telkonet_10q-093ex0416.htm


    Exhibit
      4.16

    SENIOR
      NOTE PURCHASE AGREEMENT

     

    This
      Senior Note Purchase Agreement (this “Agreement”) is made as of July __,
      2007 (the “Closing Date”) by and between Telkonet Inc., a Utah
      corporation (the “Company”), GRQ Consultants, Inc. (“Holder”), and the
      persons or entities listed as investors on the signature page hereto and as
      set
      forth on Schedule 1 annexed hereto (the
“Purchasers”).

     

    W
      I T
      N E S S E T H:

     

    WHEREAS,
      Company has advised Holder that Company is pursuing a financing transaction
      in
      which Company is seeking a minimum of $3 million in equity financing through
      private investments in public company (“PIPE”) transactions which Company
      expects to close prior to January 28, 2008 and Company desires to obtain from
      Holder a bridge loan for working capital, and Company desires to sell and issue
      to the Purchasers, and the Purchasers desire to purchase from the Company,
      an
      aggregate of $1,500,000.00 principal amount of the Company’s six (6%) percent
      promissory notes (the “Notes”) due January 28, 2008 (the “Maturity
      Date”) having the rights and privileges set forth in the Form of Note of the
      Company annexed hereto as Exhibit A; and

     

    Now,
      therefore, for good and valuable consideration, the receipt and sufficiency
      of
      which are hereby acknowledged, the parties to this Agreement hereby agree as
      follows:

     

    1.           Deliveries.

     

    (a)           On
      the Closing Date, the Purchasers shall deliver to the Company an aggregate
      of
      $1,500,000.00 in cash (the “Funds”) by delivery of a certified check
      payable to the Company or by wire transfer to the account of the
      Company.

     

    (b)           On
      the Closing Date, the Company shall deliver to the Purchaser: (i) a Note with
      the principal amount equal to the principal amount set forth opposite such
      Purchaser’s name in Schedule 1 hereto, registered in the name of such
      Purchaser substantially in the form of Exhibit A annexed hereto (the
“Note”) ; and (ii) a Warrant exercisable for 359,712 shares of Common Stock
      (as
      hereinafter defined) substantially in the form of Exhibit B annexed
      hereto, (the “Warrant”).

     

    2.           Representations
      and Warranties of the Company.  The Company hereby represents and
      warrants to the Purchasers as follows:

     

    (a)           Representations
      and Warranties of the Company.  As a material inducement to each
      Holder to enter into this Agreement and consummate the transactions contemplated
      hereby, and except as set forth on Schedule I hereto, the Company hereby
      represents and warrants that:

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    (i)           Organization
      and Corporate Power.  The Company is a corporation duly organized,
      validly existing and in good standing under the laws of the State of Utah and
      the Company is duly qualified or registered to do business as a foreign
      corporation in each jurisdiction in which the failure to be so qualified or
      registered would have a Material Adverse Effect. As used in this Agreement,
      the
      term “Material Adverse Effect” means any change or effect that is
      materially adverse to the properties, assets, business, financial condition
      or
      operations of the Company. The Company does not directly or indirectly own
      any
      equity or similar interest in, or any interest convertible into or exchangeable
      or exercisable for any equity or similar interest in, any corporation,
      partnership, joint venture or other business association or entity. The Company
      has all required corporate power and authority to carry on its business as
      presently conducted, and to enter into and perform this Agreement, the Notes,
      the Warrants and each other document, agreement or instrument entered into
      by it
      or any of its officers in connection herein or therewith or pursuant hereto
      or
      thereto (collectively, the “Transaction Documents” and individually a
“Transaction Document”). The Company is not in violation of any term of
      its certificate of incorporation or bylaws, true, accurate and complete copies
      of which are on file with the United States Securities and Exchange Commission
      (the ”SEC”). The Company is not in violation of any term of any agreement,
      instrument, judgment, decree, order, statute, rule or government regulation
      applicable to the Company or to which the Company is a party except for such
      violations that individually, or in the aggregate, would not reasonably be
      expected to result in a Material Adverse Effect.

