AGREEMENT OF CLARIFICATION
Exhibit 4.3
THIS AGREEMENT OF
CLARIFICATION, dated of as February 20, 2009, is by and between TELKONET, INC., a Utah
corporation (the “Company”), and YA GLOBAL INVESTMENTS, L.P.
(“YA
Global”). All capitalized terms used herein shall have the
respective meanings assigned thereto in the Debentures (as defined below) unless
otherwise defined herein.
W I T N E S S E T
H:
WHEREAS, the Company issued
Secured Convertible Debentures (the “Debentures”) and Warrants to purchase
Common Stock (the “Warrants”) to YA Global pursuant to the terms of a
Securities Purchase Agreement between the Company and YA Global dated as of
May 30, 2008 (the “Securities Purchase Agreement”);
WHEREAS, the Debentures
include a definition of the term Equity Conditions;
WHEREAS, the Company and
YA Global wish to clarify clause (B) of the definition of the term
Equity Condition;
WHEREAS, the Debentures
require that interest shall be paid quarterly but do not indicate when such
quarterly payments begin;
WHEREAS, the Debentures and
the Warrants, collectively, can only be converted into, or exercised for, as
applicable up to 19.99% of shares of Common Stock outstanding on the date the
Securities Purchase Agreement was entered into (the “Exchange Cap”) pursuant to
the Principal Market rules;
WHEREAS, the parties wish to
clarify the Exchange Cap and provide for the Company to seek stockholder
approval to remove the Exchange Cap;
WHEREAS, the Company and
YA Global wish to clarify when the quarterly interest payment should
begin.
NOW, THEREFORE, in
consideration of the foregoing and the respective agreements, warranties and
covenants contained herein, the parties hereto agree, covenant and warrant as
follows:
1. Equity Conditions
Definition.
(a) The term
Equity Conditions as used in the Debenture requires in clause (ii)(B) that the
Company be in compliance with the then effective minimum listing maintenance
requirements of the exchange on which the Common Stock is listed regardless of
whether the Company has been notified in writing that a delisting or suspension
of trading is threatened or pending. The parties acknowledge that the
NASDAQ and other Principal Markets have temporarily suspended certain of their
minimum listing maintenance requirements. The parties agree that if
the Company’s Common Stock has not been suspended from trading and the Company
has not been notified in writing that a delisting or suspension from trading is
threatened or pending, the Company shall be deemed to have satisfied the
conditions in clause (B).
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(b) The term
Equity Conditions shall be clarified as follows:
“Equity
Conditions” means that each of the following conditions: (i) on
each day during the period beginning two (2) weeks prior to the applicable
date of determination and ending on and including the applicable date of
determination (the “Equity Conditions Measuring Period”), either (x) the
Underlying Shares Registration Statement filed pursuant to the Registration
Rights Agreement shall be effective and available for the resale of all
applicable shares of Common Stock to be issued in connection with the event
requiring determination or (y) all applicable shares of Common Stock to be
issued in connection with the event requiring determination shall be eligible
for sale without restriction and without the need for registration under any
applicable federal or state securities laws; (ii) on each day during the
Equity Conditions Measuring Period, the Common Stock is designated for quotation
on the Principal Market and shall not have been suspended from trading on such
exchange or market nor shall delisting or suspension by such exchange or market
been threatened or pending in writing by such exchange or market;
(iii) during the Equity Conditions Measuring Period, the Company shall have
delivered Conversion Shares upon conversion of the Debentures to the Holder on a
timely basis as set forth in Section 4(b)(ii) hereof; (iv) any applicable
shares of Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating Section 4(c) hereof
and the rules or regulations of the Primary Market; (v) during the Equity
Conditions Measuring Period, there shall not have occurred either (A) an
Event of Default or (B) an event that with the passage of time or giving of
notice would constitute an Event of Default; and (vii) the Company shall
have no knowledge of any fact that would cause (x) the Registration
Statements required pursuant to the Registration Rights Agreement not to be
effective and available for the resale of all applicable shares of Common Stock
to be issued in connection with the event requiring determination or
(y) any applicable shares of Common Stock to be issued in connection with
the event requiring determination not to be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws.
