Unassociated Document




 

 

SECURITIES
PURCHASE AGREEMENT

 

LAURUS
MASTER FUND, LTD.

 




 

and

 




 

EARTHFIRST
TECHNOLOGIES, INCORPORATED

 




 




 

Dated:
March 30, 2005

 




 























	
      1.
	
      Agreement
      to Sell and Purchase
	
      1

	
      2.
	
      Fees
      and Warrant
	
      2

	
      3.
	
      Closing,
      Delivery and Payment
	
      2






	 	
      3.1
	
      Closing
	
      2

	 	
      3.2
	
      Delivery
	
      3

	 	
      3.3
	Conversion and Lockup	
      3






	
      4.
	
      Representations
      and Warranties of the Company
	
      3






	 	
      4.1
	
      Organization,
      Good Standing and Qualification
	
      3

	 	
      4.2
	
      Subsidiaries
	
      4

	 	
      4.3
	
      Capitalization;
      Voting Rights
	
      4

	 	
      4.4
	
      Authorization;
      Binding Obligations
	
      5

	 	
      4.5
	
      Liabilities
	
      5

	 	
      4.6
	
      Agreements;
      Action
	
      5

	 	
      4.7
	
      Obligations
      to Related Parties
	
      7

	 	
      4.8
	
      Changes
	
      8

	 	
      4.9
	
      Title
      to Properties and Assets; Liens, Etc
	
      9

	 	
      4.10
	
      Intellectual
      Property
	
      9

	 	
      4.11
	
      Compliance
      with Other Instruments
	
      10

	 	
      4.12
	
      Litigation
	
      10

	 	
      4.13
	
      Tax
      Returns and Payments
	
      10

	 	
      4.14
	
      Employees
	
      11

	 	
      4.15
	
      Registration
      Rights and Voting Rights
	
      11

	 	
      4.16
	
      Compliance
      with Laws; Permits
	
      12

	 	
      4.17
	
      Environmental
      and Safety Laws
	
      12

	 	
      4.18
	
      Valid
      Offering
	
      12

	 	
      4.19
	
      Full
      Disclosure
	
      12

	 	
      4.20
	
      Insurance
	
      13

	 	
      4.21
	
      SEC
      Reports
	
      13

	 	
      4.22
	
      Listing
	
      13

	 	
      4.23
	
      No
      Integrated Offering
	
      13

	 	
      4.24
	
      Stop
      Transfer
	
      14

	 	
      4.25
	
      Dilution
	
      14

	 	
      4.26
	
      Patriot
      Act
	
      14

	 	
      4.27
	
      ERISA
	
      14






	
      5.
	
      Representations
      and Warranties of the Purchaser
	
      15






	 	
      5.1
	
      No
      Shorting
	
      15

	 	
      5.2
	
      Requisite
      Power and Authority
	
      15

	 	
      5.3
	
      Investment
      Representations
	
      15

	 	
      5.4
	
      The
      Purchaser Bears Economic Risk
	
      16

	 	
      5.5
	
      Acquisition
      for Own Account
	
      16

	 	
      5.6
	
      The
      Purchaser Can Protect Its Interest
	
      16

	 	
      5.7
	
      Accredited
      Investor
	
      16

	 	
      5.8
	
      Legends
	
      16




 







ii














	
      6.
	
      Covenants
      of the Company
	
      17






	 	
      6.1
	
      Stop-Orders
	
      17

	 	
      6.2
	
      Listing
	
      17

	 	
      6.3
	
      Market
      Regulations
	
      18

	 	
      6.4
	
      Reporting
      Requirements
	
      18

	 	
      6.5
	
      Use
      of Funds
	
      18

	 	
      6.6
	
      Access
      to Facilities
	
      19

	 	
      6.7
	
      Taxes
	
      20

	 	
      6.8
	
      Insurance
	
      20

	 	
      6.9
	
      Intellectual
      Property
	
      20

	 	
      6.10
	
      Properties
	
      20

	 	
      6.11
	
      Confidentiality
	
      20

	 	
      6.12
	
      Required
      Approvals
	
      20

	 	
      6.13
	
      Reissuance
      of Securities
	
      22

	 	
      6.14
	
      Opinion
	
      22

	 	
      6.15
	
      Margin
      Stock
	
      22

	 	
      6.16
	
      Financing
      Right of First Refusal
	
      22





	
      7.
	
      Covenants
      of the Purchaser
	
      22






	 	
      7.1
	
      Confidentiality
	
      22

	 	
      7.2
	
      Non-Public
      Information
	
      22

	 	
      7.3
	
      Limitation
      on Acquisition of Common Stock of the Company
	
      23






	
      8.
	
      Covenants
      of the Company and the Purchaser Regarding Indemnification
	
      23






	 	
      8.1
	
      Company
      Indemnification
	
      23

	 	
      8.2
	
      Purchaser’s
      Indemnification
	
      23






	
      9.
	
      Conversion
      of Convertible Note
	
      24






	 	
      9.1
	
      Mechanics
      of Conversion
	
      24








	
      10.
	
      Registration
      Rights
	
      25





	 	
      10.1
	
      Registration
      Rights Granted
	
      25

	 	
      10.2
	
      Offering
      Restrictions
	
      25







	
      11.
	
      Miscellaneous
	
      25





	 	
      11.1
	
      Governing
      Law
	
      25

	 	
      11.2
	
      Survival
	
      26

	 	
      11.3
	
      Successors
	
      26

	 	
      11.4
	
      Entire
      Agreement; Maximum Interest
	
      27

	 	
      11.5
	
      Severability
	
      27

	 	
      11.6
	
      Amendment
      and Waiver
	
      27

	 	
      11.7
	
      Delays
      or Omissions
	
      27

	 	
      11.8
	
      Notices
	
      28

	 	
      11.9
	
      Attorneys’
      Fees
	
      29

	 	
      11.10
	
      Titles
      and Subtitles
	
      29

	 	
      11.11
	
      Facsimile
      Signatures; Counterparts
	
      29

	 	
      11.12
	
      Broker’s
      Fees
	
      29

	 	
      11.13
	
      Construction
	
      29










iii





























LIST OF
EXHIBITS




	
      Form
      of Convertible Term Note
	
      Exhibit
      A

	
      Form
      of Warrant
	
      Exhibit
      B

	
      Form
      of Opinion
	
      Exhibit
      C

	
      Form
      of Escrow Agreement
	
      Exhibit
      D













iv












 

SECURITIES
PURCHASE AGREEMENT

 

THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of
March 30, 2005, by and between EARTHFIRST TECHNOLOGIES, INCORPORATED, a Florida
corporation (the “Company”), and LAURUS MASTER FUND, LTD., a Cayman Islands
company (the “Purchaser”).

 

RECITALS

 

WHEREAS,
the Company has authorized the sale to the Purchaser of a Secured Convertible
Term Note in the aggregate principal amount of Three Million Dollars
($3,000,000) in the form of Exhibit A hereto (as amended, modified or
supplemented from time to time, the “Note”), which Note is convertible into
shares of the Company’s common stock, $0.0001 par value per share (the “Common
Stock”) at an initial fixed conversion price of $0.19 per share of Common Stock
(“Fixed Conversion Price”);

 

WHEREAS,
the Company wishes to issue to the Purchaser (x) a warrant in the form of
Exhibit B-1 hereto (as amended, modified or supplemented from time to time, the
“Warrant”) to purchase up to 11,162,790 shares of the Company’s Common Stock
(subject to adjustment as set forth therein) and (y) an option in the form of
Exhibit B-2 hereto (as amended, modified or supplemented from time to time, the
“Option”) to purchase up to 24,570,668 shares of the Company’s Common Stock
(subject to adjustment as set forth therein), in each case, in connection with
the Purchaser’s purchase of the Note;

 

WHEREAS,
the Purchaser desires to purchase the Note, the Option and the Warrant on the
terms and conditions set forth herein; and

 

WHEREAS,
the Company desires to issue and sell the Note, the Option and the Warrant to
the Purchaser on the terms and conditions set forth herein.

