Document:

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                                                                   EXHIBIT 10.25

         THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
         HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
         OR ANY APPLICABLE STATE SECURITIES LAW. THIS WARRANT OR SUCH SHARES MAY
         NOT BE SOLD, DISTRIBUTED, PLEDGED, OFFERED FOR SALE, ASSIGNED,
         TRANSFERRED, OR OTHERWISE DISPOSED OF UNLESS: (A) THERE IS AN EFFECTIVE
         REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
         LAW COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES; (B) THE
         COMPANY (DEFINED BELOW) RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE
         HOLDER OF THIS WARRANT STATING THAT SUCH TRANSACTION IS EXEMPT FROM
         REGISTRATION AND SUCH OPINION IS IN FORM AND SUBSTANCE REASONABLY
         SATISFACTORY TO THE COMPANY; OR (C) PURSUANT TO RULE 144 UNDER SUCH
         ACT.

                               WARRANT TO PURCHASE
                             SHARES OF COMMON STOCK

                             VENDINGDATA CORPORATION

         THIS IS TO CERTIFY THAT, for value received,________________ (the
"Holder") is entitled, during a specified period of time as set forth in Section
3 herein (the "Exercise Period"), to purchase from VendingData Corporation, a
Nevada corporation (the "Company"),________________ (_______________ )
post-reverse split fully paid and nonassessable shares of the Company's common
stock, par value $0.001 per share (the "Common Stock"), at an exercise price per
share as set forth in Section 1 herein (the "Exercise Price") (such number of
shares and the Exercise Price being subject to adjustment as provided herein).
The term "Warrant," as used herein, refers to this Warrant to Purchase Shares of
Common Stock, the term "Warrant Shares," as used herein, refers to the shares of
Common Stock purchasable hereunder, and the term "Parties," as used herein,
refers collectively to the Holder and the Company. This Warrant is issuable only
as part of a Unit or Units consisting of that certain $ _________principal
amount 10% Note due December 15, 2005, dated as of the same date hereof to
Holder (as "Purchaser") and the Company (as "Obligor") (collectively hereinafter
the "Note"), pursuant to a private placement strictly limited to accredited
investors (the "Offering"). Each Unit shall consist of a Warrant to purchase
6,000 shares, post-reverse split of 1-for-5, of Common Stock and $50,000
principal amount in the form of the Note.

                              TERMS AND CONDITIONS

         This Warrant is subject to the following terms, provisions, and
conditions:

         1. EXERCISE PRICE. The Exercise Price shall be $2.25 per share,
post-reverse split of 1-for-5. On December 16, 2004, the Exercise Price shall be
adjusted from $2.25 per share, post-reverse split of 1-for-5, to $1.50 per
share, post-reverse split of 1-for-5, if the average closing price of the
Company's common stock on a stock exchange or other quotation medium over the
twenty (20) previous business days is not at least Three Dollars ($3.00) per
share.

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         2. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the Holder,
in whole or in part (but in not less than 1,000 share increments): (a) by the
surrender of this Warrant, together with an exercise agreement in the form
attached hereto (the "Exercise Agreement"), duly completed and executed by the
Holder, to the Company during normal business hours on any business day at the
Company's principal executive offices (or such other location as the Company may
designate by notice to the Holder); and (b) upon the payment to the Company in
cash, by certified or official bank check or by wire transfer for the account of
the Company in the amount of the Exercise Price multiplied by the number of
Warrant Shares for which the Warrant is being exercised.

         The Warrant Shares so purchased shall be deemed to be issued to the
Holder, as the record owner of such Warrant Shares, as of the close of business
on the date on which this Warrant shall have been surrendered, the completed
Exercise Agreement shall have been delivered, and payment shall have been made
for such Warrant Shares as set forth above. Certificates for the Warrant Shares
so purchased, representing the aggregate number of shares specified in the
Exercise Agreement, shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) business days, after this Warrant shall have been so
exercised. The certificates so delivered shall be in such denominations as may
be reasonably requested by the Holder and shall be registered in the name of the
Holder or such other name as shall be designated by the Holder. If this Warrant
shall have been exercised only in part, then, unless this Warrant has expired,
the Company shall, at its expense, at the time of delivery of such certificates,
deliver to the Holder a new warrant representing the number of Warrant Shares
with respect to which this Warrant shall not then have been exercised.

         3. EXERCISE PERIOD. This Warrant may be exercised any time after
December 1, 2004 and before 2:00 p.m., Las Vegas, Nevada time, December 15,
2007.

         4. REDEMPTION. Notwithstanding anything else herein to the contrary,
this Warrant may be called and redeemed, if not previously exercised, after the
Company gives written notice to the Holder of the Company's election to call and
redeem (the "Redemption Notice") the Warrant and if, within thirty (30) days of
such Redemption Notice, the Holder has not exercised the Warrant pursuant to the
terms hereof. In no event may the Company elect to redeem the Warrant prior to
December 1, 2004. In the event of such redemption, the Company must pay to the
Holder consideration equal to the par value of the shares issuable pursuant to
the Warrant.

         5. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees as
follows:

         (a) SHARES TO BE FULLY PAID. All Warrant Shares shall, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and
non-assessable.

         (b) RESERVATION OF SHARES. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.

         (c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.