     

    (ii)           Capitalization.  The
      authorized capital stock of the Company (the “Equity Securities”)
      immediately prior to the initial Closing, consists of such number of shares
      of
      common stock, $0.001 par value per share, of the Company (the “Common
      Stock”) as are set forth on the most recent periodic report (the “Report”)
      filed by the Company with the SEC.  Other than shares reserved for
      issuance under the Company’s existing plans adopted for employees and other
      persons associated with the Company (the “Plan”) which has been approved by
      stockholders, the Company does not have any outstanding commitments to issue
      or
      sell Equity Securities, and no securities or obligations evidencing any such
      right are outstanding, except as set forth in the Report. The Company is not
      under any contractual obligation to register any of its presently outstanding
      securities or any of its securities which may hereafter be issued. There are
      no
      outstanding obligations, written or otherwise, of any stockholder or other
      holder of Equity Securities of the Company to repurchase, redeem or otherwise
      acquire any Equity Securities. There are no preemptive rights in respect of
      any
      Equity Securities of the Company. Any Equity Securities which were issued and
      reacquired by the Company were so reacquired (and, if reissued, so reissued)
      in
      compliance with all applicable laws, and the Company does not have any
      outstanding obligation or liability with respect thereto.  Each of the
      foregoing representations and warranties is qualified to the extent of the
      true
      and accurate information provided in the most recent periodic report of the
      Company filed with the SEC prior to the date hereof.

     

    (iii)           Authorization
      and Non-Contravention.  The Transaction Documents are valid and
      binding obligations of the Company, enforceable in accordance with their terms.
      The execution, delivery and performance of the Transaction Documents have been
      duly authorized by all necessary corporate or other action of the Company.
      The
      execution, delivery and performance of these Transaction Documents will
      not:

     


    
      
        
        

      

      
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    (A)           violate
      or result in a default under any contract or obligation to which the Company
      is
      a party or by which it or its assets are bound, or any provision of (A) the
      certificate of incorporation of the Company, as amended to date (the
“Charter”), (B) the bylaws of the Company, as amended to date or (C)
      cause the creation of any encumbrance upon any of the assets of the
      Company;

     

    (B)           violate
      or result in a violation of, or constitute a default (whether after the giving
      of notice, lapse of time or both) under, any provision of any law, regulation
      or
      rule, or any order of, or any restriction imposed by any court or other
      governmental agency applicable to the Company;

     

    (C)           require
      from the Company any notice to, declaration or filing with, or consent or
      approval of any governmental authority or other third party, which such notice,
      consent, declaration, filing or approval has not been obtained as of the
      Closing; or

     

    (D)           accelerate
      any obligation of the Company under, give rise to a right of termination of,
      accelerate any right of a person under or trigger any change of control or
      similar provision in, any agreement, permit, license or authorization to which
      the Company is a party or by which the Company is bound.

     

    (iv)           Valid
      Issuance.

     

    (A)           The
      Note and the Warrants will be duly and validly issued when issued, sold and
      delivered at the Closing in accordance with the terms of this Agreement and
      the
      Warrant Shares (as defined in the Warrant), when issued, sold and delivered
      in
      accordance with the terms of this Agreement and the Note for the consideration
      provided for herein and therein, will be duly and validly issued, fully paid
      and
      non-assessable.

     

    (B)           Based
      in part on the representations made by each Holder, the offer and sale of the
      Notes solely to the Holders in accordance with this Agreement are exempt from
      the registration and prospectus delivery requirements of the Securities Act
      of
      1933, as amended (the “Securities Act”), and the securities registration
      and qualification requirements of the currently effective provisions of the
      securities law of the state in which each Holder is a resident.

     

    (C)           The
      conversion of the Warrant into Warrant Shares, if at all, will not require
      any
      further corporate or stockholder action and will not be subject to preemptive
      rights of any present or future stockholders of the Company that have not been
      heretofore waived in writing.

