Document:

Engagement Letter

    Exhibit
      10.3

     

     

    

      

      CONFIDENTIAL

      

      January
        8, 2007

      

      Ronald
        W.
        Pickett

      Chief
        Executive Officer

      Telkonet,
        Inc.

      20374
        Seneca Meadows Parkway Germantown,
        MD 20876

      

      Dear
        Ron:

      

      This
        letter agreement (the "Agreement") confirms that Telkonet, Inc. (together
        with
        its subsidiaries
        and affiliates the "Company") has engaged Bryant Park Capital, Inc. ("BPC")
        to
        act as
        its
        exclusive financial advisor and consultant in connection with a possible
        capital
        raising transaction.
        The engagement shall be considered effective as of the date first written
        above
        and may
        be
        terminated by BPC or the Company after 60 days from the date first written
        above.

      

      1) Services:
        In its
        capacity as financial advisor and if requested by the Company, BPC will
provide
        the Company with financial advice and assistance with one or a series of
        transactions (as
        defined herein), which may include assisting the Company in valuation analysis,
        evaluating strategic alternatives, preparation of any presentation material,
        seeking and contacting
        prospective investors or acquirers, and negotiating the financial aspects
        of the
transaction.

      

      2) Fees:
        For
        BPC's services hereunder, the Company agrees to pay to BPC each of the fees,
        by
wire
        delivery of immediately available U.S. dollar funds, without deduction of
        any
        tax as applicable,
        set forth below:

      

      
        	
              	a)	
                Capital
                  Infusion Transaction
                  If
                  the Company enters into any Capital Infusion Transaction
                  (as defined below) during the term of this Agreement or during
                  the 18
                  months
                  following the termination of this Agreement, with a party (1) directly
                  or
                  indirectly introduced
                  to the Company by BPC during the term of this Agreement, (ii) with
                  respect
                  to
                  which, at the Company's request, BPC provided services under the
                  terms of
                  this Agreement,
                  or (iii) any parties listed on Schedule B; then the Company shall
                  pay, or
                  shall cause to be paid, to BPC upon the consummation of such Capital
                  Infusion Transaction a transaction
                  fee payable in (1) cash and (ii) warrants (as defined below), calculated
                  according to the following amounts and percentages (Table A), however,
                  in
                  no event shall
                  the cash portion of any such Capital Infusion Transaction Fee be
                  less than
                  $250,000 in
                  cash paid at closing:

              

      

      

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      

      Table
        A

      

        
          	
                  Equity
                    Capital Infusion (including common stock, preferred stock and
                    convertible
                    debt)

                	 	
                  Cash
                    Portion:

                  6.0%
                    of Consideration

                
	 	 	 
	 	 	
                  Warrant
                    Portion:

                
	 	 	
                  Warrants
                    to buy stock at the price such securities were sold to investors
                    in an
                    amount equal
                    to
                    6.0% of the value of the Equity Capital Infusion
                    Transaction

                
	 	 	 
	
                  Subordinated
                    Debt Capital Infusion

                  (including
                    all debt mezzanine financing)

                	 	
                  Cash
                    Portion:

                  4.0%
                    of
                    Consideration

                
	 	 	 
	 	 	
                  Warrant
                    Portion:

                
	 	 	
                  Warrants
                    to buy stock at the price such securities were sold to investors
                    in an
                    amount equal to 2.5% of the value of the Subordinated Debt Capital
                    Infusion Transaction

                
	 	 	 
	
                  Senior
                    Debt Capital Infusion
                    (including
                    all debt
                    senior to subordinated debt capital and
                    equity
                    capital,
                    including lines of credit or
                    other similar credit facilities)

                	 	
                  Cash
                    Portion:

                  2.0%
                    of Consideration and/or committed
                    funds

                

        

      

      

      Notwithstanding
        the foregoing, if the parties identified in Schedule B as of the date
hereof,
        invests in the Company as part of a Capital Infusion Transaction, BPC's fee
        with
respect
        to such party will be as outlined in Schedule B.

