Exhibit
3.1
ARTICLES
OF AMENDMENT OF
THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
TELKONET,
INC.
a Utah
corporation
TELKONET,
INC. (the “Corporation”), a Utah
corporation, pursuant to the Utah Revised Business Corporation Act, hereby
adopts the following Articles of Amendment of the Amended and Restated Articles
of Incorporation of the Corporation.
ARTICLE
I
The name
of the Corporation is Telkonet, Inc.
ARTICLE
II
Article
III (Capital Stock) of the Amended and Restated Articles of Incorporation of the
Corporation shall be amended to add to the end of such Article III the following
Part C:
C. SERIES A
PREFERRED STOCK
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shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated “Series A
Preferred Stock” with the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations. Unless otherwise
indicated, references to “Sections” or “Subsections” in this Part C of this
Article III refer to sections and subsections of Part C of this Article
III.
1. Dividends.
From and
after the date of the issuance of any shares of Series A Preferred Stock, such
shares of Series A Preferred Stock shall accrue dividends at the rate per annum
of eight percent (8%) of the original purchase price (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization with respect to the
Series A Preferred Stock) (the “Accruing
Dividends”). Accruing Dividends shall accrue from day to day,
whether or not declared, and shall be cumulative; provided however,
that except as set forth in the following sentence of this Section 1 or in Subsections 2.1, 5
and 6, such
Accruing Dividends shall be payable only when, as, and if declared by the Board
of Directors and the Corporation shall be under no obligation to pay such
Accruing Dividends. The Corporation shall not declare, pay or set
aside any dividends on shares of any other class or series of capital stock of
the Corporation (other than dividends on shares of Common Stock payable in
shares of Common Stock) unless (in addition to the obtaining of any consents
required elsewhere in the Articles of Incorporation) the holders of the Series A
Preferred Stock then outstanding shall first receive, or simultaneously receive,
a dividend on each outstanding share of Series A Preferred Stock in an amount at
least equal to the greater of (i) the amount of the aggregate Accruing Dividends
then accrued on such share of Series A Preferred Stock and not previously paid
and (ii) (A) in the case of a dividend on Common Stock or any class or series
that is convertible into Common Stock, that dividend per share of Series A
Preferred Stock as would equal the product of (1) the dividend payable on each
share of such class or series determined, if applicable, as if all shares of
such class or series had been converted into Common Stock and (2) the number of
shares of Common Stock issuable upon conversion of a share of Series A Preferred
Stock, in each case calculated on the record date for determination of holders
entitled to receive such dividend or (B) in the case of a dividend on any class
or series that is not convertible into Common Stock, at a rate per share of
Series A Preferred Stock determined by (1) dividing the amount of the dividend
payable on each share of such class or series of capital stock by the original
issuance price of such class or series of capital stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization with respect to
such class or series) and (2) multiplying
such fraction by an amount equal to the Series A Original Issue Price (as
defined below); provided that, if the Corporation declares, pays or sets aside,
on the same date, a dividend on shares of more than one class or series of
capital stock of the Corporation, the dividend payable to the holders of Series
A Preferred Stock pursuant to this Section 1 shall be
calculated based upon the dividend on the class or series of capital stock that
would result in the highest Series A Preferred Stock dividend. The
“Series A Original Issue
Price” shall mean $5,000 per share, subject to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization with respect to the Series A Preferred Stock.
2. Liquidation, Dissolution or
Winding Up; Certain Mergers, Consolidations and Asset Sales.
