**EXHIBIT10.27**

***Execution Copy***

**AMENDEDAND RESTATEDSECURITIES PURCHASE AGREEMENT**

**AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT**(this “***Agreement***”), datedas of May 26, 2006, is by and between Earth Biofuels, Inc., a Delawarecorporation (the “***Company***”),and each purchaser listed on ***Exhibit A***attached hereto (individually, a “***Purchaser***”and, collectively, the “***Purchasers***”).

A.            The Company and the Purchasers areparty to a Securities Purchase Agreement, dated as of May 26, 2006 (the “***Original Agreement***”). *** ***Pursuantto Section 4.21 of the Original Agreement, the Company and the Purchasersdesire to amend and restate the Original Agreement and the Notes, the Warrantsand the Registration Rights Agreement (each, as defined below) to reflect themore favorable terms contained in the Subsequent Closing (as defined in theOriginal Agreement).  References in thisAgreement to the Notes, the Warrants and the Registration Rights Agreementshall be deemed to include the Notes, the Warrants and the Registration RightsAgreement, as amended and restated in connection herewith and as may be furtheramended and/or restated from time to time in accordance with their respectiveterms.

B.            Each Purchaser wishes to purchaseand the Company wishes to sell, upon the terms and subject to the conditionsstated in this Agreement, (i) an 8% Senior Note in the form attached hereto as ***Exhibit B*** (a “***Note***”and, collectively, the “***Notes***”) and(ii) a warrant in the form of ***Exhibit C***hereto. The Notes will be convertible under certain conditions into shares ofthe Company’s common stock, par value $0.001 per share (the “***Common Stock***”). The Warrant issued to a Purchaser will entitlethe holder thereof to purchase a number of shares of Common Stock equal to the150% of the original principal amount of the Note purchased by such Purchaserdivided by ten dollars ($10.00).

C.            Theshares of Common Stock into which the Notes are convertible are referred toherein as the “***Conversion Shares***” and theshares of Common Stock into which the Warrants are exercisable are referred toherein as the “***Warrant Shares***”. The Notes,the Conversion Shares, the Warrants and the Warrant Shares are collectivelyreferred to herein as the “***Securities***”.

D.            The Company has agreed to effect theregistration of the Conversion Shares and the Warrant Shares under theSecurities Act of 1933, as amended (the “***SecuritiesAct***”), pursuant to a Registration Rights Agreement in the formattached hereto as ***Exhibit D*** (the “***Registration Rights Agreement***”).

E.             The sale of the Notes, the Warrantsand the Warrant Shares to the Purchasers will be effected in reliance upon theexemption from securities registration afforded by Section 4(2) of theSecurities Exchange Act of 1934, as amended (the “***ExchangeAct***”), and Rule 506 of Regulation D (“***Regulation D***”) as promulgated by the Securities andExchange Commission (the “***Commission***”)hereunder.

In consideration of themutual promises made herein and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, the Company and

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each Purchaserhereby agree that the Original Agreement is amended and restated to read in itsentirety as follows:

1.*             PURCHASE AND SALE OF NOTES AND WARRANTS; DEFINITIONS.*

1.1           Purchase of Notes and Warrants.  Upon the terms and subject to thesatisfaction or waiver of the conditions set forth herein, the Company agreesto sell and each Purchaser agrees to purchase (i) a Note with a principalamount equal to the amount set forth opposite such Purchaser’s name on ***Exhibit A*** hereto and (ii) aWarrant.  The purchase price for the Noteand Warrant being purchased by a Purchaser (the “***PurchasePrice***”) shall be equal to the principal amount of such Note. Thedate on which the closing of the purchase and sale of the Notes and Warrantsoccurs (the “***Closing***”) is hereinafterreferred to as the “***Closing Date***”. The Closingwill be deemed to occur when (A) this Agreement and the other TransactionDocuments (as defined below) have been executed and delivered by the Companyand each Purchaser (which delivery may be effected by facsimile transmission),(B) each of the conditions to the Closing described in ***Section5*** hereof has been satisfied or waived as specified therein and(C) full payment of each Purchaser’s Purchase Price has been made by suchPurchaser to the Company by wire transfer of immediately available fundsagainst physical delivery by the Company of duly executed instrumentsrepresenting the Note and Warrant purchased by such Purchaser at the Closing.

1.2           Certain Definitions.  When used herein, the following terms shallhave the respective meanings indicated:

“***Affiliate***” means, as to anyPerson (the “***subject Person***”), any otherPerson (a) that directly or indirectly through one or more intermediariescontrols or is controlled by, or is under direct or indirect common controlwith, the subject Person, (b) that directly or indirectly beneficiallyowns or holds ten percent (10%) or more of any class of voting equity of thesubject Person, or (c) ten percent (10%) or more of the voting equity ofwhich is directly or indirectly beneficially owned or held by the subjectPerson. For the purposes of this definition, “***control***”when used with respect to any Person means the power to direct the managementand policies of such Person, directly or indirectly, whether through theownership of voting securities, through representation on such Person’s Boardof Directors or other management committee or group, by contract or otherwise.

“***Approved Stock Plan***” meansany employee benefit plan which has been approved by the Board of Directors ofthe Company (including a majority of the independent members of the Board),pursuant to which the Company’s securities may be issued to any employee,officer, director or consultant for services provided to the Company.

“***Business Day***” means any day other than a Saturday, a Sunday or a dayon which the New York Stock Exchange is closed or on which banks are authorizedby law to close in New York, New York.

“***Closing***” and “***Closing Date***” have the respectivemeanings specified in ***Section 1.1***hereof.

“***Common Stock***”means the common stock, par value $0.001 per share, of the Company.

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“***Common Stock Equivalent”***means,collectively, Options and Convertible Securities.

***“ContingentObligation”*** means, as to any Person, any direct orindirect liability, contingent or otherwise, of that Person with respect to anyindebtedness, lease, dividendor other obligation of another Person if the primary purpose or intent of thePerson incurring such liability, or the primary effect thereof, is to provide assuranceto the obligee of such liability that such liability will be paid ordischarged, or that any agreements relating thereto will be complied with, orthat the holders of such liability will be protected (in whole or in part)against loss with respect thereto.

“***Convertible Securities***” means anystock or securities (other than Options) of the Company convertible into orexercisable or exchangeable for Common Stock.

“***Conversion Price***”has the meaning specified in the Notes.

“***Debt***”means, as to any Person at any time: (A) all indebtedness for borrowed money,(B) all obligations issued, undertaken or assumed as the deferred purchaseprice of property or services (other than trade payables entered into in theordinary course of business), (C) all reimbursement or payment obligations withrespect to letters of credit, surety bonds and other similar instruments, (D)all obligations evidenced by notes, bonds, debentures or similar instruments,including obligations so evidenced incurred in connection with the acquisitionof property, assets or businesses, (E) all indebtedness created or arisingunder any conditional sale or other title retention agreement, or incurred asfinancing, in either case with respect to any property or assets acquired withthe proceeds of such indebtedness (even though the rights and remedies of theseller or bank under such agreement in the event of default are limited torepossession or sale of such property), (F) all monetary obligations under anyleasing or similar arrangement which, in connection with generally acceptedaccounting principles, consistently applied for the periods covered thereby, isclassified as a capital lease, (G) all indebtedness referred to in clauses (A)through (F) above secured by (or for which the holder of such Debt has anexisting right, contingent or otherwise, to be secured by) any mortgage, lien,pledge, charge, security interest or other encumbrance upon or in any propertyor assets (including accounts and contract rights) owned by any Person, eventhough the Person which owns such assets or property has not assumed or becomeliable for the payment of such indebtedness, and (H) all Contingent Obligationsin respect of indebtedness or obligations of others of the kinds referred to inclauses (A) through (G) above.

“***Disclosure Documents***”has the meaning specified in ***Section 3.11***hereof.

“***EDGAR***” means the Commission’sElectronic Data Gathering, Analysis, and Retrieval system

“***Effective Date***” has themeaning set forth in the Registration Rights Agreement.

“***Environmental Law***” means all federal, state, local or foreign lawsrelating to pollution or protection of human health or the environment(including,without

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limitation, ambient air, surface water,groundwater, land surface or subsurface strata), including, without limitation,laws relating to emissions, discharges, releases or threatened releases ofchemicals, pollutants, contaminants, or toxic or hazardous substances or wastes(collectively, “***HazardousMaterials***”) into the environment, or otherwise relating to themanufacture, processing, distribution, use, treatment, storage, disposal,transport or handling of Hazardous Materials, as well as all authorizations,codes, decrees, demands or demand letters, injunctions, judgments, licenses,notices or notice letters, orders, permits, plans or regulations issued,entered, promulgated or approved thereunder.

“***ERISA***” means the EmployeeRetirement Income Security Act of 1974, as amended, and the regulations andpublished interpretations thereunder.

“***Event of Default***” has themeaning set forth in the Notes.

“***Exchange Act***” means theSecurities Exchange Act of 1934, as amended (or any successor act), and therules and regulations thereunder (or respective successors thereto).

“***Excluded Securities***” meansCommon Stock or Common Stock Equivalents issued or issuable: (i) inconnection with any Approved Stock Plan; (ii) upon exercise of any Options orconversion of any Convertible Securities which are outstanding on the dayimmediately preceding the Closing Date and are disclosed in a schedule to thisAgreement, provided that the terms of such Options or Convertible Securitiesare not amended, modified or changed on or after the Closing Date; (iii)pursuant to a bona fide firm commitment underwritten public offering with a nationally-recognizedinvestment banking firm which generates gross proceeds to the Company in excessof $35,000,000 (other than an “at-the-market offering” as defined in Rule415(a)(4) under the Securities Act or an “equity line” arrangement); (iv) inconnection with any acquisition by the Company, whether through an acquisitionof stock or a merger of any business, assets or technologies the primarypurpose of which is not to raise equity capital in an amount not to exceed, inthe aggregate, 10% of the outstanding shares of Common Stock in any calendaryear; and (v) an anticipated issuance of no more than 10 million shares ofCommon Stock to an agricultural conglomerate.

“***Exercise Price***”shall have the meaning specified in the Warrants.

“***GAAP***” means generally acceptedaccounting principles, applied on a consistent basis, as set forth in (i)opinions of the Accounting Principles Board of the American Institute ofCertified Public Accountants, (ii) statements of the Financial AccountingStandards Board (iii) interpretations of the Commission and the Staff of theCommission and each of their respective successors and which are applicable inthe circumstances as of the date in question. Accounting principles are applied on a “consistent basis” when theaccounting principles applied in a current period are comparable in allmaterial respects to those accounting principles applied in a preceding period.

“***Governing Documents***” means,as of any date, (i) in the case of a corporation, its certificate ofincorporation and by-laws, (ii) in the case of a partnership, its certificateof partnership and partnership agreement, (iii) in the case of a limitedliability company, its certificate of organization and limited liabilitycompany operating agreement, and 

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(iv) any similar governing document of any such entity, in each such caseas amended through such date.

“***Governmental Authority***” meansany nation or government, any state, provincial or political subdivisionthereof and any entity exercising executive, legislative, judicial, regulatoryor administrative functions of or pertaining to government, including withoutlimitation any stock exchange, securities market or self-regulatoryorganization.

“***Governmental Requirement***”means any law, statute, code, ordinance, order, rule, regulation, judgment,decree, injunction, franchise, license or other directive or requirement of anyfederal, state, county, municipal, parish, provincial or other GovernmentalAuthority or any department, commission, board, court, agency or any other instrumentalityof any of them.

“***Insolvent***” means, withrespect to the Company, that (i) the Company is unable to pay its debts andliabilities, subordinated, contingent or otherwise, as such debts andliabilities become absolute and matured, (ii) the Company intends to incur orbelieves that it will incur debts that would be beyond its ability to pay assuch debts mature or (iii) the Company has unreasonably small capital withwhich to conduct the business in which it is engaged as such business is nowconducted or is about to be conducted

“***Intellectual Property***” meansany U.S. or foreign patents, patent rights, patent applications, trademarks,trade names, service marks, brand names, logos and other trade designations(including unregistered names and marks), trademark and service markregistrations and applications, copyrights and copyright registrations andapplications, inventions, invention disclosures, protected formulae,formulations, processes, methods, trade secrets, computer software, computerprograms and source codes, manufacturing research and similar technicalinformation, engineering know-how, customer and supplier information,assembly and test data drawings or royalty rights.

“***Lien***” means, with respect toany Property, any mortgage or mortgage, pledge, hypothecation, assignment,deposit arrangement, security interest, tax lien, financing statement, pledge,charge, or other lien, charge, easement, encumbrance, preference, priority orother security agreement or preferential arrangement of any kind or naturewhatsoever on or with respect to such Property (including, without limitation,any conditional sale or other title retention agreement having substantiallythe same economic effect as any of the foregoing).

