TELKONET, INC.
Exhibit 1.1
TELKONET,
INC.
____________,
2010
Source
Capital Group, Inc.
As
Dealer-Manager,
000 Xxxx
Xxxx Xxxx
Xxxxxxxx,
XX 00000
Ladies
and Gentlemen:
The
following will confirm our agreement relating to the proposed rights offering
(the “Rights
Offering”) to be undertaken by Telkonet, Inc., a Utah corporation (the
“Company”),
pursuant to which the Company will distribute to holders of record of its common
stock, par value $0.001 per share (the “Common
Stock”), subscription rights (the “Rights”)
as set forth in the Company’s registration statement on Form S-1 first filed
with the Securities and Exchange Commission (the “Commission”)
on February 12, 2010, and as amended on _________, 2010, to subscribe for and
purchase shares of the Company’s Common Stock (the “Rights
Shares”) and to receive Common Stock purchase warrants (the “Rights
Warrants”), at a subscription price equal to $____ per Right in cash (the
“Subscription
Price”). The Rights Warrants will be exercisable until
_______, 2015 at an exercise price of $_____ per share of Common Stock, equal to
125% of the Subscription Price
1. The Rights
Offering.
(a) The
Company proposes to undertake the Rights Offering pursuant to which each holder
of Common Stock shall receive one Right for each share of Common Stock held of
record at the close of business on ________________. 2010 (the “Record
Date”). Holders of Rights will be entitled to subscribe for and purchase,
at the Subscription Price, one share of Common Stock and one Warrant for every
Right granted to such holder on the Record Date (the “Basic
Subscription Right”).
(b) The
Rights are expected to be quoted on the OTC Bulletin Board (the “Bulletin
Board”), and shall be transferable in accordance with, applicable state
“blue sky” laws, rules and regulations. The Rights Shares and the Rights
Warrants are expected to be quoted on the Bulletin Board and shall be
transferable in accordance with applicable state “blue sky” laws, rules and
regulations.
(c) Any
holder of Rights who fully exercises all Basic Subscription Rights issued to
such holder is entitled to subscribe for Rights Shares and Rights Warrants which
were not otherwise subscribed for by others pursuant to their Basic Subscription
Rights (the “Over Subscription
Right”). The Over-Subscription Right shall allow a holder of a Right to
subscribe for an additional amount, provided no Over-Subscription Right will be
honored if, when aggregated with such holder’s existing ownership, the shares of
Common Stock would result in such person or entity, together with any related
persons or entities, owning in excess of twenty percent (20%) of the Company’s
issued and outstanding shares of Common Stock following the closing of the
transactions contemplated by the Rights Offering. Rights Shares and Rights
Warrants acquired pursuant to the Over-Subscription Right are subject to
allotment, as more fully discussed in the Prospectus (as defined
herein).
(d) The
Rights will expire at 5:00 p.m., New York City time, on _______________, 2010
(the “Expiration
Date”). The Company shall have the right to extend the Expiration Date
for up to an additional 30 trading days in its sole discretion.
(e) All funds
from the exercise of Basic Subscription Rights and Over-Subscription Rights will
be deposited with __________________________, as the subscription agent (the
“Subscription
Agent”) and held in a segregated account with the Subscription Agent
pending a final determination of the number of Rights Shares and Rights Warrants
to be issued pursuant to the exercise of Basic Subscription Rights and
Over-Subscription Rights. As soon as is practicable, the Company shall conduct a
closing of the Rights Offering (a “Closing”).
In no event will the Company raise more than $_______ in this Rights Offering,
unless such maximum offering amount is waived by the Company, in its sole
discretion.
2. Appointment as
Dealer-Manager; Role of Dealer-Manager. The Company hereby
engages Source Capital Group, Inc. (“Source”)
as the sole exclusive dealer-manager (the “Dealer-Manager”)
in connection with the Rights Offering, and authorizes the Dealer-Manager to act
as such on its behalf in connection with the Rights Offering, in accordance with
this Dealer-Manager Agreement (this “Agreement”). During
the Engagement Period (as defined in the engagement letter agreement entered
into between the Company and the Dealer-Manager, dated January 7, 2010 (the
“Engagement
Letter”), the Company will not solicit, negotiate with or enter into any
agreement with any other placement agent, financial advisor, dealer manager,
brokers, dealers or underwriters or any other person or entity in connection
with the Rights Offering. On the basis of the representations and
warranties and agreements of the Company contained in this Agreement and subject
to and in accordance with the terms and conditions hereof, the Dealer-Manager
agrees that as Dealer-Manager it will, in accordance with its customary practice
and to the extent requested by the Company, use its commercially reasonable
efforts to (a) advise and assist the Company in soliciting the exercise of the
Rights held by Rights Holders for subscriptions for Rights Shares and Rights
Warrants, (b) advise and assist the Company in connection with the solicitation
of offers to purchase any Rights that Rights Holders desire to transfer, (c)
advise and assist the Company in connection with the solicitation of offers to
purchase any Rights Shares and Rights Warrants not subscribed for by the holders
of Rights, and (d) provide Advisory Services (as defined below) in connection
with the Rights Offering. For purposes of this Agreement, the term
“Advisory Services” means (i) advising on pricing and other terms and conditions
of the Rights Offering, including transferability and
oversubscription rights and limits, (ii) providing guidance on general
market conditions and their impact on the Rights Offering and (iii) assisting
the Company in drafting a presentation that may be used to market the Rights
Offering to existing and potential investors. For the avoidance of
doubt and notwithstanding anything that may be to the contrary in this
Agreement, the Company and the Dealer-Manager hereby agree that the
Dealer-Manager will not underwrite the Rights Offering, the Dealer-Manager has
no obligation to act, and will not act, in any capacity as an underwriter in
connection with the Rights Offering and the Dealer-Manager has no obligation to
purchase or procure purchases of the Rights Shares and the Rights Warrants
offered in connection with the Rights Offering. The Company agrees
that it will not hold the Dealer-Manager liable or responsible for the failure
of the Rights Offering in the event that the Rights Offering is not successfully
consummated for any reason.
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3. No Liability for Acts of
Brokers, Dealers, Banks and Trust Companies. The Dealer-Manager shall not
be subject to any liability to the Company or any of the Company’s Subsidiaries
(as defined below) or “affiliates” (“Affiliates”,
as such term is defined in Rule 144 under the Securities Act of 1933, as amended
(the “Securities
Act”)) for any act or omission on the part of any broker or dealer in
securities (other than the Dealer-Manager) or any bank or trust company or any
other management, shareholders, creditors or any other natural person,
partnership, limited liability partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, or other entity or organization (each, a “Person”),
and the Dealer-Manager shall not be liable for its own acts or omissions in
performing its obligations as advisor or Dealer-Manager hereunder or otherwise
in connection with the Rights Offering or the related transactions, except for
any losses, claims, damages, liabilities and expenses determined in a final
judgment by a court of competent jurisdiction to have resulted primarily from
any such acts or omissions undertaken or omitted to be taken by the
Dealer-Manager through its gross negligence, bad faith or willful misconduct. In
soliciting or obtaining exercises of Rights, the Dealer-Manager shall not be
deemed to be acting as the agent of the Company or as the agent of any broker,
dealer, bank or trust company, and no broker, dealer, bank or trust company
shall be deemed to be acting as the Dealer-Manager’s agent or as the agent of
the Company. As used herein, the term “Subsidiary”
means a Subsidiary of the Company as defined in Rule 405 of the Securities Act.
Unless the context specifically requires otherwise, the term “Company”
as used in this Agreement means the Company and its Subsidiaries collectively on
a consolidated basis.
4. The Offer
Documents.
