TELKONET, INC.
20800 Swenson Drive
Suite 175
Waukesha, WI 53186
414-302-2299
April 26, 2021
Dear Stockholder:
You are cordially invited
to attend the 2021 Annual Meeting of Stockholders of Telkonet, Inc. (the “Company”) to be held on May 27, 2021 at 1:00 p.m.,
local time, at the offices of Telkonet, Inc., 20800 Swenson Dr., Suite 175, Waukesha, WI 53186.
The accompanying Notice of
Annual Meeting of Stockholders outlines the matters to be brought forth at the meeting, and the accompanying proxy statement discusses
these matters in greater detail. Please read both carefully.
Whether or not you plan to
attend the meeting, we urge you to complete, date and sign the enclosed proxy card and return it at your earliest convenience. No postage
need be affixed if you use the enclosed envelope and it is mailed in the United States. You may also vote by telephone or via the Internet.
If you have any questions or need assistance in completing the proxy card or voting by telephone or via the Internet, please contact Investor
Relations at ir@telkonet.com or call 414-302-2299.
Only holders of record of
our common stock, par value $0.001 per share, our Series A Preferred Stock, par value $0.001 per share, and our Series B Preferred Stock,
par value $0.001 per share, at the close of business on March 30, 2021 are entitled to notice of, and to vote at, the meeting or any adjournment
or postponement thereof.
Our proxy statement and the
proxy card are enclosed along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which is being provided
as our Annual Report to Stockholders. These materials are also available on the following website at http://www.proxyvote.com.
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD
OR VOTE BY TELEPHONE OR VIA THE INTERNET
IMMEDIATELY, WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING.
We currently intend to hold
the 2021 Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) situation and are sensitive to the public
health and travel concerns our stockholders may have and the protocols that federal, state, and local governments may impose. In the event
it is not possible or not advisable to hold our 2021 Annual Meeting on May 27, 2021, we will announce alternative arrangements for the
meeting through all appropriate means as promptly as possible. The alternate arrangements may include a change in the date, time, or location
of the meeting, including holding the meeting by remote communication.
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Sincerely yours,
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/s/ Jason L. Tienor
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Jason L. Tienor
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Chief Executive Officer
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TELKONET, INC.
20800 Swenson Drive
Suite 175
Waukesha, WI 53186
414-302-2299
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 26, 2021
Notice is hereby given that
the Annual Meeting of Stockholders (the “Meeting”) of Telkonet, Inc., a Utah corporation (the “Company”), will
be held on May 27, 2021 at 1:00 p.m., local time, at the offices of Telkonet, Inc., 20800 Swenson Dr., Suite 175, Waukesha, WI 53186 for
the following purposes:
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1.
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To elect five (5) directors to the Company’s Board of Directors, each to serve until the next Annual Meeting of Stockholders and until his successor has been elected and qualified, or until his earlier death, resignation, disqualification, or removal;
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2.
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To ratify the appointment of Wipfli LLP as our independent registered public accounting firm for the year ending December 31, 2021;
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3.
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To provide a non-binding advisory approval of
the compensation of our named executive officers; and
To transact such other business as may properly
come before the Meeting.
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Only holders of record of
the Company’s common stock, par value $0.001 per share, the Company’s Series A Preferred Stock, par value $0.001 per share,
and the Company’s Series B Preferred Stock, par value $0.001 per share, at the close of business on March 30, 2021, the record date,
are entitled to notice of and to vote at the Meeting or any adjournment or postponement thereof.
Unless you attend the Meeting
and vote your shares as discussed below, your shares will not be voted with respect to the election of directors and the non-binding advisory
approval of the compensation of our named executive officers if you hold your shares in street name and have not provided instructions
to your broker, bank, or other nominee. We strongly encourage you to submit your voting instruction card and exercise your right to vote
as a stockholder.
Your vote is important. Even
if you plan to attend the Meeting in person, the Company requests that you sign and return the enclosed proxy card, or vote by telephone
or over the Internet as instructed in these materials, as promptly as possible to ensure that your shares will be represented at the Meeting
if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be counted
as a vote “FOR” each of the nominees for director, “FOR” the ratification of Wipfli LLP as our independent registered
public accounting firm for the year ending December 31, 2021, “FOR” the non-binding advisory approval of the compensation
of our named executive officers, and in the discretion of the proxies on any other matter which may properly come before the Meeting.
If you do attend the Meeting and wish to vote in person, you may withdraw your proxy and vote in person. Please note, however, that if
your shares are held of record by a broker, bank, or other nominee and you wish to vote at the Meeting, you must obtain from the record
holder a proxy issued in your name.
We currently intend to hold
the Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) situation and are sensitive to the public health
and travel concerns our stockholders may have and the protocols that federal, state, and local governments may impose. In the event it
is not possible or not advisable to hold the Meeting on May 27, 2021, we will announce alternative arrangements for the meeting through
all appropriate means as promptly as possible. The alternate arrangements may include a change in the date, time, or location of the meeting,
including holding the meeting by remote communication.
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By order of the Board of Directors,
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/s/ Richard E. Mushrush
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Richard E. Mushrush
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Secretary
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THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” EACH OF THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1, AND “FOR”
PROPOSALS 2, AND 3.
YOU CAN VOTE IN ONE OF FOUR WAYS:
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(1)
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Visit the website noted on your proxy card to vote via the Internet;
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(2)
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Vote by telephone at the number noted on your proxy card;
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(3)
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Sign, date and return your proxy card in the enclosed envelope to vote by mail; OR
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(4)
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Attend the Meeting and vote in person.
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TELKONET, INC.
20800 Swenson Drive
Suite 175
Waukesha, WI 53186
414-302-2299
PROXY STATEMENT
This proxy statement contains
information related to the Annual Meeting of Stockholders (the “Meeting”) of Telkonet, Inc., a Utah corporation, to be held
on May 27, 2021 at 1:00 p.m., local time, at the offices of Telkonet, Inc., 20800 Swenson Dr. Suite 175, Waukesha, WI 53186, and at any
postponements or adjournments thereof. In this proxy statement, “Telkonet”, the “Company”, “we”,
“us” and “our” refer to Telkonet, Inc.
Important Notice Regarding the Availability
of Proxy Materials for
the Annual Meeting of Stockholders to Be Held
on May 27, 2021.
This proxy statement and
accompanying notice, proxy card and Annual Report on Form 10-K for the fiscal year ended December 31, 2020, are also available on the
following website at http://www.proxyvote.com.
VOTING AT THE ANNUAL MEETING
Revocability of Proxies
Any proxy given pursuant to
this solicitation may be revoked by the person giving it at any time before it is voted. Attendance at the Meeting will not, in and of
itself, revoke a proxy. Proxies may be revoked by:
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Filing with the Secretary of Telkonet, at or before the taking of the vote at the Meeting, a written notice of revocation dated later than the proxy;
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Voting again at a later date (but prior to the Meeting) on the Internet or by telephone;
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Executing a later dated proxy relating to the same shares of capital stock and delivering it to the Secretary of Telkonet before the taking of the vote at the Meeting; or
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Attending the Meeting and voting in person.
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Any written revocation or
subsequent proxy should be sent so as to be delivered to Telkonet, Inc., 20800 Swenson Drive, Suite 175, Waukesha, WI 53186,
Attention: Corporate Secretary, or hand delivered to the Secretary of Telkonet or his representative at or before the taking of the vote
at the Meeting.
If the Meeting is postponed
or adjourned, proxies given pursuant to this solicitation will be utilized at any subsequent reconvening of the Meeting, except for any
proxies that previously have been revoked or withdrawn effectively, and notwithstanding that proxies may have been effectively voted on
the same or any other matter previously.
Voting Rights
Only holders of record of
our common stock, par value $0.001 per share (“common stock”), holders of record of our Series A Preferred Stock, par value
$0.001 per share (“Series A Preferred Stock”), and holders of record of our Series B Preferred Stock, par value $0.001 per
share (“Series B Preferred Stock”) at the close of business on March 30, 2021, the record date (the “Record Date”),
are entitled to notice of and to vote at the Meeting, and at any postponements or adjournments thereof. Holders of our Series A Preferred
Stock and holders of our Series B Preferred Stock will each vote on an as-converted basis together with holders of our common stock as
a single class in connection with each of the proposals in this proxy statement. Each share of common stock is entitled to one vote on
all matters to be voted upon at the Meeting; each share of Series A Preferred Stock is entitled to 13,774 votes on all matters to be voted
upon at the Meeting; and each share of Series B Preferred Stock is entitled to 38,461 votes on all matters to be voted on at the Meeting.