“***Market Price***” means, as of aparticular date, the lower of (i) the average of daily VWAP for each ofthe five (5) consecutive Trading Days occurring immediately prior to (but notincluding) such date and (ii) the daily VWAP on the Trading Day occurringimmediately prior to (but not including) such date.

“***Material Adverse Effect***”means an effect that is material and adverse to (i) the consolidated business, operations, properties, financialcondition, prospects or results of operations of the Company and itsSubsidiaries taken as a whole or (ii) the ability of the Company to perform itsobligations under this Agreement or the other Transaction Documents (as definedbelow).

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“***Material Contracts***” means, asto the Company, any agreement required pursuant to Item 601 of Regulation S-Bor Item 601 of Regulation S-K, as applicable, promulgated under the SecuritiesAct to be filed as an exhibit to any report,schedule, registration statement or definitive proxy statement filed orrequired to be filed by the Company with the Commission under the Exchange Actor any rule or regulation promulgated thereunder, and any and allamendments, modifications, supplements, renewals or restatements thereof.

“***NASD***” means the NationalAssociation of Securities Dealers, Inc.

“***Obligations***” means any andall indebtedness, liabilities and obligations of the Company to thePurchaser evidenced by and/or arising pursuant to this Agreement or the Notes,now existing or hereafter arising, whether direct, indirect, related,unrelated, fixed, contingent, liquidated, unliquidated, joint, several or jointand several, including, without limitation, the obligations of the Company torepay principal of the Notes, to pay interest on the Notes (including, withoutlimitation, interest accruing after any bankruptcy, insolvency, reorganizationor other similar filing) and to pay all fees, indemnities, costs and expenses(including attorneys’ fees) provided for in this Agreement or the Notes.

“***Options***” means any rights, warrants or options to subscribe for, purchase or receiveCommon Stock or Convertible Securities.

“***OTCBB***” means the OTC Bulletin Board quotation service operated by the NasdaqStock Market, Inc (“***Nasdaq***”).

“***Pension Plan***” means anemployee benefit plan (as defined in ERISA) maintained by the Company foremployees of the Company or any of its Affiliates.

“***Permitted Liens***” means thefollowing:

(a)           encumbrancesconsisting of easements, rights-of-way, zoning restrictions orother restrictions on the use of real Property or imperfections to title thatdo not (individually or in the aggregate) materially impair the ability of theCompany or any of its Subsidiaries to use such Property in its businesses, andnone of which is violated in any material respect by existing or proposedstructures or land use;

(b)           Liens for taxes,assessments or other governmental charges (including without limitation inconnection with workers’ compensation and unemployment insurance) that are notdelinquent or which are being contested in good faith by appropriateproceedings, which proceedings have the effect of preventing the forfeiture orsale of the Property subject to such Liens, and for which adequate reserves (asdetermined in accordance with GAAP) have been established;

(c)           Liens of mechanics,materialmen, warehousemen, carriers, landlords or other similar statutory Lienssecuring obligations that are not yet due and are incurred in the ordinarycourse of business or which are being contested in good faith by appropriateproceedings, which proceedings have the effect of preventing the forfeiture orsale of the Property subject to such Liens, for which adequate reserves (asdetermined in 

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accordance with GAAP) have been established and which have been bondedover and omitted from the Title Policy;

(d)           purchase money Liensto finance property or assets of the Company or any Subsidiary of the Companyacquired in the ordinary course of business; *provided*,*however*, that (i) the related purchasemoney Debt shall not exceed the cost of such property or assets (including thecost of design, development, improvement, production, acquisition,construction, installation and integration) and shall not be secured by anyproperty or assets of the Company or any Subsidiary of the Company other thanthe property and assets so acquired or constructed (and any improvementsthereto) and (ii) the Lien securing such Debt shall be created within ten (10)days of such acquisition, construction or improvement;

(e)           Liens upon specificitems of inventory or other goods and proceeds of any Person securing suchPerson’s obligations in respect of bankers’ acceptances issued or created forthe account of such Person to facilitate the purchase, shipment or storage ofsuch inventory or other goods; and

(f)            Liens encumberingdeposits made to secure obligations arising from statutory, regulatory,contractual, or warranty requirements of the Company or any of itsSubsidiaries, including rights of offset and set-off.

“***Person***” means any individual,corporation, trust, association, company, partnership, joint venture, limitedliability company, joint stock company, Governmental Authority or other entity.

“***Property***” means propertyand/or assets of all kinds, whether real, personal or mixed, tangible orintangible (including, without limitation, all rights relating thereto).

“***Principal Market***” means anyof the following markets: The OTCBB, The New York Stock Exchange, Inc., theAmerican Stock Exchange, the Nasdaq National Market or The Nasdaq CapitalMarket.

“***Purchase Price***” has themeaning specified in Section 1.1 hereof.

“***Registrable Securities***” hasthe meaning set forth in the Registration Rights Agreement.

“***Restricted Payment***” means (a) anydividend or other distribution (whether in cash, Property or obligations),direct or indirect, on account of (or the setting apart of money for a sinkingor other analogous fund for the benefit of) any shares of any class of capitalstock of the Company or any of its Subsidiaries now or hereafter outstanding,except a dividend payable solely in shares of that class of stock to all of theholders of that class; (b) any redemption, exchange, retirement, sinking fundor similar payment, purchase or other acquisition for value, direct orindirect, of any shares of any class of capital stock of the Company or any ofits Affiliates now or hereafter outstanding, except the Securities;(c) any prepayment of principal of, premium, if any, or interest on, orany redemption, conversion, exchange, purchase, 

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retirement,sinking fund or defeasance of, any Debt (whether upon acceleration of such Debtor otherwise) other than the Securities; and (d) any loan, advance orpayment to any officer, director or stockholder of the Company or any of itsAffiliates, exclusive of (i) reasonable compensation and reimbursements paid toofficers or directors in the ordinary course of business and (ii) the scheduledrepayment of principal and interest with respect to any loans made by any suchAffiliate to the Company and outstanding as of the date hereof and set forth on***Schedule 3.5*** hereto; *provided, however,*that the following shall not be deemed toconstitute a Restricted Payment: (A) the issuance of securities upon exerciseor conversion of the Company’s Options or Convertible Securities under anApproved Stock Plan, and (B) the issuance of equity securities to, or makingpayments under license, joint venture or similar agreements with, persons withwhom the Company has a joint venture, strategic alliance or other commercialrelationship in connection with the operation of the Company’s business, andnot in connection with a transaction the purpose of which is to raise equitycapital.

“***SEC Documents***”has the meaning specified in ***Section 3.11***hereof.

“***Securities***” has themeaning specified in the preamble to this Agreement.

“***Security Agreement***” has the meaningspecified in the preamble to this Agreement.

“***Subordinated Debt***” means Debtof the Company which meets each of the following requirements:  (a) such Debt is wholly unsecured or anyLiens securing such Debt constitute Permitted Liens; and (b) such Debt iscontractually subordinated, as to payment and liquidation, to the payment infull of the Notes and the Obligations on such terms and pursuant to writtenagreements in such form and substance as are reasonably satisfactory toPurchasers holding at least fifty percent (50%) of the aggregate principalamount of the Notes outstanding on the date such Debt is incurred (the “***Subordinated Debt Documents***”).

“***Subsidiary***” means, withrespect to any Person, any corporation or other entity of which at least amajority of the outstanding shares of stock or other ownership interests havingby the terms thereof ordinary voting power to elect a majority of the board ofdirectors (or Persons performing similar functions) of such corporation orentity (irrespective of whether or not at the time, in the case of acorporation, stock of any other class or classes of such corporation shall haveor might have voting power by reason of the happening of any contingency) is atthe time directly or indirectly owned or controlled by such Person or one ormore of its Subsidiaries or by such Person and one or more of its Subsidiaries.

“***Termination Date***” means the firstdate on which there are no Notes or Obligations outstanding.

“***Trading Day***”means any day on which the Common Stock is purchased and sold on the Principal Market.

“***Transaction Documents***”means (i) this Agreement, (ii) theNotes, (iii) the Warrants, (iv) the Registration Rights Agreement, and (vii)all other agreements, documents and other instruments executed and delivered byor on behalf of the Company or its officers at the Closing.

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“***VWAP***” on a Trading Day meansthe volume weighted average price of the Common Stock for such Trading Day onthe Principal Market as reported by Bloomberg Financial Markets or, ifBloomberg Financial Markets is not then reporting such prices, by a comparablereporting service of national reputation selected by the Holders and reasonablysatisfactory to the Company.  If VWAPcannot be calculated for the Common Stock on such Trading Day on any of theforegoing bases, then the Company shall submit such calculation to anindependent investment banking firm of national reputation reasonablyacceptable to the Purchasers, and shall cause such investment banking firm toperform such determination and notify the Company and the Purchasers of theresults of determination no later than two (2) Business Days from the time suchcalculation was submitted to it by the Company. All such determinations shall be appropriately adjusted for any stockdividend, stock split or other similar transaction during such period.

1.3           OtherDefinitional Provisions.  Alldefinitions contained in this Agreement are equally applicable to the singularand plural forms of the terms defined. The words “***hereof***”, “***herein***” and “***hereunder***”and words of similar import referring to this Agreement refer to this Agreementas a whole and not to any particular provision of this Agreement.

**2.***            **PURCHASERS  REPRESENTATIONS AND WARRANTIES*.

EachPurchaser represents and warrants to the Company, with respect to itself only,and agrees with the Company, that:

2.1           No Public Sale or Distribution.Such Purchaser is acquiring the Note and the Warrant being purchased by it inthe ordinary course of business for its own account and not with a viewtowards, or for resale in connection with, the public sale or distributionthereof, except pursuant to sales that are registered under the Securities Actor are exempt from the requirement to be registered thereunder. Such Purchaserdoes not presently have any agreement, arrangement or understanding, directlyor indirectly, with any Person to distribute or effect any distribution of anyof the Securities (or any securities which are derivatives thereof) to orthrough any person or entity; *provided*, *however*, that in making such representations, such Purchaserdoes not agree to hold any of the Securities for any minimum or other specificterm and reserves the right to dispose of the Securities at any time inaccordance with or pursuant to an effective registration statement or anexemption under the Securities Act.

2.2           Accredited Purchaser Status.Such Purchaser is an “accredited Purchaser” as that term is defined in Rule501(a) of Regulation D.

2.3           Reliance on Exemptions. SuchPurchaser understands that the Securities are being offered and sold to it inreliance on specific exemptions from the registration requirements of UnitedStates federal and state securities laws and that the Company is relying inpart upon the truth and accuracy of, and such Purchaser’s compliance with, therepresentations, warranties, agreements, acknowledgments and understandings ofsuch Purchaser set forth herein in order to determine the availability of suchexemptions and the eligibility of such Purchaser to acquire the Securities.

2.4           Information. Such Purchaserand its advisors, if any, have been furnished with all materials relating tothe business, finances and operations of the Company and materials relating tothe offer and sale of the Securities which have been requested by suchPurchaser. 

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Such Purchaser andits advisors, if any, have been afforded the opportunity to ask questions ofthe Company. Neither such inquiries nor any other due diligence investigationsconducted by such Purchaser or its advisors, if any, or its representativesshall modify, amend or affect such Purchaser’s right to rely on the Company’srepresentations and warranties contained herein. Such Purchaser understandsthat its investment in the Securities involves a high degree of risk and isable to afford a complete loss of such investment. Such Purchaser has soughtsuch accounting, legal and tax advice as it has considered necessary to make aninformed investment decision with respect to its acquisition of the Securities.

2.5           No Governmental Review. SuchPurchaser understands that no United States federal or state agency or anyother government or governmental agency has passed on or made anyrecommendation or endorsement of the Securities or the fairness or suitabilityof the investment in the Securities nor have such authorities passed upon orendorsed the merits of the offering of the Securities.

