EXHIBIT 1
---------
TELKONET, INC.
PLACEMENT AGENCY AGREEMENT
February 16, 2004
CDC Securities
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
This Placement Agency Agreement (this "Agreement") confirms the retention by
Telkonet, Inc., a Utah corporation (the "Company"), of CDC Securities, a New
York corporation ("CDC" or the "Placement Agent"), to act as the placement
agent, on a reasonable efforts basis, in connection with a private placement for
the Company (the "Offering"), on the terms set forth below.
1. APPOINTMENT OF PLACEMENT AGENT. CDC is hereby appointed Placement Agent
of the Company (subject to the Placement Agent's right to appoint as
its authorized subagents selected securities broker-dealers that are in
good standing with the National Association of Securities Dealers
("NASD") to participate in the Offering) for the purposes of assisting
the Company in finding qualified investors for the Offering. The
Offering period (the "Offering Period") shall continue until the
earlier to occur of: (i) the sale of up to $14,056,240 of the Company's
securities (the "Securities"); or (ii) April 30, 2004. The day that the
Offering Period terminates is hereinafter referred to as the
"Termination Date." Subject to the performance by the Company of all of
its obligations to be performed under this Agreement and to the
completeness and accuracy of all representations and warranties of the
Company contained in this Agreement, the Placement Agent hereby accepts
such agency and agrees to use its reasonable efforts to assist the
Company in finding qualified investors for the Offering. Except for the
foregoing, it is understood that the Placement Agent has no commitment
to sell the Securities. CDC's agency hereunder is not terminable by the
Company prior to the Termination Date. Subscriptions for Securities
shall be evidenced by the execution by investors of the Subscription
Agreement. No Subscription Agreement shall be effective unless and
until it is accepted by the Company. The Placement Agent shall not have
any obligation to independently verify the accuracy or completeness of
any information contained in any Subscription Agreement or the
authenticity, sufficiency, or validity of any check delivered by any
prospective investor in payment for Securities.
2. INVESTOR MATERIALS. In connection with the Offering of the Securities,
the Offering will be made by means of certain documents and materials
to be prepared and approved by the Company in consultation with CDC
(collectively, "Investor Materials"). Such Investor Materials will be
provided by the Company to CDC in advance, and no such documents or
materials will be provided to investors introduced to the Company by
CDC without CDC's prior approval; provided that the Company will be
solely and ultimately responsible for the contents of the Investor
Materials and all other information forwarded to prospective purchasers
of the Securities by or on behalf of the Company. CDC will not provide
1
any additional documents or materials to prospective purchasers unless
directed in writing by the Company on its behalf. The Investor
Materials, as well as any registration statement covering the resale of
the Securities, shall be the responsibility of the Company. The
Investor Materials will include all information to be provided to
investors under Regulation D under the Securities Act of 1933, as
amended (the "Securities Act"), and under antifraud laws and
regulations contained in applicable federal and state securities laws,
and any registration statement covering the resale of the Securities
shall likewise comply with all applicable federal and state securities
laws. The Company represents and warrants that neither the Investor
Materials, the SEC Documents (as defined below), the Subscription
Agreements (as defined below) nor any registration statement shall
contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. CDC will keep
strict control over the disposition of each copy of the Investor
Materials.
3. COMPENSATION AND EXPENSES.
(a) FEES. Simultaneously with payment for and delivery of the Securities at
each closing of the Offering, the Company shall pay CDC a cash fee
("Placement Fee") of nine percent (9.0%) of the gross proceeds of such
sales, subject to an aggregate minimum Placement Fee of $100,000 for
the offering, provided that no Placement Fee shall be payable by the
Company to CDC unless and until Securities having an aggregate value of
$750,000 have been sold by CDC. Any and all Placement Fees payable
hereunder shall be payable by wire transfer of immediately available
funds at the closing to which such Placement Fee relates.
Notwithstanding anything to the contrary contained herein, the Company
shall have the right, in its sole and exclusive discretion, to reject
any proposed investor in the Offering.
(b) EXPENSES. The Company will reimburse CDC for its reasonable
out-of-pocket expenses (including the fees and expenses of legal
counsel and travel expenses) incurred in connection with the Offering
("Placement Expenses"). CDC shall notify the Company immediately if
such expenses will exceed $100,000. In the event that purchasers in the
Offering elect to retain counsel, the Company shall pay the fees and
expenses of not more than one such counsel for all purchasers in an
amount to be agreed to by the Company and the purchasers of Securities
and not to exceed an aggregate of $30,000. In the event there is a
closing of the Offering, CDC's out-of-pocket expenses will be
reimbursed at the first closing and thereafter at each subsequent
closing. If there is no closing of the Offering within three months of
the date hereof or if the Offering is otherwise terminated, CDC's
out-of-pocket expenses will be reimbursed within ten (10) days after
receipt by the Company of an invoice submitted by CDC for the payment
of such expenses. If at the request or agreement of the Company, CDC
performs other or additional services beyond those set forth in this
Agreement, the Company and CDC will negotiate in good faith an
appropriate level of additional compensation for such services. The
Company and CDC will reach an agreement in such negotiations prior to
CDC performing such other or additional services.
(c) INTEREST. In the event that for any reason the Company shall fail to
pay to the Placement Agent all or any portion of the Placement Fees
payable hereunder when due, interest shall accrue and be payable on the
unpaid cash balance due hereunder from the date when first due through
and including the date when actually collected by the Placement Agent,
at a rate equal to four percentage points above the prime rate of
Citibank, N.A., in New York, New York, computed on a daily basis and
adjusted as announced from time to time.
2
4. COMPLIANCE WITH SECURITIES LAWS. Each of the Company and CDC agrees to
conduct the Offering in a manner intended (a) to qualify as a private
placement of the Securities in any jurisdiction in which the Securities
are offered (including the U.S.), (b) if the Offering is made to
non-U.S. investors outside the U.S., to comply with the requirements of
Regulation S under the Securities Act, and (c) if the Offering is made
in the U.S. or to U.S. investors, to comply with the requirements of
Section 4(2) of the Securities Act and Regulation D thereunder.
