree in Accounting from St. Cloud University, St. Cloud,
Minnesota, and is a Certified Public Accountant.
John A. Carlson: Mr. Carlson, Executive Vice President and Chief Financial
Officer of Alanco Technologies, Inc., joined the Company in September 1998. Mr.
Carlson started his career with Price Waterhouse & Co. in Chicago, Illinois. He
has over twenty-five years of public and private financial and operational
management experience, including over twelve years as Chief Financial Officer of
a Fortune 1000 printing and publishing company. He earned his Bachelor of
Science degree in Business Administration at the University of South Dakota, and
is a Certified Public Accountant.
Donald E. Anderson: Donald E. Anderson is President and owner of Programmed
Land, Inc., a Minnesota and Scottsdale, Arizona, based company. Programmed Land
is a diversified holding company engaged in real estate, including ownership,
development, marketing and management of properties. He is also majority owner
of a company involved in the automotive industry. From 1988 until 1997, Mr.
Anderson was Chairman of the Board of NASDAQ-listed Photocomm, Inc., a company
involved in the solar electric business. Since 1983, Mr. Anderson has also been
President of Pine Summit Bible Camp, a non-profit organization that operates a
year-round youth camp in Prescott, Arizona. Mr. Anderson has a Bachelor of Arts
degree in Accounting.
Proposal No. 2 APPROVAL OF THE ALANCO 2005 STOCK OPTION PLAN
The Company's Board of Directors approved submitting the Alanco Technologies,
Inc. 2005 Stock Option Plan to the shareholders for approval. The Board of
Directors recommends approval of the Plan. The purpose of the Plan is to advance
the business and development of the Company and its shareholders by affording to
Employees of the Company the opportunity to acquire an equity interest in the
Company by the grant of Options to acquire shares of the Company's common stock.
11
The Options granted to Employees can be either "Incentive Stock Options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or
"Non-Statutory Options." The issuance of qualified Incentive Stock Options
pursuant to this Plan is not expected to be a taxable event for qualified
recipients until such time that the recipient elects to sell the shares received
from the exercise whereupon the recipient is expected to recognize income to the
extent the sale price of the shares exceeds the exercise price of the option on
the date of sale. The issuance of Non-Statutory Stock Options pursuant to this
Plan is not expected to result in a tax liability to the recipient since the
options are granted at fair market value on date of grant. The recipient is
expected to recognize income to the extent the market price of the shares
exceeds the exercise price of the option on the date of exercise.
The Plan is administered by the Compensation/Administration Committee of the
Board of Directors. The Plan may issue Options to acquire up to 3,000,000 shares
to Employees. The Company will not receive any consideration for the grant of
options under the Plan and the approximate market value of the shares to be
reserved for the plan is $1,545,000 based upon the average ten trading day
closing price for the Company's common stock for the period ending November 25,
2005. The maximum number of shares subject to Incentive Stock Options granted to
any one Employee which are first exercisable during any single calendar year
shall not exceed a fair market value of $100,000. The exercise price for Options
shall be set by the Compensation/Administrative Committee but shall not be for
less than the fair market value of the shares on the date the Option is granted.
Fair market value shall mean the closing price at which the Stock is listed in
the NASDAQ quotation system ending on the day prior to the date an Option is
granted.
The period in which Options can be exercised shall be set by the
Compensation/Administration Committee not to exceed ten years from the date of
Grant. Incentive Stock Options are exercisable once vested. Vesting schedule
shall be as follows: twenty-five percent (25%) of the shares issuable under the
Options shall vest six months from date of Grant provided that the Optionee has
remained an Employee of the Company for not less than six months from date of
Grant, twenty-five percent (25%) of the shares issuable under the Options shall
vest one year from date of Grant provided that the Optionee has remained an
Employee of the Company for not less than one year from the date of Grant, and
the remaining fifty percent (50%) shall vest two years from date of Grant
provided that the Optionee has remained an Employee of the Company for not less
than two years from the date of Grant, or other alternative vesting as may be
determined by the Compensation/Administration Committee. The Incentive Stock
Options must be exercised within three months following Optionee's termination
of relationship with the Company, or within one (1) year following death or
permanent and total disablement of the Optionee. Otherwise, the Incentive Stock
Options shall lapse. The vesting schedule, and the exercise schedule following
termination, death or total and permanent disablement of the Optionee, of
Non-Statutory Stock Options will be determined by the Committee at the time of
grant. The Plan may be terminated, modified or amended by the Board of Directors
upon the recommendation of the Compensation/Administration Committee. Provided,
however, if the Plan has been submitted to and approved by the shareholders of
the Company, no such action by the Board may be taken without approval of the
majority of the shareholders of the Company which: (a) increases the total
number of shares of Stock subject to the Plan; (b) changes the manner of
determining the Option price; or (c) withdraws the administration of the Plan
from the Committee.