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         6. ADJUSTMENT PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 6. If the Company shall, prior to the
payment of the Note in full, (a) declare a dividend or make a distribution of
Common Stock payable in shares of Common Stock, (b) subdivide its outstanding
shares of Common Stock, into a greater number of shares of Common Stock, (c)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (d) issue any shares of capital stock of the Company by
reclassification or capital reorganization of its shares of Common Stock, then
the number of Warrant Shares and the Exercise Price in effect immediately prior
to such action shall be adjusted so that the Holder shall be entitled to receive
the number and kind of shares of Common Stock or other Capital Stock which the
Holder would have owned or have been entitled to receive immediately after such
action had the Holder exercised the Warrant immediately prior to the record date
in the case of (a), or the effective date in the case of (b), (c) or (d). In the
event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up to the nearest cent.

         7. PAYMENT OF EXPENSES. The Company and the Holder shall each be
responsible for their own costs and expenses payable in connection with: (a) the
negotiation, preparation, execution and delivery of this Warrant and the other
agreements to be executed in connection herewith; and (b) the issuance of
certificates for Warrant Shares upon the exercise of this Warrant. The Company
shall pay any issuance tax in connection with the issuance of certificates for
Warrant Shares; provided, however, that the Holder shall be responsible for any
income or other taxes in connection with such issuance.

         8. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of such
Holder for the Exercise Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.

         9. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT. This Warrant, nor
any interest in this Warrant, may be sold, distributed, assigned, offered,
pledged or otherwise transferred without the express written consent of the
Company.

         (a) EXCHANGE OF WARRANTS; REPLACEMENTS OF WARRANTS. This Warrant is
exchangeable upon the surrender hereof by the Holder to the Company at its
office for a new Warrant of like tenor and date representing in the aggregate
the right to purchase the number of shares of Common Stock purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of shares of Common Stock (not to exceed the aggregate total number
purchasable hereunder) as shall be reasonably designated by the Holder at the
time of such surrender. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction, or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity, or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant.

         (b) CANCELLATION: PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 9, this Warrant shall be promptly canceled by the Company. The
Company and the Holder shall each be responsible for their own costs and
expenses payable in connection with the preparation, execution, and delivery of
new Warrants pursuant to this Section 9. The Holder shall be responsible for any
tax which may be payable in connection with any transfer of a certificate for
Warrant Shares.

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         (c) REGISTRAR. The Company shall maintain, at its principal executive
offices (or such other location as the Company may designate by notice to the
Holder), a registrar for this Warrant, in which the Company shall record the
name and address of the person in whose name this Warrant has been issued, as
well as the name and address of each transferee and each prior owner of this
Warrant.

         10. AMENDMENTS. No amendment or modification of this Warrant shall be
deemed effective unless and until such amendment or modification is an express
writing executed by both the Parties.

         11. GOVERNING LAW. This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of Nevada without
regard to the body of law controlling conflicts of law. The parties hereto
hereby submit to the exclusive jurisdiction of the courts located in Clark
County, Nevada, with respect to any dispute arising under this Warrant and the
transactions contemplated hereby.

         12. Registration Rights.

         (a) PIGGYBACK REGISTRATION RIGHTS. Whenever the Company proposes to
register any of its equity securities under the Securities Act (other than a
registration on Form S-4 or Form S-8 or any successor or similar forms) and the
registration form to be used may be used for the registration of the Warrant
Shares, whether or not for sale for its own account, the Company will give
prompt written notice to Holder of its intention to effect such a registration
and will include in such registration all of the Warrant Shares with respect to
which the Company has received written request for inclusion therein within
twenty (20) days after the receipt of the Company's notice; provided, however,
such "piggyback" registration (a "Piggyback Registration") shall be subject to
the terms and conditions of an underwriting agreement among the Company, Holder
and the managing underwriter, if applicable, the customary underwriter cut back
provisions and the execution of a customary standstill of not less than one
hundred and eighty (180) days. In addition, the Company and the managing
underwriters, if applicable, shall have the right to terminate or withdraw any
registration initiated by the Company or to reduce the number of shares proposed
to be registered in view of market conditions.

         (b) REGISTRATION PROCEDURE. Upon the request by Holder to initiate
either a Piggyback Registration or a Demand Registration, the Company will use
its best efforts to effect the registration of the relevant Warrant Shares in
accordance with the intended method of disposition thereof.

         (c) RESTRICTIONS. The registration rights granted under this Section 12
are expressly subject to the following terms and conditions: (a) Holder, along
with other investors in the Offering, as a group, shall each be entitled to
initiate only two (2) Piggyback Registrations; and (b) Holder may not assign any
of its rights granted under this Section 12.

         (d) FEES. The Company shall pay all Registration Expenses relating to
any registration of the Warrant Shares hereunder. "Registration Expenses" shall
mean all reasonable fees and expenses incident to the Company's performance of
or compliance with this Section 12. Notwithstanding the foregoing, Holder shall
pay any and all underwriting discounts, commissions and transfer taxes
attributable to the Warrant Shares and the fees of Holder's own counsel in
connection with the sale of the Warrant Shares.

