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EXHIBIT 10.2
REGISTRATION RIGHTS
AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this “
Agreement
”), dated as of May 30, 2008, by and among TELKONET, INC., a Utah
corporation (the “ Company
”), and the undersigned Buyers listed on Schedule I attached
hereto (each, a “ Buyer ”
and collectively, the “ Buyers
”).
WHEREAS:
A.
In
connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the “
Securities
Purchase Agreement ”), the Company has agreed,
upon the terms and subject to the conditions of the Securities
Purchase Agreement, to issue and sell to the Buyers (i)
secured convertible debentures (the “ Convertible
Debentures ”) which shall be convertible into
shares of the Company’s common stock, par value $0.001
per share (the “ Common
Stock ,” as converted, the “ Conversion
Shares ”) in accordance with the terms of the
Convertible Debentures, and (ii) warrants (the “
Warrants
”), which will be exercisable to purchase shares of
Common Stock (as exercised, collectively, the “
Warrant
Shares ”). Capitalized terms not
defined herein shall have the meaning ascribed to them in the
Securities Purchase Agreement.
B.
To
induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as
amended, and the rules and regulations thereunder, or any
similar successor statute (collectively, the “
Securities
Act ”), and applicable state securities
laws.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Buyers hereby agree as
follows:
1.
DEFINITIONS .
As
used in this Agreement, the following terms shall have the
following meanings:
(a)
“
Effectiveness
Deadline ” means, with respect to any
Registration Statement required to be filed hereunder, the
later to occur of (i) the 60th calendar day following the date
such Registration Statement is filed, provided, however, in
the event the Company is notified by the U.S. Securities and
Exchange Commission (“ SEC
”) that the Registration Statement will not be reviewed
or is no longer subject to further review and comments, the
Effectiveness Date as to such Registration Statement shall be
the fifth Trading Day following the date on which the Company
is so notified if such date precedes the date required above,
and (ii) the fifth Trading Day following the Third Closing
Date or, if the parties terminate the Securities Purchase
Agreement with respect to the Third Closing or the Second
Closing, then the fifth Trading Day following such
termination.
(b)
“
Filing
Deadline ” means, with respect to the initial
Registration Statement, the 10th calendar day following the
First Closing Date, and with respect to any additional
Registration Statements which may be required pursuant to
Section 3(c), the 30th day following the date on which the
Company first knows, or reasonably should have known that such
additional Registration Statement is required
hereunder.
(c)
“
Person
” means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or
a governmental agency.
(d)
“
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.
(e)
“
Registrable
Securities ” means all of (i) the Conversion
Shares issuable upon conversion of the Convertible Debentures,
(ii) the Warrant Shares issuable upon exercise of the
Warrants, (iii) any additional shares issuable in connection
with any anti-dilution provisions in the Warrants or the
Convertible Debentures (without giving effect to any
limitations on exercise set forth in the Warrants or
Convertible Debentures) and (iv) any shares of Common Stock
issued or issuable with respect to the Conversion Shares, the
Convertible Debentures, the Warrant Shares, or the Warrants as
a result of any stock split, dividend or other distribution,
recapitalization or similar event or otherwise, without regard
to any limitations on the conversion of the Convertible
Debentures or exercise of the Warrants.
(f)
“
Registration
Statement ” means the initial registration
statement required to be filed pursuant to Section 2(a) and
any additional registration statements contemplated by Section
3(c), including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed
to be incorporated by reference in such registration
statement.
(g)
“
Required
Registration Amount ” means (i) at
least 4,700,000 shares of Common Stock issued or to be issued
upon conversion of the Convertible Debentures and exercise of
the Warrants issued in the First Closing, (ii) at least
2,125,000 shares of Common Stock issued or to be issued upon
conversion of the Convertible Debentures and exercise of the
Warrants issued in the Second Closing, (iii) at least
12,526,000 shares of Common Stock issued or to be issued upon
conversion of the Convertible Debentures and exercise of the
Warrants issued in the Third Closing, and (iv) with respect to
subsequent Registration Statements all remaining Registrable
Securities to be filed, in each case, subject to any cutback
set forth in Section 3(c).