(a) There
will be used in connection with the Rights Offering certain materials in
addition to the Registration Statement, any Preliminary Prospectus or the
Prospectus (each as defined herein), including: (i) all exhibits to the
Registration Statement which pertain to the conduct of the Rights Offering and
(ii) any soliciting materials relating to the Rights Offering approved by the
Company (collectively with the Registration Statement, any Preliminary
Prospectus and the Prospectus, the “Offer
Documents”). The Dealer-Manager shall be given an opportunity to review
and comment upon the Offer Documents.
(b) The
Company agrees to furnish the Dealer-Manager with as many copies as it may
reasonably request of the final forms of the Offer Documents, and the
Dealer-Manager is authorized to use copies of the Offer Documents in connection
with its acting as Dealer-Manager. The Dealer-Manager hereby agrees that it will
not disseminate any written material for or in connection with the solicitation
of exercises of Rights pursuant to the Rights Offering other than the Offer
Documents.
(c) The
Company represents and agrees that no solicitation material, other than the
Offer Documents and the documents to be filed therewith as exhibits thereto
(each in the form of which has been approved by the Dealer-Manager), will be
used in connection with the Rights Offering by or on behalf of the Company
without the prior approval of the Dealer-Manager, which approval will not be
unreasonably delayed or withheld. In the event that the Company uses or permits
the use of any such solicitation material in connection with the Rights Offering
without the Dealer-Manager’s approval, then the Dealer-Manager shall be entitled
to withdraw as Dealer-Manager in connection with the Rights Offering and the
related transactions without any liability or penalty to the Dealer-Manager or
any other Person identified in Section 11 hereof as an “indemnified party,” and
the Dealer-Manager shall be entitled to receive the payment of all fees and
expenses payable under this Agreement or the Engagement Letter which have
accrued to the date of such withdrawal or which otherwise thereafter become
payable.
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5. Representations and
Warranties. The Company represents and warrants to the Dealer-Manager
that:
(a) The
Registration Statement on Form S-1, as amended (Registration No. 333-164899),
with respect to the Rights, the Rights Shares and the Rights Warrants has: (i)
been prepared by the Company in conformity with the requirements of the
Securities Act in all material respects, (ii) been filed with the Commission
under the Securities Act and (iii) become effective under the Securities
Act. Copies of such Registration Statement as amended to date have
been delivered or made available by the Company to the Dealer-Manager. For
purposes of this Agreement, “Effective
Time” means the date and the time as of which such registration
statement, or the most recent post-effective amendment thereto, if any, was
declared effective by the Commission; “Effective
Date” means the date of the Effective Time; “Preliminary
Prospectus” means each prospectus included in such registration
statement, or amendments thereof, before it becomes effective under the
Securities Act and any prospectus filed with the Commission by the Company with
the consent of the Dealer-Manager pursuant to Rule 424(a) of the Securities Act;
“Registration
Statement” means such Registration Statement, as amended at the Effective
Time, including any documents which are exhibits thereto; and “Prospectus”
means such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Securities Act. The Commission has
not issued any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus. All references in this Agreement to the
Registration Statement, a Preliminary Prospectus, and the Prospectus, or any
amendments or supplements to any of the foregoing shall be deemed to include any
copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System (“XXXXX”).
The Prospectus delivered to the Dealer-Manager for use in connection with the
Rights Offering will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to XXXXX, except to the extent
permitted by Regulation S-T promulgated by the Commission.
(b) The
Registration Statement conformed, as of the Effective Time, in all material
respects to the requirements of the Securities Act and did not, as of the
Effective Date, contain 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, in the light of the circumstances under which they were made
not misleading; and the Prospectus and any further amendments or supplements to
the Registration Statement conforms or will conform, as of their respective
dates or when they are declared effective by the Commission, as the case may be,
in each case, in all material respects to the requirements of the Securities Act
and collectively do not and will not, as of the applicable date thereof or when
declared effective by the Commission, as the case may be, contain 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 (with respect to the
Prospectus, in the light of the circumstances under which they were made) not
misleading; provided that no representation or warranty is made by the Company
as to information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information regarding
the Dealer-Manager furnished to the Company by or on behalf of the
Dealer-Manager specifically for inclusion therein (collectively, the “Dealer-Manager
Information”) under appropriate headings and in its final form as
approved by the Dealer-Manager and its counsel.
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(c) There are
no contracts, agreements, plans or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration Statement
by the Securities Act which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or referred to in, or incorporated by
reference into, the exhibit table of the Registration Statement as permitted by
the Securities Act.
(d) The
Company and each of its Subsidiaries have been duly incorporated and are validly
existing as corporations in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to do business and are in
good standing as foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of their respective
businesses requires such qualification, and have all corporate power and
authority necessary to own or hold their respective properties and to conduct
their businesses as described in the Registration Statement and the Prospectus,
except where the absence of such power or authority (either individually and in
the aggregate) would not have a material adverse effect on: (i) the business,
condition (financial or otherwise), results of operations, material properties
or prospects (as such prospects are disclosed or described in the Prospectus) of
the Company and its Subsidiaries, taken as a whole or (ii) the Rights Offering
or consummation of any of the other transactions contemplated by this Agreement,
the Registration Statement or the Prospectus (any such effect being a “Material Adverse
Effect”).
(e) This
Agreement has been duly authorized, executed and delivered by the Company and,
assuming the due authorization, execution and delivery by the Dealer-Manager,
constitutes the valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors’ rights generally and by general
principles of equity.
(f) Neither
the Company nor any of its Subsidiaries: (i) is in violation of its charter or
by-laws, (ii) in default under or in breach of, and no event has occurred which,
with notice or lapse of time or both, would constitute a default or breach under
or result in the creation or imposition of any lien, charge, mortgage, pledge,
security interest, claim, equity, trust or other encumbrance, preferential
arrangement, defect or restriction of any kind whatsoever (each, a “Lien”)
upon any of their property or assets pursuant to, any material contract,
agreement, indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it is a party or by which it is bound or to which any of
its properties or assets are subject or (iii) is in violation in any respect of
any law, rule, regulation, ordinance, directive, judgment, decree or order,
foreign and domestic, to which the Company or its Subsidiaries or any of its
respective properties or assets is subject, except, in the case of clauses (ii)
and (iii) above, any violation or default that would not have a Material Adverse
Effect.
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(g) Prior to or on the
date hereof: (i) the Company and Subscription Agent have or will have entered
into a subscription agency agreement (the “Subscription
Agency Agreement”) if required by the Subscription Agent and (ii) the
Company and [Mackenzie Partners, Inc.] (the “Information
Agent”) have or will have entered into an information agency agreement
(the “Information
Agency Agreement”) if required by the Information Agent. When executed by
the Company, if applicable, each of the Subscription Agency Agreement and the
Information Agency Agreement will have been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and delivery
by the Subscription Agent or the Information Agent, as the case may be, will
constitute a valid and legally binding agreement of the Company enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors’ rights generally and by general principles of
equity.
(h) The Rights to
be issued and distributed by the Company have been duly and validly authorized
and, when issued and delivered in accordance with the terms of the Offer
Documents, will be duly and validly issued, and will constitute valid and
legally binding obligations of the Company enforceable against the Company in
accordance with their terms, no holder of the Rights is or will be subject to
personal liability by reason of being such a holder, and the Rights will conform
in all material respects to the description thereof contained in the
Registration Statement and the Prospectus. The shares of Common Stock
issuable upon exercise of any Rights Warrants have been duly and validly
authorized and, when issued and delivered in accordance with the terms of the
Rights Warrants, will be duly and validly issued, fully paid and non-assessable,
no holder of the Common Stock is or will be subject to personal liability by
reason of being such a holder, and the Common Stock conforms in all material
respects to the description thereof contained in the Registration Statement and
the Prospectus.
