Exhibit 10.1

CONTRACT #GEDL FY09-19444

LOAN

AGREEMENT

BETWEEN THE

WISCONSIN DEPARTMENT OF COMMERCE

AND

TELKONET, INC.

This Agreement is entered into by and between the Wisconsin Department of
Commerce (“Department”) and Telkonet, Inc., (“Borrower”).

WITNESSETH

WHEREAS, the Department is authorized to award loan funds, for the purpose of
economic development pursuant to Section 560.137 Wis. Stats.; and

WHEREAS, on May 18, 2009, the Department, relying upon representations in the
Borrower's Application, agreed to lend up to Three Hundred Thousand and 00/100
Dollars ($300,000.00) to the Borrower to be utilized in accordance with the
terms and conditions of this Agreement.

NOW, THEREFORE, for valid consideration, the receipt of which is hereby
acknowledged, and in consideration for the promises and covenants in this
Agreement, the Department and Borrower agree as follows:

1.
DEFINITIONS.  For the purposes of this Agreement, the following terms shall have
the meanings set forth below:

 
a)
“Agreement” means this Agreement between the Department and the Borrower,
together with any future amendments thereto.

 
b)
“Application” means the Commerce application submitted by the Borrower.

 
c)
“Borrower” means Telkonet, Inc., together with its lawful successors and
assigns.

 
d)
“Collateral” means the property described in Exhibit A.

 
e)
“Department” means the Wisconsin Department of Commerce, together with its
lawful successors and assigns.

 
f)
“Effective Date” means the date this Agreement is executed by the Department.

 
g)
“Eligible Project Costs” means the costs and expenditures incurred by the
Borrower in connection with the Project as described in Exhibit A, over the time
period described in Exhibit A.

 
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h)
“Existing Full-Time Positions” means the currently existing Full-Time Positions
that will be retained by the Borrower in Wisconsin in connection with the
Project as described in Exhibit A.

 
i)
“Full-Time Position” means any permanent position where an employee is required,
as a condition of employment, to work at least 40 hours per week and 2,080 hours
per year including paid leave and holidays.

 
j)
“GEDL” and “Loan” each mean the Department’s Gaming Economic Development Loan to
the Borrower under this Agreement.

 
k)
“Project” means the activities described in Exhibit A.

 
l)
“Promissory Note” means the Promissory Note attached as Exhibit D

 
m)
“Term of this Agreement” means until the Borrower’s obligations hereunder are
fully satisfied.

2.
DISBURSEMENT OF LOAN PROCEEDS.     Loan disbursements to the Borrower hereunder
for Eligible Project Costs (defined in Exhibit A) shall be made on a periodic
basis upon the Department’s receipt and approval of a completed Request for
Disbursement Form (attached as Exhibit C) and required supporting documentation.

 
a)
Prior to the disbursement of any Loan funds, the Borrower shall execute and
deliver to the Department:

 
(i)
A borrowing resolution.

 
(ii)
A security agreement, granting the Department a subordinate security interest on
all assets now owned or hereinafter acquired. Authentication of this agreement
by the Borrower authorizes the Department to file a UCC financing statement for
the stated Collateral.

 
(iii)
An intercreditor agreement.

 
(iv)
All other documents that reasonably may be required by the Department to effect
the terms and conditions of this Agreement.

 
b)
Disbursements by the Department to the Borrower shall be made after a
nonrefundable origination fee of $6,000.00, two (2.0) percent of the award
amount, is paid to the Department.

3.
BORROWER’S LOAN PAYMENTS.   This Loan shall be repaid in accordance with the
terms of the Promissory Note (Attached as Exhibit D).

4.
TAXES AND FEES.   Except as otherwise provided in this Agreement, the Borrower
shall keep the Collateral free and clear of all judgements, levies, liens,
security interests and encumbrances and shall pay all federal, state and local
fees, assessments and taxes which may be assessed upon the ownership, possession
or use of the Collateral.

 
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5.
INSURANCE.   The Borrower covenants that it will maintain insurance in such
amounts and against such liabilities and hazards as customarily is maintained by
other companies operating similar businesses.

