Document:

Registration Rights Agr

    EXHIBIT
      10.2

    REGISTRATION
      RIGHTS AGREEMENT

     

    This
      Registration Rights Agreement (this “Agreement”)
      is made
      and entered into as of August 31, 2006, by and among Telkonet,
      Inc.,
      a Utah
      corporation (the “Company”),
      and
      the investors signatory hereto (each a “Purchaser”
      and
      collectively, the “Purchasers”).

     

    This
      Agreement is made pursuant to the Securities Purchase Agreement, dated as of
      the
      date hereof among the Company and the Purchasers (the “Purchase
      Agreement”).

     

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

     

    1. Definitions.
      Capitalized terms used and not otherwise defined herein that are defined in
      the
      Purchase Agreement shall have the meanings given such terms in the Purchase
      Agreement. As used in this Agreement, the following terms shall have the
      respective meanings set forth in this Section 1:

     

    “Advice”
      shall
      have the meaning set forth in Section 6(c).

     

    “Business
      Day”
      means a
      day, other than a Saturday or Sunday, on which banks in New York City are open
      for the general transaction of business.

     

    “Commission”
      means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
      means
      the common stock of the Company, par value $0.001 per share, and any securities
      into which such common stock may hereafter be reclassified. 

     

    “Effective
      Date”
      means
      the date that the Registration Statement filed pursuant to Section 2(a) is
      first
      declared effective by the Commission.

     

    “Effectiveness
      Period”
      shall
      have the meaning set forth in Section 2(b).

     

    “Event”
      shall
      have the meaning set forth in Section 2(c).

     

    “Event
      Date” shall
      have the meaning set forth in Section 2(c).

     

    “Exchange
      Act”
      means
      the Securities Exchange Act of 1934, as amended.

     

    “Filing
      Date”
      means,
      with respect to the Registration Statement required to be filed to cover the
      resale by the Holders of the Registrable Securities, the 30th
      calendar
      day following the Closing Date.

     

    “Holder”
      or
“Holders”
      means
      the holder or holders, as the case may be, from time to time of Registrable
      Securities.

     

    “Indemnified
      Party”
      shall
      have the meaning set forth in Section 5(c).

     

    
      
        
        

      

      
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    “Indemnifying
      Party”
      shall
      have the meaning set forth in Section 5(c).

     

    “Losses”
      shall
      have the meaning set forth in Section 5(a).

     

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

     

    “Person”
      means an
      individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

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

     

    “Prospectus”
      means
      the prospectus included in a Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated under the Securities Act), as amended or supplemented
      by
      any prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by a Registration Statement,
      and
      all other amendments and supplements to the Prospectus, including post-effective
      amendments, and all material incorporated by reference or deemed to be
      incorporated by reference in such Prospectus.

     

    “Registrable
      Securities”
      means:
      (i) the Shares (ii) the Warrant Shares, (iii) Shares issued pursuant to Section
      4.12 of the Purchase Agreement, and (iv) any securities issued or issuable
      upon
      any stock split, dividend or other distribution, recapitalization or similar
      event, or any conversion or exercise price adjustment with respect to any of
      the
      securities referenced in (i), (ii) or (iii) above.

     

    “Registration
      Statement”
      means a
      registration statement which is required to register the resale of the
      Registrable Securities, and including the Prospectus, amendments and supplements
      to such registration statement or Prospectus, including pre- and post-effective
      amendments, all exhibits thereto, and all material incorporated by reference
      or
      deemed to be incorporated by reference therein.

     

    “Required
      Effectiveness Date”
      means,
      with respect to the Registration Statement required to be filed to cover the
      resale by the Holders of the Registrable Securities, the earlier of: (i) the
      90th
      calendar
      day following the Closing Date; provided,
      that,
      if the Commission reviews and has written comments to the filed Registration
      Statement that would require the filing of a pre-effective amendment thereto
      with the Commission, then the Required Effectiveness Date under this clause
      (i)
      shall be the 120th
      day
      following the Closing Date, and (ii) the fifth Trading Day following the date
      on
      which the Company is notified by the Commission that the Registration Statement
      will not be reviewed or is no longer subject to further review and comments,
      

     

    
      
        
        

      

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

     

    “Rule
      415”
      means
      Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “Rule
      424”
      means
      Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “Securities
      Act”
      means
      the Securities Act of 1933, as amended.

     

    “Shares”
      means
      the shares of Common Stock issued or issuable to the Purchasers pursuant to
      the
      Purchase Agreement, which shall include any additional shares of Common Stock
      issued to the Purchaser pursuant to Section 4.12 of the Purchase
      Agreement.

     

    “Subscription
      Amount”
means
      with respect to each Purchaser, the purchase price indicated below such
      Purchaser’s name on the signature page to the Purchase Agreement

     

    “Warrants”
      means
      the
      Common Stock purchase warrants issued or issuable to the Purchasers pursuant
      to
      the Purchase Agreement.

     

    “Warrant
      Shares” means
      the
      shares of Common Stock issued or issuable upon exercise of the
      Warrants.

     

    2. Registration.

     

    (a) On
      or
      prior to the Filing Date, the Company shall prepare and file with the Commission
      a Registration Statement covering the resale of all Registrable Securities
      for
      an offering to be made on a continuous basis pursuant to Rule 415. The
      Registration Statement shall be on Form S-3 (except if the Company is not then
      eligible to register for resale the Registrable Securities on Form S-3, in
      which
      case such registration shall be on another appropriate form in accordance with
      the Securities Act and the Exchange Act and as consented to by the Holders)
      and
      shall contain (except if otherwise required pursuant to written comments
      received from the Commission upon a review of such Registration Statement)
      the
“Plan of Distribution” attached hereto as Annex A. 

     

    (b) The
      Company shall use its best efforts to cause the Registration Statement to be
      declared effective by the Commission as soon as practicable and, in any event,
      no later than the Required Effectiveness Date (including filing with the
      Commission a request for acceleration of effectiveness in accordance with Rule
      461 promulgated under the Securities Act within five (5) Business Days after
      the
      date that the Company is notified (orally or in writing, whichever is earlier)
      by the Commission that a Registration Statement will not be “reviewed,” or not
      be subject to further review and the effectiveness of the Registration Statement
      may be accelerated) and shall use its best efforts to keep the Registration
      Statement continuously effective under the Securities Act until the earlier
      of
      the date that all Registrable Securities covered by the Registration Statement
      have been sold or may be sold by non-affiliates without volume restrictions
      pursuant to Rule 144(k) as determined by the counsel to the Company pursuant
      to
      a written opinion letter to such effect, addressed and acceptable to the
      Company's transfer agent and the affected Holders (the “Effectiveness
      Period”).
      Such
      Registration Statement shall also cover, to the extent allowable under the
      Securities Act and the rules promulgated thereunder (including Rule 416), such
      indeterminate number of additional shares of Common Stock resulting from stock
      splits, stock dividends or similar transactions with respect to the Registrable
      Securities. It is agreed and understood that the Company shall, from time to
      time, be obligated to file an additional Registration Statement to cover any
      Registrable Securities which are not registered for resale pursuant to a
      pre-existing Registration Statement. Notwithstanding anything herein to the
      contrary, no Registration Statement filed pursuant to this Agreement shall
      cover
      any securities other than Registrable Securities and securities issued pursuant
      to the Settlement Agreements and to the parties to the Settlement Agreements
      as
      a result of anti-dilution provisions triggered by the transactions contemplated
      by the Purchase Agreement; provided, however, to the extent the Commission
      should issue any comment in response to a Registration Statement filed pursuant
      to this Agreement which can be resolved by reducing the amount of securities
      covered by such Registration Statement, then no Registrable Securities shall
      be
      removed from such Registration Statement until all other securities have first
      been removed from such Registration Statement.