 

AGREEMENT

 

NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.  Agreement
to Sell and Purchase.
Pursuant to the terms and conditions set forth in this Agreement, on the Closing
Date (as defined in Section 3), the Company shall sell to the Purchaser, and the
Purchaser shall purchase from the Company, the Note. The sale of the Note on the
Closing Date shall be known as the “Offering.” The Note will mature on the
Maturity Date (as defined in the Note). Collectively, the Note, the Option and
the Warrant and Common Stock issuable upon conversion of the Note and upon
exercise of each of the Option and the Warrant are referred to as the
“Securities.”

 




















2.  Fees,
Option and Warrant. On the
Closing Date:

 

(a)  The
Company will issue and deliver to the Purchaser the Warrant to purchase up to
11,162,790 shares of Common Stock (subject to adjustment as set forth therein)
in connection with the Offering, pursuant to Section 1 hereof. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted in respect of the Warrant and shares of
the Company’s Common Stock issuable upon exercise of the Warrant (the “Warrant
Shares”).

 

(b)  The
Company will issue and deliver to the Purchaser the Option to purchase up to
24,570,668shares of Common Stock (subject to adjustment as set forth therein) in
connection with the Offering, pursuant to Section 1 hereof. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchaser by the
Company are hereby also made and granted in respect of the Option and shares of
the Company’s Common Stock issuable upon exercise of the Option (the “Option
Shares”).

 

(c)  Subject
to the terms of Section 2(d) below, the Company shall pay to Laurus Capital
Management, LLC, the manager of the Purchaser, a closing payment in an amount
equal to three and six tenths percent (3.60%) of the aggregate principal amount
of the Note. The foregoing fee is referred to herein as the “Closing
Payment.”

 

(d)  The
Company shall reimburse the Purchaser for its reasonable expenses (including
legal fees and expenses) incurred in connection with the preparation and
negotiation of this Agreement and the Related Agreements (as hereinafter
defined), and expenses incurred in connection with the Purchaser’s due diligence
review of the Company and its Subsidiaries (as defined in Section 4.2) and all
related matters. Amounts required to be paid under this Section 2(d), together
with amounts required to be paid pursuant to Section 5(b)(iv) of the Security
Agreement (as defined below), will be paid on the Closing Date and shall be
$44,500 (net of deposits previously paid) for such expenses referred to in this
Section 2(d), plus the cost of local Florida counsel for the Purchaser and the
cost of an appraisal of the Company and its Subsidiaries’ assets equal to
$3,600.

 

(e)  The
Closing Payment and the expenses referred to in the preceding clause (c) (net of
deposits previously paid by the Company) shall be paid at closing out of funds
held pursuant to the Escrow Agreement (as defined below) and a disbursement
letter (the “Disbursement Letter”).

 

3.  Closing,
Delivery and Payment.

 

3.1  Closing. Subject
to the terms and conditions herein, the closing of the transactions contemplated
hereby (the “Closing”), shall take place on the date hereof, at such time or
place as the Company and the Purchaser may mutually agree (such date is
hereinafter referred to as the “Closing Date”).

 







2












3.2  Delivery.
Pursuant to the Escrow Agreement, at the Closing on the Closing Date, the
Company will deliver to the Purchaser, among other things, the Note, the Option
and the Warrant and the Purchaser will deliver to the Company, among other
things, the amounts set forth in the Disbursement Letter by certified funds or
wire transfer.

 




3.3 Conversion
and Lockup. Prior
to the Closing Date, the Company shall cause certain managers of the Company
requested by the Purchaser to convert at least $7,000,000 of their respective
outstanding debt obligations into restricted Common Stock of the Company, which
shares of Common Stock shall not have any registration rights..

 

 

4.  Representations
and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser as follows (which
representations and warranties are supplemented by the Company’s filings under
the Securities Exchange Act of 1934 (“Exchange Act”) made prior to the date of
this Agreement (collectively, the “Exchange Act Filings”), copies of which have
been provided to the Purchaser):

 

4.1  Organization,
Good Standing and Qualification. Each of
the Company and each of its Subsidiaries is a corporation, partnership or
limited liability company, as the case may be, duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. Each of
the Company and each of its Subsidiaries has the corporate, limited liability
company or partnership, as the case may be, power and authority to own and
operate its properties and assets and, insofar as it is or shall be a party
thereto, to (1) execute and deliver (i) this Agreement, (ii) the Note, the
Option and the Warrant to be issued in connection with this Agreement, (iii) the
Master Security Agreement dated as of the date hereof between the Company,
certain Subsidiaries of the Company and the Purchaser (as amended, modified or
supplemented from time to time, the “Master Security Agreement”), (iv) the
Registration Rights Agreement relating to the Securities dated as of the date
hereof between the Company and the Purchaser (as amended, modified or
supplemented from time to time, the “Registration Rights Agreement”), (v) the
Guaranty dated as of the date hereof made by certain Subsidiaries of the Company
(as amended, modified or supplemented from time to time, the “Guaranty”), (vi)
the Stock Pledge Agreement dated as of the date hereof among the Company,
certain Subsidiaries of the Company and the Purchaser (as amended, modified or
supplemented from time to time, the “Stock Pledge Agreement”), (vii) the Funds
Escrow Agreement dated as of the date hereof among the Company, the Purchaser
and the escrow agent referred to therein, substantially in the form of Exhibit D
hereto (as amended, modified or supplemented from time to time, the “Escrow
Agreement”), (viii) Mortgage,
Deed, Assignment of Rents and Leases and Security Agreement
(including, without limitation, all documents related thereto, as amended,
modified or supplemented from time to time, the “Mortgage”) and (ix) all other
documents, instruments and agreements entered into in connection with the
transactions contemplated hereby and thereby (the preceding clauses (ii) through
(ix), collectively, the “Related Agreements”); (2) issue and sell the Note and
the shares of Common Stock issuable upon conversion of the Note (the “Note
Shares”); (3) issue and sell the Warrant and the Warrant
Shares; (4)
issue and sell the Option and the Option Shares and (5)
carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. Each of the Company and each of
its Subsidiaries is duly qualified and is authorized to do business and is in
good standing as a foreign corporation, partnership or limited liability
company, as the case may be, in all jurisdictions in which the nature or
location of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and its Subsidiaries, taken individually and as a whole (a “Material
Adverse Effect”).



 







3












4.2  Subsidiaries. Each
direct and indirect Subsidiary of the Company, the direct owner of such
Subsidiary and its percentage ownership thereof, is set forth on Schedule 4.2.
No
Inactive Subsidiary (as defined below) owns any assets (other than immaterial
assets) or has any significant operations. For the purpose of this Agreement,
(x) a “Subsidiary” of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time and (y) the “Inactive
Subsidiaries” shall mean each Subsidiary referred to as such on Schedule
4.2. 

 

4.3  Capitalization;
Voting Rights.

 

(a)  The
authorized capital stock of the Company, as of the date hereof consists of
500,000,000 shares, par value $0.0001 per share, 491,413,360 shares of which are
issued and outstanding. The authorized and outstanding capital stock of each
Subsidiary of the Company is set forth on Schedule 4.3.

 

(b)  Except as
disclosed on Schedule 4.3, other than: (i) the shares reserved for issuance
under the Company’s stock option plans; and (ii) shares which may be granted
pursuant to this Agreement and the Related Agreements, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), proxy or stockholder agreements, or arrangements or
agreements of any kind for the purchase or acquisition from the Company of any
of its securities. Except as disclosed on Schedule 4.3, neither the offer,
issuance or sale of any of the Note, the Option or the Warrant, or the issuance
of any of the Note Shares, the Option Shares or Warrant Shares, nor the
consummation of any transaction contemplated hereby will result in a change in
the price or number of any securities of the Company outstanding, under
anti-dilution or other similar provisions contained in or affecting any such
securities.

 

(c)  All
issued and outstanding shares of the Company’s Common Stock: (i) have been
duly authorized and validly issued and are fully paid and nonassessable; and
(ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.

 







4












(d)  The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Company’s Certificate of Incorporation (the
“Charter”). The Note Shares, the Option Shares and Warrant Shares have been duly
and validly reserved for issuance. When issued in compliance with the provisions
of this Agreement and the Company’s Charter, the Securities will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is
proposed.

