Exhibit 4.3
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
TELKONET, INC.
SENIOR NOTE
Wayne, Pennsylvania
$_________________ April __, 2003
TELKONET, INC., a Utah corporation (the "Company"), FOR VALUE RECEIVED,
hereby promises to pay to the order of ________________________ (the "Holder"),
the principal sum of __________________________ Dollars ($__________),together
with interest at the rate of eight percent (8%) per annum, on the outstanding
principal balance of this Senior Promissory Note (this "Note").
1. ADVANCES. The Holder shall advance the full principal amount to the Company
on the date hereof.
2. INTEREST PAYMENTS. The Company shall pay to the Holder quarterly payments of
accrued interest only at the interest rate specified above on the unpaid
principal balance of this Note on each January 1, April 1, July 1 and October 1
during the term of this Note.
3. DUE DATE. The entire outstanding balance of this Note, including principal
and unpaid accrued interest (together, the "Note Balance"), will be due and
payable in a single installment on the date which occurs thirty six (36) months
from the date of this Note (the "Due Date").
4. NO RIGHTS AS STOCKHOLDER. Nothing contained in this Note shall be construed
as conferring upon the Holder hereof or its transferees, prior to the conversion
of this Note, the right to vote or to receive dividends or to consent or to
receive notice as a stockholder in respect of any meeting of stockholders for
the election of directors of the Company or of any other matter, or any other
rights as a stockholder of the Company.
5. PREPAYMENT. The Company may not prepay the outstanding principal amount of
this Note, or any accrued interest thereon, in whole or in part, without the
prior written consent of the Holder.
6. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or Bylaws or through reorganization, consolidation, merger,
dissolution, sale of assets or other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Note, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder of this Note against impairment.
7. DEFAULT.
(a) EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default":
(i) Default in the payment of any amount payable under this
Note if such default is not cured by the Company within five (5)
business days after the Holder has given the Company written notice of
such default; or
(ii) The Company shall fail to perform or observe in any
material respect any other term, covenant or agreement contained in (x)
this Note or (y) that certain Security Agreement, of even date
herewith, by the Company for the benefit of the Holder (the "Security
Agreement"), if such failure is not cured by the Company within five
(5) business days after the Holder has given the Company written notice
thereof; or
(iii) The Company shall admit in writing its inability to pay
its debts; or
(iv) The Company shall come under the authority of a
custodian, receiver or trustee for it or for substantially all of its
property; or
(v) A proceeding shall be commenced against the Company under
any bankruptcy, reorganization, arrangement, readjustment of debt,
moratorium or similar law or statute and relief is ordered against it,
or the proceeding is commenced but is not dismissed within sixty (60)
days after the commencement thereof; or
(vi) Proceedings under any law related to bankruptcy,
insolvency, liquidation or the reorganization, readjustment or the
release of debtors are instituted or commenced by the Company or an
assignment for the benefit of creditors is made.
(b) REMEDIES. Upon the occurrence of an Event of Default, the entire
Note Balance and all fees, charges, costs and expenses, if any, owed by the
Company to the Holder shall become immediately due and payable and the Holder
may then institute such actions or proceedings in law or equity as the Holder
shall deem expedient for the protection of its rights and may prosecute and
enforce its claims against all assets of the Company.
(c) COST OF COLLECTION. In the event of any default under this Note,
the Company shall pay all costs of collection incurred by the Holder (including
reasonable attorney's fees and expenses).
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8. WAIVERS.
(d) The Company hereby waives presentment, demand for payment, notice
of dishonor, notice of protest, and protest in connection with the delivery,
acceptance, performance, or default of this Note.
(e) No delay by the Holder in exercising any power or right hereunder
shall operate as a waiver of any power or right, nor shall an single or partial
exercise of any power or right preclude other or further exercise thereof, or
the exercise of any other power or right hereunder or otherwise. No waiver or
modification of the terms hereof shall be valid unless set forth in writing by
the Holder.
9. SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. As security for the Secured Obligations
(as defined in the Security Agreement), the Company shall grant to the Holder,
pursuant to the provisions of the Security Agreement, a security interest in and
lien on all of the Company's right, title and interest in and to all accounts,
accounts receivable, contract rights, chattel paper, instruments, inventory,
investment property, equipment, goods, documents, general intangibles (including
without limitation goodwill, domain names, "URLs" and similar assets), rights
with respect to any intellectual property, customer lists, software, proprietary
information and all other tangible and intangible property of the Company now
owned or hereafter acquired, and all amounts due or paid with respect to the
use, lease, license or disposition of any of the foregoing, what ever is
collected on or in respect of or distributed on or in respect of any of the
foregoing, all rights of any kind relating to or arising out of any of the
foregoing (including but not limited to insurance and warranty claims) and all
proceeds of any kind of any of the foregoing and all proceeds of proceeds
(collectively, the "Collateral").
