**Exhibit 10.79**

**EXECUTION COPY**

**SECURITIES PURCHASE AGREEMENT**

**SECURITIESPURCHASE AGREEMENT** (the “**Agreement**”),dated as of August 11, 2006, by and among Earth Biofuels, Inc., a Delawarecorporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the ”**Company**”), and the investors listed on theSchedule of Buyers attached hereto (individually, a “**Buyer**” and collectively, the “**Buyers**”).

**WHEREAS**:

A.            The Company and each Buyer areexecuting and delivering this Agreement in reliance upon the exemption fromsecurities registration afforded by Section 4(2) of the Securities Act of 1933,as amended (the “**1933 Act**”), andRule 506 of Regulation D (“**Regulation D**”)as promulgated by the United States Securities and Exchange Commission (the “**SEC**”) under the 1933 Act.

B.            The Company has authorized a newseries of senior convertible notes of the Company, in the form attached heretoas Exhibit A (the “**Notes**”), whichNotes shall be convertible into the Company’s common stock, par value $0.001per share (the ”**Common Stock**”)(as converted, the “**Conversion Shares**”),in accordance with the terms of the Notes.

C.            Each Buyer wishes to purchase, andthe Company wishes to sell, upon the terms and conditions stated in thisAgreement, (i) that aggregate principal amount of the Notes set forth oppositesuch Buyer’s name in column (3) on the Schedule of Buyers attached hereto(which aggregate amount for all Buyers shall be $1,350,000), (ii) warrants, insubstantially the form attached hereto as Exhibit B-1 (the “**Series A Warrants**”),to acquire up to that number of additional shares of Common Stock set forthopposite such Buyer’s name in column (4) of the Schedule of Buyers (asexercised, collectively, the “**Series A Warrant Shares**”) and (iii) warrants,in substantially the form attached hereto as Exhibit B-2 (the “**Series B Warrants**”,and together with the Series A Warrants, the “**Warrants**”),to acquire up to that number of additional shares of Common Stock set forthopposite such Buyer’s name in column (5) of the Schedule of Buyers (asexercised, collectively, the “**Series B Warrant Shares**”, and together withthe Series A Warrant Shares, the “**Warrant Shares**”).

D.            Contemporaneously with the executionand delivery of this Agreement, the parties hereto are executing and deliveringa Registration Rights Agreement, substantially in the form attached hereto as ExhibitC (the “**Registration Rights Agreement**”),pursuant to which the Company will agree to provide certain registration rightswith respect to the Registrable Securities (as defined in the RegistrationRights Agreement) under the 1933 Act and the rules and regulations promulgatedthereunder, and applicable state securities laws.

E.             The Notes, the Conversion Shares,the Warrants and the Warrant Shares collectively are referred to herein as the “**Securities**”.

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**NOW,THEREFORE**, the Company and each Buyer hereby agree asfollows:

# 1.             PURCHASEAND SALE OF NOTES AND WARRANTS.

## (a)           Purchase of Notes and Warrants.

### (i)            Notesand Warrants.** **Subject to the satisfaction (orwaiver) of the conditions set forth in Sections 6 and 7 below, on the ClosingDate (as defined below), the Company shall issue and sell to each Buyer, andeach Buyer severally, but not jointly, shall purchase from the Company, (x) aNote in the principal amount as is set forth opposite such Buyer’s name incolumn (3) on the Schedule of Buyers, (y) the Series A Warrants to acquire upto that number of Series A Warrant Shares as is set forth opposite such Buyer’sname in column (4) on the Schedule of Buyers and (z) the Series B Warrants toacquire up to that number of Series B Warrant Shares as is set forth oppositesuch Buyer’s name in column (5) on the Schedule of Buyers (the “**Closing**”).

### (ii)           Closing.  The date and time of the Closing (the “**Closing Date**”) shall be 10:00 a.m., CST time, on August 11,2006 (or such other date as is mutually agreed to by the Company and eachBuyer) after notification of satisfaction (or waiver) of the conditions to theClosing set forth in Sections 6 and 7 below at the offices of the Company, 3001Knox Street, Suite 403, Dallas, Texas 75205.

### (iii)          PurchasePrice.  The aggregate purchase pricefor the Notes and the Warrants to be purchased by each such Buyer at theClosing (the “**Purchase Price**”)shall be the amount set forth opposite each Buyer’s name in column (6) of theSchedule of Buyers.  Each Buyer shall pay$1.00 for each $1.00 of principal amount of Notes and related Warrants to bepurchased by such Buyer at the Closing.

## (b)           Form of Payment.  On the Closing Date, (i) each Buyer shall payits Purchase Price to the Company for the Notes and the Warrants to be issuedand sold to such Buyer at the Closing, by wire transfer of immediatelyavailable funds in accordance with the Company’s written wire instructions and(ii) the Company shall deliver to each Buyer Notes (allocated in theprincipal amounts as such Buyer shall request) with an aggregate principalamount as is set forth opposite such Buyer’s name in column (3) on the Scheduleof Buyers along with the Warrants (allocated in the amounts as such Buyer shallrequest) to acquire up to an aggregate number of Warrant Shares as is set forthopposite such Buyer’s name in column (4) on the Schedule of Buyers, in eachcase duly executed on behalf of the Company and registered in the name of suchBuyer.

# 2.             BUYER’SREPRESENTATIONS AND WARRANTIES.

Each Buyer represents andwarrants to the Company with respect to only itself that:

## (a)           No Public Sale or Distribution.  Such Buyer is (i) acquiring the Notes and theWarrants and (ii) upon conversion of the Notes and exercise of the Warrantswill acquire the Conversion Shares issuable upon conversion of the Notes andthe Warrant Shares issuable upon exercise of the Warrants, for investmentpurposes, as principal for its own account and not with a

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## view towards, or for resale in connectionwith, the public sale or distribution thereof, except pursuant to salesregistered or exempted under the 1933 Act; provided, however,that by making the representations herein, such Buyer does not agree to holdany of the Securities for any minimum or other specific term and reserves theright to dispose of the Securities at any time in accordance with or pursuantto a registration statement or an exemption under the 1933 Act.  Such Buyer is acquiring the Securitieshereunder in the ordinary course of its business.  Such Buyer does not presently have anyagreement or understanding, directly or indirectly, with any Person todistribute any of the Securities.

## (b)           Accredited Investor Status.  At the time such Buyer was offered theSecurities, it was, and at the date hereof it is, and on each date on which itexercises Notes or Warrants it will be, an “accredited investor” as defined inRule 501(a) under the 1933 Act.  SuchBuyer is not a registered broker-dealer under Section 15 of the 1934 Act.

## (c)           Reliance on Exemptions.  Such Buyer understands that the Securitiesare being offered and sold to it in reliance on specific exemptions from theregistration requirements of United States federal and state securities lawsand that the Company is relying in part upon the truth and accuracy of, andsuch Buyer’s compliance with, the representations, warranties, agreements,acknowledgments and understandings of such Buyer set forth herein in order todetermine the availability of such exemptions and the eligibility of such Buyerto acquire the Securities.

## (d)           Information.  Such Buyer and its advisors, if any, havebeen furnished with all materials relating to the business, finances andoperations of the Company and materials relating to the offer and sale of theSecurities which have been requested by such Buyer.  Such Buyer and its advisors, if any, havebeen afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other duediligence investigations conducted by such Buyer or its advisors, if any, orits representatives shall modify, amend or affect such Buyer’s right to rely onthe Company’s representations and warranties contained herein.  Such Buyer understands that its investment inthe Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it hasconsidered necessary to make an informed investment decision with respect toits acquisition of the Securities.

## (e)           No Governmental Review.  Such Buyer understands that no United Statesfederal or state agency or any other government or governmental agency haspassed on or made any recommendation or endorsement of the Securities or thefairness or suitability of the investment in the Securities nor have suchauthorities passed upon or endorsed the merits of the offering of theSecurities.

## (f)            Transfer or Resale.  Such Buyer understands that except asprovided in the Registration Rights Agreement: (i) the Securities have not beenand are not being registered under the 1933 Act or any state securities laws,and may not be offered for sale, sold, assigned or transferred unless (A)subsequently registered thereunder, (B) such Buyer shall have delivered to theCompany an opinion of counsel, in a form reasonably acceptable to the Company,to the effect that such Securities to be sold, assigned or transferred may besold, assigned or transferred pursuant to an exemption from such registration,or (C) such Buyer provides the Company with reasonable assurance that suchSecurities can be sold, assigned or transferred pursuant to Rule

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## 144 or Rule 144A promulgated under the 1933Act, as amended, (or a successor rule thereto) (collectively, “**Rule 144**”); (ii) any sale of the Securities made in relianceon Rule 144 may be made only in accordance with the terms of Rule 144 andfurther, if Rule 144 is not applicable, any resale of the Securities undercircumstances in which the seller (or the Person (as defined in Section 3(s))through whom the sale is made) may be deemed to be an underwriter (as that termis defined in the 1933 Act) may require compliance with some other exemptionunder the 1933 Act or the rules and regulations of the SEC thereunder; and(iii) neither the Company nor any other Person is under any obligation toregister the Securities under the 1933 Act or any state securities laws or tocomply with the terms and conditions of any exemption thereunder.  The Securities may be pledged in connectionwith a bona fide margin account or other loan or financing arrangement securedby the Securities and such pledge of Securities shall not be deemed to be atransfer, sale or assignment of the Securities hereunder, and no Buyereffecting a pledge of Securities shall be required to provide the Company withany notice thereof or otherwise make any delivery to the Company pursuant tothis Agreement or any other Transaction Document (as defined in Section 3(b)),including, without limitation, this Section 2(f).

## (g)           Legends.  Such Buyer understands that the certificatesor other instruments representing the Notes and the Warrants and, until suchtime as the resale of the Conversion Shares and the Warrant Shares have beenregistered under the 1933 Act as contemplated by the Registration RightsAgreement, the stock certificates representing the Conversion Shares and theWarrant Shares, except as set forth below, shall bear any legend as required bythe “blue sky” laws of any state and a restrictive legend in substantially thefollowing form (and a stop-transfer order may be placed against transfer ofsuch stock certificates):

**[**NEITHERTHE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THESECURITIES INTO WHICH THESE SECURITIES ARE **[**CONVERTIBLE**]****[**EXERCISABLE**]** HAVE BEEN**][**THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN**]** REGISTERED UNDER THE SECURITIES ACT OF1933, AS AMENDED, OR APPLICABLE STATE 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, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THATREGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TORULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED INCONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCINGARRANGEMENT SECURED BY THE SECURITIES.

The legend set forthabove shall be removed and the Company shall issue a certificate without suchlegend to the holder of the Securities upon which it is stamped, if, unlessotherwise required by state securities laws, (i) such Securities are registeredfor resale under the 1933 Act (a

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“**RegistrationEvent**”), or (ii) in connection with a sale, assignment or othertransfer, such holder provides the Company with an opinion of counsel, in aform reasonably acceptable to the Company, to the effect that such sale ortransfer of the Securities may be made without registration under theapplicable requirements of the 1933 Act, or (iii) following a sale of transferof such Securities pursuant to Rule 144 (assuming the transferor is not anaffiliate of the Company), or (iv) while such Securities are eligible for saleunder Rule 144(k).

## (h)           Validity; Enforcement.  This Agreement and the Registration RightsAgreement to which such Buyer is a party have been duly and validly authorized,executed and delivered by such Buyer and constitute the legal, valid andbinding obligations of such Buyer enforceable against such Buyer in accordancewith their respective terms, except as such enforceability may be limited bygeneral principles of equity or to applicable bankruptcy, insolvency,reorganization, moratorium, liquidation and other similar laws relating to, oraffecting generally, the enforcement of applicable creditors’ rights andremedies.

## (i)            No Conflicts.  The execution, delivery and performance bysuch Buyer of this Agreement and the Registration Rights Agreement to whichsuch Buyer is a party and the consummation by such Buyer of the transactionscontemplated hereby and thereby will not (i) result in a violation of theorganizational documents of such Buyer 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 agreement, indenture or instrument towhich such Buyer is a party, or (iii) result in a violation of any law, rule,regulation, order, judgment  or decree(including federal and state securities laws) applicable to such Buyer, exceptin the case of clauses (ii) and (iii) above, for such conflicts, defaults,rights or violations which would not, individually or in the aggregate,reasonably be expected to have a material adverse effect on the ability of suchBuyer to perform its obligations hereunder.

