Exhibit 4
NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
AND APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
TELKONET,
INC.
AMENDED
AND RESTATED COMMON STOCK WARRANT
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Warrant
No. [ ]
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Original
Issue Date:
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FOR VALUE RECEIVED, TELKONET,
INC., a Utah corporation (the “Company”), hereby certifies that
[ ]
or its permitted registered assigns (the “Holder”), is entitled to purchase
from the Company up to a total of
[ ]
shares of common stock, $0.001 par value (the “Common
Stock”), of the Company (each such share, a “Warrant
Share” and all
such shares, the “Warrant
Shares”) at an
exercise price equal to $0.6978258 per share (as adjusted from time to time as
provided herein, the “Exercise
Price”), at any time and from time to time from and after the Original
Issue Date and through and including
[ ]
(the “Expiration
Date”), and
subject to the following terms and conditions:
This Warrant amends and restates the
Warrant issued pursuant to that certain Securities Purchase Agreement, dated
[ ]
by and among the Company and the Purchasers identified therein (the “Purchase
Agreement”) and is one in a series of warrants that was issued pursuant
to the Purchase Agreement. All such warrants are referred to herein,
collectively, as the “Warrants.”
1. Definitions. In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the
Purchase Agreement.
2. List of Warrant
Holders. The Company shall register this Warrant, upon records
to be maintained by the Company for that purpose (the “Warrant
Register”), in
the name of the record Holder (which shall include the initial Holder or, as the
case may be, any registered assignee to which this Warrant is permissibly
assigned hereunder from time to time). The Company may deem and treat
the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.
3. List of
Transfers.
(a) In
addition to the restrictions noted in the legend set forth on the first page of
this Warrant, this Warrant and the Warrant Shares are subject to the
restrictions on transfer set forth in the Purchase Agreement.
(b) The
Company shall register any such transfer of all or any portion of this Warrant
in the Warrant Register, upon (i) surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at its
address specified herein and (ii) if the Registration Statement is not
effective, (x) delivery of an opinion of counsel reasonably satisfactory to the
Company, to the effect that the transfer of such portion of this Warrant may be
made pursuant to an available exemption from the registration requirements of
the Securities Act and all applicable state securities or blue sky laws and (y)
delivery by the transferee of a written statement to the Company certifying that
the transferee is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and making the representations and certifications set forth in
Section 3.2(b), (c) and (d) of the Purchase Agreement, to the Company at its
address specified in the Purchase Agreement. Upon any such registration or
transfer, a new Warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new Warrant, a “New
Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations in respect of
the New Warrant that the Holder has in respect of this Warrant.
4. Exercise and Duration of
Warrants.
(a) All
or any part of this Warrant shall be exercisable by the registered Holder at any
time and from time to time from on or after the Original Issue Date and through
and including the Expiration Date. Subject to Section 4(c) and
Section 11 hereof, at 5:00 p.m., New York City time, on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value and this Warrant shall be terminated and no longer
outstanding;
(b) The
Holder may exercise this Warrant by delivering to the Company (i) an exercise
notice, in the form attached hereto (the “Exercise
Notice”), completed and duly signed, and (ii) if such Holder is not
utilizing the cashless exercise provisions set forth in this Warrant, payment of
the Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised, and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an “Exercise
Date.” The delivery by (or on behalf of) the Holder of the Exercise
Notice and the applicable Exercise Price as provided above shall constitute the
Holder’s certification to the Company that its representations contained in
Section 3.2(b), (c) and (d) of the Purchase Agreement are true and correct as of
the Exercise Date as if remade in their entirety (or, in the case of any
transferee Holder that is not a party to the Purchase Agreement, such transferee
Holder’s certification to the Company that such representations are true and
correct as to such assignee Holder as of the Exercise Date). The
Holder shall not be required to deliver the original Warrant in order to effect
an exercise hereunder. Execution and delivery of the Exercise Notice
shall have the same effect as cancellation of the original Warrant and issuance
of a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares.
(c) Call
Right.
