REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of this 30th day of August, 2000, by and among TELKONET, INC., a
Utah corporation (the "Company"), and the shareholders of the Company identified
on Schedule A hereto (each of whom is referred to herein as a "Holder" and
collectively as the "Holders").
BACKGROUND
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A. The Holders have heretofore, from time to time, purchased shares of
the Company's Common Stock, $0.01 par value per share (the "Common Stock"),
pursuant to Subscription Agreements between the Company and the Holders (the
"Purchase Agreement").
B. Pursuant to an Agreement and Plan of Reorganization (the "Merger
Agreement') by and among the Company (then known as Xxxxxxxx Coal Company, Inc.,
a Utah corporation), Xxxxxxxx Acquisition Corp., a Utah corporation ("CAC") and
Telkonet Communications, Inc., a Delaware corporation ("Telkonet"), the parties
agreed to a reverse triangular merger (the "Merger") of CAC into Telkonet, with
Telkonet emerging as the surviving corporation. Section 9.09 of the Merger
Agreement imposed a condition precedent that the Company provide "piggyback"
registration rights to certain shareholders of the Company, being the Holders
under this Agreement.
C. The Company has entered into this Agreement to provide such
registration rights to the Holders.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and subject to and on
the terms and conditions herein set forth, the Company and Holders, intending to
be legally bound, hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
In addition to the other terms defined in this Agreement, the following
terms shall be defined as follows:
"BUSINESS DAY" means any day on which the NYSE is open for trading.
"EFFECTIVE PERIOD" means the 2-year period commencing at the closing of
the Merger under the Merger Agreement.
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"FAIR MARKET VALUE" means the average of the closing price per share
for the Registrable Securities as to which a registration is being effected as
reported on the NYSE Composite Transactions Tape for the 20 consecutive trading
days immediately prior to the applicable date of determination, or, if such
securities are not then listed and traded on the NYSE, the closing price for
such securities for such period on the principal national securities exchange
(or market) on which they are then traded as reported in the principal
consolidated transaction reporting system with respect to securities listed on
such exchange (or market) or, if such securities are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by Nasdaq or such other organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in such securities selected by the Board of Directors of the Company.
The term "trading day" shall mean a day on which the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading is open for transaction of business or, if the shares of Common Stock
are not listed or admitted to trading on any national securities exchange, a
Business Day.
"NYSE" means the New York Stock Exchange.
"PERSON" means an individual, a partnership (general or limited),
corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
"REGISTRABLE SECURITY(IES)" means (i) all shares of Common Stock not
previously sold to the public issued to Holders and (ii) any additional shares
of Common Stock or other equity securities of the Company that may be issued to
Holders in respect of or in exchange for any such shares by way of a
distribution, in connection with a combination, split, exchange, reorganization,
recapitalization or reclassification of the Company's securities, or pursuant to
a merger, division, consolidation, liquidation or other similar business
transaction or combination involving the Company; PROVIDED that as to any
particular Registrable Securities, such securities shall cease to constitute
Registrable Securities (i) when a registration statement with respect to the
sale of such securities shall have become effective under the Securities Acts
and such securities shall have been disposed of thereunder, or (ii) when in the
opinion of counsel to the Company (which counsel shall be reasonably acceptable
to such Holder) such securities are permitted to be distributed pursuant to Rule
144 (or any successor provision to such Rule) under the Securities Acts without
volume restrictions or are otherwise freely transferable to the public without
further registration under the Securities Acts, or (iii) when such securities
shall have ceased to be issued and outstanding, or (iv) the end of the Effective
Period; AND, in the case of clause (ii), the Company, upon request of any
Holder, shall have delivered to such Holder a written opinion of counsel to the
Company (which counsel shall be reasonably acceptable to such Holder) to such
effect.