 

4.4  Authorization;
Binding Obligations. All
corporate, partnership or limited liability company, as the case may be, action
on the part of the Company and each of its Subsidiaries (including their
respective officers and directors) necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of the
Company and its Subsidiaries hereunder and under the other Related Agreements at
the Closing and, the authorization, sale, issuance and delivery of the Note and
Warrant has been taken or will be taken prior to the Closing. This Agreement and
the Related Agreements, when executed and delivered and to the extent it is a
party thereto, will be valid and binding obligations of each of the Company and
each of its Subsidiaries, enforceable against each such entity in accordance
with their terms, except:

 

(a)  as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and

 

(b)  general
principles of equity that restrict the availability of equitable or legal
remedies.

 

The sale
of the Note and the subsequent conversion of the Note into Note Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with. The issuance of the Warrant and
the subsequent exercise of the Warrant for Warrant Shares and the issuance of
the Option and the subsequent exercise of the Option for the Option Shares are
not and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with. 

 

4.5  Liabilities. Neither
the Company nor any of its Subsidiaries has any liabilities, except current
liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.

 

4.6  Agreements;
Action. Except
as set forth on Schedule 4.6 or as disclosed in any Exchange Act
Filings:

 

(a)  there are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company or any of its
Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company or any
such Subsidiary in excess of $100,000 (other than obligations of, or payments
to, the Company or any such Subsidiary arising from purchase or sale agreements
entered into in the ordinary course of business); or (ii) the transfer or
license of any patent, copyright, trade secret or other proprietary right to or
from the Company or any such Subsidiary (other than licenses arising from the
purchase of “off the shelf” or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company’s or any
such Subsidiary’s products or services; or (iv) indemnification by the Company
or any such Subsidiary with respect to infringements of proprietary
rights.

 







5












(b)  Since
December 31, 2003 (the “Balance Sheet Date”), neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in excess of $100,000 or,
in the case of indebtedness and/or liabilities individually less than $100,000,
in excess of $250,000 in the aggregate; (iii) made any loans or advances to any
person or entity not in excess, individually or in the aggregate, of $250,000,
other than ordinary course advances for travel expenses; or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.

 

(c)  For the
purposes of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
or any applicable Subsidiary of the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.

 

(d)  The
Company maintains disclosure controls and procedures (“Disclosure Controls”)
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the
rules and forms of the Securities and Exchange Commission (“SEC”).

 

(e)  The
Company makes and keep books, records, and accounts, that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the Company’s
assets. The Company maintains internal control over financial reporting
(“Financial Reporting Controls”) designed by, or under the supervision of, the
Company’s principal executive and principal financial officers, and effected by
the Company’s board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles (“GAAP”), including that:

 

(i)  transactions
are executed in accordance with management’s general or specific
authorization;

 







6












(ii)  unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements are prevented or timely
detected;

 

(iii)  transactions
are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that the Company’s receipts and expenditures are being
made only in accordance with authorizations of the Company’s management and
board of directors; 

 

(iv)  transactions
are recorded as necessary to maintain accountability for assets;
and

 

(v)  the
recorded accountability for assets is compared with the existing assets at
reasonable intervals, and appropriate action is taken with respect to any
differences.

 

(f)  To the
Company’s knowledge, there is no weakness in any of the Company’s Disclosure
Controls or Financial Reporting Controls that is required to be disclosed in any
of the Exchange Act Filings, except as so disclosed.

 

4.7  Obligations
to Related Parties. Except
as set forth on Schedule 4.7, there are no obligations of the Company or any of
its Subsidiaries to officers, directors, stockholders or employees of the
Company or any of its Subsidiaries other than:

 

(a)  for
payment of salary for services rendered and for bonus payments;

 

(b)  reimbursement
for reasonable expenses incurred on behalf of the Company and its
Subsidiaries;

 

(c)  for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company and each such Subsidiary of the Company, as
applicable); and

 

(d)  obligations
listed in the Company’s and each of its Subsidiary’s financial statements or
disclosed in any of the Company’s Exchange Act Filings.

 

Except as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company’s knowledge, key employees or stockholders of the
Company or any of its Subsidiaries or any members of their immediate families,
are indebted to the Company or any of its Subsidiaries, individually or in the
aggregate, in excess of $250,000 or have any direct or indirect ownership
interest in any firm or corporation with which the Company or any of its
Subsidiaries is affiliated or with which the Company or any of its Subsidiaries
has a business relationship, or any firm or corporation which competes with the
Company or any of its Subsidiaries, other than passive investments in publicly
traded companies (representing less than one percent (1%) of such company) which
may compete with the Company or any of its Subsidiaries. Except as described
above, no officer, director or stockholder of the Company or any of its
Subsidiaries, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company or any of its
Subsidiaries and no agreements, understandings or proposed transactions are
contemplated between the Company or any of its Subsidiaries and any such person.
Except as set forth on Schedule 4.7, neither the Company nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
person, firm or entity.

 







7












4.8  Changes. Since
the Balance Sheet Date, except as disclosed in any Exchange Act Filing or in any
Schedule to this Agreement or to any of the Related Agreements, there has not
been:

 

(a)  any
change in the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company or any of its Subsidiaries,
which individually or in the aggregate has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect;

 

(b)  any
resignation or termination of any officer, key employee or group of employees of
the Company or any of its Subsidiaries; 

 

(c)  any
material change, except in the ordinary course of business, in the contingent
obligations of the Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;

 

(d)  any
damage, destruction or loss, whether or not covered by insurance, which has had,
or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;

 

(e)  any
waiver by the Company or any of its Subsidiaries of a valuable right or of a
material debt owed to it;

 

(f)  any
direct or indirect loans made by the Company or any of its Subsidiaries to any
stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of
business;

 

(g)  any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of the Company or any of its Subsidiaries;


 

(h)  any
declaration or payment of any dividend or other distribution of the assets of
the Company or any of its Subsidiaries;

 

(i)  any labor
organization activity related to the Company or any of its
Subsidiaries;

 

(j)  any debt,
obligation or liability incurred, assumed or guaranteed by the Company or any of
its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;

 

(k)  any sale,
assignment or transfer of any patents, trademarks, copyrights, trade secrets or
other intangible assets owned by the Company or any of its
Subsidiaries;

 







8












(l)  any
change in any material agreement to which the Company or any of its Subsidiaries
is a party or by which either the Company or any of its Subsidiaries is bound
which either individually or in the aggregate has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect;

 

(m)  any other
event or condition of any character that, either individually or in the
aggregate, has had, or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; or

 

(n)  any
arrangement or commitment by the Company or any of its Subsidiaries to do any of
the acts described in subsection (a) through (m) above.

 

4.9  Title
to Properties and Assets; Liens, Etc. Except
as set forth on Schedule 4.9, each of the Company and each of its
Subsidiaries has good and marketable title to its properties and assets, and
good title to its leasehold interests, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:

 

(a)  those
resulting from taxes which have not yet become delinquent;

 

(b)  minor
liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company or
any of its Subsidiaries, so long as in each such case, such liens and
encumbrances have no effect on the lien priority of the Purchaser in such
property; and

 

(c)  those
that have otherwise arisen in the ordinary course of business, so long as they
have no effect on the lien priority of the Purchaser therein.

 

All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.

 

4.10  Intellectual
Property.

 

(a)  Each of
the Company and each of its Subsidiaries owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and, to the Company’s knowledge, as
presently proposed to be conducted (the “Intellectual Property”), without any
known infringement of the rights of others. There are no outstanding options,
licenses or agreements of any kind relating to the foregoing proprietary rights,
nor is the Company or any of its Subsidiaries bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of “off
the shelf” or standard products.

 







9












(b)  Neither
the Company nor any of its Subsidiaries has received any communications alleging
that the Company or any of its Subsidiaries has violated any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company or any of
its Subsidiaries aware of any basis therefor.

 

(c)  The
Company does not believe it is or will be necessary to utilize any inventions,
trade secrets or proprietary information of any of its employees made prior to
their employment by the Company or any of its Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to the Company or any of its Subsidiaries.

 

4.11  Compliance
with Other Instruments. Neither
the Company nor any of its Subsidiaries is in violation or default of (x) any
term of its Charter or Bylaws, or (y) any provision of any indebtedness,
mortgage, indenture, contract, agreement or instrument to which it is party or
by which it is bound or of any judgment, decree, order or writ, which violation
or default, in the case of this clause (y), has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Note by the Company and the other Securities by the Company each
pursuant hereto and thereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties. 