     


    
      
        
        

      

      
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    (v)           Litigation.  There
      is no litigation or governmental proceeding or investigation pending or, to
      the
      Company’s knowledge, threatened against the Company affecting any of its
      respective properties or assets, or against any officer, employee or holder
      of
      more than 5% of the Equity Securities of the Company relating to such person’s
      performance of duties for the Company or relating to his stock ownership in
      the
      Company or otherwise relating to the business of the Company, nor to the
      knowledge of the Company has there occurred any event or does there exist any
      condition on the basis of which any such litigation, proceeding or investigation
      might properly be instituted. Neither the Company nor any officer, employee
      or,
      to the knowledge of the Company, holder of more than 5% of the Equity Securities
      of the Company is in default with respect to any order, writ, injunction,
      decree, ruling or decision of any court, commission, board or other governmental
      agency relating to the Company or its business. There are no actions, suits,
      claims, investigations or proceedings pending or, to the Company’s knowledge,
      threatened (or any basis therefore). The foregoing sentences include, without
      limiting their generality, actions pending or, to the knowledge of the Company,
      threatened (or any basis therefore) involving the prior employment of any of
      the
      Company’s officers or employees or their use in connection with the Company’s
      business of any information or techniques allegedly proprietary to any of their
      former employers.

     

    Financial
      Information.  The audited financial statements of the Company as
      of and for the fiscal year ended December 31, 2006 and the unaudited
      consolidated financial statements for the three months period ended March 31,
      2007 set forth in the Company’s filings and reports made with the SEC present
      fairly in all material respects the financial position of the Company and the
      results of operations for the periods covered thereby (subject, in the case
      of
      such interim financial statements, to immaterial year end audit adjustments)
      and
      have been prepared in accordance with generally accepted accounting principles
      (“GAAP”) in effect in the United States consistently applied, except for
      the absence of footnotes not customarily included in such statements (the
“Financial Statements”). There is no liability, contingent or otherwise,
      not adequately reflected in or reserved against in the Financial Statements
      other than (i) liabilities incurred in the ordinary course of business
      subsequent to March 31, 2007 and (ii) liabilities not required under GAAP to
      be
      reflected in the Financial Statements. Since March 31, 2007, (i) there has
      been
      no material adverse change in the business, assets or condition, financial
      or
      otherwise, or operations of the Company, (ii) neither the business, condition,
      or operations of the Company nor any of the properties or assets of the Company
      have been materially adversely affected as the result of any legislative or
      regulatory change, any revocation or change in any franchise, permit, license
      or
      right to do business, nor have the business, condition, or operations of the
      Company nor any of the properties or assets of the Company been materially
      adversely affected by any other event or occurrence, whether or not insured
      against; and (iii) the Company has not entered into any transaction other than
      in the ordinary course of business, made any dividend or distribution on its
      Equity Securities, or redeemed or repurchased any of its Equity
      Securities.  As of the date hereof the Company has no indebtedness for
      money borrowed and no Liens.  “Liens” means a lien, charge,
      security interest, encumbrance, right of first refusal, preemptive right or
      other restriction.

     


    
      
        
        

      

      
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    (vi)           Intellectual
      Property.

     

    (A)           Except  as
      set forth in the filings and reports made with the SEC, each item of the
      Company’s Intellectual Property is in full force and effect (including, without
      limitation, current payment of maintenance fees, annuities and the like), and
      either: (i) owned solely by the Company free and clear of any Liens or licenses
      (other than to third parties who have executed an end user license agreement
      in
      the ordinary course of the Company’s business); or (ii) rightfully used and
      authorized for use by the Company or its successors pursuant to a valid and
      enforceable written license. Except  as set forth in filings and
      reports made with the SEC, no item of the Company’s Intellectual Property,
      including without limitation all or any portion of source code, is held in
      escrow or required to be held in escrow.

     

    (B)           The
      Company is not in violation of any license, sublicense or other agreement to
      which it is a party or otherwise bound relating to any of the Company’s
      Intellectual Property.