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"REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with the registration requirements set forth in
this Agreement including, without limitation, the following: (i) the fees,
disbursements and expenses of the Company's counsel(s), accountants, and experts
in connection with the registration under the Securities Acts of Registrable
Securities; (ii) all expenses in connection with the preparation, printing and
filing of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements thereto,
and the mailing and delivering of copies thereof to the underwriters and
dealers, if any; (iii) the cost of printing or producing any agreement(s) among
underwriters, underwriting agreement(s) and blue sky or legal investment
memoranda, any selling agreements, and any other documents in connection with
the offering, sale or delivery of Registrable Securities to be disposed of; (iv)
the fees and expenses incurred in connection with the listing of Registrable
Securities on each securities exchange on which the Company securities of the
same class are then listed; and (v) the fees and/or disbursements of one special
counsel for the Holders; PROVIDED, HOWEVER, that Registration Expenses with
respect to any registration pursuant to this Agreement shall not include Selling
Expenses.
"SEC" means the United States Securities and Exchange Commission, or
such other federal agency at the time having the principal responsibility for
administering the Securities Acts.
"SECURITIES ACTS" shall mean the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the
relevant time.
"SELLING EXPENSES" shall mean, with respect to any registration
pursuant to this Agreement, any underwriting discounts or commissions
attributable to Registrable Securities.
SECTION 2. REGISTRATION RIGHTS.
This Agreement shall become effective immediately and shall terminate
upon the performance by the Company of the last of its obligations hereunder.
SECTION 3. REQUIRED REGISTRATION.
The Holders shall not be entitled to request or demand that the Company
register all or any portion of the Registrable Securities under this Agreement,
and the Holders shall only possess rights to incidental registration of the
Registrable Securities pursuant to Section 4 of this Agreement.
SECTION 4. INCIDENTAL REGISTRATION.
(a) If the Company proposes at any time during the Effective Period to
register any shares of Common Stock or other securities issued by it having
terms substantially similar to Registrable Securities ("Other Securities") for
public sale under the Securities Acts on a Form and in a manner which would
permit registration of Registrable Securities for sale to the public under the
Securities Acts, it will give prompt written notice (which notice shall specify
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the intended method or methods of disposition) to the Holders of its intention
to do so, and upon the written request of any Holder delivered to the Company
within fifteen (15) Business Days after the giving of any such notice (which
request shall specify the number of Registrable Securities intended to be
disposed of by such Holder) the Company will use all reasonable efforts to
effect, in connection with the registration of the Other Securities, the
registration under the Securities Acts of all Registrable Securities which the
Company has been requested by Holders to register; PROVIDED, HOWEVER, that:
(i) if, at any time after giving such written notice of its
intention to register Other Securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such Other Securities, the
Company may, at its election, give written notice of such determination to
Holders requesting registration under Section 4(a) and thereupon the Company
shall be relieved of its obligation to register such Registrable Securities in
connection with the registration of such Other Securities (but not from its
obligation to pay Registration Expenses to the extent incurred in connection
therewith as provided in Section 12);
(ii) the Company will not be required to effect any
registration pursuant to this Section 4 if, in connection with an underwritten
public offering, the Company shall have been advised in writing (with a copy to
Holders) by a nationally recognized investment banking firm selected by the
Company that, in such firm's opinion, a registration of Registrable Securities
at that time may interfere with an orderly sale and distribution of or
materially and adversely affect the price of such offering; PROVIDED, HOWEVER,
that if an offering of some but not all of the Registrable Securities requested
to be registered by Holders and all other Persons having rights to include
securities held by them in such registration would not adversely affect the
Company's scheduled offering in the opinion of such firm, the aggregate number
of Registrable Securities requested to be included in such offering by Holders
shall be reduced pro rata (in accordance with the proportion that the Fair
Market Value of all securities proposed to be included in such registration by
Holders bears to the Fair Market Value of all securities proposed to be included
in such registration by Holders and all other Persons exercising "piggyback"
rights in such registration). Unless all Registrable Securities and such other
piggybacking shares requested to be included in such registration are so
included, no other securities may be included in the registration statement; or
(iii) the Company shall not be required to give notice of, or
effect any registration of Registrable Securities under this Section 4
incidental to, the registration of any of its securities in connection with
mergers, consolidations, acquisitions, exchange offers, subscription offers,
dividend reinvestment plans or stock options or other employee benefits or
compensation plans.
