Document:

Unassociated Document

 

 

SECURITIES
PURCHASE AGREEMENT

 

LAURUS
MASTER FUND, LTD.

 

 

and

 

 

EARTHFIRST
TECHNOLOGIES, INCORPORATED

 

 

 

Dated:
March 30, 2005

 

 

	
      1.
	
      Agreement
      to Sell and Purchase
	
      1

	
      2.
	
      Fees
      and Warrant
	
      2

	
      3.
	
      Closing,
      Delivery and Payment
	
      2

	 	
      3.1
	
      Closing
	
      2

	 	
      3.2
	
      Delivery
	
      3

	 	
      3.3
	Conversion and Lockup	
      3

	
      4.
	
      Representations
      and Warranties of the Company
	
      3

	 	
      4.1
	
      Organization,
      Good Standing and Qualification
	
      3

	 	
      4.2
	
      Subsidiaries
	
      4

	 	
      4.3
	
      Capitalization;
      Voting Rights
	
      4

	 	
      4.4
	
      Authorization;
      Binding Obligations
	
      5

	 	
      4.5
	
      Liabilities
	
      5

	 	
      4.6
	
      Agreements;
      Action
	
      5

	 	
      4.7
	
      Obligations
      to Related Parties
	
      7

	 	
      4.8
	
      Changes
	
      8

	 	
      4.9
	
      Title
      to Properties and Assets; Liens, Etc
	
      9

	 	
      4.10
	
      Intellectual
      Property
	
      9

	 	
      4.11
	
      Compliance
      with Other Instruments
	
      10

	 	
      4.12
	
      Litigation
	
      10

	 	
      4.13
	
      Tax
      Returns and Payments
	
      10

	 	
      4.14
	
      Employees
	
      11

	 	
      4.15
	
      Registration
      Rights and Voting Rights
	
      11

	 	
      4.16
	
      Compliance
      with Laws; Permits
	
      12

	 	
      4.17
	
      Environmental
      and Safety Laws
	
      12

	 	
      4.18
	
      Valid
      Offering
	
      12

	 	
      4.19
	
      Full
      Disclosure
	
      12

	 	
      4.20
	
      Insurance
	
      13

	 	
      4.21
	
      SEC
      Reports
	
      13

	 	
      4.22
	
      Listing
	
      13

	 	
      4.23
	
      No
      Integrated Offering
	
      13

	 	
      4.24
	
      Stop
      Transfer
	
      14

	 	
      4.25
	
      Dilution
	
      14

	 	
      4.26
	
      Patriot
      Act
	
      14

	 	
      4.27
	
      ERISA
	
      14

	
      5.
	
      Representations
      and Warranties of the Purchaser
	
      15

	 	
      5.1
	
      No
      Shorting
	
      15

	 	
      5.2
	
      Requisite
      Power and Authority
	
      15

	 	
      5.3
	
      Investment
      Representations
	
      15

	 	
      5.4
	
      The
      Purchaser Bears Economic Risk
	
      16

	 	
      5.5
	
      Acquisition
      for Own Account
	
      16

	 	
      5.6
	
      The
      Purchaser Can Protect Its Interest
	
      16

	 	
      5.7
	
      Accredited
      Investor
	
      16

	 	
      5.8
	
      Legends
	
      16

 

ii

	
      6.
	
      Covenants
      of the Company
	
      17

	 	
      6.1
	
      Stop-Orders
	
      17

	 	
      6.2
	
      Listing
	
      17

	 	
      6.3
	
      Market
      Regulations
	
      18

	 	
      6.4
	
      Reporting
      Requirements
	
      18

	 	
      6.5
	
      Use
      of Funds
	
      18

	 	
      6.6
	
      Access
      to Facilities
	
      19

	 	
      6.7
	
      Taxes
	
      20

	 	
      6.8
	
      Insurance
	
      20

	 	
      6.9
	
      Intellectual
      Property
	
      20

	 	
      6.10
	
      Properties
	
      20

	 	
      6.11
	
      Confidentiality
	
      20

	 	
      6.12
	
      Required
      Approvals
	
      20

	 	
      6.13
	
      Reissuance
      of Securities
	
      22

	 	
      6.14
	
      Opinion
	
      22

	 	
      6.15
	
      Margin
      Stock
	
      22

	 	
      6.16
	
      Financing
      Right of First Refusal
	
      22

	
      7.
	