2. Payment of
Interest.
(a) Section
1(b) of the Debenture requires, among other things, that interest shall be paid
quarterly, in arrears. The Debentures do not indicate when such
quarterly interest payments begin. The parties hereby agree that the
quarterly interest payments shall be paid on the first Business Day of each
calendar quarter beginning on April 1, 2009. The parties further
agree that quarterly interest accrued to date shall be added to the principal
amount outstanding under the Debentures. Each Debenture shall be
amended, if necessary, to reflect the applicable increase in principal
amount. The parties agree also that the Company is in not in breach
of Section 2(a) of the Debentures for not making any interest payments during
calendar year 2008 or the first quarter of calendar 2009.
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(b) Section
1(b) of the Debentures shall be clarified as follows:
Interest. Interest
shall accrue on the outstanding principal balance hereof at an annual rate equal
to thirteen percent (13%) (“Interest
Rate”). Interest shall be calculated on the basis of a 365-day
year and the actual number of days elapsed, to the extent permitted by
applicable law. Interest hereunder shall be paid quarterly, in
arrears (on
the first Business Day of each calendar quarter beginning on April 1,
2009), and on the Maturity Date (or sooner as provided herein) to the
Holder or its assignee in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of Debentures at the option
of the Company in cash.
3. Exchange
Cap.
(a) The
conversion provisions contained Section 4 of the Debentures and the exercise
provisions contained Section 2 of the Warrants do not cap such conversion or
exercise provisions, as applicable, to the Exchange Cap. The
Principal Market requires such a cap absent stockholder approval. To
date the Company has not sought, nor has YA Global requested, stockholder
approval for issuances of Common Stock in excess of the Exchange
Cap. Accordingly, the parties agree that the Exchange Cap is
applicable for conversion of the Debentures and exercises of the Warrants, in
the aggregate.
(b) Section
(4)(e) Limitations on Conversions of the Debentures shall be clarified to add a
new paragraph (iii) as follows:
(iii) Exchange
Cap. Notwithstanding anything contained herein to the
contrary, the number of shares of Common Stock issuable by the Company and
acquirable by the holder pursuant to the terms of this Debenture, all other
Debentures and the Warrants shall not exceed an aggregate of 19.99% of the total
issued and outstanding shares (calculated in accordance with applicable
Principal Market rules and regulations) of the Company’s Common Stock (subject
to appropriate adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock) or otherwise violate the Company’s
obligations under the rules and regulations of the Principal Market (the
“Exchange Cap”), unless stockholder approval shall first be
obtained. The Company shall not be obligated to issue such shares of
Common Stock in excess of the Exchange Cap unless and until the Company obtains
stockholder approval in accordance with applicable Principal Market rules and
regulations.
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(c) Section
2(a) of the Warrants shall be clarified to add a new penultimate paragraph as
follows:
Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Company and acquirable by the holder pursuant to the terms of
this Warrant and the Debentures shall not exceed an aggregate of 19.99% of the
total issued and outstanding shares (calculated in accordance with applicable
Principal Market rules and regulations) of the Company’s Common Stock (subject
to appropriate adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock) or otherwise violate the Company’s
obligations under the rules and regulations of the Principal Market (the
“Exchange Cap”), unless stockholder approval shall first be
obtained. The Company shall not be obligated to issue such shares of
Common Stock in excess of the Exchange Cap unless and until the Company obtains
stockholder approval in accordance with applicable Principal Market rules and
regulations.
(d) The
Company agrees to seek stockholder approval to remove the Exchange Cap at its
next annual meeting, which annual meeting shall be held on or before May 31,
2009.
4. Effect of this
Agreement. Except as modified pursuant hereto, no other
changes or clarification to the Debentures are intended or implied.
[SIGNATURE
PAGE IMMEDIATELY TO FOLLOW]
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COMPANY:
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Telkonet,
Inc.
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By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Title:
President & CEO
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YA
Global Investments, L.P.
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By: Yorkville
Advisors, LLC
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Its: Investment
Manager
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By: /s/ ▇▇▇▇ ▇▇▇▇▇
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Name: ▇▇▇▇
▇▇▇▇▇
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Title:
Senior Managing Director
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