## (j)            Residency.  Such Buyer is a resident of that jurisdictionspecified below its address on the Schedule of Buyers.

## (k)           Independent Investment Decision.  Such Buyer has independently evaluated themerits of its decision to purchase Securities pursuant to the TransactionDocuments, and such Buyer confirms that it has not relied on the advice of theCompany nor any other Buyer’s business and/or legal counsel in making suchdecision.

## (l)            Certain Trading Activities.  Buyer has not directly or indirectly, nor hasany Person acting on behalf of or pursuant to any understanding with suchBuyer, engaged in any transactions in the securities of the Company (including,without limitations, any Short Sales involving the Company’s securities) sincethe time that such Buyer was first contacted by the Company  regarding the transactions contemplatedhereby.  Such Buyer covenants that neitherit nor any Person acting on its behalf or pursuant to any understanding with itwill engage in any transactions in the securities of the Company (including ShortSales) prior to the time that the transactions contemplated by this Agreementare publicly disclosed.  For the purposeof this Agreement, **“ShortSales”**include, without limitation, all “short sales” as defined inRule 200 promulgated underRegulation SHO under the 1934 Act and all types of direct and indirect stockpledges, forward sale contracts, options, puts, calls, swaps and similararrangements (including

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## on a total return basis), and sales and othertransactions through non-US broker dealers or foreign regulated brokers.

## (m)          General Solicitation.  Such Buyer is not purchasing the Securitiesas a result of any advertisement, article, notice or other communicationregarding the Securities published in any newspaper, magazine or similar mediaor broadcast over television or radio or presented at any seminar.

## (n)           Organization.  Such Buyer is an entity duly organized,validly existing and in good standing under the laws of the jurisdiction of itsorganization with the requisite corporate or partnership power and authority toenter into and to consummate the transactions contemplated by the applicableTransaction Documents (as defined below) and otherwise to carry out itsobligations thereunder.

# 3.             REPRESENTATIONSAND WARRANTIES OF THE COMPANY.

The Company representsand warrants to each of the Buyers that:

## (a)           Organization and Qualification.  The Company and its “**Subsidiaries**” (which for purposes of this Agreement meansany joint venture or any entity (i) in which the Company, directly orindirectly, owns 50% or more of the outstanding capital stock or holds anequity or similar interest representing 50% or more of the outstanding equityor similar interest of such entity, (ii) that is a significant subsidiary ofthe Company as defined under Regulation S-X of the 1934 Act or (iii) in whichthe Company controls or operates all or part of the business, operations oradministration of such entity) are entities duly organized and validly existingin good standing under the laws of the jurisdiction in which they are formed,and have the requisite power and authorization to own their properties and to carryon their business as now being conducted.  Each of the Company and its Subsidiaries is duly qualified as a foreignentity to do business and is in good standing in every jurisdiction in whichits ownership of property or the nature of the business conducted by it makessuch qualification necessary, except to the extent that the failure to be soqualified or be in good standing would not reasonably be expected to have aMaterial Adverse Effect.  As used in thisAgreement, “**Material Adverse Effect**” means anymaterial adverse effect on the business, properties, assets, operations,results of operations, condition (financial or otherwise) or prospects of theCompany and its Subsidiaries, taken as a whole, or on the transactionscontemplated hereby and the other Transaction Documents or by the agreementsand instruments to be entered into in connection herewith or therewith, or onthe authority or ability of the Company to perform its obligations under theTransaction Documents (as defined below). The Company has no Subsidiaries except as set forth on Schedule 3(a).

## (b)           Authorization; Enforcement;Validity.  The Company has therequisite power and authority to enter into and perform its obligations underthis Agreement, the Notes, the Registration Rights Agreement, the IrrevocableTransfer Agent Instructions (as defined in Section 5(b)), the Warrants, andeach of the other agreements entered into by the parties hereto in connectionwith the transactions contemplated by this Agreement (collectively, the “**Transaction Documents**”) and to issue the Securities inaccordance with the terms hereof and thereof. The execution and delivery of the Transaction Documents by the Companyand the consummation by the Company of the transactions contemplated hereby andthereby, including, without limitation,

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## the issuance of the Notes and the Warrants,the reservation for issuance and the issuance of the Conversion Shares****issuable upon conversion of the Notes and the reservationfor issuance and issuance of Warrant Shares issuable upon exercise of theWarrants have been duly authorized by the Company’s Board of Directors andother than (i) the filing of a Form D under Regulation D of the 1933 Act,(ii) the filing with the SEC of one or more Registration Statements inaccordance with the requirements of the Registration Rights Agreement, (iii)such filings as are required by the Principal Market (as defined below) and(iv) such filings required under applicable securities or “Blue Sky” laws ofthe states of the United States, no further filing, consent, or authorizationis required by the Company, its Board of Directors or its stockholders.  This Agreement and the other TransactionDocuments of even date herewith have been duly executed and when delivered bythe Company will constitute the legal, valid and binding obligations of theCompany, enforceable against the Company in accordance with their respectiveterms, except as such enforceability may be limited by general principles ofequity or applicable bankruptcy, insolvency, reorganization, moratorium,liquidation or similar laws relating to, or affecting generally, theenforcement of applicable creditors’ rights and remedies.

## (c)           Issuance of Securities.  The issuance of the Notes and the Warrantsare duly authorized and are free from all taxes, liens and charges with respectto the issue thereof.  As of the Closing,a number of shares of Common Stock shall have been duly authorized and reservedfor issuance which equals 130% of the maximum number of shares Common Stockissuable upon conversion of the Notes (assuming such conversion occurred atClosing) and upon exercise of the Warrants (assuming such exercise occurred atClosing).  Upon conversion in accordancewith the Notes or exercise in accordance with the Warrants, as the case may be,the Conversion Shares and the Warrant Shares, respectively, when issued, willbe validly issued, fully paid and nonassessable and free from all preemptive orsimilar rights, taxes, liens and charges with respect to the issue thereof,with the holders being entitled to all rights accorded to a holder of CommonStock.  Based in part upon the accuracyof the representations and warranties of the Buyers’ set forth in Article 2,issuance by the Company of the Securities is, or will be upon issuance, exemptfrom registration under the 1933 Act.

## (d)           No Conflicts.  The execution, delivery and performance ofthe Transaction Documents by the Company and the consummation by the Company ofthe transactions contemplated hereby and thereby (including, without limitation,the issuance of the Notes and the Warrants, and reservation for issuance andissuance of the Conversion Shares and the Warrant Shares) will not (i) resultin a violation of any certificate of incorporation, certificate of formation,any certificate of designations or other constituent documents of the Companyor any of its Subsidiaries, any capital stock of the Company or any of itsSubsidiaries or bylaws of the Company or any of its Subsidiaries or (ii)conflict with, or constitute a default (or an event which with notice or lapseof time or both would become a default) in any respect under, or give to othersany rights of termination, amendment, acceleration or cancellation of, anyagreement, indenture or instrument to which the Company or any of itsSubsidiaries is a party, or (iii) result in a violation of any law, rule,regulation, order, judgment or decree (including foreign, federal and statesecurities laws and regulations and the rules and regulations of the OTCBulletin Board as reported on Bloomberg Financial Markets LP (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; except in the case of each of clauses (ii)and (iii), such as

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## could not, individually or in the aggregate,have or reasonably be expected to result in a Material Adverse Effect.

## (e)           Consents.  Other than as contemplated in Section 3(b),and otherwise as set forth on Schedule 3(e), the Company is not requiredto obtain any consent, authorization or order of, or make any filing orregistration with, any court, governmental agency or any regulatory orself-regulatory agency or any other Person in order for it to execute, deliveror perform any of its obligations under or contemplated by the TransactionDocuments, in each case in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filingsand registrations which the Company is required to obtain pursuant to thepreceding sentence have been obtained or effected on or prior to the ClosingDate (other than those which the Company is not required to obtain inaccordance with the Transaction Documents until after the Closing Date) and theCompany and its Subsidiaries are unaware of any facts or circumstances whichmight prevent the Company from obtaining or effecting any of the registration,application or filings pursuant to the preceding sentence.  The Company is not in violation of the listingrequirements of the Principal Market and has no knowledge of any facts whichwould reasonably lead to delisting or suspension of the Common Stock in theforeseeable future.

## (f)            Acknowledgment Regarding Buyer’sPurchase of Securities.  The Companyacknowledges and agrees that each Buyer is acting solely in the capacity of anarm’s length purchaser with respect to the Transaction Documents and thetransactions contemplated hereby and thereby and that no Buyer is (i) anofficer or director of the Company, (ii) to the Company’s knowledge, an “affiliate”of the Company (as defined in Rule 144 of the 1933 Act) or (iii) to theknowledge of the Company, a “beneficial owner” of more than 10% of the sharesof Common Stock (as defined for purposes of Rule 13d-3 of the SecuritiesExchange Act of 1934, as amended (the “**1934 Act**”)).  TheCompany further acknowledges that no Buyer is acting as a financial advisor orfiduciary of the Company or any of its Subsidiaries (or in any similarcapacity) with respect to the Transaction Documents and the transactions contemplatedhereby and thereby, and any advice given by a Buyer or any of itsrepresentatives or agents in connection with the Transaction Documents and thetransactions contemplated hereby and thereby is merely incidental to such Buyer’spurchase of the Securities.  The Companyfurther represents to each Buyer that the Company’s decision to enter into theTransaction Documents has been based solely on the independent evaluation bythe Company and its representatives.

## (g)           No General Solicitation; PlacementAgent’s Fees.  Neither the Company,nor any of its affiliates, nor any Person acting on its or their behalf, hasengaged in any form of general solicitation or general advertising (within themeaning of Regulation D) in connection with the offer or sale of theSecurities.  The Company shall beresponsible for the payment of any placement agent’s fees, financial advisoryfees, or brokers’ commissions (other than for persons engaged by any Buyer orits investment advisor) relating to or arising out of the transactionscontemplated hereby.  The Company shallpay, and hold each Buyer harmless against, any liability, loss or expense(including, without limitation, attorney’s fees and out-of-pocket expenses)arising in connection with any such claim. The Company acknowledges that it has engaged Cowen and Company asplacement agent (the “**Placement****Agent**”) in connection with the sale of the Securities.  Other than the Placement Agent, the Companyhas not engaged any placement agent or other agent in connection with the saleof the Securities.

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## (h)           No Integrated Offering.  None of the Company, its Subsidiaries, any oftheir affiliates, and any Person acting on their behalf has, directly orindirectly, made any offers or sales of any security or solicited any offers tobuy any security, under circumstances that would require registration of any ofthe Securities under the 1933 Act or cause this offering of the Securities tobe integrated with prior offerings by the Company for purposes of the 1933 Actor any applicable stockholder approval provisions, including, withoutlimitation, under the rules and regulations of any exchange or automatedquotation system on which any of the securities of the Company are listed ordesignated.  None of the Company, itsSubsidiaries, their affiliates and any Person acting on their behalf will takeany action or steps referred to in the preceding sentence that would requireregistration of any of the Securities under the 1933 Act or cause the offeringof the Securities to be integrated with other offerings.

## (i)            Dilutive Effect.  The Company understands and acknowledges thatthe number of Conversion Shares issuable upon conversion of the Notes and theWarrant Shares issuable upon exercise of the Warrants will increase in certaincircumstances.  The Company furtheracknowledges that its obligation to issue Conversion Shares upon conversion ofthe Notes in accordance with this Agreement and the Notes and its obligation toissue the Warrant Shares upon exercise of the Warrants in accordance with thisAgreement and the Warrants, in each case, is absolute and unconditionalregardless of the dilutive effect that such issuance may have on the ownershipinterests of other stockholders of the Company.

