**EXHIBIT 10.51**

 

**EXECUTION COPY**

**SECURITIES PURCHASE AGREEMENT**

**SECURITIES PURCHASE AGREEMENT**(this “***Agreement***”), datedas of July 10, 2006, is by and between Earth Biofuels, Inc., aDelaware corporation (the “***Company***”),and each purchaser listed on ***Exhibit A***attached hereto (individually, a “***Purchaser***”and, collectively, the “***Purchasers***”).

A.            On June 7,2006, certain purchasers, including each Purchaser, acquired certain notes andwarrants (the “**Bridge Warrants**”) pursuant to thatcertain Securities Purchase Agreement, dated as of June 7, 2006, by andamong the Company and the purchasers signatory thereto.

B.            EachPurchaser wishes to purchase and the Company wishes to sell, upon the terms andsubject to the conditions stated in this Agreement, (i) an 8% Senior Notein the form attached hereto as ***Exhibit B***(a “***Note***” and, collectively, the “***Notes***”) and (ii) a warrant inthe form of ***Exhibit C*** hereto (the “***New Warrant***”). The Notes will beconvertible under certain conditions into shares of the Company’s common stock,par value $0.001 per share (the “***CommonStock***”). The New Warrant issued to a Purchaser will entitle theholder thereof to purchase a number of shares of Common Stock equal to the 150%of the original principal amount of the Note purchased by such Purchaserdivided by ten dollars ($10.00).  Asadditional consideration for the execution of this Agreement, each Purchaserwishes to exchange, and the Company desires to exchange, the Bridge Warrantsfor a warrant in the form of ***Exhibit C***hereto exercisable into such number of shares of Common Stock as areexercisable under the Bridge Warrants of such Purchaser as of the Closing Date(the “***Replacement Warrant***”, andtogether with the New Warrant, the “***Warrants***”).

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

D.            TheCompany has agreed to effect the registration of the Conversion Shares and theWarrant Shares under the Securities Act of 1933, as amended (the “***Securities Act***”), pursuant toa Registration Rights Agreement in the form attached hereto as ***Exhibit D*** (the “***Registration Rights Agreement***”).

E.             The sale of the Notes, the NewWarrants and the Warrant Shares to the Purchasers will be effected in relianceupon the exemption from securities registration afforded by Section 4(2) ofthe Securities Act and Rule 506 of Regulation D (“***Regulation D***”) and the exchange of the Bridge Warrantfor the Replacement Warrant will be effected in reliance upon the exemptionfrom securities registration afforded by Section 3(a)(9) of theSecurities Act, in each case, as promulgated by the Securities and ExchangeCommission (the “***Commission***”)thereunder.

 

----

 

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

1.*             PURCHASE AND SALEOF NOTES AND WARRANTS; DEFINITIONS.*

1.1           Purchase of Notes and New Warrants; Exchange of BridgeWarrant.  Upon the terms and subjectto the satisfaction or waiver of the conditions set forth herein, the Companyagrees to sell and each Purchaser agrees to purchase (i) a Note with aprincipal amount equal to the amount set forth opposite such Purchaser’s nameon ***Exhibit A*** hereto and (ii) aNew Warrant.  The purchase price for theNote and New Warrant being purchased by a Purchaser (the “***PurchasePrice***”) shall be equal to the principal amount of suchNote.  On the Closing Date, suchPurchaser and the Company shall exchange the Bridge Warrant of the Purchaserfor a Replacement Warrant.  The date onwhich the closing of the purchase and sale of the Notes and Warrants occurs(the “***Closing***”) is hereinafterreferred to as the “***Closing Date***”. The Closingwill be deemed to occur when (A) this Agreement and the other TransactionDocuments (as defined below) have been executed and delivered by the Companyand each Purchaser (which delivery may be effected by facsimile transmission), (B) eachof the conditions to the Closing described in Section 5 hereof has beensatisfied or waived as specified therein and (C) full payment of eachPurchaser’s Purchase Price has been made by such Purchaser to the Company bywire transfer of immediately available funds against physical delivery by theCompany of duly executed instruments representing the Note and Warrantspurchased or exchanged by such Purchaser at the Closing.

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

“***Affiliate***”means, as to any Person (the “***subject Person***”),any other Person (a) that directly or indirectly through one or moreintermediaries controls or is controlled by, or is under direct or indirectcommon control with, the subject Person, (b) that directly or indirectlybeneficially owns or holds ten percent (10%) or more of any class of votingequity of the subject Person, or (c) ten percent (10%) or more of thevoting equity of which is directly or indirectly beneficially owned or held bythe subject Person. For the purposes of this definition, “***control***”when used with respect to any Person means the power to direct the managementand policies of such Person, directly or indirectly, whether through theownership of voting securities, through representation on such Person’s Boardof Directors or other management committee or group, by contract or otherwise.

“***ApprovedStock Plan***” means any employee benefit plan which has beenapproved by the Board of Directors of the Company (including a majority of theindependent members of the Board), pursuant to which the Company’s securitiesmay be issued to any employee, officer, director or consultant for servicesprovided to the Company.

“***BusinessDay***” means any day other than a Saturday, a Sunday or a day onwhich the New York Stock Exchange is closed or on which banks are authorized bylaw to close in New York, New York.

 

----

 

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

“***CommonStock***” means the common stock, par value $0.001 per share, ofthe Company.

“***CommonStock Equivalent”***means, collectively, Options and ConvertibleSecurities.

“***Convertible Securities***”****means any stock or securities (other thanOptions) of the Company convertible into or exercisable or exchangeable forCommon Stock**.**

“***ConversionPrice***” has the meaning specified in the Notes.

“***Debt***”means, as to any Person at any time: (a) all indebtedness, liabilities andobligations of such Person for borrowed money; (b) all indebtedness,liabilities and obligations of such Person to pay the deferred purchase priceof Property or services, except trade accounts payable of such Person arisingin the ordinary course of business that are not past due by more than 90 days; (c) allcapital lease obligations of such Person; (d) all Debt of othersguaranteed by such Person; (e) all indebtedness, liabilities andobligations secured by a Lien (other than a Permitted Lien) existing onProperty owned by such Person, whether or not the indebtedness, liabilities orobligations secured thereby have been assumed by such Person or are non-recourseto such Person; (f) all reimbursement obligations of such Person (whethercontingent or otherwise) in respect of letters of credit, bankers’ acceptances,surety or other bonds and similar instruments; and (g) all liabilities andobligations of such Person to redeem or retire shares of capital stock of suchPerson (other than the Company’s obligation to redeem the Securities under thecircumstances specified therein).

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

“***EDGAR***”means the Commission’s Electronic Data Gathering, Analysis, and Retrievalsystem

“***EffectiveDate***” has the meaning set forth in the Registration RightsAgreement.

“***EnvironmentalLaw***” means all federal,state, local or foreign laws relating to pollution or protection of humanhealth or the environment (including, without limitation, ambient air, surfacewater, groundwater, land surface or subsurface strata), including, withoutlimitation, laws relating to emissions, discharges, releases or threatenedreleases of chemicals, pollutants, contaminants, or toxic or hazardoussubstances or wastes (collectively, “***HazardousMaterials***”) into the environment, or otherwise relating to themanufacture, processing, distribution, use, treatment, storage, disposal,transport or handling of Hazardous Materials, as well as all authorizations,codes, decrees, demands or demand letters, injunctions, judgments, licenses,notices or notice letters, orders, permits, plans or regulations issued,entered, promulgated or approved thereunder.

 

----

 

“***ERISA***”means the Employee Retirement Income Security Act of 1974, as amended, and theregulations and published interpretations thereunder.

“***Eventof Default***” has the meaning set forth in the Notes.

“***ExchangeAct***” means the Securities Exchange Act of 1934, as amended (orany successor act), and the rules and regulations thereunder (orrespective successors thereto).

“***Excluded Securities***”means Common Stock or Common Stock Equivalents issued or issuable: (i) inconnection with any Approved Stock Plan; (ii) upon exercise of any Options orconversion of any Convertible Securities which are outstanding on the dayimmediately preceding the Closing Date and are disclosed in a schedule to thisAgreement, provided that the terms of such Options or Convertible Securitiesare not amended, modified or changed on or after the Closing Date; (iii)pursuant to a bona fide firm commitment underwritten public offering with anationally-recognized investment banking firm which generates gross proceeds tothe Company in excess of $35,000,000 (other than an “at-the-market offering” asdefined in Rule 415(a)(4) under the Securities Act or an “equity line”arrangement); (iv) in connection with any acquisition by the Company, whetherthrough an acquisition of stock or a merger of any business, assets ortechnologies the primary purpose of which is not to raise equity capital in anamount not to exceed, in the aggregate, 10% of the outstanding shares of CommonStock in any calendar year; and (v) an anticipated issuance of no more than 10million shares of Common Stock to an agricultural conglomerate.

“***ExercisePrice***” shall have the meaning specified in the Warrants.

“***GAAP***”means generally accepted accounting principles, applied on a consistent basis,as set forth in (i) opinions of the Accounting Principles Board of theAmerican Institute of Certified Public Accountants, (ii) statements of theFinancial Accounting Standards Board (iii) interpretations of theCommission and the Staff of the Commission and each of their respectivesuccessors and which are applicable in the circumstances as of the date inquestion.  Accounting principles areapplied on a “consistent basis” when the accounting principles applied in acurrent period are comparable in all material respects to those accountingprinciples applied in a preceding period.

“***GoverningDocuments***” means, as of any date, (i) in the case of acorporation, its certificate of incorporation and by-laws, (ii) in thecase of a partnership, its certificate of partnership and partnershipagreement, (iii) in the case of a limited liability company, itscertificate of organization and limited liability company operating agreement,and (iv) any similar governing document of any such entity, in each suchcase as amended through such date.

“***GovernmentalAuthority***” means any nation or government, any state, provincialor political subdivision thereof and any entity exercising executive,legislative, judicial, regulatory or administrative functions of or pertainingto government, including without limitation any stock exchange, securitiesmarket or self-regulatory organization.

 

----

 

“***GovernmentalRequirement***” means any law, statute, code, ordinance, order,rule, regulation, judgment, decree, injunction, franchise, license or otherdirective or requirement of any federal, state, county, municipal, parish,provincial or other Governmental Authority or any department, commission,board, court, agency or any other instrumentality of any of them.

“***Insolvent***”means, with respect to the Company, that (i) the Company is unable to payits debts and liabilities, subordinated, contingent or otherwise, as such debtsand liabilities become absolute and matured, (ii) the Company intends toincur or believes that it will incur debts that would be beyond its ability topay as such debts mature or (iii) the Company has unreasonably smallcapital with which to conduct the business in which it is engaged as suchbusiness is now conducted or is about to be conducted

“***IntellectualProperty***” means any U.S. or foreign patents, patent rights,patent applications, trademarks, trade names, service marks, brand names, logosand other trade designations (including unregistered names and marks),trademark and service mark registrations and applications, copyrights andcopyright registrations and applications, inventions, invention disclosures,protected formulae, formulations, processes, methods, trade secrets, computersoftware, computer programs and source codes, manufacturing research andsimilar technical information, engineering know-how, customer and supplierinformation, assembly and test data drawings or royalty rights.