         (e) COOPERATION; INDEMNIFICATION BY HOLDER. In connection with any
registration statement in which Holder is participating, Holder will furnish to
the Company in writing such information and documents as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify and hold harmless
the Company, its affiliates and their respective officers, directors, employees
and affiliates against any losses, claims, damages, liabilities, joint or
several, to which such parties may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of

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or are based upon: (a) any untrue or alleged untrue statement of a material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or in any application; or (b) any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is made in such registration statement,
any such prospectus or preliminary prospectus or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with written
information prepared and furnished to the Company by such holder expressly for
use therein, and such holder will reimburse the Company, its affiliates and
their respective officers, directors, employees and affiliates for any legal or
any other expenses incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the obligation to indemnify will be individual to Holder and will
be limited to the net amount of proceeds received by Holder from the sale of the
Warrant Shares pursuant to such registration statement.

         (f) TERMINATION. The ability of Holder to initiate a Piggyback
Registration shall terminate upon the earlier to occur of: (a) three (3) years
after the date of this Warrant; (b) the date Holder no longer holds the Warrant
Shares; (c) the exercise by Holder of the two (2) Piggyback Registrations
granted by Section 12; or (d) the ability of Holder to sell its Warrant Shares
then owned immediately pursuant to Rule 144 of the Securities Act.

         13. EXPIRATION DATE. This Warrant shall expire and become null and void
and of no further force or effect at 5:00 p.m. Las Vegas, Nevada time no later
than December 15, 2007.

         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.

                         VENDINGDATA CORPORATION
                            a Nevada corporation

                         By:
                                  ---------------------------------------
                                  Steven J. Blad
                                  President and Chief Executive Officer
                         Date:

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                               EXERCISE AGREEMENT

TO:               VENDINGDATA CORPORATION (THE "COMPANY")

         The undersigned, pursuant to the provisions set forth in the attached
Warrant to Purchase Shares of Common Stock (the "Warrant") hereby irrevocably
elects and agrees to purchase ____________ shares (the "Exercised Shares") of
the Company's common stock ("Common Stock") covered by the Warrant and makes
payment herewith in full therefore at the price per share provided by the
Warrant in cash or by certified or official bank check in the amount of
$________________. If said number of shares of Common Stock shall not be all the
shares purchasable under the Warrant, a new warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash. Please issue a certificate or
certificates for the Exercised Shares in the name of and pay any cash for any
fractional share to:

                         NAME:
                                       -----------------------------------------

                         SIGNATURE:
                                       -----------------------------------------

                         DATED:
                                       -----------------------------------------

                         ADDRESS:
                                       -----------------------------------------

                                       -----------------------------------------

                         NOTE:         The above signature should correspond
                                       exactly with the name on the face of the
                                       Warrant.<PAGE>

                                   EXIBIT 10.1

                                 TELKONET, INC.
                                STOCK OPTION PLAN

1.       PURPOSE. The purpose of the Telkonet, Inc. Stock Option Plan (the
         "Plan") is to further the long term stability and financial success of
         Telkonet, Inc., a Utah corporation (the "Company"), by retaining and
         attracting key employees, non-employee directors and consultants of the
         Company through the use of stock incentives utilizing the Company's
         common stock (the "Company Stock"). It is believed that ownership of
         Company Stock will stimulate the efforts of those employees,
         consultants and directors of the Company upon whose efforts, interest
         and judgment the Company is and will be largely dependent for success.
         It is also believed that Incentive Awards granted to employees and
         directors under this Plan will strengthen their desire to remain with
         the Company and will further identify the interests of those employees
         and directors with the interests of the Company's shareholders. The
         Plan is intended to conform to the provisions of Securities and
         Exchange Commission Rule 16b-3, if Company Stock becomes Publicly
         Traded in the future.

2.       DEFINITIONS. As used in the Plan, the following terms have the meanings
         indicated:

                  "1933 Act" means the Securities Exchange Act of 1933, as
amended.

                  "1934 Act" means the Securities Exchange Act of 1934, as
amended.

                  "Applicable Withholding Taxes" means the aggregate amount of
any federal, state and local income and payroll taxes that the Company is
required to withhold in connection with any exercise of a Nonstatutory Stock
Option or Stock Appreciation Right, or the lapse of restrictions with respect to
Restricted Stock.

                  "Board" means the board of directors of the Company.

                  "Change of Control" means the occurrence of any event deemed
by the Committee, in its SOLE discretion, to constitute a Change of Control of
the Company, and before the Company Stock is Publicly Traded, shall include an
event described in (i), or (ii):

                           (i) the closing date of any sale or other disposition
of substantially all the assets of the Company, other than in the ordinary
course of business.

                           (ii) following the closing(s) of Financing(s) whereby
the Company raises $25,000,000 or more in the aggregate, any person or persons
attaining ownership of more than 50% of the Company Stock, other than (A) any
person or persons who own Company Stock as of the effective date specified in
Section 11 (the "Existing Shareholders"); (B) any trusts, partnerships or
corporations controlled by the Existing Shareholders; (C) the Company, any
subsidiary of the Company, any employee benefit plan of the Company or any
subsidiary; or (D) any entity holding Company Stock for or pursuant to the terms
of any such employee benefit plan.

