SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE ("Agreement") is
entered
into this 31st day of July, 2007, by and between ALANCO
TECHNOLOGIES, INC., an
Arizona corporation ("Alanco"), ALANCO/TSI PRISM, INC., an Arizona
corporation
("TSIA"), ROBERT R. KAUFFMAN and ELIZABETH KAUFFMAN (collectively,
"Kauffman"),
GREG M. OESTER and LINDA OESTER (collectively, "Oester"), and JILL
H. FORD
("Trustee"), bankruptcy Trustee for Technology Systems
International, Inc., a
Nevada corporation ("TSIN") in her capacity as such Trustee and not
personally.
The foregoing parties are sometimes collectively referred to herein
as the
"Parties", or individually as a "Party", and Alanco, TSIA, Kauffman
and Oester
are sometimes collectively referred to herein as the "Alanco
Parties."
RECITALS:
Alanco and TSIN entered into an Amended Acquisition Agreement,
dated
March 15, 2002, pursuant to which Alanco, through is wholly owned
subsidiary,
TSIA, agreed to acquire substantially all of the assets and assume
substantially
all of the liabilities of TSIN in exchange for stock of Alanco (the
"Acquisition
Agreement"). Robert R. Kauffman is and was Chief Executive Officer
and Chairman
of the Board of Directors of Alanco and was a member of the Board
of Directors
of TSIN. Greg M. Oester was President and a member of the Board of
Directors of
TSIN and is President of TSIA. The Acquisition Agreement was
consummated on May
14, 2002, with an accounting effective date of June 1, 2002.
TSIN sued the Alanco Parties alleging various improprieties
concerning
the Acquisition Agreement in the Superior Court of Arizona,
Maricopa County,
being case number CV2003-001937 (the "First Lawsuit").
TSIN filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy
Code
and the case has been converted into a Chapter 7 bankruptcy case.
The Trustee is
the duly appointed bankruptcy trustee for TSIN.
The Superior Court dismissed the First Lawsuit without prejudice
and
the Trustee has initiated another lawsuit in the Superior Court of
Arizona,
Maricopa County basically alleging the same claims against the
Alanco Parties as
the First Lawsuit in the Superior Court of Arizona, Maricopa
County, being case
number CV2006-007398 (the "Second Lawsuit"). The Alanco Parties
have appealed
the order of the Court in the First Lawsuit allowing the Second
Lawsuit to be
initiated under Arizona's Savings Statute, and the Trustee has
appealed the
dismissal of the First Lawsuit, both appeals to the Court of
Appeals of the
State of Arizona, being case number I CA-CV 07-0021 (the "Appellate
Court
Action").
The Parties wish to resolve their disputes and cause the First
Lawsuit,
the Second Lawsuit, and the Appellate Court Action to be dismissed
with
prejudice, the Parties to bear their own costs and attorneys' fees
(except as
otherwise stated herein), and all orders of any of the Courts
issued in
connection therewith to be vacated in consideration of the actions
and potential
payments described herein and upon the terms and conditions set
forth below.
<PAGE>
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. Dismissal of Lawsuits and Vacation of Orders Issued In
Connection
Therewith. Without admitting any liability or wrongdoing by any
Party, promptly
following the approval of this Agreement by the Bankruptcy Court
and the Board
of Directors of Alanco, the Parties shall cooperate in seeking the
dismissal of
the First Lawsuit, the Second Lawsuit and the Appellate Court
Action, with
prejudice, and vacation of any and all orders issued in connection
therewith,
including any award of attorneys fees to any Party. Except as
stated in Section
4 below, the Parties shall bear their own costs and attorneys' fees
incurred in
connection with the First Lawsuit, the Second Lawsuit and the
Appellate Court
Action. Stipulations for such dismissals and vacation of Orders,
together with
proposed Orders in connection therewith are attached hereto as
Exhibits A and B.
Pending such dismissals, the parties shall suspend all further
actions to
advance the litigation.