2.6           Transferor Resale. Such Purchaser understands that, except as provided in theRegistration Rights Agreement: (i) the Securities have not been and are notbeing registered under the Securities Act or any state securities laws, and maynot be offered for sale, sold, assigned or transferred unless (A) subsequentlyregistered thereunder, (B) such Purchaser shall have delivered to the Companyan opinion of counsel, in a form reasonably acceptable to the Company, to theeffect that the Securities to be sold, assigned or transferred may be sold,assigned or transferred pursuant to an exemption from such registration, or (C)such Purchaser provides the Company with reasonable assurance that suchSecurities can be sold, assigned or transferred pursuant to Rule 144promulgated under the Securities Act, as amended (or a successor rule thereto)(“***Rule 144***”); (ii)any sale of the Securities made in reliance on Rule 144 may be made only inaccordance with the terms of Rule 144 and, further, if Rule 144 is notapplicable, any resale of the Securities under circumstances in which theseller (or the Person through which the sale is made) may be deemed to be anunderwriter (as that term is defined in the Securities Act) may requirecompliance with some other exemption under the Securities Act or the rules andregulations of the Commission thereunder; and (iii) neither the Company nor anyother Person is under any obligation to register the Securities under theSecurities Act or any state securities laws or to comply with the terms andconditions of any exemption thereunder. Notwithstanding the foregoing, theSecurities may be pledged in connection with a bona fide margin account orother loan secured by the Securities and such pledge of Securities shall not bedeemed to be a transfer, sale or assignment of the Securities hereunder, and noPurchaser effecting a pledge of Securities shall be required to provide theCompany with an opinion of counsel otherwise make deliver any notice ordocument to the Company pursuant to this Agreement or any other TransactionDocument, including, without limitation, this ***Section 2.6***; *provided*, thatin order to make any sale, transfer or assignment of Securities, such Purchaserand its pledgee must make such disposition in accordance with or pursuant to aregistration statement or an exemption under the Securities Act.

**2.7           Legends.Such Purchaser understands that until the certificates or other instrumentsrepresenting the Securities have been registered under the Securities Act, thestock certificates representing the Securities, except as set forth below,shall bear any legend required by the “blue sky” laws of any state and arestrictive legend in substantially the following form (and a stop-transferorder may be placed against transfer of such stock certificates):**

 

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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVENOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLESTATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATIONSTATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR(B) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN AGENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITHA BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BYTHE SECURITIES WITHOUT DELIVERY OF ANY SUCH OPINION.

Thelegend set forth above shall be removed and the Company shall issue acertificate without such legend to the holder of the Securities upon which itis stamped or issue to such holder by electronic delivery at the applicablebalance account at DTC, if (i) such Securities are registered for resale underthe Securities Act, (ii) in connection with a sale, assignment or othertransfer other than to an Affiliate or partner, shareholder or member of suchholder, such holder provides the Company with an opinion of counsel reasonablysatisfactory to the Company, in a customary and acceptable form, to the effectthat such sale, assignment or transfer of the Securities may be made withoutregistration under the Securities Act, or (iii) such holder provides theCompany with reasonable assurance that the Securities can be sold, assigned ortransferred pursuant to Rule 144.

Ifthe Company shall fail for any reason or for no reason to issue to the holderof the Securities within three (3) Trading Days after the occurrence of any of(i) through (iii) above, a certificate without such legend to the holder or toissue such Securities to such holder by electronic delivery at the applicablebalance account at DTC, and if on or after such Trading Day the holderpurchases (in an open market transaction or otherwise) shares of Common Stockto deliver in satisfaction of a sale by the holder of such Securities that theholder anticipated receiving without legend from the Company (a “***Buy-In***”), then the Company shall,within three (3) Business Days after such three (3) Business Day period, and atthe holder’s request and in the holder’s discretion, either (i) pay cash to theholder in an amount equal to the holder’s total purchase price (includingbrokerage commissions, if any) for the shares of Common Stock so purchased (the“***Buy-In Price***”), at which point theCompany’s obligation to deliver such unlegended Securities shall terminate, or(ii) promptly honor its obligation to deliver to the holder such unlegended Securitiesas provided above and pay cash to the holder in an amount equal to the excess(if any) of the Buy-In Price over the product of (A) such number of shares ofCommon Stock, times (B) the closing sales price of the Common Stock on the dateof exercise.

2.8           Validity; Enforcement. ThisAgreement and the Registration Rights Agreement have been duly and validlyauthorized, executed and delivered on behalf of such Purchaser and, whenexecuted by all of the parties thereto (including such Purchaser), shall constitutethe legal, valid and binding obligations of such Purchaser enforceable againstsuch Purchaser in accordance with their respective terms, except as suchenforceability may be limited by general principles of equity or to applicablebankruptcy, insolvency, reorganization, 

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moratorium,liquidation and other similar laws relating to, or affecting generally, theenforcement of applicable creditors’ rights and remedies.

2.9           No Conflicts. The execution,delivery and performance by such Purchaser of this Agreement and theRegistration Rights Agreement and the consummation by such Purchaser of thetransactions contemplated hereby and thereby will not (i) result in a violationof the Governing Documents of such Purchaser or (ii) conflict with, orconstitute a default (or an event which with notice or lapse of time or bothwould become a default) under, or give to others any rights of termination,amendment, acceleration or cancellation of, any agreement, indenture orinstrument to which such Purchaser is a party, or (iii) result in a violationof any law, rule, regulation, order, judgment or decree (including federal andstate securities laws) applicable to such Purchaser, except, in the case ofclauses (ii) and (iii) above, for such conflicts, defaults, rights orviolations which would not, individually or in the aggregate, reasonably beexpected to have a Material Adverse Effect.

2.10         Residency. Such Purchaser is aresident of the jurisdiction specified below its address on ***Exhibit A***.

2.11         Short Sales; Trading Restriction.No Purchaser, directly or indirectly, and no Person acting on behalf of orpursuant to any understanding with any Investor, has engaged in anytransactions in the securities of the Company (including, without limitation,any Short Sales involving any of the Company’s securities) since the time thatsuch Purchaser was first contacted by the Company, the Agent or any otherPerson regarding an investment in the Company.  Such Purchaser covenantsthat neither it nor any Person acting on its behalf or pursuant to anyunderstanding with such Purchaser will engage, directly or indirectly, in anytransactions in the securities of the Company (including Short Sales) prior tothe time the transactions contemplated by this Agreement are publicly disclosedor while the Purchaser is in possession of any material non-publicinformation.  “Short Sales” include, without limitation, all “short sales”as defined in Rule 200 promulgated under Regulation SHO under the Exchange Actand all types of direct and indirect stock pledges, forward sale contracts,options, puts, calls, short sales, swaps, derivatives and similar arrangements(including on a total return basis), and sales and other transactions throughnon-U.S. broker-dealers or foreign regulated brokers.

***3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.***

The Company representsand warrants to each Purchaser, and agrees with each Purchaser, that:

3.1           Organization and Qualification.Each of the Company and its Subsidiaries is a corporation or other legal entityduly organized and validly existing in good standing under the laws of thejurisdiction in which it is incorporated or organized, and has the requisitepower and authority (corporate or otherwise) to own its properties and to carryon its business as now being conducted. Each of the Company and itsSubsidiaries is duly qualified as a foreign corporation to do business and isin good standing in every jurisdiction in which its ownership of property orthe nature of the business conducted by it makes such qualification necessary,except to the extent that the failure to be so qualified or be in good standingwould not have a Material Adverse Effect. The Company has no Subsidiariesexcept as set forth on ***Schedule 3.1***.

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3.2           Authorization;Enforcement; Validity. The Company has the requisite corporate power andauthority to enter into and perform its obligations under this Agreement andthe other Transaction Documents, including without limitation its obligation toissue the Notes and Warrants in accordance with the terms hereof. The executionand delivery of the Transaction Documents by the Company and the consummationby the Company of the transactions contemplated hereby and thereby, includingwithout limitation the issuance of the Notes and the Warrants and thereservation for issuance and issuance of Conversion Shares and Warrant Shares,have been duly authorized by the Company’s Board of Directors and no furtherconsent or authorization is required by the Company, its Board of Directors orits stockholders. This Agreement and the other Transaction Documents have beenduly executed and delivered by the Company, and constitute the legal, valid andbinding obligations of the Company, enforceable against the Company inaccordance with their respective terms, except as such enforceability may belimited by general principles of equity or applicable bankruptcy, insolvency,reorganization, moratorium, liquidation or similar laws relating to, oraffecting generally, the enforcement of applicable creditors’ rights and remedies.

3.3           Issuance of Securities. TheNotes and the Warrants are duly authorized and, upon issuance in accordancewith the terms of this Agreement, will be validly issued and free from alltaxes, Liens and charges with respect to the issue thereof. The ConversionShares and the Warrant Shares are duly authorized and, upon issuance inaccordance with the terms of the Notes and the Warrants, respectively, will bevalidly issued, fully paid and non-assessable and free from all taxes, Liensand charges with respect to the issue thereof. The issuance by the Company ofthe Securities is exempt from registration under the Securities Act.

3.4           No Conflicts. The execution,delivery and performance of the Transaction Documents by the Company and theconsummation by the Company of the transactions contemplated hereby and thereby(including, without limitation, the issuance of the Notes and Warrants and thereservation for issuance and issuance of the Conversion Shares or the WarrantShares) will not (i) result in a violation of the Governing Documents of theCompany or any of its Subsidiaries or (ii) conflict with, or constitute adefault (or an event which with notice or lapse of time or both would become adefault) under, or give to others any rights of termination, amendment,acceleration or cancellation of, any material agreement, indenture orinstrument to which the Company or any of its Subsidiaries is a party, or (iii)result in a violation of any law, rule, regulation, order, judgment or decree(including federal and state securities laws and regulations and the rules andregulations of the Principal Market) applicable to the Company or any of itsSubsidiaries or by which any property or asset of the Company or any of itsSubsidiaries is bound or affected.

3.5           Consents. Except for filingsand approvals required by the Principal Market, the  filing by the Company of a Form D inaccordance with Regulation D, and any filings to be made with state securitiesregulatory authorities, the Company is not required to obtain any consent,authorization or order of, or make any filing or registration with, any court,governmental agency or any regulatory or self-regulatory agency or any otherPerson in order for it to execute, deliver or perform any of its obligationsunder or contemplated by the Transaction Documents, in each case in accordancewith the terms hereof or thereof. The Company and its Subsidiaries are unawareof any facts or circumstances that might prevent the Company from obtaining oreffecting any of the registration, application or filings pursuant to thepreceding sentence. The Company is not in violation of the listing requirementsof the Principal Market and 

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has no knowledgeof any facts that would reasonably lead to delisting or suspension of theCommon Stock in the foreseeable future.

3.6           Acknowledgment Regarding Purchaser’sPurchase of Securities. The Company acknowledges and agrees that eachPurchaser is acting solely in the capacity of an arm’s length Purchaser withrespect to the Transaction Documents and the transactions contemplated herebyand thereby and that no Purchaser is (i) an officer or director of the Company,(ii) an Affiliate of the Company or (iii) to the knowledge of the Company, a “beneficialowner” of more than 10% of the Common Stock (as defined for purposes of Rule13d-3 of the Exchange Act). The Company further acknowledges that under nocircumstances is any Purchaser acting or to be deemed to be acting as afinancial advisor or fiduciary of the Company (or in any similar capacity) withrespect to the Transaction Documents and the transactions contemplated herebyand thereby, and has not received or relied on any advice given by a Purchaseror any of its representatives or agents in connection with the TransactionDocuments and the transactions contemplated hereby and thereby. The Companyfurther represents to each Purchaser that the Company’s decision to enter intothe Transaction Documents has been based solely on the independent evaluationby the Company and its representatives.

3.7           No General Solicitation; PlacementAgent’s Fees. Neither the Company, nor any of its Affiliates, nor anyPerson acting on its or their behalf, has engaged in any form of generalsolicitation or general advertising (within the meaning of Regulation D) in connectionwith the offer or sale of the Securities. The Company shall be responsible forthe payment of any placement agent’s fees, financial advisory fees, or brokers’commissions (other than for Persons engaged by any Purchaser or its investmentadvisor, if any) relating to or arising out of the transactions contemplatedhereby. The Company shall pay, and hold each Purchaser harmless against, anyliability, loss or expense (including, without limitation, attorney’s fees andout-of-pocket expenses) arising in connection with any such claim.  The Company acknowledges that it has engagedCowen and Company as its exclusive placement agent (the “***Agent***”) in connection withthe sale of the Securities.  Other than the Agent, the Company has notengaged any placement agent or other agent in connection with the sale of theSecurities.

3.8           No Integrated Offering. Noneof the Company, its Subsidiaries, any of their respective Affiliates, or anyPerson acting on their behalf has, directly or indirectly, made any offers orsales of any security or solicited any offers to buy any security, undercircumstances that would require registration of any of the Securities underthe Securities Act or cause the offer and sale of the Securities pursuant tothis Agreement and the Transaction Documents to be integrated with priorofferings by the Company for purposes of the Securities Act in a manner thatwould make unavailable the exemption from registration afforded by Section 4(2)of the Securities Act or Rule 506 of Regulation D promulgated under theSecurities Act, or any applicable stockholder approval provisions, including,without limitation, under the rules and regulations of any exchange orautomated quotation system on which any of the securities of the Company arelisted or designated. None of the Company, its Subsidiaries, their respectiveaffiliates or any Person acting on their behalf will take any action or stepsreferred to in the preceding sentence that would require registration of any ofthe Securities under the Securities Act or cause the offering of the Securitiesto be so integrated with other offerings.