      

      If
        the
        Company pursues an M&A Transaction transaction during the term of this
        Agreement, then the Company and BPC will negotiate in good faith a separate
        engagement letter reflecting market terms for such services,

      

      Any
        Capital Infusion Transaction or M&A Transaction conducted by the Company
        shall be
        individually referred to as a Transaction. Each Capital Infusion Transaction
        Fee
        and M&A
        Transaction Fee shall be referred to as a "Transaction Fee" and together
        the
        "Transaction Fees."

      

      The
        Transaction Fee shall be payable promptly upon consummation of any Transaction
        and
        will
        be wired to BPC at the closing of the transaction, except that to the extent
        the
        Consideration in respect thereof may be increased by contingent payments
        (including additional
        purchases of securities of the Company by a third party), the portion of
        BPC's
fees
        relating thereto shall be calculated and paid as and when such contingent
        payments are
        made
        without regard to any termination or expiration of this Agreement. BPC, at
        its
option,
        may elect to receive up to 30% of the Transaction Fee in the Company's
securities
        at the same terms such securities were sold to investors in the
        Transaction.

      
        
          
          

        

        
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      3)
        Definitions:
        

      

      "Capital
        Infusion Transaction" means in one or more related Transactions which, directly
        or indirectly, results in (i) the purchase or sale of debt or equity securities
        of the Company or a third
        party that does not result in the sale of 51% or more of the outstanding
        voting
        securities of
        the
        Company or a third party, a subsidiary or a related affiliate or (ii) a firm
        commitment, that resulted from a request by the Company for BPC to pursue
        such a
        commitment, from BPC, its affiliates, or a third party to purchase or sell
        newly
        issued debt or equity securities of the Company, a subsidiary or a related
        affiliate, including, but not limited to, committed but undrawn credit
        facilities.

      

      "M&A
        Transaction" means one or more related Transactions (a) is not a Capital
        Infusion Transaction
        (as defined above) and (b) which, directly or indirectly results in (i) the
        acquisition
        by the Company of all or any part of the existing capital stock of a third
        party
        or all
        or
        any part of the assets of such third party (or any securities convertible
        into
        or exchangeable
        for or other rights to acquire all or any part of such capital stock or assets)
        or (ii)
        the
        acquisition by a third party of all or any part of the existing capital stock
        of
        the Company
        or all or any part of the assets of the Company (including any securities
        convertible into
        or
        exchangeable for or other rights to acquire all or any part of such capital
        stock or assets), including in each such case, without limitation, any sale
        or
        exchange of capital stock or
        assets
        (including cash and other liquid assets), any recapitalization, restructuring,
        merger or
        consolidation (including any such transaction in which any third party is
        the
        surviving entity)
        or any similar transaction or (iii) any partnership, joint or collaborative
        venture, strategic
        alliance or similar transaction.

      

      "Consideration"
        in a Transaction means, with respect to such Transaction, the total amount
        paid
        or payable (whether in cash, securities, employment contracts, "earn-out"
        agreements, non-compete agreements, severance agreements, management or
        consulting agreements or otherwise),
        directly or indirectly, upon the consummation of or otherwise in connection
        with
such
        Transaction, together with (i) all amounts paid or payable in connection
        with
        stock options, phantom equity plans or other securities rights, (ii)
        liabilities, including all debt and guarantees assumed, refinanced or
        extinguished and (iii) the aggregate redemption price or liquidation
        preference of any preferred stock of the acquired company that, as a result
        of
        such Transaction,
        is redeemed or becomes preferred stock of the acquiring company, as the case
        may
        be. In the event that the Consideration received in a Transaction is paid
        or
        payable in whole or in part in the form of securities or other property, the
        value of such securities or other
        property for purposes of calculating the Consideration for such Transaction
        shall be (1) the
        closing bid price, in the case of publicly traded securities and (ii) the
        fair
        market value as the parties hereto shall mutually agree (or, in the event
        the
        parties hereto cannot agree, as determined
        by an independent valuation expert jointly and in good faith selected by
        the
parties
        hereto) in the case of contracts or unquoted securities, in each case calculated
        as of the
        business day immediately preceding the announcement of the
        Transaction.

      

      "Warrants"
        issued to BPC or its assignees as part of any Capital Infusion Transaction
        fee
shall
        have the same terms as the warrants issued to investors in such Capital
        Infusion_ Transaction.
        If no warrants are issued to investors as part of any Capital Infusion
Transaction,
        then the Warrants issued BPC shall have terms consistent with the warrants
        issued
        by
        the Company in its recent prior Capital Infusion Transaction.