(b) The obligations of the Company to register any Registrable
Securities held by Holders in accordance with this Section 4 shall expire on the
last day of the Effective Period.
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SECTION 5. HOLDBACKS AND OTHER RESTRICTIONS.
Each Holder hereby covenants and agrees with the Company that:
(i) Holder shall not, if requested by the managing
underwriters in an underwritten offering that includes Holder's Registrable
Securities, effect any public sale or distribution of securities of the Company
of the same class as the securities included in such registration statement (or
convertible into such class), including a sale pursuant to Rule 144 under the
Securities Acts (except as part of such underwritten registration) during the
10-day period prior to, and during the 90-day period beginning on, the closing
date of each underwritten offering made pursuant to such registration statement,
to the extent timely notified in writing by the Company or the managing
underwriters;
(ii) Holder shall not, during any period in which Registrable
Securities of Holder are included in any effective registration statement: (A)
effect any stabilization transactions or engage in any stabilization activity in
connection with Common Shares or other equity securities of the Company in
contravention of Rule 10b-7 under the Exchange Act; (B) and will not permit any
Affiliated Purchaser (as that term is defined in Rule 10b-6 under the Exchange
Act) to bid for or purchase for any account in which Holder has a beneficial
interest, or attempt to induce any other person to purchase, any Common Shares
or Registrable Securities in contravention of Rule 10b-6 under the Exchange Act;
and (C) offer or agree to pay, directly or indirectly, to anyone any
compensation for soliciting another to purchase, or for purchasing (other than
for Holder's own account), any securities of the Company on a national
securities exchange in contravention of Rule 10b-2 under the Exchange Act; and
(iii) Holder shall, in the case of a registration including
Registrable Securities to be offered by Holder for sale through Brokers'
Transactions: (A) furnish each broker through whom Holder offers Registrable
Securities such number of copies of the prospectus as the broker may require and
otherwise comply with the prospectus delivery requirements under the Securities
Acts; (B) report to the Company each month all sales, pledges and other
dispositions of Registrable Securities made by Holder during said month; and (C)
sell Registrable Securities only in Brokers' Transactions.
SECTION 6. REGISTRATION PROCEDURES.
If and whenever the Company is required by the provisions of this
Agreement to effect or cause a registration as provided in this Agreement, the
Company:
(a) Will use its reasonable best efforts to cause such registration
statement to become and remain effective under the Securities Acts until the
earlier of such time as all such Registrable Securities have been disposed of in
accordance with the method of disposition or the expiration of 150 days after
such registration becomes effective, as such period may be extended pursuant to
Section 6(h) or Section 8 hereto;
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(b) Prepare and file with the SEC such amendments, post-effective
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for such period of time as is necessary to complete the
offering and the distribution of the securities covered thereby (but in no event
longer than 150 days after such registration statement becomes effective) as
such period may be extended pursuant to Section 6(h) or Section 8 hereto;
(c) Comply with the provisions of the Securities Acts with respect to
the disposition of all securities covered by such registration statement during
the period during which any such registration statement is required to be in
effect;
(d) Furnish to Holders and any underwriter of Registrable Securities,
(i) such number of copies (including manually executed and conformed copies) of
such registration statement and or each amendment thereof and supplement thereto
(including all annexes, appendices, schedules and exhibits), (ii) such number of
copies of the prospectus used in connection with such registration statement
(including each preliminary prospectus, any summary prospectus and the final
prospectus), and (iii) such number of copies of other documents, in each case as
Holders or such underwriter may reasonably request;
(e) Use reasonable efforts to register or qualify all Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as Holders or any underwriter shall reasonably
request, and do any and all other acts and things which may be reasonably
requested by Holders or such underwriter to consummate the offering and
disposition of Registrable Securities in such jurisdictions; PROVIDED, HOWEVER,
that the Company shall not be required to qualify generally to do business as a
foreign corporation or as dealer in securities, subject itself to taxation, or
consent to general service of process in any jurisdiction wherein it is not then
so qualified or subject;
(f) Use, as soon as practicable after the effectiveness of the
registration statement, reasonable efforts to cause the Registrable Securities
covered by such registration statement to be registered with, or approved by,
such other public, governmental or regulatory authorities as may be necessary to
facilitate the disposition of such Registration Securities;
(g) Use reasonable best efforts to list the Registrable Securities
covered by such registration statement on any securities exchange on which any