     

    (C)           Except  as
      set forth in filings and reports made with the SEC, to the Company’s knowledge,
      the current and currently proposed use of the Company’s Intellectual Property by
      the Company does not and will not infringe any other Person’s copyright, patent,
      trademark, service mark, trade name, firm name, logo, trade dress, trade secret
      rights, right of privacy, right in personal data or other intellectual property
      right. No claims (A) challenging the validity, enforceability, effectiveness
      or
      ownership by the Company of any of the Company’s Intellectual Property or (B) to
      the effect that the use, reproduction, modification, manufacture, distribution,
      licensing, sublicensing, sale, or any other exercise of rights under or in
      connection with any of the Company’s Intellectual Property by the Company,
      infringes or will infringe on any intellectual property or other proprietary
      or
      personal right of any person have been asserted against the Company or, to
      the
      Company’s knowledge, are threatened by any person nor does there exist any valid
      basis for such a claim. To the Company’s knowledge, there are no legal or
      governmental proceedings, including interference, re-examination, reissue,
      opposition, nullity, or cancellation proceedings pending that relate to any
      of
      the Company’s Intellectual Property, other than review of pending patent
      applications, and, to the Company’s knowledge, no proceedings are threatened or
      contemplated by any governmental entity or any other person. All granted or
      issued patents, all trademarks and service marks, and all copyrights owned
      by
      the Company are valid, enforceable and subsisting. To the Company’s knowledge,
      there is no unauthorized use, infringement, or misappropriation of any of the
      Company’s Intellectual Property by any third party, employee or former employee.
      As used in this Agreement, the term “to the Company’s knowledge” and similar
      expressions refer to the actual knowledge, after reasonable diligent inquiry,
      of
      any officer of the Company who has managerial responsibility for any significant
      department or function of the Company, including, without limitation, the
      Company’s Chief Executive Officers, Chief Financial Officer and Chief Technology
      Officer.

     


    
      
        
        

      

      
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    (D)           Except  as
      set forth in filings and reports made with the SEC the Company has secured
      from
      all parties (including employees) who have created any portion of, or otherwise
      have any rights in or to, the Company’s Intellectual Property valid and
      enforceable written assignments of any such work, invention, improvement or
      other rights to the Company and has made available true and complete copies
      of
      such assignments to the Holder. The Company has taken commercially reasonable
      measures to protect the proprietary nature of the Company’s Intellectual
      Property and to maintain in confidence all trade secrets and confidential
      information owned or used by the Company.

     

    (E)           As
      used in this Agreement, “Intellectual Property” means all tangible or
      intangible proprietary information and materials, including, without limitation:
      (A) (I) all inventions (whether patentable or un-patentable and whether or
      not
      reduced to practice), all improvements thereon, and all patents, patent
      applications (including provisional applications) and patent disclosures,
      together with all re-issuances, continuations, continuations in part, divisions,
      revisions, extensions and re-examinations thereof, (II) all trademarks, services
      marks, trade dress, logos, trade names, domain names, and corporate names,
      together with all translations, adaptations, derivations and combinations
      thereof and including all goodwill associated therewith, and all applications,
      registrations and renewals in connection therewith, (III) all copyrights
      (whether or not registered) and all applications, registrations and renewals
      in
      connection therewith, (IV) all trade secrets and confidential business
      information (including ideas, research and development, know how, formulas,
      compositions, manufacturing and production process and techniques, methods,
      schematics, technology, technical data, designs, drawings, flowcharts, block
      diagrams, specifications, customer and supplier lists, pricing and cost
      information and business and marketing plans and proposals), and (V) all
      software and firmware (including data, databases and related documentation);
      (B)
      all documents, records and files relating to design, end user documentation,
      manufacturing, quality control, sales, marketing or customer support for, and
      tangible embodiments of, all intellectual property described herein; and (C)
      all
      licenses, agreements and other rights in any third party product or any third
      party intellectual property described in (A) and (B) above other than any
“off-the-shelf” third party software or related intellectual
      property.

