telkonet_8k-ex1001.htm


    
      
        

      

    

    Exhibit
10.1

    SECURITIES
PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”) is dated as of
November 16, 2009, by and among Telkonet, Inc., a Utah corporation (the “Company”), and each purchaser
identified on the signature pages hereto (each, including its successors and
assigns, a “Purchaser”
and collectively, the “Purchasers”).

     

    RECITALS

     

    A. The
Company and each Purchaser is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule
506 of Regulation D (“Regulation D”) as promulgated
by the United States Securities and Exchange Commission (the “Commission”) under the
Securities Act.

    


    B. Each
Purchaser, severally and not jointly, wishes to purchase, and the Company wishes
to sell, upon the terms and conditions stated in this Agreement, (i) that
aggregate number of shares of the Company’s Series A Preferred Stock, par value
$0.001 per share (the “Series
A Preferred Stock”), set forth below such Purchaser’s name on the
signature page of this Agreement (which aggregate amount for all Purchasers
together shall be 215 shares of Series A Preferred Stock and shall be
collectively referred to herein as the “Shares”) and (ii) warrants,
in substantially the form attached hereto as Exhibit A (the “Warrants”), to acquire up to
that number of shares of Common Stock
equal to the quotient resulting from dividing (A) the product of twenty-five
percent (25%) multiplied by the Subscription Amount for such Purchaser by (B)
the Warrant Exercise Price, rounded up to the nearest whole share (the shares of
Common Stock issuable upon exercise of or otherwise pursuant to the Warrants
collectively are referred to herein as the “Warrant
Shares”).  The Shares shall be convertible into shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”) (the shares of
Common Stock issuable upon conversion of the Shares collectively are referred to
herein as the “Conversion
Shares”), and shall have the rights, preferences and restrictions set
forth in the Articles of Amendment of the Amended and Restated Articles of
Incorporation of the Company, in the form attached hereto as Exhibit B (the “Articles of
Amendment”).

    


    C. In
addition to selling Shares and Warrants as set forth in the foregoing Recital,
the Company wishes to issue as a commitment fee to each of the Purchasers, upon
the terms and conditions stated in this Agreement, an additional Warrant to each
of the Purchasers, to acquire up to that number of Warrant Shares equal to the
quotient resulting from dividing (A) the product of twenty-five percent (25%)
multiplied by the Subscription Amount for such Purchaser by (B) the Warrant
Exercise Price, rounded up to the nearest whole share.

    


    D. The
Shares, the Conversion Shares, the Warrants and the Warrant Shares collectively
are referred to herein as the “Securities”.

    


    E.  Contemporaneously with the
execution and delivery of this Agreement, the parties hereto are executing and
delivering a Registration Rights Agreement, substantially in the form attached
hereto as Exhibit
C (the “Registration
Rights Agreement”), pursuant to which, among other things, the Company
will agree to provide certain registration rights with respect to the Conversion
Shares and the Warrant Shares under the Securities Act and the rules and
regulations promulgated thereunder and applicable state securities
laws.

    


    NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchasers hereby agree as
follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
I.

    DEFINITIONS

     

    1.1 Definitions.  In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms shall have the meanings indicated in this
Section
1.1:

     

    “Action” means any action,
suit, inquiry, notice of violation, proceeding (including any partial proceeding
such as a deposition) or investigation pending or, to the Company’s Knowledge,
threatened in writing against the Company, any Subsidiary or any of their
respective properties or any officer, director or employee of the Company or any
Subsidiary acting in his or her capacity as an officer, director or employee
before or by any federal, state, county, local or foreign court, arbitrator,
governmental or administrative agency, regulatory authority, stock market, stock
exchange or trading facility.

     

    “Additional Option” has the
meaning set forth in Section
4.13.

     

    “Affiliate” means, with
respect to any Person, any other Person that, directly or indirectly through one
or more intermediaries, Controls, is controlled by or is under common control
with such Person, as such terms are used in and construed under Rule 405 under
the Securities Act.  With respect to a Purchaser, any investment fund
or managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.

     

    “Agreement” has the meaning
set forth in the Preamble.

     

    “Articles of Amendment” has
the meaning set forth in the Recitals.

     

    “Board of Directors ” means
the board of directors of the Company.

     

    “Business Day” means any day except Saturday, Sunday, any day which is
a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

     

    “Closing” means the Initial
Closing and the Subsequent Closings unless otherwise specified.

     

    “Commission” has the meaning
set forth in the Recitals.

     

    “Common Stock” has the meaning
set forth in the Recitals, and also includes any other class of securities into
which the Common Stock may hereafter be reclassified or changed
into.

     

    “Common Stock Equivalents”
means any securities of the Company or any Subsidiary which would entitle the
holder thereof to acquire at any time Common Stock, including, without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.

     

    “Company” has the meaning set
forth in the Preamble.

    


    “Company Counsel” means
Goodwin Procter LLP, with offices located at 53 State Street, Boston,
Massachusetts.

     

     

    
      
        
        

      

      
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    “Company Deliverables” has the
meaning set forth in Section
2.2(a).

    


    “Company’s Knowledge” means
with respect to any statement made to the Company’s Knowledge, that the
statement is based upon the actual knowledge of the executive officers of the
Company having responsibility for the matter or matters that are the subject of
the statement.

    


    “Control” (including the terms
“controlling”, “controlled by” or “under common control with”) means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.

     

    “Conversion Shares” has the
meaning set forth in the Recitals.

     

    “Disclosure Materials” has the
meaning set forth in Section
3.1(h).

     

    “Disclosure Schedules” has the
meaning set forth in Section
3.1.

     

    “Effective Date” means the
date on which the initial Registration Statement required by Section 2(a) of the
Registration Rights Agreement is first declared effective by the
Commission.

     

    “Environmental Laws” has the
meaning set forth in Section
3.1(cc).

     

    “Escrow Agent” have the
meanings set forth in Section
2.1(c).

    


    “Escrow Amount” have the
meanings set forth in Section
2.1(c).

     

    “Evaluation Date” has the meaning set forth in Section 3.1(t).

     

    “Exchange Act” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the
rules and regulations promulgated thereunder.

     

    “Exercising Shareholder” has
the meaning set forth in Section
4.13.

     

    “GAAP” means U.S. generally
accepted accounting principles, as applied by the Company.

     

    “General Counsel” means Howard
J. Barr, the General Counsel of the Company.

     

    “Initial Closing” means the
initial closing of the purchase and sale of the Shares and the Warrants pursuant
to this Agreement.

     

    “Initial Closing Date” means the
Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all of the conditions set forth
in Sections
2.1, 2.2, 5.1 and 5.2 hereof are
satisfied or waived, as the case may be, or such other date as the parties may
agree.

     

    “Intellectual Property Rights”
has the meaning set forth in Section
3.1(p).

     

    “Lien” means any lien, charge,
claim, encumbrance, security interest, right of first refusal, preemptive right
or other restrictions of any kind.

     

     

    
      
        
        

      

      
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    “Material Adverse Effect”
means a material adverse effect on the results of operations, assets, prospects,
business or financial condition of the Company and the Subsidiaries, taken as a
whole, except that any of the following, either alone or in combination, shall
not be deemed a Material Adverse Effect: (i) effects caused by changes or
circumstances affecting general market conditions in the U.S. economy or which
are generally applicable to the industry in which the Company operates, provided
that such effects are not borne disproportionately by the Company,
(ii) effects resulting from or relating to the announcement or disclosure
of the sale of the Securities or other transactions contemplated by this
Agreement, or (iii) effects caused by any event, occurrence or condition
resulting from or relating to the taking of any action in accordance with this
Agreement.

     

    “Material Contract” means any
contract of the Company that has been filed or was required to have been filed
as an exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item 601(b)(10)
of Regulation S-K.

    


    “Material Permits” has the
meaning set forth in Section
3.1(n).

     

    “New York Courts” means the
state and federal courts sitting in the City of New York, Borough of
Manhattan.

     

    “Outside Date” means the
November 24, 2009.

     

    “Person” means an individual,
corporation, partnership, limited liability company, trust, business trust,
association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity
not specifically listed herein.

     

    “Principal Trading Market”
means the Trading Market on which the Common Stock is primarily listed on and
quoted for trading.

     

    “Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced or
threatened.

     

    “Proxy Statement” has the
meaning set forth in Section
4.16.

     

    “Purchase Price” means
$5,000  per
share of Series A Preferred Stock.

     

    “Purchaser” or “Purchasers” has the meaning
set forth in the Recitals.

     

    “Purchaser Deliverables” has
the meaning set forth in Section
2.2(b).

     

    “Registration Rights
Agreement” has the meaning set forth in the Recitals.

     

    “Registration Statement” means
a registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Registrable
Securities (as defined in the Registration Rights Agreement).

     

    “Regulation D” has the meaning
set forth in the Recitals.

     

    “Required Approvals” has the
meaning set forth in Section
3.1(e).

     

    “Reverse Stock Split” has the
meaning set forth in Section
4.16.

     

     

    
      
        
        

      

      
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    “Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

     

    “SEC” has the meaning set
forth in Section
4.16.

     

    “SEC Reports” has the meaning
set forth in Section
3.1(h).

     

    “Secretary’s Certificate” has
the meaning set forth in Section
2.2(a)(viii).

     

    “Securities Act” has the
meaning set forth in the Recitals.

     

    “Series A Preferred Stock” has
the meaning set forth in the Recitals.

     

    “Shares” has the meaning set
forth in the Recitals.

     

    “Short Sales” include, without
limitation, (i) all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act, whether or not against the box, and all
types of direct and indirect stock pledges, forward sale contracts, options,
puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule
16a-1(h) under the Exchange Act) and similar arrangements (including on a total
return basis), and (ii) sales and other transactions through non-U.S. broker
dealers or foreign regulated brokers (but shall
not be deemed to include the location and/or reservation of borrowable shares of
Common Stock).

     

    “Stock Certificates” has the
meaning set forth in Section
2.2(a)(ii).

     

    “Subscription Amount” means,
with respect to each Purchaser, the aggregate amount to be paid for the Shares
and the related Warrants purchased hereunder as indicated on such Purchaser’s
signature page to this Agreement next to the heading “Aggregate Purchase Price
(Subscription Amount)” in United States dollars
and in immediately available funds.

     

    “Subscription Right” has the
meaning set forth in Section
4.13.

     

    “Subsequent Closing” and
“Subsequent Closings”
have the meanings set forth in Section
2.1(b).

    “Subsequent Closing Date” means the
Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all of the conditions set forth
in Sections
5A.1 and 5A.2 hereof are
satisfied or waived, as the case may be, or such other date as the parties may
agree which date(s) shall be no later than the Outside Date.

     

    “Subsidiary” means any subsidiary of the Company as set forth on
Schedule
3.1(a), and shall, where applicable,
include any subsidiary of the Company formed or acquired after the date
hereof.

     

    “Trading Affiliate” has the
meaning set forth in Section
3.2(h).

     

    “Trading Day” means (i) a day
on which the Common Stock is listed or quoted and traded on its Principal
Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock
is not listed on a Trading Market (other than the OTC Bulletin Board), a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any
Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported in the “pink sheets” by Pink Sheets LLC (or
any similar organization or agency succeeding to its functions of reporting
prices); provided, that
in the event that the Common Stock is not listed or quoted as set forth in (i),
(ii) and (iii) hereof, then Trading Day shall mean a Business Day.

     

     

    
      
        
        

      

      
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    “Trading Market” means
whichever of the New York Stock Exchange, NYSE Amex, the NASDAQ Global Select
Market, the NASDAQ Global Market, the NASDAQ Capital Market or the OTC Bulletin
Board on which the Common Stock is listed or quoted for trading on the date in
question.

     

    “Transaction Documents” means
this Agreement, the schedules and exhibits attached hereto, the Warrants, the
Registration Rights Agreement and any other documents or agreements explicitly
contemplated hereunder.

