ESCROW
      AGREEMENT

     

    THIS
      ESCROW AGREEMENT
      (this
“Agreement”) is made and entered into as of the 16th
      day of
      July, 2007 by and among U.S. Bank National Association (the “Escrow Agent”),
      Microwave Satellite Technologies, Inc.,
      (the
“Purchaser”), and Newport Telecommunications Co. (the “Seller”). The Seller, the
      Purchaser and the Escrow Agent may be individually referred to herein as a
      “Party” and collectively as the “Parties”.

     

    W
      I T N E S S E T H:

     

    WHEREAS,
      Seller
      and Purchaser are parties to an Asset Purchase Agreement of even date herewith
      whereby the Seller is to sell and the Purchaser is to purchase certain assets
      of
      Seller in connection with Seller’s operation of its telecommunications business
      (the “Purchase Agreement”), as more specifically provided for therein; and


     

    WHEREAS,
      in
      connection with the consummation of the transactions described in the Purchase
      Agreement, Purchaser is to deposit: (a) $510,000.00 (the “Cash Consideration”);
      (b) stock certificates (the “Stock Certificates”) representing an aggregate
      amount of shares (the “Shares”) of $0.001 par value common stock of Telkonet,
      Inc., a Delaware corporation (“Telkonet”) equal to $1,530,000.00, (which is
      acknowledged to be based on the average of the closing price for one share
      of
      Telkonet common stock for the ten (10) trading days occurring immediately prior
      to the date hereof) (the “Stock Consideration”); and (c) stock powers for the
      Shares duly endorsed by Telkonet, with the Escrow Agent; and

     

    WHEREAS,
      Purchaser and Seller wish to engage the Escrow Agent as the escrow agent for
      the
      deposit of the Cash Consideration, the Stock Certificates and the Stock Powers;
      and 

     

    WHEREAS,
      a
      copy of
      the Purchase Agreement has been delivered to the Escrow Agent, and the Escrow
      Agent is willing to act as the Escrow Agent hereunder.

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual covenants herein contained and other good and
      valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, and intending to be legally bound, Seller, Purchaser and Escrow
      Agent hereby agree as follows:

     

    1.    Escrow
      Account and Deposit.
      The
      Escrow Agent has established, or simultaneously with the execution hereof will
      establish, an account (the “Escrow Account”) into which Purchaser has deposited,
      or simultaneously with the execution hereof will deposit: (a) the Cash
      Consideration; (b) the Stock Certificates; and (c) the Stock Powers. The Cash
      Consideration shall be deposited by wire transfer in immediately available
      funds
      to the account designated in, and pursuant to, the instructions set forth on
      Exhibit
      A
      attached
      hereto. The Cash Consideration shall be invested pursuant to Section 3 hereof.
      The deposit of the Stock Certificates, Stock Powers and Cash Consideration
      is
      referred to herein as the “Deposit.” Upon receipt of the Deposit, the Escrow
      Agent shall provide Purchaser and Seller confirmation thereof, and shall hold
      and disburse such Deposit (plus any increase in the Cash Consideration due
      to
      investment earnings) as set forth in this Agreement. 

     

    2.    Maintenance
      of Escrow Deposit.
      During
      the term of this Agreement, the Escrow Agent shall hold and safeguard the
      Deposit (including the earnings on the Cash Consideration) in accordance with
      this Agreement and shall release and disburse the Deposit (and any earnings
      on
      the Cash Consideration) only in accordance with this Agreement. Neither the
      Cash
      Consideration (or any earnings thereon), the Stock Certificates nor the Stock
      Powers shall be subject to any lien, attachment, trustee process or any other
      judicial process of any creditor of any third party, and shall be held and
      distributed solely for purposes of and in accordance with this Agreement. In
      furtherance thereof, Purchaser and Telkonet covenant and agree that they shall
      not directly or indirectly assign, pledge, encumber or hypothecate the Deposit
      (including any earnings on the Cash Consideration) held in escrow by Escrow
      Agent. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.    Investment
      of Cash Consideration.
      The
      Cash Consideration held by Escrow Agent shall be invested by the Escrow Agent,
      to the extent permitted by law and as directed, in writing, by Seller from
      time
      to time, in a high yield interest bearing account until released pursuant to
      this Agreement. Any income received by the Escrow Agent with respect to said
      investment shall become part of the Cash Consideration and held, safeguarded,
      invested, released and disbursed by Escrow Agent only in accordance with the
      terms of this Agreement.