     

    (F)           As
      used in this Agreement, “Person” means an individual, corporation,
      partnership, association, trust or other entity or organization, including
      a
      government or political subdivision or an agency or instrumentality
      thereof

     

    (vii)           Brokers.  Neither
      the Purchasers nor the Company has taken any action which would give rise to
      any
      claim by any person for brokerage commissions, finder’s fees or similar payments
      by the Company or the Purchasers relating to this Agreement or the transactions
      contemplated hereby.

     


    
      
        
        

      

      
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    3.           Representations
      and Warranties of the Purchasers.  Each of the Purchasers
      represents and warrants to the Company as of the Closing Date as:

     

    (a)           All
      action on the part of such Purchaser for the authorization, execution, delivery
      and performance by Purchaser of this Agreement have been taken, and this
      Agreement constitutes a valid and binding obligation of such Purchaser,
      enforceable in accordance with its terms, except as may be limited by applicable
      bankruptcy, insolvency, reorganization, or similar laws relating to or affecting
      the enforcement of creditors’ rights.

     

    (b)           The
      Purchaser is acquiring the Notes for investment for its own account and not
      with
      a view to, or for resale in connection with, any distribution.  The
      Purchaser understands that the Notes to be acquired have not been registered
      under the Act of 1933, as amended (the “Act”), by reason of a specific
      exemption from the registration provisions of the Act which depends upon, among
      other things, the bona fide nature of the investment intent as expressed
      herein.

     

    (c)           The
      Purchaser represents that it is an Accredited Investor, as defined in Rule
      501
      promulgated under the Act.

     

    (d)           The
      Purchaser is experienced in evaluating and investing in securities of companies
      similarly situated to the Company, and acknowledges that it is able to fend
      for
      itself, can bear the economic risk of an investment in the Notes, and has such
      knowledge and experience in financial or business matters that it is capable
      of
      evaluating the merits and risks of the investment in the Notes.

     

    (e)           The
      Purchaser believes it has received all the information it considers necessary
      or
      appropriate for deciding whether to purchase the Notes.  The Purchaser
      further represents that it has had an opportunity to ask questions and receive
      answers from the Company regarding the terms and conditions of the offering
      of
      the Notes and the business, properties, prospects and financial condition of
      the
      Company.

     

    (f)           The
      Purchaser acknowledges that the Notes must be held indefinitely unless
      subsequently registered under the Act or unless an exemption from such
      registration is available.  The Purchaser is aware of the provisions
      of Rule 144 promulgated under the Act which permits limited resale of securities
      purchased in a private placement subject to the satisfaction of certain
      conditions, including, unless the Purchaser is an affiliate of the Company,
      among other things, the availability of certain current public information
      about
      the Company, the resale occurring not less than one year after a party has
      purchased and paid for the securities to be sold, the sale being through a
      “broker’s transaction” or in transactions directly with a “market maker,” and
      the number of shares being sold during any three-month period not exceeding
      specified limitations.

     


    
      
        
        

      

      
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    (g)           The
      Purchaser hereby represents that it has satisfied itself as to the full
      observance of the laws of its jurisdiction in connection with any invitation
      to
      subscribe for the Notes or any use of this Agreement, including: (i) the legal
      requirements within the Purchaser’s jurisdiction for the purchase of the Notes;
      (ii) any foreign exchange restrictions applicable to such purchase; (iii) any
      governmental or other consents that may need to be obtained; and (iv) the income
      tax and other tax consequences, if any, that may be relevant to the purchase,
      holding, redemption, conversion, sale, or transfer of the Notes.  The
      Purchaser’s subscription and payment for, and the Purchaser’s continued
      beneficial ownership of the Notes, will not violate any applicable securities
      or
      other laws of the Purchaser’s jurisdiction.  The Purchaser understands
      and agrees that it (and not the Company) shall be responsible for its own tax
      liability that may arise as a result of this investment or the transactions
      contemplated by this Agreement

     

    4.           Legends.  All
      certificates representing any of the Notes and Warrants issued pursuant to
      the
      terms hereof shall have endorsed thereon a legend substantially as
      follows:

     

    “THESE
      SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
      1933.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
      IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
      UNDER
      SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
      REGISTRATION IS NOT REQUIRED.”