     

    “Transfer Agent” means
StockTrans, the current transfer agent of the
Company, with a mailing address of 44 West Lancaster Avenue, Ardmore,
Pennsylvania 19003, and a facsimile number of 610-649-7302, or any
successor transfer agent for the Company.

     

    “Warrants” has the meaning set
forth in the Recitals to this Agreement.

     

    “Warrant Exercise Price” has
the meaning set forth in Section
2.1(a).

     

    “Warrant Shares” has the
meaning set forth in the Recitals.

     

    
      ARTICLE
II.

      PURCHASE
AND SALE

       

      2.1 Closing.

       

      (a) Amount.  Subject
to the terms and conditions set forth in this Agreement, at the Initial Closing
or a Subsequent Closing, as applicable, the Company shall issue and sell to each
Purchaser, and each Purchaser shall, severally and not jointly, purchase from
the Company, such number of shares of Series A Preferred Stock equal to the
quotient resulting from dividing (i) the Subscription Amount for such Purchaser
by (ii) the Purchase Price, rounded down to the nearest whole
Share.  In addition, (A) each Purchaser shall receive a Warrant to
purchase a number of Warrant Shares equal to the quotient resulting from
dividing (I) the product of twenty-five percent (25%) multiplied by the
Subscription Amount for such Purchaser by (II) the Warrant Exercise Price,
rounded up to the nearest whole share, as indicated below such Purchaser’s name
on the signature page to this Agreement and (B) each Purchaser shall receive an
additional Warrant to purchase a number of Warrant Shares equal to the quotient
resulting from dividing (I) the product of twenty-five percent (25%) multiplied
by the Subscription Amount for such Purchaser by (II) the Warrant Exercise
Price, rounded up to the nearest whole share, as indicated below such
Purchaser’s name on the signature page to this Agreement. The Warrants shall
have an exercise price equal to the greater of (i) the closing bid price of a
share of Common Stock on November 12, 2009 or (ii) the volume-weighted average
price of a share of Common Stock measured over the 30-day period immediately
preceding November 12, 2009, per Warrant Share (the “Warrant Exercise
Price”).

       

      (b) Initial Closing; Subsequent
Closings.  The Initial Closing of the purchase and sale of the
Shares shall take place at the offices of the Company Counsel on the Initial
Closing Date or at such other locations or remotely by facsimile transmission or
other electronic means as the parties may mutually agree.  In the
event there is more than one closing (each such closing after the Initial
Closing, a “Subsequent
Closing” and collectively, the “Subsequent Closings”), the
term “Closing” shall apply to the Initial Closing and the Subsequent Closings
unless otherwise specified.

       

       

      
        
          
          

        

        
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      (c) Form of
Payment.  Except as may otherwise be agreed to among the
Company and one or more of the Purchasers, on or prior to the Business Day
immediately prior to the Initial Closing Date or a Subsequent Closing Date, as
applicable, each Purchaser shall wire its Subscription Amount, in United States
dollars and in immediately available funds, to a non-interest bearing escrow
account established by the Company with JPMorgan Chase Bank, N.A. (the “Escrow Agent”) as set forth
on Exhibit I
hereto (the aggregate amounts received being held in escrow by the Escrow Agent
are referred to herein as the “Escrow
Amount”).  On the Initial Closing Date or a Subsequent Closing
Date, as applicable, (i) the Company shall
instruct the Escrow Agent to deliver, in immediately available funds, the
applicable portion of the Escrow Amount to the Company, (ii) the Company shall
irrevocably instruct the Transfer Agent to deliver to each Purchaser one or more
stock certificates, free and clear of all restrictive and other legends (except
as expressly provided in Section 4.1(b) hereof), evidencing the number of Shares such Purchaser
is purchasing as is set forth on such Purchaser’s signature page to this
Agreement next to the heading “Number of Shares to be Acquired”, within three (3) Trading Days after the Initial
Closing or such Subsequent Closing, as applicable, and (iii) the Company shall
deliver to (A) each Purchaser one or more Warrants, free and clear of all
restrictive and other legends (except as expressly provided in Section 4.1(b) hereof), evidencing the number of Warrants such
Purchaser is purchasing as is set forth on such Purchaser’s signature
page to this Agreement next to the heading “Underlying Shares Subject to
Warrant” and (B) each Purchaser one or more
Warrants, free and clear of all restrictive and other legends (except as
expressly provided in Section 4.1(b) hereof), evidencing the number of Warrants as is set
forth on such Purchaser’s signature page to this Agreement next to the
heading “Underlying Shares Subject to Additional Warrant,” within three (3) Trading Days after the Initial Closing
or such Subsequent Closing, as applicable.

       

      2.2 Closing
Deliveries.    (a)  On or prior to the
Initial Closing, the Company shall issue, deliver or cause to be delivered to
each Purchaser the following (the “Company
Deliverables”):

       

      (i) this
Agreement, duly executed by the Company;

       

      (ii)
facsimile copies of one or more stock certificates evidencing the Shares
subscribed for by such Purchaser hereunder, registered in the name of such
Purchaser as set forth on the Stock Certificate Questionnaire included as Exhibit D-2 hereto
(the “Stock
Certificate”), with the original Stock Certificates delivered within
three (3) Trading Days of the Initial Closing or
such Subsequent Closing, as applicable;

       

      (iii) (A)
facsimile copies of one or more Warrants, executed by the Company and registered
in the name of such Purchaser as set forth on the Stock Certificate
Questionnaire included as Exhibit D-2 hereto,
pursuant to which such Purchaser shall have the right to acquire such number of
Warrant Shares equal to the quotient resulting from dividing (I) the product of
twenty-five percent (25%) multiplied by the Subscription Amount for such
Purchaser by (II) the Warrant Exercise Price, rounded up to the nearest whole
share, and (B) facsimile copies of one or more additional Warrants, executed by
the Company and registered in the name of such Purchaser as set forth on the
Stock Certificate Questionnaire included as Exhibit D-2 hereto,
pursuant to which such Purchaser shall have the right to acquire such number of
Warrant Shares equal to the quotient resulting from dividing (I) the product of
twenty-five percent (25%) multiplied by the Subscription Amount for such
Purchaser by (II) the Warrant Exercise Price, rounded up to the nearest whole
share, on the terms set forth therein, with the original Warrants delivered
within three (3) Trading Days of the Initial
Closing or such Subsequent Closing, as applicable;

       

      (iv) a
legal opinion of Company Counsel, dated as of the Initial Closing Date and in
the form attached hereto as Exhibit E, executed
by such counsel and addressed to the Purchasers;

       

       

      
        
          
          

        

        
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      (v) a
legal opinion of General Counsel, dated as of the Initial Closing Date and in
the form attached hereto as Exhibit F, executed
by such counsel and addressed to the Purchasers;

       

      (vi) the
Registration Rights Agreement, duly executed by the Company;

       

      (vii) a
certificate of the Secretary of the Company (the “Secretary’s Certificate”),
dated as of the Initial Closing Date, (a) certifying the resolutions adopted by
the Board of Directors of the Company or a duly authorized committee thereof
approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Securities, (b) certifying the
current versions of the certificate or articles of incorporation, as amended by
the Articles of Amendment, and by-laws of the Company and (c) certifying as to
the signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company, in the form attached hereto as Exhibit
G;

       

      (viii)
the Compliance Certificate referred to in Section
5.1(h);

       

      (ix) a
certificate evidencing the formation and good standing of the Company issued by
the Secretary of State (or comparable office) of the State of Utah, as of a date
within three (3) Business Days of the Initial Closing Date;

       

      (x) a
certificate evidencing the Company’s qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company is qualified to do business as a foreign
corporation, as of a date within three (3) Business Days of the Initial Closing
Date;

       

      (xi) a
copy of the Articles of Amendment, as filed with the Secretary of State (or
comparable office) of the State of Utah; and

       

      (xii)  evidence
of repayment of the Company’s indebtedness to its officers on terms reasonably
satisfactory to the Company and the Purchasers.

       

      (b) On or
prior to the Initial Closing and in the case of 2.2(b)(ii) pursuant to Section
2.1(c), each Purchaser shall deliver or cause to be delivered to the Company the
following (the “Purchaser
Deliverables”):

       

      (i) this
Agreement, duly executed by such Purchaser;

       

      (ii) its
Subscription Amount in United States dollars and in immediately available funds,
in the amount set forth as the “Purchase Price” indicated below such Purchaser’s
name on the applicable signature page hereto under the heading “Aggregate
Purchase Price (Subscription Amount)” by wire transfer to the Escrow Account, as
set forth on Exhibit
I attached hereto; provided, however, in the event
such Purchaser is acquiring Shares and Warrants at a Subsequent Closing, such
Purchaser shall deliver its Subscription Amount on the applicable Subsequent
Closing Date.

       

      (iii) the
Registration Rights Agreement, duly executed by such Purchaser;

       

      (iv) a
fully completed and duly executed Selling Stockholder Questionnaire in the form
attached as Annex B to the Registration Rights Agreement; and

       

       

      
        
          
          

        

        
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      (v) a
fully completed and duly executed Accredited Investor Questionnaire,
satisfactory to the Company, and Stock Certificate Questionnaire in the forms
attached hereto as Exhibits D-1 and
D-2,
respectively.

       

      ARTICLE
III.

      REPRESENTATIONS
AND WARRANTIES

       

      3.1 Representations and
Warranties of the Company.  Except (i) as set forth in the
schedules delivered herewith (the “Disclosure Schedules”), which
Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation made herein to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedules, or (ii) disclosed in the SEC
Reports, the Company hereby represents and warrants as of the date hereof and
the Initial Closing Date (except for the representations and warranties that
speak as of a specific date, which shall be made as of such date), to each of
the Purchasers:

       

      (a) Subsidiaries.  The
Company has no direct or indirect Subsidiaries other than those listed in Schedule 3.1(a)
hereto.  Except as disclosed in Schedule 3.1(a)
hereto, the Company owns, directly or indirectly, all of the capital stock or
comparable equity interests of each Subsidiary free and clear of any and all
Liens, and all the issued and outstanding shares of capital stock or comparable
equity interest of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to subscribe for or
purchase securities.

       

      (b) Organization and
Qualification.  The Company and each of its Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite corporate power and authority to own or
lease and use its properties and assets and to carry on its business as
currently conducted.  The Company and each of its Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
would not have or reasonably be expected to result in a Material Adverse Effect,
and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.

       

      (c) Authorization; Enforcement;
Validity.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents to which it is a party and otherwise to carry out
its obligations hereunder and thereunder.  The Company’s execution and
delivery of each of the Transaction Documents to which it is a party and the
consummation by it of the transactions contemplated hereby and thereby
(including, but not limited to, the sale and delivery of the Shares and the
Warrants and the reservation for issuance and the  subsequent issuance
of the Conversion Shares upon the conversion of the Shares and the Warrant
Shares upon exercise of the Warrants) have been duly authorized by all necessary
corporate action on the part of the Company, and no further corporate action is
required by the Company, its Board of Directors or its stockholders in
connection therewith other than in connection with the Required
Approvals.  Each of the Transaction Documents to which it is a party
has been (or upon delivery will have been) duly executed by the Company and is,
or when delivered in accordance with the terms hereof, will constitute the
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except (i) as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      (d) No
Conflicts.  The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party and the consummation
by the Company of the transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Shares and Warrants and the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) do
not and will not (i) conflict with or violate any provisions of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or otherwise
result in a violation of the organizational documents of the Company, (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would result in a default) under, result in the creation of any
Lien upon any of the properties or assets of the Company or any Subsidiary or
give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any Material
Contract, or (iii) subject to the Required Approvals, conflict with or result in
a violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations and the rules and regulations, assuming the correctness of the
representations and warranties made by the Purchasers herein, of any
self-regulatory organization to which the Company or its securities are subject,
including all applicable Trading Markets), or by which any property or asset of
the Company or a Subsidiary is bound or affected, except in the case of clauses
(ii) and (iii) such as would not, individually or in the aggregate,
have  or  reasonably be expected to result in a Material
Adverse Effect.

