CONFIDENTIAL January 8, 2007 Ronald W. Pickett Chief Executive Officer Telkonet, Inc.
Exhibit
10.3
CONFIDENTIAL
January
8, 2007
Xxxxxx
X.
Xxxxxxx
Chief
Executive Officer
Telkonet,
Inc.
00000
Xxxxxx Xxxxxxx Xxxxxxx Xxxxxxxxxx,
XX 00000
Dear
Xxx:
This
letter agreement (the "Agreement") confirms that Telkonet, Inc. (together
with
its subsidiaries
and affiliates the "Company") has engaged Bryant Park Capital, Inc. ("BPC")
to
act as
its
exclusive financial advisor and consultant in connection with a possible
capital
raising transaction.
The engagement shall be considered effective as of the date first written
above
and may
be
terminated by BPC or the Company after 60 days from the date first written
above.
1) Services:
In its
capacity as financial advisor and if requested by the Company, BPC will
provide
the Company with financial advice and assistance with one or a series of
transactions (as
defined herein), which may include assisting the Company in valuation analysis,
evaluating strategic alternatives, preparation of any presentation material,
seeking and contacting
prospective investors or acquirers, and negotiating the financial aspects
of the
transaction.
2) Fees:
For
BPC's services hereunder, the Company agrees to pay to BPC each of the fees,
by
wire
delivery of immediately available U.S. dollar funds, without deduction of
any
tax as applicable,
set forth below:
| a) |
Capital
Infusion Transaction
If
the Company enters into any Capital Infusion Transaction
(as defined below) during the term of this Agreement or during
the 18
months
following the termination of this Agreement, with a party (1) directly
or
indirectly introduced
to the Company by BPC during the term of this Agreement, (ii) with
respect
to
which, at the Company's request, BPC provided services under the
terms of
this Agreement,
or (iii) any parties listed on Schedule B; then the Company shall
pay, or
shall cause to be paid, to BPC upon the consummation of such Capital
Infusion Transaction a transaction
fee payable in (1) cash and (ii) warrants (as defined below), calculated
according to the following amounts and percentages (Table A), however,
in
no event shall
the cash portion of any such Capital Infusion Transaction Fee be
less than
$250,000 in
cash paid at closing:
|
1
Table
A
|
Equity
Capital Infusion (including common stock, preferred stock and
convertible
debt)
|
Cash
Portion:
6.0%
of Consideration
|
|
|
Warrant
Portion:
|
||
|
Warrants
to buy stock at the price such securities were sold to investors
in an
amount equal
to
6.0% of the value of the Equity Capital Infusion
Transaction
|
||
|
Subordinated
Debt Capital Infusion
(including
all debt mezzanine financing)
|
Cash
Portion:
4.0%
of
Consideration
|
|
|
Warrant
Portion:
|
||
|
Warrants
to buy stock at the price such securities were sold to investors
in an
amount equal to 2.5% of the value of the Subordinated Debt Capital
Infusion Transaction
|
||
|
Senior
Debt Capital Infusion
(including
all debt
senior to subordinated debt capital and
equity
capital,
including lines of credit or
other similar credit facilities)
|
Cash
Portion:
2.0%
of Consideration and/or committed
funds
|
Notwithstanding
the foregoing, if the parties identified in Schedule B as of the date
hereof,
invests in the Company as part of a Capital Infusion Transaction, BPC's fee
with
respect
to such party will be as outlined in Schedule B.
If
the
Company pursues an M&A Transaction transaction during the term of this
Agreement, then the Company and BPC will negotiate in good faith a separate
engagement letter reflecting market terms for such services,
Any
Capital Infusion Transaction or M&A Transaction conducted by the Company
shall be
individually referred to as a Transaction. Each Capital Infusion Transaction
Fee
and M&A
Transaction Fee shall be referred to as a "Transaction Fee" and together
the
"Transaction Fees."
The
Transaction Fee shall be payable promptly upon consummation of any Transaction
and
will
be wired to BPC at the closing of the transaction, except that to the extent
the
Consideration in respect thereof may be increased by contingent payments
(including additional
purchases of securities of the Company by a third party), the portion of
BPC's
fees
relating thereto shall be calculated and paid as and when such contingent
payments are
made
without regard to any termination or expiration of this Agreement. BPC, at
its
option,
may elect to receive up to 30% of the Transaction Fee in the Company's
securities
at the same terms such securities were sold to investors in the
Transaction.