All Employees of the Company and its subsidiaries are eligible to participate in
the Plan. An Employee is defined in the Plan as a person, including officers and
directors, employed by the Company who in the judgment of the
Compensation/Administration Committee has the ability to positively affect the
profitability and economic well-being of the Company. Part-time employees,
independent contractors, consultants and advisors performing bona fide services
to the Company shall be considered employees for purposes of participation in
the Plan. Neither the Board of Directors nor the Compensation/Administration
Committee have estimated the number of Options to be granted to Employees and
are expected to make this determination on a discretionary basis. The aggregate
number of shares within the Plan and the rights under outstanding Options
granted hereunder, both as to the number of shares and Option price, will be
adjusted accordingly in the event of a split or a reverse split in the
outstanding shares of the Common Stock of the Company.
Proposal No. 3 APPROVAL OF THE ALANCO 2005 DIRECTORS AND OFFICERS
STOCK OPTION PLAN
The Company's Board of Directors approved submitting the Alanco Technologies,
Inc. 2005 Directors and Officers Stock Option Plan to the shareholders for
approval. The Board of Directors recommends approval of the Plan. The purpose of
the Plan is to advance the business and development of the Company and its
shareholders by affording to the Directors and Executive Officers of the Company
the opportunity to acquire an equity interest in the Company by the grant of
Options to acquire shares of the Company's common stock.
The Options granted are not "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended. The issuance of
such non-qualified options pursuant to this Plan is not expected to be a taxable
event for recipient until such time that the recipient elects to exercise the
option whereupon the recipient is expected to recognize income to the extent the
market price of the shares exceeds the exercise price of the option on the date
of exercise.
12
The Plan is administered by the Compensation/Administration Committee, which
shall consist of up to three (3) individuals appointed by the Board from among
its members, at least two (2) of which are non-employee Directors. The Plan may
issue Options to acquire up to 1,000,000 shares to Directors and Executive
Officers. The Company will not receive any consideration for the grant of
options under the Plan and approximate market value of the shares to be reserved
for the plan is $515,000 based upon the average ten trading day closing price
for the Company's common stock for the period ending November 25, 2005. The
vesting and exercise price for Options shall be set by the
Compensation/Administration Committee but shall not be for less than the fair
market value of the shares on the date the Option is granted. Fair market value
shall mean the closing price at which the Stock is listed in the NASDAQ
quotation system ending on the day prior to the date an Option is granted. The
period in which Options can be exercised shall be set by the
Compensation/Administration Committee not to exceed ten years from the date of
Grant. Options are exercisable once vested. The Plan may be terminated, modified
or amended by the Board of Directors upon the recommendation of the
Compensation/Administration Committee. Provided, however, if the Plan has been
submitted to and approved by the shareholders of the Company, no such action by
the Board may be taken without approval of the majority of the shareholders of
the Company which: (a) increases the total number of shares of Stock subject to
the Plan; (b) changes the manner of determining the Option price; or (c)
withdraws the administration of the Plan from the Committee. The aggregate
number of shares within the Plan and the rights under outstanding Options
granted hereunder, both as to the number of shares and Option price, will be
adjusted accordingly in the event of a split or a reverse split in the
outstanding shares of the Common Stock of the Company.
