Document:

telkonet_8k-ex0401.htm

    EXHIBIT
4.1

    

    PROMISSORY
NOTE

    

    
      	
              Borrower:

            	
              Lender:

            
	 
      	 
      
	
              TELKONET,
      INC. and Subsidiaries

            	
              THERMO
      CREDIT, LLC

            
	
              20374
      Seneca Meadows Parkway

            	
              639
      Loyola Avenue

            
	
              Germantown,
      MD 20876

            	
              Suite
      2565

            
	 
      	
              New
      Orleans, LA  70113

            

    

    

    
      
        

      

    

    

    
      	
              Principal
      Amount:

            	
              Maturity Date of
      Note:

            	
              Date of
      Note:

            
	
              U.S.
      $1,000,000.00

            	
              September
      9, 2010

            	
              September
      9, 2008

            

    

    

    PROMISE
TO PAY.  For value received, the undersigned makers
(hereinafter referred to as “Borrower,” which term means individually,
collectively, and interchangeably any, each and/or all of them), promises to pay
to the order of THERMO CREDIT LLC (“Lender”), or its registered assigns, in
lawful money of the United States of America the sum of One Million and No/100
($1,000,000.00) Dollars, or such other or lesser amounts as may be reflected
from time to time on the books and records of Lender as evidencing the aggregate
unpaid principal balance of loan advances made to Borrower on a revolving line
of credit basis as provided in the Loan Documents.

    

    LOAN
AGREEMENT.  This Note is made
and executed pursuant to, and is subject to, that certain Loan Agreement among
the Borrower and Lender, dated as of September 9, 2008 (as amended from time to
time, the “Loan Agreement”).  All capitalized terms used in this Note
(and not otherwise defined herein) shall have the meanings defined in the Loan
Agreement.

    

    INTEREST
RATE.  The aggregate
outstanding principal shall bear interest at the greater of (i) the Wall Street
Journal Prime Rate plus nine (9%) percent per annum, adjusted on the date of any
change in such prime or base rate or (ii) Sixteen percent (16%).  The
term "Wall Street Journal Prime Rate" is and shall mean the variable rate of
interest, on a per annum basis, which is announced and/or published in the Money
Rates Section of The Wall Street Journal from time to time. All payments of
interest shall be computed on the per annum basis of a year of 360 days for the
actual number of days (including the first day, but excluding the last day)
elapsed.  Interest shall accrue from date of advance.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    MAXIMUM INTEREST
RATE.  Anything to the contrary contained herein
notwithstanding, no provision of this Note shall require the payment or permit
the collection of interest in excess of the maximum permitted by applicable law
("the MAXIMUM RATE").  If interest in excess of the Maximum Rate is
provided for in this Note or otherwise in connection with the loan transaction
represented by this Note, or is adjudicated to be so provided, the provisions of
this paragraph shall govern and prevail, and no Borrower or any guarantor shall
be obligated to pay the excess amount of such interest or any other excess sum
paid for the use, forbearance, or detention of advances made under the Loan
Agreement.  In the event Lender ever receives, collects or applies, as
interest due and payable under this Note, any sum in excess of the Maximum Rate,
the amount of the excess shall be applied as a payment and reduction
of   the principal of the indebtedness represented by this Note;
and if the principal of the indebtedness represented by this Note has been fully
paid, any remaining excess shall forthwith be paid to Borrowers.  In
determining whether or not interest paid or payable exceeds the Maximum Rate,
Borrower and Lender  shall, to the extent permitted by applicable law,
(a) characterize any non-principal payment as an expense, fee or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) amortize, prorate, allocate and spread, in equal or unequal parts, the total
amount of interest throughout the entire contemplated term of the
indebtedness  represented by this Note so that interest for the entire
term does not exceed the Maximum Rate.

    

    MONITORING
FEE. Borrower
will pay a monitoring fee on the amount of the Credit 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 the Principal
Amount per week or portion thereof.

