Exhibit 1.3
INVESTMENT BANKING AGREEMENT
This Investment Banking Agreement (the "Agreement") is made and entered into as
of May 21, 2003 by and among Telkonet, Inc. having a principal place of business
at 000 Xxxxx Xxxx Xxxxx Xxxxxxxx 000, Xxxxx, XX 00000 (the "Company"), and
vFinance Investments, Inc. ("VFI") a NASD member broker dealer, having a place
of business at 000 Xxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx, 00000.
ENGAGEMENT OF SERVICES
The Company hereby retains VFI on a non-exclusive basis, for the purpose of
providing to the Company Investment Banking services. VFI agrees to be retained
to provide such services described in Section One below pursuant to the terms
and conditions set forth herein.
SECTION ONE
STATEMENT OF WORK
VFI will, on behalf of the Company, perform the following Investment Banking and
Advisory Services:
Investment Banking Services:
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(a) VFI will act as investment banker in executing the approved
business plan. In this capacity, VFI will identify potential
investors and or acquisition or merger candidates. VFI will
contact these firms and investors on behalf of the Company and
will qualify them as appropriate partners. VFI will, with
prior approval, on behalf of the Company structure and
negotiate a transaction that is favorable to the Company.
Specifically, VFI will make introductions in an attempt to
explore strategic partnerships, explore add on
acquisitions/mergers for the Company of identified
opportunities fitting pre screened criteria, analyze capital
raising initiatives accompanying targeted acquisitions and if
mutually agreed to, raise such acquisition capital to
facilitate the transactions. VFI will produce a sensitivity
analysis to permit company to determine appropriate timing,
structure and amounts of stand alone capital raise which upon
mutual agreement VFI will commence a best efforts offering to
complete such.
Advisory Services:
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VFI will support the company by providing ongoing financial services to include:
(a) Capital market advice and will use its best efforts to work
with the Company's management ("Management") in creating
market awareness of the Company and its stock, and in the
organization and sponsorship of investor presentations. VFI
will make a market in the Company's stock and will use its
best efforts to seek to establish other market makers in the
Company's stock. VFI will use its best efforts to seek to
increase liquidity and maintain an orderly market in the
Company's publicly traded stock, including assisting the
buy-side and in cross-block trades of the Company's stock.
(b) Advice to the Company pertaining to stock buyback plans, stock
splits or dividends and other related plans as they pertain to
the Company's stock price and liquidity. At the request of the
Management of the Company, VFI will attend shareholder and
Board Meetings to make presentations and provide shareholder
communication services if requested.
OTHER SERVICES. In addition to the foregoing services VFI agrees to provide the
following services to the Company:
(a) Advisory services, including general business and financial
analysis, corporate strategy development, transactional
feasibility analysis and valuation analysis;
(b) Assistance in the development of strategic priorities and
acquisition/transaction criteria and identification of
prospective candidates which satisfy those criteria;
(c) Assistance in the preparation of any descriptive materials to
be issued by the Company that may be required as a result of
VFI's recommendations. Specifically, VFI will spend the
necessary time with management to outline strategic
positioning, objectives and means to accomplish them, develop
a financial model and then compile that data into a Company
Profile. The Company Profile will be in the form similar to
those presented to the Company and once completed, copies of
the Profile shall be distributed to all VFI branches and
available online as well to VFI customers, the Company and all
their designated recipients.
For the duration of this Agreement, VFI will have the ability to engage in
substantive discussions with potential investors, acquirers, merger or
acquisition candidates on behalf of the Company. VFI will provide the Company
with the names of parties to whom it intends to disclose proprietary
information, which will be required to enter into a Confidentiality Agreement
with the Company and VFI prior to receiving any proprietary or confidential
information of the Company. Unless the Company reasonably objects to such party
with five (5) business days of being informed by VFI, such parties will be
identified and included as a "VFI Party" under this Agreement.
In the event the Company, Management or its principal stockholders receive an
inquiry from, or are otherwise in contact with, a party concerning the
availability of the Company regarding an Additional Transaction(s), as defined
herein below in Section Six, the Company will have the option of determining
whether to notify and refer such party to VFI in order that VFI may continue
such discussions. If the Company determines to notify VFI, the party will be
identified and included as a VFI Party. If an Additional Transaction as defined
below results from an introduction by the Company of a VFI Party, then fees
associated with that particular transaction shall be reduced by half.