     

    4.    Calculation
      of Subscribers and Adjustment to Purchase Price.
      Within
      fifteen (15) days following the date hereof, Seller shall deliver to Purchaser
      and Escrow Agent written notice which shall identify: (a) all of the Subscribers
      in good standing (as defined in Section 2(b) of the Purchase Agreement); (b)
      all
      credits to be provided to Purchaser or additional consideration to be provided
      to Seller, if any, as calculated in accordance with Section 2(b) of the Purchase
      Agreement; and (c) if any credits or additional consideration is to be provided
      to Purchaser or Seller, as applicable, the amount of such credits or additional
      consideration to be paid in cash and the amount that shall be paid in Telkonet
      Shares as determined in accordance with Section 2(b) of the Purchase Agreement
      (the information and calculations set forth in Sections 4(a), 4(b) and 4(c)
      above, the “Subscriber Calculation”). Purchaser shall have sixty (60) days after
      receipt of the Subscriber Calculation (the “Review Period”) to review the
      Subscriber Calculation provided by Seller. The Subscriber Calculation provided
      by Seller shall be conclusive and binding on Seller and Purchaser unless
      Purchaser delivers written notification to Seller and Escrow Agent of
      Purchaser’s disagreement with the Subscriber Calculation provided by Seller (the
“Notice of Disagreement”) prior to the expiration of the Review Period.
      Purchaser’s Notice of Disagreement, if any, must state Purchaser’s specific
      objections to the Subscriber Calculation provided by Seller and Purchaser’s
      proposed calculation of the Subscriber Calculation. In the event that the Escrow
      Agent does not receive Purchaser’s Notice of Disagreement prior to the
      expiration of the Review Period, the Escrow Agent shall rely on the Subscriber
      Calculation provided by Seller and release the Deposit (including any earnings
      on the Cash Consideration) in accordance with the applicable provisions of
      Section 5 of this Agreement. If Purchaser notifies the Seller and the Escrow
      Agent of its disagreement with Seller’s prepared Subscriber Calculation prior to
      the expiration of the Review Period, then Purchaser and Seller shall use their
      good faith efforts to agree on the Subscriber Calculation and to execute Joint
      Written Instructions (as hereinafter defined) within ten (10) days following
      Seller’s receipt of Purchaser’s Notification of Disagreement (the “Negotiating
      Period”). Any such Joint Written Instructions executed by Purchaser and Seller
      within the Negotiation Period shall be delivered to the Escrow Agent no later
      than 120 days after the date hereof and in the event that any such Joint Written
      Instructions have not been delivered to the Escrow Agent prior to 120 days
      after
      the date hereof, the Purchaser and Seller agree that the Seller shall be
      entitled to deliver any such Joint Written Instructions 120 days after the
      date
      hereof. In the event Purchaser and Seller are unable to resolve their
      disagreement with respect to any issue relating to the Subscriber Calculation
      within the Negotiating Period, Purchaser and Seller hereby agree that they
      shall
      jointly engage the accounting firm of JH Cohen, LLP (the “Independent
      Accountants”) to resolve the issues in dispute and that they each shall provide
      the Independent Accountants with all documents and information used by Seller
      in
      calculating the Subscriber Calculation or used by Purchaser in disputing
      Seller’s Subscriber Calculation, as applicable, no later than ten (10) days
      after the expiration of the Negotiating Period. Based upon the information
      and
      documents provided by Seller and Purchaser to the Independent Accountants,
      the
      Independent Accountants shall, within a commercially reasonable time, determine
      the Subscriber Calculation by determining (the “Accountants’ Determination”):
      (a) all of the Subscribers in good standing (as defined in Section 2(b) of
      the
      Purchase Agreement); (b) all credits to be provided to Purchaser or additional
      consideration to be provided to Seller, if any, as calculated in accordance
      with
      Section 2(b) of the Purchase Agreement; and (c) if any credits or additional
      consideration is to be provided to Purchaser or Seller, as applicable, the
      amount of such credits or additional consideration to be paid in cash and the
      amount that shall be paid in Telkonet Shares as determined in accordance with
      Section 2(b) of the Purchase Agreement. The Independent Accountants shall
      provide Seller, Purchaser and Escrow Agent written notice of the Accountants’
Determination promptly after it has completed all applicable calculations.
      Absent fraud, the Accountants’ Determination shall be final, binding and
      conclusive upon Purchaser and Seller and shall be the sole and exclusive remedy
      regarding any dispute concerning the Subscriber Calculation. Purchaser and
      Seller shall share equally the fees and expenses of the Independent Accountants.
      Upon the request of the Independent Accountants, Seller and Purchaser shall
      promptly furnish to the Independent Accountants such additional work papers
      and
      other documents and information that has not been previously provided to the
      Independent Accountants relating to the issues in dispute as the Independent
      Accountants may request and that are available to such Party. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.    Release
      by Escrow Agent.
      