Assuming the accuracy of the representations and warranties given to
the Company by each investor to the extent relevant for such
determination, the Offering will be exempt from the registration
requirements of the Securities Act. In connection with offers made
pursuant to Regulation S, the Company agrees not to engage in any
"directed selling efforts" (as that term is defined in Regulation S)
with respect to the Securities and to comply with the offering
restriction requirements of Regulation S. In connection with offers
made in the U.S. pursuant to Regulation D, the Company agrees (i) to
limit offers to sell, and solicitations of offers to buy, the
Securities to persons reasonably believed by it to be "accredited
investors" within the meaning of Rule 501(a) under the Securities Act,
and (ii) not to engage in any form of general solicitation or general
advertising in connection with the Offering within the meaning of Rule
502 under the Securities Act. If the Securities are offered in the
U.S., the Company agrees to conduct the Offering in a manner intended
to comply with the registration or qualification requirements, or
available exemptions therefrom, under applicable state securities laws.
The Company shall be responsible for compliance with the filing
requirements of the securities laws of all applicable countries, states
of the U.S., and other jurisdictions. CDC shall advise the Company of
those states of the U.S. and other jurisdictions in which CDC intends
to offer the Securities in order that the Company's counsel can ensure
that the Offering has been qualified or exempted under the appropriate
laws and regulations. CDC shall not engage in sales of the Securities
in any state requiring pre-sale qualification until the Company has
qualified to sell Securities in such state. The Company has not in the
six months prior to the date of this Agreement and will not, for a
period of six months following the final closing date of the Offering
(the "Final Closing"), directly or indirectly, make any offers or sales
of any security or solicit any offer to buy any security unless, in the
opinion of the Company's legal counsel, concurred in by CDC's legal
counsel, such offer or sale does not (y) jeopardize the availability of
exemptions from the registration and qualification requirements under
applicable U.S. federal securities laws, state securities laws, or the
securities laws of any other jurisdiction with respect to the Offering
and (z) cause the Offering to be integrated with such other offering
for purpose of any stockholder approval provisions applicable to the
Company or its securities.
5. DUE DILIGENCE AND COMPANY COOPERATION. The Company shall make members
of management and other employees, advisors and agents available to CDC
as CDC shall reasonably request for consummating the Offering, and
shall commit such time and other resources as are necessary or
appropriate to secure reasonable and timely success of the Offering.
The Company shall cooperate with CDC in connection with, and shall make
available to CDC, historic, current and prospective information
concerning the business, assets, prospects, operations and financial
condition of the Company and such documents and other information as
CDC shall reasonably request in connection with the services to be
performed by it under this Agreement. The Company shall inform CDC of
any material events or developments reasonably expected to lead to
material events that may come to the attention of the Company at any
point during the Offering Period. The Company recognizes and confirms
that CDC will use and rely, without investigation as to accuracy and
completeness, on the documents and information (written and oral)
provided by the Company and on information available from generally
3
recognized public sources in performing the services contemplated by
this Agreement and that CDC does not assume nor have responsibility for
the accuracy or completeness of such documents, information or the
Investor Materials. Further, CDC does not assume any obligation to make
any solvency determination or to conduct any appraisal of assets or
liabilities of the Company.
6. REPRESENTATION AND WARRANTIES. Except as set forth under the
corresponding section of the Disclosure Schedules attached hereto, for
the two years preceding the date hereof, the Company (including any
subsidiaries) hereby makes the following representations and warranties
as of the date hereof:
(a) ORGANIZATION. The Company is duly organized and validly existing in
good standing under the laws of the jurisdiction of its organization.
The Company has full power and authority to own, operate and occupy its
properties and to conduct its business as presently conducted and as
described in the documents filed by the Company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), since the end of
its most recently completed fiscal year through the date hereof,
including, without limitation, its most recent report on Form 10-KSB
included in the SEC Documents as defined in Section 6(q) herein, and is
registered or qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or the
location of the properties owned or leased by it requires such
qualification and where the failure to be so qualified would have a
material adverse effect upon the condition (financial or otherwise),
earnings, business or business prospects, properties or operations of
the Company, considered as one enterprise (a "Material Adverse
Effect"), and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification.
(b) DUE AUTHORIZATION AND VALID ISSUANCE. The Company has all requisite
power and authority to execute, deliver and perform its obligations
under the Subscription Agreements between the Company and the investors
(collectively, the "Subscription Agreements"), and the Subscription
Agreements prior to such respective Closing (as defined therein) will
be duly authorized and validly executed and delivered by the Company
and constitute legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, except
as rights to indemnity and contribution may be limited by state or
federal securities laws or the public policy underlying such laws,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally, and except as
enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law). The Securities will, upon issuance and
payment therefor pursuant to the terms of the Subscription Agreements,
be duly authorized, validly issued, fully-paid and nonassessable. The
Company acknowledges that any Closing under the Subscription Agreement
shall be conditioned upon the satisfaction of the closing conditions of
the Placement Agreement set forth in Section 7(b) hereof.
(c) NONCONTRAVENTION. The execution and delivery of the Subscription
Agreements, the issuance and sale of the Securities under the
Subscription Agreements, the fulfillment of the terms of the
Subscription Agreements, and the consummation of the transactions
contemplated thereby will not (i) conflict with or constitute a
violation of, or default (with the passage of time or otherwise) under
(1) any material bond, debenture, note or other evidence of
indebtedness, lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which the
Company or any subsidiary is a party or by which it or any of its
subsidiaries or their respective properties are bound, (2) the charter,
bylaws or other organizational documents of the Company or any
subsidiary, or (3) any law, administrative regulation, ordinance or
4
order of any court or governmental agency, arbitration panel or
authority applicable to the Company or any subsidiary or their
respective properties, except in the case of clauses (1) and (3) for
any such conflicts, violations or defaults that are not reasonably
likely to have a Material Adverse Effect, or (ii) result in the
creation or imposition of any lien, encumbrance, claim, security
interest or restriction whatsoever upon any of the material properties
or assets of the Company or any subsidiary or an acceleration of
indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence
of indebtedness, indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or any subsidiary is a
party or by which any of them is bound or to which any of the material
property or assets of the Company or any subsidiary is subject. No
consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative
agency, or other governmental body in the United States or any other
person is required for the execution and delivery of the Subscription
Agreements and the valid issuance and sale of the Securities to be sold
pursuant to the Subscription Agreements, other than such as have been
made or obtained, and except for any post-closing securities filings or
notifications required to be made under federal or state securities
laws.