      Covenants
      of the Purchaser
	
      22

	 	
      7.1
	
      Confidentiality
	
      22

	 	
      7.2
	
      Non-Public
      Information
	
      22

	 	
      7.3
	
      Limitation
      on Acquisition of Common Stock of the Company
	
      23

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

	 	
      8.1
	
      Company
      Indemnification
	
      23

	 	
      8.2
	
      Purchaser’s
      Indemnification
	
      23

	
      9.
	
      Conversion
      of Convertible Note
	
      24

	 	
      9.1
	
      Mechanics
      of Conversion
	
      24

	
      10.
	
      Registration
      Rights
	
      25

	 	
      10.1
	
      Registration
      Rights Granted
	
      25

	 	
      10.2
	
      Offering
      Restrictions
	
      25

	
      11.
	
      Miscellaneous
	
      25

	 	
      11.1
	
      Governing
      Law
	
      25

	 	
      11.2
	
      Survival
	
      26

	 	
      11.3
	
      Successors
	
      26

	 	
      11.4
	
      Entire
      Agreement; Maximum Interest
	
      27

	 	
      11.5
	
      Severability
	
      27

	 	
      11.6
	
      Amendment
      and Waiver
	
      27

	 	
      11.7
	
      Delays
      or Omissions
	
      27

	 	
      11.8
	
      Notices
	
      28

	 	
      11.9
	
      Attorneys’
      Fees
	
      29

	 	
      11.10
	
      Titles
      and Subtitles
	
      29

	 	
      11.11
	
      Facsimile
      Signatures; Counterparts
	
      29

	 	
      11.12
	
      Broker’s
      Fees
	
      29

	 	
      11.13
	
      Construction
	
      29

iii

LIST OF
EXHIBITS

	
      Form
      of Convertible Term Note
	
      Exhibit
      A

	
      Form
      of Warrant
	
      Exhibit
      B

	
      Form
      of Opinion
	
      Exhibit
      C

	
      Form
      of Escrow Agreement
	
      Exhibit
      D

iv

 

SECURITIES
PURCHASE AGREEMENT

 

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

 

RECITALS

 

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

 

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

 

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

 

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

 

AGREEMENT

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3.  Closing,
Delivery and Payment.

 

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

 

2

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

 

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

 

 

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

 

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

 

3

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

 

4.3  Capitalization;
Voting Rights.

 

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

 

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

 

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

 

4

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

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

 

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

 

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

 

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

 

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

 

6

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

7

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4.10  Intellectual
Property.

 

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

 

9

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

 

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

 

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

 

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

 

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

 

10

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

 

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

 

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

 

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

 

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

 

11

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

 

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

 

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

 

(b)  any
petroleum products or nuclear materials.

 

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

 

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

 

12

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

 

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

 

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

 

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

 

13

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

 

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

 

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

 

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

 

14

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

 

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

 

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

 

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

 

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

 

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

 

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

 

15

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

 

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

 

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

 

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

 

5.8  Legends.

 

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

 

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

 

16

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

 

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

 

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

 

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

 

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

 

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

 

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

 

17

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

18

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

 

19

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

 

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

 

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

 

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

 

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

 

20

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

 

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

 

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

 

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

 

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

 

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

 

21

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

22

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

 

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

 

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

 

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

 

23

9.  Conversion
of Convertible Note.

 

9.1  Mechanics
of Conversion.

 

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

 

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

 

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

 

24

10.  Registration
Rights.

 

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

 

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

 

11.  Miscellaneous.

 

11.1  Governing
Law, Jurisdiction and Waiver of Jury Trial.

 

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

 

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

 

25

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

 

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

 

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

 

26

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

 

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

 

11.6  Amendment
and Waiver.

 

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

 

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

 

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

 

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

 

27

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

 

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

 

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

 

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

 

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

 

All
communications shall be sent as follows:

 

	
      If
      to the Company, to:

       
	
      EarthFirst
      Technologies, Incorporated

      2515
      E. Hanna Ave.

      Tampa,
      Florida 33610

      Attention: Chief
      Financial Officer

      Facsimile: (813)
      238-8490

	 	
       

      with
      a copy to:

       

	 	
      Darrin
      M. Ocasio, Esq.