 

4.12  Litigation. Except
as set forth on Schedule 4.12 hereto, there is no action, suit, proceeding or
investigation pending or, to the Company’s knowledge, currently threatened
against the Company or any of its Subsidiaries that prevents the Company or any
of its Subsidiaries from entering into this Agreement or the other Related
Agreements, or from consummating the transactions contemplated hereby or
thereby, or which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect or any change in the
current equity ownership of the Company or any of its Subsidiaries, nor is the
Company aware that there is any basis to assert any of the foregoing. Neither
the Company nor any of its Subsidiaries is a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company or any of its Subsidiaries currently pending or
which the Company or any of its Subsidiaries intends to initiate.

 

4.13  Tax
Returns and Payments. Each of
the Company and each of its Subsidiaries has timely filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and all other taxes due
and payable by the Company or any of its Subsidiaries on or before the Closing,
have been paid or will be paid prior to the time they become delinquent. Except
as set forth on Schedule 4.13, neither the Company nor any of its
Subsidiaries has been advised:

 







10












(a)  that any
of its returns, federal, state or other, have been or are being audited as of
the date hereof; or

 

(b)  of any
adjustment, deficiency, assessment or court decision in respect of its federal,
state or other taxes.

 

The
Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for. 

 

4.14  Employees. Except
as set forth on Schedule 4.14, neither the Company nor any of its Subsidiaries
has any collective bargaining agreements with any of its employees. There is no
labor union organizing activity pending or, to the Company’s knowledge,
threatened with respect to the Company or any of its Subsidiaries. Except as
disclosed in the Exchange Act Filings or on Schedule 4.14, neither the Company
nor any of its Subsidiaries is a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Company’s knowledge, no employee of the Company or any
of its Subsidiaries, nor any consultant with whom the Company or any of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, the
Company or any of its Subsidiaries because of the nature of the business to be
conducted by the Company or any of its Subsidiaries; and to the Company’s
knowledge the continued employment by the Company and its Subsidiaries of their
present employees, and the performance of the Company’s and its Subsidiaries’
contracts with its independent contractors, will not result in any such
violation. Neither the Company nor any of its Subsidiaries is aware that any of
its employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would interfere with
their duties to the Company or any of its Subsidiaries. Neither the Company nor
any of its Subsidiaries has received any notice alleging that any such violation
has occurred. Except for employees who have a current effective employment
agreement with the Company or any of its Subsidiaries, no employee of the
Company or any of its Subsidiaries has been granted the right to continued
employment by the Company or any of its Subsidiaries or to any material
compensation following termination of employment with the Company or any of its
Subsidiaries. Except as set forth on Schedule 4.14, the Company is not aware
that any officer, key employee or group of employees intends to terminate his,
her or their employment with the Company or any of its Subsidiaries, nor does
the Company or any of its Subsidiaries have a present intention to terminate the
employment of any officer, key employee or group of employees.

 

4.15  Registration
Rights and Voting Rights. Except
as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, neither the Company nor any of its Subsidiaries is presently under any
obligation, and neither the Company nor any of its Subsidiaries has granted any
rights, to register any of the Company’s or its Subsidiaries’ presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, to the Company’s knowledge, no stockholder of the Company or any of its
Subsidiaries has entered into any agreement with respect to the voting of equity
securities of the Company or any of its Subsidiaries.

 







11












4.16  Compliance
with Laws; Permits. Neither
the Company nor any of its Subsidiaries is in violation of any provision of the
Sarbanes-Oxley Act of 2002 or SEC rule or rule of the Principal Market (as
hereafter defined) promulgated thereunder or any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as have been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. Each
of the Company and its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect.

 

4.17  Environmental
and Safety Laws. Neither
the Company nor any of its Subsidiaries is in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
Except as set forth on Schedule 4.17, no Hazardous Materials (as defined below)
are used or have been used, stored, or disposed of by the Company or any of its
Subsidiaries or, to the Company’s knowledge, by any other person or entity on
any property owned, leased or used by the Company or any of its Subsidiaries.
For the purposes of the preceding sentence, “Hazardous Materials” shall
mean:

 

(a)  materials
which are listed or otherwise defined as “hazardous” or “toxic” under any
applicable local, state, federal and/or foreign laws and regulations that govern
the existence and/or remedy of contamination on property, the protection of the
environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials;
or

 

(b)  any
petroleum products or nuclear materials.

 

4.18  Valid
Offering.
Assuming the accuracy of the representations and warranties of the Purchaser
contained in this Agreement, the offer, sale and issuance of the Securities will
be exempt from the registration requirements of the Securities Act of 1933, as
amended (the “Securities Act”), and will have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities
laws. 

 

4.19  Full
Disclosure. Each of
the Company and each of its Subsidiaries has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Note, the Option and the Warrant, including all information the
Company and its Subsidiaries believe is reasonably necessary to make such
investment decision. Neither this Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto nor any other document delivered by
the Company or any of its Subsidiaries to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
Any financial projections and other estimates provided to the Purchaser by the
Company or any of its Subsidiaries were based on the Company’s and its
Subsidiaries’ experience in the industry and on assumptions of fact and opinion
as to future events which the Company or any of its Subsidiaries, at the date of
the issuance of such projections or estimates, believed to be
reasonable. 

 







12












4.20  Insurance. Each of
the Company and each of its Subsidiaries has general commercial, product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for companies similarly situated to the Company and its
Subsidiaries in the same or similar business.

 

4.21  SEC
Reports. Except
as set forth on Schedule 4.21, the Company has filed all proxy statements,
reports and other documents required to be filed by it under the Securities
Exchange Act 1934, as amended (the “Exchange Act”). The Company has furnished
the Purchaser copies of: (i) its Annual Reports on Form 10-KSB for its fiscal
year ended December 31, 2003; and (ii) its Quarterly Reports on Form 10-QSB for
its fiscal quarter ended March 31, 2004, June 30, 2004 and September 30, 2004,
and the Form 8-K filings which it has made during the fiscal years 2004 and 2005
to date (collectively, the “SEC Reports”). Except as set forth on Schedule 4.21,
each SEC Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.

 

4.22  Listing. The
Company’s Common Stock is listed for trading on a Principal Marked (as hereafter
defined) and satisfies and at all times hereafter will satisfy all requirements
for the continuation of such listing. The Company has not received any notice
that its Common Stock will be delisted from the Principal Market or that its
Common Stock does not meet all requirements for listing. For
purposes hereof, the term “Principal Market” means the NASD OTC Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Marketing System, American Stock
Exchange or New York Stock Exchange (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock).

 

4.23  No
Integrated Offering. Neither
the Company, nor any of its Subsidiaries or affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security (other
than a concurrent offering to the Purchaser under a Security Agreement among the
Company, certain Subsidiaries of the Company and the Purchaser dated as of the
date hereof (as amended, modified or supplemented from time to time, the
“Security Agreement”)) under
circumstances that would cause the offering of the Securities pursuant to this
Agreement or any of the Related Agreements to be integrated with prior offerings
by the Company for purposes of the Securities Act which would prevent the
Company from selling the Securities pursuant to Rule 506 under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or Subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.

 







13












4.24  Stop
Transfer. The
Securities are restricted securities as of the date of this Agreement. Neither
the Company nor any of its Subsidiaries will issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.

 

4.25  Dilution. The
Company specifically acknowledges that its obligation to issue the shares of
Common Stock upon conversion of the Note and exercise of the Warrant and the
Option is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of the
Company. 