(d) NO VIOLATION. The Company is not in violation of its charter, bylaws or
other organizational document, or in violation of any law,
administrative regulation, ordinance or order of any court or
governmental agency, arbitration panel or authority applicable to the
Company, which violation, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect, or is in default
(and there exists no condition that, with the passage of time or
otherwise, would constitute a default) in any material respect in the
performance of any bond, debenture, note or any other evidence of
indebtedness, indenture, mortgage, deed of trust or any other material
agreement or instrument to which the Company is a party or by which the
Company is bound or by which the properties of the Company are bound,
that would be reasonably likely to have a Material Adverse Effect. The
business of the Company and its subsidiaries is not being conducted,
and shall not be conducted so long as the investors own any of the
Securities, in violation of any law, ordinance, rule, regulation,
order, judgment or decree of any governmental entity, court or
arbitration tribunal, except for possible violations the sanctions for
which either singly or in the aggregate would not have a Material
Adverse Effect.
(e) CAPITALIZATION. Except as set forth on SCHEDULE 6(e), the Company has
not issued any capital stock since September 30, 2003, except for
issuances of capital stock pursuant to the exercise of options or
warrants. The Investor Materials contain a complete and accurate
description of the authorized, issued and outstanding capital stock of
the Company as of the date thereof (before giving effect to the
transactions contemplated by this Agreement). The Securities to be sold
pursuant to the Subscription Agreements have been duly authorized, and
when issued and paid for in accordance with the terms of the Agreements
will be duly and validly issued, fully paid and nonassessable. The
outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and were not
issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. Except as otherwise set forth on
Schedule 6(e), there are no other outstanding rights (including,
without limitation, preemptive rights), warrants or options to acquire,
or instruments convertible into or exchangeable for, any unissued
shares of capital stock or other equity interest in the Company or any
subsidiary, or any contract, commitment, agreement, understanding or
arrangement of any kind to which the Company is a party or of which the
5
Company has knowledge relating to the issuance or sale of any capital
stock of the Company, any such convertible or exchangeable securities,
or any such rights, warrants or options. Without limiting the
foregoing, except as set forth on SCHEDULE 6(e), no preemptive right,
co-sale right, right of first refusal, registration right, or other
similar right exists with respect to the Securities or the issuance and
sale thereof. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the
issuance and sale of the Securities. The Company owns the entire equity
interest in each of its subsidiaries, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest.
There are no stockholders agreements, voting agreements or other
similar agreements with respect to the common stock of the Company to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's stockholders. The Company does
not have any so-called stockholder rights plan or "poison pill" and
there are no "shark-repellant" charter or bylaw provisions or so-called
"state antitakeover" statutes applicable, in any case, to all or any
portion of the transactions contemplated by the Subscription
Agreements, including, without limitation, issuance of the Securities.
(f) FORM S-3 ELIGIBILITY. The Company is currently eligible to register the
resale of the Securities on a registration statement on Form S-3 under
the Securities Act. There exist no facts or circumstances that would
prohibit or delay the preparation and filing of a registration
statement on Form S-3 with respect to the Securities within the time
periods referred to in the Subscription Agreements.
(g) SOLVENCY. The Company (both before and after giving effect to the
Offering) is solvent (i.e., its assets have a fair market value in
excess of the amount required to pay its probable liabilities on its
existing debts as they become absolute and matured) and currently the
Company has no information that would lead it to reasonably conclude
that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from
time to time incurred in connection therewith as such debts mature. The
Company received a qualified opinion from its auditors with respect to
its fiscal year ended December 31, 2002. The Company does not
anticipate or know of any basis upon which its auditors might issue a
qualified opinion in respect of its current fiscal year.
(h) LEGAL PROCEEDINGS. Except as otherwise set forth on Schedule 6(h)
hereto, there is no action, suit, proceeding, or to the knowledge of
the Company or any of its subsidiaries, inquiry or investigation before
or by any court, public board, governmental agency or authority, or
self-regulatory organization or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting
the Company, any of its subsidiaries, or any of their respective
directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse
Effect or would adversely affect the Offering or that would adversely
affect the validity or enforceability of, or the authority or ability
of the Company to consummate the Offering. The Company and each of its
subsidiaries are unaware of any facts that could give rise to a claim
or proceeding that, if asserted or conducted with results unfavorable
to the Company or any of its subsidiaries, could have a Material
Adverse Effect.
6
(i) NO MANIPULATION OF STOCK. The Company has not taken and will not, in
violation of applicable law, take any action designed to or that might
reasonably be expected to cause or result in stabilization or
manipulation of the price of the Company's common stock to facilitate
the sale or resale of the Securities.
(j) FOREIGN CORRUPT PRACTICES. Neither the Company nor any of its
subsidiaries has, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any subsidiary has in the
course of his actions for or on behalf of the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any direct
or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation
of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government
official or employee. Without limiting the generality of the foregoing,
the Company and its subsidiaries have not directly or indirectly made
or agreed to make (whether or not said payment is lawful) any payment
to obtain, or with respect to, sales other than usual and regular
compensation to its or their employees and sales representatives with
respect to such sales.
(k) INTERNAL ACCOUNTING CONTROLS. The Company and each of its subsidiaries
maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
subsidiaries, is made known to the certifying officers by others within
those entities, particularly during the period in which the Company's
Form 10-KSB or 10-QSB, as the case may be, is being prepared. The
Company's certifying officers have evaluated the effectiveness of the
Company's controls and procedures as of the end of the period covered
for such report. The Company presented in its most recently filed Form
10-KSB or Form 10-QSB, as the case may be, the conclusions of the
certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the end of the period
covered by such report. Since the end of the period covered by such
report, there have been no significant changes in the Company's
internal controls (as such term is used in Item 307(b) of Regulation
S-K under the Exchange Act) or, to the Company's knowledge, in other
factors that could significantly affect the Company's internal
controls.
(l) GOVERNMENTAL PERMITS, ETC. With the exception of matters that are dealt
with separately in Section 6(a), each of the Company and its
subsidiaries has all necessary franchises, licenses, certificates and
other authorizations from any foreign, federal, state or local
government or governmental agency, department, or body that are
currently necessary for the operation of the business of the Company as
currently conducted and as described in its most recent report on Form
10-KSB, except where the failure to currently possess could not
reasonably be expected to have a Material Adverse Effect.