At least a majority of our shares outstanding on the Record Date and entitled to vote (counting our Series A Preferred Stock and Series
B Preferred Stock each on an as-converted basis, representing an aggregate of 4,548,162 shares of common stock for such purposes)
must be represented at the Meeting, either in person or by proxy, in order to constitute a quorum for the transaction of business. Abstentions
and broker non-votes will be counted for purposes of determining the presence or absence of a quorum. Broker non-votes occur when a nominee
holding shares for a beneficial owner does not have discretionary voting power on a matter and has not received instructions from the
beneficial owner.
How to Vote; How Proxies Work
Our Board of Directors (the
“Board of Directors” or the “Board”) is asking for your proxy. Whether or not you plan to attend the Meeting,
we urge you to vote by proxy as you can always change your vote at the Meeting. Please provide your proxy by voting on the
Internet or by telephone, or complete, date and sign the enclosed proxy card and return it at your earliest convenience. We will bear
the costs incidental to the solicitation and obtaining of proxies, including the costs of reimbursing banks, brokers and other nominees
for forwarding proxy materials to beneficial owners of our capital stock. Proxies may be solicited by our officers and employees,
without extra compensation, in person, by telephone, and by other methods of communication.
At the Meeting, and at any
postponements and adjournments thereof, all shares entitled to vote and represented by properly executed proxies received prior to the
Meeting and not revoked will be voted as instructed on those proxies. If no instructions are indicated on a properly executed proxy, the
shares will be voted “FOR” each of the nominees for director, “FOR” the ratification of Wipfli LLP as our independent
registered public accounting firm for the year ending December 31, 2021, “FOR” the non-binding advisory approval of the compensation
of our named executive officers, and in the discretion of the proxies on any other matter which may properly come before the Meeting.
Questions and Answers
Q. What
am I voting on?
You are voting on three proposals:
Proposal No.1: For the election of
five (5) nominees to our Board of Directors, each to serve until the next Annual Meeting of Stockholders and until his successor has been
elected and qualified, or until his earlier death, resignation, disqualification, or removal.
Proposal No.2: For ratification of
the selection of Wipfli LLP as our independent registered public accounting firm for the year ending December 31, 2021.
Proposal No.3: To provide a non-binding
advisory approval of the compensation of our named executive officers.
Q. Who
is entitled to vote?
Only holders of record of
our common stock and holders of record of our Series A Preferred Stock and Series B Preferred Stock at the close of business on March
30, 2021, the Record Date, are entitled to vote shares held by such stockholders on that date at the Meeting.
Q. How
do I vote?
Vote by Internet: Visit
the website noted on your proxy card to vote via the Internet.
Vote By Telephone: Call
the number noted on your proxy card to vote by telephone.
Vote By Mail: Sign
and date the proxy card you receive and return it in the enclosed stamped, self-addressed envelope.
Vote in Person: Sign
and date the proxy you receive and return it in person at the Meeting. If your shares are held in the name of a bank, broker or other
holder of record (i.e., in “street name”), you will receive instructions from the holder of record that you must follow in
order for your shares to be voted. Internet voting will be offered to stockholders owning shares through most banks and brokers.
Q. How
many votes do I have?
On each matter to be voted
upon, each share of common stock is entitled to one vote, each share of Series A Preferred Stock is entitled to 13,774 votes and each
share of Series B Preferred Stock is entitled to 38,461 votes.
Q. How
many shares were outstanding on the Record Date?
At the close of business on
March 30, 2021, the Record Date, there were 140,859,497 shares outstanding (counting our Series A Preferred Stock and our Series B Preferred
Stock on an as-converted basis, representing an aggregate of 4,548,162 shares of common stock for such purposes).
Q. What
is a “quorum” for purposes of the Meeting?
In order to conduct business
at the Meeting, a quorum of stockholders is necessary to hold a valid meeting. Holders of our Series A Preferred Stock and holders of
our Series B Preferred Stock will each vote on an as-converted basis together with holders of our common stock as a single class in connection
with each of the proposals contained in this proxy statement. At least a majority of our shares outstanding on the Record Date and entitled
to vote (counting our Series A Preferred Stock on an as-converted basis and our Series B Preferred Stock on an as-converted basis, representing
an aggregate of 4,548,162 shares of common stock for such purposes) must be represented at the Meeting, either in person or by proxy,
in order to constitute a quorum for the transaction of business. At the close of business on the Record Date, there were 140,859,497 shares
outstanding and entitled to vote (counting our Series A Preferred Stock on an as-converted basis and our Series B Preferred Stock on an
as-converted basis, representing an aggregate of 4,548,162 shares of common stock for such purposes) and, accordingly, the presence, in
person or by proxy, of at least 70,429,749 shares is necessary to meet the quorum requirement.
Your shares will be counted
towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you
vote in person at the Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum,
the holders of a majority of shares present at the Meeting in person or represented by proxy may adjourn the Meeting to another date.
Q. Who
is paying for this proxy solicitation?
The Company will pay for the
entire cost of soliciting proxies, including the printing and filing of this proxy statement, the proxy card and any additional information
furnished to stockholders. In addition, our directors and employees may also solicit proxies in person, by telephone, or by other means
of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We will also reimburse
brokerage firms, banks and other agents for the reasonable out-of-pocket expenses they incur to forward proxy materials to beneficial
owners.
Q. What
if I return a proxy card but do not make specific choices?
All shares for which a proxy
has been properly submitted and not revoked will be voted at the Meeting in accordance with your instructions. If you sign your proxy
card but do not give voting instructions, the shares represented by that proxy will be voted in the discretion of the proxies. The proxies
intend to vote in favor of the election of each director nominee listed in Proposal 1, and in favor of Proposal Nos. 2, and 3.
If any other matter is properly
presented at the Meeting, your proxy (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.
Q. Can
I access the proxy materials electronically?
This proxy statement, the
proxy card, and our Annual Report on Form 10-K for the period ended December 31, 2020 are available on the following website at http://www.proxyvote.com.
Q. Can
I change my vote or revoke my proxy?
Yes. You may change
your vote or revoke your proxy at any time before the proxy is exercised. Proxies may be revoked by:
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Filing with the Secretary of Telkonet, at or before the taking of the vote at the Meeting, a written notice of revocation dated later than the proxy;
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Voting again at a later date (but prior to the Meeting) on the Internet or by telephone;
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Executing a later dated proxy relating to the same shares of capital stock and delivering it to the Secretary of Telkonet, including by facsimile, before the taking of the vote at the Meeting; or
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Attending the Meeting and voting in person.
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Any written revocation or
subsequent proxy should be sent so as to be delivered to Telkonet, Inc., 20800 Swenson Drive, Suite 175, Waukesha, WI 53186,
Attention: Corporate Secretary, or hand delivered to the Secretary of Telkonet or his representative at or before the taking of the vote
at the Meeting. Attendance at the Meeting will not have the effect of revoking a proxy unless you give written notice of revocation to
the Corporate Secretary before the proxy is exercised or you vote by written ballot at the Meeting.
Q. What
is the process for admission to the Meeting?
If you are a record owner
of your shares (i.e., your shares are held in your name), you must show government issued identification. Your name will be verified
against the stockholder list. If you hold your shares through a bank, broker or other nominee, you must also bring a copy of your latest
bank or broker statement showing your ownership of your shares as of the Record Date.
Q. How
many votes are required to approve matters to be presented?
Each of our Series A Preferred
Stock and Series B Preferred Stock is entitled to vote on Proposal Nos. 1, 2, and 3 on an as-converted basis with our common stock
as a single class. Each share of common stock is entitled to one vote; each share of Series A Preferred Stock is entitled to 13,774 votes
on each of the proposals contained in this proxy statement; and each share of Series B Preferred Stock is entitled to 38,461 votes on
each of the proposals contained in this proxy statement.
We have described the vote
necessary for each Proposal in the description of that Proposal. Voting ceases when the polls are closed at the Annual Meeting. In determining
whether a majority of the shares of the common stock (counting our Series A Preferred Stock and Series B Preferred Stock each on an as-converted
basis) present at the Meeting in person or by proxy have been affirmatively voted for a particular proposal, except in the election of
directors, the affirmative votes for the proposal are compared to the votes against the proposal plus the abstentions from voting on the
proposal. You may abstain from voting on any proposal. Except in the election of directors, abstentions from voting are not considered
as votes affirmatively cast and therefore will have the effect of a vote against a proposal. With regard to the election of directors,
abstentions will be excluded entirely from the vote and will have no effect.
Q. How
will my shares held in street name be voted if I do not provide voting instructions?
