Document:

tko_8k-ex0402.htm

    Exhibit 4.2

     

    
      

       

      PARTIAL RELEASE OF
LIEN

       

      THIS PARTIAL RELEASE OF LIEN,
dated of as February 20, 2009, is by and between TELKONET, INC., a Utah
corporation (the “Company”), the
guarantors listed on the signature page hereto (the “Guarantors”) and YA GLOBAL INVESTMENTS, L.P.
(“YA
Global”).  All capitalized terms used herein shall have the
respective meanings assigned thereto in the Transaction Documents (as defined
below) unless otherwise defined herein.

       

       

      W I T N E S S E T
H:

       

      WHEREAS, in connection with
that certain Securities Purchase Agreement dated as of May 30, 2008 between the
Company and YA Global (the “SPA”) and the Secured Convertible Debentures (the
“Debentures”)
issued to YA Global thereunder, the Company, the Guarantors and YA Global
entered into a Security Agreement dated as of May 30, 2008.  The SPA,
the Debentures, the Security Agreement, and all documents entered into in
connection therewith are referred to herein collectively as the “Transaction
Documents”.

       

      WHEREAS, pursuant to the
Security Agreement, the Company pledged and assigned certain collateral to YA
Global to secure its payment obligations under the Transaction Documents (the
“Obligations”), which collateral includes, without limitation, 18,500,000 shares
(the “Pledged
Shares”) of common stock of MTSI Holdings, Inc. (“MSTI”).

       

      WHEREAS, the Company desires
to sell 2,800,000 Pledged Shares which are subject to the Security Agreement and
use the proceeds to repay a portion of the Obligations.

       

      WHEREAS, on the terms and
conditions set forth herein, YA Global desires to consent to the sale by the
Company of 2,800,000 Pledged Shares and release its lien and security interest
thereon.

       

      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. Conditions.

       

      YA Global
hereby consents to the sale by the Company of 2,800,000 Pledged Shares, subject
to the following conditions:

       

      (a) The
minimum proceeds received from the sale shall be $10,000.

       

      (b) The
Company shall use the proceeds from the sale to pay the interest when due on the
Debentures.

       

      (c) The
proceeds shall be applied first to the quarterly payment of accrued and unpaid
interest on April 1, 2009 and second to subsequent quarterly payments of accrued
and unpaid interest on the Debentures.  Pending payment the proceeds
shall be held in a separate escrow account established by the
Company.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      (d) The sale
of the 2,800,000 Pledged Shares shall occur on or before February 27,
2009.

       

      2. Release of Lien; Waiver of
Section 7.1 of the Security Agreement.

       

      (a) In
connection with (i) the sale of 2,800,000 Pledged Shares pursuant to the terms
and conditions set forth in Section 1 above and (ii) the transfer of the
Commitment Fee Shares (as defined below), YA Global agrees, to release its lien
and security interest on such Pledged Shares and the Commitment Fee
Shares.  YA Global agrees to promptly file all UCC termination
statements and to execute such additional documents, instruments, and agreements
that are reasonably required in order to release its lien and security interest
on the 2,800,000 Pledged Shares and the Commitment Fee Shares.  The
Company agrees to pay the reasonable actual costs and fees incurred by YA Global
in connection with such release, which cost shall not exceed $2,500 without the
Company’s prior written consent.  The release of the 2,800,000 Pledged
Shares and the Commitment Fee Shares shall not alter, vary or diminish the force
and effect of the Security Agreement or any other security documents with
respect to the remainder of the collateral and any and all liens and security
interests created by any such documents, or otherwise, in favor of YA Global
shall remain in full force and effect with respect to the remaining
collateral.

       

      (b) In
connection with the (i) sale of 2,800,000 Pledged Shares pursuant
to the terms and conditions set forth in Section 1 above and (ii) the transfer
of the Commitment Fee (as defined below), YA Global agrees to waive compliance
with Section 7.1 of the Security Agreement.

       

      3. Commitment
Fee.

       

      (a) In
consideration for YA Global’s consent to the Company’s sale of 2,800,000 Pledged
Shares and the release of its lien and security interest on the 2,800,000
Pledged Shares, the Company agrees to pay YA Global a commitment fee payable in
MSTI common stock equal to 1% of MSTI common stock owned by the Company
following the sale of the 2,800,000 Pledged Shares (the “Commitment Fee
Shares”).

       

      (b) In
connection with the transfer if the Commitment Fee Shares, YA Global represents,
warrants and covenants as follows:

       

      (i) Investment
Purpose.  YA Global is acquiring the Commitment Fee Shares for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof.  YA
Global does not presently have any agreement or understanding, directly or
indirectly, with any Person to  distribute any of the Commitment Fee
Shares.

       

      (ii) Accredited Investor
Status.  YA Global is an “Accredited Investor”
as that term is defined in Rule 501(a)(3) of Regulation of the Securities Act of
1933, as amended (the “Securities Act”).  YA Global is not a
registered broker-dealer under Section 15 of the Securities Exchange Act of
1934, as amended.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      (iii) Reliance on
Exemptions.  YA Global understands that the Commitment Fee
Shares are being transferred to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and YA
Global’s compliance with, the representations, warranties and covenants of YA
Global set forth herein in order to determine the availability of such
exemptions and the eligibility of YA Global to acquire the Commitment Fee
Shares.