(i) Except as
disclosed in the Registration Statement and the Prospectus with respect to the
Company’s authorized capitalization, the Rights Shares and the Rights Warrants
have been duly and validly authorized and reserved for issuance upon exercise of
the Rights and are free of statutory and contractual preemptive rights and are
sufficient in number to meet the exercise requirements of the Rights Offering;
and the Rights Shares and Rights Warrants, when so issued and delivered against
payment therefor in accordance with the terms of the Rights Offering, will be
duly and validly issued, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof. The Rights Shares and
the Rights Warrants will conform in all material respects to the descriptions
thereof contained in the Prospectus.
(j) The Common
Stock is quoted on the Bulletin Board and the Company has made application to
have the Rights, the Rights Shares and the Rights Warrants quoted on the
Bulletin Board. The Company has not received an oral or written
notification from the Financial Industry Regulatory Authority, Inc. (“FINRA”) or
any court or any other federal, state, local or foreign governmental or
regulatory authority having jurisdiction over the Company or any of its
Subsidiaries or any of their properties or assets (“Governmental
Authority”) of any inquiry or investigation or other action that would
cause the Common Stock, the Rights Shares, the Rights Warrants or the Rights to
not be quoted on the Bulletin Board.
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(k) Prior to the
consummation of the Rights Offering, the Company will have an authorized
capitalization as set forth under the caption “Capitalization”
in the Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Company capital stock were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its subsidiaries other than those accurately described in all
material respects in the Registration Statement and the Prospectus. The
description of the Company’s stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Registration Statement and the Prospectus accurately and fairly presents in
all material respects the information required to be shown with respect to such
plans, arrangements, options and rights.
(l) The Company
has obtained the requisite shareholder approval it needed to increase its
authorized shares and to approve articles of amendment of the Company’s Amended
and Restated Articles of Incorporation (the “Charter
Amendment”). The Charter Amendment has been duly authorized,
executed and filed by the Company with the Secretary of State of the State of
Utah and has become effective under Utah law in accordance with its
terms.
(m) The Company
owns or leases all such assets or properties as are necessary to the conduct of
its business as presently operated and as proposed to be operated as described
in the Registration Statement and the Prospectus. The Company has good and
marketable title in fee simple to all material assets, real property and
personal property owned by it, in each case free and clear of any Lien, except
for such Liens as are described in the Registration Statement and the Prospectus
or as do not materially diminish the value of such property or materially
interfere with the Company’s use thereof. Any assets or real property
and buildings held under lease or sublease by the Company is held under valid,
subsisting and enforceable leases with such exceptions as are not material to,
and do not materially interfere with, the use of such assets or property by the
Company, in each case except as described in the Registration Statement and the
Prospectus. Neither the Company nor any Subsidiary has received any
notice of any material claim adverse to its ownership of any real or personal
property or of any material claim against the continued possession of any real
property, whether owned or held under lease or sublease by the Company or any
Subsidiary.
(n) Except as
described in the Registration Statement and Prospectus, the Company and its
Subsidiaries have all material consents, approvals, authorizations, orders,
registrations, qualifications, licenses, filings and permits of, with and from
all judicial, regulatory and other Governmental Authorities and all third
parties, foreign and domestic (collectively, the “Consents”),
to own, lease and operate their properties and conduct their businesses as
presently being conducted, and each such Consent is valid and in full force and
effect. The Company has not received notice of any investigation or
proceedings which results in or, if decided adversely to the Company, could
reasonably be expected to result in, the revocation or modification of any
Consent that would have a Material Adverse Effect, except as described in the
Registration Statement and the Prospectus.
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(o) The
execution, delivery and performance of this Agreement by the Company, the
issuance of the Rights in accordance with the terms of the Offer Documents, the
issuance of Rights Shares and the Rights Warrants in accordance with the terms
of the Rights Offering, and the consummation by the Company of the transactions
contemplated hereby and by the Subscription Agency Agreement and the Information
Agency Agreement, will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or to which any of the properties or assets
of the Company or any of its Subsidiaries is subject, except where such
conflict, breach, violation or default would not cause or constitute a Material
Adverse Effect; nor will such actions result in any violation of the provisions
of the charter or by-laws of the Company or any of its Subsidiaries or any
statute or any order, rule or regulation of any Governmental Authority (except,
in the case of any such statute, order, rule or regulation, where such violation
would not cause or constitute a Material Adverse Effect); and except for the
registration of the Rights, the Rights Shares and the Rights Warrants under the
Securities Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable state
securities laws in connection with the distribution of the Rights and the sale
of the Rights Shares and the Rights Warrants by the Company, no consent,
approval, authorization or order of, or filing or registration with, any such
court or Governmental Authority is required for the execution, delivery and
performance of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby.
(p) Except as
otherwise set forth in the Registration Statement and the Prospectus, there are
no contracts, agreements or understandings between the Company and any Person
granting such Person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the Company
owned or to be owned by such Person or to require the Company to include such
securities in the securities registered pursuant to the Registration Statement
or in any securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act. No holder of
any security of the Company has any rights of rescission or similar rights with
respect to such securities held by them.
(q) Neither the
Company nor any of its Subsidiaries has sustained, since the date of the latest
balance sheet included in the Prospectus or after such date and as disclosed in
the Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree; and, since
such date or after such date and as disclosed in the Prospectus, there has not
been any material change in the capital stock or long-term debt of the Company
or any of its Subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the business,
condition (financial or otherwise), results of operations, material properties
or prospects (as such prospects are disclosed or described in the Prospectus) of
the Company and its Subsidiaries, taken as a whole (a “Material Adverse
Change”). Since the date of the latest balance sheet presented
in the Prospectus, the Company has not incurred or undertaken any liabilities or
obligations, whether direct or indirect, liquidated or contingent, matured or
unmatured, or entered into any transactions, including any acquisition or
disposition of any business or asset, which are material to the Company, except
for liabilities, obligations and transactions which are disclosed in the
Registration Statement, any Preliminary Prospectus and the
Prospectus.
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(r) RBSM LLP
(“RBSL”),
whose reports relating to the Company are included in the Registration
Statement, are independent public accountants as required by the Securities Act,
the Exchange Act and the rules and regulations promulgated by the Public Company
Accounting Oversight Board (the “PCAOB”).
RBSL, to the best of the Company’s knowledge, is duly registered and in good
standing with the PCAOB. RBSL has not, during the periods covered by the
financial statements included in the Registration Statement, the Preliminary
Prospectus and the Prospectus, provided to the Company any non-audit services,
as such term is used in Section 10A(g) of the Exchange Act.
(s) The financial
statements, including the notes thereto, and any supporting schedules included
in the Registration Statement, any Preliminary Prospectus and the Prospectus
present fairly, in all material respects, the financial position as of the dates
indicated and the cash flows and results of operations for the periods specified
of the Company. Except as otherwise stated in the Registration Statement, any
Preliminary Prospectus and the Prospectus, said financial statements have been
prepared in conformity with United States generally accepted accounting
principles applied on a consistent basis throughout the periods involved. Any
supporting schedules included in the Registration Statement, any Preliminary
Prospectus and the Prospectus present fairly, in all material respects, the
information required to be stated therein. No other financial statements or
supporting schedules are required to be included or incorporated by reference in
the Registration Statement. The other financial and statistical information
included in the Registration Statement, any Preliminary Prospectus and the
Prospectus present fairly, in all material respects, the information included
therein and have been prepared on a basis consistent with that of the financial
statements that are included in the Registration Statement, such Preliminary
Prospectus and the Prospectus and the books and records of the respective
entities presented therein.
