EMPLOYMENT
      AGREEMENT


    


    THIS
      AGREEMENT
      is by
      and between MICROWAVE
      SATELLITE TECHNOLOGIES, INC.,
      a New
      Jersey corporation with corporate offices located in Hawthorne, New Jersey
      (“MST”) and FRANK
      T. MATARAZZO
      (“Executive”).

     

    WHEREAS,
      MST is
      being acquired by Telkonet, Inc. (the “Acquisition”); and

     

    WHEREAS,
      prior
      to the Acquisition, MST was a corporation owned by Executive; and

     

    WHEREAS,
      subject
      to the Acquisition being completed (the “Effective Date”), MST desires to employ
      Executive, and Executive desires to be employed by MST;

     

    NOW
      THEREFORE,
      MST
      hereby employs Executive, and Executive hereby accepts employment with MST
      on
      the following terms and conditions:

     

    1. Duties. 
      MST
      hereby employs Executive in the capacity of President and Chief Executive
      Officer. In such capacity, Executive shall perform the duties of a president
      and
      chief executive officer in a professional, supervisory and managerial nature
      solely for the benefit of MST and pertaining to the business and affairs of
      MST
      as determined by the Board of Directors and/or the Executive Committee of MST.
      Executive shall report directly to Telkonet, Inc.’s Chief Executive Officer (the
“Telkonet CEO”). Executive’s duties and responsibilities shall also include, but
      not be limited to, the following:

     

    (a) Serve
      as
      the chief executive officer of MST’s operations and provide leadership for MST’s
      activities;

     

    (b) Oversee
      all MDU and, after a transition period as determined by the Telkonet CEO, all
      the hotel and motel operations of MST and Telkonet, Inc. In conjunction with
      the
      2006 planning process, the Executive and the Telkonet CEO and/or his designees
      will define the geographic boundaries and managed solution offerings to be
      the
      Executive’s responsibility;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) Hire,
      compensate, discipline and terminate MST staff within the approved budget,
      establish job descriptions, duties and responsibilities of all MST staff in
      accordance with MST Bylaws, and the policies and procedures of MST, perform
      regular evaluations of all MST staff, determine the level of compensation of
      such staff on the basis of such evaluations, within the approved budget and
      in
      accordance with the policies of MST and have primary responsibility for the
      day-to-day operations of MST;

     

    (d) Alert
      and
      advise the Board of Directors and/or the Executive Committee about reasonably
      significant matters needing their attention and action;

     

    (e) Serve
      as
      the representative of MST in activities related to its objectives and
      policies;

     

    (f) Direct
      the coordination of the activities of MST committees and projects;

     

    (g) Oversee,
      under the direction of the Board of Directors and with the assistance of MST’s
      outside certified public accountant (the “MST Accountant”), the custody and use
      of all funds, securities, property and, generally, all assets of MST and the
      deposit of the funds of MST;

     

    (h) Oversee
      the preparation of a proposed annual budget of MST;

     

    (i) Oversee
      the receipt and disbursement of MST funds in accordance with the adopted budget
      of MST;

     

    (j) Supervise
      the sales, installation and support of all MST subscriber acquisition
      activities;

     

    (k) Oversee,
      develop and expand all aspects of MST’s business, sales and production
      operations;

     

    (l) Present
      an annual financial report to the Board of Directors;

     

    
      
        
        

      

      
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    (m) Present
      to the Board of Directors an annual report of all activities of
      MST;

     

    (n) Negotiate,
      evaluate and execute all contracts, agreements and commitments arising in the
      ordinary course of MST’s business for and on behalf of MST, consistent with the
      duties and responsibilities set forth above;

     

    (o) Make
      expenditures consistent with the approved budget of MST; and

     

    (p) Implement
      all Board directives and perform all such other duties that may be assigned
      from
      time-to-time by the Board of Directors in its discretion.

     

    2. Term.
      The term
      of this Agreement (the “Term”) shall commence on the Effective Date and shall
      expire on December 31, 2008, unless terminated as provided in Section 6 or
      extended by the written mutual consent of the parties.

     

    3. Extent
      of Services.
      During
      the Term and any extension thereof, Executive shall devote his full time and
      efforts to the performance, to the best of his abilities, of such duties and
      responsibilities inherent in the position of President and Chief Executive
      Officer, as described in Section 1 above, and as the Board of Directors and/or
      the Officers of MST shall determine, consistent therewith.