(f) (b) PERFECTION OF SECURITY INTEREST. The Company agrees to execute
such financing statements and to take whatever other reasonable actions are
requested by the Holder to perfect and continue the Holder's security interest
in the Collateral.
10. SUBORDINATION OF NOTE. The indebtedness evidenced by this Note is
subordinate and subject in the right of payment as to principal and interest to
the prior payment in full of all principal, premium, if any, and interest on all
indebtedness of the Company, regardless of when incurred, for money borrowed
from any bank or other comparable financial institution up to a maximum of
$________________Dollars ($___________) outstanding at any one time, but such
maximum shall not apply to money borrowed that is secured by a first mortgage or
other first lien on real property of the Company ("Senior Indebtedness"). Upon
maturity of any Senior Indebtedness, payment in full must be made on such Senior
Indebtedness before any payment is made on or in respect of this Note. During
the continuance of any default with respect to any Senior Indebtedness entitling
the holder thereof to accelerate the maturity thereof, or if any such default
would be caused by any payment upon or in respect of the Debentures, no payment
may be made by the Company upon or in respect of the Note. Upon any distribution
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of assets of the Company in any dissolution, winding up, liquidation, or
reorganization of the Company, payment of the principal of and interest on the
Note will be subordinated to the prior payment in full of all Senior
Indebtedness. Such subordination will not prevent the occurrence of any Event of
Default. The holder of this Note, by accepting the same, agrees to and shall be
bound by the subordination provisions hereof and invites each present and any
future holder of Senior Indebtedness now or hereafter outstanding to rely
thereon.
11. GENERAL.
(a) SUCCESSORS; ASSIGNMENT. This Note and the obligations and rights of
the Company hereunder shall be binding upon and inure to the benefit of the
Company and the Holder and their respective successors. The Company may not
assign this Note or any obligations hereunder without the prior written consent
of the Holder.
(b) CHANGES. Changes in or additions to this Note may be made or
compliance with any term, covenant, agreement, condition or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively) upon written consent of the Company
and the Holder.
(c) CURRENCY. All payments shall be made in such currency of the United
States of America at the time of payment shall be legal tender therein for the
payment of public and private debts.
(d) NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or if sent by nationally-recognized
overnight courier service or by certified mail, return receipt requested and
postage prepaid, addressed to such address as the party to whom notice is to be
given has furnished to the other party hereto in writing in accordance herewith.
Any such notice or communication shall be deemed to have been received (a) in
the case of personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier service, on the next business day after
the date when sent and (c) in the case of mailing, on the third business day
following that on which the piece of mail containing such communication is
posted.
(e) SEVERABILITY. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
12. GOVERNING LAW. This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the State of
____________, without regard to choice of law principles.
[SIGNATURES NEXT PAGE]
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IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first above written by the duly authorized representative of the Company.
TELKONET, INC.
By: ________________________
Xxxxxx Xxxxxx,
Chief Executive Officer
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TELKONET, INC.,
A UTAH CORPORATION
NOT TRANSFERABLE OR EXERCISABLE EXCEPT
UPON CONDITIONS HEREIN SPECIFIED
VOID AFTER 5:00 O'CLOCK P.M.,
EASTERN STANDARD TIME, ____________ , 2006
SENIOR NOTE OFFERING
WARRANT
-------
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 (THE
"ACT") OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT
FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A
FAVORABLE OPINION OF COUNSEL AND/OR SUBMISSION TO THE COMPANY OF SUCH EVIDENCE
AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE
ACTS.
TELKONET, INC.,
a Utah corporation
Not Transferable Or Exercisable Except
Upon Conditions Herein Specified
Void after 5:00 O'Clock P.M.,
Eastern Standard Time, _________, 2006
SENIOR NOTE OFFERING WARRANT
-----------------------------------------------------------------------------
WARRANT TO PURCHASE 100,000 SHARES
------------------------------------------------------------------------------
Telkonet, Inc., a Utah corporation (the "Company") hereby certifies
that, as of ___________ __, 2003, _________________________________________ and
his or its registered successors and permitted assigns registered on the books
of the Company maintained for such purposes as the registered holder hereof (the
"Holder"), for value received, is entitled to purchase from the Company One
Hundred Thousand (100,000) fully paid and nonassessable shares (the "Shares") of
common stock of the Company, par value of one-tenth cent ($.001) per Share, (the
"Common Stock") at the purchase price of One Dollar ($1.00) per share (the
"Exercise Price") (the number of Shares and Exercise Price being subject to
adjustment as hereinafter provided) upon the terms and conditions herein
provided.