(h)
“
Rule
415 ” means Rule 415 promulgated by the SEC
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 SEC having substantially the same
purpose and effect as such Rule.
All
other capitalized terms used, but not defined, in this
Agreement shall have the meanings ascribed to such terms in
the Securities Purchase Agreement.
2.
REGISTRATION .
(a)
On
or prior to the Filing Deadline, the Company shall prepare and
file with the SEC a Registration Statement on Form S-1 or SB-2
(or, if the Company is then eligible, on Form S-3) covering
the resale of all of the Registrable
Securities. The Registration Statement prepared
pursuant hereto shall register for resale at least the number
of shares of Common Stock equal to the Required Registration
Amount as of date the Registration Statement is initially
filed with the SEC. The Registration Statement
shall contain the “ Selling
Stockholders ” and “ Plan of
Distribution ” sections in substantially the form
attached hereto as Exhibit A
and contain all the required disclosures set forth on
Exhibit B
. The Company shall use its best efforts to have
the Registration Statement declared effective by the SEC as
soon as practicable, but in no event later than the
Effectiveness Deadline. By 9:30 am on the date
following the date of effectiveness, the Company shall file
with the SEC in accordance with Rule 424 under the 1933 Act
the final Prospectus to be used in connection with sales
pursuant to such Registration Statement. The
Company shall cause the Registration Statement to remain
effective until all of the Registrable Securities have been
sold or may be sold without volume restrictions pursuant to
Rule 144(k), as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company’s transfer agent and the
affected Holders (“ Registration
Period ”).
(b)
Failure to File or Obtain Effectiveness of the Registration
Statement . If: (i) a
Registration Statement is not filed on or prior to its Filing Date
(if the Company files a Registration Statement without affording
the Holders the opportunity to review and comment on the same as
required by Section 3(a), the Company shall not be deemed to have
satisfied this clause (i)), or (ii) a Registration Statement filed
or required to be filed hereunder is not declared effective by the
SEC by its Effectiveness Deadline, or (iii) after the
effectiveness, a Registration Statement ceases for any reason to
remain continuously effective as to all Registrable Securities for
which it is required to be effective, or the Holders are otherwise
not permitted to utilize the Prospectus therein to resell such
Registrable Securities for more than 30 consecutive calendar days
or more than an aggregate of 40 calendar days during any 12-month
period (which need not be consecutive calendar days) (any such
failure or breach being referred to as an “ Event
”), then in addition to any other rights the holders of the
Convertible Debentures may have hereunder or under applicable law,
on each such Event date and on each monthly anniversary of each
such Event date (if the applicable Event shall not have been cured
by such date) until the applicable Event is cured, the Company
shall pay to each holder of Convertible Debentures an amount in
cash, as partial liquidated damages (“ Liquidated
Damages ”) and not as a penalty, equal to 2.0% of the
aggregate purchase price paid by such holder pursuant to the
Securities Purchase Agreement for any Convertible Debentures then
held by such holder. The parties agree that (1) the
Company shall not be liable for Liquidated Damages under this
Agreement with respect to any Warrants or Warrant Shares and (2)
the maximum aggregate Liquidated Damages payable to a holder of
Convertible Debentures under this Agreement shall be twenty-four
percent (24%) of the aggregate Purchase Price paid by such holder
pursuant to the Securities Purchase Agreement. The
partial Liquidated Damages pursuant to the terms hereof shall apply
on a daily pro-rata basis for any portion of a month prior to the
cure of an Event.
(c)
Liquidated Damages . The Company and the Buyer
hereto acknowledge and agree that the sums payable under subsection
2(b) above shall constitute liquidated damages and not penalties
and are in addition to all other rights of the Buyer, including the
right to call a default under the Convertible
Debenture. The parties further acknowledge that (i) the
amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (ii) the amounts specified in such
subsections bear a reasonable relationship to, and are not plainly
or grossly disproportionate to, the probable loss likely to be
incurred in connection with any failure by the Company to obtain or
maintain the effectiveness of a Registration Statement, (iii) one
of the reasons for the Company and the Buyer reaching an agreement
as to such amounts was the uncertainty and cost of litigation
regarding the question of actual damages, and (iv) the Company and
the Buyer are sophisticated business parties and have been
represented by sophisticated and able legal counsel and negotiated
this Agreement at arm’s length.