      

      4)
        Expenses
        and Payment Terms:
        In
        addition to the fees described above and whether or not a
        Transaction occurs, the Company shall reimburse BPC for its reasonable
        out-of-pocket expenses
        incurred in connection with BPC's services hereunder or the subject matter
        hereof, including,
        without limitation, legal, accounting, computer and information databases,
        due
        diligence, background investigations, "Blue Sky" filings, marketing, "road
        show", travel and entertainment, printing and mailing, any escrow fees, and
        internal administrative expenses. Reimbursement by the Company of BPC's
        documented out-of-pocket expenses associated with providing its services
        hereunder will occur on a regular monthly basis. The Company agrees to reimburse
        BPC within 15 days of receipt of reimbursable expense invoices.

      

      In
        the
        event that the Transaction Fee due to BPC is not paid within 10 days of its
        due
        date or Expenses
        or Monthly Retainer Fee are not paid within 30 days from the invoice date,
        BPC
will
        be
        entitled to receive an additional monthly fee equal to 5%, or the highest
        rate
        allowable by law, of the amounts past due for every thirty days the balance
        remains outstanding.
        In addition the Company agrees to pay for all legal fees associated with
        collecting
        any and all fees due to BPC.

      

      5)
        Indemnification:
        In
        connection with engagements such as this, it is BPC's firm policy to
receive
        indemnification. The Company agrees to the provisions with respect to BPC's
        indemnity
        and other matters set forth in Schedule A, which is incorporated by reference
        into this
        Agreement.

      

      6)
        Conflicts;
        Independent Contractor: The
        Company acknowledges that BPC and its affiliates
        may have and may continue to have investment banking and other relationships
        with
        parties other than the Company, pursuant to which BPC may acquire information
        of
        interest to the Company. BPC shall have no obligation to disclose such
        information to the Company or to use such information in connection with
        any
        contemplated Transaction.

      

      The
        relationship between BPC and the Company shall be that of advisor and client.
        BPC is an independent contractor and this agreement shall not be deemed in
        any
        way to establish a joint
        venture between BPC and the Company or as creating a partnership or similar
        relationship.
        BPC will provide its financial advice, written or oral, exclusively for the
        information
        of the Company's Board of Directors and senior management, who will make
        all
decisions
        regarding whether to engage in any Transaction. BPC may engage its own
        sub-placement
        agents, independent contractors and/or consultants to assist BPC in conducting
        the Transaction.

      

      7)
        USA
        Patriot Act Notice:
        The
        Company acknowledges that in order for BPC to comply with the
        requirements under Title III of the Uniting and Strengthening America by
        Providing Appropriate
        Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA Patriot
        Act")
        (Public Law 107-56), the Company must provide BPC with certain information
        or
        supporting documentation (collectively "Documentation") at the time of execution
        of this agreement. BPC is required by the USA Patriot Act to verify and record
        any Documentation provided by the Company to validate the Company's identity.
        Documentation that may be requested
        from the Company may include, but is not limited to, a Federal Employer
Identification
        Number (FEIN), a Certificate of Good Standing to validate the Company's
        corporate existence, a Certificate of Incumbency to authenticate the management
        of the Company, and other government issued certified documents to validate
        the
        Company's authorization to conduct business.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      
 

      8)
        Entire
        Agreement: Amendments: Survival:
        This
        Agreement constitutes the entire agreement of the parties with respect to
        BPC's
        engagement and supersedes all prior negotiations and understandings of the
        parties hereto with respect to the subject matter hereof.
        This Agreement may not be amended or modified except in writing signed by
        each
party
        hereto. The provisions of Sections 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 13 and
        14
        shall survive any
        termination or expiration of BPC's engagement hereunder. This Agreement shall
        be
        binding upon, and inure solely to the benefit of, BPC and the Company, and
        all
        of their respective heirs, executors, administrators, and
        successors.

