Exhibit 1.2
TELKONET, INC.
▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
BEST EFFORTS
SELLING AGREEMENT
October 14, 2002
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Telkonet, Inc., a Utah corporation (the "Company"), proposes to issue
and sell (the "Offering"), through ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Company, a Georgia
corporation (the "Placement Agent"), on a non-exclusive basis, together with
certain other sellers selected by the Company or the Placement Agent to assist
in selling the Offering (the "Associate Agents"), up to 125 investment units
(the "Units") each consisting of a debenture of the Company in the principal
amount of $20,000.00 (the "Series B Debenture"), which Series B Debenture is
convertible into shares of common stock, par value $0.001, of the Company (the
"Common Stock") as hereafter described, together with 20,000 warrants (the
"Series B Warrants") to purchase a share of Common Stock (with the Series B
Debenture and the Series B Warrants being collectively referred to as the
"Securities"). The Securities are more particularly described in the Company's
Confidential Offering Memorandum (as herein defined). This Selling Agreement
(the "Agreement") confirms the agreement between the Company and the Placement
Agent concerning the sale of Securities by the Placement Agent.
ARTICLE 1. CONFIDENTIAL OFFERING MEMORANDUM. The Securities will be
sold pursuant to an exemption from registration under Securities and Exchange
Commission ("SEC") Regulation D and Rule 506 thereof promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and in reliance upon
applicable exemptions under state law. The Company has prepared a Confidential
Offering Memorandum, which describes the Securities and includes the form of
subscription agreement containing representations, warranties, terms and
conditions subject to which the Securities will be sold (the "Purchase
Agreement"). Copies of the Confidential Offering Memorandum have been sent to
the Placement Agent by the Company for the uses and purposes permitted by the
Securities Act. The term "Confidential Offering Memorandum," as used in this
Agreement, shall mean the Confidential Offering Memorandum, including all
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exhibits thereto (including the Company's Form 10-KSB for the year ended
December 31, 2001, the Company's Form 10-QSB for the calendar quarters ended
March 31, 2002 and June 30, 2002 and the Company's Form 8-K dated August 31,
2000) and financial statements contained or incorporated therein, as the same
may be supplemented or amended by the Company from time to time in conformity
with the provisions hereof.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to, and covenants and agrees with, the Placement
Agent that as of the closing of the sale of the securities under this Agreement
(the "Closing"):
2.1 The Confidential Offering Memorandum, together with all exhibits
thereto, has been prepared by the Company in conformity with the applicable
requirements of the Securities Act and, to the extent applicable to the Company,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated by the Commission thereunder.
2.2 On the date hereof and as of the Termination Date hereunder, the
Confidential Offering Memorandum shall conform in all material respects to the
applicable requirements of the Securities Act, the Exchange Act, and the rules
and regulations promulgated by the Commission thereunder. The Confidential
Offering Memorandum does not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The representations, warranties,
covenants, and agreements contained in this Section 2.2 shall not apply to
statements in, or omissions from, any such documents drafted in reliance upon,
and in conformity with, written information furnished to the Company by the
Placement Agent, that was furnished specifically for use in the preparation
thereof.
2.3 No order preventing or suspending the sale of the Securities has
been issued by the Commission.
2.4 The Confidential Offering Memorandum describes or attaches as an
exhibit thereto every contract or document necessary to make the statements in
the Confidential Offering Memorandum, in light of the circumstances under which
they were made, not misleading.
2.5 The financial statements and schedules included in the Confidential
Offering Memorandum, including the related notes and footnotes thereto, present
fairly the financial condition, results of the operations and changes in
financial condition of the entities purported to be shown thereby as of the
dates and for the periods indicated and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated. All adjustments necessary for a fair
presentation of the results for such periods have been made.
2.6 The Company, and any Subsidiary (as herein defined) has been duly
organized and is validly existing under the laws of the jurisdiction of its
organization or incorporation, with full power and authority to own, lease and
operate its properties, conduct its business as described in the Confidential
Offering Memorandum and is duly qualified to do business and, if applicable, is
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in good standing as a foreign corporation in each jurisdiction in which the
character of the business conducted by it or the location of the properties
owned, leased or operated by it make such qualification necessary. The Company
and each Subsidiary is in possession of and operating in compliance with all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders required for the conduct of its business, all of which
are valid and in full force and effect (except where any failure to do so would
not result in a material adverse change in the condition (financial or
otherwise), business, prospects, properties, or results of operations of the
Company and any Subsidiaries considered as a whole). Neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such franchise, grant, authorization, license, permit,
easement, consent, certificate or order which, individually or in the aggregate,
if the subject of an unfavorable decision, would result in a material adverse
change in the condition (financial or otherwise), business, prospects,
properties, or results of operations of the Company and any Subsidiaries
considered as a whole.