1. EXERCISE OF WARRANTS.
(a) CASH EXERCISE. Subject to subsection (c) of this Section
1, upon presentation and surrender of this Warrant with the Purchase Form in the
form of Exhibit A hereto duly executed, at the principal office of the Company
at 000 Xxxxx Xxxx Xxxxx Xxxxxxxx 000, Xxxxx, Xxxxxxxxxxxx 19087, or at such
other place as the Company may designate by notice to the Holder hereof,
together with a wire transfer or certified or bank cashier's check payable to
the order of the Company in the amount of the Exercise Price times the number of
Shares being purchased, the Company shall promptly deliver to the Holder hereof,
certificates representing the Shares being purchased. In the event that the
Holder elects to exercise less than the full Warrant, and if the Warrant has not
then expired, the Company shall execute and deliver to the Holder a new Warrant
of like tenor granting the right to purchase an amount of Shares equal to the
number of Shares granted hereby reduced by the sum of the number of Shares
purchased upon such exercise.
(b) INSTALLMENTS. Subject to subsection (c) of this Section 1,
this Warrant may be exercised in whole or in part in installments of not less
than one thousand (1,000) Shares each; and, in case of exercise hereof in part
only, the Company, upon surrender hereof, will deliver to the Holder a new
Warrant of like tenor entitling the Holder to purchase the number of Shares as
to which this Warrant has not been exercised.
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(c) EXPIRATION. This Warrant may be exercised in whole or in
part at any time prior to the date which occurs three (3) years from the date
hereof (the "Expiration Date"), provided that at the time of each exercise the
requirements of all applicable statutes regarding the exercise of this Warrant
and the issuance of the Shares are met and satisfied. After the Expiration Date
or any exercise of this Warrant in whole, this Warrant shall terminate and be
null, void and of no further force or effect.
2. EXCHANGE AND TRANSFER OF WARRANT. This Warrant (a) at any time prior
to the exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Warrants of like tenor registered in the name of
the Holder, for another Warrant or other Warrants of like tenor in the name of
such transferee Holder exercisable for the same aggregate number of Shares as
the Warrant or Warrants surrendered, and (b) may be sold, transferred,
hypothecated, or assigned, in whole or in part, but only upon compliance with
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if requested by the
Company).
3. RIGHTS AND OBLIGATIONS OF WARRANT HOLDER.
(a) The Holder of this Warrant shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity; provided, however, in the event that any certificate representing the
Shares is issued to the Holder hereof upon exercise of this Warrant, such Holder
shall, for all purposes, be deemed to have become the holder of record of such
Shares on the date on which this Warrant, together with a duly executed Purchase
Form, was surrendered and payment of the Exercise Price was made pursuant to the
terms of this Warrant Certificate, irrespective of the date of delivery of such
Share certificate. The rights of the Holder of this Warrant are limited to those
expressed herein and the Holder of this Warrant, by its acceptance hereof,
consents to and agrees to be bound by and to comply with all the provisions of
this Warrant, including, without limitation, all the obligations imposed upon
the Holder hereof by Sections 2 and 5 hereof. In addition, the Holder of this
Warrant, by accepting the same, agrees that the Company may deem and treat the
person in whose name this Warrant is registered on the books of the Company
maintained for such purpose as the absolute, true and lawful owner for all
purposes whatsoever, notwithstanding any notation of ownership or other writing
thereon, and the Company shall not be affected by any notice to the contrary.
(b) No Holder of this Warrant, as such, shall be entitled to
vote or receive dividends or to be deemed the holder of Shares for any purpose,
nor shall anything contained in this Warrant be construed to confer upon any
Holder of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any action by the
Company, whether upon any recapitalization, issue of stock, reclassification of
stock, consolidation, merger, conveyance or otherwise, receive notice of
meetings or other action affecting stockholders (except for notices provided for
herein), receive dividends, subscription rights, or otherwise, until this
Warrant shall have been exercised and the Shares purchasable upon the exercise
thereof shall have become deliverable as provided herein; provided, however,
that any such exercise on any date when the stock transfer books of the Company
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shall be closed shall constitute the person or persons in whose name or names
the certificate or certificates for those Shares are to be issued as the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding day on which such stock transfer books are open, and the Warrant
surrendered shall not be deemed to have been exercised, in whole or in part as
the case may be, until the next succeeding day on which stock transfer books are
open for the purpose of determining entitlement to dividends on the Company's
common stock.
