REGISTRATION RIGHTS AGREEMENT
Exhibit
10.2
This
Registration Rights Agreement (this “Agreement”) is made and
entered into as of November 16, 2009 by and among Telkonet, Inc., a Utah
corporation (the “Company”), and the several
purchasers signatory hereto (each a “Purchaser” and collectively,
the “Purchasers”).
This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of the
date hereof between the Company and each Purchaser (the “Purchase
Agreement”).
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and each of the Purchasers agree as
follows:
1. Definitions. Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have
the following meanings:
“Advice” has the meaning set
forth in Section
6(d).
“Affiliate” means, with
respect to any person, any other person which directly or indirectly controls,
is controlled by, or is under common control with, such person.
“Agreement” has the meaning
set forth in the Preamble.
“Business Day” means a day,
other than a Saturday or Sunday, on which banks in New York City are open for
the general transaction of business.
“Closing” has the meaning set
forth in the Purchase Agreement.
“Closing Date” has the meaning
set forth in the Purchase Agreement.
“Commission” means the
Securities and Exchange Commission.
“Common Stock” means the
common stock of the Company, par value $0.001 per share, and any securities into
which such common stock may hereinafter be reclassified.
“Company” has the meaning set
forth in the Preamble.
“Effective Date” means the
date that the Registration Statement filed pursuant to Section 2(a) is first
declared effective by the Commission.
“Effectiveness Period” has the
meaning set forth in Section
2(b).
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Filing Deadline” means, with
respect to the Initial Registration Statement required to be filed pursuant to
Section 2(a),
the date within 5 Business Days following the closing of the transactions
contemplated by Section 4.13 of the Purchase Agreement; provided, however, that if the
Filing Deadline falls on a day that the Commission is closed for business, the
Filing Deadline shall be extended to the next Business Day on which the
Commission is open for business.
“Holder” or “Holders” means the holder or
holders, as the case may be, from time to time of Registrable
Securities.
“Indemnified Party” has the
meaning set forth in Section
5(c).
“Indemnifying Party” has the
meaning set forth in Section
5(c).
“Initial Registration
Statement” means the initial Registration Statement filed pursuant to
Section 2(a) of
this Agreement.
“Losses” has the meaning set
forth in Section
5(a).
“New Registration Statement”
has the meaning set forth in Section
2(a).
“Person” means an individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
“Piggyback Registration” has
the meaning set for in Section
2A(a).
“Piggyback Registration
Statement” has the meaning set forth in Section
2A(a).
“Principal Market” means the
Trading Market on which the Common Stock is primarily listed on and quoted for
trading.
“Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced or
threatened.
“Prospectus” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
“Purchase Agreement” has the
meaning set forth in the Recitals.
“Purchaser” or “Purchasers” has the meaning
set forth in the Preamble.
“Registrable Securities” means
all of (i) the Shares, (ii) the Warrant Shares and (iii) any securities issued
or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing, provided, that the Holder
has completed and delivered to the Company a Selling Stockholder Questionnaire;
and provided, further,
that with respect to a particular Holder, such Holder’s Shares and Warrant
Shares shall cease to be Registrable Securities upon the earliest to occur of
the following: (A) a sale pursuant to a Registration Statement or Rule 144 under
the Securities Act (in which case, only such security sold by the Holder shall
cease to be a Registrable Security); or (B) becoming eligible for resale by the
Holder under Rule 144 without the requirement for the Company to be in
compliance with the current public information required thereunder and without
volume or manner-of-sale restrictions, pursuant to a written opinion letter to
such effect, addressed, delivered and acceptable to the Transfer
Agent.
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“Registration Statements”
means any one or more registration statements of the Company filed under the
Securities Act that covers the resale of any of the Registrable Securities
pursuant to the provisions of this Agreement (including without limitation the
Initial Registration Statement, the New Registration Statement and any Remainder
Registration Statements), amendments and supplements to such Registration
Statements, including post-effective amendments, all exhibits and all material
incorporated by reference or deemed to be incorporated by reference in such
Registration Statements.
“Remainder Registration
Statement” has the meaning set forth in Section
2(a).
“Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“Rule 415” means Rule 415
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“Rule 424” means Rule 424
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“SEC Guidance” means (i) any
publicly-available written or oral guidance, comments, requirements or requests
of the Commission staff and (ii) the Securities Act.
“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
“Selling Stockholder
Questionnaire” means a questionnaire in the form attached as Annex B hereto, or
such other form of questionnaire as may reasonably be adopted by the Company
from time to time.
“Shares” means the shares of
Common Stock issued or issuable to the Purchasers pursuant to the Purchase
Agreement.
“Trading Day” means (i) a day
on which the Common Stock is listed or quoted and traded on its Principal Market
(other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed
on a Trading Market (other than the OTC Bulletin Board), a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization
or agency succeeding to its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i), (ii) and
(iii) hereof, then Trading Day shall mean a Business Day.
“Trading Market” means
whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.
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“Warrants” means the Warrants
issued pursuant to the Purchase Agreement.
“Warrant Shares” means the
shares of Common Stock issued or issuable upon exercise of the
Warrants.
