Document:

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                                                                    EXHIBIT 10.2

                            ASSET PURCHASE AGREEMENT

                                 BY AND BETWEEN

                              HINES NURSERIES, INC.

                                       AND

                             PURE BEAUTY FARMS, INC.

                                   DATED AS OF

                                 OCTOBER 2, 2006

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                            ASSET PURCHASE AGREEMENT

         This Asset Purchase Agreement (this "Agreement") is made and entered
into as of October 2, 2006 (the "Closing Date") by and between Hines Nurseries,
Inc., a California corporation ("Seller"), and Pure Beauty Farms, Inc., a
Florida corporation ("Purchaser").

                                    RECITALS
                                    --------

         A. Seller desires to sell certain inventory and assets, and the
goodwill related thereto, of Seller to Purchaser, and Purchaser desires to
purchase certain inventory and assets, and the goodwill related thereto, of
Seller from Seller upon consummation of the transactions contemplated by this
Agreement, all pursuant to the terms and conditions set forth herein.

                  NOW, THEREFORE, in consideration of the mutual promises set
forth herein and intending to be bound hereby, the parties hereby agree as
follows:

                                    AGREEMENT
                                    ---------

         1. PURCHASE AND SALE OF ASSETS AT THE CLOSING.

                  1.1 PURCHASED ASSETS. Subject to the terms and conditions set
forth in this Agreement, at the Closing (as defined in Section 3.1 hereof),
Purchaser agrees to purchase from Seller, and Seller agrees to sell, assign,
transfer and deliver to Purchaser all of Seller's right, title and interest in
and to the inventory, vehicles, trailers, farm equipment, racks and other assets
described below and listed on Schedules 1.1(a), 1.1(b), 1.1(c), 1.1(d) and
1.1(e) hereto, and the goodwill related thereto (collectively, the "Purchased
Assets"):

                           (a) INVENTORY. All inventory items and related
materials and supplies described on SCHEDULE 1.1(A) (i) located on the real
property to be leased to Purchaser pursuant to the terms of the Lease Agreement
(as defined herein) other than those inventory items and related materials and
supplies located on such property which are tagged or otherwise identified as
being sold to Costa Nursery Farms, LLC ("Costa"), (ii) located at other areas of
the Hines Miami Facility which are specifically tagged or otherwise identified
as being sold to Purchaser, and (iii) owned by Seller and located at The Home
Depot stores listed on SCHEDULE 1.1(A) (such stores are referred to as "The Home
Depot Stores") after the close of business on the Closing Date (the items listed
in the preceding subclauses (i), (ii) and (iii) are referred to collectively, as
the "Inventory"). Notwithstanding any physical inventory count that Seller
and/or Purchaser may have conducted prior to the Closing or any provision herein
to the contrary, Purchaser acknowledges that inventory items and other products
have been sold by Seller for Seller's benefit

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in the ordinary course of Seller's business up to and through the close of
business on the Closing Date and neither such items which have been sold up to
and through the close of business on the Closing Date nor the resulting accounts
receivable are being sold to Purchaser. For purposes of this Agreement, the
terms "Inventory" and "Purchased Assets" shall not include any inventory items
or other products sold by Seller up to and through the close of business on the
Closing Date.

                           (b) VEHICLES. The vehicles and trailers listed and
described on SCHEDULE 1.1(B).

                           (c) FARM EQUIPMENT. The farm equipment listed and
described on SCHEDULE 1.1(C).

                           (d) RACKS. The racks listed and described on SCHEDULE
1.1(D) (the "Initial Racks").

                           (e) OTHER ASSETS. All other assets listed and
described on SCHEDULE 1.1(E), (the "Other
Assets").

                  1.2 EXCLUDED ASSETS. Seller shall not sell, assign, transfer
or convey to Purchaser, and Purchaser shall not purchase, any inventory,
property, item or asset of the Seller, other than those described or listed in
Section 1.1 and described or listed on Schedules 1.1(a), 1.1(b), 1.1(c), 1.1(d)
and 1.1(e) including, without limitation, any accounts receivable of Seller (the
"Excluded Assets"). Purchaser acknowledges that Seller is selling other assets
to another third party on or about the date hereof and Purchaser has no rights
to such other assets or any of the Excluded Assets.

                  1.3 ASSUMED LIABILITIES. At the Closing, Purchaser shall
assume all liabilities and obligations of Seller arising from or relating to
returns of Inventory or other products purchased from The Home Depot Stores
which occur after the Closing without regard to when such Inventory or other
products were purchased (the "Assumed Liabilities"). Except as set forth in the
preceding sentence, Purchaser shall not assume any liabilities or obligations of
Seller.

         2. PURCHASE PRICE; PAYMENT TERMS.

                  2.1 PURCHASE PRICE. The aggregate purchase price for the
Purchased Assets (the "Purchase Price") shall be the sum of One Million Six
Hundred Sixty-One Thousand Four Hundred Seventy-Eight Dollars and Sixty-Two
Cents ($1,661,478.62) (the "Net Purchase Price") and Forty-Two Thousand Seven
Hundred Twenty-Eight Dollars and Sixty-Three Cents ($42,728.63) (the "Payoff
Amount").

                  2.2 PAYMENT OF PURCHASE PRICE. At the Closing, Purchaser shall
pay the Net Purchase Price and the Payoff Amount by wire transfer in immediately
available funds to the accounts designated by Seller as set forth on SCHEDULE
2.2.

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                  2.3 SALES, USE AND TRANSFER TAXES. Purchaser shall be
responsible for any documentary transfer taxes and any sales, use or other
taxes, duties, fees and governmental exactions imposed by reason of the transfer
of the Purchased Assets provided for hereunder and any deficiency, interest or
penalty asserted with respect thereto. Notwithstanding the foregoing sentence,
Purchaser shall not be responsible for any income, capital gain or other similar
tax incurred by Seller in connection with such transfer.

                  2.4 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated in relation to the Purchased Assets, as set forth on SCHEDULE 2.4
hereto. Each party agrees that it will not, in its tax returns or elsewhere,
take a position inconsistent with the allocations provided for in this Section.

         3. CLOSING.

                  3.1 CLOSING. The closing of the purchase and sale of the
Purchased Assets shall be consummated (the "Closing") at 11:59 P.M. (Florida
time) on the Closing Date (the "Closing") via facsimile, telephone, mail and
other mutually acceptable means of communication and delivery. Except as
otherwise provided in this Agreement, all proceedings to be taken and all
documents to be executed at the Closing shall be deemed to have been taken,
delivered or executed simultaneously, and no action or proceeding shall be
deemed taken nor documents deemed executed or delivered until all have been
taken, delivered and executed. At the Closing, Purchaser acknowledges receipt of
the Purchased Assets.

                  3.2      DELIVERIES OF SELLER.  At the Closing, Seller shall
deliver or cause to be delivered to Purchaser:

                           (a) a Bill of Sale duly executed by Seller in
substantially the form of EXHIBIT A attached hereto;

                           (b) title to those vehicles and trailers listed on
SCHEDULE1.1(B) to the extent that Seller has possession of and can locate and
deliver such titles at Closing; and

                           (c) a lease agreement in substantially the form of
EXHIBIT B attached hereto (the "Lease Agreement") duly executed by Seller.

                  3.3      DELIVERIES OF PURCHASER.

                           (a) At the Closing, Purchaser shall deliver or cause
to be delivered the following to Seller (or such other parties as may be
designated by Seller):

                                     (i) the Purchase Price, as provided in
Section 2.2 hereof;

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                                     (ii) the Lease Agreement duly executed by
Purchaser together with all rents, deposits and other monies required to be paid
by Purchaser under the Lease Agreement; and

                                     (iii) proof of insurance in amounts and
form acceptable to Seller naming Seller as an additional insured.

         4.       REPRESENTATIONS AND WARRANTIES.

                  4.1 REPRESENTATIONS AND WARRANTIES REGARDING SELLER. Seller
hereby represents and warrants to Purchaser, as of the date hereof, except as
set forth on the disclosure schedules attached hereto ("SELLER'S SCHEDULE OF
EXCEPTIONS"), as follows:

                           (a) EXISTENCE. Seller validly exists as a corporation
in good standing under the laws of the State of California.

                           (b) AUTHORITY TO SELL PURCHASED ASSETS. Seller has
all requisite corporate power and authority to sell the Purchased Assets to
Purchaser as contemplated hereby, and such sale of the Purchased Assets has been
duly and validly authorized by all necessary corporate action on the part of
Seller.

                           (c) TITLE TO PURCHASED ASSETS. At Closing, Seller
will deliver good and marketable title to the property included in the Purchased
Assets, free and clear of all liens, claims and encumbrances except for any lien
claim or encumbrance created by Purchaser or otherwise resulting from
Purchaser's actions.

                           (d) NON-CONTRAVENTION. None of the execution,
delivery or performance by Seller of this Agreement does or will (a) contravene
or conflict with Seller's articles of incorporation or bylaws, or (b) contravene
or conflict with any provision of any law, regulation, judgment, injunction,
order or decree binding upon Seller.

                           (e) BROKERS' FEES. No broker, finder or similar agent
has been employed by or on behalf of Seller in connection with this Agreement or
the transactions contemplated hereby, and Seller has not entered into any
agreement, arrangement or understanding of any kind with any person or entity
for the payment of any brokerage commission, finder's fee or any similar
compensation in connection with this Agreement or the transactions contemplated
hereby.

                           (f) EXECUTION AND DELIVERY. This Agreement has been
duly executed and delivered by Seller and constitutes a legal, valid and binding
agreement of Seller enforceable against Seller in accordance with its terms,
except to the extent such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, relating to or limiting creditors' rights generally and (b) general
principles of equity (whether considered in an action in equity or at law).

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                           (g) NO OTHER REPRESENTATIONS OR WARRANTIES. EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS SECTION 4.1, SELLER
MAKES NO OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY AND SELLER HEREBY
DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY WITH RESPECT TO THE EXECUTION AND
DELIVERY OF THIS AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
HEREBY. THE PURCHASED ASSETS ARE USED AND BEING SOLD "AS IS - WHERE IS" AND THE
SELLER HEREBY DISCLAIMS THE WARRANTY OF MERCHANTABILITY AND FITNESS FOR USE.

                  4.2 REPRESENTATIONS AND WARRANTIES REGARDING PURCHASER.
Purchaser hereby represents and warrants to Seller, as of the date hereof, as
follows:

                           (a) EXISTENCE. Purchaser validly exists as a
corporation in good standing under the laws of the State of Florida.

                           (b) AUTHORITY TO PURCHASE PURCHASED ASSETS. Purchaser
has all requisite power and authority to purchase the Purchased Assets from
Seller as contemplated hereby, and such purchase of the Purchased Assets has
been duly and validly authorized by all necessary action on the part of
Purchaser.

                           (c) REQUIRED CONSENTS. None of the execution,
delivery or performance by Purchaser of this Agreement requires any action by or
in respect of, or filing with any governmental body, agency, official or
authority or the consent of any third party.

                           (d) NON-CONTRAVENTION. None of the execution,
delivery or performance by Purchaser of this Agreement does or will (a)
contravene or conflict with Purchaser's articles of incorporation or bylaws, or
(b) contravene or conflict with any provision of any law, regulation, judgment,
injunction, order or decree binding upon Purchaser.

                           (e) BROKERS' FEES. No broker, finder or similar agent
has been employed by or on behalf of Purchaser in connection with this Agreement
or the transactions contemplated hereby, and Purchaser has not entered into any
agreement, arrangement or understanding of any kind with any person or entity
for the payment of any brokerage commission, finder's fee or any similar
compensation in connection with this Agreement or the transactions contemplated
hereby.

                           (f) EXECUTION AND DELIVERY. This Agreement has been
duly executed and delivered by Purchaser and constitutes a legal, valid and
binding agreement of Purchaser enforceable against Purchaser in accordance with
its terms, except to the extent such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, relating to or limiting creditors' rights generally and (b)
general principles of equity (whether considered in an action in equity or at
law).

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                           (g) INSPECTION AND ACKNOWLEDGEMENT. Purchaser has
fully inspected to its satisfaction all of the Purchased Assets. Purchaser
acknowledges that (i) the Purchased Assets are being sold "AS IS - WHERE IS,"
and (ii) except as specifically provided for in Section 4.1 herein, Seller is
making no representation or warranty regarding the Purchased Assets or the
transactions contemplated herein.

         5. ADDITIONAL AGREEMENTS.

                  5.1 NON-DISCLOSURE. Purchaser shall hold in confidence, and
shall use reasonable efforts to ensure that its employees and representatives
hold in confidence, all information concerning Seller and the terms and
conditions of this Agreement.

                  5.2 UNIFORM PRODUCT CODES. To the extent transferable, Seller
hereby grants to Purchaser, for the period commencing on the Closing and ending
the earlier of June 30, 2007 or such time as the Inventory tagged with Seller's
universal product codes ("UPCs") prior to the Closing has been sold or otherwise
disposed of by Purchaser, the royalty-free (other than the consideration to be
paid hereunder), non-exclusive, non-transferable, restricted right and limited
license to use Seller's UPCs solely on tags attached by Seller to the Inventory
prior to the Closing and solely for the purpose of selling such Inventory
through The Home Depot Stores. In addition to the other provisions in this
Agreement, Purchaser agrees to indemnify, defend and hold harmless Seller for
any cost, liability, claim, or expense arising out of Purchaser's use of
Seller's UPCs.

                  5.3 LIMITED USE OF SELLER'S NAME. Seller hereby grants to
Purchaser, for the period commencing on the Closing and ending the earlier of
June 30, 2007 or such time as all Inventory tagged with Seller's tags prior to
the Closing has been sold or otherwise disposed of by Purchaser, the
royalty-free (other than the consideration to be paid hereunder), non-exclusive,
non-transferable, restricted right and limited license to use the name "Hines,"
"Hines Nurseries" or similar derivations thereof solely on tags attached by
Seller to the Inventory prior to the Closing and solely for the purpose of
selling such Inventory through The Home Depot Stores. The parties acknowledge
that Seller is the exclusive owner of all rights in the name "Hines," "Hines
Nurseries" or similar derivations thereof and that nothing in this Agreement
confers any rights to Purchaser therein except as specifically set forth in the
previous sentence.

                  5.4 ACCESS TO INFORMATION AND DIRECTION OF FUNDS. After the
Closing, Seller shall have access at reasonable times, upon reasonable notice
and subject to reasonable requirements related to confidentiality, to copies of
the reports and any remittance advice provided by The Home Depot to Purchaser
relating to the sale of Inventory or any plants, nursery products or other
products by The Home Depot Stores for purposes of determining that sales are
properly credited to either Purchaser or Seller as contemplated by this
Agreement. Likewise, Purchaser shall have access at reasonable times, upon
reasonable notice and subject to reasonable requirements related to
confidentiality, to copies of the reports and any remittance advice provided by

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The Home Depot to Seller relating to the sale of Inventory or any plants,
nursery products or other products by The Home Depot Stores for purposes of
determining that sales are properly credited to either Purchaser or Seller as
contemplated by this Agreement. After the Closing, Purchaser agrees to promptly
remit to Seller any funds improperly received by Purchaser from The Home Depot
relating to sales prior to and through the close of business on the Closing Date
of any plants, nursery products or any other products owned by Seller. After the
Closing, Seller agrees to promptly remit to Purchaser any funds improperly
received by Seller from The Home Depot relating to sales after the close of
business on the Closing Date of Inventory or any other products owned by
Purchaser. The parties agree to attempt to work reasonably together to resolve
any questions or disputes which may result from the misapplication of funds
which they may receive from The Home Depot for furthering the purposes and
intent of this Section 5.4.