2.7 The Company's authorized shares consist of 100,000,000 shares of
common stock, $0.001 par value, of which 17,126,531 shares are outstanding as of
October 3, 2002, and 15,000,000 shares of preferred stock, of which no shares
are outstanding on the date hereof. The outstanding shares of the Company's
stock have been duly authorized and validly issued, were not issued in violation
of any statutory preemptive rights of shareholders, and are fully paid and
nonassessable. As set forth in the Confidential Offering Memorandum, the Company
has also issued warrants and options to purchase an aggregate of 3,116,160
shares of Common Stock as of October 3, 2002. The Company has also previously
concluded the sale of debentures of the Company, designated herein as the
"Series A Debentures" in the principal amount of $2,500,000, with 2,500,000
attached warrants of the Company thereto, designated as the "Series A Warrants";
the Series A Debentures are convertible into the Common Stock of the Company at
a conversion rate of 20,000 shares of Common Stock for each $10,000 principal
amount of the Series A Debenture which is converted by the holder thereof. The
Series A Warrants may be exercised by the holder thereof at any time following
the conversion of the Series A Debenture by the holder for a period of three (3)
years from the date of issuance of the Series A Warrant at an exercise price of
$1.00 per share of Common Stock purchased, with a minimum purchase of 1,000
shares of Common Stock. Except as described in the Confidential Offering
Memorandum, there are no options, subscriptions, warrants, calls, rights or
commitments obligating the Company to issue equity securities or acquire its
equity securities.
2.8 The description of the Securities conforms to the description
thereof contained under the caption "Description of Capital Stock" in the
Confidential Offering Memorandum. The Securities, upon issuance, delivery and
payment therefor in the manner herein described, will be duly authorized,
validly issued, fully paid and non-assessable. There are no pre-emptive rights
or other rights to subscribe for or purchase the Securities or any restriction
upon any transfer rights of the Securities pursuant to the Articles of
Incorporation, as amended, Bylaws or other governing documents of the Company or
any agreement or other instrument to which the Company or any Subsidiary is a
party or by which any of them may be bound. Except as contemplated by the terms
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and conditions of the Registration Rights Agreement as set forth in Appendix D
in the Confidential Offering Memorandum, neither the Offering or the sale of the
Securities as contemplated by this Agreement gives rise to any rights for or
relating to the registration of any Securities, other than those which have
already been waived or satisfied.
2.9 Subsequent to the respective dates as of which information is given
in the Confidential Offering Memorandum, and except as described in the
Confidential Offering Memorandum: (i) neither the Company nor any Subsidiary has
incurred any liabilities or obligations, direct or contingent, or entered into
any transactions not in the ordinary course of business, which are material to
the Company; and (ii) there has been no material adverse change in, or any
adverse development which materially affects the business, prospects,
properties, condition (financial or otherwise) or results of operations of the
Company. Except as described in the Confidential Offering Memorandum, neither
the Company nor any Subsidiary is, nor with the giving of notice or lapse of
time, or both, would be, in violation of or in default under, nor will the
execution or delivery hereof, nor the consummation of the transactions
contemplated hereby, result in a violation of or a default under the Articles of
Incorporation, as amended, Bylaws, or other governing documents of the Company,
or any agreement, contract, mortgage, deed of trust, loan agreement, note,
lease, indenture or other instrument to which the Company is a party or by which
it is bound, or to which any of its property is subject. The performance by the
Company of its obligations hereunder will not violate any law, rule,
administrative regulation or decree of any court or governmental agency or body
having jurisdiction over the Company or any Subsidiary or any of their
respective properties, nor result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of the Company. Except
for applicable authorizations required under the Securities Act, the Exchange
Act and the securities or "Blue Sky" laws of certain jurisdictions, and except
for such permits and authorizations which have already been obtained, no consent
is required in connection with the consummation of the transactions contemplated
by this Agreement.
2.10 This Agreement has been duly authorized, executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that enforceability may be affected by any bankruptcy, insolvency,
moratorium or other similar laws affecting the rights or remedies of creditors
generally.