If you are a beneficial owner
of shares held in street name and do not provide the organization that holds your shares with specific voting instructions, under the
rules of various national and regional securities exchanges, the organization that holds your shares may generally vote on routine matters
but cannot vote on non-routine matters, including the election of directors and proposals relating to executive compensation. Accordingly,
if you are a street-name holder and do not provide instructions to your broker on Proposal No. 1 or Proposal No. 3, your broker may not
vote your shares on such proposals; thus we strongly encourage you to submit your voting instruction card and exercise your right to vote
as a stockholder.
Q. What
are the recommendations of the Board of Directors?
The Board of Directors unanimously
recommends that the stockholders vote:
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FOR each of the nominees for director listed in Proposal No. 1;
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FOR ratification of the appointment of Wipfli LLP as our independent registered public accounting firm for the year ending December 31, 2021 in Proposal No. 2; and
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FOR non-binding advisory approval of the compensation of our Named Executive Officers (as defined below) in Proposal No. 3.
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With respect to any other matter that properly
comes before the Meeting, the proxies may use their discretion to determine how to vote.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The first proposal to be voted
on at the Meeting is the election of five (5) directors. Upon the Nominating Committee’s recommendation, the Board has nominated
all of the current directors for re-election to the Board of Directors. Each of the nominees has consented to serve as a nominee, to be
named as a nominee in this proxy statement, and to serve as a director if elected. Telkonet’s bylaws establish the number of directors
at not less than three (3) members. Pursuant to the bylaws, the Board of Directors may increase or decrease the number of members of the
Board of Directors. The Board of Directors has established the number of directors at five (5). At the Meeting, the shares represented
by properly executed proxies, unless otherwise specified, will be voted for the election of the five (5) nominees named herein, each to
serve until the next Annual Meeting of Stockholders and until his successor is duly elected and qualified, or until his earlier death,
resignation, disqualification, or removal. If for any reason any nominee is not a candidate when the election occurs (which is not expected),
the Board of Directors expects that proxies will be voted for the election of a substitute nominee designated by the Board of Directors.
The following information
is furnished concerning each nominee for election as a director.
Nominees for Election at the Annual Meeting
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Director Name
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Age
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Position With Telkonet
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Director Since
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Arthur E. Byrnes
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76
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Chairman of the Board (1)
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2016
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Peter T. Kross
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79
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Director (2) (3)
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2016
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Leland D. Blatt
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73
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Director (3)
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2016
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Tim S. Ledwick
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63
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Director (1) (2) (3)
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2012
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Jason L. Tienor
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46
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Director, President, and Chief Executive Officer
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2009
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(1)
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Member of the Audit Committee
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(2)
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Member of the Compensation Committee
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(3)
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Member of the Nominating Committee
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ARTHUR E. BYRNES, Chairman
of the Board, since 1971, Mr. Byrnes has worked at the Deltec organization in various capacities, with a focus on analysis and investment
management in the global arena. Currently, he is the Senior Managing Director (and co-controlling shareholder) of Deltec Asset Management
LLC, an investment advisory firm. Deltec Asset Management manages approximately nine hundred million dollars in emerging market debt and
equities, high yield bonds, distressed debt and U.S. special situation equities. Mr. Byrnes served as a board member (1993 to 1998) and
chairman of the board (1997 to 1998) of Dravo Corporation, a New York Stock Exchange Listed lime company, until the company was sold in
1998. We believe Mr. Byrne’s extensive executive and board chairman experience qualify him to sit on our Board.
PETER T. KROSS, Director,
Mr. Kross graduated from St. Lawrence University in 1963 with a BA in economics, and worked in public accounting at Lybrand Ross Bros.,
now PricewaterhouseCoopers, before joining Reynolds & Co. in 1968 to work in the brokerage business. He has worked in the brokerage
business ever since. Specifically, since September 2012, Mr. Kross has been a Senior Vice President at L.M. Kohn & Company, a registered
broker-dealer. He was also an independent investment adviser affiliated with D.B. French & Co. LLC, an investment firm, from
July 2012 to September 2012. From May 2002 to July 2012, Mr. Kross was employed as a broker at Leonard & Co., a registered broker-dealer. He
was also the managing partner of Kross LaSalle Partners (later becoming LaSalle Financial Partners), which was an activist limited partnership
investing in smaller Midwestern banks that sought board representation when it believed such representation might help maximize shareholder
value. We believe Mr. Kross’ qualifications to sit on our Board include his background in public accounting as well as his
executive experience.
LELAND D. BLATT, Director,
Mr. Blatt has acted as a co-manager of a family investment office, Ibis Investment Company, for over 18 years. He is also a partner
and co-owner of a real estate company focused on office buildings in Michigan, Florida and Maryland. Over the past 20 years, Mr.
Blatt has been involved in pro bono non-profit work, serving on committees and boards. We believe Mr. Blatt’s extensive board membership
experience qualify him to sit on our Board.
TIM S. LEDWICK, Director,
Mr. Ledwick has served as a director since April 2012. Mr. Ledwick has over 20 years’ experience as a CFO in both public and private
companies. Mr. Ledwick is currently the Chief Financial Officer of Syft, a private equity-backed company that provides software solutions
and services to hospitals focused on reducing costs through superior inventory management practices. From 2007 to 2011, Mr. Ledwick provided
CFO consulting services to a variety of companies including a $150 million services firm. Mr. Ledwick currently serves on the Board of
Directors at Spherix Incorporated (SPEX), a NASDAQ listed intellectual property company, and is the Chair of the Audit Committee of Spherix
Incorporated. Mr. Ledwick is a member of the Connecticut Society of Certified Public Accountants and received his BBA in Accounting from
The George Washington University and his MS in Finance from Fairfield University. We believe Mr. Ledwick’s qualifications to
sit on our Board include his background in public accounting as well as his financial executive experience.
JASON L. TIENOR, Mr.
Tienor has served as Telkonet’s President and Chief Executive Officer since December 2007, and prior to that served as Chief Operating
Officer from August 2007 until December 2007. He was appointed to Telkonet’s Board in November 2009. Mr. Tienor cofounded EthoStream,
LLC in 2002 and operated as President and CEO of the company through its acquisition by Telkonet in 2007. Prior to EthoStream, Mr. Tienor
also cofounded and operated a technology consulting business specializing in Internet technologies. Mr. Tienor currently acts as a mentor
and advisor for numerous organizations and serves on a number of corporate and association boards. Mr. Tienor is recognized as an authority
in the Automation and Clean Technology space and has appeared numerous times for keynote and interview presentations including the University
of Wisconsin Oshkosh Center for Entrepreneurship and Innovation, Bloomberg Television, Business Journal and other magazine, television
and radio interviews. Mr. Tienor received a Bachelor of Business Administration in both Management Information Systems (MIS) and Marketing
from the University of Wisconsin – Oshkosh and a Master of Business Administration from Marquette University. We believe Mr. Tienor’s
qualifications to sit on our Board of Directors include: his extensive experience in business and executive management; his broad credentials
in the Company’s technology fields and the leadership he has provided to multiple businesses including Telkonet, first as Chief
Operating Officer and then as President and Chief Executive Officer.
Required Vote
Directors are elected by a
plurality of the votes cast by holders of shares of our common stock, our Series A Preferred Stock and our Series B Preferred Stock, voting
together as a single class on an as-converted basis, entitled to vote at the Meeting, either in person or by proxy. Votes may be cast
in favor of a nominee or withheld. Because directors are elected by plurality, abstentions from voting and broker non-votes will be excluded
from the vote on this proposal and will have no effect on its outcome. If a quorum is present at the Meeting, the five nominees receiving
the greatest number of votes will be elected. For beneficial owners of shares held in street name, brokers are prohibited from giving
proxies to vote on the election of directors unless the beneficial owner has given voting instructions as to each director. This means
that if your broker is the record holder of your shares you must give voting instructions to your broker if you want your broker to vote
your shares for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE “FOR” THE ELECTION OF
EACH NOMINEE
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Wipfli, LLP (“Wipfli”),
has served as the Company’s independent registered public accounting firm since April 2020 and has been retained to do so in 2021.
BDO USA, LLP (“BDO”) had previously served as the Company’s independent registered public accounting firm for the year
ended December 31, 2019, having served continuously in that role since 2013. Please see below for additional information regarding the
change of independent registered public accounting firms. The Board of Directors has directed that management submit the selection of
Wipfli for ratification by the stockholders at the Meeting. A representative of Wipfli is expected to be present at the Meeting, will
have an opportunity to make a statement, should the representative desire to do so, and will be available to respond to appropriate questions.
Stockholder ratification of
the selection of Wipfli as the Company’s independent registered public accounting firm is not required. However, the Board of Directors
is submitting the selection of Wipfli to the stockholders for ratification as a matter of good corporate practice. If the stockholders
do not ratify the selection, the Audit Committee will reconsider whether to retain the firm in future years. In such event, the Audit
Committee may retain Wipfli, notwithstanding the fact that the stockholders did not ratify the selection, or select another accounting
firm without re-submitting the matter to the stockholders. Even if the selection is ratified, the Audit Committee reserves the right,
in its discretion, to select a different accounting firm at any time during the year if it determines that such a change would be in the
best interests of the Company and its stockholders.