6.
“EVENT OF DEFAULT” DEFINED.   The occurrence of any one or more of the following
events shall constitute an “Event of Default” for the purposes of this
Agreement:

 
a)
The Borrower’s failure to pay, within ten (10) calendar days of the due date,
any of the principal payments or interest due under the Promissory Note
(Attached as Exhibit D);

 
b)
The Borrower's failure to comply with or perform any of its material obligations
under this Agreement; provided that the Borrower's failure to comply with the
terms and conditions of Exhibit A, Section 3. a), b), and d) hereunder shall not
be considered an “Event of Default”.

 
c)
Any assignment for the benefit of the Borrower's creditors or commission of any
other act amounting to a business failure;

 
d)
The filing, by or against the Borrower, of a petition under any chapter of the
U.S. Bankruptcy Code or for the appointment of a receiver;

 
e)
Any uncured material default or breach of the Borrower’s obligations under the
terms and conditions of its loan agreements, leases, or financing arrangements
with other creditors;

 
f)
Any material misrepresentation with respect to the Borrower's warranties and
representations under this Agreement or the Application; or

 
g)
Any other action or omission by the Borrower, which in the Department’s
reasonable discretion, jeopardizes the Borrower's ability to fulfill its
obligations under this Agreement or otherwise causes the Department to deem
itself insecure.

7.
REMEDIES IN EVENT OF DEFAULT.

 
a)
Upon the occurrence of any Event of Default, the Department shall send a written
notice of default to the Borrower, and to the creditors, Thermo Credit, LLC and
YA Global Investments, L.P., setting forth with reasonable specificity the
nature of the default.  If the Borrower fails to cure the default to the
reasonable satisfaction of the Department within ten (10) calendar days, the
Department may, without further written notice to the Borrower, declare the
Borrower in default, terminate this Agreement effective immediately, and
accelerate the principal balance, accrued interest, and other amounts owed by
the Borrower hereunder.

 
b)
Upon the termination of this Agreement:

 
(i)
The Borrower shall be liable for the full unpaid principal balance together with
interest at the annual rate of twelve (12) percent from the date of the Event of
Default to the date the Borrower's obligations hereunder are paid in full.

 
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(ii)
Subject to the rights of other creditors, the Department shall be entitled to
exercise any and all remedies available to the Department under this Agreement,
related loan documents, and applicable laws.

 
c)
In addition to the rights and remedies available to the Department at law, in
equity, or in bankruptcy, the Department shall be entitled to recover from the
Borrower an amount equal to the sum of:

 
(i)
The unpaid principal balance, accrued interest, and other amounts owed by the
Borrower hereunder;

 
(ii)
All court costs and reasonable attorney’s fees incurred by the Department in the
enforcement of its rights and remedies under this Agreement, including all costs
incurred in foreclosing upon, repossessing, storing, repairing, selling, leasing
or otherwise disposing of the Collateral; and

 
(iii)
Any other damages arising from the Borrower's default.

 
d)
The Department’s foreclosure upon, repossession of, and subsequent sale, lease,
or disposition of the Collateral shall not affect the Department’s right to
recover from the Borrower any and all damages caused by the Borrower's breach of
this Agreement.  The Department’s rights and remedies hereunder shall be
cumulative, not exclusive, and shall be in addition to all other rights and
remedies available at law, in equity or in bankruptcy.

8.
BORROWER’S WARRANTIES AND REPRESENTATIONS.   To induce the Department to enter
into this Agreement, and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the Borrower hereby warrants and represents
that:

 
a)
The Borrower is duly organized, validly existing, and authorized to engage in
business in the State of Wisconsin.

 
b)
To its knowledge, the Borrower is qualified to engage in business in every
jurisdiction where the nature of its business makes such qualification
necessary;

 
c)
The Borrower is in compliance with all laws, regulations, ordinances and orders
of public authorities applicable to it, the violation of which would have a
material and adverse effect on the Borrower's financial ability to comply with
this Agreement;

 
d)
The Borrower is unaware of any conditions which could subject it to any damages,
penalties or clean-up costs under any federal or state environmental laws which
would have a material and adverse effect on the Borrower's financial ability to
comply with this Agreement;

 
e)
This Agreement is valid and enforceable in accordance with its terms against the
Borrower, subject only to applicable bankruptcy, insolvency, reorganization or
other similar laws affecting generally the enforceability of the rights of
creditors;

 
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f)
Except as set forth in Section 8(f) hereto, the Borrower is financially solvent
and able to comply with all of the terms and conditions set forth in the
Agreement and is not in default under the terms and conditions of any loan
agreements, leases, or financing arrangements with the Borrower’s other
creditors.  With respect to that certain Commercial Business Loan Agreement for
Telkonet, Inc. Line of Credit September 9, 2008 by and between Thermo Credit,
LLC and the Borrower, the Borrower is not in satisfaction of clauses D(10) (A)
and (B) requiring that: (i) Borrower’s minimum cash flow to debt service ratio
not be less than 1 to 1 as of the end of each fiscal quarter and that (ii)
Borrower maintain a tangible net worth of not less than $14,400,000.00 as of the
last day of each fiscal quarter.  Thermo Credit, LLC has waived the foregoing
requirements as of the quarter ended June 30, 2009 for a period of ninety (90)
days thereafter.