2. Registration.
(a) On or
prior to the Filing Deadline, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all of the
Registrable Securities not already covered by an existing and effective
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 or, if Rule 415 is not available for offers and sales of the
Registrable Securities, by such other means of distribution of Registrable
Securities as the Holders may reasonably specify (the “Initial Registration
Statement”). The Initial Registration Statement shall be on
Form S-3 (except if the Company is then ineligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
such other form available to register for resale the Registrable Securities as a
secondary offering) subject to the provisions of Section 2(d) and
shall contain (except if otherwise required pursuant to written comments
received from the Commission upon a review of such Registration Statement) the
“Plan of Distribution” section attached hereto as Annex A (which may be
modified to respond to comments, if any, provided by the
Commission). Notwithstanding the registration obligations set forth
in this Section
2, in the event the Commission informs the Company that all of the
Registrable Securities cannot, as a result of the application of Rule 415, be
registered for resale as a secondary offering on a single registration
statement, the Company agrees to promptly (i) inform each of the holders thereof
and use its commercially reasonable efforts to file amendments to the Initial
Registration Statement as required by the Commission and/or (ii) withdraw the
Initial Registration Statement and file a new registration statement (a “New Registration Statement”),
in either case covering the maximum number of Registrable Securities permitted
to be registered by the Commission, on Form S-3 or such other form available to
register for resale the Registrable Securities as a secondary offering; provided, however, that prior
to filing such amendment or New Registration Statement, the Company shall be
obligated to use its commercially reasonable efforts to advocate with the
Commission for the registration of all of the Registrable Securities in
accordance with the SEC Guidance, including without limitation, the Manual of
Publicly Available Telephone Interpretations D.29. Notwithstanding any other
provision of this Agreement, if any SEC Guidance sets forth a limitation of the
number of Registrable Securities permitted to be registered on a particular
Registration Statement as a secondary offering (and notwithstanding that the
Company used diligent efforts to advocate with the Commission for the
registration of all or a greater number of Registrable Securities), unless
otherwise directed in writing by a Holder as to its Registrable Securities, the
number of Registrable Securities to be registered on such Registration Statement
will first be reduced by Registrable Securities not acquired pursuant to the
Purchase Agreement (whether pursuant to registration rights or otherwise),
second by Registrable Securities represented by holders of Warrant Shares
(applied, in the case that some Warrant Shares may be registered, to the Holders
on a pro rata basis based on the total number of unregistered Warrant Shares
held by such Holders) and third by Registrable Securities represented by Shares
(applied, in the case that some Shares may be registered, to the Holders on a
pro rata basis based on the total number of unregistered Shares held by such
Holders, subject to a determination by the Commission that certain Holders must
be reduced first based on the number of Shares held by such
Holders). In the event the Company amends the Initial Registration
Statement or files a New Registration Statement, as the case may be, under
clauses (i) or (ii) above, the Company will use its commercially reasonable
efforts to file with the Commission, as promptly as allowed by Commission or SEC
Guidance provided to the Company or to registrants of securities in general, one
or more registration statements on Form S-3 or such other form available to
register for resale those Registrable Securities that were not registered for
resale on the Initial Registration Statement, as amended, or the New
Registration Statement (the “Remainder Registration
Statements”).
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(b) The
Company shall use its commercially reasonable efforts to cause each Registration
Statement to be declared effective by the Commission as soon as practicable
(including filing with the Commission a request for acceleration of
effectiveness in accordance with Rule 461 promulgated under the Securities Act),
and shall use its commercially reasonable efforts to keep each Registration
Statement continuously effective under the Securities Act until the earlier of
(i) such time as all of the Registrable Securities covered by such Registration
Statement have been publicly sold by the Holders or (ii) the date that all
Registrable Securities covered by such Registration Statement may be sold by
non-affiliates without volume or manner-of-sale restrictions pursuant to
Rule 144, without the requirement for the Company to be in compliance with
the current public information requirement under Rule 144 as determined by
counsel to the Company pursuant to a written opinion letter to such effect,
addressed and reasonably acceptable to the Company’s transfer agent (the “Effectiveness
Period”). The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 P.M. New York City time on
a Trading Day. The Company shall promptly notify the Holders via
facsimile or electronic mail of a “.pdf” format data file of the effectiveness
of a Registration Statement on the same Trading Day that the Company
telephonically confirms effectiveness with the Commission, which date of
confirmation shall initially be the date requested for effectiveness of such
Registration Statement. The Company shall, by 9:30 A.M. New York City time on
the first Trading Day after the Effective Date, file a final Prospectus with the
Commission, as required by Rule 424(b).
(c) Each
Holder agrees to furnish to the Company a completed Selling Stockholder
Questionnaire not more than five (5) Trading Days following the date of this
Agreement. At least ten (10) Trading Days prior to the first anticipated filing
date of a Registration Statement for any registration under this Agreement, the
Company will notify each Holder of the information the Company requires from
that Holder other than the information contained in the Selling Stockholder
Questionnaire, if any, which shall be completed and delivered to the Company
promptly upon request and, in any event, within three (3) Trading Days prior to
the applicable anticipated filing date. Each Holder further agrees
that it shall not be entitled to be named as a selling securityholder in the
Registration Statement or use the Prospectus for offers and resales of
Registrable Securities at any time, unless such Holder has returned to the
Company a completed and signed Selling Stockholder Questionnaire and a response
to any requests for further information as described in the previous sentence.