 

4.26  Patriot
Act.The
Company certifies that, to the best of Company’s knowledge, neither the Company
nor any of its Subsidiaries has been designated, nor is or shall be owned or
controlled, by a “suspected terrorist” as defined in Executive Order 13224. The
Company hereby acknowledges that the Purchaser seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Company hereby represents, warrants and
covenants that: (i) none of the cash or property that the Company or any of its
Subsidiaries will pay or will contribute to the Purchaser has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Company or any of its
Subsidiaries to the Purchaser, to the extent that they are within the Company’s
and/or its Subsidiaries’ control shall cause the Purchaser to be in violation of
the United States Bank Secrecy Act, the United States International Money
Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company shall
promptly notify the Purchaser if any of these representations, warranties or
covenants ceases to be true and accurate regarding the Company or any of its
Subsidiaries. The Company shall provide the Purchaser any and all additional
information regarding the Company or any of its Subsidiaries that the Purchaser
deems necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations, warranties or covenants are incorrect, or if otherwise required
by applicable law or regulation related to money laundering or similar
activities, the Purchaser may undertake appropriate actions to ensure compliance
with applicable law or regulation, including but not limited to segregation
and/or redemption of the Purchaser’s investment in the Company. The Company
further understands that the Purchaser may release confidential information
about the Company and its Subsidiaries and, if applicable, any underlying
beneficial owners, to proper authorities if the Purchaser, in its sole
discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.

 

4.27  ERISA. Based
upon the Employee Retirement Income Security Act of 1974 (“ERISA”), and
the regulations and published interpretations thereunder: (i) neither the
Company nor any of its Subsidiaries has engaged in any Prohibited Transactions
(as defined in Section 406 of ERISA and Section 4975 of the Internal
Revenue Code of 1986, as amended (the “Code”)); (ii)
each of the Company and each of its Subsidiaries has met all applicable minimum
funding requirements under Section 302 of ERISA in respect of its plans; (iii)
neither the Company nor any of its Subsidiaries has any knowledge of any event
or occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) neither the Company nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than the Company’s or such Subsidiary’s employees; and (v)
neither the Company nor any of its Subsidiaries has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980.

 







14












5.  Representations
and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):

 

5.1  No
Shorting. The
Purchaser or any of its affiliates and investment partners has not, will not and
will not cause any person or entity, to directly engage in “short sales” of the
Company’s Common Stock as long as the Note shall be outstanding.

 

5.2  Requisite
Power and Authority. The
Purchaser has all necessary power and authority under all applicable provisions
of law to execute and deliver this Agreement and the Related Agreements and to
carry out their provisions. All corporate action on the Purchaser’s part
required for the lawful execution and delivery of this Agreement and the Related
Agreements have been or will be effectively taken prior to the Closing. Upon
their execution and delivery, this Agreement and the Related Agreements will be
valid and binding obligations of the Purchaser, enforceable in accordance with
their terms, except:

 

(a)  as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’
rights;

 

(b)  as
limited by general principles of equity that restrict the availability of
equitable and legal remedies; and

 

(c)  as
limited by Regulation FD, under the federal securities laws.

 

5.3  Investment
Representations. The
Purchaser understands that the Securities are being offered and sold pursuant to
an exemption from registration contained in the Securities Act based in part
upon the Purchaser’s representations contained in this Agreement, including,
without limitation, that the Purchaser is an “accredited investor” within the
meaning of Regulation D under the Securities Act of 1933, as amended (the
“Securities Act”). The Purchaser confirms that it has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Note, the Option and the
Warrant to be purchased by it under this Agreement and the Note Shares, the
Option Shares and the Warrant Shares acquired by it upon the conversion of the
Note and the exercise of the Option and the Warrant, respectively. The Purchaser
further confirms that it has had an opportunity to ask questions and receive
answers from the Company regarding the Company’s and its Subsidiaries’ business,
management and financial affairs and the terms and conditions of the Offering,
the Note, the Option, the Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had
access.

 







15












5.4  The
Purchaser Bears Economic Risk. The
Purchaser has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company so that
it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. The Purchaser must
bear the economic risk of this investment until the Securities are sold pursuant
to: (i) an effective registration statement under the Securities Act; or (ii) an
exemption from registration is available with respect to such sale.

 

5.5  Acquisition
for Own Account. The
Purchaser is acquiring the Note, the Option and the Warrant and the Note Shares,
the Option Shares and the Warrant Shares for the Purchaser’s own account for
investment only, and not as a nominee or agent and not with a view towards or
for resale in connection with their distribution.

 

5.6  The
Purchaser Can Protect Its Interest. The
Purchaser represents that by reason of its, or of its management’s, business and
financial experience, the Purchaser has the capacity to evaluate the merits and
risks of its investment in the Note, the Warrant, the Option and the Securities
and to protect its own interests in connection with the transactions
contemplated in this Agreement and the Related Agreements. Further, the
Purchaser is aware of no publication of any advertisement in connection with the
transactions contemplated in the Agreement or the Related
Agreements.

 

5.7  Accredited
Investor. The
Purchaser represents that it is an accredited investor within the meaning of
Regulation D under the Securities Act.

 

5.8  Legends.

 

(a)  The Note
shall bear substantially the following legend: 

 

“THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO EARTHFIRST TECHNOLOGIES, INCORPORATED THAT SUCH REGISTRATION IS
NOT REQUIRED.”

 







16












(b)  The Note
Shares, the Warrant Shares and the Option Shares, if not issued by DWAC system
(as hereinafter defined), shall bear a legend which shall be in substantially
the following form until such shares are covered by an effective registration
statement filed with the SEC:

 

“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
EARTHFIRST TECHNOLOGIES, INCORPORATED THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

(c)  The
Warrant shall bear substantially the following legend:

 

“THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EARTHFIRST
TECHNOLOGIES, INCORPORATED THAT SUCH REGISTRATION IS NOT REQUIRED.”


 

6.  Covenants
of the Company. The
Company covenants and agrees with the Purchaser as follows:

 

6.1  Stop-Orders. The
Company will advise the Purchaser, promptly after it receives notice of issuance
by the SEC, any state securities commission or any other regulatory authority of
any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.

 

6.2  Listing. The
Company shall promptly secure the listing of the shares of Common Stock issuable
upon conversion of the Note and upon the exercise of the Warrant and the Option
on the Principal Market upon which shares of Common Stock are listed (subject to
official notice of issuance) and shall maintain such listing so long as any
other shares of Common Stock shall be so listed. The Company will maintain the
listing of its Common Stock on the Principal Market, and will comply in all
material respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers
(“NASD”) and such exchanges, as applicable. 

 







17












6.3  Market
Regulations. The
Company shall notify the SEC, NASD and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Securities to the Purchaser and promptly provide copies
thereof to the Purchaser.

 

6.4  Reporting
Requirements. The
Company shall timely file with the SEC all reports required to be filed pursuant
to the Exchange Act and refrain from terminating its status as an issuer
required by the Exchange Act to file reports thereunder even if the Exchange Act
or the rules or regulations thereunder would permit such
termination. 

 

6.5  Use of
Funds. The
Company shall (x) use the proceeds of the sale of the Note to repay all of its
and its Subsidiaries outstanding indebtedness owed to SunTrust Bank and (y) the
remainder of the proceeds of the sale of the Note, and the proceeds of the sale
of the Option and the Warrant for general working capital purposes.

 

6.6  Access
to Facilities. Each of
the Company and each of its Subsidiaries will permit any representatives
designated by the Purchaser (or any successor of the Purchaser), upon reasonable
notice and during normal business hours, at such person’s expense and
accompanied by a representative of the Company or any Subsidiary (provided that
no such prior notice shall be required to be given and no such representative of
the Company or any Subsidiary shall be required to accompany the Purchaser in
the event the Purchaser believes such access is necessary to preserve or protect
the Collateral (as defined in the Master Security Agreement) or following the
occurrence and during the continuance of an Event of Default (as defined in the
Note)), to:

 

(a)  visit and
inspect any of the properties of the Company or any of its
Subsidiaries;

 

(b)  examine
the corporate and financial records of the Company or any of its Subsidiaries
(unless such examination is not permitted by federal, state or local law or by
contract) and make copies thereof or extracts therefrom; and

 

(c)  discuss
the affairs, finances and accounts of the Company or any of its Subsidiaries
with the directors, officers and independent accountants of the Company or any
of its Subsidiaries.

 

Notwithstanding
the foregoing, neither the Company nor any of its Subsidiaries will provide any
material, non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.