     

    5.           Additional
      Agreements

     

    (a)           Absence
      of Non-public Information.  Company represents and warrants that
      Company has not provided to Holder, and Holder has not received and will not
      be
      provided with, any material non-public information concerning
      Company.  In the event that any material non-public information is
      hereafter provided to Holder such materials shall be included in a Regulation
      FD
      disclosure filing made by the Company within one business day following the
      date
      on which such materials are provided to Holder.  The absence of such a
      filing shall be deemed conclusive evidence that the Company does not believe
      such materials contain any material non-public information or disclosures which
      could result in Holder investors being deemed “insiders” for purposes of any
      securities laws.

     

    (b)           Liens
      and Indebtedness.  The Company agrees it shall not incur any
      indebtedness for money borrowed or incur any Liens prior to the repayment in
      full of the Note.

     


    
      
        
        

      

      
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    (c)           Indemnification
      of Purchasers.   The Company will indemnify and hold each
      Purchaser and its directors, officers, shareholders, members, partners,
      employees and agents (and any other Persons with a functionally equivalent
      role
      of a Person holding such titles notwithstanding a lack of such title or any
      other title), each Person who controls such Purchaser (within the meaning of
      Section 15 of the Securities Act and Section 20 of the Securities Exchange
      Act
      of 1934, as amended), and the directors, officers, shareholders, agents,
      members, partners or employees (and any other Persons with a functionally
      equivalent role of a Person holding such titles notwithstanding a lack of such
      title or any other title) of such controlling person (each, a “Purchaser
      Party”) harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to (a) any breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Transaction Documents or (b) any action instituted against a Purchaser, or
      any
      of them or their respective Affiliates, by any stockholder of the Company who
      is
      not an Affiliate of such Purchaser, with respect to any of the transactions
      contemplated by the Transaction Documents (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Transaction Documents or any agreements or understandings such Purchaser may
      have with any such stockholder or any violations by the Purchaser of state
      or
      federal securities laws or any conduct by such Purchaser which constitutes
      fraud, gross negligence, willful misconduct or malfeasance).  If any
      action shall be brought against any Purchaser Party in respect of which
      indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
      promptly notify the Company in writing, and the Company shall have the right
      to
      assume the defense thereof with counsel of its own choosing reasonably
      acceptable to the Purchaser Party.  Any Purchaser Party shall have the
      right to employ separate counsel in any such action and participate in the
      defense thereof, but the fees and expenses of such counsel shall be at the
      expense of such Purchaser Party except to the extent that (i) the employment
      thereof has been specifically authorized by the Company in writing, (ii) the
      Company has failed after a reasonable period of time to assume such defense
      and
      to employ counsel or (iii) in such action there is, in the reasonable opinion
      of
      such separate counsel, a material conflict on any material issue between the
      position of the Company and the position of such Purchaser Party, in which
      case
      the Company shall be responsible for the reasonable fees and expenses of no
      more
      than one such separate counsel.  The Company will not be liable to any
      Purchaser Party under this Agreement (i) for any settlement by a Purchaser
      Party
      effected without the Company’s prior written consent, which shall not be
      unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
      that a loss, claim, damage or liability is attributable to any Purchaser Party’s
      breach of any of the representations, warranties, covenants or agreements made
      by such Purchaser Party in this Agreement or in the other Transaction
      Documents.

     

    6.           General
      Provisions.

     

    (a)           Governing
      Law; Jurisdiction.  THIS AGREEMENT SHALL BE GOVERNED IN ALL
      RESPECTS BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
      PRINCIPLES OF CONFLICTS OF LAWS.  COMPANY CONSENTS TO THE EXCLUSIVE
      JURISDICTION OF THE FEDERAL OR STATE COURT LOCATED IN NEW YORK, NEW YORK, WITH
      RESPECT TO ANY CLAIM OR CONTROVERSY RELATED TO THE ENFORCEMENT OR INTERPRETATION
      OF THIS NOTE.