7
(m) INTELLECTUAL PROPERTY. (i) The Company owns or possesses sufficient
rights to use all material patents, patent rights, trademarks,
copyrights, licenses, inventions, trade secrets, trade names and
know-how (collectively, "Intellectual Property") described or referred
to in the most recent report on Form 10-KSB included in the SEC
Documents as owned or possessed by it, or that are necessary for the
conduct of its business as now conducted or as proposed to be conducted
as described in its most recent report on Form 10-KSB included in the
SEC Documents, except where the failure to currently own or possess
would not have a Material Adverse Effect, (ii) the Company is not
infringing, or has not received any notice of, or has any knowledge of,
any asserted infringement by the Company of, any rights of a third
party with respect to any Intellectual Property that, individually or
in the aggregate, would have a Material Adverse Effect, and (iii) the
Company has not received any notice of, or has no knowledge of,
infringement by a third party with respect to any Intellectual Property
rights of the Company that, individually or in the aggregate, would
have a Material Adverse Effect.
(n) FINANCIAL STATEMENTS. The financial statements of the Company included
in the SEC Documents have been prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, and the
rules and regulations of the Securities and Exchange Commission ("SEC")
during the periods involved (except as may be otherwise indicated in
such financial statements or the notes thereto, or in the case of
unaudited interim statements, to the extent they do not include
footnotes or are condensed or summary statements) and fairly present in
all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal, immaterial year-end audit adjustments). Except as set forth in
the financial statements of the Company included in the SEC Documents,
the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred subsequent to the date of such financial
statements in the ordinary course of business consistent with past
practice and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under U.S.
generally accepted accounting principles to be reflected in such
financial statements, in each case that, individually or in the
aggregate, are not material to the financial condition, business,
operations, properties, operating results or prospects of the Company
and its subsidiaries taken on a whole.
(o) NO MATERIAL ADVERSE CHANGE. Since September 30, 2003, there has not
been (i) any material adverse change in the financial condition or
earnings of the Company and its subsidiaries considered as one
enterprise, (ii) any material adverse event affecting the Company,
(iii) any obligation, direct or contingent, that is material to the
Company and its subsidiaries considered as one enterprise incurred by
the Company, except obligations incurred in the ordinary course of
business, (iv) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company, or (v) any loss or damage
(whether or not insured) to the physical property of the Company that
has been sustained that has a Material Adverse Effect.
(p) AMEX COMPLIANCE. The Company's common stock is registered pursuant to
Section 12(g) of the Exchange Act and is listed on The American Stock
Exchange (the "AMEX"), and the Company has taken no action designed to
terminate, or likely to have the effect of terminating, the
registration of the common stock under the Exchange Act or delisting
the common stock from the AMEX, nor has the Company received any
notification that the SEC or the AMEX is contemplating terminating such
registration or listing. The Company is not aware of any facts or
circumstances that might reasonably be expected to give rise to any of
the foregoing.
8
(q) REPORTING STATUS. Since December 31, 2001, the Company has timely filed
all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act (all of the foregoing filed after December 31,
2001, and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein,
being referred to herein as the "SEC Documents")). The Company has made
available to the Placement Agent true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the
rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents. None of the statements made in any such SEC
Documents is currently required to be updated or amended under
applicable law (except for such statements as have been amended or
updated by subsequent SEC Documents prior to the date of this
Agreement). The SEC Documents contain or incorporate by reference a
complete and accurate list of all material undischarged written or oral
contracts, agreements, leases or other instruments to which the Company
or any subsidiary is a party, or by which the Company or any subsidiary
is bound, or to which any of the properties or assets of the Company or
any subsidiary is subject, and that are required by the rules and
regulations promulgated under the Exchange Act to be included as
exhibits to the SEC Documents (each a "Contract"). None of the Company,
its subsidiaries or, to the best knowledge of the Company, any of the
other parties thereto, is in breach or violation of any Contract, which
breach or violation would have a Material Adverse Effect. No event,
occurrence or condition exists that, with the lapse of time, the giving
of notice, or both, or the happening of any further event or condition,
would become a breach or default by the Company or its subsidiaries
under any Contract, which breach or default would have a Material
Adverse Effect.
(r) COMPANY NOT AN INVESTMENT COMPANY. The Company has been advised of the
rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and
immediately after receipt of payment for the Securities will not be, an
"investment company" or an entity "controlled" by an "investment
company" within the meaning of the Investment Company Act and shall
conduct its business in a manner so that it will not become subject to
the Investment Company Act.
(s) DISCLOSURE. Except for the execution and performance of the
Subscription Agreements, no material fact (within the meaning of the
federal securities laws of the United States) exists with respect to
the Company or any of its subsidiaries that has not been Publicly
Disclosed (as defined in Rule 101(e) of Regulation FD).
(t) NO GENERAL SOLICITATION. Neither the Company nor any person acting on
behalf of the Company has conducted any "general solicitation," as
described in Rule 502(c) under Regulation D, with respect to any of the
Securities being offered pursuant to the Offering.
(u) NO INTEGRATED OFFERING. Neither the Company nor any of its affiliates,
nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any Security or solicited any
offers to buy any Security under circumstances that would prevent the
parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under the Securities Act
pursuant to the provisions of Regulation D or cause the Offering of
Securities to be integrated with any other offering of securities by
the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities. The transactions
contemplated hereby are exempt from the registration requirements of
the Securities Act, assuming the accuracy of the representations and
warranties contained in the Subscription Agreements to the extent
relevant for such determination.
9
(v) KEY EMPLOYEES; COMPANY'S KNOWLEDGE. Each Key Employee (as defined
below) is currently serving the Company in the capacity disclosed in
its most recent report on Form 10-KSB and reports filed thereafter and
included in the SEC Documents. No Key Employee, to the best of the
knowledge of the Company and its subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
noncompetition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each Key Employee
does not subject the Company or any of its subsidiaries to any
liability with respect to any of the foregoing matters. No Key Employee
has, to the best of the knowledge of the Company and its subsidiaries,
any intention to terminate or limit his employment with, or services
to, the Company or any of its subsidiaries, nor is any such Key
Employee subject to any constraints (E.G., litigation) that would cause
such employee to be unable to devote his full time and attention to
such employment or services. "Key Employee" means each of Xxxxxx
Xxxxxx, Xxxxxxx Xxxxx, Xxxxxx X. Xxxxxxx, E. Xxxxx Xxxxx, Xxxxx Xxxxxx
and Xxxxxx X. Xxxxx. For purposes hereof, the term "knowledge of the
Company" shall mean the knowledge of each of the Key Employees.