(i) If, following the
Effective Date, the closing price of the Company’s Common Stock for any 15
consecutive Trading Days exceeds $9.00 (the “Threshold Price”, and such 15 day
period, the “Threshold Period”), then the Company will have the right, but not
obligation (the “Call Right”), on prior written notice in accordance with
Section 4(c)(ii) to the Holder, to require the Holder to exercise any or all of
the unexercised portion of this Warrant for which an Exercise Notice has not yet
been delivered (the “Call Amount”); provided that the Call Right must be
exercised within 5 Trading Days of the last day of the Threshold
Period.
(ii) To exercise this
Call Right, the Company shall deliver to the Holder an irrevocable written
notice (a “Call Notice”), indicating the Call Amount. The date that
the Company delivers the Call Notice to the Holder will be referred to as the
“Call Date.” Within 30 Trading Days of receipt of the Call Notice (the “Call
Exercise Period”), the Holder shall exercise this Warrant for the entire Call
Amount in accordance with this Section 4. The date on which the Call
Amount is exercised is referred to herein as the “Forced Exercise
Date.” Any unexercised portion of this Warrant to which the Call
Notice does not pertain (the “Remaining Portion”) will be unaffected by such
Call Notice. The Company covenants and agrees that it will honor any
Exercise Notice with respect to the Call Amount that is tendered from the Call
Date through and including 5:00 p.m., New York City time, on the last day of the
Call Exercise Period.
(iii) Notwithstanding
anything herein to the contrary, (A) in connection with the Company’s exercise
of a Call Right, the Maximum Percentage limitation on exercise set forth in
Section 11 shall not apply, (B) the Company shall not be permitted to exercise
the Call Right at a time when a registration statement permitting the Holder to
resell the Warrant Shares is required to be effective and is not then effective
or the prospectus forming a part thereof is not then available to the Holder for
the resale of the Warrant Shares, and (C) if, after the Call Right is exercised,
the stated Expiration Date of this Warrant would occur prior to the last day of
the Call Exercise Period, the “Expiration Date” hereof shall be extended to last
day of the Call Exercise Period solely to the extent necessary to enable this
Warrant to be exercised for the Call Amount on the Forced Exercise
Date.
5. Delivery of Warrant
Shares.
(a) Upon
exercise of this Warrant, the Company shall promptly (but in no event later than
three Trading Days after the Exercise Date) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate (provided that, if the Registration
Statement is not effective and the Holder directs the Company to deliver a
certificate for the Warrant Shares in a name other than that of the Holder or an
Affiliate of the Holder, it shall deliver to the Company on the Exercise Date an
opinion of counsel reasonably satisfactory to the Company to the effect that the
issuance of such Warrant Shares in such other name may be made pursuant to an
available exemption from the registration requirements of the Securities Act and
all applicable state securities or blue sky laws, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective or the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) under the Securities Act. The Holder, or any Person permissibly so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become the holder of record of such Warrant Shares as of the Exercise
Date. If the Warrant Shares can be issued without restrictive
legends, the Company shall, upon the written request of the Holder, use its best
efforts to deliver, or cause to be delivered, Warrant Shares hereunder
electronically through the Depository Trust and Clearing Corporation or another
established clearing corporation performing similar functions, if available;
provided, that, the Company may, but will not be required to, change its
transfer agent if its current transfer agent cannot deliver Warrant Shares
electronically through the Depository Trust and Clearing
Corporation.
(b)
If by the close of the third Trading Day after delivery of an Exercise Notice,
the Company fails to deliver to the Holder a certificate representing the
required number of Warrant Shares in the manner required pursuant to Section
5(a), and if after such third Trading Day and prior to the receipt of such
Warrant Shares, the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”),
then the Company shall, within three Trading Days after the Holder’s request and
in the Holder’s sole discretion, either (1) pay in cash to the Holder an amount
equal to the Holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such Warrant Shares) shall terminate or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Warrant Shares and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of Warrant Shares, times (B) the closing bid price on the date of
the event giving rise to the Company’s obligation to deliver such
certificate.
(c) To
the extent permitted by law, the Company’s obligations to issue and deliver
Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Shares. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
6. Charges, Taxes and
Expenses. Issuance and delivery of certificates for shares of Common
Stock upon exercise of this Warrant shall be made without charge to the Holder
for any issue or transfer tax, withholding tax, transfer agent fee or other
incidental tax or expense in respect of the issuance of such certificates, all
of which taxes and expenses shall be paid by the Company; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares
or Warrants in a name other than that of the Holder. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7. Replacement of
Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Warrant under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other reasonable
third-party costs as the Company may prescribe. If a New Warrant is requested as
a result of a mutilation of this Warrant, then the Holder shall deliver such
mutilated Warrant to the Company as a condition precedent to the Company’s
obligation to issue the New Warrant.