(t) There are no
pro forma or as adjusted financial statements which are required to be included
in the Registration Statement, any Preliminary Prospectus and the Prospectus in
accordance with Regulation S-X under the Securities Act which have not been
included as so required. The pro forma and/or as adjusted financial information
included in the Registration Statement, any Preliminary Prospectus and the
Prospectus has been properly compiled and prepared in accordance with the
applicable requirements of the Securities Act in all material respects and
include all adjustments necessary to present fairly, in all material respects,
in accordance with generally accepted accounting principles the pro forma and as
adjusted financial position of the respective entity or entities presented
therein at the respective dates indicated and their cash flows and the results
of operations for the respective periods specified. The assumptions used in
preparing the pro forma and as adjusted financial information included in the
Registration Statement, any Preliminary Prospectus and the Prospectus provide a
reasonable basis for presenting the significant effects directly attributable to
the transactions or events described therein. The related pro forma and pro
forma as adjusted adjustments give appropriate effect to those assumptions; and
the pro forma and pro forma as adjusted financial information reflect the proper
application of those adjustments to the corresponding historical financial
statement amounts.
(u) The
statistical, industry-related and market-related data included in the
Registration Statement, any Preliminary Prospectus and the Prospectus are based
on or derived from sources which the Company reasonably believes are reliable
and accurate, and such data agree with the sources from which they are derived.
All material third party consents have been obtained in order for such data to
be included in the Registration Statement, any Preliminary Prospectus and the
Prospectus.
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(v) Except as
disclosed in the Registration Statement and the Prospectus, the Company
maintains a system of internal accounting and other controls sufficient to
provide reasonable assurances 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 United States generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accounting for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(w) Neither the
Company’s Board of Directors nor the audit committee thereof has been informed,
nor is any director of the Company aware, of: (i) except as disclosed in the
Registration Statement and the Prospectus, any significant deficiencies and
material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the
Company’s ability to record, process, summarize and report financial
information; or (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company’s
internal control over financial reporting.
(x) The Company
is in material compliance with the provisions of the Xxxxxxxx-Xxxxx Act of 2002,
as amended (“Sarbanes
Oxley”) applicable to the Company, and the rules and regulations
promulgated thereunder and related or similar rules and regulations promulgated
by any other Governmental Authority or self regulatory entity or agency, except
for violations which, singly or in the aggregate, are disclosed in the
Prospectus or would not have a Material Adverse Effect.
(y) To the best
of the Company’s knowledge, no relationship, direct or indirect, exists between
or among any of the Company or any of its Subsidiaries, on the one hand, and any
director, officer, shareholder, customer or supplier of the Company or its
Subsidiaries, on the other hand, which is required by the Securities Act or the
Exchange Act to be described in the Registration Statement or the Prospectus
which is not so described as required. Except as disclosed in the Registration
Statement and the Prospectus, there are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of their respective family members.
The Company has not, in violation of Sarbanes Oxley, directly or indirectly,
including through any Affiliate of the Company (other than as permitted under
the Sarbanes Oxley for depositary institutions), extended or maintained credit,
arranged for the extension of credit, or renewed an extension of credit, in the
form of a personal loan to or for any director or executive officer of the
Company.
(z) Except as
described in the Registration Statement and the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
Subsidiaries is a party or of which any property or asset of the Company or any
of its Subsidiaries is the subject which, if determined adversely to the Company
or any of its Subsidiaries, are reasonably likely to have a Material Adverse
Effect; and to the best of the Company’s knowledge, except as disclosed in the
Prospectus, no such proceedings are threatened or contemplated by Governmental
Authorities or threatened by others.
10
(aa) The Company
and its Subsidiaries have filed all necessary federal, state and foreign income
and franchise tax returns and have paid all taxes required to be paid by any of
them and, if due and payable, any related or similar assessment, fine or penalty
levied against any of them, except where the failure to make such filings or
make such payments, either individually or in the aggregate, would not have a
Material Adverse Effect. The Company believes in good faith that it
has made adequate charges, accruals and reserves in its financial statements
above in respect of all federal, state and foreign income and franchise taxes
for all periods as to which the tax liability of the Company or any of its
Subsidiaries has not been finally determined.
(bb) Each of the
Company and its Subsidiaries maintains insurance of the types and in the amounts
which the Company believes to be reasonable and sufficient for a company of its
size operating in the Company’s industry. There are no material claims by the
Company or any of its Subsidiaries under any policy or instrument described in
this paragraph as to which any insurance company is denying liability or
defending under a reservation of rights clause. All of the insurance policies
described in this paragraph are in full force and effect in all material
respects. Neither the Company nor any of its Subsidiaries has been refused any
insurance coverage sought or applied for, and the Company has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(cc) Subject to
the statements and disclosures made in the Registration Statement and the
Prospectus under the caption “Risk Factors,” the Company and its Subsidiaries
own or possess or have the right to use on reasonable terms all patents, patent
rights, patent applications, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
trade names, service names and other intellectual property (collectively, “Intellectual
Property”) necessary to carry on their respective businesses as described
in the Prospectus. Except as described in the Registration Statement
and the Prospectus, neither the Company nor any of its Subsidiaries has received
any notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of any
facts or circumstances which would render any Intellectual Property invalid or
inadequate to protect the interests of the Company or any of its Subsidiaries
therein, and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, individually or in the
aggregate, might result in a Material Adverse Effect. All former and current
employees of the Company or any of its Subsidiaries (and, to the Company’s
knowledge, all other agents, consultants and contractors of the Company or any
of its subsidiaries who contributed to or participated in the conception or
development of any Intellectual Property for the Company or any of its
Subsidiaries) have executed written contracts or agreements that assign to the
Company all rights to any inventions, improvements, discoveries or information
material to the business of the Company and its subsidiaries, including without
limitation all Intellectual Property owned, controlled by or in the possession
of the Company or any of its subsidiaries. To the knowledge of the
Company, there is no unauthorized use, infringement or misappropriation of any
of the Intellectual Property by any third party, employee or former employee
that would result in a Material Adverse Effect. Each agreement and
instrument (each, a “License
Agreement”) pursuant to which any Intellectual Property is licensed to
the Company or any of its subsidiaries is in full force and effect, has been
duly authorized, executed and delivered by, and is a valid and binding agreement
of, the Company or the applicable subsidiary, as the case may be, enforceable
against the Company or such subsidiary in accordance with its terms, except as
enforcement thereof may be subject to bankruptcy, insolvency or other similar
laws relating to or affecting creditors’ rights generally or by general
equitable principles; the Company and its subsidiaries are in compliance in all
material respects with their respective obligations under all License Agreements
and, to the knowledge of the Company, all other parties to any of the License
Agreements are in compliance in all material respects with all of their
respective obligations thereunder; to the knowledge of the Company, no event or
condition has occurred or exists that gives or would give any party to any
License Agreement the right, either immediately or with notice or passage of
time or both, to terminate or limit (in whole or in part) any such License
Agreement or any rights of the Company or any of its subsidiaries thereunder, to
exercise any of such party’s remedies thereunder, or to take any action that
would adversely affect any rights of the Company or any of its subsidiaries
thereunder or that might have a Material Adverse Effect and the Company is not
aware of any facts or circumstances that would result in any of the foregoing or
give any party to any License Agreement any such right; and neither the Company
nor any of its subsidiaries has received any notice of a material default,
breach or non-compliance under any License Agreement.