4. SHARES UNDERLYING WARRANTS. The Company covenants and agrees that
all Shares delivered upon exercise of this Warrant shall, upon delivery and
payment therefor, be duly and validly authorized and issued, fully-paid and
non-assessable, and free from all stamp taxes, liens, and charges with respect
to the purchase thereof. The Company further covenants and agrees that, at all
times prior to the Expiration Date, the Company shall reserve from its
authorized and unissued Common Stock a sufficient number of shares of Common
Stock as shall be sufficient to permit the exercise in full of this Warrant and,
should the need in the future arise, the Company shall again take such actions
as are necessary to authorize the requisite number of shares of Common Stock to
permit the exercise in full of this Warrant.
5. DISPOSITION OF WARRANTS OR SHARES.
(a) The Holder of this Warrant and any transferee hereof or of
the Shares issuable upon the exercise of the Warrant, by their acceptance
hereof, hereby understand and agree that this Warrant, and the Shares issuable
upon the exercise hereof, have not been registered under either the Securities
Act of 1933 (the "Act") or applicable state securities laws (the "State Acts")
and shall not be sold, pledged, hypothecated, donated, or otherwise transferred
(whether or not for consideration) except, if requested by the Company, upon the
issuance to the Company of a favorable opinion of counsel and/or submission to
the Company of such evidence as may be satisfactory to counsel to the Company,
in each such case, to the effect that any such transfer shall not be in
violation of the Act and the State Acts. It shall be a condition to the transfer
of this Warrant that any transferee thereof deliver to the Company its written
agreement to accept and be bound by all of the terms and conditions of this
Warrant.
(b) The stock certificates of the Company that will evidence
the shares of Common Stock with respect to which this Warrant may be exercisable
will be imprinted with a conspicuous legend in substantially the following form:
"The securities represented by this certificate have not been
registered under either Securities Act of 1933 (the "Act") or
applicable state securities laws (the "State Acts") and shall not be
sold, pledged, hypothecated, donated or otherwise transferred (whether
or not for consideration) by the holder except, if requested by the
Company, upon the issuance to the Company of a favorable opinion of its
counsel and/or submission to the Company of such other evidence as may
be satisfactory to counsel of the Company, in each such case, to the
effect that any such transfer shall not be in violation of the Act and
the State Acts."
Except as provided in Section 9 hereof, the Company has not agreed to
register any of the Shares with respect to which this Warrant may be exercisable
for distribution in accordance with the provisions of the Act or the State Acts,
and the Company has not agreed to comply with any exemption from registration
4
under the Act or the State Acts for the resale of the Shares with respect to
which this Warrant may be exercised. Hence, it is the understanding of the
Holder of this Warrant that by virtue of the provisions of certain rules
respecting "restricted securities" promulgated by the Securities and Exchange
Commission (the "SEC"), the Shares may be required to be held indefinitely,
unless and until registered under the Act and the State Acts, unless an
exemption from such registration is available, in which case the Holder may
still be limited as to the number of Shares with respect to which this Warrant
may be exercised that may be sold.
6. ADJUSTMENTS. The number of Shares issuable upon the exercise of this
Warrant is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below:
(a) In case the Company shall: (i) pay a dividend in Common
Stock, (ii) subdivide its outstanding Common Stock into a greater number of
shares of Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (iv) issue, by
reclassification of its shares of Common Stock, any shares of its capital stock,
the number of Shares purchasable upon the exercise of each Warrant immediately
prior thereto shall be adjusted so that the Holder shall be entitled to receive
upon exercise of this Warrant that number of Shares which the Holder would have
owned or would have been entitled to receive after the happening of such event
had the Holder exercised the Warrant immediately prior to the record date, in
the case of such dividend, or the effective date, in the case of any such
subdivision, combination or reclassification. An adjustment made pursuant to
this subsection (a) shall be made whenever any of such events shall occur, but
shall become effective retroactively after such record date or such effective
date, as the case may be, as to shares exercised between such record date or
effective date and the date of happening of any such event.