2.11 Each of the Company and any Subsidiary has good and marketable
title to all items of real property and good and marketable title to all
personal property owned by each of them, in each case free and clear of all
claims, liabilities, liens, encumbrances and defects, except as described in the
Confidential Offering Memorandum, or such as do not materially effect the value
of such property and do not interfere with the use or proposed use of such
property by the Company and such Subsidiary. Any real property and buildings
held under lease by the Company or any Subsidiary are held under valid, existing
and enforceable leases with such exceptions as are not material and do not
interfere with the use or proposed use of such property and buildings by the
Company or such Subsidiary.
2.12 Except as described in the Confidential Offering Memorandum, there
is no litigation or governmental proceeding to which the Company or any
Subsidiary is a party or to which any property of the Company or any Subsidiary
is subject or which is pending or, to the knowledge of the Company or any
Subsidiary, threatened against it which individually or in the aggregate might
result in any material adverse change in the condition (financial or otherwise),
business, prospects, properties, or results of operations of the Company or any
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Subsidiary, or which would materially and adversely effect the consummation of
this Agreement or the transactions contemplated hereby or which is required to
be disclosed in the Confidential Offering Memorandum.
2.13 Neither the Company nor any Subsidiary is in violation of any law,
ordinance, governmental rule or regulation or court decree to which it may be
subject which could be reasonably expected to have a material adverse effect on
the condition (financial or otherwise), business, prospects, properties, results
of operations, or net worth of the Company, taken as a whole.
2.14 The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Securities to facilitate a sale or re-sale of
the Securities.
2.15 For purposes of this Agreement, the term "Subsidiary" or
"Subsidiaries" shall mean any corporation, partnership, business trust or other
similar entity to which the Company has a controlling or majority interest.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE PLACEMENT AGENT. The
Placement Agent hereby represents and warrants to, and covenants and agrees
with, the Company that:
3.1 The Placement Agent, each Associate Agent and all of its agents and
representatives have or will have all required licenses and registrations to
perform their obligations under this Agreement, and such licenses and
registrations will remain in effect during the term of this Agreement. The
Placement Agent and each Associate Agent is a member in good standing of the
National Association of Securities Dealers, Inc.
3.2 Any and all information furnished to the Company by the Placement
Agent in writing expressly for use in the Confidential Offering Memorandum did
not and will not contain any untrue statement of material fact or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
3.3 The Placement Agent and each Associate Agent will take all actions
to fulfill its duties under the Exchange Act and the rules and regulations
thereunder, which duties relate to transmission and maintenance of subscription
funds from prospective purchasers in the Offering.
3.4 The Placement Agent and each Associate Agent will deliver to the
Company the original copies of all subscription documents of prospective
purchasers received by the Placement Agent and each Associate Agent in the
Offering, and the Placement Agent and each Associate Agent will promptly inform
the Company of any facts which come to its attention which would cause a
reasonable person to believe that such subscription documents contain any
material misstatement or omission.
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3.5 The Placement Agent and each Associate Agent will comply with all
applicable laws in connection with the performance of its duties hereunder.
3.6 There is no presently pending or threatened action against the
Placement Agent before any court or governmental agency or body which, in the
reasonable judgment of the Placement Agent, might materially adversely affect
the ability of the Placement Agent to perform its duties hereunder.
ARTICLE 4. PLACEMENT OF SECURITIES BY THE PLACEMENT AGENT; PAYMENT;
TERMINATION.
4.1 Subject to the terms and conditions hereof and upon the basis of
the representations, warranties and agreements herein set forth, the Company
hereby appoints the Placement Agent as its agent, on a non-exclusive basis,
subject to the right of the Company or the Placement Agent to designate and
appoint Associate Agents, from the date hereof to sell the Securities on a best
efforts basis, and, subject further to the right of the Company to itself sell
the Securities without the payment of fees to the Placement Agent hereunder on
Units sold by the Company. On the basis of and subject to the representations,
warranties, covenants and agreements set forth herein, the Placement Agent
hereby accepts such appointment and agrees to use its best efforts to find
purchasers for the Securities. The price at which the Placement Agent, as agent
for the Company, shall sell the Units to the subscribers shall be $20,000.00 per
Unit. A Unit will consist of the Series B Debenture in the principal amount of
$20,000, which Series B Debenture is convertible into 36,363.63 shares of Common
Stock at a price of $0.55 per share (the "Per Share Selling Price"), and 20,000
Series B Warrants. However, the Company reserves the right to sell partial Units
in the Offering. The Company shall pay the Placement Agent (i) a commission
equal to eight percent (8%) of the selling price for each Unit or portion
thereof sold by the Placement Agent and accepted by the Company, (ii) an
investment banking fee equal to two percent (2%) of the selling price for each
Unit or portion thereof sold by the Placement Agent and accepted by the Company,
and (iii) warrants for the purchase of Common Stock in a number equal to twenty
percent (20%) multiplied by the aggregate selling price for each Unit or portion
thereof sold by the Placement Agent and accepted by the Company with an exercise
price equal to one hundred twenty percent (120%) of the Per Share Selling Price,
provided, however, the Series B Warrants issued to the Placement Agent shall
permit a cashless exercise of the Series B Warrant by the Placement Agent. Each
of the Placement Agent and the Company shall have the right to reject any
subscription and to allocate Securities among subscribers.
