TELKONET, INC.
AMENDED AND RESTATED STOCK OPTION
PLAN
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PURPOSE. The
purpose of the Telkonet, Inc. Stock Option Plan (the "Plan") is to
further the long term stability and financial success of Telkonet,
Inc., a Utah corporation (the "Company"), by retaining and
attracting key employees, non-employee directors and consultants of
the Company through the use of stock incentives utilizing the
Company's common stock (the "Company Stock"). It is believed that
ownership of Company Stock will stimulate the efforts of those
employees, consultants and directors of the Company upon whose
efforts, interest and judgment the Company is and will be largely
dependent for success. It is also believed that Incentive Awards
granted to employees and directors under this Plan will strengthen
their desire to remain with the Company and will further identify
the interests of those employees and directors with the interests
of the Company's shareholders. The Plan is intended to conform to
the provisions of Securities and Exchange Commission Rule 16b-3, if
Company Stock becomes Publicly Traded in the future.
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DEFINITIONS. As
used in the Plan, the following terms have the meanings
indicated:
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"1933 Act"
means the Securities Exchange Act of 1933, as amended.
"1934 Act"
means the Securities Exchange Act of 1934, as amended.
"Applicable Withholding Taxes" means the
aggregate amount of any federal, state and local income and payroll
taxes that the Company is required to withhold in connection with
any exercise of a Nonstatutory Stock Option or Stock Appreciation
Right, or the lapse of restrictions with respect to Restricted
Stock.
"Board" means
the board of directors of the Company.
"Change of Control" means the occurrence of any
event deemed by the Committee, in its SOLE discretion, to
constitute a Change of Control of the Company, and before the
Company Stock is Publicly Traded, shall include an event described
in (i), or (ii):
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(i)
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the closing
date of any sale or other disposition of substantially all the
assets of the Company, other than in the ordinary course of
business.
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(ii)
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following the
closing(s) of Financing(s) whereby the Company raises $25,000,000
or more in the aggregate, any person or persons attaining ownership
of more than 50% of the Company Stock, other than (A) any person or
persons who own Company Stock as of the effective date specified in
Section 11 (the "Existing Shareholders"); (B) any trusts,
partnerships or corporations controlled by the Existing
Shareholders; (C) the Company, any subsidiary of the Company, any
employee benefit plan of the Company or any subsidiary; or (D) any
entity holding Company Stock for or pursuant to the terms of any
such employee benefit plan.
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After the Company Stock is Publicly Traded,
"Change of Control" shall include an event described in (iii),
(iv), (v), or (vi):
(iii) The
acquisition by a Group of Beneficial Ownership of 50% or more of
the Stock or the Voting Power of the Company, but excluding for
this purpose: (A) any acquisition by the Company (or a subsidiary),
or an employee benefit plan of the Company; or (B) any acquisition
of Common Stock of the Company by management employees of the
Company. For purposes of this Section, "Group" means any
individual, entity or group within the meaning of Section 13(d)(3)
or 14(d)(2) of the 1934 Act, "Beneficial Ownership" has the meaning
in Rule 13d-3 promulgated under the 1934 Act, "Stock" means the
then outstanding shares of common stock, and "Voting Power" means
the combined voting power of the outstanding voting securities
entitled to vote generally in the election of directors.
(iv) Individuals
who constitute the Board on the date immediately after the Company
Stock becomes Publicly Traded (the "Incumbent Board") cease to
constitute at least a majority of the Board, provided that any
director whose nomination was approved by a majority of the
Incumbent Board shall be considered a member of the Incumbent Board
unless such individual's initial assumption of office is in
connection with an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under
the 1934 Act).
(v)
Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, in which the
owners of more than 50% of the Stock or Voting Power of the Company
do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the
Stock or Voting Power of the corporation resulting from such
reorganization, merger or consolidation.
(vi) A
complete liquidation or dissolution of the Company or of its sale
or other disposition of all or substantially all of the assets of
the Company.
