Commercial Business Loan Agreement for Telkonet Inc. Line of Credit
EXHIBIT
10.1
Telkonet
Inc. Line of Credit
This Agreement is dated September 9,
2008 and is between Thermo Credit, LLC ("Thermo") and Telkonet, Inc. and
subsidiaries (hereinafter referred to as "Borrower).
A. THE LOAN OR
LOANS. Subject to the terms and conditions of this Agreement
and provided Obligor timely and completely performs all obligations in favor of
Thermo contained in this Agreement and in any other agreement, whether now
existing or hereafter arising, Thermo will make or has made:
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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”).
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B.
EFFECT OF AGREEMENT AND
DEFINITIONS. The Note is herein incorporated by
reference. Such note and any renewals, modifications or replacements
for such note are subject to the terms of this Agreement. "Loan"
shall collectively mean any and all loans made available to Borrower under
Section A of this Agreement. "Loan Documents" shall mean this
Agreement, any other loan agreement(s), the Note evidencing the Loan, any
security document(s) provided for in this Agreement and any and all other
documents evidencing or securing the obligations of Borrower to Thermo, direct
or contingent, due or to become due, now existing or hereafter
arising. The Loan and all other obligations of Borrower to Thermo,
direct or contingent, due or to become due, now existing or hereafter arising,
shall be secured by any security documents provided for in this Agreement, any
collateral set forth in any promissory note executed by Borrower, and any other
Loan Documents.
C. USE OF
PROCEEDS. The proceeds from the Loan will be used for the
following purpose(s):
Proceeds will be used for the working
capital requirements of the Borrower.
D. REPRESENTATIONS, WARRANTIES AND
COVENANTS. Borrower represents, warrants and covenants to
Thermo that:
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(1)
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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.
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(2)
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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.
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(3)
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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.
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(4)
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Financial
Information.
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(a) Borrower
shall furnish to Thermo:
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i)
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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
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ii)
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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.
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(b)
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Borrower
shall furnish to Thermo such additional information that Thermo may
reasonably require.
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(5)
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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.
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(6)
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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.
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(7)
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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.
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(8)
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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.
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(9)
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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.
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(10)
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Financial Covenants and
Ratios. Borrower shall comply with the following
covenants and ratios:
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A.
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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.
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B.
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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).
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(11)
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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:
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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.
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E. CONDITIONS PRECEDENT TO LOANS.
Thermo shall be obligated to make the Loan only so long as: (i) all of the Loan
Documents required by this Agreement have been delivered to Thermo, (ii)
Borrower is current in the performance of all of the other obligations of
Borrower contained in the Loan Documents, (iii) no Default has occurred, and
(iv) no adverse material change in the financial condition of Borrower has
occurred. Thermo is not obligated to advance funds against this Line of Credit
more frequently than weekly, and Borrower must provide a minimum of 24 hours
advance notice for funding. With each funding request, Borrower must submit a
borrowing base calculation supporting such request, in the format attached as
Exhibit C. Schedules supporting inventory amounts must also be
included.
F. DEFAULT. The
occurrence of (i) the failure of Borrower to make any payment on any Loan when
due, (ii) the failure of Borrower to observe or perform promptly when due any
covenant, agreement or obligation under this Agreement or under any of the other
Loan Documents or under any other obligation to Thermo, (iii) a default under
any of the Loan Documents or (iv) the material inaccuracy at any time of any
warranty, representation or statement made to Thermo by Borrower under this
Agreement or otherwise, shall constitute a default (Default) under this
Agreement. In the event of a Default, Thermo, at its option, shall have the
right to exercise any and all of its rights and remedies under the Loan
Documents.
G. MISCELLANEOUS
PROVISIONS. (1) Borrower agrees to pay all of
the costs, expenses and fees incurred in connection with the Loan, including
attorneys’ fees and appraisal fees. This Agreement is not assignable by Borrower
and no party other than Borrower is entitled to rely on this
Agreement. No condition or other term of this Agreement may be waived
or modified except by a writing signed by Borrower and Thermo. This Agreement
shall supersede and replace any commitment letter between Thermo and Borrower
relating to any Loan. If any provision of this Agreement shall
be held to be legally invalid or unenforceable by any court of competent
jurisdiction, all remaining provisions of this Agreement shall remain in full
force and effect. This Agreement shall be governed by and construed in
accordance with the laws of State of Louisiana. This Agreement may
not be amended or modified except in writing signed by the parties.