Proposal No. 4 APPROVAL OF A PROPOSAL TO AUTHORIZE THE BOARD OF
DIRECTORS, ONLY IF NECESSARY, TO REVERSE SPLIT THE
COMPANY'S OUTSTANDING CLASS A COMMON STOCK ON THE BASIS OF
ONE SHARE OF CLASS A COMMON STOCK FOR UP TO TEN SHARES
OUTSTANDING. IF THE BOARD OF DIRECTORS HAS NOT EFFECTED
THE ACTION CONTEMPLATED HEREUNDER BY DECEMBER 31, 2008,
THIS AUTHORIZATION WILL CEASE.
The Board of Directors has recommended a proposal to the Company's Shareholders
authorizing the Board of Directors to reverse split the Company's Class A Common
Stock if Management determines that a reverse split would be necessary to keep
the Common Stock eligible to be quoted on The NASDAQ Stock Market ("NASDAQ").
The effective date and the precise number of shares to be converted is to be
determined by the Company's Board of Directors at a later time, but under no
circumstances would the reverse stock split be greater than 1 for 10. (This is a
similar proposal that the Shareholders approved at the Shareholder Meeting of
November 6, 1998, at the Shareholder Meeting of November 5, 1999, at the
Shareholder Meeting of November 10, 2000, at the Shareholder Meeting of November
22, 2002, and at the Shareholder Meeting of December 22, 2003. Authorization
under those proposals extended to October 31, 1999, October 31, 2000, October
31, 2002, December 31, 2005, and December 31, 2006, respectively, and has not
been used. The Board of Directors believes the continuation of that proposal
through December 31, 2008, is prudent for the reasons explained below.)
The Board is requesting Shareholder authorization to reverse split the Company's
outstanding Class A Common Stock on the basis of one share of Class A Common
Stock for up to ten shares outstanding, only if necessary, in order to keep the
Common Stock eligible to be quoted on the NASDAQ Stock Market ("NASDAQ"). With
an objective to maintain the NASDAQ $1.00 minimum bid price for at least 10
trading days, the Board of Directors will take into consideration the immediate
impact of a reverse stock split on the stock price as well as price fluctuations
caused by current market conditions when determining the final reverse stock
split ratio. Approval of this proposal would authorize the Board to reverse
split the Company's Class A Common Stock from the time of approval until
December 31, 2008. The Board of Directors desires not to effect a reverse stock
split but believes that retaining the Company's listing on NASDAQ is crucial to
Shareholder value and liquidity and the Company's long-term business prospects.
This proposed reverse stock split is not the first part of a Rule 13e-3 Going
Private Transaction as defined in paragraph (a)(3)(i) of that regulation, as the
reverse stock split proposal is solely for the purpose of maintaining the
Company's listing on the NASDAQ Capital market.
In February of 2005, the Company received notification from NASDAQ indicating
that due to the failure of the Company to maintain the minimum $1.00 per share
requirement, its securities were subject to delisting from the NASDAQ Capital
Market. In April of 2005, the Company received a letter from NASDAQ stating that
the closing bid price of the Company's common stock had been at $1.00 per share
or greater for at least 10 consecutive trading days and the Company had regained
compliance. However, in August 2005, the Company again received notification
from NASDAQ indicating that due to the failure of the Company to maintain the
minimum $1.00 per share requirement, its securities were subject to delisting
from the NASDAQ Capital Market. In accordance with Marketplace Rule 4310(c) (8)
(D), the Company has been given 180 calendar days to comply with the Rule. If
compliance with this Rule cannot be demonstrated by January 31, 2006, NASDAQ
officials will determine whether the Company meets the NASDAQ Capital Market
initial listing criteria as set forth in Marketplace Rule 4310 (c), except for
13
the bid price requirement. If the Company meets the initial listing criteria,
the Company will be notified that it has been granted an additional 180 calendar
days to meet the $1.00 minimum bid price requirement. If the Company is not
eligible for an additional compliance period, the Company will receive written
notification that the Company's securities will be delisted. At that time, the
Company may appeal Staff's determination to delist its securities to a listing
qualifications panel.