     

    (a)    The
      “Triggering Event” shall be the first to occur of: (i) the Escrow Agent’s
      receipt of joint written instructions from Seller and Purchaser instructing
      the
      Escrow Agent to release the Deposit (including all earnings on the Cash
      Consideration) (the “Joint Written Instructions”); (ii) the expiration of the
      120 day period following the date hereof (the “Escrow Period”) if: (A) the
      Purchaser has not delivered its Notice of Disagreement to both the Escrow Agent
      and Seller during the Review Period; or (B) the Purchaser has delivered its
      Notice of Disagreement to both the Escrow Agent and Seller during the Review
      Period and the Escrow Agent has received the Accountants’ Determination during
      the Escrow Period; or (iii) the Escrow Agent’s receipt of the Accountants’
Determination if such receipt occurs after the Escrow Period. 

     

    (b)    Upon
      the
      occurrence of the Triggering Event, the Escrow Agent shall release and disburse
      the Deposit (including all earnings on the Cash Consideration) in accordance
      with the terms of this Section 5 and the instructions provided for in: (i)
      the
      Joint Written Instructions in the event that the Triggering Event is set forth
      in subsection 5(a)(i) above, (ii) the Subscriber Calculation provided by Seller
      to Purchaser which commenced the Review Period in the event that the Triggering
      Event is set forth in subsection 5(a)(ii)(A) above, and (iii) the Accountants’
Determination in the event that the Triggering Event is set forth in subsection
      5(a)(ii)(B) or 5(a)(iii) above. The instructions provided to the Escrow Agent
      in
      the Joint Written Instructions in the event that the Triggering Event is set
      forth in subsection 5(a)(i) above or the Subscriber Calculation provided by
      Seller to commence the Review Period in the event that the Triggering Event
      is
      set forth in subsection 5(a)(ii)(A) above or the Accountants’ Determination in
      the event that the Triggering Event is set forth in subsection 5(a)(ii)(B)
      or
      5(a)(iii) above shall be referred to herein as the “Release
      Instructions.”

     

    (i) In
      the
      event that the Release Instructions do not provide for any credits or additional
      consideration to be provided to Purchaser or Seller, as applicable, the Escrow
      Agent shall, immediately upon the Triggering Event, release to Seller: (A)
      the
      Cash Consideration (plus all earnings thereon), in immediately available funds;
      and (B) the Stock Certificates and Stock Powers.