 

6.7  Taxes. Each of
the Company and each of its Subsidiaries will promptly pay and discharge, or
cause to be paid and discharged, when due and payable, all taxes, assessments
and governmental charges or levies imposed upon the income, profits, property or
business of the Company and its Subsidiaries; provided, however, that any such
tax, assessment, charge or levy need not be paid currently if the validity
thereof shall currently and diligently be contested in good faith by appropriate
proceedings, such tax, assessment, charge or levy shall have no effect on the
lien priority of the Purchaser in any property of the Company or any of its
Subsidiaries and if the Company and/or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto in accordance with GAAP, and
provided, further, that the Company and its Subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.

 







18












6.8  Insurance. Each of
the Company and its Subsidiaries will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company and its
Subsidiaries; and the Company and its Subsidiaries will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
which the Company reasonably believes is customary for companies in similar
business similarly situated as the Company and its Subsidiaries and to the
extent available on commercially reasonable terms. The Company, and each of its
Subsidiaries, will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for their respective obligations hereunder and under the
Related Agreements. At the Company’s and each of its Subsidiaries’ joint and
several cost and expense in amounts and with carriers reasonably acceptable to
the Purchaser, each of the Company and each of its Subsidiaries shall (i) keep
all its insurable properties and properties in which it has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to the
Company’s or the respective Subsidiary’s including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to the Company’s or the respective
Subsidiary’s insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company or any of its Subsidiaries either directly or through governmental
authority to draw upon such funds or to direct generally the disposition of such
assets; (iii) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain all
such worker’s compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which the Company or the respective
Subsidiary is engaged in business; and (v) furnish the Purchaser with (x) copies
of all policies and evidence of the maintenance of such policies at least thirty
(30) days before any expiration date, (y) excepting the Company’s workers’
compensation policy, endorsements to such policies naming the Purchaser as
“co-insured” or “additional insured” and appropriate loss payable endorsements
in form and substance satisfactory to the Purchaser, naming the Purchaser as
loss payee, and (z) evidence that as to the Purchaser the insurance coverage
shall not be impaired or invalidated by any act or neglect of the Company or any
Subsidiary and the insurer will provide the Purchaser with at least thirty (30)
days notice prior to cancellation. The Company and each Subsidiary shall
instruct the insurance carriers that in the event of any loss thereunder, the
carriers shall make payment for such loss to the Company and/or the Subsidiary
and the Purchaser jointly. In the event that as of the date of receipt of each
loss recovery upon any such insurance, the Purchaser has not declared an event
of default with respect to this Agreement or any of the Related Agreements, then
the Company and/or such Subsidiary shall be permitted to direct the application
of such loss recovery proceeds toward investment in property, plant and
equipment that would comprise “Collateral” secured by the Purchaser’s security
interest pursuant to the Master Security Agreement or such other security
agreement as shall be required by the Purchaser, with any surplus funds to be
applied toward payment of the obligations of the Company to the Purchaser. In
the event that the Purchaser has properly declared an event of default with
respect to this Agreement or any of the Related Agreements, then all loss
recoveries received by the Purchaser upon any such insurance thereafter may be
applied to the obligations of the Company hereunder and under the Related
Agreements, in such order as the Purchaser may determine. Any surplus (following
satisfaction of all Company obligations to the Purchaser) shall be paid by the
Purchaser to the Company or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by the Company or the Subsidiary, as
applicable, to the Purchaser, on demand. 

 







19












6.9  Intellectual
Property. Each of
the Company and each of its Subsidiaries shall maintain in full force and effect
its existence, rights and franchises and all licenses and other rights to use
Intellectual Property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.

 

6.10  Properties. Each of
the Company and each of its Subsidiaries will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and each of the Company and each of its
Subsidiaries will at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could, either individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

6.11  Confidentiality. The
Company will not, and will not permit any of its Subsidiaries to, disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose the
Purchaser’s identity and the terms of this Agreement to its current and
prospective debt and equity financing sources.

 

6.12  Required
Approvals. For so
long as twenty five percent (25%) of the principal amount of the Note is
outstanding, the Company, without the prior written consent of the Purchaser,
shall not, and shall not permit any of its Subsidiaries to:

 

(a)  (i)
directly or indirectly declare or pay any dividends, other than dividends paid
to the parent of the Company or the parent of any Subsidiary of the Company,
(ii) issue any preferred stock that is manditorily redeemable prior to the
date which is one year anniversary of Maturity Date or (iii) redeem any of its
preferred stock or other equity interests;

 







20












(b)  liquidate,
dissolve or effect a material reorganization (it being understood that in no
event shall the Company or any of its Subsidiaries dissolve, liquidate or merge
with any other person or entity (unless the Company or such Subsidiary, as
applicable, is the surviving entity);

 

(c)  become
subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the Company’s or any of its Subsidiaries right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby; 

 

(d)  materially
alter or change the scope of the business of the Company and its Subsidiaries
taken as a whole; 

 

(e)  (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of trade
debt and debt incurred to finance the purchase of equipment (not in excess of
five percent (5%) of the fair market value of the Company’s and its
Subsidiaries’ assets)) whether secured or unsecured other than (x) the Company’s
indebtedness to the Purchaser, (y) indebtedness set forth on Schedule 6.12(e)
attached hereto and made a part hereof and any refinancings or replacements
thereof on terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced, and (z) any debt incurred in connection with the
purchase of assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced, so long as any lien relating thereto
shall only encumber the fixed assets so purchased and no other assets of the
Company or any of its Subsidiaries; (ii) cancel any debt owing to it in excess
of $50,000 in the aggregate during any 12 month period; (iii) assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other person or entity, except the endorsement of
negotiable instruments by the Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (e); 

 

(f)  create or
acquire any Subsidiary after the date hereof unless such Subsidiary becomes a
party to the Master Security Agreement, the Stock Pledge Agreement and the
Guaranty (either by executing a counterpart thereof or an assumption or joinder
agreement in respect thereof) and, to the extent required by the Purchaser,
satisfies each condition of this Agreement and the Related Agreements as if such
Subsidiary were a Subsidiary on the Closing Date; and

 

(g)  (i) make,
or permit any of its Subsidiaries which are not Inactive Subsidiaries to make,
any investments in, or any loans or advances to, any Subsidiary of the Company
which is an Inactive Subsidiary, other than, so long as no Event of Default (as
defined in the Note) has occurred and is continuing, immaterial investments,
loans and/or advances made in the ordinary course of business or (ii) transfer,
or permit any Subsidiary of the Company which is not an Inactive Subsidiary to
transfer, assets to any Subsidiary of the Company which is an Inactive
Subsidiary, other than, so long as no Event of Default has occurred and is
continuing, immaterial asset transfers made in the ordinary course of
business.

 







21












6.13  Reissuance
of Securities. The
Company agrees to reissue certificates representing the Securities without the
legends set forth in Section 5.8 above at such time as:

 

(a)  the
holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or

 

(b)  upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act.

 

The
Company agrees to cooperate with the Purchaser in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Company and its counsel receive reasonably
requested representations from the Purchaser and broker, if any.

 

6.14  Opinion. On the
Closing Date, the Company will deliver to the Purchaser an opinion acceptable to
the Purchaser from the Company’s external legal counsel. The Company will use
reasonable commercial efforts to provide, at the Company’s expense, such other
legal opinions in the future as are deemed reasonably necessary by the Purchaser
(and acceptable to the Purchaser) in connection with the conversion of the Note
and exercise of the Warrant and the Option.

 

6.15  Margin
Stock.The
Company will not permit any of the proceeds of the Note, the Option or the
Warrant to be used directly or indirectly to “purchase” or “carry” “margin
stock” or to repay indebtedness incurred to “purchase” or “carry” “margin stock”
within the respective meanings of each of the quoted terms under Regulation U of
the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.

 

6.16 Authorization
and Reservation of Shares. On and
after the sixtieth (60th) day
following the Closing Date, Company shall at all times have authorized and
reserved a sufficient number of shares of Common Stock to provide for the
conversion of the Note and exercise of the Warrants.

 

7.  Covenants
of the Purchaser. The
Purchaser covenants and agrees with the Company as follows:

 

7.1  Confidentiality. The
Purchaser will not disclose, and will not include in any public announcement,
the name of the Company, unless expressly agreed to by the Company or unless and
until such disclosure is required by law or applicable regulation, and then only
to the extent of such requirement.