     

    
      
        
        

      

      
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    (c) 
      If: (i)
      the Registration Statement is not filed on or prior to the Filing Date (if
      the
      Company files a Registration Statement without affording the Holders the
      opportunity to review and comment on the same as required by Section 3(a)
      hereof, the Company shall not be deemed to have satisfied this clause (i)),
      (ii)
      a Registration Statement is not declared effective by the Commission on or
      prior
      to the Required Effectiveness Date, (iii) the Company fails to file a request
      for acceleration with the required five-Business Day period, (iv) after its
      Effective Date such Registration Statement ceases for any reason (other than
      an
      Allowed Delay) to be effective (whether due to a stop order, other regulatory
      action or any other reason) and available to the Holders as to all Registrable
      Securities to which it is required to cover at any time prior to the expiration
      of its Effectiveness Period for more than 60 calendar days (which need not
      be
      consecutive) in any 365 calendar day period, or (v) after its Effective Date
      the
      effectiveness of such Registration Statement is suspended due to an Allowed
      Delay and such suspension continues for more than 30 calendar days as permitted
      under Section 2(d) below (any such failure or breach being referred to as an
      “Event,”
      and for
      purposes of clauses (i), (ii) or (iii) the date on which such Event occurs,
      or
      for purposes of clauses (iv) and (v) the date which such 60-day or 30-day
      period, as the case may be, is exceeded, being referred to as “Event
      Date”),
      then
      in addition to any other rights available to the Holders: (x) on such Event
      Date
      the Company shall pay to each Holder an amount in cash, as partial liquidated
      damages and not as a penalty, equal to 2.0% of the aggregate Subscription Amount
      paid by such Holder pursuant to the Purchase Agreement (which remedy shall
      not
      be exclusive of any other remedies available under this Agreement); and (y)
      on
      each monthly anniversary of each such Event Date thereof (if the applicable
      Event shall not have been cured by such date) until the applicable Event is
      cured, the Company shall pay to each Holder an amount in cash, as partial
      liquidated damages and not as a penalty, equal to 2.0% of the aggregate
      Subscription Amount paid by such Holder pursuant to the Purchase Agreement.
      The
      parties agree that the Company will not be liable for liquidated damages under
      this Section 2(c) in respect of the Warrants. If the Company fails to pay any
      partial liquidated damages pursuant to this Section in full within seven days
      after the date payable, the Company will pay interest thereon at a rate of
      10%
      per annum (or such lesser maximum amount that is permitted to be paid by
      applicable law) to the Holder, accruing daily from the date such partial
      liquidated damages are due until such amounts, plus all such interest thereon,
      are paid in full. The partial liquidated damages pursuant to the terms hereof
      shall apply on a pro-rata basis for any portion of a month prior to the cure
      of
      an Event, except in the case of the first Event Date. Notwithstanding anything
      herein to the contrary, in no event will the Company be obligated to make
      payments to any Purchaser for liquidated damages under this Section 2(c) in
      excess of 10% of the aggregate amount invested by such Purchaser.

     

    
      
        
        

      

      
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    (d) For
      not
      more than 30 calendar days (which need not be consecutive) in any365 calendar
      day period, the Company may delay the disclosure of material non-public
      information concerning the Company, by terminating or suspending effectiveness
      of any registration contemplated by this Section 2, if the disclosure of such
      material non-public information at the time is not, in the good faith opinion
      of
      the Company’s Board of Directors, in the best interests of the Company (an
“Allowed
      Delay”);
      provided,
      that
      the Company shall promptly (x) notify the Holders in writing of the existence
      of
      (but in no event, without the prior written consent of a Holder, shall the
      Company disclose to such Holder any of the facts or circumstances regarding)
      material non-public information giving rise to an Allowed Delay, and (y) advise
      the Holders in writing to cease all sales under the Registration Statement
      until
      the end of the Allowed Delay.

    

    (e) The
      Company shall not, from the date hereof until the Effective Date of the
      Registration Statement, prepare and file with the Commission a registration
      statement relating to an offering for its own account or the account of others
      under the Securities Act of any of its equity securities other than a
      registration statement on Form S-8.

    

    (f) Each
      Holder agrees to furnish to the Company a completed Questionnaire in the form
      attached to this Agreement as Annex B (a “Selling
      Holder Questionnaire”).
      

    

    (g) Notwithstanding
      the foregoing, the Company shall not disclose material nonpublic information
      to
      the Holders, or to advisors to or representatives of the Holders, unless prior
      to disclosure of such information the Company identifies such information as
      being material nonpublic information and provides the Holders, such advisors
      and
      representatives with the opportunity to accept or refuse to accept such material
      nonpublic information for review.

    

    3. Registration
      Procedures

     

    In
      connection with the Company's registration obligations hereunder, the Company
      shall:

     

    (a) Not
      less
      than four Trading Days prior to the filing of a Registration Statement or any
      related Prospectus or any amendment or supplement thereto, furnish to each
      Holder copies of the “Selling Stockholders” section of such document, the “Plan
      of Distribution” and any risk factor contained in such document that addresses
      specifically this transaction or the Selling Stockholders, as proposed to be
      filed, which documents will be subject to the review of such Holder. The Company
      shall not file a Registration Statement, any Prospectus or any amendments or
      supplements thereto in which the “Selling Stockholder” section thereof differs
      from the disclosure received from a Holder in its Selling Holder Questionnaire
      (as amended or supplemented), except as may otherwise be required by applicable
      securities law or the Commission.

     

    
      
        
        

      

      
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    (b) (i)
      Prepare and file with the Commission such amendments, including post-effective
      amendments, to each Registration Statement and the Prospectus used in connection
      therewith as may be necessary to keep such Registration Statement continuously
      effective as to the applicable Registrable Securities for its Effectiveness
      Period and prepare and file with the Commission such additional Registration
      Statements in order to register for resale under the Securities Act all of
      the
      Registrable Securities; (ii) cause the related Prospectus to be amended or
      supplemented by any required Prospectus supplement, and as so supplemented
      or
      amended to be filed pursuant to Rule 424; (iii) respond as promptly as
      reasonably practicable, and in any event within ten (10) Trading Days to any
      comments received from the Commission with respect to each Registration
      Statement or any amendment thereto and, as promptly as reasonably possible
      provide the Holders true and complete copies of all correspondence from and
      to
      the Commission relating to such Registration Statement that pertains to the
      Holders as Selling Stockholders but not any comments that would result in the
      disclosure to the Holders of material and non-public information concerning
      the
      Company; and (iv) comply in all material respects with the provisions of the
      Securities Act and the Exchange Act with respect to the disposition of all
      Registrable Securities covered by the Registration Statement.

     

    (c) Notify
      the Holders as promptly as reasonably possible (and, in the case of (i)(A)
      below, not less than three Trading Days prior to such filing) and (if requested
      by any such Person) confirm such notice in writing as promptly as reasonably
      possible (i)(A) when a Prospectus or any Prospectus supplement or post-effective
      amendment to a Registration Statement is proposed to be filed; (B) when the
      Commission notifies the Company whether there will be a “review” of such
      Registration Statement and whenever the Commission comments in writing on any
      Registration Statement (in which case the Company shall provide true and
      complete copies thereof and all written responses thereto to each of the Holders
      that pertain to the Holders as a Selling Stockholder or to the Plan of
      Distribution, but not information which the Company believes would constitute
      material and non-public information); and (C) with respect to each Registration
      Statement or any post-effective amendment, when the same has been declared
      effective; (ii) of any request by the Commission or any other Federal or state
      governmental authority for amendments or supplements to a Registration Statement
      or Prospectus or for additional information that pertains to the Holders as
      Selling Stockholders or the Plan of Distribution; (iii) of the issuance by
      the
      Commission of any stop order suspending the effectiveness of a Registration
      Statement covering any or all of the Registrable Securities or the initiation
      of
      any Proceedings for that purpose; (iv) of the receipt by the Company of any
      notification with respect to the suspension of the qualification or exemption
      from qualification of any of the Registrable Securities for sale in any
      jurisdiction, or the initiation or threatening of any Proceeding for such
      purpose; and (v) of the occurrence of any event or passage of time that makes
      the financial statements included in a Registration Statement ineligible for
      inclusion therein or any statement made in such Registration Statement or
      Prospectus or any document incorporated or deemed to be incorporated therein
      by
      reference untrue in any material respect or that requires any revisions to
      such
      Registration Statement, Prospectus or other documents so that, in the case
      of
      such Registration Statement or the Prospectus, as the case may be, it will
      not
      contain any untrue statement of a material fact or omit to state any material
      fact required to be stated therein or necessary to make the statements therein
      (in the case of any Prospectus, form of prospectus or supplement thereto, in
      light of the circumstances under which they were made), not
      misleading.

     

    
      
        
        

      

      
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    (d) Use
      its
      best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
      of
      (i) any order suspending the effectiveness of a Registration Statement, or
      (ii)
      any suspension of the qualification (or exemption from qualification) of any
      of
      the Registrable Securities for sale in any jurisdiction, as soon as
      practicable.

     

    (e) If
      requested by a Holder, furnish to such Holder, without charge, at least one
      conformed copy of each Registration Statement and each amendment thereto and
      all
      exhibits to the extent requested by such Person (including those previously
      furnished or incorporated by reference) promptly after the filing of such
      documents with the Commission; provided, that the Company shall have no
      obligation to provide any document pursuant to this clause that is available
      on
      the EDGAR system.

     

    (f) Promptly
      deliver to each Holder, without charge, as many copies of each Prospectus or
      Prospectuses (including each form of prospectus) and each amendment or
      supplement thereto as such Persons may reasonably request. The Company hereby
      consents to the use of such Prospectus and each amendment or supplement thereto
      by each of the selling Holders in connection with the offering and sale of
      the
      Registrable Securities covered by such Prospectus and any amendment or
      supplement thereto.

     

    (g) Prior
      to
      any public offering of Registrable Securities, use its best efforts to register
      or qualify or cooperate with the selling Holders in connection with the
      registration or qualification (or exemption from such registration or
      qualification) of such Registrable Securities for offer and sale under the
      securities or Blue Sky laws of those jurisdictions within the United States
      as
      any Holder requests in writing, to keep each such registration or qualification
      (or exemption therefrom) effective during the Effectiveness Period and to do
      any
      and all other acts or things necessary or advisable to enable the disposition
      in
      such jurisdictions of the Registrable Securities covered by the Registration
      Statements; provided,
      that
      the
      Company shall not be required to qualify generally to do business in any
      jurisdiction where it is not then so qualified or to take any action that would
      subject the Company to general service of process in any jurisdiction where
      it
      is not then so subject or subject the Company to any material tax in any such
      jurisdiction where it is not then so subject.