       

      (e) Filings, Consents and
Approvals.  Neither the Company nor any of its Subsidiaries is
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents (including the issuance of the Securities), other than (i) the filing
with the Commission of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, (ii) filings required by
applicable state securities laws, (iii) the filing of a Notice of Sale of
Securities on Form D with the Commission under Regulation D of the Securities
Act, (iv) the filing of any requisite notices and/or application(s) to the
Principal Trading Market for the issuance and sale of the Securities and the
listing of the Conversion Shares and the Warrant Shares for trading or
quotation, as the case may be, thereon in the time and manner required thereby,
(v) the filings required in accordance with Section 4.5 of this
Agreement and (vi) those that have been made or obtained prior to the date of
this Agreement (collectively, the “Required
Approvals”).

       

      (f) Issuance of the
Securities.  The Shares have been duly authorized and, when
issued and paid for in accordance with the terms of the Transaction Documents,
will be duly and validly issued, fully paid and nonassessable and free and clear
of all Liens, other than restrictions on transfer provided for in the
Transaction Documents or imposed by applicable securities laws, and shall not be
subject to preemptive or similar rights.  The Conversion Shares
issuable upon conversion of the Shares have been duly authorized and, when
issued and paid for in accordance with the terms of the Transaction Documents
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens, other than restrictions on transfer provided for in the Transaction
Documents or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights of stockholders.  The Warrants have been
duly authorized and, when issued and paid for in accordance with the terms of
the Transaction Documents, will be duly and validly issued, free and clear of
all Liens, other than restrictions on transfer provided for in the Transaction
Documents or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights of stockholders. The Warrant Shares issuable upon
exercise of the Warrants have been duly authorized and, when issued and paid for
in accordance with the terms of the Transaction Documents and the Warrants will
be duly and validly issued, fully paid and nonassessable, free and clear of all
Liens, other than restrictions on transfer provided for in the Transaction
Documents or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights of stockholders.

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (g) Capitalization. The number of shares
and type of all authorized, issued and outstanding capital stock, options and
other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) is set forth
in Schedule
3.1(g) hereto.  The Company
has not issued any capital stock since the date of its most recently filed SEC
Report other than to reflect stock option and warrant exercises that do not,
individually or in the aggregate, have a material affect on the issued and
outstanding capital stock, options and other securities.   No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents that have not been
effectively waived as of the Initial Closing Date. Except as set forth in Schedule 3.1(g)
hereto or a result of the purchase and sale of the Shares and Warrants, there
are no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. The issuance and sale of the Shares and Warrants
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the Company’s Knowledge, between or among any of the
Company’s stockholders.

       

      (h) SEC Reports; Disclosure
Materials.  The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the date hereof (or such shorter period as the Company was
required by law or regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the “SEC Reports”, and the SEC
Reports, together with the Disclosure Schedules, being collectively referred to
as the “Disclosure
Materials”) on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Reports prior to the expiration of any
such extension, except where the failure to file
on a timely basis would not have or reasonably be expected to result in a
Material Adverse Effect (including, for this purpose only, any failure to
qualify to register the Conversion Shares and Warrant Shares for resale on Form
S-3 or which would prevent any Purchaser from using Rule 144 to resell any
Securities).  As of their respective filing dates, or to the
extent corrected by a subsequent restatement, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule
144(i) under the Securities Act.  Each of the Material
Contracts to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any of its Subsidiaries are subject has
been filed as an exhibit to the SEC Reports.

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (i) Financial
Statements. The financial statements of the Company included in the
SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing (or to the extent corrected by a
subsequent restatement).  Such financial statements have been prepared
in accordance with GAAP applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries taken as a
whole as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial year-end audit adjustments.

       

      (j) Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
a subsequent SEC Report filed prior to the date
hereof, (i) there have been no events, occurrences or developments that
have had or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect, (ii) the Company has not incurred any
material liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered materially its method of
accounting or the manner in which it keeps its accounting books and records,
(iv) the Company has not declared or made any dividend or distribution of cash
or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock (other than in
connection with repurchases of unvested stock issued to employees of the
Company), and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except Common Stock issued in the ordinary
course as dividends on outstanding preferred stock or issued pursuant to
existing Company stock option or stock purchase plans or executive and director
compensation arrangements disclosed in the SEC Reports. Except for the issuance of the Shares and Warrants
contemplated by this Agreement, no event, liability or development has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed at least one (1)
Trading Day prior to the date that this representation is
made.

       

      (k) Litigation.  Except
as set forth in Schedule 3.1(k)
hereto, there is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) except as specifically disclosed in the SEC Reports, would,
if there were an unfavorable decision, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.

       

      (l) Employment
Matters.  No material labor dispute exists or, to the Company’s
Knowledge, is imminent with respect to any of the employees of the Company which
would have or reasonably be expected to result in a Material Adverse
Effect.  None of the Company’s or any Subsidiary’s employees is a
member of a union that relates to such employee’s relationship with the Company,
and neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and each Subsidiary believes that its
relationship with its employees is good.

       

      (m) Compliance.  Except
as set forth in Schedule 3.1(m)
hereto, neither the Company nor any of its Subsidiaries (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any of its Subsidiaries under), nor has the Company or any of its
Subsidiaries received written notice of a claim that it is in default under or
that it is in violation of, any Material Contract (whether or not such default
or violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body having jurisdiction over the Company or its
properties or assets, or (iii) is in violation of, or in receipt of written
notice that it is in violation of, any statute, rule or regulation of any
governmental authority applicable to the Company, except in each case as would
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.

       

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (n) Regulatory Permits.
The Company and each of its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct its respective business as
currently conducted and as described in the SEC Reports, except where the
failure to possess such permits, individually or in the aggregate, has not and
would not have or reasonably be expected to result in a Material Adverse Effect
(“Material Permits”),
and neither the Company nor any of its Subsidiaries has received any notice of
Proceedings relating to the revocation or modification of any such Material
Permits.

       

      (o) Title to
Assets.  All real property and facilities held under lease by
the Company and any of its Subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

       

      (p) Patents and
Trademarks.  To the Company’s Knowledge, the Company and the
Subsidiaries own, possess, license or have other rights to use, all patents,
patent applications, trade and service marks, trade and service mark
applications and registrations, trade names, trade secrets, inventions,
copyrights, licenses, technology, know-how and other intellectual property
rights and similar rights described in the SEC Reports as necessary or material
for use in connection with their respective businesses and which the failure to
so have would have or reasonably be expected to result in a Material Adverse
Effect (collectively, the “ Intellectual Property
Rights”).  Neither the Company nor any Subsidiary has received
a notice (written or otherwise) that any of the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes upon
the rights of any Person.  Except as set forth in Schedule 3.1(p)
hereto, there is no pending or, to the Company’s Knowledge, threatened action,
suit, proceeding or claim by any Person that the Company’s business as now
conducted infringes or otherwise violates any patent, trademark, copyright,
trade secret or other proprietary rights of another.  To the Company’s
Knowledge, there is no existing infringement by another Person of any of the
Intellectual Property Rights that would have or would reasonably be expected to
have a Material Adverse Effect. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

       

      (q) Insurance.  The
Company and each of the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
the Company believes to be prudent and customary in the businesses and locations
in which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage.  Neither the
Company nor any of its Subsidiaries has received any notice of cancellation of
any such insurance, nor, to the Company’s Knowledge, will it or any Subsidiary
be unable to renew their respective existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a
significant  increase  in cost.

       

      (r) Transactions With Affiliates
and Employees.  Except as set
forth in the SEC Reports, none of the officers or directors of the Company and,
to the Company’s Knowledge, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), that would be required to be
disclosed pursuant to Item 404 of Regulation S-K promulgated under the
Securities Act.

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      (s) Internal Accounting
Controls.  The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any
differences.

       

      (t) Sarbanes-Oxley; Disclosure
Controls.  Except as set forth in the SEC Reports, the Company
is in compliance in all material respects with all of the provisions of the
Sarbanes-Oxley Act of 2002 which are applicable to it as of the Initial Closing
Date. The Company has established disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) for the Company and designed such disclosure controls
and procedures to ensure that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms. The Company’s certifying officers have evaluated
the effectiveness of the Company’s disclosure controls and procedures as of the
end of the period covered by the Company’s most recently filed periodic report
under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the Company’s internal control over financial reporting
(as such term is defined in the Exchange Act) that has materially affected, or
is reasonably likely to materially affect, the Company’s internal control over
financial reporting.

       

      (u) Certain
Fees.   Other than the fees and expenses set forth in
Section 6.1
hereof or as set forth in Schedule 3.1(u)
hereto, no person or entity will have, as a result
of the transactions contemplated by this Agreement, any valid right, interest or
claim against or upon the Company or a Purchaser for any commission, fee or
other compensation pursuant to any agreement, arrangement or understanding
entered into by or on behalf of the Company. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this paragraph (u)
that may be due in connection with the transactions contemplated by the
Transaction Documents.  The Company shall indemnify, pay, and hold
each Purchaser harmless against, any liability, loss or expense (including,
without limitation, attorneys’ fees and out-of-pocket expenses) arising in
connection with any such right, interest or claim.

       

      (v) Private Placement.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section
3.2 of this Agreement and the accuracy of the information disclosed in
the Accredited Investor Questionnaires provided by the Purchasers, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers under the Transaction
Documents. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.


       

      (w) Investment
Company  The Company is not, and
immediately after receipt of payment for the Shares and Warrants, will not be or
be an “investment company” within the meaning of the Investment Company Act of
1940, as amended. The Company shall conduct its business in a manner so that it
will not become subject to the Investment Company Act of 1940, as
amended.

       

      (x) Registration
Rights.  Other than each of the Purchasers or as set forth in
Schedule 3.1(x)
hereto, no Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company other than those
securities which are currently registered on an effective registration statement
on file with the Commission.

       

       

      
        
          
          

        

        
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      (y) Listing and Maintenance
Requirements.  Other than as set forth in Schedule 3.1(y)
hereto, the Company’s Common Stock is registered pursuant to Section 12(b) or
12(g) of the Exchange Act, and the Company has taken no action designed to
terminate the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration.  Other than as set forth in Schedule 3.1(y)
hereto, the Company has not, in the twelve (12) months preceding the date
hereof, received written notice from any Trading Market on which the Common
Stock is listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Trading
Market.  Other than as set forth in Schedule 3.1(y)
hereto, the Company is in compliance with all
listing and maintenance requirements of the Principal Trading Market on the date
hereof.

       

      (z) Application of Takeover
Protections; Rights Agreements.  The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's charter documents or the laws of its
state of incorporation that is or could reasonably be expected to become
applicable to any of the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including, without limitation, the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.

       

      (aa)
No Integrated
Offering.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, none of
the Company, its Subsidiaries nor, to the Company’s Knowledge, any of its
Affiliates or any Person acting on its behalf has, directly or indirectly, at
any time within the past six (6) months, made any offers or sales of any Company
security or solicited any offers to buy any security under circumstances that
would (i) eliminate the availability of the exemption from registration under
Regulation D under the Securities Act in connection with the offer and sale by
the Company of the Securities as contemplated hereby or (ii) cause the offering
of the Securities pursuant to the Transaction Documents to be integrated with
prior offerings by the Company for purposes of any applicable law, regulation or
stockholder approval provisions, including, without limitation, under the rules
and regulations of any Trading Market on which any of the securities of the
Company are listed or designated.