                  After the Company Stock is Publicly Traded, "Change of
Control" shall include an event described in (iii), (iv), (v), or (vi):

                           (iii) The acquisition by a Group of Beneficial
Ownership of 50% or more of the Stock or the Voting Power of the Company, but
excluding for this purpose: (A) any acquisition by the Company (or a
subsidiary), or an employee benefit plan of the Company; or (B) any acquisition

<PAGE>

of Common Stock of the Company by management employees of the Company. For
purposes of this Section, "Group" means any individual, entity or group within
the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act, "Beneficial
Ownership" has the meaning in Rule 13d-3 promulgated under the 1934 Act, "Stock"
means the then outstanding shares of common stock, and "Voting Power" means the
combined voting power of the outstanding voting securities entitled to vote
generally in the election of directors.

                           (iv) Individuals who constitute the Board on the date
immediately after the Company Stock becomes Publicly Traded (the "Incumbent
Board") cease to constitute at least a majority of the Board, provided that any
director whose nomination was approved by a majority of the Incumbent Board
shall be considered a member of the Incumbent Board unless such individual's
initial assumption of office is in connection with an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the 1934 Act).

                           (v) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, in which the owners of
more than 50% of the Stock or Voting Power of the Company do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of the Stock or Voting Power of the corporation
resulting from such reorganization, merger or consolidation.

                           (vi) A complete liquidation or dissolution of the
Company or of its sale or other disposition of all or substantially all of the
assets of the Company.

                  "Code" means the Internal Revenue Code of 1986, as amended.

                  "Committee" means the committee appointed by the Board (as
described in Section 14), or the entire Board, if no committee is appointed, to
administer this Plan.

                  "Company" means Telkonet, Inc., a Utah corporation.

                  "Company Stock" means common stock of the Company. In the
event of a change in the capital structure of the Company (including any change
in connection with Company Stock becoming Publicly Traded) the shares resulting
from such a change shall be deemed to be Company Stock within the meaning of the
Plan.

                  "Date of Grant" means the date on which an Incentive Award is
granted by the Committee or such later date specified by the Committee as the
date as of which the grant of the Incentive Award is to be effective.

                  "Disability" or "Disabled" means, as to an Incentive Stock
Option, a Disability within the meaning of Code Section 22(e)(3). As to all
other Incentive Awards, the Committee shall determine whether a Disability
exists and such determination shall be conclusive.

                  "Employee" means an individual employed by the Company or the
Parent or a Subsidiary of the Company.

                  "Fair Market Value" means, if the Company Stock is not
actively Publicly Traded, the value of a share of Company Stock determined by
the Committee in good faith. If the Company Stock is actively Publicly Traded,
the value of a share of Company Stock, determined as follows:

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                           (i) if such Company Stock is then quoted on the
Nasdaq National Market, its closing price on the Nasdaq National Market on the
date of determination, as reported in THE WALL STREET JOURNAL;

                           (ii) if such Company Stock is then listed on a
national securities exchange, its closing price on the date of determination on
the principal national securities exchange on which the Company Stock is listed
or admitted to trading, as reported in THE WALL STREET JOURNAL;

                           (iii) if such Company Stock is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination, as reported in THE WALL STREET JOURNAL; or

                           (iv) if none of the foregoing is applicable, by the
Committee in good faith.

                  "Incentive Award" means, collectively, an award of Restricted
Stock, an Option or a Stock Appreciation Right granted under the Plan.

                  "Incentive Stock Option" means an Option intended to meet the
requirements of, and to qualify for favorable federal income tax treatment
under, Code Section 422. Incentive Stock Options may be granted only to an
Employee and may only be exercised by the Employee while he is employed by the
Company or within three (3) months following the date upon which the Employee
ceases to be employed by the Company, except as provided in the Code.

                  "Mature Shares" means shares of Company Stock for which the
holder thereof has good title, free and clear of all liens and encumbrances and
which such holder either (i) has held for at least six months or (ii) has
purchased on the open market.

                  "Non-Employee Director" means a member of the Board who is not
an Employee of the Company or the Parent or a Subsidiary of the Company, as
defined in Rule 16b-3 under the 1934 Act.

                  "Nonstatutory Stock Option" means an Option which does not
meet the requirements of Code Section 422, or even if meeting the requirements
of Code Section 422, is not intended to be an Incentive Stock Option and is so
designated.

                  "Option" means a right to purchase Company Stock granted under
the Plan, at a price determined in accordance with the Plan.

                  "Parent" means, with respect to any corporation, a parent of
that corporation within the meaning of Code Section 424(e).

                  "Participant" means an Employee, Non-Employee Director or
consultant who receives an Incentive Award under the Plan.

                  "Publicly Traded" means a registration statement with respect
to Company Stock that was filed by the Company with the Securities and Exchange
Commission has become effective.

                  "Restricted Stock" means Company Stock awarded upon the terms
and subject to the restrictions set forth in Section 6.

                  "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission promulgated under the 1934 Act. A reference in the Plan to Rule 16b-3
shall include a reference to any corresponding rule (or number redesignation) of

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<PAGE>

any amendment to Rule 16b-3 enacted after the effective date of the Plan's
adoption. The provisions of the Plan relating to Rule 16b-3 shall be applicable
only if the Company Stock becomes Publicly Traded.

                  "Stock Appreciation Right" means a right to receive amounts
from the Company granted pursuant to Section 8 of the Plan.

                  "Subsidiary" means, with respect to any corporation, a
subsidiary of that corporation within the meaning of Code Section 424(f).

                  "10% Shareholder" means a person who, on the Date of Grant,
owns, directly or indirectly, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary of the Company. Indirect ownership of stock shall be determined in
accordance with Code Section 424(d).