      

      9)
        Representations
        and Warranties: Accuracy of Information; Interests of
        Others:
        The
        Company will furnish to BPC any information concerning the Company, including
        its subsidiaries
        and affiliates, that BPC reasonably deems appropriate, and will provide BPC
        access
        to
        its officers, directors, accountants, counsel and other advisors. All such
        information
        concerning the Company is and will be true and accurate in all material
        respects, and
        does
        not and will not as of its date, and will not as supplemented or amended
        as of
        the date
        of
        the closing of any Transaction, contain any untrue statement of a material
        fact
        or omit to
        state
        a material fact necessary in order to make the statements therein not misleading
        in light
        of
        the circumstances under which such statements are or were made. The Company
        acknowledges
        and agrees that BPC will be using and relying upon such information supplied
        by
        the
        Company and other publicly available information concerning the Company,
        without
any
        independent investigation or verification thereof or any independent appraisal
        by BPC of the
        Company or its business or assets. The Company further represents and warrants
        that no broker,
        representative or other person has an interest in compensation due BPC
        hereunder.

      

      10)
        Exclusivity:
        The
        Company acknowledges that BPC's engagement hereunder is exclusive. Accordingly,
        the Company agrees that it will not, and it will not permit any stockholder,
        affiliate
        or advisor, to engage any other person to perform any financial or similar
        consulting services
        with respect to any Transaction without the prior express written consent
        of
        BPC. In the
        event
        that the Company or its stockholders, affiliates or advisors are contacted
        by
        any Person
        concerning a potential Transaction, the Company agrees to promptly inform
        BPC of
such
        inquiry, including all relevant details thereof. BPC acknowledges that the
        Company has an
        existing relationship with Objective Equity LLC, who may play a role in the
        Capital Infusion
        Transaction, to be mutually agreed upon by BPC and the Company. The Company
        shall
        (i)
        inform Objective Equity LLC that it has engaged BPC to act as its financial
        advisor and
        consultant in connection with a possible capital raising transaction and
        (ii)
        exert its reasonable
        best efforts to have Objective Equity LLC coordinate its activities with
        respect
        to the
        contemplated Capital Infusion Transaction with BPC.

      

      11)
        Confidentiality:
        Except
        as otherwise required by law, the terms of this Agreement and the advice
        provided hereunder shall not be disclosed to any third party, with the exception
        of potential
        investors in the Transaction as part of their due diligence efforts, without
        the
        prior written
        consent of both parties to this Agreement. BPC shall keep confidential and
        not
disclose
        any non-public information provided to it by or on behalf of the Company
        or by
        any third-party,
        in relation to any of the services provided or to be provided by it to the
        Company, except
        that it may disclose any such information to its advisors (which persons
        shall
        be bound
        by
        similar confidentiality obligations and for which BPC shall accept full
responsibility
        in compliance with this Section 11) or as required by law or with the prior
        consent
        of the Company. The restrictions in the preceding sentence shall not apply
        to
information
        that becomes publicly available through no fault of BPC or information that
        BPC
may
        be
        required by law to disclose. The Company acknowledges that BPC's advice is
        for
the
        use
        and information of the Company and only in considering the matters to which
        this
        Agreement relates. Such advice may not be relied on by any other Person,
        including, without limitation, any security holder, employee or creditor
        of the
        Company and may not be used or relied on for any other purpose. Without
        limitation of the foregoing, such advice is for the purpose
        of assisting the Company and does not constitute a recommendation to any
        stockholder
        of the Company concerning actions that such stockholder might or should take
        in
connection
        with any proposed Transaction.

       

      
        
          
          

        

        
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      12)
        Advertising:
        BPC
        shall have the right to place advertisements or other public announcements
        in financial and other newspapers and journals at its own expense describing
        its
        services to the Company hereunder. Any such advertisement of public announcement
        shall
        be
        subject to the approval of the Company, which approval shall not be unreasonably
        withheld;
        provided, however, that following the closing of a Transaction, BPC shall
        be
entitled
        to describe its services to the Company in its own newsletter or in other
        public
relations
        arid promotional materials, without the approval of the Company. In addition,
        in
any
        press
        release associated with the Transaction the Company agrees to mention BPC
        as its
        exclusive financial advisor and describe BPC's services to the Company
        hereunder.

      

      13)
        Headings:
        Headings
        are provided solely for convenience and are not intended to be a part of
        this
        Agreement.