In the event the Company withholds its written approval authorizing VFI to
approach a VFI Party, the Company agrees that neither it nor its agents, will
discuss nor will the Company enter into an Additional Transaction(s) with such
party during the Term of this Agreement as defined in Section Four of this
Agreement. VFI will submit to the Company a list of those parties it intends to
contact in regards to additional transactions and agree to carve out those
identified as previously known parties.
Each prospect will be qualified and meetings will be set to present the Company
to potential investors and merger and acquisition candidates. VFI will use it
best efforts to work with Management to negotiate and close an Additional
Transaction(s), with the understanding that the Company shall have the sole and
absolute discretion as to whether or not to consummate any such transaction.
In performing its services herein, VFI shall be entitled to rely without
investigation upon all information that is provided by the Company, which
information the Company hereby warrants that to the best of its knowledge and
information shall be complete and accurate in all material respects, and not
misleading. VFI in no way guarantees that the Company will successfully raise
capital.
SECTION TWO
PLACE OF WORK
It is understood that VFI's services will be rendered both on and off-site of
the Company. Subject to VFI providing reasonable prior notice, the Company
agrees to provide an office, secretarial support, and time of key employees
while VFI is on-site performing the services described in Section One.
SECTION THREE
TIME DEVOTED TO WORK
In the performance of the services covered by this Agreement, the services and
the hours VFI works, will be entirely within VFI's control and the Company
enters into this Agreement in reliance upon VFI to put in such number of hours
as is reasonably necessary to fulfill the spirit and the purpose of this
Agreement.
SECTION FOUR
DURATION
The duration of this Agreement (the "Term") shall extend for a period of twelve
(12) months from the date first written above. This Agreement may be terminated
at any time by VFI or the Company with or without cause, upon thirty (30) days
prior written notice to the other party. If the Agreement is terminated by VFI
within the first 60 days, VFI will return the initial fee forwarded by the
Company.
SECTION FIVE
PAYMENT
Upon execution of this Agreement, the Company will agree to pay VFI a
non-refundable consulting fee of Twelve Thousand Dollars ($12,000) in
consideration of the Investment Banking and Advisory services that VFI will
commence to engage in. Four Thousand Dollars ($4,000) will be due upon execution
of this Agreement. Four Thousand Dollars ($4,000) shall be due upon delivery of
the draft of the Profile and the balance of Four Thousand Dollars ($4,000) shall
be due 30 days thereafter. Upon the successful completion of any Additional
Transaction(s) as defined below, VFI shall deduct the Twelve Thousand Dollars
($12,000) consulting fee from any success fee earned by and due to VFI. In
addition, the Company shall grant to VFI or its designees Thirty Five Thousand
(35,000) shares of its restricted common stock and Thirty Five Thousand (35,000)
warrants to purchase shares of the Company's common stock for a period of three
years at an exercise price equal to 125% of the closing price on the date which
this Agreement is executed. These warrant shall contain customary cashless
exercise and piggyback registration rights.
SECTION SIX
ADDITIONAL TRANSACTIONS
For purposes of this Agreement, Additional Transaction(s) shall mean any "Debt
Financing", "Subordinated Debt Financing", "Private Placement, Capital Infusion,
Equity Investment or Financing", or a "Purchase, Merger or Sale Transaction".
Debt Financings.
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Other than the Company's current debt financing in the amount of $5 million, For
the purpose of this Agreement, a "Debt Financing" shall include any transaction
(or series of transactions) which involves a VFI Party; and which directly or
indirectly results in: (i) senior and working capital lines, or other similar
borrowings of the Company normally undertaken by businesses in the course of
operations which includes capital received in consideration for notes, bonds,
equipment leasing transactions, or debentures not expressly defined as "junior"
or "subordinated" (discussed below), (ii) a combination of any such debt
described above together with the issuance and warrants/options to such VFI
Parties, or (iii) convertible "debt, as described above, to equity" securities.