## (j)            Application of TakeoverProtections; Rights Agreement.  TheCompany and its board of directors have taken all necessary action, if any, inorder to render inapplicable any control share acquisition, businesscombination, poison pill (including any distribution under a rights agreement)or other similar anti-takeover provision under the Certificate of Incorporationor the laws of the jurisdiction of its formation which is or could becomeapplicable to any Buyer as a result of the transactions contemplated by thisAgreement, including, without limitation, the Company’s issuance of theSecurities and any Buyer’s ownership of the Securities.  The Company has not adopted a stockholderrights plan or similar arrangement relating to accumulations of beneficialownership of Common Stock or a change in control of the Company**.**

## (k)           SEC Documents; FinancialStatements.  Except as disclosed in Schedule3(k), since October 7, 2005, the Company has filed all reports, schedules,forms, statements and other documents required to be filed by it with the SECpursuant to the reporting requirements of the 1934 Act (all of the foregoingfiled prior to the date hereof and all exhibits included therein and financialstatements, notes and schedules thereto and documents incorporated by referencetherein being hereinafter referred to as the “**SEC Documents**”).  TheCompany has delivered to the Buyers or their respective representatives true,correct and complete copies of the SEC Documents not available on the EDGARsystem.  As of their respective dates,the SEC Documents complied in all material respects with the requirements ofthe 1934 Act and the rules and regulations of the SEC promulgated thereunderapplicable to the SEC Documents, and none of the SEC Documents, at the timethey were filed with the SEC, contained any untrue statement of a material factor omitted to state a material fact required to be stated therein or necessaryin order to make the statements therein, in the light of the circumstancesunder which they were made, not misleading. As of their respective dates, the financial statements of the Companyincluded in the SEC Documents complied as to form in all material respects withapplicable accounting requirements and the published rules and regulations ofthe SEC with respect thereto.

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## Such financial statements have been preparedin accordance with generally accepted accounting principles, consistentlyapplied, during the periods involved (except (i) as may be otherwise indicatedin such financial statements or the notes thereto, or (ii) in the case ofunaudited interim statements, to the extent they may exclude footnotes or maybe condensed or summary statements) and fairly present in all material respectsthe financial position of the Company as of the dates thereof and the resultsof its operations and cash flows for the periods then ended (subject, in thecase of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalfof the Company to the Buyers which is not included in the SEC Documents,including, without limitation, information referred to in Section 2(d) of thisAgreement, contains any untrue statement of a material fact or omits to stateany material fact necessary in order to make the statements therein, in thelight of the circumstance under which they are or were made and not misleading.

## (l)            Absence of Certain Changes.  Except asdisclosed in Schedule 3(l), since October 7, 2005, there has been nomaterial adverse change and no material adverse development in the business,properties, operations, condition (financial or otherwise), results ofoperations or prospects of the Company or its Subsidiaries.  Except asdisclosed in Schedule 3(1), since October 7, 2005, the Companyhas not (i) declared or paid any dividends, (ii) sold any assets, individuallyor in the aggregate, in excess of $100,000 outside of the ordinary course ofbusiness or (iii) had capital expenditures, individually or in the aggregate,in excess of $100,000.  The Company hasnot taken any steps to seek protection pursuant to any bankruptcy law nor doesthe Company have any knowledge or reason to believe that its creditors intendto initiate involuntary bankruptcy proceedings or any actual knowledge of anyfact which would reasonably lead a creditor to do so.  The Company and its Subsidiaries,individually and on a consolidated basis, will not, after giving effect to thetransactions contemplated hereby to occur at the Closing, be Insolvent (asdefined below).  For purposes of thisSection 3(l), “**Insolvent**” means, with respect toany Person (as defined in Section 3(s)), (i) the present fair saleable value ofsuch Person’s assets is less than the amount required to pay such Person’stotal Indebtedness (excluding the Notes) (as defined in Section 3(s)), (ii)such Person is unable to pay its debts and liabilities, subordinated,contingent or otherwise, as such debts and liabilities become absolute andmatured, (iii) such Person intends to incur or believes that it will incurdebts that would be beyond its ability to pay as such debts mature or (iv) suchPerson has unreasonably small capital with which to conduct the business inwhich it is engaged as such business is now conducted and is proposed to beconducted.

## (m)          No Undisclosed Events, Liabilities,Developments or Circumstances.  Noevent, liability, development or circumstance has occurred or exists, or iscontemplated to occur with respect to the Company, its Subsidiaries or theirrespective business, properties, prospects, operations or financial condition,that would be required to be disclosed by the Company under applicablesecurities laws on a registration statement on Form S-1 filed with the SECrelating to an issuance and sale by the Company of its Common Stock and whichhas not been publicly announced.

## (n)           Conduct of Business; RegulatoryPermits.  Neither the Company nor itsSubsidiaries is in violation of any term of or in default under its Certificateof Incorporation, any certificate of designations of any outstanding series ofpreferred stock of the Company or Bylaws or their organizational charter orbylaws, respectively.  Neither theCompany nor any of its

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## Subsidiaries is in violation of any judgment,decree or order or any statute, ordinance, rule or regulation applicable to theCompany or its Subsidiaries, and neither the Company nor any of itsSubsidiaries will conduct its business in violation of any of the foregoing,except for possible violations which could not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect.  Without limiting the generality of theforegoing, the Company is not in violation of any of the rules, regulations orrequirements of thePrincipal Market and has no knowledge of any facts or circumstances thatwould reasonably lead to delisting or suspension of the Common Stock by thePrincipal Market in the foreseeable future. Since October 7, 2005, the Common Stock has been designated forquotation on the Principal Market.  SinceOctober 7, 2005, (i) trading in the Common Stock has not been suspended by theSEC or the Principal Market and (ii) the Company has received no communication,written or oral, from the SEC or the Principal Market regarding the suspensionor delisting of the Common Stock from the Principal Market.  The Company and its Subsidiaries possess allcertificates, authorizations and permits issued by the appropriate regulatoryauthorities necessary to conduct their respective businesses, except where thefailure to possess such certificates, authorizations or permits would not have,individually or in the aggregate, a Material Adverse Effect, and neither theCompany nor any such Subsidiary has received any notice of proceedings relatingto the revocation or modification of any such certificate, authorization orpermit.

## (o)           Foreign Corrupt Practices.  Neither the Company, nor any of itsSubsidiaries, nor any director, officer, agent, employee or other Person actingon behalf of the Company or any of its Subsidiaries has, in the course of itsactions for, or on behalf of, the Company or any of its Subsidiaries (i) usedany corporate funds for any unlawful contribution, gift, entertainment or otherunlawful expenses relating to political activity; (ii) made any direct orindirect unlawful payment to any foreign or domestic government official oremployee from corporate funds; (iii) violated or is in violation of anyprovision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback orother unlawful payment to any foreign or domestic government official oremployee.

## (p)           Sarbanes-Oxley Act.  The Company is in compliance with any and allapplicable requirements of the Sarbanes-Oxley Act of 2002 that are effective asof the date hereof, and any and all applicable rules and regulations promulgatedby the SEC thereunder that are effective as of the date hereof.

## (q)           Transactions With Affiliates.  Except as set forth in the SEC Documentsfiled at least ten (10) days prior to the date hereof and other than the grantof stock options disclosed on Schedule 3(q), none of the officers,directors or employees of the Company or any of its Subsidiaries is presently aparty 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.

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## (r)            Equity Capitalization.  As of the date hereof, the authorized capitalstock of the Company consists of (i) 400,000,000 shares of Common Stock, ofwhich as of the date hereof, 217,182,455 are issued and outstanding, up to4,000,000 shares will be reserved for issuance pursuant to the Company’s stockoption and purchase plans and 64,698,391 shares are reserved for issuancepursuant to securities (other than the Notes and the Warrants) exercisable orexchangeable for, or convertible into, shares of Common Stock and (ii)15,000,000 shares of preferred stock, of which as of the date hereof, no sharesare issued and outstanding.  All of suchoutstanding shares have been, or upon issuance will be, validly issued and arefully paid and nonassessable.  Except asdisclosed in Schedule 3(r): (i) none of the Company’s capital stock issubject to preemptive rights or any other similar rights or any liens orencumbrances suffered or permitted by the Company; (ii) there are nooutstanding options, warrants, scrip, rights to subscribe to, calls orcommitments of any character whatsoever relating to, or securities or rightsconvertible into, or exercisable or exchangeable for, any capital stock of theCompany or any of its Subsidiaries, or contracts, commitments, understandingsor arrangements by which the Company or any of its Subsidiaries is or maybecome bound to issue additional capital stock of the Company or any of itsSubsidiaries or options, warrants, scrip, rights to subscribe to, calls orcommitments of any character whatsoever relating to, or securities or rightsconvertible into, or exercisable or exchangeable for, any capital stock of theCompany or any of its Subsidiaries; (iii) there are no outstanding debtsecurities, notes, credit agreements, credit facilities or other agreements,documents or instruments evidencing Indebtedness of the Company or any of itsSubsidiaries or by which the Company or any of its Subsidiaries is or maybecome bound; (iv) there are no financing statements securing obligations inany material amounts, either singly or in the aggregate, filed in connectionwith the Company or any of its Subsidiaries; (v) there are no agreements orarrangements under which the Company or any of its Subsidiaries is obligated toregister the sale of any of their securities under the 1933 Act (exceptpursuant to the Registration Rights Agreement); (vi) there are no outstandingsecurities or instruments of the Company or any of its Subsidiaries whichcontain 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; (vii) there are no securities or instruments containinganti-dilution or similar provisions that will be triggered by the issuance ofthe Securities; (viii) the Company does not have any stock appreciation rightsor “phantom stock” plans or agreements or any similar plan or agreement; and(ix) the Company and its Subsidiaries have no liabilities or obligationsrequired to be disclosed in the SEC Documents but not so disclosed in the SECDocuments, other than those incurred in the ordinary course of the Company’s orits Subsidiaries’ respective businesses and which, individually or in theaggregate, do not or would not have a Material Adverse Effect.  The Company has furnished to the Buyers true,correct and complete copies of the Company’s Certificate of Incorporation, asamended and as in effect on the date hereof (the “**Certificate of Incorporation**”), and the Company’s Bylaws, asamended and as in effect on the date hereof (the “**Bylaws**”),and the terms of all securities convertible into, or exercisable orexchangeable for, shares of Common Stock and the material rights of the holdersthereof in respect thereto.  Schedule3(r) sets forth the shares of Common Stock owned beneficially or of recordand Common Stock Equivalents (as defined below) held by each director andexecutive officer.

## (s)           Indebtedness and Other Contracts.  Except as disclosed in Schedule 3(s),neither the Company nor any of its Subsidiaries (i) has any outstandingIndebtedness (as defined below), (ii) is a party to any contract, agreement orinstrument, the violation of which, or default

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## under which, by the other party(ies) to suchcontract, agreement or instrument could reasonably be expected to result in aMaterial Adverse Effect, (iii) is in violation of any term of or in defaultunder any contract, agreement or instrument relating to any Indebtedness,except where such violations and defaults would not result, individually or inthe aggregate, in a Material Adverse Effect, or (iv) is a party to anycontract, agreement or instrument relating to any Indebtedness, the performanceof which, in the judgment of the Company’s officers, has or is expected to havea Material Adverse Effect.  Schedule3(s) provides a detailed description of the material terms of any suchoutstanding Indebtedness.  For purposesof this Agreement:  (x) “**Indebtedness**” of any Person means, without duplication (A)all indebtedness for borrowed money, (B) all obligations issued, undertaken orassumed as the deferred purchase price of property or services, including(without limitation) “capital leases” in accordance with generally acceptedaccounting principles (other than trade payables entered into in the ordinarycourse of business), (C) all reimbursement or payment obligations with respectto letters of credit, surety bonds and other similar instruments, (D) allobligations 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 Indebtedness hasan existing right, contingent or otherwise, to be secured by) any mortgage,lien, pledge, charge, security interest or other encumbrance upon or in anyproperty or assets (including accounts and contract rights) owned by anyPerson, even though the Person which owns such assets or property has notassumed or become liable for the payment of such indebtedness, and (H) allContingent Obligations in respect of indebtedness or obligations of others ofthe kinds referred to in clauses (A) through (G) above; (y) “**Contingent Obligation**” means, as to any Person, any director indirect liability, contingent or otherwise, of that Person with respect toany indebtedness, lease, dividend or other obligation of another Person if theprimary purpose or intent of the Person incurring such liability, or theprimary effect thereof, is to provide assurance to the obligee of suchliability that such liability will be paid or discharged, or that anyagreements relating thereto will be complied with, or that the holders of suchliability will be protected (in whole or in part) against loss with respectthereto; and (z) “**Person**” meansan individual, a limited liability company, a partnership, a joint venture, acorporation, a trust, an unincorporated organization and a government or anydepartment or agency thereof.

## (t)            Absence of Litigation.  Except as set forth on Schedule 3(s),there is no action, suit, proceeding 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 or any of its Subsidiaries, the Common Stock orany of the Company’s Subsidiaries or any of the Company’s or its Subsidiaries’officers or directors, whether of a civil or criminal nature or otherwise.