       

      (bb)
Tax
Matters.  Other than as set forth in Schedule 3.1(bb)
hereto, the Company and each of its Subsidiaries (i) has accurately and timely
prepared and filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith, with
respect to which adequate reserves have been set aside on the books of the
Company and (iii) has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply, except, in the case of clauses (i) and
(ii) above, where the failure to so pay or file any such tax, assessment, charge
or return would not have or reasonably be expected to result in a Material
Adverse Effect.  There are no unpaid taxes in any material amount
claimed to be due by the Company or any of its Subsidiaries by the taxing
authority of any jurisdiction.

       

      (cc)
Environmental
Matters.  To the Company’s Knowledge, neither the Company nor
any of its Subsidiaries (i) is in violation of any statute, rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), (ii)
owns or operates any real property contaminated with any substance that is in
violation of any Environmental Laws, (iii) is liable for any off-site disposal
or contamination pursuant to any Environmental Laws, or (iv) is subject to any
claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or would have, individually or in the aggregate, a
Material Adverse Effect.

       

       

      
        
          
          

        

        
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      (dd)
No General
Solicitation. Neither the Company nor, to
the Company’s Knowledge, any person acting on behalf of the Company has offered
or sold any of the Securities by any form of general solicitation or general
advertising.

       

      (ee)
Acknowledgment
Regarding Purchasers’ Purchase of Securities.  The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby and thereby.  The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that
the Company’s decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.

       

      (ff)
Regulation M
Compliance.  The Company has not, and to the Company’s Knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities or (iii) paid or agreed to pay to
any Person any compensation for soliciting another to purchase any other
securities of the Company.

       

      (gg)
No Additional
Agreements.  The Company does not have any agreement or
understanding with any Purchaser with respect to the transactions contemplated
by the Transaction Documents other than as specified in the Transaction
Documents.

       

      (hh)
Use of Form
S-3.  The Company meets the registration and transaction
requirements for use of Form S-3 for the registration of the Conversion Shares
and the Warrant Shares for resale by the Purchasers.

       

      3.2 Representations and
Warranties of the Purchasers.  Each Purchaser hereby, for
itself and for no other Purchaser, represents and warrants as of the date hereof
and as of the Initial Closing Date to the Company as follows:

       

      (a) Organization;
Authority.  Such Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by such Purchaser and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or, if such Purchaser is
not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Purchaser.  Each
Transaction document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

       

       

      
        
          
          

        

        
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      (b) No
Conflicts.  The execution, delivery and performance by such
Purchaser of this Agreement and the Registration Rights Agreement and the
consummation by such Purchaser of the transactions contemplated hereby and
thereby will not (i) result in a violation of the organizational documents of
such Purchaser, (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Purchaser is a party, or
(iii) result in a violation of any law, rule, regulation, order,
judgment  or decree (including federal and state securities laws)
applicable to such Purchaser, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Purchaser to perform its obligations
hereunder.

       

      (c) Investment
Intent.  Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Shares and, upon
conversion of the Shares, will acquire the Conversion Shares issuable upon
conversion thereof, and Warrants and, upon exercise of the Warrants, will
acquire the Warrant Shares issuable upon exercise thereof as principal for its
own account and not with a view to, or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities laws, provided, however, that by
making the representations herein, such Purchaser does not agree to hold any of
the Securities for any minimum period of time and reserves the right, subject to
the provisions of this Agreement and the Registration Rights Agreement, at all
times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act or
under an exemption from such registration and in compliance with applicable
federal and state securities laws.  Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. Such Purchaser does
not presently have any agreement, plan or understanding, directly or indirectly,
with any Person to distribute or effect any distribution of any of the
Securities (or any securities which are derivatives thereof) to or through any
person or entity; such Purchaser is not a registered broker-dealer under Section
15 of the Exchange Act or an entity engaged in a business that would require it
to be so registered as a broker-dealer.

       

      (d) Purchaser
Status.  At the time such Purchaser was offered the Shares and
Warrants, it was, and at the date hereof it is, and on each date on which it
exercises the Warrants it will be, an “accredited investor” as defined in Rule
501(a) under the Securities Act.

       

      (e) General
Solicitation.  Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general advertisement.

       

      (f) Experience of Such
Purchaser.  Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.  Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment.

       

       

      
        
          
          

        

        
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      (g) Access to
Information.  Such Purchaser acknowledges that it has had the
opportunity to review the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.  Such Purchaser has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed decision with respect to its acquisition of the
Securities.

       

      (h) Certain Trading
Activities.  Other than with respect to the transactions
contemplated herein, since the time that such Purchaser was first contacted by
the Company or any other Person regarding the transactions contemplated hereby,
neither the Purchaser nor any Affiliate of such Purchaser which (x) had
knowledge of the transactions contemplated hereby, (y) has or shares discretion
relating to such Purchaser’s investments or trading or information concerning
such Purchaser’s investments, including in respect of the Securities, and (z) is
subject to such Purchaser’s review or input concerning such Affiliate’s
investments or trading (collectively, “Trading Affiliates”) has
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Purchaser or Trading Affiliate, effected or agreed
to effect any purchases or sales of the securities of the Company (including,
without limitation, any Short Sales involving the Company’s securities).
Notwithstanding the foregoing, in the case of a Purchaser and/or Trading
Affiliate that is, individually or collectively, a multi-managed investment bank
or vehicle whereby separate portfolio managers manage separate portions of such
Purchaser's or Trading Affiliate’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's or Trading Affiliate’s assets, the
representation set forth above shall apply only with respect to the portion of
assets managed by the portfolio manager that have knowledge about the financing
transaction contemplated by this Agreement.  Other than to other
Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein
shall constitute a representation or warranty, or preclude any actions, with
respect to the identification of the availability of, or securing of, available
shares to borrow in order to effect short sales or similar transactions in the
future.

       

      (i) Brokers and
Finders.  No Person will have, as a result of the transactions
contemplated by this Agreement, any valid right, interest or claim against or
upon the Company or any Purchaser for any commission, fee or other compensation
pursuant to any agreement, arrangement or understanding entered into by or on
behalf of the Purchaser.

       

      (j) Independent Investment
Decision.  Such Purchaser has independently evaluated the
merits of its decision to purchase Securities pursuant to the Transaction
Documents, and such Purchaser confirms that it has not relied on the advice of
any other Purchaser’s business and/or legal counsel in making such
decision.  Such Purchaser understands that nothing in this Agreement
or any other materials presented by or on behalf of the Company to the Purchaser
in connection with the purchase of the Securities constitutes legal, tax or
investment advice.  Such Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Securities.

       

       

      
        
          
          

        

        
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      (k) Reliance on
Exemptions.  Such Purchaser understands that the Securities
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.

       

      (l) No Governmental
Review.  Such Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

       

      (m) Regulation M. Such
Purchaser is aware that the anti-manipulation rules of Regulation M under the
Exchange Act may apply to sales of Common Stock and other activities with
respect to the Common Stock by the Purchasers.

       

      (n) Residency.  Such
Purchaser’s residence (if an individual) or offices in which its investment
decision with respect to the Securities was made (if an entity) are located at
the address immediately below such Purchaser’s name on its signature page
hereto.

       

      The
Company and each of the Purchasers acknowledge and agree that no party to this
Agreement has made or makes any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
this Article
III and the Transaction Documents.

       

      ARTICLE
IV.

      OTHER
AGREEMENTS OF THE PARTIES

       

      4.1 Transfer
Restrictions.

       

      (a) Compliance with
Laws.  Notwithstanding any other provision of this Article IV, each
Purchaser covenants that the Securities may be disposed of only pursuant to an
effective registration statement under, and in compliance with the requirements
of, the Securities Act, or pursuant to an available exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act,
and in compliance with any applicable state and federal securities
laws.  In connection with any transfer of the Securities other than
(i) pursuant to an effective registration statement, (ii) to the
Company  or (iii) pursuant to Rule 144 (provided that the Purchaser
provides the Company with reasonable assurances (in the form of seller and, if
applicable, broker representation letters) that the securities may be sold
pursuant to such rule), the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act.  As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and the Registration
Rights Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement with respect to such transferred
Securities.

       

      (b) Legends.  Certificates
evidencing the Securities shall bear any legend as required by the “blue sky”
laws of any state and a restrictive legend in substantially the following form,
until such time as they are not required under Section
4.1(c):

       

      [NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED] UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.  NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.

       

       

      
        
          
          

        

        
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      (c) Removal of
Legends.  The legend set forth in Section 4.1(b) above
shall be removed and the Company shall issue a certificate without such legend
or any other legend to the holder of the applicable Securities upon which it is
stamped, if (i) such Securities are registered for resale under the Securities
Act (provided that, if the Purchaser is selling pursuant to the effective
registration statement registering the Securities for resale, the
Purchaser agrees to only sell such Securities during such time that such registration statement is
effective and not withdrawn or suspended, and only as
permitted by such registration statement), (ii) such Securities are sold or
transferred pursuant to Rule 144 (if the transferor is not an Affiliate of the
Company), or (iii) such Securities are eligible for sale under Rule 144, without
the requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such securities and without volume or
manner-of-sale restrictions.

      


      (d) Acknowledgement.  Each
Purchaser hereunder acknowledges its primary responsibilities under the
Securities Act and accordingly will not sell or otherwise transfer the
Securities or any interest therein without complying with the requirements of
the Securities Act.  While the Registration Statement remains
effective, each Purchaser hereunder may sell the Conversion Shares and Warrant
Shares in accordance with the plan of distribution contained in the Registration
Statement and if it does so it will comply therewith and with the related
prospectus delivery requirements unless an exemption therefrom is
available.  Each Purchaser, severally and not jointly with the other
Purchasers, agrees that if it is notified by the Company in writing at any time
that the Registration Statement registering the resale of the Conversion Shares
or the Warrant Shares is not effective or that the prospectus included in such
Registration Statement no longer complies with the requirements of Section 10 of
the Securities Act, the Purchaser will refrain from selling such Conversion
Shares and Warrant Shares until such time as the Purchaser is notified by the
Company that such Registration Statement is effective or such prospectus is
compliant with Section 10 of the Securities Act, unless such Purchaser is able
to, and does, sell such Conversion Shares or Warrant Shares pursuant to an
available exemption from the registration requirements of Section 5 of the
Securities Act.  Both the Company and its Transfer Agent, and their
respective directors, officers, employees and agents, may rely on this Section 4.1(d) and
each Purchaser hereunder will indemnify and hold harmless each of such persons
from any breaches or violations of this Section
4.1(d).

      


      4.2      Reservation of Common
Stock.  The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance from and after
the Initial Closing Date, the number of shares of Common Stock issuable upon
conversion of the Shares and exercise of the Warrants issued at the Closing
(without taking into account any limitations on exercise of the Warrants set
forth in the Warrants).

       

       

      
        
          
          

        

        
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      4.3 Furnishing of
Information.  In order to enable the Purchasers to sell the
Securities under Rule 144, for a period of twelve (12) months from the Initial
Closing, the Company shall use its commercially reasonable efforts to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act. During such twelve (12) month period, if
the Company is not required to file reports pursuant to the Exchange Act, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities under Rule 144.

       

      4.4 Integration.  The
Company shall not, and shall use its commercially reasonable efforts to ensure
that no Affiliate of the Company shall, sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that will be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers, or that will be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market such that it would require stockholder
approval prior to the closing of such other transaction unless stockholder
approval is obtained before the closing of such subsequent
transaction.