11
(dd) Except as
described in any Preliminary Prospectus, the Prospectus and the Registration
Statement, the Company: (i) is and at all times has been in compliance with all
statutes, rules, regulations or guidance applicable to the ownership, testing,
development, manufacture, packaging, processing, use, distribution, marketing,
labeling, promotion, sale, offer for sale, storage, import, export or disposal
of any product manufactured, distributed or sold by the Company or any component
thereof (such statutes, rules, regulations or guidance, collectively, “Applicable
Laws”); (ii) has not received any notice of adverse finding, warning
letter, untitled letter or other correspondence or notice from any Governmental
Authority alleging or asserting noncompliance with any Applicable Laws or any
licenses, certificates, approvals, clearances, authorizations, permits and
supplements or amendments thereto required by any such Applicable Laws (“Authorizations”);
(iii) possesses all Authorizations and such Authorizations are valid and in full
force and effect and are not in violation of any term of any such
Authorizations; (iv) has not received notice of any claim, suit, proceeding,
hearing, enforcement, audit, investigation, arbitration or other action from any
Governmental Authority or third party alleging that any product, operation or
activity of the Company is in violation of any Applicable Laws or Authorizations
and has no knowledge that any such Governmental Authority or third party is
considering any such claim, suit, proceeding, hearing, enforcement, audit,
investigation, arbitration or other action; (v) has not received notice that any
Governmental Authority has taken, is taking or intends to take action to limit,
suspend, modify or revoke any Authorizations and has no knowledge that any such
Governmental Authority is considering such action; (vi) has filed, obtained,
maintained or submitted all material reports, documents, forms, notices,
applications, records, claims, submissions and supplements or amendments as
required by any Applicable Laws or Authorizations and that all such material
reports, documents, forms, notices, applications, records, claims, submissions
and supplements or amendments were complete and correct in all material respects
on the date filed (or were corrected or supplemented by a subsequent
submission), except, in the case of each of clauses (i), (ii), (iii), (iv) and
(v), for any default, violation or event that would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse
Effect.
(ee) Neither the
Company nor, to the Company’s knowledge, any of the Company’s directors,
officers or employees has violated: (i) the Bank Secrecy Act, as amended, (ii)
the Money Laundering Control Act of 1986, as amended, (iii) the Foreign Corrupt
Practices Act, or (iv) the Uniting and Strengthening of America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT)
Act of 2001, and/or the rules and regulations promulgated under any such law, or
any successor law, except for such violations which, singly or in the aggregate,
would not have a Material Adverse Effect.
(ff) Neither the
Company nor any of its Affiliates has, prior to the date hereof, made any offer
or sale of any securities which are required to be “integrated” pursuant to the
Securities Act with the offer and sale of the Rights Shares and Rights Warrants
pursuant to the Registration Statement.
(gg) Except as
described in the Registration Statement and the Prospectus, there are no claims,
payments, arrangements, agreements or understandings relating to the payment of
a finder’s, consulting or origination fee or other compensation by the Company
with respect to the issuance or exercise of the Rights or the sale of the Rights
Shares and Rights Warrants or any other arrangements, agreements or
understandings of the Company or, to the Company’s knowledge, the Company’s
officers, directors and employees or Affiliates that may affect the
Dealer-Manager’s compensation, as determined by FINRA. Except as
previously disclosed by the Company to the Dealer-Manager in writing, no
officer, director, or beneficial owner of 5% or more of any class of the
Company’s securities (whether debt or equity, registered or unregistered,
regardless of the time acquired or the source from which derived) or any other
Affiliate is a member or a Person associated, or affiliated with a member of
FINRA. No proceeds from the exercise of the Rights will be paid to
any FINRA member, or any Persons associated or affiliated with a member of
FINRA, except as specifically contemplated herein. Except as previously
disclosed by the Company to the Dealer-Manager, no Person to whom securities of
the Company have been privately issued within the 180-day period prior to the
initial filing date of the Registration Statement has any relationship or
affiliation or association with any member of FINRA.
12
(hh) There are no
contracts, agreements or understandings between the Company and any Person that
would give rise to a valid claim against the Company or the Dealer-Manager for a
brokerage commission, finder’s fee or other like payment in connection with the
transactions contemplated by this Agreement. Other than the Dealer-Manager, the
Company has not employed any brokers, dealers or underwriters in connection with
solicitation of exercise of Rights in the Rights Offering, and except provided
for in Section 6 and 7 hereof, no other commissions, fees or discounts will be
paid by the Company or otherwise in connection with the Rights
Offering.
(ii) Neither the
Company nor, to the Company’s knowledge, any of the Company’s officers,
directors, employees or agents has at any time during the last five (5) years:
(i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
Person charged with similar public or quasi-public duties, other than payments
that are not prohibited by the laws of the United States or any jurisdiction
thereof.
(jj) The Company
has not and will not, directly or indirectly through any officer, director or
Affiliate of the Company or through any other Person: (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the issuance of the Rights or
the sale or resale of the Rights Shares and Rights Warrants, (ii) since the
filing of the Registration Statement sold, bid for or purchased, or paid any
Person (other than the Dealer-Manager) any compensation for soliciting exercises
or purchases of, the Rights, the Rights Shares or the Rights Warrants and (iii)
until the later of the expiration of the Rights or the completion of the
distribution (within the meaning of Regulation M under the Exchange Act) of the
Rights Shares and the Rights Warrants, sell, bid for or purchase, apply or agree
to pay to any Person (other than the Dealer-Manager) any compensation for
soliciting another to purchase any other securities of the Company (except for
the solicitation of the exercises of Rights pursuant to this Agreement). The
foregoing shall not apply to the offer, sale, agreement to sell or delivery with
respect to: (i) Rights Shares and Rights Warrants offered and sold upon exercise
of the Rights, as described in the Prospectus, or (ii) any shares of Common
Stock sold pursuant to the Company’s employee benefit plans.
(kk) Each “forward-looking
statement” (within the meaning of Section 27A of the Securities Act
or Section 21E of the Exchange Act) included in the Registration Statement
and the Prospectus has been made or reaffirmed with a reasonable basis and has
been disclosed in good faith.
As used
in this Agreement, references to matters being “material” with respect to the
Company or any matter relating to the Company shall mean a material item, event,
change, condition, status or effect related to the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, prospects (as such prospects are disclosed or described in the
Registration Statement, any Preliminary Prospectus or the Prospectus),
operations or results of operations of the Company and its Subsidiaries, taken
as a whole.
13
As used
in this Agreement, the term “knowledge of the
Company” (or similar language) shall mean the knowledge of the officers
of the Company who are named in the Prospectus, with the assumption that such
officers shall have made reasonable and diligent inquiry of the matters
presented (with reference to what is customary and prudent for the applicable
individuals in connection with the discharge by the applicable individuals of
their duties as officers or directors of the Company).
6. Compensation. The
Dealer-Manager shall receive the fees for acting in its capacity as financial
advisor, dealer manager and placement agent, as set forth in the Engagement
Letter, except that: (i) notwithstanding anything to the contrary in the
Engagement Letter, the Dealer Manager will not receive any warrants or expense
reimbursement; and (ii) the advance paid to the Dealer Manager will be offset
against the cash fees payable to the Dealer Manager pursuant to the Engagement
Letter. Except as expressly provided in the preceding sentence, nothing in this
Agreement shall affect the Dealer-Manager’s rights to receive any fees,
compensation or reimbursement set forth in the Engagement Letter in accordance
with the terms thereof. All payments to be made by the Company
pursuant to this Section 6 shall be made at the Closing by wire transfer of
immediately available funds and consummation of the subscriptions for Rights
Shares and the Rights Warrants pursuant to the exercise of Rights (the “Closing
Date”).