                  5.5 ACCESS TO PREMISES. Purchaser agrees, without cost, after
the Closing, to permit Seller and a reasonable number of Seller's employees,
agents and representatives access to the premises leased to Purchaser pursuant
to the Lease Agreement in order to perform certain remedial and cleanup actions
and for other post-closing activities.

                  5.6 TITLE TO VEHICLES. Other than with respect to vehicles or
trailers leased by Seller, Seller agrees to deliver to Purchaser, within a
reasonable time after the Closing, those titles to vehicles and trailers listed
on SCHEDULE 1.1(B) which Seller was unable to deliver at Closing pursuant to
Section 3.2(b) hereof. With respect to those vehicles or trailers listed on
SCHEDULE 1.1(B) which are leased by Seller, Seller agrees to use reasonable
efforts to cooperate with and assist Purchaser in promptly obtaining title from
the respective lessors of such vehicles and trailers. Promptly after receiving
the titles to the vehicles and trailers pursuant to Section 3.2(b) and promptly
after receiving the additional titles to the vehicles and trailers pursuant to
this section, Purchaser agrees to register such trailers and vehicles in
Purchaser's own name with the Department of Motor Vehicles or comparable
governmental agency in the State of Florida and to provide Seller with evidence
reasonably satisfactory to Seller of such registration. Purchaser agrees to
indemnify and hold Seller harmless from any costs, claim, liability or other
expense resulting from any delay in Purchaser's registration of the vehicles and
trailers in Purchaser's own name and to name Seller as an additional insured on
Purchaser's insurance for such vehicles and trailers until such registration.

                  5.7 NUMBERING OF RACKS; SALE OF ADDITIONAL RACKS. Promptly
after the Closing, Purchaser agrees to sequentially number the Initial Racks
sold to Purchaser pursuant to Section 1.1 above. In addition to the Initial
Racks being sold to Purchaser pursuant to Section 1.1 above, Purchaser agrees to
acquire from Seller those additional racks (each such rack consisting of a base
and one or more shelves) which are either (i) located at The Home Depot Stores
at the time of Closing and retrieved by Purchaser, or (ii) delivered by Seller
to Purchaser after the Closing and prior to December 31, 2006 (such additional
racks to be purchased by Purchaser are referred to as the "Additional Racks").

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On the 15th and the last day of each month following the Closing until December
31, 2006, Purchaser shall deliver a report to Seller setting forth in reasonable
detail the number of Additional Racks and the number of shelves on each
Additional Rack either gathered by Purchaser at The Home Depot Stores or
delivered by Seller to Purchaser and pay to Seller by wire transfer a purchase
price of $60 for each base of a rack and $5 for each shelf listed thereon (such
additional purchase price is defined as the "Additional Racks Purchase Price").
Purchaser shall continue to keep a record of the Additional Racks, including the
number of shelves on each such Additional Rack, which it gathers or receives as
provided for above and provide Seller with reasonable access to such records and
the Additional Racks for the purpose of verifying the number of Additional Racks
and the number of shelves on each Additional Rack and the resulting Additional
Racks Purchase Price calculations. In order to keep track of the number of
Additional Racks to be acquired by Purchaser, Purchaser agrees to sequentially
number such Additional Racks. Title for the Additional Racks will not transfer
from Seller to Purchaser until such time as the Additional Racks Purchase Price
for such Additional Racks has been received by Seller. The Additional Racks are
being sold to Purchaser hereunder are used, have incurred wear and tear and are
being sold subject to the limitations set forth in Section 4.1(g) and Section
4.2(g) above. In no event will Purchaser be required to purchase (i) a
non-functional Additional Rack as reasonably determined by the parties, or (ii)
more than an aggregate of 2,050 Initial Racks or Additional Racks.

                  5.8 NO ACCEPTANCE ON SELLER'S BEHALF. Purchaser shall not
accept delivery of goods shipped to, ordered by or intended for Seller.
Purchaser shall be responsible for all liabilities and obligations relating to
or arising out of any goods shipped to, ordered by or intended for Seller which
are accepted by Purchaser and to the extent that Seller has paid for any such
goods accepted by Purchaser, Purchaser shall promptly reimburse Seller for any
such amounts.

                  5.9 SUBSTITUTION OF VEHICLES AND TRAILERS. The parties
acknowledge that some of the vehicles and trailers listed on Schedule 1.1(b) of
this Agreement which are being sold to Purchaser are not at Seller's Miami
facility at the time of Closing and have not been viewed by Purchaser (the
"Unseen Vehicles and/or Trailers"). To the extent an Unseen Vehicle and/or
Trailer contains an obvious, significant and material visual defect or is
otherwise obviously and visually significantly and materially damaged when it is
returned after the Closing to the premises being leased by Purchaser and
Purchaser reasonably objects to such significantly and materially defective or
damaged Unseen Vehicle and/or Trailer, then the parties agree to work in good
faith to attempt to find a comparable replacement as a substitute from the other
vehicles and trailers Seller still has in its possession at its Miami facility
after the Closing. If the parties agree to substitute a comparable vehicle
and/or trailer for a damaged or defective Unseen Vehicle and/or Trailer pursuant
to this Section, Seller shall deliver title for such replacement vehicle and/or
trailer to Purchaser and Purchaser shall (i) deliver to Seller any title
received by Purchaser for the damaged or defective Unseen Vehicle and/or
Trailer, and (ii) promptly register the substituted vehicle and/or trailer in
Purchaser's name. The parties agree that Purchaser's obligations under Section

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5.6 of this Agreement shall apply to any substituted vehicle and/or trailer as
if such vehicle and/or trailer had been listed on Schedule 1.1(b) at the
Closing. Purchaser's failure to object to any damaged Unseen Vehicle and/or
Trailer by the close of business on Wednesday, October 4, 2006, shall be deemed
acceptance of such Unseen Vehicle and/or Trailer. Notwithstanding the foregoing,
Purchaser acknowledges that the Purchased Assets, including without limitation,
the Unseen Vehicles and or Trailers are used, have incurred wear and tear, and
are being sold subject to the limitations set forth in Section 4.1(b) and
Section 4.2(b).

                  5.10 ALLOCATION OF ASSETS BETWEEN PURCHASER AND COSTA.
Purchaser acknowledges that certain of the schedules hereto list assets being
sold to Purchaser and other assets being sold to Costa without any specific
allocation of individual assets between Purchaser and Costa. To the extent that
any such schedule does not specifically allocate individual assets between
Purchaser and Costa, Purchaser acknowledges and agrees that such allocation will
be determined between Purchaser and Costa without the involvement of Seller.
Purchaser agrees that Seller shall have no responsibility with respect to the
allocation of such assets between Purchaser and Costa, including without
limitation, any failure of such parties to agree to the allocation and/or
possession of such assets. Purchaser further agrees to indemnify, defend and
hold harmless Seller, from and against any and all claims, liabilities, losses,
damages or injuries together with costs and expenses, including reasonable legal
fees, arising out of, related to or resulting from the allocation between
Purchaser and Costa of the assets listed on the schedules hereto.

         6. SURVIVAL AND INDEMNIFICATION.

                  6.1 SURVIVAL. All covenants and agreements of the parties in
this Agreement or provided herein shall survive the Closing without limit,
unless otherwise specifically provided for herein. All representations and
warranties of the parties shall survive the Closing and for a period ending on
the first anniversary of the Closing (the "Survival Period"), notwithstanding
any investigation at any time made by or on behalf of the other party; PROVIDED,
however, that, any representation or warranty which is the subject of a claim or
dispute asserted prior to the expiration date of the Survival Period shall
survive with respect to such claim or dispute until final resolution thereof.
All claims for indemnity hereunder shall be made in writing, and shall state
with reasonable specificity the matter for which indemnification is sought.

                  6.2 SELLER'S INDEMNIFICATION. Seller hereby agrees to
indemnify, defend and hold Purchaser and its shareholders, officers, employees,
directors, agents and affiliates (the "Seller Indemnitees") harmless from and
against any and all claims, liabilities, losses, damages or injuries together
with costs and expenses, including reasonable legal fees, arising out of,
related to or resulting from (i) any incorrectness or incompleteness in the
representations and warranties made by Seller in this Agreement, (ii) any breach
in any material respect by Seller, unless waived by Purchaser, of any covenant
or agreement of Seller contained in or arising out of this Agreement, and (iii)
any liability or obligation relating to, resulting from or arising out of the
Purchased Assets arising before the Closing (except Assumed Liabilities).

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                  6.3 PURCHASER'S INDEMNIFICATION. Purchaser hereby agrees to
indemnify, defend and hold Seller and its shareholders, officers, employees,
directors, agents and affiliates (the "Purchaser Indemnitees") harmless from and
against any and all claims, liabilities, losses, damages or injuries together
with costs and expenses, including reasonable legal fees, arising out of or
resulting from (i) any incorrectness or incompleteness in the representations
and warranties made by Purchaser in this Agreement, (ii) any breach in any
material respect by Purchaser, unless waived by Seller, of any covenant or
agreement of Purchaser contained in or arising out of this Agreement, (iii) any
liability or obligation relating to, resulting from or arising out of the
Assumed Liabilities or the Purchased Assets accruing on or after the Closing or
the Purchaser's business.

                  6.4 LIMITATIONS ON INDEMNIFICATION.

                           (a) The indemnification obligations of either Seller
or Purchaser in subclause (i) of Section 6.2 or subclause (i) of Section 6.3,
respectively, shall not exceed an aggregate amount equal to Two Hundred Fifty
Thousand Dollars ($250,000) (the "Cap Amount").

                           (b) Notwithstanding the indemnification obligations
arising in subclause (i) of Section 6.2 and subclause (i) of Section 6.3,
neither Seller nor Purchaser shall be liable for the first Twenty-Five Thousand
Dollars ($25,000) (the "Threshold Amount") in aggregate damages sustained by
Purchaser Indemnitees or Seller Indemnitees, respectively, pursuant to the
indemnification obligations arising in subclause (i) of Section 6.2 and
subclause (i) of Section 6.3; provided Purchaser Indemnitees and Seller
Indemnitees shall be entitled to indemnification for damages in excess of such
Threshold Amount (but not to exceed the Cap Amount) in the event damages to such
Purchaser Indemnitees or Seller Indemnitees exceed such Threshold Amount.

                           (c) Notwithstanding anything herein to the contrary,
the Cap Amount and the Threshold Amount shall not apply to any indemnification
obligation of Seller or Purchaser arising as a result of fraud, willful breach
or intentional misrepresentation.

                  6.5 THIRD PARTY CLAIMS. If a claim by a third party is made
against any party entitled to indemnification under this Agreement, such
indemnified party shall promptly notify the indemnifying party of such claim.
The indemnifying party shall have ten days after receipt of the above-referenced
notice to undertake, through counsel of its choosing (subject to the consent of
the indemnified party) and at the expense of the indemnifying party, the
settlement or defense thereof; PROVIDED, HOWEVER, that any such settlement shall
be subject to the consent of the indemnified party, which consent shall not be
unreasonably withheld. If the indemnifying party does not notify the indemnified
party within ten days after receipt of the indemnified party's notice of a claim
of indemnity hereunder that the indemnifying party elects to undertake the
defense thereof, or the indemnifying party ceases to reasonably contest such
claim in good faith, the indemnified party shall have the right to contest,

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settle or compromise the claim in its exclusive discretion at the expense of the
indemnifying party. Nothing contained in this Section 6.5 shall be construed as
a limitation on the right of any party to indemnification under this Agreement.

         7. EMPLOYEES AND EMPLOYEE BENEFITS

                  7.1 EMPLOYMENT. At the request of Purchaser, Seller has
communicated Purchaser's offer of employment to certain employees of Seller and
SCHEDULE 7.1 lists those employees of Seller that the parties believe have
indicated an intent to accept Purchaser's offer of employment (such employees
are referred to herein as the "Identified Employees"). Purchaser is responsible
for all obligations and liabilities arising out of Purchaser's offers to or
employment of the Identified Employees. Purchaser agrees that, for purposes of
all employee benefit plans, policies and employee fringe benefit programs,
including vacation policies, of Purchaser which may apply to Identified
Employees or in which the Identified Employees may participate following the
Closing, credit will be given to the Identified Employees for service previously
credited with Seller prior to the Closing. Prior to the Closing, Seller shall
pay to each Identified Employee all accrued vacation pay in accordance with
applicable law.

                  7.2 NO RIGHT OF EMPLOYMENT. Nothing contained herein, express
or implied, is intended to confer upon any Identified Employee any right to
continued employment for any period by reason of this Agreement. Nothing
contained herein is intended to confer upon any Identified Employee any
particular term or condition of employment other than as expressly referred to
in Section 7.1 of this Agreement.

         8. GENERAL PROVISIONS.

                  8.1 NOTICES. All notices and other communications under or in
connection with this Agreement shall be in writing and shall be deemed given (a)
if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three days after being mailed, or (c) if given by telecopy, upon confirmation
of transmission by telecopy, in each case to the parties at the following
addresses:

                           (a) If to Seller:

                                    Hines Nurseries, Inc.
                                    12621 Jeffrey Road
                                    Irvine, California 92620
                                    Facsimile: (949) 786-0968
                                    Attention:  Claudia Pieropan, CFO

                                      -11-

<PAGE>

                                    With a copy to:

                                    Paul, Hastings, Janofsky & Walker LLP
                                    Seventeenth Floor
                                    695 Town Center Drive
                                    Costa Mesa, California  92626-1924
                                    Facsimile:  (714) 668-6364
                                    Attention:  Stephen D. Cooke, Esq.

                           (b) If to Purchaser, addressed to:

                                    Pure Beauty Farms, Inc.
                                    16350 S.W. 200 Street
                                    Miami, Florida 33187
                                    Facsimile:  (305) 255-9763
                                    Attention:  Henry Yanes

                                    With copy to:

                                    Jose A. Bolanos, Esq.
                                    2121 Ponce de Leon Blvd., Ste. 600
                                    Coral Gables, Florida 33134
                                    Fax: 305-567-0423

                  8.2 SEVERABILITY. If any term or provision of this Agreement
or the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, the remaining terms and provisions of this
Agreement or the application of such terms and provisions to circumstances other
than those as to which it is held invalid or enforceable.

                  8.3 EXPENSES. Each party will bear the costs of its agents,
attorneys, accountants, investment bankers, travel, lodging and entertainment
and associated expenses except as provided in this Agreement.

                  8.4 THIRD PARTY RIGHTS. Any other provision of this Agreement
to the contrary notwithstanding, this Agreement shall not create benefits on
behalf of any other person not a party to this Agreement (including without
limitation any broker or finder), and this Agreement shall be effective only as
between the parties hereto, their successors and permitted assigns.

                  8.5 ENTIRE AGREEMENT. This Agreement, including the annexes,
schedules and exhibits attached hereto and other documents referred to herein,
contains the entire understanding of the parties hereto with respect to its
subject matter and supersedes all prior and contemporaneous agreements and
understandings, oral and written, between the parties with respect to such
subject matter.

                                      -12-

<PAGE>

                  8.6 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. This Agreement and the rights and obligations
hereunder shall not be assignable by any party without the written consent of
the other parties hereto, and any such purported assignment by any party without
such consent shall be void.

                  8.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, including electronically transmitted counterparts, each of
which shall be deemed an original, but all such counterparts together shall
constitute but one and the same agreement.

                  8.8 RECITALS, SCHEDULES AND ANNEXES. The recitals, exhibits
attached hereto and Seller's Schedule of Exceptions referred to herein and
attached hereto are hereby incorporated herein and made a part hereof as if
fully set forth herein. Disclosure of any fact or item in any section of
Seller's Schedule of Exceptions shall, should the existence of the fact or item
be relevant to any other section of Seller's Schedule of Exceptions, be deemed
to be disclosed with respect to that other paragraph or section. The parties
hereto acknowledge that certain matters set forth in Seller's Schedule of
Exceptions are included for informational purposes only, notwithstanding the
fact that, because they do not rise above applicable materiality thresholds or
otherwise, they would not be required to be set forth therein by the terms of
this Agreement and that disclosure of such matters shall not be taken as an
admission by the party delivering such Seller's Schedule of Exceptions that such
disclosure is required to be made under the terms of any provision of this
Agreement and in no event shall any such disclosure be deemed or interpreted to
broaden or otherwise amplify the representations and warranties contained in
this Agreement.

