THIS DISTRIBUTORSHIP AGREEMENT (this “Agreement”) is made and entered into as of the 4th day of March, 2011 (the “Effective Date”), by and between DYNAMIC RATINGS, INC. , a Wisconsin corporation ("Manufacturer") and TELKONET, INC. , a Utah corporation ("Distributor").
Manufacturer and Distributor desire to confirm the terms of the relationship by which Manufacturer sells and Distributor purchases and resells Series 5 Power Line Carrier products (the “Products”) manufactured by Manufacturer.
Manufacturer and Distributor both desire that this Agreement result in a mutually profitable and enduring business relationship and recognize that the attainment of these objectives requires each of them to assume certain responsibilities.
NOW, THEREFORE , in consideration of the promises and covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows:
Manufacturer appoints Distributor, and grants Distributor the right, to sell the Products worldwide for Non-Utility Applications (defined below). This is not an exclusive agreement and Manufacturer reserves the right to appoint other distributors who may sell the Products. For the purposes of this Agreement, “Utility Applications” shall mean installations where the product is used to transmit information for monitoring and/or control of electrical power apparatus. The owners of these utility applications may be investor owned utilities, public power utilities, independent power producers, government installations or industrial clients who own, operate or manage their own power substations and/or generation. Non-Utility Applications shall mean any other installation where the transmitted data is for something other than the monitoring or control of electrical power apparatus.
During the term of this Agreement and any renewals of this Agreement, Distributor shall notify Manufacturer in writing of its intent to offer for sale or sell any product competitive with the Products. The notice shall be given at least 30 days prior to Distributor offering for sale any competitive product.
Upon at least 30 days written notice to Distributor, Manufacturer may, at its sole option, make additions to or eliminations from the Products which
Distributor is authorized to sell and service under this Agreement. The written notice shall constitute an amendment to this Agreement.
Manufacturer reserves the right to make changes or modifications in the design or discontinue the manufacture or sale of any Products.
In addition to other rights of Manufacturer, Manufacturer reserves the right to maintain direct contacts with customers and to make:
Sales of the Products to any customers for Utility or Non-Utility Applications;
Sales of the Products to original equipment manufacturers or to other manufacturers for incorporation in, or resale with, products not manufactured by Manufacturer;
Deliveries on a no-charge or replacement basis under warranty or in satisfaction of customer claim.
TERM OF AGREEMENT. Subject to the provisions for termination as provided in Section 11 below, the initial term of this Agreement shall be for a period from the Effective Date through March 31, 2014. This Agreement shall be automatically renewed for 1 year terms on terms and conditions identical to those terms and conditions contained in this Agreement, unless written notice of termination is provided by either party at least 60 days prior to the end of the initial term or any 1 year renewal.
PROMOTION BY DISTRIBUTOR. In the fulfillment of its obligations under this Agreement, Distributor agrees to do, without limitation, the following:
To actively promote through Distributor's own advertising, service and sales promotion activities, the purchase and use of the Products by customers;
To purchase, use and recommend the Products for normal or standard applications only, and to consult with Manufacturer regarding any non-standard applications;
To organize and maintain a sales and service organization that shall include trained sales personnel;
To maintain adequate financial records relating to the sale of the Products, in accordance with guidelines provided by Manufacturer. Upon Manufacturer's reasonable request, Distributor shall provide reports of financial information, inventory data, operating data and credit data related specifically to the Products as specified by Manufacturer, and it shall permit Manufacturer's officials or agents, to examine Distributor's financial
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and sales records related specifically to the Products upon reasonable notice; and
To be responsible for and to pay any and all sales tax, excise taxes or any other governmental or municipal charges imposed or levied based upon sales, storage, use or delivery of the Products to or by Distributor and to reimburse Manufacturer for any taxes, levies or assessments which Manufacturer may be required to pay or to reimburse to others.
SUPPORT BY MANUFACTURER.
Manufacturer shall develop and maintain a Tier 2 support system for the Products.
Advertising, sales promotion and sales campaign materials shall be offered from time to time by Manufacturer to Distributor at no cost to Distributor.
RELATIONSHIP OF MANUFACTURER AND DISTRIBUTOR. Manufacturer and Distributor acknowledge and agree that Distributor is an independent contractor, and not an employee, of Manufacturer. As an independent contractor, Distributor and its agents and employees are not agents or legal representatives of Manufacturer and have no authority to commit or bind Manufacturer in any manner.
PRICING. Products pricing to Distributor shall be based upon a gross margin of sales by Distributor split of 50-50 between Manufacturer and Distributor. Manufacturer shall provide a gross price list for all Products to Distributor following each production batch. With each purchase order from Distributor to Manufacturer, Manufacturer will be provided with the end customer purchase order to Distributor (establishing a sales price) and a purchase order from Distributor to Manufacturer reflecting the 50-50 sharing of the total sales margin. This pricing structure shall be utilized for the duration of this Agreement.
ADDITIONAL SALES INCENTIVE. Manufacturer will provide Distributor with an additional sales incentive (the “Sales Incentive”) for sales of Products by Distributor through March 31, 2013, calculated as follows:
25% of Manufacturer’s sales revenues of Products to Distributor from the date of this Agreement through March 31, 2012;
25% of Manufacturer’s sales revenues of Products to Distributor from April 1, 2012 through March 31, 2013;
The total value of the Sales Incentive, when combined with Consulting Compensation under the Consulting Agreement, dated the same date as this Agreement, shall not exceed $700,000.00; and
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The Sales Incentive amounts shall be calculated and applied by Manufacturer to the Promissory Note of Distributor to Manufacturer, dated the same date as this Agreement, in the original principal amount of $700,000, on June 30, 2012 and June 30, 2013.
Products may be branded as “Telkonet” or as “Dynamic Ratings” as preferred by Distributor and indicated in Distributor order to Manufacturers.
All sales from Manufacturer to Distributor shall be net 60 days through March 31, 2013. Thereafter, sales shall be net 30 days.
Manufacturer shall maintain a supply of Products to Distributor with at least 1 month’s average supply volume (based upon the prior year’s monthly average) available at any time. Any large order projects (those exceeding 2 month’s average supply, based upon the prior year’s monthly average) will require Distributor to provide a forecast to ensure adequate supply planning.
Distributor’s sales revenue from the sale of Products for Non-Utility Applications shall total at least $250,000.00 per calendar year (pro-rated for the partial 2011 year). Notwithstanding the foregoing, and to facilitate Distributor’s establishment of the distributorship, Distributor sales revenue for the first 3 years of this Agreement shall average at least $250,000 per year, calculated at the end of the third year of the term of this Agreement, and prorated for the partial 2011 year.
Manufacturer reserves the right to make alterations, additions to and eliminations from the price lists by written notice to Distributor (which may be in the form of revisions to the price lists or by price bulletins) which shall be effective only with respect to orders received by Manufacturer after t