(w) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise that has had or could reasonably be expected to
result in a Material Adverse Effect, between the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
(x) BROKERS. There is no broker, finder or other party that is entitled to
receive from the Company any brokerage or finder's fee or similar fee
or commission as a result of any of the transactions contemplated by
this Agreement.
(y) COMPLIANCE WITH PATRIOT ACT. Neither the Company nor any of it
Subsidiaries (i) is or will become a Person whose property or interests
in property are blocked pursuant to Section 1 of Executive Order 13224
of September 23, 2001 Blocking Property and Prohibiting Transactions
With Persons Who Commit, Threaten to Commit, or Support Terrorism (66
Fed. Reg. 49079 (2001)) or (ii) knowingly engages or will knowingly
engage in any dealings or transactions, or be otherwise knowingly
associated, with any such person. Neither the Company nor any of its
Subsidiaries is or will be in violation of the Uniting and
Strengthening America By Providing Appropriate Tools Required To
Intercept And Obstruct Terrorism (USA Patriot Act of 2001).
(z) FCC COMPLIANCE. The Company's PlugPlusInternet Gateways comply in all
material respects with the technical requirements for Class A and Class
B digital devices promulgated by the Federal Communications Commission.
No further testing of these devices is required and the devices may be
manufactured and marketed for commercial and residential use.
7. CLOSING; PLACEMENT AND FEES.
(a) CLOSING OF THE OFFERING. Provided a closing of Securities shall have
been subscribed for and funds representing the sale thereof shall have
cleared, a closing (the "Initial Closing") shall take place at the
offices of Xxxxxxxxx Xxxxxxx, LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000 thereafter (but in no event later than five days following the
10
Termination Date), which closing date may be accelerated or adjourned
by agreement between the Company and the Placement Agent. At the
Initial Closing, payment for the Securities issued and sold by the
Company shall be made against delivery of the Securities. In addition,
subsequent closings of the Offering (if applicable) may be scheduled at
the discretion of the Company and Placement Agent, each of which shall
be deemed a "Closing" hereunder.
(b) CONDITIONS TO PLACEMENT AGENT'S OBLIGATIONS. The obligations of the
Placement Agent to consummate the Offering is subject to the accuracy
of the representations and warranties of the Company herein contained
as of the date hereof and as of each closing date of the Offering, to
the performance by the Company of its obligations hereunder, and to the
following additional conditions:
(i) DUE QUALIFICATION OR EXEMPTION. (1) The Offering will become
qualified or be exempt from qualification under the securities
laws of the several states pursuant to Section 8(d) below not
later than the Initial Closing Date, and (2) at the Initial
Closing Date, no stop order suspending the sale of the
Securities shall have been issued, and no proceedings by a
governmental authority or any securities exchange for that
purpose shall have been initiated or threatened.
(ii) NO MATERIAL MISSTATEMENTS. Neither the state securities
qualification materials nor the Investor Materials, nor any
supplement thereto, will contain any untrue statement of a
material fact, or omit to state a material fact that is
required to be stated therein, or is necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
(iii) COMPLIANCE WITH AGREEMENTS. The Company will have complied
with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to the
Initial Closing.
(iv) CORPORATE ACTION. The Company will have taken all necessary
corporate action, including, without limitation, obtaining any
required approval of its stockholders and the Board of
Directors, for the execution and delivery of this Agreement,
the performance by the Company of its obligations hereunder,
and the Offering contemplated hereby.
(v) OPINION OF COMPANY COUNSEL. The Placement Agent shall receive
the opinion of Xxxxx & Xxxxxxxxx, LLP, counsel to the Company,
dated as of each Closing, addressed to the Placement Agent and
the investors, with such knowledge qualifiers as are customary
and reasonable and which opinion may rely upon a certificate
of an officer or officers of the Company, substantially to the
effect, unless otherwise noted in the opinion, that:
(1) The Company and each subsidiary (the "subsidiaries")
is validly existing and in good standing under the
laws of its jurisdiction of organization, has all
requisite power and authority necessary to own or
hold its respective properties and conduct its
business, and is duly qualified or licensed to do
business as a foreign corporation in each other
jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires
such qualification, except where the failure to so
qualify or be licensed would not have a Material
Adverse Effect.
11
(2) Each of this Agreement, the Subscription Agreement,
and the Securities has been duly and validly
authorized, executed and delivered by the Company,
and is the valid and binding obligation of the
Company, enforceable against it in accordance with
its terms, subject to any applicable bankruptcy,
insolvency or other laws affecting the rights of
creditors generally and to general equitable
principles.
(3) The authorized, issued and outstanding capital stock
of the Company as of the date hereof (before giving
effect to the transactions contemplated by this
Agreement) is as set forth in Schedule 6(e) hereto.
There are no outstanding warrants, options,
agreements, convertible securities, preemptive rights
or other commitments pursuant to which the Company
is, or may become, obligated to issue any shares of
its capital stock or other securities of the Company
other than as set forth in Schedule 6(e). All of the
issued shares of capital stock of the Company have
been duly and validly authorized and issued, are
fully paid and nonassessable, and to such counsel's
knowledge, have not been issued in violation of the
preemptive rights of any securityholder of the
Company. The offers and sales of such securities were
either registered under the Securities Act and
applicable state securities laws or exempt from such
registration requirements.
(4) All of the outstanding shares of capital stock of the
subsidiaries are owned of record and, to such
counsel's knowledge, beneficially by the Company,
free and clear of all adverse claims, limitations on
voting rights, options and other encumbrances, and
are duly authorized, validly issued, fully paid and
nonassessable, and have not been issued in violation
of any preemptive rights arising under law or
pursuant to any subsidiary's organizational document.
(5) There are no outstanding contractual obligations of
the Company or any subsidiary to repurchase, redeem
or otherwise acquire for value any outstanding shares
of capital stock or other ownership interests of any
subsidiary or to provide funds to or make any
investment (in the form of a loan, capital
contribution, or otherwise) in any subsidiary or any
other entity.
(6) Assuming the accuracy of the information provided by
the investors in the Subscription Agreements and that
the Placement Agent has complied with the
requirements of Section 4(2) of the Securities Act
(and the provisions of Regulation D promulgated
thereunder), the issuance and sale of the Securities
is exempt from the registration requirements set
forth in Section 5 of the Securities Act.