8. Reservation of Warrant
Shares. The Company covenants that it will at all times reserve and keep
available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other contingent purchase rights of
persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The
Company covenants that all Warrant Shares so issuable and deliverable shall,
upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
9. Certain Adjustments.
The Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this Section
9.
(a)
Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding,
(i) pays a stock dividend on its Common Stock or otherwise makes a distribution
on any class of capital stock that is payable in shares of Common Stock, (ii)
subdivides outstanding shares of Common Stock into a larger number of shares, or
(iii) combines outstanding shares of Common Stock into a smaller number of
shares, then in each such case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
(b) Pro Rata
Distributions. If the Company, at any time while this Warrant
is outstanding, distributes to all holders of Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, “Distributed
Property”), then, upon any exercise of this Warrant that occurs after the
record date fixed for determination of stockholders entitled to receive such
distribution, the Holder shall be entitled to receive, in addition to the
Warrant Shares otherwise issuable upon such exercise (if applicable), the
Distributed Property that such Holder would have been entitled to receive in
respect of such number of Warrant Shares had the Holder been the record holder
of such Warrant Shares immediately prior to such record date.
(c) Fundamental
Transactions. If, at any time while this Warrant is
outstanding (i) the Company effects any merger or consolidation of
the Company with or into another Person, in which the Company is not the
survivor, (ii) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each, a “Fundamental
Transaction”), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). The Company
shall not effect any
such
Fundamental Transaction unless prior to or simultaneously with the consummation
thereof, any successor to the Company, surviving entity or the corporation
purchasing or otherwise acquiring such assets or other appropriate corporation
or entity shall assume the obligation to deliver to the Holder, such Alternate
Consideration as, in accordance with the foregoing provisions, the Holder may be
entitled to purchase, and the other obligations under this
Warrant. The provisions of this paragraph (c) shall similarly apply
to subsequent transactions analogous to a Fundamental Transaction.
(d) Number of Warrant
Shares. Simultaneously with any adjustment to the Exercise Price pursuant
to paragraph (a) of this Section 9, the number of Warrant Shares that may be
purchased upon exercise of this Warrant shall be increased or decreased
proportionately, so that after such adjustment the aggregate Exercise Price
payable hereunder for the adjusted number of Warrant Shares shall be the same as
the aggregate Exercise Price in effect immediately prior to such
adjustment.
(e) Subsequent Equity
Sales.
(i) Except as
provided in subsection (e)(iii) hereof, if and whenever the Company shall issue
or sell, or is, in accordance with any of subsections (e)(ii)(l) through
(e)(ii)(4) hereof, deemed to have issued or sold, any shares of Common Stock for
no consideration or for a consideration per share less than (x) the Exercise
Price in effect immediately prior to the time of such issue or sale, or (y) the
bid price for the Common Stock on the applicable Trading Market at the time of
such issue or sale, then and in each such case (a “Trigger
Issuance”) effective as of the close of business on the effective date of
the Trigger Issuance the then-existing Exercise Price shall be reduced to the
lowest price per share at which any share of Common Stock was issued or sold or
deemed to be issued or sold in such Trigger Issuance; provided, however, that in no
event shall the Exercise Price after giving effect to such Trigger Issuance be
greater than the original Exercise Price.
For
purposes of this subsection (e), “Additional Shares of Common Stock” shall mean
all shares of Common Stock issued by the Company or deemed to be issued pursuant
to this subsection (e), other than Excluded Issuances (as defined in subsection
(e)(iii) hereof).