“***Lien***”means, with respect to any Property, any mortgage or mortgage, pledge,hypothecation, assignment, deposit arrangement, security interest, tax lien,financing statement, pledge, charge, or other lien, charge, easement,encumbrance, preference, priority or other security agreement or preferentialarrangement of any kind or nature whatsoever on or with respect to suchProperty (including, without limitation, any conditional sale or other titleretention agreement having substantially the same economic effect as any of theforegoing).

“***Market Price***”means, as of a particular date, the lower of (i) the average of daily VWAP foreach of the five (5) consecutive Trading Days occurring immediately prior to(but not including) such date and (ii) the daily VWAP on the Trading Dayoccurring immediately prior to (but not including) such date.

“***MaterialAdverse Effect***” means an effect that is material and adverse to (i) theconsolidated business, operations, properties, financial condition, prospectsor results of operations of the Company and its Subsidiaries taken as a wholeor (ii) the ability of the Company to perform its obligations under thisAgreement or the other Transaction Documents (as defined below).

“***MaterialContracts***” means, as to the Company, any agreement requiredpursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K, asapplicable, promulgated under the Securities Act to be filed as an exhibit toany report, schedule, registration statement or definitive proxy statementfiled or required to be filed by the Company with the Commission under theExchange Act or any rule or regulation promulgated thereunder, and any andall amendments, modifications, supplements, renewals or restatements thereof.

 

----

 

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

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

“***Options***” means any rights, warrants or options tosubscribe for, purchase or receive Common Stock or Convertible Securities.

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

“***PensionPlan***” means an employee benefit plan (as defined in ERISA)maintained by the Company for employees of the Company or any of itsAffiliates.

“***PermittedLiens***” means the following:

(a)        encumbrances consistingof easements, rights-of-way, zoning restrictions or other restrictions on theuse of real Property or imperfections to title that do not (individually or inthe aggregate) materially impair the ability of the Company or any of its Subsidiariesto use such Property in its businesses, and none of which is violated in anymaterial respect by existing or proposed structures or land use;

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

(c)        Liens of mechanics,materialmen, warehousemen, carriers, landlords or other similar statutory Lienssecuring obligations that are not yet due and are incurred in the ordinarycourse of business or which are being contested in good faith by appropriateproceedings, which proceedings have the effect of preventing the forfeiture orsale of the Property subject to such Liens, for which adequate reserves (as determinedin accordance with GAAP) have been established and which have been bonded overand omitted from the Title Policy;

(d)       purchase money Liens to finance property or assets of theCompany or any Subsidiary of the Company acquired in the ordinary course ofbusiness;

 

----

 

*provided*, *however*, that (i) therelated purchase money Debt shall not exceed the cost of such property orassets (including the cost of design, development, improvement, production,acquisition, construction, installation and integration) and shall not besecured by any property or assets of the Company or any Subsidiary of theCompany other than the property and assets so acquired or constructed (and anyimprovements thereto) and (ii) the Lien securing such Debt shall becreated within ten (10) days of such acquisition, construction orimprovement;

(e)        Liens upon specific itemsof inventory or other goods and proceeds of any Person securing such Person’sobligations in respect of bankers’ acceptances issued or created for theaccount of such Person to facilitate the purchase, shipment or storage of suchinventory or other goods; and

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

“***Person***”means any individual, corporation, trust, association, company, partnership,joint venture, limited liability company, joint stock company, GovernmentalAuthority or other entity.

“***Property***”means property and/or assets of all kinds, whether real, personal or mixed,tangible or intangible (including, without limitation, all rights relatingthereto).

“***PrincipalMarket***” means the principal exchange or market on which theCommon Stock is listed or traded.

“***PurchasePrice***” has the meaning specified in Section 1.1 hereof.

“***RegistrableSecurities***” has the meaning set forth in the Registration RightsAgreement.

“***Restricted Payment***” means (a) anydividend or other distribution (whether in cash, Property or obligations),direct or indirect, on account of (or the setting apart of money for a sinkingor other analogous fund for the benefit of) any shares of any class of capitalstock of the Company or any of its Subsidiaries now or hereafter outstanding, excepta dividend payable solely in shares of that class of stock to all of theholders of that class; (b) any redemption, exchange, retirement, sinkingfund or similar payment, purchase or other acquisition for value, direct orindirect, of any shares of any class of capital stock of the Company or any ofits Affiliates now or hereafter outstanding, except the Securities; (c) anyprepayment of principal of, premium, if any, or interest on, or any redemption,conversion, exchange, purchase, retirement, sinking fund or defeasance of, anyDebt (whether upon acceleration of such Debt or otherwise) other than theSecurities; and (d) any loan, advance or payment to any officer, directoror stockholder of the Company or any of its Affiliates, exclusive of (i) reasonablecompensation and reimbursements paid to officers or directors in the ordinarycourse of business

 

----

 

and (ii) thescheduled repayment of principal and interest with respect to any loans made byany such Affiliate to the Company and outstanding as of the date hereof and setforth on ***Schedule 3.5*** hereto; *provided, however,*that the following shall not be deemed toconstitute a Restricted Payment: (A) the issuance of securities uponexercise or conversion of the Company’s Options or Convertible Securities underan Approved Stock Plan, and (B) the issuance of equity securities to, ormaking payments under license, joint venture or similar agreements with,persons with whom the Company has a joint venture, strategic alliance or othercommercial relationship in connection with the operation of the Company’sbusiness, and not in connection with a transaction the purpose of which is toraise equity capital.

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

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

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

“***SubordinatedDebt***” means Debt of the Company which meets each of thefollowing requirements:  (a) suchDebt is wholly unsecured or any Liens securing such Debt constitute PermittedLiens; and (b) such Debt is contractually subordinated, as to payment andliquidation, to the payment in full of the Notes and the Obligations on suchterms and pursuant to written agreements in such form and substance as arereasonably satisfactory to Purchasers holding at least fifty percent (50%) ofthe aggregate principal amount of the Notes outstanding on the date such Debtis incurred (the “***Subordinated Debt Documents***”).

“***Subsidiary***”means, with respect to any Person, any corporation or other entity of which atleast a majority of the outstanding shares of stock or other ownershipinterests having by the terms thereof ordinary voting power to elect a majorityof the board of directors (or Persons performing similar functions) of suchcorporation or entity (irrespective of whether or not at the time, in the caseof a corporation, stock of any other class or classes of such corporation shallhave or might have voting power by reason of the happening of any contingency)is at the time directly or indirectly owned or controlled by such Person or oneor more of its Subsidiaries or by such Person and one or more of itsSubsidiaries.

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

“***TradingDay***” means any day on which the Common Stock is purchased andsold on the Principal Market.

“***TransactionDocuments***” means (i) this Agreement, (ii) the Notes, (iii) theWarrants, (iv) the Registration Rights Agreement, and (vii) all otheragreements, documents and other instruments executed and delivered by or onbehalf of the Company or its officers at the Closing.

“***VWAP***” on a Trading Day means thevolume weighted average price of the Common Stock for such Trading Day on thePrincipal Market as reported by Bloomberg Financial Markets or, if BloombergFinancial

 

----

 

Marketsis not then reporting such prices, by a comparable reporting service ofnational reputation selected by the Holders and reasonably satisfactory to theCompany.  If VWAP cannot be calculatedfor the Common Stock on such Trading Day on any of the foregoing bases, thenthe Company shall submit such calculation to an independent investment bankingfirm of national reputation reasonably acceptable to the Purchasers, and shall causesuch investment banking firm to perform such determination and notify theCompany and the Purchasers of the results of determination no later than two (2) BusinessDays from the time such calculation was submitted to it by the Company.  All such determinations shall beappropriately adjusted for any stock dividend, stock split or other similartransaction during such period.

1.3       Other Definitional Provisions.  All definitions contained in this Agreementare equally applicable to the singular and plural forms of the termsdefined.  The words “***hereof***”,“***herein***” and “***hereunder***”and words of similar import referring to this Agreement refer to this Agreementas a whole and not to any particular provision of this Agreement.

**2.***            **PURCHASERS REPRESENTATIONSAND WARRANTIES*.

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

2.1       NoPublic Sale or Distribution. Such Purchaser is acquiring the Note and theNew Warrant being purchased by it in the ordinary course of business for itsown account and not with a view towards, or for resale in connection with, thepublic sale or distribution thereof, except pursuant to sales that areregistered under the Securities Act or are exempt from the requirement to beregistered thereunder. Such Purchaser does not presently have any agreement,arrangement or understanding, directly or indirectly, with any Person todistribute or effect any distribution of any of the Securities (or anysecurities which are derivatives thereof) to or through any person or entity; *provided*, *however*, thatin making such representations, such Purchaser does not agree to hold any ofthe Securities for any minimum or other specific term and reserves the right todispose of the Securities at any time in accordance with or pursuant to aneffective registration statement or an exemption under the Securities Act.

2.2       AccreditedPurchaser Status. Such Purchaser is an “accredited Purchaser” as that termis defined in Rule 501(a) of Regulation D.

2.3       Relianceon Exemptions. Such Purchaser understands that the Securities are beingoffered and sold to it in reliance on specific exemptions from the registrationrequirements of United States federal and state securities laws and that theCompany is relying in part upon the truth and accuracy of, and such Purchaser’scompliance with, the representations, warranties, agreements, acknowledgmentsand understandings of such Purchaser set forth herein in order to determine theavailability of such exemptions and the eligibility of such Purchaser toacquire the Securities.

2.4       Information. Such Purchaser andits advisors, if any, have been furnished with all materials relating to thebusiness, finances and operations of the Company and materials relating to theoffer and sale of the Securities which have been requested by such Purchaser.Such Purchaser and its advisors, if any, have been afforded the opportunity toask questions of

 

----

 

theCompany. Neither such inquiries nor any other due diligence investigations conductedby such Purchaser or its advisors, if any, or its representatives shall modify,amend or affect such Purchaser’s right to rely on the Company’s representationsand warranties contained herein. Such Purchaser understands that its investmentin the Securities involves a high degree of risk and is able to afford acomplete loss of such investment. Such Purchaser has sought such accounting,legal and tax advice as it has considered necessary to make an informedinvestment decision with respect to its acquisition of the Securities.

2.5       NoGovernmental Review. Such Purchaser 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.

2.6       Transfer or Resale. Such Purchaser understands that,except as provided in the Registration Rights Agreement: (i) theSecurities have not been and are not being registered under the Securities Actor any state securities laws, and may not be offered for sale, sold, assignedor transferred unless (A) subsequently registered thereunder, (B) suchPurchaser shall have delivered to the Company an opinion of counsel, in a formreasonably acceptable to the Company, to the effect that the Securities to besold, assigned or transferred may be sold, assigned or transferred pursuant toan exemption from such registration, or (C) such Purchaser provides theCompany with reasonable assurance that such Securities can be sold, assigned ortransferred pursuant to Rule 144 promulgated under the Securities Act, asamended (or a successor rule thereto) (“***Rule 144***”); (ii) any sale of the Securitiesmade in reliance on Rule 144 may be made only in accordance with the termsof Rule 144 and, further, if Rule 144 is not applicable, any resaleof the Securities under circumstances in which the seller (or the Personthrough which the sale is made) may be deemed to be an underwriter (as thatterm is defined in the Securities Act) may require compliance with some otherexemption under the Securities Act or the rules and regulations of theCommission thereunder; and (iii) neither the Company nor any other Personis under any obligation to register the Securities under the Securities Act orany state securities laws or to comply with the terms and conditions of anyexemption thereunder. Notwithstanding the foregoing, the Securities may bepledged in connection with a bona fide margin account or other loan secured bythe Securities and such pledge of Securities shall not be deemed to be atransfer, sale or assignment of the Securities hereunder, and no Purchasereffecting a pledge of Securities shall be required to provide the Company withan opinion of counsel otherwise make deliver any notice or document to theCompany pursuant to this Agreement or any other Transaction Document,including, without limitation, this ***Section 2.6***;*provided*, that in order to make anysale, transfer or assignment of Securities, such Purchaser and its pledgee mustmake such disposition in accordance with or pursuant to a registrationstatement or an exemption under the Securities Act.