      

      14)
        Governing
        Law:
        This
        Agreement shall be governed by, and construed in accordance with, the law
        of the
        State of New York without giving effect to principles governing conflicts
        of
law.
        If
        any provision of this agreement or the application thereof to any person
        or
circumstance
        shall be determined to be invalid or unenforceable, the remaining provisions
        of
        this Agreement or the application of such provisions to persons or circumstances
        other than those to which it is held invalid or unenforceable shall not be
        affected thereby and shall be valid and enforceable to the fullest extent
        permitted by law. Furthermore, Telkonet, Inc. irrevocably submits to the
        exclusive jurisdiction of the State of New York, City of New York in connection
        with any dispute that arises under this Agreement between the
        parties.

      
        
          
          

        

        
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      If
        the
        foregoing is in accordance with your understanding, kindly sign where indicated
        below and return an executed copy to us.

      

      
        	
                Very
                  truly yours

              	 	
                Accepted
                  and agreed to as of the date first above written:

              
	 	 	 
	
                BRYANT
                  PARK CAPITAL, INC.

              	 	
                TELKONET,
                  INC.

              
	 	 	 
	
                By:
                  /s/ signature 
                  

                

              	 	
                By:
                  /s/ signature 
                  

                

              
	 	 	
                Title:
                  CEO

              
	 	 	 
	 	 	
                Jurisdiction
                  of Organization:

              
	 	 	
                Utah

              
	 	 	 
	 	 	
                Federal
                  Tax ID#: 87-06-27-421

              
	 	 	 
	 	 	
                Location
                  of Principal Place of Business:

              
	 	 	
                Germantown,
                  MD

              

      

      

      
        
          
          

        

        
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      SCHEDULE
        A

      INDEMNIFICATION
        AND CONTRIBUTION

      

      This
        Schedule A is a part of and is incorporated into that certain letter agreement
        (together
        with this Schedule A, the "Agreement"), dated December 19, 2006 by and between
        the
        Company and BPC. Terms not otherwise defined herein have the meaning ascribed
        to
them
        in
        the main body of this Agreement.

      

      1.
        By
        the
        Company.
        The
        Company agrees to indemnify and hold harmless BPC and its Affiliates, and
        the
        respective directors, officers, agents, consultants and employees of BPC
        and its
        Affiliates (BPC and each such entity or person, a "BPC Indemnified Person")
        from and against any losses, claims, damages, judgments, assessments,
costs,
        legal fees and other liabilities (collectively "Liabilities"), and will
        reimburse each
        BPC
        Indemnified Person for all fees and expenses (including the reasonable fees
        and
        expenses of counsel) (collectively, "Expenses") as they are incurred in
investigating,
        preparing, pursuing or defending any claim, action, proceeding or investigation,
        whether or not in connection with pending or threatened litigation, regulatory
        proceeding or arbitration and whether or not any BPC Indemnified Person
is
        a
        party (collectively, "Actions"), arising out of or in connection with advice
        or
services
        rendered or to be rendered by any BPC Indemnified Person pursuant to this
        Agreement, the Transactions contemplated hereby (including but not limited
        to
        any untrue
        statement of a material fact on the part of the Company in connection with
        the
Transaction
        or any related Memorandum (the "Memorandum") or the omission to state
        in
        the Memorandum a material fact required to be stated therein or necessary
        to
        make the statements therein, in light of circumstances under which they were
        made, not misleading) or any BPC Indemnified Person's actions or inactions
        in
        connection with any such advice, actions, inactions, services or Transactions;
        provided that the Company
        will not be responsible and shall be reimbursed by BPC for any Liabilities
        or
        Expenses of any BPC Indemnified Person that are determined by a judgment
        of a
        court of competent jurisdiction which is no longer subject to appeal or further
        review to have resulted from such BPC Indemnified Person's gross negligence
        in
        connection with
        any
        of the advice, actions, inactions, services or transactions referred to above,
        or
        to the
        extent that any such Liabilities or Expenses arises out of or are based upon
        an
        untrue statement of a material fact or omission made in reliance upon and
        in
conformity
        with written information furnished to the Company by BPC specifically
for
        use
        in the preparation of the Memorandum. The Company also agrees to reimburse
        each BPC Indemnified Person for all Expenses as they are incurred in
connection
        with enforcing such BPC Indemnified Person's rights under this Agreement
        (including, without limitation, its rights under this Schedule A).