                  "Taxable Year" means the fiscal period used by the Company for
reporting taxes or income under the Code.

         3. GENERAL. The following types of Incentive Awards may be granted
under the Plan: Restricted Stock, Incentive Stock Options, Nonstatutory Stock
Options or Stock Appreciation Rights.

         4. STOCK. Subject to Section 12 of the Plan, there shall be reserved
for issuance under the Plan an aggregate of 7,000,000 shares of Company Stock,
which shall be authorized but unissued shares. Shares allocable to Incentive
Awards or portions thereof granted under the Plan that expire or otherwise
terminate unexercised may again be subjected to an Incentive Award under the
Plan. The Committee is expressly authorized to make an Incentive Award to a
Participant conditioned upon the surrender for cancellation of an existing
Incentive Award. For purposes of determining the number of shares that are
available for Incentive Awards under the Plan, such number shall, to the extent
permissible under Rule 16b-3 if the Company Stock is Publicly Traded, include
the number of shares surrendered by an optionee or retained by the Company in
payment of Applicable Withholding Taxes.

         5. ELIGIBILITY.

                  (a) Any Employee, Non-Employee Director or consultant of the
Company (or Parent or Subsidiary of the Company) who, in the judgment of the
Committee has contributed or can be expected to contribute to the profits or
growth of the Company (or Parent or Subsidiary) shall be eligible to receive
Incentive Awards under the Plan. The Committee shall have the power and complete
discretion, as provided in Section 14 hereof, to select eligible Participants to
receive Incentive Awards and to determine for each Participant the terms and
conditions, the nature of the award and the number of shares to be allocated to
each Participant as part of each Incentive Award. Both the Board and the
Committee shall have the power and complete discretion, as provided in Section
14, to select eligible Non-Employee Directors and consultants to receive
Incentive Awards and to determine for each Non-Employee Director or consultant
the nature of the award and the terms and conditions of each Incentive Award.

                  (b) The grant of an Incentive Award shall not obligate the
Company or any Parent or Subsidiary of the Company to pay an Employee,
Non-Employee Director or consultant any particular amount of remuneration, to
continue the employment of the Employee after the grant or to make further
grants to the Employee, Non-Employee Director or consultant at any time
thereafter.

         6. RESTRICTED STOCK AWARDS.

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                  (a) The Committee may make grants of Restricted Stock to
Participants. Whenever the Committee deems it appropriate to grant Restricted
Stock, notice shall be given to the Participant stating the number of shares of
Restricted Stock granted and the terms and conditions to which the Restricted
Stock is subject. This notice, when accepted in writing by the Participant,
shall become an award agreement between the Company and the Participant, and
certificates representing the shares shall be issued and delivered to the
Participant. Restricted Stock may be awarded by the Committee in its discretion
without cash consideration.

                  (b) No shares of Restricted Stock may be sold, assigned,
transferred, pledged, hypothecated, or otherwise encumbered or disposed of until
the restrictions on such shares as set forth in the Participant's award
agreement have lapsed or been removed pursuant to paragraph (d) or (e) below.

                  (c) Upon the acceptance by a Participant of an award of
Restricted Stock, such Participant shall, subject to the restrictions set forth
in paragraph (b) above, have all the rights of a shareholder with respect to
such shares of Restricted Stock, including, but not limited to, the right to
vote such shares of Restricted Stock and the right to receive all dividends and
other distributions paid thereon. Certificates representing Restricted Stock
shall bear a legend referring to the restrictions set forth in the Plan and the
Participant's award agreement.

                  (d) The Committee shall establish as to each award of
Restricted Stock the terms and conditions upon which the restrictions set forth
in paragraph (b) above shall lapse. Such terms and conditions may include,
without limitation, the lapsing of such restrictions as a result of the
Disability, death or retirement of the Participant or the occurrence of a Change
of Control.

                  (e) Notwithstanding the provisions of paragraph (b) above, the
Committee may at any time, in its sole discretion, accelerate the time at which
any or all restrictions will lapse or remove any and all such restrictions.

                  (f) Each Employee shall agree at the time his or her
Restricted Stock is granted, and as a condition thereof, to pay to the Company,
or make arrangements satisfactory to the Company regarding the payment to the
Company of, Applicable Withholding Taxes. Until such amount has been paid or
arrangements satisfactory to the Company have been made, no stock certificate
free of a legend reflecting the restrictions set forth in paragraph (b) above
shall be issued to such Participant. As an alternative to making a cash payment
to the Company to satisfy Applicable Withholding Taxes, if the grant so
provides, the Employee may elect to (i) deliver Mature Shares or (ii) have the
Company retain that number of shares of Company Stock that would satisfy all or
a specified portion of the Applicable Withholding Taxes. The Company may require
the Participant to execute a shareholder agreement or such other form of
agreement as it may deem appropriate as a condition to permitting restrictions
on Restricted Stock to lapse.

         7. STOCK OPTIONS.

                  (a) Whenever the Committee deems it appropriate to grant
Options, notice shall be given to the eligible person stating the number of
shares for which Options are granted, the Option price per share, whether the
Options are Incentive Stock Options or Nonstatutory Stock Options, the extent to
which Stock Appreciation Rights are granted (as provided in Section 8 hereof)
and the conditions to which the grant and exercise of the Options are subject.
This notice, when duly accepted in writing by the Participant, shall become a
stock option agreement between the Company and the Participant.