4.2 As described in the Confidential Offering Memorandum, during the
period of the Offering, the Purchase Agreement duly executed by a subscriber and
the proceeds from the subscriptions for the Securities shall, upon receipt by
the Placement Agent, be promptly forwarded to the Company. Within ten (10) days
of receipt by the Company of such documents and funds, the Company shall forward
to such subscriber the Series B Debenture and Series B Warrant for the
Securities so purchased.
4.3 Each of the parties hereto agree that this Agreement shall
thereafter be automatically terminate (the "Termination Date") upon earlier of
(i) the date that all Units (or such lesser number as the parties may agree in
writing) of Securities shall have been subscribed for and the funds therefor
shall have been delivered to the Company or (ii) December 15, 2002, unless
extended by the Company for a reasonable period of time not to exceed sixty (60)
days.
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4.4 The Placement Agent shall use its best efforts to ensure that all
purchasers of the Securities are accredited investors, however, the Company, in
its reasonable discretion, prudently exercised, may accept up to thirty-five
(35) non-accredited, yet sophisticated, investors. In so doing, the Company may
review such investors financial information as may be reasonably necessary.
ARTICLE 5. THE OFFERING OF THE SECURITIES.
5.1 When offering the Securities for sale hereunder, the Placement
Agent shall offer the Securities solely as an agent for the Company, and such
offer of sale shall be made upon the terms and subject to the conditions set
forth in the Confidential Offering Memorandum and the Purchase Agreement. The
Placement Agent shall commence making such offer of sale as an agent for the
Company on or about the date hereof. In connection with the Offering, the
Placement Agent will not make a general solicitation or do anything else which
will cause the Offering not to be exempt from the registration requirements of
the Securities Act.
5.2 The information set forth in the section of the Confidential
Offering Memorandum entitled "Plan of Distribution" relating to the Securities
proposed to be sold by the Company (insofar as such information relates to the
Placement Agent) constitutes the only information furnished by the Placement
Agent to the Company for inclusion in the Confidential Offering Memorandum and
the Placement Agent hereby represents and warrants to the Company that the
statements therein are true and correct as of the date such statements were made
by the Placement Agent.
ARTICLE 6. COVENANTS. The Company covenants and agrees with the
Placement Agent that:
6.1 The Company shall (a) comply with the provisions of and make all
requisite filings with the Commission pursuant to the Securities Act and the
rules and regulations promulgated by the Commission thereunder and (b) continue
to make filings under the Exchange Act consistent with, and in accordance with,
the Company's past practices. The Company shall immediately notify the Placement
Agent in writing of all filings under the Exchange Act. The Company shall
prepare, promptly upon the written request of the Placement Agent, any
amendments of or supplements to the Confidential Offering Memorandum which, in
the sole opinion of the Placement Agent, may be necessary or advisable in
connection with the offer and sale of the Securities. The Company may not make
any amendment or supplement to the Confidential Offering Memorandum unless such
amendment or supplement is approved by the Placement Agent after reasonable
notice thereof, provided that such approval may not be unreasonably denied,
withheld or delayed. The Company shall advise the Placement Agent promptly of
the issue by the Commission or any state or other regulatory body of any stop
order or order suspending the sale of Securities, suspending or preventing the
use of the Confidential Offering Memorandum or suspending the qualification of
the Securities for offering or sale in any jurisdiction, or of the institution
of any proceedings for any such purpose. The Company shall use its best efforts
to prevent the issuance of any such stop order or other such order, and should a
stop order or other such order be issued, the Company shall use its best efforts
to obtain as soon as practicable after the imposition of such stop order or
other such order the lifting thereof.
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6.2 The Company shall furnish to the Placement Agent from time to time
and without charge, copies of the Confidential Offering Memorandum including all
exhibits and all amendments and supplements thereto in such quantities as the
Placement Agent may reasonably request.