      Sichenzia
      Ross Friedman Ference LLP

      1065
      Avenue of the Americas

      New
      York, NY 10018

      Facsimile: 212-930-9725

       

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

      c/o
      M&C Corporate Services Limited

      P.O.
      Box 309 GT

      Ugland
      House 

      George
      Town

      South
      Church Street

      Grand
      Cayman, Cayman Islands

      Facsimile: 345-949-8080

 

28

	 	
      with
      a copy to:

       

	 	
      John
      E. Tucker, Esq.

      825
      Third Avenue 14th Floor

      New
      York, NY 10022

      Facsimile: 212-541-4434

 

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

 

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

 

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

 

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

 

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

 

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

 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

 

29

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

 

	
      COMPANY:
	
      PURCHASER:

	
       

      EARTHFIRST
      TECHNOLOGIES, INCORPORATED
	
       

      LAURUS
      MASTER FUND, LTD.

	
       

      By:
      /s/
      John
      Stanton                               
      
	
       

      By:
      /s/
      Eugene
      Grin                        
                             
      

	
       

      Name:
      John
      Stanton                               
      
	
       

      Name:
      Eugene
      Grin                                               
      

	
       

      Title:
      President                                         
	
       

      Title:
      Director                                    
      

 

 

30

 

 

EXHIBIT
A

 

FORM
OF CONVERTIBLE NOTE

 

 

 

A-1

 

 
EXHIBIT
B-1

 

FORM
OF WARRANT

 

 

 

 

B-1

 

 

 

 

EXHIBIT
B-2

 

FORM
OF OPTION

 

 

 

2

 

EXHIBIT
C

 

FORM
OF OPINION1 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

_______________________

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

 

C-1

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

 

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

 

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

 

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

 

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

 

C-2

 

EXHIBIT
D

 

FORM
OF ESCROW AGREEMENT

 

 

 

D-1SECURITY
AGREEMENT

 

This
Security Agreement is made as of March 30, 2005 by and among LAURUS MASTER FUND,
LTD., a Cayman Islands company (“Laurus”),
EARTHFIRST TECHNOLOGIES, INC., a Florida corporation (“EFTI”), and
each party listed on Exhibit
A attached
hereto (each an “Eligible
Subsidiary” and
collectively, the “Eligible
Subsidiaries”) (EFTI
and each Eligible Subsidiary, each a “Company” and collectively, the
“Companies”).

 

BACKGROUND

 

Companies
have requested that Laurus make advances available to Companies;
and

 

Laurus
has agreed to make such advances on the terms and conditions set forth in this
Agreement.

 

AGREEMENT

 

NOW,
THEREFORE, in consideration of the mutual covenants and undertakings and the
terms and conditions contained herein, the parties hereto agree as
follows:

 

1.  General
Definitions and Terms; Rules of Construction.

 

(a)  General
Definitions.
Capitalized terms used in this Agreement shall have the meanings assigned to
them in Annex
A.

 

(b)  Accounting
Terms. Any
accounting terms used in this Agreement which are not specifically defined shall
have the meanings customarily given them in accordance with GAAP and all
financial computations shall be computed, unless specifically provided herein,
in accordance with GAAP consistently applied.

 

(c)  Other
Terms. All
other terms used in this Agreement and defined in the UCC, shall have the
meaning given therein unless otherwise defined herein.