securities of the Company are then listed, if the listing of such Registrable
Securities is then permitted under the rules of such exchange;
(h) Notify Holders promptly and, if requested by Holders, confirm such
notification in writing, (i) when a prospectus or any prospectus supplement has
been filed with the SEC, and, with respect to a registration statement or any
post-effective amendment thereto, when the same has been declared effective by
the SEC, (ii) of the issuance by the SEC of any stop order or the initiation of
any proceedings for such or a similar purpose, (iii) of the receipt by the
Company of any notification with respect to the suspension of the qualification
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of any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (iv) of the
occurrence of any event which requires the making of any changes to a
registration statement or related prospectus so that such documents will not
contain any untrue statement of a material fact or omit to the state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (and the Company shall promptly prepare and furnish to Holders a
reasonable number of copies of a supplemented or amended prospectus such that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include 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 light of the circumstances under which they are made, not
misleading), and (v) of the Company's determination that the filing of a
post-effective amendment to the Registration Statement shall be necessary or
appropriate. Upon the receipt of any notice from the Company of the occurrence
of any event of the kind described in clause (iv) of this Section 6(h), Holders
shall forthwith discontinue any offer and disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until Holders shall have received copies of a supplemented or amended prospectus
which is no longer defective as contemplated by clause (v) of this Section 6(h)
and, if so directed by the Company, shall deliver to the Company, at the
Company's expense, all copies (other than permanent file copies) of the
defective prospectus covering such Registrable Securities which are then in
Holder's possession. If the Company shall provide any notice of the type
referred to in the preceding sentence, the period during which the registration
statements are required to be effective shall be extended by the number of days
from and including the date such notice is provided, to and including the date
when Holders shall have received copies of the corrected prospectus contemplated
by clause (v) of this Section 6(h);
(i) Enter into such agreements and take such other appropriate actions
as are customary and reasonably necessary to expedite or facilitate the
disposition of such Registrable Securities, and in that regard, deliver to
Holders such documents and certificates as may be reasonably requested by the
Holders or, as applicable, the managing underwriters, to evidence the Company's
compliance with this Agreement;
(j) Cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least 3 days prior to any sale of Registrable Securities to the
underwriters; and
(k) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
SECTION 7. UNDERWRITING.
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(a) If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a registration hereunder, the Company will
enter into and perform its obligations under an underwriting agreement with the
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, customary provisions relating to
indemnities and contribution and the provision of opinions of counsel and
accountants' letters. If Registrable Securities are to be distributed by such
underwriters on behalf of Holders, Holders shall, subject to Section 7(b), be a
party to any such underwriting agreement and the representations and warranties
by, and the other agreements on the part of, the Company to and for the benefit
of such underwriters shall also be made to and for the benefit of Holders.
Notwithstanding the foregoing, Holders may elect, prior to the effective date of
the registration statement filed in connection with such registration, not to
register such Registrable Securities in connection with any registration.
(b) If any registration pursuant to Section 4 hereof shall involve, in
whole or in part, an underwritten offering, the Company may require Registrable
Securities requested to be registered pursuant to Section 4 to be included in
such underwriting on the same terms and conditions as shall be applicable to the
securities being sold through underwriters under such registration. In such
case, Holders shall be a party to any such underwriting agreement. Such
agreement shall contain such representations and warranties by the Holders and
such other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, provisions relating to indemnities and contribution. The
representations and warranties in such underwriting agreement by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of Holders.
(c) In any underwritten public offering of Registrable Securities
pursuant to a registration hereunder, Holders shall also enter into such
agreements as may be customary in such transactions, including, among other
provisions, such representations and warranties as the Company or the
underwriters of such offering may reasonably request (including, without
limitation, such concerning Holders, the Registrable Securities, Holder's
intended plan of distributions and any other information supplied by the Holders
to Company for use in such registration statement), and customary provisions
relating to indemnities and contribution.
