CommercialBusiness Loan Agreement for TelkonetInc. Line of Credit

 

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”).

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.

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.

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.

 

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.

Borrower shall furnish to Thermo such additional information that Thermo may reasonably require.

 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.

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.

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.

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.

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.

Financial Covenants and Ratios.  Borrower shall comply with the following covenants and ratios:

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.

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).

   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.