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3.9           Dilutive Effect. The Companyacknowledges that the issuance of Conversion Shares upon conversion of theNotes and the issuance of Warrant Shares upon exercise of the Warrants mayresult in dilution of the outstanding shares of Common Stock, which dilutionmay be substantial under certain market conditions. The Company understands andacknowledges that its obligation to issue Conversion Shares and Warrants Shareis absolute and unconditional regardless of the dilutive effect that any suchissuance may have on the ownership interests of other stockholders of theCompany. The Company acknowledges and agrees that such Purchaser may enter intoshort sales in the Company’s securities to the extent permitted by thisAgreement and applicable law, and that such transactions may result in sellingpressure on the outstanding shares of Common Stock.

3.10         Application of Takeover Protections;Rights Agreement. The Company and its Board of Directors have taken allnecessary action, if any, in order to render inapplicable any control shareacquisition, business combination, poison pill (including any distributionunder a rights agreement) or other similar anti-takeover provision under itsGoverning Documents or the laws of the State of Delaware which is or couldbecome applicable to any Purchaser as a result of the transactions contemplatedby this Agreement, including, without limitation, the Company’s issuance of theSecurities and any Purchaser’s ownership of the Securities. The Company has notadopted a shareholder rights plan or similar arrangement relating toaccumulations of beneficial ownership of Common Stock or a change in control ofthe Company. Except as set forth on ***Schedule 3.10***,the transactions and obligations of the Company contemplated by the TransactionDocuments, including without limitation, the issuance and sale of theSecurities, will not trigger any preemptive or anti-dilution rights (includingwithout limitation pursuant to any “reset” or similar provisions) or rights offirst refusal or first offer, or any other rights that would allow or permitthe holders of the Company’s securities or other Persons to purchase shares ofCommon Stock or other securities of the Company.

3.11         Commission Documents; FinancialStatements. The Company is subject to the reporting requirements of theExchange Act and, except as set forth on ***Schedule 3.11***,  has filed with the Commission all reports,schedules, registration statements and definitive proxy statements that theCompany was required to file with the Commission on and after October 7, 2005(collectively, the “***SEC Documents***”).  The Company is not aware of any eventoccurring or expected to occur on or prior to the Closing Date (other than thetransactions effected hereby) that would require the filing of, or with respectto which the Company intends to file, a Form 8-K after the Closing. Each SECDocument, as of the date of the filing thereof with the Commission, complied inall material respects with the requirements of the Securities Act or ExchangeAct, as applicable, and the rules and regulations promulgated thereunder and,as of the date of such filing (or if amended or superseded by a filing prior tothe date of this Agreement, then on the date of such filing), such SEC Document(including all exhibits and schedules thereto and documents incorporated byreference therein) did not contain an untrue statement of material fact or omitto state a material fact required to be stated therein or necessary to make thestatements therein, in light of the circumstances under which they were made,not misleading.  All documents requiredto be filed as exhibits to the SEC Documents have been filed as required.Except as set forth in SEC Documents filed and available to the public on EDGARat least five (5) Business Days prior to the date of this Agreement (the “***Disclosure Documents***”), the Companyhas no liabilities, contingent or otherwise, other than liabilities incurred inthe ordinary course of business which, under GAAP, are not required to bereflected in the financial statements included in the Disclosure Documents andwhich, individually or in the aggregate, are 

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not material tothe consolidated business or financial condition of the Company and itsSubsidiaries taken as a whole.  As oftheir respective dates, the financial statements of the Company included in theSEC Documents complied as to form in all material respects with applicable accountingrequirements and the published rules and regulations of the Commission withrespect thereto. Such financial statements have been prepared in accordancewith GAAP consistently applied at the times and during the periods involved(except (i) as may be otherwise indicated in such financial statements or thenotes thereto, or (ii) in the case of unaudited interim statements, to theextent they may exclude footnotes or may be condensed or summary statements)and fairly present in all material respects the financial position of theCompany as of the dates thereof and the results of its operations and cashflows for the periods then ended (subject, in the case of unaudited statements,to normal year-end adjustments). No other information provided by or on behalfof the Company to the Purchasers which is not included in the CommissionDocuments, including, without limitation, the information referred to in ***Section 2.4*** of this Agreement,contains any untrue statement of a material fact or omits to state any materialfact necessary in order to make the statements therein, in the light of thecircumstance under which they are or were made, not misleading.

3.12         Absence of Certain Changes.Except as disclosed in ***Schedule 3.12***,since December 31, 2005, there has been no material adverse change or developmentin the business, properties, operations, condition (financial or otherwise),results of operations or prospects of the Company or its Subsidiaries. Exceptas disclosed in ***Schedule 3.12***, since December31, 2005, the Company has not (i) declared or paid any dividends, (ii) sold anyassets, individually or in the aggregate, in excess of $100,000 outside of theordinary course of business or (iii) effected capital expenditures,individually or in the aggregate, in excess of $100,000. The Company has not takenany steps to seek protection pursuant to any bankruptcy law nor does theCompany have any knowledge or reason to believe that its creditors intend toinitiate involuntary bankruptcy proceedings or any actual knowledge of any factwhich would reasonably lead a creditor to do so. The Company is not, as of thedate hereof, and will not be, after giving effect to the transactionscontemplated by this Agreement or the Transaction Documents, Insolvent.

3.13         No Undisclosed Events, Liabilities,Developments or Circumstances. No event, liability, development orcircumstance has occurred or exists with respect to the Company or itsSubsidiaries or their respective business, properties, prospects, operations orfinancial condition, that would be required to have been disclosed by theCompany as of the date hereof under applicable securities laws and which hasnot been publicly announced.

3.14         Conduct of Business; RegulatoryPermits. Neither the Company nor any of its Subsidiaries is in violation ofany term of or in default under its Governing Documents. To the best knowledgeof the Company, neither the Company nor any Subsidiary is in violation of anyjudgment, decree or order or any statute, ordinance, rule or regulationapplicable to the Company or its Subsidiaries, and neither the Company nor anyof its Subsidiaries will conduct its business in violation of any of theforegoing, except in each case for possible violations which would not,individually or in the aggregate, have a Material Adverse Effect. The Companyand its Subsidiaries possess all certificates, authorizations and permitsissued by the appropriate federal, state or foreign regulatory authoritiesnecessary to conduct their respective businesses, except where the failure topossess such certificates, authorizations or permits would not have,individually or in the aggregate, a Material Adverse Effect, and neither theCompany nor any 

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such Subsidiaryhas received any notice of proceedings relating to the revocation ormodification of any such certificate, authorization or permit.

3.15         Foreign Corrupt Practices.Neither the Company, nor any of its Subsidiaries, nor any director, officer,agent, employee or other Person acting on behalf of the Company or any of itsSubsidiaries has, in the course of its actions for, or on behalf of, theCompany (i) used any corporate funds for any unlawful contribution, gift,entertainment or other unlawful expenses relating to political activity; (ii)made any direct or indirect unlawful payment to any foreign or domesticgovernment official or employee from corporate funds; (iii) violated or is inviolation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment,kickback or other unlawful payment to any foreign or domestic governmentofficial or employee.

3.16         Sarbanes-Oxley Act. The Companyis in compliance with any and all requirements of the Sarbanes-Oxley Act of2002 that are effective as of the date hereof and applicable to the Company,and any and all applicable rules and regulations promulgated by the Commissionthereunder that are effective as of the date hereof, except where suchnoncompliance would not have, individually or in the aggregate, a MaterialAdverse Effect.

3.17         Transactions With Affiliates.Except as set forth in the Company’s Annual Report on Form 10-KSB for the yearended December 31, 2005 or the Form 10-QSB for the quarter ended March 31,2006, none of the officers, directors or employees of the Company is presentlya party to any transaction with the Company or any of its Subsidiaries (otherthan for ordinary course services as employees, officers or directors),including any contract, agreement or other arrangement providing for thefurnishing of services to or by, providing for rental of real or personalproperty to or from, or otherwise requiring payments to or from any suchofficer, director or employee or, to the knowledge of the Company, anycorporation, partnership, trust or other entity in which any such officer,director, or employee has a substantial interest or is an officer, director,trustee or partner.

3.18         Equity Capitalization; RegistrationRights. As of the date hereof, the authorized capital stock of the Companyconsists of (x) 250,000,000 shares of Common Stock, of which as of the datehereof, 207,376,623 shares are issued and outstanding; 10,320,810 shares arereserved (or to be reserved) for issuance pursuant to the Company’s employeeincentive plan and other options and warrants outstanding and other securitiesexercisable or exchangeable for, or convertible into, shares of Common Stockand (y) 15,000,000 shares of preferred stock, of which as of the date hereof,no shares are issued and outstanding. All of such outstanding shares have been,or upon issuance will be, validly issued and are fully paid and non-assessable.Except as set forth on ***Schedule 3.18***:(i) no shares of the Company’s capital stock are subject to preemptive rightsor any other similar rights or any Liens suffered or permitted by the Company;(ii) there are no outstanding options, warrants, scrip, rights to subscribe to,calls or commitments of any character whatsoever relating to, or securities orrights convertible into, or exercisable or exchangeable for, any shares of capitalstock of the Company or any of its Subsidiaries, or contracts, commitments,understandings or arrangements by which the Company or any of its Subsidiariesis or may become bound to issue additional shares of capital stock of theCompany or any of its Subsidiaries or options, warrants, scrip, rights tosubscribe to, calls or commitments of any character whatsoever relating to, orsecurities or rights convertible into, or exercisable or exchangeable for, anyshares of capital stock of the Company or any of its Subsidiaries; (iii) 

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there is nooutstanding Debt of the Company or any of its Subsidiaries or by which theCompany or any of its Subsidiaries is or may become bound; (iv) there are noagreements or arrangements (except the Registration Rights Agreement) underwhich the Company or any of its Subsidiaries is obligated to register the saleof any of their securities under the Securities Act (including “piggy-back” registration rights); (v) there are nooutstanding securities or instruments of the Company or any of its Subsidiarieswhich contain any redemption or similar provisions, and there are no contracts,commitments, understandings or arrangements by which the Company or any of itsSubsidiaries is or may become bound to redeem a security of the Company or anyof its Subsidiaries; (vi) there are no securities or instruments containinganti-dilution or similar provisions that will be triggered by the issuance ofthe Securities; (vii) the Company does not have any stock appreciation rightsor “phantom stock” plans or agreements or any similar plan or agreement; and(viii) the Company and its Subsidiaries have no liabilities or obligationsrequired to be disclosed in the Disclosure Documents (as defined herein) butnot so disclosed in the SEC Documents. The Company has furnished or madeavailable to each Purchaser upon such Purchaser’s request, true, correct andcomplete copies of the Company’s Certificate of Incorporation, as amended andas in effect on the date hereof, and the Company’s Bylaws, as amended and as ineffect on the date hereof, and the terms of all securities convertible into, orexercisable or exchangeable for, shares of Common Stock and the material rightsof the holders thereof in respect thereto. ***Schedule 3.18***sets forth the shares of Common Stock owned beneficially or of record andCommon Stock Equivalents (as defined below) held by each director and executiveofficer of the Company.

3.19         Debt and Other Contracts. Exceptas disclosed in ***Schedule 3.19***, neither theCompany nor any of its Subsidiaries (i) has maintained a Lien securing obligations in any material amounts,either singly or in the aggregate; (ii) is a party to any contract, agreementor instrument, the violation of which, or default under which, by the otherparties to such contract, agreement or instrument would result in a MaterialAdverse Effect, (iii) is in violation of any term of or in default under anycontract, agreement or instrument relating to any Debt, except where suchviolations and defaults would not result, individually or in the aggregate, ina Material Adverse Effect, or (iv) is a party to any contract, agreement orinstrument relating to any Debt, the performance of which, in the judgment ofthe Company’s officers, has or is reasonably expected to have a MaterialAdverse Effect.

3.20        Absence of Litigation.Except as set forth on ***Schedule 3.20***,there is no action, suit, proceeding, inquiry or investigation before or by thePrincipal Market, any court, public board, government agency, self-regulatoryorganization or body pending or, to the knowledge of the Company, threatenedagainst or affecting the Company, the Common Stock or any of its Subsidiariesor any of the Company’s or the Company’s Subsidiary’s officers or directors,whether of a civil or criminal nature or otherwise. The matters set forth on ***Schedule 3.20****,*ifdetermined adversely to the Company or any Subsidiary, would not have aMaterial Adverse Effect.

3.21        Insurance. The Company andeach of its Subsidiaries are insured by insurers of recognized financialresponsibility against such losses and risks and in such amounts as managementof the Company believes to be prudent and customary in the businesses in whichthe Company and its Subsidiaries are engaged. Neither the Company nor anySubsidiary has been refused any insurance coverage sought or applied for.Neither the Company nor any Subsidiary has any reason to believe that it willnot be able to renew its existing insurance 

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coverage as andwhen such coverage expires or to obtain similar coverage from similar insurersas may be necessary to continue its business at a cost that would not have aMaterial Adverse Effect.