7. Expenses. In
addition to the Dealer-Manager’s compensation for services hereunder pursuant to
Section 6 hereof, the Company shall pay or cause to be paid:
(a) all
expenses (including any taxes) incurred in connection with the Rights Offering
and the preparation, issuance, execution, authentication and delivery of the
Rights, the Rights Shares and the Rights Warrants;
(b) all fees,
expenses and disbursements of the Company’s accountants, legal counsel and other
third party advisors;
(c) all fees
and expenses of the Subscription Agent and the Information Agent;
(d) all fees,
expenses and disbursements (including, without limitation, fees and expenses of
the Company’s accountants and counsel) in connection with the preparation,
printing, filing, delivery and shipping of the Registration Statement (including
the financial statements therein and all amendments and exhibits thereto), each
Preliminary Prospectus, the Prospectus, the other Offer Documents and any
amendments or supplements of the foregoing, and any printing,
delivery and shipping of this Agreement by mail, fax or other means of
communications;
(e) all fees,
expenses and disbursements relating to the registration or qualification of the
Rights, the Rights Shares and the Rights Warrants under the “blue sky”
securities laws of any states or other jurisdictions and all reasonable fees and
expenses associated with the preparation of the preliminary and final forms of
Blue Sky Memoranda;
(f) all
filing fees of the Commission;
14
(g) all
filing fees relating to the review of the Rights Offering by FINRA;
(h) any
applicable listing or other fees;
(i) the cost
of printing certificates representing the Rights, the Rights Shares and the
Rights Warrants;
(j) the cost
and charges of the Company’s transfer agent(s) or registrar(s); and
(k) all other
costs and expenses incident to the performance of the Company’s obligations
hereunder for which provision is not otherwise made in this
Section.
(l) All
payments to be made by the Company pursuant to this Section 7 shall be made
promptly after the termination or expiration of the Rights Offering or, if
later, promptly after the related fees, expenses or charges accrue and an
invoice therefor is sent by the Dealer-Manager. The Company shall
perform its obligations set forth in this Section 7 whether or not the Rights
Offering commences or any Rights are exercised pursuant to the Rights
Offering.
8. Shareholder Lists;
Subscription Agent; Information Agent.
(a) The
Company will cause the Dealer-Manager to be provided with any cards or lists
showing the names and addresses of, and the number of shares of Common Stock
held by, the holders of shares of Common Stock as of a recent date and will use
its best efforts to cause the Dealer-Manager to be advised from time to time
during the period, as the Dealer-Manager shall request, of the Rights Offering
as to any transfers of record of shares of Common Stock.
(b) The
Company (i) has arranged for the Subscription Agent to serve as
subscription agent in connection with the Rights Offering, (ii) will
arrange for the Subscription Agent to advise the Dealer-Manager regularly as to
such matters as the Dealer-Manager may reasonably request, including the number
of Rights that have been exercised, and (iii) will arrange for the
Subscription Agent to be responsible for receiving subscription funds
paid.
(c) The
Company has arranged for the Information Agent to serve as information agent in
connection with the Rights Offering and to perform services in connection with
the Rights Offering that are customary for an information agent.
9. Covenants of the
Company. The Company covenants and agrees with the
Dealer-Manager:
(a) To use
commercially reasonable efforts to cause the Charter Amendment to be approved by
the shareholders of the Company and to be filed promptly with the Secretary of
State of Utah;
15
(b) To use
commercially reasonable efforts to cause the Registration Statement and any
amendments thereto to become effective; to advise the Dealer-Manager, promptly
after it receives notice thereof, of the time when the Registration Statement,
or any amendment thereto, becomes effective or any supplement to the Prospectus
or any amended Prospectus has been filed and to furnish the Dealer-Manager with
copies thereof; to prepare a Prospectus in a form approved by the Dealer-Manager
(such approval not to be unreasonably withheld or delayed) and to file such
Prospectus pursuant to Rule 424(b) under the Securities Act within the time
prescribed by such rule; to advise the Dealer-Manager, promptly after it
receives notice thereof, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus or
the Prospectus, of the suspension of the qualification of the Rights for
offering or sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus or
the Prospectus or suspending any such qualification, to use promptly its
reasonable best efforts to obtain its withdrawal;
(c) To
deliver promptly to the Dealer-Manager, at any such location as reasonably
requested by the Dealer-Manager, such number of the following documents as the
Dealer-Manager shall reasonably request: (i) conformed copies of the
Registration Statement as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than this Agreement,
any other Offer Documents filed as exhibits, the computation of the ratio of
earnings to fixed charges and the computation of per share earnings), (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus and (iii) any document incorporated by reference in the Prospectus
(excluding exhibits thereto); and, if the delivery of a prospectus is required
at any time during which the Prospectus relating to the Rights, the Rights
Shares or the Rights Warrants is required to be delivered under the Securities
Act and if at such time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated by
reference in the Prospectus in order to comply with the Securities Act or the
Exchange Act, to notify the Dealer-Manager and, upon its request, to file such
document and to prepare and furnish without charge to the Dealer-Manager as many
copies as the Dealer-Manager may from time to time reasonably request of an
amended or supplemented Prospectus which will correct such statement or omission
or effect such compliance;
(d) To file
promptly with the Commission any amendment to the Registration Statement or the
Prospectus or any supplement to the Prospectus that may, in the judgment of the
Company or the Dealer-Manager, be necessary or advisable in connection with the
distribution of the Rights or the sale of the Rights Shares and Rights Warrants
or be requested by the Commission;
(e) Prior to
filing with the Commission any: (i) Preliminary Prospectus, (ii) amendment to
the Registration Statement, any document incorporated by reference in the
Prospectus or (iii) any Prospectus pursuant to Rule 424 of the Securities Act,
to furnish a copy thereof to the Dealer-Manager and counsel for the
Dealer-Manager and obtain the consent of the Dealer-Manager to the filing (which
consent shall not be unreasonably withheld);
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(f) To
furnish to the Dealer-Manager copies of all materials not available via XXXXX
furnished by the Company to its shareholders and all public reports and all
reports and financial statements furnished by the Company to the principal
national securities exchange or automated quotation markets upon which any of
the Company’s securities may be listed or quoted pursuant to requirements of or
agreements with such exchange or to the Commission pursuant to the Exchange Act
or any rule or regulation of the Commission thereunder;
(g) To
qualify or register the Rights, the Rights Shares and the Rights Warrants for
sale under (or obtain exemptions from the application of) the state securities
or blue sky laws of those jurisdictions reasonably requested by the
Dealer-Manager, and to comply with such laws and cause such qualifications,
registrations and exemptions to continue in effect so long as reasonably
required for the distribution of the Rights, the Rights Shares and the Rights
Warrants. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service of
process in any such jurisdiction where it is not presently qualified or where it
would be subject to taxation as a foreign corporation. The Company will advise
the Dealer-Manager promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Rights, the Rights
Shares or the Rights Warrants for offering, sale or trading in any jurisdiction
or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration
or exemption, the Company shall use its reasonable best efforts to obtain the
withdrawal thereof as promptly as practicable;
(h) To apply
the net proceeds from the exercise of the Rights and upon exercise of the Rights
Warrants in the manner described under the caption “Use of Proceeds” in the
Prospectus.