     

    (ii) In
      the
      event that the Release Instructions notifies the Escrow Agent that additional
      consideration shall be delivered to Seller: (A) the Escrow Agent shall release
      to Seller immediately upon the Triggering Event: (1) the Cash Consideration
      (plus all earnings thereon) in immediately available funds; and (2) the Stock
      Certificates and Stock Powers; and (B) Purchaser shall immediately upon the
      Triggering Event deliver to Seller: (1) new Stock Certificates representing
      the
      additional Telkonet Shares to be paid to Seller as additional Stock
      Consideration and new Stock Powers for such additional Telkonet Shares; and
      (2)
      an additional amount equal to the cash portion of the additional consideration
      to be provided to Seller in immediately available funds. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii) In
      the
      event that the Release Instructions notifies the Escrow Agent that a credit
      shall be provided to Purchaser and a portion of the credit is to be satisfied
      by
      Telkonet Shares in accordance with Section 2(b) of the Purchase Agreement,
      the
      Purchaser shall on or prior to the Triggering Event, deliver to the Escrow
      Agent
      new Stock Certificates which shall represent an amount of Shares equal to the
      Stock Consideration less all credits to the Stock Consideration to be provided
      to Purchaser and new Stock Powers corresponding to such new Stock Certificates.
      Immediately upon the Triggering Event, the Escrow Agent shall: (A) deliver
      to
      Seller: (1) new Stock Certificates which shall represent an amount of Shares
      equal to the Stock Consideration less all credits to the Stock Consideration
      and
      the new Stock Powers for these new Stock Certificates; and (2) an amount equal
      to the Cash Consideration (plus any earnings thereon) less any credits to be
      provided to Purchaser, as provided for in the Release Instructions and to be
      paid in immediately available funds; and (B) deliver to Purchaser: (1) the
      Stock
      Certificates and Stock Powers which have been deposited with the Escrow Agent
      as
      part of the Deposit; and (2) an amount equal to all credits to the Cash
      Consideration, as provided for in the Release Instructions and to be paid in
      immediately available funds. 

     

    (iv) In
      the
      event that the Release Instructions notifies the Escrow Agent that a credit
      shall be provided to Purchaser but no portion of the credit is to be satisfied
      by Telkonet Shares, the Escrow Agent shall immediately upon the Triggering
      Event: (A) deliver to Seller, (1) the Stock Certificates and Stock Powers;
      and
      (2) an amount equal to the Cash Consideration (plus any earnings thereon) less
      any credits to the Cash Consideration to be provided to Purchaser, as provided
      for in the Release Instructions and to be paid in immediately available funds;
      and (B) deliver to Purchaser, an amount equal to all credits to the Cash
      Consideration, as provided for in the Release Instructions which reflects a
      credit to the Cash Consideration to be provided to the Purchaser and to be
      paid
      in immediately available funds.

     

    (c)    Notwithstanding
      anything contained in this Agreement to the contrary, the Escrow Agent shall
      release all or any portion of the Cash Consideration (plus any earnings
      thereof), the Stock Certificates and Stock Powers upon the Escrow Agent’s
      receipt of a final order of a court of competent jurisdiction authorizing the
      Escrow Agent to make any such release even if such authorization is received
      by
      the Escrow Agent prior the Escrow Agent’s receipt of the Release
      Instructions.

     

    6.    Reliance
      by Escrow Agent.
      The
      Escrow Agent shall be entitled to rely upon and act in accordance with any
      of:
      (a) the Release Instructions; and (b) a final order of a court of competent
      jurisdiction authorizing the Escrow Agent to release the Deposit, or any portion
      thereof, to Purchaser or Seller.

     

    7.    Conflicting
      Demands.
      If
      conflicting demands are made upon the Escrow Agent, the Escrow Agent shall
      not
      be required to resolve such controversy or take any action, but may await
      resolution of the controversy; provided;
      however,
      that
      upon the occurrence of a Triggering Event, the Escrow Agent shall be required
      to
      release and disburse the Deposit (including all earnings on the Cash
      Consideration) in accordance with the Release Instructions and Section 5 of
      this
      Agreement. 

     

    8.    Indemnification;
      Fees of Escrow Agent.
      Purchaser and Seller shall jointly and severally pay, and hold the Escrow Agent
      harmless against, all costs, charges, damages and attorneys’ fees which the
      Escrow Agent in good faith may incur or suffer in connection with or arising
      out
      of this Agreement; provided, however, that, if either Purchaser and Seller
      shall
      act in bad faith and cause Escrow Agent to incur any costs, charges, damages
      or
      other expenses, including, but not limited to, any costs incurred by Escrow
      Agent due to a Party’s failure to act in good faith or in a timely manner with
      respect to the calculation and review of the Subscriber Calculation, such Party
      acting in bad faith shall indemnify and hold the Escrow Agent harmless from
      all
      such costs and the other Party shall have no obligation to pay any amounts
      to or
      otherwise indemnify the Escrow Agent or the other Party. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    9.    Rights
      and Duties of Escrow Agent.