     

    (h) Cooperate
      with the Holders to facilitate the timely preparation and delivery of
      certificates representing Registrable Securities to be delivered to a transferee
      pursuant to the Registration Statements, which certificates shall be free,
      to
      the extent permitted by the Purchase Agreement and under law, of all restrictive
      legends, and to enable such Registrable Securities to be in such denominations
      and registered in such names as any such Holders may reasonably request. In
      connection therewith, if required by the Company’s transfer agent, the Company
      shall promptly after the effectiveness of the Registration Statement cause
      an
      opinion of counsel as to the effectiveness of the Registration Statement to
      be
      delivered to and maintained with its transfer agent, together with any other
      authorizations, certificates and directions required by the transfer agent,
      which authorize and direct the transfer agent to issue such Registrable
      Securities without legend upon sale by the holder of such shares of Registrable
      Securities under the Registration Statement.

     

    
      
        
        

      

      
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    (i) Following
      the occurrence of any event contemplated by Section 3(c)(v), as promptly as
      reasonably possible, prepare a supplement or amendment, including a
      post-effective amendment, to the affected Registration Statements or a
      supplement to the related Prospectus or any document incorporated or deemed
      to
      be incorporated therein by reference, and file any other required document
      so
      that, as thereafter delivered, no Registration Statement nor any Prospectus
      will
      contain an untrue statement of a material fact or omit to state a material
      fact
      required to be stated therein or necessary to make the statements therein (in
      the case of any Prospectus, form of prospectus or supplement thereto, in light
      of the circumstances under which they were made), not misleading.

     

    (j) (i)
      In
      the time and manner required by each Trading Market, prepare and file with
      such
      Trading Market an additional shares listing application covering all of the
      Registrable Securities, (ii) take all steps necessary to cause such Registrable
      Securities to be approved for listing on each Trading Market as soon as possible
      thereafter, (iii) provide the Holders evidence of such listing, and (iv) except
      as a result of the Excluded Events, during the Effectiveness Period, maintain
      the listing of such Registrable Securities on each such Trading
      Market.

     

    (k) As
      long
      as any Holder owns Shares, Warrants or Warrant Shares, the Company covenants
      to
      timely file (or obtain extensions in respect thereof and file within the
      applicable grace period) all reports required to be filed by the Company after
      the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As
      long
      as any Holder owns Shares, Warrants or Warrant Shares, if the Company is not
      required to file reports pursuant to Section 13(a) or 15(d) of the Exchange
      Act,
      it will prepare and furnish to the Holders and make publicly available in
      accordance with Rule 144(c) promulgated under the Securities Act annual and
      quarterly financial statements, together with a discussion and analysis of
      such
      financial statements in form and substance substantially similar to those that
      would otherwise be required to be included in reports required by Section 13(a)
      or 15(d) of the Exchange Act, as well as any other information required thereby,
      in the time period that such filings would have been required to have been
      made
      under the Exchange Act. The Company further covenants that it will take such
      further action as any Holder may reasonably request, all to the extent required
      from time to time to enable such Person to sell Shares and Warrant Shares
      without registration under the Securities Act within the limitation of the
      exemptions provided by Rule 144 promulgated under the Securities Act, including
      compliance with the provisions of the Purchase Agreement relating to the
      transfer of the Shares and Warrant Shares. 

     

    (l) The
      Company may require each selling Holder to furnish to the Company a certified
      statement as to the number of shares of Common Stock beneficially owned by
      such
      Holder and any Affiliate thereof. 

     

     

    
      
        
        

      

      
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    4. Registration
      Expenses.
      All
      fees and expenses incident to the Company’s performance of or compliance with
      its obligations under this Agreement (excluding any underwriting discounts
      and
      selling commissions and all legal fees and expenses of legal counsel for any
      Holder) shall be borne by the Company whether or not any Registrable Securities
      are sold pursuant to a Registration Statement. The fees and expenses referred
      to
      in the foregoing sentence shall include, without limitation, (i) all
      registration and filing fees (including, without limitation, fees and expenses
      (A) with respect to filings required to be made with the Trading Market on
      which
      the Common Stock is then listed for trading, and (B) in compliance with
      applicable state securities or Blue Sky laws), (ii) printing expenses
      (including, without limitation, expenses of printing certificates for
      Registrable Securities and of printing prospectuses if the printing of
      prospectuses is reasonably requested by the holders of a majority of the
      Registrable Securities included in the Registration Statement), (iii) messenger,
      telephone and delivery expenses, (iv) fees and disbursements of counsel for
      the
      Company, (v) Securities Act liability insurance, if the Company so desires
      such
      insurance, and (vi) fees and expenses of all other Persons retained by the
      Company in connection with the consummation of the transactions contemplated
      by
      this Agreement. In addition, the Company shall be responsible for all of its
      internal expenses incurred in connection with the consummation of the
      transactions contemplated by this Agreement (including, without limitation,
      all
      salaries and expenses of its officers and employees performing legal or
      accounting duties), the expense of any annual audit and the fees and expenses
      incurred in connection with the listing of the Registrable Securities on any
      securities exchange as required hereunder. In no event shall the Company be
      responsible for any broker or similar commissions or any legal fees or other
      costs of the Holders.

     

    5. Indemnification.

     

    (a) Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless each Holder, the officers, directors, agents, partners, members,
      shareholders and employees of each of them, each Person who controls any such
      Holder (within the meaning of Section 15 of the Securities Act or Section 20
      of
      the Exchange Act) and the officers, directors, agents and employees of each
      such
      controlling Person, to the fullest extent permitted by applicable law, from
      and
      against any and all losses, claims, damages, liabilities, costs (including,
      without limitation, reasonable costs of preparation and reasonable attorneys'
      fees) and expenses (collectively, “Losses”),
      as
      incurred, arising out of or relating to (i) any untrue or alleged untrue
      statement of a material fact contained in any Registration Statement, any
      Prospectus or any form of prospectus or in any amendment or supplement thereto
      (it being understood that the Holder has approved Annex A hereto for this
      purpose) or in any preliminary prospectus, or arising out of or relating to
      any
      omission or alleged omission of a material fact required to be stated therein
      or
      necessary to make the statements therein (in the case of any Prospectus or
      form
      of prospectus or supplement thereto, in light of the circumstances under which
      they were made) not misleading, except to the extent, but only to the extent,
      that (A) such untrue statements, alleged untrue statements, omissions or alleged
      omissions are based solely upon information regarding such Holder furnished
      in
      writing to the Company by such Holder expressly for use therein, or to the
      extent that such information relates to such Holder or such Holder's proposed
      method of distribution of Registrable Securities and was reviewed and expressly
      approved in writing by such Holder expressly for use in the Registration
      Statement, such Prospectus or such form of Prospectus or in any amendment or
      supplement thereto (it being understood that the Holder has approved Annex
      A
      hereto for this purpose) or (2) in the case of an occurrence of an event of
      the
      type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated
      or
      defective Prospectus after the Company has notified such Holder in writing
      that
      the Prospectus is outdated or defective and prior to the receipt by such Holder
      of Advice (as defined in Section 6(c) below) provided,
      however,
      that
      the indemnity agreement contained in this Section 5(b) shall not apply to
      amounts paid in settlement of any Losses if such settlement is effected without
      the prior written consent of the Holder, which consent shall not be unreasonably
      withheld. The Company shall notify the Holders promptly of the institution,
      threat or assertion of any Proceeding of which the Company is aware in
      connection with the transactions contemplated by this Agreement. Such indemnity
      shall remain in full force and effect regardless of any investigation made
      by or
      on behalf of an Indemnified Party (as defined in Section 5(c)) and shall survive
      the transfer of the Registrable Securities by the Holders.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (b) Indemnification
      by Holders.
      Each
      Holder shall, notwithstanding any termination of this Agreement, severally
      and
      not jointly, indemnify and hold harmless the Company, its directors, officers,
      agents and employees, each Person who controls the Company (within the meaning
      of Section 15 of the Securities Act and Section 20 of the Exchange Act), and
      the
      directors, officers, agents or employees of such controlling Persons, to the
      fullest extent permitted by applicable law, from and against all Losses, as
      incurred, arising solely out of or based solely upon any untrue statement of
      a
      material fact contained in any Registration Statement, any Prospectus, or any
      form of prospectus, or in any amendment or supplement thereto, or arising solely
      out of or based solely upon any omission of a material fact required to be
      stated therein or necessary to make the statements therein (in the case of
      any
      Prospectus, or any form of prospectus or supplement thereto, in light of the
      circumstances under which they were made) not misleading to the extent, but
      only
      to the extent that, (A) such untrue statements or omissions are based solely
      upon information regarding such Holder furnished in writing to the Company
      by
      such Holder expressly for use therein, or to the extent that such information
      relates to such Holder or such Holder’s proposed method of distribution of
      Registrable Securities and was reviewed and expressly approved in writing by
      such Holder expressly for use in the Registration Statement (it being understood
      that the Holder has approved Annex A hereto for this purpose), such Prospectus
      or such form of Prospectus or in any amendment or supplement thereto or (B)
      in
      the case of an occurrence of an event of the type specified in Section
      3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus
      after the Company has notified such Holder in writing that the Prospectus is
      outdated or defective and prior to the receipt by such Holder of Advice or
      an
      amended or supplemented Prospectus, but only if and to the extent that following
      the receipt of the Advice or the amended or supplemented Prospectus the
      misstatement or omission giving rise to such Loss would have been corrected;
      provided,
      however,
      that
      the indemnity agreement contained in this Section 5(b) shall not apply to
      amounts paid in settlement of any Losses if such settlement is effected without
      the prior written consent of the Company, which consent shall not be
      unreasonably withheld. In no event shall the liability of any selling Holder
      hereunder be greater in amount than the dollar amount of the net proceeds
      received by such Holder upon the sale of the Registrable Securities giving
      rise
      to such indemnification obligation.