 

7.2  Non-Public
Information. The
Purchaser will not effect any sales or any derivative transaction in the shares
of the Company’s Common Stock while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.

 







22












7.3  Limitation
on Acquisition of Common Stock of the Company.
Notwithstanding anything to the contrary contained herein, in any Related
Agreement or any document, instrument or agreement entered into in connection
with any other transactions between the Purchaser and the Company, the Purchaser
may not acquire stock in the Company (including, without limitation, pursuant to
a contract to purchase, by exercising an option or warrant, by converting any
other security or instrument, by acquiring or exercising any other right to
acquire, shares of stock or other security convertible into shares of stock in
the Company, or otherwise, and such contracts, options, warrants, conversion or
other rights shall not be enforceable or exercisable) to the extent such stock
acquisition would cause any interest (including any original issue discount)
payable by the Company to Laurus not to qualify as “portfolio interest” within
the meaning of Section 881(c)(2) of the Code, by reason of
Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code (the “Stock Acquisition
Limitation”). The Stock Acquisition Limitation shall automatically become null
and void without any notice to the Company upon the earlier to occur of either
(a) the Company’s delivery to Laurus of a Notice of Redemption (as defined in
the Note) or (b) the existence of an Event of Default (as defined in the Note)
at a time when the average closing price of the Company’s common stock as
reported by Bloomberg, L.P. on the Principal Market for the immediately
preceding five trading days is greater than or equal to 150% of the Fixed
Conversion Price (as defined in the Note).

 

8.  Covenants
of the Company and the Purchaser Regarding Indemnification.

 

8.1  Company
Indemnification. The
Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser,
each of the Purchaser’s officers, directors, agents, affiliates, control
persons, and principal shareholders, against any and all claims, costs,
expenses, liabilities, obligations, losses or damages (including reasonable
legal fees) of any nature, incurred by or imposed upon the Purchaser which
result, arise out of or are based upon: (i) any misrepresentation by the Company
or any of its Subsidiaries or breach of any warranty by the Company or any of
its Subsidiaries in this Agreement, any other Related Agreement or in any
exhibits or schedules attached hereto or thereto; or (ii) any breach or default
in performance by Company or any of its Subsidiaries of any covenant or
undertaking to be performed by Company or any of its Subsidiaries hereunder,
under any other Related Agreement or any other agreement entered into by the
Company and/or any of its Subsidiaries and the Purchaser relating hereto or
thereto.

 

8.2  Purchaser’s
Indemnification. the
Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, affiliates, control
persons and principal shareholders, at all times against any claims, costs,
expenses, liabilities, obligations, losses or damages (including reasonable
legal fees) of any nature, incurred by or imposed upon the Company which result,
arise out of or are based upon: (i) any misrepresentation by the Purchaser or
breach of any warranty by the Purchaser in this Agreement or in any exhibits or
schedules attached hereto or any Related Agreement; or (ii) any breach or
default in performance by the Purchaser of any covenant or undertaking to be
performed by the Purchaser hereunder, or any other agreement entered into by the
Company and the Purchaser relating hereto.

 







23












9.  Conversion
of Convertible Note.

 

9.1  Mechanics
of Conversion.

 

(a)  Provided
the Purchaser has notified the Company of the Purchaser’s intention to sell the
Note Shares and the Note Shares are included in an effective registration
statement or are otherwise exempt from registration when sold: (i) upon the
conversion of the Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action (including the issuance of an opinion of
counsel reasonably acceptable to the Purchaser following a request by the
Purchaser) to assure that the Company’s transfer agent shall issue shares of the
Company’s Common Stock in the name of the Purchaser (or its nominee) or such
other persons as designated by the Purchaser in accordance with Section 9.1(b)
hereof and in such denominations to be specified representing the number of Note
Shares issuable upon such conversion; and (ii) the Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company’s Common Stock and that after the Effectiveness
Date (as defined in the Registration Rights Agreement) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note
Shares.

 

(b)  The
Purchaser will give notice of its decision to exercise its right to convert the
Note or part thereof by telecopying or otherwise delivering an executed and
completed notice of the number of shares to be converted to the Company (the
“Notice of Conversion”). The Purchaser will not be required to surrender the
Note until the Purchaser receives a credit to the account of the Purchaser’s
prime broker through the DWAC system (as defined below), representing the Note
Shares or until the Note has been fully satisfied. Each date on which a Notice
of Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a “Conversion Date.” Pursuant to the terms of
the Notice of Conversion, the Company will issue instructions to the transfer
agent accompanied by an opinion of counsel within one (1) business day of the
date of the delivery to the Company of the Notice of Conversion and shall cause
the transfer agent to transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the Purchaser’s prime broker
with the Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent
Commission (“DWAC”) system within three (3) business days after receipt by the
Company of the Notice of Conversion (the “Delivery Date”).

 

(c)  The
Company understands that a delay in the delivery of the Note Shares in the form
required pursuant to Section 9 hereof beyond the Delivery Date could result in
economic loss to the Purchaser. In the event that the Company fails to direct
its transfer agent to deliver the Note Shares to the Purchaser via the DWAC
system within the time frame set forth in Section 9.1(b) above and the Note
Shares are not delivered to the Purchaser by the Delivery Date, as compensation
to the Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Note Shares in the form required pursuant to
Section 9 hereof upon conversion of the Note in the amount equal to the greater
of: (i) $100 per business day after the Delivery Date; or (ii) the Purchaser’s
actual damages from such delayed delivery. Notwithstanding the foregoing, the
Company will not owe the Purchaser any late payments if the delay in the
delivery of the Note Shares beyond the Delivery Date is solely out of the
control of the Company and the Company is actively trying to cure the cause of
the delay. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand and, in the case of actual damages,
accompanied by reasonable documentation of the amount of such damages. Such
documentation shall show the number of shares of Common Stock the Purchaser is
forced to purchase (in an open market transaction) which the Purchaser
anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser’s total purchase price (including customary
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note, for
which such Conversion Notice was not timely honored.

 







24









10.  Registration
Rights.


 

10.1  Registration
Rights Granted. The
Company hereby grants registration rights to the Purchaser pursuant to the
Registration Rights Agreement. 

 

10.2  Offering
Restrictions. Except
as previously disclosed in the SEC Reports or in the Exchange Act Filings, or
stock or stock options granted to employees or directors of the Company (these
exceptions hereinafter referred to as the “Excepted Issuances”), neither the
Company nor any of its Subsidiaries will, prior to the full repayment or
conversion of the Note (together with all accrued and unpaid interest and fees
related thereto), (x) enter into any equity line of credit agreement or similar
agreement or (y) issue, or enter into any agreement to issue, any securities
with a variable/floating conversion and/or pricing feature which are or could be
(by conversion or registration) free-trading securities (i.e. common stock
subject to a registration statement).

 

11.  Miscellaneous.

 

11.1  Governing
Law, Jurisdiction and Waiver of Jury Trial.

 

(a)  THIS
AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.

 

(b)  THE
COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND,
AND THE PURCHASER, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT
THE PURCHASER AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF
NEW YORK; AND FURTHER PROVIDED, THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE PURCHASER
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL (AS DEFINED IN THE MASTER
SECURITY AGREEMENT) OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE
MASTER SECURITY AGREEMENT), OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE PURCHASER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE
COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS. THE
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION 11.9 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.

 







25












(c)  THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR
THERETO.

 

11.2  Severability.
Wherever possible each provision of this Agreement and the Related Agreements
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or any Related Agreement
shall be prohibited by or invalid under applicable law such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
thereof.

 

11.3  Survival. The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or
instrument.

 







26












11.4  Successors. Except
as otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each entity which shall be a holder of the Securities from time
to time, other than the holders of Common Stock which has been sold by the
Purchaser pursuant to Rule 144 or an effective registration statement. The
Purchaser may not assign its rights hereunder to a competitor of the
Company.

 

11.5  Entire
Agreement; Maximum Interest. This
Agreement, the Related Agreements, the exhibits and schedules hereto and thereto
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Nothing contained herein or in any document referred
to herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Purchaser and thus refunded
to the Company.

 

11.6  Amendment
and Waiver.

 

(a)  This
Agreement may be amended or modified only upon the written consent of the
Company and the Purchaser.