       

      
        
          
          

        

        
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      2.
        Procedure.
        Upon
        receipt by a BPC Indemnified Person of actual notice of an Action against
        such BPC Indemnified Person with respect to which indemnity may be sought
        under
        this Agreement, such BPC Indemnified Person shall promptly notify the
Company
        (an "Indemnifying Party") in writing; provided that failure so to notify
        such
Indemnifying
        Party shall not relieve such Indemnifying Party from any liability which
        such Indemnifying Party may have on account of this indemnity or otherwise,
        except
        to
        the extent such Indemnifying Party shall have been materially prejudiced
        by
such
        failure. The Indemnifying Party shall, if requested by the BPC Indemnified
        Person,
        assume the defense of any such Action including the retention of counsel
        reasonably
        satisfactory to the BPC Indemnified Person. Any BPC Indemnified Person
        shall have the right to employ separate counsel in any such Action and
participate
        in the defense thereof, but the fees and expenses of such counsel shall be
        at
        the
        expense of such BPC Indemnified Person, unless: (i) the Indemnifying Party
        has
        failed promptly to assume the defense and employ counsel or (ii) the named
        parties
        to any such Action (including any impleaded parties) include both such BPC
        Indemnified Person and the Indemnifying Party, and such BPC Indemnified Person
        shall have been advised by counsel that there may be one or more legal defenses
        available to it which are different from or in addition to those available
        to
        the Indemnifying Party; provided that the Indemnifying Party shall not in
        such
        event be responsible hereunder for the fees and expenses of more than one
        firm
        of separate counsel
        in connection with any Action in the same jurisdiction, in addition to any
        local
        counsel. The Indemnifying Party shall not be liable for any settlement of
        any
        Action effected without its written consent, which consent shall not be
        unreasonably withheld.
        In addition, an Indemnifying Party will not, without prior written consent
        of
        the
        applicable BPC Indemnified Person, settle, compromise or consent to the entry
        of
        any
        judgment in or otherwise seek to terminate any pending or threatened Action
        in
        respect of which indemnification or contribution may be sought hereunder
        (whether
        or not any BPC Indemnified Person is a party thereto) unless such settlement,
        compromise, consent or termination includes an unconditional release of each
        BPC
        Indemnified Person from all Liabilities arising out of such Action.

      

      3.
        Contribution.
        In the
        event that the foregoing indemnity is unavailable to a BPC Indemnified
        Person other than in accordance with this Agreement, the Company shall
contribute
        to the Liabilities and Expenses paid or payable by such BPC Indemnified Person
        in such proportion as is appropriate to reflect (1) the relative benefits
        to the
Company
        and its shareholders, on the one hand, and to BPC, on the other hand, of
        the
matters
        contemplated by this Agreement or (ii) if the allocation provided by the
        immediately
        preceding clause is not permitted by applicable law, not only such. relative
        benefits but also the relative fault of the Company, on the one hand, and
        BPC,
on
        the
        other hand, in connection with the matters as to which such Liabilities or
        Expenses
        relate, as well as any other relevant equitable considerations. For purposes
        of
        this
        paragraph, the relative benefits to the Company and its shareholders, on
        the
one
        hand,
        and to BPC, on the other hand, of the matters contemplated by this Agreement
        shall be deemed to be in the same proportion as (a) the total value paid
        or
        contemplated to be paid or received or contemplated to be received by the
        Company or
        the
        Company's shareholders, as the case may be, in the Transaction or Transactions
        that are within the scope of this Agreement, whether or not any such
Transaction
        is consummated, bears to (b) the fees paid to BPC under this Agreement.
The
        relative fault of the Company on the one hand, and the BPC on the other hand,
        will
        be
        determined with reference to, among other things, whether the untrue or
alleged
        untrue statement of a material fact or the omission to state a material fact
        is
        relative to information supplied by the Company or BPC, and with reference
        to
        each of
        the
        Company's and BPC's relative intent, knowledge, access to information and
        opportunity
        to correct or prevent such statement or omission. The Company and BPC agree
        that
        it would not be just and equitable if contribution pursuant to this paragraph
        were determined by pro rata allocation or by any other method of allocation
        that
        does not
        take
        into account the equitable considerations referred to in this
        paragraph.