     


    
      
        
        

      

      
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    (b)           Notices.  Any
      notice or other communication required or permitted to be given hereunder shall
      be in writing by mail, facsimile or personal delivery and shall be effective
      upon actual receipt of such notice.  The addresses for such
      communications shall be as set forth below until notice is received that any
      such address or contact information has been changed:

     

    
      	
              If
                to the Company:

            
	
              Telkonet,
                Inc.

              20374
                Seneca Meadows Parkway

              Germantown,
                MD 20876

              Att:
                Ronald W. Pickett

            
	
              If
                to the Purchasers:

            
	
              To
                such names and addresses as shall be set forth on Schedule 1
                hereto

            
	
              With
                a copy to:

            
	
              Haynes
                and Boone, LLP

              153
                East 53rd
                Street

              Suite
                4900

              New
                York, New York 10022

              Fax:
                (212) 918-8989

              Attn:
                Harvey Kesner, Esq.

            


    

    


    (c)           Entire
      Agreement.  Except as otherwise provided herein, this Agreement,
      the Note and the other documents delivered pursuant hereto constitute the full
      and entire understanding and agreement between the parties with regard to the
      subjects hereof and thereof.

     

    (d)           Amendment.  This
      Agreement may only be amended, waived, discharged or terminated by a written
      instrument signed by the party against whom enforcement of any such amendment,
      waiver, discharge or termination is sought.

     

    (e)           Successors
      and Assigns.  This Agreement, the Notes, the Warrants and the
      Warrant Shares held by Purchasers may be transferred or assigned by the
      Purchasers in whole or in part, in such Purchaser’s sole and absolute
      discretion.  Except as otherwise expressly provided in this Agreement,
      the provisions of this Agreement shall inure to the benefit of, and be binding
      upon, the successors, assigns, heirs, executors and administrators of the
      parties hereto.

     

    (f)           Severability.  In
      case any provision of this Agreement shall be invalid, illegal or unenforceable,
      the validity, legality and enforceability of the remaining provisions shall
      not
      in any way be affected or impaired thereby.

     

    (g)           Titles
      and Subtitles.  The titles of the Sections of this Agreement are
      for convenience of reference only and are not to be considered in construing
      this Agreement.

     


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    


    (h)           Expenses.  The
      Company and the Purchasers shall each bear their own expenses incurred with
      respect to this transaction, provided, however, that on the Closing Date,
      Company shall pay legal fees and expenses of Haynes and Boone LLP, counsel
      to
      Purchasers, in the amount of $20,000 from the proceeds of the sale of the
      Notes.

     

    (i)           Counterparts.  This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      an original, but all of which together shall be deemed to constitute one
      instrument.

     

    (j)           Counsel.  All
      parties hereto have been represented by counsel, and no inference shall be
      drawn
      in favor of or against any party by virtue of the fact that such party’s counsel
      was or was not the principal draftsman of this Agreement.

     

    IN
      WITNESS WHEREOF, the parties have caused this agreement to be executed by its
      officers thereunto duly authorized.

     

     

     

    
      	 	
              TELKONET,
                INC.

            	 
	 	 	 	 
	
              November
                9,
                2007

            	
              By:
                

            	/s/ 
              Ronald W. Pickett	 
	 	 	Ronald
              W. Pickett	 
	 	 	Chief
              Executive Officer	 
	 	 	 	 




     

    


     


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    


    


     

     

     

    


    


    
      	 	
              “Purchasers”

              
                GRQ
                  CONSULTANTS, INC.

              

            	 
	 	 	 	 
	
              November
                9,
                2007

            	
              By:
                

            	/s/ 
Barry
              Honig	 
	 	 	Barry
              Honig	 
	 	 	President	 
	 	 	 	 


    

    


     

    


     


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    


    


    Schedule
      1

     

    Purchasers

     

    
      	
              Name
                and Address

            	
              Principal
                Amount of Notes

            
	
              GRQ
                Consultants, Inc.

              595
                S. Federal Highway

              Suite
                60

              Boca
                Raton, Florida  33431

              Att:
                Barry Honig, President

            	
              $1,500,000

            


    

    


    


    


    13