     

    (a)    No
      assignment of the interest of any of the parties hereto shall be binding upon
      the Escrow Agent unless and until written evidence of such assignment in a
      form
      reasonably satisfactory to the Escrow Agent shall be delivered to the Escrow
      Agent.

     

    (b)    The
      Escrow Agent may rely or act upon orders or directions signed by the proper
      parties, or bearing a signature or signatures reasonably believed by the Escrow
      Agent to be genuine. 

     

    (c)    The
      Escrow Agent shall have no duties other than those expressly imposed on it
      herein and shall not be liable for any act or omission except for its own gross
      negligence or willful misconduct.

     

    (d)    In
      the
      event that the Deposit or any proceeds thereof shall be attached, garnished,
      or
      levied upon by an order of any court, or the delivery thereof shall be stayed
      or
      enjoined by an order of court, or any order, judgment or decree shall be made
      or
      entered by any court affecting the property deposited under this Agreement,
      or
      any part thereof, the Escrow Agent is hereby expressly authorized in its sole
      discretion to obey and comply with all writs, orders or decrees so entered
      or
      issued, which it is advised by legal counsel of its own choosing is binding
      upon
      it, whether with or without jurisdiction, and in case the Escrow Agent obeys
      or
      complies with any such writ, order or decree it shall not be liable to any
      of
      the parties hereto or to any other person, firm or corporation, by reason of
      such compliance notwithstanding that such writ, order or decree be subsequently
      reversed, modified, annulled, set aside or vacated.

     

    (e)    The
      Escrow Agent may resign by giving sixty (60) days written notice of resignation,
      specifying the effective date thereof. Within thirty (30) days after receiving
      the aforesaid notice, Seller and Purchaser agree to appoint a successor escrow
      agent to which the Escrow Agent shall transfer the Deposit or any proceeds
      thereof then held in escrow under this Agreement. If a successor escrow agent
      has not been appointed and/or has not accepted such appointment by the end
      of
      the 30-day period, the Escrow Agent may at its sole option: (i) apply to a
      court
      of competent jurisdiction for the appointment of a successor escrow agent,
      and
      the costs, expenses and reasonable attorneys’ fees which are incurred in
      connection with such a proceeding shall be paid one-half by Seller and one-half
      by Purchaser, or (ii) continue to hold the Deposit until the occurrence of
      a
      Triggering Event (in such event the Escrow Agent must release and disburse
      the
      Deposit in accordance with the Release Instructions and Section 5 of this
      Agreement) or it receives an order from a court of competent jurisdiction
      directing the Escrow Agent to release the Deposit.

     

    10.    Notices.
      Any
      notice or other correspondence to be given in connection with this Agreement
      shall be in writing and shall be delivered by hand, overnight courier or by
      facsimile (provided that the sender receives printed confirmation of receipt)
      to
      the addresses and/or facsimile numbers set forth below or to such other address
      or facsimile number as a party may designate by notice given to the other party
      in accordance with the terms hereof. Any notice to be given by a party may
      be
      given by such party’s counsel. Each notice shall be deemed effective upon its
      receipt or refusal.

    

      
        	
                (a)
                  if to Seller:

              	
                James
                  Lavin

              
	 	
                Newport
                  Telecommunications Co.

              
	 	
                111
                  Town Square Place

              
	 	
                Jersey
                  City, New Jersey 07310

              


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                with
                  a copy (which shall

              	 
	
                not
                  constitute notice) to:

              	
                James
                  T. LeFrak

              
	 	
                LeFrak
                  Organization, Inc.