(i) Prior to
the effective date of the Registration Statement, to apply for the quotation of
the Rights, the Rights Shares and the Rights Warrants on the Bulletin Board and
to use commercially reasonable efforts to complete that application, subject
only to official notice of issuance (if applicable), prior to the expiration of
the Rights Offering;
(j) To take
such steps as shall be necessary to ensure that neither the Company nor any
Subsidiary shall become an “investment
company” within the meaning of such term under the Investment Company Act
of 1940 and the rules and regulations of the Commission thereunder;
(k) To advise
the Dealer-Manager, directly or through the Subscription Agent, from time to
time, as the Dealer-Manager shall request, of the number of Rights Shares and
Rights Warrants subscribed for, and arrange for the Subscription Agent to
furnish the Dealer-Manager with copies of written reports it furnishes to the
Company concerning the Rights Offering;
(l) To
commence mailing the Offer Documents to record holders of the Common Stock not
later than the second business day following the record date for the Rights
Offering, and complete such mailing as soon as practicable;
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(m) To
reserve and keep available for issue upon the exercise of the Rights such number
of authorized but unissued shares of Rights Shares and Rights Warrants as will
be sufficient to permit the exercise in full of all Rights, except as otherwise
contemplated by the Prospectus; and
(n) To not
take, directly or indirectly, any action designed to cause or to result in, or
that has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the issuance of the Rights or the sale or resale of the Rights Shares
or the Rights Warrants.
10. Conditions of
Dealer-Manager’s Obligations. The obligations of the Dealer-Manager
hereunder are subject to (and the occurrence of any Closing shall be conditioned
upon) the accuracy, as of the date hereof and at all times during the Rights
Offering, of the representations and warranties of the Company contained herein,
to the performance by the Company of its obligations hereunder and to the
following additional conditions:
(a) (i) The
Registration Statement shall have become effective and the Prospectus shall have
been timely filed with the Commission in accordance with the Securities Act;
(ii) all post-effective amendments to the Registration Statement shall have
become effective; (iii) no stop order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto shall have been
issued and no proceedings for the issuance of any such order shall have been
initiated or threatened, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been disclosed to the Dealer-Manager and complied with to
the Dealer-Manager’s reasonable satisfaction.
(b) The
Dealer-Manager shall not have been advised by the Company, and shall not have
discovered and disclosed to the Company that the Registration Statement or the
Prospectus or any amendment or supplement thereto, contains an untrue statement
of fact which in the Dealer-Manager’s opinion, or in the opinion of counsel to
the Dealer-Manager, is material, or omits to state a fact which, in the
Dealer-Manager’s opinion, or in the opinion of counsel to the Dealer-Manager, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) All
corporate proceedings and other legal matters incident to the authorization,
form and validity of this Agreement, the Charter Amendment, the Rights, the
Rights Shares, the Rights Warrants, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory in all
material respects to counsel for the Dealer-Manager, and the Company shall have
furnished to such counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
(d) Concurrently
with the execution of this Agreement, there shall have been furnished to the
Dealer-Manager the signed opinion (addressed to the Dealer-Manager) of Xxxxxxx
Procter LLP, counsel for the Company, dated as of the Closing and in form and
substance reasonably satisfactory to counsel for the
Dealer-Manager.
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(e) Concurrently
with the execution of this Agreement, the Company shall have furnished to the
Dealer-Manager a letter of RBSL, addressed to the Dealer-Manager and dated the
date hereof: (i) confirming that they are independent registered public
accountants of the Company within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the qualification of
accountants under the PCAOB and applicable rules of the Commission, and (ii)
stating, as of the date of the letter (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more than
five days prior to the date of the letter), the conclusions and findings of such
firm with respect to the financial information and other matters specified by
the Dealer-Manager.
(f) The
Company shall have furnished to the Dealer-Manager a certificate, dated the date
hereof, of its Chief Executive Officer or President and its Chief Financial
Officer stating that:
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i.
|
The
Charter Amendment shall have become effective in accordance with its terms
under the laws of the State of
Utah;
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ii.
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To
the best of their knowledge after reasonable investigation, the
representations, warranties, covenants and agreements of the Company
hereof are true and correct in all material
respects;
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iii.
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Subsequent
to the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any Material
Adverse Change or any development involving a prospective Material Adverse
Change; and
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iv.
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They
have carefully examined the Registration Statement and the Prospectus and,
in their opinion (A) the Registration Statement, as of the Effective Date,
and the Prospectus the date thereof, did not include any untrue statement
of a material fact and did not omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date or the date of the
Prospectus, as applicable, no event has occurred which should have been
set forth in a supplement or amendment to the Registration Statement or
the Prospectus.
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(g) Neither
the Company nor any of its Subsidiaries shall have sustained since the date of
the latest audited financial statements included in the Prospectus any Material
Adverse Change, the effect of which is, in the judgment of the Dealer-Manager,
so material and adverse as to make it impracticable or inadvisable to proceed
with the Rights Offering.
(h) The
Bulletin Board shall have approved the Rights, the Rights Shares and the Rights
Warrants for quotation.
(i) All
opinions, letters, evidence and certificates mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance reasonably satisfactory to counsel for
the Dealer-Manager.
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11. Indemnification and
Contribution.
(a) The
Company agrees to indemnify and hold harmless the Dealer-Manager and its
affiliates and any officer, director, employee or agent of Source or any such
affiliates and any Person controlling (within the meaning of Section 20(a) of
the Exchange Act) the Dealer-Manager or any of such affiliates (collectively,
the “Indemnified
Parties”) from and against any and all losses, claims, damages,
liabilities and expenses whatsoever, under the Securities Act or otherwise (as
incurred or suffered and including, but not limited to, any and all legal or
other expenses incurred in connection with investigating, preparing to defend or
defending any lawsuit, claim or other proceeding, commenced or threatened,
whether or not resulting in any liability, which legal or other expenses shall
be reimbursed by the Company promptly after receipt of any invoices therefore
from the Dealer-Manager), (A) arising out of or based upon: (i) any untrue
statement or alleged untrue statement of a material fact contained in the Offer
Documents or any amendment or supplement thereto, in any other solicitation
material used by the Company or authorized by it for use in connection with the
Rights Offering, or in any blue sky application or other document prepared or
executed by the Company (or based on any written information furnished by the
Company) specifically for the purpose of qualifying any or all of the Rights,
the Rights Shares or the Rights Warrants under the securities laws of any state
or other jurisdiction (any such application, document or information being
hereinafter called a “Blue Sky
Application”) or arising out of or based upon the omission or alleged
omission to state in any such document a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (other than
statements or omissions made in reliance upon and in conformity with the
Dealer-Manager Information), (ii) any withdrawal or termination by the Company
of, or failure by the Company to make or consummate, the Rights Offering, (iii)
any actions taken or omitted to be taken by an indemnified party with the
consent of the Company or in conformity with actions taken or omitted to be
taken by the Company or (iv) any failure by the Company to comply with any
agreement or covenant, contained in this Agreement or (B) arising out of,
relating to or in connection with or alleged to arise out of, relate to or be in
connection with, the Rights Offering, any of the other transactions contemplated
thereby or the performance of Source’s services to the Company with respect to
the Rights Offering. The Company will not, however, be responsible
under the foregoing indemnity agreement for any losses, claims, damages,
liabilities or expenses that are finally judicially determined to have resulted
from the gross negligence, bad faith or willful misconduct of the Dealer-Manager
or any Indemnified Party.
(b) If the
indemnification provided for in the foregoing paragraph is judicially determined
to be unavailable (other than in accordance with the terms hereof) to any
Indemnified Party otherwise entitled to indemnity in respect of any losses,
claims, damages or liabilities referred to herein, then, in lieu of indemnifying
such person hereunder, whether or not the Dealer-Manager is the person entitled
to indemnification or reimbursement, the Company shall contribute to the amount
paid or payable by the Indemnified Party as a result of such losses, claims,
damages or liabilities (and expenses relating thereto) (i) in such
proportion as is appropriate to reflect the relative benefits to the Company, on
the one hand, and the Dealer-Manager, on the other hand, of the Rights Offering
or (ii) if the allocation provided for in clause (i) above is not
available, in such proportion as is appropriate to reflect not only the relative
benefits referred to in such clause (i) but also the relative fault of each
of the Company and the Dealer-Manager, as well as any other relevant equitable
considerations; provided,
however, in no event shall the Dealer-Manager’s aggregate contribution to
the amount paid or payable exceed the aggregate amount of fees actually received
by the Dealer-Manger under this Agreement. For the purposes of this
Agreement, the relative benefits to the Company and to the Dealer-Manager of the
engagement shall be deemed to be in the same proportion as (a) the total
value paid or contemplated to be paid or received or contemplated to be received
by the Company in the Rights Offering, whether or not the Rights Offering is
consummated, bears to (b) the fees paid or to be paid to the Dealer-Manager
under this Agreement.