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

 

----

 

THE SECURITIESREPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIESACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOTBE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) ANEFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TOTHE COMPANY, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIREDUNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAIDACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED INCONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCINGARRANGEMENT SECURED BY THE SECURITIES WITHOUT DELIVERY OF ANY SUCH OPINION.

The legend set forth above shall be removed and theCompany shall issue a certificate without such legend to the holder of theSecurities upon which it is stamped or issue to such holder by electronicdelivery at the applicable balance account at DTC, if (i) such Securitiesare registered for resale under the Securities Act, (ii) in connectionwith a sale, assignment or other transfer other than to an Affiliate orpartner, shareholder or member of such holder, such holder provides the Companywith an opinion of counsel reasonably satisfactory to the Company, in acustomary and acceptable form, to the effect that such sale, assignment ortransfer of the Securities may be made without registration under theSecurities Act, or (iii) such holder provides the Company with reasonableassurance that the Securities can be sold, assigned or transferred pursuant to Rule 144.

If the Company shall fail for any reason to issue tothe holder of the Securities within a period of three (3) Business Daysafter the occurrence of any of (i) through (iii) above (the “***Delivery Period***”), a certificatewithout such legend or by electronic delivery at the applicable balance accountat DTC, and if on or after such Trading Day the holder purchases (in an openmarket transaction or otherwise) shares of Common Stock to deliver insatisfaction of a sale by the holder of such Securities that the holderanticipated receiving without legend from the Company (a ***“Buy-In”***), then the Companyshall, within three (3) Business Days after such Delivery Period, and atthe holder’s request and in the holder’s discretion, either (i) pay cashto the holder in an amount equal to the holder’s total Purchase Price(including brokerage commissions, if any) for the shares of Common Stock sopurchased (the ***“Buy-In Price”***),at which point the Company’s obligation to deliver such unlegended Securitiesshall terminate, or (ii) promptly honor its obligation to deliver to theholder such unlegended Securities as provided above and pay cash to the holderin an amount equal to the excess (if any) of the Buy-In Price over the productof (A) the number of shares of Common Stock sold times (B) theMarket Price of the Common Stock on last day of the Delivery Period.

2.8       Validity; Enforcement. ThisAgreement and the Registration Rights Agreement have been duly and validlyauthorized, executed and delivered on behalf of such Purchaser and, whenexecuted by all of the parties thereto (including such Purchaser), shallconstitute the legal, valid and binding obligations of such Purchaserenforceable against such Purchaser in accordance with 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.

2.9       NoConflicts. The execution, delivery and performance by such Purchaser ofthis Agreement and the Registration Rights Agreement and the consummation bysuch Purchaser of the transactions contemplated hereby and thereby will not (i) resultin a violation of the Governing Documents of such Purchaser or (ii) conflictwith, or constitute a default (or an event which with notice or lapse of timeor both would become a default) under, or give to others any rights oftermination, amendment, acceleration or cancellation of, any agreement,indenture or instrument to which such Purchaser is a party, or (iii) resultin a violation of any law, rule, regulation, order, judgment or decree(including federal and state securities laws) applicable to such Purchaser,except, in the case of clauses (ii) and (iii) above, for suchconflicts, defaults, rights or violations which would not, individually or inthe aggregate, reasonably be expected to have a Material Adverse Effect.

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

2.11     ShortSales; Trading Restriction. Neither such Purchaser nor any person tradingon its behalf or at its direction has sold, purchased or established a shortposition in the Company’s securities (including through the purchase or sale ofderivative securities) at any time since the time such Purchaser was firstinformed of the transactions contemplated hereby by the Company or any placementagent acting on behalf of the Company. Until the Initial Maturity Date (as defined in the Notes) neither suchPurchaser nor any person trading on its behalf or at its direction will sell,purchase or establish a short position in the Company’s securities.

***3.             REPRESENTATIONSAND WARRANTIES OF THE COMPANY.***

TheCompany represents and warrants to each Purchaser, and agrees with eachPurchaser, that:

3.1       Organizationand Qualification. Each of the Company and its Subsidiaries is acorporation or other legal entity duly organized and validly existing in goodstanding under the laws of the jurisdiction in which it is incorporated ororganized, and has the requisite power and authority (corporate or otherwise)to own its properties and to carry on its business as now being conducted. Eachof the Company and its Subsidiaries is duly qualified as a foreign corporationto do business and is in good standing in every jurisdiction in which itsownership of property or the nature of the business conducted by it makes suchqualification necessary, except to the extent that the failure to be soqualified or be in good standing would not have a Material Adverse Effect. TheCompany has no Subsidiaries except as set forth on ***Schedule 3.1***.

3.2       Authorization;Enforcement; Validity. The Company has the requisite corporate power andauthority to enter into and perform its obligations under this Agreement andthe other Transaction Documents, including without limitation its obligation toissue the Notes and Warrants in accordance with the terms hereof. The executionand delivery of the Transaction Documents by the Company and the consummationby the Company of the transactions

 

----

 

contemplated hereby and thereby, including withoutlimitation the issuance of the Notes and the Warrants and the reservation forissuance and issuance of Conversion Shares and Warrant Shares, have been dulyauthorized by the Company’s Board of Directors and no further consent orauthorization is required by the Company, its Board of Directors or its stockholders.This Agreement and the other Transaction Documents have been duly executed anddelivered by the Company, and constitute the legal, valid and bindingobligations of the Company, enforceable against the Company in accordance withtheir respective terms, except as such enforceability may be limited by generalprinciples of equity or applicable bankruptcy, insolvency, reorganization,moratorium, liquidation or similar laws relating to, or affecting generally,the enforcement of applicable creditors’ rights and remedies.

3.3       Issuanceof Securities. The Notes and the Warrants are duly authorized and, uponissuance in accordance with the terms of this Agreement, will be validly issuedand free from all taxes, Liens and charges with respect to the issue thereof.The Conversion Shares and the Warrant Shares are duly authorized and, uponissuance in accordance with the terms of the Notes and the Warrants,respectively, will be validly issued, fully paid and non-assessable and freefrom all taxes, Liens and charges with respect to the issue thereof. Theissuance by the Company of the Securities is exempt from registration under theSecurities Act.

3.4       NoConflicts. The execution, delivery and performance of the TransactionDocuments by the Company and the consummation by the Company of thetransactions contemplated hereby and thereby (including, without limitation,the issuance of the Notes and Warrants and the reservation for issuance andissuance of the Conversion Shares or the Warrant Shares) will not (i) resultin a violation of the Governing Documents of the Company or any of itsSubsidiaries or (ii) conflict with, or constitute a default (or an eventwhich with notice or lapse of time or both would become a default) under, orgive to others any rights of termination, amendment, acceleration orcancellation of, any material agreement, indenture or instrument to which theCompany or any of its Subsidiaries is a party, or (iii) result in aviolation of any law, rule, regulation, order, judgment or decree (includingfederal and state securities laws and regulations and the rules andregulations of the Principal Market) applicable to the Company or any of itsSubsidiaries or by which any property or asset of the Company or any of itsSubsidiaries is bound or affected.

3.5       Consents. Except for filings andapprovals required by the Principal Market, the filing by the Company of a Form Din accordance with Regulation D, and any filings to be made with statesecurities regulatory authorities, the Company is not required to obtain anyconsent, authorization or order of, or make any filing or registration with,any court, governmental agency or any regulatory or self-regulatory agency orany other Person in order for it to execute, deliver or perform any of itsobligations under or contemplated by the Transaction Documents, in each case inaccordance with the terms hereof or thereof. The Company and its Subsidiariesare unaware of any facts or circumstances that might prevent the Company fromobtaining or effecting any of the registration, application or filings pursuantto the preceding sentence. The Company is not in violation of the listingrequirements of the Principal Market and has no knowledge of any facts thatwould reasonably lead to delisting or suspension of the Common Stock in theforeseeable future.

 

----

 

3.6       AcknowledgmentRegarding Purchaser’s Purchase of Securities. The Company acknowledges andagrees that each Purchaser is acting solely in the capacity of an arm’s lengthPurchaser with respect to the Transaction Documents and the transactionscontemplated hereby and thereby and that no Purchaser is (i) an officer ordirector of the Company, (ii) an Affiliate of the Company or (iii) tothe knowledge of the Company, a “beneficial owner” of more than 10% of the CommonStock (as defined for purposes of Rule 13d-3 of the Exchange Act). TheCompany further acknowledges that under no circumstances is any Purchaseracting or to be deemed to be acting as a financial advisor or fiduciary of theCompany (or in any similar capacity) with respect to the Transaction Documentsand the transactions contemplated hereby and thereby, and has not received orrelied on any advice given by a Purchaser or any of its representatives oragents in connection with the Transaction Documents and the transactionscontemplated hereby and thereby. The Company further represents to eachPurchaser that the Company’s decision to enter into the Transaction Documentshas been based solely on the independent evaluation by the Company and itsrepresentatives.

3.7       NoGeneral Solicitation; Placement Agent’s Fees. Neither the Company, nor anyof its Affiliates, nor any Person acting on its or their behalf, has engaged inany form of general solicitation or general advertising (within the meaning ofRegulation D) in connection with the offer or sale of the Securities. TheCompany shall be responsible for the payment of any placement agent’s fees,financial advisory fees, or brokers’ commissions (other than for Personsengaged by any Purchaser or its investment advisor, if any) relating to orarising out of the transactions contemplated hereby. The Company shall pay, andhold each Purchaser 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 as itsexclusive placement agent (the “***Agent***”)in connection with the sale of the Securities.  Other than the Agent, theCompany has not engaged any placement agent or other agent in connection withthe sale of the Securities.

3.8       NoIntegrated Offering. None of the Company, its Subsidiaries, any of theirrespective Affiliates, or 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 Securities Act or cause the offer and sale of theSecurities pursuant to this Agreement and the Transaction Documents to beintegrated with prior offerings by the Company for purposes of the SecuritiesAct in a manner that would make unavailable the exemption from registrationafforded by Section 4(2) of the Securities Act or Rule 506 ofRegulation D promulgated under the Securities Act, or any applicablestockholder approval provisions, including, without limitation, under the rules andregulations of any exchange or automated quotation system on which any of thesecurities of the Company are listed or designated. None of the Company, itsSubsidiaries, their respective affiliates or any Person acting on their behalfwill take any action or steps referred to in the preceding sentence that wouldrequire registration of any of the Securities under the Securities Act or causethe offering of the Securities to be so integrated with other offerings.