## (u)           Insurance.  The Company and each of its Subsidiaries areinsured by insurers of recognized financial responsibility against such lossesand risks and in such amounts

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## as management of the Company believes to beprudent and customary in the businesses in which the Company and itsSubsidiaries are engaged.  Neither theCompany nor any such Subsidiary has been refused any insurance coverage soughtor applied for and neither the Company nor any such Subsidiary has any reasonto believe that it will not be able to renew its existing insurance coverage asand when such coverage expires or to obtain similar coverage from similarinsurers as may be necessary to continue its business at a cost that would nothave a Material Adverse Effect.

## (v)           Employee Relations.  (i) Neither the Company nor any of its Subsidiaries is a party to anycollective bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe thattheir relations with their employees are good. No executive officer of the Company or any of its Subsidiaries (asdefined in Rule 501(f) of the 1933 Act) has notified the Company or any suchSubsidiary that such officer intends to leave the Company or any suchSubsidiary or otherwise terminate such officer’s employment with the Company orany such Subsidiary.  No executiveofficer of the Company or any of its Subsidiaries is, or is now expected to 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.

### (ii)           TheCompany and its Subsidiaries are in compliance with all federal, state, localand foreign laws and regulations respecting labor, employment and employmentpractices and benefits, terms and conditions of employment and wages and hours,except where failure to be in compliance would not, either individually or inthe aggregate, reasonably be expected to result in a Material Adverse Effect.

## (w)          Title.  The Company and its Subsidiaries have goodand marketable title in fee simple to all real property and good and marketabletitle to all personal property owned by them which is material to the businessof the Company and its Subsidiaries, in each case free and clear of all liens,encumbrances and defects except such as do not materially affect the value ofsuch property and do not interfere with the use made and proposed to be made ofsuch property by the Company and any of its Subsidiaries.   Any real property and facilities held underlease by the Company and any of its Subsidiaries are held by them under valid,subsisting and enforceable leases with such exceptions as are not material anddo not interfere with the use made and proposed to be made of such property andbuildings by the Company and its Subsidiaries.

## (x)            Intellectual Property Rights.The Company and its Subsidiaries own or possess adequate rights or licenses touse all trademarks, service marks and all applications and registrationstherefor, trade names, patents, patent rights, copyrights, original works ofauthorship, inventions, licenses, approvals, governmental authorizations, tradesecrets and other intellectual property rights (“**Intellectual Property Rights**”) necessary to conduct theirrespective businesses as now conducted. None of the Company’s registered, or applied for, Intellectual PropertyRights have expired or terminated or have been abandoned, or are expected toexpire or terminate or expected to be abandoned, within three years from thedate of this Agreement.  The Company doesnot have any knowledge of any infringement by the Company or its Subsidiariesof Intellectual Property Rights of others. There is no claim, action or

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## proceeding being made or brought, or to theknowledge of the Company, being threatened, against the Company or any of itsSubsidiaries regarding its Intellectual Property Rights.  The Company is unaware of any facts orcircumstances which might give rise to any of the foregoing infringements orclaims, actions or proceedings.  TheCompany and its Subsidiaries have taken reasonable security measures to protectthe secrecy, confidentiality and value of all of their Intellectual Property Rights.

## (y)           Environmental Laws.  The Company and its Subsidiaries (i) are incompliance with any and all Environmental Laws (as hereinafter defined), (ii)have received all permits, licenses or other approvals required of them underapplicable Environmental Laws to conduct their respective businesses and (iii)are in compliance with all terms and conditions of any such permit, license orapproval where, in each of the foregoing clauses (i), (ii) and (iii), thefailure to so comply could be reasonably expected to have, individually or inthe aggregate, a Material Adverse Effect. The term “**Environmental Laws**”means all federal, state, local or foreign laws relating to pollution orprotection of human health or the environment (including, without limitation,ambient air, surface water, groundwater, land surface or subsurface strata),including, without limitation, laws relating to emissions, discharges, releasesor threatened releases of chemicals, pollutants, contaminants, or toxic orhazardous substances or wastes (collectively, “**HazardousMaterials**”)****into theenvironment, or otherwise relating to the manufacture, processing,distribution, use, treatment, storage, disposal, transport or handling ofHazardous Materials, as well as all authorizations, codes, decrees, demands ordemand letters, injunctions, judgments, licenses, notices or notice letters,orders, permits, plans or regulations issued, entered, promulgated or approvedthereunder.

## (z)            Subsidiary Rights.  The Company or one of its Subsidiaries hasthe unrestricted right to vote, and (subject to limitations imposed byapplicable law) to receive dividends and distributions on, all capitalsecurities of its Subsidiaries as owned by the Company or such Subsidiary.

## (aa)         Investment Company.  The Company is not, and upon consummation ofthe sale of the Securities will not be, an “investment company,” a companycontrolled by an “investment company” or an “affiliated person” of, or “promoter”or “principal underwriter” for, an “investment company” as such terms aredefined in the Investment Company Act of 1940, as amended.

## (bb)         Tax Status.  The Company and each of its Subsidiaries (i)has made or filed all foreign, federal and state income and all other taxreturns, reports and declarations required by any jurisdiction to which it issubject, (ii) has paid all taxes and other governmental assessments and chargesthat are material in amount, shown or determined to be due on such returns,reports and declarations, except those being contested in good faith and (iii) hasset aside on its books provision reasonably adequate for the payment of alltaxes for periods subsequent to the periods to which such returns, reports ordeclarations apply.  There are no unpaidtaxes in any material amount claimed to be due by the taxing authority of anyjurisdiction, and the officers of the Company know of no basis for any suchclaim.

## (cc)         Internal Accounting and DisclosureControls.  The Company and each ofits Subsidiaries maintain a system of internal accounting controls sufficientto provide reasonable

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## assurance that (i) transactions are executedin accordance with management’s general or specific authorizations, (ii)transactions are recorded as necessary to permit preparation of financialstatements in conformity with generally accepted accounting principles and tomaintain asset and liability accountability, (iii) access to assets orincurrence of liabilities is permitted only in accordance with management’sgeneral or specific authorization and (iv) the recorded accountability forassets and liabilities is compared with the existing assets and liabilities atreasonable intervals and appropriate action is taken with respect to anydifference.  The Company maintainsdisclosure controls and procedures (as such term is defined in Rule 13a-14under the 1934 Act) that are effective in ensuring that information required tobe disclosed by the Company in the reports that it files or submits under the1934 Act is recorded, processed, summarized and reported, within the timeperiods specified in the rules and forms of the SEC, including, withoutlimitation, controls and procedures designed in to ensure that informationrequired to be disclosed by the Company in the reports that it files or submitsunder the 1934 Act is accumulated and communicated to the Company’s management,including its principal executive officer or officers and its principalfinancial officer or officers, as appropriate, to allow timely decisionsregarding required disclosure.  SinceOctober 7, 2005, neither the Company nor any of its Subsidiaries have receivedany notice or correspondence from any accountant identifying a materialweakness in any part of the system of internal accounting controls of theCompany or any of its Subsidiaries which is not specified in the Company’sAnnual Report on Form 10-KSB for the fiscal year ended December 31, 2005.

## (dd)         Off Balance Sheet Arrangements.  There is no transaction, arrangement, orother relationship between the Company and an unconsolidated or other offbalance sheet entity that is required to be disclosed by the Company in itsExchange Act filings and is not so disclosed or that otherwise would bereasonably likely to have a Material Adverse Effect.

## (ee)         Ranking of Notes.  Except as set forth on Schedule (ee),no Indebtedness of the Company is senior to the Notes in right of payment,whether with respect of payment of redemptions, interest, damages or uponliquidation or dissolution or otherwise.

## (ff)           Form SB-2 Eligibility.  The Company is eligible to register theConversion Shares and the Warrant Shares for resale by the Buyers using FormSB-2 promulgated under the 1933 Act.

## (gg)         Transfer Taxes.  On the Closing Date, all stock transfer orother taxes (other than income or similar taxes) which are required to be paidin connection with the sale and transfer of the Securities to be sold to eachBuyer hereunder will be, or will have been, fully paid or provided for by theCompany, and all laws imposing such taxes will be or will have been compliedwith.

## (hh)         Manipulation of Price.  The Company has not, and to its knowledge noone acting on its behalf has, (i) taken, directly or indirectly, any actiondesigned to cause or to result in the stabilization or manipulation of theprice of any security of the Company to facilitate the sale or resale of any ofthe Securities, (ii) other than the Placement Agent, sold, bid for, purchased,or paid any compensation for soliciting purchases of, any of the Securities, or(iii) other than the Placement Agent, paid or agreed to pay to any person anycompensation for soliciting another to purchase any other securities of theCompany.

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## (ii)           Acknowledgement Regarding Buyers’Trading Activity.  It is understoodand acknowledged by the Company (i) that following the public disclosure of thetransactions contemplated by the Transaction Documents in accordance with theterms hereof, none of the Buyers have been asked to agree, nor has any Buyeragreed, to desist from purchasing or selling, long and/or short, securities ofthe Company, or “derivative” securities based on securities issued by theCompany or to hold the Securities for any specified term, (ii) that any Buyer,and counter parties in “derivative” transactions to which any such Buyer is aparty, directly or indirectly, which were established prior to their learningof the transactions contemplated by the Transaction Documents, presently mayhave a “short” position in the Common Stock, and (iii) that each Buyer shallnot be deemed to have any affiliation with or control over any arm’s lengthcounter-party in any “derivative” transaction. The Company further understands and acknowledges that, following thepublic disclosure of the transactions contemplated by the Transaction Documentsin accordance with the terms hereof, (a) one or more Buyers may engage inhedging and/or trading activities at various times during the period that theSecurities are outstanding, including, without limitation, during the periodsthat the value of the Conversion Shares and the Warrant Shares deliverable withrespect to Securities are being determined and (b) such hedging and/or tradingactivities, if any, can reduce the value of the existing stockholders’ equityinterest in the Company both at and after the time the hedging and/or tradingactivities are being conducted.  TheCompany acknowledges that such aforementioned hedging and/or trading activitiesdo not constitute a breach of this Agreement, the Notes, the Warrants or any ofthe documents executed in connection herewith.

## (jj)           U.S. Real Property HoldingCorporation.  The Company is not, norhas ever been, a U.S. real property holding corporation within the meaning ofSection 897 of the Internal Revenue Code of 1986, as amended, and the Companyshall so certify upon Buyer’s request.

## (kk)         Disclosure.  The Company confirms that neither it nor anyother Person acting on its behalf has provided any of the Buyers or theiragents or counsel with any information that constitutes material, nonpublicinformation concerning the Company or its Subsidiaries other than the existenceof the transactions contemplated by this Agreement or the other TransactionDocuments.  The Company understands andconfirms that each of the Buyers will rely on the foregoing representations ineffecting transactions in securities of the Company.  All disclosure provided to the Buyersregarding the Company, its business and the transactions contemplated hereby,including the Schedules to this Agreement, furnished by or on behalf of theCompany is true and correct and does not contain any untrue statement of amaterial fact or omit to state any material fact necessary in order to make thestatements made therein, in the light of the circumstances under which theywere made, not misleading.  Each pressrelease issued by the Company or any of its Subsidiaries during the twelve (12)months preceding the date of this Agreement did not at the time of releasecontain any untrue statement of a material fact or omit to state a materialfact required to be stated therein or necessary in order to make the statementstherein, in the light of the circumstances under which they were made, notmisleading.  No event or circumstance hasoccurred or information exists with respect to the Company or any of itsSubsidiaries or its or their business, properties, prospects, operations orfinancial conditions, which, under applicable law, rule or regulation, requirespublic disclosure or announcement by the Company but which has not been sopublicly announced or disclosed.

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# 4.             COVENANTS.

## (a)           Best Efforts.  Each party shall use its best efforts timelyto satisfy each of the conditions to be satisfied by it as provided in Sections6 and 7 of this Agreement.

## (b)           Form D and Blue Sky.  The Company agrees to file a Form D withrespect to the Securities as required under Regulation D and to provide a copythereof to each Buyer promptly after such filing.  The Company shall, on or before the ClosingDate, take such action as the Company shall reasonably determine is necessaryin order to obtain an exemption for or to qualify the Securities for sale tothe Buyers at the Closing pursuant to this Agreement under applicablesecurities or “Blue Sky” laws of the states of the United States (or to obtainan exemption from such qualification), and shall provide evidence of any suchaction so taken to the Buyers on or prior to the Closing Date.  The Company shall make all filings andreports relating to the offer and sale of the Securities required underapplicable securities or “Blue Sky” laws of the states of the United Statesfollowing the Closing Date.