If a Holder of Registrable Securities returns a Selling Stockholder
Questionnaire or a request for further information, in either case, after its
respective deadline, the Company shall use its commercially reasonable efforts
to take such actions as are required to name such Holder as a selling security
holder in the Registration Statement or any pre-effective or post-effective
amendment thereto and to include (to the extent not theretofore included) in the
Registration Statement the Registrable Securities identified in such late
Selling Stockholder Questionnaire or request for further information. Each
Holder acknowledges and agrees that the information in the Selling Stockholder
Questionnaire or request for further information as described in this Section 2(c) will be
used by the Company in the preparation of the Registration Statement and hereby
consents to the inclusion of such information in the Registration
Statement.
(d) In the
event that Form S-3 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall (i)
register the resale of the Registrable Securities on another appropriate form
reasonably acceptable to the Holders and (ii) undertake to register the
Registrable Securities on Form S-3 promptly after such form is available, provided that the Company
shall maintain the effectiveness of the Registration Statement then in effect
until such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the Commission.
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2A. Piggyback
Registrations.
(a) Right to
Piggyback. Whenever the Company proposes to publicly sell any
of its common equity securities pursuant to a registration statement (a “Piggyback Registration
Statement”) under the Securities Act (other than a registration statement
on Form S-8 or on Form S-4 or any similar successor forms thereto), for its own
account in a fully underwritten firm commitment registered offering (a “Piggyback
Registration”), the Company shall give prompt written notice, in any
event within five (5) Business Days of the Company’s decision to effect a sale
or registration, to the Holders of its intention to effect such sale or
registration and, subject to Section 2A(b), shall include in such registration
all Securities with respect to which the Company has received a written request
from the Holders for inclusion therein within ten (10) days after the receipt of
the Company’s notice. The Company may postpone or withdraw the filing
or the effectiveness of a Piggyback Registration at any time in its sole
discretion.
(b) Priority on Piggyback
Registrations. If the managing underwriter advises the Company
in writing that in its opinion the number of securities requested to be included
in a Piggyback Registration exceeds the number that can be sold in such offering
without having an adverse effect on such offering, including the price at which
such securities can be sold, then the Company shall include in such registration
the maximum number of shares that such underwriter advises can be so sold
without having such effect, allocated (i) first, to the securities the Company
proposes to sell, (ii) second, to the Registrable Securities requested to be
included therein by the Holders, and (iii) third, among other securities
requested to be included in such registration by other security holders of the
Company on such basis as such holders may agree among themselves and the
Company.
3. Registration
Procedures
In
connection with the Company's registration obligations pursuant to Section
2 hereunder, the
Company shall:
(a) Not less
than five (5) Trading Days prior to the filing of each Registration Statement
and not less than one (1) Trading Day prior to the filing of any related
Prospectus or any amendment or supplement thereto (except for Annual Reports on
Form 10-K, and Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
and any similar or successor reports), (i) furnish to the Holder copies of such
Registration Statement, Prospectus or amendment or supplement thereto, as
proposed to be filed, which documents will be subject to the review of such
Holder (it being acknowledged and agreed that if a Holder does not object to or
comment on the aforementioned documents within such five (5) Trading Day or one
(1) Trading Day period, as the case may be, then the Holder shall be deemed to
have consented to and approved the use of such documents) and (ii) use
commercially reasonable efforts to cause its officers and directors, counsel and
independent registered public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of counsel to its Holders, to conduct a
reasonable investigation within the meaning of the Securities
Act. The Company shall not file any Registration Statement or
amendment or supplement thereto in a form to which a Holder reasonably objects
in good faith, provided that, the Company is notified of such objection in
writing within the five (5) Trading Day or one (1) Trading Day period described
above, as applicable.
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(b) (i) Prepare
and file with the Commission such amendments (including post-effective
amendments) and supplements, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep such Registration
Statement continuously effective as to the applicable Registrable Securities for
its Effectiveness Period; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of this
Agreement), and, as so supplemented or amended, to be filed pursuant to Rule
424; (iii) respond as promptly as reasonably practicable to any comments
received from the Commission with respect to each Registration Statement or any
amendment thereto and, as promptly as reasonably possible, provide the Holders
true and complete copies of all correspondence from and to the Commission
relating to such Registration Statement that pertains to the Holders as “Selling
Stockholders”; and (iv) comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by a Registration Statement until such time as all of such Registrable
Securities shall have been disposed of (subject to the terms of this Agreement)
in accordance with the intended methods of disposition by the Holders thereof as
set forth in such Registration Statement as so amended or in such Prospectus as
so supplemented; provided,
however, that each Purchaser shall be responsible for the delivery of the
Prospectus to the Persons to whom such Purchaser sells any of the Shares or the
Warrant Shares (including in accordance with Rule 172 under the Securities Act),
and each Purchaser agrees to dispose of Registrable Securities in compliance
with the “Plan of Distribution” described in the Registration Statement and
otherwise in compliance with applicable federal and state securities laws. In
the case of amendments and supplements to a Registration Statement which are
required to be filed pursuant to this Agreement (including pursuant to this
Section 3(b))
by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or
any analogous report under the Exchange Act, the Company shall have incorporated
such report by reference into such Registration Statement, if applicable, or
shall file such amendments or supplements with the Commission on the same day on
which the Exchange Act report which created the requirement for the Company to
amend or supplement such Registration Statement was filed.