It is recommended that the shareholders give authorization until December 31,
2008, to the Board of Directors to effect up to a 1 for 10 reverse stock split
of the Company's Class A Common Stock. Assuming that a reverse stock split would
cause the trading price of the Company's Common Stock to increase in the same
proportion as the amount of the split, a reverse stock split would result in a
proportionate increase in the quoted bid price of the Common Stock, thereby
exceeding NASDAQ's minimum bid price of $1.00. On December 5, 2005, the
Company's Class A Common Stock closed at a price of $0.50 with a trading volume
of 92,400 shares. The average daily trading volume for the Company's Class A
Common Stock for the three months ending December 5, 2005 was 151,776 shares.
For example, if the Board of Directors elects to effect a 1 for 3 reverse stock
split, each three issued shares of the Company's Class A Common Stock held on
the effective date will automatically be converted into one share of Class A
Common Stock. The reverse stock split conversion ratio would also have a
proportionate effect on any outstanding Preferred Stock, Options and Warrants.
No fractional shares will be issued. Fractional shares created by the reverse
stock split will be rounded down to the next whole number. The accumulation of
the fractional shares created by the reverse stock split will be accounted for
as acquired treasury shares and immediately cancelled pursuant to Arizona law.
NO CASH WILL BE PAID FOR FRACTIONAL SHARES.
EFFECT OF REVERSE SPLIT ON HOLDERS OF ODD LOTS OF SHARES
If the maximum 1 for 10 reverse split is authorized and declared, the reverse
split would result in holders of fewer than 1,000 shares holding an "odd lot" or
less than 100 shares. A securities transaction of 100 or more shares is a "round
lot" transaction of shares for securities trading purposes and a transaction of
less than 100 shares is an "odd lot" transaction. Round lot transactions are the
standard size requirements for securities transactions and odd lot transactions
may result in higher transaction costs to the odd lot seller.
EFFECT OF REVERSE SPLIT RESULTING IN FRACTIONS OF A SHARE
A reverse split may result in some shareholders mathematically holding fractions
of shares of the Company's Class A Common Stock; however, the Company will not
issue fractions of shares of its stock. Arizona corporate law, which governs the
corporate affairs of the Company, allows the Company to (i) pay in money the
fair value of fractions of a share as determined by the Company's Board of
Directors, (ii) arrange for the disposition of fractional shares by those
entitled to the fractional shares, or (iii) issue scrip that entitles the holder
to receive a full share on surrendering enough scrip to equal a full share. If
scrip is issued by the Company, the holders of such scrip are not entitled to
exercise any rights of a shareholder unless otherwise determined by the Board of
Directors as stated on the scrip certificate. The Board of Directors may issue
the scrip subject to any conditions that the Board deems advisable, including,
but not limited to, a provision that the scrip will become void if not exchanged
for full shares before a date specified by the Board.
Because the reverse split ratio, if the reverse split is effected, will be
determined by the Board of Directors in the future, and the potential number of
fractional shares cannot be determined until such time, the exact treatment of
fractional shares is unknown at this time. However, the Board of Directors will
comply with Arizona law as outlined above concerning any such resulting
fractional shares.
EFFECT OF REVERSE SPLIT ON NUMBER OF SHARES OUTSTANDING
The following table sets forth the number of Alanco Common Stock Equivalent
shares outstanding after each potential reverse stock split ranging from a 1 for
2 split to a 1 for 10 split, based on 38,492,607 Common Stock Equivalent shares
outstanding as of November 25, 2005. The Common Stock Equivalent includes the
number of Class A Common Shares plus the number of common shares into which the
Series A and Series B Convertible Preferred Stock is convertible, the Series A
Convertible Preferred Stock being convertible into three shares of Common Stock
and the Series B Convertible Preferred Stock being convertible into thirteen
shares of Common Stock. The numbers shown below assume that no fractional shares
are created from a potential reverse stock split.