6.3 At all times during the Offering, the Company shall comply with all
requirements imposed upon it by the Securities Act, the Exchange Act (to the
extent applicable to the Company) and the rules and regulations promulgated by
the Commission thereunder, so far as is necessary to permit the continuance of
offers and sales of or dealings in the Securities as contemplated by the
provisions of the Confidential Offering Memorandum and this Agreement. If,
during such period, any event occurs that would result in the Confidential
Offering Memorandum including an untrue statement of a material fact or omitting
to state a material fact necessary to make the statements therein, in light of
the circumstances then existing, not misleading, or during the Offering it is
necessary to amend or supplement the Confidential Offering Memorandum to comply
with the Securities Act, the Company shall promptly notify the Placement Agent
and shall promptly supplement or amend the Confidential Offering Memorandum so
as to correct such statement or omission or to effect such compliance.
6.4 The Company shall take or cause to be taken all necessary action
and shall furnish to whomever the Placement Agent may direct such information as
may be required to qualify the Securities for sale under the laws of such
jurisdictions which the Placement Agent shall designate and shall continue such
qualifications in effect for as long as may be necessary for the distribution of
the Securities.
6.5 The Company shall apply the net proceeds of the sale of the
Securities in the manner specified in the Confidential Offering Memorandum under
the caption "Use of Proceeds" and shall file such reports, if any, with the
Commission with respect to the sale of Securities and the application of the
proceeds therefrom as may be required in accordance with applicable law and
regulations, including without limitation applicable state securities or Blue
Sky laws.
6.6 The Company will furnish to its security holders annual reports
containing financial statements audited by independent public accounts and
quarterly reports containing financial statements and financial information
which may be unaudited. During the period of time until the earlier of five (5)
years from the date of this Agreement or the dissolution of the Company, the
Company shall deliver to the Placement Agent copies of each annual report of the
Company and each other report furnished by the Company to its securities holders
and will deliver to the Placement Agent as soon as available copies of any other
reports (financial or otherwise) that the Company shall publish or otherwise
make available to its security holders generally and as soon as available,
copies of any reports and financial statements furnished to or filed with the
Commission or the NASD.
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6.7 The Company shall pay or cause to be paid, upon request of the
Placement Agent accompanied by invoices or other appropriate documentation, and
prior approval by the Company, (i) all reasonable expenses incurred by the
Placement Agent, in connection with (a) the preparation, printing, filing,
delivery and shipping of the Confidential Offering Memorandum and any other
documents, including, without limitation, questionnaires, powers of attorney,
and Blue Sky memoranda, (b) all filing fees and fees and disbursements of
counsel to the Placement Agent incurred in connection with the qualification of
the Securities for sale under state securities or Blue Sky laws as provided
herein, (c) any applicable listing fees, (d) the cost of printing documents and
certificates representing the Securities, (e) the costs and charges of any
transfer agent or registrar; and (ii) all other expenses of the Placement Agent,
in an amount not to exceed $25,000.00, including (a) all reasonable
out-of-pocket disbursements (including fees and disbursements of counsel)
incurred by the Placement Agent in connection with its investigation,
preparation to market and marketing of the Securities or the contemplation of
performing its obligations hereunder, and (b) all other reasonable costs and
expenses incident to the performance of the Placement Agent's obligations
hereunder which are not otherwise provided for in this Section 6.7.
ARTICLE 7. CONDITIONS PRECEDENT.
7.1 The obligations of the Placement Agent hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Termination Date, there shall not have occurred any change, or
any development involving a prospective change, in the conditions (financial or
otherwise), earnings, business, prospects, properties or operations of the
Company or any Subsidiaries, taken as a whole, from that set forth in the
Confidential Offering Memorandum that, in the judgment of the Placement Agent,
is materially adverse and that makes it, in the judgment of the Placement Agent,
impracticable to market the Securities on the terms and in the manner
contemplated in the Confidential Offering Memorandum.
(b) The Placement Agent shall have received on the date hereof
and on the Termination Date certificates, dated as of such dates and signed by
the chief executive officer of the Company, to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct as of the dates of such certificates and that the Company has
complied with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied hereunder on or as of the date of such
certificates.