     

    (c) Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party shall promptly notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall assume the defense thereof, including
      the employment of counsel reasonably satisfactory to the Indemnified Party
      and
      the payment of all fees and expenses incurred in connection with defense
      thereof; provided,
      that
      the failure of any Indemnified Party to give such notice shall not relieve
      the
      Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
      except (and only) to the extent that it shall be finally determined by a court
      of competent jurisdiction (which determination is not subject to appeal or
      further review) that such failure shall have proximately and materially
      adversely prejudiced the Indemnifying Party.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; (2) the Indemnifying Party shall have failed promptly to assume the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (3) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and such Indemnified Party shall have been advised
      by counsel that a conflict of interest is likely to exist if the same counsel
      were to represent such Indemnified Party and the Indemnifying Party (in which
      case, if such Indemnified Party notifies the Indemnifying Party in writing
      that
      it elects to employ separate counsel at the expense of the Indemnifying Party,
      the Indemnifying Party shall not have the right to assume the defense thereof
      and such counsel shall be at the expense of the Indemnifying Party), provided,
      that the Indemnifying Party shall not be liable for the fees and expenses of
      more than one separate firm of attorneys at any time for all Indemnified
      Parties. The Indemnifying Party shall not be liable for any settlement of any
      such Proceeding effected without its written consent, which consent shall not
      be
      unreasonably withheld. No Indemnifying Party shall, without the prior written
      consent of the Indemnified Party, effect any settlement of any pending
      Proceeding in respect of which any Indemnified Party is a party, unless such
      settlement includes an unconditional release of such Indemnified Party from
      all
      liability on claims that are the subject matter of such Proceeding.

     

    All
      fees
      and expenses of the Indemnified Party (including reasonable fees and expenses
      to
      the extent incurred in connection with investigating or preparing to defend
      such
      Proceeding in a manner not inconsistent with this Section) shall be paid to
      the
      Indemnified Party, as incurred, within twenty Trading Days of written notice
      thereof to the Indemnifying Party (regardless of whether it is ultimately
      determined that an Indemnified Party is not entitled to indemnification
      hereunder; provided,
      that
      the Indemnifying Party may require such Indemnified Party to undertake to
      reimburse all such fees and expenses to the extent it is finally judicially
      determined that such Indemnified Party is not entitled to indemnification
      hereunder).

     

    (d) Contribution.
      If a
      claim for indemnification under Section 5(a) or 5(b) is unavailable to an
      Indemnified Party (by reason of public policy or otherwise), then each
      Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
      contribute to the amount paid or payable by such Indemnified Party as a result
      of such Losses, in such proportion as is appropriate to reflect the relative
      fault of the Indemnifying Party and Indemnified Party in connection with the
      actions, statements or omissions that resulted in such Losses as well as any
      other relevant equitable considerations. The relative fault of such Indemnifying
      Party and Indemnified Party shall be determined by reference to, among other
      things, whether any action in question, including any untrue or alleged untrue
      statement of a material fact or omission or alleged omission of a material
      fact,
      has been taken or made by, or relates to information supplied by, such
      Indemnifying Party or Indemnified Party, and the parties' relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      action, statement or omission. The amount paid or payable by a party as a result
      of any Losses shall be deemed to include, subject to the limitations set forth
      in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
      incurred by such party in connection with any Proceeding to the extent such
      party would have been indemnified for such fees or expenses if the
      indemnification provided for in this Section was available to such party in
      accordance with its terms. 

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5(d) were determined by pro rata allocation or by
      any
      other method of allocation that does not take into account the equitable
      considerations referred to in the immediately preceding paragraph.
      Notwithstanding the provisions of this Section 5(d), no Holder shall be required
      to contribute, in the aggregate, any amount in excess of the amount by which
      the
      proceeds actually received by such Holder from the sale of the Registrable
      Securities subject to the Proceeding exceeds the amount of any damages that
      such
      Holder has otherwise been required to pay by reason of such untrue or alleged
      untrue statement or omission or alleged omission. No person guilty of fraudulent
      misrepresentation (within the meaning of Section 11(f) of the Securities Act)
      shall be entitled to contribution from any Person who was not guilty of such
      fraudulent misrepresentation. 

     

    The
      indemnity and contribution agreements contained in this Section are in addition
      to any liability that the Indemnifying Parties may have to the Indemnified
      Parties and are not in dimunition or limitation of the indemnification
      provisions under the Purchase Agreement.

     

    6. Miscellaneous

     

    (a) Remedies.
      In the
      event of a breach by the Company or by a Holder, of any of their obligations
      under this Agreement, each Holder or the Company, as the case may be, in
      addition to being entitled to exercise all rights granted by law and under
      this
      Agreement, including recovery of damages, will be entitled to specific
      performance of its rights under this Agreement. The Company and each Holder
      agree that monetary damages would not provide adequate compensation for any
      losses incurred by reason of a breach by it of any of the provisions of this
      Agreement and hereby further agrees that, in the event of any action for
      specific performance in respect of such breach, it shall waive the defense
      that
      a remedy at law would be adequate.

     

    (b) Compliance.
      Each
      Holder covenants and agrees that it will comply with the prospectus delivery
      requirements of the Securities Act as applicable to it in connection with sales
      of Registrable Securities pursuant to the Registration Statement.

     

    (c) Discontinued
      Disposition.
      Each
      Holder further agrees by its acquisition of such Registrable Securities that,
      upon receipt of a notice from the Company of the occurrence of any event of
      the
      kind described in Section 3(c), such Holder will forthwith discontinue
      disposition of such Registrable Securities under the Registration Statement
      until such Holder's receipt of the copies of the supplemented Prospectus and/or
      amended Registration Statement declared effective by the Commission or until
      it
      is advised in writing (the “Advice”)
      by the
      Company that the use of the applicable Prospectus may be resumed, and, in either
      case, has received copies of any additional or supplemental filings that are
      incorporated or deemed to be incorporated by reference in such Prospectus or
      Registration Statement. The Company may provide appropriate stop orders to
      enforce the provisions of this paragraph.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (d) Piggy-Back
      Registrations.
      If at
      any time during the Effectiveness Period there is not an effective Registration
      Statement covering all of the Registrable Securities and the Company shall
      determine to prepare and file with the Commission a registration statement
      relating to an offering for its own account or the account of others under
      the
      Securities Act of any of its equity securities, other than on Form S-4 or Form
      S-8 (each as promulgated under the Securities Act) or their then equivalents
      relating to equity securities to be issued solely in connection with any
      acquisition of any entity or business or equity securities issuable in
      connection with stock option or other employee benefit plans, then the Company
      shall send to each Holder written notice of such determination and, if within
      fifteen days after receipt of such notice, any such Holder shall so request
      in
      writing, the Company shall include in such registration statement all or any
      part of such Registrable Securities such holder requests to be registered,
      subject to customary underwriter cutbacks applicable to all holders of
      registration rights on a pro rata basis; provided
      that if
      at any time after giving written notice of its intention to register any
      securities and prior to the effective date of the registration statement filed
      in connection with such registration, the Company shall determine for any reason
      not to register or to delay registration of such securities, the Company may,
      at
      its election, give written notice of such determination to such Holder and,
      thereupon, (i) in the case of a determination not to register, shall be relieved
      of its obligation to register any Registrable Securities in connection with
      such
      registration (but not from its obligation to pay expenses in accordance with
      Section 4 hereof), and (ii) in the case of a determination to delay registering,
      shall be permitted to delay registering any Registrable Securities being
      registered pursuant to this Section 6(e) for the same period as the delay in
      registering such other securities.

     

    (e) Amendments
      and Waivers.
      This
      Agreement may be amended only by a writing signed by all of the parties hereto.
      The Company may take any action herein prohibited, or omit to perform any act
      herein required to be performed by it, only if the Company shall have obtained
      the written consent to such amendment, action or omission to act, of each
      Purchaser. 