 

(d)  Rules
of Construction. All
Schedules, Addenda, Annexes and Exhibits hereto or expressly identified to this
Agreement are incorporated herein by reference and taken together with this
Agreement constitute but a single agreement. The words “herein”, “hereof” and
“hereunder” or other words of similar import refer to this Agreement as a whole,
including the Exhibits, Addenda, Annexes and Schedules thereto, as the same may
be from time to time amended, modified, restated or supplemented, and not to any
particular section, subsection or clause contained in this Agreement. Wherever
from the context it appears appropriate, each term stated in either the singular
or plural shall include the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the feminine
and the neuter. The term “or” is not exclusive. The term “including” (or any
form thereof) shall not be limiting or exclusive. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections, schedules, disclosure schedules, exhibits, and attachments of or to
this Agreement. All references to any instruments or agreements, including
references to any of this Agreement or the Ancillary Agreements shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.

 

2.  Loan
Facility.

 

(a)  Loans.

 

(i)  Subject
to the terms and conditions set forth herein and in the Ancillary Agreements,
Laurus may make loans (the “Loans”) to
Companies from time to time during the Term which, in the aggregate at any time
outstanding, will not exceed the lesser of (x) the Capital Availability
Amount minus (II) such reserves as Laurus may reasonably in its good faith
judgment deem proper and necessary from time to time (the “Reserves”) and
(y) an amount equal to (I) the Accounts Availability plus (II) the Inventory
Availability, minus (III) the Reserves. The amount derived at any time from
Section 2(a)(i)(y)(I) plus Section 2(a)(i)(y)(II) minus 2(a)(i)(y)(III)
shall be referred to as the “Formula
Amount.” The
Formula Amount shall be recalculated in connection with request by the Company
Agent for a borrowing of Loans pursuant to Section 4; provided that,
notwithstanding the foregoing the Formula Amount shall be recalculated once
every 30 days. Companies shall, jointly and severally, execute and deliver to
Laurus on the Closing Date the Revolving Note and a Minimum Borrowing Note
evidencing the Loans funded on the Closing Date. From time to time thereafter,
Companies shall jointly and severally execute and deliver to Laurus immediately
prior to the final funding of each additional $500,000 tranche of Loans
allocated to any Minimum Borrowing Note issued after the date hereof (calculated
on a cumulative basis for each such tranche) an additional Minimum Borrowing
Note evidencing such tranche, substantially in the form of the Minimum Borrowing
Note delivered by Companies to Laurus on the Closing Date. Notwithstanding
anything herein to the contrary, whenever during the Term the outstanding
balance on the Revolving Note should equal or exceed $500,000 to the extent that
the outstanding balance on the Minimum Borrowing Note shall be equal to or less
than $1,500,000 (the difference of $2,000,000 less the actual balance of the
Minimum Borrowing Note, the “Available
Minimum Borrowing”), such
portion of the balance of the Revolving Note as shall equal the Available
Minimum Borrowing shall be deemed to be simultaneously extinguished on the
Revolving Note and transferred to, and evidenced by, the Minimum Borrowing
Note.

 

(ii)  Notwithstanding
the limitations set forth above, if requested by any Company, Laurus retains the
right to lend to such Company from time to time such amounts in excess of such
limitations as Laurus may determine in its sole discretion.

 

(iii)  If any
interest, fees, costs or charges payable to Laurus hereunder are not paid when
due, Companies shall thereby be deemed to have requested, and Laurus is hereby
authorized at its discretion to make and charge to Companies’ account, a Loan as
of such date in an amount equal to such unpaid interest, fees, costs or
charges.

 

(iv)  If any
Company at any time fails to perform or observe any of the covenants contained
in this Agreement or any Ancillary Agreement, Laurus may, but need not, perform
or observe such covenant on behalf and in the name, place and stead of such
Company (or, at Laurus’ option, in Laurus’ name) and may, but need not, take any
and all other actions which Laurus may deem necessary to cure or correct such
failure (including the payment of taxes, the satisfaction of Liens, the
performance of obligations owed to Account Debtors, lessors or other obligors,
the procurement and maintenance of insurance, the execution of assignments,
security agreements and financing statements, and the endorsement of
instruments). The amount of all monies expended and all reasonable costs and
expenses (including reasonable attorneys’ fees and legal expenses) incurred by
Laurus in connection with or as a result of the performance or observance of
such agreements or the taking of such action by Laurus shall be charged to
Companies’ account as a Loan and added to the Obligations. To facilitate Laurus’
performance or observance of such covenants of each Company, each Company hereby
irrevocably appoints Laurus, or Laurus’ delegate, acting alone, as such
Company’s attorney in fact (which appointment is coupled with an interest) with
the right (but not the duty) from time to time to create, prepare, complete,
execute, deliver, endorse or file in the name and on behalf of such Company any
and all instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by such
Company.