       

      4.5 Securities Laws Disclosure;
Publicity.  By 9:00 A.M., New York City time, on the Trading
Day immediately following the date hereof, the Company shall issue a press
release disclosing all material terms of the transactions contemplated
hereby.  On or before 9:00 A.M., New York City time, on the second
(2nd)
Trading Day immediately following the execution of this Agreement, the Company
will file a Current Report on Form 8-K with the Commission describing the terms
of the Transaction Documents (and including as exhibits to such Current Report
on Form 8-K the material Transaction Documents (including, without limitation,
this Agreement, the form of Warrant and the Registration Rights
Agreement)).  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser or an Affiliate of any Purchaser, or
include the name of any Purchaser or an Affiliate of any Purchaser in any press
release or filing with the Commission (other than the Registration Statement) or
any regulatory agency or Trading Market, without the prior written consent of
such Purchaser, except (i) as required by federal securities law in connection
with (A) any registration statement contemplated by the Registration Rights
Agreement and (B) the filing of final Transaction Documents (including signature
pages thereto) with the Commission and (ii) to the extent such disclosure is
required by law, request of the Staff of the Commission or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
written notice of such disclosure permitted under this subclause
(ii).  Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are required to be publicly disclosed by the Company as described
in this Section
4.5, such Purchaser will maintain the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction).

       

      4.6 Use of
Proceeds.  The Company shall use the net proceeds from the sale
of the Shares and Warrants hereunder for working capital and general corporate
purposes and satisfaction of the Company’s debt as set forth in Section
2.2(a)(xii).

       

      4.7 Principal Trading Market
Listing.  In the time and manner required by the Principal
Trading Market, the Company shall prepare and file with such Principal Trading
Market an additional shares listing application covering all of the Conversion
Shares and Warrant Shares and shall use its commercially reasonable efforts to
take all steps necessary to cause all of the Conversion Shares and Warrant
Shares to be approved for listing on the Principal Trading Market as promptly as
possible thereafter.     

       

       

      
        
          
          

        

        
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      4.8 Form D; Blue
Sky.  The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon the written request of any Purchaser.  The
Company, on or before the Initial Closing Date, shall take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption
for or to qualify the Securities for sale to the Purchasers under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain
an exemption from such qualification) and shall provide evidence of such actions
promptly upon the written request of any Purchaser.

       

      4.9 Delivery of Shares and
Warrants After Closing. The Company shall deliver, or cause to be
delivered, the respective Shares and Warrants purchased by each Purchaser to
such Purchaser within three (3) Trading Days of the Initial Closing or such
Subsequent Closing, as applicable. 

       

      4.10 Short Sales and
Confidentiality After The Date Hereof.  Each Purchaser shall not, and shall cause
its Trading Affiliates not to, engage, directly or indirectly, in any Net Short
Sales (as hereinafter defined) from the period commencing on the date hereof and
ending on the earliest of (x) the Effective Date of the initial Registration
Statement, (y) the twenty-four (24) month anniversary of the Initial Closing
Date or (z) the date that such Purchaser no longer holds any
Securities.  For purposes of this Section 4.10, a “Net Short Sale” by any Purchaser shall mean a sale of Common Stock by
such Purchaser that is marked as a short sale and that is made at a time when
there is no equivalent offsetting long position in Common Stock held by such
Purchaser.  For purposes of determining whether there is an equivalent
offsetting position in Common Stock held by the Purchaser, Warrant Shares that
have not yet been issued pursuant to the exercise of Warrants shall be deemed to
be held long by the Purchaser, and the amount of shares of Common Stock held in
a long position shall be all Conversion Shares and unexercised Warrant Shares
(ignoring any exercise limitations included therein) issuable to such Purchaser
on such date, plus any shares of Common Stock or Common Stock Equivalents
otherwise then held by such Purchaser.  Notwithstanding the foregoing,
in the event that a Purchaser is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser's assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall apply only with respect to the
portion of assets managed by the portfolio manager that have knowledge about the
financing transaction contemplated by this Agreement.  Each
Purchaser understands and acknowledges, severally
and not jointly with any other Purchaser, that the Commission currently takes
the position that covering a short position established prior to effectiveness
of a resale registration statement with shares included in such registration
statement would be a violation of Section 5 of the Securities Act, as set forth
in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance.

       

      4.11
Provisions Regarding
Board of Directors.  The Company shall take all action
necessary to ensure that, as of the Initial Closing, (i) the Board of Directors
will include (a) Jason Tienor, Chief Executive Officer of the Company, (b)
Warren V. Musser, (c) Anthony J. Paoni and (d) Thomas C. Lynch, (ii) a
Nominating Committee of the Board of Directors to be chaired by Anthony J. Paoni
shall be established and (iii) if requested by the Nominating Committee of the
Board of Directors, Warren V. Musser and Thomas C. Lynch will not stand for
reelection at the annual meeting of the stockholders of the Company immediately
following the Initial Closing and will resign prior to such
meeting.

       

      4.12
Reserved.

       

       

      
        
          
          

        

        
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      4.13
Rights
Offering.  As soon as practicable following the Initial Closing
Date, subject to approval of the Board of Directors, the Company shall
distribute, at no charge, one (1) non-transferable subscription right (the “Subscription Right”) for
each share of Common Stock owned by its shareholders (other than the Purchasers
and participants in the Company’s 401(k) Plan).  Each Subscription
Right will entitle the holder thereof to purchase the number of equity
securities of the Company mutually determined by the Board of Directors and the
Purchasers at the price and terms mutually determined by the Board of Directors
and the Purchasers.  Each shareholder who fully exercises their
Subscription Right (each, an “Exercising Shareholder”)
shall, subject to the provisions of this Section 4.13, have an
additional option (the “Additional Option”) to
purchase all or any part of the balance of any such remaining unsubscribed
equity securities of the Company.  In the event there are two or more
such Exercising Shareholders that choose to exercise the Additional Option for a
total number of remaining equity securities of the Company in excess of the
number available, the remaining equity securities of the Company available for
purchase under this Section 4.13 shall be
allocated to such Exercising Shareholders pro rata based on the number of equity
securities of the Company such Exercising Shareholders have elected to purchase
pursuant to their Subscription Right (without giving effect to any equity
securities of the Company that any such Exercising Shareholders has elected to
purchase pursuant to the Additional Option).  The Board of Directors
will determine whether it is desirable to enter into a Backstop Agreement with a
third party in connection with this Section
4.13.

       

      4.14
Option
Exchange.  As soon as practicable following the closing of the
transactions contemplated by Section 4.13, the
Company shall offer its current employees the ability to exchange their current
“out of the money options” in the Company for new options of the Company on
terms reasonably satisfactory to the Company.

       

      4.15
Employment
Agreements.  As soon as practicable following the closing of
the transactions contemplated by Section 4.13, the
Company shall enter into employment agreements with the Company’s key employees
on terms reasonably satisfactory to the Company.

       

      4.16
Reverse Stock Split of
the Issued and Outstanding Common Stock.  As soon as
practicable following the Initial Closing Date, subject to the approval of the
Board of Directors, the Company will prepare and file with the United States
Securities Exchange Commission (the “SEC”), a preliminary proxy
statement (as amended, the “Proxy Statement”) relating to
a reverse stock split of the issued and outstanding Common Stock (the “Reverse Stock
Split”).  The Company will respond to any comments of the SEC
and use its commercially reasonable efforts to mail the Proxy Statement to its
stockholders at the earliest practicable time. As soon as practicable following
its approval by the SEC, the Company shall distribute the Proxy Statement to its
stockholders and, pursuant thereto, shall hold a special meeting of its
stockholders, for the purpose of voting on the Reverse Stock
Split.  Such efforts will include, without limitation, the
preparation, delivery and dissemination of the Proxy Statement, prepared in
accordance with the Exchange Act, to the stockholders of the Company soliciting
their vote in favor of the Reverse Stock Split and containing advice that the
Board of Directors recommends that the stockholders approve the Reverse Stock
Split.

       

       

      
        
          
          

        

        
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ARTICLE
V.

      CONDITIONS
PRECEDENT TO THE INITIAL CLOSING

      


      5.1 Conditions Precedent to the
Obligations of the Purchasers to Purchase Securities.  The
obligation of each Purchaser to acquire Shares and Warrants at the Initial
Closing is subject to the fulfillment to such Purchaser’s satisfaction, on or
prior to the Initial Closing Date, of each of the following conditions, any of
which may be waived by such Purchaser (as to itself only):

       

      (a) Representations and
Warranties.  The representations and warranties of the Company
contained herein shall be true and correct in all material respects (except for
those representations and warranties which are qualified as to materiality, in
which case such representations and warranties shall be true and correct in all
respects) as of the date when made and as of the Initial Closing Date, as though
made on and as of such date, except for such representations and warranties that
speak as of a specific date.

       

      (b) Performance.  The
Company shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by it at or prior to the
Initial Closing.

       

      (c) No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.

       

      (d) Consents.  The
Company shall have obtained in a timely fashion any and all consents, permits,
approvals, registrations and waivers necessary for consummation of the purchase
and sale of the Securities (including all Required Approvals), all of which
shall be and remain so long as necessary in full force and effect.

       

      (e) Adverse
Changes.  Since the date of execution of this Agreement, no
event or series of events shall have occurred that has had or would reasonably
be expected to have a Material Adverse Effect.

       

      (f) Company
Deliverables.  The Company shall have delivered the Company
Deliverables in accordance with Section
2.2(a).

       

      (g) Compliance
Certificate.  The Company shall have delivered to each
Purchaser a certificate, dated as of the Initial Closing Date and signed by its
Chief Executive Officer or its Chief Financial Officer, certifying to the
fulfillment of the conditions specified in Sections 5.1(a) and
(b) in the form
attached hereto as Exhibit
H.

       

      (h) Termination.  This
Agreement shall not have been terminated as to such Purchaser in accordance with
Section 6.16
herein.

       

      5.2 Conditions Precedent to the
Obligations of the Company to sell Securities.  The Company’s
obligation to sell and issue the Shares and Warrants at the Initial Closing to
the Purchasers is subject to the fulfillment to the satisfaction of the Company
on or prior to the Initial Closing Date of the following conditions, any of
which may be waived by the Company:

       

      (a) Representations and
Warranties.  The representations and warranties made by the
Purchasers in Section
3.2 hereof shall be true and correct in all material respects (except for
those representations and warranties which are qualified as to materiality, in
which case such representations and warranties shall be true and correct in all
respects) as of the date when made, and as of the Initial Closing Date as though
made on and as of such date, except for representations and warranties that
speak as of a specific date.

       

       

      
        
          
          

        

        
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      (b) Performance.  Such
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Purchaser at or
prior to the Initial Closing Date.

       

      (c) No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.

       

      (d) Consents.  The
Company shall have obtained in a timely fashion any and all consents, permits,
approvals, registrations and waivers necessary for consummation of the purchase
and sale of the Securities, all of which shall be and remain so long as
necessary in full force and effect.

       

      (e) Purchasers
Deliverables.  In the case of each Purchaser acquiring Shares
and Warrants at the Initial Closing, such Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section
2.2(b).  In the case of each Purchaser acquiring Shares and
Warrants at a Subsequent Closing, such Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b) (other
than its Subscription Amount pursuant to Section 2.2(b)(ii)
which will be delivered on the applicable Subsequent Closing Date).

       

      (f) Termination. This
Agreement shall not have been terminated as to such Purchaser in accordance with
Section 6.16
herein.

       

       

      ARTICLE
V.A.

      CONDITIONS
PRECEDENT TO SUBSEQUENT CLOSINGS

      


      5A.1
Conditions Precedent
to the Obligations of the Purchasers to Purchase
Securities.  The obligation of each Purchaser to acquire Shares
and Warrants at a Subsequent Closing is subject to the fulfillment to such
Purchaser’s satisfaction, on or prior to the applicable Subsequent Closing Date,
of each of the following conditions, any of which may be waived by such
Purchaser (as to itself only):

      


      (a) Initial
Closing.  The Initial Closing shall have occurred.

      


      5A.2
Conditions Precedent
to the Obligations of the Company to sell Securities.  The
Company’s obligation to sell and issue the Shares and Warrants at a Subsequent
Closing to the Purchasers is subject to the fulfillment to the satisfaction of
the Company on or prior to the applicable Subsequent Closing Date of the
following conditions, any of which may be waived by the Company:

      


      (a) Initial
Closing.  The Initial Closing shall have occurred.