Disclosure of Additional Information Regarding
Change of Independent Registered Public Accounting Firms
In 2019, the Audit Committee
conducted a comprehensive request for proposal (“RFP”) process, which resulted in the Audit Committee selecting Wipfli as
the new independent registered public accounting firm for 2020. During the RFP process, the Audit Committee evaluated the proposals of
the independent registered public accounting firms and considered multiple factors, including audit quality, the professional qualifications
of the firm, the professional qualifications of the proposed lead engagement partner and the primary engagement team that would serve
the Company, the benefits of tenure versus fresh perspective, potential transition risks, technological capabilities, and the appropriateness
of fees relative to both efficiency and audit quality.
On March 31, 2020, after careful
consideration of each firm’s qualifications, the Audit Committee approved the engagement of Wipfli as the Company’s independent
registered public accounting firm for the Company’s fiscal year ending December 31, 2020. BDO was dismissed as the Company’s
independent registered public accounting firm effective as of March 30, 2020, following the completion of
BDO’s audit of the consolidated financial statements of the Company as of and for the year ending December 31, 2019, and the issuance
of their report thereon.
BDO’s
audit reports on the Company’s consolidated financial statements for each of the fiscal years ended December 31, 2019 and 2018 did
not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting
principles, except as follows:
BDO’s
report on (i) the consolidated financial statements of the Company as of and for the years ended December 31, 2019 and 2018, each contained
separate explanatory paragraphs regarding substantial doubt about the Company’s ability to continue as a going concern, (ii) the
consolidated financial statements of the Company as of and for the year ended December 31, 2019 contained a separate paragraph stating
that as discussed in Notes B and M to the consolidated financial statements, the Company changed its method of accounting for leases
in 2019 due to the adoption of Accounting Standards Codification Topic 842 – Leases, and (iii) the
consolidated financial statements of the Company as of and for the year ended December 31, 2018 contained a separate paragraph stating
that as discussed in Notes A, B and C to the consolidated financial statements, the Company changed its method of accounting for
revenue from contracts with customers in the year 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from
Contracts with Customers.
During
the fiscal years ended December 31, 2019 and 2018, and the subsequent interim period through March 30, 2020, there
were no disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K between the Company and BDO on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to BDO’s
satisfaction, would have caused BDO to make reference to the subject matter of the disagreement(s) in connection with its reports on the
Company’s consolidated financial statements for such years.
During
the years ended December 31, 2019 and 2018, and the subsequent interim period through March 30, 2020, there
were no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K, except as follows:
In
connection with BDO’s audit of the Company's consolidated financial statements for the fiscal years ended December 31, 2019 and
2018, BDO advised the Company that they had identified material weaknesses in the Company’s internal control over financial reporting
relating to not having adequate financial reporting and close process controls, a lack segregation of duties, not having effective controls
over the recording of revenue recognition contracts, and not having adequate processes and procedures for the Company’s IT general
control environment. These material weaknesses are further described in Part II, Item 9A. “Controls and Procedures” of the
Annual Reports on Form 10-K for each of the fiscal years ended December 31, 2019 and 2018, filed with the Securities and Exchange Commission
on March 30, 2020 and April 1, 2019, respectively. The subject matter of these internal control deficiencies was discussed by the Audit
Committee of the Board of Directors of the Company with BDO. The Company has authorized BDO to respond fully to the inquiries of the successor
independent registered public accounting firm concerning the internal control deficiencies.
During
the fiscal years ended December 31, 2019 and 2018 and the subsequent interim period through March 30, 2020, neither the Company nor anyone
on its behalf has consulted with Wipfli regarding: (i) the application of accounting principles to a specific transaction, either completed
or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report nor
oral advice was provided to the Company that Wipfli concluded was an important factor considered by the Company in reaching a decision
as to any accounting, auditing, or financial reporting issue; (ii) any matter that was the subject of a disagreement within the meaning
of Item 304(a)(1)(iv) of Regulation S-K and the related instructions; or (iii) any “reportable event” within the meaning of
Item 304(a)(1)(v) of Regulation S-K.
The Company filed a Form 8-K
with the SEC disclosing this change in its independent registered public accounting firm on April 2, 2020.
Independent Registered Public Accounting Firm Fees and Services
The following table sets forth fees billed, or
expected to be billed, to the Company by Wipfli and BDO for the fiscal years ended December 31, 2020 and 2019.
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Audit Fees (1)
|
|
$
|
227,587
|
|
|
$
|
279,311
|
|
|
Tax Fees (2)
|
|
|
31,000
|
|
|
|
33,150
|
|
|
Total Fees
|
|
$
|
258,587
|
|
|
$
|
312,461
|
|
|
|
(1)
|
Audit fees consist of fees billed for professional services rendered for the audit of the Company’s consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Wipfli and BDO in connection with statutory and regulatory filings or engagements.
|
|
|
(2)
|
Tax fees consist of fees billed for professional services for tax return preparation and filing, compliance, advice and planning. The tax fees relate to federal and state income tax reporting requirements.
|
Prior to the Company’s
engagement of its independent registered public accounting firm, such engagement is approved by the Company’s Audit Committee. The
services provided under this engagement may include audit services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is
generally subject to a specific budget. Pursuant to the Audit Committee Charter, the independent registered public accounting firm and
management are required to report to the Company’s Audit Committee at least quarterly regarding the extent of services provided
by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to
date. The Audit Committee may also pre-approve particular services on a case-by-case basis. All audit fees, audit-related fees, tax fees
and other fees incurred by the Company for the year ended December 31, 2020 were approved by the Company’s Audit Committee.
Required Vote
The affirmative vote of a
majority of the shares of the common stock (counting our Series A Preferred Stock and Series B Preferred Stock each on an as-converted
basis) present at the Meeting in person or by proxy is required to ratify the appointment of Wipfli as the Company’s independent
registered public accounting firm. For beneficial owners of shares held in street name, brokers have discretion and may give proxies on
Proposal No. 2 whether or not they receive instructions from the beneficial owners of those shares.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE “FOR” THE APPROVAL OF
THIS PROPOSAL NO. 2
PROPOSAL NO. 3
NON-BINDING ADVISORY VOTE TO APPROVE
THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
We are providing our stockholders
the opportunity to vote to approve, on an advisory, non-binding basis, the compensation of our Named Executive Officers as disclosed in
this proxy statement in accordance with the SEC's rules. This proposal, which is commonly referred to as "say-on-pay," is required
by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The
Company has decided to conduct advisory votes on our Named Executive Officers’ compensation annually until the next required advisory
vote on the frequency of the advisory vote on the Company’s executive compensation in 2024. The named executive officers
are the Company’s Chief Executive Officer (principal executive officer) and the other two most highly compensated executive officers
as of December 31, 2020, which include Jason L. Tienor (President and Chief Executive Officer), Jeffrey J. Sobieski (Chief Technology
Officer), and Richard E. Mushrush (Chief Financial Officer) (together, the “Named Executive Officers”).
Our executive compensation
programs are designed to attract, motivate and retain our executive officers, who are critical to our success. Under these programs, our
Named Executive Officers are rewarded for the achievement of our near-term and longer-term financial and strategic goals and for driving
corporate financial performance and stability. The programs contain elements of cash and equity-based compensation and are designed to
align the interests of our executives with those of our stockholders.
The section titled "Executive
Compensation" of this proxy statement describes in detail our executive compensation programs and the decisions made by the Compensation
Committee with respect to the fiscal year ended December 31, 2020. As we describe in this section of the proxy statement, our executive
compensation program incorporates a pay-for-performance philosophy that supports our business strategy and aligns the interests of our
executives with our shareholders. This link between compensation and the achievement of our near- and long-term business goals is intended
to drive our performance over time.
Our Board of Directors is
asking stockholders to approve a non-binding advisory vote on the following resolution:
RESOLVED, that the compensation
paid to the Company's Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange
Commission, including the disclosure under the section titled "Executive Compensation" of this proxy statement, the compensation
tables and accompanying narrative disclosure, and any related material disclosed in this proxy statement, is hereby approved.
As an advisory vote, this
proposal is not binding. The outcome of this advisory vote does not overrule any decision by the Company or the Board of Directors (or
any committee thereof), create or imply any change to the fiduciary duties of the Company or the Board of Directors (or any committee
thereof), or create or imply any additional fiduciary duties for the Company or the Board of Directors (or any committee thereof). However,
our Compensation Committee and Board of Directors value the opinions expressed by our stockholders in their vote on this proposal and
will consider the outcome of the vote when making future compensation decisions for the Named Executive Officers.