It shall be a condition precedent of the Company's obligations
under Section 4 of this Agreement to any Holder that such Holder furnish to the
Company such information regarding the Holder, the Registrable Securities held
by it and the distribution proposed by the Holder as the Company may reasonably
request to effect any such registration and as are customarily provided by
selling stockholders.
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SECTION 8. INFORMATION BLACKOUT.
At any time when a registration statement relating to Registrable
Securities is effective, upon written notice from the Company to Holders that
the Company has determined in good faith that sale of Registrable Securities
pursuant to the registration statement would require disclosure of non-public
material information having an adverse effect on the Company (an "Information
Blackout"), Holders shall suspend sales of Registrable Securities pursuant to
such registration statement until the earlier of:
(i) 60 days after the Company makes such good faith
determination, and
(ii) such time as the Company notifies the Holders that such
material information has been disclosed to the public or has ceased to be
material or that sales pursuant to such registration statement may otherwise be
resumed (the number of days from such suspension of sales by the Holders until
the day when such sale may be resumed hereunder is hereinafter called a "Sales
Blackout Period").
SECTION 9. RULE 144.
The Company shall take all actions reasonably necessary to comply with
the filing requirements described in Rule 144(c)(1) so as to enable Holders to
sell Registrable Securities without registration under the Securities Acts.
SECTION 10. PREPARATION; REASONABLE INVESTIGATION, INFORMATION.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Acts, the
Company will give Holders and the underwriters, if any, and their respective
counsel and accountants, drafts of such registration statements for their review
and comment prior to filing and such reasonable and customary access to its
books and records and such opportunities to discuss the business of the Company
with its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of Holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Acts.
SECTION 11. INDEMNIFICATION AND CONTRIBUTION.
(a) In the case of each offering of Registrable Securities made
pursuant to this Agreement, the Company shall indemnify and hold harmless each
Holder, its officers and directors, each underwriter of Registrable Securities
so offered and each person, if any, who controls any of the foregoing persons
within the meaning of the Securities Acts ("Holder Indemnitees"), from and
against any and all claims, liabilities, losses, damages, expenses and
judgments, joint or several, to which they or any of them may become subject,
under the Securities Acts or otherwise, including any amount paid in settlement
of any litigation commenced or threatened, and shall promptly reimburse them, as
and when incurred, for any legal or other expenses incurred by them in
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connection with investigating any claims and defending any actions, insofar as
such losses, claims, damages, liabilities or actions shall arise out of, or
shall be based upon, any untrue statement or alleged untrue statement of a
material fact contained in the registration statement (or in any preliminary or
final prospectus included therein) relating to the offering and sale of such
Registrable Securities, or any amendment thereof or supplement thereto, or in
any document incorporated by reference therein, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or shall arise out of
or shall be based upon any violation or alleged violation by the Company of the
Securities Acts, any blue sky laws, securities laws or other applicable laws of
any state or country in which the Registrable Securities are offered and
relating to action or inaction required of the Company in connection with such
offering; PROVIDED, that the Company shall not be liable to any Holder
Indemnitee in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement, or any omission, if such statement or omission shall
have been made in reliance upon and in conformity with information furnished to
the Company in writing by or on behalf of such Holder for use in the preparation
of the registration statement (or in any preliminary or final prospectus
included therein), or any amendment thereof or supplement thereto. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of Holders and shall survive the transfer of such
securities. The foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to any Holder Indemnitee.
(b) In the case of each offering of Registrable Securities made
pursuant to this Agreement, each Holder shall indemnify and hold harmless the
Company, its officers and directors and each person, if any who controls any of
the foregoing within the meaning of the Securities Acts and (if requested by the
underwriters) each underwriter who participates in the offering and each person,
if any, who controls any such underwriter within the meaning of the Securities
Acts (the "Company Indemnitees"), from and against any and all claims,
liabilities, losses, damages, expenses and judgments, joint or several, to which
they or any of them may become subject, under the Securities Acts or otherwise,
including any amount paid in settlement of any litigation commenced or
threatened, and shall promptly reimburse them, as and when incurred, for any
legal or other expenses incurred by them in connection with investigating any
claims and defending any actions, insofar as any such losses, claims, damages,
liabilities or actions shall arise out of, or shall be based upon, any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement (or in any preliminary or final prospectus included
therein) or any amendment thereof or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement is contained in, or such fact is
omitted from, information furnished in writing to the Company by or on behalf of
such Holder for use in the preparation of such registration statement (or in any
preliminary or final prospectus included therein). The foregoing indemnity is in
addition to any liability which Holders may otherwise have to any Company
Indemnitee.