    

    ADVANCES.  This Note is a
revolving commercial line of credit “master note.”  Advances under
this Note may be requested only as provided in the Loan
Agreement.  Borrower agrees to be liable for all sums, on the
instructions of an authorized person, either advanced or credited to any deposit
account of Borrower. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower written
notice of revocation of their authority:

    

    Name                                                      Office/Position

    

    Rick
Leimbach                                     Chief
Financial Officer

    

    The
unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender’s internal records, including daily
computer print-outs.  Lender will have no obligation to advance funds
under this Note if: (a) a Default has occurred and is continuing; (b) Borrower
or Guarantor cease doing business or are insolvent; (c) Guarantor seeks, claims
or otherwise attempts to limit, modify or revoke Guarantor’s guarantee of this
Note or any other loan with Lender; or (d) Borrower has applied funds provided
pursuant to this Note for purposes other than those permitted by the Loan
Agreement.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    PAYMENT
SCHEDULE.  Interest,
computed on a 365/360 simple interest basis,  and fees on this Note
shall be payable monthly in arrears on the last day of each month, beginning
August, 2008 and continuing on the last day of each month until the maturity
date.  The balance of all outstanding principal and accrued but unpaid
interest and fees shall be due and payable on the Maturity
Date.   If any payment on this Note shall become due on a day
other than a Business Day (defined as a day when financial markets are open for
trading), such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in computing interest in
connection with such payment. Payments are to be made via wire transfer to an
account specified by Lender, or by having such amounts deducted from amounts due
to under that certain Factoring and Security Agreement dated as of January 25,
2008 between Telkonet, Inc. and Thermo Credit, LLC.

    

    PREPAYMENT.  Borrower may
prepay this Note as may be provided for and on such terms and conditions as set
forth in the Loan Agreement.

    

    LATE
CHARGE. The
Borrower agrees to pay Lender, on demand, a late charge equal to 5% of any
installment that is not paid within 10 days after it is due and 5% of the
interest portion of the payment due upon the final maturity date of this Note if
that payment is not paid within 10 days after it is due.  This late
charge will never be less than $50.00.  This provision shall not be
deemed to excuse a late payment or be deemed a waiver of any other right Lender
may have, including, without limitation, the right to declare the entire unpaid
principal and interest immediately due and payable.

    

    ADDITIONAL
INTEREST.  If Borrower
defaults under this Note or the Loan Agreement, Lender shall have the right to
prospectively increase the interest rate under this Note by 3% per annum during
the continuance of such default.

    

    LENDER’S
RIGHTS UPON DEFAULT.  Upon the
occurrence of and during the continuation of any Event of Default, Lender shall
have all of the rights and remedies provided in the Loan Agreement.

    

    COLLATERAL.  This Note is
secured by the Collateral (as defined in the Loan Agreement).

    

    ATTORNEYS’
FEES.  If Lender refers
this Note to an attorney for collection, or files suit against Borrower to
collect this Note, or if Borrower files for bankruptcy or other relief from
creditors, Borrower agrees to pay Lender’s reasonable attorneys’
fees.

    

    NSF CHECK
CHARGES.  In the event that
Borrower makes any payment under this Note by check and Borrower’s check is
returned to Lender unpaid due to nonsufficient funds in Borrower’s deposit
account, Borrower agrees to pay Lender an additional NSF check charge in the
amount of $30.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    GOVERNING
LAW.  Borrower agrees
that this Note and the loan evidenced hereby shall be governed under the laws of
the State of Louisiana.  Specifically, this business or commercial
Note is subject to La. R.S. 9:3509, et seq.

    