(7) Neither the execution and delivery of this Agreement
or the Subscription Agreements, nor compliance with
the terms hereof or thereof, nor the consummation of
the transactions herein or therein contemplated, nor
the issuance of the Securities has or will conflict
with, result in a breach of, or constitute a default
under the articles of incorporation or bylaws of the
Company, any material contract, instrument or
document known to such counsel and identified to such
counsel by the Company as material to which the
12
Company is a party or by which it or any of its
properties is bound, or violate any applicable law,
rule, regulation, judgment, order or decree known to
such counsel of any governmental agency or court
having jurisdiction over the Company or any of its
properties or business.
(8) There are no claims, actions, suits, investigations
or proceedings before or by any arbitrator, court,
governmental authority or instrumentality pending or,
to such counsel's knowledge, threatened against or
affecting the Company or involving the properties of
the Company that might materially and adversely
affect the business, properties or financial
condition of the Company or that might materially
adversely affect the transactions or other acts
contemplated by the Offering or the validity or
enforceability of any documents relating to the
Offering.
(vi) OFFICERS' CERTIFICATE. The Placement Agent shall receive a
certificate of the Company, signed by the Chief Executive
Officer and Chief Financial Officer thereof, that the
representations and warranties contained in Section 6 hereof
are true and accurate in all material respects at such Closing
with the same effect as though expressly made at such Closing.
(vii) DUE DILIGENCE. The Placement Agent shall have completed and
been satisfied with the results of its due diligence
investigation of the Company, including, without limitation,
the Company's financial statements, projections, expense
budgets, business prospects, capital structure, background
searches and contractual arrangements.
(viii) FUND ESCROW AGREEMENT. If requested by the Placement Agent,
the Placement Agent shall receive a copy of a duly executed
escrow agreement in the form mutually agreeable to the Company
and the Placement Agent regarding the deposit of funds pending
the closing(s) of the Offering with a bank or trust company
acceptable to the Placement Agent.
(ix) LOCK-UP AGREEMENTS. The Placement Agent shall receive
agreements from each of Xxxxxx X. Xxxxxxx and Xxxxxx X. Xxxxxx
to the effect that such individual shall not sell, assign or
transfer any of their securities of the Company for a period
of 90 days from the date hereof (the "Restricted Period");
PROVIDED, HOWEVER, nothing herein shall prohibit Xxxxxx X.
Xxxxxxx from transferring during the Restricted Period certain
shares of common stock held by him without consideration for
the benefit of the persons listed on Schedule 7(b) hereto.
(x) PAYMENT TO PLACEMENT AGENT. The Placement Agent shall have
received the Placement Fee and the Placement Expenses as
determined in accordance with Section 3 herein.
(xi) NO ADVERSE CHANGES. There shall not have occurred, at any time
prior to the applicable Closing, (1) any domestic or
international event, act or occurrence that has materially
disrupted, or in the Placement Agent's opinion will in the
immediate future materially disrupt, the securities markets;
(2) a general suspension of, or a general limitation on prices
for, trading in securities on the AMEX or any other securities
market on which the Securities are traded; (3) any outbreak of
major hostilities or other national or international calamity;
13
(4) any banking moratorium declared by a state or federal
authority; (5) any moratorium declared in foreign exchange
trading by major international banks or other persons; (6) any
material interruption in the mail service or other means of
communication within the United States; (7) any material
adverse change in the business, properties, assets, results of
operations, or financial condition of the Company; or (8) any
change in the market for securities in general or in
political, financial, or economic conditions that, in the
Placement Agent's reasonable judgment, makes it inadvisable to
proceed with the applicable Offering.
8. COVENANTS OF THE COMPANY.
(a) USE OF PROCEEDS. The net proceeds of the Offering will be used by the
Company substantially as set forth on Schedule 8(a). Without limiting
the generality of the foregoing, the Company shall not use such
proceeds to make a loan to any employee, officer, director or
stockholder of the Company, to repay any loan or other obligation of
the Company to any such person, or to repurchase or pay a dividend on
shares of common stock or other securities of the Company, other than
any such payment explicitly required or permitted by the terms of the
Subscription Agreements (and related Terms and Conditions) included in
the Investor Materials.
(b) NOTIFICATION. The Company shall notify the Placement Agent immediately,
and in writing, (i) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the
Final Closing or the Termination Date as a result of which the Investor
Materials would include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and (ii) of the receipt
of any notification with respect to the modification, rescission,
withdrawal or suspension of the qualification or registration of the
Securities, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best
efforts to prevent the issuance of any such modification, rescission,
withdrawal or suspension and, if any such modification, rescission,
withdrawal or suspension is issued and the Placement Agent so requests,
to obtain the lifting thereof as promptly as possible.
(c) BLUE SKY. The Company (or at the Company's request, counsel to the
Placement Agent) will prepare and file the necessary documents so that
offers and sales of the securities to be offered in the Offering may be
made in certain jurisdictions in the United States. It is understood
that such filings may be based on or rely upon: (i) the representations
of each investor set forth in the Subscription Agreement delivered by
such investor; (ii) the representations, warranties and agreements of
the Company set forth in Section 6 of this Agreement; and (iii) the
representations of the Company set forth in the certificate to be
delivered at the closing(s) pursuant to paragraph (vi) of Section 7(b).
(d) FORM D FILING. The Company shall file five copies of a Notice of Sales
of Securities on Form D with the SEC no later than 15 days after the
commencement of the sale of the Securities. The Company shall file
promptly such amendments to such Notices on Form D as shall become
necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are
made. The Company shall furnish the Placement Agent with copies of all
such filings.
14
(e) PRESS RELEASES, ETC. The Company shall not, during the period
commencing on the date hereof and ending on the Termination Date, issue
any press release or other communication, or hold any press conference
with respect to the Company, its financial condition, results of
operations, business, properties, assets or liabilities, or the
Offering, without the prior consent of the Placement Agent, which
consent shall not be unreasonably withheld, conditioned or delayed. The
Company shall not include information with respect to the Offering or
use the Placement Agent's name in any press release, advertisement or
on any website maintained by the Company without the prior written
consent of the Placement Agent. Notwithstanding, the Company hereby
covenants to file a Current Report on Form 8K with the SEC within 24
hours of each closing setting forth the terms of such closing.