3.22         Employee Relations. (i) Neitherthe Company nor any of its Subsidiaries is a party to any collective bargainingagreement or employs any member of a union. The Company and its Subsidiariesbelieve that their relations with their employees are good. No executiveofficer of the Company (as defined in Rule 501(f) of the Securities Act) hasnotified the Company that such officer intends to leave the Company orotherwise terminate such officer’s employment with the Company. No executiveofficer of the Company, to the knowledge of the Company, is, or is now expectedto be, in violation of any material term of any employment contract, confidentiality,disclosure or proprietary information agreement, non-competition agreement, orany other contract or agreement or any restrictive covenant, and the continuedemployment of each such executive officer does not subject the Company or anyof its Subsidiaries to any liability with respect to any of the foregoingmatters. The Company and its Subsidiaries are in compliance with all federal,state, local and foreign laws and regulations respecting labor, employment andemployment practices and benefits, terms and conditions of employment and wagesand hours, except where failure to be in compliance would not, eitherindividually or in the aggregate, reasonably be expected to result in aMaterial Adverse Effect.

3.23         Title. The Company and itsSubsidiaries have good and marketable title in fee simple to all real propertyand good and marketable title to all personal property owned by them which ismaterial to the business of the Company and its Subsidiaries, in each case freeand clear of all Liens and defects except for Permitted Liens and except asdisclosed on ***Schedule 3.23***. Any realproperty and facilities held under lease by the Company and any of itsSubsidiaries are held by them under valid, subsisting and enforceable leaseswith such exceptions as are not material and do not interfere with the use madeand proposed to be made of such property and buildings by the Company and itsSubsidiaries.

3.24         Intellectual Property Rights.The Company and its Subsidiaries own or possess adequate rights or licenses touse all trademarks, trade names, service marks, service mark registrations,service names, patents, patent rights, copyrights, inventions, licenses,approvals, governmental authorizations, trade secrets and other intellectualproperty rights (“***Intellectual Property Rights***”)necessary to conduct their respective businesses as now conducted. None of theCompany’s Intellectual Property Rights have expired or terminated, or areexpected to expire or terminate within three years from the date of this Agreement.The Company does not have any knowledge of any infringement by the Company orits Subsidiaries of Intellectual Property Rights of others. There is no claim,action or proceeding being made or brought, or to the knowledge of the Company,being threatened, against the Company or any of its Subsidiaries regarding itsIntellectual Property Rights. The Company is unaware of any facts orcircumstances which might give rise to any of the foregoing infringements orclaims, actions or proceedings. The Company and its Subsidiaries have takenreasonable security measures to protect the secrecy, confidentiality and valueof all of their Intellectual Property Rights.

3.25         Environmental Laws. The Companyand its Subsidiaries (i) are in compliance with any and all Environmental Laws,(ii) have received all permits, licenses or other approvals required of themunder applicable Environmental Laws to conduct their respective businesses and(iii) are in compliance with all terms and conditions of any such permit, licenseor 

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approval where, ineach of the foregoing clauses (i), (ii) and (iii), the failure to so complycould be reasonably expected to have, individually or in the aggregate, aMaterial Adverse Effect.

3.26         Subsidiary Rights. The Companyor one of its Subsidiaries has the unrestricted right to vote, and (subject tolimitations imposed by applicable law) to receive dividends and distributionson, all capital securities of its Subsidiaries as owned by the Company or suchSubsidiary.

3.27         Tax Status. The Company and eachof its Subsidiaries (i) has made or filed all federal and state income and allother tax returns, reports and declarations (or extensions thereof) required byany jurisdiction to which it is subject, (ii) has paid all taxes and othergovernmental assessments and charges that are material in amount, shown ordetermined to be due on such returns, reports and declarations, except thosebeing contested in good faith and (iii) has set aside on its books provisionreasonably adequate for the payment of all taxes for periods subsequent to theperiods to which such returns, reports or declarations apply. There are nounpaid taxes in any material amount claimed to be due by the taxing authorityof any jurisdiction, and the officers of the Company know of no basis for anysuch claim.

3.28         Internal Accounting and DisclosureControls. The Company and each of its Subsidiaries maintain a system ofinternal accounting controls sufficient to provide reasonable assurance that(i) transactions are executed in accordance with management’s general orspecific authorizations, (ii) transactions are recorded as necessary to permitpreparation of financial statements in conformity with generally acceptedaccounting principles and to maintain asset and liability accountability, (iii)access to assets or incurrence of liabilities is permitted only in accordancewith management’s general or specific authorization and (iv) the recordedaccountability for assets and liabilities is compared with the existing assetsand liabilities at reasonable intervals and appropriate action is taken withrespect to any difference. Other than as described in the Annual Report on Form10-KSB filed with the Commission for the fiscal year ended December 31, 2005,the Company does not currently maintain disclosure controls and procedures (assuch term is defined in Rule 13a-14 under the Exchange Act) that are effectivein ensuring that information required to be disclosed by the Company in thereports that it files or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the rules andforms of the Commission, including, without limitation, controls and proceduresdesigned in to ensure that information required to be disclosed by the Companyin the reports that it files or submits under the Exchange Act is accumulatedand communicated to the Company’s management, including its principal executiveofficer or officers and its principal financial officer or officers, asappropriate, to allow timely decisions regarding required disclosure.Specifically, the independent auditors for the Company identified deficienciesin the Company’s controls related to valuation and recording of fixedassets.  Except as disclosed in theCompany’s Form 10-KSB for the period ending December 31, 2005, which weaknesseshave been corrected, during the six months prior to the date hereof neither theCompany nor any of its Subsidiaries have received any notice or correspondencefrom any accountant relating to any potential material weakness in any part ofthe system of internal accounting controls of the Company or any of itsSubsidiaries.

3.29         Off Balance Sheet Arrangements.There is no transaction, arrangement, or other relationship between the Companyand an unconsolidated or other off balance sheet entity

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that is requiredto be disclosed by the Company in its Exchange Act filings and is not sodisclosed or that otherwise would be reasonably likely to have a MaterialAdverse Effect.

3.30         Manipulation of Price. TheCompany has not, and to its knowledge no one acting on its behalf has, (i)taken, directly or indirectly, any action designed to cause or to result in thestabilization or manipulation of the price of any security of the Company tofacilitate the sale or resale of any of the Securities, (ii) sold, bid for,purchased, or paid any compensation for soliciting purchases of, any of theSecurities, or (iii) paid or agreed to pay to any person any compensation forsoliciting another to purchase any other securities of the Company.

3.31         Transfer Taxes. On the ClosingDate, all stock transfer or other taxes (other than income or similar taxes)which are required to be paid in connection with the sale and transfer of theSecurities to be sold to each Purchaser hereunder will be, or will have been,fully paid or provided for by the Company, and all laws imposing such taxeswill be or will have been complied with.

3.32         Disclosure. The Company confirmsthat neither it nor any other Person acting on its behalf has provided any ofthe Purchasers or their respective agents or counsel with any information thatconstitutes or could reasonably be expected to constitute material, nonpublicinformation. The Company understands and confirms that each of the Purchaserswill rely on the foregoing representations in effecting transactions insecurities of the Company. All disclosure provided to the Purchasers regardingthe Company, its business and the transactions contemplated hereby, includingthe schedules to this Agreement, furnished by or on behalf of the Company aretrue and correct and do not contain any untrue statement of a material fact oromit to state any material fact necessary in order to make the statements madetherein, in the light of the circumstances under which they were made, notmisleading. Each press release issued by the Company since October 7, 2005 didnot at the time of release contain any untrue statement of a material fact oromit to state a material fact required to be stated therein or necessary inorder to make the statements therein, in the light of the circumstances underwhich they are made, not misleading. No event or circumstance has occurred orinformation exists with respect to the Company or any Subsidiary or either ofits or their respective business, properties, prospects, operations or financialconditions, which, under applicable law, rule or regulation, requires publicdisclosure or announcement by the Company but which has not been so publiclyannounced or disclosed (assuming for this purpose that the Company’s reportsfiled under the Exchange Act are being incorporated into an effectiveregistration statement filed by the Company under the Securities Act). TheCompany acknowledges and agrees that no Purchaser makes or has made anyrepresentations or warranties with respect to the transactions contemplatedhereby other than those specifically set forth in ***Section2***.

3.33         Reporting Company; Listing. TheCompany’s Common Stock is registered pursuant to Section 12(g) of the ExchangeAct and is eligible for trading on the OTCBB. Without limiting the generalityof the foregoing, the Company is not in violation of any of the rules,regulations or requirements of Nasdaq as they relate to trading of the CommonStock on the OTCBB and has no knowledge of any facts or circumstances thatwould reasonably be expected to result in a suspension of the Common Stock fromtrading on the OTCBB in the foreseeable future. Since December 31, 2005, (i)the Common Stock has been eligible for quotation on the OTCBB, (ii) trading inthe Common Stock has not been suspended by the Commission or Nasdaq and (iii)the Company has received no communication, written or oral, 

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from theCommission or Nasdaq that it does not satisfy such requirements or that sucheligibility is in any way threatened.

3.34         Form SB-2. The Company iseligible to register the Conversion Shares and Warrant Shares for resale in asecondary offering by each Purchaser on a registration statement on Form SB-2under the Securities Act. To the Company’s knowledge, there exist no facts orcircumstances (including without limitation any required approvals or waiversof any circumstances that may delay or prevent the obtaining of accountant’sconsents) that could reasonably be expected to prohibit or delay thepreparation and filing of a registration statement on Form SB-2 that will beavailable for the resale of all Conversion Shares and Warrant Shares by eachPurchaser.

3.35         Investment Company Status. TheCompany is not, and immediately after receipt of payment for the Notes and theWarrants issued under this Agreement will not be, an “***investmentcompany***” or an entity “***controlled***”by an “***investment company***” withinthe meaning of the Investment Company Act of 1940, as amended (the “***Investment Company Act***”), and shallconduct its business in a manner so that it will not become subject to theInvestment Company Act.

3.36         Customers and Suppliers.  The Company and its Subsidiaries maintainrelationships with their material customers and suppliers on commerciallyreasonable terms.  To the Company’sknowledge, no customer or supplier of the Company or any of its Subsidiarieshas any plan or intention to terminate any agreement or arrangement with theCompany or such Subsidiary, which termination would reasonably be expected tohave a Material Adverse Effect.

3.37         No Other Agreements.  The Company has not, directly or indirectly,entered into any agreement with or granted any right to any Purchaser relatingto the terms or conditions of the transactions contemplated by the TransactionDocuments, except as expressly set forth in the Transaction Documents.

3.38         Schedules.  The Schedules attached the Original Agreementare hereby incorporated by reference and shall be deemed a part of andSchedules to this Agreement.

**4.             *COVENANTS ANDACKNOWLEDGEMENTS OF THE PARTIES*.**

 

4.1           Best Efforts. Each party shalluse its best efforts to satisfy timely the terms and conditions of this Agreement.

 

4.2           Form D and Blue Sky; Other Filingsand Consents. The Company agrees to file a Form D in respect of theSecurities as required under Regulation D and to provide a copy thereof to eachPurchaser promptly after such filing. The Company, as promptly as reasonablypracticable after the date hereof, shall take such action as the Company shallreasonably determine is necessary in order to obtain an exemption for or toqualify the Securities for sale to the Purchasers at the Closing pursuant tothis Agreement under applicable securities or “Blue Sky” laws of the states ofthe United States (or to obtain an exemption from such 

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qualification),and shall promptly thereafter provide evidence of any such action so taken tothe Purchasers. The Company shall make all filings and reports relating to theoffer and sale of the Securities required under applicable securities or “BlueSky” laws of the states of the United States following the Closing Date. TheCompany undertakes as promptly as reasonably practicable after the date hereofto (i) make such filings and apply for such registrations, or (ii) use itsreasonable best efforts to obtain, as applicable, all such consents,authorizations and orders, in each such case, which are required to be made orobtained by the Company pursuant to applicable law, rule or regulation in orderto consummate the transactions contemplated by this Agreement and the other TransactionDocuments.

4.3           Reporting Status. Until thedate on which the Holders (as defined in the Registration Rights Agreement)have sold all Registrable Securities to the public pursuant to an effectiveregistration statement or Rule 144 (the “***Reporting Period***”),the Company shall timely file all reports required to be filed with theCommission pursuant to the Exchange Act, and the Company shall not terminateits status as an issuer required to file reports under the Exchange Act even ifthe Exchange Act or the rules and regulations thereunder would otherwise permitsuch termination.