     

    (f) Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (i) the date of transmission, if such notice or communication
      is delivered via facsimile (provided the sender receives a machine-generated
      confirmation of successful transmission) at the facsimile number specified
      in
      this Section prior to 5:00 p.m. (New York City time) on a Trading Day, (ii)
      the
      next Trading Day after the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number specified in this Section
      on
      a day that is not a Trading Day or later than 5:00 p.m. (New York City time)
      on
      any Trading Day, (iii) the Business Day following the date of mailing, if sent
      by nationally recognized overnight courier service, or (iv) upon actual receipt
      by the party to whom such notice is required to be given. 

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    The
      address for such notices and communications shall be as follows:

    

    
      	
              If
                to the Company:

            	
               

            	
              Telkonet,
                Inc.

            
	 	 	
              20374
                Seneca Meadows Parkway

            
	 	 	
              Germantown,
                MD 20876

            
	 	 	
              Facsimile:
                (240) 912-1939

            
	 	 	
              Attn:
                Chief Financial Officer

            
	 	 	 
	
              With
                a copy to:

            	 	
              Baker
                & Hostetler LLP

            
	 	 	
              1050
                Connecticut Avenue, NW

            
	 	 	
              Suite
                1100

            
	 	 	
              Washington,
                D.C., 20036

            
	 	 	
              Facsimile:
                (202) 861-1783

            
	 	 	
              Attn:
                William J. Conti, Esq.

            
	 	 	 
	
              If
                to a Purchaser:

            	 	
              To
                the address set forth under such Purchaser's name on the signature
                pages
                hereto.

               

            
	 	 	 
	
              With
                a copy to:

            	 	
              Lowenstein
                Sandler PC

              1251
                Avenue of the Americas

              18th
                Floor

              New
                York, New York 10020

              Facsimile:
                (973) 597-2507

              Attn:
                Steven E. Siesser, Esq.

            
	
              If
                to any other Person who is then the registered Holder:

            	 	
              To
                the address of such Holder as it appears in the stock transfer books
                of
                the Company or such other address as may be designated in writing
                hereafter, in the same manner, by such Person.

               

            

    

    
      	 	 	 	 	 

    

     

     

    (g) Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      permitted assigns of each of the parties and shall inure to the benefit of
      each
      Holder. The Company may not assign its rights or obligations hereunder without
      the prior written consent of each Holder. The rights of the Holders hereunder,
      including the right to have the Company register Registrable Securities pursuant
      to this Agreement, may be assigned by each Holder to transferees or assignees
      of
      all or any portion of the Registrable Securities, but only if (i) the Holder
      agrees in writing with the transferee or assignee to assign such rights, and
      a
      copy of such agreement is furnished to the Company within a reasonable time
      after such assignment, (ii) the Company is, within a reasonable time after
      such
      transfer or assignment, furnished with written notice of the name and address
      of
      such transferee or assignee and the securities with respect to which such
      registration rights are being transferred or assigned, (iii) at or before the
      time the Company received the written notice contemplated by clause (ii) of
      this
      sentence, the transferee or assignee agrees in writing with the Company to
      be
      bound by all of the provisions contained herein and (iv) the transferee is
      an
“accredited investor” as that term is defined in Rule 501 of Regulation
      D.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (h) Execution
      and Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    (i) Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by and construed and enforced in accordance
      with the internal laws of the State of New York, without regard to the
      principles of conflicts of law thereof. Each party agrees that all Proceedings
      concerning the interpretations, enforcement and defense of the transactions
      contemplated by this Agreement (whether brought against a party hereto or its
      respective Affiliates, employees or agents) will be commenced in the New York
      Courts. Each party hereto hereby irrevocably submits to the exclusive
      jurisdiction of the New York Courts for the adjudication of any dispute
      hereunder or in connection herewith or with any transaction contemplated hereby
      or discussed herein, and hereby irrevocably waives, and agrees not to assert
      in
      any Proceeding, any claim that it is not personally subject to the jurisdiction
      of any New York Court, or that such Proceeding has been commenced in an improper
      or inconvenient forum. Each party hereto hereby irrevocably waives personal
      service of process and consents to process being served in any such Proceeding
      by mailing a copy thereof via registered or certified mail or overnight delivery
      (with evidence of delivery) to such party at the address in effect for notices
      to it under this Agreement and agrees that such service shall constitute good
      and sufficient service of process and notice thereof. Nothing contained herein
      shall be deemed to limit in any way any right to serve process in any manner
      permitted by law. Each party hereto hereby irrevocably waives, to the fullest
      extent permitted by applicable law, any and all right to trial by jury in any
      Proceeding arising out of or relating to this Agreement or the transactions
      contemplated hereby. If any party shall commence a Proceeding to enforce any
      provisions of this Agreement, then the prevailing party in such Proceeding
      shall
      be reimbursed by the other parties for its attorney’s fees and other costs and
      expenses incurred with the investigation, preparation and prosecution of such
      Proceeding.

     

    (j) Cumulative
      Remedies.
      The
      remedies provided herein are cumulative and not exclusive of any remedies
      provided by law.

     

    (k) Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their reasonable efforts to
      find and employ an alternative means to achieve the same or substantially the
      same result as that contemplated by such term, provision, covenant or
      restriction. It is hereby stipulated and declared to be the intention of the
      parties that they would have executed the remaining terms, provisions, covenants
      and restrictions without including any of such that may be hereafter declared
      invalid, illegal, void or unenforceable.

     

    (l) Headings.
      The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (m) Independent
      Nature of Purchasers' Obligations and Rights.
      The
      obligations of each Purchaser under this Agreement are several and not joint
      with the obligations of any other Purchaser hereunder, and no Purchaser shall
      be
      responsible in any way for the performance of the obligations of any other
      Purchaser hereunder. The decision of each Purchaser to purchase Securities
      pursuant to the Transaction Documents has been made independently of any other
      Purchaser. Nothing contained herein or in any other agreement or document
      delivered at any closing, and no action taken by any Purchaser pursuant hereto
      or thereto, shall be deemed to constitute the Purchasers as a partnership,
      an
      association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert with respect
      to
      such obligations or the transactions contemplated by this Agreement. Each
      Purchaser acknowledges that no other Purchaser has acted as agent for such
      Purchaser in connection with making its investment hereunder and that no
      Purchaser will be acting as agent of such Purchaser in connection with
      monitoring its investment in the Securities or enforcing its rights under the
      Transaction Documents. Each Purchaser shall be entitled to protect and enforce
      its rights, including without limitation the rights arising out of this
      Agreement, and it shall not be necessary for any other Purchaser to be joined
      as
      an additional party in any Proceeding for such purpose. The Company acknowledges
      that each of the Purchasers has been provided with the same Registration Rights
      Agreement for the purpose of closing a transaction with multiple Purchasers
      and
      not because it was required or requested to do so by any Purchaser.

     

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        16

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

     

    
      	 	 	 
	 	TELKONET,
              INC.
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              

            
	 	
              Name:

              Title:

            

    

     

     

     

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      OF PAGE INTENTIONALLY LEFT BLANK

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      PAGES OF INVESTORS TO FOLLOW]

     

    
      
         

        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

     

     

    
      	 	 	 
	 	NAME
              OF
              INVESTING ENTITY
	 	 
	 	 
	 
 	 
 	 
 
	 	AUTHORIZED
              SIGNATORY
	 	 	 
	 	By:  	/s/ 
	 	
              

            
	 	
              Name:

              Title:

            

      	 	 	 
	 	ADDRESS
              FOR NOTICE
	 	 
	 	c/o:
              
              

            
	 	Street:
              
              

            
	 	City/State/Zip:
              
              

            
	 	Attention:
              
              

            
	 	Tel:
              
              

            
	 	Fax:
              
              

            
	 	Email:
              
              

            

    

    
      
         

        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    Annex
      A

     

    Plan
      of
      Distribution

     

    The
      Selling Stockholders and any of their pledgees, donees, transferees, assignees
      and successors-in-interest may, from time to time, sell any or all of their
      shares of Common Stock on any stock exchange, market or trading facility on
      which the shares are traded or in private transactions. These sales may be
      at
      fixed or negotiated prices. The Selling Stockholders may use any one or more
      of
      the following methods when selling shares:

     

    
      	 	
              ·

            	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits purchasers;

            

    

     

    
      	 	
              ·

            	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

     

    
      	 	
              ·

            	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

     

    
      	 	
              ·

            	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

     

    
      	 	
              ·

            	
              privately
                negotiated transactions;

            

    

     

    
      	 	
              ·

            	
              short
                sales; 

            

    

     

    
      	 	
              ·

            	
              broker-dealers
                may agree with the selling stockholders to sell a specified number
                of such
                shares at a stipulated price per
                share;

            

    

     

    
      	 	
              ·

            	
              a
                combination of any such methods of sale;
                and

            

    

     

    
      	 	
              ·

            	
              any
                other method permitted pursuant to applicable
                law.

            

    

     

    The
      Selling Stockholders may also sell shares under Rule 144 under the Securities
      Act, if available, rather than under this prospectus.

     

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other brokers-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the Selling Stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated. The
      Selling Stockholders do not expect these commissions and discounts to exceed
      what is customary in the types of transactions involved.