(b) In case the Company shall (i) issue or sell any Common
Stock, except for the Exempt Stock (as defined below), for less than the Current
Market Price (as hereafter defined in Section 6(e)) per share at the time of
such issuance or sale, or (ii) grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any options
or warrants for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock, whether or not immediately
exercisable, convertible or exchangeable (such rights, options or warrants being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities"), or issue or sell (whether
directly or by assumption in a merger or otherwise) Options or Convertible
Securities, and the price per share for which shares of Common Stock are
issuable upon exercise, conversion or exchange of such Options or Convertible
Securities (determined by dividing (x) the aggregate amount received or
receivable by the Company as consideration for the issue, sale or grant of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof, by (y) the total maximum number of shares of
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Common Stock issuable upon the exercise, conversion or exchange of all such
Options or Convertible Securities) shall be less than the Current Market Price
per share of Common Stock on the date of such issue, sale or grant, whether or
not the rights to exercise, exchange or convert thereunder are immediately
exercisable, then (A) the Exercise Price shall be reduced to a price determined
by multiplying the Exercise Price in effect prior to the adjustment referred to
in this Section 6(b) by a fraction, the numerator of which is an amount equal to
the sum of (x) the number of shares of Common Stock outstanding immediately
prior to such issue, sale or grant, plus (y) the consideration, if any, received
by the Company upon any such issue or sale divided by the Current Market Price
per Share at the time of such issue or sale, and the denominator of which is the
total number of Shares outstanding immediately after such issue, sale or grant,
and (b) the number of Shares for which this Warrant is exercisable shall be
adjusted to equal the number obtained by dividing (x) the Exercise Price in
effect immediately prior to such issue, sale or grant, multiplied by the number
of Shares for which this Warrant is exercisable immediately prior to such issue,
sale or grant by (y) the Exercise Price resulting from the adjustment made
pursuant to this Section 6(b). If any such Options, or rights or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Exercise Price adjusted upon the issuance of such
Options or Convertible Securities shall be readjusted to the Exercise Price that
would have been in effect had an adjustment been made on the basis that the only
Common Stock issued was the Common Stock, if any, actually issued or sold on the
exercise of such Options or rights of conversion of such Convertible Securities,
and such Common Stock, if any, was issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such Options, whether
or not exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted plus the consideration, if any,
actually received by the Company on the conversion of such Convertible
Securities. For purposes of this provision, "Exempt Stock" shall mean (i) shares
of Common Stock (or securities convertible into or exchangeable directly or
indirectly for Common Stock) issued to officers, directors, employees,
consultants or vendors (if in transactions with primarily non-financing
purposes) to the Company pursuant to any stock purchase or stock option plan or
agreement or otherwise, in each case as approved by the Board of Directors of
the Company; (ii) securities issued in connection with credit agreements with
equipment lessors or commercial lenders approved by the Board of Directors; or
(iii) securities issued pursuant to the acquisition of all or part of another
company by the Corporation by merger or reorganization, or by the purchase of
all or part of the assets of another company, pursuant to a plan, agreement, or
arrangement approved by the Board of Directors.
(c) In case the Company shall pay a dividend or make a
distribution of shares of its capital stock (other than Shares), evidences of
its indebtedness, assets or rights, warrants or options (excluding (i) dividends
or distributions payable in cash out of the current year's or retained earnings
of the Company, (ii) distributions relating to subdivisions and combinations
covered by Section 6(a), (iii) distributions relating to reclassifications,
changes, consolidations, mergers, sales or conveyances covered by Section 6(d)
and (iv) rights, warrants or options to purchase or subscribe for shares of
Common Stock or Convertible Securities), then in each such case (A) the Exercise
Price shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the record date
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mentioned below by a fraction, the numerator of which shall be (x) the total
number of shares of Common Stock then outstanding multiplied by the Current
Market Price per Share on the record date mentioned below, less (y) the fair
market value (as determined by the Board of Directors of the Company or any duly
authorized committee thereof) as of such record date of said shares of stock,
evidences of indebtedness or assets so paid or distributed or of such rights,
warrants or options, and the denominator of which shall be the total number of
shares of Common Stock then outstanding multiplied by the Current Market Price
per Share on the record date mentioned below; and (B) the number of Shares for
which this Warrant is exercisable shall be adjusted to equal the number obtained
by dividing (x) the Purchase Price in effect immediately prior to such dividend
or distribution multiplied by the number of Shares for which this Warrant is
exercisable immediately prior to such dividend or distribution by (y) the
Purchase Price resulting from the adjustment made pursuant to this Section 6(c).
Such adjustment shall be made whenever any such dividend is paid or such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution.
In the event of a distribution by the Company of stock of a subsidiary
or securities convertible into or exercisable for such stock, then in lieu of an
adjustment in the Exercise Price, the Holder of this Warrant, upon the exercise
thereof at any time after such distribution, shall be entitled to receive from
the Company, such subsidiary or both, as the Company shall determine, the stock
or other securities to which such Holder would have been entitled if such Holder
had exercised such Warrant immediately prior thereto, all subject to further
adjustment as provided in this Section 6.