4.4           Use of Proceeds. The Companywill use the proceeds from the sale of the Notes and Warrants as specified on ***Schedule4.4*** hereof.

4.5           Financial Information. TheCompany agrees to send the following to each Purchaser during the ReportingPeriod (i) unless the following are filed with the Commission and are availableto the public through EDGAR, within one (1) Business Day after the filingthereof with the Commission, a copy of its Annual Reports on Form 10-KSB or10-K, its Quarterly Reports on Form 10-QSB or 10-Q, any Current Reports on Form8-K and any registration statements (other than on Form S-8) or amendmentsfiled pursuant to the Securities Act, (ii) on the same day as the releasethereof, facsimile copies of all press releases issued by the Company or any ofits Subsidiaries, and (iii) copies of any notices and other information madeavailable or given to the stockholders of the Company generally,contemporaneously with the making available or giving thereof to thestockholders.

4.6           Listing. The Company shallpromptly secure the listing of all of the Registrable Securities upon eachnational securities exchange and automated quotation system, if any, upon whichshares of Common Stock are then listed (subject to official notice of issuance)and shall maintain, so long as any other shares of Common Stock shall be solisted, such listing of all Registrable Securities from time to time issuableunder the terms of the Transaction Documents. The Company shall maintain theCommon Stock’s authorization for listing on the Principal Market. Neither theCompany nor any of its Subsidiaries shall take any action which would bereasonably expected to result in the delisting or suspension of the CommonStock on the Principal Market. The Company shall pay all fees and expenses inconnection with satisfying its obligations under this ***Section4.6***.

4.7           Fees. Subject to ***Section 8*** below, at the Closing, theCompany shall reimburse the Purchasers for their legal and due diligenceexpenses in connection with the preparation, execution and performance of thisAgreement and the transactions contemplated hereby up to a maximum of $50,000,which amount (to the extent not already paid by the Company) shall be withheldfrom the Purchase Price payable by the Purchasers at the Closing. 

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The Company shallbe responsible for the payment of any placement agent’s fees, financialadvisory fees, or broker’s commissions (other than for Persons engaged by anyPurchaser) relating to or arising out of the transactions contemplated hereby.The Company shall pay, and hold each Purchaser harmless against, any liability,loss or expense (including, without limitation, reasonable attorney’s fees andout-of-pocket expenses) arising in connection with any claim relating to anysuch payment. Except as otherwise set forth in the Transaction Documents, eachparty to this Agreement shall bear its own expenses in connection with the saleof the Securities to the Purchasers.

4.8           Pledge by Purchaser. TheCompany acknowledges and agrees that the Securities may be pledged by aPurchaser in connection with a bona fide margin agreement or other loan orfinancing arrangement that is secured by the Securities. The pledge ofSecurities shall not be deemed to be a transfer, sale or assignment of theSecurities hereunder, and no Purchaser effecting a pledge of Securities shallbe required to provide the Company with any notice thereof or otherwise makeany delivery to the Company pursuant to this Agreement or any other TransactionDocument, including, without limitation, ***Section 2.6***of this Agreement; provided that a Purchaser and its pledgee shall be requiredto comply with the provisions of ***Section 2.6***of this Agreement in order to effect a sale, transfer or assignment ofSecurities to such pledgee. The Company hereby agrees to execute and deliversuch documentation as a pledgee of the Securities may reasonably request inconnection with a pledge of the Securities to such pledgee by a Purchaser.

4.9           Disclosure of Transactions andOther Material Information. On or before 8:30 a.m., New York City Time, onthe first Business Day following the Closing Date, the Company shall file aCurrent Report on Form 8-K describing the terms of the transactionscontemplated by the Transaction Documents in the form required by the ExchangeAct, and attaching the material Transaction Documents (including, withoutlimitation, this Agreement (and all schedules to this Agreement) and theRegistration Rights Agreement) as exhibits to such filing (including allattachments, the “***8-K Filing***”). The Companyacknowledges, agrees and represents that from and after the date of the 8-KFiling, no Purchaser shall be in possession of any material, nonpublicinformation received from the Company, any of its Subsidiaries or any of itsrespective officers, directors, employees or agents, that is not disclosed inthe 8-K Filing. The Company shall not, and shall cause each of its Subsidiariesand each of their respective officers, directors, employees and agents, not to,provide any Purchaser with any material, nonpublic information regarding theCompany or any of its Subsidiaries from and after the date of the 8-K Filing withoutthe express written consent of such Purchaser. In the event of a breach of theforegoing covenant by the Company, and provided that the Company shall havefailed (following proper written request therefor) to make an appropriatepublic disclosure consistent with the requirements of Regulation FD under the ExchangeAct, any Subsidiary, or its each of respective officers, directors, employeesand agents, in addition to any other remedy provided herein or in theTransaction Documents, a Purchaser shall have the right to make a publicdisclosure, in the form of a press release, public advertisement or otherwise,of such material, nonpublic information without the prior approval by theCompany, its Subsidiaries, or any of its or their respective officers,directors, employees or agents. No Purchaser shall have any liability to theCompany, its Subsidiaries, or any of its or their respective officers,directors, employees, shareholders or agents for any such disclosure. Subjectto the foregoing, neither the Company nor any Purchaser shall issue any pressreleases or any other public statements with respect to the transactionscontemplated hereby; provided, however, that the Company shall be entitled, 

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without the priorapproval of any Purchaser, to make any press release or other public disclosurewith respect to such transactions (i) in substantial conformity with the 8-KFiling and contemporaneously therewith and (ii) as is required by applicablelaw and regulations, including the applicable rules and regulations of thePrincipal Market (provided that in the case of clause (i) each Purchaser shallbe consulted by the Company in connection with any such press release or otherpublic disclosure prior to its release).

4.10           ***Intentionally Left Blank***

4.11         Corporate Existence. Until thedate on which there are no Notes or Warrants outstanding, the Company shallmaintain its corporate existence and shall not sell all or substantially all ofthe Company’s assets, except in the event of a merger or consolidation or saleof all or substantially all of the Company’s assets, where the surviving orsuccessor entity in such transaction (i) assumes the Company’s obligationshereunder and under the agreements and instruments entered into in connectionherewith and (ii) is a publicly traded corporation whose common stock is quotedon or listed for trading on The Nasdaq National Market, the New York StockExchange or the American Stock Exchange.

4.12         Reservation of Common Stock.  The Company shall, on or before the ClosingDate, authorize and reserve for issuance, free from any preemptive rights, anumber of shares of Common Stock (the “***Reserved Amount***”)equal to no less than one hundred and fifty percent (150%) of the maximumnumber of shares of Common Stock issuable upon (A) conversion of theoutstanding Notes in full at the Conversion Price then in effect and (B)exercise of the outstanding Warrants in full at the Exercise Price then ineffect, in each such case without regard to any limitation or restriction onsuch conversion or exercise that may be set forth in the Notes or the Warrants.In the event that, as a result of an adjustment to the Conversion Price of theNotes or the Exercise Price for the Warrants (pursuant to anti-dilutionadjustments or otherwise), the Reserved Amount is less than 125% of the numberof shares of Common Stock then issuable upon conversion of all of the Notes andexercise of all of the Warrants then outstanding (without regard to anylimitation or restriction on such conversion or exercise that may be set forthin the Notes or the Warrants), the Company shall take action (including withoutlimitation seeking stockholder approval for the authorization or reservation ofadditional shares of Common Stock) as soon as practicable (but in no eventlater than the tenth (10th)business day or, in the event that stockholder approval is required, thesixtieth (60th) dayfollowing such date) to increase the Reserved Amount to no less than 150% ofthe number of shares of Common Stock into which such outstanding Notes are thenconvertible and such outstanding Warrants are exercisable. The Company shallnot reduce the number of shares reserved for issuance hereunder withoutobtaining the written consent of the holders of two-thirds (2/3) of theRegistrable Securities. The initial Reserved Amount shall be allocated *pro rata* among the Purchasers based on the principal amountof the Notes issued to each Purchaser at the Closing.  Each increase in the Reserved Amount shall beallocated *pro rata* among the Holders based on theamount of Registrable Securities into which all of the Notes and Warrants heldby such Holder at the time of such increase are convertible or exercisable(without regard to any limitation on such conversion or exercise). In the eventthat a Holder shall sell or otherwise transfer any of such Holder’s Notes, eachtransferee shall be allocated a *pro rata*portion of such transferor’s Reserved Amount. Any portion of the ReservedAmount which remains allocated to any person or entity which does not hold anyNotes shall be reallocated to the remaining Holders *pro rata*based on the amount of Registrable Securities into which all of the outstandingNotes 

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and Warrants atthe time of such increase are convertible or exercisable (without regard to anylimitation on such conversion or exercise).

4.13         ***Intentionally Left Blank***

4.14         Limitationon Debt, Liens. Duringthe period beginning on the date of this Agreement and ending on theTermination Date, the Company shall refrain, and shall ensure that each of itsSubsidiaries refrains, from (A) incurring any Debt (including withoutlimitation by issuing any Debt securities) or increasing the amount of anyexisting line of credit or other Debt facility beyond the amount outstanding onthe date hereof or (B) granting, establishing or maintaining any Lien on any ofits assets, including without limitation any pledge of securities owned or heldby it (including without limitation any securities issued by any suchSubsidiary), other than Permitted Liens. Notwithstanding the foregoing, the Company and/or its Subsidiaries mayincur Debt for purposes of effecting one or more acquisitions (by means ofpurchase of all or substantially all of the assets of another entity), *provided* that the aggregate amount of such new Debt shallnot exceed $3 million and *provided further*,that such new Debt shall be unsecured Subordinated Debt and subject to the “mostfavored nation” provision in ***Section 4.21***(suchDebt, the “***Permitted Subordinated Debt***”)***.***

4.15         Restricted Payments.  During the period beginning on the date ofthis Agreement and ending on the Termination Date, the Company will not, norwill it permit any Subsidiary of the Company to, make any Restricted Payments,except that:

(a)           the Company may make regularlyscheduled payments of principal and interest accrued on any Subordinated Debtif and to the extent (but only if and to the extent) permitted by the expressterms of the documents governing such Subordinated Debt; and

(b)           Subsidiaries of the Company may makeRestricted Payments to the Company;

*provided*,*however*, that no Restricted Payment maybe made pursuant to clause (a) or (b) above if an Event of Default (or anevent or circumstance that, with the giving of notice or lapse of time or both,would constitute an Event of Default) exists at the time or would exist as aresult of such Restricted Payment.

4.16         Disposition of Property.  During the period beginning on the date ofthis Agreement and ending on the Termination Date, the Company will not, norwill it permit any Subsidiary of the Company to, sell, lease, assign, transferor otherwise dispose of any of its Property, except (i) dispositions ofinventory by the Company and its Subsidiaries in the ordinary course ofbusiness and (ii) expenditures of money (including, without limitation, moneyheld in deposit accounts) made in the ordinary course of business or for thepurpose of making Restricted Payments expressly permitted in accordance withthis Agreement.

4.17         Certain Transactions.  During the period beginning on the date ofthis Agreement and ending on the Termination Date, and except as may beexpressly permitted or required by the Transaction Documents, the Company willnot, nor will it permit any Subsidiary of the Company to, create or otherwisecause or permit to exist or become effective any consensual encumbrance orrestriction of any kind on the ability of the Company or any 

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Subsidiary of theCompany to (a) pay dividends or make any other distribution to the Companyor any Subsidiary of the Company in respect of capital stock or with respect toany other interest or participation in, or measured by, its profits,(b) pay any Debt owed to the Company or any Subsidiary of the Company,(c) make any loan or advance or capital contribution to the Company or anySubsidiary of the Company, (d) sell, lease or transfer any of itsProperty, or (e) grant a Lien on any of its Properties.

4.18         Modification of Certain Agreements.  During the period beginning on the date ofthis Agreement and ending on the Termination Date, the Company will not, norwill it permit any of the Company Subsidiaries to, consent to or implement anytermination, amendment, modification, supplement or waiver of (a) thecertificate or articles of incorporation, articles of organization, bylaws,regulations or other constituent documents of the Company or any such Company Subsidiaryor (b) any Material Contract to which it is a party; *provided*,*however*, that any of such documents maybe amended or modified if and to the extent that such change or modification isnecessary in order to carry out the intent of any Transaction Document.

4.19         ***Intentionally Left Blank***

4.20         Issuance Limitation.  During the period beginning on the date ofthis Agreement and ending on the Termination Date, the Company shall not issue,sell or exchange, or agree or obligate itself to issue, sell or exchange orreserve, agree to or set aside for issuance, sale or exchange, (1) any CommonStock or Common Stock Equivalents, (2) any other equity security of theCompany, including without limitation shares of preferred stock, (3) any othersecurity of the Company which by its terms is convertible into or exchangeableor exercisable for preferred stock or other equity security; *provided*, *however*, thatthe foregoing shall not apply to any Excluded Security.