In the case of a "Debt Financing" where the source of debt financing, excluding
subordinated debt financing, is originated by VFI or is from a VFI Party and the
transaction closes during the Term of this Agreement, or within twelve (12)
months of any termination or expiration thereof, VFI shall receive upon closing
of the transaction, a lump-sum consulting fee computed by taking the total
proceeds actually received by the Company multiplied by two (2%) percent. In the
case of the Company's current debt financing of $5 million, where the source of
debt financing, excluding subordinated debt financing, is originated by VFI or
is from a VFI Party and the transaction closes during the term of this
Agreement, or within twelve (12) months of any termination or expiration
thereof, VFI shall receive upon closing of the transaction, a lump-sum
consulting fee computed by taking the total proceeds actually received by the
Company multiplied by four (4%) percent.
Subordinated Debt Financings.
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For the purpose of this Agreement, a "Subordinated Debt Financing" shall mean
any transaction (or series of transactions) which involves (a) a VFI Party; and
(b) which directly or indirectly results in the Company receiving proceeds from
any debt financing Junior or subordinated to other debt, i.e., repayable in the
case of liquidation only after senior debt with a higher claim and priority has
been satisfied. This type of debt may be but not necessarily characterized by
such features as interest only payments for a specified period of time, equity
participation through warrants/options and other instruments, and convertible
features.
In the case of a "Subordinated Debt Financing" where the source of subordinated
debt financing is originated by VFI or is from a VFI Party and the transaction
closes during the Term of this Agreement, or within twelve (12) months of any
termination or expiration thereof, VFI shall receive upon closing of the
transaction, a lump-sum consulting fee computed by taking the total proceeds
actually received by the Company multiplied by five (5%) percent.
Equity Raise.
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For the Purpose of this Agreement, a "Private Placement, Equity Capital
Infusion, or any Equity Investment or Financing" where the source is originated
by VFI or a VFI Party; which directly or indirectly results in the transaction
closing during the Term of this Agreement, or within (12) months of any
termination or expiration thereof, VFI shall receive upon closing of the
transaction (1) if a retail placement effectuated through VP brokers, a lump-sun
consulting fee computed by taking the total gross proceeds actually received by
the Company multiplied by ten (10%) percent plus a non-accountable expense
allowance of three percent (3%) multiplied by the total gross proceeds actually
received by the Company and ten percent (10%) Placement Agent warrants (2) if an
institutional placement effectuated by VFI investment bankers, a lump-sun
consulting fee computed by taking the total gross proceeds actually received by
the Company multiplied by six (6%) percent plus a non-accountable expense
allowance of one and a half percent (1 1/2%) multiplied by the total gross
proceeds actually received by the Company and six percent (6%) Placement Agent
warrants.
Purchase, Merger or Sale Transaction.
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If an Purchase, Merger or Sale Transaction is consummated between the Company
and en VF Party during the Tern of this Agreements or a period of twelve (12)
months after the termination or expiration of this Agreement, Company shall pay
VF or cause VF to be paid, at the closing of such transaction a fee computed by
taking the Total Consideration received at each respective closing involved in
such Purchase or Sale Transaction multiplied by a percentage determined pursuant
to the following schedule:
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Total Consideration Fee
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$0 to $999,999 5.0%
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$1,000,000 to $1,999,999 4.0%
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$2,000,000 to $2,999,999 3.0%
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$3,000,000 to $3,999,999 2.0%
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$4,000,000 or greater 1.0%
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A Purchase. Merger or Sale Transaction (or series of transactions) which
involves (a) a VF Party; and (b) which directly or indirectly results in (1) the
acquisition by the Company of all or any part of the existing capital stock of
such third party or all or any part of the assets of such third party (or any
securities convertible into or exchangeable for or other rights to acquire all
or any part of such capital stock or assets), or (ii) the acquisition by such
third party of all or any part of the existing capital stock of the Company or
all or any part of the assets of the Company (including any securities
convertible into or exchangeable for or other rights to acquire all or any part
of such capital stock or assets), including in each such case, without
limitation, any sale or exchange of capital stock or assets (including cash and
other liquid assets), any merger or consolidation (including any such
transaction in which the third party is the surviving entity) or any similar
transaction outside of the ordinary course of the Company's business.