2
3)
Definitions:
"Capital
Infusion Transaction" means in one or more related Transactions which, directly
or indirectly, results in (i) the purchase or sale of debt or equity securities
of the Company or a third
party that does not result in the sale of 51% or more of the outstanding
voting
securities of
the
Company or a third party, a subsidiary or a related affiliate or (ii) a firm
commitment, that resulted from a request by the Company for BPC to pursue
such a
commitment, from BPC, its affiliates, or a third party to purchase or sell
newly
issued debt or equity securities of the Company, a subsidiary or a related
affiliate, including, but not limited to, committed but undrawn credit
facilities.
"M&A
Transaction" means one or more related Transactions (a) is not a Capital
Infusion Transaction
(as defined above) and (b) which, directly or indirectly results in (i) the
acquisition
by the Company of all or any part of the existing capital stock of a 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 a 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 recapitalization, restructuring,
merger or
consolidation (including any such transaction in which any third party is
the
surviving entity)
or any similar transaction or (iii) any partnership, joint or collaborative
venture, strategic
alliance or similar transaction.
"Consideration"
in a Transaction means, with respect to such Transaction, the total amount
paid
or payable (whether in cash, securities, employment contracts, "earn-out"
agreements, non-compete agreements, severance agreements, management or
consulting agreements or otherwise),
directly or indirectly, upon the consummation of or otherwise in connection
with
such
Transaction, together with (i) all amounts paid or payable in connection
with
stock options, phantom equity plans or other securities rights, (ii)
liabilities, including all debt and guarantees assumed, refinanced or
extinguished and (iii) the aggregate redemption price or liquidation
preference of any preferred stock of the acquired company that, as a result
of
such Transaction,
is redeemed or becomes preferred stock of the acquiring company, as the case
may
be. In the event that the Consideration received in a Transaction is paid
or
payable in whole or in part in the form of securities or other property, the
value of such securities or other
property for purposes of calculating the Consideration for such Transaction
shall be (1) the
closing bid price, in the case of publicly traded securities and (ii) the
fair
market value as the parties hereto shall mutually agree (or, in the event
the
parties hereto cannot agree, as determined
by an independent valuation expert jointly and in good faith selected by
the
parties
hereto) in the case of contracts or unquoted securities, in each case calculated
as of the
business day immediately preceding the announcement of the
Transaction.
"Warrants"
issued to BPC or its assignees as part of any Capital Infusion Transaction
fee
shall
have the same terms as the warrants issued to investors in such Capital
Infusion_ Transaction.
If no warrants are issued to investors as part of any Capital Infusion
Transaction,
then the Warrants issued BPC shall have terms consistent with the warrants
issued
by
the Company in its recent prior Capital Infusion Transaction.
4)
Expenses
and Payment Terms:
In
addition to the fees described above and whether or not a
Transaction occurs, the Company shall reimburse BPC for its reasonable
out-of-pocket expenses
incurred in connection with BPC's services hereunder or the subject matter
hereof, including,
without limitation, legal, accounting, computer and information databases,
due
diligence, background investigations, "Blue Sky" filings, marketing, "road
show", travel and entertainment, printing and mailing, any escrow fees, and
internal administrative expenses. Reimbursement by the Company of BPC's
documented out-of-pocket expenses associated with providing its services
hereunder will occur on a regular monthly basis. The Company agrees to reimburse
BPC within 15 days of receipt of reimbursable expense invoices.
In
the
event that the Transaction Fee due to BPC is not paid within 10 days of its
due
date or Expenses
or Monthly Retainer Fee are not paid within 30 days from the invoice date,
BPC
will
be
entitled to receive an additional monthly fee equal to 5%, or the highest
rate
allowable by law, of the amounts past due for every thirty days the balance
remains outstanding.
In addition the Company agrees to pay for all legal fees associated with
collecting
any and all fees due to BPC.
5)
Indemnification:
In
connection with engagements such as this, it is BPC's firm policy to
receive
indemnification. The Company agrees to the provisions with respect to BPC's
indemnity
and other matters set forth in Schedule A, which is incorporated by reference
into this
Agreement.
6)
Conflicts;
Independent Contractor: The
Company acknowledges that BPC and its affiliates
may have and may continue to have investment banking and other relationships
with
parties other than the Company, pursuant to which BPC may acquire information
of
interest to the Company. BPC shall have no obligation to disclose such
information to the Company or to use such information in connection with
any
contemplated Transaction.