2.1 Payments to Holders of
Series A Preferred Stock. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series A Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders before any payment shall be made to the holders of Common Stock
by reason of their ownership thereof, an amount per share equal to the greater
of (i) the Series A Original Issue Price, plus any Accruing Dividends accrued
but unpaid thereon, whether or not declared, together with any other dividends
declared but unpaid thereon, or (ii) such amount per share as would have
been payable had all shares of Series A Preferred Stock been converted into
Common Stock pursuant to Section 4 immediately
prior to such liquidation, dissolution or winding up (the amount payable
pursuant to this sentence is hereinafter referred to as the “Series A Liquidation
Amount”). If upon any such liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
A Preferred Stock the full amount to which they shall be entitled under this
Subsection 2.1,
the holders of shares of Series A Preferred Stock shall share ratably in any
distribution of the assets available for distribution in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
2.2 Payments to Holders of
Common Stock. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after the payment of
all preferential amounts required to be paid to the holders of shares of Series
A Preferred Stock, the remaining assets of the Corporation available for
distribution to its stockholders shall be distributed among the holders of
shares of Common Stock, pro rata based on the number of shares held by each such
holder.
2.3 Deemed Liquidation
Events.
2.3.1 Definition. Each
of the following events shall be considered a “Deemed Liquidation Event”
unless the holders of at least sixty-six and two-thirds percent (66⅔%) of the
outstanding shares of Series A Preferred Stock elect otherwise by written notice
sent to the Corporation at least 10 days prior to the effective date of any such
event:
(a) a merger,
consolidation or share exchange in which
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(i)
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the
Corporation is a constituent party
or
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(ii)
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a
subsidiary of the Corporation is a constituent party and the Corporation
issues shares of its capital stock pursuant to such merger or
consolidation,
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except
any such merger or consolidation involving the Corporation or a subsidiary in
which the shares of capital stock of the Corporation outstanding immediately
prior to such merger or consolidation continue to represent, or are converted
into or exchanged for shares of capital stock that represent, immediately
following such merger or consolidation, at least a majority, by voting power, of
the capital stock of (1) the surviving or resulting corporation or (2) if the
surviving or resulting corporation is a wholly owned subsidiary of another
corporation immediately following such merger or consolidation, the parent
corporation of such surviving or resulting corporation (provided that, for
the purpose of this Subsection 2.3.1, all
shares of Common Stock issuable upon exercise of Options (as defined below)
outstanding immediately prior to such merger or consolidation or upon conversion
of Convertible Securities (as defined below) outstanding immediately prior to
such merger or consolidation shall be deemed to be outstanding immediately prior
to such merger or consolidation and, if applicable, converted or exchanged in
such merger or consolidation on the same terms as the actual outstanding shares
of Common Stock are converted or exchanged); or
(b) the sale,
lease, transfer, exclusive license or other disposition, in a single transaction
or series of related transactions, by the Corporation or any subsidiary of the
Corporation of all or substantially all the assets of the Corporation and its
subsidiaries taken as a whole, or the sale or disposition (whether by merger or
otherwise) of one or more subsidiaries of the Corporation if substantially all
of the assets of the Corporation and its subsidiaries taken as a whole are held
by such subsidiary or subsidiaries, except where such sale, lease, transfer,
exclusive license or other disposition is to a wholly owned subsidiary of the
Corporation.
Notwithstanding
the foregoing, a financing shall not constitute a Deemed Liquidation
Event.
2.3.2 Effecting a Deemed
Liquidation Event.
(a) The
Corporation shall not have the power to effect a Deemed Liquidation Event
referred to in Subsection
2.3.1(a)(i) unless the agreement or plan of merger, consolidation or
share exchange for such transaction (the “Merger Agreement”) provides
that the consideration payable to the stockholders of the Corporation shall be
allocated among the holders of capital stock of the Corporation in accordance
with Subsections
2.1 and 2.2.