(c) Notify
the Holders (which notice shall, pursuant to clauses (iii) through (vi) hereof,
be accompanied by an instruction to suspend the use of the Prospectus until the
requisite changes have been made) as promptly as reasonably practicable (and, in
the case of (i)(A) below, not less than one (1) Trading Day prior to such
filing) and (if requested by any such Person) confirm such notice in writing no
later than one (1) Trading Day following the day: (i)(A) when a Prospectus or
any Prospectus supplement or post-effective amendment to a Registration
Statement is proposed to be filed; (B) when the Commission notifies the Company
whether there will be a “review” of such Registration Statement and whenever the
Commission comments in writing on any Registration Statement (in which case the
Company shall provide to each of the Holders true and complete copies of all
comments that pertain to the Holders as a “Selling Stockholder” or to the “Plan
of Distribution” and all written responses thereto, but not information that the
Company believes would constitute material and non-public information); and (C)
with respect to each Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to a
Registration Statement or Prospectus or for additional information that pertains
to the Holders as “Selling Stockholders” or the “Plan of Distribution”; (iii) of
the issuance by the Commission or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; (v) of the occurrence of any event or passage of time that makes the
financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
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 case of any Prospectus, form of prospectus or supplement thereto, in
light of the circumstances under which they were made), not misleading and (vi)
of the occurrence or existence of any pending corporate development with respect
to the Company that the Company believes may be material and that, in the
determination of the Company, makes it not in the best interest of the Company
to allow continued availability of a Registration Statement or
Prospectus.
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(d) Use
commercially reasonable efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, as soon as practicable.
(e) If
requested by a Holder, furnish to such Holder, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto and all
exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission; provided, that the Company
shall have no obligation to provide any document pursuant to this clause that is
available on the Commission’s XXXXX system.
(f) Prior to
any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in connection with the registration or qualification (or exemption from the
registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep each
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by each Registration Statement; provided, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax in
any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.
(g) If
requested by a Holder, cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to the Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement
and under law, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such
Holders may reasonably request.
(h) Following
the occurrence of any event contemplated by Section 3(c), as
promptly as reasonably practicable (taking into account the Company’s good faith
assessment of any adverse consequences to the Company and its stockholders of
the premature disclosure of such event), prepare a supplement or amendment,
including a post-effective amendment, to the affected Registration Statements or
a supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, no Registration Statement nor any Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus, form of prospectus or supplement thereto, in light
of the circumstances under which they were made), not misleading. If
the Company notifies the Holders in accordance with clauses (iii) through (vi)
of Section 3(c)
above to suspend the use of any Prospectus until the requisite changes to such
Prospectus have been made, then the Holders shall suspend use of such
Prospectus. The Company will use its commercially reasonable efforts
to ensure that the use of the Prospectus may be resumed as promptly as is
practicable. The Company shall be entitled to exercise its right
under this Section
3(h) to suspend the availability of a Registration statement and
Prospectus, for a period not to exceed one hundred and twenty (120) calendar
days (which need not be consecutive days) in any 365-day period.
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(i) The
Company may require each selling Holder to furnish to the Company a certified
statement as to (i) the number of shares of Common Stock beneficially owned by
such Holder and any Affiliate thereof, (ii) any Financial Industry Regulatory
Authority (“FINRA”)
affiliations, (iii) any natural persons who have the power to vote or dispose of
the common stock and (iv) any other information as may be requested by the
Commission, FINRA or any state securities commission.
(j) The
Company shall cooperate with any registered broker through which a Holder
proposes to resell its Registrable Securities in effecting a filing with FINRA
pursuant to FINRA Rule 2710 as requested by any such Holder and the Company
shall pay the filing fee required for the first such filing within two (2)
Business Days of the request therefor.
4. Registration
Expenses. All fees and expenses incident to the Company’s
performance of or compliance with its obligations under this Agreement
(excluding any underwriting discounts and selling commissions and the legal fees
and expenses of more than one legal counsel for any Holder) shall be borne by
the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with any Trading Market on which the Common Stock
is then listed for trading, (B) with respect to compliance with applicable state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as requested by the Holders) and (C) if not previously paid
by the Company in connection with Section 3(j) above,
with respect to any filing that may be required to be made by any broker through
which a Holder intends to make sales of Registrable Securities with FINRA
pursuant to the FINRA Rule 2710, so long as the broker is receiving no more than
a customary brokerage commission in connection with such sale, (ii) the
reasonable, documented fees and expenses of one counsel to the Holders, (iii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the Holders of a majority of
the Registrable Securities included in the Registration Statement), (iv)
messenger, telephone and delivery expenses, (v) fees and disbursements of
counsel for the Company, (vi) Securities Act liability insurance, if the Company
so desires such insurance, and (vii) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit and the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder. In no
event shall the Company be responsible for any underwriting, broker or similar
fees or commissions of any Holder or, except to the extent provided for in the
Transaction Documents, any legal fees or other costs of the
Holders.