3.9       Dilutive Effect. The Companyacknowledges that the issuance of Conversion Shares upon conversion of theNotes and the issuance of Warrant Shares upon

 

----

 

exerciseof the Warrants may result in dilution of the outstanding shares of CommonStock, which dilution may be substantial under certain market conditions. TheCompany understands and acknowledges that its obligation to issue ConversionShares and Warrants Share is absolute and unconditional regardless of thedilutive effect that any such issuance may have on the ownership interests ofother stockholders of the Company. The Company acknowledges and agrees thatsuch Purchaser may enter into short sales in the Company’s securities to theextent permitted by this Agreement and applicable law, and that suchtransactions may result in selling pressure on the outstanding shares of CommonStock.

3.10     Applicationof Takeover Protections; Rights Agreement. The Company and its Board ofDirectors have taken all necessary action, if any, in order to renderinapplicable any control share acquisition, business combination, poison pill(including any distribution under a rights agreement) or other similaranti-takeover provision under its Governing Documents or the laws of the Stateof Delaware which is or could become applicable to any Purchaser as a result ofthe transactions contemplated by this Agreement, including, without limitation,the Company’s issuance of the Securities and any Purchaser’s ownership of theSecurities. The Company has not adopted a shareholder rights plan or similararrangement relating to accumulations of beneficial ownership of Common Stockor a change in control of the Company. Except as set forth on ***Schedule 3.10***, the transactionsand obligations of the Company contemplated by the Transaction Documents,including without limitation, the issuance and sale of the Securities, will nottrigger any preemptive or anti-dilution rights (including without limitationpursuant to any “reset” or similar provisions) or rights of first refusal orfirst offer, or any other rights that would allow or permit the holders of theCompany’s securities or other Persons to purchase shares of Common Stock orother securities of the Company.

3.11     Commission Documents; FinancialStatements. The Company is subject to the reporting requirements of theExchange Act and, except as set forth on ***Schedule 3.11***,has filed with the Commission all reports, schedules, registration statementsand definitive proxy statements that the Company was required to file with theCommission on and after October 7, 2005 (collectively, the “***SEC Documents***”).  The Company is not aware of any eventoccurring or expected to occur on or prior to the Closing Date (other than thetransactions effected hereby) that would require the filing of, or with respectto which the Company intends to file, a Form 8-K after the Closing. EachSEC Document, as of the date of the filing thereof with the Commission, compliedin all material respects with the requirements of the Securities Act orExchange Act, as applicable, and the rules and regulations promulgatedthereunder and, as of the date of such filing (or if amended or superseded by afiling prior to the date of this Agreement, then on the date of such filing),such SEC Document (including all exhibits and schedules thereto and documentsincorporated by reference therein) did not contain an untrue statement ofmaterial fact or omit to state a material fact required to be stated therein ornecessary to make the statements therein, in light of the circumstances underwhich they were made, not misleading. All documents required to be filed as exhibits to the SEC Documents havebeen filed as required. Except as set forth in SEC Documents filed andavailable to the public on EDGAR at least five (5) Business Days prior tothe date of this Agreement (the “***Disclosure Documents***”),the Company has no liabilities, contingent or otherwise, other than liabilitiesincurred in the ordinary course of business which, under GAAP, are not requiredto be reflected in the financial statements included in the DisclosureDocuments and which, individually or in the aggregate, are

 

----

 

notmaterial to the consolidated business or financial condition of the Company andits Subsidiaries taken as a whole.  As oftheir respective dates, the financial statements of the Company included in theSEC Documents complied as to form in all material respects with applicableaccounting requirements and the published rules and regulations of theCommission with respect thereto. Such financial statements have been preparedin accordance with GAAP consistently applied at the times and during theperiods involved (except (i) as may be otherwise indicated in suchfinancial 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 adjustments). No otherinformation provided by or on behalf of the Company to the Purchasers which isnot included in the Commission Documents, including, without limitation, theinformation referred to in ***Section 2.4***of this Agreement, contains any untrue statement of a material fact or omits tostate any material fact necessary in order to make the statements therein, inthe light of the circumstance under which they are or were made, notmisleading.

3.12     Absenceof Certain Changes. Except as disclosed in ***Schedule 3.12***,since December 31, 2005, there has been no material adverse change ordevelopment in the business, properties, operations, condition (financial orotherwise), results of operations or prospects of the Company or itsSubsidiaries. Except as disclosed in ***Schedule 3.12***,since December 31, 2005, the Company has not (i) declared or paid anydividends, (ii) sold any assets, individually or in the aggregate, inexcess of $100,000 outside of the ordinary course of business or (iii) effectedcapital expenditures, individually or in the aggregate, in excess of $100,000.The Company has not taken any steps to seek protection pursuant to anybankruptcy law nor does the Company have any knowledge or reason to believethat its creditors intend to initiate involuntary bankruptcy proceedings or anyactual knowledge of any fact which would reasonably lead a creditor to do so.The Company is not, as of the date hereof, and will not be, after giving effectto the transactions contemplated by this Agreement or the TransactionDocuments, Insolvent.

3.13     NoUndisclosed Events, Liabilities, Developments or Circumstances. No event,liability, development or circumstance has occurred or exists with respect tothe Company or its Subsidiaries or their respective business, properties,prospects, operations or financial condition, that would be required to havebeen disclosed by the Company as of the date hereof under applicable securitieslaws and which has not been publicly announced.

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

 

----

 

individuallyor in the aggregate, a Material Adverse Effect, and neither the Company nor anysuch Subsidiary has received any notice of proceedings relating to therevocation or modification of any such certificate, authorization or permit.

3.15     ForeignCorrupt Practices. Neither the Company, nor any of its Subsidiaries, norany director, officer, agent, employee or other Person acting on behalf of theCompany or any of its Subsidiaries has, in the course of its actions for, or onbehalf of, the Company (i) used any corporate funds for any unlawfulcontribution, gift, entertainment or other unlawful expenses relating topolitical activity; (ii) made any direct or indirect unlawful payment toany foreign or domestic government official or employee from corporate funds; (iii) violatedor is in violation of any provision of the U.S. Foreign Corrupt Practices Actof 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff,influence payment, kickback or other unlawful payment to any foreign ordomestic government official or employee.

3.16     Sarbanes-OxleyAct. The Company is in compliance with any and all requirements of theSarbanes-Oxley Act of 2002 that are effective as of the date hereof and applicableto the Company, and any and all applicable rules and regulationspromulgated by the Commission thereunder that are effective as of the datehereof, except where such noncompliance would not have, individually or in theaggregate, a Material Adverse Effect.

3.17     TransactionsWith Affiliates. Except as set forth in the Company’s Annual Report on Form 10-KSBfor the year ended December 31, 2005 or the Form 10-QSB for thequarter ended March 31, 2006, none of the officers, directors or employeesof the Company is presently a party to any transaction with the Company or anyof its Subsidiaries (other than for ordinary course services as employees,officers or directors), including any contract, agreement or other arrangementproviding for the furnishing of services to or by, providing for rental of realor personal property to or from, or otherwise requiring payments to or from anysuch officer, director or employee or, to the knowledge of the Company, anycorporation, partnership, trust or other entity in which any such officer,director, or employee has a substantial interest or is an officer, director,trustee or partner.

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

 

----

 

or anyof its Subsidiaries or options, warrants, scrip, rights to subscribe to, callsor commitments of any character whatsoever relating to, or securities or rightsconvertible into, or exercisable or exchangeable for, any shares of capitalstock of the Company or any of its Subsidiaries; (iii) there is nooutstanding Debt of the Company or any of its Subsidiaries or by which theCompany or any of its Subsidiaries is or may become bound; (iv) there areno agreements or arrangements (except the Registration Rights Agreement) underwhich the Company or any of its Subsidiaries is obligated to register the saleof any of their securities under the Securities Act (including “piggy-back”registration rights); (v) there are no outstanding securities or instrumentsof the Company or any of its Subsidiaries which contain any redemption orsimilar provisions, and there are no contracts, commitments, understandings orarrangements by which the Company or any of its Subsidiaries is or may becomebound to redeem a security of the Company or any of its Subsidiaries; (vi) thereare no securities or instruments containing anti-dilution or similar provisionsthat will be triggered by the issuance of the Securities; (vii) theCompany does not have any stock appreciation rights or “phantom stock” plans oragreements or any similar plan or agreement; and (viii) the Company andits Subsidiaries have no liabilities or obligations required to be disclosed inthe Disclosure Documents (as defined herein) but not so disclosed in the SECDocuments. The Company has furnished or made available to each Purchaser uponsuch Purchaser’s request, true, correct and complete copies of the Company’sCertificate of Incorporation, as amended and as in effect on the date hereof,and the Company’s Bylaws, as amended and as in effect on the date hereof, andthe terms of all securities convertible into, or exercisable or exchangeablefor, shares of Common Stock and the material rights of the holders thereof inrespect thereto. ***Schedule 3.18*** sets forththe shares of Common Stock owned beneficially or of record and Common StockEquivalents (as defined below) held by each director and executive officer ofthe Company.

3.19     Debtand Other Contracts. Except as disclosed in ***Schedule 3.19***,neither the Company nor any of its Subsidiaries (i)  has maintained a Liensecuring obligations in any material amounts, either singly or in theaggregate; (ii) is a party to any contract, agreement or instrument, theviolation of which, or default under which, by the other parties to suchcontract, agreement or instrument would result in a Material Adverse Effect, (iii) isin violation of any term of or in default under any contract, agreement orinstrument relating to any Debt, except where such violations and defaultswould not result, individually or in the aggregate, in a Material AdverseEffect, or (iv) is a party to any contract, agreement or instrumentrelating to any Debt, the performance of which, in the judgment of the Company’sofficers, has or is reasonably expected to have a Material Adverse Effect.

3.20     Absence of Litigation. Except as setforth on ***Schedule 3.20***, there isno action, suit, proceeding, inquiry or investigation before or by thePrincipal Market, any court, public board, government agency, self-regulatoryorganization or body pending or, to the knowledge of the Company, threatenedagainst or affecting the Company, the Common Stock or any of its Subsidiariesor any of the Company’s or the Company’s Subsidiary’s officers or directors,whether of a civil or criminal nature or otherwise. The matters set forth on ***Schedule 3.20****,*if determined adversely to the Company or any Subsidiary,would not have a Material Adverse Effect.

----

 

3.21     Insurance.The Company and each of its Subsidiaries are insured by insurers of recognizedfinancial responsibility against such losses and risks and in such amounts asmanagement of the Company believes to be prudent and customary in thebusinesses in which the Company and its Subsidiaries are engaged. Neither theCompany nor any Subsidiary has been refused any insurance coverage sought orapplied for. Neither the Company nor any Subsidiary has any reason to believethat it will not be able to renew its existing insurance coverage as and whensuch coverage expires or to obtain similar coverage from similar insurers asmay be necessary to continue its business at a cost that would not have aMaterial Adverse Effect.