     

    The
      Selling Stockholders may from time to time pledge or grant a security interest
      in some or all of the Shares owned by them and, if they default in the
      performance of their secured obligations, the pledgees or secured parties may
      offer and sell shares of Common Stock from time to time under this prospectus,
      or under an amendment to this prospectus under Rule 424(b)(3) or other
      applicable provision of the Securities Act of 1933 amending the list of selling
      stockholders to include the pledgee, transferee or other successors in interest
      as selling stockholders under this prospectus.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    Upon
      the
      Company being notified in writing by a Selling Stockholder that any material
      agreement has been entered into with a broker-dealer for the sale of Common
      Stock through a block trade, special offering, exchange distribution or
      secondary distribution or a purchase by a broker or dealer, a supplement to
      this
      prospectus will be filed, if required, pursuant to Rule 424(b) under the
      Securities Act, disclosing (i) the name of each such Selling Stockholder and
      of
      the participating broker-dealer(s), (ii) the number of shares involved, (iii)
      the price at which such shares of Common Stock were sold, (iv) the commissions
      paid or discounts or concessions allowed to such broker-dealers, where
      applicable, (v) that such broker-dealer(s) did not conduct any investigation
      to
      verify the information set out or incorporated by reference in this prospectus,
      and (vi) other facts material to the transaction. In addition, upon the Company
      being notified in writing by a Selling Stockholder that a donee or pledgee
      intends to sell more than 500 shares of Common Stock, a supplement to this
      prospectus will be filed if then required in accordance with applicable
      securities laws. 

     

    The
      Selling Stockholders also may transfer the shares of Common Stock in other
      circumstances, in which case the transferees, pledgees or other successors
      in
      interest will be the selling beneficial owners for purposes of this
      prospectus.

     

    The
      Selling Stockholders and any broker-dealers or agents that are involved in
      selling the shares may be deemed to be “underwriters” within the meaning of the
      Securities Act in connection with such sales. In such event, any commissions
      received by such broker-dealers or agents and any profit on the resale of the
      shares purchased by them may be deemed to be underwriting commissions or
      discounts under the Securities Act. Discounts, concessions, commissions and
      similar selling expenses, if any, attributable to the sale of shares will be
      borne by the selling stockholder. Each Selling Stockholder has represented
      and
      warranted to the Company that it acquired the securities subject to this
      registration statement in the ordinary course of such Selling Stockholder’s
      business and, at the time of its purchase of such securities such Selling
      Stockholder had no agreements or understandings, directly or indirectly, with
      any person to distribute any such securities. 

     

    The
      Company has advised each Selling Stockholder that it may not use shares
      registered on this Registration Statement to cover short sales of Common Stock
      made prior to the date on which this Registration Statement shall have been
      declared effective by the Commission. If the Selling Stockholders use this
      prospectus for any sale of the Common Stock, they will be subject to the
      prospectus delivery requirements of the Securities Act. The Selling Stockholders
      will be responsible to comply with the applicable provisions of the Securities
      Act and Exchange Act, and the rules and regulations thereunder promulgated,
      including, without limitation, Regulation M, as applicable to such Selling
      Stockholders in connection with resales of their respective shares under this
      Registration Statement.

     

    We
      are
      required to pay all fees and expenses incident to the registration of the
      shares, but we will not receive any proceeds from the sale of the Common Stock.
      We have agreed to indemnify the selling stockholders against certain losses,
      claims, damages and liabilities, including liabilities under the Securities
      Act.

     

    

     

    
      
         

        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    Annex
      B

     

    Telkonet,
      Inc.

     

    Selling
      Securityholder Questionnaire

    

    1. Your
      identity and background as the Beneficial Holder of Common Stock and
      Warrants

     

    
      	
            	(a)	
              Your
                full legal
                name:______________________________________

            

    

     

    
      	
            	(b)	
              Citizenship:__________________________________________________________________________________________________

            

    

     

    
      	
            	(c)	
              Social
                Security No. or Taxpayer ID No.:
                _____________________________________________________________________________

            

    

     

    
      	
            	(d)	
              Your
                address, telephone number, facsimile number and email
                address:

            

    

     

    
      	
            	 	
              Address:
                _____________________________________________________________________________________________________

            

    

     

    
      	
            	 	
              ____________________________________________________________________________________________________________

            

    

     

    
      	
            	 	
              Telephone
                No.:
                ________________________________________________________________________________________________

            

    

    

    
      	
            	 	
              Fax
                No.:
                _____________________________________________________________________________________________________

            

    

    

    
      	
            	 	
              Email
                Address:
                ________________________________________________________________________________________________

            

    

    

    
      	
            	 	
              Contact
                Person:
                _______________________________________________________________________________________________

            

    

    

    
      	
            	(e)	
              Full
                legal name of person through which you hold the Common Stock and
                Warrants
                only if different than as set forth in Item 1(a) above (i.e.
                name of your broker or the DTC participant, if applicable, through
                which
                your shares of Common Stock are
                held):

            

    

    

    
      	
            	 	
              Name
                of broker:
                ________________________________________________________________________________________________

            

    

    

    
      	
            	 	
              DTC
                No.:
                _____________________________________________________________________________________________________

            

    

    

    
      	
            	 	
              Contact
                Person:
                ________________________________________________________________________________________________

            

    

    

    
      	
            	 	
              Telephone
                No.:
                ________________________________________________________________________________________________

            

    

     

    
 

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    2. Your
      Relationship with the Company

     

    
      	 	
              (a)

            	
              Have
                you or any of your affiliates, officers, directors or principal equity
                holders (owners of 5% or more of the equity securities of the undersigned)
                held any position or office or have you had any other material
                relationship with the Company (or its predecessors or affiliates)
                within
                the past three years?

            

    

     

    o  Yes

    o  No

    

    
      	
            	(b)	
              If
                your response to Item 2(a) above is yes, please state the nature
                and
                duration of  your
                relationship with the Company:

            

    

     

    ____________________________________________________________________________________________________________

    

    ____________________________________________________________________________________________________________

    

    3. Your
      interest in the Common Stock and Warrants

     

    
      	
            	(a)	
              State
                the total number of shares (identifying separately those number
                of shares
                of Common Stock underlying the Warrants) you expect to purchase
                in connection
                with the proposed sale of Common Stock and Warrants by
                the Company:

            

    

     

    ____________________________________________________________________________________________________________

    
      	
            	(b)	
              Do
                you beneficially own1 any
                securities of the Company other than the securities
                you will receive in connection with the proposed sale of
                Common Stock
                and Warrants by the Company?

            

    

     

    o  Yes

    o  No

    

    
      	
            	(c)	
              If
                your answer to Item 3(b) above is yes, state the type, the aggregate
                amount or
                number of shares of such other securities of the Company
                beneficially owned
                by you:

            

    

     

    Type: 
      _______________________________________________________________________________________________________

    

    Aggregate
      Amount/Number of Shares:
      ______________________________________________________________________________

     

    ________________

      
        1 NOTE: 
          For purposes of this question, shares are considered “beneficially owned” by a
          person if the person, directly or indirectly, through any contract, arrangement,
          understanding, relationship or otherwise, has or shares voting power and/or
          investment power with respect to such shares. “Voting power” is the power to
          vote or direct the voting of the shares, and “investment power” is the power to
          dispose of (or direct the disposition of) the
          shares.

      

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    CUSIP
      No(s).: 
_________________________________________________________________________________________________

    

    Holder
      of
      record:
      _______________________________________________________________________________________________

    

    Note:
      List separately shares held of record jointly with another person, in a
      fiduciary capacity or in a name other than your own. Attach additional sheets
      and itemize, if necessary.

    

    
      	
            	(d)	
              Do
                you have both sole
                voting power and sole
                investment power with respect to all the
                shares to be purchased in the proposed sale of Common Stock and
                Warrants by
                the Company and
                any shares already beneficially owned by
                you?

            

    

     

    o  Yes

    o  No

    

    
      	
            	(e)	
              If
                your answer to Item 3(d) above is no, provide information in the
                space
                below with
                respect to why you do not have sole voting power and sole
                investment power,
                 including
                the number of shares as to which you do not have sole voting
                or investment
                power.

            

    

     

           
      ____________________________________________________________________________________________________________

    ____________________________________________________________________________________________________________

    ____________________________________________________________________________________________________________

     

    
      	
            	(f)	
              Do
                you wish to disclaim beneficial ownership of any of the shares of
                Common Stock
                and Warrants (either to be purchased in the proposed offering or
                currently owned)
                that are described above?

            

    

     

    o  Yes

    o  No

    

    
      	
            	(g)	
              If
                your answer to Item 3(f) is yes, provide information in the space
                below
                with respect
                to why you wish to disclaim beneficial ownership, including the
                number of
                shares as to which beneficial ownership is
                disclaimed.

            

    

     

            
      ____________________________________________________________________________________________________________

    ____________________________________________________________________________________________________________

    ____________________________________________________________________________________________________________

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
 

    
      	
            	(h)	
              Do
                you have the right to acquire beneficial ownership of any shares
                of
                Common Stock
                within 60 days? 