(b) In the
event of a Deemed Liquidation Event referred to in Subsection
2.3.1(a)(ii) or 2.3.1(b), if the
Corporation does not effect a dissolution of the Corporation under the Utah
Revised Business Corporation Act within 90 days after such Deemed Liquidation
Event, then (i) the Corporation shall send a written notice to each holder of
Series A Preferred Stock no later than the 90th day after the Deemed Liquidation
Event advising such holders of their right (and the requirements to be met to
secure such right) pursuant to the terms of the following clause (ii) to
require the redemption of such shares of Series A Preferred Stock, and (ii) if
the holders of at least sixty-six and two-thirds percent (66⅔%) of the then
outstanding shares of Series A Preferred Stock so request in a written
instrument delivered to the Corporation not later than 120 days after such
Deemed Liquidation Event, the Corporation shall use the consideration received
by the Corporation for such Deemed Liquidation Event (net of any retained
liabilities associated with the assets sold or technology licensed, as
determined in good faith by the Board of Directors of the Corporation), together with any other assets of the Corporation
available for distribution to its stockholders (the “Available Proceeds”), to the extent
legally available therefor, on the 150th day after such Deemed Liquidation
Event, to redeem all outstanding shares of Series A Preferred Stock at a price
per share equal to the Series A Liquidation Amount. Notwithstanding
the foregoing, in the event of a redemption pursuant to the preceding sentence,
if the Available Proceeds are not
sufficient to redeem all outstanding shares of Series A Preferred Stock, the
Corporation shall redeem a pro rata portion of each holder’s shares of Series A
Preferred Stock to the fullest extent of such Available Proceeds, based on the respective
amounts which would otherwise be payable in respect of the shares to be redeemed
if the Available Proceeds were sufficient
to redeem all such shares, and shall redeem the remaining shares to have been
redeemed as soon as practicable after the Corporation has funds legally
available therefor. The provisions of Subsections 6.2
through 6.4
shall apply, with such necessary changes in the details thereof as are
necessitated by the context, to the redemption of the Series A Preferred Stock
pursuant to this Subsection
2.3.2(b). Prior to the distribution or redemption provided for
in this Subsection
2.3.2(b), the Corporation shall not expend or dissipate the consideration
received for such Deemed Liquidation Event, except to discharge expenses
incurred in connection with such Deemed Liquidation Event or in the ordinary
course of business.
2.3.3 Amount Deemed Paid or
Distributed. The amount deemed paid or distributed to the
holders of capital stock of the Corporation upon any such merger, consolidation,
share exchange, sale, transfer, exclusive license, other disposition or
redemption shall be the cash or the value of the property, rights or securities
paid or distributed to such holders by the Corporation or the acquiring person,
firm or other entity. The value of such property, rights or
securities shall be determined in good faith by the Board of Directors of the
Corporation.
2.3.4 Special
Definitions. For purposes of this Article III, the following
definitions shall apply:
(a) “Convertible Securities” shall
mean any evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock, but excluding
Options.
(b) “Option” shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire Common Stock
or Convertible Securities (as defined below).
3. Voting.
On any
matter presented to the stockholders of the Corporation for their action or
consideration at any meeting of stockholders of the Corporation (or by written
consent of stockholders in lieu of meeting), each holder of outstanding shares
of Series A Preferred Stock shall be entitled to cast the number of votes equal
to the number of whole shares of Common Stock into which the shares of Series A
Preferred Stock held by such holder are convertible as of the record date for
determining stockholders entitled to vote on such matter. Except as
provided by law or by the other provisions of the Articles of Incorporation,
holders of Series A Preferred Stock shall vote together with the holders of
Common Stock as a single class.
4. Optional
Conversion.
The
holders of the Series A Preferred Stock shall have conversion rights as follows
(the “Conversion
Rights”):
4.1 Right to
Convert.
4.1.1 Conversion
Ratio. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Series A Original Issue Price by the Series A
Conversion Price (as defined below) in effect at the time of
conversion. The “Series A Conversion Price”
shall initially be equal to 110% of the greater of (i) the Closing Bid Price (as
defined in Subsection
5.3) of a share of Common Stock on November 12, 2009 or (ii) the
volume-weighted average price of a share of Common Stock measured over the
30-day period immediately preceding November 12, 2009. Such initial
Series A Conversion Price, and the rate at which shares of Series A Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.