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(c) The
Company also agrees that neither the Dealer-Manager, nor any other Indemnified
Party, shall have any liability to the Company for or in connection with the
Dealer-Manager’s engagement as Dealer-Manager, except for any such liability for
losses, claims, damages, liabilities or expenses incurred by the Company which
are finally judicially determined to have resulted primarily from the
Dealer-Manager’s bad faith, willful misconduct, or gross
negligence. The foregoing agreement shall be in addition to any
rights that the Dealer-Manager, the Company or any Indemnified Party may have at
common law or otherwise, including, but not limited to, any right to
contribution. For the sole purpose of enforcing and otherwise giving
effect to the provisions of this Agreement, the Company hereby consents to
personal jurisdiction and service and venue in any court in which any claim
which is subject to this agreement is brought against the Dealer-Manager or any
other indemnified party.
(d) The
Company agrees that it will not, without the prior written consent of the
Dealer-Manager, settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the Dealer-Manager is an actual or potential party to such
claim, action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release, reasonably satisfactory in form and substance
to the Dealer-Manager, releasing the Dealer-Manager from all liability arising
out of such claim, action, suit or proceeding.
12. Effective Date of Agreement;
Termination.
(a) This
Agreement shall become effective upon the later of the time on which the
Dealer-Manager shall have received notification of the effectiveness of the
Registration Statement and the time which this Agreement shall have been
executed by all of the parties hereto.
(b) This
Agreement shall terminate upon the earliest to occur of (a) the
consummation, termination or withdrawal of the Rights Offering, and (b) the
withdrawal by the Dealer-Manager pursuant to Section 4.
13. Survival of Certain
Provisions. The agreements contained in Sections 3, 6, 7 and
13 through 21 hereof and the representations, warranties and agreements of the
Company contained in Section 5 hereof shall survive the consummation of or
failure to commence the Rights Offering and shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of any indemnified party.
14. Notices. All notices
and other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if
(a) delivered personally, (b) sent by facsimile with immediate
telephonic confirmation or (c) sent by registered or certified mail, return
receipt requested, postage prepaid, to the parties hereto as
follows
If to the
Dealer-Manager:
Source
Capital Group, Inc.
000 Xxxx
Xxxx Xxxx
Xxxxxxxx,
XX 00000
Attention:
Xxxxxxx Xxxxxx
Facsimile
203-341-3500 ext. 224
21
With a
copy to:
Xxxxxxxxxx
Law
0000 Xxxx
Xxxxxx
Xxxxx
0X
Xxx Xxxx,
XX 00000-0000
Attention:
Xxxxx X. Xxxxxxxxxx
Facsimile:
646.349.1665
If to the
Company:
Telkonet,
Inc.
00000
Xxxxxxxxxx Xxxxx
Xxxxx
000
Xxxxxxxxx,
XX 00000
Attention:
Xxxxx X. Xxxxxx
Chief
Executive Officer
Facsimile:
414.258.8307
With a
copy to:
Telkonet,
Inc.
00000
Xxxxxxxxxx Xxxxx
Xxxxx
000
Xxxxxxxxx,
XX 00000
Attention:
Xxxxxx X. Xxxx
General
Counsel
Facsimile:
702.697.0379
15. Parties. This
Agreement shall inure to the benefit of and be binding upon the Dealer-Manager,
the Company and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those Persons, except that
the representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of the
Person or Persons, if any, who control the Dealer-Manager within the meaning of
Section 15 of the Act. Nothing in this Agreement shall be construed to give any
Person, other than the Persons referred to in this Section, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
16. Amendment. This
Agreement may not be amended or modified except in writing signed by each of the
parties hereto.
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17. Governing Law;
Venue. This Agreement shall be deemed to have been executed
and delivered in New York and both this Agreement and the transactions
contemplated hereby shall be governed as to validity, interpretation,
construction, effect, and in all other respects by the laws of the State of New
York, without regard to the conflicts of laws principles thereof (other than
Section 5-1401 of The New York General Obligations Law). Each of the
Dealer-Manager and the Company: (a) agrees that any legal suit, action or
proceeding arising out of or relating to this Agreement and/or the transactions
contemplated hereby shall be instituted exclusively in the Supreme Court of the
State of New York, New York County, or in the United States District Court for
the Southern District of New York, (b) waives any objection which it may have or
hereafter to the venue of any such suit, action or proceeding, and (c)
irrevocably consents to the jurisdiction of Supreme Court of the State of New
York, New York County, or in the United States District Court for the Southern
District of New York in any such suit, action or proceeding. Each of the
Dealer-Manager and the Company further agrees to accept and acknowledge service
of any and all process which may be served in any such suit, action or
proceeding in the Supreme Court of the State of New York, New York County, or in
the United States District Court for the Southern District of New York and
agrees that service of process upon the Company mailed by certified mail to the
Company’s address or delivered by Federal Express via overnight delivery shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding, and service of process upon the underwriters
mailed by certified mail to the Dealer-Manager’s address or delivered by Federal
Express via overnight delivery shall be deemed in every respect effective
service process upon the Underwriter, in any such suit, action or proceeding.
THE COMPANY (ON BEHALF OF ITSELF AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ON
BEHALF OF ITS RESPECTIVE EQUITY HOLDERS AND CREDITORS) HEREBY WAIVES ANY RIGHT
THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON, ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, THE REGISTRATION STATEMENT, ANY PRELIMINARY PROSPECTUS AND THE
PROSPECTUS.
18. Entire
Agreement. This Agreement, together with the exhibit attached
hereto and as the same may be amended from time to time in accordance with the
terms hereof, contains the entire agreement among the parties hereto relating to
the subject matter hereof and there are no other or further agreements
outstanding not specifically mentioned herein.
19. Severability. If
any term or provision of this Agreement or the performance thereof shall be
invalid or unenforceable to any extent, such invalidity or unenforceability
shall not affect or render invalid or unenforceable any other provision of this
Agreement and this Agreement shall be valid and enforced to the fullest extent
permitted by law.
20. Headings. The
headings herein are inserted for convenience of reference only and are not
intended to be part of, or to affect the meaning or interpretation of, this
Agreement.
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21. Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument. Delivery of a signed counterpart of this Agreement
by facsimile or other electronic transmission shall constitute valid and
sufficient delivery thereof. If the foregoing correctly sets forth your
understanding, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among
us.
| Very truly yours, | |
| Telkonet, Inc. | |
| By: /s/ Xxxxx X. Xxxxxx | |
| Name: Xxxxx X. Xxxxxx | |
| Title: Chief Executive Officer |
Accepted
and agreed as of the date first written above:
SOURCE
CAPITAL GROUP, INC.
|
By: /s/ Xxxxxxx X.
Xxxxxx
Name: Xxxxxxx
X. Xxxxxx
Title:
Sr. Managing Director, Investment Banking
|
By: /s/ Xxxx
Xxxxxx
Name: Xxxx
Xxxxxx
Title: Chief
Financial Officer
|
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