5. Indemnification.
(a) Indemnification by the
Company. The Company shall, notwithstanding any termination of
this Agreement, indemnify, defend and hold harmless each Holder, the officers,
directors, agents, partners, members, managers, stockholders, Affiliates and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, partners, members, managers, stockholders, agents
and employees of each such controlling Person, to the fullest extent permitted
by applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable costs of
preparation and investigation and reasonable attorneys' fees) and expenses
(collectively, “Losses”), as incurred, that
arise out of or are based upon (i) any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in light of the circumstances under which they were made)
not misleading, or (ii) any violation or alleged violation by the
9
Company
of the Securities Act, Exchange Act or any state securities law or any rule or
regulation thereunder, in connection with the performance of its obligations
under this Agreement, except to the extent, but only to the extent, that (A)
such untrue statements, alleged untrue statements, omissions or alleged
omissions are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and
approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that each Holder has
approved Annex
A hereto for this purpose) or (B) in the case of an occurrence of an
event of the type specified in Section
3(c)(iii)-(vi), related to the
use by a Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated and defined in
Section 6(d)
below, to the extent that following the receipt of the Advice the misstatement
or omission giving rise to such Loss would have been corrected or (C) to the
extent that any such Losses arise out of the Purchaser’s (or any other
indemnified Person’s) failure to send or give a copy of the Prospectus or
supplement (as then amended or supplemented), if required, pursuant to Rule 172
under the Securities Act (or any successor rule) to the Persons asserting an
untrue statement or alleged untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such Prospectus or supplement. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
arising from or in connection with the transactions contemplated by this
Agreement of which the Company is aware. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
an Indemnified Party (as defined in Section 5(c)) and
shall survive the transfer of the Registrable Securities by the
Holders.
(b) Indemnification by
Holders. Each Holder shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, arising out of or are
based solely upon any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus, or any form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading (i) to the extent that such untrue statements or omissions are
based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein or (ii) to the extent that such
information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and approved in writing
by such Holder expressly for use in a Registration Statement (it being
understood that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (iii) in the case of an occurrence of an event of the type
specified in Section
3(c)(iii)-(vi), to the extent
related to the use by such Holder of an outdated or defective Prospectus after
the Company has notified such Holder in writing that the Prospectus is outdated
or defective and prior to the receipt by such Holder of the Advice contemplated
in Section
6(d). In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
10
(c) Conduct of Indemnification
Proceedings. If any Proceeding shall be brought or asserted against any
Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “Indemnifying
Party”) in writing, and the Indemnifying Party shall have the right to
assume the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all reasonable fees and
expenses incurred in connection with defense thereof; provided, that the failure of
any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have materially and adversely prejudiced the
Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest exists if the
same counsel were to represent such Indemnified Party and the Indemnifying Party
(in which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the Indemnifying
Party); provided, that
the Indemnifying Party shall not be liable for the fees and expenses of more
than one separate firm of attorneys at any time for all Indemnified
Parties. The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld, delayed or
conditioned. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
Subject
to the terms of this Agreement, all fees and expenses of the Indemnified Party
(including reasonable fees and expenses to the extent incurred in connection
with investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section 5) shall be
paid to the Indemnified Party, as incurred, within twenty (20) Trading Days of
written notice thereof to the Indemnifying Party; provided, that the
Indemnified Party shall promptly reimburse the Indemnifying Party for that
portion of such fees and expenses applicable to such actions for which such
Indemnified Party is finally judicially determined to not be entitled to
indemnification hereunder). The failure to deliver written notice to the
Indemnifying Party within a reasonable time of the commencement of any such
action shall not relieve such Indemnifying Party of any liability to the
Indemnified Party under this Section 5, except to
the extent that the Indemnifying Party is materially and adversely prejudiced in
its ability to defend such action.
(d) Contribution. If
a claim for indemnification under Section 5(a) or 5(b) is unavailable
to an Indemnified Party or insufficient to hold an Indemnified Party harmless
for any Losses, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any
Losses shall be deemed to include, subject to the limitations set forth in this
Agreement, any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section 5 was
available to such party in accordance with its terms.
11
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) 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 the
immediately preceding paragraph. Notwithstanding the provisions of
this Section
5(d), (A) no Holder shall be required to contribute, in the aggregate,
any amount in excess of the amount by which the net proceeds actually received
by such Holder from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission and (B) no contribution
will be made under circumstances where the maker of such contribution would not
have been required to indemnify the Indemnified Party under the fault standards
set forth in this Section 5. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The
indemnity and contribution agreements contained in this Section 5 are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties and are not in diminution or limitation of the
indemnification provisions under the Purchase Agreement.
6. Miscellaneous.
(a) Remedies. In
the event of a breach by the Company or by a Holder of any of their obligations
under this Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law and under this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) Compliance. Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it (unless an exemption
therefrom is available) in connection with sales of Registrable Securities
pursuant to the Registration Statement and shall sell the Registrable Securities
only in accordance with a method of distribution described in the Registration
Statement
(c) Discontinued
Disposition. By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section
3(c)(iii)-(vi), such Holder
will forthwith discontinue disposition of such Registrable Securities under a
Registration Statement until it is advised in writing (the “Advice”) by the Company that
the use of the applicable Prospectus (as it may have been supplemented or
amended) may be resumed. The Company will use its
commercially reasonable efforts to ensure that the use of the Prospectus may be
resumed as promptly as is practicable.