 
g)
The financial statements and other information provided by the Borrower to the
Department are complete and accurate in accordance with Generally Accepted
Accounting Principles, and may be relied upon by the Department in deciding
whether to enter into this Agreement with the Borrower;

 
h)
The Borrower has private Project funds as identified in Exhibit A to fund all
other costs relating to the Project;

 
i)
In making these warranties and representations, the Borrower has not relied upon
any information furnished by the Department.

 
j)
The Borrower's warranties and representations herein are true and accurate as of
the date of this Agreement, and shall survive the execution thereof;

9.
BORROWER COVENANTS.

 
a)
Deliverables.   The Borrower shall comply with the terms and conditions set
forth in Exhibit A Section 3. of this agreement.  Should the Borrower fail to
meet the terms and conditions set forth in Exhibit A it may be subject to
penalties outlined in Exhibit A.

 
 
b)
Reporting.    The Borrower shall provide the Department with reports, utilizing
forms provided by the Department, as well as interim and/or fiscal year end
financial statements in accordance with Exhibit B-1 and B-2.

 
 
c)
Inspection.

 
 
(i)
The Department and its respective agents, shall, at any reasonable time and upon
48 hours notice, have the right to enter upon the Borrower’s premises to inspect
the Project.

 
 
(ii)
The Borrower shall produce for the Department’s inspection, examination,
auditing and copying, upon reasonable advance notice, any and all records which
relate to this Agreement.

 
 
d)
Nondiscrimination in Employment.   During the Term of this Agreement, the
Borrower shall not discriminate against any employee or applicant for employment
because of age, race, religion, color, handicap, sex, physical condition,
developmental disability as defined in sec. 51.01 (5) Stats., sexual orientation
or national origin.  This provision shall include, but not be limited to, the
following:  employment, upgrading, demotion or transfer; recruitment or
recruitment advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship.  Except with
respect to sexual orientation, the Borrower further agrees to take affirmative
action to ensure equal employment opportunities.  The Borrower agrees to post in
conspicuous places, available for employees and applicants for employment,
notices to be provided by the contracting officer setting forth the provisions
of the nondiscrimination clause.

 
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e)
Notification of Position Openings.   In accordance with sec. 106.16, Stats., the
Borrower shall, for a period of one year from the Effective Date, provide the
Wisconsin Department of Workforce Development, local Job Service offices, and
the area Workforce Development Board with prior written notice of any new or
vacant Full-Time Positions that are related to the Project.

 
 
f)
Consolidation or Merger.   During the term of this Agreement, the Borrower shall
not consolidate or merge with or into any other corporation or business entity
without providing prior written consent of the Department.

 
 
g)
Relocation of Operations.    In accordance with §560.075(2), the Borrower shall
not relocate the Project, or any Full-Time Positions related thereto, outside of
Wisconsin for a minimum of five years from the date of the award.

10.
WISCONSIN OPEN RECORDS LAW.   Subject to the following terms, the Department
shall safeguard all of the financial statements provided to them by the
Borrower:

 
a)
Except as otherwise required or provided by court order, legal process or
applicable Wisconsin law including, without limitation, the Wisconsin Open
Records Law, sec. 19.31, Stats., et seq, the Department shall not reveal or
disclose any financial information and documents provided by the Borrower to any
non-government person or entity without the prior written consent of the
Borrower.

 
b)
If the Borrower believes or contends that any financial statements provided
hereunder qualify as “trade secrets” exempt from disclosure under the Wisconsin
Open Records Law, the Borrower shall:

 
(i)
Fill out a standard trade secrets designation form to be provided by the
Department, designating specific information or documents as “ trade secrets”
and agreeing to defend and indemnify the Department, and to hold them harmless
in the event of any future open records request asking for copies of such
documents; and

 
(ii)
Provide the Department with two copies of such information -- a clean copy and a
copy with the “trade secret” information redacted--for the Department’s files.

11.
ENTIRE AGREEMENT.   This Agreement and the accompanying loan documents,
Promissory Note, and exhibits contain the entire Agreement of the parties
concerning the Borrower's obligations under the terms and conditions of this
Agreement.  This Agreement may not be amended, modified or altered except in
writing signed by the Borrower and the Department.