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(c) Each party indemnified under this Agreement shall, promptly after
receipt of notice of any claim or other commencement of any action against such
indemnified party in respect of which indemnity may be sought, notify the
indemnifying party in writing of the claim or the commencement thereof;
PROVIDED, that the failure to notify the indemnifying party shall not relieve
the indemnifying party from any liability which it may have to an indemnified
party on account of the indemnity agreement contained in this Agreement, unless
the indemnifying party was prejudiced by such failure, and in no event shall it
relieve the indemnifying party from any other liability which it may have to
such indemnified party. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense of such a claim or action, and the indemnifying party shall
not be liable to the indemnified party under this Section 11 for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation; PROVIDED, that
the Holder Indemnitees shall have the right to employ one separate counsel to
represent them if, in the reasonable judgment of Holder or such other person, it
is advisable (by reason of actual or potential legal conflicts of interest) for
them to be represented by separate counsel, and in that event the fees and
expenses of such separate counsel shall be paid by the Company. If the Holder
Indemnitees employ such separate counsel they will not enter into any settlement
agreement which is not approved by the Company, such approval will not be
unreasonably withheld. If the indemnifying party so assumes the defense thereof,
it may not agree to any settlement of any such claim or action as the result of
which any remedy or relief, other than monetary damages for which the
indemnifying party shall be responsible hereunder, shall be applied to or
against the indemnified party, without the prior written consent of the
indemnified party. If the indemnifying party does not assume the defense
thereof, it shall be bound by any settlement to which the indemnified party
agrees, irrespective of whether the indemnifying party consents thereto. In any
action hereunder as to which the indemnifying party has assumed the defense
thereof with counsel satisfactory to the indemnified party, the indemnified
party shall continue to be entitled to participate in the defense thereof, with
counsel of its own choice, but, except as set forth above, the indemnifying
party shall not be obligated hereunder to reimburse the indemnified party for
the costs thereof.
(d) If the indemnification agreements contained in Sections 11(a) and
(b) are unavailable to an indemnified party in respect of any losses, claims,
damages or liabilities referred to therein, each indemnifying party under such
paragraphs, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect not only the relative benefits received by the Company,
Holders and each underwriter from the offering of Registrable Securities, but
also the relative fault of the Company, Holders and each underwriter in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect the
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relative benefits received by the Company, Holders and each underwriter from the
offering of Registrable Securities. The relative benefits received by the
Company, Holders and each underwriter shall be deemed to be in the same
respective proportions as the net proceeds from the offering (before deducting
expenses) received by the Company and Holders and the total underwriting
discounts and commissions received by each underwriter. The relative fault of
the Company, Holders and each underwriter shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or, the omission or alleged omission to state a material fact relates to
information supplied by the Company, Holders or an underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this paragraph shall be deemed to include, for
purposes of this paragraph, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Acts) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The Company and Holders agree that it would not be just and
equitable if contribution were determined by PRO RATA allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in Section 11(d).
SECTION 12. EXPENSES.
In connection with any registration under Section 3 or Section 4, the
Company shall pay all Registration Expenses; provided that Holders shall pay his
or its pro rata share of the Selling Expenses.
SECTION 13. NOTICES.
Except as otherwise provided below, whenever it is provided in this
Agreement that any notice, demand, request, consent, approval, declaration or
other communication shall or maybe given to or served upon either of the parties
hereto, or whenever either of the parties hereto, desires to provide to or serve
upon the other party any other communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person or
sent by telecopy, addressed as follows:
(a) IF TO THE COMPANY, TO:
Telkonet, Inc.