(d) No Inconsistent
Agreements. Neither the Company nor any of its Subsidiaries
has entered, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date hereof, enter into any agreement with respect
to its securities, that would have the effect of impairing the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions
hereof.
12
(e) Amendments and
Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, or
waived unless the same shall be in writing and signed by the Company and Holders
holding no less than a majority of the then outstanding Registrable Securities,
provided that any party may give a waiver as to
itself. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of all of the
Registrable Securities to which such waiver or consent relates; provided, however, that the provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding
sentence.
(f) Notices. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be delivered as set forth in the Purchase
Agreement.
(g) Successors and
Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. The Company may not assign its
rights (except by merger or in connection with another entity acquiring all or
substantially all of the Company’s assets) or obligations hereunder without the
prior written consent of all the Holders of the then outstanding Registrable
Securities. Each Holder may assign its respective rights hereunder in
the manner and to the Persons as permitted under the Purchase Agreement;
provided in each case that (i) the Holder agrees in writing with the
transferee or assignee to assign such rights and related obligations under this
Agreement, and for the transferee or assignee to assume such obligations, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being transferred or assigned, (iii) at or
before the time the Company received the written notice contemplated by clause
(ii) of this sentence, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein and
(iv) the transferee is an “accredited investor,” as that term is defined in
Rule 501 of Regulation D.
(h) Execution and
Counterparts. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature were the original
thereof.
(i) Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.
13
(j) Cumulative
Remedies. The remedies provided herein are cumulative and not
exclusive of any other remedies provided by law.
(k) Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their good faith reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(l) Headings. The
headings in this Agreement are for convenience only and shall not limit or
otherwise affect the meaning hereof.
(m) Independent Nature of
Purchasers’ Obligations and Rights. The obligations of each
Purchaser under this Agreement are several and not joint with the obligations of
any other Purchaser hereunder, and no Purchaser shall be responsible in any way
for the performance of the obligations of any other Purchaser
hereunder. The decision of each Purchaser to purchase the Securities
pursuant to the Transaction Documents has been made independently of any other
Purchaser. Nothing contained herein or in any other agreement or document
delivered at any closing, and no action taken by any Purchaser pursuant hereto
or thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert with respect to
such obligations or the transactions contemplated by this
Agreement. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no Purchaser will be acting as agent of such Purchaser in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents. Each Purchaser shall be entitled to
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any Proceeding for such
purpose. The Company acknowledges that each of the Purchasers has
been provided with the same Registration Rights Agreement for the purpose of
closing a transaction with multiple Purchasers and not because it was required
or requested to do so by any Purchaser.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
14
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as
of the date first written above.
|
TELKONET,
INC.
By:
/s/ Xxxxx Xxxxxx
Name:
Xxxxx Xxxxxx
Title:
Chief Executive Officer
|
15
IN WITNESS WHEREOF, the parties have
executed this Registration Rights Agreement as of the date first written
above.
|
NAME
OF INVESTOR OR INVESTING ENTITY
_________________________________________________ AUTHORIZED
SIGNATORY
By: _____________________________________________
Name:
Title:
ADDRESS
FOR NOTICE
c/o:
______________________________________________
Street:
____________________________________________
City/State/Zip:
______________________________________
Attention:
_________________________________________
Tel:
______________________________________________
Fax:
______________________________________________
Email:
_____________________________________________
|
16
ANNEX A
PLAN OF
DISTRIBUTION
We are
registering the shares of Common Stock issued to the selling stockholders and
issuable upon exercise of the warrants issued to the selling stockholders to
permit the resale of these shares of Common Stock by the holders of the shares
of Common Stock and warrants from time to time after the date of this
prospectus. We will not receive any of the proceeds from the sale by
the selling stockholders of the shares of Common Stock. We will bear
all fees and expenses incident to our obligation to register the shares of
Common Stock.
The
selling stockholders may sell all or a portion of the shares of Common Stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the
shares of Common Stock are sold through underwriters or broker-dealers, the
selling stockholders will be responsible for underwriting discounts or
commissions or agent's commissions. The shares of Common Stock may be
sold on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale, in the over-the-counter
market or in transactions otherwise than on these exchanges or systems or in the
over-the-counter market and in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions. The
selling stockholders may use any one or more of the following methods when
selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether such options are listed on an options exchange or
otherwise;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, as
permitted by that rule, or Section 4(1) under the Securities Act, if available,
rather than under this prospectus, provided that they meet the criteria and
conform to the requirements of those provisions.
17
Broker-dealers
engaged by the selling stockholders may arrange for other broker-dealers to
participate in sales. If the selling stockholders effect such transactions by
selling shares of Common Stock to or through underwriters, broker-dealers or
agents, such underwriters, broker-dealers or agents may receive commissions in
the form of discounts, concessions or commissions from the selling stockholders
or commissions from purchasers of the shares of Common Stock for whom they may
act as agent or to whom they may sell as principal. Such commissions will be in
amounts to be negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction will not be in excess of a
customary brokerage commission in compliance with FINRA Rule 2440; and in the
case of a principal transaction a markup or markdown in compliance with FINRA
IM-2440.