(ii) For purposes of this subsection 9(d), the following
subsections (e)(ii)(l) to (e)(ii)(4) shall also be applicable:
(1)
Issuance of Rights or
Options. In case at any time the Company shall in any manner grant
(directly and not by assumption in a merger or otherwise) any warrants or other
rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable for
Common Stock (such warrants, rights or options being called “Options” and such
convertible or exchangeable stock or securities being called “Convertible
Securities”) whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the sum (which sum shall constitute the applicable consideration) of
(x) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus (y) the
aggregate
amount of
additional consideration payable to the Company upon the exercise of all such
Options, plus (z), in the case of such Options which relate to Convertible
Securities, the aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
Options) shall be less than the Exercise Price in effect immediately prior to
the time of the granting of such Options, then the total number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Exercise Price. Except as otherwise provided in
subsection 9(e)(ii)(3), no adjustment of the Exercise Price shall be made
upon the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(2)
Issuance of
Convertible Securities. In case the Company shall in any manner issue
(directly and not by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus (y) the aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (ii) the total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Exercise Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued for such price
per share as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding for purposes of adjusting the
Exercise Price, provided that (a) except as otherwise provided in
subsection 9(e)(ii)(3), no adjustment of the Exercise Price shall be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities and (b) no further adjustment of the Exercise Price
shall be made by reason of the issue or sale of Convertible Securities upon
exercise of any Options to purchase any such Convertible Securities for which
adjustments of the Exercise Price have been made pursuant to the other
provisions of subsection 9(e).
(3)
Change in Option Price
or Conversion Rate. Upon the happening of any of the following events,
namely, if the purchase price provided for in any Option referred to in
subsection 9(e)(ii)(l) hereof, the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in subsections 9(e)(ii)(l) or 9(e)(ii)(2), or the rate at which Convertible
Securities referred to in subsections 9(e)(ii)(l) or 9(e)(ii)(2) are convertible
into or exchangeable for Common
Stock
shall change at any time (including, but not limited to, changes under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such event shall forthwith be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. On the termination of any Option for
which any adjustment was made pursuant to this subsection 9(e) or any right
to convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection 9(e) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Company), the Exercise Price then in effect hereunder shall forthwith be changed
to the Exercise Price which would have been in effect at the time of such
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such termination, never been issued.
(4)
Consideration for
Stock. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the gross amount received by the Company
therefor. In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to be the
fair value of such consideration as determined in good faith by the Board of
Directors of the Company. In case any Options shall be issued in connection with
the issue and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of
the Company. If Common Stock, Options or Convertible Securities shall be issued
or sold by the Company and, in connection therewith, other Options or
Convertible Securities (the “Additional Rights”) are issued, then the
consideration received or deemed to be received by the Company shall be reduced
by the fair market value of the Additional Rights (as determined using the
Black-Scholes option pricing model or another method mutually agreed to by the
Company and the Holder). The Board of Directors of the Company shall respond
promptly, in writing, to an inquiry by the Holders as to the fair market value
of the Additional Rights. In the event that the Board of Directors of the
Company and the Holder are unable to agree upon the fair market value of the
Additional Rights, the Company and the Holder shall jointly select an appraiser,
who is experienced in such matters. The decision of such appraiser shall be
final and conclusive, and the cost of such appraiser shall be borne evenly by
the Company and the Holder.
(iii) Notwithstanding the foregoing, no adjustment will be
made under this paragraph (e) in respect of: (i) the issuance of securities upon
the exercise or conversion of any Common Stock or Convertible Securities
convertible into or exercisable or exchangeable for shares of Common Stock,
including, but not limited to, rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities (collectively, “Common
Stock Equivalents”) issued by the Company prior to the date hereof, (ii) the
grant of Common Stock Equivalents under any
duly
authorized Company stock option, restricted stock plan or stock purchase plan
whether now existing or hereafter approved by the Company and its stockholders
in the future stock issuable thereunder, the terms set forth therein, or the
exercise price set forth therein) and the issuance of Common Stock in respect
thereof, (iii) the issuance of up to 25,000 shares of Common Stock in the
aggregate since the original issue date of this Warrant, (iv) the issuance of
securities in connection with a Strategic Transaction, (v) the issuance of
securities to vendors, or (vi) the issuance of securities in a transaction
described in Section 9(a) or 9(b). For purposes of this paragraph, a “Strategic
Transaction” means a transaction or relationship in which (1) the Company issues
shares of Common Stock to a Person which the Board of Directors of the Company
determined in good faith is, itself or through its Subsidiaries, an operating
company in a business synergistic with the business of the Company (or a
shareholder thereof) and (2) the Company expects to receive benefits in addition
to the investment of funds, but shall not include (x) a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or to
a Person whose primary business is investing in securities or (y) issuances to
lenders.