14
Post-Split
Potential Common Stock
Reverse Equivalent
Stock Shares
Split Outstanding
----- -----------
1 for 2 19,246,304
1 for 3 12,830,869
1 for 4 9,623,152
1 for 5 7,698,521
1 for 6 6,415,435
1 for 7 5,498,944
1 for 8 4,811,576
1 for 9 4,276,956
1 for 10 3,849,261
EFFECT OF REVERSE SPLIT ON NUMBER OF AUTHORIZED SHARES AVAILABLE FOR ISSUANCE
As of November 25, 2005, the Company had a total of 54,520,857 of its 75,000,000
authorized shares of Class A Common Stock either issued or reserved for 1)
issuance for conversion of preferred shares, 2) exercise of options and warrants
granted, or 3) future stock option grants available under approved stock option
plans. The table below illustrates the effect on the number of authorized shares
of the Company's Class A Common Stock available for issuance as a result of each
potential reverse split. While the number of authorized shares remains constant,
the effect of a reverse split would result in an increased number of available
authorized unissued shares.
Post-Split Unissued Post-Split
Potential Class A Authorized Class A
Reverse Common Stock Class A Common
Stock Issued or Common Stock
Split Currently Reserved (1) Stock Available
1 for 2 27,260,429 75,000,000 47,739,572
1 for 3 18,173,619 75,000,000 56,826,381
1 for 4 13,630,214 75,000,000 61,369,786
1 for 5 10,904,171 75,000,000 64,095,829
1 for 6 9,086,810 75,000,000 65,913,191
1 for 7 7,788,694 75,000,000 67,211,306
1 for 8 6,815,107 75,000,000 68,184,893
1 for 9 6,057,873 75,000,000 68,942,127
1 for 10 5,452,086 75,000,000 69,547,914
(1) Includes the following as of November 25, 2005: 28,745,227 Class A Common
Stock outstanding, 9,747,380 shares reserved for conversion of Preferred
Stock outstanding, 14,499,500 shares reserved for exercise of granted stock
options and warrants, and 1,528,750 shares reserved for current approved
stock option plans for future stock options grants. Shares required for
conversion of potential future preferred stock dividends are not included.
Shares that may be reserved for stock option grants under the stock option
plans which are included as Proposal Nos. 2 and 3 in this proxy are also
not included.
As stated previously, the Company's intent for requesting Shareholder approval
to reverse split the Company's Class A Common Stock is to keep the Common Stock
eligible to be quoted on the NASDAQ Stock Market. The Company does not have any
plans, proposals, or arrangements at this time to issue any of the additional
authorized shares of common stock realized as a result of a reverse stock split
for any future acquisitions or financings or any other purpose.
The actual reverse stock split ratio shall be determined by the Board of
Directors of the Company based upon the Company's estimation of the post-split
trading bid price and the probability of the bid price maintaining the $1.00
minimum for 10 consecutive trading days under various market conditions.
15
As of the date of this Proxy Statement, the Company has approximately 1,290
shareholders of record (does not include shareholders holding shares in street
name). Depending on the final reverse stock split ratio that may be effected,
the post-split shareholder of record count would range from approximately 1,140
shareholders of record if a 1 for 2 reverse stock split were effected to
approximately 720 shareholders of record if a 1 for 10 reverse stock split were
effected.
ANTI-TAKEOVER IMPLICATIONS OF REVERSE STOCK SPLIT
As a result of a reverse stock split, the number of authorized, but unissued
shares of the Company's Class A Common Stock will increase as shown in the table
above. Currently, the Company has 20,479,143 shares of authorized, unissued and
non-reserved shares of its Class A Common Stock available for issuance. If the
maximum reverse split ratio of 1 share for each 10 existing outstanding shares
is adopted by the Board of Directors following adoption of Proposal No. 4 by the
shareholders, then the number of authorized, unissued and non-reserved shares of
its Class A Common Stock available for issuance would increase to 69,547,914
shares. Release No. 34-15230 of the staff of the Securities and Exchange
Commission requires disclosure and discussion of the effects of any shareholder
proposal that may be used as an anti-takeover device. However, as indicated
above, the purpose of the reverse split is to maintain the Company's listing on
NASDAQ, and not to construct or enable any anti-takeover defense or mechanism on
behalf of the Company. While it is possible that management could use the
additional shares to resist or frustrate a third-party transaction providing an
above-market premium that is favored by a majority of the independent
stockholders, the Company has no intent or plan to employ the additional
unissued authorized shares as an anti-takeover device.