(2) Any
notices required or permitted to be given pursuant to the Loan Documents shall
be in writing and shall be given by personal delivery or by mailing the same by
United States certified mail return receipt requested, postage prepaid, to the
address set forth below. Any such notice shall be deemed received for purposes
of this Agreement upon delivery if given by delivery or refusal
thereof.
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Lender:
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Thermo
Credit, LLC
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000
Xxxxxx Xxxxxx
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Xxxxx
0000
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Xxx
Xxxxxxx, XX 00000
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Attn:
Xxxx X. Xxxxxx, Xx.
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Borrower:
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Telkonet,
Inc.
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00000
Xxxxxx Xxxxxxx Xxxxxxx
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Xxxxxxxxxx,
XX 00000
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Attn.:
Xxxxxxx X. Xxxxxxxx
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copy
to:
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Telkonet,
Inc.
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00000
Xxxxxx Xxxxxxx Xxxxxxx
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Xxxxxxxxxx,
XX 00000
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Attn.:
Xxxxxx X. Xxxx
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If either
party desires to change the address to which notices are to be sent it shall do
so in writing and deliver the same to the other party in accordance with the
notice provisions set forth above.
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H. OTHER
CONDITIONS.
(1) Term — Two years as more
fully set forth in the Note.
(2) Monitoring Fee — A
monitoring fee on the amount of the Loan Facility for the period from and
including the date of this Agreement to and including the Maturity Date, at the
rate of ONE TWENTIETH OF ONE PERCENT (0.05%) of such amount per week or portion
thereof. The accrued monitoring fee shall be payable in arrears on each Payment
Date and on the Maturity Date (as such terms are defined in the
Note).
(3) Interest — Interest on the
amount of the outstanding balance under this Loan Agreement at a rate of the
GREATER of: (i) the Wall Street Journal Prime Rate plus NINE PERCENT (9.00%), or
(ii) SIXTEEN PERCENT (16.00%). The accrued interest shall be payable in arrears
on each Payment Date and on the Maturity Date (as such terms are defined in the
Note).
(4) Origination Fee —
Upon signing of the Term Sheet for this Line of Credit Agreement,
Borrower paid Thermo an earned non-refundable Origination Fee of One percent
(1%) of the loan amount ($10,000.00).
(5) Commitment Fee — The
earned non-refundable Commitment Fee shall be equal to two percent (2.0%) of the
Loan Commitment, and shall be payable in two equal installments—the first being
due and payable as of the date of the first draw under this Line of Credit and
the second on the one year anniversary of this Agreement.
(6) Unused Commitment Fee — A
..25% per annum fee payable quarterly in arrears will be charged on the daily
unused portion of the Line of Credit. The unused portion is the amount by which
the maximum dollar amount of the Line of Credit exceeds the outstanding
principal balance due under the Line of Credit.
(7) Prepayment Fee — Borrower
may prepay this Note in whole or in part at any time. If Borrower
prepays this Note in full, or if Lender accelerates payment of this Note,
Borrower understands that, unless otherwise required by law, any prepaid fees or
charges will not be subject to rebate and will be earned by Lender at the time
this Note is signed. Unless otherwise agreed to in writing, any
permitted partial prepayments of this Note will be applied to installments of
principal in inverse order of their maturity and will not relieve Borrower of
Borrower’s obligation to continue to make regularly scheduled payments under the
above payment schedule.
In the
event of such prepayment of the Loan by Borrower, Thermo shall receive a
Prepayment Fee of four percent (4.0%) of the highest aggregate Loan Commitment
Amount if prepayment occurs before the end of the first year and three percent
(3.0%) if prepayment occurs after the end of the first year.
(8) Borrower will reimburse Thermo
for all reasonable
out-of-pocket expenses incurred in connection with Thermo’s on-going review and
administration of the Loan, including reasonable attorney fees incurred by
Thermo.
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Thermo Credit,
LLC
By:
______________________________________________
Name: ______________________________________________
Title:
______________________________________________
Telkonet, Inc.
By:
______________________________________________
Name: ______________________________________________
Title:
______________________________________________
Ethostream, Inc.
By:
______________________________________________
Name: ______________________________________________
Title:
______________________________________________
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Exhibit
B
Security
Agreement by and between Borrower and YA Global Investments, L.P. (“YA”) dated
as of May 30, 2008 pursuant to which YA was granted a security interest in,
among other things, the Collateral.
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