4.1.2 Termination of Conversion
Rights. In the event of a notice of redemption of any shares
of Series A Preferred Stock pursuant to Section 6, the
Conversion Rights of the shares designated for redemption shall terminate at the
close of business on the last full day preceding the date fixed for redemption,
unless the redemption price is not fully paid on such redemption date, in which
case the Conversion Rights for such shares shall continue until such price is
paid in full. In the event of a liquidation, dissolution or winding
up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall
terminate at the close of business on the last full day preceding the date fixed
for the payment of any such amounts distributable on such event to the holders
of Series A Preferred Stock.
4.2 Fractional
Shares. No fractional shares of Common Stock shall be issued
upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the fair market
value of a share of Common Stock as determined in good faith by the Board of
Directors of the Corporation. Whether or not fractional shares would
be issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the aggregate number of shares of Common Stock
issuable upon such conversion.
4.3 Mechanics of
Conversion.
4.3.1 Notice of
Conversion. In order for a holder of Series A Preferred Stock
to voluntarily convert shares of Series A Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Series A Preferred Stock (or, if such registered holder alleges that
such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify
the Corporation against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of such certificate), at the
office of the transfer agent for the Series A Preferred Stock (or at the
principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series A Preferred Stock represented by
such certificate or certificates and, if applicable, any event on which such
conversion is contingent. Such notice shall state such holder’s name
or the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by
the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his,
her or its attorney duly authorized in writing. The close of business
on the date of receipt by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) of such certificates (or lost
certificate affidavit and agreement) and notice shall be the time of conversion
(the “Conversion Time”),
and the shares of Common Stock issuable upon conversion of the shares
represented by such certificate shall be deemed to be outstanding of record as
of such date. The Corporation shall, as soon as practicable after the
Conversion Time, (i) issue and deliver to such holder of Series A Preferred
Stock, or to his, her or its nominees, a certificate or certificates for the
number of full shares of Common Stock issuable upon such conversion in
accordance with the provisions hereof and a certificate for the number (if any)
of the shares of Series A Preferred Stock represented by the surrendered
certificate that were not converted into Common Stock, (ii) pay in cash such
amount as provided in Subsection 4.2 in
lieu of any fraction of a share of Common Stock otherwise issuable upon such
conversion and (iii) pay all declared but unpaid dividends (but not any
undeclared Accruing Dividends) on the shares of Series A Preferred Stock
converted.
4.3.2 Reservation of
Shares. The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued capital stock, for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes, including, without
limitation, engaging in best efforts to obtain the requisite stockholder
approval of any necessary amendment to the Articles of
Incorporation. Before taking any action which would cause an
adjustment reducing the Series A Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Series A Conversion Price.
4.3.3 Effect of
Conversion. All shares of Series A Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares shall
immediately cease and terminate at the Conversion Time, except only the right of
the holders thereof to receive shares of Common Stock in exchange therefor, to
receive payment in lieu of any fraction of a share otherwise issuable upon such
conversion as provided in Subsection 4.2 and to
receive payment of any dividends declared but unpaid thereon (but not any
undeclared Accruing Dividends). Any shares of Series A Preferred
Stock so converted shall be retired and cancelled and may not be reissued as
shares of such series, and the Corporation may thereafter take such appropriate
action (without the need for stockholder action) as may be necessary to reduce
the authorized number of shares of Series A Preferred Stock
accordingly.