                  8.9 CONSTRUCTION. The article, section and subsection headings
used herein are inserted for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement. As used in this
Agreement, the masculine, feminine or neuter gender, and the singular or plural,
shall be deemed to include the others whenever and wherever the context so
requires. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.

                  8.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Florida.

                  8.11 ATTORNEYS' FEES. In the event of any dispute related to
or based upon this Agreement, the prevailing party shall be entitled to recover
from the other party its reasonable attorneys' fees and costs.

                                      -13-

<PAGE>

                  8.12 ARBITRATION.

                           (a) Any controversy, claim or dispute involving the
parties (or their affiliated persons) directly or indirectly concerning this
Agreement or the subject matter hereof, including, without limitation, any
questions concerning the scope and applicability of this Section 8.12 shall be
finally settled by arbitration held in Miami-Dade County, Florida by one
arbitrator in accordance with the rules of commercial arbitration then followed
by the American Arbitration Association or any successor to the functions
thereof, provided that the arbitrator shall be (i) a Florida Bar licensed
attorney with no less than fifteen (15) years experience in the active practice
of law with a focus on commercial transactions, or (ii) a former circuit court
or appellate court judge who served for no less than ten (10) years. The
arbitrator shall apply Florida law in the resolution of all controversies,
claims and disputes and shall have the right and authority to determine how his
or her decision or determination as to each issue or matter in dispute may be
implemented or enforced. Any decision or award of the arbitrator shall be final
and conclusive on the parties to this Agreement and their respective affiliates,
and there shall be no appeal therefrom other than from gross negligence or
willful misconduct.

                           (b) The parties hereto agree that any action to
compel arbitration pursuant to this Agreement must be brought in the appropriate
court in Miami-Dade County, Florida and in connection with such action to compel
the laws of the State of Florida shall control. Application may also be made to
such court for confirmation of any decision or award of the arbitrator, for an
order of the enforcement and for any other remedies which may be necessary to
effectuate such decision or award. The parties hereto hereby consent to the
jurisdiction of the arbitrator and of such court and waive any objection to the
jurisdiction of such arbitrator and court.

                           (c) Notwithstanding the foregoing provisions of this
Section 8.12, nothing contained herein shall require arbitration of any issue
arising under this Agreement for which injunctive relief is successfully sought
by any party hereto. Any action, suit or other proceeding initiated by Seller or
Purchaser against any other party for injunctive relief or to enforce this
Section 8.12 or any decision or award of the arbitrator must be brought in any
Federal or state court in Miami-Dade County, Florida having jurisdiction over
the subject matter thereof as the party bringing such action, suit or proceeding
shall elect. Seller and Purchaser hereby submit themselves to the jurisdiction
of any such court and agree that service of process on them in any such action,
suit or proceeding may be effected by the means by which notices are to be given
to it under this Agreement.

                            [Signature Page Follows]

                                      -14-

<PAGE>

                  IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the date first above set forth.

                                     "SELLER"

                                     HINES NURSERIES, INC.
                                     a California corporation

                                     By: /S/ CLAUDIA M. PIEROPAN
                                         ------------------------------------
                                         Claudia M. Pieropan, Chief Financial
                                         Officer, Secretary and Treasurer

                                     "PURCHASER"

                                     PURE BEAUTY FARMS, INC.
                                     a Florida corporation

                                     By: /S/ ENRIQUE A. YANES
                                         ------------------------------------
                                         Enrique A. Yanes, President

                                      -15-Securities Purchase Agreement

    Exhibit
      10.1

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of February 1, 2007, by and among Telkonet, Inc., a Utah corporation
      (the “Company”),
      and
      the purchasers identified on the signature pages hereto (each, a “Purchaser”
      and
      collectively, the “Purchasers”).

     

    RECITALS

     

    A. The
      Company and each Purchaser are executing and delivering this agreement in
      reliance upon the exemption from securities registration afforded by Section
      4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      Rule 506 of Regulation D (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission under the
      Securities Act.

    

    B. Each
      Purchaser, severally and not jointly, wishes to purchase, and the Company wishes
      to sell, upon the terms and conditions stated in this Agreement, (i) an
      aggregate of 4,000,000 shares of the Company’s Common Stock, par value $0.001
      per share (the “Common
      Stock”),
      at a
      purchase price of $2.50 per share (the “Per
      Share Purchase Price”)
      (collectively referred to herein as the “Shares”),
      and
      (ii) warrants, in substantially the form attached hereto as Exhibit
      A
      (the
“Warrants”)
      to
      acquire up to that number of additional shares of Common Stock set forth below
      such Purchaser’s name on the signature page hereto (as exercised, collectively,
      the “Warrant
      Shares”)

    

    C. The
      Shares, the Warrants and the Warrant Shares issued pursuant to this Agreement
      are collectively referred to herein as the “Securities”.

    

    D. Contemporaneous
      with the sale of the Shares and the Warrants, the parties hereto will enter
      into
      a Registration Rights Agreement, in the form attached hereto as Exhibit
      B
      (the
“Registration
      Rights Agreement”),
      pursuant to which, among other things, the Company will agree to provide certain
      registration rights under the Securities Act and applicable state securities
      laws.

    

    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:

     

    ARTICLE
      I.

    DEFINITIONS

     

    1.1 Definitions.
      In
      addition to the terms defined elsewhere in this Agreement, for all purposes
      of
      this Agreement, the following terms shall have the meanings indicated in this
      Section 1.1:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Affiliate”
      means,
      with respect to any Person, any other Person that, directly or indirectly
      through one or more intermediaries, Controls, is controlled by or is under
      common control with such Person. With respect to a Purchaser, any investment
      fund or managed account that is managed on a discretionary basis by the same
      investment manager as such Purchaser will be deemed to be an Affiliate of such
      Purchaser.

     

    “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.

     

    “Buy-In”
has
      the
      meaning set forth in Section 4.1(c).

     

    “Buy-In
      Price”
has
      the
      meaning set forth in Section 4.1(c).

     

    “Closing”
      means
      the closing of the purchase and sale of the Shares and the Warrants pursuant
      to
      this Agreement.

     

    “Closing
      Date”
      means
      the Business Day on which all of the conditions set forth in Sections 2.1 and
      2.2 hereof are satisfied, or such other date as the parties may
      agree.

     

    "Commission"
      means
      the United States Securities and Exchange Commission.

     

    “Common
      Stock”
      has the
      meaning set forth in the Recitals, and also includes any securities into which
      the Common Stock may hereafter be reclassified. 

     

    “Common
      Stock Equivalents”
      means
      any securities of the Company or any Subsidiary which would entitle the holder
      thereof to acquire at any time Common Stock, including without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock or other securities that entitle the holder
      to
      receive, directly or indirectly, Common Stock.

     

    “Company
      Counsel”
means
      Baker & Hostetler LLP.

    

    “Company
      Deliverables”
has
      the
      meaning set forth in Section 2.2(a).

    

    “Company’s
      Knowledge”
means
      with respect to any statement made to the knowledge of a party, that the
      statement is based upon the actual knowledge of the officers of such party
      having responsibility for the matter or matters that are the subject of the
      statement.

    

    “Control”
      (including the terms “controlling”, “controlled by” or “under common control
      with”) means the possession, direct or indirect, of the power to direct or cause
      the direction of the management and policies of a Person, whether through the
      ownership of voting securities, by contract or otherwise.

     

    “Disclosure
      Materials”
      has the
      meaning set forth in Section 3.1(h).

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    “Effective
      Date”
      means
      the date on which the initial Registration Statement required by Section 2(a)
      of
      the Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Effectiveness
      Deadline”
means
      the date on which the initial Registration Statement is required to be declared
      effective by the Commission under the terms of the Registration Rights
      Agreement.

     

    “Environmental
      Laws”
has
      the
      meaning set forth in Section 3.1(l).

     

    “Evaluation
      Date”
has
      the
      meaning set forth in Section 3.1(v).

     

    “Exchange
      Act”
      means
      the Securities Exchange Act of 1934, as amended, or any successor statute,
      and
      the rules and regulations promulgated thereunder.

     

    “GAAP”
      means
      U.S. generally accepted accounting principles, as applied by the
      Company.

     

    “Indemnified
      Person”
has
      the
      meaning set forth in Section 4.7(b).

     

    “Intellectual
      Property Rights”
      has the
      meaning set forth in Section 3.1(r).

     

    “Lead
      Investors”
means
      those Purchasers which are managed by ________________.

     

    “Lien”
      means
      any lien, charge, encumbrance, security interest, right of first refusal,
      preemptive right or other restrictions of any kind.

     

    “Losses”
has
      the
      meaning set forth in Section 4.7(a).

     

    “Material
      Adverse Effect”
      means
      any of (i) a material and adverse effect on the legality, validity or
      enforceability of any Transaction Document, (ii) a material and adverse effect
      on the results of operations, assets, prospects, business or condition
      (financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
      or (iii) a material adverse impairment to the Company's ability to perform
      on a
      timely basis its obligations under any Transaction Document.

     

    “Material
      Contract”
means
      any contract of the Company that was filed as an exhibit to the SEC Filings
      pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K.

    

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

     

    “Person”
      means an
      individual, corporation, partnership, limited liability company, trust, business
      trust, association, joint stock company, joint venture, sole proprietorship,
      unincorporated organization, governmental authority or any other form of entity
      not specifically listed herein.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    “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 in writing.

     

    “Purchaser
      Deliverables”
has
      the
      meaning set forth in Section 2.2(b).

     

    “Purchaser
      Party”
      has the
      meaning set forth in Section 4.7.

     

    “Registration
      Statement”
      means a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale by the Purchasers of the Registrable
      Securities (as defined in the Registration Rights Agreement).

     

    “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.

     

    “SEC
      Reports”
      has the
      meaning set forth in Section 3.1(h).

     

    “Secretary’s
      Certificate”
has
      the
      meaning set forth in Section 2.2(a)(vi).

     

    “Short
      Sales”
      include,
      without limitation, all “short sales” as defined in Rule 3b-3 of the Exchange
      Act and Rule 200 promulgated under Regulation SHO under the Exchange Act,
      whether or not against the box, and all types of direct and indirect stock
      pledges, forward sale contracts, options, puts, calls, short sales, swaps,
“put
      equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and
      similar arrangements (including on a total return basis), and sales and other
      transactions through non-US broker dealers or foreign regulated brokers having
      the effect of hedging the securities or investment made under this
      Agreement.

     

    “Subscription
      Amount”
      means
      with respect to each Purchaser, the Subscription Amount indicated on such
      Purchaser’s signature page to this Agreement.

     

    “Subsidiary”
      means
      any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation S-X
      promulgated by the Commission under the Exchange Act.

     

    “Trading
      Affiliate”
has
      the
      meaning set forth in Section 3.2(g).

     

    “Trading
      Day”
      means
      (i) a day on which the Common Stock is listed or quoted and traded on its
      primary Trading Market (other than the OTC Bulletin Board), or (ii) if the
      Common Stock is not listed on a Trading Market (other than the OTC Bulletin
      Board), a day on which the Common Stock is traded in the over-the-counter
      market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock
      is
      not quoted on any Trading Market, a day on which the Common Stock is quoted
      in
      the over-the-counter market as reported by the National Quotation Bureau
      Incorporated (or any similar organization or agency succeeding to its functions
      of reporting prices); provided,
      that in
      the event that the Common Stock is not listed or quoted as set forth in (i),
      (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    “Trading
      Market”
      means
      whichever of the New York Stock Exchange, the American Stock Exchange, the
      NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which
      the Common Stock is listed or quoted for trading on the date in
      question.

     

    “Transaction
      Documents”
      means
      this Agreement, the schedules and exhibits attached hereto, the Warrants, the
      Registration Rights Agreement, and any other documents or agreements executed
      in
      connection with the transactions contemplated hereunder.

     

    “Transfer
      Agent”
      means
      StockTrans.

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1 Closing.
      Subject
      to the terms and conditions set forth in this Agreement, at the Closing, the
      Company shall issue and sell to each Purchaser, and each Purchaser shall,
      severally and not jointly, purchase from the Company, the Shares and Warrants
      representing such Purchaser’s Subscription Amount. The Closing shall take place
      at the offices of Lowenstein Sandler PC, 1251 Avenue of the Americas,
      18th
      Floor,
      New York, New York 10020, on the Closing Date or at such other location or
      time
      as the parties may agree.

     

    2.2 Closing
      Deliveries.
        (a) At
      the
      Closing, the Company shall issue, deliver or cause to be delivered to each
      Purchaser the following (the “Company
      Deliverables”):

     

    (i) this
      Agreement, duly executed by the Company;

     

    (ii) one
      or
      more stock certificates, free and clear of all restrictive and other legends
      (except as expressly provided in Section 4.1(b) hereof), evidencing a number
      of
      Shares equal to the quotient obtained by dividing (a) such Purchaser’s
      Subscription Amount by (b) the Per Share Purchase Price;

     

    (iii) a
      Warrant, executed by the Company and registered in the name of such Purchaser,
      pursuant to which such Purchaser shall have the right to acquire such number
      of
      Warrant Shares equal to 65% of the number of Shares issuable to such Purchaser
      pursuant to this Agreement;

     

    (iv) a
      legal
      opinion of Company Counsel, in the form set forth in Exhibit
      C
      hereto,
      executed by such counsel and addressed to the Purchasers; 

     

    (v) the
      Registration Rights Agreement, duly executed by the Company; 

     

    (vi) a
      certificate of the Secretary of the Company (the “Secretary’s
      Certificate”),
      dated
      as of the Closing Date, certifying the resolutions adopted by the Board of
      Directors of the Company approving the transactions contemplated by this
      Agreement and the other Transaction Documents and the issuance of the
      Securities, certifying the current versions of the Articles of Incorporation
      and
      by-laws of the Company and certifying as to the signatures and authority of
      persons signing the Transaction Documents and related documents on behalf of
      the
      Company; and

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    (b) At
      the
      Closing, each Purchaser shall deliver or cause to be delivered to the Company
      the following (the “Purchaser
      Deliverables”):

     

    (i) this
      Agreement, duly executed by such Purchaser;

     

    (ii) its
      Subscription Amount, in United States dollars and in immediately available
      funds; 

     

    (iii) the
      Registration Rights Agreement, duly executed by such Purchaser; 

     

    (iv) a
      fully
      completed and duly executed Selling Stockholder Questionnaire in the form
      attached as Annex B to the Registration Rights Agreement; and

     

    (v) a
      fully
      completed and duly executed Accredited Investor Questionnaire and Stock
      Certificate Questionnaire in the forms attached hereto as Exhibits
      D-1
      and
D-2,
      respectively.

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1 Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Purchasers that, except as set
      forth in the Schedules delivered herewith:

     

    (a) Subsidiaries.
      The
      Company has no direct or indirect Subsidiaries other than those listed in the
      Company’s Form 10-K Report for the year ended December 31, 2005. Except as
      disclosed therein, the Company owns, directly or indirectly, all of the capital
      stock or comparable equity interests of each Subsidiary free and clear of any
      and all Liens and all the issued and outstanding shares of capital stock or
      comparable equity interest of each Subsidiary are validly issued and are fully
      paid, non-assessable and free of preemptive and similar rights. 