Required Vote
The affirmative vote of a
majority of the shares of the common stock (counting our Series A Preferred Stock and Series B Preferred Stock each on an as-converted
basis) present at the Meeting in person or by proxy is required to approve the resolution. For beneficial owners of shares held in street
name, brokers are prohibited from giving proxies to vote on executive compensation matters unless the beneficial owner has given voting
instructions as to each director. This means that if your broker is the record holder of your shares you must give voting instructions
to your broker if you want your broker to vote your shares on this matter.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE “FOR” THE APPROVAL OF
THIS PROPOSAL NO. 3
INFORMATION ABOUT OUR BOARD OF DIRECTORS
Meetings of the Board and Committees
The Board of Directors held
no formal meetings in 2020, but did conduct a number of informal conference calls during the year. Each member of the Board of Directors
attended at least seventy-five percent (75%) of the meetings of the Board of Directors and the committees of which such director was a
member. The Company has not established a formal policy requiring director attendance at all Board meetings, but the Company expects each
director to attend such meetings, absent unusual circumstances. The Company also expects its directors to make an effort to attend the
Annual Meeting of Stockholders. One member of the Company’s Board of Directors attended the 2020 Annual Meeting of Stockholders.
Code of Ethics
The Board has approved, and
the Company has adopted, a Code of Ethics that applies to all directors, officers and employees of the Company. This Code of Ethics was
included as an exhibit to the Company’s Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2004.
Director Independence
The Board of Directors has
determined that Messrs. Byrnes, Ledwick, Kross and Blatt are “independent” under the listing standards of the OTCQB Venture
Market.
Board Leadership Structure and Role in Risk
Oversight
Arthur E. Byrnes currently
serves as Chairman of the Board of Directors while Jason L. Tienor serves as our President and Chief Executive Officer. The Board believes
this structure is appropriate at this time because it allows the Company to benefit from the unique experience and skills of each of these
individuals. Management of risk is the direct responsibility of the Company’s CEO and the senior leadership team. The Board has
oversight responsibility, focusing on the adequacy of the Company’s enterprise risk management and risk mitigation processes.
Communications with the Board of Directors
Stockholders can communicate
directly with the Board, with any Committee of the Board, or specified directors by writing to: The Board of Directors of the Company,
at the Company’s principal business address or by calling at 414-302-2299. All communications will be reviewed by management and
then forwarded to the appropriate director, directors, committee or to the entire Board of Directors.
Committees of the Board of Directors
The Board has an Audit Committee,
a Compensation Committee and a Nominating Committee.
Nominating Committee
Mr. Blatt, Mr. Ledwick and
Mr. Kross currently serve on the Company’s Nominating Committee, with Mr. Blatt serving as the Chairman of the committee. The written
charter for the Nominating Committee is posted on the Company’s website at the following: https://ir.telkonet.com/governance-docs.
The Nominating Committee did not hold any formal meetings in 2020, but reviewed the current directors and recommended all of the current
directors for re-election to the Board.
Our Board is a collection
of individuals with a variety of complementary skills derived from their diverse backgrounds and experiences. When considering potential
candidates for election to the Board, the Company’s Nominating Committee evaluates various criteria, including, but not limited
to, each candidate’s business and professional skills, experience serving in management or on the board of directors of companies
similar to the Company, financial literacy and personal integrity in judgment. The Company does not have a specific policy regarding diversity
and believes that the backgrounds and qualifications of the directors, considered as a group, should provide a diverse mix of experiences,
knowledge, attributes and abilities that will allow the Board to fulfill its responsibilities. Candidates for vacant board seats will
be considered if they are able to read and understand fundamental financial statements, have no identified conflicts of interest, have
not been convicted in a criminal proceeding other than traffic violations during the ten years before the date of selection and are willing
to comply with the Company’s Code of Ethics. One or more directors must have the requisite financial expertise to qualify as an
“audit committee financial expert” as defined by Item 407 of Regulation S-K promulgated under the Securities Exchange
Act of 1934. The Nominating Committee reserves the right to modify these minimum qualifications from time to time.
The Nominating Committee reviews
the qualifications and backgrounds of the directors, as well as the overall composition of the Board, from time to time without assigning
specific weight to particular experiences or qualifications. In addition, the Nominating Committee considers whether the Board as a whole
possesses the right skills and background to address the issues facing our Company at that time. In the case of any candidate for a vacant
Board seat, the Nominating Committee will consider whether the candidate meets the applicable independence standards and will evaluate
the level of the candidate’s financial expertise. Any new candidates will be interviewed by the Nominating Committee, and the entire
Board will approve the final nominations. The Chairman of the Board, acting on behalf of the full Board, will extend the formal invitation
to become a nominee of the Board of Directors.
Stockholders may nominate
director candidates for consideration by the Board of Directors by directing the recommendation in writing to the Company, attention Corporate
Secretary, 20800 Swenson Drive, Suite 175, Waukesha, WI 53186 and providing the candidate’s name, biographical data and qualifications,
including five-year employment history with employer names and a description of the employer’s business; whether such individual
can read and understand fundamental financial statements; other board memberships (if any); and such other information as is reasonably
available and sufficient to enable the Board to evaluate the minimum qualifications described above. The submission must be accompanied
by the written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected by the stockholders.
If a stockholder nominee is eligible, and if the nomination is proper and in accordance with the Company’s bylaws, the independent
directors then will deliberate and make a decision as to whether the candidate will be submitted to the Company’s stockholders for
a vote. The Board will not change the manner in which it evaluates candidates, including the applicable minimum criteria set forth above,
based on whether the candidate was recommended by a stockholder.
Audit Committee
The Audit Committee is currently
comprised of Messrs. Byrnes and Ledwick, with Mr. Ledwick serving as Chairman of the Audit Committee. The Company’s Board of Directors
has determined that each of Messrs. Byrnes and Ledwick is an “audit committee financial expert” as defined by Item 407
of Regulation S-K promulgated under the Securities Exchange Act of 1934.
The Audit Committee recommends
annually to the Board of Directors the selection of the independent registered public accounting firm for each fiscal year, confirms and
assures their independence and approves the fees and other compensation to be paid to the auditors. The Audit Committee recommends to
the Board the advisability of having the independent registered public accounting firm make specified studies and reports as to auditing
matters, accounting procedures, tax or other matters. The Audit Committee also reviews, prior to its filing with the SEC, the Company’s
Form 10-K and annual report to stockholders. The Audit Committee provides an open avenue of communication among the independent registered
public accounting firm, management and the Board of Directors and will review any significant disagreement among management and the independent
registered public accounting firm in connection with the preparation of any of the Company’s financial statements. The Audit Committee
has also established procedures for the receipt, retention and treatment of any complaints received by the Company regarding accounting,
internal accounting controls or auditing matters and the confidential, anonymous submission by the Company’s employees of any concerns
regarding questionable accounting or auditing matters. In addition, the Audit Committee reviews, with the Company’s legal counsel,
legal and regulatory matters that may have a significant impact on the Company’s financial statements. The Audit Committee held
four meetings in 2020; Messrs. Byrnes and Ledwick attended all of the meetings.
The Board of Directors has
adopted an Audit Committee Charter, which is posted on the Company’s website at the following: https://ir.telkonet.com/governance-docs.
Compensation Committee
Mr. Kross and Mr. Ledwick
currently serve on the Company’s Compensation Committee, with Mr. Koss serving as the Chairman of the committee. The Compensation
Committee oversees the Company’s compensation programs, which are designed specifically for the Company’s most senior executive
officers, including the Chief Executive Officer, Chief Financial Officer and the other executive officers. The Compensation Committee
also oversees the compensation programs for the Company’s non-employee directors, and recommends such compensation programs to
the Board for its approval. Additionally, the Compensation Committee is charged with the review and approval of all annual compensation
decisions relating to Named Executive Officers, as defined below. The Compensation Committee may consult with executive officers
in determining or recommending the amount or form of executive and/or non-employee director compensation, as needed. The Compensation
Committee may establish sub-committees consisting of one or more members to carry out duties that the Compensation Committee may assign.