INDEPENDENT AUDITOR
Semple & Cooper, LLP, Phoenix, Arizona, was appointed as the Company's
Independent Auditor for the fiscal years ended June 30, 2000, 2001, 2002, 2003,
2004, and 2005. The Company anticipates the appointment of Semple & Cooper, LLP
to audit the Company's financial statements for the fiscal year ending June 30,
2006. A representative of Semple & Cooper, LLP is expected to attend the
Shareholders' Meeting and will have an opportunity to make a statement if the
representative desires to do so and is expected to be available to respond to
appropriate questions.
REQUEST FOR COPY OF FORM 10-KSB
Shareholders may receive a copy of the Form 10-KSB or the Company's adopted Code
of Conduct, without charge, via e-mail request to alanco@alanco.com, by calling
the Company at 480 607-1010, Ext. 857, or by writing to the Company, to the
attention of the Company's Corporate Secretary at 15575 North 83rd Way, Suite 3,
Scottsdale, Arizona 85260.
SHAREHOLDER PROPOSALS TO BE PRESENTED AT THE NEXT ANNUAL MEETING;
DISCRETIONARY AUTHORITY; OTHER BUSINESS
Any shareholder who intends to present a proposal at the annual meeting of
shareholders for the year ending June 30, 2006, and have it included in the
Company's proxy materials for that meeting generally must deliver the proposal
to us for our consideration not less than 120 calendar days in advance of the
date of the Company's proxy statement released to security holders in connection
with the previous year's annual meeting of security holders and must comply with
Rule 14a-8 under the Securities Exchange Act of 1934, as amended. In accordance
with the above rule, the applicable proposal submission deadline for the 2006
annual meeting of shareholders would be August 21, 2006.
Pursuant to Rule 14a-4 under the Securities Exchange Act of 1934, as amended,
the Company intends to retain discretionary authority to vote proxies with
respect to shareholder proposals properly presented at the Meeting, except in
circumstances where (i) the Company receives notice of the proposed matter a
reasonable time before the Company begins to mail its proxy materials (including
this proxy statement), and (ii) the proponent complies with the other
requirements set forth in Rule 14a-4.
The Board of Directors is not aware of any other business to be considered or
acted upon at the Meeting other than that for which notice is provided, but in
the event other business is properly presented at the Meeting, requiring a vote
of shareholders, the proxy will be voted in accordance with the judgment on such
matters of the person or persons acting as proxy (except as described in the
preceding paragraph). If any matter not appropriate for action at the Meeting
should be presented, the holders of the proxies shall vote against the
consideration thereof or action thereon.
ADELE L. MACKINTOSH
SECRETARY
Scottsdale, Arizona
November 28, 2005
16
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert R. Kauffman, Chief Executive Officer of Alanco Technologies, Inc.,
certify that:
1. The Proxy Statement of Alanco Technologies, Inc. for use at the Company's
Annual Meeting of Shareholders to be held on January 20, 2006, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), which this
statement accompanies, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Alanco
Technologies, Inc.
/s/ Robert R. Kauffman
Robert R. Kauffman
Chief Executive Officer
November 28, 2005
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, John A. Carlson, Chief Financial Officer of Alanco Technologies, Inc.,
certify that:
1. The Proxy Statement of Alanco Technologies, Inc. for use at the Company's
Annual Meeting of Shareholders to be held on January 20, 2006, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), which this
statement accompanies, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Alanco
Technologies, Inc.
/s/ John A. Carlson
John A. Carlson
Chief Financial Officer
November 28, 2005
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Adele L. Mackintosh, Secretary of Alanco Technologies, Inc., certify that:
1. The Proxy Statement of Alanco Technologies, Inc. for use at the Company's
Annual Meeting of Shareholders to be held on January 20, 2006, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), which this
statement accompanies, fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Alanco
Technologies, Inc.
/s/ Adele L. Mackintosh
Adele L. Mackintosh
Secretary
November 28, 2005