     

    (b) Organization
      and Qualification.
      The
      Company and each Subsidiary is an entity duly incorporated or otherwise
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization (as applicable), with the
      requisite power and authority to own or lease and use its properties and assets
      and to carry on its business as currently conducted. Neither the Company nor
      any
      Subsidiary is in violation of any of the provisions of its respective
      certificate or articles of incorporation, bylaws or other organizational or
      charter documents. Each of the Company and the Subsidiaries is duly qualified
      to
      conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary or appropriate, except
      where the failure to be so qualified or in good standing, as the case may be,
      could not, individually or in the aggregate, have or reasonably be expected
      to
      result in a Material Adverse Effect. 

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    (c) Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      to
      which it is a party and otherwise to carry out its obligations hereunder and
      thereunder. The execution and delivery of each of the Transaction Documents
      to
      which it is a party by the Company and the consummation by it of the
      transactions contemplated hereby and thereby (including, but not limited to,
      the
      sale and delivery of the Shares and the Warrants and the subsequent issuance
      of
      the Warrant Shares upon exercise of the Warrants have been duly authorized
      by
      all necessary corporate action on the part of the Company and no further
      corporate action is required by the Company, its Board of Directors or its
      stockholders. Each Transaction Document to which it is a party has been (or
      upon
      delivery will have been) duly executed by the Company and, when delivered in
      accordance with the terms hereof, will constitute the valid and binding
      obligation of the Company enforceable against the Company in accordance with
      its
      terms, except as such enforceability may be limited by applicable bankruptcy,
      insolvency, reorganization, moratorium, liquidation or similar laws relating
      to,
      or affecting generally the enforcement of, creditors’ rights and remedies or by
      other equitable principles of general application. There are no stockholders
      agreements, voting agreements, or other similar arrangements with respect to
      the
      Company’s capital stock to which the Company is a party or, to the Company’s
      Knowledge, between or among any of the Company’s stockholders.

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents and the
      consummation by the Company of the transactions contemplated hereby or thereby
      (including without limitation, the issuance of the Shares, pursuant to Section
      2.2, the issuance of the Warrants pursuant to this Agreement and the
      registration of the Registrable Securities under the Registration Rights
      Agreement) do not and will not (i) conflict with or violate any provision of
      the
      Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
      or other organizational or charter documents, (ii) conflict with, or constitute
      a default (or an event that with notice or lapse of time or both would become
      a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation (with or without notice, lapse of time or both)
      of,
      any agreement, credit facility, debt, equity or other instrument (evidencing
      a
      Company or Subsidiary debt, equity issuance obligation or otherwise) or other
      understanding to which the Company or any Subsidiary is a party or by which
      any
      property or asset of the Company or any Subsidiary is bound, or affected, except
      to the extent that such conflict, default, termination, amendment, acceleration
      or cancellation right could not reasonably be expected to have a Material
      Adverse Effect, or (iii) result in a violation of any law, rule, regulation,
      order, judgment, injunction, decree or other restriction of any court or
      governmental authority to which the Company or a Subsidiary is subject
      (including federal and state securities laws and regulations and the rules
      and
      regulations, assuming the correctness of the representations and warranties
      made
      by the Purchasers herein, of any self-regulatory organization to which the
      Company or its securities are subject, including all applicable Trading
      Markets), or by which any property or asset of the Company or a Subsidiary
      is
      bound or affected, except to the extent that such violation described in this
      clause (iii) could not, individually or in the aggregate, have or reasonably
      be
      expected to result in a Material Adverse Effect.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    (e) Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) the filing with the Commission of one
      or
      more Registration Statements in accordance with the requirements of the
      Registration Rights Agreement, (ii) filings required by applicable state
      securities laws, (iii) the filing of a Notice of Sale of Securities on Form
      D
      with the Commission under Regulation D of the Securities Act, (iv) the filing
      of
      any requisite notices and/or application(s) to each applicable Trading Market
      for the issuance and sale of the Common Stock and the Warrants and the listing
      of the Common Stock for trading or quotation, as the case may be, thereon in
      the
      time and manner required thereby, (v) the filings required in accordance with
      Section 4.5 and (vi) those that have been made or obtained prior to the date
      of
      this Agreement.

     

    (f) Issuance
      of the Securities.
      The
      Shares and the Warrant Shares have been duly authorized and, when issued and
      paid for in accordance with the terms of the Transaction Documents, will be
      duly
      and validly issued, fully paid and nonassessable, free and clear of all Liens
      other than restrictions on transfer provided for in the Transaction Documents
      or
      imposed by applicable securities laws and shall not be subject to preemptive
      or
      similar rights of stockholders. Assuming the accuracy of the representations
      and
      warranties of the Purchasers, the Shares and the Warrant Shares will be issued
      in compliance with all applicable federal and state securities laws.

     

    (g) No
      Anti-dilution Trigger.
      Except
      as set forth in Schedule
      3.1(g),
      the
      issuance and sale of the Securities pursuant to Section 2.2 and the issuance
      of
      the Warrant Shares upon exercise of the Warrants in accordance with their terms,
      will not, immediately or with the passage of time or the giving of notice or
      both, obligate the Company to issue shares of Common Stock or other securities
      to any Person (other than the Purchasers) and will not result in a right of
      any
      holder of Company securities to adjust the exercise, conversion, exchange or
      reset price under such securities.

     

    (h) Capitalization.
      The
      number of shares and type of all authorized, issued and outstanding capital
      stock, options and other securities of the Company (whether or not presently
      convertible into or exercisable or exchangeable for shares of capital stock
      of
      the Company) is specified in the SEC Reports. No securities of the Company
      are
      entitled to preemptive or similar rights, and no Person has any right of first
      refusal, preemptive right, right of participation, or any similar right to
      participate in the transactions contemplated by the Transaction Documents.
      Except as set forth on Schedule
      3.1(h),
      there
      are no outstanding options, warrants or scrip rights to subscribe to, calls
      or
      commitments of any character whatsoever relating to, or securities, rights
      or
      obligations convertible into or exchangeable for, or giving any Person any
      right
      to subscribe for or acquire, any shares of the Company’s capital stock, or
      contracts, commitments, understandings or arrangements by which the Company
      or
      any Subsidiary is or may become bound to issue additional shares of capital
      stock of the Company, or options, securities or rights convertible or
      exchangeable into shares of capital stock. Except as set forth on Schedule
      3.1(h)
      and
      customary adjustments resulting from stock dividends, stock splits, combination
      of shares, reorganizations, recapitalizations, reclassifications or other
      similar events, there are no anti-dilution or price adjustment provisions
      contained in any security issued by the Company (or in any agreement providing
      rights to security holders). All of the outstanding shares of capital stock
      of
      the Company are duly authorized, validly issued, fully paid and non-assessable,
      have been issued in compliance with all applicable federal and state security
      laws, and none of such outstanding shares was issued in violation of any
      preemptive rights or similar rights to subscribe for or purchase any capital
      stock of the Company.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    (i) SEC
      Reports.
      The
      Company has filed all reports required to be filed by it under the Exchange
      Act,
      including pursuant to Section 13(a) or 15(d) thereof, for the two years
      preceding the date hereof (or such shorter period as the Company was required
      by
      law to file such reports) (the foregoing materials being collectively referred
      to herein as the “SEC
      Reports”
      and
      together with this Agreement and the Schedules to this Agreement (if any),
      the“Disclosure
      Materials”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, or to the extent corrected by a subsequent restatement,
      the SEC Reports complied in all material respects with the requirements of
      the
      Securities Act and the Exchange Act and the rules and regulations of the
      Commission promulgated thereunder, and none of the SEC Reports, when filed,
      contained any untrue statement of a material fact or omitted to state a material
      fact required to be stated therein or necessary in order to make the statements
      therein, in light of the circumstances under which they were made, not
      misleading.

     

    (j) Financial
      Statements. The
      financial statements of the Company included in the SEC Reports comply in all
      material respects with applicable accounting requirements and the rules and
      regulations of the Commission with respect thereto as in effect at the time
      of
      filing (or to the extent corrected by a subsequent restatement). Such financial
      statements have been prepared in accordance with GAAP applied on a consistent
      basis during the periods involved, except as may be otherwise specified in
      such
      financial statements or the notes thereto and except that unaudited financial
      statements may not contain all footnotes required by GAAP, and fairly present
      in
      all material respects the financial position of the Company and its consolidated
      subsidiaries as of and for the dates thereof and the results of operations
      and
      cash flows for the periods then ended, subject, in the case of unaudited
      statements, to normal, year-end audit adjustments. 

     

    (k) Tax
      Matters.
      Each of
      the Company and its Subsidiaries (i) has accurately and timely prepared and
      filed all foreign, federal and state income and all other tax returns, reports
      and declarations required by any jurisdiction to which it is subject, (ii)
      has
      paid all material taxes and other governmental assessments and charges that
      are
      material in amount, shown or determined to be due on such returns, reports
      and
      declarations, except those being contested in good faith, with respect to which
      adequate reserves have been set aside on the books of the Company and (iii)
      has
      set aside on its books provision reasonably adequate for the payment of all
      taxes for periods subsequent to the periods to which such returns, reports
      or
      declarations apply. There are no unpaid taxes in any material amount claimed
      to
      be due by the taxing authority of any jurisdiction, and the officers of the
      Company know of no basis for such claim. 

     

    (l) Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in the SEC Reports, (i) there has
      been
      no event, occurrence or development that has had or that could reasonably be
      expected to result in a Material Adverse Effect, (ii) the Company has not
      incurred any liabilities (contingent or otherwise) other than (A) trade
      payables, accrued expenses and other liabilities incurred in the ordinary course
      of business consistent with past practice and (B) liabilities not required
      to be
      reflected in the Company's financial statements pursuant to GAAP or required
      to
      be disclosed in filings made with the Commission, (iii) the Company has not
      altered its method of accounting or the manner in which it keeps its accounting
      books and records, or changed its auditors, (iv) the Company has not declared
      or
      made any dividend or distribution of cash or other property to its stockholders
      or purchased, redeemed or made any agreements to purchase or redeem any shares
      of its capital stock (other than in connection with repurchases of unvested
      stock issued to employees of the Company) and (v) the Company has not issued
      any
      equity securities to any officer, director or Affiliate, except Common Stock
      issued in the ordinary course as dividends on outstanding preferred stock and
      pursuant to existing Company stock option or stock purchase plans or executive
      and director corporate arrangements disclosed in the SEC Reports and (vi) there
      has not been any material change or amendment to, or any waiver of any material
      right under, any contract under which the Company, any subsidiary thereof,
      or
      any of their assets is bound or subject. The Company does not have pending
      before the Commission any request for confidential treatment of
      information.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    (m) Environmental
      Matters.
      To the
      Company’s Knowledge, neither the Company nor any Subsidiary (i) is in violation
      of any statute, rule, regulation, decision or order of any governmental agency
      or body or any court, domestic or foreign, relating to the use, disposal or
      release of hazardous or toxic substances or relating to the protection or
      restoration of the environment or human exposure to hazardous or toxic
      substances (collectively, “Environmental
      Laws”),
      (ii)
      owns or operates any real property contaminated with any substance that is
      in
      violation of any Environmental Laws, (iii) is liable for any off-site disposal
      or contamination pursuant to any Environmental Laws, and (iv) is subject to
      any
      claim relating to any Environmental Laws; which violation, contamination,
      liability or claim has had or could reasonably be expected to have a Material
      Adverse Effect, individually or in the aggregate; and there is no pending or,
      to
      the Company’s Knowledge, threatened investigation that might lead to such a
      claim.

     

    (n) Litigation.
      There
      is no Proceeding which (i) adversely affects or challenges the legality,
      validity or enforceability of any of the Transaction Documents or the issuance
      of the Securities or (ii) except as specifically disclosed in the SEC Reports,
      could, if there were an unfavorable decision, individually or in the aggregate,
      have or reasonably be expected to result in a Material Adverse Effect. Neither
      the Company nor any Subsidiary, nor any director or officer thereof (in his
      or
      her capacity thereof), is or has been during the ten-year period prior to the
      closing Date the subject of any Proceeding involving a claim of violation of
      or
      liability under federal or state securities laws or a claim of breach of
      fiduciary duty. There has not been and to the Company’s Knowledge, there is not
      pending or contemplated, any investigation by the Commission involving the
      Company or any current or former director or officer of the Company (in his
      or
      her capacity as such). The Commission has not issued any stop order or other
      order suspending the effectiveness of any registration statement filed by the
      Company or any subsidiary under the Exchange Act or the Securities
      Act.

     

    (o) Employment
      Matters.
      The
      Company and its Subsidiaries are in compliance with all federal, state, local
      and foreign laws and regulations respecting labor, employment and employment
      practices and benefits, terms and conditions of employment and wages and hours,
      except where the failure to be in compliance would not, either individually
      or
      in the aggregate, reasonably be expected to result in a Material Adverse Effect.
      Neither the Company nor any of its Subsidiaries is a party to any collective
      bargaining agreement. The Company and its Subsidiaries believe that their
      relations with their employees are satisfactory. No executive officer of the
      Company or any of its Subsidiaries (as defined in Rule 501(f) of the Securities
      Act) has notified the Company or any such Subsidiary that such officer intends
      to leave the Company or any such Subsidiary or otherwise terminate such
      officer’s employment with the Company or any such Subsidiary. 

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    (p) Compliance.
      Neither
      the Company nor any Subsidiary, except in each case as could not, individually
      or in the aggregate, have or reasonably be expected to result in a Material
      Adverse Effect (i) is in default under or in violation of (and no event has
      occurred that has not been waived that, with notice or lapse of time or both,
      would result in a default by the Company or any Subsidiary under), nor has
      the
      Company or any Subsidiary received notice of a claim that it is in default
      under
      or that it is in violation of, any indenture, loan or credit agreement or any
      other agreement or instrument to which it is a party or by which it or any
      of
      its properties is bound (whether or not such default or violation has been
      waived), (ii) is in violation of any order of any court, arbitrator or
      governmental body having jurisdiction over the Company or its properties or
      assets, or (iii) is or has been in violation of, or in receipt of notice that
      it
      is in violation of, any statute, rule or regulation of any governmental
      authority applicable to the Company. 

     

    (q) Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as described in
      the
      SEC Reports, except where the failure to possess such permits, individually
      or
      in the aggregate, has not resulted and could not reasonably be expected to
      result in a Material Adverse Effect, and neither the Company nor any Subsidiary
      has received any notice of proceedings relating to the revocation or
      modification of any such permits.

     

    (r) Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to their respective businesses
      and
      good and marketable title in all personal property owned by them that is
      material to their respective businesses, in each case free and clear of all
      Liens, except for Liens that do not, individually or in the aggregate, have
      or
      result in a Material Adverse Effect. Any real property and facilities held
      under
      lease by the Company and the Subsidiaries are held by them under valid,
      subsisting and enforceable leases of which the Company and the Subsidiaries
      are
      in material compliance.