      


      (b) Purchaser
Deliverables.  Such Purchaser shall have delivered its
Subscription Amount in accordance with Section
2.2(b)(ii).

       

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

      
 

      ARTICLE
VI.

      MISCELLANEOUS

       

      6.1 Fees and
Expenses.  The Company and the Purchasers shall each pay the
fees and expenses of their respective advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement.

       

      6.2 Entire
Agreement.  The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.  At or after the Closing, and
without further consideration, the Company and the Purchasers will execute and
deliver to the other such further documents as may be reasonably requested in
order to give practical effect to the intention of the parties under the
Transaction Documents.

       

      6.3 Notices.  Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile (provided the sender receives a
machine-generated confirmation of successful transmission) at the facsimile
number specified in this Section 6.3 prior to
5:00 P.M., New York City time, on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section 6.3 on a day
that is not a Trading Day or later than 5:00 P.M., New York City time, on any
Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service with next day delivery
specified, or (d) upon actual receipt by the party to whom such notice is
required to be given.  The address for such notices and communications
shall be as follows:

      
      

       

      
        	 	If to the
      Company:  	Telkonet, Inc.
      

                20374
      Seneca Meadows Parkway

                Germantown,
      Maryland 20876-7004

                Telephone
      No.: 240-912-1800

                Facsimile
      No.: 240-912-1839

                Attention:
      Jason Tienor

                E-mail:
      jtienor@telkonet.com

              
	 	 	 
	 	With a copy
      to:	Goodwin Procter LLP
      

                53
      State Street

                Boston,
      Massachusetts 02109-2802

                Telephone
      No.: 617-570-1000

                Facsimile
      No.: 617-523-1231

                Attention:
      Jocelyn M. Arel

                E-mail:
      jarel@goodwinprocter.com

              
	 	 	 
	 	

                If
      to a Purchaser:

              	

                To
      the address set forth under such Purchaser’s name on the signature page
      hereof;

              


      

       

      or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.

      


      6.4 Amendments; Waivers; No
Additional Consideration.  No provision of this Agreement may
be waived, modified, supplemented or amended except in a written instrument
signed, in the case of an amendment, by the Company and the Purchasers of at
least a majority in interest of the Securities still held by Purchasers or, in
the case of a waiver, by the party against whom enforcement of any such waiver
is sought.  No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.  No consideration shall be offered or
paid to any Purchaser to amend or consent to a waiver or modification of any
provision of any Transaction Document unless the same consideration is also
offered to all Purchasers who then hold Securities.

       

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      6.5 Construction.  The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.  The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.  This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.

       

      6.6 Successors and
Assigns.  The provisions of this Agreement shall inure to the
benefit of and be binding upon the parties and their successors and permitted
assigns.  This Agreement, or any rights or obligations hereunder, may
not be assigned by the Company without the prior written consent of each
Purchaser.  Any Purchaser may assign its rights hereunder in whole or
in part to any Person to whom such Purchaser assigns or transfers any Securities
in compliance with the Transaction Documents and applicable law, provided such
transferee shall agree in writing to be bound, with respect to the transferred
Securities, by the terms and conditions of this Agreement that apply to the
“Purchasers”.

       

      6.7 No Third-Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

       

      6.8 Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the New York Courts.  Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient
forum.  Each party hereto hereby irrevocably waives personal service
of process and consents to process being served in any such Proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

       

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      6.9 Survival.  Subject
to applicable statute of limitations, the representations, warranties,
agreements and covenants contained herein shall survive the Closing and the
delivery of the Securities.

       

      6.10
Execution.  This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission, or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile signature page were an original thereof.

       

      6.11
Severability.  If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

       

      6.12
Replacement of
Securities.  If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company and the Transfer Agent of such loss, theft or destruction and the
execution by the holder thereof of a customary lost certificate affidavit of
that fact and an agreement to indemnify and hold harmless the Company and the
Transfer Agent for any losses in connection therewith or, if required by the
Transfer Agent, a bond in such form and amount as is required by the Transfer
Agent.  The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.  If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.

       

      6.13
Remedies.  In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under the Transaction
Documents.  The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation (other than in connection
with any action for a temporary restraining order) the defense that a remedy at
law would be adequate.

       

      6.14
Adjustments in Share
Numbers and Prices. In the event of any stock split, subdivision,
dividend or distribution payable in shares of Common Stock (or other securities
or rights convertible into, or entitling the holder thereof to receive directly
or indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof and prior to the
Closing, each reference in any Transaction Document to a number of shares or a
price per share shall be deemed to be amended to appropriately account for such
event.

       

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      6.15
Independent Nature of
Purchasers' Obligations and Rights.  The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser under any
Transaction Document.  The decision of each Purchaser to purchase
Securities pursuant to the Transaction Documents has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or any Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser and any of its agents or employees shall have any
liability to any other Purchaser (or any other Person) relating to or arising
from any such information, materials, statement or opinions.  Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Purchaser acknowledges that no other
Purchaser has acted as agent for such Purchaser in connection with making its
investment hereunder and that no Purchaser will be acting as agent of such
Purchaser in connection with monitoring its investment in the Securities or
enforcing its rights under the Transaction Documents.  Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such
purpose.  Each Purchaser has been represented by its own separate
legal counsel in its review and negotiation of the Transaction
Documents.  The Company has elected to provide all Purchasers with the
same terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by any Purchaser.

       

      6.16
Termination.
This Agreement may be terminated and the sale and purchase of the Shares and the
Warrants abandoned at any time prior to the Initial Closing by either the
Company or any Purchaser (with respect to itself only) upon written notice to
the other, if the Initial Closing has not been consummated on or prior to 5:00
P.M., New York City time, on the Outside Date; provided, however, that the
right to terminate this Agreement under this Section 6.16 shall
not be available to any Person whose failure to comply with its obligations
under this Agreement has been the cause of or resulted in the failure of the
Initial Closing to occur on or before such time.  Nothing in this
Section 6.16
shall be deemed to release any party from any liability for any breach by such
party of the terms and provisions of this Agreement or the other Transaction
Documents or to impair the right of any party to compel specific performance by
any other party of its obligations under this Agreement or the other Transaction
Documents.  In the event of a termination pursuant to this Section 6.16, the
Company shall promptly notify all non-terminating Purchasers.  Upon a
termination in accordance with this Section 6.16, the
Company and the terminating Purchaser(s) shall not have any further obligation
or liability (including arising from such termination) to the other, and no
Purchaser will have any liability to any other Purchaser under the Transaction
Documents as a result therefrom.

       

       

       

      
 

       

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

      


       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

      


      IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

       

      TELKONET,
INC.

       

      By: /s/ Jason Tienor      

      Name:
Jason Tienor

      Title:
Chief Executive Officer

       

      


       

      
        
          
          

        

        
          
            SIGNATURE
PAGE TO SECURITIES PURCHASE AGREEMENT

          

          
            

          

        

        
          
          

        

      

       

      NAME OF PURCHASER:
____________________________

      


      


      


      By:                                                                                                       


      Name:

      Title:

      


       

      Aggregate
Purchase Price (Subscription Amount): $__________

       

      


       

      Number of
Shares to be Acquired: ______________________

       

      Underlying
Shares Subject to Warrant: ____________________

      (25% of
the Subscription Amount)

      


      Underlying
Shares Subject to Additional Warrant: ___________

      (25% of
the Subscription Amount)

       

      Tax ID
No.: ____________________

       

      Address for Notice:

       

      __________________________________

      __________________________________

      __________________________________

      


      Telephone
No.:   _______________________

      


      Facsimile
No.:   ________________________

      


      E-mail
Address:   ________________________

      


      Attention:  _______________________

      


      


      Delivery
Instructions:

      (if
different than above)

      


      c/o  _______________________________

      


      Street:   ____________________________

      


      City/State/Zip:
______________________

      


      Attention:
__________________________

      


      Telephone
No.: ____________________________

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBITS:

       

      
        
          	
                  A:

                	
                  Form
      of Warrant

                
	
                  B:

                	
                  Form
      of Articles of Amendment

                
	
                  C:

                	
                  Form
      of Registration Rights Agreement

                
	
                  D-1:

                	
                  Accredited
      Investor Questionnaire

                
	
                  D-2:

                	
                  Stock
      Certificate Questionnaire

                
	
                  E:

                	
                  Form
      of Opinion of Company Counsel

                
	
                  F:

                	
                  Form
      of Opinion of General Counsel

                
	
                  G:

                	
                  Form
      of Secretary’s Certificate

                
	
                  H:

                	
                  Form
      of Officer’s Certificate

                
	
                  I:

                	
                  Wire
      Instructions

                


        



      SCHEDULES:

       

      3.1(a)
Subsidiaries

      3.1(g)
Capitalization

      3.1(k)
Litigation

      3.1(m)
Compliance

      3.1(p)
Patents and Trademarks

      3.1(u)
Certain Fees

      3.1(x)
Registration Rights

      3.1(y)
Listing and Maintenance Requirements

      3.1(bb)
Tax Matters

       
 

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      EXHIBIT
A

       

      FORM OF
WARRANT

       

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
B

       

      FORM OF
ARTICLES OF AMENDMENT

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
C

       

      FORM OF
REGISTRATION RIGHTS AGREEMENT

       

       

      
 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      INSTRUCTION
SHEET

      


      (to be
read in conjunction with the entire Securities Purchase Agreement and
Registration Rights Agreement)

      


      
        	
                A.

              	
                Complete
      the following items in the Securities Purchase Agreement and/or
      Registration Rights Agreement:

              


      

      


      
        
          	
                	
                  1.

                	
                  Provide
      the information regarding the Purchaser requested on the signature page.
      The Securities Purchase Agreement and the Registration Rights Agreement
      must be executed by an individual authorized to bind the
      Purchaser.

                


        

      

      


      
        	
              	
                2.

              	
                Exhibit D-1 –
      Accredited Investor Questionnaire:

              


      

      


      
        
          	
                   

                	
                  Provide
      the information requested by the Accredited Investor
      Questionnaire

                


        

      

      


      
        	
              	
                3.

              	
                Exhibit D-2
      Stock Certificate Questionnaire:

              


      

      


      
        
          	
                	
                   

                	
                  Provide
      the information requested by the Stock Certificate
      Questionnaire

                


        

      

      


      
        	
                4.

              	
                Annex B to the
      Registration Rights Agreement -- Selling Securityholder Notice and
      Questionnaire

              


      

      


      
        
          	
                   

                	
                  Provide
      the information requested by the Selling Securityholder Notice and
      Questionnaire

                


        

      

      


      
        	
              	
                5.

              	
                Return
      the signed Securities Purchase Agreement and Registration Rights Agreement
      to:

              


      

       

      
        
          	
                   

                	
                  

                    Goodwin
      Procter LLP

                    
                      53
      State Street

                      Boston,
      Massachusetts 02109-2802

                      Telephone
      No.: 617-570-1000

                      Facsimile
      No.: 617-523-1231

                      Attention:
      Carlos C. Clark

                      E-mail:
      ccclark@goodwinprocter.com

                    

                  

                


        

      

       

      
        	
                B.

              	
                Instructions
      regarding the transfer of funds for the purchase of Shares and Warrants is
      set forth on Exhibit I to
      the Securities Purchase Agreement.

              


      

      


      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


       

      EXHIBIT
D-1

      


      ACCREDITED
INVESTOR QUESTIONNAIRE

      


      (ALL
INFORMATION WILL BE TREATED CONFIDENTIALLY)

      


      To:           Telkonet,
Inc.

