|
LINE OF CREDIT LOAN to
Borrower aggregating ONE MILLION AND NO/100 ($1,000,000.00)
Dollars in principal amount, which loan shall be evidenced by and payable
according to Thermo's form of promissory note, a copy of which is attached
as Exhibit A (“Note”).
|
(1)
|
Organization and
Authorization. Borrower is an entity which is duly
organized, validly existing and, if a corporation, in good standing under
applicable laws. Borrower's execution, delivery and performance of this
Agreement and all other documents delivered to Thermo has been duly
authorized and does not violate Borrower's articles of incorporation (or
other governing documents), material contracts or any applicable law or
regulations. All documents delivered to Thermo are legal and
binding obligations of Borrower who executed
same.
|
(2)
|
Compliance with Tax and other
Laws. Borrower shall comply (to the extent
necessary so
that any failure to do so will not materially and adversely affect the
business or property of Borrower) with all laws that are applicable to
Borrower's business activities, including, without limitation, all law
regarding (i) the collection, payment and deposit of employees' income,
unemployment, Social Security, sales and excise taxes; (ii) the filing of
returns and payment of taxes; (iii) pension liabilities including ERISA
requirements; (iv) environmental protection; and (v) occupational safety
and health.
|
(3)
|
Borrower
shall keep its fixed property and equipment in good working order and
condition, and maintain property and liability insurance coverage relating
thereto in form and coverage acceptable to
Thermo.
|
(4)
|
Financial
Information.
|
|
i)
|
within
90 days after the close of Borrower's fiscal year, a copy of the
annual audited financial statements of Borrower, prepared in conformity
with generally accepted accounting principles applied on a basis
consistent with that of the preceding fiscal year, and certified by an
executive officer of Borrower, consisting of a balance sheet, a statement
of earnings and surplus, and a statement of cash flow;
and
|
|
ii)
|
within
30 days after the close of each month unaudited financial statements as of
the end of such month consisting of a balance sheet as of the end of such
month, a statement of earnings and surplus for such month and a statement
of cash flow for such month, all certified by an appropriate executive
officer of Borrower, together with year-to-date financial
statements. Thermo will be notified promptly of any material
adjustments to the aforementioned financial
statements.
|
(b)
|
Borrower
shall furnish to Thermo such additional information that Thermo may
reasonably require.
|
(5)
|
Mergers,
etc. Without the prior notice to Thermo and payment in
full of all amounts owed to Thermo, including but not limited to
principal, interest, prepayment fees, commitment fees or any other fee due
to Thermo, Borrower shall not (a) consummate a merger or consolidation,
(b) acquire all or substantially all of the assets of another entity, or
(c) sell, lease or transfer all, or substantially all, of Borrower's
assets. Borrower will notify Thermo within ten (10) business
days of the execution of a letter of intent relating to activities limited
by this Section. Borrower shall not permit any material change
to be made in the character of Borrower's business as carried on at the
original date of this Agreement.
|
(6)
|
Indebtedness and
Liens. Other than obligations disclosed in Exhibit
B—Permitted Liens (as defined in the Security Agreement) or incurred in
the ordinary course of business, including but not limited to, the
purchase or lease of equipment, Borrower shall not create any additional
obligations for borrowed money, without the written consent of Thermo
which will not be unreasonably withheld and Borrower shall not mortgage or
encumber any of Borrower's assets or suffer any liens to exist on any of
Borrower's assets without the prior written consent of
Thermo.
|
(7)
|
Other
Liabilities. (a) Borrower shall not lend to or
guarantee, endorse or otherwise become contingently liable in connection
with the obligations, stock or dividends of any person, firm or
corporation, except as currently exists and as reflected in the financial
statements of Borrower as previously submitted to Thermo; (b) Borrower
shall not default in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any indenture,
agreement or other instrument to which Borrower is a party (the effect of
which would materially adversely affect the business or properties of
Borrower); and (c) except as disclosed or referred to in the financial
statements furnished to Thermo, there is no litigation, legal or
administrative proceeding, investigation or other action of any nature
pending or, to the knowledge of Borrower, threatened against or affecting
Borrower which involves the possibility of any judgment or liability not
fully covered by insurance, and which may materially and adversely affect
the business or assets of Borrower or Borrower's ability to carry on
business as now conducted.