     

    (s) Patents
      and Trademarks.
      The
      Company and its subsidiaries own, possess, license or have other rights to
      use
      all foreign and domestic patents, patent applications, trade and service marks,
      trade and service mark registrations, trade names, copyrights, licenses,
      inventions, trade secrets, technology, Internet domain names, know-how and
      other
      intellectual property (collectively, the “Intellectual
      Property”)
      necessary for the conduct of their respective businesses as now conducted or
      as
      proposed to be conducted. Except as set forth in the SEC Reports and except
      where such violations or infringements would not reasonably be expected to
      result in a Material Adverse Effect, (a) to the Company’s Knowledge, there
      are no rights of third parties to any such Intellectual Property; (b) to the
      Company’s Knowledge, and except as set forth on Schedule
      3.1(s),
      there
      is no infringement by third parties of any such Intellectual Property; (c)
      there
      is no pending or, to the Company’s Knowledge, threatened action, suit,
      proceeding or claim by others challenging the Company’s and its Subsidiaries’
rights in or to any such Intellectual Property, and the Company is unaware
      of
      any facts which would form a reasonable basis for any such claim; (d) there
      is
      no pending or, to the Company’s Knowledge, threatened action, suit, proceeding
      or claim by others challenging the validity or scope of any such Intellectual
      Property; and (e) there is no pending or, to the Company’s Knowledge, threatened
      action, suit, proceeding or claim by others that the Company and its
      Subsidiaries infringe or otherwise violate any patent, trademark, copyright,
      trade secret or other proprietary rights of others, and the Company is unaware
      of any other fact which would form a reasonable basis for any such
      claim.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    (t) Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged. Neither the Company nor any Subsidiary has any Knowledge that it will
      be unable to renew its existing insurance coverage for the Company and the
      Subsidiaries as and when such coverage expires or to obtain similar coverage
      from similar insurers as may be necessary to continue its business without
      a
      significant increase in cost.

     

    (u) Transactions
      With Affiliates and Employees.
      Except
      as set forth in the SEC Reports made on or prior to the date hereof, none of
      the
      officers or directors of the Company and, to the Company’s Knowledge, none of
      the employees of the Company is presently a party to any transaction with the
      Company or any Subsidiary or to a presently contemplated transaction (other
      than
      for services as employees, officers and directors) that would be required to
      be
      disclosed pursuant to Item 404 of Regulation S-K promulgated under the
      Securities Act. The Company is in compliance with applicable requirements of
      the
      Sarbanes Oxley Act of 2002 and applicable rules and regulations promulgated
      by
      the Commission thereunder, except where such noncompliance would not result
      in,
      individually or in the aggregate, a Material Adverse Effect.

     

    (v) Internal
      Accounting Controls.
      The
      Company and the Subsidiaries maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management's general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management's general
      or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences. 

     

    (w) Internal
      Controls. The
      Company has established disclosure controls and procedures (as defined in 1934
      Act Rules 13a-15 and 15d-15) for the Company and designed such disclosure
      controls and procedures to ensure that material information relating to the
      Company is made known to the certifying officers by others within those
      entities, particularly during the period in which the Company’s most recently
      filed periodic report under the Exchange Act was being prepared. The Company's
      certifying officers have evaluated the effectiveness of the Company's disclosure
      controls and procedures as of the end of the most recent periodic reporting
      period under the Exchange Act (such date, the “Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the Exchange
      Act the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, except with respect to the
      remediation of the material weakness in internal control over financial
      reporting and the ineffectiveness of disclosure controls and procedures as
      described in the SEC Filings, there have been no significant changes in the
      Company's internal control over financial reporting (as such term is defined
      in
      Item 308(c) of Regulation S-K) or, to the Company's Knowledge, in other factors
      that could significantly affect the Company's internal control over financial
      reporting. The Company maintains and will continue to maintain a standard system
      of accounting established and administered in accordance with GAAP and the
      applicable requirements of the Exchange Act.

     

    
      
        
        

      

      
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    (x) Certain
      Fees.
      No
      brokerage or finder’s fees or commissions are or will be payable by the Company
      to any broker, financial advisor or consultant, finder, placement agent,
      investment banker, bank or other Person with respect to the transactions
      contemplated by this Agreement. The Purchasers shall have no obligation with
      respect to any fees or with respect to any claims (other than such fees or
      commissions owed by a Purchaser pursuant to agreements (whether written or
      oral)
      between such Purchaser and any third party which fees or commissions shall
      be
      the sole responsibility of such Purchaser) made by or on behalf of other Persons
      for fees of a type contemplated in this Section that may be due in connection
      with the transactions contemplated by this Agreement. 

     

    (y) Private
      Placement.
      Assuming the accuracy of the Purchasers’ representations and warranties set
      forth in Section 3.2(b)-(e), no registration under the Securities Act is
      required for the offer and sale of the Shares and Warrant Shares by the Company
      to the Purchasers under the Transaction Documents. The Company is eligible
      to
      register the Shares and the Warrant Shares for resale by the Purchasers using
      Form S-3 promulgated under the Securities Act. Except as specified in
Schedule
      3.1(y),
      the
      Company has not granted or agreed to grant to any Person any rights (including
      “piggy-back” registration rights) to have any securities of the Company
      registered with the Commission or any other governmental authority that have
      not
      been satisfied or waived. 

     

    (z) No
      Directed Selling Efforts or General Solicitation.
      Neither
      the Company, nor any of its Affiliates, nor any Person acting on its or their
      behalf has conducted any “general solicitation” or “general advertising” (as
      those terms are used in Regulation D) in connection with the offer or sale
      of
      any of the Securities.

     

    (aa) No
      Integrated Offering.
      Neither
      the Company nor any of its Affiliates, nor any Person acting on its or their
      behalf has, directly or indirectly, at any time within the past six months
      made
      any offers or sales of any Company security or solicited any offers to buy
      any
      security, under circumstances that would (i) eliminate the availability of
      the
      exemption from registration under Regulation D under the Securities Act in
      connection with the offer and sale by the Company of the Securities as
      contemplated hereby or (ii) cause the offering of the Securities pursuant to
      the
      Transaction Documents to be integrated with prior offerings by the Company
      for
      purposes of any applicable law, regulation or stockholder approval provisions,
      including, without limitation, under the rules and regulations of any Trading
      Market.

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    (bb) Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
      Act, and the Company has taken no action designed to terminate the registration
      of the Common Stock under the Exchange Act nor has the Company received any
      notification that the Commission is contemplating terminating such registration.
      Except as specified in the SEC Reports, the Company has not, in the two years
      preceding the date hereof, received notice (written or oral) from any Trading
      Market to the effect that the Company is not in compliance with the listing
      or
      maintenance requirements thereof. The Company is in compliance in all material
      respects with the listing and maintenance requirements for continued listing
      of
      the Common Stock on the Trading Market on which the Common Stock is currently
      listed or quoted. The issuance and sale of the Securities under the Transaction
      Documents does not contravene the rules and regulations of the Trading Market
      on
      which the Common Stock is currently listed or quoted, and no approval of the
      shareholders of the Company thereunder is required for the Company to issue
      and
      deliver to the Purchasers the maximum number of Securities contemplated by
      Transaction Documents.

     

    (cc) Investment
      Company.
      Neither
      the Company nor any of its Subsidiaries is required to be registered as, and
      is
      not an Affiliate of, and immediately following the Closing will not be required
      to register as, an “investment company” within the meaning of the Investment
      Company Act of 1940, as amended.

     

    (dd) Questionable
      Payments. Neither
      the Company nor any of its Subsidiaries, nor, to the Company’s Knowledge,
      directors, officers, employees, agents or other Persons acting on behalf of
      the
      Company or any of its Subsidiaries has, in the course of its actions for, or
      on
      behalf of, the Company: (a) used any corporate funds for unlawful contributions,
      gifts, entertainment or other unlawful expenses relating to foreign or domestic
      political activity; (b) made any direct or indirect unlawful payments to any
      foreign or domestic governmental officials or employees from corporate funds;
      (c) violated in any material respect any provision of the Foreign Corrupt
      Practices Act of 1977, as amended or (d) made any other unlawful bribe, rebate,
      payoff, influence payment, kickback or other unlawful payment to any foreign
      or
      domestic government official or employee.

     

    (ee) Application
      of Takeover Protections.
      There
      is no control share acquisition, business combination, poison pill (including
      any distribution under a rights agreement) or other similar anti-takeover
      provision under the Company's charter documents or the laws of its state of
      incorporation that is or could reasonably be expected to become applicable
      to
      any of the Purchasers as a result of the Purchasers and the Company fulfilling
      their obligations or exercising their rights under the Transaction Documents,
      including without limitation the Company's issuance of the Securities and the
      Purchasers' ownership of the Securities.

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    (ff) Disclosure.
      The
      Company confirms that neither it nor any Person acting on its behalf has
      provided any Purchaser or its respective agents or counsel with any information
      that constitutes or might constitute material, non-public information except
      insofar as the existence, provisions and terms of the Transaction Documents
      and
      the proposed transactions hereunder may constitute such information. The Company
      understands and confirms that the Purchasers will rely on the foregoing
      representations in effecting transactions in securities of the Company. All
      disclosure provided to the Purchasers regarding the Company, its business and
      the transactions contemplated hereby, furnished by or on behalf of the Company
      in the Transaction Documents (including the Company’s representations and
      warranties set forth in this Agreement) are true and correct in all material
      respects and do not contain any untrue statement of a material fact or omit
      to
      state any material fact necessary in order to make the statements made therein,
      in light of the circumstances under which they were made, not misleading.

     

    (gg) Manipulation
      of Price.
      The
      Company has not, and to its Knowledge no Person acting on its behalf has, (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any Company security to facilitate
      the sale or resale of any such securities, (ii) sold, bid for, purchased, or,
      paid any compensation for soliciting purchases of, any of the Company
      securities, or (iii) paid or agreed to pay to any Person any compensation for
      soliciting another to purchaser any Company securities.

     

    (hh) No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company, and the Company is current with
      respect to any fees owed to its accountants and lawyers.

     

    Each
      Purchaser acknowledges and agrees that the Company has not made or does not
      make
      any representations or warranties with respect to the transactions contemplated
      hereby other than those specifically set forth in this Section 3.1.

    

    3.2 Representations
      and Warranties of the Purchasers.
      Each
      Purchaser hereby, for itself and for no other Purchaser, represents and warrants
      to the Company as follows:

     

    (a) Organization;
      Authority.
      Such
      Purchaser is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with the requisite
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the applicable Transaction Documents and otherwise
      to carry out its obligations hereunder and thereunder. The execution, delivery
      and performance by such Purchaser of the transactions contemplated by this
      Agreement has been duly authorized by all necessary corporate and shareholder
      or, if such Purchaser is not a corporation, such partnership and partner,
      limited liability company and member or other applicable like action, on the
      part of such Purchaser and no further action is required by such Purchaser
      or
      its board or directors, shareholders, partners or members, as applicable. Each
      of this Agreement and the Registration Rights Agreement has been duly executed
      by such Purchaser, and when delivered by such Purchaser in accordance with
      terms
      hereof, will constitute the valid and legally binding obligation of such
      Purchaser, enforceable against it in accordance with its terms, except as such
      enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally the enforcement of, creditors’ rights and remedies or by
      other equitable principles of general application.

     

    
      
        
        

      

      
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    (b) Investment
      Intent.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities and, upon exercise of the Warrants will
      acquire the Warrant Shares issuable upon exercise thereof, as principal for
      its
      own account for investment purposes only and not with a view to or for
      distributing or reselling such Securities or any part thereof, without
      prejudice, however, to such Purchaser's right, subject to the provisions of
      this
      Agreement and the Registration Rights Agreement, at all times to sell or
      otherwise dispose of all or any part of such Securities or Warrant Shares
      pursuant to an effective registration statement under the Securities Act or
      under an exemption from such registration and in compliance with applicable
      federal and state securities laws. Subject to the immediately preceding
      sentence, nothing contained herein shall be deemed a representation or warranty
      by such Purchaser to hold the Securities for any period of time. Such Purchaser
      is acquiring the Securities hereunder in the ordinary course of its business.
      Such Purchaser does not have any agreement, plan or understanding, directly
      or
      indirectly, with any Person to distribute any of the Securities.

     

    (c) Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      it is, and on each date on which it exercises the Warrants it will be, an
“accredited investor” as defined in Rule 501(a) under the Securities Act. Such
      Purchaser is not a registered broker-dealer under Section 15 of the Exchange
      Act.

     

    (d) Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of such
      investment.

     

    (e) Access
      to Information.
      Such
      Purchaser acknowledges that it reviewed the Disclosure Materials and has been
      afforded (i) the opportunity to ask such questions as it has deemed necessary
      of, and to receive answers from, representatives of the Company concerning
      the
      terms and conditions of the offering of the Securities and the merits and risks
      of investing in the Securities; (ii) access to information (other than material
      non-public information) about the Company and the Subsidiaries and their
      respective financial condition, results of operations, business, properties,
      management and prospects sufficient to enable it to evaluate its investment;
      and
      (iii) the opportunity to obtain such additional information that the Company
      possesses or can acquire without unreasonable effort or expense that is
      necessary to make an informed investment decision with respect to the
      investment. Neither such inquiries nor any other investigation conducted by
      or
      on behalf of such Purchaser or its representatives or counsel shall modify,
      amend or affect such Purchaser's right to rely on the truth, accuracy and
      completeness of the Disclosure Materials and the Company's representations
      and
      warranties contained in the Transaction Documents.

     

    
      
        
        

      

      
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    (f) Residency.
      Such
      Purchaser has, if an entity, its principal place of business or, if an
      individual, its primary residence in the jurisdiction set forth immediately
      below such Purchaser’s name on the signature pages hereto.

     

    (g) Certain
      Trading Activities.
      Since
      the earlier to occur of (1) the time that such Purchaser was first contacted
      by
      the Company, or any other Person regarding an investment in the Company and
      (2)
      the 10th
      day
      prior to the date of this Agreement, neither the Purchaser nor any Affiliate
      of
      such Purchaser which (x) had knowledge of the transactions contemplated hereby,
      (y) has or shares discretion relating to such Purchaser’s investments or trading
      or information concerning such Purchaser’s investments, including in respect of
      the Securities, or (z) is subject to such Purchaser’s review or input concerning
      such Affiliate’s investments or trading (collectively, “Trading
      Affiliates”)
      has
      directly or indirectly, nor has any Person acting on behalf of or pursuant
      to
      any understanding with such Purchaser or Trading Affiliate, effected or agreed
      to effect any transactions in the securities of the Company (including, without
      limitation, any Short Sales involving the Company’s securities), except for the
      transactions contemplated by this Agreement. Prior to the Effective Date,
such
      Purchaser shall
      not, and shall cause its Trading Affiliates not to, engage, directly or
      indirectly, in any Short Sales in the securities of the Company, except in
      compliance with all applicable law. Each Purchaser agrees that it will not
      use
      any of the Shares or Warrant Shares acquired pursuant to this Agreement to
      cover
      any short position in the Common Stock if doing so would be in violation of
      applicable securities laws. Each Purchaser acknowledges that it is aware that
      the Commission has published its position that covering a short position
      established prior to effectiveness of a resale registration statement with
      shares included in such registration statement would be a violation of Section
      5
      of the Securities Act.

     

    (h) Brokers
      and Finders.
      No
      Person will have, as a result of the transactions contemplated by this
      Agreement, any valid right, interest or claim against or upon the Company,
      or
      any Purchaser for any commission, fee or other compensation pursuant to any
      agreement, arrangement or understanding entered into by or on behalf of the
      Purchaser.

     

    (i) Limited
      Ownership.
      The
      purchase by such Purchaser of the Securities issuable to it at the Closing
      will
      not result in such Purchaser (individually or together with other Person with
      whom such Purchaser has identified, or will have identified, itself as part
      of a
“group” in a public filing made with the Commission involving the Company’s
      securities) acquiring, or obtaining the right to acquire, in excess of 19.99%
      of
      the outstanding shares of Common Stock or the voting power of the Company on
      a
      post transaction basis that assumes that the Closing shall have occurred. Such
      Purchaser does not presently intend to, alone or together with others, make
      a
      public filing with the Commission to disclose that it has (or that it together
      with such other Persons have) acquired, or obtained the right to acquire, as
      a
      result of the Closing (when added to any other securities of the Company that
      it
      or they then own or have the right to acquire), in excess of 19.99% of the
      outstanding shares of Common Stock or the voting power of the Company on a
      post
      transaction basis that assumes that the Closing shall have
      occurred.