(d) If any capital reorganization, reclassification or similar
transaction involving the capital stock of the Company (other than as provided
in Section 6(a)), any consolidation, merger or business combination of the
Company with another corporation, or the sale or conveyance of all or
substantially all of its assets to another corporation, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, or assets with respect to or in exchange for Common Stock, then,
prior to and as a condition of such reorganization, reclassification,
consolidation, merger, business combination, sale or conveyance, lawful and
adequate provision shall be made whereby the Holder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the Shares immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of Common Stock
equal to the number of Shares immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger, business combination, sale or
conveyance not taken place. In any such case, appropriate provision shall be
made with respect to the rights and interests of the Holder to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the Exercise Price and of the number of Shares purchasable upon the exercise of
this Warrant) shall thereafter be applicable, as nearly as may be, in relation
to any stock, securities or assets thereafter deliverable upon the exercise
hereof. The Company shall not effect any such consolidation, merger, business
7
combination, sale or conveyance unless prior to or simultaneously with the
consummation thereof the survivor or successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall (1) assume by written instrument executed and sent
to each registered Holder, the obligation to deliver to such Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to receive, and containing the express assumption by
such successor corporation of the due and punctual performance and observance of
every provision of this Warrant to be performed and observed by the Company and
of all liabilities and obligations of the Company hereunder, and (2) deliver to
the registered Holder an opinion of counsel, in form and substance satisfactory
to such Holder, to the effect that such written instrument has been duly
authorized, executed and delivered by such successor corporation and constitutes
a legal, valid and binding instrument enforceable against such successor
corporation in accordance with its terms (except as enforcement thereof may be
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally, and general
principles or equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law)), and to such further effects as such Holder may
reasonably request.
(e) For the purpose of any computation under this Warrant
Certificate, the Current Market Price per Share at any date shall be: (i) if the
Shares are listed on any national securities exchange, the average of the daily
closing prices for the fifteen (15) consecutive business days commencing two (2)
business days before the day in question (the "Trading Period"); (ii) if the
Shares are not listed on any national securities exchange but are quoted on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ"), the average of the high and low bids as reported by NASDAQ for the
Trading Period; and (iii) if the Shares are neither listed on any national
securities exchange nor quoted on NASDAQ, the fair market value of the Shares as
determined in good faith by the Board of Directors of the Company.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least $.01;
provided, however, that any adjustments which by reason of this subsection (f)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 6 shall be made
to the nearest cent or to the nearest one-hundredth of a Share, as the case may
be.
(g) Whenever the number of Shares purchasable hereunder is
adjusted as herein provided, the Company shall cause to be mailed to the Holder
in accordance with the provisions of this Section 6 a notice (i) stating that
the number of Shares purchasable upon exercise of this Warrant have been
adjusted, (ii) setting forth the adjusted number of Shares purchasable upon the
exercise of a Warrant, and (iii) showing in reasonable detail the computations
and the facts, including the amount of consideration received or deemed to have
been received by the Company, upon which such adjustments are based.
7. FRACTIONAL SHARES. The Company shall not be required to issue any
fraction of a Share upon the exercise of Warrants. If more than one Warrant
shall be surrendered for exercise at one time by the same Holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Shares with respect to which this Warrant
is exercised. If any fractional interest in a Share shall be deliverable upon
the exercise of this Warrant, the Company shall make an adjustment therefor in
cash equal to such fraction multiplied by the Current Market Price of the Shares
on the business day next preceding the day of exercise.
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8. REPURCHASE. The Company shall have no right to repurchase this
Warrant or the Shares which may be purchased under this Warrant.
9. REGISTRATION RIGHTS.
9.1 COMPANY'S REGISTRATION OPTION.
(a) (i) If the Company at any time elects or proposes
to register any of its Shares (the "Registration Shares") under the
Act on any Registration Statement forms in effect at such time with the SEC
pursuant to which Shares owned by any shareholder of the Company may be
registered, the Company shall give prompt written notice (the "Registration
Notice") to the Holder of its intention to register the Registration Shares
(ii) Within fifteen (15) days after the
Registration Notice shall have been given to the Holder, the Holder shall give
written notice to the Company (the "Holder Notice"), stating the number of
Shares to be registered (the "Holder Shares"). In the event the Registration
Notice is given by the Company prior to the time that this Warrant has been
exercised pursuant to Section l (a) hereof, the Holder Notice shall be
accompanied by this Warrant Certificate together with a duly executed Purchase
Form and payment of the Exercise Price for the Holder Shares in accordance with
Section 1 hereof.
(iii) The Company shall use its best efforts
to register the Holder Shares under the Act and the applicable state
securities laws (the "State Acts") designated by the Holder in the Holder
Notice. Anything contained herein to the contrary notwithstanding, the Company
shall have the right to withdraw and discontinue registration of the Holder
Shares at any time prior to the effective date of such Registration Statement if
the registration of the Registration Shares is withdrawn or discontinued.
(iv) The Company shall not be required to
include any of the Holder Shares in any Registration Statement unless the
Holder agrees, if so requested by the Company, to: (A) offer and sell the Holder
Shares to or through an underwriter selected by the Company and, to the extent
possible, on substantially the same terms and conditions under which the
Registration Shares are to be offered and sold; (B) comply with any
arrangements, terms and conditions with respect to the offer and sale of the
Shares to which the Company may be required to agree; and (C) enter into any
underwriting agreement containing customary terms and conditions, including
provisions for the indemnification of the underwriters.