3.22     EmployeeRelations. (i) Neither the Company nor any of its Subsidiaries is aparty to any collective bargaining agreement or employs any member of a union.The Company and its Subsidiaries believe that their relations with theiremployees are good. No executive officer of the Company (as defined in Rule 501(f) ofthe Securities Act) has notified the Company that such officer intends to leavethe Company or otherwise terminate such officer’s employment with the Company.No executive officer of the Company, to the knowledge of the Company, is, or isnow expected to be, in violation of any material term of any employmentcontract, confidentiality, disclosure or proprietary information agreement,non-competition agreement, or any other contract or agreement or anyrestrictive covenant, and the continued employment of each such executiveofficer does not subject the Company or any of its Subsidiaries to anyliability with respect to any of the foregoing matters. The Company and itsSubsidiaries are in compliance with all federal, state, local and foreign lawsand regulations respecting labor, employment and employment practices andbenefits, terms and conditions of employment and wages and hours, except wherefailure to be in compliance would not, either individually or in the aggregate,reasonably be expected to result in a Material Adverse Effect.

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

3.24     Intellectual Property Rights. TheCompany and its Subsidiaries own or possess adequate rights or licenses to useall trademarks, trade names, service marks, service mark registrations, servicenames, patents, patent rights, copyrights, inventions, licenses, approvals,governmental authorizations, trade secrets and other intellectual propertyrights (“***Intellectual Property Rights***”)necessary to conduct their respective businesses as now conducted. None of theCompany’s Intellectual Property Rights have expired or terminated, or areexpected to expire or terminate within three years from the date of thisAgreement. The Company does not have any knowledge of any infringement by theCompany or its Subsidiaries of Intellectual Property Rights of others. There isno claim, action or proceeding being made or brought, or to the knowledge ofthe Company, being threatened, against the Company or any of its Subsidiariesregarding 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. The Company and its Subsidiaries have takenreasonable security measures to protect the secrecy, confidentiality and valueof all of their Intellectual Property Rights.

3.25     EnvironmentalLaws. The Company and its Subsidiaries (i) are in compliance with anyand all Environmental Laws, (ii) have received all permits, licenses orother approvals required of them under applicable Environmental Laws to conducttheir respective businesses and (iii) are in compliance with all terms andconditions of any such permit, license or approval where, in each of theforegoing clauses (i), (ii) and (iii), the failure to so comply could bereasonably expected to have, individually or in the aggregate, a MaterialAdverse Effect.

3.26     SubsidiaryRights. The Company or one of its Subsidiaries has the unrestricted rightto vote, and (subject to limitations imposed by applicable law) to receivedividends and distributions on, all capital securities of its Subsidiaries asowned by the Company or such Subsidiary.

3.27     TaxStatus. The Company and each of its Subsidiaries (i) has made or filedall federal and state income and all other tax returns, reports anddeclarations (or extensions thereof) required by any jurisdiction to which itis subject, (ii) has paid all taxes and other governmental assessments andcharges that are material in amount, shown or determined to be due on suchreturns, reports and declarations, except those being contested in good faithand (iii) has set aside on its books provision reasonably adequate for thepayment of all taxes for periods subsequent to the periods to which suchreturns, reports or declarations apply. There are no unpaid taxes in anymaterial amount claimed to be due by the taxing authority of any jurisdiction,and the officers of the Company know of no basis for any such claim.

3.28     Internal Accounting and DisclosureControls. The Company and each of its Subsidiaries maintain a system ofinternal accounting controls sufficient to provide reasonable assurance that (i) transactionsare executed in accordance with management’s general or specificauthorizations, (ii) transactions are recorded as necessary to permitpreparation of financial statements in conformity with generally acceptedaccounting principles and to maintain asset and liability accountability, (iii) accessto assets or incurrence of liabilities is permitted only in accordance withmanagement’s general or specific authorization and (iv) the recordedaccountability for assets and liabilities is compared with the existing assetsand liabilities at reasonable intervals and appropriate action is taken withrespect to any difference. Other than as described in the Annual Report on Form 10-KSBfiled with the Commission for the fiscal year ended December 31, 2005, theCompany does not currently maintain disclosure controls and procedures (as suchterm is defined in Rule 13a-14 under the Exchange Act) that are effectivein ensuring that information required to be disclosed by the Company in thereports that it files or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the rules andforms of the Commission, including, without limitation, controls and proceduresdesigned in to ensure that information required to be disclosed by the Companyin the reports that it files or submits under the Exchange Act is accumulatedand communicated to the Company’s management, including its principal executiveofficer or officers and its principal financial officer or officers, asappropriate, to allow timely decisions

 

----

 

regardingrequired disclosure. Specifically, the independent auditors for the Companyidentified deficiencies in the Company’s controls related to valuation andrecording of fixed assets.

3.29     OffBalance Sheet Arrangements. There is no transaction, arrangement, or otherrelationship between the Company and an unconsolidated or other off balancesheet entity that is required to be disclosed by the Company in its ExchangeAct filings and is not so disclosed or that otherwise would be reasonablylikely to have a Material Adverse Effect.

3.30     Manipulationof Price. The Company has not, and to its knowledge no one acting on itsbehalf has, (i) taken, directly or indirectly, any action designed tocause or to result in the stabilization or manipulation of the price of anysecurity of the Company to facilitate the sale or resale of any of theSecurities, (ii) sold, bid for, purchased, or paid any compensation forsoliciting purchases of, any of the Securities, or (iii) paid or agreed topay to any person any compensation for soliciting another to purchase any othersecurities of the Company.

3.31     TransferTaxes. On the Closing Date, all stock transfer or other taxes (other thanincome or similar taxes) which are required to be paid in connection with thesale and transfer of the Securities to be sold to each Purchaser hereunder willbe, or will have been, fully paid or provided for by the Company, and all lawsimposing such taxes will be or will have been complied with.

3.32     Disclosure.The Company confirms that neither it nor any other Person acting on its behalfhas provided any of the Purchasers or their respective agents or counsel withany information that constitutes or could reasonably be expected to constitutematerial, nonpublic information. The Company understands and confirms that eachof the Purchasers will rely on the foregoing representations in effectingtransactions in securities of the Company. All disclosure provided to thePurchasers regarding the Company, its business and the transactionscontemplated hereby, including the schedules to this Agreement, furnished by oron behalf of the Company are true and correct and do not contain any untruestatement of a material fact or omit to state any material fact necessary inorder to make the statements made therein, in the light of the circumstancesunder which they were made, not misleading. Each press release issued by theCompany since October 7, 2005 did not at the time of release contain anyuntrue statement of a material fact or omit to state a material fact requiredto be stated therein or necessary in order to make the statements therein, inthe light of the circumstances under which they are made, not misleading. Noevent or circumstance has occurred or information exists with respect to theCompany or any Subsidiary or either of its or their respective business,properties, prospects, operations or financial conditions, which, under applicablelaw, rule or regulation, requires public disclosure or announcement by theCompany but which has not been so publicly announced or disclosed (assuming forthis purpose that the Company’s reports filed under the Exchange Act are beingincorporated into an effective registration statement filed by the Companyunder the Securities Act). The Company acknowledges and agrees that noPurchaser makes or has made any representations or warranties with respect tothe transactions contemplated hereby other than those specifically set forth in***Section 2***.

3.33     Reporting Company; Listing. TheCompany’s Common Stock is registered pursuant to Section 12(g) of theExchange Act and is eligible for trading on the

 

----

 

OTCBB.Without limiting the generality of the foregoing, the Company is not inviolation of any of the rules, regulations or requirements of Nasdaq as theyrelate to trading of the Common Stock on the OTCBB and has no knowledge of anyfacts or circumstances that would reasonably be expected to result in a suspensionof the Common Stock from trading on the OTCBB in the foreseeable future. Since December 31,2005, (i) the Common Stock has been eligible for quotation on the OTCBB, (ii) tradingin the Common Stock has not been suspended by the Commission or Nasdaq and (iii) theCompany has received no communication, written or oral, from the Commission orNasdaq that it does not satisfy such requirements or that such eligibility isin any way threatened.

3.34     Form SB-2.The Company is eligible to register the Conversion Shares and Warrant Sharesfor resale in a secondary offering by each Purchaser on a registrationstatement on Form SB-2 under the Securities Act. To the Company’sknowledge, there exist no facts or circumstances (including without limitationany required approvals or waivers of any circumstances that may delay orprevent the obtaining of accountant’s consents) that could reasonably beexpected to prohibit or delay the preparation and filing of a registrationstatement on Form SB-2 that will be available for the resale of allConversion Shares and Warrant Shares by each Purchaser.

3.35     InvestmentCompany Status. The Company is not, and immediately after receipt ofpayment for the Notes and the Warrants issued under this Agreement will not be,an “***investment company***” or an entity “***controlled***” by an “***investment company***” within themeaning of the Investment Company Act of 1940, as amended (the “***Investment Company Act***”), and shallconduct its business in a manner so that it will not become subject to the InvestmentCompany Act.

3.36     Customersand Suppliers.  The Company and itsSubsidiaries maintain relationships with their material customers and supplierson commercially reasonable terms.  To theCompany’s knowledge, no customer or supplier of the Company or any of itsSubsidiaries has any plan or intention to terminate any agreement orarrangement with the Company or such Subsidiary, which termination wouldreasonably be expected to have a Material Adverse Effect.

3.37     NoOther Agreements.  The Company has not,directly or indirectly, entered into any agreement with or granted any right toany Purchaser relating to the terms or conditions of the transactionscontemplated by the Transaction Documents, except as expressly set forth in theTransaction Documents.

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

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

 

4.2       Form D and Blue Sky; OtherFilings and Consents. The Company agrees to file a Form D in respectof the Securities as required under Regulation D and to provide a

 

----

 

copythereof to each Purchaser promptly after such filing. The Company, as promptlyas reasonably practicable after the date hereof, shall take such action as theCompany shall reasonably determine is necessary in order to obtain an exemptionfor or to qualify the Securities for sale to the Purchasers at the Closingpursuant to this Agreement under applicable securities or “Blue Sky” laws ofthe states of the United States (or to obtain an exemption from suchqualification), and shall promptly thereafter provide evidence of any suchaction so taken to the Purchasers. The Company shall make all filings andreports relating to the offer and sale of the Securities required under applicablesecurities or “Blue Sky” laws of the states of the United States following theClosing Date. The Company undertakes as promptly as reasonably practicableafter the date hereof to (i) make such filings and apply for suchregistrations, or (ii) use its reasonable best efforts to obtain, asapplicable, all such consents, authorizations and orders, in each such case,which are required to be made or obtained by the Company pursuant to applicablelaw, rule or regulation in order to consummate the transactionscontemplated by this Agreement and the other Transaction Documents.

4.3       ReportingStatus. Until the date on which the Holders (as defined in the RegistrationRights Agreement) have sold all Registrable Securities to the public pursuantto an effective registration statement or Rule 144 (the “***Reporting Period***”), the Companyshall timely file all reports required to be filed with the Commission pursuantto the Exchange Act, and the Company shall not terminate its status as anissuer required to file reports under the Exchange Act even if the Exchange Actor the rules and regulations thereunder would otherwise permit suchtermination.

4.4       Useof Proceeds. The Company will use the proceeds from the sale of the Notesand the New Warrants as specified on ***Schedule 4.4*** hereof.