The
relationship between BPC and the Company shall be that of advisor and client.
BPC is an independent contractor and this agreement shall not be deemed in
any
way to establish a joint
venture between BPC and the Company or as creating a partnership or similar
relationship.
BPC will provide its financial advice, written or oral, exclusively for the
information
of the Company's Board of Directors and senior management, who will make
all
decisions
regarding whether to engage in any Transaction. BPC may engage its own
sub-placement
agents, independent contractors and/or consultants to assist BPC in conducting
the Transaction.
7)
USA
Patriot Act Notice:
The
Company acknowledges that in order for BPC to comply with the
requirements under Title III of the Uniting and Strengthening America by
Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA Patriot
Act")
(Public Law 107-56), the Company must provide BPC with certain information
or
supporting documentation (collectively "Documentation") at the time of execution
of this agreement. BPC is required by the USA Patriot Act to verify and record
any Documentation provided by the Company to validate the Company's identity.
Documentation that may be requested
from the Company may include, but is not limited to, a Federal Employer
Identification
Number (FEIN), a Certificate of Good Standing to validate the Company's
corporate existence, a Certificate of Incumbency to authenticate the management
of the Company, and other government issued certified documents to validate
the
Company's authorization to conduct business.
3
8)
Entire
Agreement: Amendments: Survival:
This
Agreement constitutes the entire agreement of the parties with respect to
BPC's
engagement and supersedes all prior negotiations and understandings of the
parties hereto with respect to the subject matter hereof.
This Agreement may not be amended or modified except in writing signed by
each
party
hereto. The provisions of Sections 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 13 and
14
shall survive any
termination or expiration of BPC's engagement hereunder. This Agreement shall
be
binding upon, and inure solely to the benefit of, BPC and the Company, and
all
of their respective heirs, executors, administrators, and
successors.
9)
Representations
and Warranties: Accuracy of Information; Interests of
Others:
The
Company will furnish to BPC any information concerning the Company, including
its subsidiaries
and affiliates, that BPC reasonably deems appropriate, and will provide BPC
access
to
its officers, directors, accountants, counsel and other advisors. All such
information
concerning the Company is and will be true and accurate in all material
respects, and
does
not and will not as of its date, and will not as supplemented or amended
as of
the date
of
the closing of any Transaction, contain any untrue statement of a material
fact
or omit to
state
a material fact necessary in order to make the statements therein not misleading
in light
of
the circumstances under which such statements are or were made. The Company
acknowledges
and agrees that BPC will be using and relying upon such information supplied
by
the
Company and other publicly available information concerning the Company,
without
any
independent investigation or verification thereof or any independent appraisal
by BPC of the
Company or its business or assets. The Company further represents and warrants
that no broker,
representative or other person has an interest in compensation due BPC
hereunder.
10)
Exclusivity:
The
Company acknowledges that BPC's engagement hereunder is exclusive. Accordingly,
the Company agrees that it will not, and it will not permit any stockholder,
affiliate
or advisor, to engage any other person to perform any financial or similar
consulting services
with respect to any Transaction without the prior express written consent
of
BPC. In the
event
that the Company or its stockholders, affiliates or advisors are contacted
by
any Person
concerning a potential Transaction, the Company agrees to promptly inform
BPC of
such
inquiry, including all relevant details thereof. BPC acknowledges that the
Company has an
existing relationship with Objective Equity LLC, who may play a role in the
Capital Infusion
Transaction, to be mutually agreed upon by BPC and the Company. The Company
shall
(i)
inform Objective Equity LLC that it has engaged BPC to act as its financial
advisor and
consultant in connection with a possible capital raising transaction and
(ii)
exert its reasonable
best efforts to have Objective Equity LLC coordinate its activities with
respect
to the
contemplated Capital Infusion Transaction with BPC.
11)
Confidentiality:
Except
as otherwise required by law, the terms of this Agreement and the advice
provided hereunder shall not be disclosed to any third party, with the exception
of potential
investors in the Transaction as part of their due diligence efforts, without
the
prior written
consent of both parties to this Agreement. BPC 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 BPC shall accept full
responsibility
in compliance with this Section 11) 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 BPC or information that
BPC
may
be
required by law to disclose. The Company acknowledges that BPC's advice is
for
the
use
and information of the Company and only in considering the matters to which
this
Agreement relates. Such advice may not be relied on by any other Person,
including, without limitation, any security holder, employee or creditor
of the
Company and may not be used or relied on for any other purpose. Without
limitation of the foregoing, such advice is for the purpose
of assisting the Company and does not constitute a recommendation to any
stockholder
of the Company concerning actions that such stockholder might or should take
in
connection
with any proposed Transaction.