3.
RELATED OBLIGATIONS .
(a)
The
Company shall, not less than three (3) 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
amendments and supplements to all Registration Statements
(except for annual reports on Form 10-K or Form 10-KSB),
furnish to each Buyer copies of all such documents proposed to
be filed, which documents (other than those incorporated or
deemed to be incorporated by reference) will be subject to the
reasonable and prompt review of such Buyers. The Company shall
not file a Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Buyers
shall reasonably object in good faith; provided that,
the Company is notified of such objection in writing no later
than one (1) Trading Day after the Buyers have been so
furnished copies of a Registration Statement.
(b)
The
Company shall (i) prepare and file with the SEC such
amendments (including post-effective amendments) and
supplements to a Registration Statement and the Prospectus
used in connection with such Registration Statement, which
prospectus is to be filed pursuant to Rule 424 promulgated
under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the
Registration Period, and prepare and file with the SEC such
additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable
Securities; (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 possible to any comments received from
the SEC with respect to a Registration Statement or any
amendment thereto and as promptly as reasonably possible
provide the Buyers true and complete copies of all
correspondence from and to the SEC relating to a Registration
Statement (provided that the Company may excise any
information contained therein which would constitute material
non-public information as to any Buyer which has not executed
a confidentiality agreement with the Company); and (iv) comply
with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities of the Company
covered by such Registration Statement until such time as all
of such Registrable Securities shall have been disposed of in
accordance with the intended methods of disposition by the
seller or sellers thereof as set forth in such Registration
Statement. 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’s filing a
report on Form 10-K, Form 10-Q or Form 8-K or any analogous
report under the Securities Exchange Act of 1934, as amended
(the “ Exchange
Act ”), the Company shall incorporate such report
by reference into the Registration Statement, if applicable,
or shall file such amendments or supplements with the SEC on
the same day on which the Exchange Act report is filed which
created the requirement for the Company to amend or supplement
the Registration Statement.
(c)
Reduction of Registrable Securities Included in a Registration
Statement . Notwithstanding anything contained herein, in
the event that the SEC requires the Company to reduce the number of
Registrable Securities to be included in a Registration Statement
in order to allow the Company to rely on Rule 415 with respect to a
Registration Statement, then the Company shall be obligated to
include in such Registration Statement (which may be a subsequent
Registration Statement if the Company needs to withdraw the initial
Registration Statement and refile a new Registration Statement in
order to rely on Rule 415) only such limited portion of the
Registrable Securities as the SEC shall permit. Any
Registrable Securities that are excluded in accordance with the
foregoing terms are hereinafter referred to as “ Cut Back
Securities .” To the extent Cut Back
Securities exist, as soon as may be permitted by the SEC, the
Company shall be required to file a Registration Statement covering
the resale of the Cut Back Securities and shall use best efforts to
cause such Registration Statement to be declared effective as
promptly as practicable thereafter.
(d)
The
Company shall furnish to each Buyer whose Registrable
Securities are included in any Registration Statement, without
charge, upon Buyer’s request (i) at least one (1) copy
of such Registration Statement as declared effective by the
SEC and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein
by reference, all exhibits and each preliminary prospectus,
(ii) ten (10) copies of the final prospectus included in such
Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Buyer may
reasonably request) and (iii) such other documents as such
Buyer may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned
by such Buyer.
(e)
The
Company shall use its best efforts to (i) register and qualify
the Registrable Securities covered by a Registration Statement
under such other securities or “blue sky” laws of
such jurisdictions in the United States as any Buyer
reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii)
take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during
the Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however,
that the Company shall not be required in connection therewith
or as a condition thereto to (w) make any change to its
articles of incorporation or by-laws, (x) qualify to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(e), (y) subject
itself to general taxation in any such jurisdiction, or (z)
file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify
each Buyer who holds Registrable Securities of the receipt by
the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable
Securities for sale under the securities or “blue
sky” laws of any jurisdiction in the United States or
its receipt of actual notice of the initiation or threat of
any proceeding for such purpose.