    WAIVERS.  Borrower and each
guarantor (if any) of this Note hereby waive presentment for payment, protest,
notice of protest and notice of nonpayment, and all pleas of division and
discussion, and severally agree that their obligations and liabilities to Lender
hereunder shall be on a “solidary” or “joint and several”
basis.  Borrower and each guarantor further severally agree that
discharge or release of any party who is or may be liable to Lender for the
indebtedness represented hereby, or the release of any collateral directly or
indirectly securing repayment hereof, shall not have the effect of releasing an
other party or parties, who shall remain liable to Lender, or of releasing any
other collateral that is not expressly released by Lender.  Borrower
and each guarantor additionally agree that Lender’s acceptance of payment other
than in accordance with the terms of this Note, or Lender’s subsequent agreement
to extend or modify such repayment terms, or Lender’s failure or delay in
exercising any rights or remedies granted to Lender, shall likewise not have the
effect of releasing Borrower or any other party or parties from their respective
obligations to Lender, or of releasing any collateral that directly or
indirectly secures repayment hereof. In addition, any failure or delay on the
part of Lender to exercise any of the rights and remedies granted to Lender
shall not have the effect of waiving any of Lender’s rights and
remedies.  Any partial exercise of any rights and/or remedies granted
to Lender shall furthermore not be construed as a waiver of any other rights and
remedies; it being Borrower’s intent and agreement that Lender’s rights and
remedies shall be cumulative in nature.  Borrower and each guarantor
further agree that, should any event of default occur or exist under this Note,
any waiver or forbearance on the part of Lender to pursue the rights and
remedies available to Lender, shall be binding upon Lender only to the extent
that Lender specifically agrees to any such waiver or forbearance in
writing.  A waiver or forbearance on the part of Lender as to one
event of default shall not be construed as a waiver or forbearance as to any
other default.  Borrower and each guarantor of this Note further agree
that any late charges provided for under this Note will not be charges for
deferral of time for payment and will not and are not intended to compensate
Lender for a grace or cure period, and no such deferral, grace or cure period
has been or will be granted to Borrower in return for the imposition of any late
charge.  Borrower recognizes that Borrower’s failure to make timely
payment of amounts due under this Note will result in damages to Lender,
including but not limited to Lender’s loss of the use of amounts due, and
Borrower agrees that any late charges imposed by Lender hereunder will represent
reasonable compensation to Lender for such damages.  Failure to pay in
full any installment or payment timely when due under this Note, whether or not
a late charge is assessed, will remain and shall constitute an Event of Default
hereunder.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    SUCCESSORS
AND ASSIGNS LIABLE.  Borrower’s
obligations and agreements under this Note shall be binding upon Borrower’s
successors, heirs, legatees, devisees, administrators, executors and
assigns.  The rights and remedies granted to Lender under this Note
shall inure to the benefit of Lender’s successors and assigns, as well as to any
subsequent holder or holders of this Note.

    

    CAPTION
HEADINGS.  Caption headings
of the sections of this Note are for convenience purposes only and are not to be
used to interpret or to define their provisions.  In this Note,
whenever the context so requires, the singular includes the plural and the
plural also includes the singular.

    

    SEVERABILITY.  If any provision
of this Note is held to be invalid, illegal or unenforceable by any court, that
provision shall be deleted from this Note and the balance of this Note shall be
interpreted as if the deleted provision never existed.

    

    ENTIRE
AGREEMENT.  The Loan Documents set forth the entire agreement of the
parties with respect to the subject matter hereof and supersede all prior
written understandings between the Borrower and Lender.

    

    PRIOR TO
SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS
NOTE.  BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE NOTE.

    

    

    BORROWER:

    TELKONET, INC.

    

    

    By:  ________________________________

    Title:  _______________________________

     

     

     

     

    5telkonet_8k-ex1001.htm

    EXHIBIT
10.1

    

    Commercial
Business Loan Agreement for

    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:

    

    
      	
               
      

            	
              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”).

            

    

    

    
      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:

    

    
      	
              (1)  

            	
              Organization and
      Authorization.  Borrower is an entity which is duly
      organized, validly existing and, if a corporation, in good standing under
      applicable laws. Borrower's execution, delivery and performance of this
      Agreement and all other documents delivered to Thermo has been duly
      authorized and does not violate Borrower's articles of incorporation (or
      other governing documents), material contracts or any applicable law or
      regulations.  All documents delivered to Thermo are legal and
      binding obligations of Borrower who executed
  same.

            

    

    

    
      	
              (2)  

            	
              Compliance with Tax and other
      Laws.  Borrower shall comply (to the extent
      necessary so
      that any failure to do so will not materially and adversely affect the
      business or property of Borrower) with all laws that are applicable to
      Borrower's business activities, including, without limitation, all law
      regarding (i) the collection, payment and deposit of employees' income,
      unemployment, Social Security, sales and excise taxes; (ii) the filing of
      returns and payment of taxes; (iii) pension liabilities including ERISA
      requirements; (iv) environmental protection; and (v) occupational safety
      and health.