4.5       FinancialInformation. The Company agrees to send the following to each Purchaserduring the Reporting Period (i) unless the following are filed with theCommission and are available to the public through EDGAR, within one (1) BusinessDay after the filing thereof with the Commission, a copy of its Annual Reportson Form 10-KSB or 10-K, its Quarterly Reports on Form 10-QSB or 10-Q,any Current Reports on Form 8-K and any registration statements (otherthan on Form S-8) or amendments filed pursuant to the Securities Act, (ii) onthe same day as the release thereof, facsimile copies of all press releasesissued by the Company or any of its Subsidiaries, and (iii) copies of anynotices and other information made available or given to the stockholders ofthe Company generally, contemporaneously with the making available or givingthereof to the stockholders.

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

 

----

 

thePrincipal Market. The Company shall pay all fees and expenses in connectionwith satisfying its obligations under this ***Section 4.6***.

4.7       Fees.Subject to ***Section 8*** below, at theClosing, the Company shall reimburse the Purchasers for their legal and duediligence expenses in connection with the preparation, execution andperformance of this Agreement and the transactions contemplated hereby up to amaximum of $50,000, which amount (to the extent not already paid by theCompany) shall be withheld from the Purchase Price payable by the Purchasers atthe Closing. The Company shall be responsible for the payment of any placementagent’s fees, financial advisory fees, or broker’s commissions (other than forPersons engaged by any Purchaser) relating to or arising out of thetransactions contemplated hereby. The Company shall pay, and hold eachPurchaser harmless against, any liability, loss or expense (including, without limitation,reasonable attorney’s fees and out-of-pocket expenses) arising in connectionwith any claim relating to any such payment. Except as otherwise set forth inthe Transaction Documents, each party to this Agreement shall bear its ownexpenses in connection with the sale of the Securities to the Purchasers.

4.8       Pledgeby Purchaser. The Company acknowledges and agrees that the Securities maybe pledged by a Purchaser in connection with a bona fide margin agreement orother loan or financing arrangement that is secured by the Securities. Thepledge of Securities shall not be deemed to be a transfer, sale or assignmentof the Securities hereunder, and no Purchaser effecting a pledge of Securitiesshall be required to provide the Company with any notice thereof or otherwisemake any delivery to the Company pursuant to this Agreement or any otherTransaction Document, including, without limitation, ***Section 2.6***of this Agreement; provided that a Purchaser and its pledgee shall be requiredto comply with the provisions of ***Section 2.6***of this Agreement in order to effect a sale, transfer or assignment ofSecurities to such pledgee. The Company hereby agrees to execute and deliversuch documentation as a pledgee of the Securities may reasonably request inconnection with a pledge of the Securities to such pledgee by a Purchaser.

4.9       Disclosure of Transactions and OtherMaterial Information. On or before 8:30 a.m., New York City Time, onthe first Business Day following the Closing Date, the Company shall file a CurrentReport on Form 8-K describing the terms of the transactions contemplatedby the Transaction Documents in the form required by the Exchange Act, andattaching the material Transaction Documents (including, without limitation,this Agreement (and all schedules to this Agreement) and the RegistrationRights Agreement) as exhibits to such filing (including all attachments, the “***8-K Filing***”). The Companyacknowledges, agrees and represents that from and after the date of the 8-KFiling, no Purchaser shall be in possession of any material, nonpublicinformation received from the Company, any of its Subsidiaries or any of itsrespective officers, directors, employees or agents, that is not disclosed inthe 8-K Filing. The Company shall not, and shall cause each of its Subsidiariesand each of their respective officers, directors, employees and agents, not to,provide any Purchaser with any material, nonpublic information regarding theCompany or any of its Subsidiaries from and after the date of the 8-K Filing withoutthe express written consent of such Purchaser. In the event of a breach of theforegoing covenant by the Company, and provided that the Company shall havefailed (following proper written request therefor) to make an appropriatepublic disclosure consistent

 

----

 

withthe requirements of Regulation FD under the Exchange Act, any Subsidiary, orits each of respective officers, directors, employees and agents, in additionto any other remedy provided herein or in the Transaction Documents, aPurchaser shall have the right to make a public disclosure, in the form of apress release, public advertisement or otherwise, of such material, nonpublicinformation without the prior approval by the Company, its Subsidiaries, or anyof its or their respective officers, directors, employees or agents. NoPurchaser shall have any liability to the Company, its Subsidiaries, or any ofits or their respective officers, directors, employees, shareholders or agentsfor any such disclosure. Subject to the foregoing, neither the Company nor anyPurchaser shall issue any press releases or any other public statements withrespect to the transactions contemplated hereby; provided, however, that theCompany shall be entitled, without the prior approval of any Purchaser, to makeany press release or other public disclosure with respect to such transactions (i) insubstantial conformity with the 8-K Filing and contemporaneously therewith and (ii) asis required by applicable law and regulations, including the applicable rules andregulations of the Principal Market (provided that in the case of clause (i) eachPurchaser shall be consulted by the Company in connection with any such pressrelease or other public disclosure prior to its release).

4.10     ***Intentionally Left Blank***

4.11     CorporateExistence. Until the date on which there are no Notes or Warrantsoutstanding, the Company shall maintain its corporate existence and shall notsell all or substantially all of the Company’s assets, except in the event of amerger or consolidation or sale of all or substantially all of the Company’sassets, where the surviving or successor entity in such transaction (i) assumesthe Company’s obligations hereunder and under the agreements and instrumentsentered into in connection herewith and (ii) is a publicly tradedcorporation whose common stock is quoted on or listed for trading on The NasdaqNational Market, the New York Stock Exchange or the American Stock Exchange.

4.12     Reservation of Common Stock.  The Company shall, on or before the ClosingDate, authorize and reserve for issuance, free from any preemptive rights, anumber of shares of Common Stock (the “***Reserved Amount***”)equal to no less than one hundred and fifty percent (150%) of the maximumnumber of shares of Common Stock issuable upon (A) conversion of theoutstanding Notes in full at the Conversion Price then in effect and (B) exerciseof the outstanding Warrants in full at the Exercise Price then in effect, ineach such case without regard to any limitation or restriction on such conversionor exercise that may be set forth in the Notes or the Warrants. In the eventthat, as a result of an adjustment to the Conversion Price of the Notes or theExercise Price for the Warrants (pursuant to anti-dilution adjustments orotherwise), the Reserved Amount is less than 125% of the number of shares ofCommon Stock then issuable upon conversion of all of the Notes and exercise ofall of the Warrants then outstanding (without regard to any limitation orrestriction on such conversion or exercise that may be set forth in the Notesor the Warrants), the Company shall take action (including without limitationseeking stockholder approval for the authorization or reservation of additionalshares of Common Stock) as soon as practicable (but in no event later than thetenth (10th)business day or, in the event that stockholder approval is required, thesixtieth (60th) dayfollowing such date) to increase the Reserved Amount to no less than 150% ofthe number of shares of Common Stock into which such outstanding Notes are thenconvertible and such

 

----

 

outstandingWarrants are exercisable. The Company shall not reduce the number of sharesreserved for issuance hereunder without obtaining the written consent of theholders of two-thirds (2/3) of the Registrable Securities. The initial ReservedAmount shall be allocated *pro rata* amongthe Purchasers based on the principal amount of the Notes issued to eachPurchaser at the Closing.  Each increasein the Reserved Amount shall be allocated *pro rata* amongthe Holders based on the amount of Registrable Securities into which all of theNotes and Warrants held by such Holder at the time of such increase areconvertible or exercisable (without regard to any limitation on such conversionor exercise). In the event that a Holder shall sell or otherwise transfer anyof such Holder’s Notes, each transferee shall be allocated a *pro rata* portion of such transferor’s Reserved Amount. Anyportion of the Reserved Amount which remains allocated to any person or entitywhich does not hold any Notes shall be reallocated to the remaining Holders *pro rata* based on the amount of Registrable Securities intowhich all of the outstanding Notes and Warrants at the time of such increaseare convertible or exercisable (without regard to any limitation on suchconversion or exercise).

4.13     Opinionof Counsel. The Company shall cause its outside counsel to deliver to eachPurchaser a written opinion, dated as of and delivered on the Closing Date, insubstantially the form of ***Exhibit E***attached hereto.

4.14     Limitationon Debt, Liens. During the period beginning on the date of this Agreementand ending on the Termination Date, the Company shall refrain, and shall ensurethat each of its Subsidiaries refrains, from (A) incurring any Debt(including without limitation by issuing any Debt securities) or increasing theamount of any existing line of credit or other Debt facility beyond the amountoutstanding on the date hereof or (B) granting, establishing ormaintaining any Lien on any of its assets, including without limitation anypledge of securities owned or held by it (including without limitation anysecurities issued by any such Subsidiary), other than Permitted Liens.  Notwithstanding the foregoing, the Companyand/or its Subsidiaries may incur Debt for purposes of effecting one or moreacquisitions (by means of purchase of all or substantially all of the assets ofanother entity), *provided* that the aggregateamount of such new Debt shall not exceed $3 million and *providedfurther*, that such new Debt shall be unsecured Subordinated Debt.and subject to the “most favored nation” provision in ***Section 4.21***(such Debt, the “***Permitted SubordinatedDebt***”)***.***

4.15     RestrictedPayments.  During the periodbeginning on the date of this Agreement and ending on the Termination Date, theCompany will not, nor will it permit any Subsidiary of the Company to, make anyRestricted Payments, except that:

(a)        theCompany may make regularly scheduled payments of principal and interest accruedon any Subordinated Debt if and to the extent (but only if and to the extent)permitted by the express terms of the documents governing such SubordinatedDebt; and

(b)       Subsidiariesof the Company may make Restricted Payments to the Company;

*provided*,*however*, that no Restricted Payment maybe made pursuant to clause (a) or (b) above if an Event ofDefault (or an event or circumstance that, with the giving of notice or lapseof time

 

----

 

orboth, would constitute an Event of Default) exists at the time or would existas a result of such Restricted Payment.

4.16     Dispositionof Property.  During the periodbeginning on the date of this Agreement and ending on the Termination Date, theCompany will not, nor will it permit any Subsidiary of the Company to, sell,lease, assign, transfer or otherwise dispose of any of its Property, except (i) dispositionsof inventory by the Company and its Subsidiaries in the ordinary course ofbusiness and (ii) expenditures of money (including, without limitation,money held in deposit accounts) made in the ordinary course of business or forthe purpose of making Restricted Payments expressly permitted in accordancewith this Agreement.

4.17     CertainTransactions.  During the periodbeginning on the date of this Agreement and ending on the Termination Date, andexcept as may be expressly permitted or required by the Transaction Documents,the Company will not, nor will it permit any Subsidiary of the Company to,create or otherwise cause or permit to exist or become effective any consensualencumbrance or restriction of any kind on the ability of the Company or anySubsidiary of the Company to (a) pay dividends or make any otherdistribution to the Company or any Subsidiary of the Company in respect ofcapital stock or with respect to any other interest or participation in, ormeasured by, its profits, (b) pay any Debt owed to the Company or anySubsidiary of the Company, (c) make any loan or advance or capitalcontribution to the Company or any Subsidiary of the Company, (d) sell,lease or transfer any of its Property, or (e) grant a Lien on any of itsProperties.