4.21         Most Favored Nation.  The Company hereby represents and covenantsthat none of the terms offered to any Person in a Permitted Subordinated Debttransaction will be more favorable than the terms offered to the Purchasersunder this Agreement or any of the other Transaction Documents, and in theevent that any of the terms in a Permitted Subordinated Debt transaction aremore favorable than the terms contained in this Agreement or any of the otherTransaction Documents, the applicable terms of this Agreement and the otherTransaction Documents shall be, without any further action by the Purchasers orthe Company, deemed amended and modified in a manner that is economically andlegally equivalent to the more favorable terms contained in such PermittedSubordinated Debt transaction. Notwithstanding the foregoing, the Company agrees, at its expense, totake such other actions (such as entering into amendments to the TransactionDocuments) as the Purchasers may reasonably request to further effectuate theforegoing.

5.             *TRANSFER AGENTINSTRUCTIONS*.

Onor prior to the Closing Date, the Company shall execute and deliver irrevocablewritten instructions to the transfer agent for its Common Stock (the “***Transfer Agent***”), and provide eachPurchaser with a copy thereof, directing the Transfer Agent (i) to issuecertificates representing Conversion Shares upon conversion of the Notes andreceipt of a valid Conversion Notice (as defined in the Notes) from aPurchaser, in the amount specified in such Conversion Notice, in the name ofsuch Purchaser or its nominee, (ii) to issue certificates representing 

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Warrant Sharesupon exercise of the Warrants and (iii) to deliver such certificates to suchPurchaser no later than the close of business on the third (3rd) business dayfollowing the related Conversion Date (as defined in the Notes) or ExerciseDate (as defined in the Warrant), as the case may be.  Such certificates may bear legends pursuantto applicable provisions of this Agreement or applicable law.  The Company shall instruct the transfer agentthat, in lieu of delivering physical certificates representing shares of CommonStock to an Purchaser upon conversion of the Notes, or exercise of theWarrants, and as long as the Transfer Agent is a participant in the DepositoryTrust Company (“***DTC***”) Fast AutomatedSecurities Transfer program, and such Purchaser has not informed the Companythat it wishes to receive physical certificates therefor, and no restrictivelegend is required to appear on any physical certificate if issued, thetransfer agent may effect delivery of Conversion Shares or Warrant Shares, asthe case may be, by crediting the account of such Purchaser or its nominee atDTC for the number of shares for which delivery is required hereunder withinthe time frame specified above for delivery of certificates.  The Company represents to and agrees witheach Purchaser that it will not give any instruction to the Transfer Agent thatwill conflict with the foregoing instruction or otherwise restrict suchPurchaser’s right to convert the Notes or to receive Conversion Shares inaccordance with the terms of the Notes or to exercise the Warrant or to receiveWarrant Shares upon exercise of the Warrants. In the event that the Company’s relationship with the Transfer Agentshould be terminated for any reason, the Company shall use its best efforts tocause the Transfer Agent to continue acting as transfer agent pursuant to theterms hereof until such time that a successor transfer agent is appointed bythe Company and receives the instructions described above.

Thelegend set forth in ***Section 2.7*** shall be removedand the Company shall issue a certificate without such legend or any otherlegend to the holder of the applicable Securities upon which it is stamped, if(i) such Securities are registered for resale under the Securities Act, (ii) inconnection with a sale, assignment or other transfer, such holder provides theCompany with an opinion of counsel, in a form reasonably acceptable to theCompany, to the effect that such sale, assignment or transfer of suchSecurities may be made without registration under the applicable requirementsof the Securities Act, or (iii) such holder provides the Company withreasonable assurance that such Securities can be sold, assigned or transferredpursuant to Rule 144.  Following theEffective Date or at such earlier time as a legend is no longer required, theCompany will no later than three Business Days following the delivery by aPurchaser to the Company or the Company’s transfer agent of a legendedcertificate representing such Securities, deliver or cause to be delivered tosuch Purchaser a certificate representing such Securities that is free from allrestrictive and other legends.  Following the Effective Date and upon thedelivery to any Purchaser of any certificate representing Securities that isfree from all restrictive and other legends, such Purchaser agrees that anysale of such Securities shall be made pursuant to the Registration Statementand in accordance with the plan of distribution described therein or pursuantto an available exemption from the registration requirements of the SecuritiesAct.  The Company may not make any notation on its records or giveinstructions to any transfer agent of the Company that enlarge the restrictionson transfer set forth in ***Section 2.6***.  The Company will not effect or publiclyannounce its intention to effect any exchange, recapitalization or othertransaction that effectively requires or rewards physical delivery ofcertificates evidencing the Common Stock.

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6.             *CONDITIONS TO THE COMPANY’SOBLIGATION TO SELL*.

Theobligation of the Company hereunder to issue and sell a Note and Warrant toeach Purchaser at the Closing is subject to the satisfaction, on or before theClosing Date, of each of the following conditions, provided that theseconditions are for the Company’s sole benefit and may be waived by the Companyat any time in its sole discretion by providing each Purchaser with priorwritten notice thereof:

6.1           Such Purchaser shall have executedand delivered to the Company this Agreement, the Registration Rights Agreement,each other Transaction Document to which it is a party.

6.2           Such Purchaser shall have tendered tothe Company the Purchase Price (less the amounts withheld pursuant to ***Section 4.7***) for the Note andWarrant being purchased by such Purchaser at the Closing by wire transfer ofimmediately available funds pursuant to wire instructions provided by theCompany prior to the Closing Date.

6.3           The representations and warranties ofsuch Purchaser shall be true and correct in all material respects as of thedate when made and as of the Closing Date as though made at that time (exceptfor representations and warranties that speak as of a specific date), and suchPurchaser shall have performed, satisfied and complied in all material respectswith the covenants, agreements and conditions required by this Agreement to beperformed, satisfied or complied with by such Purchaser at or prior to theClosing Date.

7.             *CONDITIONS TO EACHPURCHASER’S OBLIGATION TO PURCHASE*.

The obligation ofeach Purchaser hereunder to purchase a Note and Warrant at the Closing issubject to the satisfaction, at or before the Closing Date, of each of thefollowing conditions, provided that these conditions are for such Purchaser’ssole benefit and may be waived by such Purchaser at any time in its solediscretion by providing the Company with prior written notice thereof:

7.1           The Company shall have executed anddelivered to such Purchaser (i) this Agreement, (ii) a Note, (iii) a Warrant,(iv) the Registration Rights Agreement, and (v) each other TransactionDocument.

7.2           The Company shall have delivered tosuch Purchaser a copy of the Irrevocable Transfer Agent Instructions, whichinstructions shall have been delivered to and acknowledged in writing by theCompany’s transfer agent.

7.3           The Company shall have delivered tosuch Purchaser a certificate evidencing the incorporation or organization andgood standing of the Company and each of its operating Subsidiaries in suchentity’s state of incorporation or organization issued by the Secretary ofState of such state as of a date within ten (10) days of the Closing Date.

7.4           The Common Stock (A) shall be listedon the Principal Market and (B) shall not have been suspended, as of theClosing Date, by the Commission or the Principal Market from trading on thePrincipal Market nor shall suspension by the Commission or the Principal Markethave been threatened, as of the Closing Date, either (x) in writing by the 

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Commission or thePrincipal Market or (y) by falling below the minimum listing maintenancerequirements of the Principal Market.

7.5           The Company shall have delivered tosuch Purchaser a certificate, signed by the Secretary or an Assistant Secretaryof the Company, attaching (i) the Certificate of Incorporation and By-Laws ofthe Company, and (ii) resolutions passed by its Board of Directors, or a dulyauthorized committee thereof, to authorize the transactions contemplated herebyand by the other Transaction Documents, and certifying that such documents aretrue and complete copies of the originals and that such resolutions have notbeen amended or superseded, it being understood that such Purchaser may rely onsuch certificate as a representation and warranty of the Company made herein.

7.6           The representations and warranties ofthe Company shall be true and correct as of the date when made and as of theClosing Date as though made at that time (except for representations andwarranties that speak as of a specific date) and the Company shall haveperformed, satisfied and complied in all respects with the covenants,agreements and conditions required by the Transaction Documents to beperformed, satisfied or complied with by the Company at or prior to the ClosingDate. Such Purchaser shall have received a certificate, executed by the ChiefExecutive Officer of the Company, dated as of the Closing Date, to theforegoing effect and as to such other matters as may be reasonably requested bysuch Purchaser.

7.7           The Company shall have delivered tosuch Purchaser a letter from the Company’s transfer agent certifying the numberof shares of Common Stock outstanding as of a date within five days of theClosing Date.

7.8           The Company shall have obtained allgovernmental, regulatory or third party consents and approvals, if any,necessary for the sale of the Notes and Warrants.

7.9           The Company shall have delivered tosuch Purchaser such other documents relating to the transactions contemplatedby this Agreement as such Purchaser or its counsel may reasonably request.

8.             *TERMINATION*.

Inthe event that the Closing shall not have occurred with respect to a Purchaseron or before five (5) days from the date hereof due to the Company’s or suchPurchaser’s failure to satisfy the conditions set forth in ***Sections6***and ***7*** above(and the non-breaching party’s failure to waive such unsatisfied condition(s)),the non-breaching party shall have the option to terminate this Agreement withrespect to such breaching party at the close of business on such date withoutliability of any party to any other party.

9.             *MISCELLANEOUS*.

9.1           Governing Law; Jurisdiction; JuryTrial. All questions concerning the construction, validity, enforcement andinterpretation of this Agreement shall be governed by the internal laws of theState of New York, without giving effect to any choice of law or conflict oflaw provision or rule (whether of the State of New York or any otherjurisdictions) that would cause the application of the laws of anyjurisdictions other than the State of New York. Each

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party herebyirrevocably submits to the exclusive jurisdiction of the state and federalcourts sitting in The City of New York, Borough of Manhattan for theadjudication of any dispute hereunder or in connection herewith or with anytransaction contemplated hereby or discussed herein, and hereby irrevocablywaives, and agrees not to assert in any suit, action or proceeding, any claimthat it is not personally subject to the jurisdiction of any such court, thatsuch suit, action or proceeding is brought in an inconvenient forum or that thevenue of such suit, action or proceeding is improper. Each party herebyirrevocably waives personal service of process and consents to process beingserved in any such suit, action or proceeding by mailing a copy thereof to suchparty at the address for such notices to it under this Agreement and agreesthat such service shall constitute good and sufficient service of process andnotice thereof. Nothing contained herein shall be deemed to limit in any wayany right to serve process in any manner permitted by law. EACH PARTY HEREBYIRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURYTRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH ORARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

9.2           Counterparts. This Agreementmay be executed in two or more identical counterparts, all of which shall beconsidered one and the same agreement and shall become effective whencounterparts have been signed by each party and delivered to the other party; *provided*, that any party may deliver an executed copy ofthis Agreement to any other party by facsimile transmission, in which case thisAgreement as so delivered shall be deemed duly executed and delivered and shallbe binding upon the signatory thereto with the same force and effect as if thesignature were an original.

9.3           Headings. The headings of thisAgreement are for convenience of reference and shall not form part of, oraffect the interpretation of, this Agreement.

9.4           Severability. If any provisionof this Agreement shall be invalid or unenforceable in any jurisdiction, suchinvalidity or unenforceability shall not affect the validity or enforceabilityof the remainder of this Agreement in that jurisdiction or the validity orenforceability of any provision of this Agreement in any other jurisdiction.

9.5           Entire Agreement; Amendments.This Agreement supersedes all other prior oral or written agreements betweenthe Purchasers, the Company, their affiliates and Persons acting on theirbehalf with respect to the matters discussed herein (including, withoutlimitation, the Original Agreement), and this Agreement and the instrumentsreferenced herein contain the entire understanding of the parties with respectto the matters covered herein and therein and, except as specifically set forthherein or therein, neither the Company nor any Purchaser makes anyrepresentation, warranty, covenant or undertaking with respect to such matters.This Agreement and the other TransactionDocuments constitute the entire agreement between the parties with regard tothe subject matter hereof and thereof, superseding all prior agreements orunderstandings, whether written or oral, between or among the parties.  Except as expressly provided herein, neitherthis Agreement nor any term hereof may be amended or waived except pursuant toa written instrument executed by the Company and the holders of at leasttwo-thirds (2/3) of the Registrable Securities into which all of theNotes and 

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Warrants then outstandingare convertible or exercisable (without regard to any limitation on suchconversion or exercise), and no provisionhereof may be waived other than by a written instrument signed by the holdersof at least two-thirds (2/3) of the Registrable Securities into whichall of the Notes and Warrants then outstanding are convertible or exercisable(without regard to any limitation on such conversion or exercise).  Anywaiver or consent shall be effective only in the specific instance and for thespecific purpose for which given.