     

    4. Compensation. 

     

    (a) Salary.
      Executive shall be paid Two Hundred Fifty Thousand Dollars ($250,000.00) on
      an
      annualized basis in accordance with MST’s normal payroll practices, and subject
      to all lawfully required withholding.

     

    (b) Executive
      Participation in MST Staff Benefits Plans.
      Following the Effective Date, Executive shall be entitled to participate in
      any
      group health programs and other benefit and incentive plans, which may be
      instituted from time-to-time for MST employees, and for which Executive
      qualifies under the terms of such plans and which shall include, but not be
      limited to, the benefits described on Exhibit A hereto.. All such benefits
      shall
      be provided on the same terms and conditions as generally apply to all other
      MST
      employees under these plans and may be modified by MST from
      time-to-time.

     

    
      
        
        

      

      
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    (c) Expenses.
      Subject
      to approval by the Telkonet CEO, Executive shall be reimbursed by MST for all
      ordinary, reasonable, customary and necessary expenses incurred by him in the
      performance of his duties and responsibilities as President. Executive agrees
      to
      prepare documentation for such expenses as may be necessary for MST to comply
      with the applicable rules and regulations of the Internal Revenue Service.
      MST
      will provide an auto for the Executive’s business use.

     

    5. Vacation.
      At full
      pay and without any adverse effect to his compensation, provided all other
      terms
      and conditions of this Agreement are satisfied, Executive shall be entitled
      to
      three (3) weeks of vacation for each full calendar year during the term of
      this
      Agreement. Executive agrees to schedule his vacation leave in advance upon
      written notice to the Telkonet CEO and at a time with minimum disruption to
      MST.
      Carryover of vacation days in excess of one week is subject to the prior
      approval of the CEO of Telkonet.

     

    6. Termination.
      This
      Agreement shall terminate in accordance with Section 2 of this Agreement, or
      upon the first to occur of any of the following events:

     

    (a) The
      bankruptcy or dissolution of MST;

     

    (b) The
      death
      of Executive;

     

    (c) The
      mutual consent of Executive and MST;

     

    (d) “Cause”
      exists for termination. For purposes of this Agreement, “cause” shall include,
      but not be limited to, the following: (1) theft, fraud, embezzlement, dishonesty
      or other similar behavior by Executive; (2) any material breach by Executive
      of
      any provision of this Agreement; (3) any habitual neglect of duty or misconduct
      of Executive in discharging any of his duties and responsibilities under this
      Agreement; (4) any conduct of Executive which is detrimental to or embarrassing
      to MST, including, but not limited to, Executive being indicated or convicted
      of
      a felony or any offense involving moral turpitude; or (5) any default of
      Executive’s obligations hereunder, or any failure or refusal of Executive to
      comply with the policies, rules and regulations of MST, which default, failure
      or refusal is not cured within a reasonable time (but not to exceed thirty
      (30)
      days) after written notification thereof to Executive by MST. If cause exists
      for termination, Executive shall be entitled to no further compensation, except
      for accrued leave and vacation and except as may be required by applicable
      law.

     

    
      
        
        

      

      
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    (e) any
      material breach by MST of any provision of this Agreement.

     

    7. Surrender
      of Books and Papers.
      Upon
      termination of this Agreement (irrespective of the time, manner, or cause of
      termination, be it for cause or otherwise), Executive shall immediately
      surrender to MST all books, records, or other written papers or documents
      entrusted to him or which he has otherwise acquired pertaining to MST and all
      other MST property in Executive’s possession, custody or control.