4.18     Modificationof Certain Agreements.  During theperiod beginning on the date of this Agreement and ending on the TerminationDate, the Company will not, nor will it permit any of the Company Subsidiariesto, consent to or implement any termination, amendment, modification,supplement or waiver of (a) the certificate or articles of incorporation,articles of organization, bylaws, regulations or other constituent documents ofthe Company or any such Company Subsidiary or (b) any Material Contract towhich it is a party; *provided*, *however*, that any of such documents may be amended ormodified if and to the extent that such change or modification is necessary inorder to carry out the intent of any Transaction Document.

4.19     ***Intentionally Left Blank***

4.20     IssuanceLimitation.  During the periodbeginning on the date of this Agreement and ending on the Termination Date, theCompany shall not issue, sell or exchange, or agree or obligate itself toissue, sell or exchange or reserve, agree to or set aside for issuance, sale orexchange, (1) any Common Stock or Common Stock Equivalents, (2) anyother equity security of the Company, including without limitation shares ofpreferred stock, (3) any other security of the Company which by its termsis convertible into or exchangeable or exercisable for preferred stock or otherequity security; *provided*, *however*,that the foregoing shall not apply to any Excluded Security.

4.21     Most Favored Nation.  The Company hereby represents and covenantsthat none of the terms offered to any Person in a Subsequent Closing orPermitted Subordinated Debt transaction will be more favorable than the termsoffered to the Purchasers under this Agreement

 

----

 

or anyof the other Transaction Documents, and in the event that any of the terms in aSubsequent Closing or Permitted Subordinated Debt transaction are morefavorable than the terms contained in this Agreement or any of the otherTransaction Documents, the applicable terms of this Agreement and the otherTransaction Documents shall be, without any further action by the Purchasers orthe Company, deemed amended and modified in a manner that is economically andlegally equivalent to the more favorable terms contained in such SubsequentClosing or Permitted Subordinated Debt transaction, as the case may be.  Notwithstanding the foregoing, the Companyagrees, at its expense, to take such other actions (such as entering intoamendments to the Transaction Documents) as the Purchasers may reasonablyrequest to further effectuate the foregoing.

5.             *TRANSFER AGENTINSTRUCTIONS*.

On or prior to the Closing Date, the Company shallexecute and deliver irrevocable written instructions to the transfer agent forits Common Stock (the “***Transfer Agent***”),and provide each Purchaser with a copy thereof, directing the Transfer Agent (i) toissue certificates representing Conversion Shares upon conversion of the Notesand receipt of a valid Conversion Notice (as defined in the Notes) from aPurchaser, in the amount specified in such Conversion Notice, in the name ofsuch Purchaser or its nominee, (ii) to issue certificates representingWarrant Shares upon exercise of the Warrants and (iii) to deliver suchcertificates to such Purchaser no later than the close of business on the third(3rd) business day following the related Conversion Date (as defined in theNotes) or Exercise Date (as defined in the Warrant), as the case may be.  Such certificates may bear legends pursuantto applicable provisions of this Agreement or applicable law.  The Company shall instruct the transfer agentthat, in lieu of delivering physical certificates representing shares of CommonStock to an Purchaser upon conversion of the Notes, or exercise of the Warrants,and as long as the Transfer Agent is a participant in the Depository TrustCompany (“***DTC***”) Fast AutomatedSecurities Transfer program, and such Purchaser has not informed the Companythat it wishes to receive physical certificates therefor, and no restrictivelegend is required to appear on any physical certificate if issued, thetransfer agent may effect delivery of Conversion Shares or Warrant Shares, asthe case may be, by crediting the account of such Purchaser or its nominee atDTC for the number of shares for which delivery is required hereunder withinthe time frame specified above for delivery of certificates.  The Company represents to and agrees witheach Purchaser that it will not give any instruction to the Transfer Agent thatwill conflict with the foregoing instruction or otherwise restrict suchPurchaser’s right to convert the Notes or to receive Conversion Shares inaccordance with the terms of the Notes or to exercise the Warrants or toreceive Warrant Shares upon exercise of the Warrants.  In the event that the Company’s relationshipwith the Transfer Agent should be terminated for any reason, the Company shalluse its best efforts to cause the Transfer Agent to continue acting as transferagent pursuant to the terms hereof until such time that a successor transferagent is appointed by the Company and receives the instructions describedabove.

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

Theobligation of the Company hereunder to issue and sell a Note and the NewWarrant to each Purchaser and to exchange the Bridge Warrant of each Purchaserfor the Replacement

 

----

 

Warrantat the Closing is subject to the satisfaction, on or before the Closing Date,of each of the following conditions, provided that these conditions are for theCompany’s sole benefit and may be waived by the Company at any time in its solediscretion by providing each Purchaser with prior written notice thereof:

6.1       SuchPurchaser shall have executed and delivered to the Company this Agreement, theRegistration Rights Agreement, each other Transaction Document to which it is aparty.

6.2       SuchPurchaser shall have tendered to the Company the Purchase Price (less theamounts withheld pursuant to ***Section 4.7***)for the Note and the New Warrant being purchased by such Purchaser at theClosing by wire transfer of immediately available funds pursuant to wireinstructions provided by the Company prior to the Closing Date and suchPurchaser shall have delivered the Bridge Warrant to the Company or itsrepresentatives.

6.3       Therepresentations and warranties of such Purchaser shall be true and correct inall material respects as of the date when made and as of the Closing Date asthough made at that time (except for representations and warranties that speakas of a specific date), and such Purchaser shall have performed, satisfied andcomplied in all material respects with the covenants, agreements and conditionsrequired by this Agreement to be performed, satisfied or complied with by suchPurchaser at or prior to the Closing Date.

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

The obligation of each Purchaser hereunder to purchasea Note and the New Warrant and to exchange the Bridge Warrant of each Purchaserfor the Replacement Warrant at the Closing is subject to the satisfaction, ator before the Closing Date, of each of the following conditions, provided thatthese conditions are for such Purchaser’s sole benefit and may be waived bysuch Purchaser at any time in its sole discretion by providing the Company withprior written notice thereof:

7.1       TheCompany shall have executed and delivered to such Purchaser (i) thisAgreement, (ii) a Note, (iii) the Warrants, (iv) theRegistration Rights Agreement, and (v) each other Transaction Document.

7.2       TheCompany shall have delivered to such Purchaser a copy of the IrrevocableTransfer Agent Instructions, which instructions shall have been delivered toand acknowledged in writing by the Company’s transfer agent.

7.3       TheCompany shall have delivered to such Purchaser a certificate evidencing theincorporation or organization and good standing of the Company and each of itsoperating Subsidiaries in such entity’s state of incorporation or organizationissued by the Secretary of State of such state as of a date within ten (10) daysof the Closing Date.

7.4       The Common Stock (A) shall be listedon the Principal Market and (B) shall not have been suspended, as of theClosing Date, by the Commission or the Principal

 

----

 

Marketfrom trading on the Principal Market nor shall suspension by the Commission orthe Principal Market have been threatened, as of the Closing Date, either (x)in writing by the Commission or the Principal Market or (y) by falling belowthe minimum listing maintenance requirements of the Principal Market.

7.5       TheCompany shall have delivered to such Purchaser a certificate, signed by theSecretary or an Assistant Secretary of the Company, attaching (i) theCertificate of Incorporation and By-Laws of the Company, and (ii) resolutionspassed by its Board of Directors, or a duly authorized committee thereof, toauthorize the transactions contemplated hereby and by the other TransactionDocuments, and certifying that such documents are true and complete copies ofthe originals and that such resolutions have not been amended or superseded, itbeing understood that such Purchaser may rely on such certificate as arepresentation and warranty of the Company made herein.

7.6       Therepresentations and warranties of the Company shall be true and correct 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)and the Company shall have performed, satisfied and complied in all respectswith the covenants, agreements and conditions required by the TransactionDocuments to be performed, satisfied or complied with by the Company at orprior to the Closing Date. Such Purchaser shall have received a certificate,executed by the Chief Executive Officer of the Company, dated as of the ClosingDate, to the foregoing effect and as to such other matters as may be reasonablyrequested by such Purchaser.

7.7       TheCompany shall have delivered to such Purchaser a letter from the Company’stransfer agent certifying the number of shares of Common Stock outstanding asof a date within five days of the Closing Date.

7.8       TheCompany shall have obtained all governmental, regulatory or third partyconsents and approvals, if any, necessary for the sale of the Notes and the NewWarrants and the exchange of the Bridge Warrant of such Purchaser for the ReplacementWarrant.

7.9       TheCompany shall have delivered to such Purchaser such other documents relating tothe transactions contemplated by this Agreement as such Purchaser or itscounsel may reasonably request.

8.             *TERMINATION*.

In theevent that the Closing shall not have occurred with respect to a Purchaser onor before five (5) days from the date hereof due to the Company’s or suchPurchaser’s failure to satisfy the conditions set forth in Sections 6 and 7above (and the non-breaching party’s failure to waive such unsatisfiedcondition(s)), the non-breaching party shall have the option to terminate thisAgreement with respect to such breaching party at the close of business on suchdate without liability of any party to any other party.

 

----

 

9.             *MISCELLANEOUS*.

9.1       GoverningLaw; Jurisdiction; Jury Trial. All questions concerning the construction,validity, enforcement and interpretation of this Agreement shall be governed bythe internal laws of the State of New York, without giving effect to any choiceof law or conflict of law provision or rule (whether of the State of NewYork or any other jurisdictions) that would cause the application of the lawsof any jurisdictions other than the State of New York. Each party herebyirrevocably submits to the exclusive jurisdiction of the state and federalcourts sitting in The City of New York, Borough of Manhattan for theadjudication of any dispute hereunder or in connection herewith or with anytransaction contemplated hereby or discussed herein, and hereby irrevocablywaives, and agrees not to assert in any suit, action or proceeding, any claimthat it is not personally subject to the jurisdiction of any such court, thatsuch suit, action or proceeding is brought in an inconvenient forum or that thevenue of such suit, action or proceeding is improper. Each party herebyirrevocably waives personal service of process and consents to process beingserved in any such suit, action or proceeding by mailing a copy thereof to suchparty at the address for such notices to it under this Agreement and agreesthat such service shall constitute good and sufficient service of process andnotice thereof. Nothing contained herein shall be deemed to limit in any wayany right to serve process in any manner permitted by law. EACH PARTY HEREBYIRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, AJURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITHOR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

9.2       Counterparts.This Agreement may be executed in two or more identical counterparts, all ofwhich shall be considered one and the same agreement and shall become effectivewhen counterparts have been signed by each party and delivered to the otherparty; *provided*, that any party may deliver anexecuted copy of this Agreement to any other party by facsimile transmission,in which case this Agreement as so delivered shall be deemed duly executed anddelivered and shall be binding upon the signatory thereto with the same forceand effect as if the signature were an original.

9.3       Headings.The headings of this Agreement are for convenience of reference and shall notform part of, or affect the interpretation of, this Agreement.

9.4       Severability.If any provision of this Agreement shall be invalid or unenforceable in anyjurisdiction, such invalidity or unenforceability shall not affect the validityor enforceability of the remainder of this Agreement in that jurisdiction orthe validity or enforceability of any provision of this Agreement in any otherjurisdiction.