            

    

     

    o  Yes

    o  No

    

    
      	
            	(i)	
              If
                your answer to Item 3(h) is yes, state the number of shares as to
                which
                you have the
                right to acquire beneficial ownership within 60 days in the space
                provided below
                and describe the date and circumstances under which you have any
                such right
                of acquisition.

            

    

     

    
      ____________________________________________________________________________________________________________

      ____________________________________________________________________________________________________________

      ____________________________________________________________________________________________________________

    
      	
            	(j)	
              At
                the time of your receipt of the Common Stock and Warrants upon
                the completion
                of the proposed sale of Common Stock and Warrants, will you
                have any
                agreements or understandings, directly or indirectly, with any person
                to distribute
                the Common Stock and Warrants?

            

    

     

    o  Yes

    o  No

    

    
      	
            	(k)	
              If
                your response to Item 3(j) above is yes, please describe such agreements
                or understandings:

            

    

     

    ____________________________________________________________________________________________________________

    

    ____________________________________________________________________________________________________________

    
 

    4. Beneficial
      Ownership

     

    
      	
            	(a)	
              Is
                the beneficial holder of the Common Stock and Warrants (whether now
                held
                or to
                be purchased) an SEC-reporting
                company?

            

    

     

    o  Yes

    o  No

    

    
      	
            	(b)	
              If
                your answer to Item 4(a) above is no, name the natural person(s)
                who
                exercise voting
                or investment control over the Common Stock and Warrants (whether
                now held
                or to be purchased) and give their current titles and describe the
                relationship of
                such individuals to the beneficial owner, including their relationships
                with any intermediate
                entities, naming such entities:

            

    

     

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    Name(s)
      of Natural Person(s) and Title(s):
      ____________________________________________________________________________

     

    
      ____________________________________________________________________________________________________________

      ____________________________________________________________________________________________________________

5. NASD
      Affiliates and Associates

     

    
      	
            	(a)	
              Are
                you a member of The National Association of Securities Dealers,
                Inc. (“NASD”)
                or a broker-dealer registered pursuant to Section 15 of the
                Exchange Act?

            

    

     

    o  Yes

    o  No

    

    
      	
            	(b)	
              If
                “yes” to Section 5(a), did you receive your Common Stock and Warrants
                as compensation
                 for
                investment banking services to the
                Company?

            

    

     

    o  Yes

    o  No

    

    Note: If
“no”,
      the Commission’s staff has indicated that you should be identified as
      an underwriter
      in the Registration Statement.

     

    

    
      	
            	(c)	
              Are
                any of your affiliates or any member of your immediate family2 
                a
                member of
                the NASD or a broker-dealer registered pursuant to Section 15 of
                the
                Exchange  Act?

            

    

    

    o  Yes

    o  No

    

    
      	
            	(d)	
              If
                your response to Item 5(a) and 5(c) above is no, are you, any of
                your
                affiliates or
                any member of your immediate family an “affiliate” of a member of the
                NASD or
                a broker-dealer registered pursuant to Section 15 of the Exchange
                Act?

            

    

     

    o  Yes

     o No

    

    Note:
      For the purposes of this Item 5(d), an “affiliate” of a registered broker-dealer
      shall  include
      any company that directly, or indirectly through one or more intermediaries,
       controls,
      is controlled by, or is under common control with, such NASD member or
 broker-dealer,
      but excludes any individuals who are merely employed by such NASD
 member
      or broker-dealer or its affiliates.

     

    ____________

     

    
      2
        Immediate family includes your parents, mother-in-law, father-in-law, spouse,
        sibling, brother-in-law or sister-in-law, children, son-in-law or
        daughter-in-law, and any other individual who is supported to a materiel
        extent
        by you.

    

    
 

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    
      	
            	(e)	
              If
                your response to Item 5(d) above is “yes”, do you certify that you bought
                the Common Stock and Warrants in the ordinary course of business,
                and at
                the time of the purchase of the Common Stock and Warrants to be resold,
                you had no agreements or understandings, directly or indirectly,
                with any
                person to distribute the Common Stock and/or Warrants
                ?

            

    

     

    o  Yes

    o  No

    

    Note: If
“no”,
      the Commission’s staff has indicated that you should be identified as
      an underwriter
      in the Registration Statement.

     

    

    Certain
      legal consequences arise from being named as a selling securityholder in the
      Registration Statement and the related prospectus. Accordingly, beneficial
      owners of Common Stock and Warrants are advised to consult their own securities
      law counsel regarding the consequences of being named or not being named as
      a
      selling securityholder in the Registration Statement and the related
      prospectus.

     

    The
      undersigned acknowledges its obligation to comply with the provisions of the
      Securities Exchange Act of 1934 and the rules thereunder relating to stock
      manipulation, particularly Regulation M thereunder (or any successor rules
      or
      regulations), in connection with any offering of Common Stock pursuant to the
      Registration Statement. The undersigned agrees that neither it nor any person
      acting on its behalf will engage in any transaction in violation of such
      provisions.

     

    The
      undersigned hereby acknowledges and is advised of the following Interpretation
      A.65 of the July 1997 SEC Manual of Publicly Available Telephone Interpretations
      regarding short selling:

     

    “An
      Issuer filed a Form S-3 registration statement for a secondary offering of
      common stock which is not yet effective. One of the selling shareholders wanted
      to do a short sale of common stock “against the box” and cover the short sale
      with registered shares after the effective date. The issuer was advised that
      the
      short sale could not be made before the registration statement become effective,
      because the shares underlying the short sale are deemed to be sold at the time
      such sale is made. There would, therefore, be a violation of Section 5 if the
      shares were effectively sold prior to the effective date.”

     

    By
      returning this Questionnaire, the undersigned will be deemed to be aware of
      the
      foregoing interpretation.

     

    Upon
      any
      sale of Common Stock pursuant to the Registration Statement, the selling
      securityholder will be required to deliver to the Transfer Agent (with a copy
      to
      the Company) the Notice of Transfer (completed and signed) in the form attached
      as Exhibit
      A
      hereto
      and hereby undertakes to do so.

     

    In
      the
      event that the undersigned transfers all or any portion of the Company’s Common
      Stock or Warrants after the date on which the information in this Questionnaire
      is provided to the Company, the undersigned agrees to notify the transferee(s)
      at the time of transfer of its rights and obligations hereunder.

     

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    By
      signing below, the undersigned consents to the disclosure of the information
      contained in this Questionnaire and the inclusion of such information in the
      Registration Statement, the related prospectus and any state securities or
“Blue
      Sky” applications. The undersigned understands that the information in this
      Questionnaire will be relied upon by the Company in connection with the
      preparation or amendment of the Registration Statement or related
      prospectus.

     

    By
      signing below, the undersigned represents that the information provided herein
      is accurate and complete. The undersigned agrees to promptly notify the Company
      of any inaccuracies or changes in the information provided herein that may
      occur
      subsequent to the date hereof at any time while the Registration Statement
      remains effective.

     

    Once
      this
      Questionnaire is executed by the undersigned beneficial holder and received
      by
      the Company, the terms of this Questionnaire, and the representations and
      warranties contained herein, shall be binding on, shall inure to the benefit
      of
      and shall be enforceable by the respective successors, heirs, personal
      representatives and assigns of the Company and shall be governed in all respects
      by the internal laws of the State of Delaware.

     

    Dated:
      ____________, 2006

                _____________________________________

                (Name)
      [Please print
      or type]

    

    

                By:
      ___________________________________

            (Authorized
      Signature)

                Title:
      _______________________________

     

    
      
         

      

      
        7Exhibit 10.1

    THIRD
      AMENDMENT TO CREDIT AGREEMENT

    

    This
      THIRD AMENDMENT TO CREDIT AGREEMENT (the “Third Amendment”) dated August 30,
      2006, is by and among ePlus inc., a Delaware corporation (“ePlus”), the
      Subsidiaries of ePlus signatory hereto (including ePlus, each individually
      a
“Borrower” and collectively, the “Borrowers”), the Banks signatory hereto (the
“Banks”), and National City Bank, as Administrative Agent for the Banks (the
“Administrative Agent”).

    

    BACKGROUND

    

    A.  Pursuant
      to that certain Credit Agreement dated
      September
      23,
      2005,
      by and
      among the Borrowers, the Banks, and the Administrative Agent, as amended by
      a
      First Amendment to Credit Agreement, dated July 11, 2006 and a Second Amendment
      dated July 28, 2006 (as the same may be modified and amended from time to time,
      including by this Third Amendment, the “Credit Agreement”), the Banks agreed,
inter
      alia,
      to
      extend to the Borrowers a revolving credit facility in the maximum aggregate
      principal amount of $35,000,000.

    

    B.  The
      Borrowers did not deliver their annual audited financial statements prior to
      May
      31, 2006, as required by Section 5.1(a) of the Credit Agreement, which event
      was
      waived through July 28, 2006, pursuant to the First Amendment, and did not
      deliver their “Projections” for 2007 prior to June 30, 2006, as required by
      Section 5.1(d) of the Credit Agreement (the “Delivery Event”), and have advised
      the Banks that they will be unable to deliver their 2006 annual financial
      statements in the timeframe set forth in the Second Amendment.