Notwithstanding
any other provisions in this Section 9 to the contrary, if a reduction in the
Exercise Price pursuant to Section 9(e)(i) would require the Company to obtain
stockholder approval of the transactions contemplated by the Purchase Agreement
pursuant to a national stock exchange and such stockholder approval has not been
obtained, (i) the Exercise Price shall be reduced to the maximum extent that
would not require stockholder approval under such Rule, and (ii) the Company
shall use its commercially reasonable efforts to obtain such stockholder
approval as soon as reasonably practicable, including by calling a special
meeting of stockholders to vote on such Exercise Price
adjustment. This provision shall not restrict the number of shares of
Common Stock which a Holder may receive or beneficially own in order to
determine the amount of securities or other consideration that such Holder may
receive in the event of a transaction contemplated by Section 9 of this
Warrant.
(e) Calculations. All
calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a
share, as applicable. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or
sale of Common Stock.
(f) Notice of
Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the
Company at its expense will, at the written request of the Holder, promptly
compute such adjustment in accordance with the terms of this Warrant and prepare
a certificate setting forth such adjustment, including a statement of the
adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing
the transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s Transfer Agent.
(g) Notice of Corporate
Events. If, while this Warrant is outstanding, the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then, except if such notice and the contents thereof shall be
deemed to constitute material non-public information, the Company shall deliver
to the Holder a notice describing the material terms and conditions of such
transaction at least 10 Trading Days prior to the applicable record or effective
date on which a Person would need to hold Common Stock in order to participate
in or vote with respect to such transaction, and the Company will take all
reasonable steps to give Holder the practical opportunity to exercise this
Warrant prior to such time; provided, however, that the
failure to deliver such notice or any defect therein shall not affect the
validity of the corporate action required to be described in such
notice.
10. Payment of Exercise
Price. The Holder may pay the Exercise Price in one of the following
manners:
(a) Cash Exercise. The
Holder may deliver immediately available funds; or
(b) Cashless Exercise. If
an Exercise Notice is delivered at a time when a registration statement
permitting the Holder to resell the Warrant Shares is required to be effective
and is not then effective or the prospectus forming a part thereof is not then
available to the Holder for the resale of the Warrant Shares, then the Holder
may notify the Company in such Exercise Notice of its election to utilize
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y
((A-B)/A)
where:
X = the
number of Warrant Shares to be issued to the Holder.
Y = the
number of Warrant Shares with respect to which this Warrant is being
exercised.
A = the
average of the closing price of the Company’s Common Stock for the five Trading
Days immediately prior to (but not including) the Exercise Date.
B = the
Exercise Price.
For
purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.
11. Limitations on
Exercise. Notwithstanding anything to the contrary contained herein, the
number of Warrant Shares that may be acquired by the Holder upon any exercise of
this Warrant (or otherwise in respect hereof) shall be limited to the extent
necessary to insure that, following such exercise (or other issuance), the total
number of shares of Common Stock then beneficially owned by such Holder and its
Affiliates and any other Persons whose beneficial ownership of Common Stock
would be aggregated with the Holder’s for purposes of Section 13(d) of the
Exchange Act, does not exceed 9.999% (the “Maximum
Percentage”) of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise). For such purposes, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this Section and determined that issuance of the
full number of Warrant Shares requested in such Exercise Notice is permitted
under this Section. The Company’s obligation to issue shares of
Common Stock in excess of the limitation referred to in this Section shall be
suspended (and, except as provided below, shall not terminate or expire
notwithstanding any contrary provisions hereof) until such time, if any, as such
shares of Common Stock may be issued in compliance with such limitation;
provided, that, if, as of 5:00 p.m., New York City time, on the Expiration Date,
the Company has not received written notice that the shares of Common Stock may
be issued in compliance with such limitation, the Company’s obligation to issue
such shares shall terminate. This provision shall not restrict the
number of shares of Common Stock which a Holder may receive or beneficially own
in order to determine the amount of securities or other consideration that such
Holder may receive in the event of a Fundamental Transaction as contemplated in
Section 9 of this Warrant. By written notice to the Company, the Holder may
waive the provisions of this Section but any such waiver will not be effective
until the 61st day
after such notice is delivered to the Company, nor will any such waiver effect
any other Holder. This provision shall not apply to Holders who as of
the Closing Date beneficially own in excess of 10% of the total number of issued
and outstanding shares of Common Stock.