                  (b) The exercise price of shares of Company Stock covered by
an Option shall be not less than 100% of the Fair Market Value of such shares on
the Date of Grant. If the employee is a 10% Shareholder and the Option is an
Incentive Stock Option, the exercise price shall be not less than 110% of the
Fair Market Value of such shares on the Date of Grant.

                                       5
<PAGE>

                  (c) Options may be exercised in whole or in part at such times
as may be specified by the Committee in the Participant's stock option
agreement; provided that the exercise provisions for Incentive Stock Options
shall in all events not be more liberal than the following provisions:

                           (i) No Incentive Stock Option may be exercised after
ten years (or, in the case of an Incentive Stock Option granted to a 10%
Shareholder, five years) from the Date of Grant.

                           (ii) An Incentive Stock Option shall be subject to
such other conditions on exercise as may be imposed under the Code.

                  (d) The Committee may, in its discretion, grant Options that
by their terms become fully exercisable upon a Change of Control,
notwithstanding other conditions on exercisability in the stock option
agreement.

         8. STOCK APPRECIATION RIGHTS.

                  (a) Whenever the Committee deems it appropriate, Stock
Appreciation Rights may be granted in connection with all or any part of an
Option to a Participant or in a separate Incentive Award.

                  (b) The following provisions apply to all Stock Appreciation
Rights that are granted in connection with Options:

                           (i) Stock Appreciation Rights shall entitle the
Participant, upon exercise of all or any part of the Stock Appreciation Rights,
to surrender to the Company unexercised that portion of the underlying Option
relating to the same number of shares of Company Stock as is covered by the
Stock Appreciation Rights (or the portion of the Stock Appreciation Rights so
exercised) and to receive in exchange from the Company an amount equal to the
excess of (x) the Fair Market Value on the date of exercise of the Company Stock
covered by the surrendered portion of the underlying Option over (y) the
exercise price of the Company Stock covered by the surrendered portion of the
underlying Option. The Committee may limit the amount that the Participant will
be entitled to receive upon exercise of Stock Appreciation Rights.

                           (ii) Upon the exercise of a Stock Appreciation Right
and surrender of the related portion of the underlying Option, the Option, to
the extent surrendered, shall not thereafter be exercisable.

                           (iii) Subject to any further conditions upon exercise
imposed by the Committee, a Stock Appreciation Right shall be exercisable only
to the extent that the related Option is exercisable and a Stock Appreciation
Right shall expire no later than the date on which the related Option expires.

                           (iv) A Stock Appreciation Right may only be exercised
at a time when the Fair Market Value of the Company Stock covered by the Stock
Appreciation Right exceeds the exercise price of the Company Stock covered by
the underlying Option.

                  (c) The following provisions apply to all Stock Appreciation
Rights that are not granted in connection with Options:

                           (i) Stock Appreciation Rights shall entitle the
Participant, upon exercise of all or any part of the Stock Appreciation Rights,
to receive in exchange from the Company an amount equal to the excess of (x) the
Fair Market Value on the date of exercise of the Company Stock covered by the

                                       6
<PAGE>

surrendered Stock Appreciation Right over (y) the Fair Market Value of the
Company Stock on the Date of Grant of the Stock Appreciation Right. The
Committee may limit the amount that the Participant will be entitled to receive
upon exercise of Stock Appreciation Rights.

                           (ii) A Stock Appreciation Right may only be exercised
at a time when the Fair Market Value of the Company Stock covered by the Stock
Appreciation Right exceeds the Fair Market Value of the Company Stock on the
Date of Grant of the Stock Appreciation Right.

                  (d) The manner in which the Company's obligation arising upon
the exercise of a Stock Appreciation Right shall be paid shall be determined by
the Committee and shall be set forth in the Incentive Award. The Incentive Award
may provide for payment in Company Stock or cash, or a fixed combination of
Company Stock or cash, or the Committee may reserve the right to determine the
manner of payment at the time the Stock Appreciation Right is exercised. Shares
of Company Stock issued upon the exercise of a Stock Appreciation Right shall be
valued at their Fair Market Value on the date of exercise.

         9. METHOD OF EXERCISE OF OPTIONS AND STOCK APPRECIATION RIGHTS.

                  (a) Options and Stock Appreciation Rights may be exercised by
the Participant by giving written notice of the exercise to the Company, stating
the number of shares the Participant has elected to purchase under the Option or
the number of Stock Appreciation Rights the Participant has elected to exercise.
In the case of the purchase of shares under an Option, such notice shall be
effective only if accompanied by the exercise price in full in cash; provided,
however, that if the terms of an Option, or the Committee by separate action, so
permits, the Participant may (i) deliver Mature Shares (valued at their Fair
Market Value on the date of exercise) in satisfaction of all or part of the
exercise price, (ii) cause to be withheld from the Option shares, shares of
Company Stock (valued at their Fair Market Value on the date of exercise) in
satisfaction of all or any part of the exercise price, (iii) deliver a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company, from the sale or loan proceeds with respect to
the sale of Company Stock or a loan secured by Company Stock, the amount
necessary to pay the exercise price and, if required by the Committee,
Applicable Withholding Taxes, or (iv) deliver an interest bearing promissory
note, payable to the Company, in payment of all or part of the exercise price
together with such collateral as may be required by the Committee at the time of
exercise. The interest rate under any such promissory note shall be established
by the Committee and shall be at least equal to the minimum interest rate
required at the time to avoid imputed interest under the Code.