    

    C.  In
      addition, the Borrowers have advised the Banks that ePlus is restating its
      fiscal-year 2004 and 2005 financial statements, and its financials for the
      2005
      quarters ended June 30, Sept. 30 and Dec. 31, after an internal audit committee
      identified discrepancies on the recording of certain past stock option grants
      (the “Option Discrepancy”).

    

    D.  The
      Borrowers have requested an additional extension of the delivery date
      requirements for their 2006 annual financial statements and Projections for
      2007, as described above, to which the Banks are willing to agree, on the terms
      and subject to the conditions set forth herein.

    

    NOW,
      THEREFORE, in consideration of the foregoing premises and for other good and
      valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, and intending to be legally bound hereby, the parties hereto
      agree
      as follows:

    

    1.  Definitions.
      

    

    (a)  General
      Rule.
      Except
      as expressly set forth herein, all capitalized terms used and not defined herein
      shall have the respective meanings ascribed thereto in the Credit Agreement.
      

    

    (b)  Additional
      Definition.
      The
      following additional definition shall be added to Article 1 of the Credit
      Agreement to read in its entirety as follows:

    

    “Third
      Amendment”
means
      the Third Amendment to this Agreement dated August 30, 2006.

    

    2.  Representations
      and Warranties.
      Each
      Borrower hereby represents and warrants to the Administrative Agent and each
      Bank that, except as to the Delivery Event and to the extent resulting from
      the
      Option Discrepancy, as to such Borrower:

    

    (a)  Representations.
      each of
      the representations and warranties of such Borrower contained in the Credit
      Agreement and/or the other Loan Documents are true, accurate and correct in
      all
      material respects on and as of the date hereof as if made on and as of the
      date
      hereof, except to the extent such representation or warranty was made as of
      a
      specific date;

    

    (b)  Power
      and Authority.
      (i)
      such Borrower has the power and authority under the laws of its jurisdiction
      of
      organization and under its organizational documents to enter into and perform
      this Third Amendment and any other documents which the Banks require such
      Borrower to deliver hereunder (this Third Amendment and any such additional
      documents delivered in connection with the Third Amendment are herein referred
      to as the “Amendment Documents”); (ii) such Borrower is in good standing in its
      jurisdiction of organization and each additional jurisdiction in which it is
      required to be so qualified; and (iii) all actions, corporate or otherwise,
      necessary or appropriate for the due execution and full performance by the
      Borrower of the Third Amendment have been adopted and taken and, upon their
      execution, the Credit Agreement, as amended by this Third Amendment will
      constitute the valid and binding obligations of the Borrower enforceable in
      accordance with their respective terms;

    

    (c)  No
      Violations of Law or Agreements.
      the
      making and performance of the Third Amendment will not violate any provisions
      of
      any law or regulation, federal, state, local, or foreign, or the organizational
      documents of such Borrower, or result in any breach or violation of, or
      constitute a default or require the obtaining of any consent under, any
      agreement or instrument by which such Borrower or its property may be
      bound;

    

    (d)  No
      Default.
      no
      Default or Event of Default has occurred and is continuing; and

    

    (e)  No
      Material Adverse Effect.
      No
      Material Adverse Effect has occurred since September 23, 2005.

    

    3.  Conditions
      to Effectiveness of Amendment.
      This
      Third Amendment shall be effective upon the Administrative Agent’s receipt of
      the following, each in form and substance reasonably satisfactory to the
      Banks:

    

    (a)  Third
      Amendment.
      this
      Third Amendment, duly executed by the Borrowers and the Banks; 

    

    (b)  Consent
      and Waivers.
      copies
      of any consents or waivers necessary in order for the Borrowers to comply with
      or perform any of its covenants, agreements or obligations contained in any
      agreement, which are required as a result of the Borrowers’ execution of this
      Third Amendment, if any; and

    

    (c)  Other
      Documents and Actions.
      such
      additional agreements, instruments, documents, writings and actions as the
      Banks
      may reasonably request.

    

    4.  Limited
      Waiver and Consent; Ratification.
      Subject
      to the terms and conditions of this Third Amendment, the Banks and
      Administrative Agent hereby (a) waive the Delivery Event (provided that the
      delivery of the required Projections for 2007 pursuant to Section 5.1(d) of
      the
      Credit Agreement as amended hereby, occurs not later than September 30, 2006),
      (b) consent to the extension of the delivery date for the 2006 audited financial
      statements, pursuant to Section 5.1(a), to a date not later than September
      30,
      2006, and (c) waive, solely to the extent directly caused by the Option
      Discrepancy, any material misstatement, representation, warranty or covenant
      made with regard to any financial

    
      
        -2-

      

      
        
        

        
        

      

      
        
        

      

    

    statements
      provided the Banks. Except as stated in the preceding sentence, the execution,
      delivery and performance of this Third Amendment shall not operate as a waiver
      of any right, power or remedy of the Administrative Agent or the Banks under
      the
      Credit Agreement or any Loan Document, or constitute a waiver of any provision
      thereof. Except as expressly modified hereby, all terms, conditions and
      provisions of the Credit Agreement and the other Loan Documents shall remain
      in
      full force and effect and are hereby ratified and confirmed by any Borrower.
      Nothing contained herein constitutes an agreement or obligation by the
      Administrative Agent or any Bank to grant any further amendments to any of
      the
      Loan Documents.

    

    5.  Acknowledgments.
      To
      induce the Banks to enter into this Third Amendment, each Borrower acknowledges,
      agrees, warrants, and represents that:

    

    (a)  Acknowledgment
      of Obligations; Collateral; Waiver of Claims.
      (i) the
      Loan Documents are valid and enforceable against, and all of the terms and
      conditions of the Loan Documents are binding on, the Borrowers; (ii) the liens
      and security interests granted to the Administrative Agent by the Borrowers
      pursuant to the Loan Documents are valid, legal and binding, properly recorded
      or filed and first priority perfected liens and security interests; and (iii)
      the Borrowers hereby waive any and all defenses, set-offs and counterclaims
      which they, whether jointly or severally, may have or claim to have against
      the
      Administrative Agent or any Bank as of the date hereof.

    

    (b)  No
      Waiver of Existing Defaults.
      Other
      than the Delivery Event, no Default or Event of Default exists immediately
      before or immediately after giving effect to this Third Amendment. Nothing
      in
      this Third Amendment nor any communication between the Administrative Agent,
      any
      Bank, any Borrower or any of their respective officers, agents, employees or
      representatives shall be deemed to constitute a waiver of (i) any Default or
      Event of Default arising as a result of the foregoing representation proving
      to
      be false or incorrect in any material respect; or (ii) any rights or remedies
      which the Administrative Agent or any Bank has against any Borrower under the
      Credit Agreement or any other Loan Document and/or applicable law, with respect
      to any such Default or Event of Default arising as a result of the foregoing
      representation proving to be false or incorrect in any material
      respect.

    

    6.  Binding
      Effect.
      This
      Third Amendment shall be binding upon and inure to the benefit of the parties
      hereto and their respective successors and assigns.

    

    7.  Governing
      Law.
      This
      Third Amendment and all rights and obligations of the parties hereunder shall
      be
      governed by and be construed and enforced in accordance with the laws of the
      Commonwealth of Pennsylvania without regard to Pennsylvania or federal
      principles of conflict of laws.

    

    8.  Headings.
      The
      headings of the sections of this Third Amendment are inserted for convenience
      only and shall not be deemed to constitute a part of this Third
      Amendment.

    

    9.  Counterparts.
      This
      Third Amendment may be executed in any number of counterparts with the same
      affect as if all of the signatures on such counterparts appeared on one document
      and each counterpart shall be deemed an original.

    
      
        -3-

      

      
        
        

        
        

      

      
        
        

      

    

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

     

    ePLUS
      inc.

     

    By:
      /s/
      Kleyton L. Parkhurst

    Name:
      Kleyton
      L. Parkhurst

    Title:
      Senior
      Vice President

     

    ePLUS
      Group, inc.

     

    By:
      /s/
      Kleyton L. Parkhurst

    Name:
      Kleyton
      L. Parkhurst

    Title:
      Senior
      Vice President

     

    ePLUS
      Government, inc.

     

    By:
      /s/
      Kleyton L. Parkhurst

    Name:
      Kleyton
      L. Parkhurst

    Title:
      Senior
      Vice President

     

    ePLUS
      Capital, inc.

     

    By:
      /s/
      Kleyton L. Parkhurst

    Name:
      Kleyton
      L. Parkhurst

    Title:
      President

     

    
      
        -4-

      

      
        
        

        
        

      

      
        
        

      

    

    NATIONAL
      CITY BANK

     

    By:
      /s/
      Christos Kytzidis

    Name:
      Christos
      Kytzidis

    Title:
      Senior
      Vice President

    

     

    BRANCH
      BANKING AND TRUST COMPANY OF VIRGINIA

     

    By:
      /s/
      Ronald P. Gudbrandsen

    Name:
      Ronald
      P.
      Gudbrandsen

    Title:
      Vice
      President

     

     

    
      
        -5-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}]]