     

    8. Inventions
      and Patents.
      Executive agrees that Executive will promptly from time-to-time fully inform
      and
      disclose to MST any and all ideas, concepts, copyrights, copyrightable material,
      developments, inventions, designs, improvements and discoveries of whatever
      nature that Executive may have or produce during the term of Executive’s
      employment under this Agreement that pertain or relate to the then current
      business of MST (the “Creations”), whether conceived by Executive alone or with
      others and whether or not conceived during regular working hours. All Creations
      shall be the exclusive property of MST and shall be “works made for hire” as
      defined in 17 U.S.C. §101, and MST shall own all rights in and to the Creations
      throughout the world, without payment of royalty or other consideration to
      Executive or anyone claiming through Executive. Executive hereby transfers
      and
      assigns to MST (or its designee) all right, title and interest in and to every
      Creation. Executive shall assist MST in obtaining patents or copyrights on
      all
      such inventions, designs, improvements and discoveries being patentable or
      copyrightable by Executive or MST and shall execute all documents and do all
      things necessary to obtain letters of patent or copyright, vest the MST with
      full and exclusive title thereto, and protect the same against infringement
      by
      others, and such assistance shall be given by Executive, if needed, after
      termination of this Agreement for whatever cause or reason. Executive hereby
      represents and warrants that Executive has no current or future obligation
      with
      respect to the assignment or disclosure of any or all developments, inventions,
      designs, improvements and discoveries of whatever nature to any previous
      Employer, entity or other person and that Executive does not claim any rights
      or
      interest in or to any previous unpatented or uncopyrighted developments,
      inventions, designs, improvements or discoveries.

     

    
      
        
        

      

      
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    9. Trade
      Secrets, Non-Competition and Non-Solicitation.

     

    (a) Trade
      Secrets.
      Contemporaneous with the execution of this Agreement and during the term of
      employment under this Agreement, MST shall deliver to Executive or permit
      Executive to have access to and become familiar with various confidential
      information and trade secrets of MST and Telkonet, Inc., including without
      limitation, data, production methods, customer lists, product format or
      developments, other information concerning the business of MST and Telkonet,
      Inc., and other unique processes, procedures, services and products of MST
      and
      Telkonet, Inc., which are regularly used in the operation of the business of
      the
      MST and Telkonet, Inc. (collectively, the “Confidential Information”). Executive
      shall not disclose any of the Confidential Information that he receives from
      MST, Telkonet, Inc. or their clients and customers in the course of his
      employment with MST, directly or indirectly, nor use it in any way, either
      during the term of this Agreement or at any time thereafter, except as required
      in the course of employment with MST. Executive further acknowledges and agrees
      that Executive owes MST and Telkonet, Inc., a fiduciary duty to preserve and
      protect all Confidential Information from unauthorized disclosure or
      unauthorized use. All files, records, documents, drawings, graphics, processes,
      specifications, equipment and similar items relating to the business of MST
      and/or Telkonet, Inc., whether prepared by Executive or otherwise coming into
      Executive’s possession in the course of his employment with MST, shall remain
      the exclusive property of MST and Telkonet, Inc. and shall not be removed from
      the premises of MST and/or Telkonet, Inc. without the prior written consent
      of
      MST and/or Telkonet, Inc. unless removed in relation to the performance of
      Executive’s duties under this Agreement. Any such files, records, documents,
      drawings, graphics, specifications, equipment and similar items, and any and
      all
      copies of such materials which have been removed from the premises of MST and/or
      Telkonet, Inc., shall be returned by Executive to MST. Executive further
      acknowledges that the covenants of Executive herein are intended to include
      the
      protection of the confidential information of MST's and Telkonet, Inc.’s
      customers and clients, that come into the possession of Executive as a result
      of
      his employment with MST, and that such customers and clients of MST shall be
      entitled to rely on and enforce these covenants against Executive for their
      own
      benefit.

     

    
      
        
        

      

      
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    (b) Non-Competition.
      Executive acknowledges that he will be provided with and have access to the
      Confidential Information, the unauthorized use or disclosure of which would
      cause irreparable injury to MST, that MST’s willingness to enter into this
      Agreement is based in material part on Executive’s agreement to the provisions
      of this Section 9(b)
      and that
      Executive’s breach of the provisions of this Section would materially and
      irreparably damage MST. In consideration for MST’s disclosure of Confidential
      Information to Executive, Executive’s access to the Confidential Information,
      and the salary paid to executive by MST hereunder, Executive agrees that during
      Executive’s employment with MST under this Agreement and for one (1) year after
      the termination of Executive’s employment and regardless whether such
      termination is with or without cause, Executive shall not, directly or
      indirectly, either as an executive, employee, employer, consultant, agent,
      principal, partner, stockholder, corporate officer, director, advisor or in
      any
      other individual or representative capacity, engage or participate in any
      business that is in competition in any manner whatsoever with the Restricted
      Business (as defined herein) in New York City and any Major Metropolitan areas
      MST has committed and deployed, or undertaken significant development of, its
      managed solution. “Restricted Business” means (1) any business conducted by MST
      at any time prior to, or during Executive’s employment pursuant to this
      Agreement, and (2) any other related or similar business conducted by MST or
      Telkonet, Inc. during Executive’s employment with MST under this Agreement. The
      restrictions of this Section 9(b) shall not apply to the design, construction
      or
      maintenance of satellite business television networks.