 

2

(v)  Laurus
will account to Company Agent monthly with a statement of all Loans and other
advances, charges and payments made pursuant to this Agreement, and such account
rendered by Laurus shall be deemed final, binding and conclusive unless Laurus
is notified by Company Agent in writing to the contrary within thirty (30) days
of the date each account was rendered specifying the item or items to which
objection is made.

 

(vi)  During
the Term, Companies may borrow, prepay and re-borrow Loans in accordance with
the terms and conditions hereof. 

 

(b)  Receivables
Purchase.
Following the occurrence and during the continuance of an Event of Default,
Laurus may, at its option, elect to convert the credit facility contemplated
hereby to an accounts receivable purchase facility. Upon such election by Laurus
(subsequent notice of which Laurus shall provide to Company Agent), Companies
shall be deemed to hereby have sold, assigned, transferred, conveyed and
delivered to Laurus, and Laurus shall be deemed to have purchased and received
from Companies, all right, title and interest of Companies in and to all
Accounts which shall at any time constitute Eligible Accounts (the “Receivables
Purchase”). All
outstanding Loans hereunder shall be deemed obligations under such accounts
receivable purchase facility. The conversion to an accounts receivable purchase
facility in accordance with the terms hereof shall not be deemed an exercise by
Laurus of its secured creditor rights under Article 9 of the UCC. Immediately
following Laurus’ request, Companies shall execute all such further
documentation as may be required by Laurus to more fully set forth the accounts
receivable purchase facility herein contemplated, including, without limitation,
Laurus’ standard form of accounts receivable purchase agreement and account
debtor notification letters, but any Company’s failure to enter into any such
documentation shall not impair or affect the Receivables Purchase in any manner
whatsoever.

 

(c)  Minimum
Borrowing Amount. After a
registration statement registering the Registrable Securities has been declared
effective by the SEC, conversions of the Minimum Borrowing Amount into the
Common Stock may be initiated as set forth in the respective Minimum Borrowing
Note. From and after the date upon which any outstanding principal of the
Minimum Borrowing Amount (as evidenced by the first Minimum Borrowing Note) is
converted into Common Stock (the “First
Conversion Date”), (i)
corresponding amounts of all outstanding Loans (not attributable to the then
outstanding Minimum Borrowing Amount) existing on or made after the First
Conversion Date will be aggregated until they reach the sum of $500,000 and (ii)
Companies will issue a new (serialized) Minimum Borrowing Note to Laurus in
respect of such $500,000 aggregation, and (iii) EFTI shall prepare and file a
subsequent registration statement with the SEC to register such subsequent
Minimum Borrowing Note as set forth in the Registration Rights
Agreement.

 

3

3.  Repayment
of the Loans.
Companies (a) may prepay the Obligations from time to time in accordance with
the terms and provisions of the Notes (and Section 17 hereof if such prepayment
is due to a termination of this Agreement); and (b) shall repay on the
expiration of the Term (i) the then aggregate outstanding principal balance of
the Loans together with accrued and unpaid interest, fees and charges and (ii)
all other amounts owed Laurus under this Agreement and the Ancillary Agreements.
Any payments of principal, interest, fees or any other amounts payable hereunder
or under any Ancillary Agreement shall be made prior to 12:00 noon (New York
time) on the due date thereof in immediately available funds.