12. No Fractional Shares.
No fractional Warrant Shares will be issued in connection with any exercise of
this Warrant. In lieu of any fractional shares which would, otherwise be
issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by the
applicable Trading Market on the Exercise Date.
13. Notices. Any and all
notices or other communications or deliveries hereunder (including, without
limitation, any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section prior to 5:00 p.m. (New York City time) on a Trading Day, (ii) the
next Trading Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified in this Section on
a day that is not a Trading Day or later than 5:00 p.m. (New York City time) on
any Trading Day, (iii) the Trading Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
notices or communications shall be: if to the Company, to Telkonet,
Inc., 20374 Seneca Meadows Parkway, Germantown, Maryland, Attn: Chief Financial
Officer or to facsimile number (240) 912-1939 (or such other address as the
Company shall indicate in writing in accordance with this Section) or (ii) if to
the Holder, to the address or facsimile number appearing on the Warrant Register
(or such other address as the Company shall indicate in writing in accordance
with this Section).
14. Warrant Agent. The
Company shall serve as warrant agent under this Warrant. Upon 30 days’ notice to
the Holder, the Company may appoint a new warrant agent. Any corporation into
which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent
shall be a party or any corporation to which the Company or any new warrant
agent transfers substantially all of its corporate trust or shareholders
services business shall be a successor warrant agent under this Warrant without
any further act. Any such successor warrant agent shall promptly cause notice of
its succession as warrant agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder’s last address as shown on the Warrant
Register.
15. Miscellaneous.
(a) This
Warrant shall be binding on and inure to the benefit of the parties hereto and
their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder, or their successors and assigns.
(b) All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of this
Warrant and the transactions herein contemplated (“Proceedings”) (whether brought against a
party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the New York Courts. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim
that
it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either
party shall commence a Proceeding to enforce any provisions of this Warrant,
then the prevailing party in such Proceeding shall be reimbursed by the other
party for its attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
(c) The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(d) In
case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(e) Prior
to exercise of this Warrant, the Holder hereof shall not, by reason of by being
a Holder, be entitled to any rights of a stockholder with respect to the Warrant
Shares.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of February 1, 2008.
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TELKONET,
INC.
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By:
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Name:
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Richard
Leimbach
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Title:
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Chief
Financial Officer
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Acknowledged
and agreed:
[ NAME
OF HOLDER ]
By:
________________________
Name:
_____________________
Title:
______________________
EXERCISE
NOTICE
TELKONET,
INC.
WARRANT
DATED _______________
Ladies
and Gentlemen:
(1) The
undersigned hereby elects to purchase _________ shares of Common Stock pursuant
to the above-referenced Warrant. Capitalized terms used herein and
not otherwise defined herein have the respective meanings set forth in the
Warrant.
(2) The
Holder intends that payment of the Exercise Price shall be made as (check
one):
Cash
Exercise under Section 10
Cashless
Exercise under Section 10
(3) If
the Holder has elected a Cash Exercise, the holder shall pay the sum of $_______
to the Company in accordance with the terms of the Warrant.
(4) Pursuant
to this Exercise Notice, the Company shall deliver to the Holder _____________
Warrant Shares in accordance with the terms of the Warrant.
(5) By
its delivery of this Exercise Notice, the undersigned represents and warrants to
the Company that in giving effect to the exercise evidenced hereby the Holder
will not beneficially own in excess of the number of shares of Common Stock (as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934) permitted to be owned under Section 11 of this Warrant to which this
notice relates.
TELKONET,
INC.
WARRANT
ORIGINALLY ISSUED ___________
WARRANT
NO. _____________
FORM
OF ASSIGNMENT
[To be
completed and signed only upon transfer of Warrant]
FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
the right represented by the within Warrant to purchase
shares of Common Stock to which the within Warrant relates and appoints
attorney to transfer said right on the books of the Company with full power of
substitution in the premises.
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Dated:
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(Signature
must conform in all respects to name of holder as specified on the face of
the Warrant)
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Address
of Transferee
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