    
      
        
        

      

      
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    (c) Reasonableness
      of Restrictions.
      Executive acknowledges that the restrictions set forth in Section
      9(b)
      of this
      Agreement are reasonable in scope and necessary for the protection of the
      business and goodwill of MST. Executive agrees that should any portion of the
      covenants in Section
      9
      be
      unenforceable because of the scope thereof or the period covered thereby or
      otherwise, the covenant shall be deemed to be reduced and limited to enable
      it
      to be enforced to the maximum extent permissible under the laws and public
      policies applied in the jurisdiction in which enforcement is
      sought.

     

    
      
        
        

      

      
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    (d) Soliciting
      Executives.
      Executive shall not during the term of this Agreement or for a period of one
      (1)
      year after termination of Executive’s employment hereunder for any reason,
      whether by resignation, discharge or otherwise, either directly or indirectly,
      employ, enter into agreement with, or solicit the employment of, Executives
      of
      MST or Telkonet, Inc. for the purpose of causing them to leave the employment
      of
      MST or Telkonet, Inc. or take employment with any business that is in
      competition in any manner whatsoever with the business of MST or Telkonet,
      Inc.

     

    (e) Injunctive
      Relief; Extension of Restrictive Period.
      In the
      event of a breach of any of the covenants by Executive or MST contained in
      this
      Agreement, it is understood that damages will be difficult to ascertain, and
      either party may petition a court of law or equity for injunctive relief in
      addition to any other relief which Executive or MST may have under the law,
      including but not limited to reasonable attorneys’ fees.

     

    10. Miscellaneous.

     

    (a) This
      Agreement shall be binding upon the parties and their respective heirs,
      executors, administrators, successors and assigns. Executive shall not assign
      any part of his rights under this Agreement without the prior written consent
      of
      MST.

     

    (b) This
      Agreement contains the entire agreement and understanding between the parties
      and supersedes any and all prior understandings and agreements between the
      parties regarding Executive’s employment.

     

    (c) No
      modification hereof shall be binding unless made in writing and signed by the
      party against whom enforcement is sought. No waiver of any provisions of this
      Agreement shall be valid unless the same is in writing and signed by the party
      against whom it is sought to be enforced, unless it can be shown through custom,
      usage or course of action.

     

    
      
        
        

      

      
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    (d) This
      Agreement is executed in, and it is the intention of the parties hereto that
      it
      shall be governed by, the laws of the State of New Jersey.

     

    (e) The
      provisions of this Agreement shall be deemed to be severable, and the invalidity
      or unenforceability of any provision shall not affect the validity or
      enforceability of the other provisions hereof.

     

    (f) Any
      notice or communication permitted or required by this Agreement shall be in
      writing and shall become effective upon personal service, or service by wire
      transmission, which has been acknowledged by the other party as being received,
      or two (2) days after its mailing by certified mail, return receipt requested,
      postage prepaid addressed as follows:

     

    (1) If
      to
      MST, to the then Chair of the Board at the Chair’s last recorded address on the
      records of MST, with a copy to the general counsel for MST.

     

    (2) If
      to
      Executive, to: Frank Matarazzo _______________, New Jersey ______.

     

    IN
      WITNESS WHEREOF,
      MST and
      Executive have executed this Agreement as of the Effective Date.

    
      	 	 	 	 
	
              MICROWAVE SATELLITE

              TECHNOLOGIES,
                INC. 

            	 	 	EXECUTIVE
	
               

               

            	 	 	 
	By: 
              /s/ Ronald Pickett 	 	 	By: 
              /s/ Frank T. Matarazzo
	
              
                
Ronald
                Pickett 

              Chairman
                of the Board

            	 	 	
              
                
Frank
                T.
                Matarazzo

            


    

     

    
      
        
        

      

      
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