(f) RESTRICTIONS ON ISSUANCES OF SECURITIES. During the period commencing
on the date hereof and ending on the later of the Final Closing or the
Termination Date, the Company will not, without the prior written
consent of the Placement Agent, issue additional shares of common
stock, other than pursuant to the exercise of options or warrants
outstanding on the date hereof, or grant any warrants, options or other
securities of the Company except for options under one or more of the
Company's stock option plans.
(g) RULE 144 OPINIONS. The Company shall cause its legal counsel to issue
appropriate Rule 144 opinions by facsimile to the Company's transfer
agent (with a copy to the person requesting such opinion) within one
business day after counsel's receipt of the following completed
documentation: (i) seller's representation letter, (ii) broker's
representation letter, and (iii) copy of the Form 144, unless counsel
determines that such documentation is insufficient or has other
reasonable grounds for delaying or refusing the issuance of the
requested opinion.
(h) CERTIFICATES FOR SECURITIES. The Company shall maintain at the offices
of its transfer agent a sufficient number of common stock certificates
to enable the issuance of certificates in connection with the
Securities sold in the Offering.
(i) COMMITTEES. The Company will not create any committees of the Board
that are not composed of a majority of the independent members of the
Board unless it has received the approval of a majority of the
independent members of the Board to do so.
(j) TRANSMITTAL LETTERS. Within five days after each closing of the
Offering, the Placement Agent shall receive copies of all letters from
the Company to the investors transmitting the Securities sold in such
Offering and shall receive a letter from the Company confirming
transmittal of the Securities to the investors.
(k) LISTING. The Company shall comply with all requirements of AMEX with
respect to the issuance of the Securities and the listing thereof on
the AMEX. The Company shall provide timely updates to CDC and its
counsel with respect to the foregoing. Notwithstanding, the Company
shall not take any action that may be reasonably deemed to have a
material negative effect on CDC or this Offering, without the prior
consent of CDC. For a period of three years from the date hereof, the
Company shall continue the listing and trading of its common stock on
the AMEX, and comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of such
exchange. Notwithstanding the foregoing, in lieu of listing the common
stock on the AMEX, the Company may list its common stock on The New
York Stock Exchange or The Nasdaq National Market.
15
(l) INTENTIONAL ACTS OR OMISSIONS. The Company shall not intentionally
perform any act that if performed, or intentionally omit to perform any
act that if omitted to be performed, would prevent or excuse the
performance of this Agreement or any of the transactions contemplated
hereby or the benefits intended to be secured hereby by CDC.
(m) TRANSACTIONS WITH AFFILIATES. The Company and each of its subsidiaries
will not enter into any agreement or arrangement, written or oral,
directly or indirectly, with an affiliate, or provide services or sell
goods to, or for the benefit of, or pay or otherwise distribute monies,
goods or other valuable consideration to, an affiliate, except upon
fair and reasonable terms under the circumstances as determined by the
Company in good faith, taking into account all of the facts and
circumstances of such agreement or arrangement, and except for existing
intercompany debt or transactions with or between the Company and any
of its wholly-owned subsidiaries and payments and benefits to officers
and directors in their capacities as such in the ordinary course of
business, consistent with past practices.
9. MISCELLANEOUS.
(a) NOTICES. All notices or communications hereunder will be in writing and
will be mailed or delivered as follows: If to the Company, at 000-X
Xxxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxx 00000-0000, Attention: Xxxxxx X.
Xxxxxxx, facsimile number (000) 000-0000, with a copy to Xxxxx &
Xxxxxxxxx, LLP, Attention: Xxxxxxx Xxxxx, Esq., facsimile number (202)
861-1783; and if to CDC, at 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx,
XX 00000, Attention: Xxxxxxx Xxxxx, facsimile number (000) 000-0000,
and 0 X 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, XX 00000, Attention: Xxxxxx
Xxxxx, Esq., facsimile number (000) 000-0000, with a copy to Xxxxxxx X.
Xxxxxx, Esq. at Xxxxxxxxx Traurig, LLP, 000 Xxxx Xxxxxx, 00xx Xxxxx,
Xxx Xxxx, XX 00000, facsimile number (000) 000-0000.
(b) CONFIDENTIALITY OF COMPANY MATERIAL. CDC will keep confidential and not
disclose to any third party any confidential information of the Company
made available to CDC pursuant to Section 3(A) of the Engagement Letter
dated January 30, 2004 (the "Engagement Letter"), by the Company, and
will use the confidential information only in connection with the
services it provides to the Company under this Agreement; PROVIDED,
HOWEVER, such confidential information shall not include any
information already available to or in the possession of CDC prior to
the date of its disclosure to CDC by the Company, any information in
the Investor Materials or generally available to the public, or any
information that becomes available to CDC on a nonconfidential basis
from a third party that to the knowledge of CDC is not bound by a
confidentiality obligation to the Company; and PROVIDED FURTHER, that
such confidential information may be disclosed (i) to CDC's partners,
employees, agents, advisors and representatives in connection with the
services it provides to the Company under this Agreement, who shall be
informed of the confidential nature of the information and that such
information is subject to a confidentiality agreement; (ii) to any
person with the written consent of the Company, including to any
prospective investors; or (iii) if, upon the advice of counsel, CDC is
compelled to disclose such information, provided that CDC uses its
reasonable commercial efforts to advise the Company in advance of such
proposed disclosure.