(b) If the offering of the Registration Shares by the
Company is, in whole or in part, an underwritten public offering, and
if the managing underwriter determines and advises the Company in writing that
the inclusion in such Registration Statement of all of the Holder Shares,
together with the Shares of other persons who have exercised their right to
include their Shares in the Registration Statement (collectively referred to as
the "Aggregate Shares") would adversely affect the marketability of the offering
of the Registration Shares, then the Holder shall be entitled to register a
proportion, as determined in Subsection (b)(i) below, of such number of
Aggregate Shares as the managing underwriter determines may be included without
such adverse effects ("Aggregate Underwriter Shares"), subject to the terms,
exceptions and conditions of this Section 9.
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(i) The proportion of the Aggregate Underwriter
Shares which the Holder shall be entitled to register shall be equal to the
ratio which the Holder Shares bears to the Aggregate Shares.
(c) The Company shall bear all costs and expenses of
registration of the Registration Shares and the Holder Shares.
(d) It shall be a condition precedent to the Company's
obligation to utilize its best efforts to register any Holder Shares pursuant to
this Section 9 that the Holder provide the Company with all information and
documents, and shall execute, acknowledge, seal and deliver all documents
reasonably necessary, to enable the Company to comply with the Act, the State
Acts, and all applicable laws, rules and regulations of the SEC or of any State
Securities Commission.
(e) The Holder shall indemnify and hold harmless the Company,
each of its directors and officers who have signed the Registration Statement,
each person, if any, who is a controlling person or the Company and any
underwriter from and against any and all losses, claims, damages, expenses or
liabilities (including amounts paid in settlement and reasonable attorneys'
fees) (the "Liabilities"), joint or several, to which they or any of them may
become subject under the Act, under any State Act or at common law or otherwise
insofar as the Liabilities arise from written information provided by the Holder
for specific inclusion in such Registration Statement; provided that the maximum
amount which may be recovered from the Holder pursuant to this paragraph or
otherwise shall be limited to the amount of net proceeds received by the Holder
from the sale of Shares pursuant to such Registration Statement.
(f) The Company shall indemnify and hold harmless the Holder
from and against any and all losses, claims, damages, expenses or liabilities
(including amounts paid in settlement and reasonable attorneys' fees) (the
"Liabilities"), joint or several, to which they or any of them may become
subject under the Act, under any State Act or at common law or otherwise insofar
as the Liabilities arise from written information provided by the Company for
specific inclusion in such Registration Statement; provided that the maximum
amount which may be recovered from the Company pursuant to this paragraph or
otherwise shall be limited to a sum equal to the number of Shares exercised by
Holder multiplied by the then Current Market Price at the time of exercise.
9.2 REGISTRATION PROCEDURES AND EXPENSES. If and whenever the Company
is required by the provisions of Section 9.1 hereof to use its best efforts to
effect the registration of any of the Shares under the Act, the Company will, as
expeditiously as possible:
10
(a) prepare and file with the SEC a Registration Statement
(which, in the case of an underwritten public offering, shall be on Form S-1 or
other form of general applicability satisfactory to the managing underwriter
selected as therein provided) with respect to such securities and use its best
efforts to cause such Registration Statement to become and remain effective for
the period of the distribution contemplated thereby (determined as hereinafter
provided);
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the period hereinafter provided and as shall comply with the provisions of the
Act with respect to the disposition of all Shares covered by such Registration
Statement in accordance with the sellers' intended method of disposition set
forth in such Registration Statement for such period;
(c) furnish to each seller and to each underwriter such number
of copies of the Registration Statement and the prospectus included therein
(including each preliminary prospectus) as such persons may reasonably request
in order to facilitate the public sale or other disposition of the Shares
covered by such Registration Statement;
(d) use its best efforts to register or qualify the Shares
covered by such Registration Statement under the securities or blue sky laws of
such jurisdictions as the sellers of Shares or, in the case of an underwritten
public offering, the managing underwriter, shall reasonably request;
(e) immediately notify each seller under such Registration
Statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Act, of the happening of any event as a
result of which the prospectus contained in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(f) use its best efforts (if the offering is underwritten) to
furnish, at the request of any seller, on the date that Shares are delivered to
the underwriters for sale pursuant to such registration: (i) an opinion dated
such date of counsel representing the Company for the purposes of such
registration, addressed to the underwriters and to such seller, stating that
such Registration Statement has become effective under the Act and that (A) to
the best knowledge of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been instituted
or are pending or contemplated under the Act, (B) the Registration Statement,
the related prospectus, and each amendment or supplement thereof, comply as to
form in all material respects with the requirements of the Act and the
applicable rules and regulations of the SEC thereunder (except that such counsel
need express no opinion as to financial statements contained therein) and (C) to
such other effects as may reasonably be requested by counsel for the
underwriters or by such seller or its counsel, and (ii) a letter dated such date
from the independent public accountants retained by the Company, addressed to
11
the underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Act and that, in the opinion of such
accountants, the financial statements of the Company included in the
Registration Statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Act, and such letter shall additionally cover
such other financial matters (including information as to the period ending no
more than five business days prior to the date of such letter) with respect to
the registration in respect of which such letter is being given as such
underwriters or seller may reasonably request; and
(g) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
For purposes of Section 9.2(a) and (b) hereof, the period of distribution of
Shares in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all securities
purchased by it, and the period of distribution of Shares in any other
registration shall be deemed to extend until the earlier of the sale of all
Shares covered thereby or nine months after the effective date thereof.
