LOAN AND SECURITY AGREEMENT
This Eighth Amendment to Loan and Security Agreement is entered into as of April 5, 2018 (the "Amendment"), by and among TELKONET, INC. ("Borrower"), and HERITAGE BANK OF COMMERCE ("Bank").
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of September 30, 2014 and as amended from time to time, including pursuant to that certain First Amendment to Loan and Security Agreement dated as of February 17, 2016, that certain Second Amendment to Loan and Security Agreement dated as of October 27, 2016, that certain Third Amendment to Loan and Security Agreement dated as of January 25, 2017, that certain Fourth Amendment to Loan and Security Agreement dated as of March 29, 2017, that certain Fifth Amendment to Loan and Security Agreement dated as of August 29, 2017, that certain Sixth Amendment to Loan and Security Agreement dated as of October 23, 2017 and that certain Seventh Amendment to Loan and Security Agreement dated as of February 2, 2018 (collectively, the "Agreement").
NOW, THEREFORE, the parties agree as follows:
1. Effective as of March 31, 2018, the last sentence in Section 6.9(b) of the Agreement is amended and restated in its entirety to read as follows:
Notwithstanding the foregoing, if Telkonet, Inc. fails to comply with the foregoing required EBITDA covenant as of any particular quarterly measurement date (the "Measurement Date"), Borrowers shall be deemed in compliance with this Section 6.9(b) if Borrowers' unrestricted cash maintained in its accounts at Bank (x) is in excess of $5,000,000 at all times during the fiscal quarter ending on such Measurement Date and (y) continues to be in excess of $5,000,000 at all times following the Measurement Date, until Borrower is in compliance with the EBITDA covenant as of a subsequent Measurement Date.
2. Exhibit D to the Agreement is replaced in its entirety with the Exhibit D attached hereto.
3. Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.
4. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.
5. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a ".pdf' format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf' signature page were an original hereof.
6. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) the original signed Amendment, duly executed by Borrower;
(b) payment of all Bank Expenses incurred through the date of this Amendment; and
(c) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
|By: /s/ Richard E. Mushrush|
|Name: Richard E. Mushrush|
|HERITAGE BANK OF COMMERCE|
|By: /s/ Karla Schrader|
|Name: Karla Schrader|
|TO:||HERITAGE BANK OF COMMERCE|
|FROM:||TELKONET, INC. and ETHOSTREAM LLC|
The undersigned authorized officer of Telkonet, Inc., on behalf of all Borrowers, hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct as of the date hereof Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
|Borrower prepared financial statements||Quarterly within 45 days||Yes||No|
|Compliance Certificate||Quarterly within 45 days||Yes||No|
|Wells Fargo bank statements||Monthly within 15 days||Yes||No|
|A/R & A/P Agings||Within 5 days of 15th and last day of each month||Yes||No|
|Customer deposit listing||Within 5 days of 15th and last day of each month||Yes||No|
|Borrowing base certificate||Within 5 days of 15th and last day of each month||Yes||No|
|Inventory report||Monthly within 15 days||Yes||No|
|Offsite Inventory listing||Monthly within 15 days||Yes||No|
|Deferred revenue schedule||Quarterly within 15 days||Yes||No|
|Annual financial statements (CPA Audited)||FYE within 120 days||Yes||No|
|Annual financial projections and budget||Annual within 30 days before FYE||Yes||No|
|Federal Tax Returns||Annual, within 15 days of filing||Yes||No|
|10K and 10Q||(as applicable)||Yes||NO|
|A/R Audit||Initial and semi-annual||Yes||No|
|IP Notices||As required under Section 6.10||Yes||No|
|Minimum Asset Coverage Ratio (Monthly)||1.25 : 1.00||_____: 1.00||Yes||No|
|Telkonet, Inc. YTD EBITDA Loss as of:|
|March 31, 2018||($1,059,000)||$_________||Yes||No|
|June 30, 2018||($1271,000)||$ _________||Yes||No|
|September 30, 2018||($1,911,000)||$ _________||Yes||No|
|December 31, 2018||($2,090,000)||$ _________||Yes||No|
|If not in compliance with EBITDA covenant,||³ $5,000,000||$ _________||Yes||No|
|Minimum Unrestricted Cash at Bank at all times|