For the purposes of this Agreement with respect to a Purchase, Merger or Sale
Transaction, Total Consideration shall mean and be computed as the total sale
proceeds and other consideration received by Company, its stockholders, directed
beneficiaries or any newly formed entity owned or participated in by Company
("New Company") an including, but not limited to: cash, securities, notes,
debentures, agreements not-to-compete, including contingent and installment
payments; consideration for assets owned by subsidiaries or entitles controlled
by the Company; the total value of liabilities specifically assumed by the
acquirer; and any other tangible net benefit to the Company, its shareholders or
directed beneficiaries all as valued and set forth in the transaction documents,
unless otherwise agreed in writing.
Payment of Fees and Warrants.
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All fees due to VF pursuant to this Agreement are payable in cash. All fees are
payable to VF at the closing date of the subject transaction. To the extent
amounts are payable to Company after the closing date of a transaction, the
Company shall pay VF the applicable fee associated with such amounts at the time
such amounts are actually received by Company. Any fees due and not paid when
due will accrue interest at the rate of twelve percent (12.0%) annually and the
Company will be responsible for reasonable legal expenses, including without
limitation appellate expenses (at both the trial and appellate level) incurred
by VF in collecting such fees. Warrant and registration rights as well as the
Company's obligations to compensate VF as described in this Section Six shall
remain in full force and effect for a period of twelve (12) months following the
termination or expiration of this Agreement.
The Company will reimburse VFI for all pre-approved business expenses
("Expenses") incurred by VFI in the performance of the work as described in this
Agreement. As of the execution of this Agreement, these expenses include 1) all
phone, fax, postage, shipping, printing and internet connection charges; 2)
mileage charges at Thirty-Six and One-Half Cents ($.365) per mile; and 3) all
reasonable travel expenses for Company approved meetings. Expenses will be
billed and paid on a monthly basis beginning on the first of each month
beginning with the first calendar month following the date of this Agreement. No
expense shall be incurred in excess of Two Hundred Fifty Dollars ($250) without
approval from the Company prior to expenditure.
SECTION SEVEN
STATUS OF VFI; INDEMNIFICATION
VFI is and shall be an independent contractor and is not and shall not be deemed
or construed to be employees of the Company by virtue of this Agreement. Neither
VFI, nor the Company shall hold VFI out as an agent, partner, officer, director,
or other employee of the Company in connection with this Agreement or the
performance of any of the duties, obligations or performances contemplated
hereby and VFI further specifically disclaims any and all rights to an equity
interest in or a partnership with the Company by virtue of this Agreement or any
of the transactions contemplated hereby, except as specifically provided herein.
VFI specifically acknowledges and agrees that it shall have no authority to
execute any contracts or agreements on behalf of the Company or any other person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with the Company (an "Affiliate") and
it shall have no authority to bind the Company or its Affiliates to any
obligation (contractual or otherwise). For purposes of this Agreement, (a) the
term "control" shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting interests, by contract or otherwise and
(b) the term "person" shall mean an individual, partnership, corporation,
limited liability company, limited liability partnership, trust, joint venture
or other entity.
It is hereby acknowledged and agreed that the Company has not, is not and shall
not be obligated to make, and that it is the sole responsibility of VFI to make,
in connection with any income earned by VFI from the Company, all periodic
withholding taxes, FICA taxes, SECA payments, Federal unemployment taxes (FUTA)
and any other Federal or state taxes, payments or filings required to be paid,
made or maintained.
In the event that VFI becomes involved in any capacity in any action, proceeding
or investigation in connection with any matter referred to in this Agreement not
resulting from or relating to VFI's recklessness, negligence, bad faith or
intentional wrongful acts, the Company will reimburse VFI for reasonable legal
and other expenses as such expenses are incurred in connection therewith. The
Company will also indemnify and hold harmless VFI and its officers, employees,
agents and shareholders against losses, claims, damages or liabilities to which
VFI may become subject in connection with any matter referred to in this
Agreement, except to the extent that any such loss, claim, damage or liability
results from the recklessness, negligence, bad faith or intentional wrongful
acts of VFI performing the services that are the subject of this Agreement. The
provisions of this Section 7 shall survive any termination or expiration of this
Agreement for a period of twenty-four (24) months.