12.
CHOICE OF LAW.   THIS AGREEMENT IS AND SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF WISCONSIN.  If any provisions of the Agreement shall be prohibited by
or invalid under Wisconsin law, such provisions shall be ineffective only to the
extent of such prohibition or invalidity, without affecting the validity or
enforceability of the remaining provisions thereof.

 
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13.
VENUE; JURISDICTION.   Any judicial action relating to the construction,
interpretation, or enforcement of this Agreement, or the recovery of any
principal, accrued interest, court costs, attorney’s fees and other amounts owed
hereunder, shall be brought and venued in the U.S. District Court for the
Western District of Wisconsin or the Dane County Circuit Court in Madison,
Wisconsin.  THE BORROWER HEREBY CONSENTS TO PERSONAL JURISDICTION IN THOSE
WISCONSIN COURTS, AND WAIVES ANY DEFENSES THAT THE BORROWER OTHERWISE MIGHT HAVE
RELATING THERETO.

14.
WAIVER OF RIGHT TO JURY TRIAL.   THE BORROWER HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL IN CONNECTION WITH ANY JUDICIAL ACTION OR PROCEEDING THAT MAY ARISE BY AND
BETWEEN THE DEPARTMENT AND THE BORROWER CONCERNING THE CONSTRUCTION,
INTERPRETATION OR ENFORCEMENT OF THIS AGREEMENT, OR THE RECOVERY OF ANY
PRINCIPAL, ACCRUED INTEREST, COURT COSTS, ATTORNEY’S FEES AND OTHER AMOUNTS THAT
MAY BE OWED BY THE BORROWER HEREUNDER.

15.
MISCELLANEOUS.

 
a)
Severability.   The invalidity of any provision of this Agreement shall not
affect the validity of the remaining provisions, which shall remain in full
force and effect to govern the parties’ relationship.

 
b)
Department Not A Joint Venturer Or Partner.   The Department shall not, under
any circumstances, be considered or represented to be a partner or joint
venturer of the Borrower or any beneficiary thereof.

 
c)
Documents.   All documents required to be delivered contemporaneously with the
execution and delivery of this Agreement are expressly made a part of this
Agreement as though completely herein, and all references to this Agreement
herein shall be deemed to refer to and include all such documents.

 
d)
Agreement Controlling.   In the event of any conflict or inconsistency between
the Agreement and the exhibits hereto, the terms of this Agreement shall
control.

16.
CAPTIONS.   The captions in this Agreement are for convenience of reference only
and shall not define or limit any of the terms and conditions set forth herein.

17.
AUTHORITY TO SIGN DOCUMENT.   The person(s) signing this Agreement on behalf of
the Borrower certifies and attests that the Borrower’s respective Articles of
Organization, Articles of Incorporation, By Laws, Member's Agreement, Charter,
Partnership Agreement, Corporate or other Resolutions, and/or other related
documents give full and complete authority to bind the Borrower, on whose behalf
they are executing this document.

Borrower assumes full responsibility and holds the Department harmless for any
and all payments made or any other actions taken by Department in reliance upon
the above representation. Further, Borrower agrees to indemnify Department
against any and all claims, demands, losses, costs, damages or expenses suffered
or incurred by Department resulting from or arising out of any such payment or
other action, including reasonable attorneys’ fees and legal expenses.  The
Borrower has read, fully understands, and agrees to all of the terms and
conditions in this Agreement and the related loan documents;

 
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IN WITNESS WHEREOF, the Department and the Borrower have executed and delivered
this Agreement effective the date set forth next to the Department’s signature
below.

WISCONSIN DEPARTMENT OF COMMERCE

By: /s/ Mary Gage                                               
9/11/2009                   
      Mary Gage, Bureau Director
Date
       
TELKONET, INC.
     
By: /s/ Richard Leimbach                                    
9/11/2009                   
Richard Leimbach, CFO
Date

 
 
Notices to the Borrower hereunder shall be effective upon mailing by first class
mail, postage prepaid, and addressed as follows or such other person and address
as may be designated in writing:
Notices to the Department hereunder shall be effective upon mailing by first
class mail, postage prepaid, and addressed as follows:
   
Telkonet, Inc.
10200 Innovation Drive, Suite 300
Milwaukee, WI 53226
Attn: Jason Tienor, President/CEO

With a copy to:

Telkonet, Inc.
20374 Seneca Meadows Parkway
Germantown, MD 20874
Attn: Howard Barr, General Counsel
Wisconsin Department of Commerce
Bureau of Business Finance
201 West Washington Avenue
P.O. Box 7970
Madison, WI  53707
Attn: Contract #GEDL FY09-19444

 
 

 
 
 
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