      

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      4.
        Other
        Liabilities.
        The
        Company also agrees that no BPC Indemnified Person shall have
        any
        liability (whether direct or indirect, in contract or tort or otherwise)
        to the
        Company or any of its affiliates, directors, officers, agents, advisors,
        stockholders, creditors
        or interest holders for or in connection with advice or services rendered
        or to
be
        rendered by any BPC Indemnified Person pursuant to this Agreement, the
        Transactions contemplated hereby or any such BPC Indemnified Person's actions
        or
        inactions in connection with any such advice, services or Transactions. In
        no
        event, regardless of any legal theory advanced, shall any BPC Indemnified
        Person
        be liable under this Agreement for any consequential, indirect, incidental
        or
        special damage of any nature.

      

      5.
        Effective.
        The
        reimbursement, indemnity and contribution obligations of the Company
        and BPC set forth herein shall apply to any modification of this Agreement
        and
        shall remain in full force and effect regardless of any termination of, or
        the
        completion of any Indemnified Person's services under or in connection with,
        this Agreement.

      

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      SCHEDULE
        B

      EXEMPTIONS
        TO TABLE A AS MUTUALLY AGREED UPON B BOTH PARTIES

      

      
        	
                Enable
                  Capital Management

              	
                BPC
                  Fees:

              	 
	 	
                Cash
                  Portion:

              	
                2.0%

              
	 	
                Warrant
                  Portion:

              	
                2.0%

              
	 	 	 
	
                Other
                  Parties Introduced by

              	
                BPC
                  Fees:

              	 
	
                Objective
                  Equity LLC

              	
                Cash
                  Portion:

              	
                2.0%

              
	 	
                Warrant
                  Portion:

              	
                2.0%

              
	 	 	 
	
                Members
                  of the Company's Board of

              	
                BPC
                  Fees:

              	 
	
                Directors
                  or Company's Executive

              	
                Cash
                  Portion:

              	
                0.0%

              
	
                Management

              	
                Warrant
                  Portion:

              	
                0.0%

              

      

      
10Secured Promissory Note

    Exhibit
      10.1

     

    SECURED
      PROMISSORY NOTE

     

     

    
      	
              $250,000

            	
              February
                20, 2007

            

    

     

    FOR
      VALUE
      RECEIVED, Riaz Chauthani, an individual (“Borrower”), hereby promises to pay to
      the order of U.S. Dry Cleaning Corporation, a Delaware corporation (“Holder"),
      the sum of Two Hundred Fifty Thousand Dollars ($250,000) in immediately
      available funds and in lawful money of the United States of America as provided
      below. 

     

    1. Interest.
      Interest shall accrue on the outstanding principal balance of this Note from
      the
      effective date of this Note at the rate of six percent (6.00%) per annum until
      all amounts due under this Note are paid in full. Interest shall be calculated
      based upon a 360 day year, upon actual days elapsed.

     

    2. Payments.
      Payments of principal or interest under this Note shall not be required until
      December
      3, 2009
      (the
“Maturity Date”). Any payment made hereunder shall be credited first to interest
      then due and then to principal; and interest shall thereupon cease to accrue
      upon the principal so credited.

     

    3. Default.
      This
      Note and all principal and interest payments to be made under this Note shall
      automatically become due and payable, without presentment, demand, notice,
      declaration, protest or other requirements of any kind, all of which are
      expressly waived by Borrower; if Borrower fails to make any payment within
      30
      days of the date required for such payment under this Note. If Borrower fails
      to
      make any payment within 30 days of the date required for such payment under
      this
      Note, then the outstanding principal amount of this Note and any accrued
      interest on this Note shall bear interest at the rate of 10.00% per annum (the
      “Default Rate”) until such payments are made in full. The rights of Holder under
      this Section
      3
      are in
      addition to any other rights and remedies which Holder may have.

     

    4. Maturity
      Date.
      The
      outstanding principal balance of this Note, including all remaining accrued
      but
      unpaid interest thereon, shall become due and payable in full on the Maturity
      Date.