## (c)           Reporting Status.  Until the date on which the Investors (asdefined in the Registration Rights Agreement) shall have sold all theConversion Shares and Warrant Shares****andnone of the Notes or****Warrants isoutstanding (the “**Reporting Period**”),the Company shall file all reports required to be filed with the SEC pursuantto the 1934 Act, and the Company shall not terminate its status as an issuerrequired to file reports under the 1934 Act even if the 1934 Act or the rulesand regulations thereunder would otherwise permit such termination.

## (d)           Use of Proceeds.  The Company will use the proceeds from thesale of the Securities for general corporate and for working capital purposes,provided, however, that the Company may not use the proceeds from the sale ofthe Securities for (i) the repayment of any other outstanding Indebtedness ofthe Company or any of its Subsidiaries or (ii) the redemption or repurchase ofany of its or its Subsidiaries’ equity securities.

## (e)           Financial Information.  The Company agrees to send the following toeach Investor (as defined in the Registration Rights Agreement) during theReporting Period (i) unless the following are filed with the SEC through EDGARand are available to the public through the EDGAR system, within one (1)Business Day after the filing thereof with the SEC, a copy of its AnnualReports on Form 10-K or 10-KSB, any interim reports or any consolidated balancesheets, income statements, stockholders’ equity statements and/or cash flowstatements for any period other than annual, any Current Reports on Form 8-Kand any registration statements (other than on Form S-8) or amendmentsfiled pursuant to the 1933 Act, (ii) on the same day as the release thereof, ifnot publicly filed, facsimile or e-mailed copies of all press releases issuedby the Company or any of its Subsidiaries, and (iii) copies of any notices andother information made available or given to the stockholders of the Companygenerally, contemporaneously with the making available or giving thereof to thestockholders.  As used herein, “**Business Day**” means any day other than Saturday, Sunday orother day on which commercial banks in The City of New York are authorized orrequired by law to remain closed.

## (f)            Listing.  The Company shall promptly secure the listingof all of the Registrable Securities (as defined in the Registration RightsAgreement) upon each national securities exchange and automated quotationsystem, if any, upon which the Common Stock is

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## then listed (subject to official notice ofissuance) and shall maintain such listing of all Registrable Securities fromtime to time issuable under the terms of the Transaction Documents.  The Company shall maintain the Common Stocks’authorization for quotation on the Principal Market.  Neither the Company nor any of itsSubsidiaries shall take any action which would be reasonably expected to resultin the delisting or suspension of the Common Stock on the Principal Market.  The Company shall pay all fees and expensesin connection with satisfying its obligations under this Section 4(f).

## (g)           Fees.  The Company shall reimburse Investor for allreasonable costs and expenses incurred in connection with the transactionscontemplated by the Transaction Documents, which amount shall be withheld bysuch Buyer from its Purchase Price at the Closing.  The Company shall be responsible for thepayment of any placement agent’s fees, financial advisory fees, or broker’scommissions (other than for Persons engaged by any Buyer) relating to orarising out of the transactions contemplated hereby, including, withoutlimitation, any fees or commissions payable to the Placement Agent.  The Company shall pay, and hold each Buyerharmless against, any liability, loss or expense (including, withoutlimitation, reasonable attorney’s fees and out-of-pocket expenses) arising inconnection with any claim against a Buyer relating to any such payment.  Except as otherwise set forth in theTransaction Documents, each party to this Agreement shall bear its own expensesin connection with the sale of the Securities to the Buyers.

## (h)           Pledge of Securities.  The Company acknowledges and agrees that theSecurities may be pledged by an Investor (as defined in the Registration RightsAgreement) in connection with a bona fide margin agreement or other loan orfinancing arrangement that is secured by the Securities.  The pledge of Securities shall not be deemedto be a transfer, sale or assignment of the Securities hereunder, and noInvestor effecting a pledge of Securities shall be required to provide theCompany with any notice thereof or otherwise make any delivery to the Companypursuant to this Agreement or any other Transaction Document, including,without limitation, Section 2(f) hereof; provided that an Investor and itspledgee shall be required to comply with the provisions of Section 2(f) hereofin order to effect a sale, transfer or assignment of Securities to suchpledgee.  The Company hereby agrees toexecute and deliver such documentation as a pledgee of the Securities mayreasonably request in connection with a pledge of the Securities to suchpledgee by an Investor.

## (i)            Disclosure of Transactions andOther Material Information.  On orbefore 11:30 a.m., CST time, on the first Business Day following the date ofthis Agreement, the Company shall issue a press release and file a CurrentReport on Form 8-K describing the terms of the transactions contemplated by theTransaction Documents in the form required by the 1934 Act and attaching thematerial Transaction Documents (including, without limitation, this Agreement(and all schedules to this Agreement), the form of the Notes, the form ofWarrant and the form of the Registration Rights Agreement) as exhibits to suchfiling (including all attachments, the “**8-K Filing**”).  Fromand after the filing of the 8-K Filing with the SEC, no Buyer shall be inpossession of any material, nonpublic information received from the Company,any of its Subsidiaries or any of its respective officers, directors, employeesor agents, that is not disclosed in the 8-K Filing.  The Company shall not, and shall cause eachof its Subsidiaries and its and each of their respective officers, directors,employees and agents, not to, provide any Buyer with any material, nonpublicinformation regarding the Company or any of its

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## Subsidiaries from and after the filing of the8-K Filing with the SEC without the express written consent of such Buyer or asmay be required under the terms of the Transaction Documents.  If a Buyer has, or believes it has, receivedany such material, nonpublic information regarding the Company or any of itsSubsidiaries, it shall provide the Company with written notice thereof.  The Company shall, within five (5) TradingDays (as defined in the Note) of receipt of such notice, make public disclosureof such material, nonpublic information. In the event of a breach of the foregoing covenant by the Company, anyof its Subsidiaries, or any of its or their respective officers, directors,employees and agents, in addition to any other remedy provided herein or in theTransaction Documents, a Buyer 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 Buyershall have any liability to the Company, its Subsidiaries, or any of its ortheir respective officers, directors, employees, stockholders or agents for anysuch disclosure.  Subject to theforegoing, neither the Company, its Subsidiaries nor any Buyer shall issue anypress releases or any other public statements with respect to the transactionscontemplated hereby; provided, however, that the Company shall be entitled,without the prior approval of any Buyer, to make any press release or otherpublic disclosure with respect to such transactions (i) in substantialconformity with the 8-K Filing and contemporaneously therewith and (ii) as isrequired by applicable law and regulations (provided that in the case of clause(i) each Buyer shall be consulted by the Company in connection with any suchpress release or other public disclosure prior to its release).  Without the prior written consent of anyapplicable Buyer, neither the Company nor any of its Subsidiaries or affiliatesshall disclose the name of such Buyer in any filing, announcement, release orotherwise, unless such disclosure is required by law, regulation or thePrincipal Market.

## (j)            Restriction on Redemption andCash Dividends.  So long as any Notesare outstanding, the Company shall not, directly or indirectly, redeem, ordeclare or pay any cash dividend or distribution on, the Common Stock withoutthe prior express written consent of the Required Holders (as defined in theNotes).

## (k)           Additional Notes; VariableSecurities; Dilutive Issuances.  Solong as any Notes remain outstanding, the Company will not issue any Notesother than to the Buyers as contemplated hereby and the Company shall not issueany other securities that would cause a breach or default under the Notes.  For long as any Notes or Warrants remainoutstanding, the Company shall not, in any manner, issue or sell any rights,warrants or options to subscribe for or purchase Common Stock or directly orindirectly convertible into or exchangeable or exercisable for Common Stock ata price which varies or may vary with the market price of the Common Stock,including by way of one or more reset(s) to any fixed price (other thanpursuant to antidilution provisions) unless the conversion, exchange orexercise price of any such security cannot be less than the then applicableConversion Price (as defined in the Notes) with respect to the Common Stock intowhich any Note is convertible or the then applicable Exercise Price (as definedin the Warrants) with respect to the Common Stock into which any Warrant isexercisable.  For long as any Notes orWarrants remain outstanding, the Company shall not, in any manner, enter intoor affect any Dilutive Issuance (as defined in the Notes) if the effect of suchDilutive Issuance is to cause the Company to be required to issue uponconversion of any Note or exercise of any Warrant any shares of Common Stock inexcess of that number of shares of Common Stock which the Company may issueupon conversion of the Notes and exercise of

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## the Warrants without breaching the Company’sobligations under the rules or regulations of the Eligible Market (as definedin the Registration Rights Agreement).

## (l)            Corporate Existence.  So long as any Notes remain outstanding, theCompany shall not be party to any Fundamental Transaction (as defined in theNotes) unless the Company is in compliance with the applicable provisionsgoverning Fundamental Transactions set forth in the Notes and the Warrants.

## (m)          Reservation of Shares.  So long as any Notes or Warrants remainoutstanding, the Company shall take all action necessary to at all times haveauthorized, and reserved for the purpose of issuance, no less than 130% of thenumber of shares of Common Stock issuable upon conversion of all of the Notesand issuable upon exercise of the Warrants then outstanding (without takinginto account any limitations on the conversion of the Notes or exercise of theWarrants set forth in the Notes and Warrants, respectively).

## (n)           Conduct of Business.  The business of the Company and itsSubsidiaries shall not be conducted in violation of any law, ordinance orregulation of any governmental entity, except where such violations would notresult, either individually or in the aggregate, in a Material Adverse Effect.

## (o)           Additional Issuances of Securities.

### (i)            Forpurposes of this Section 4(o), the following definitions shall apply.

#### (1)           “**Convertible Securities**” means any stock orsecurities (other than Options) convertible into or exercisable or exchangeablefor shares of Common Stock.

#### (2)           “**Options**” means any rights, warrants or options to subscribefor or purchase shares of Common Stock or Convertible Securities.

#### (3)           “**Common Stock Equivalents**” means,collectively, Options and Convertible Securities.

### (ii)           Fromthe date hereof until the date that is 30 calendar days following the EffectiveDate (as defined in the Registration Rights Agreement) (the “**Trigger Date**”), the Company will not, directly orindirectly, offer, sell, grant any option to purchase, or otherwise dispose of(or announce any offer, sale, grant or any option to purchase or otherdisposition of) any of its or its Subsidiaries’ equity or equity equivalentsecurities, including without limitation any debt, preferred stock or otherinstrument or security that is, at any time during its life and under anycircumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents (any suchoffer, sale, grant, disposition or announcement being referred to as a “**Subsequent Placement**”).

### (iii)          Fora period of 24 months following the Effective Date (as defined in theRegistration Rights Agreement), the Company will not, directly or indirectly,effect

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### any Subsequent Placement unless the Company shall have first compliedwith this Section 4(o)(iii).

#### (1)           TheCompany shall deliver to each Buyer who purchased Notes hereunder with at leasta principal amount of $5 million (each, an “**EligibleBuyer**”) a written notice (the ”**Offer Notice**”) of any proposed or intended issuance or saleor exchange (the ”**Offer**”) of thesecurities being offered (the “**Offered Securities**”)in a Subsequent Placement, which Offer Notice shall (w) identify and describethe Offered Securities, (x) describe the price and other terms upon whichthey are to be issued, sold or exchanged, and the number or amount of theOffered Securities to be issued, sold or exchanged, (y) identify thepersons or entities (if known) to which or with which the Offered Securitiesare to be offered, issued, sold or exchanged and (z) offer to issue and sell toor exchange with such Eligible Buyers at least 50% of the Offered Securities,allocated among such Eligible Buyers (a) based on such Eligible Buyer’s prorata portion of the aggregate principal amount of Notes purchased hereunder by Eligible Buyers (the “**Basic Amount**”), and (b) with respect to each Eligible Buyerthat elects to purchase its Basic Amount, any additional portion of the OfferedSecurities attributable to the Basic Amounts of other Eligible Buyers as suchEligible Buyer shall indicate it will purchase or acquire should the otherEligible Buyers subscribe for less than their Basic Amounts (the “**Undersubscription Amount**”), which process shall be repeateduntil the Buyers shall have an opportunity to subscribe for any remainingUndersubscription Amount.