|
(8)
|
Documentation. The
Loan Documents include, this Loan Agreement, the Promissory Note and
Security Agreement and all other documents necessary to effect the
purposes of this Agreement as reasonably required by Thermo. Upon the
written request of Thermo, Borrower shall promptly and duly execute and
deliver all such further instruments and documents and take such further
action as Thermo may reasonably deem necessary to obtain the full benefits
of the Loan Documents.
|
(9)
|
Thermo
shall make advances to the Borrower (each an "Advance") from time to time
during the term hereof and ending on the Maturity Date (as such term is
defined in the Note) (or such earlier time specified herein in such
amounts as may be requested by the Borrower in accordance with the
provisions hereof. All requests for Advances shall be made by the Borrower
to the Lender in writing (in such form as is reasonably satisfactory to
the Lender) or by telephone request (which shall be promptly confirmed in
writing) which specifies the amount of the Advance to be made and the date
the proceeds of the Advance are requested to be made available to the
Borrower (a "Loan Request"). Advances under the Line of Credit
shall be made by direct wire transfer of funds from the Lender to an
account designated by Borrower in writing to
Lender.
|
(10)
|
Financial Covenants and
Ratios. Borrower shall comply with the following
covenants and ratios:
|
A.
|
Minimum Cash Flow to Debt
Service Ratio. For each monthly period subsequent to
March 31, 2009, Borrower will maintain a ratio of cash flow to scheduled
principal payments plus all accrued interest and related fee on funded
debt of not less than 1.00 to 1.00 as of the end of each fiscal
quarter. For the purposes of this section "cash flow" shall
mean the sum of net income after taxes, plus depreciation and amortization
expenses for the period. "Funded debt" shall mean all
indebtedness for borrowed money.
|
B.
|
Minimum Tangible Net
Worth. Borrower will maintain a tangible net worth of
not less than $14,400,000 as of the last day of each fiscal
quarter. For the purposes of this section, "tangible net worth"
shall mean the sum of common stock, preferred stock, capital surplus and
retained earnings less treasury stock and the sum of all intangible assets
(including, without limitation, good will, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks and brand
names).
|
(11)
|
Collateral. As
security for payment and performance of the Loan and any and all
other obligations of Borrower to
Thermo, direct or contingent, due or to become due, now existing or
hereafter arising, Borrower shall execute and deliver to Thermo, or cause
others to execute and deliver to Thermo, the following described
security documents:
|
|
A
security agreement and financing statement by Borrower granting Thermo a
first lien and security interest in all of Borrower’s inventory (the
“Collateral”) and all rights and proceeds therefrom. Except as
disclosed or otherwise permitted pursuant to Section D (6) hereof or by
the Security Agreement, Borrower agrees to maintain the Collateral free
and clear and subject to no other lien or encumbrance, whether voluntary
or involuntary. Borrower shall inform Thermo of the existence
of any involuntary lien, within two (2) business days of Borrower’s first knowledge of
any involuntary lien or encumbrance affecting the Collateral and take
action to remove any involuntary lien or encumbrance within fifteen (15)
days of Borrower’s first knowledge. Borrower’s failure to
remove, pay, satisfy or otherwise clear any involuntary lien within sixty
(60) days of Borrower’s first knowledge thereof will result in a default.
In the event of such involuntary lien, Thermo reserves the right to
suspend additional fundings, if any, until such involuntary lien is
released.
|
Lender:
|
Thermo
Credit, LLC
|
|
639
Loyola Avenue
|
||
Suite
2565
|
||
New
Orleans, LA 70113
|
||
Attn:
Jack V. Eumont, Jr.
|
||
Borrower:
|
Telkonet,
Inc.
|
|
20374
Seneca Meadows Parkway
|
||
Germantown,
MD 20817
|
||
Attn.:
Richard J. Leimbach
|
||
copy
to:
|
Telkonet,
Inc.
|
|
20374
Seneca Meadows Parkway
|
||
Germantown,
MD 20817
|
||
Attn.:
Howard J. Barr
|