       

      (iv) Transfer or
Resale.  YA Global understands that:  (i) the
Commitment Fee Shares have not been and are not being registered under the
Securities Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently registered, (B) YA Global
shall have delivered to MSTI an opinion of counsel, in a generally acceptable
form, to the effect that such Commitment Fee Shares to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration requirements, or (C) YA Global provides MSTI with assurances
reasonably acceptable to MSTI that such Commitment Fee Shares can be sold,
assigned or transferred pursuant to Rule 144, Rule 144(k), or Rule 144A
promulgated under the Securities Act, as amended (or a successor rule thereto)
(collectively, “Rule
144”), in each case following the applicable holding period set forth
therein.  YA Global acknowledges that neither MSTI nor any other
person is under any obligation to register the Commitment Fee Shares under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.

       

      (v) Legends.  YA
Global acknowledges that the Commitment Fee Shares shall bear a restrictive
legend in substantially the following form:

       

      THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.  AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      (c) In
connection with the transfer of the Commitment Fee Shares the Company
represents, warrants, and covenants as follows:

       

      (i) The
Company owns, beneficially and of record, all right, title and interest in and
to the Commitment Fee Shares, free and clear of any adverse interests, security
interests, claims, liens, pledges, options, encumbrances, charges, agreements,
voting trusts, proxies or other arrangements, restrictions or limitations of any
kind, except for the security interest granted to YA Global.  Upon
release of the Commitment Fee Shares from the pledge in accordance herewith,
title to the Commitment Fee Shares will transfer to YA Global, free and clear of
any adverse claim, securities interests, claims, liens, pledges, options,
encumbrances, charges, agreements, voting trusts, proxies or other arrangements,
restrictions or other legal or equitable limitations of any kind arising from
actions of, or inactions by, the Company.

       

       

      4. Effect of this
Agreement.  Except as modified pursuant hereto, no other
changes or modifications to the Transaction Documents are intended or implied
and in all other respects the Transaction Documents are hereby specifically
ratified, restated and confirmed by all parties hereto as of the effective date
hereof.

       

      

       

      

       

       

       [SIGNATURE
PAGE IMMEDIATELY TO FOLLOW]

       

      

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      IN WITNESS WHEREOF, this
Agreement is executed and delivered as of the day and year first above
written.

       

      

      
        	 
      	
                COMPANY:

              
	 
      	
                Telkonet,
      Inc.

              
	 
      	 
      
	 
      	 
      
	 
      	
                By: /s/ Jason L. Tienor        

              
	 
      	
                Name:
      Jason L. Tienor

              
	 
      	
                Title:
      President & CEO

              
	 
      	 
      
	 
      	
                GUARANTOR:

              
	 
      	
                Ethostream
      LLC:

              
	 
      	 
      
	 
      	 
      
	 
      	
                By: /s/ Jason L. Tienor        

              
	 
      	
                Name:
      Jason L. Tienor

              
	 
      	
                Title:
      President & CEO

              
	 
      	 
      
	 
      	 
      
	 
      	
                GUARANTOR:

              
	 
      	
                Telkonet
      Communications Inc.:

              
	 
      	 
      
	 
      	 
      
	 
      	
                By: /s/ Jason L. Tienor        

              
	 
      	
                Name:
      Jason L. Tienor

              
	 
      	
                Title:
      President & CEO

              
	 
      	 
      
	 
      	 
      
	 
      	
                SECURED
      PARTY:

              
	 
      	
                YA
      Global Investments, L.P.

              
	 
      	 
      
	 
      	
                By:  Yorkville
      Advisors, LLC

              
	 
      	
                Its:  Investment
      Manager

              
	 
      	 
      
	 
      	 
      
	 
      	
                By: /s/ Troy Rillo            

              
	 
      	
                Name: Troy
      Rillo

              
	 
      	
                Title:
      Sr. Managing Director

              

      

      

      

       

       

       

      5tko_8k-ex0403.htm

    Exhibit 4.3

     

    
      AGREEMENT OF
CLARIFICATION

       

      

       

      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).

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      (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.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      (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.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (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]

       

      

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      
        	 
      	
                COMPANY:

              
	 
      	
                Telkonet,
      Inc.

              
	 
      	 
      
	 
      	 
      
	 
      	
                By: /s/ Jason L. Tienor        

              
	 
      	
                Name:
      Jason L. Tienor

              
	 
      	
                Title:
      President & CEO

              
	 
      	 
      
	 
      	
                YA
      Global Investments, L.P.

              
	 
      	 
      
	 
      	
                By:  Yorkville
      Advisors, LLC

              
	 
      	
                Its:  Investment
      Manager

              
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
                By: /s/ Troy Rillo            

              
	 
      	
                Name: Troy
      Rillo

              
	 
      	
                Title:
      Senior Managing Director

              

      

      

       

      

      5

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