16
(c) SURVIVAL; GOVERNING LAW; ENTIRE AGREEMENT; INDEPENDENT CONTRACTOR. The
representations, warranties and covenants of the Company set forth
herein will remain in full force and effect regardless of any
investigation made by or on behalf of CDC, any investor or any other
entity or persons and will survive delivery of the Securities. The
provisions of this Section 9, Miscellaneous, Section 2, Investor
Materials, and Section 8, Covenants of the Company, shall survive any
Closing of the Offering or termination of this Agreement, as
applicable. This Agreement, together with the Engagement Letter dated
January 30, 2004, and the Indemnification Letter attached thereto as
Exhibit A, contains the entire agreement between the Company and CDC
concerning the Offering and supersedes any prior understanding or
agreement whether written or oral. Any amendment hereto or waiver of
any right or obligation hereunder must be in writing signed by the
party to be charged. This Agreement shall be governed by and construed
in accordance with the internal laws of the state of New York without
giving effect to that state's principles of conflicts of law. CDC will
act under this Agreement as an independent contractor at "arm's-length"
with duties solely to the Company. It is understood that CDC's
responsibility to the Company is solely contractual in nature and that
CDC does not owe the Company, or any other party, any financial
advisory, fiduciary, agency or similar duties as a result of its
engagement. The Company acknowledges and agrees that any statement made
by CDC, or any of its representatives or agents, in connection with
this Agreement or the transactions contemplated hereby is not advice or
a recommendation, is merely incidental thereto, and has not been relied
upon in any way by the Company, its officers, directors or other
representatives. The Company further represents that the Company's
decision to enter into this Agreement and the transactions contemplated
hereby has been based solely on an independent evaluation by the
Company and its representatives. Any information provided by CDC may
not be disclosed or referred to publicly or to any third party except
with CDC's express prior consent. The Company acknowledges that the
business of CDC may give rise to situations when CDC or its affiliates
may have a client whose interest may be regarded as conflicting with
the Company's interests and nothing in this Agreement shall preclude
CDC from performing services for such other clients. Without the
Company's prior written consent, CDC has no right to describe its
services to the Company in connection with the Offering or to reproduce
the Company's name and logo in CDC's advertisements, marketing
materials, and equity research reports, if any. The invalidity or
unenforceability of any provision of this Agreement shall not affect
the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. The Company
agrees and consents to personal jurisdiction, service of process, and
venue in the federal courts located in the Southern District of the
State of New York and the state courts of the state of New York located
in the county of New York, subject to rights of removal to federal
court, for purposes of any action, suit or proceeding arising out of or
relating to this Agreement. CDC and the Company (on its own behalf and,
to the extent permitted by law, on behalf of its stockholders or other
interest holders) each waives any right to trial by jury in any action,
claim, suit or proceeding with respect to CDC's engagement hereunder or
its role in connection therewith. The benefits of, and the obligations
and liabilities assumed in, this Agreement shall inure to the benefit
of, and be binding upon, any successors and assigns.
17
This Agreement is effective as of the date first set forth above. Please confirm
that the foregoing correctly and completely sets forth our understanding by
signing and returning to us the enclosed duplicate of this Agreement.
Sincerely,
TELKONET, INC.
By: /S/ XXXXXX X. XXXXXXX
-------------------------
Xxxxxx X. Xxxxxxx
President
Accepted and agreed:
CDC SECURITIES
By: /S/ XXXXXXX XXXXX
------------------------
Name: Xxxxxxx Xxxxx
Title: Managing Director
By: /S/ XXXXX XXXXX
------------------------
Name: Xxxxx Xxxxx
Title: Managing Director
By: /S/ XXXX XXXXXXX
------------------------
Name: Xxxx Xxxxxxx
Title: Managing Director
18
SCHEDULE 6(e)
1. On January 26, 2004, the Company issued 1,209,048 shares of its common
stock to holders of its Senior Notes in exchange for forgiveness of
approximately $2,500,000 aggregate outstanding principal amount on such
Senior Notes.
2. As of January 31, 2004, the Company had outstanding options to purchase
10,106,000 shares of common stock. These options are comprised of the
following:
a. Employee Stock Options:
o 6,649,000 at $1.00 per share
o 200,000 at $1.51 per share
o 465,000 at $2.35 per share
o 25,000 at $3.43 per share
b. Non-Employee Stock Options:
o 2,767,000 at $1.00 per share
3. As of January 31, 2004, the Company had outstanding warrants to
purchase 5,336,080 shares of common stock. These warrants are
exercisable at the following prices:
o 279,080 at $0.53 per share
o 80,000 at $0.66 per share
o 4,892,000 at $1.00 per share
o 50,000 at $ 2.54 per share
o 35,000 at $ 2.97 per share
4. As of February 16, 2004, certain stockholders of the Company possess
piggyback registration rights with respect to the shares of common
stock held by them. Piggyback registration rights are available with
respect to the following shares of the Company's common stock:
o Series A Convertible Notes having an aggregate
outstanding principal balance of $92,000, which is
convertible into shares of common stock at $0.50 per
share and attached warrants which are exercisable for
shares of common stock at $1.00 per share
o Series B Convertible Notes having an outstanding
principal balance of $320,000, which is convertible
into shares of common stock at $0.55 and attached
warrants which are exercisable for shares of common
stock at $1.00 per share
o 1,209,048 shares of common stock issued in the Senior
Note conversion discussed in paragraph 1 above
5. As of February 16, 2004, the Company has commenced negotiations with
Aware Capital Consultants, Inc. for the issuance of up to 1,000,000
shares of the Company's common stock over three years beginning on the
date a definitive agreement has been executed with Leviton
Manufacturing Co., Inc.
6. As of February 16, 2004, the Company has committed to issue shares of
common stock to the following persons in consideration of certain
services provided to the Company:
a. CEOCast, Inc.: 25,000 shares for investor relations services
February 2004 through January 2005
19
b. Investor Stock Daily, Inc.: 2,500 shares per month for public
relations services
c. Xxxxxx X. Xxxxxxx: 36,000 shares pursuant to a January 30,
2003 employment agreement. Under his employment agreement, Xx.
Xxxxxxx is entitled to receive 3,000 shares per month during
the term of his employment.
20
SCHEDULE 6(h)
None
21
SCHEDULE 7(b)(ix)
EXCLUSION TO THE LOCK-UP AGREEMENT
Listed below are individuals excluded from the transfer of shares restriction by
Xxxxxx X. Xxxxxxx in the Lock-Up Agreement. Total shares excluded from the
Lock-Up is 160,000.
o Xxxx & Xxxxxxx Xxxxxx, JTWROS
o Xxxxxxxx Xxxxxxx
o X. Xxxxxxx Xxxxxxx
o Xxxx Xxxxxxx
o Xxxxx Xxxxxxxxx
o S. Xxxxxxx Xxxxxxx
o X.X. Xxxxx Athletic Booster's Club
o Winter Park Baptist Church
x Xxxxxx and Xxxxxx Xxxxxx
o Xxxxx Xxxxxxxxx
22
SCHEDULE 8(a)
USE OF PROCEEDS
The net proceeds of the Offering will be used by the Company to expand its sales
and marketing efforts, support strategic partnership programs, build required
infrastructure and fund working capital requirements.
23