In connection with each registration hereunder, the selling
holders of Shares will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as shall be
reasonably necessary in order to assure compliance with federal and applicable
state securities laws.
In connection with each registration pursuant to Section 9.1 hereof covering an
underwritten public offering, the Company agrees to enter into a written
agreement with the managing underwriter selected in the manner herein provided
in such form and containing such provisions as are customary in the securities
business for such an arrangement between major underwriters and companies of the
Company's size and investment stature, provided that such agreement shall not
contain any such provision applicable to the Company which is inconsistent with
the provisions hereof and, further, provided, that the time and place of the
closing under said agreement shall be as mutually agreed upon between the
Company and such managing underwriter.
10. LOSS OR DESTRUCTION. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant and, in
the case of any such loss, theft or destruction, upon delivery of an indemnity
agreement or bond satisfactory in form, substance and amount to the Company or,
in the case of any such mutilation, upon surrender and cancellation of this
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
11. SURVIVAL. The various rights and obligations of the Holder hereof
as set forth herein shall survive the exercise of the Warrants represented
hereby and the surrender of this Warrant.
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12. REPRESENTATIONS OF HOLDER. The Holder represents and warrants to
the Company as follows:
(a) The Holder may receive this Warrant free and clear of any
restriction, agreement, claim or other impediment and the Holder is free to
exercise this Warrant in accordance with the terms and conditions set forth in
this Warrant; and
(b) The execution and delivery of this Warrant to the Holder
by the Company does not constitute a breach or default under any other
agreement, contract or arrangement which is binding upon the Holder.
13. NOTICES. Whenever any notice, payment of any purchase price, or
other communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery, by overnight
courier services for next day delivery, or United States registered or certified
mail, return receipt requested, postage prepaid, and will be deemed to have been
given or delivered on the date such notice, purchase price or other
communication is so delivered or posted, as the case may be; and, if to the
Company, it will be addressed to the address specified in Section 1 hereof, and
if to the Holder, it will be addressed to the registered Holder at his address
as it appears on the books of the Company.
14. SUCCESSORS. This Warrant shall be binding upon any successors or
assigns of the Company and upon any heirs, successors or assigns of the Holder.
15. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Utah.
16. HEADINGS. The headings used in this Warrant are used for
convenience only and are not to be considered in construing or interpreting this
Warrant.
17. SATURDAYS, SUNDAYS, HOLIDAYS. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday or a Sunday or shall be a legal holiday in the State of
Delaware, then such action may be taken or such right may be exercised on the
next succeeding day not a legal holiday.
18. ATTORNEY'S FEES. In the event that any dispute among the parties to
this Warrant should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Warrant, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
IN WITNESS WHEREOF, Telkonet, Inc. has caused this Warrant to be
executed and attested under seal by its officers thereunto duly authorized as of
the ___ day of _________, 2003.
TELKONET, INC.
By:_______________________ (SEAL)
Xxxxxx Xxxxxx,
Chief Executive Officer
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EXHIBIT A
---------
PURCHASE FORM TO BE EXECUTED
UPON CASH EXERCISE OF WARRANT
-----------------------------
Telkonet, Inc.
000 Xxxxx Xxxx Xxxxx Xxxxxxxx 000
Xxxxx, Xxxxxxxxxxxx 19087
The undersigned hereby irrevocably elects to exercise the attached
Warrant, according to the terms and conditions thereof, to the extent of
___________ shares of Common Stock, and hereby tenders $_________ in full
payment of the purchase price in accordance with Section 1(a) of the Warrant.
Date: ________________________ ______________________________
* * * * *
The Common Stock certificates are to be issued as indicated below:
NAME ADDRESS SSN/TAX ID NO. SHARES
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