In
connection with sales of the shares of Common Stock or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the shares of
Common Stock in the course of hedging in positions they assume. The
selling stockholders may also sell shares of Common Stock short and if such
short sale shall take place after the date that this Registration Statement is
declared effective by the Commission, the selling stockholders may deliver
shares of Common Stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short
sales. The selling stockholders may also loan or pledge shares of
Common Stock to broker-dealers that in turn may sell such shares, to the extent
permitted by applicable law. The selling stockholders may also enter into option
or other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction). Notwithstanding the foregoing, the selling stockholders have been
advised that they may not use shares registered on this registration statement
to cover short sales of our common stock made prior to the date the registration
statement, of which this prospectus forms a part, has been declared effective by
the SEC.
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the warrants or shares of Common Stock owned by them and, if
they default in the performance of their secured obligations, the pledgees or
secured parties may offer and sell the shares of Common Stock from time to time
pursuant to this prospectus or any amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933, as
amended, amending, if necessary, the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus. The selling stockholders also may transfer and
donate the shares of Common Stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.
The
selling stockholders and any broker-dealer or agents participating in the
distribution of the shares of Common Stock may be deemed to be “underwriters”
within the meaning of Section 2(11) of the Securities Act in connection with
such sales. In such event, any commissions paid, or any discounts or
concessions allowed to, any such broker-dealer or agent and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Selling Stockholders who are
"underwriters" within the meaning of Section 2(11) of the Securities Act will be
subject to the applicable prospectus delivery requirements of the Securities Act
including Rule 172 thereunder and may be subject to certain statutory
liabilities of, including but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, as
amended, or the Exchange Act.
18
Each
selling stockholder has informed the Company that it is not a registered
broker-dealer and does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common
Stock. Upon the Company being notified in writing by a selling
stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of common stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, a supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of
each such selling stockholder and of the participating broker-dealer(s), (ii)
the number of shares involved, (iii) the price at which such the shares of
Common Stock were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction. In no event shall any broker-dealer
receive fees, commissions and markups, which, in the aggregate, would exceed
eight percent (8.0%).
Under the
securities laws of some states, the shares of Common Stock may be sold in such
states only through registered or licensed brokers or dealers. In
addition, in some states the shares of Common Stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied
with.
There can
be no assurance that any selling stockholder will sell any or all of the shares
of Common Stock registered pursuant to the shelf registration statement, of
which this prospectus forms a part.
Each
selling stockholder and any other person participating in such distribution will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, to the extent applicable,
Regulation M of the Exchange Act, which may limit the timing of purchases and
sales of any of the shares of Common Stock by the selling stockholder and any
other participating person. To the extent applicable, Regulation M
may also restrict the ability of any person engaged in the distribution of the
shares of Common Stock to engage in market-making activities with respect to the
shares of Common Stock. All of the foregoing may affect the
marketability of the shares of Common Stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
Common Stock.
We will
pay all expenses of the registration of the shares of Common Stock pursuant to
the registration rights agreement, including, without limitation, Securities and
Exchange Commission filing fees and expenses of compliance with state securities
or “blue sky” laws; provided, however, that each selling
stockholder will pay all underwriting discounts and selling commissions, if any
and any related legal expenses incurred by it. We will indemnify the
selling stockholders against certain liabilities, including some liabilities
under the Securities Act, in accordance with the registration rights agreement,
or the selling stockholders will be entitled to contribution. We may
be indemnified by the selling stockholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling stockholders specifically for use in
this prospectus, in accordance with the related registration rights agreements,
or we may be entitled to contribution.
19
ANNEX B
SELLING
STOCKHOLDER NOTICE AND QUESTIONNAIRE
The
undersigned holder of shares of the common stock, par value $0.001 per share of
Telkonet, Inc. (the “Company”) issued pursuant to
a certain Securities Purchase Agreement by and among the Company and the
Purchasers named therein, dated as of November 16, 2009 (the “Agreement”), understands that
the Company intends to file with the Securities and Exchange Commission a
registration statement on Form S-3 (the “Resale Registration
Statement”) for the registration and the resale under Rule 415 of the
Securities Act of 1933, as amended (the “Securities Act”), of the
Registrable Securities in accordance with the terms of the Agreement. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Agreement.
In order
to sell or otherwise dispose of any Registrable Securities pursuant to the
Resale Registration Statement, a holder of Registrable Securities generally will
be required to be named as a selling stockholder in the related prospectus or a
supplement thereto (as so supplemented, the “Prospectus”), deliver the
Prospectus to purchasers of Registrable Securities (including pursuant to Rule
172 under the Securities Act) and be bound by the provisions of the Agreement
(including certain indemnification provisions, as described
below). Holders must complete and deliver this Notice and
Questionnaire in order to be named as selling stockholders in the
Prospectus. Holders
of Registrable Securities who do not complete, execute and return this Notice
and Questionnaire within three (3) Trading Days following the date of the
Agreement (1) will not be named as selling stockholders in the Resale
Registration Statement or the Prospectus and (2) may not use the Prospectus for
resales of Registrable Securities.
Certain
legal consequences arise from being named as a selling stockholder in the Resale
Registration Statement and the Prospectus. Holders of Registrable
Securities are advised to consult their own securities law counsel regarding the
consequences of being named or not named as a selling stockholder in the Resale
Registration Statement and the Prospectus.