              
	 	
                40
                  West 57th Street, 23rd Floor

              
	 	
                New
                  York, New York 10019

              
	 	 
	
                with
                  a copy (which shall

              	 
	
                not
                  constitute notice) to:

              	 
	 	
                Riker,
                  Danzig, Scherer, Hyland & Perretti, LLP

              
	 	
                Headquarters
                  Plaza

              
	 	
                One
                  Speedwell Avenue

              
	 	
                Morristown,
                  New Jersey 07962

              
	 	
                Attention:
                  James Meyer

              
	 	
                Facsimile
                  (973) 538-1984

              
	 	 
	
                (b)
                  if to Purchaser: 

              	
                Frank
                  T. Matarazzo

              
	 	
                259-263
                  Goffle Road

              
	 	
                Hawthorne,
                  New Jersey 07506

              
	 	
                Fax:
                  (973) 304-6081

              
	 	 
	
                with
                  a copy (which shall

              	 
	
                not
                  constitute notice) to:

              	
                Womble
                  Carlyle Sandridge & Rice, PLLC

              
	 	
                1401
                  I Street, N.W. 7th Floor

              
	 	
                Washington,
                  DC 20005

              
	 	
                Attention:
                  Howard J. Barr

              
	 	
                Facsimile:
                  (202) 261-0006

              


      

    

    


    (c)
      if to
      Escrow Agent: 

     

    or
      to
      such other address as may be specified by any party in a written notice to
      the
      other parties. Notices
      and other communications so delivered personally shall be deemed delivered
      when
      actually received. Notices and other communications so sent by certified mail
      or
      by reputable overnight air delivery service shall be deemed delivered and
      received on the first to occur of (x) three business days following deposit
      in the United States mail or
      one
      business day following delivery of the same to such delivery service, as
      applicable, (y) written acceptance of delivery by the recipient thereof or
      (z) written rejection of delivery by the recipient thereof. Notices and other
      communications sent by a Party’s counsel shall be deemed duly and properly given
      in accordance with the terms hereof so long as all of the other requirements
      contained herein are satisfied. Notices and other communications so transmitted
      by telecopier shall be deemed delivered upon telephone or electronic
      confirmation of receipt. If a notice or other communication is received on
      a day
      that is not a business day, it shall be deemed received on the next business
      day
      following such day.

     

    11.    Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws
      of
      New
      Jersey without giving effect to the principles of conflicts of
      laws.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    12.    Waiver.
      This
      Agreement may be amended or modified, and any term may be waived, only if such
      amendment, modification or waiver is in writing and signed by all
      parties.

     

    13.    No
      Third Party Beneficiaries.
      This
      Agreement is a personal one, the duty of the Escrow Agent being only to the
      parties hereto, their successors or assigns, and to no other person
      whatsoever.

     

    14.    Counterparts.
      This
      Agreement may be executed in counterparts that together shall constitute a
      single instrument. A facsimile copy of any signature hereto and to any amendment
      or supplement hereto shall be valid. 

     

    [Remainder
      of Page Intentionally Omitted; Signature Page Follows]

     

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

         

      

    


    IN
      WITNESS WHEREOF,
      the
      parties have caused this Agreement to be duly executed by their respective
      duly
      authorized officers all as of the day and year first above written.

     

    
      	 	 	 
	PURCHASER: 	MICROWAVE
              SATELLITE TECHNOLOGIES, INC.
	 
 	 
 	 
 
	 	By:  	/s/ Frank T. Matarazzo
	 	
              

            
	 	Name:
              Frank T. Matarazzo
	 	Title:
              President 


    

     

    
      	 	 	 
	SELLER: 	NEWPORT
              TELECOMMUNICATIONS CO.
	 
 	 
 	 
 
	 	By: Newport
              Telecommunications Company, Inc., its partner
	 	 
	 	By:  	 /s/ James T. LeFrak
	 	
              

            
	 	Name:
              James T. LeFrak
	 	Title:
              Vice President 


    

     
      
      	 	 	 
	ESCROW
              AGENT:	U.S.
              BANK NATIONAL ASSOCIATION
	 
 	 
 	 
 
	 	By:  	 /s/ Christopher E. Golabek
	 	
              

            
	 	Name:
              Christopher E. Golabek
	 	Title:
              Vice President