Upon receipt by VFI or its officers, employees, agents or shareholders
("Indemnified Person") of actual notice of an action against such Indemnified
Person with respect to which indemnity may be sought under this Agreement, such
Indemnified Person shall promptly notify the Company ("Indemnifying Party"), in
writing; provided that failure so to notify such Indemnifying Party shall not
relieve such Indemnifying Party from any liability which such Indemnifying Party
may have on account of this indemnity or otherwise, except to the extent such
Indemnifying Party shall have been materially prejudiced by such failure.
The Indemnifying Party shall, if requested by the Indemnified Person, assume the
defense of any such action including the retention of counsel reasonably
satisfactory to the Indemnified Person. Any Indemnified Person shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person, unless: (i) the Indemnifying Party has
failed promptly to assume the defense and employ counsel or (ii) the named
parties to any such action (including any impleaded parties) include both such
indemnified Person and the Indemnifying Party, and such indemnified Person shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or in addition to those available to
the Indemnifying Party; provided that the Indemnifying Party shall not in such
event be responsible hereunder for the fees and expenses of more than one firm
of separate counsel in connection with any action in the same jurisdiction, in
addition to any local counsel. The indemnifying Party shall not be liable for
any settlement of any action effected without its written consent, which consent
shall not be unreasonably withheld. In addition, an indemnifying Party will not,
without prior written consent of the applicable indemnified Person, settle,
compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action in respect of which indemnification
or contribution may be sought hereunder (whether or not any Indemnified Person
is a party thereto) unless such settlement, compromise, consent or termination
includes en unconditional release of each Indemnified Person from all
Liabilities arising out of such action.
SECTION EIGHT
SERVICES FOR OTHERS
VFI may, during or subsequent to the Term, perform services for any other person
or firm without the Company's prior approval.
SECTION NINE
OWNERSHIP
VFI acknowledges that the Company will be free to use all work developed under
this Agreement for future and continued usage without any obligation to remit
any payment to VFI other than that which is defined in this Agreement.
SECTION TEN
GOVERNING LAW
The laws of the State of Florida shall govern this Agreement. Any controversy or
claim arising out of, or relating to, this Agreement, to the making,
performance, or interpretation of it, shall be settled by arbitration in New
York unless otherwise mutually agreed upon by the parties, under the commercial
arbitration rules of the American Arbitration Association then existing, and any
judgment on the arbitration award may be entered in any court having
jurisdiction over the subject matter of the controversy. If any legal action or
any arbitration or other proceeding is brought for the enforcement of this
Agreement or because of an alleged dispute, breach, default or misrepresentation
in connection with any of the provisions of this Agreement, the Successful or
prevailing party or parties shall be entitled to recover reasonable attorney's
fees and other costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.
The Governing Law provisions shall survive any termination of this Agreement.
SECTION ELEVEN
INTEGRATION
This Agreement contains the entire Agreement among the parties and supersedes
all prior oral and written agreements, understandings, and representations among
the parties. No amendments to this Agreement shall be binding unless executed in
writing by all the parties.
SECTION TWELVE
CONFIDENTIALITY
Except as otherwise required by law, the terms of this Agreement shall not be
disclosed by VFI to any third party, with the exception of potential investors
as part of their due diligence efforts, without the prior written consent of
both parties to this Agreement VFI shall keep confidential and not disclose any
non-public information provided to it by or on behalf of the Company or by any
third-party, in relation to any of the services provided or to be provided by it
to the Company, except that it may disclose any such information to its advisors
(which persons shall be bound by similar confidentiality obligations and for
which VFI shall accept full responsibility in compliance with this Section) or
as required by law or with the prior consent of the Company. The restrictions in
the preceding sentence shall not apply to information that becomes publicly
available through no fault of VFI or information that VFI may be required by law
to disclose.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the
day and year first above written.
Telkonet, Inc.
By:
/s/ Xxxxxx X. Xxxxxxx
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Name: Xxxxxx X. Xxxxxxx
Date: May 21, 2003
Title: President
VFinance Investments, Inc.
By:
/s/ Xxxxxxx Xxxxxxx
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Name: Xxxxxxx Xxxxxxx
Date: May 22, 2003
Title: Chairman