(c) The Placement Agent shall have received an opinion of
counsel to the Company, dated as of the date hereof, and shall be substantially
to the effect that:
(i) the Company is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and
authority to own, lease and operate its property and conduct its
business as described in the Confidential Offering Memorandum;
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(ii) the Securities to be sold by the Company, when
delivered in accordance with Section 4.1 hereof, have been duly
authorized and will be, upon issuance and delivery against payment
therefor in accordance with the terms of this Agreement, validly
issued, fully paid and non-assessable and will not be subject to any
preemptive or other rights to subscribe for or purchase Securities
pursuant to the organizational documents of the Company or, to the best
of such counsel's knowledge, otherwise;
(iii) The Company's authorized shares consist of
100,000,000 shares of common stock, $0.001 par value, of which
17,126,531 shares are outstanding as of October 3, 2002, and 15,000,000
shares of preferred stock, par value $0.001 per share, of which no
shares are outstanding. The outstanding shares of the Company's stock
have been duly authorized and validly issued, were not issued in
violation of any statutory preemptive rights of shareholders, and are
fully paid and nonassessable. The Company has, as of October 3, 2002,
issued warrants and options to purchase an aggregate of 3,116,160
shares of its Common Stock, as set forth in the Confidential Offering
Memorandum, as well as the Series A Debentures and Series B Warrants as
described in the Confidential Offering Memorandum. Except as described
in the Confidential Offering Memorandum, there are no options,
subscriptions, warrants, calls, rights or commitments obligating the
Company to issue equity securities or acquire its equity securities;
(iv) the amounts, terms and designations of the
capital stock of the Company conform as to legal matters in all
material respects to the description thereof contained in the
Confidential Offering Memorandum under the caption "Description of
Capital Stock";
(v) this Agreement has been duly authorized, executed
and delivered by the Company and, when so executed and delivered,
constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company;
(vi) the execution, delivery and performance by the
Company of this Agreement, before or as of the date hereof, (A) do not
conflict with or violate the Articles of Incorporation, as the same may
have been amended, the Bylaws, as the same may have been amended, of
the Company and (B) are neither prohibited by, nor subject the Company
to, any fine, penalty or similar sanction that would be materially
adverse to the Company under any statute or regulation of the State of
Utah or under federal law (including federal securities laws);
(vii) to the knowledge of such counsel, the Company
has all necessary consents, authorizations, approvals, orders,
certificates and permits of and from, and has made all declarations and
filings with, all federal, state, local and other governmental
authorities, all self-regulatory organizations, all courts and other
tribunals, to own, lease, license and use its properties and assets and
to conduct its business in the manner described in the Confidential
Offering Memorandum, except to the extent that the failure to obtain or
file would not have a material adverse effect on the Company;
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(viii) to the knowledge of such counsel, no
authorization, consent, approval of or qualification with any federal
or state governmental authority is required for the execution, delivery
or performance by the Company of this Agreement, except such as have
been previously made or obtained, in connection with the distribution
of the Securities by the Placement Agent, and except those which, if
not made or obtained, will not, individually or in the aggregate, have
a material adverse effect on the Company;
(ix) nothing has come to the attention of such
counsel to cause such counsel to believe that (except for financial
statements, projections, schedules and other financial and statistical
information included or incorporated by reference in the Confidential
Offering Memorandum as to which such counsel need not express any
opinion) the Confidential Offering Memorandum contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or that the Confidential Offering Memorandum as of the
Termination Date, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(x) to such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened to which the Company
or any Subsidiary is a party or to which any of the properties of the
Company or any Subsidiary is subject that are not fairly summarized in
all material respects in the Confidential Offering Memorandum or are
attached as exhibits thereto;
(xi) to such counsel's knowledge, after due inquiry,
all contracts, indentures, mortgages, loan agreements, leases or other
documents to which the Company is a party or to which its business or
properties are subject are fairly summarized in all material respects
in the Confidential Offering Memorandum or are attached as exhibits
thereto; and
(xii) after due inquiry, such counsel does not know
of any pending or threatened proceeding relating to the revocation or
modification of any consent, authorization, approval, order,
certificate or permit necessary to the conduct of the business of the
Company or any Subsidiary.
(d) The Placement Agent shall have received on the Termination
Date an opinion of counsel to the Company, dated as of such Termination Date,
substantially to the effect that:
(i) the Company is in good standing under the laws of
the jurisdiction of its organization;
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(ii) nothing has come to the attention of such
counsel to cause such counsel to believe that (except for financial
statements, schedules and other financial and statistical information
included or incorporated by reference in the Confidential Offering
Memorandum as to which such counsel need not express any opinion) the
Confidential Offering Memorandum contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Confidential Offering Memorandum as of the Termination Date, contained
any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iii) to such counsel's knowledge, there are no
pending or threatened proceedings relating to the revocation or
modification of any consent, authorization, approval, order,
certificate or permit necessary to the conduct of the business of the
Company.