2. Continuation of Bankruptcy Actions. The bankruptcy case of
TSIN
shall continue to conclusion and any Party may continue to object
to any claim
filed by any Party or any other person as permitted under the
Bankruptcy Rules
and Orders of the Bankruptcy Court, except that the Alanco Parties
shall
withdraw their objection to the fee applications of Bonnett,
Fairbourn, Friedman
& Balint, P.C.
3. Business Valuation Appraisal of TSIN as of May 13, 2002 and
Valuation of Consideration Paid. Promptly following the approval of
this
Agreement by the Bankruptcy Court and the Board of Directors of
Alanco, the
Parties shall engage Charles A. Wilhoite, managing director the
firm of
Willamette Management Associates, located in Portland. Oregon
("Appraiser"), to
appraise (i) the fair market value of the business and assets of
TSIN acquired
by Alanco and TSIA under the Acquisition Agreement (the "TSIN
Business
Valuation") as of May 13, 2002 (the "Valuation Date"), and (ii) the
fair market
value of the consideration paid by Alanco and TSIA to TSIN under
the Acquisition
Agreement (the "Consideration Valuation") as of the Valuation Date.
The
"Appraisal" means the analysis and report(s) of the Appraiser which
results in
the TSIN Business Valuation and the Consideration Valuation. In
conducting the
Appraisal, the following rules and protocol shall be followed by
the Parties and
the Appraiser:
a. The TSIN Business Valuation shall be done without reference
to the Acquisition Agreement, other than for purposes of
distinguishing which
assets and liabilities were purchased by TSIA and which were
retained by TSIN as
referenced in Section 3 above. It shall be done as though the
acquisition of the
business and assets of TSIN by Alanco and/or TSIA was not planned,
announced,
contemplated or documented. All of the assets acquired by Alanco,
including
goodwill, shall be valued as the Appraiser deems appropriate.
b. The Consideration Valuation shall include the fair market
value of all consideration paid to TSIN under the Acquisition
Agreement,
including, without limitation, the value of the earn-out provisions
contained in
the Acquisition Agreement, that the Appraiser deems appropriate to
consider in
the circumstances.
<PAGE>
c. For purposes of the Appraisal, fair market value shall mean
that value at which a hypothetical willing buyer having full
knowledge of all
relevant facts and information would pay, and a hypothetical
willing seller
having full knowledge of all relevant facts and information would
sell. The
Appraisal will address the fair market values subject to such
conditions,
assumptions or qualifications as the Parties mutually agree (in
this Agreement
or otherwise) may be taken into account as of the Valuation Date.
Absent an
agreement, the Appraiser's judgment and professional requirements
shall govern
the scope and content of his work. The Appraiser may utilize such
valuation
methodology or methodologies, and may give such weight to each
methodology
employed as the Appraiser deems appropriate.
d. Each of the Parties shall be entitled to present any
information and analysis to the Appraiser as that Party deems
appropriate
concerning the Appraisal and agree to provide all information
reasonably
requested by the Appraiser in order to properly perform the
Appraisal. The
Parties shall cooperate in providing any relevant and
non-privileged documents
or other material possessed by a Party, or reasonably available to
such Party if
requested by the other Party. All substantive communications of a
Party with the
Appraiser shall be in writing, with copies to the other Parties, or
presented in
person or telephonically, in the presence of all of the Parties,
unless waived
in writing by the Parties not present. No party shall engage in ex
parte
substantive communications with the Appraiser unless the other
Parties waive
their right to be present, or fail to be present after diligent
efforts to
schedule or reschedule the communication so as to permit the
attendance by all
Parties.
e. In the event of any written communication with the
Appraiser by any Party (including the provision of any documents or
information
to the Appraiser), a copy of the written communication (including
all documents
or other information provided to the Appraiser) shall
simultaneously be provided
to the other Parties.
f. The Appraiser shall provide all of the P