4
12)
Advertising:
BPC
shall have the right to place advertisements or other public announcements
in financial and other newspapers and journals at its own expense describing
its
services to the Company hereunder. Any such advertisement of public announcement
shall
be
subject to the approval of the Company, which approval shall not be unreasonably
withheld;
provided, however, that following the closing of a Transaction, BPC shall
be
entitled
to describe its services to the Company in its own newsletter or in other
public
relations
arid promotional materials, without the approval of the Company. In addition,
in
any
press
release associated with the Transaction the Company agrees to mention BPC
as its
exclusive financial advisor and describe BPC's services to the Company
hereunder.
13)
Headings:
Headings
are provided solely for convenience and are not intended to be a part of
this
Agreement.
14)
Governing
Law:
This
Agreement shall be governed by, and construed in accordance with, the law
of the
State of New York without giving effect to principles governing conflicts
of
law.
If
any provision of this agreement or the application thereof to any person
or
circumstance
shall be determined to be invalid or unenforceable, the remaining provisions
of
this Agreement or the application of such provisions to persons or circumstances
other than those to which it is held invalid or unenforceable shall not be
affected thereby and shall be valid and enforceable to the fullest extent
permitted by law. Furthermore, Telkonet, Inc. irrevocably submits to the
exclusive jurisdiction of the State of New York, City of New York in connection
with any dispute that arises under this Agreement between the
parties.
5
If
the
foregoing is in accordance with your understanding, kindly sign where indicated
below and return an executed copy to us.
|
Very
truly yours
|
Accepted
and agreed to as of the date first above written:
|
|
|
BRYANT
PARK CAPITAL, INC.
|
TELKONET,
INC.
|
|
|
By:
/s/ signature
|
By:
/s/ signature
|
|
|
Title:
CEO
|
||
|
Jurisdiction
of Organization:
|
||
|
Federal
Tax ID#: 00-00-00-000
|
||
|
Location
of Principal Place of Business:
|
||
|
Germantown,
MD
|
6
SCHEDULE
A
INDEMNIFICATION
AND CONTRIBUTION
This
Schedule A is a part of and is incorporated into that certain letter agreement
(together
with this Schedule A, the "Agreement"), dated December 19, 2006 by and between
the
Company and BPC. Terms not otherwise defined herein have the meaning ascribed
to
them
in
the main body of this Agreement.
1.
By
the
Company.
The
Company agrees to indemnify and hold harmless BPC and its Affiliates, and
the
respective directors, officers, agents, consultants and employees of BPC
and its
Affiliates (BPC and each such entity or person, a "BPC Indemnified Person")
from and against any losses, claims, damages, judgments, assessments,
costs,
legal fees and other liabilities (collectively "Liabilities"), and will
reimburse each
BPC
Indemnified Person for all fees and expenses (including the reasonable fees
and
expenses of counsel) (collectively, "Expenses") as they are incurred in
investigating,
preparing, pursuing or defending any claim, action, proceeding or investigation,
whether or not in connection with pending or threatened litigation, regulatory
proceeding or arbitration and whether or not any BPC Indemnified Person
is
a
party (collectively, "Actions"), arising out of or in connection with advice
or
services
rendered or to be rendered by any BPC Indemnified Person pursuant to this
Agreement, the Transactions contemplated hereby (including but not limited
to
any untrue
statement of a material fact on the part of the Company in connection with
the
Transaction
or any related Memorandum (the "Memorandum") or the omission to state
in
the Memorandum a material fact required to be stated therein or necessary
to
make the statements therein, in light of circumstances under which they were
made, not misleading) or any BPC Indemnified Person's actions or inactions
in
connection with any such advice, actions, inactions, services or Transactions;
provided that the Company
will not be responsible and shall be reimbursed by BPC for any Liabilities
or
Expenses of any BPC Indemnified Person that are determined by a judgment
of a
court of competent jurisdiction which is no longer subject to appeal or further
review to have resulted from such BPC Indemnified Person's gross negligence
in
connection with
any
of the advice, actions, inactions, services or transactions referred to above,
or
to the
extent that any such Liabilities or Expenses arises out of or are based upon
an
untrue statement of a material fact or omission made in reliance upon and
in
conformity
with written information furnished to the Company by BPC specifically
for
use
in the preparation of the Memorandum. The Company also agrees to reimburse
each BPC Indemnified Person for all Expenses as they are incurred in
connection
with enforcing such BPC Indemnified Person's rights under this Agreement
(including, without limitation, its rights under this Schedule A).