"Code" means
the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed by the
Board (as described in Section 14), or the entire Board, if no
committee is appointed, to administer this Plan.
"Company" means
Telkonet, Inc., a Utah corporation.
"Company Stock" means common stock of the
Company. In the event of a change in the capital structure of the
Company (including any change in connection with Company Stock
becoming Publicly Traded) the shares resulting from such a change
shall be deemed to be Company Stock within the meaning of the
Plan.
"Date of Grant" means the date on which an
Incentive Award is granted by the Committee or such later date
specified by the Committee as the date as of which the grant of the
Incentive Award is to be effective.
"Disability" or "Disabled" means, as to an
Incentive Stock Option, a Disability within the meaning of Code
Section 22(e)(3). As to all other Incentive Awards, the Committee
shall determine whether a Disability exists and such determination
shall be conclusive.
"Employee"
means an individual employed by the Company or the Parent or a
Subsidiary of the Company.
"Fair Market Value" means, if the Company Stock
is not actively Publicly Traded, the value of a share of Company
Stock determined by the Committee in good faith. If the Company
Stock is actively Publicly Traded, the value of a share of Company
Stock, determined as follows:
(i) if such
Company Stock is then quoted on the Nasdaq National Market, its
closing price on the Nasdaq National Market on the date of
determination, as reported in THE WALL STREET JOURNAL;
(ii) if such
Company Stock is then listed on a national securities exchange, its
closing price on the date of determination on the principal
national securities exchange on which the Company Stock is listed
or admitted to trading, as reported in THE WALL STREET
JOURNAL;
(iii) if such
Company Stock is not quoted on the Nasdaq National Market nor
listed or admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the date of
determination, as reported in THE WALL STREET JOURNAL;
or
(iv) if none of
the foregoing is applicable, by the Committee in good faith.
"Incentive Award" means, collectively, an award of Restricted
Stock, an Option or a Stock Appreciation Right granted under the
Plan.
"Incentive Stock Option" means an Option
intended to meet the requirements of, and to qualify for favorable
federal income tax treatment under, Code Section 422. Incentive
Stock Options may be granted only to an Employee and may only be
exercised by the Employee while he is employed by the Company or
within three (3) months following the date upon which the Employee
ceases to be employed by the Company, except as provided in the
Code.
"Mature Shares" means shares of Company Stock
for which the holder thereof has good title, free and clear of all
liens and encumbrances and which such holder either (i) has held
for at least six months or (ii) has purchased on the open
market.
"Non-Employee Director" means a member of the
Board who is not an Employee of the Company or the Parent or a
Subsidiary of the Company, as defined in Rule 16b-3 under the 1934
Act.
"Nonstatutory Stock Option" means an Option
which does not meet the requirements of Code Section 422, or even
if meeting the requirements of Code Section 422, is not intended to
be an Incentive Stock Option and is so designated.
"Option" means
a right to purchase Company Stock granted under the Plan, at a
price determined in accordance with the Plan.
"Parent"
means, with respect to any corporation, a parent of that
corporation within the meaning of Code Section 424(e).
"Participant"
means an Employee, Non-Employee Director or consultant who receives
an Incentive Award under the Plan.
"Publicly Traded" means a registration statement
with respect to Company Stock that was filed by the Company with
the Securities and Exchange Commission has become
effective.
"Restricted
Stock" means Company Stock awarded upon the terms and subject to
the restrictions set forth in Section 6.
"Rule 16b-3" means Rule 16b-3 of the Securities
and Exchange Commission promulgated under the 1934 Act. A reference
in the Plan to Rule 16b3 shall include a reference to any
corresponding rule (or number redesignation) of any amendment to
Rule 16b-3 enacted after the effective date of the Plan's adoption.
The provisions of the Plan relating to Rule 16b-3 shall be
applicable only if the Company Stock becomes Publicly
Traded.
"Stock Appreciation Right" means a right to
receive amounts from the Company granted pursuant to Section 8 of
the Plan. "Subsidiary" means, with respect to any corporation, a
subsidiary of that corporation within the meaning of Code Section
424(f).