#### (2)           Toaccept an Offer, in whole or in part, such Eligible Buyer must deliver awritten notice to the Company prior to the end of the seventh (7th) Business Day after suchEligible Buyer’s receipt of the Offer Notice (the “**Offer Period**”), setting forth the portion of such EligibleBuyer’s Basic Amount that such Eligible Buyer elects to purchase and, if suchEligible Buyer shall elect to purchase all of its Basic Amount, theUndersubscription Amount, if any, that such Eligible Buyer elects to purchase(in either case, the “**Notice of Acceptance**”).  If the Basic Amounts subscribed for by allEligible Buyers are less than the total of all of the Basic Amounts, then eachEligible Buyer who has set forth an Undersubscription Amount in its Notice ofAcceptance shall be entitled to purchase, in addition to the Basic Amountssubscribed for, the Undersubscription Amount it has subscribed for; provided,however, that if the Undersubscription Amounts subscribed for exceed thedifference between the total of all the Basic Amounts and the Basic Amountssubscribed for (the “**AvailableUndersubscription Amount**”), each Eligible Buyer who has subscribedfor any Undersubscription Amount shall be entitled to purchase only thatportion of the Available Undersubscription Amount as the Basic Amount of suchEligible Buyer bears to the total Basic Amounts of all Eligible Buyers thathave subscribed for Undersubscription Amounts, subject to rounding by theCompany to the extent its deems reasonably necessary.

#### (3)           TheCompany shall have ten (10) Business Days from the expiration of the OfferPeriod above to (i) offer, issue, sell or exchange all or any part of suchOffered Securities as to which a Notice of Acceptance has not been given by theEligible Buyers (the “**Refused Securities**”),but only to the offerees described in the

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#### Offer Notice (if so described therein) and only upon terms andconditions (including, without limitation, unit prices and interest rates) thatare not more favorable to the acquiring person or persons or less favorable tothe Company than those set forth in the Offer Notice and (ii) to publiclyannounce (a) the execution of such Subsequent Placement Agreement (as definedbelow), and (b) either (x) the consummation of the transactions contemplated bysuch Subsequent Placement Agreement or (y) the termination of such SubsequentPlacement Agreement, which shall be filed with the SEC on a Current Report onForm 8-K with such Subsequent Placement Agreement and any documentscontemplated therein filed as exhibits thereto (the “**Offer 8-K**”).  In theevent of a breach of the foregoing covenant by the Company, any of itsSubsidiaries, or any of its or their respective officers, directors, employeesand agents, in addition to any other remedy provided herein or in theTransaction Documents, a Buyer 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 Buyershall have any liability to the Company, its Subsidiaries, or any of its ortheir respective officers, directors, employees, stockholders or agents for anysuch disclosure.

#### (4)           Inthe event the Company shall propose to sell less than all the RefusedSecurities (any such sale to be in the manner and on the terms specified inSection 4(o)(iii)(3) above), then each Eligible Buyer may, at its sole optionand in its sole discretion, reduce the number or amount of the OfferedSecurities specified in its Notice of Acceptance to an amount that shall be notless than the number or amount of the Offered Securities that such EligibleBuyer elected to purchase pursuant to Section 4(o)(iii)(2) above multiplied bya fraction, (i) the numerator of which shall be the number or amount of OfferedSecurities the Company actually proposes to issue, sell or exchange (includingOffered Securities to be issued or sold to Eligible Buyers pursuant to Section4(o)(iii)(3) above prior to such reduction) and (ii) the denominator of whichshall be the original amount of the Offered Securities.  In the event that any Eligible Buyer soelects to reduce the number or amount of Offered Securities specified in itsNotice of Acceptance, the Company may not issue, sell or exchange more than thereduced number or amount of the Offered Securities unless and until suchsecurities have again been offered to the Eligible Buyers in accordance withSection 4(o)(iii)(1) above.

#### (5)           Uponthe closing of the issuance, sale or exchange of all or less than all of theRefused Securities, the Eligible Buyers shall acquire from the Company, and theCompany shall issue to the Eligible Buyers, the number or amount of OfferedSecurities specified in the Notices of Acceptance, as reduced pursuant toSection 4(o)(iii)(3) above if the Eligible Buyers have so elected, upon theterms and conditions specified in the Offer. The purchase by the Eligible Buyers of any Offered Securities is subjectin all cases to the preparation, execution and delivery by the Company and theEligible Buyers of a purchase agreement relating to such Offered Securitiesreasonably satisfactory in form and substance to the Eligible Buyers and theirrespective counsel.

#### (6)           AnyOffered Securities not acquired by the Eligible Buyers or other persons inaccordance with Section 4(o)(iii)(3) above may not be issued, sold or

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#### exchanged until they are again offered to the Eligible Buyers under theprocedures specified in this Agreement.

### (iv)          Therestrictions contained in subsections (ii) and (iii) of this Section 4(o) shallnot apply in connection with the issuance of any Excluded Securities (asdefined in the Notes).

### (v)           Inexchange for the Company’s willingness to agree to these procedures, eachEligible Buyer hereby irrevocably agrees that it will hold in strict confidenceany and all Offer Notices, the information contained therein, and the fact thatthe Company is contemplating a Subsequent Placement, from the date suchEligible Buyer receives such Offer Notice until the earlier to occur of (1) thedate the Offer 8-K is filed with the SEC and (2) the date such information isdisclosed to the public by any Eligible Buyer in accordance with Section4(o)(iii)(3) above.  Notwithstandinganything in this Section 4(o) to the contrary, at any time any Eligible Buyermay elect, by delivering written notice to the Company, not to receive anyOffer Notices hereunder and, until such time as such Eligible Buyer or itssuccessor elects, by delivering written notice to the Company, to receive OfferNotices hereunder, the Company shall not be obligated to deliver any OfferNotices to such Eligible Buyer.

## (p)           Letter of Credit.  On any Disclosure Date (as defined in theNotes), including, without limitation, any Disclosure Date following any LCTest Satisfaction Date (as defined below), the Company shall obtain (ormaintain, as applicable) an irrevocable letter of credit (the “**Letter of Credit**”), in the amount of 30% of the principalamount of the outstanding Notes as of such Disclosure Date (the “**Required Letter of Credit Amount**”) issuedin favor of                        (the “**LC Agent**”) by a bankacceptable to such LC Agent (the “**Letter of Credit Bank**”)and in form and substance acceptable to such LC Agent; provided, however, thatif on any Disclosure Date the amount available to be drawn on a Letter ofCredit then outstanding (together with any amounts previously drawn on suchLetter of Credit by the LC Agent) is less than the Required Letter of CreditAmount, the Company shall amend or replace such Letter of Credit with a Letterof Credit (together with any amounts previously drawn on such Letter of Creditby the LC Agent) in the Required Letter of Credit Amount and in form andsubstance acceptable to such LC Agent. If the Net Cash Balance Test (as defined in the Note) for the FiscalQuarter (as defined in the Note) immediately following such Disclosure Date ismet, the Company shall no longer be required to maintain such Letter of Credit(such date, the “**LC Test Satisfaction Date**”);provided, however, that the foregoing shall not effect the Company’s obligationto obtain (or maintain, as applicable) a Letter of Credit with respect to anyDisclosure Date that occurs after such LC Test Satisfaction Date.  Subject to the last three sentences of thisSection 4(q), the Letter of Credit shall expire not earlier than the earlier tooccur of (i) the applicable LC Test Satisfaction Date and (ii) 91 days afterthe Maturity Date of the Notes (the “**LC Expiration Date**”).  Upon the occurrence and during thecontinuance of an Event of Default under (and as defined in) the Notes, the LCAgent shall be entitled to draw under the Letter of Credit for the full Letterof Credit Amount (as defined in the Notes) then available thereunder, it beingunderstood that the LC Agent shall act for the benefit of the Buyers on a prorata basis based on the principal amount of the Notes held by each of theBuyers and hold such amount as collateral security for the obligations underthe Notes for the benefit of the Buyers. The Company shall obtain such renewals, extensions or replacements ofthe Letter of

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## Credit as necessary to ensure that the Letterof Credit shall not expire prior to the LC Expiration Date (unless the Letterof Credit shall have been reduced to zero in accordance with the termscontained in this Section 4(q) prior to such date).  If, at any time, the Company cannot obtain arenewal, extension or replacement of the Letter of Credit such that the Letterof Credit will expire prior to the LC Expiration Date (a “**Withdrawal Event**”), the Company and the Letter of CreditBank shall each give the LC Agent written notice of the occurrence of aWithdrawal Event at least forty-five (45) days prior to the then currentexpiration date of the Letter of Credit. Following a Withdrawal Event, the LC Agent shall be entitled to drawdown the Letter of Credit Amount in its entirety (whether or not an Event ofDefault shall have occurred or be continuing under any of the Notes) and holdsuch amount as collateral security for the obligations under the Notes for thebenefit of the Buyers.

## (q)           LC Agent.                      is hereby appointed as the LC Agent for the Buyers hereunder, and each Buyerhereby authorizes the LC Agent (and its officers, directors, employees andagents) to take any and all such actions on behalf of such Buyer with respectto the Letter of Credit in accordance with the terms of this Agreement.  The LC Agent shall not have, by reason hereofor any of the other Transaction Documents, a fiduciary relationship in respectof the Buyers.  Neither the LC Agent norany of its officers, directors, employees and agents shall have any liabilityto the Buyers for any action taken or omitted to be taken in connection hereofexcept to the extent caused by its own gross negligence or willful misconduct,and the Buyers agree to defend, protect, indemnify and hold harmless the LCAgent and all of its officers, directors, employees and agents (collectively,the “**Indemnitees**”)from and against any losses, damages, liabilities, obligations, penalties,actions, judgments, suits, fees, costs and expenses (including, withoutlimitation, reasonable attorneys’ fees, costs and expenses) incurred by suchIndemnitee, as incurred, whether direct, indirect or consequential, arisingfrom or in connection with the performance by such Indemnitee of the duties andobligations of the LC Agent pursuant hereto.

## (r)            Stockholder Approval.  If at any time the Exchange Cap (as definedin the Notes) would limit the aggregate number of shares of Common Stock whichthe Company may issue upon conversion or exercise, as applicable, of the Notesand Warrants, at the written request of holders of a majority of the ConversionShares and Warrant Shares outstanding at such time (as determined assuming fullconversion of the Notes and full exercise of the Warrants prior to such datewithout taking into account any limitations on the conversion of the Notes orexercise of the Warrants set forth in the Notes and Warrants, respectively)(the date of such request, the “**StockholderMeeting Request Date**”), the Company shall provide each stockholder entitledto vote at a special or annual meeting of stockholders of the Company (the “**Stockholder Meeting**”), which shall be promptly called andheld not later than ninety (90) calendar days after the Stockholder MeetingRequest Date (the “**Stockholder MeetingDeadline**”), a proxy statement, substantially in the form which hasbeen previously reviewed by the Buyers, soliciting each such stockholder’saffirmative vote at the Stockholder Meeting for approval of resolutionsproviding for the Company’s issuance of all of the Securities as described inthe Transaction Documents in accordance with applicable law and the rules andregulations of the Principal Market and such affirmative approval beingreferred to herein as the “**Stockholder Approval**”),and the Company shall use its reasonable best efforts to solicit itsstockholders’ approval of such resolutions and to cause the Board of Directors of the Company to recommend to thestockholders that they approve such resolutions.  The Company shall be obligated to use

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## its reasonable best efforts to obtain theStockholder Approval by the Stockholder Meeting Deadline.  If, despite the Company’s reasonable bestefforts the Stockholder Approval is not obtained on or prior to the StockholderMeeting Deadline, the Company shall cause an additional Stockholder Meeting tobe held every six (6) months thereafter until such Stockholder Approval isobtained or the Notes are no longer outstanding.

# 5.             REGISTER;TRANSFER AGENT INSTRUCTIONS.

## (a)           Register.  The Company shall maintain at its principalexecutive offices (or such other office or agency of the Company as it maydesignate by notice to each holder of Securities), a register for the Notes andthe Warrants in which the Company shall record the name and address of thePerson in whose name the Notes and****theWarrants have been issued (including the name and address of each transferee),the principal amount of Notes held by such Person, the number of ConversionShares issuable upon conversion of the Notes and the number of Warrant Sharesissuable upon exercise of the Warrants held by such Person.  The Company shall keep the register open andavailable at all times during business hours for inspection of any Buyer or itslegal representatives upon reasonable notice.