 

(b)  The
obligations of the Company and the rights of the Purchaser under this Agreement
may be waived only with the written consent of the Purchaser. 

 

(c)  The
obligations of the Purchaser and the rights of the Company under this Agreement
may be waived only with the written consent of the Company.

 

11.7  Delays
or Omissions. It is
agreed that no delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach, default or noncompliance by another party under
this Agreement or the Related Agreements, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. All remedies, either under this
Agreement or the Related Agreements, by law or otherwise afforded to any party,
shall be cumulative and not alternative.

 







27












11.8  Notices. All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given:

 

(a)  upon
personal delivery to the party to be notified;

 

(b)  when sent
by confirmed facsimile if sent during normal business hours of the recipient, if
not, then on the next business day;

 

(c)  three (3)
business days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or

 

(d)  one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt.

 

All
communications shall be sent as follows:

 


	
      If
      to the Company, to:

       
	
      EarthFirst
      Technologies, Incorporated

      2515
      E. Hanna Ave.

      Tampa,
      Florida 33610

      Attention: Chief
      Financial Officer

      Facsimile: (813)
      238-8490









	 	
       

      with
      a copy to:

       

	 	
      Darrin
      M. Ocasio, Esq.

      Sichenzia
      Ross Friedman Ference LLP

      1065
      Avenue of the Americas

      New
      York, NY 10018

      Facsimile: 212-930-9725

       

	
      If
      to the Purchaser, to:
	
      Laurus
      Master Fund, Ltd.

      c/o
      M&C Corporate Services Limited

      P.O.
      Box 309 GT

      Ugland
      House 

      George
      Town

      South
      Church Street

      Grand
      Cayman, Cayman Islands

      Facsimile: 345-949-8080




 







28













	 	
      with
      a copy to:

       

	 	
      John
      E. Tucker, Esq.

      825
      Third Avenue 14th Floor

      New
      York, NY 10022

      Facsimile: 212-541-4434





 

or at
such other address as the Company or the Purchaser may designate by written
notice to the other parties hereto given in accordance herewith.

 

11.9  Attorneys’
Fees. In the
event that any suit or action is instituted to enforce any provision in this
Agreement or any Related Agreement, the prevailing party in such dispute shall
be entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement and/or such Related Agreement, including, without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.

 

11.10  Titles
and Subtitles. The
titles of the sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this
Agreement.

 

11.11  Facsimile
Signatures; Counterparts. This
Agreement may be executed by facsimile signatures and in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one agreement.

 

11.12  Broker’s
Fees. Except
as set forth on Schedule 11.12 hereof, each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker’s
or finder’s fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 11.123 being
untrue.

 

11.13  Construction. Each
party acknowledges that its legal counsel participated in the preparation of
this Agreement and the Related Agreements and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Agreement or any
Related Agreement to favor any party against the other.

 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

 







29












IN
WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.

 


	
      COMPANY:
	
      PURCHASER:

	
       

      EARTHFIRST
      TECHNOLOGIES, INCORPORATED
	
       

      LAURUS
      MASTER FUND, LTD.

	
       

      By:
      /s/
      John
      Stanton                               
      
	
       

      By:
      /s/
      Eugene
      Grin                        
                             
      

	
       

      Name:
      John
      Stanton                               
      
	
       

      Name:
      Eugene
      Grin                                               
      

	
       

      Title:
      President                                         
	
       

      Title:
      Director                                    
      




 

 







30












 



 

EXHIBIT
A

 

FORM
OF CONVERTIBLE NOTE

 




 


 







A-1













 



 
EXHIBIT
B-1


 

FORM
OF WARRANT

 

 

 

 







B-1












 

 

 

 

EXHIBIT
B-2

 

FORM
OF OPTION


 

 

 







2













 

EXHIBIT
C

 

FORM
OF OPINION1 

 

1.  Each of
the Company and each of its Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
formation and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted. 

 

2.  Each of
the Company and each of its Subsidiaries has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Agreement
and the Related Agreements. All corporate action on the part of the Company and
each of its Subsidiaries and its officers, directors and stockholders necessary
has been taken for: (i) the authorization of the Agreement and the Related
Agreements and the performance of all obligations of the Company and each of its
Subsidiaries thereunder; and (ii) the authorization, sale, issuance and delivery
of the Securities pursuant to the Agreement and the Related Agreements. The Note
Shares, the Option Shares and the Warrant Shares, when issued pursuant to and in
accordance with the terms of the Agreement and the Related Agreements and upon
delivery shall be validly issued and outstanding, fully paid and non assessable.


 

3.  The
execution, delivery and performance by each of the Company and each of its
Subsidiaries of the Agreement and the Related Agreements (to which it is a
party) and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time
or both:

 

(a)  Violate
the provisions of their respective Charter or bylaws; or

 

(b)  Violate
any judgment, decree, order or award of any court binding upon the Company or
any of its Subsidiaries; or

 

(c)  Violate
any [insert jurisdictions in which counsel is qualified] or federal
law

 

4.  The
Agreement and the Related Agreements will constitute, valid and legally binding
obligations of each of the Company and each of its Subsidiaries (to the extent
such entity is a party thereto), and are enforceable against each of the Company
and each of its Subsidiaries party thereto in accordance with their respective
terms, except:

 

(a)  as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and

 

_______________________



1 Similar
opinions will need to be provided in respect of the Security Agreement and the
Ancillary Agreements referred to therein.


 







C-1













(b)  general
principles of equity that restrict the availability of equitable or legal
remedies.

 

5.  To such
counsel’s knowledge, the sale of the Note and the subsequent conversion of the
Note into Note Shares are not subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. To such
counsel’s knowledge, the sale of the Warrant and the subsequent exercise of the
Warrant for Warrant Shares are not subject to any preemptive rights or, to such
counsel’s knowledge, rights of first refusal that have not been properly waived
or complied with. To such counsel’s knowledge, the sale of the Option and the
subsequent exercise of the Option for Option Shares are not subject to any
preemptive rights or, to such counsel’s knowledge, rights of first refusal that
have not been properly waived or complied with.

 

6.  Assuming
the accuracy of the representations and warranties of the Purchaser contained in
the Agreement, the offer, sale and issuance of the Securities on the Closing
Date will be exempt from the registration requirements of the Securities Act. To
such counsel’s knowledge, neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy and security
under circumstances that would cause the offering of the Securities pursuant to
the Agreement or any Related Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions. 

 

7.  There is
no action, suit, proceeding or investigation pending or, to such counsel’s
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the right of the Company or any of its Subsidiaries to enter into
this Agreement or any Related Agreement, or to consummate the transactions
contemplated thereby. To such counsel’s knowledge, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality; nor is there any action,
suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.

 

8.  The terms
and provisions of the Master Security Agreement and the Stock Pledge Agreement
create a valid security interest in favor of the Purchaser, in the respective
rights, title and interests of the Company and its Subsidiaries in and to the
Collateral (as defined in each of the Master Security Agreement and the Stock
Pledge Agreement). Each UCC-1 Financing Statement naming the Company or any
Subsidiary thereof as debtor and the Purchaser as secured party are in proper
form for filing and assuming that such UCC-1 Financing Statements have been
filed with the Secretary of State of [Florida] [other jurisdictions], the
security interest created under the Master Security Agreement will constitute a
perfected security interest under the Uniform Commercial Code in favor of the
Purchaser in respect of the Collateral that can be perfected by filing a
financing statement. After giving effect to the delivery to the Purchaser of the
stock certificates representing the ownership interests of each Subsidiary of
the Company (together with effective endorsements) and assuming the continued
possession by the Purchaser of such stock certificates in the State of New York,
the security interest created in favor of the Purchaser under the Stock Pledge
Agreement constitutes a valid and enforceable first perfected security interest
in such ownership interests (and the proceeds thereof) in favor of the
Purchaser, subject to no other security interest. No filings, registrations or
recordings are required in order to perfect (or maintain the perfection or
priority of) the security interest created under the Stock Pledge Agreement in
respect of such ownership interests.

 








C-2














 

EXHIBIT
D

 

FORM
OF ESCROW AGREEMENT

 




 


 






D-1