000 Xxxxxxx Xxxxxxx, 0xx Xxxxx
Xxxxxxx Xxxx, Xxxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
(b) IF TO HOLDERS: To the addresses for Holders set forth in
Schedule A hereto.
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or at such other address as may be substituted by notice delivered as provided
herein. The furnishing of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly furnished or served on the party to which it is addressed, in
the case of delivery in person or by telecopy, on the date when sent (with
receipt personally acknowledged in the case of telecopied notice). Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
SECTION 14. ENTIRE AGREEMENT.
This Agreement represents the entire agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes any
and all prior oral and written agreements, arrangements and understandings among
the parties hereto with respect to such subject matter; and this Agreement can
be amended, supplemented or changed, and any provision hereof can be waived,
only by a written instrument making specific reference to this Agreement signed
by Company and the Holders of 66 2/3% of the Registrable Securities.
SECTION 15. PARAGRAPH HEADINGS.
The purpose of paragraph headings contained in this Agreement are for
general reference purposes only and shall not affect in any manner the meaning,
interpretation or construction of the terms or other provisions of this
Agreement.
SECTION 16. APPLICABLE LAW.
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Utah, applicable to contracts to be
made, executed, delivered and performed wholly within such state and, in any
case, without regard to the conflicts of laws principles in such state.
SECTION 17. SEVERABILITY.
If at any time subsequent to the date hereof, any provision of this
Agreement shall be held by any court of competent jurisdiction to be illegal,
void or unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement.
SECTION 18. EQUITABLE REMEDIES.
The parties hereto agree that irreparable harm would occur in the event
that any of the agreements and provisions of this Agreement were not performed
fully by the parties hereto in accordance with their specific terms or
conditions or were otherwise breached, and that money damages are an inadequate
remedy for breach of this Agreement because of the difficulty of ascertaining
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and quantifying the amount of damage that will be suffered by the parties hereto
in the event that this Agreement is not performed in accordance with the terms
and conditions or its otherwise breached. It is accordingly hereby agreed that
the parties hereto shall be entitled to an injunction or injunctions to restrain
enjoin and prevent breaches of this Agreement by the other parties and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, such remedy being in addition to and
not in lieu of, any other rights and remedies to which the other parties are
entitled to at law or in equity.
SECTION 19. NO WAIVER.
The failure of any party at any time to require performance of any
provision hereof shall not affect the right at a later time to enforce the same.
No waiver by any party of any condition, and no breach of any provision, term,
covenant, representation or warranty contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be
construed as a further or continuing waiver of any such condition or of the
breach of any other provision, term, covenant, representation or warranty of
this Agreement.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
but one and the same original instrument.
SECTION 21. NO CONFLICTING AGREEMENTS.
Company may enter into other agreements with third parties to provide
demand and/or incidental registration rights to such third parties; provided
such other agreements do not negate the rights of the Holders under this
Agreement. Without the prior consent of the Holders of 66 2/3% of the
Registrable Securities, Company will not enter into any agreement which
conflicts with or negates the registration rights afforded under the terms and
provisions hereof.
SECTION 22. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, including without limitation and
without need for an express assignment, any subsequent holder of Registrable
Securities.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the date first above written.
ATTEST: COMPANY:
TELKONET, INC.
/s/ Xxxxxxx X. Xxxxx By: /s/ L. Xxxxx Xxxxxx (SEAL)
----------------------------- --------------------------------------
L. Xxxxx Xxxxxx, President and
Chief Executive Officer
HOLDERS:
ATTEST: XXXXXX SERVICES, INC.
/s/ Xxxxxxx X. Xxxxx By: /s/ Xxxx X. Xxxxxx
----------------------------- ---------------------------------------
Its: President
--------------------------------------
ATTEST: Xxxxx Xxxxxx
/s/ Xxxxx Xxxxxx By: /s/ Xxxxx Xxxxxx
----------------------------- ---------------------------------------
Its: President
-------------------------------------
ATTEST:
------------------------------------------
----------------------------- By:
--------------------------------------
Its:
-------------------------------------
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