## (b)           Transfer Agent Instructions.  The Company shall issue irrevocableinstructions to its transfer agent, and any subsequent transfer agent, to issuecertificates or credit shares to the applicable balance accounts at TheDepository Trust Company (“**DTC**”),registered in the name of each Buyer or its respective nominee(s), for theConversion Shares and the Warrant Shares issued at the Closing or uponconversion of the Notes or exercise of the Warrants in such amounts asspecified from time to time by each Buyer to the Company upon conversion of theNotes or exercise of the Warrants in the form of Exhibit D attachedhereto (the “**Irrevocable Transfer Agent Instructions**”).  The Company warrants that no instructionother than the Irrevocable Transfer Agent Instructions referred to in thisSection 5(b), and stop transfer instructions to give effect to Section 2(g)hereof, will be given by the Company to its transfer agent, and that theSecurities shall otherwise be freely transferable on the books and records ofthe Company as and to the extent provided in this Agreement and the otherTransaction Documents.  Upon aRegistration Event or if a Buyer effects a sale, assignment or transfer of theSecurities in accordance with Section 2(f), the Company shall promptly instructits transfer agent to issue one or more certificates or credit shares to theapplicable balance accounts at DTC in such name and in such denominations asspecified by such Buyer to effect such sale, transfer or assignment and, withrespect to any transfer, shall permit the transfer.  In the event that a Registration Event hasoccurred or such sale, assignment or transfer involves Conversion Shares orWarrant Shares sold, assigned or transferred pursuant to an effectiveregistration statement or pursuant to Rule 144, the transfer agent shall issuesuch Securities to the Buyer, assignee or transferee, as the case may be,without any restrictive legend.  TheCompany acknowledges that a breach by it of its obligations hereunder will causeirreparable harm to a Buyer.  Accordingly,the Company acknowledges that the remedy at law for a breach of its obligationsunder this Section 5(b) will be inadequate and agrees, in the event of a breachor threatened breach by the Company of the provisions of this Section 5(b),that a Buyer shall be entitled, in addition to all other available remedies, toan order and/or injunction restraining any breach and requiring immediateissuance and transfer, without the necessity of showing economic loss andwithout any bond or other security being required.

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# 6.             CONDITIONSTO THE COMPANY’S OBLIGATION TO SELL.

Closing Date.  The obligation of the Company hereunder toissue and sell the Notes and the related Warrants to each Buyer at the Closingis subject to the satisfaction, at or before the Closing Date, of each of thefollowing conditions, provided that these conditions are for the Company’s solebenefit and may be waived by the Company at any time in its sole discretion byproviding each Buyer with prior written notice thereof:

## (a)           Such Buyer shall have executed eachof the Transaction Documents to which it is a party and delivered the same tothe Company.

## (b)           Such Buyer and each other Buyer shallhave delivered to the Company the Purchase Price, less the amounts withheldpursuant to Section 4(g), for the Notes and the related Warrants beingpurchased by such Buyer at the Closing, by wire transfer of immediatelyavailable funds pursuant to the wire instructions provided by the Company.

## (c)           The representations and warranties ofsuch Buyer shall be true and correct in all material respects (except for thoserepresentations and warranties that are qualified by materiality or MaterialAdverse Effect, which shall be true and correct in all respects) as of the datewhen made and as of the Closing Date as though made at that time (except forrepresentations and warranties that speak as of a specific date, which shall betrue and correct as of such specific date), and such Buyer shall haveperformed, satisfied and complied in all material respects with the covenants,agreements and conditions required by this Agreement to be performed, satisfiedor complied with by such Buyer at or prior to the Closing Date.

# 7.             CONDITIONSTO EACH BUYER’S OBLIGATION TO PURCHASE.

Closing Date.  The obligation of each Buyer hereunder topurchase the Notes****and the relatedWarrants at the Closing is subject to the satisfaction, at or before theClosing Date, of each of the following conditions, provided that theseconditions are for each Buyer’s sole benefit and may be waived by such Buyer atany time in its sole discretion by providing the Company with prior writtennotice thereof:

## (a)           The Company is consummating theInitial Exchange Transaction simultaneously with the Closing hereunder.

## (b)           The Company shall have duly executedand delivered to such Buyer (i) each of the Transaction Documents and (ii) theNotes (allocated in such principal amounts as such Buyer shall request), beingpurchased by such Buyer at the Closing pursuant to this Agreement, (iii) therelated Series A Warrants (allocated in such amounts as such Buyer shallrequest) being purchased by such Buyer at the Closing pursuant to thisAgreement and (iv) the related Series B Warrants (allocated in such amounts assuch Buyer shall request) being purchased by such Buyer at the Closing pursuantto this Agreement.

## (c)           Such Buyer shall have received theopinion of Scheef & Stone, LLP, the Company’s outside counsel, dated as ofthe Closing Date, in substantially the form of Exhibit E attachedhereto.

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## (d)           The Company shall have delivered tosuch Buyer a copy of the Irrevocable Transfer Agent Instructions, in the formof Exhibit D attached hereto, which instructions shall have beendelivered to and acknowledged in writing by the Company’s transfer agent.

## (e)           The Company shall have delivered tosuch Buyer a true copy of certificate evidencing the formation and goodstanding of the Company and each of its Subsidiaries in such entity’sjurisdiction of formation issued by the Secretary of State (or comparableoffice) of such jurisdiction, as of a date within 10 days of the Closing Date.

## (f)            The Company shall have delivered tosuch Buyer a true copy of certificate evidencing the Company’s qualification asa foreign corporation and good standing issued by the Secretary of State (orcomparable office) of each jurisdiction in which the Company conducts business,as of a date within 10 days of the Closing Date.

## (g)           The Company shall have delivered tosuch Buyer a certified copy of the Certificate of Incorporation as certified bythe Secretary of State of the State of Delaware within ten (10) days of theClosing Date.

## (h)           The Company shall have delivered tosuch Buyer a certificate, executed by the Secretary of the Company and dated asof the Closing Date, as to (i) the resolutions consistent with Section 3(b) asadopted by the Company’s Board of Directors in a form reasonably acceptable tosuch Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each asin effect at the Closing, in the form attached hereto as Exhibit F.

## (i)            The representations and warrantiesof the Company shall be true and correct in all material respects (except forthose representations and warranties that are qualified by materiality orMaterial Adverse Effect, which shall be true and correct in all respects) as ofthe date when made and as of the Closing Date as though made at that time(except for representations and warranties that speak as of a specific date,which shall be true and correct as of such specific date) and the Company shallhave performed, satisfied and complied in all material respects with thecovenants, agreements and conditions required by the Transaction Documents tobe performed, satisfied or complied with by the Company at or prior to theClosing Date.  Such Buyer shall havereceived a certificate, executed by the Chief Executive Officer of the Company,dated as of the Closing Date, to the foregoing effect and as to such othermatters as may be reasonably requested by such Buyer in the form attachedhereto as Exhibit G.

## (j)            The Company shall have delivered tosuch Buyer a letter from the Company’s transfer agent certifying the number ofshares of Common Stock outstanding as of a date within five days of the ClosingDate.

## (k)           The Common Stock (I) shall bedesignated for quotation or listed on the Principal Market and (II) shall nothave been suspended, as of the Closing Date, by the SEC or the Principal Marketfrom trading on the Principal Market nor shall suspension by the SEC or thePrincipal Market have been threatened, as of the Closing Date, either (A) inwriting by the SEC or the Principal Market or (B) by falling below the minimumlisting maintenance requirements of the Principal Market.

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## (l)            The Company shall have obtained allgovernmental, regulatory or third party consents and approvals, if any,necessary for the sale of the Securities.

## (m)          The Company shall have delivered tosuch Buyer such other documents relating to the transactions contemplated bythis Agreement as such Buyer or its counsel may reasonably request.

8.             TERMINATION. In the event that the Closing shall not have occurred with respect to aBuyer on or before five (5) Business Days from the date hereof due to theCompany's or such Buyer's failure to satisfy the conditions set forth inSections 6 and 7 above (and the nonbreaching party's failure to waive suchunsatisfied condition(s)), the nonbreaching party shall have the option toterminate this Agreement with respect to such breaching party at the close ofbusiness on such date without liability of any party to any other party; provided,however, that if this Agreement is terminated pursuant to this Section8, due to the failure of the Company to satisfy the conditions to Closing setforth in Section 7, the Company shall remain obligated to reimburse thenon-breaching Buyers for their expenses described in Section 4(g) above.

 

# 9.             MISCELLANEOUS.

## (a)           Governing Law; Jurisdiction; JuryTrial.  All questions concerning theconstruction, validity, enforcement and interpretation of this Agreement shallbe governed by the internal laws of the State of New York, without givingeffect to any choice of law or conflict of law provision or rule (whether ofthe State of New York or any other jurisdictions) that would cause theapplication of the laws of any jurisdictions other than the State of NewYork.  Each party hereby irrevocablysubmits to the exclusive jurisdiction of the state and federal courts sittingin The City of New York, Borough of Manhattan, for the adjudication of anydispute hereunder or in connection herewith or with any transactioncontemplated hereby or discussed herein, and hereby irrevocably waives, andagrees not to assert in any suit, action or proceeding, any claim that it isnot personally subject to the jurisdiction of any such court, that such suit,action or proceeding is brought in an inconvenient forum or that the venue ofsuch suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process andconsents to process being served in any such suit, action or proceeding bymailing a copy thereof to such party at the address for such notices to itunder this Agreement and agrees that such service shall constitute good andsufficient service of process and notice thereof.  Nothing contained herein shall be deemed tolimit in any way any right to serve process in any manner permitted bylaw.  **EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREESNOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER ORIN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONCONTEMPLATED HEREBY.**

## (b)           Counterparts.  This Agreement may be executed in two or moreidentical counterparts, all of which shall be considered one and the sameagreement and shall become effective when counterparts have been signed by eachparty and delivered to the other party; provided that a facsimile signatureshall be considered due execution and shall be binding upon

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## the signatory thereto with the same force andeffect as if the signature were an original, not a facsimile signature.

## (c)           Headings.  The headings of this Agreement are forconvenience of reference and shall not form part of, or affect theinterpretation of, this Agreement.

## (d)           Severability.  If any provision of this Agreement shall beinvalid or unenforceable in any jurisdiction, such invalidity orunenforceability shall not affect the validity or enforceability of theremainder of this Agreement in that jurisdiction or the validity orenforceability of any provision of this Agreement in any other jurisdiction.

## (e)           Entire Agreement; Amendments.  This Agreement and the other TransactionDocuments supersede all other prior oral or written agreements between theBuyers, the Company, their affiliates and Persons acting on their behalf withrespect to the matters discussed herein, and this Agreement, the otherTransaction Documents and the instruments referenced herein and therein containthe entire understanding of the parties with respect to the matters coveredherein and therein and, except as specifically set forth herein or therein,neither the Company nor any Buyer makes any representation, warranty, covenantor undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrumentin writing signed by the Company and the Required Holders, and any amendment tothis Agreement made in conformity with the provisions of this Section 9(e)shall be binding on all Buyers and holders of Securities, as applicable.  No provision hereof may be waived other thanby an instrument in writing signed by the party against whom enforcement issought.  No such amendment shall beeffective to the extent that it applies to less than all of the holders of theapplicable Securities then outstanding. No consideration shall be offered or paid to any Person to amend orconsent to a waiver or modification of any provision of any of the TransactionDocuments unless the same consideration also is offered to all of the partiesto the Transaction Documents, holders of Notes or holders of the Warrants, asthe case may be.  The Company has not,directly or indirectly, made any agreements with any Buyers relating to theterms or conditions of the transactions contemplated by the TransactionDocuments except as set forth in the Transaction Documents.  Without limiting the foregoing, the Companyconfirms that, except as set forth in this Agreement, no Buyer has made anycommitment or promise or has any other obligation to provide any financing tothe Company or otherwise.