     

    (j) Independent
      Investment Decision.
      Such
      Purchaser has independently evaluated the merits of its decision to purchase
      Securities pursuant to the Transaction Documents, and such Purchaser confirms
      that it has not relied on the advice of any other Purchaser’s business and/or
      legal counsel in making such decision. Such Purchaser understands that nothing
      in this Agreement or any other materials presented by or on behalf of the
      Company to the Purchaser in connection with the purchase of the Securities
      constitutes legal, tax or investment advice. Such Purchaser has consulted such
      legal, tax and investment advisors as it, in its sole discretion, has deemed
      necessary or appropriate in connection with its purchase of the Securities.
      

     

    
      
        
        

      

      
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    (k) Reliance
      on Exemptions.
      Such
      Purchaser understands that the Securities are being offered and sold to it
      in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and such Purchaser's compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      such Purchaser set forth herein in order to determine the availability of such
      exemptions and the eligibility of such Purchaser to acquire the
      Securities.

     

    (l) No
      Governmental Review.
      Such
      Purchaser understands that no United States federal or state agency or any
      other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    (m) No
      Conflicts.
      The
      execution, delivery and performance by such Purchaser of this Agreement and
      the
      Registration Rights Agreement and the consummation by such Purchaser of the
      transactions contemplated hereby and thereby will not (i) result in a violation
      of the organizational documents of such Purchaser or (ii) conflict with, or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation of, any agreement, indenture or
      instrument to which such Purchaser is a party, or (iii) result in a violation
      of
      any law, rule, regulation, order, judgment or decree applicable to such
      Purchaser, except in the case of clauses (ii) and (iii) above, for such
      conflicts, defaults, rights or violations which would not, individually or
      in
      the aggregate, reasonably be expected to have a material adverse effect on
      the
      ability of such Purchaser to perform its obligations hereunder.

     

    The
      Company acknowledges and agrees that no Purchaser has made or makes any
      representations or warranties with respect to the transactions contemplated
      hereby other than those specifically set forth in this Section 3.2.

     

    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1 (a) Compliance
      with Laws.
      Notwithstanding any other provision of this Article IV, each Purchaser covenants
      that the Securities may only be disposed of pursuant to an effective
      registration statement under, and in compliance with the requirements of, the
      Securities Act, or pursuant to an available exemption from, or in a transaction
      not subject to, the registration requirements of the Securities Act, and in
      compliance with any applicable state and federal securities laws. In connection
      with any transfer of the Securities other than pursuant to an effective
      registration statement, pursuant to Rule 144(k) or in connection with a pledge
      as contemplated in Section 4.1(b), except as otherwise provided herein, the
      transferor will provide to the Company an opinion of counsel selected by the
      transferor, which counsel and the form and substance of which opinion shall
      be
      reasonably satisfactory to the Company and its legal counsel, to the effect
      that
      such transfer does not require registration of such transferred Securities
      under
      the Securities Act. 

     

    
      
        
        

      

      
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    (b) Legends.
      Certificates evidencing the Securities will contain the following legend, until
      such time as they are not required under Section 4.1(c):

     

    NEITHER
      THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
      HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
      SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS OR BLUE SKY LAWS.

     

    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge,
      and/or grant a security interest in some or all of the legended Securities,
      in
      connection with applicable securities laws, pursuant to a bona fide margin
      agreement in compliance with a bona fide margin loan. Such a pledge would not
      be
      subject to approval or consent of the Company and no legal opinion of legal
      counsel to the pledgee, secured party or pledgor shall be required in connection
      with the pledge, but such legal opinion shall be required in connection with
      a
      subsequent transfer or foreclosure following default by the Purchaser transferee
      of the pledge. No notice shall be required of such pledge but Purchaser’s
      transferee shall promptly notify the Company of the pledge. Each Purchaser
      acknowledges that the Company shall not be responsible for any pledges relating
      to, or the grant of any security interest in, any of the Securities or for
      any
      agreement, understanding or arrangement between any Purchaser and its pledgee
      or
      secured party. Provided that the Company is in compliance with the terms of
      this
      Section 4.1(b), the Company’s indemnification obligations pursuant to this
      Agreement shall not extend to any Proceeding or Losses arising out of or related
      to this Section 4.1(b). 

     

    (c) Removal
      of Legends.
      Certificates evidencing Securities shall not be required to contain such legend
      or any other legend (i) while a registration statement (including the
      Registration Statement) covering the resale of such Securities is effective
      under the Securities Act, (ii) following any sale of such Securities pursuant
      to
      Rule 144 (assuming the transferor is not an affiliate of the Company), (iii)
      if
      such Securities are eligible for sale under Rule 144(k) (to the extent that
      the
      applicable Purchaser provides a certification or legal opinion to the Company
      to
      that effect), or (iv) if such legend is not required under applicable
      requirements of the Securities Act (including controlling judicial
      interpretations and pronouncements issued by the Commission). The Company shall
      cause its counsel to issue a standing legal opinion to the Transfer Agent
      promptly after the Effective Date, if required by the Company’s transfer agent
      to effect the removal of the legends hereunder. Any fees (with respect to the
      transfer agent, counsel to the Company or otherwise) associated with the
      issuance of such opinion or the removal of such legend shall be borne by the
      Company. If any portion of the Warrant is exercised at a time when there is
      an
      effective registration statement to cover the resale of the Warrant Shares,
      or
      if such Warrant Shares may be sold under Rule 144(k), then such Warrant Shares
      shall be issued free of all legends. Following the Effective Date or at such
      earlier time as a legend is no longer required for certain Securities, the
      Company will no later than three Trading Days following the delivery by a
      Purchaser to the Company or the Transfer Agent (with notice to the Company)
      of
      (i) a legended certificate representing such Shares or Warrant Shares (endorsed
      or with stock powers attached, signatures guaranteed, and otherwise in form
      necessary to affect the reissuance and/or transfer) or (ii) an Exercise Notice
      in the manner stated in the Warrants to affect the exercise of such Warrant
      in
      accordance with its terms and an opinion of counsel to the extent required
      by
      Section 4.1(a), deliver or cause to be delivered to such Purchaser a certificate
      representing such Securities that is free from all restrictive and other
      legends. The Company may not make any notation on its records or give
      instructions to the Transfer Agent that enlarge the restrictions on transfer
      set
      forth in this Section. If within three (3) Trading Days after the Company’s
      receipt of a legended certificate representing such Securities (the
“Delivery
      Date”),
      the
      Company shall fail to issue and deliver to such Purchaser a certificate
      representing such Securities that is free from all restrictive and other
      legends, and if on or after such Delivery Date the Purchaser purchases (in
      an
      open market transaction or otherwise) shares of Common Stock to deliver in
      satisfaction of a sale by the Purchaser of shares of Common Stock that the
      Purchaser anticipated receiving from the Company without any restrictive legend
      (a “Buy-In”),
      then
      the Company shall, within three (3) Trading Days after the Purchaser’s request
      and in the Purchaser’s sole discretion, either (i) pay cash to the Purchaser in
      an amount equal to the Purchaser’s total purchase price (including brokerage
      commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In
      Price”),
      at
      which point the Company’s obligation to deliver such certificate shall terminate
      and such shares shall be cancelled, or (ii) promptly honor its obligation to
      deliver to the Purchaser a certificate or certificates representing such number
      of shares of Common Stock that would have been issued if the Company timely
      complied with its obligations hereunder and pay cash to the Purchaser in an
      amount equal to the excess (if any) of the Buy-In Price over the product of
      (a)
      such number of shares of Common Stock that the Company was required to deliver
      to the Purchaser on the Delivery Date, times (b) the closing bid price of the
      Common Stock on the Delivery Date.

    

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    (d) In
      addition to the rights and remedies provided for in Section 4.1(c) regarding
      failing to issue or deliver certificates, the Purchaser shall be entitled to
      such other remedies at law and in equity as may be available including without
      limitation specific performance and injunctive relief, and, in any event, the
      Company shall pay to such Purchaser, in cash, as partial liquidated damages
      and
      not as a penalty, an amount equal to 1.0% of the aggregate Buy-In Price
      (increasing to 2.0% of the aggregate Buy-In Price five Trading Days after such
      damages have begun to accrue) of the securities that were required to be
      delivered, for each Trading Day after the Delivery Date until all such
      certificates have been received by such Purchaser. The amounts payable under
      Sections 4.1(c) and (d) shall be payable by the Company to such Purchaser upon
      Purchaser’s demand therefore, and shall accrue interest at the rate of 10% per
      annum after such demand until paid.

    

    4.2 Reservation
      of Common Stock.
      The
      Company shall maintain a reserve from its duly authorized shares of Common
      Stock
      for issuance pursuant to the Transaction Documents in such amount as may be
      required to fulfill its obligations in full under the Transaction Documents.
      In
      the event that at any time the then authorized shares of Common Stock are
      insufficient for the Company to satisfy its obligations in full under the
      Transaction Documents, the Company shall promptly take such actions as may
      be
      required to increase the number of authorized shares.

     

    4.3 Furnishing
      of Information.
      As long
      as any Purchaser owns the Securities, 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 the Exchange Act. As long as any Purchaser owns Securities, if
      the
      Company is not required to file reports pursuant to such laws, it will prepare
      and furnish to the Purchasers and make publicly available in accordance with
      Rule 144(c) such information as is required for the Purchasers to sell the
      Shares and Warrant Shares under Rule 144. The Company further covenants that
      it
      will take such further action as any holder of Securities may reasonably
      request, all to the extent required from time to time to enable such Person
      to
      sell the Shares and Warrant Shares without registration under the Securities
      Act
      within the limitation of the exemptions provided by Rule 144. 

     

    
      
        
        

      

      
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    4.4 No
      Integration.
      The
      Company shall not, and shall use its best efforts to ensure that no Affiliate
      of
      the Company shall, sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that will be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers, or that will be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market.

     

    4.5 Subsequent
      Registrations.
      Other
      than pursuant to the Registration Statement, prior to the Effective Date, the
      Company shall not file any registration statement (other than on Form S-8 or,
      with the prior written consent of Purchasers, which consent shall not be
      unreasonably withheld, conditioned or delayed, on Form S-4 in connection with
      a
      strategic acquisition by the Company) with the Commission with respect to any
      securities of the Company. 

     

    4.6 Securities
      Laws Disclosure; Publicity.
      By 9:00
      a.m. (New York City time) on the Trading Day immediately following the execution
      of this Agreement and, if the Agreement is executed on a day other than the
      Closing Date, then also by 9:00 a.m. (New York City time) on the Trading Day
      following the Closing Date, the Company shall issue press releases disclosing
      the transactions contemplated hereby and the Closing. On the second Trading
      Day
      following the execution of this Agreement, the Company will file a Current
      Report on Form 8-K with the Commission describing the material terms of the
      Transaction Documents (and including as exhibits to such Current Report on
      Form
      8-K the Transaction Documents), and on the second Trading Day following the
      Closing Date, the Company will file an additional Current Report on Form 8-K
      to
      disclose the Closing. Thereafter, the Company shall timely file any filings
      and
      notices required by the Commission and the Trading Market on which the Common
      Stock is listed. Notwithstanding the foregoing, the Company shall not publicly
      disclose the name of any Purchaser, or include the name of any Purchaser in
      any
      press release or filing with the Commission (other than the Registration
      Statement) or any regulatory agency or Trading Market, without the prior written
      consent of such Purchaser, except to the extent such disclosure is required
      by
      law or Trading Market regulations, in which case the Company shall promptly
      provide the Purchasers with prior notice of such disclosure. 

     

    4.7 Indemnification.

     

    (a) Indemnification
      of Purchasers.
      In
      addition to the indemnity provided in the Registration Rights Agreement, the
      Company will indemnify and hold the Purchasers and their directors, officers,
      shareholders, partners, employees and agents (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys' fees and costs of
      investigation (collectively, “Losses”)
      that
      any such Purchaser Party may suffer or incur as a result of or relating to
      any
      misrepresentation, breach or inaccuracy of any representation, warranty,
      covenant or agreement made by the Company in any Transaction Document. In
      addition to the indemnity contained herein, the Company will reimburse each
      Purchaser Party for its reasonable legal and other expenses (including the
      cost
      of any investigation, preparation and travel in connection therewith) incurred
      in connection therewith, as such expenses are incurred. If and to the extent
      that such indemnification is unenforceable for any reason, the Company shall
      make the maximum contribution to the payment and satisfaction of such losses
      permissible under applicable law.

     

    
      
        
        

      

      
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    (b) Conduct
      of Indemnification Proceedings.
      Promptly
      after receipt by any Person (the “Indemnified
      Person”)
      of
      notice of any demand, claim or circumstances which would or might give rise
      to a
      claim or the commencement of any action, proceeding or investigation in respect
      of which indemnity may be sought pursuant to Section
      4.7(a),
      such
      Indemnified Person shall promptly notify the Company in writing and the Company
      shall assume the defense thereof, including the employment of counsel reasonably
      satisfactory to such Indemnified Person, and shall assume the payment of all
      fees and expenses; provided,
      however, that
      the
      failure of any Indemnified Person so to notify the Company shall not relieve
      the
      Company of its obligations hereunder except to the extent that the Company
      is
      actually and materially prejudiced by such failure to notify. In any such
      proceeding, any Indemnified Person shall have the right to retain its own
      counsel, but the fees and expenses of such counsel shall be at the expense
      of
      such Indemnified Person unless: (i) the Company and the Indemnified Person
      shall
      have mutually agreed to the retention of such counsel; or (ii) in the reasonable
      judgment of counsel to such Indemnified Person representation of both parties
      by
      the same counsel would be inappropriate due to actual or potential differing
      interests between them. The Company shall not be liable for any settlement
      of
      any proceeding effected without its written consent, which consent shall not
      be
      unreasonably withheld, delayed or conditioned, but if settled without such
      consent, or if there is a final judgment for the plaintiff, the Company shall
      indemnify and hold harmless such Indemnified Person from and against any Losses
      by reason of such settlement or judgment. Without the prior written consent
      of
      the Indemnified Person, the Company shall not effect any settlement of any
      pending or threatened proceeding in respect of which any Indemnified Person
      is
      or could have been a party and indemnity could have been sought hereunder by
      such Indemnified Party, unless such settlement includes an unconditional release
      of such Indemnified Person from all liability arising out of such
      proceeding.

     

    4.8 Non-Public
      Information.
      The
      Company covenants and agrees that neither it nor any other Person acting on
      its
      behalf will provide or has provided any Purchaser or its agents or counsel
      with
      any information that the Company believes constitutes material non-public
      information (other than the contemplated Transaction Documents and the
      transactions contemplated thereby), unless prior thereto such Purchaser shall
      have executed a written agreement regarding the confidentiality and use of
      such
      information. The Company understands and confirms that each Purchaser shall
      be
      relying on the foregoing representations in effecting transactions in securities
      of the Company.

     

    4.9 Listing
      of Securities.
      Promptly following the date hereof, the Company shall take all necessary action
      to cause the Shares and the Warrant Shares to be approved for trading on the
      American Stock Exchange. Further, if the Company applies to have its Common
      Stock or other securities listed on any other Trading Market, it shall include
      in such application the Shares and the Warrant Shares and will take such other
      action as is necessary to cause the Shares and the Warrant Shares to be listed
      on such other Trading Market as promptly as practicable. The Company will use
      commercially reasonable efforts to continue the listing and trading of its
      Common Stock on a Trading Market and, in accordance, therewith, will use
      commercially reasonable efforts to comply in all respects with the Company’s
      reporting, filing and other obligations applicable to issuers whose securities
      are listed on such Trading Market.

     

    
      
        
        

      

      
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    4.10 Use
      of
      Proceeds.
      The
      Company intends to use the net proceeds from the sale of the Securities
      hereunder for working capital and general corporate purposes and to fund
      strategic acquisitions by the Company; provided, however, such proceeds shall
      not be used (x) to redeem any Common Stock or Common Stock Equivalents, (y)
      to
      settle any outstanding Proceeding, or (z) to pay any indebtedness for borrowed
      money or amounts owing to any directors, officers, employees, consultants or
      other Affiliates.