4.3.4 No Further
Adjustment. Upon any such conversion, no adjustment to the
Series A Conversion Price shall be made for any declared but unpaid dividends on
the Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
4.3.5 Taxes. The
Corporation shall pay any and all issue and other similar taxes that may be
payable in respect of any issuance or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred Stock pursuant to this Section
4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
4.4 Adjustment for Stock Splits
and Combinations. If the Corporation shall at any time or from
time to time after the Series A Original Issue Date (as defined below) effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price in
effect immediately before that subdivision shall be proportionately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be increased in proportion to such increase in the
aggregate number of shares of Common Stock outstanding. If the
Corporation shall at any time or from time to time after the Series A Original
Issue Date combine the outstanding shares of Common Stock, the Series A
Conversion Price in effect immediately before the combination shall be
proportionately increased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be decreased in proportion to
such decrease in the aggregate number of shares of Common Stock
outstanding. Any adjustment under this subsection shall become
effective at the close of business on the date the subdivision or combination
becomes effective. For purposes of this Article III, “Series A Original Issue Date”
shall mean the date on which the first share of Series A Preferred Stock was
issued.
4.5 Adjustment for Certain
Dividends and Distributions. In the event the Corporation at
any time or from time to time after the Series A Original Issue Date shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable on the Common
Stock in additional shares of Common Stock, then and in each such event the
Series A Conversion Price in effect immediately before such event shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price then in effect by a
fraction:
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(1)
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the
numerator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date,
and
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(2)
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the
denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution.
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Notwithstanding
the foregoing, (a) if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Series A Conversion
Price shall be adjusted pursuant to this subsection as of the time of actual
payment of such dividends or distributions; and (b) that no such adjustment
shall be made if the holders of Series A Preferred Stock simultaneously receive
a dividend or other distribution of shares of Common Stock in a number equal to
the number of shares of Common Stock as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
4.6 Adjustments for Other
Dividends and Distributions. In the event the Corporation at
any time or from time to time after the Series A Original Issue Date shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation (other than a distribution of shares of Common Stock in respect
of outstanding shares of Common Stock) or in other property and the provisions
of Section 1 do
not apply to such dividend or distribution, then and in each such event
provision shall be made so that the holders of the Series A Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the kind and amount of securities of the
Corporation, cash or other property which they would have been entitled to
receive had the Series A Preferred Stock been converted into Common Stock on the
date of such event and had they thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this paragraph with respect to
the rights of the holders of the Series A Preferred Stock; provided, however,
that no such provision shall be made if the holders of Series A Preferred Stock
receive, simultaneously with the distribution to the holders of Common Stock, a
dividend or other distribution of such securities, cash or other property in an
amount equal to the amount of such securities, cash or other property as they
would have received if all outstanding shares of Series A Preferred Stock had
been converted into Common Stock on the date of such event.
4.7 Adjustment for Merger or
Reorganization, etc. Subject to the provisions of Subsection 2.3, if
there shall occur any reorganization, recapitalization, reclassification,
consolidation or merger involving the Corporation in which the Common Stock (but
not the Series A Preferred Stock) is converted into or exchanged for securities,
cash or other property (other than a transaction covered by Subsections 4.5 or
4.6), then,
following any such reorganization, recapitalization, reclassification,
consolidation or merger, each share of Series A Preferred Stock shall thereafter
be convertible in lieu of the Common Stock into which it was convertible prior
to such event into the kind and amount of securities, cash or other property
which a holder of the number of shares of Common Stock of the Corporation
issuable upon conversion of one share of Series A Preferred Stock immediately
prior to such reorganization, recapitalization, reclassification, consolidation
or merger would have been entitled to receive pursuant to such transaction; and,
in such case, appropriate adjustment (as determined in good faith by the Board
of Directors of the Corporation) shall be made in the application of the
provisions in this Section 4 with
respect to the rights and interests thereafter of the holders of the Series A
Preferred Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Series A
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any securities or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
4.8 Certificate as to
Adjustments. Upon the occurrence of each adjustment or
readjustment of the Series A Conversion Price pursuant to this Section 4, the
Corporation at its expense shall, as promptly as reasonably practicable but in
any event not later than 10 days thereafter, compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment (including the kind and amount of securities, cash or other
property into which the Series A Preferred Stock is convertible) and showing in
detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, as promptly as reasonably practicable
after the written request at any time of any holder of Series A Preferred Stock
(but in any event not later than 10 days thereafter), furnish or cause to be
furnished to such holder a certificate setting forth (i) the Series A Conversion
Price then in effect, and (ii) the number of shares of Common Stock and the
amount, if any, of other securities, cash or property which then would be
received upon the conversion of Series A Preferred Stock.