ARTICLE 8. INDEMNIFICATION.
8.1 The Company agrees to indemnify and hold harmless the Placement
Agent and each person who "controls" the Placement Agent, as the term "control"
is defined under either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by the Placement Agent or any such controlling person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Confidential Offering Memorandum, or any application under federal or state
securities laws, or caused by any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except insofar as such losses, claims, damages or liabilities
are caused by any such untrue statement or omission or alleged untrue statement
or omission based upon information relating to the Placement Agent or the manner
in which the Securities will be offered that was furnished to the Company by the
Placement Agent for use in the Confidential Offering Memorandum.
8.2 The Placement Agent agrees to indemnify and hold harmless the
Company, any executive officer of the Company and each person who "controls" the
Company to the same extent as the foregoing indemnity from the Company to the
Placement Agent, but only with reference to information relating to the
Placement Agent, or the manner in which the Securities will be offered, that was
furnished to the Company in writing by such Placement Agent expressly for use in
the Confidential Offering Memorandum.
8.3 If any proceeding (including any governmental investigation) shall
be instituted involving any person having the right to seek indemnity pursuant
to this Article 8, such person (the "Indemnified Party") shall promptly notify
the party against whom such indemnity may be sought (the "Indemnifying Party")
in writing, and the Indemnifying Party, upon request of the Indemnified Party,
shall retain counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any other persons or entities Indemnifying
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Party may designate in such proceeding and shall pay the fees and disbursements
of such counsel related to such proceeding. In any such proceeding, the
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (x) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (y) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
the Indemnifying Party and the Indemnified Party. Each of the parties hereto
agree that any Indemnified Party will notify the Indemnifying Party in writing
if such Indemnified Party desires more than one separate firm (in addition to
any local counsel) representing the Indemnified Party in connection with any
proceeding or related proceedings in the same jurisdiction (such notice
designating the name and address of such additional firm), and the Indemnifying
Party shall not, with respect to the legal expenses of such Indemnified Party
with respect to such additional firm in connection with such proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
such Indemnified Party. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing, if at any time an Indemnified Party shall have requested the
Indemnifying Party to reimburse the Indemnified Party for fees and expenses of
counsel as provided in this Article 8, the Indemnifying Party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than sixty (60) days
after receipt by such Indemnifying Party of the aforesaid request; (ii) such
Indemnifying Party shall not have reimbursed the Indemnified Party in accordance
with such request prior to the date of such settlement; and (iii) such
Indemnified Party shall have given the Indemnifying Party at least sixty (60)
days' prior notice of its intention to settle. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability with respect
to claims that are the subject matter of such proceeding.
8.4 If the indemnification provided for in the Section 8.1 or 8.2
hereof is unavailable to the Indemnified Party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Party under such Section, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Indemnifying Party (or parties, as the case may be), on the one hand, and
the Indemnified Party (or parties, as the case may be), on the other hand, from
the Offering; or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above, but also the
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relative fault of the Indemnifying Party (or parties), on the one hand, and of
the Indemnified Party (or parties), on the other hand, in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and the Placement
Agent, on the other hand, in connection with the Offering shall be deemed to be
in the same respective proportions as the net proceeds from the Offering (before
deducting expenses) received by the Company and the total of all commissions
received by the Placement Agent, in each case as set forth in the Confidential
Offering Memorandum, bear to the aggregate price paid for the Securities by all
subscribers therefor. The relative fault of the Company, on the one hand, and
the Placement Agent, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Placement Agent and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
8.5 The Company and the Placement Agent each agree that it would not be
just or equitable if contribution pursuant to this Article 8 were determined by
PRO RATA allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 8.4 hereof. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages and liabilities referred to in Section 8.4 hereof shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Article 8, the Placement Agent shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten and offered by it and distributed to subscribers
exceeds the amount of any damages that such Placement Agent has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Article 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any Indemnified Party at law or in equity.
8.6 The indemnity and contribution provisions contained in this Article
8 and the representations and warranties of the Company and the Placement Agent
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement; (ii) any investigation made
by or on behalf of the Placement Agent or any person "controlling" the Placement
Agent or by or on behalf of the Company, its officers, directors, employees or
any person controlling the Company; and (iii) acceptance of and payment for any
of the Securities.