      


      This
Investor Questionnaire (“Questionnaire”) must be
completed by each potential investor in connection with the offer and sale of
the shares of the Series A Preferred Stock, par value $.001 per share (the
“Series A Preferred
Stock”), and shares of common stock, par value $.001 per share, that may
be issued upon conversion of the shares of Series A Preferred Stock and exercise
of certain warrants (collectively, the “Securities”), of Telkonet,
Inc., a Utah corporation (the “Corporation”).  The
Securities are being offered and sold by the Corporation without registration
under the Securities Act of 1933, as amended (the “Act”), and the securities
laws of certain states, in reliance on the exemptions contained in
Section 4(2) of the Act and on Regulation D promulgated thereunder and in
reliance on similar exemptions under applicable state laws.  The
Corporation must determine that a potential investor meets certain suitability
requirements before offering or selling Securities to such
investor.  The purpose of this Questionnaire is to assure the
Corporation that each investor will meet the applicable suitability
requirements.  The information supplied by you will be
used  in determining whether you meet such criteria, and reliance upon
the private offering exemptions from registration is based in part on the
information herein supplied.

       

      This
Questionnaire does not constitute an offer to sell or a solicitation of an offer
to buy any security.  Your answers will be kept strictly
confidential.  However, by signing this Questionnaire, you will be
authorizing the Corporation to provide a completed copy of this Questionnaire to
such parties as the Corporation deems appropriate in order to ensure that the
offer and sale of the Securities will not result in a violation of the Act or
the securities laws of any state and that you otherwise satisfy the suitability
standards applicable to purchasers of the Securities.  All potential
investors must answer all applicable questions and complete, date and sign this
Questionnaire.  Please print or type your responses and attach
additional sheets of paper if necessary to complete your answers to any
item.

       

      PART
A.                      BACKGROUND
INFORMATION

      


      Name of
Beneficial Owner of the Securities:                                                                                                                                                                                                        


      


      Business
Address:                                                                                                                                                                                                                                                   


      
        (Number
and Street)

      


     

    
                                                                                                                                                                                                                                                                                            


      (City)                                           (State)                                                                (Zip
Code)

      


      Telephone
Number: (___)                                                                                                                                              

      


      If
a corporation, partnership, limited liability company, trust or other
entity:

       

      Type of
entity:                                                                                                                                                                                                                                                             


      State of
formation:_____________                                               Approximate
Date of formation:                                                                                                                  


       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      
         
Were you
formed for the purpose of investing in the securities being offered?      


         

        Yes
____                      No
____

      

      


      If an individual:

      


      
        Residence Address:                                                                                                                                                                                                                                                   


        
          
            (Number
and Street)

          


           

          
                                                                                                                                                                                                                                                                                                  


            (City)                                           (State)                                                                (Zip
Code)

            


            Telephone
Number: (___)                                                                                                                                              



        

      

      Age:­­­­­­­­
­__________                                Citizenship:
____________                                                      Where
registered to vote: _______________

      


      Set forth
in the space provided below the state(s), if any, in the United States in which
you maintained your residence during the past two years and the dates during
which you resided in each state:

      
 

      
        Are you a
director or executive officer of the Corporation?

         

      

      Yes
____                      No
____

      


      Social
Security or Taxpayer Identification No.                                                                                                                                                                              
        


      


      PART
B.                      ACCREDITED INVESTOR
QUESTIONNAIRE

      


       

      In order for the Company to offer and
sell the Securities in conformance with state and federal securities laws, the
following information must be obtained regarding your investor status. Please
initial each
category applicable to you as a
Purchaser of Securities of the Company.

       

      
        	
                 
      

              	
                __
      (1)

              	
                A
      bank as defined in Section 3(a)(2) of the Securities Act, or any savings
      and loan association or other institution as defined in Section 3(a)(5)(A)
      of the Securities Act whether acting in its individual or fiduciary
      capacity;

              


      

      


      
        	
                 
      

              	
                __
      (2)

              	
                A
      broker or dealer registered pursuant to Section 15 of the Securities
      Exchange Act of 1934;

              


      

      


      
        	
                 
      

              	
                __
      (3)

              	
                An
      insurance company as defined in Section 2(13) of the Securities
      Act;

              


      

      


      
        	
                 
      

              	
                __
      (4)

              	
                An
      investment company registered under the Investment Company Act of 1940 or
      a business development company as defined in Section 2(a)(48) of that
      Act;

              


      

      


      
        	
                 
      

              	
                __
      (5)

              	
                A
      Small Business Investment Company licensed by the U.S. Small Business
      Administration under Section 301(c) or (d) of the Small Business
      Investment Act of 1958;

              


      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      
        	
                 
      

              	
                __
      (6)

              	
                A
      plan established and maintained by a state, its political subdivisions, or
      any agency or instrumentality of a state or its political subdivisions,
      for the benefit of its employees, if such plan has total assets in excess
      of $5,000,000;

              


      

      


      
        	
                 
      

              	
                __
      (7)

              	
                An
      employee benefit plan within the meaning of the Employee Retirement Income
      Security Act of 1974, if the investment decision is made by a plan
      fiduciary, as defined in Section 3(21) of such act, which is either a
      bank, savings and loan association, insurance company, or registered
      investment adviser, or if the employee benefit plan has total assets in
      excess of $5,000,000 or, if a self-directed plan, with investment
      decisions made solely by persons that are accredited
      investors;

              


      

      


      
        	
                 
      

              	
                __
      (8)

              	
                A
      private business development company as defined in Section 202(a)(22) of
      the Investment Advisers Act of
1940;

              


      

      
        	
                 
      

              	 


      

      
        	
                 
      

              	
                __
      (9)

              	
                An
      organization described in Section 501(c)(3) of the Internal Revenue Code,
      a corporation, Massachusetts or similar business trust, or partnership,
      not formed for the specific purpose of acquiring the Securities, with
      total assets in excess of
$5,000,000;

              


      

      


      
        	
              	
                __
      (10)

              	
                A
      trust, with total assets in excess of $5,000,000, not formed for the
      specific purpose of acquiring the Securities, whose purchase is directed
      by a sophisticated person who has such knowledge and experience in
      financial and business matters that such person is capable of evaluating
      the merits and risks of investing in the
  Company;

              


      

      
        	
                 
      

              	 


      

      
        	
                 
      

              	
                __(11)

              	
                A
      natural person whose individual net worth, or joint net worth with that
      person’s spouse, at the time of his purchase exceeds
      $1,000,000;

              


      

       

      
        	
                 
      

              	
                __(12)

              	
                A
      natural person who had an individual income in excess of $200,000 in each
      of the two most recent years, or joint income with that person’s spouse in
      excess of $300,000, in each of those years, and has a reasonable
      expectation of reaching the same income level in the current
      year;

              


      

       

      
        	
                 
      

              	
                __(13)

              	
                  An
      executive officer or director of the
Company;

              


      

      


      
        	
              	
                __(14)

              	
                An
      entity in which all of the equity owners qualify under any of the above
      subparagraphs. If the undersigned belongs to this investor category only,
      list the equity owners of the undersigned, and the investor category which
      each such equity owner satisfies.

              


      

       

      
        
          
            	
                    A.

                  	
                    FOR
      EXECUTION BY AN INDIVIDUAL:

                  
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                    By

                  	 
      	 
      
	
                     

                  	Date	 
      	 
      	 
      	 
      
	
                     

                  	 
      	 
      	

                    Print
      Name:

                  	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	
                    B.

                  	
                    FOR
      EXECUTION BY AN ENTITY:

                  
	 
      	 
      	 
      	

                    Entity
      Name:

                  	 
      	 
      


          

           

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

           

          
            	 
      	
                    

                       

                    

                  	 
      	 
      	 
      	 
      
	 
      	

                    Date

                  	 
      	

                    By

                  	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 	 
      	 
      	
                    

                      Print
      Name:

                    

                  	 
      	 
      
	
                     

                  	 
      	 
      	 
      	 
      	 
      
	
                     

                  	 
      	 
      	

                    Title:

                  	 
      	 
      
	
                     

                  	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	
                    C.

                  	
                    ADDITIONAL
      SIGNATURES (if required by partnership, corporation or trust
      document):

                  
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	

                    Entity
      Name:

                  	 
      	 
      	 
      
	
                     

                  	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	

                    By

                  	 
      	 
      
	

                     

                  	

                    Date

                  	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                    

                      Print
      Name:

                    

                  	 
      	 
      
	
                     

                  	 
      	 
      	 
      	 
      	 
      
	
                     

                  	 
      	 
      	

                    Title:

                  	 
      	 
      
	
                     

                  	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	
                     

                  	 
      	

                    Entity
      Name:

                  	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                    By

                  	 
      	 
      
	
                     

                  	

                    Date

                  	 
      	 
      	 
      	 
      
	
                     

                  	 
      	 
      	

                    Print
      Name:

                  	 
      	 
      
	 	 	 	 	 	 
	 
      	 
      	 
      	

                    Title:

                  	 
      	 
      


          

        

      

       

      
 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
D-2

       

      STOCK
CERTIFICATE QUESTIONNAIRE

       

      Pursuant
to Section
2.2(b) of the Agreement, please provide us with the following
information:

       

      
        	
                1.

              	
                The
      exact name that the Securities are to be registered in (this is the name
      that will appear on the stock certificate(s)).  You may use a
      nominee name if appropriate:

              	 	 
      
	 	 	 	 
	
                2.

              	
                The
      relationship between the Purchaser of the Securities and the Registered
      Holder listed in response to Item 1 above:

              	 	 
      
	 	 	 	 
	
                3.

              	
                The
      mailing address, telephone and telecopy number of the Registered Holder
      listed in response to Item 1 above:

              	 	 
      
	 
      	 
      	 	 
      
	 
      	 
      	 	 
      
	 
      	 
      	 	 
      
	 
      	 
      	 	 
      
	 	 	 	 
	
                4.

              	
                The
      Tax Identification Number (or, if an individual, the Social Security
      Number) of the Registered Holder listed in response to Item 1
      above:

              	 	 
      


      

      


       

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
E

       

      FORM OF
OPINION OF COMPANY COUNSEL

       

      


      _______________, 2009

      


      To
Purchasers Listed on the signature pages to the

      Purchase
Agreement referred to below

      


       

      Ladies
and Gentlemen:

       

      We have
acted as counsel to Telkonet, Inc., a Utah corporation (the “Company”), in
connection with the sale to you today of the shares (the “Preferred Shares”) of
the Company’s Series A Preferred Stock, par value $0.001 per share, and warrants
(the “Warrants”) to
purchase the Company’s common stock, par value $0.001 per share, pursuant to the
Securities Purchase Agreement dated as of November 16, 2009 (the “Purchase Agreement”)
by and among the Company and each of the Purchasers listed on the signature
pages to the Purchase Agreement (the “Purchasers”).  We
are furnishing this opinion letter to you pursuant to Section 2.2(a)(iv) of the
Purchase Agreement.  Capitalized terms that are defined in the
Purchase Agreement and not otherwise defined in this opinion letter are used in
this opinion letter as so defined.

       

      We have
reviewed such documents and made such examination of law as we have deemed
appropriate to give the opinions expressed below.  We have relied,
without independent verification, on certificates of public officials and, as to
matters of fact material to the opinions set forth below, on representations in
the Purchase Agreement and certificates of officers of the Company.

       

      Our
opinion in numbered paragraph 1 is based on the assumption that the Company and
any person acting on its behalf have complied and will comply with the
limitations on manner of offering and sale set forth in Rule 502(c) under the
Securities Act of 1933, as amended (the “Securities Act”),
with respect to all offers and sales of the Company’s securities, including the
Preferred Shares and the Warrants.

       

      Our
opinion set forth below is limited to the federal law of the United
States.

       

      Based
upon the foregoing and subject to the additional qualifications set forth below,
we are of the opinion that:

       

      1. Based
on, and assuming the accuracy of, the representations of each of the Purchasers
in the Purchase Agreement, the sale of the Preferred Shares and the Warrants
pursuant to the Purchase Agreement does not require registration under the
Securities Act.