                  (b) The Company may require the Participant to execute a
shareholder agreement or such other form of agreement as it may deem appropriate
as a condition to transfer of Company Stock to the Participant upon exercise of
an Option or a Stock Appreciation Right. The Company may place on any
certificate representing Company Stock issued upon the exercise of an Option or
a Stock Appreciation Right any legend deemed desirable by the Company's counsel
to comply with federal or state securities laws, and the Company may require a
customary written indication of the Participant's investment intent. Until the
Participant has made any required payment, including any Applicable Withholding
Taxes, and has had issued a certificate for the shares of Company Stock
acquired, he or she shall possess no shareholder rights with respect to the
shares.

                  (c) Each Employee shall agree as a condition of the exercise
of an Option or a Stock Appreciation Right to pay to the Company Applicable
Withholding Taxes, or make arrangements satisfactory to the Company regarding
the payment to the Company of such amounts. Until Applicable Withholding Taxes
have been paid or arrangements satisfactory to the Company have been made, no
stock certificate shall be issued upon the exercise of an Option or a Stock
Appreciation Right.

                                       7
<PAGE>

                  (d) As an alternative to making a cash payment to the Company
to satisfy Applicable Withholding Taxes, if the Option or Stock Appreciation
Right agreement so provides, or the Committee by separate action so provides, an
Employee may, subject to the provisions set forth below, elect to (i) deliver
Mature Shares or (ii) have the Company retain that number of shares of Company
Stock that would satisfy all or a specified portion of the Applicable
Withholding Taxes. The Committee shall have sole discretion to approve or
disapprove any such election.

                  (e) Notwithstanding anything herein to the contrary, if the
Company Stock is Publicly Traded, Options and Stock Appreciation Rights shall
always be granted and exercised in such a manner as to conform to the provisions
of Rule 16b-3.

         10. NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS.
Options and Stock Appreciation Rights shall not be transferable except to the
extent specifically provided in the Incentive Award. Incentive Stock Options, by
their terms, shall not be transferable except by will or by the laws of descent
and distribution, and shall be exercisable during the Employee's lifetime only
by the Employee.

         11. EFFECTIVE DATE OF THE PLAN. This Plan shall be effective as of
April 24, 2002 and shall be submitted for approval to the shareholders of the
Company and to the holders of the Company's Series A-1 Preferred Stock. Until
(i) the Plan has been approved by the Company's shareholders and by the holders
of the Company's Series A-1 Preferred Stock, and (ii) the requirements of any
applicable federal or state securities laws have been met, no Option or Stock
Appreciation Right shall be exercisable, and no Restricted Stock shall be
granted.

         12. TERMINATION, MODIFICATION, CHANGE. If not sooner terminated by the
Board, this Plan shall terminate at the close of the business day that is the
day immediately preceding the ten year anniversary of the effective date (as
provided in Section 11). No Incentive Awards shall be made under the Plan after
its termination. The Board may terminate the Plan or may amend the Plan in such
respects as it shall deem advisable; provided, that, if and to the extent
required by the Code or applicable federal or state securities law, or
regulations thereunder, no change shall be made that materially increases the
total number of shares of Company Stock reserved for issuance pursuant to
Incentive Awards granted under the Plan (except pursuant to Section 13 hereof),
materially expands the class of persons eligible to receive Incentive Awards, or
materially increases the benefits accruing to Participants under the Plan,
unless such change is authorized in accordance with the provisions of the
Charter of the Company. Notwithstanding the foregoing, the Board may amend the
Plan and unilaterally amend Incentive Awards as it deems appropriate to ensure
compliance with applicable federal or state securities laws or regulations
thereunder and to cause Incentive Stock Options to meet the requirements of the
Code and regulations thereunder. Except as provided in the preceding sentence, a
termination or amendment of the Plan shall not, without the consent of the
Participant, detrimentally affect a Participant's rights under an Incentive
Award previously granted to him.

         13. CHANGE IN CAPITAL STRUCTURE.

                  (a) In the event of a stock dividend, stock split or
combination of shares, recapitalization or merger in which the Company is the
surviving corporation or other change in the Company's capital stock (including,
but not limited to, the creation or issuance to shareholders generally of
rights, options or warrants for the purchase of common stock or preferred stock
of the Company), the number and kind of shares of stock or securities of the
Company to be subject to the Plan and to Incentive Awards then outstanding or to
be granted thereunder, the maximum number of shares or securities which may be
delivered under the Plan, the maximum number of shares or securities that can be

                                       8
<PAGE>

granted to an individual Participant under Section 4 hereof, the exercise price,
the terms of Incentive Awards and other relevant provisions shall be
appropriately adjusted by the Committee, whose determination shall be binding on
all persons. If the adjustment would produce fractional shares with respect to
any unexercised Option, the Committee may adjust appropriately the number of
shares covered by the Option so as to eliminate the fractional shares.

                  (b) If the Company is a party to a consolidation or a merger
in which the Company is not the surviving corporation, a transaction that
results in the acquisition of substantially all of the Company's outstanding
stock by a single person or entity, or a sale or transfer of substantially all
of the Company's assets, the Committee may take such actions with respect to
outstanding Incentive Awards as the Committee deems appropriate.

