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Exhibit 4.16
SENIOR NOTE PURCHASE AGREEMENT
This
Senior Note Purchase Agreement (this “ Agreement
”) is made as of July __, 2007 (the “ Closing
Date ”) by and between Telkonet Inc., a Utah
corporation (the “ Company ”), GRQ
Consultants, Inc. (“Holder”), and the persons or
entities listed as investors on the signature page hereto and
as set forth on Schedule 1 annexed hereto (the “
Purchasers ”).
W I T N E S S E T H :
WHEREAS,
Company has advised Holder that Company is pursuing a
financing transaction in which Company is seeking a minimum of
$3 million in equity financing through private investments in
public company (“ PIPE ”) transactions
which Company expects to close prior to January 28, 2008 and
Company desires to obtain from Holder a bridge loan for
working capital, and Company desires to sell and issue to the
Purchasers, and the Purchasers desire to purchase from the
Company, an aggregate of $1,500,000.00 principal amount of the
Company’s six (6%) percent promissory notes (the “
Notes ”) due January 28, 2008 (the “
Maturity Date ”) having the rights and privileges
set forth in the Form of Note of the Company annexed hereto as
Exhibit A ; and
Now,
therefore, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
to this Agreement hereby agree as follows:
1.
Deliveries .
(a) On
the Closing Date, the Purchasers shall deliver to the Company
an aggregate of $1,500,000.00 in cash (the “
Funds ”) by delivery of a certified check payable
to the Company or by wire transfer to the account of the
Company.
(b) On
the Closing Date, the Company shall deliver to the Purchaser:
(i) a Note with the principal amount equal to the principal
amount set forth opposite such Purchaser’s name in
Schedule 1 hereto, registered in the name of such
Purchaser substantially in the form of Exhibit A
annexed hereto (the “Note”) ; and (ii) a Warrant
exercisable for 359,712 shares of Common Stock (as hereinafter
defined) substantially in the form of Exhibit B annexed
hereto, (the “Warrant”).
2.
Representations and Warranties of the Company
. The Company hereby represents and warrants to the
Purchasers as follows:
(a)
Representations and Warranties of the Company
. As a material inducement to each Holder to enter
into this Agreement and consummate the transactions
contemplated hereby, and except as set forth on Schedule I
hereto, the Company hereby represents and warrants
that:
(i)
Organization and Corporate Power . The
Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Utah and the
Company is duly qualified or registered to do business as a
foreign corporation in each jurisdiction in which the failure
to be so qualified or registered would have a Material Adverse
Effect. As used in this Agreement, the term “
Material Adverse Effect ” means any change or
effect that is materially adverse to the properties, assets,
business, financial condition or operations of the Company.
The Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest
in, any corporation, partnership, joint venture or other
business association or entity. The Company has all required
corporate power and authority to carry on its business as
presently conducted, and to enter into and perform this
Agreement, the Notes, the Warrants and each other document,
agreement or instrument entered into by it or any of its
officers in connection herein or therewith or pursuant hereto
or thereto (collectively, the “ Transaction
Documents ” and individually a “
Transaction Document ”). The Company is not in
violation of any term of its certificate of incorporation or
bylaws, true, accurate and complete copies of which are on
file with the United States Securities and Exchange Commission
(the ”SEC”). The Company is not in violation of
any term of any agreement, instrument, judgment, decree,
order, statute, rule or government regulation applicable to
the Company or to which the Company is a party except for such
violations that individually, or in the aggregate, would not
reasonably be expected to result in a Material Adverse
Effect.
(ii)
Capitalization . The authorized capital
stock of the Company (the “ Equity Securities
”) immediately prior to the initial Closing, consists of
such number of shares of common stock, $0.001 par value per
share, of the Company (the “ Common Stock
”) as are set forth on the most recent periodic report
(the “Report”) filed by the Company with the
SEC. Other than shares reserved for issuance under
the Company’s existing plans adopted for employees and
other persons associated with the Company (the
“Plan”) which has been approved by stockholders,
the Company does not have any outstanding commitments to issue
or sell Equity Securities, and no securities or obligations
evidencing any such right are outstanding, except as set forth
in the Report. The Company is not under any contractual
obligation to register any of its presently outstanding
securities or any of its securities which may hereafter be
issued. There are no outstanding obligations, written or
otherwise, of any stockholder or other holder of Equity
Securities of the Company to repurchase, redeem or otherwise
acquire any Equity Securities. There are no preemptive rights
in respect of any Equity Securities of the Company. Any Equity
Securities which were issued and reacquired by the Company
were so reacquired (and, if reissued, so reissued) in
compliance with all applicable laws, and the Company does not
have any outstanding obligation or liability with respect
thereto. Each of the foregoing representations and
warranties is qualified to the extent of the true and accurate
information provided in the most recent periodic report of the
Company filed with the SEC prior to the date
hereof.