       

      Our
opinion expressed above is subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws of general
application affecting the rights and remedies of creditors and to general
principles of equity.

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      This
opinion letter and the opinion it contains shall be interpreted in accordance
with the Legal Opinion Principles issued by the Committee on Legal Opinions of
the American Bar Association’s Business Law Section as published in 53 Business Lawyer 831 (May
1998).

       

      This
opinion letter is being furnished only to you for your use solely in connection
with the Purchase Agreement and the transactions contemplated thereby, and
neither it nor the opinion it contains may be relied on for any other purpose or
by anyone else.

       

      Very
truly yours,

       

      GOODWIN
PROCTER  LLP

      


       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


      EXHIBIT
F

       

      FORM OF
OPINION OF GENERAL COUNSEL

       

      _______________,
2009

      


      To
Purchasers Listed on the signature pages to the

      Purchase
Agreement referred to below

      


       

      Ladies
and Gentlemen:

       

      This
letter is being furnished to you in my role as General Counsel for Telkonet,
Inc., a Utah corporation (the “Company”), in
connection with the sale to you today of the shares (the “Preferred Shares”) of
the Company’s Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred
Stock”), and warrants (the “Warrants”) to
purchase the Company’s common stock, par value $0.001 per share (the “Common Stock”),
pursuant to the Securities Purchase Agreement dated as of November 16, 2009 (the
“Purchase
Agreement”) by and among the Company and each of the Purchasers listed on
the signature pages to the Purchase Agreement.  I am furnishing this
opinion letter to you pursuant to Section 2.2(a)(v) of the Purchase
Agreement.  Capitalized terms that are defined in the Purchase
Agreement and not otherwise defined in this opinion letter are used in this
opinion letter as so defined.

       

      The
Purchase Agreement, the Warrants and the Registration Rights Agreement are
referred to collectively in this opinion letter as the “Transaction
Documents.”

       

      I have
reviewed such documents and made such examination of law as I have deemed
appropriate to give the opinions expressed below.  I have relied,
without independent verification, on certificates of public officials and, as to
matters of fact material to the opinions set forth below, on representations in
the Purchase Agreement and certificates of officers of the Company.

       

      My
opinion regarding valid existence and good standing in numbered paragraph 1 is
based solely on a certificate of the Utah Secretary of State and, in the case of
valid existence, a review of the Company’s articles of incorporation and an
officer’s certificate confirming that the Company has taken no action looking to
its dissolution.

       

      My
opinion in numbered paragraph 7 regarding the number of shares of each series or
class of stock issued and outstanding is based solely on my review of a copy of
the stock ledger of the Company certified by an officer of the Company and of
minutes of meetings and actions by written consent at or by which stock
issuances were approved.

       

      I note
that the Transaction Documents provide that they are to be governed by New York
law.  The opinions in numbered paragraph 3 below regarding the
validity, binding effect and enforceability of the Transaction Documents are
given as though each of the Transaction Documents were governed by the internal
law of Maryland.

       

      My
opinions set forth below are limited to Maryland law, the Utah Revised Business
Corporation Act and the federal law of the United States.

       

      Based
upon the foregoing and subject to the additional qualifications set forth below,
I am of the opinion that:

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      1. The
Company is validly existing as a corporation in good standing under Utah
law.

       

      2. The
Company has the corporate power to execute and deliver each of the Transaction
Documents and perform its obligations thereunder.

       

      3. Each
of the Transaction Documents has been duly authorized, executed and delivered by
the Company and constitutes its valid and binding obligation enforceable against
it in accordance with its terms.

       

      4. The
execution and delivery by the Company of the Transaction Documents and the
performance by the Company of its obligations under the Transaction Documents,
including its issuance and sale of the Preferred Shares, its issuance of the
shares of Common Stock issuable upon conversion of the Preferred Shares in
accordance with the Company’s articles of incorporation (the “Conversion Shares”),
its issuance and sale of the Warrants, and its issuance of the shares of Common
Stock issuable upon exercise of the Warrants in accordance with the terms of the
Warrants (the “Warrant
Shares”), do not and will not (i) violate the Utah Revised Business
Corporation Act or any Maryland or federal statute, rule or regulation, or
(ii) violate the Company’s articles of incorporation or
by-laws.

       

      5. No
consent, approval, license or exemption by, order or authorization of, or
filing, recording or registration with any Utah governmental authority pursuant
to the Utah Revised Business Corporation Act or any Maryland or federal
governmental authority is required to be obtained or made by the Company in
connection with the execution and delivery by the Company of the Transaction
Documents or the performance by it of its obligations thereunder, including its
issuance and sale of the Preferred Shares, its issuance of the Conversion Shares
upon conversion of the Preferred Shares in accordance with the Company’s
articles of incorporation, its issuance and sale of the Warrants, and its
issuance of the Warrant Shares upon exercise of the Warrants in accordance with
the terms of the Warrants, other than those that have been obtained or
made.

       

      6. The
Preferred Shares have been duly authorized and, when issued, delivered and paid
for in accordance with the Purchase Agreement, will be validly issued, fully
paid and nonassessable.  Assuming a sufficient number of authorized
but unissued shares of Common Stock are available for issuance when the
Preferred Shares are converted, the Conversion Shares, when issued and delivered
upon conversion of the Preferred Shares in accordance with the Company’s
articles of incorporation, will be validly issued, fully paid and
nonassessable.  The Warrants have been duly authorized and, when
issued, delivered and paid for in accordance with the Purchase Agreement, will
be validly issued.  Assuming a sufficient number of authorized but
unissued shares of Common Stock are available for issuance when the Warrants are
exercised, the Warrant Shares, when issued and delivered upon exercise of the
Warrants in accordance with the terms of the Warrants, will be validly issued,
fully paid and nonassessable.

       

      7. The
authorized capital stock of the Company consists of (i) 155,000,000 shares
of  Common Stock, of which _________ shares are issued and
outstanding, and (ii) 15,000,000 shares of Preferred Stock, par value $0.001 per
share, of which _________ shares have been designated Series A Preferred Stock,
none of which are issued and outstanding.  The issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable.

       

      I am not
representing the Company in any pending litigation in which it is a named
defendant that challenges the validity or enforceability of, or seeks to enjoin
the performance of, the Transaction Documents.

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      My
opinions expressed above are subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws of general
application affecting the rights and remedies of creditors and to general
principles of equity.

       

      I express
no opinion as to (i) compliance by the directors of the Company with their
fiduciary duties in approving the Transaction Documents; and (ii) the validity,
binding effect and enforceability of (a) provisions in the Transaction Documents
relating to the choice of forum for resolving disputes and (b) the
indemnification obligations of the Company in the Purchase
Agreement.

       

      This
opinion letter and the opinions it contains shall be interpreted in accordance
with the Legal Opinion Principles issued by the Committee on Legal Opinions of
the American Bar Association’s Business Law Section as published in 53 Business Lawyer 831 (May
1998).

       

      This
opinion letter is being furnished only to you for your use solely in connection
with the Purchase Agreement and the transactions contemplated thereby, and
neither it nor the opinions it contains may be relied on for any other purpose
or by anyone else.

       

      Very
truly yours,

       

      Howard J. Barr

      


       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
G

       

      FORM OF
SECRETARY’S CERTIFICATE

      


      The
undersigned hereby certifies that he is the duly elected, qualified and acting
Secretary of Telkonet, Inc., a Utah corporation (the “Company”), and that as such
he is authorized to execute and deliver this certificate in the name and on
behalf of the Company and in connection with the Securities Purchase Agreement,
dated as of November 16, 2009, by and among the Company and the investors party
thereto (the “Securities
Purchase Agreement”), and further certifies in his official capacity, in
the name and on behalf of the Company, the items set forth
below.  Capitalized terms used but not otherwise defined herein shall
have the meaning set forth in the Securities Purchase Agreement.

       

      
        	
                1.

              	
                Attached
      hereto as Exhibit A is a
      true, correct and complete copy of the resolutions duly adopted by the
      Board of Directors of the Company on November ___, 2009.  Such
      resolutions have not in any way been amended, modified, revoked or
      rescinded, have been in full force and effect since their adoption to and
      including the date hereof and are now in full force and
      effect.

              


      

       

      
        	
                2.

              	
                Attached
      hereto as Exhibit B is a
      true, correct and complete copy of the Articles of Incorporation of the
      Company, together with any and all amendments thereto currently in effect,
      and no action has been taken to further amend, modify or repeal such
      Articles of Incorporation, the same being in full force and effect in the
      attached form as of the date
hereof.

              


      

       

      
        	
                3.

              	
                Attached
      hereto as Exhibit C is a
      true, correct and complete copy of the Bylaws of the Company and any and
      all amendments thereto currently in effect, and no action has been taken
      to further amend, modify or repeal such Bylaws, the same being in full
      force and effect in the attached form as of the date
    hereof.

              


      

       

      
        	
                4.

              	
                Each
      person listed below has been duly elected or appointed to the position(s)
      indicated opposite his name and is duly authorized to sign the Securities
      Purchase Agreement and each of the Transaction Documents on behalf of the
      Company, and the signature appearing opposite such person’s name below is
      such person’s genuine signature.

              


      

       

      


      
        	 	
                Name

              	
                Position

              	
                Signature

                 

              
	 	
                Jason
      L. Tienor

              	
                Chief
      Executive Officer

              	
                _________________________

              
	 	
                Richard
      J. Leimbach

              	
                Chief
      Financial Officer

              	
                _________________________

              


      

      


      


      IN
WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ____ day
of _____________, 2009.

       

      


      


       

      
        	 	 	 
	 	

                Secretary

              	 


      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      I, Jason
L. Tienor, Chief Executive Officer, hereby certify that _____________ is the
duly elected, qualified and acting Secretary of the Company and that the
signature set forth above is his true signature.

       

      
        
          


           

          
            	 	 	 
	 	

                    Chief
      Executive Officer

                  	 


          

           

        

      

      
         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

         
EXHIBIT
A

      

       

      Resolutions

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
B

       

      Articles
of Incorporation

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
C

       

      Bylaws

       

      


      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
H

       

      FORM OF
OFFICER’S CERTIFICATE

       

      


      The
undersigned, the Chief Executive Officer of Telkonet, Inc., a Utah corporation
(the “Company”),
pursuant to Section 5.1(i) of the Securities Purchase Agreement, dated as of
November 16, 2009, by and among the Company and the investors signatory thereto
(the “Securities Purchase
Agreement”), hereby represents, warrants and certifies as follows
(capitalized terms used but not otherwise defined herein shall have the meaning
set forth in the Securities Purchase Agreement):

      


      
        	
                 
      

              	
                1.

              	
                The
      representations and warranties of the Company contained in the Securities
      Purchase Agreement are true and correct in all material respects (except
      for those representations and warranties which are qualified as to
      materiality, in which case, such representations and warranties shall be
      true and correct in all respects) as of the date when made and as of the
      date hereof, as though made on and as of such date, except for such
      representations and warranties that speak as of a specific
      date.

              


      

      


      
        	
                 
      

              	
                2.

              	
                The
      Company has performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the Transaction
      Documents to be performed, satisfied or complied with by it at or prior to
      the date hereof.

              


      

      


      


      IN
WITNESS WHEREOF, the undersigned has executed this certificate this ___ day of
______________, 2009.

      


      


      
         

        
          	 	 	 
	 	

                  Chief
      Executive Officer

                	 


        

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         
EXHIBIT
I

       

      WIRE
INSTRUCTIONS

      


      JPMorgan
Chase Bank

      ABA #
021000021

      Account
No.: 806031209

      Account
Name: Telkonet, Inc.

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Schedule
3.1(a)

      


       

      Subsidiaries

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Schedule
3.1(g)

       

       

      Capitalization

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Schedule
3.1(w)

      


       

      Registration
Rights

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Schedule
3.1(x)

       

      
 

      Listing
and Maintenance Requirements