4.9 Notice of Record
Date. In the event:
(a) the
Corporation shall take a record of the holders of its Common Stock (or other
capital stock or securities at the time issuable upon conversion of the Series A
Preferred Stock) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of capital stock of any class or any other securities, or to
receive any other security; or
(b) of any
capital reorganization of the Corporation, any reclassification of the Common
Stock of the Corporation, or any Deemed Liquidation Event; or
(c) of the
voluntary or involuntary dissolution, liquidation or winding-up of the
Corporation, then, and
in each such case, the Corporation will send or cause to be sent to the holders
of the Series A Preferred Stock a notice specifying, as the case may be, (i) the
record date for such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is proposed to take place, and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
such other capital stock or securities at the time issuable upon the conversion
of the Series A Preferred Stock) shall be entitled to exchange their shares of
Common Stock (or such other capital stock or securities) for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up, and the amount per
share and character of such exchange applicable to the Series A Preferred Stock
and the Common Stock. Such notice shall be sent at least 10 days
prior to the record date or effective date for the event specified in such
notice.
5. Mandatory
Conversion.
5.1 Trigger
Events. If at any time on or after the 18 month anniversary of
the Series A Original Issue Date, the Closing Bid Price (as defined
below) of the Common Stock equals or exceeds four hundred percent (400%) of the
Series A Conversion Price then in effect for at least 20 Trading Days (as
defined below) in a period of 30 consecutive Trading Days, the Corporation shall
have the right to convert all outstanding shares of Series A Preferred Stock
into shares of Common Stock (the “Mandatory Conversion Right”).
The Corporation may exercise the Mandatory Conversion Right by delivering
written notice to all holders of record of shares of Series A Preferred Stock
pursuant to Subsection
5.2. Upon the exercise of the Mandatory Conversion Right by
the Corporation, (i) all outstanding shares of Series A Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
conversion rate, on the date and time designated by the Corporation in the
written notice delivered to all holders of record of shares of Series A
Preferred Stock pursuant to Subsection 5.2 (the
date and time specified in such written notice is referred to herein as the
“Mandatory Conversion
Time”), (ii) such shares may not be reissued by the Corporation, and
(iii) the Corporation shall pay out of funds lawfully available therefore any
Accruing Dividends accrued but unpaid at the Mandatory Conversion
Time.
5.2 Procedural
Requirements. All holders of record of shares of Series A
Preferred Stock shall be sent written notice of the Mandatory Conversion Time
and the place designated for mandatory conversion of all such shares of Series A
Preferred Stock pursuant to this Section
5. Such notice need not be sent in advance of the occurrence
of the Mandatory Conversion Time. Upon receipt of such notice, each
holder of shares of Series A Preferred Stock shall surrender his, her or its
certificate or certificates for all such shares (or, if such holder alleges that
such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify
the Corporation against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of such certificate) to the
Corporation at the place designated in such notice. If so required by
the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his, her or its attorney duly authorized in writing. All rights with
respect to the Series A Preferred Stock converted pursuant to Subsection 5.1,
including the rights, if any, to receive notices and vote (other than as a
holder of Common Stock), will terminate at the Mandatory Conversion Time
(notwithstanding the failure of the holder or holders thereof to surrender the
certificates at or prior to such time), except only the rights of the holders
thereof, upon surrender of their certificate or certificates (or lost
certificate affidavit and agreement) therefor, to receive the items provided for
in the next sentence of this Subsection
5.2. As soon as practicable after the Mandatory Conversion
Time and the surrender of the certificate or certificates (or lost certificate
affidavit and agreement) for Series A Preferred Stock, the Corporation shall
issue and deliver to such holder, or to his, her or its nominees, a certificate
or certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof, together with cash as
provided in Subsection
4.2 in lieu of any fraction of a share of Common Stock otherwise issuable
upon such conversion and the payment of any accrued but unpaid Accruing
Dividends on the shares of Series A Preferred Stock converted. Such
converted Series A Preferred Stock shall be retired and cancelled and may not be
reissued as shares of such series, and the Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized number of shares of Series A Preferred Stock
accordingly.