            

    

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

    
      	
              (3)  

            	
              Borrower
      shall keep its fixed property and equipment in good working order and
      condition, and maintain property and liability insurance coverage relating
      thereto in form and coverage acceptable to
  Thermo.

            

    

    

    
      	
              (4)  

            	
              Financial
      Information.

            

    

    

    (a)           Borrower
shall furnish 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.

            

    

    

    
      	
                                    
      (b)  

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

            

    

    

    
      	
              (5)  

            	
               Mergers,
      etc.  Without the prior notice to Thermo and payment in
      full of all amounts owed to Thermo, including but not limited to
      principal, interest, prepayment fees, commitment fees or any other fee due
      to Thermo, Borrower shall not (a) consummate a merger or consolidation,
      (b) acquire all or substantially all of the assets of another entity, or
      (c) sell, lease or transfer all, or substantially all, of Borrower's
      assets.  Borrower will notify Thermo within ten (10) business
      days of the execution of a letter of intent relating to activities limited
      by this Section.  Borrower shall not permit any material change
      to be made in the character of Borrower's business as carried on at the
      original date of this Agreement.

            

    

    

    
      	
              (6)  

            	
              Indebtedness and
      Liens.  Other than obligations disclosed in Exhibit
      B—Permitted Liens (as defined in the Security Agreement) or incurred in
      the ordinary course of business, including but not limited to, the
      purchase or lease of equipment, Borrower shall not create any additional
      obligations for borrowed money, without the written consent of Thermo
      which will not be unreasonably withheld and Borrower shall not mortgage or
      encumber any of Borrower's assets or suffer any liens to exist on any of
      Borrower's assets without the prior written consent of
    Thermo.

            

    

    

    
      	
              (7)  

            	
              Other
      Liabilities.  (a) Borrower shall not lend to or
      guarantee, endorse or otherwise become contingently liable in connection
      with the obligations, stock or dividends of any person, firm or
      corporation, except as currently exists and as reflected in the financial
      statements of Borrower as previously submitted to Thermo; (b) Borrower
      shall not default in the performance, observance or fulfillment of any of
      the obligations, covenants or conditions contained in any indenture,
      agreement or other instrument to which Borrower is a party (the effect of
      which would materially adversely affect the business or properties of
      Borrower); and (c) except as disclosed or referred to in the financial
      statements furnished to Thermo, there is no litigation, legal or
      administrative proceeding, investigation or other action of any nature
      pending or, to the knowledge of Borrower, threatened against or affecting
      Borrower which involves the possibility of any judgment or liability not
      fully covered by insurance, and which may materially and adversely affect
      the business or assets of Borrower or Borrower's ability to carry on
      business as now conducted.

            

    

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    
      	
              (8)  

            	
              Documentation.  The
      Loan Documents include, this Loan Agreement, the Promissory Note and
      Security Agreement and all other documents necessary to effect the
      purposes of this Agreement as reasonably required by Thermo. Upon the
      written request of Thermo, Borrower shall promptly and duly execute and
      deliver all such further instruments and documents and take such further
      action as Thermo may reasonably deem necessary to obtain the full benefits
      of the Loan Documents.

            

    

    

    
      	
              (9)  

            	
              Thermo
      shall make advances to the Borrower (each an "Advance") from time to time
      during the term hereof and ending on the Maturity Date (as such term is
      defined in the Note) (or such earlier time specified herein in such
      amounts as may be requested by the Borrower in accordance with the
      provisions hereof. All requests for Advances shall be made by the Borrower
      to the Lender in writing (in such form as is reasonably satisfactory to
      the Lender) or by telephone request (which shall be promptly confirmed in
      writing) which specifies the amount of the Advance to be made and the date
      the proceeds of the Advance are requested to be made available to the
      Borrower (a "Loan Request").  Advances under the Line of Credit
      shall be made by direct wire transfer of funds from the Lender to an
      account designated by Borrower in writing to
  Lender.