9.6           Notices. Any notices,consents, waivers or other communications required or permitted to be givenunder the terms of this Agreement must be in writing and will be deemed to havebeen delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,when sent by facsimile (provided confirmation of transmission is mechanicallyor electronically generated and kept on file by the sending party); or (iii)one Business Day after deposit with an overnight courier service, in each caseproperly addressed to the party to receive the same. The addresses andfacsimile numbers for such communications shall be:
| if to the Company:                                 |
|----------------------------------------------------|
|                                               |   |   |
|                                               | Earth Biofuels, Inc. |
|                                               | 3001 Knox Street, Suite 403, |
|                                               | Dallas, Texas 75205 |
|                                               | Telephone: | 214.389.9800 |
|                                               | Facsimile: | 214.389.9806 |
|                                               | Attention: | Dennis McLaughlin |
|                                               |   |   |
| with a copy (for  informational purposes only) to: |
|                                               |   |   |
|                                               | Scheef & Stone, LLP |
|                                               | Telephone: | 214.706.4200 |
|                                               | Facsimile: | 214.706.4242 |
|                                               | Attention: | Roger A. Crabb, Esq. |
|                                                    |  |  |  |

 

and if to aPurchaser, to its address and facsimile number set forth on ***Exhibit A***, with copies to suchPurchaser’s representatives as set forth on ***ExhibitA***, or to such other address and/or facsimile number and/or tothe attention of such other Person as the recipient party has specified bywritten notice given to each other party five (5) days prior to theeffectiveness of such change. Written confirmation of receipt (A) given by therecipient of such notice, consent, waiver or other communication, (B) mechanicallyor electronically generated by the sender’s facsimile machine containing thetime, date, recipient facsimile number and an image of the first page of suchtransmission or (C) provided by an overnight courier service shall berebuttable evidence of personal service, receipt by facsimile or receipt froman overnight courier service in accordance with clause (i), (ii) or (iii)above, respectively.

9.7           Successors and Assigns. ThisAgreement shall be binding upon and inure to the benefit of the parties andtheir respective successors and assigns, including any purchasers of Notes orWarrants. The Company shall not assign this Agreement or any rights orobligations hereunder, including by merger or consolidation, without the priorwritten consent of the RegistrableSecurities into which all of the Notes and Warrants then outstanding areconvertible or exercisable (without regard to any limitation on such conversionor exercise). A Purchaser may assign some or all of its rights hereunderwithout the consent of the Company, in which 

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event suchassignee shall be deemed to be a Purchaser hereunder in respect of suchassigned rights.

9.8           No Third Party Beneficiaries.This Agreement is intended for the benefit of the parties hereto and theirrespective permitted successors and assigns, and is not for the benefit of, normay any provision hereof be enforced by, any other Person.

9.9           Survival. Unless thisAgreement is terminated under ***Section 8***,the representations and warranties of the Company and the Purchasers containedin ***Sections 2*** and ***3***,the agreements and covenants set forth in ***Sections 4***,***5*** and ***9***shall survive the Closing and the delivery and exercise of Securities, asapplicable. Each Purchaser shall be responsible only for its ownrepresentations, warranties, agreements and covenants hereunder.

9.10         Further Assurances. Each partyshall do and perform, or cause to be done and performed, all such further actsand things, and shall execute and deliver all such other agreements,certificates, instruments and documents, as any other party may reasonablyrequest in order to carry out the intent and accomplish the purposes of thisAgreement and the consummation of the transactions contemplated hereby.

9.11         Indemnification.

(a)In consideration of each Purchaser’s execution and delivery of the TransactionDocuments and acquiring the Securities thereunder and in addition to all of theCompany’s other obligations under the Transaction Documents, the Company willindemnify and hold each Purchaser and its directors, managers, officers,shareholders, members, partners, employees and agents (each, an “***Purchaser Party***”) harmless from anyand all losses, liabilities, obligations, claims, contingencies, damages, costsand expenses, including all judgments, amounts paid in settlements, court costsand reasonable attorneys’ fees and costs of investigation (collectively, “***Losses***”) that any such PurchaserParty may suffer or incur as a result of or relating to (A) any breach of anyof the representations, warranties, covenants or agreements made by the Companyin this Agreement or in the other Transaction Documents or (B) any cause ofaction, suit or claim brought or made against such Purchaser Party by a thirdparty (including for these purposes a derivative action brought on behalf ofthe Company) and arising out of or resulting from (i) the execution, delivery,performance or enforcement of the Transaction Documents or any othercertificate, instrument or document contemplated hereby or thereby, (ii) anytransaction financed or to be financed in whole or in part, directly orindirectly, with the proceeds of the issuance of the Securities, or (iii) thestatus of such Purchaser or holder of the Securities as a Purchaser. If anyaction shall be brought against any Purchaser Party in respect of whichindemnity may be sought pursuant to this Agreement, such Purchaser Party shallpromptly notify the Company in writing, and the Company shall have the right toassume the defense thereof with counsel of its own choosing.  Any Purchaser Party shall have the right toemploy separate counsel in any such action and participate in the defensethereof, but the fees and expenses of such counsel shall be at the expense ofsuch Purchaser Party except to the extent that (i) the employment thereof has beenspecifically authorized by the Company in writing, (ii) the Company has failedafter a reasonable period of time following such Purchaser Party’s writtenrequest that it do so, to assume such defense and to employ counsel or (iii) insuch action there is, in the reasonable opinion of such separate counsel, amaterial conflict on any material issue between the position of the Company andthe position of such Purchaser Party. The Company 

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will not be liableto any Purchaser Party under this Agreement (i) for any settlement by anPurchaser Party effected without the Company’s prior written consent, whichshall not be unreasonably withheld or delayed; or (ii) to the extent, but onlyto the extent that a loss, claim, damage or liability is attributable to suchPurchaser Party’s wrongful actions or omissions, or gross negligence or to suchPurchaser Party’s breach of any of the representations, warranties, covenantsor agreements made by such Purchaser in this Agreement or in the otherTransaction Documents.

(b)           If the indemnification provided forin ***Section 9.11(a)*** is judiciallydetermined to be unavailable to a Purchaser Party in respect of any Lossesincurred by them, then, in lieu of indemnifying such Purchaser Party hereunder,the Person from whom indemnification is sought hereunder shall contribute tothe amount paid or payable by such Purchaser Party as a result of such Losses(and expense relating thereto): (A) in such proportion as is appropriate toreflect the relative benefits to the applicable Purchaser Party, on the onehand, and the Person providing indemnification hereunder, on the other hand, oftransactions contemplated by this Agreement or (B) if the allocation providedby clause (A) above is not available, in such proportion as is appropriate toreflect not only the relative benefits referred to in such clause (A) but alsothe relative fault of each of the applicable Persons, as well as any otherrelevant equitable considerations.

9.12         No Strict Construction. Thelanguage used in this Agreement and the other Transaction Documents will bedeemed to be the language chosen by the parties to express their mutual intent,and no rules of strict construction will be applied against any party.

9.13         Remedies. The Company and eachPurchaser and its permitted successors and assigns shall have all rights andremedies set forth in this Agreement and the Transaction Documents and allrights and remedies which they may have under any law or in equity. The Companyand each Purchaser and its permitted successors and assigns shall be entitledto enforce such rights specifically, to recover damages by reason of any breachof any provision of this Agreement or the Transaction Documents and to exerciseall other rights granted by law or in equity, if available. Furthermore, theCompany recognizes that in the event that it fails to perform, observe, ordischarge any or all of its obligations under the Transaction Documents, anyremedy at law may prove to be inadequate relief to the Purchasers. The Companytherefore agrees that the Purchasers shall be entitled to seek temporary andpermanent injunctive relief in any such case without the necessity of provingactual damages and without posting a bond or other security.

9.14         Rescission and Withdrawal Right.Notwithstanding anything to the contrary contained in (and without limiting anysimilar provisions of) the Transaction Documents, whenever any Purchaserexercises a right, election, demand or option under a Transaction Document(including without limitation a Note) and the Company does not timely performits related obligations within the periods therein provided, then suchPurchaser may rescind or withdraw, in its sole discretion from time to timeupon written notice to the Company, any relevant notice, demand or election inwhole or in part without prejudice to its future actions and rights.

9.15         Payment Set Aside. To the extentthat the Company makes a payment or payments to the Purchasers hereunder orpursuant to any of the other Transaction Documents or 

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the Purchasers enforceor exercise their rights hereunder or thereunder, and such payment or paymentsor the proceeds of such enforcement or exercise or any part thereof aresubsequently invalidated, declared to be fraudulent or preferential, set aside,recovered from, disgorged by or are required to be refunded, repaid orotherwise restored to the Company, a trustee, receiver or any other Personunder any law (including, without limitation, any bankruptcy law, state orfederal law, common law or equitable cause of action), then to the extent ofany such restoration the obligation or part thereof originally intended to besatisfied shall be revived and continued in full force and effect as if suchpayment had not been made or such enforcement or setoff had not occurred.

9.16         Independent Nature of Purchasers’Obligations and Rights. The obligations of each Purchaser under anyTransaction Document are several and not joint with the obligations of anyother Purchaser, and no Purchaser shall be responsible in any way for the performanceof the obligations of any other Purchaser under any Transaction Document.Nothing contained herein or in any other Transaction Document, and no actiontaken by any Purchaser pursuant hereto or thereto, shall be deemed toconstitute the Purchasers as a partnership, an association, a joint venture orany other kind of entity, or create a presumption that the Purchasers are inany way acting in concert or as a group with respect to such obligations or thetransactions contemplated by the Transaction Documents and the Companyacknowledges that the Purchasers are not acting in concert or as a group withrespect to such obligations or the transactions contemplated by the TransactionDocuments. Each Purchaser confirms that it has independently participated inthe negotiation of the transaction contemplated hereby with the advice of itsown counsel and advisors. Each Purchaser shall be entitled to independentlyprotect and enforce its rights, including, without limitation, the rightsarising out of this Agreement or out of any other Transaction Documents, and itshall not be necessary for any other Purchaser to be joined as an additionalparty in any proceeding for such purpose.

[Signature PageFollows]

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**IN WITNESS WHEREOF,** each Purchaser and theCompany have caused this Securities Purchase Agreement to be duly executed asof the date first written above.

 
|        | **COMPANY:**             |
|--------|--------------------------|
|   |                     |
|   | **EARTH BIOFUELS, INC.** |
|   |                     |   |
|   |                     |   |
|   | By:                      | /s/ Dennis G. McLaughlin, III |   |
|   |                     | Name: Dennis G. McLaughlin, III |
|   |                     | Title: Chief Executive Officer |

 
|        | **PURCHASER:**                 |
|--------|--------------------------------|
|   | ** **                     |
|   |                           |
|   | **EVOLUTION MASTER FUND LTD.** |
|   | ** **                     |
|   | ** **                     |
|   | By:                            | /s/ Adrian Brindle |   |
|   |                           | Name: Adrian Brindle |
|   |                           | Title: Director |

 

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***Exhibit A***

**SCHEDULEOF PURCHASERS**

 
| **(1)  Purchaser**                                       | ** ** | **(2)  Address**                                                                                                                                                               | ** ** | **(3)  Jurisdiction  of  Residence** | ** ** | **(4)  Principal  Amount of  Note** | ** ** | **(5)  Purchase Price** | ** ** | **(6)  Legal Representative’s  Address** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|-------------------------|------------|-----------------------------------------------|------------|
|                                                     |       |                                                                                                                                                                           |       |                                 |       |                                |       |                    |       |                                          |       |
| Evolution Master  Fund Ltd. SPC, Segregated  Portfolio M |       | Walker House, Mary Street  P.O. Box 908 GT  George Town, Cayman  Island                                                                                                        |       | Cayman Islands                  |       | $                                   | 5,000,000  |                    | $          | 5,000,000                                     |       | Mazzeo Song LLP  708 Third Avenue  19th Floor  NY, NY 10017  Attn: Robert Mazzeo  Tel: 212-599-0700  Fax: 212-599-8400 |   |
|                                                     |       |                                                                                                                                                                           |       |                                 |       |                                |       |                    |       |                                          |       |
|                                                     |       | Additional Copy to:  Evolution Capital  Management, LLC  1132 Bishop Street,  Suite 1880  Honolulu, Hawaii 96813  Attn: Richard Chisholm  Tel: 808-441-4917  Fax: 808-441-4946 |       |                                 |       |                                |       | $                       |       |                                          |       |   |
|                                                          |            |                                                                                                                                                                                |            |                                      |            |                                     |            |                         |            |                                               |            |  |  |

 

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