7
2.
Procedure.
Upon
receipt by a BPC Indemnified Person of actual notice of an Action against
such BPC Indemnified Person with respect to which indemnity may be sought
under
this Agreement, such BPC Indemnified Person shall promptly notify the
Company
(an "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 BPC Indemnified
Person,
assume the defense of any such Action including the retention of counsel
reasonably
satisfactory to the BPC Indemnified Person. Any BPC 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 BPC 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 BPC
Indemnified Person and the Indemnifying Party, and such BPC 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 BPC 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 BPC Indemnified Person is a party thereto) unless such settlement,
compromise, consent or termination includes an unconditional release of each
BPC
Indemnified Person from all Liabilities arising out of such Action.
3.
Contribution.
In the
event that the foregoing indemnity is unavailable to a BPC Indemnified
Person other than in accordance with this Agreement, the Company shall
contribute
to the Liabilities and Expenses paid or payable by such BPC Indemnified Person
in such proportion as is appropriate to reflect (1) the relative benefits
to the
Company
and its shareholders, on the one hand, and to BPC, on the other hand, of
the
matters
contemplated by this Agreement or (ii) if the allocation provided by the
immediately
preceding clause is not permitted by applicable law, not only such. relative
benefits but also the relative fault of the Company, on the one hand, and
BPC,
on
the
other hand, in connection with the matters as to which such Liabilities or
Expenses
relate, as well as any other relevant equitable considerations. For purposes
of
this
paragraph, the relative benefits to the Company and its shareholders, on
the
one
hand,
and to BPC, on the other hand, of the matters contemplated by this Agreement
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 or
the
Company's shareholders, as the case may be, in the Transaction or Transactions
that are within the scope of this Agreement, whether or not any such
Transaction
is consummated, bears to (b) the fees paid to BPC under this Agreement.
The
relative fault of the Company on the one hand, and the BPC on the other hand,
will
be
determined with reference to, among other things, whether the untrue or
alleged
untrue statement of a material fact or the omission to state a material fact
is
relative to information supplied by the Company or BPC, and with reference
to
each of
the
Company's and BPC's relative intent, knowledge, access to information and
opportunity
to correct or prevent such statement or omission. The Company and BPC agree
that
it would not be just and equitable if contribution pursuant to this paragraph
were determined by pro rata allocation or by any other method of allocation
that
does not
take
into account the equitable considerations referred to in this
paragraph.
8
4.
Other
Liabilities.
The
Company also agrees that no BPC Indemnified Person shall have
any
liability (whether direct or indirect, in contract or tort or otherwise)
to the
Company or any of its affiliates, directors, officers, agents, advisors,
stockholders, creditors
or interest holders for or in connection with advice or services rendered
or to
be
rendered by any BPC Indemnified Person pursuant to this Agreement, the
Transactions contemplated hereby or any such BPC Indemnified Person's actions
or
inactions in connection with any such advice, services or Transactions. In
no
event, regardless of any legal theory advanced, shall any BPC Indemnified
Person
be liable under this Agreement for any consequential, indirect, incidental
or
special damage of any nature.
5.
Effective.
The
reimbursement, indemnity and contribution obligations of the Company
and BPC set forth herein shall apply to any modification of this Agreement
and
shall remain in full force and effect regardless of any termination of, or
the
completion of any Indemnified Person's services under or in connection with,
this Agreement.
9
SCHEDULE
B
EXEMPTIONS
TO TABLE A AS MUTUALLY AGREED UPON B BOTH PARTIES
|
Enable
Capital Management
|
BPC
Fees:
|
|
|
Cash
Portion:
|
2.0%
|
|
|
Warrant
Portion:
|
2.0%
|
|
|
Other
Parties Introduced by
|
BPC
Fees:
|
|
|
Objective
Equity LLC
|
Cash
Portion:
|
2.0%
|
|
Warrant
Portion:
|
2.0%
|
|
|
Members
of the Company's Board of
|
BPC
Fees:
|
|
|
Directors
or Company's Executive
|
Cash
Portion:
|
0.0%
|
|
Management
|
Warrant
Portion:
|
0.0%
|
10