     

    4.11 Lock-Up
      Agreements.
      The
      Company will cause Peter Musser and Ronald Pickett to furnish to the Purchasers,
      on or prior to the date of this Agreement, a letter or letters, in the form
      attached hereto as Exhibit
      E,
      pursuant to which each such person shall agree not to, during the period ending
      30 days after the Effective Date, without the prior written consent of the
      Purchasers, directly or indirectly, (1) offer, pledge, sell, contract to sell,
      sell any option or contract to purchase, purchase any option or contract to
      sell, grant any option, right or warrant to purchase, lend, or otherwise
      transfer or dispose of, directly or indirectly, any shares of Common Stock
      or
      any securities convertible into or exercisable or exchangeable for Common Stock;
      or (2) enter into any swap or other arrangement that transfers to another,
      in
      whole or in part, any of the economic consequences of ownership of the Common
      Stock or any securities convertible into or exercisable or exchangeable for
      Common Stock, whether any such transaction described in clause (1) or (2) above
      is to be settled by delivery of Common Stock or such other securities, in cash
      or otherwise. 

     

    ARTICLE
      V.

    CONDITIONS
      PRECEDENT TO CLOSING

    

    5.1 Conditions
      Precedent to the Obligations of the Purchasers to Purchase
      Securities.
      The
      obligation of each Purchaser to acquire Securities at the Closing is subject
      to
      the fulfillment to such Purchase’s satisfaction, on or prior to the Closing
      Date, of each of the following conditions, any of which may be waived by such
      Purchaser (as to itself only):

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Company contained herein shall be true
      and
      correct in all material respects as of the date when made and as of the Closing
      Date, as though made on and as of such date. 

     

    (b) Performance.
      The
      Company and each other Purchaser shall have performed, satisfied and complied
      in
      all material respects with all covenants, agreements and conditions required
      by
      the Transaction Documents to be performed, satisfied or complied with by it
      at
      or prior to the Closing.

     

    (c) No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of any
      of
      the transactions contemplated by the Transaction Documents.

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    (d) Consents. The
      Company shall have obtained in a timely fashion any and all consents, permits,
      approvals, registrations and waivers necessary or appropriate for consummation
      of the purchase and sale of the Securities, and all of which shall be and remain
      so long as necessary in full force and effect.

     

    (e) Adverse
      Changes.
      Since
      the date of execution of this Agreement, no event or series of events shall
      have
      occurred that reasonably could have or result in a Material Adverse Effect;
      

     

    (f) No
      Suspensions of Trading in Common Stock; Listing.
      Trading
      in the Common Stock shall not have been suspended by the Commission or any
      Trading Market (except for any suspensions of trading of not more than one
      Trading Day solely to permit dissemination of material information regarding
      the
      Company) at any time since the date of execution of this Agreement, and the
      Common Stock shall have been at all times since such date listed for trading
      on
      a Trading Market; 

     

    (g) Company
      Deliverables.
      The
      Company shall have delivered the Company Deliverables in accordance with Section
      2.2(a); 

     

    (h) Lock-Up
      Agreements.
      The
      Company shall have delivered, or caused to be delivered, the letters referred
      to
      in Section 4.11, executed by Peter Musser and Ronald Pickett; and

     

    (i) Compliance
      Certificate.
      The
      Company shall have delivered to each Purchaser a certificate, dated as of the
      Closing Date and signed by its Chief Executive Officer or its Chief Financial
      Officer, dated as of the Closing Date, certifying to the fulfillment of the
      conditions specified in Sections 5.1(a), (b), (c), (d) and (f).

     

    5.2 Conditions
      Precedent to the Obligations of the Company to sell Securities.
      The
      Company's obligation to sell and issue the Securities at the Closing is subject
      to the fulfillment to the satisfaction of the Company on or prior to the Closing
      Date of the following conditions, any of which may be waived by the
      Company:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties made by the Purchasers in Section
      3.2
      hereof
      shall be true and correct in all material respects as of the date when made,
      and
      as of the Closing Date as though made on and as of such date.

     

    (b) Performance.
      The
      Purchasers shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the Transaction
      Documents to be performed, satisfied or complied with by the Purchasers at
      or
      prior to the Closing;

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    (c) No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of any
      of
      the transactions contemplated by the Transaction Documents; and

     

    (d) Purchasers
      Deliverables.
      Each
      Purchaser shall have delivered its Purchaser Deliverables in accordance with
      Section 2.2(b).

     

    ARTICLE
      VI.

    MISCELLANEOUS

     

    6.1 Fees
      and Expenses.
      At
      Closing, the Company shall reimburse the reasonable fees and expenses of the
      Lead Investors in an amount of $15,000 in connection with the transactions
      contemplated by this Agreement, which fees shall include, without limitation,
      the fees and expenses associated with the negotiation, preparation and execution
      and delivery of this Agreement and the other Transaction Documents and any
      amendments, modifications or waivers thereto. The Company and the Purchasers
      shall each pay the fees and expenses of their respective advisers, counsel,
      accountants and other experts, if any and all other expenses incurred by such
      party in connection with the negotiation, preparation, execution, delivery
      and
      performance of this Agreement. The Company shall pay all Transfer Agent fees,
      stamp taxes and other taxes and duties levied in connection with the sale and
      issuance of the Securities. Each party acknowledges that Lowenstein Sandler
      PC
      has rendered legal advice to the Lead Investors, and not to such party in
      connection with the transactions contemplated hereby, and that such party has
      relied for such matters on the advice of its own respective
      counsel.

     

    6.2 Entire
      Agreement.
      The
      Transaction Documents, together with the Exhibits and Schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements, understandings, discussions and
      representations, oral or written, with respect to such matters, which the
      parties acknowledge have been merged into such documents, exhibits and
      schedules. At or after the Closing, and without further consideration, the
      Company and the Purchasers will execute and deliver to the other such further
      documents as may be reasonably requested in order to give practical effect
      to
      the intention of the parties under the Transaction Documents.

     

    6.3 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 (a) the date of transmission, if such notice or communication
      is delivered via facsimile or e-mail (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, (b) 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, (c) the Trading Day following
      the
      date of mailing, if sent by U.S. nationally recognized overnight courier
      service, or (d) upon actual receipt by the party to whom such notice is required
      to be given. The address for such notices and communications shall be as
      follows:

     

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

    
      	
            	
              If to the Company:

            	
              Telkonet,
                Inc.

            

    

    20374
      Seneca Meadows Parkway

    Germantown,
      Maryland 20876

    Telephone
      No.: (240) 912-1800

    Facsimile
      No.: (240) 912-1939

    Attention:
      Chief Financial Officer

    

    
      	
            	With
              a copy to:	
              Baker
                & Hostetler LLP

            

    

    1050
      Connecticut Avenue, NW

    Suite
      1100

    Washington,
      D.C. 20036

    Telephone
      No.: (202) 861-1500

    Facsimile
      No.: (202) 861-1783

    Attention:
      William J. Conti, Esq.

    

    If
      to a
      Purchaser: To
      the
      address set forth under such Purchaser’s name on the signature
      page hereof;

    

    or
      such
      other address as may be designated in writing hereafter, in the same manner,
      by
      such Person.

    

    6.4 Amendments;
      Waivers; No Additional Consideration.
      No
      provision of this Agreement may be waived or amended except in a written
      instrument signed, in the case of an amendment, by the Company and each of
      the
      Purchasers or, in the case of a waiver, by the party against whom enforcement
      of
      any such waiver is sought. No waiver of any default with respect to any
      provision, condition or requirement of this Agreement shall be deemed to be
      a
      continuing waiver in the future or a waiver of any subsequent default or a
      waiver of any other provision, condition or requirement hereof, nor shall any
      delay or omission of either party to exercise any right hereunder in any manner
      impair the exercise of any such right. No consideration shall be offered or
      paid
      to any Purchaser to amend or consent to a waiver or modification of any
      provision of any Transaction Document unless the same consideration is also
      offered to all Purchasers who then hold Shares.

     

    6.5 Construction.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof. The language used in this Agreement will be deemed to be the language
      chosen by the parties to express their mutual intent, and no rules of strict
      construction will be applied against any party. This Agreement shall be
      construed as if drafted jointly by the parties, and no presumption or burden
      of
      proof shall arise favoring or disfavoring any party by virtue of the authorship
      of any provisions of this Agreement or any of the Transaction
      Documents.

     

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

    6.6 Successors
      and Assigns.
      The
      provisions of this Agreement shall inure to the benefit of and be binding upon
      the parties and their successors and permitted assigns. This Agreement, or
      any
      rights or obligations hereunder, may not be assigned by the Company without
      the
      prior written consent of the Purchasers. Any Purchaser may assign its rights
      hereunder in whole or in part to any Person to whom such Purchaser assigns
      or
      transfers any Securities in compliance with this agreement and applicable law,
      provided such transferee shall agree in writing to be bound, with respect to
      the
      transferred Securities, by the terms and conditions of this Agreement that
      apply
      to the “Purchasers”.

     

    6.7  No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except each Purchaser Party
      is an intended third party beneficiary of Section 4.7 and may enforce the
      provisions of such Section directly against the parties with obligations
      thereunder .

     

    6.8 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 and any other Transaction Documents (whether
      brought against a party hereto or its respective Affiliates, employees or
      agents) shall be commenced exclusively 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 (including with respect
      to the enforcement of the any of the Transaction Documents), 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 such 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 legal proceeding
      arising out of or relating to this Agreement or the transactions contemplated
      hereby. If either party shall commence a Proceeding to enforce any provisions
      of
      a Transaction Document, then the prevailing party in such Proceeding shall
      be
      reimbursed by the other party for its reasonable attorney’s fees and other costs
      and expenses incurred with the investigation, preparation and prosecution of
      such Proceeding.

     

    6.9 Survival.
      Subject
      to applicable statute of limitations, the representations, warranties,
      agreements and covenants contained herein shall survive the Closing and the
      delivery of the Securities.

     

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

    6.10 Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission, such signature shall create a valid and binding obligation of
      the
      party executing (or on whose behalf such signature is executed) with the same
      force and effect as if such facsimile signature page were an original
      thereof.

     

    6.11 Severability.
      If any
      provision of this Agreement is held to be invalid or unenforceable in any
      respect, the validity and enforceability of the remaining terms and provisions
      of this Agreement shall not in any way be affected or impaired thereby and
      the
      parties will attempt to agree upon a valid and enforceable provision that is
      a
      reasonable substitute therefor, and upon so agreeing, shall incorporate such
      substitute provision in this Agreement.

     

    6.12 Rescission
      and Withdrawal Right. Notwithstanding
      anything to the contrary contained in (and without limiting any similar
      provisions of) the Transaction Documents, whenever any Purchaser exercises
      a
      right, election, demand or option under a Transaction Document and the Company
      does not timely perform its related obligations within the periods therein
      provided, then such Purchaser may rescind or withdraw, in its sole discretion
      from time to time upon written notice to the Company, any relevant notice,
      demand or election in whole or in part without prejudice to its future actions
      and rights

     

    6.13 Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof, or in lieu of and substitution
      therefor, a new certificate or instrument, but only upon receipt of evidence
      reasonably satisfactory to the Company of such loss, theft or destruction and
      the execution by the holder thereof of a customary lost certificate affidavit
      of
      that fact and an agreement to indemnify and hold harmless the Company for any
      reasonable losses in connection therewith. The applicants for a new certificate
      or instrument under such circumstances shall also pay any reasonable third-party
      costs associated with the issuance of such replacement Securities. If a
      replacement certificate or instrument evidencing any Securities is requested
      due
      to a mutilation thereof, the Company may require delivery of such mutilated
      certificate or instrument as a condition precedent to any issuance of a
      replacement.

     

    6.14 Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Transaction Documents. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations described in the foregoing
      sentence and hereby agrees to waive in any action for specific performance
      of
      any such obligation (other than in connection with any action for a temporary
      restraining order) the defense that a remedy at law would be
      adequate.

     

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

    6.15 Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Purchaser pursuant
      to
      any Transaction Document or a Purchaser enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred.

     

    6.16 Independent
      Nature of Purchasers' Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance of the obligations of any other
      Purchaser under any Transaction Document. The decision of each Purchaser to
      purchase Securities pursuant to the Transaction Documents has been made by
      such
      Purchaser independently of any other Purchaser and independently of any
      information, materials, statements or opinions as to the business, affairs,
      operations, assets, properties, liabilities, results of operations, condition
      (financial or otherwise) or prospects of the Company or any Subsidiary which
      may
      have been made or given by any other Purchaser or by any agent or employee
      of
      any other Purchaser, and no Purchaser and any of its agents or employees shall
      have any liability to any other Purchaser (or any other Person) relating to
      or
      arising from any such information, materials, statement or opinions. Nothing
      contained herein or in any Transaction Document, and no action taken by any
      Purchaser pursuant 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 or
      as
      a group with respect to such obligations or the transactions contemplated by
      the
      Transaction Documents. 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
      independently protect and enforce its rights, including without limitation
      the
      rights arising out of this Agreement or out of the other Transaction Documents,
      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 Transaction
      Documents for the purpose of closing a transaction with multiple Purchasers
      and
      not because it was required or requested to do so by any Purchaser. The
      Company’s obligations to each Purchaser under this Agreement are identical to
      its obligations to each other Purchaser other than such differences resulting
      solely from the number of Securities purchased by such Purchaser, but regardless
      of whether such obligations are memorialized herein or in another agreement
      between the Company and a Purchaser.

    

     

    [Signatures
      on next page]

     

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
      Agreement to be duly executed by their respective authorized signatories as
      of
      the date first indicated above.

     

    TELKONET,
      INC.

     

    By:_______________________________________

    Name:

    Title: 

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGES FOR PURCHASERS FOLLOW]

     

    

    
      
        
        

      

      
        -30-

        
          

        

      

      
        
        

      

    

     

     

    NAME
      OF PURCHASER

    

    
 

    By:_____________________________________

    Name:

    Title:

    

    

    Subscription
      Amount $______________

    Tax
      ID
      No. _______________________

    

    

    ADDRESS
      FOR NOTICE

    

    c/o:_____________________________________

    

    Street:___________________________________

    

    City/State/Zip:_____________________________

    

    Attention:________________________________

    

    Telephone
      No.:____________________________

    

    Facsimile
      No.:_____________________________ 

    

    Deliver
      Instructions 

    (if
      different than above)

    

    c/o
      _______________________________

    

    Street:
      ____________________________

    

    City/State/Zip:
      _______________________

    

    Attention:
      ___________________________

    

    Tel
      No.:
      ____________________________ 

    

     

    
      
        
        

      

      
        -31-

        
          

        

      

      
        
        

      

    

     

    Exhibit
      A

     

    FORM
      OF WARRANT

     

    

     

    
      
        
        

      

      
        -32-

        
          

        

      

      
        
        

      

    

    Exhibit
      B

     

    FORM
      OF REGISTRATION RIGHTS AGREEMENT

     

    

     

    

     

    
      
        
        

      

      
        -33-

        
          

        

      

      
        
        

      

    

     

    INSTRUCTION
      SHEET FOR PURCHASER

     

    (to
      be
      read in conjunction with the entire

     

    Securities
      Purchase Agreement)

     

    A. Complete
      the following items in the Securities Purchase Agreement:

     

    1. Complete
      and execute the Purchaser Signature Page. The Agreement must be executed by
      an
      individual authorized to bind the Purchaser.