(iii)
Authorization and Non-Contravention . The
Transaction Documents are valid and binding obligations of the
Company, enforceable in accordance with their terms. The
execution, delivery and performance of the Transaction
Documents have been duly authorized by all necessary corporate
or other action of the Company. The execution, delivery and
performance of these Transaction Documents will
not:
(A) violate
or result in a default under any contract or obligation to
which the Company is a party or by which it or its assets are
bound, or any provision of (A) the certificate of
incorporation of the Company, as amended to date (the “
Charter ”), (B) the bylaws of the Company, as
amended to date or (C) cause the creation of any encumbrance
upon any of the assets of the Company;
(B) violate
or result in a violation of, or constitute a default (whether
after the giving of notice, lapse of time or both) under, any
provision of any law, regulation or rule, or any order of, or
any restriction imposed by any court or other governmental
agency applicable to the Company;
(C) require
from the Company any notice to, declaration or filing with, or
consent or approval of any governmental authority or other
third party, which such notice, consent, declaration, filing
or approval has not been obtained as of the Closing;
or
(D) accelerate
any obligation of the Company under, give rise to a right of
termination of, accelerate any right of a person under or
trigger any change of control or similar provision in, any
agreement, permit, license or authorization to which the
Company is a party or by which the Company is
bound.
(iv)
Valid Issuance.
(A) The
Note and the Warrants will be duly and validly issued when
issued, sold and delivered at the Closing in accordance with
the terms of this Agreement and the Warrant Shares (as defined
in the Warrant), when issued, sold and delivered in accordance
with the terms of this Agreement and the Note for the
consideration provided for herein and therein, will be duly
and validly issued, fully paid and
non-assessable.
(B) Based
in part on the representations made by each Holder, the offer
and sale of the Notes solely to the Holders in accordance with
this Agreement are exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as
amended (the “ Securities Act ”), and the
securities registration and qualification requirements of the
currently effective provisions of the securities law of the
state in which each Holder is a resident.
(C) The
conversion of the Warrant into Warrant Shares, if at all, will
not require any further corporate or stockholder action and
will not be subject to preemptive rights of any present or
future stockholders of the Company that have not been
heretofore waived in writing.
(v)
Litigation . There is no litigation or
governmental proceeding or investigation pending or, to the
Company’s knowledge, threatened against the Company
affecting any of its respective properties or assets, or
against any officer, employee or holder of more than 5% of the
Equity Securities of the Company relating to such
person’s performance of duties for the Company or
relating to his stock ownership in the Company or otherwise
relating to the business of the Company, nor to the knowledge
of the Company has there occurred any event or does there
exist any condition on the basis of which any such litigation,
proceeding or investigation might properly be instituted.
Neither the Company nor any officer, employee or, to the
knowledge of the Company, holder of more than 5% of the Equity
Securities of the Company is in default with respect to any
order, writ, injunction, decree, ruling or decision of any
court, commission, board or other governmental agency relating
to the Company or its business. There are no actions, suits,
claims, investigations or proceedings pending or, to the
Company’s knowledge, threatened (or any basis
therefore). The foregoing sentences include, without limiting
their generality, actions pending or, to the knowledge of the
Company, threatened (or any basis therefore) involving the
prior employment of any of the Company’s officers or
employees or their use in connection with the Company’s
business of any information or techniques allegedly
proprietary to any of their former employers.
Financial Information . The audited financial
statements of the Company as of and for the fiscal year ended
December 31, 2006 and the unaudited consolidated financial
statements for the three months period ended March 31, 2007 set
forth in the Company’s filings and reports made with the SEC
present fairly in all material respects the financial position of
the Company and the results of operations for the periods covered
thereby (subject, in the case of such interim financial statements,
to immaterial year end audit adjustments) and have been prepared in
accordance with generally accepted accounting principles (“
GAAP ”) in effect in the United States consistently
applied, except for the absence of footnotes not customarily
included in such statements (the “ Financial
Statements ”). There is no liability, contingent or
otherwise, not adequately reflected in or reserved against in the
Financial Statements other than (i) liabilities incurred in the
ordinary course of business subsequent to March 31, 2007 and (ii)
liabilities not required under GAAP to be reflected in the
Financial Statements. Since March 31, 2007, (i) there has been no
material adverse change in the business, assets or condition,
financial or otherwise, or operations of the Company, (ii) neither
the business, condition, or operations of the Company nor any of
the properties or assets of the Company have been materially
adversely affected as the result of any legislative or regulatory
change, any revocation or change in any franchise, permit, license
or right to do business, nor have the business, condition, or
operations of the Company nor any of the properties or assets of
the Company been materially adversely affected by any other event
or occurrence, whether or not insured against; and (iii) the
Company has not entered into any transaction other than in the
ordinary course of business, made any dividend or distribution on
its Equity Securities, or redeemed or repurchased any of its Equity
Securities. As of the date hereof the Company has no
indebtedness for money borrowed and no Liens. “
Liens ” means a lien, charge, security interest,
encumbrance, right of first refusal, preemptive right or other
restriction.
(vi)
Intellectual Property.
(A) Except as
set forth in the filings and reports made with
the
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