(f)
As
promptly as practicable after becoming aware of such event or
development, the Company shall notify each Buyer in writing of
the happening of any event as a result of which the Prospectus
included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission 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 were made, not misleading
(provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a
supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten
(10) copies of such supplement or amendment to each
Buyer. The Company shall also promptly notify each
Buyer in writing (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment
has become effective (notification of such effectiveness shall
be delivered to each Buyer by facsimile on the same day of
such effectiveness), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of
the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be
appropriate.
(g)
The
Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification
of any of the Registrable Securities for sale in any
jurisdiction within the United States of America and, if such
an order or suspension is issued, to obtain the withdrawal of
such order or suspension at the earliest possible moment and
to notify each Buyer who holds Registrable Securities being
sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of
any proceeding for such purpose.
(h)
If,
after the execution of this Agreement, a Buyer believes, after
consultation with its legal counsel, that it could reasonably
be deemed to be an underwriter of Registrable Securities, at
the request of any Buyer, the Company shall furnish to such
Buyer, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as a
Buyer may reasonably request (i) a letter, dated such date,
from the Company’s independent certified public
accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an
underwritten public offering, and (ii) an opinion, dated as of
such date, of counsel representing the Company for purposes of
such Registration Statement, in form, scope and substance as
is customarily given in an underwritten public offering,
addressed to the Buyers.
(i)
If,
after the execution of this Agreement, a Buyer believes, after
consultation with its legal counsel, that it could reasonably
be deemed to be an underwriter of Registrable Securities, at
the request of any Buyer, the Company shall make available for
inspection by (i) any Buyer and (ii) one (1) firm of
accountants or other agents retained by the Buyers
(collectively, the “ Inspectors
”) all pertinent financial and other records, and
pertinent corporate documents and properties of the Company
(collectively, the “ Records
”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors
and employees to supply all information which any Inspector
may reasonably request;
provided,
however, that each Inspector shall agree, and each Buyer
hereby agrees, to hold in strict confidence and shall not make
any disclosure (except to a Buyer) or use any
Record or other information which the Company determines in
good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise
required under the Securities Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been
made generally available to the public other than by
disclosure in violation of this or any other agreement of
which the Inspector and the Buyer has
knowledge. Each Buyer agrees that it shall, upon
learning that disclosure of such Records is sought in or by a
court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and
allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential.
(j)
The
Company shall hold in confidence and not make any disclosure
of information concerning a Buyer provided to the Company
unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the
disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order
from a court or governmental body of competent jurisdiction,
or (iv) such information has been made generally available to
the public other than by disclosure in violation of this
Agreement or any other agreement. The Company
agrees that it shall, upon learning that disclosure of such
information concerning a Buyer is sought in or by a court or
governmental body of competent jurisdiction or through other
means, give prompt written notice to such Buyer and allow such
Buyer, at the Buyer’s expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective
order for, such information.
(k)
The
Company shall use its best efforts either to cause all the
Registrable Securities covered by a Registration Statement to
be (i) listed on each securities exchange on which securities
of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities
is then permitted under the rules of such exchange or
(ii) included for quotation on the OTC Bulletin
Board. The Company shall pay all fees and expenses
in connection with satisfying its obligation under this
Section 3(k).
(l)
The
Company shall cooperate with each Buyer who holds Registrable
Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the
Buyers may reasonably request and registered in such names as
the Buyers may request.
(m)
The
Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to
be registered with or approved by such other governmental
agencies or authorities as may be necessary to consummate the
disposition of such Registrable Securities.
(n)
The
Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days
after the close of the period covered thereby, an earnings
statement (in form complying with the provisions of Rule 158
under the Securities Act) covering a twelve (12) month period
beginning not later than the first day of the Company’s
fiscal quarter next following the effective date of the
Registration Statement.
(o)
The
Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection
with any registration hereunder.
(p)
Within
two (2) business days after a Registration Statement which
covers Registrable Securities is declared effective by the
SEC, the Company shall deliver, and shall cause legal counsel
for the Co
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