            

    

    

    
      	
              (10)  

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

            

    

    

    
      	
              A.  

            	
              Minimum Cash Flow to Debt
      Service Ratio.  For each monthly period subsequent to
      March 31, 2009, Borrower will maintain a ratio of cash flow to scheduled
      principal payments plus all accrued interest and related fee on funded
      debt of not less than 1.00 to 1.00 as of the end of each fiscal
      quarter.  For the purposes of this section "cash flow" shall
      mean the sum of net income after taxes, plus depreciation and amortization
      expenses for the period.  "Funded debt" shall mean all
      indebtedness for borrowed money.

            

    

    

    

    
      	
              B.  

            	
              Minimum Tangible Net
      Worth.  Borrower will maintain a tangible net worth of
      not less than $14,400,000 as of the last day of each fiscal
      quarter.  For the purposes of this section, "tangible net worth"
      shall mean the sum of common stock, preferred stock, capital surplus and
      retained earnings less treasury stock and the sum of all intangible assets
      (including, without limitation, good will, franchises, licenses, patents,
      trademarks, trade names, copyrights, service marks and brand
      names).

            

    

    

    
      	
              (11)  

            	
                 Collateral.  As
      security for payment and performance of the Loan and any and all
      other      obligations of Borrower to
      Thermo, direct or contingent, due or to become due, now existing or
      hereafter arising, Borrower shall execute and deliver to Thermo, or cause
      others to execute and deliver to Thermo, the following described
      security  documents:

            

    

    

    
      	
               
      

            	
              A
      security agreement and financing statement by Borrower granting Thermo a
      first lien and security interest in all of Borrower’s inventory (the
      “Collateral”) and all rights and proceeds therefrom.  Except as
      disclosed or otherwise permitted pursuant to Section D (6) hereof or by
      the Security Agreement, Borrower agrees to maintain the Collateral free
      and clear and subject to no other lien or encumbrance, whether voluntary
      or involuntary.  Borrower shall inform Thermo of the existence
      of any involuntary lien, within two (2) business days of Borrower’s first knowledge of
      any involuntary lien or encumbrance affecting the Collateral and take
      action to remove any involuntary lien or encumbrance within fifteen (15)
      days of Borrower’s first knowledge.  Borrower’s failure to
      remove, pay, satisfy or otherwise clear any involuntary lien within sixty
      (60) days of Borrower’s first knowledge thereof will result in a default.
      In the event of such involuntary lien, Thermo reserves the right to
      suspend additional fundings, if any, until such involuntary lien is
      released.

            

    

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    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.

    

      
        	 	
                Lender:

              	
                Thermo
      Credit, LLC

              
	 	 
      	
                639
      Loyola Avenue

              
	 	 
      	
                Suite
      2565

              
	 	 
      	
                New
      Orleans, LA 70113

              
	 	 
      	
                Attn:
      Jack V. Eumont, Jr.

              
	 	 
      	 
      
	 	
                Borrower:

              	
                Telkonet,
      Inc.

              
	 	 
      	
                20374
      Seneca Meadows Parkway

              
	 	 
      	
                Germantown,
      MD 20817

              
	 	 
      	
                Attn.:
      Richard J. Leimbach

              
	 	 
      	 
      
	 	
                copy
      to:

              	
                Telkonet,
      Inc.

              
	 	 
      	
                20374
      Seneca Meadows Parkway

              
	 	 
      	
                Germantown,
      MD 20817

              
	 	 
      	
                Attn.:
      Howard J. Barr

              

      

    

    

    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.

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    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.

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

                                                                                   
Thermo Credit,
LLC

    

    By:                          
______________________________________________

    

    Name:                      ______________________________________________

    

    Title:                      
______________________________________________

    

    

    Telkonet, Inc.

    

    By:                          
______________________________________________

    

    Name:                      ______________________________________________

    

    Title:                 
     ______________________________________________

     

    

    Ethostream, Inc.

    

    By:                      
    ______________________________________________

    

    Name:                      ______________________________________________

    

    Title:            
          ______________________________________________

    

    

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    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.

     

     

     

     

     

     

     

    -7-

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