     

    2. Exhibit
      D-1 - Stock Certificate Questionnaire:

     

    Provide
      the information requested by the Stock Certificate Questionnaire; 

     

    3. Exhibit
      D-2 - Purchaser Certificate:

     

    Provide
      the information requested by the Certificate for Corporate, Partnership, Trust,
      Foundation and Joint Purchasers, as applicable.

     

    4. Return,
      via facsimile, the signed Securities Purchase Agreement including the properly
      completed Exhibits D-1 and D-2, to:

     

    Baker
      & Hostetler LLP

    1050
      Connecticut Avenue, NW

    Suite
      1100

    Washington,
      D.C. 20036

    Telephone
      No.: (202) 861-1500

    Facsimile
      No.: (202) 861-1783

    Attention:
      William J. Conti, Esq.

     

    5. After
      completing instruction number five (5) above, deliver the original signed
      Securities Purchase Agreement including the properly completed Exhibits D-1
      and
      D-2 to:

     

    Baker
      & Hostetler LLP

    1050
      Connecticut Avenue, NW

    Suite
      1100

    Washington,
      D.C. 20036

    Telephone
      No.: (202) 861-1500

    Facsimile
      No.: (202) 861-1783

    Attention:
      William J. Conti, Esq.

     

    
      	
              B.

            	
              Instructions
                regarding the transfer of funds for the purchase of Shares will be
                telecopied to the Purchaser by the Company at a later
                date.

            

    

     

    
      
        
        

      

      
        -34-

        
          

        

      

      
        
        

      

    

    
      	
              C.

            	
              Upon
                the resale of any Shares by the Purchaser after the Registration
                Statement
                covering any Shares is effective, as described in the Purchase Agreement,
                the Purchaser
                must deliver a current prospectus, and annual and quarterly reports
                of the
                Company to the buyer.

            

    

     

     

     

     

    
      
        
        

      

      
        -35-

        
          

        

      

      
        
        

      

    

    Exhibit
      C

     

    OPINION
      OF COMPANY COUNSEL

     

    1. The
      Company is a corporation duly incorporated and validly existing under, and
      by
      virtue of, the laws of the State of Utah and is in good standing under such
      laws. The Company has requisite corporate power to own and operate its
      properties and assets, and to carry on its business as presently conducted.
      The
      Company is qualified to do business as a foreign corporation in the state of
      Maryland. 

     

    2. The
      Company has all requisite legal and corporate power to execute and deliver
      the
      Agreement, to sell and issue the Common Stock and the Warrants under the
      Agreement, to issue the Warrant Shares issuable upon exercise of the Warrants
      and to carry out and perform its obligations under the terms of the Agreement.
      

     

    3. The
      shares of Common Stock have been duly authorized and when issued, delivered
      and
      paid for in accordance with the terms of the Agreement, will be validly issued,
      fully paid and nonassessable. The Warrants have been duly authorized and when
      issued, delivered and paid for in accordance with the terms of the Agreement,
      will be validly issued. The Warrant Shares have been duly and validly reserved,
      and, when issued in accordance with the terms of the Agreement, the Warrant
      and
      the Company’s Certificate of Incorporation, will be validly issued, fully paid
      and nonassessable.

     

    4. All
      corporate action on the part of the Company necessary for the authorization,
      execution and delivery of the Agreement by the Company, the authorization,
      sale,
      issuance and delivery of the Common Stock, the Warrants and the Warrant Shares
      and the performance by the Company of its obligations under the Agreement has
      been taken. The Agreement has been duly and validly executed and delivered
      by
      the Company and constitutes a valid and binding obligation of the Company,
      enforceable against the Company in accordance with its terms. 

     

    5. The
      execution and delivery by the Company of the Agreement, the performance by
      the
      Company of its obligations under the Agreement, and the issuance of the Common
      Stock and the Warrants do not violate any provision of the Certificate of
      Incorporation or Bylaws, or any provision of the Utah Corporations Law, any
      applicable federal or Maryland state law, or rule or regulation known to us
      to
      be customarily applicable to transactions of this nature. The execution and
      delivery by the Company of the Agreement, the performance by the Company of
      its
      obligations under the Agreement, and the issuance of the Common Stock, the
      Warrants and the Warrant Shares do not violate, or constitute a default under,
      any contract or agreement filed as an exhibit to the Company’s Form 10-K for the
      fiscal year ended December 31, 2005 or the Company’s Form 10-Q for the fiscal
      quarters ended March 31, 2006, June 30, 2006 and September 30, 2006 with the
      Securities and Exchange Commission pursuant to Item 601(b)(10) of Regulation
      S-K
      to which the Company is a party or by which the Company is bound. 

     

    6. Except
      as
      identified in the Agreement, to our knowledge, there are no actions, suits,
      proceedings or investigations pending against the Company or its properties
      before any court or governmental agency nor, to our knowledge, has the Company
      received any written threat thereof.

     

    
      
        
        

      

      
        -36-

        
          

        

      

      
        
        

      

    

    7. No
      consent, approval or authorization of or designation, declaration or filing
      with
      any governmental authority on the part of the Company is required in connection
      with the valid execution and delivery of the Agreement, the offer, sale or
      issuance of the Common Stock or the Warrants or the consummation by the Company
      of any other transaction contemplated by the Agreement except the filing of
      a
      Form D pursuant to Regulation D under the Securities Act of 1933, as
      amended.

     

    8. Subject
      to the accuracy of the Investors’ representations in Section 3.2 of the
      Agreement, the offer, sale and issuance of the Common Stock and the Warrants
      in
      conformity with the terms of the Agreement constitute transactions exempt from
      the registration requirements of Section 5 of the Securities Act of 1933, as
      amended. 

    

     

    

     

    
      
        
        

      

      
        -37-

        
          

        

      

      
        
        

      

    

    Exhibit
      D-1

     

    Telkonet,
      Inc.

     

    STOCK
      CERTIFICATE QUESTIONNAIRE

     

    Please
      provide us with the following information:

     

    
      	
              1.

               

            	
              The
                exact name that the Shares are to be registered in (this is the name
                that
                will appear on the stock certificate(s)). You may use a nominee name
                if
                appropriate:

               

            	 
	
              2.

               

            	
              The
                relationship between the Purchaser of the Shares and the Registered
                Holder
                listed in response to item 1 above:

               

            	 
	
              3.

               

            	
              The
                mailing address, telephone and telecopy number of the Registered
                Holder
                listed in response to item 1 above:

               

            	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
              4.

               

            	
              The
                Tax Identification Number of the Registered Holder listed in response
                to
                item 1 above:

               

            	 

    

     

     

     

    
      
        
        

      

      
        -38-

        
          

        

      

      
        
        

      

    

     Exhibit
      D-2

     

    Telkonet,
      Inc.

     

    CERTIFICATE
      FOR CORPORATE, PARTNERSHIP, 

    TRUST,
      FOUNDATION AND JOINT PURCHASERS

     

    If
      the
      investor is a corporation, partnership, trust, pension plan, foundation, joint
      purchaser (other than a married couple) or other entity, an authorized officer,
      partner, or trustee must complete, date and sign this Certificate.

     

    CERTIFICATE

     

    The
      undersigned certifies that the representations and responses below are true
      and
      accurate:

     

    (a) The
      investor has been duly formed and is validly existing and has full power and

      authority to invest in the Company. The person signing on behalf of the
      undersigned has the authority to execute and deliver the Securities Purchase
      Agreement on behalf of the Purchaser and to take other actions with respect
      thereto.

     

    (b) Indicate
      the form of entity of the undersigned: 

     

    ____ Limited
      Partnership 

     

    ____ General
      Partnership 

     

    ____ Corporation

     

    ____RevocableTrust
      (identify each grantor and indicate under what circumstances the trust is
      revocable by the grantor):

     

    ___________________________________________________________________________________________________________

     

    ___________________________________________________________________________________________________________

    (Continue
      on a separate piece of paper, if necessary.)

     

    ____ Other
      type of Trust (indicate type of trust and, for trusts other than pension trusts,
      name the grantors and beneficiaries):

     

    ___________________________________________________________________________________________________________

     

    ___________________________________________________________________________________________________________

    (Continue
      on a separate piece of paper, if necessary.)

     

    ____ Other
      form of organization (indicate form of organization

     

    ___________________________________________________________________________________________________________

     

    
      
        
        

      

      
        -39-

        
          

        

      

      
        
        

      

    

    (c) Indicate
      the approximate date the undersigned entity was
      formed:_____________________________.

     

    (d) In
      order
      for the Company to offer and sell the Shares in conformance with state and
      federal securities laws, the following information must be obtained regarding
      your investor status. Please initial
      each category
      applicable to you as an investor in the Company.

     

    
      	
            	___	
              1. A
                bank as defined in Section 3(a)(2) of the Securities Act, or any
                savings
                and loan association or other institution as defined in Section 3(a)(5)(A)
                of the Securities Act whether acting in its individual or fiduciary
                capacity;

            

    

     

    
      	
            	___	
              2. A
                broker or dealer registered pursuant to Section 15 of the Securities
                Exchange Act of 1934;

            

    

     

    
      	
            	___	
              3. An
                insurance company as defined in Section 2(13) of the Securities
                Act;

            

    

     

    
      	
            	___	
              4. An
                investment company registered under the Investment Company Act of
                1940 or
                a business development company as defined in Section 2(a)(48) of
                that
                Act;

            

    

     

    
      	
            	___	
              5. A
                Small Business Investment Company licensed by the U.S. Small Business
                Administration under Section 301(c) or (d) of the Small Business
                Investment Act of 1958;

            

    

     

    
      	
            	___	
              6. A
                plan established and maintained by a state, its political subdivisions,
                or
                any agency or instrumentality of a state or its political subdivisions,
                for the benefit of its employees, if such plan has total assets in
                excess
                of $5,000,000;

            

    

     

    
      	
            	___	
              7. An
                employee benefit plan within the meaning of the Employee Retirement
                Income
                Security Act of 1974, if the investment decision is made by a plan
                fiduciary, as defined in Section 3(21) of such Act, which is either
                a
                bank, savings and loan association, insurance company, or registered
                investment advisor, or if the employee benefit plan has total assets
                in
                excess of $5,000,000 or, if a self-directed plan, with investment
                decisions made solely by persons that are accredited
                investors;

            

    

     

    
      	
            	___	
              8. A
                private business development company as defined in Section 202(a)(22)
                of
                the Investment Advisers Act of
                1940;

            

    

     

    
      	
            	___	
              9. An
                organization described in Section 501(c)(3) of the Internal Revenue
                Code,
                corporation, Massachusetts or similar business trust, or partnership,
                not
                formed for the specific purpose of acquiring the Shares, with total
                assets
                in excess of $5,000,000;

            

    

     

     

    
      
        
        

      

      
        -40-

        
          

        

      

      
        
        

      

    

    
      	
            	___	
              10. A
                trust, with total assets in excess of $5,000,000, not formed for
                the
                specific purpose of acquiring the Shares, whose purchase is directed
                by a
                sophisticated person as described in Rule 506(b)(2)(ii) of the Exchange
                Act;

            

    

     

    
      	
            	___	
              11. An
                entity in which all
                of
                the equity owners qualify under any of the above subparagraphs. If
                the
                undersigned belongs to this investor category only, list the equity
                owners
                of the undersigned, and the investor category which each such equity
                owner
                satisfies:

            

    

     

    __________________________________________________________________________________

     

    __________________________________________________________________________________

     

    __________________________________________________________________________________

    (Continue
      on a separate piece of paper, if necessary.)

     

    Please
      set forth in the space provided below the (i) states, if any, in the U.S. in
      which you maintained your principal office during the past two years and the
      dates during which you maintained your office in each state, (ii) state(s),
      if
      any, in which you are incorporated or otherwise organized and (iii) state(s),
      if
      any, in which you pay income taxes.

    
       

      __________________________________________________________________________________

       

      __________________________________________________________________________________

       

      __________________________________________________________________________________

    

     

     

    Dated:___________________,
      2007

     

     

    _____________________________

    Name
      of
      investor

     

     

    __________________________________________

    Signature
      and title of authorized officer, partner or trustee

     

     

    
      
        
        

      

      
        -41-

        
          

        

      

      
        
        

      

    

     

    Exhibit
      E

     

    FORM
      OF LOCK-UP AGREEMENT

     

    

    February
      1, 2007

    

    The
      Purchasers Identified on the
      Signature Pages

    to
      the
      Purchase Agreement (as defined below):

    

    Ladies
      and Gentlemen:

    

    The
      undersigned understands that you propose to enter into a Securities Purchase
      Agreement (the “Purchase Agreement”) with Telkonet, Inc. (the “Company”)
      providing for the offering (the “Offering”) by the Company of shares (the
“Shares”) of common stock, par value $0.001 per share (the “Common Stock”), and
      warrants to acquire additional shares of Common Stock (the “Warrants” and,
      together with the Shares and the shares of Common Stock issuable upon exercise
      of the Warrants, the “Securities”).

    

    To
      induce
      you to enter into the Purchase Agreement, the undersigned agrees that, without
      your prior written consent, the undersigned will not, directly or indirectly,
      (1) offer, pledge, sell, contract to sell, sell any option or contract to
      purchase, purchase any option or contract to sell, grant any option, right
      or
      warrant to purchase, lend, or otherwise transfer or dispose of, directly or
      indirectly, any shares of Common Stock or any securities convertible into or
      exercisable or exchangeable for Common Stock; or (2) enter into any swap or
      other arrangement that transfers to another, in whole or in part, any of the
      economic consequences of ownership of the Common Stock or any securities
      convertible into or exercisable or exchangeable for Common Stock, whether any
      such transaction described in clause (1) or (2) above is to be settled by
      delivery of Common Stock or such other securities, in cash or otherwise, during
      the period specified in the following paragraph (the “Lock-Up Period”).

     

    The
      Lock-Up Period will commence on the date hereof and will continue until, and
      include, the date that is thirty (30) days after the date of effectiveness
      of a
      registration statement filed with the Securities and Exchange Commission
      covering the resale of the Securities (the “Lock-Up Period”). 

     

    Notwithstanding
      the foregoing, the undersigned may transfer any or all of the Common Stock
      or
      other Company securities if the transfer is by gift, will or intestacy;
provided,
      however,
      that it
      shall be a condition to the transfer that the transferee execute an agreement
      stating that the transferee is receiving and holding the securities subject
      to
      the provisions of this Lock-Up Agreement.

     

    In
      addition, the undersigned hereby waives any and all notice requirements and
      rights with respect to registration of securities pursuant to any agreement,
      understanding or otherwise setting forth the terms of any security of the
      Company held by the undersigned, including any registration rights agreement
      to
      which the undersigned and the Company may be party; provided
      that
      such waiver shall apply only to the proposed Offering, and any other action
      taken by the Company in connection with the proposed Offering.

    

    The
      undersigned hereby agrees that, to the extent that the terms of this Lock-Up
      Agreement conflict with or are in any way inconsistent with any registration
      rights agreement to which the undersigned and the Company may be a party, this
      Lock-Up Agreement supersedes such registration rights agreement.

     

    
      
        
        

      

      
        -42-

        
          

        

      

      
        
        

      

    

    The
      undersigned hereby represents and warrants that the undersigned has full power
      and authority to enter into this Lock-Up Agreement. All authority herein
      conferred or agreed to be conferred shall survive the death or incapacity of
      the
      undersigned and any obligations of the undersigned shall be binding upon the
      heirs, personal representatives, successors and assigns of the
      undersigned.

    

    
      	 	
              Signature:
                ________________________________

              

              Print
                Name:
                ______________________________

            
	
               

               

            	 
	
              Number
                of shares owned

              subject
                to warrants, options

              or
                convertible securities:

               

              _______________________

               

              _______________________

               

              _______________________

            	
              Certificate
                numbers:

               

               

               

              _______________________

               

              _______________________

               

              _______________________

            

    

     

    
 

    

    -43-

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