The Compensation Committee did not engage a compensation consultant in 2020. The Board of Directors has adopted a Compensation Committee
charter. The written charter is posted on the Company’s website at the following: https://ir.telkonet.com/governance-docs. The
Compensation Committee did not hold any formal meetings in 2020.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth,
as of March 30, 2021, the number of shares of the Company’s common stock and Series A Preferred Stock beneficially owned by each
director and Named Executive Officer of the Company and by all directors and executive officers as a group. No directors or officers owned
Series B Preferred Stock. Other than as noted below, the Company does not know of any person who beneficially own more than five percent
(5.0%) of the Company’s outstanding common stock, Series A Preferred Stock, and Series B Preferred Stock.
|
|
|
Common Stock
|
|
|
|
Series A Preferred Stock
|
|
|
|
|
|
|
|
Name and Address (1)
|
|
Number of Shares (2)
|
|
|
Percentage of Class
|
|
|
Number of Shares
|
|
|
Percentage of Class
|
|
|
Percentage of Voting Securities
|
|
|
|
|
Bard Associates, Inc. (3)
|
|
|
12,026,851
|
|
|
|
8.6%
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8.4%
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter T. Kross, Director
|
|
|
6,168,092
|
|
|
|
4.4
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4.3
|
|
|
(4)
|
|
Arthur E. Byrnes, Chairman
|
|
|
2,723,347
|
|
|
|
1.9
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1.9
|
|
|
(5)
|
|
Jason L. Tienor, President, Chief Executive Officer and Director
|
|
|
2,688,793
|
|
|
|
1.9
|
|
|
|
4
|
|
|
|
2.2
|
|
|
|
1.9
|
|
|
(6)
|
|
Jeffrey J. Sobieski, Chief Technology Officer
|
|
|
2,382,965
|
|
|
|
1.7
|
|
|
|
4
|
|
|
|
2.2
|
|
|
|
1.7
|
|
|
(7)
|
|
Leland D. Blatt, Director
|
|
|
1,742,222
|
|
|
|
1.2
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1.2
|
|
|
(8)
|
|
Tim S. Ledwick, Director
|
|
|
1,029,781
|
|
|
|
*
|
|
|
|
0
|
|
|
|
0
|
|
|
|
*
|
|
|
(9)
|
|
Richard E. Mushrush, Chief Financial Officer
|
|
|
152,902
|
|
|
|
*
|
|
|
|
0
|
|
|
|
0
|
|
|
|
*
|
|
|
(10)
|
|
All Directors and Executive Officers as a group (seven persons)
|
|
|
16,888,102
|
|
|
|
12.0%
|
|
|
|
8
|
|
|
|
4.4%
|
|
|
|
11.9%
|
|
|
|
* Less
than one percent (1%)
|
(1)
|
Unless otherwise indicated, the address of each named holder is in care of Telkonet, Inc., 20800 Swenson Drive, Suite 175, Waukesha, Wisconsin 53186.
|
|
(2)
|
According to Securities and Exchange Commission rules, beneficial ownership includes shares as to which the individual or entity has voting power or investment power and any shares, which the individual or entity has the right to acquire within 60 days of the date of this table through the exercise of any stock option or other right.
|
|
(3)
|
The address of Bard Associates, Inc. is 135 South LaSalle Street, Suite 3700, Chicago, IL 60603. Based on a Schedule 13G/A filed on February 12, 2021, as of December 31, 2020, Bard Associates, Inc. reports sole voting power of 1,153,616 shares of common stock, sole dispositive power of 14,941,927 shares of common stock, shared voting power over 0 shares of common stock, and shared dispositive power over 0 shares of common stock.
|
|
(4)
|
Includes 10,000 shares of record, and is the direct beneficial owner of an additional 4,325,539 shares of our common stock. In addition, he may be deemed to be the beneficial owner of an additional 1,231,211 shares of our common stock due to voting and investment power that he has over shares held by or on behalf of certain family members. As an investment adviser, Mr. Kross directs client accounts as to which he has discretionary voting and dispositive authority with regard to 516,342 shares of our common stock and options exercisable within 60 days to purchase 95,000 shares of our common stock at $0.19 per share.
|
|
(5)
|
Includes 2,628,347 shares of our common stock and options exercisable within 60 days to purchase 95,000 shares of our common stock at $0.19 per share.
|
|
(6)
|
Includes 1,251,114 shares of our common stock, options exercisable within 60 days to purchase 155,556, 227,027 and 1,000,000 shares of our common stock at $0.18, $0.185 and $0.14 per share, respectively, 55,096 shares of common stock issuable upon conversion of shares of our Series A convertible redeemable preferred stock.
|
|
(7)
|
Includes 1,055,279 shares of our common stock, options exercisable within 60 days to purchase 110,833, 161,757 and 1,000,000 shares of our common stock at $0.18, $0.185 and $0.14 per share, respectively, 55,096 shares of common stock issuable upon conversion of shares of our Series A convertible redeemable preferred stock.
|
|
(8)
|
Includes 1,647,222 shares of our common stock and options exercisable within 60 days to purchase 95,000 shares of our common stock at $0.19 per share.
|
|
(9)
|
Includes 929,781 shares of our common stock and options exercisable within 60 days to purchase 100,000 shares of our common stock at $0.19 per share.
|
|
(10)
|
Includes options exercisable within 60 days to purchase 78,041 and 74,861 shares of our common stock at $0.185 and $0.18 per share, respectively.
|
DIRECTOR COMPENSATION
Non-Employee Director Compensation Philosophy
Our non-employee director compensation philosophy is based on the following
guiding principles:
|
|
·
|
Aligning the long-term interests of stockholders and directors; and
|
|
|
·
|
Compensating directors appropriately and adequately for their time, effort, and experience.
|
We reimburse non-employee directors for costs
and expenses in connection with their attendance and participation at Board of Directors meetings and for other travel expenses incurred
on our behalf. Directors of the Company, other than Mr. Ledwick, are compensated at the rate of $3,000 per month, payable in unrestricted
Telkonet common stock, par value $0.001. Directors were issued shares from the 2010 Stock Option and Incentive Plan (“2010 Plan”)
until March 2020, when remaining shares of the 2010 Plan became insufficient for further issuance. In May 2020, shareholders approved
a 2020 Stock Option and Incentive Plan (“2020 Plan”). However, the 2020 Plan remains unregistered with the Securities and
Exchange Commission. Since unrestricted common stock cannot be issued until registered, Directors have not been compensated since March
2020. Unpaid compensation is included in accounts payable on our Consolidated Balance Sheet at December 31, 2020. The corresponding expense
is recorded in the selling, general and administrative line of our Consolidated Statements of Operations at December 31, 2020. In September
2019, the Board of Directors (excluding Mr. Ledwick), approved changing Mr. Ledwick’s compensation to $5,000 per month, payable
in cash, based on the significant time being spent by Mr. Ledwick on reviewing strategic alternatives presented to the Board for consideration
to maximize shareholder value, including but not limited to, a sale of the Company, an investment in the Company, a merger or other business
combination, a sale of all or substantially all assets, or a strategic joint venture. Prior to September 2019, Mr. Ledwick received $3,000
per month, payable in unrestricted Telkonet stock, like the other non-employee directors. On the first day of their appointment, each
director also receives a one-time grant of an option to purchase 100,000 shares of Company stock. The strike price is the closing price
of the Company's common stock on the grant date. If the grant date falls on a non-trading day, the grant date will default to the next
trading day. These stock options will vest quarterly over five years.
Non-Employee Director Compensation for Year Ended December 31, 2020
The following table summarizes
all compensation paid to our directors who were members of the Board during the year ended December 31, 2020.
|
Name
|
|
Fees Earned or Paid in Cash
($) (1)
|
|
|
Stock Awards ($) (2)
|
|
|
Total
($)
|
|
|
Peter T. Kross
|
|
$
|
–
|
|
|
$
|
36,000
|
|
|
$
|
36,000
|
|
|
Tim S. Ledwick
|
|
|
60,000
|
|
|
|
–
|
|
|
|
60,000
|
|
|
Arthur E. Byrnes
|
|
|
–
|
|
|
|
36,000
|
|
|
|
36,000
|
|
|
Leland D. Blatt
|
|
|
–
|
|
|
|
36,000
|
|
|
|
36,000
|
|
|
(1)
(2)
|
Compensation earned by non-employee directors for services rendered
during 2020, paid in cash.
Compensation earned by non-employee directors for services rendered
during 2020, paid in shares of common stock.
|
EXECUTIVE COMPENSATION
Overview of Our Executive Compensation Philosophy
We believe that a skilled,
experienced and dedicated executive team is essential to the future performance of our Company and to building stockholder value. We have
sought to establish a competitive compensation program that enables us to attract and retain executive officers with these qualities.
The goal of our compensation package is to motivate our executive officers to achieve strong financial performance, particularly increased
revenues and profitability. We use a salary and a performance incentive compensation program that includes cash and may include equity-based
compensation. We believe this aligns the interests of our executives with those of our stockholders.