ARTICLE 9. NOTICE OF TERMINATION; EFFECTIVE AGREEMENT. This Agreement
shall be subject to termination by notice given by the Placement Agent to the
Company, if (a) after the execution and delivery of this Agreement and prior to
the Termination Date hereunder, (i) trading generally shall have been suspended
or materially limited on or by, as the case may be, the New York Stock Exchange,
the American Stock Exchange or the National Association of Securities Dealers,
Inc.; (ii) trading of any securities of the Company shall have been suspended on
any exchange or in any over-the-counter market; (iii) a general moratorium on
14
commercial banking activities in the State of New York shall have been declared
by either federal authorities or authorities for the State of New York; or (iv)
there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in the judgment of
the Placement Agent, in its sole discretion, is material and adverse, and (b) in
the case of any of the events specified in clauses (a)(i) through (iv), such
event singly or together with any other such event makes it, in the judgment of
the Placement Agent, in its sole discretion, impracticable or commercially
unreasonable to market the Securities on the terms and in the manner
contemplated in the Confidential Offering Memorandum.
ARTICLE 10. MISCELLANEOUS.
10.1 This Agreement shall become effective upon the execution and
delivery hereof by the parties hereto.
10.2 This Agreement may be executed in one or more counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
10.3 This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Maryland, without giving effect to any
principles of conflicts of laws.
10.4 All of the representations, warranties and covenants of the
parties contained in this Agreement shall survive any Closing Date hereunder
(even if the damaged party knew or had reason to know of any misrepresentation
or breach of warranty at the time of such Closing).
10.5 Each of the parties to this Agreement hereby covenants and agrees
that, from time to time, it will make, execute and deliver any and all such
other instruments and documents and will do and perform any and all such further
acts as shall be or become necessary, proper or convenient to carry out or
effectuate the respective covenants, promises and undertakings contained in this
Agreement.
10.6 This Agreement shall not be assigned by any party hereto without
the prior written consent of the other parties hereto. This Agreement shall be
binding upon and inure to the benefit of the respective parties hereto and their
respective successors and permitted assigns.
10.7 If any provision, clause, or part of this Agreement, or the
application thereof under certain circumstances, is held to be invalid or
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the remainder of this Agreement, or the application of the
remainder of such provision, clause or part under other circumstances, shall not
be affected thereby, shall be interpreted as if such provision were so excluded
and shall be enforceable in accordance with its terms.
15
10.8 This Agreement and other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire understanding of the
parties with respect to the transactions contemplated hereby and supersede all
prior agreements and understandings between the parties on such matters.
10.9 The Section headings contained in this Agreement are for reference
purposes only and will not affect in any way the meaning or interpretation of
this Agreement.
10.10 All notices, claims, certificates, requests, demands and other
communications hereunder will be in writing and will be deemed to have been duly
given if (i) personally delivered; (ii) sent by telecopy, facsimile transmission
or other electronic means of transmitting written documents (if confirmation of
such transmission is received with written confirmation to be immediately sent
by regular U.S. mail, postage prepaid); or (iii) sent to the parties at their
respective addresses indicated herein by registered or certified mail, postage
prepaid, return receipt requested, or by private overnight mail courier service.
The respective addresses to be used for all such notices, demands or requests
are as follows:
If to the Placement Agent, to:
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, to:
Telkonet, Inc.
▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President and
Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Green Deveney, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or addresses as the person to whom notice is to be
given may have previously furnished to the other in writing in the manner set
forth above.
10.11 Facsimile and telecopy versions of signed documents (other than
this Agreement) shall be deemed to be original documents for purposes of any
Closing.
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10.12 This Agreement shall not confer any rights or remedies upon any
person other than the parties hereto and their respective successors and
permitted assigns.
10.13 Each of the parties hereto have participated in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by all of the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including, without limitation. Each of the Parties
intends that each representation, warranty, and covenant contained herein shall
have independent significance.
10.14 Whenever the singular number is used in this Agreement and when
required by the context, the same shall include the plural and vice versa, and
the masculine gender shall include the feminine and neuter genders and vice
versa.
Please confirm, by signing and returning to the Company, two (2)
counterparts of this Agreement. By signing below, each of the Company and the
Placement Agent certifies that the foregoing correctly sets forth the agreement
among the Company and the Placement Agent.
Very truly yours,
TELKONET, INC.
By:________________________________
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President and
Chief Executive Officer
AGREED TO, CONFIRMED AND ACCEPTED AS OF THE DATE AND YEAR FIRST WRITTEN ABOVE:
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & COMPANY
By:_________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, President
17