5.3 Special Definitions.
For purposes of this Article III, the following definitions shall
apply:
(a) “Closing Bid Price” means (a)
the last reported closing bid price per share of Common Stock on the Principal
Trading Market, as reported by Bloomberg Financial Markets, or, (b) if the
Principal Trading Market begins to operate on an extended hours basis and does
not designate the closing bid price then the last bid price of the Common Stock
prior to 4:00 P.M., New York City time, as reported by Bloomberg Financial
Markets, or (c) if the foregoing do not apply, the last closing price of Common
Stock in the over-the-counter market on the electronic bulletin board for the
Common Stock as reported by Bloomberg Financial Markets, or (d) if no closing
bid price is reported for the Common Stock by Bloomberg Financial Markets, the
average of the bid prices of any market makers for the Common Stock as reported
in the “pink sheets” by Pink Sheets LLC. If the Closing Bid Price cannot be
calculated for the Common Stock on a particular date on any of the foregoing
bases, the Closing Bid Price of the Common Stock on such date shall be the fair
market value as determined in good faith by the Board of Directors of the
Corporation. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.
(b) “Principal Trading Market”
means the Trading Market (as defined below) on which the Common Stock is
primarily listed on and quoted for trading.
(c) “Trading Day” means (i) a day on which
the Common Stock is listed or quoted and traded on its Principal Trading Market
(other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed
on a Trading Market (other than the OTC Bulletin Board), a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization
or agency succeeding to its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i), (ii) and
(iii) hereof, then Trading Day shall mean any day except Saturday, Sunday, any
day which is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.
(d) “Trading Market” means
whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.
6. Redemption.
6.1 Redemption. In
the event that at least fifty percent (50%) of the shares of Series A Preferred
Stock issued on the Series A Original Issue Date remain outstanding on the 5th
anniversary of the Series A Original Issue Date, shares of Series A Preferred
Stock shall be redeemed by the Corporation out of funds lawfully available
therefor at a price equal to the Series A Original Issue Price
per share, plus any Accruing Dividends accrued but unpaid thereon,
whether or not declared, together with any other dividends declared but unpaid
thereon (the “Redemption Price”), in three
annual installments commencing not more than 60 days after receipt by the
Corporation at any time during the period beginning on the 5th anniversary of
the Series A Original Issue Date and ending 180 days following the 5th
anniversary of the Series A Original Issue Date, from the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock, of written
notice requesting redemption of all shares of Series A Preferred Stock. The date
of each such installment shall be referred to as a “Redemption
Date”. On each Redemption Date, the Corporation shall redeem,
on a pro rata basis in accordance with the number of shares of Series A
Preferred Stock owned by each holder, that number of outstanding shares of
Series A Preferred Stock determined by dividing (i) the total number of shares
of Series A Preferred Stock outstanding immediately prior to such Redemption
Date by (ii) the number of remaining Redemption Dates (including the Redemption
Date to which such calculation applies). If the Corporation does not have
sufficient funds legally available to redeem on any Redemption Date all shares
of Series A Preferred Stock to be redeemed on such Redemption Date, the
Corporation shall redeem a pro rata portion of each holder’s redeemable shares
of such capital stock out of funds legally available therefor, based on the
respective amounts which would otherwise be payable in respect of the shares to
be redeemed if the legally available funds were sufficient to redeem all such
shares, and shall redeem the remaining shares to have been redeemed as soon as
practicable after the Corporation has funds legally available
therefor.