                  (c) Notwithstanding anything in the Plan to the contrary, the
Committee may take the foregoing actions without the consent of any Participant,
and the Committee's determination shall be conclusive and binding on all persons
for all purposes.

         14. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee, who shall be appointed by the Board. In the absence of the Committee,
the Board shall have authority to act in place of the Committee. The Committee
shall have general authority to impose any limitation or condition upon an
Incentive Award the Committee deems appropriate to achieve the objectives of the
Incentive Award and the Plan and, without limitation and in addition to powers
set forth elsewhere in the Plan, shall have the following specific authority:

                  (a) The Committee shall have the power and complete discretion
to determine (i) which eligible persons shall receive Incentive Awards and the
nature of each Incentive Award, (ii) the number of shares of Company Stock to be
covered by each Incentive Award, (iii) whether Options shall be Incentive Stock
Options or Nonstatutory Stock Options, (iv) when, whether and to what extent
Stock Appreciation Rights shall be granted, (v) the Fair Market Value of Company
Stock, (vi) the time or times when an Incentive Award shall be granted, (vii)
whether an Incentive Award shall become vested over a period of time and when it
shall be fully vested, (viii) when Options or Stock Appreciation Rights may be
exercised, (ix) whether a Disability exists, (x) the manner in which payment
will be made upon the exercise of Options or Stock Appreciation Rights, (xi)
conditions relating to the length of time before disposition of Company Stock
received upon the exercise of Options or Stock Appreciation Rights is permitted,
(xii) whether to approve a Participant's election (A) to deliver Mature Shares
to satisfy Applicable Withholding Taxes or (B) to have the Company withhold from
the shares to be issued upon the exercise of a Nonstatutory Stock Option or a
Stock Appreciation Right the number of shares necessary to satisfy Applicable
Withholding Taxes, (xiii) notice provisions relating to the sale of Company
Stock acquired under the Plan, and (xiv) any additional requirements relating to
Incentive Awards that the Committee deems appropriate. The Committee shall have
the power to amend the terms of previously granted Incentive Awards so long as
the terms as amended are consistent with the terms of the Plan and provided that
the consent of the Participant is obtained with respect to any amendment that
would be detrimental to him or her, except that such consent will not be
required if such amendment is for the purpose of complying with Rule 16b-3 or
any requirement of the Code applicable to the Incentive Award.

                  (b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of the Plan
by the Committee shall be final and conclusive. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any liability
for any action taken in good faith in reliance upon the advice of counsel.

                  (c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by a
majority of the members present. Any action may be taken by a written instrument
signed by all of the members, and any action so taken shall be fully effective
as if it had been taken at a meeting.

                                       9
<PAGE>

                  (d) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee.

                  (e) With respect to Non-Employee Directors, the Board or the
Committee shall be authorized to make grants of Restricted Stock and
Nonstatutory Stock Options in its discretion, provided such grants are made in
compliance with other provisions of the Plan. In such case, the Board shall hold
the same general and specific authority granted to the Committee under this
Section 14 and other provisions of the Plan.

         15. NOTICE. All notices and other communications required or permitted
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company - at its principal business address to the
attention of the Secretary; (b) if to any Participant - at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.

         16. INTERPRETATION. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or ruling,
then that provision of the Plan shall be void and of no effect.

         17. COMPLIANCE WITH LAW. Notwithstanding any other provision of this
Plan, Incentive Awards may be granted pursuant to this Plan, and Company Stock
may be issued pursuant to the exercise thereof by a Participant, only after
there has been compliance with all applicable federal and state securities laws,
and such grants and issuances will be subject to this overriding condition. The
Company will not be required to register or qualify Company Stock with the
Securities and Exchange Commission or any state agency.

         18. STOCK CERTIFICATES. Any certificates representing Company Stock
issued pursuant to the exercise of Incentive Awards will bear all legends
required by law and necessary to effectuate this Plan's provisions. The Company
may place a "stop transfer" order against shares of Company Stock until all
restrictions and conditions set forth in this Plan and in the legends referred
to in this Plan have been complied with.

         19. AMENDMENT AND DISCONTINUANCE. The Board may amend, suspend or
discontinue this Plan at any time or from time to time, but no such action may
alter or impair any Incentive Award previously granted under this Plan without
the consent of the holder of such Incentive Award.

         20. CITATIONS TO STATUTES. References in this Plan to any statutes,
regulations, or portions thereof are intended to refer to the statutes,
regulations, or portions thereof in force at the time of the Plan's adoption by
the Board and as subsequently amended, or to any substantially similar successor
statutes, regulations or portions thereof resulting from recodification,
renumbering, or other enactment or promulgation.

         21. GOVERNING LAW. This Plan will be governed by, and construed in
accordance with, the laws of the State of Utah.

         22. COPIES OF PLAN. A copy of this Plan will be delivered to each
Participant at or before the time he or she executes any agreement pursuant to
this Plan.

                                       10
<PAGE>

         IN WITNESS WHEREOF, this Telkonet, Inc. Stock Option Plan has been
executed this 24th day of April, 2002.

                                          Telkonet, Inc., a Utah corporation

                                          By: /S/ Stephen L. Sadle
                                              --------------------
                                          Stephen Sadle, Chief Operating Officer

                                       11

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