The following table sets forth
certain information with respect to compensation for services in all capacities for the years ended December 31, 2020 and 2019 to our
Chief Executive Officer (principal executive officer) and the other two most highly compensated executive officers who were serving as
such as of December 31, 2020. We refer to these officers as our “Named Executive Officers.”
Summary Compensation Table
|
Name and Principal Position
|
|
Year
|
|
Salary ($)
|
|
|
All Other Compensation
($)(1)
|
|
|
Total ($)
|
|
|
Jason L. Tienor
|
|
2020
|
|
$
|
210,546
|
|
|
$
|
21,392
|
|
|
$
|
231,938
|
|
|
President and Chief Executive Officer
|
|
2019
|
|
$
|
222,800
|
|
|
$
|
25,932
|
|
|
$
|
248,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey J. Sobieski
|
|
2020
|
|
$
|
199,986
|
|
|
$
|
23,297
|
|
|
$
|
223,283
|
|
|
Chief Technology Officer
|
|
2019
|
|
$
|
211,625
|
|
|
$
|
26,122
|
|
|
$
|
237,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard E. Mushrush
|
|
2020
|
|
$
|
115,290
|
|
|
$
|
5,086
|
|
|
$
|
120,376
|
|
|
Chief Financial Officer
|
|
2019
|
|
$
|
122,000
|
|
|
$
|
5,168
|
|
|
$
|
127,168
|
|
|
(1)
|
All Other Compensation includes employer matching contributions with respect to each individual’s 401(k) salary deferrals and other employer sponsored benefits paid on the individual’s behalf totaling $12,992, $14,897, and $5,086 in 2020 and $17,532, $17,722, and $5,168 in 2019 for Messrs. Tienor, Sobieski, and Mushrush, respectively. In addition, Messrs. Tienor and Sobieski received a monthly car allowance of $8,400 for each year.
|
Salary
Salary is used to recognize
the experience, skills, knowledge and responsibilities required of all our employees, including our Named Executive Officers. The salary
for each Named Executive Officer is typically set at the time the individual is hired based on the aforementioned factors and the negotiation
process between the Company and the Named Executive Officer. Changes to annual salary, if any, are determined based on several factors,
including evaluation of performance, anticipated financial performance, economic condition and local market and labor conditions.
Senior Management Annual Incentive Compensation Program
There were no Senior Management
Annual Incentive Compensation Programs in 2020 and 2019.
Retirement, Health and Welfare Benefits
The Company offers a variety
of health and welfare and retirement programs to all eligible employees. The Named Executive Officers generally are eligible for the same
benefit programs on the same basis as all the broad-based employees. The Company’s health and welfare programs include medical,
dental, vision, life, accidental death and disability, and short and long-term disability insurance. In addition to the foregoing, the
Named Executive Officers are eligible to participate in the Company’s 401(k) Retirement Savings Plan.
401(k) Retirement Savings Plan
The Company maintains a tax-deferred
savings plan for employees (the “Telkonet 401(k)”) that is administered by a committee of trustees appointed by the Company.
All Company employees are eligible to participate upon the completion of six months of employment, subject to minimum age requirements.
Contributions by employees under the Telkonet 401(k) are immediately vested and each employee is eligible for distributions upon retirement,
death or disability or termination of employment. Depending upon the circumstances, these payments may be made in installments or in a
single lump sum.
The Company provides a 401(k)
employer match of one hundred percent (100%) of employee salary deferrals, not to exceed four percent (4%) of eligible compensation. Matches
immediately vest and coincide with each payroll deferral period.
Employment Agreements
Jason L. Tienor, President
and Chief Executive Officer, is employed pursuant to an employment agreement with us dated October 1, 2018. Mr. Tienor’s employment
agreement has a term of two (2) years, which will automatically renew for a period of an additional twelve (12) months up to two times,
and provides for a base salary of $222,800 per year and bonuses and benefits based upon the Company’s internal policies and participation
in the Company’s incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company. The
bonus will be equal to $20,000 if the Company’s shares are valued at minimum $0.20 per share, $35,000 if shares are valued at minimum
$0.225 per share, or $50,000 if shares are valued at minimum $0.25 per share. If sale price exceeds $0.25 per share, Mr. Tienor shall
be eligible to receive an additional $6,000 for every $0.01 above a share price of $0.25.
Jeffrey J. Sobieski, Chief
Technology Officer, is employed pursuant to an employment agreement with us dated October 1, 2018. Mr. Sobieski’s employment agreement
has a term of two (2) years, which will automatically renew for a period of an additional twelve (12) months up to two times, and provides
for a base salary of $211,625 per year and bonuses and benefits based upon the Company’s internal policies and participation in
the Company’s incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company. The bonus
will be equal to $20,000 if the Company’s shares are valued at minimum $0.20 per share, $35,000 if shares are valued at minimum
$0.225 per share, or $50,000 if shares are valued at minimum $0.25 per share. If sale price exceeds $0.25 per share, Mr. Sobieski shall
be eligible to receive an additional $6,000 for every $0.01 above a share price of $0.25.
Richard E. Mushrush, Chief
Financial Officer, is employed pursuant to an employment agreement with us dated October 1, 2018. Mr. Mushrush’s employment agreement
has a term of two (2) years, which will automatically renew for a period of an additional twelve (12) months up to two times, and provides
for a base salary of $122,000 per year and bonuses and benefits based upon the Company’s internal policies and participation in
the Company’s incentive and benefit plans. The agreement also calls for a bonus to be paid upon the sale of the Company. The
bonus will be equal to $20,000 if the Company’s shares are valued at minimum $0.20 per share, $35,000 if shares are valued at minimum
$0.225 per share, or $50,000 if shares are valued at minimum $0.25 per share. If sale price exceeds $0.25 per share, Mr. Mushrush shall
be eligible to receive an additional $6,000 for every $0.01 above a share price of $0.25.
Each of the Named Executive
Officers is also entitled under his employment agreement to bonuses and benefits consistent with the Company’s internal policies
and based on participation in the Company’s incentive and benefit plans. Stock options or other awards may be periodically granted
to employees under our equity incentive plan at the discretion of the Compensation Committee of the Board of Directors. Executives of
the Company are eligible to receive stock option grants, based upon individual performance and the performance of the Company as a whole.
Each Named Executive Officer’s
employment agreement contains provisions describing the executive officer’s compensation in the event the executive officer’s
employment with the Company is terminated. If (a) an executive officer’s employment agreement is terminated by the mutual consent
of the Company and the executive officer, (b) the Company terminates the executive officer’s employment for any reason other than
for “cause,” as described below, (c) there is a “change in control” (a sale of all or substantially all of the
stock or assets of the Company), or (d) the Company fails to renew the executive officer’s employment agreement upon the expiration
of its term and the two 12 month auto-renewal periods have expired, the executive officer will be entitled to receive an amount equal
to his base salary for twelve months following the termination, and the Company will pay the executive officer’s health insurance
premiums for the same period. If an executive officer terminates his employment with the Company for “good reason,” as described
below, he will be entitled to continue to receive his base salary and to participate in each employee benefit plan in which he participated
immediately prior to the termination date until (i) the expiration of the term of his employment agreement or (ii) for a period of twelve
months, whichever is longer. If cause exists for termination, the executive officer will be entitled to no further compensation, except
for accrued leave and vacation and except as may be required by applicable law.
Under each of the employment
agreements, “cause” is generally defined as the occurrence of any of the following: (i) theft, fraud, embezzlement or any
other act of intentional dishonesty by the executive officer; (ii) any material breach by the executive officer of any provision of his
employment agreement that is not cured within fourteen days after written notification by the Company; (iii) any habitual neglect of
duty or misconduct of the executive officer in discharging any of his duties and responsibilities under his employment agreement after
a written demand for performance was delivered to the executive officer; (iv) commission by the executive officer of a felony or any
offense involving moral turpitude; or (v) any default of an executive officer’s obligations under his employment agreement, or
any failure or refusal of the executive officer to comply with the Company’s policies, rules and regulations that is not cured
within fourteen days after written notification by the Company. “Good reason” is defined as the occurrence of any of the
following: (i) any material adverse reduction in the scope of the executive officer’s authority or responsibilities; (ii) any reduction
in the amount of the executive officer’s compensation or participation in any employee benefits; or (iii) the executive officer’s
principal place of employment is actually or constructively moved to any office or other location seventy-five miles or more outside
of Milwaukee, Wisconsin.