9.5       Entire Agreement; Amendments. ThisAgreement supersedes all other prior oral or written agreements between thePurchasers, the Company, their affiliates and Persons acting on their behalfwith respect to the matters discussed herein, and this Agreement and theinstruments referenced herein contain the entire understanding of the partieswith respect to the matters covered herein and therein and, except asspecifically set forth herein or therein, neither the Company nor any Purchasermakes any representation, warranty, covenant or undertaking with respect tosuch matters. This Agreement and the other Transaction Documents

 

----

 

constitutethe entire agreement between the parties with regard to the subject matterhereof and thereof, superseding all prior agreements or understandings, whetherwritten or oral, between or among the parties. Except as expressly provided herein, neither this Agreement nor any termhereof may be amended or waived except pursuant to a written instrumentexecuted by the Company and the holders of at least two-thirds (2/3) of theRegistrable Securities into which all of the Notes and Warrants thenoutstanding are convertible or exercisable (without regard to any limitation onsuch conversion or exercise), and no provision hereof may be waived other thanby a written instrument signed by the holders of at least two-thirds (2/3) ofthe Registrable Securities into which all of the Notes and Warrants thenoutstanding are convertible or exercisable (without regard to any limitation onsuch conversion or exercise).  Any waiveror consent shall be effective only in the specific instance and for thespecific purpose for which given.

9.6       Notices.Any notices, consents, waivers or other communications required or permitted tobe given under the terms of this Agreement must be in writing and will bedeemed to have been delivered: (i) upon receipt, when deliveredpersonally; (ii) upon receipt, when sent by facsimile (providedconfirmation of transmission is mechanically or electronically generated andkept on file by the sending party); or (iii) one Business Day afterdeposit with an overnight courier service, in each case properly addressed tothe party to receive the same. The addresses and facsimile numbers for suchcommunications shall be:

 
|        | if to the Company:                                |
|--------|---------------------------------------------------|
|   |                                              |   |   |
|   |                                              | Earth Biofuels, Inc. |
|   |                                              | 3001 Knox Street, Suite 403, |
|   |                                              | Dallas, Texas 75205 |
|   |                                              | Telephone: | 214.389.9800 |
|   |                                              | Facsimile: | 214.389.9806 |
|   |                                              | Attention: | Dennis McLaughlin |
|   |                                              |   |   |
|   | with a copy (for informational purposes only) to: |
|   |                                              |   |   |
|   |                                              | Scheef & Stone, LLP |
|   |                                              | Telephone: | 214.706.4200 |
|   |                                              | Facsimile: | 214.706.4242 |
|   |                                              | Attention: | Roger A. Crabb, Esq. |
|        |                                                   |  |  |  |  |

 

and ifto a Purchaser, to its address and facsimile number set forth on ***Exhibit A***, with copies to suchPurchaser’s representatives as set forth on ***Exhibit A***,or to such other address and/or facsimile number and/or to the attention ofsuch other Person as the recipient party has specified by written notice givento each other party five (5) days prior to the effectiveness of suchchange,

 
|        | with a copy (for informational purposes only) to: |
|--------|---------------------------------------------------|
|   |                                              |
|   |                                              | Schulte Roth & Zabel LLP |
|   |                                              | 919 Third Avenue |
|   |                                              | New York, New York 10022 |

 

----

 
|        |   | Telephone: | (212) 756-2000              |
|--------|--------|------------|-----------------------------|
|   |   | Facsimile: | (212) 593-5955              |
|   |   | Attention: | Eleazer N. Klein, Esq. |

 

Writtenconfirmation of receipt (A) given by the recipient of such notice,consent, waiver or other communication, (B) mechanically or electronicallygenerated by the sender’s facsimile machine containing the time, date,recipient facsimile number and an image of the first page of suchtransmission or (C) provided by an overnight courier service shall berebuttable evidence of personal service, receipt by facsimile or receipt froman overnight courier service in accordance with clause (i), (ii) or (iii) above,respectively.

9.7       Successorsand Assigns. This Agreement shall be binding upon and inure to the benefitof the parties and their respective successors and assigns, including anypurchasers of Notes or Warrants. The Company shall not assign this Agreement orany rights or obligations hereunder, including by merger or consolidation,without the prior written consent of the Registrable Securities into which allof the Notes and Warrants then outstanding are convertible or exercisable(without regard to any limitation on such conversion or exercise). A Purchasermay assign some or all of its rights hereunder without the consent of theCompany, in which event such assignee shall be deemed to be a Purchaserhereunder in respect of such assigned rights.

9.8       NoThird 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.

9.9       Survival.Unless this Agreement is terminated under Section 8, the representationsand warranties of the Company and the Purchasers contained in Sections 2 and 3,the agreements and covenants set forth in Sections 4, 5 and 9 shall survive theClosing and the delivery and exercise of Securities, as applicable. EachPurchaser shall be responsible only for its own representations, warranties,agreements and covenants hereunder.

9.10     FurtherAssurances. Each party shall do and perform, or cause to be done andperformed, all such further acts and things, and shall execute and deliver allsuch other agreements, certificates, instruments and documents, as any otherparty may reasonably request in order to carry out the intent and accomplishthe purposes of this Agreement and the consummation of the transactionscontemplated hereby.

9.11     Indemnification.

(a)           In consideration of each Purchaser’sexecution and 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 will indemnify and hold each Purchaser andits directors, managers, officers, shareholders, members, partners, employeesand agents (each, an “***Purchaser Party***”)harmless from any and all losses, liabilities, obligations, claims,contingencies, damages, costs and expenses, including all judgments, amountspaid in settlements, court costs and reasonable attorneys’ fees and costs ofinvestigation (collectively, “***Losses***”)that any such Purchaser Party may suffer or incur as a result of or

 

----

 

relatingto (A) any breach of any of the representations, warranties, covenants oragreements made by the Company in this Agreement or in the other TransactionDocuments or (B) any cause of action, suit or claim brought or madeagainst such Purchaser Party by a third party (including for these purposes aderivative action brought on behalf of the Company) and arising out of orresulting from (i) the execution, delivery, performance or enforcement ofthe Transaction Documents or any other certificate, instrument or documentcontemplated hereby or thereby, (ii) any transaction financed or to befinanced in whole or in part, directly or indirectly, with the proceeds of theissuance of the Securities, or (iii) the status of such Purchaser orholder of the Securities as a Purchaser. If any action shall be brought againstany Purchaser Party in respect of which indemnity may be sought pursuant tothis Agreement, such Purchaser Party shall promptly notify the Company inwriting, and the Company shall have the right to assume the defense thereofwith counsel of its own choosing.  AnyPurchaser Party shall have the right to employ separate counsel in any suchaction and participate in the defense thereof, but the fees and expenses ofsuch counsel shall be at the expense of such Purchaser Party except to theextent that (i) the employment thereof has been specifically authorized bythe Company in writing, (ii) the Company has failed after a reasonableperiod of time following such Purchaser Party’s written request that it do so,to assume such defense and to employ counsel or (iii) in such action thereis, in the reasonable opinion of such separate counsel, a material conflict onany material issue between the position of the Company and the position of suchPurchaser Party.  The Company will not beliable to any Purchaser Party under this Agreement (i) for any settlementby an Purchaser Party effected without the Company’s prior written consent,which shall not be unreasonably withheld or delayed; or (ii) to theextent, but only to the extent that a loss, claim, damage or liability isattributable to such Purchaser Party’s wrongful actions or omissions, or grossnegligence or to such Purchaser Party’s breach of any of the representations,warranties, covenants or agreements made by such Purchaser in this Agreement orin the other Transaction Documents.

(b)           If the indemnification provided forin Section 9.11(a) is judicially determined to be unavailable to aPurchaser Party in respect of any Losses incurred by them, then, in lieu ofindemnifying such Purchaser Party hereunder, the Person from whomindemnification is sought hereunder shall contribute to the amount paid or payableby such Purchaser Party as a result of such Losses (and expense relatingthereto): (A) in such proportion as is appropriate to reflect the relativebenefits to the applicable Purchaser Party, on the one hand, and the Personproviding indemnification hereunder, on the other hand, of transactionscontemplated by this Agreement or (B) if the allocation provided by clause(A) above is not available, in such proportion as is appropriate toreflect not only the relative benefits referred to in such clause (A) butalso the relative fault of each of the applicable Persons, as well as any otherrelevant equitable considerations.

 

9.12     NoStrict Construction. The language used in this Agreement and the otherTransaction Documents will be deemed to be the language chosen by the partiesto express their mutual intent, and no rules of strict construction willbe applied against any party.

9.13     Remedies. The Company and eachPurchaser and its permitted successors and assigns shall have all rights andremedies set forth in this Agreement and the Transaction Documents and allrights and remedies which they may have under any law or in equity. The

 

----

 

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

9.14     Rescissionand Withdrawal Right. Notwithstanding anything to the contrary contained in(and without limiting any similar provisions of) the Transaction Documents,whenever any Purchaser exercises a right, election, demand or option under aTransaction Document (including without limitation a Note) and the Company doesnot timely perform its related obligations within the periods therein provided,then such Purchaser may rescind or withdraw, in its sole discretion from timeto time upon written notice to the Company, any relevant notice, demand orelection in whole or in part without prejudice to its future actions andrights.

9.15     PaymentSet Aside. To the extent that the Company makes a payment or payments tothe Purchasers hereunder or pursuant to any of the other Transaction Documentsor the Purchasers enforce or exercise their rights hereunder or thereunder, andsuch payment or payments or the proceeds of such enforcement or exercise or anypart thereof are subsequently invalidated, declared to be fraudulent orpreferential, 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, state or federal law, common law or equitable cause of action), then tothe extent of any such restoration the obligation or part thereof originallyintended to be satisfied shall be revived and continued in full force andeffect as if such payment had not been made or such enforcement or setoff hadnot occurred.

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

 

----

 

out ofany other Transaction Documents, and it shall not be necessary for any otherPurchaser to be joined as an additional party in any proceeding for suchpurpose.

[Signature Page Follows]

 

----

 

**IN WITNESS WHEREOF,**each Purchaser and the Company have caused this Securities Purchase Agreementto be duly executed as of the date first written above.

 
|        | ** ** | **COMPANY:**                            |
|--------|------------|-----------------------------------------|
|   |       |                                    |   |
|   | ** ** | **EARTH BIOFUELS, INC.**                |
|   |       |                                    |   |
|   |       |                                    |   |
|   |       | By:                                     | /s/ dennis g.  mclaughlin, iii |
|   |       |                                    | Name: Dennis G. McLaughlin, III |
|   |       |                                    | Title: Chief Executive Officer |
|   |       |                                    |   |
|   |       |                                    |   |
|   |       | **PURCHASER:**                          |
|   |       | ** **                              |
|   |       |                                    |
|   |       | **CASTLERIGG MASTER  INVESTMENTS LTD.** |
|   |       | ** **                              |
|   |       |                                    |
|   |       | By:                                     | /s/ Patrick T. Burke |
|   |       |                                    | Name: Patrick T. Burke |
|   |       |                                    | Title: Senior Managing Director |

 

----