     

    5. Optional
      Prepayments.
      All or
      part of the amounts outstanding under this Note may be prepaid at any time,
      at
      the option of Borrower, without premium, penalty or notice.

     

    6. Manner
      of Payment.
      Payments of principal and interest shall be made in lawful money of the United
      States of America by check or wire transfer in funds immediately available
      at
      the place of payment to such account as Holder may designate in writing to
      Borrower. Any payments due hereunder which are due on a day which is not a
      business day shall be payable on the first succeeding business day and such
      extension of time shall be included in the computation of interest due
      hereunder.

     

    7. Borrower's
      Waivers.
      Borrower expressly waives presentment, demand, protest, notice of dishonor,
      notice of non-payment, notice of maturity, notice of protest, presentment for
      the purpose of accelerating maturity, diligence in collection, and the benefit
      of any exemption or insolvency laws.

     

    8. Maximum
      Interest.
      Notwithstanding any other provision of this Note, nothing herein shall require
      Borrower to pay, or Holder to accept, interest in an amount which subjects
      Holder to any penalty or forfeiture under applicable law, and in no event shall
      all of the charges payable hereunder (whether of interest or of such other
      charges which may or might be characterized as interest) exceed the maximum
      rate
      permitted to be charged under applicable law. Should Holder receive any payment
      which is or might be in excess of that permitted to be charged under applicable
      law, such payment shall have been, and shall be deemed to have been, made in
      error and shall be held as cash collateral for the indebtedness evidenced by
      this Note.

     

    9. Assignment
      and Transfer.
      Holder
      may assign all or any portion of this Note at any time or from time to time
      without the consent of Borrower.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    10. Costs
      of Collection.
      Borrower agrees to pay all costs and expenses, including the fees and expenses
      of any attorneys, accountants and other experts retained by Holder, which are
      expended or incurred by Holder in connection with (i) the enforcement of this
      Note or the collection of any sums due hereunder, whether or not suit is
      commenced; (ii) any actions for declaratory relief in any way related to this
      Note; (iii) the protection or preservation of any rights of Holder under this
      Note; (iv) any actions taken by Holder in negotiating any amendment, waiver,
      consent or release of or under this Note; (v) Holder's participation in any
      refinancing, restructuring, bankruptcy or insolvency proceeding involving
      Borrower or any Affiliate of Borrower; or (vi) any refinancing or restructuring
      of the Note in the nature of a "work out" or in an insolvency or bankruptcy
      proceeding. Notwithstanding the foregoing, the Borrower shall not be obligated
      to pay costs or expenses expended or incurred by Holder described in clause
      (i)
      or (ii) if and to the extent that the Borrower prevails in any action, suit
      or
      proceeding initiated by Holder and which a court of competent jurisdiction
      determines was initiated or maintained by Holder in bad faith.

     

    11. Extension
      of Time.
      Holder,
      at its option, may extend the time for payment of this Note, postpone the
      enforcement hereof, or grant any other indulgences without affecting or
      diminishing Holder's right to recourse against Borrower, which right is
      expressly reserved.

     

    12. Severability.
      Any
      provision of this Note which is prohibited or unenforceable in any jurisdiction
      shall, as to such jurisdiction, be ineffective to the extent of such prohibition
      or unenforceability without invalidating the remaining provisions of this Note
      or affecting the validity or enforceability of such provision in any other
      jurisdiction.

     

    13. Governing
      Law.
      In all
      respects, including all matters of construction, validity and performance,
      this
      Note and the rights and obligations arising hereunder shall be governed by,
      and
      construed and enforced in accordance with, the laws of the State of California
      applicable to contracts made and performed in such state, without regard to
      principles thereof regarding conflicts of laws.

     

    THE
      OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY THAT CERTAIN STOCK PLEDGE
      AGREEMENT (THE “STOCK PLEDGE AGREEMENT”) DATED AS OF THE DATE HEREOF. ADDITIONAL
      RIGHTS OF HOLDER ARE SET FORTH IN THE STOCK PLEDGE AGREEMENT.

     

    IN
      WITNESS WHEREOF, Borrower has executed and delivered this Note on the date
      first
      above written.

     

    
      	
              By:
                /s/Riaz
                Chauthani

              Riaz
                Chauthani

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