"10% Shareholder" means a person who, on the
Date of Grant, owns, directly or indirectly, stock possessing more
than 10% of the total combined voting power of all classes of stock
of the Company or any Parent or Subsidiary of the Company. Indirect
ownership of stock shall be determined in accordance with Code
Section 424(d).
"Taxable Year"
means the fiscal period used by the Company for reporting taxes or
income under the Code.
3. GENERAL.
The following types of Incentive Awards may be granted under the
Plan: Restricted Stock, Incentive Stock Options, Nonstatutory Stock
Options or Stock Appreciation Rights.
4. STOCK.
Subject to Section 12 of the Plan, there shall be reserved for
issuance under the Plan an aggregate of 18,000,000 shares of
Company Stock, which shall be authorized but unissued shares.
Shares allocable to Incentive Awards or portions thereof granted
under the Plan that expire or otherwise terminate unexercised may
again be subjected to an Incentive Award under the Plan. The
Committee is expressly authorized to make an Incentive Award to a
Participant conditioned upon the surrender for cancellation of an
existing Incentive Award. For purposes of determining the number of
shares that are available for Incentive Awards under the Plan, such
number shall, to the extent permissible under Rule 16b-3 if the
Company Stock is Publicly Traded, include the number of shares
surrendered by an optionee or retained by the Company in payment of
Applicable Withholding Taxes.
(a)
Any Employee, Non-Employee Director or consultant of the Company
(or Parent or Subsidiary of the Company) who, in the judgment of
the Committee has contributed or can be expected to contribute to
the profits or growth of the Company (or Parent or Subsidiary)
shall be eligible to receive Incentive Awards under the Plan. The
Committee shall have the power and complete discretion, as provided
in Section 14 hereof, to select eligible Participants to receive
Incentive Awards and to determine for each Participant the terms
and conditions, the nature of the award and the number of shares to
be allocated to each Participant as part of each Incentive Award.
Both the Board and the Committee shall have the power and complete
discretion, as provided in Section 14, to select eligible
Non-Employee Directors and consultants to receive Incentive Awards
and to determine for each Non-Employee Director or consultant the
nature of the award and the terms and conditions of each Incentive
Award.
(b) The
grant of an Incentive Award shall not obligate the Company or any
Parent or Subsidiary of the Company to pay an Employee,
Non-Employee Director or consultant any particular amount of
remuneration, to continue the employment of the Employee after the
grant or to make further grants to the Employee, Non-Employee
Director or consultant at any time thereafter.
6.
RESTRICTED STOCK AWARDS.
(a)
The Committee may make grants of Restricted Stock to Participants.
Whenever the Committee deems it appropriate to grant Restricted
Stock, notice shall be given to the Participant stating the number
of shares of Restricted Stock granted and the terms and conditions
to which the Restricted Stock is subject. This notice, when
accepted in writing by the Participant, shall become an award
agreement between the Company and the Participant, and certificates
representing the shares shall be issued and delivered to the
Participant. Restricted Stock may be awarded by the Committee in
its discretion without cash consideration.
(b) No
shares of Restricted Stock may be sold, assigned, transferred,
pledged, hypothecated, or otherwise encumbered or disposed of until
the restrictions on such shares as set forth in the Participant's
award agreement have lapsed or been removed pursuant to paragraph
(d) or (e) below.
(c)
Upon the acceptance by a Participant of an award of Restricted
Stock, such Participant shall, subject to the restrictions set
forth in paragraph (b) above, have all the rights of a shareholder
with respect to such shares of Restricted Stock, including, but not
limited to, the right to vote such shares of Restricted Stock and
the right to receive all dividends and other distributions paid
thereon. Certificates representing Restricted Stock shall bear a
legend referring to the restrictions set forth in the Plan and the
Participant's award agreement.
(d) The
Committee shall establish as to each award of Restricted Stock the
terms and conditions upon which the restrictions set forth in
paragraph (b) above shall lapse. Such