NOTICE
The
undersigned holder (the “Selling Stockholder”) of
Registrable Securities hereby gives notice to the Company of its intention to
sell or otherwise dispose of Registrable Securities owned by it and listed below
in Item (3), unless otherwise specified in Item (3), pursuant to the Resale
Registration Statement. The undersigned, by signing and returning
this Notice and Questionnaire, understands and agrees that it will be bound by
the terms and conditions of this Notice and Questionnaire and the
Agreement.
The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate and
complete:
QUESTIONNAIRE
1.
Name.
|
|
(a)
|
Full
Legal Name of Selling Stockholder:
|
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|
|
(b)
|
Full
Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities Listed in Item 3 below are
held:
|
|
|
(c)
|
Full
Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose
of the securities covered by the
questionnaire):
|
2. Address
for Notices to Selling Stockholder:
|
Telephone:
|
|
Fax:
|
|
Contact
Person:
|
|
E-mail
address of Contact
Person:________________________________________________
|
3. Beneficial
Ownership of Registrable Securities Issuable Pursuant to the Purchase
Agreement:
|
|
(a)
|
Type
and Number of Registrable Securities beneficially owned and issued
pursuant to the Agreement:
|
|
|
(b)
|
Number
of shares of Common Stock to be registered pursuant to this Notice for
resale:
|
4. Broker-Dealer
Status:
|
|
(a)
|
Are
you a broker-dealer?
|
Yes o No o
|
(b)
|
If
“yes” to Section 4(a), did you receive your Registrable Securities as
compensation for investment
banking services to the Company?
|
Yes o No o
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|
Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
|
|
(c)
|
Are
you an affiliate of a
broker-dealer?
|
Yes o No o
|
|
Note:
|
If
yes, provide a narrative explanation
below:
|
|
|
(c)
|
If
you are an affiliate of a broker-dealer, do you certify that you bought
the Registrable Securities in the ordinary course of business, and at the
time of the purchase of the Registrable Securities to be resold, you had
no agreements or understandings, directly or indirectly, with any person
to distribute the Registrable
Securities?
|
Yes o No o
|
|
Note:
|
If
no, the Commission’s staff has indicated that you should be identified as
an underwriter in the Registration
Statement.
|
5. Beneficial
Ownership of Other Securities of the Company Owned by the Selling
Stockholder.
Except
as set forth below in this Item 5, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.
Type and
amount of other securities beneficially owned:
6. Relationships with the Company:
Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.
State any
exceptions here:
22
7. Plan
of Distribution:
The
undersigned has reviewed the form of Plan of Distribution attached as Annex A to
the Registration Rights Agreement, and hereby confirms that, except as set forth
below, the information contained therein regarding the undersigned and its plan
of distribution is correct and complete.
State any
exceptions here:
***********
The
undersigned agrees to promptly notify the Company of any inaccuracies or changes
in the information provided herein that may occur subsequent to the date hereof
and prior to the effective date of any applicable Resale Registration Statement.
All notices hereunder and pursuant to the Agreement shall be made in writing, by
hand delivery, confirmed or facsimile transmission, first-class mail or air
courier guaranteeing overnight delivery at the address set forth
below. In the absence of any such notification, the Company shall be
entitled to continue to rely on the accuracy of the information in this Notice
and Questionnaire.
By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items (1) through (7) above and the inclusion
of such information in the Resale Registration Statement and the
Prospectus. The undersigned understands that such information will be
relied upon by the Company in connection with the preparation or amendment of
any such Registration Statement and the Prospectus.
By
signing below, the undersigned acknowledges that it understands its obligation
to comply, and agrees that it will comply, with the provisions of the Exchange
Act and the rules and regulations thereunder, particularly Regulation M in
connection with any offering of Registrable Securities pursuant to the Resale
Registration Statement. The undersigned also acknowledges that it
understands that the answers to this Questionnaire are furnished for use in
connection with Registration Statements filed pursuant to the Registration
Rights Agreement and any amendments or supplements thereto filed with the
Commission pursuant to the Securities Act.
The
undersigned hereby acknowledges and is advised of the following Interpretation
A.65 of the July 1997 SEC Manual of Publicly Available Telephone Interpretations
regarding short selling:
“An
Issuer filed a Form S-3 registration statement for a secondary offering of
common stock which is not yet effective. One of the selling
stockholders wanted to do a short sale of common stock “against the box” and
cover the short sale with registered shares after the effective
date. The issuer was advised that the short sale could not be made
before the registration statement become effective, because the shares
underlying the short sale are deemed to be sold at the time such sale is
made. There would, therefore, be a violation of Section 5 if the
shares were effectively sold prior to the effective date.”
By
returning this Questionnaire, the undersigned will be deemed to be aware of the
foregoing interpretation.
I confirm
that, to the best of my knowledge and belief, the foregoing statements
(including without limitation the answers to this Questionnaire) are
correct.
23
IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
| Dated: ________________________ | Beneficial Owner: ______________________________ |
| By: _________________________________________ | |
| Name: | |
| Title: |
PLEASE
FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
THE ORIGINAL BY OVERNIGHT MAIL, TO:
Xxxxxxx
Procter LLP
00 Xxxxx
Xxxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000-0000
Telephone
No.: 000-000-0000
Facsimile
No.: 000-000-0000
Attention:
Xxxxxx X. Xxxxx
E-mail:
xxxxxxx@xxxxxxxxxxxxxx.xxx
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