## (f)            Notices.  Any notices, consents, waivers or othercommunications required or permitted to be given under the terms of thisAgreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally;(ii) upon receipt, when sent by facsimile (provided confirmation oftransmission is mechanically or electronically generated and kept on file bythe sending party); or (iii) one Business Day after deposit with an overnightcourier service, in each case properly addressed to the party to receive thesame.  The addresses and facsimilenumbers for such communications shall be:

|   | If to the Company: |
|--------|--------------------|
|   |               |   |
|   |               | Earth Biofuels,  Inc. |
|   |               | 3001 Knox  Street, Suite 403, |
|   |               | Dallas, Texas  75205 |

 

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|        |                                       | Telephone:                       | (214) 389-9800       |
|--------|--------------------------------------------|----------------------------------|----------------------|
|   |                                       | Facsimile:                       | (214) 389-9806       |
|   |                                       | Attention:                       | Dennis McLaughlin    |
|   |                                       |                             |                 |
|   | Copy to (for informational purposes only): |
|   |                                       |                             |
|   |                                       | Scheef & Stone, LLP          |
|   |                                       | Telephone:                       | (214) 706-4200       |
|   |                                       | Facsimile:                       | (214) 706-4242       |
|   |                                       | Attention:                       | Roger A. Crabb, Esq. |
|   |                                       |                             |                 |
|   | If to the Transfer  Agent:                 |
|   |                                       |                             |
|   |                                       | Nevada Agency  and Trust Company |
|   |                                       | 50 West Liberty  Street          |
|   |                                       | Suite 800                        |
|   |                                       | Reno, Nevada  89501              |
|   |                                       | Telephone:                       | (775) 322-0626       |
|   |                                       | Facsimile:                       | (775) 322-5623       |
|   |                                       | Attention:                       | Mary Ramsey          |

 

If to a Buyer, to itsaddress and facsimile number set forth on the Schedule of Buyers, with copiesto such Buyer’s representatives as set forth on the Schedule of Buyers, or tosuch other address and/or facsimile number and/or to the attention of suchother Person as the recipient party has specified by written notice given toeach other party five (5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given bythe recipient 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.

## (g)           Successors and Assigns.  This Agreement shall be binding upon andinure to the benefit of the parties and their respective successors and assigns,including any purchasers of the Notes or the Warrants.  The Company shall not assign this Agreementor any rights or obligations hereunder without the prior written consent of theRequired Holders (unless the Company is in compliance with the applicableprovisions governing Fundamental Transactions set forth in the Notes and theWarrants).  A Buyer may assign some orall of its rights hereunder without the consent of the Company, in which eventsuch assignee shall be deemed to be a Buyer hereunder with respect to suchassigned rights.

## (h)           No Third Party Beneficiaries.  This Agreement is intended for the benefit ofthe parties hereto and their respective permitted successors and assigns, andis not for the benefit of, nor may any provision hereof be enforced by, anyother Person.

## (i)            Survival.  Unless this Agreement is terminated underSection 8, the representations and warranties of the Company and the Buyerscontained in Sections 2 and 3 and the agreements and covenants set forth inSections 4, 5 and 9 shall survive the Closing and the

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## delivery and exercise of Securities, asapplicable.  Each Buyer shall beresponsible only for its own representations, warranties, agreements andcovenants hereunder.

## (j)            Further Assurances.  Each party shall do and perform, or cause tobe done and performed, all such further acts and things, and shall execute anddeliver all such other agreements, certificates, instruments and documents, asany other party may reasonably request in order to carry out the intent and accomplishthe purposes of this Agreement and the consummation of the transactionscontemplated hereby.

## (k)           Indemnification.  In consideration of each Buyer’s executionand delivery of the Transaction Documents and acquiring the Securitiesthereunder and in addition to all of the Company’s other obligations under theTransaction Documents, the Company shall defend, protect, indemnify and holdharmless each Buyer and each other holder of the Securities and all of theirstockholders, partners, members, officers, directors, employees and direct orindirect investors and any of the foregoing Persons’ agents or otherrepresentatives (including, without limitation, those retained in connectionwith the transactions contemplated by this Agreement) (collectively, the “**Indemnitees**”) from and against any and all actions, causesof action, suits, claims, losses, costs, penalties, fees, liabilities anddamages, and expenses in connection therewith (irrespective of whether any suchIndemnitee is a party to the action for which indemnification hereunder issought), and including reasonable attorneys’ fees and disbursements (the “**Indemnified Liabilities**”), incurred by any Indemnitee as aresult of, or arising out of, or relating to (a) any misrepresentation orbreach of any representation or warranty made by the Company in the TransactionDocuments or any other certificate, instrument or document contemplated herebyor thereby, (b) any breach of any covenant, agreement or obligation of theCompany contained in the Transaction Documents or any other certificate,instrument or document contemplated hereby or thereby or (c) any cause ofaction, suit or claim brought or made against such Indemnitee by a third party(including for these purposes a derivative action brought on behalf of theCompany) 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, (iii) anydisclosure made by such Buyer pursuant to Section 4(i) or (iv) the status ofsuch Buyer or holder of the Securities as an investor in the Company pursuantto the transactions contemplated by the Transaction Documents.  To the extent that the foregoing undertakingby the Company may be unenforceable for any reason, the Company shall make themaximum contribution to the payment and satisfaction of each of the IndemnifiedLiabilities which is permissible under applicable law.  Except as otherwise set forth herein, themechanics and procedures with respect to the rights and obligations under thisSection 9(k) shall be the same as those set forth in Section 6 of theRegistration Rights Agreement.

## (l)            No Strict Construction.  The language used in this Agreement 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.

## (m)          Remedies.  Each Buyer and each holder of the Securitiesshall have all rights and remedies set forth in the Transaction Documents andall rights and remedies which such holders have been granted at any time underany other agreement or contract and all of the

32

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## rights which such holders have under anylaw.  Any Person having any rights underany provision of this Agreement shall be entitled to enforce such rightsspecifically (without posting a bond or other security), to recover damages byreason of any breach of any provision of this Agreement and to exercise allother rights granted by law. Furthermore, the Company recognizes that in the event that it fails toperform, observe, or discharge any or all of its obligations under the TransactionDocuments, any remedy at law may prove to be inadequate relief to theBuyers.  The Company therefore agreesthat the Buyers shall be entitled to seek temporary and permanent injunctiverelief in any such case without the necessity of proving actual damages andwithout posting a bond or other security.

## (n)           Rescission and Withdrawal Right.  Notwithstanding anything to the contrarycontained in (and without limiting any similar provisions of) the TransactionDocuments, whenever any Buyer exercises a right, election, demand or optionunder a Transaction Document and the Company does not timely perform itsrelated obligations within the periods therein provided, then such Buyer mayrescind or withdraw, in its sole discretion from time to time upon writtennotice to the Company, any relevant notice, demand or election in whole or inpart without prejudice to its future actions and rights.

## (o)           Payment Set Aside.  To the extent that the Company makes apayment or payments to the Buyers hereunder or pursuant to any of the otherTransaction Documents or the Buyers enforce or exercise their rights hereunderor thereunder, and such payment or payments or the proceeds of such enforcementor exercise or any part thereof are subsequently invalidated, declared to be fraudulentor preferential, set aside, recovered from, disgorged by or are required to berefunded, repaid or otherwise restored to the Company, a trustee, receiver orany other Person under any law (including, without limitation, any bankruptcylaw, foreign, state or federal law, common law or equitable cause of action),then to the extent of any such restoration the obligation or part thereoforiginally intended to be satisfied shall be revived and continued in fullforce and effect as if such payment had not been made or such enforcement orsetoff had not occurred.

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## (p)           Independent Nature of Buyers’Obligations and Rights.  Theobligations of each Buyer under any Transaction Document are several and notjoint with the obligations of any other Buyer, and no Buyer shall beresponsible in any way for the performance of the obligations of any otherBuyer under any Transaction Document. Nothing contained herein or in any other Transaction Document, and noaction taken by any Buyer pursuant hereto or thereto, shall be deemed toconstitute the Buyers as a partnership, an association, a joint venture or anyother kind of entity, or create a presumption that the Buyers are in any wayacting in concert or as a group with respect to such obligations or thetransactions contemplated by the Transaction Documents and the Companyacknowledges that the Buyers are not acting in concert or as a group, and theCompany will not assert any such claim, with respect to such obligationsor the transactions contemplated by the Transaction Documents.  Each Buyer confirms that it has independentlyparticipated in the negotiation of the transaction contemplated hereby with theadvice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce itsrights, including, without limitation, the rights arising out of this Agreementor out of any other Transaction Documents, and it shall not be necessary forany other Buyer to be joined as an additional party in any proceeding for suchpurpose.

**[Signature Page Follows]**

34

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**IN WITNESS WHEREOF,**each Buyer and the Company have caused their respective signature page to thisSecurities Purchase Agreement to be duly executed as of the date first writtenabove.
| ** ** | ** ** | **COMPANY:**             |
|------------|------------|--------------------------|
| ** ** | ** ** | ** **               |
| ** ** | ** ** | **EARTH BIOFUELS, INC.** |
| ** ** | ** ** | ** **               |
| ** ** | ** ** | ** **               |
| ** ** | ** ** | By:                      | /s/ Dennis G. McLaughlin, III |   |
| ** ** | ** ** | ** **               | Name: | Dennis G. McLaughlin, III |
| ** ** | ** ** | ** **               | Title: | Chief Executive Officer |
|            |            |                          |  |  |  |

 

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**IN WITNESS WHEREOF,**each Buyer and the Company have caused their respective signature page to thisSecurities Purchase Agreement to be duly executed as of the date first writtenabove.
|            | ** ** | **BUYERS:**                       |
|------------|------------|-----------------------------------|
| ** ** | ** ** | ** **                        |
| ** ** | ** ** | **EXCALIBUR LIMITED PARTNERSHIP** |
| ** ** | ** ** | ** **                        |
| ** ** | ** ** | ** **                        |
| ** ** | ** ** | By:                               | /s/ William Hechter |   |
| ** ** | ** ** | ** **                        | Name: | William Hechter |
| ** ** | ** ** | ** **                        | Title: | President of [illegible] |
|            |            |                                   |  |  |  |

** **

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**IN WITNESS WHEREOF,**each Buyer and the Company have caused their respective signature page to thisSecurities Purchase Agreement to be duly executed as of the date first writtenabove.
|            | ** ** | **WHALEHAVEN CAPITAL FUND LTD.:** |
|------------|------------|-----------------------------------|
| ** ** | ** ** | ** **                        |
| ** ** | ** ** | ** **                        |
| ** ** | ** ** | By:                               |   |   |
| ** ** | ** ** | ** **                        | Name: | ** ** |
| ** ** | ** ** | ** **                        | Title: | ** ** |
|            |            |                                   |  |  |  |

 

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**SCHEDULE OF BUYERS**

 
| **(1)**                           | ** ** | **(2)**                                                                                                                                                     | ** ** | **(3)**                                         | ** ** | **(4)**                                                | ** ** | **(5)**                                                | ** ** | **(6)**                 | ** ** | **(7)**                                                                           | ** ** |
|-----------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **Buyer**                         | ** ** | **Address and  Facsimile Number**                                                                                                                 | ** ** | **Aggregate  Principal  Amount of  Notes** | ** ** | **Number of  Series A  Warrant Shares** | ** ** | **Number of  Series B  Warrant Shares** | ** ** | **Purchase Price** | ** ** | **Legal Representative’s Address  and Facsimile Number** | ** ** |
| **Excalibur Limited Partnership** |       | 33  Prince Arthur Avenue  Toronto, Ontario  Canada M5R 1B2  Attention: Will Hecter  Facsimile: (204) 848-4427  Telephone: (416) 964-9077  Residence: Canada |       | $                                               | 500,000    |                                                   | 86,207     |                                                   | —     |                    | $          | 500,000                                                                           |       | N/A |   |
| **Whalehaven Capital Fund Ltd.**  |       | 33 Prince  Arthur Avenue  Toronto, ON M5R 1B2  Attention: Michael Finklestein  Facsimile: (416) 323-3693  Telephone: (416) 323-9962  Residence: Canada      |       | $                                               | 850,000    |                                                   | 146,552    |                                                   | —     |                    | $          | 850,000                                                                           |       | N/A |   |
|                              | ** ** | **TOTAL**                                                                                                                                                   |       | $                                               | 1,350,000  |                                                   | 232,759    |                                                   | —     |                    | $          | 1,350,000                                                                         |       |   |   |

 

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**EXHIBITS**
| Exhibit  A  |   | Form of Notes                           |
|-------------|--------|-----------------------------------------|
| Exhibit B-1 |   | Form of Series A Warrants               |
| Exhibit B-2 |   | Form of Series B Warrants               |
| Exhibit C   |   | Registration Rights Agreement           |
| Exhibit D   |   | Irrevocable Transfer Agent Instructions |
| Exhibit E   |   | Form of Outside Company Counsel Opinion |
| Exhibit F   |   | Form of Secretary’s Certificate    |
| Exhibit G   |   | Form of Officer’s Certificate      |

 

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