6.2 Redemption
Notice. The Corporation shall send written notice of the
mandatory redemption (the “Redemption Notice”) to each
holder of record of Series A Preferred Stock not less than 40 days prior to each
Redemption Date. Each Redemption Notice shall state:
(a) the
number of shares of Series A Preferred Stock held by the holder that the
Corporation shall redeem on the Redemption Date specified in the Redemption
Notice;
(b) the
Redemption Date and the Redemption Price;
(c) the date
upon which the holder’s right to convert such shares terminates (as determined
in accordance with Subsection 4.1);
and
(d) that the
holder is to surrender to the Corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
of Series A Preferred Stock to be redeemed.
6.3 Surrender of Certificates;
Payment. On or before the applicable Redemption Date, each
holder of shares of Series A Preferred Stock to be redeemed on such Redemption
Date, unless such holder has exercised his, her or its right to convert such
shares as provided in Section 4, shall
surrender the certificate or certificates representing such shares (or, if such
registered holder alleges that such certificate has been lost, stolen or
destroyed, a lost certificate affidavit and agreement reasonably acceptable to
the Corporation to indemnify the Corporation against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of
such certificate) to the Corporation, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price for such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof. In the event less
than all of the shares of Series A Preferred Stock represented by a certificate
are redeemed, a new certificate representing the unredeemed shares of Series A
Preferred Stock shall promptly be issued to such holder.
6.4 Rights Subsequent to
Redemption. If the Redemption Notice shall have been duly
given, and if on the applicable Redemption Date the Redemption Price payable
upon redemption of the shares of Series A Preferred Stock to be redeemed on such
Redemption Date is paid or tendered for payment or deposited with an independent
payment agent so as to be available therefor in a timely manner, then
notwithstanding that the certificates evidencing any of the shares of Series A
Preferred Stock so called for redemption shall not have been surrendered,
dividends with respect to such shares of Series A Preferred Stock shall cease to
accrue after such Redemption Date and all rights with respect to such shares
shall forthwith after the Redemption Date terminate, except only the right of
the holders to receive the Redemption Price without interest upon surrender of
their certificate or certificates therefor.
7. Redeemed or Otherwise
Acquired Shares. Any shares of Series A Preferred Stock that
are redeemed or otherwise acquired by the Corporation or any of its subsidiaries
shall be automatically and immediately cancelled and retired and shall not be
reissued, sold or transferred. Neither the Corporation nor any of its
subsidiaries may exercise any voting or other rights granted to the holders of
Series A Preferred Stock following redemption.
8. Waiver. Any
of the rights, powers, preferences and other terms of the Series A Preferred
Stock set forth herein may be waived on behalf of all holders of Series A
Preferred Stock by the affirmative written consent or vote of the holders of at
least sixty-six and two-thirds percent (66⅔%) of the shares of Series A
Preferred Stock then outstanding.
9. Notices. Any
notice required or permitted by the provisions of this Article III to be given
to a holder of shares of Series A Preferred Stock shall be mailed, postage
prepaid, to the post office address last shown on the records of the
Corporation, or given by electronic communication in compliance with the
provisions of the Utah Revised Business Corporation Act, and shall be deemed
sent upon such mailing or electronic transmission.
ARTICLE
III
Pursuant
to the authority granted to the Board of Directors of the Corporation by
Subsection 1002(1)(e) of the Utah Revised Business Corporation Act and within
the limits set forth in Section 602 of the Utah Revised Business Corporation
Act, the aforesaid amendment was adopted on November 16, 2009, without
shareholder action, by the Board of Directors of the Corporation.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, these Articles of Amendment of the Amended and Restated
Articles of Incorporation have been adopted and executed on November 16,
2009.
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TELKONET,
INC.
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By:/s/ Jason
Tienor
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Name: Jason
Tienor |
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Title: Chief
Executive Officer |