Outstanding Equity Awards at Fiscal Year-End Table
The following table shows outstanding stock option
awards classified as exercisable and unexercisable as of December 31, 2020 for the Named Executive Officers.
|
Name
|
|
Grant Date
|
|
Number of Securities Underlying Unexercised Options
Exercisable
|
|
|
|
Option
Exercise Price
($)
|
|
|
Option
Expiration Date (4)
|
|
Jason L. Tienor
|
|
04/01/2012
|
|
|
227,027
|
|
(1)
|
|
|
0.185
|
|
|
4/01/2022
|
|
|
|
04/18/2013
|
|
|
155,556
|
|
(2)
|
|
|
0.18
|
|
|
4/18/2023
|
|
|
|
01/03/2017
|
|
|
1,000,000
|
|
(3)
|
|
|
0.14
|
|
|
1/03/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey J. Sobieski
|
|
04/01/2012
|
|
|
161,757
|
|
(1)
|
|
|
0.185
|
|
|
4/01/2022
|
|
|
|
04/18/2013
|
|
|
110,833
|
|
(2)
|
|
|
0.18
|
|
|
4/18/2023
|
|
|
|
01/03/2017
|
|
|
1,000,000
|
|
(3)
|
|
|
0.14
|
|
|
1/03/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard E. Mushrush
|
|
04/01/2012
|
|
|
78,041
|
|
(1)
|
|
|
0.185
|
|
|
4/01/2022
|
|
|
|
04/18/2013
|
|
|
74,861
|
|
(2)
|
|
|
0.18
|
|
|
4/18/2023
|
(1) Options were granted
on April 1, 2012 and are fully vested.
(2) Options were granted
on April 18, 2013 and are fully vested.
(3) Options were granted
on January 3, 2017 and are fully vested.
(4) All options granted
have a term of ten years.
Option Exercises and Vesting of Stock Awards
During 2020, there were no options exercised, expired,
or vested by the Named Executive Officers.
Named Executive Officer Biographies
JASON L. TIENOR (Age 46):
Mr. Tienor has served as Telkonet’s President and Chief Executive Officer since December 2007, and prior to that served as Chief
Operating Officer from August 2007 until December 2007. He was appointed to Telkonet’s Board in November 2009. Mr. Tienor cofounded
EthoStream, LLC in 2002 and operated as President and CEO of the company through its acquisition by Telkonet in 2007. Prior to EthoStream,
Mr. Tienor also cofounded and operated a technology consulting business specializing in Internet technologies. Mr. Tienor currently acts
as a mentor and advisor for numerous organizations and serves on a number of corporate and association boards. Mr. Tienor is recognized
as an authority in the Automation and Clean Technology space and has appeared numerous times for keynote and interview presentations including
the University of Wisconsin Oshkosh Center for Entrepreneurship and Innovation, Bloomberg Television, Business Journal and other magazine,
television and radio interviews. Mr. Tienor received a Bachelor of Business Administration in both Management Information Systems (MIS)
and Marketing from the University of Wisconsin – Oshkosh and a Master of Business Administration from Marquette University.
JEFFREY J. SOBIESKI (Age
45): Mr. Sobieski has been Telkonet’s Chief Technology Officer since May 2012. From June 2008 to April 2012, Mr. Sobieski served
as the Chief Operating Officer, and from December 2007 to June 2008, he served as the Vice President of Energy Management. He joined Telkonet
in March 2007. Prior to joining the Company, Mr. Sobieski co-founded Interactive SolutionZ, a Milwaukee-based IT consulting firm. He holds
a bachelor’s degree in computer science from the University of Wisconsin-Oshkosh, and a master’s degree from Marquette University.
RICHARD E. MUSHRUSH (Age
51): Mr. Mushrush has been the Company Chief Financial Officer since January 2017. Before this, he served
as Controller of the Company from November 2015 to January 2017 and as Chief Financial Officer of the Company from May 2012 to November
2015. Mr. Mushrush also served as Acting Chief Financial Officer of the Company from November 2010 to April 2012 and as the Company’s
Controller from January 2009 to November 2010. Prior to joining the Company, Mr. Mushrush was Controller and Business Unit Manager for
a division of Illinois Tool Works from 2004 to 2009.
ANTI-HEDGING PRACTICES
Although we do not have a
formal policy related to hedging transactions, we discourage our management and directors from engaging in hedging transactions in connection
with our securities. Further, any such transactions would need to comply with our insider trading policies and procedures, as applicable.
Certain Relationships and
Related Transactions
Description of Related Party Transactions
There were no related party
transactions in 2020 or 2019.
Indemnification Agreements
On March 31, 2010, the Company
entered into Indemnification Agreements with executives Jason L. Tienor, Director, President and Chief Executive Officer and Jeffrey J.
Sobieski, then Chief Operating Officer, currently Chief Technology Officer. On April 24, 2012, the Company entered into an Indemnification
Agreement with director Timothy S. Ledwick. On July 1, 2016, the Company entered into Indemnification Agreements with director’s
Arthur E. Byrnes, Peter T. Kross and Leland D. Blatt. On January 1, 2017, the Company entered into an Indemnification Agreement with Richard
E. Mushrush, Chief Financial Officer.
Each Indemnification Agreement
provides that the Company will indemnify the Company's officers and directors, to the fullest extent permitted by law, relating to, resulting
from or arising out of any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation by reason of the
fact that such officer or director (i) is or was a director, officer, employee or agent of the Company or (ii) is or was serving at the
request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise
if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, each Indemnification
Agreement provides that the Company will make an advance payment of expenses to any officer or director who has entered into an Indemnification
Agreement, in order to cover a claim relating to any fact or occurrence arising from or relating to events or occurrences specified in
the Indemnification Agreement, subject to receipt of an undertaking by or on behalf of such officer or director to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized under the Indemnification Agreement.
REPORT OF THE AUDIT COMMITTEE
Notwithstanding anything
to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings or this proxy statement, the following report shall not be deemed to be incorporated by
reference into any such filings. In addition, the following report shall not be deemed to be “soliciting material” or “filed”
with the SEC.
The Audit Committee for the
year ended December 31, 2020, whose members are identified below, has reviewed and discussed the audited financial statements as of and
for the year ended December 31, 2020 with the Company’s management and has discussed the matters required to be discussed by the
applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the Securities and Exchange Commission
with the Company’s independent auditors. The Audit Committee has also received the written disclosures and the letter from the Company’s
independent accountant required by applicable requirements of the PCAOB regarding the independent accountant’s communications with
the Audit Committee concerning independence and has discussed with the independent accountant the independent accountant’s independence.
Based upon its review of the foregoing materials and its discussions with the Company’s management and independent accountant, the
Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2020.
By the Audit Committee.
Tim S. Ledwick
Arthur E. Byrnes
ADDITIONAL INFORMATION
OTHER MATTERS
The Board of Directors does
not know of any other matter that may be brought before the Meeting. However, if any such other matters are properly brought before the
Meeting or any adjournment of the Meeting, the proxies may use their discretion to determine how to vote your shares.
HOUSEHOLDING
Some banks, brokers and other
nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means
that only one copy of our proxy statement or annual report on Form 10-K may have been sent to multiple stockholders in your household.
We will promptly deliver a separate copy of either document to you if you write or call us at the following address or telephone number:
20800 Swenson Drive, Suite 175, Waukesha, WI 53186, (414) 302-2299. If you want to receive separate copies of the annual report
on Form 10-K and proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy for your
household, you should contact your bank, broker or other nominee record holders, or you may contact us at the above address and phone
number.
STOCKHOLDER PROPOSALS
Stockholders may submit written
proposals, including director nominees, to be considered for stockholder action at the Company’s 2022 Annual Meeting of Stockholders.
To be eligible for inclusion in the Company’s proxy statement for the 2022 Annual Meeting of Stockholders, stockholder proposals
must be received by the Company by December 27, 2021 and must otherwise comply with applicable Securities and Exchange Commission
regulations and the Company’s bylaws. Stockholder proposals should be addressed to the Company at 20800 Swenson Drive, Suite
175, Waukesha, WI 53186, Attention: Corporate Secretary. In addition, if a stockholder intends to present a proposal at the Company’s
2022 Annual Meeting of Stockholders without the inclusion of the proposal in the Company’s proxy materials and written notice of
the proposal is not received by the Company on or before February 26, 2022, proxies solicited by the Board of Directors for the 2022 Annual
Meeting of Stockholders will confer discretionary authority to vote on the proposal if presented at the Meeting. The Company reserves
the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with these and
other applicable requirements.
Brokers and other persons
holding the Company’s common stock in their names, or in the names of a nominee, will be requested to forward this proxy statement
and the accompanying materials to the beneficial owners of the common stock and to obtain proxies, and the Company will defray reasonable
expenses incurred in forwarding such material.
|
|
By order of the Board of Directors,
|
|
|
|
|
|
|
|
|
/s/ JASON L. TIENOR
|
|
|
Jason L. Tienor
Chief Executive Officer
|
Dated: April 26, 2021
Telkonet (PK) (USOTC:TKOI)
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