 

4.  Procedure
for Loans. Company
Agent may by written notice request a borrowing of Loans prior to 12:00 noon
(New York time) on the Business Day of its request to incur, on the next
Business Day, a Loan. Together with each request for a Loan (or at such other
intervals as Laurus may request), Company Agent shall deliver to Laurus a
Borrowing Base Certificate in the form of Exhibit
B attached
hereto, which shall be certified as true and correct by the Chief Executive
Officer or Chief Financial Officer of Company Agent together with all supporting
documentation relating thereto. All Loans shall be disbursed from whichever
office or other place Laurus may designate from time to time and shall be
charged to Companies’ account on Laurus’ books. The proceeds of each Loan made
by Laurus shall be made available to Company Agent no later than the Business
Day following the Business Day so requested in accordance with the terms of this
Section 4 by way of credit to the applicable Company’s operating account
maintained with such bank as Company Agent designated to Laurus. Any and all
Obligations due and owing hereunder may be charged to Companies’ account and
shall constitute Loans.

 

5.  Interest
and Payments. 

 

(a)  Interest.

 

(i)  Except as
modified by Section 5(a)(iii) below, Companies shall jointly and severally pay
interest at the Contract Rate on the unpaid principal balance of each Loan until
such time as such Loan is collected in full in good funds in dollars of the
United States of America.

 

(ii)  Interest
and payments shall be computed on the basis of actual days elapsed in a year of
360 days. At Laurus’ option, Laurus may charge Companies’ account for said
interest.

 

4

(iii)  Effective
upon the occurrence of any Event of Default and for so long as any Event of
Default shall be continuing, the Contract Rate shall automatically be increased
as set forth in the Notes (such increased rate, the “Default
Rate”), and
all outstanding Obligations, including unpaid interest, shall continue to accrue
interest from the date of such Event of Default at the Default Rate applicable
to such Obligations. 

 

(iv)  In no
event shall the aggregate interest payable hereunder exceed the maximum rate
permitted under any applicable law or regulation, as in effect from time to time
(the “Maximum
Legal Rate”), and
if any provision of this Agreement or any Ancillary Agreement is in
contravention of any such law or regulation, interest payable under this
Agreement and each Ancillary Agreement shall be computed on the basis of the
Maximum Legal Rate (so that such interest will not exceed the Maximum Legal
Rate). 

 

(v)  Companies
shall jointly and severally pay principal, interest and all other amounts
payable hereunder, or under any Ancillary Agreement, without any deduction
whatsoever, including any deduction for any set-off or
counterclaim.

 

(b)  Payments;
Certain Closing Conditions.

 

(i)  Closing/Annual
Payments. Upon
execution of this Agreement by each Company and Laurus, Companies shall jointly
and severally pay to Laurus Capital Management, LLC a closing payment in an
amount equal to three and six tenths percent (3.60%) of the Capital Availability
Amount. Such payment shall be deemed fully earned on the Closing Date and shall
not be subject to rebate or proration for any reason.

 

(ii)  Overadvance
Payment. Without
affecting Laurus’ rights hereunder in the event the Loans exceed the Formula
Amount (each such event, an “Overadvance”), all
such Overadvances shall bear interest at an annual rate equal to the Contract
Rate plus five percent (5%) at all times such amounts shall be outstanding in
excess of the Formula Amount, and such amounts shall be due on the first
business day of each month.

 

(iii)  Financial
Information Default. Without
affecting Laurus’ other rights and remedies, in the event any Company fails to
deliver the financial information required by Section 11 on or before the date
required by this Agreement, Companies shall jointly and severally pay Laurus an
aggregate fee in the amount of $250.00 per week (or portion thereof) for each
such failure until such failure is cured to Laurus’ satisfaction or waived in
writing by Laurus. Such fee shall be charged to Companies’ account upon the
occurrence of each such failure.

 

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

 

5

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

 

6.  Security
Interest.

 

(a)  To secure
the prompt payment to Laurus of the Obligations, each Company hereby assigns,
pledges and grants to Laurus a continuing security interest in and Lien upon all
of the Collateral. All of each Company’s Books and Records relating to the
Collateral shall, until delivered to or removed by Laurus, be kept by such
Company in trust for Laurus until all Obligations have been paid in full. Each
confirmatory assignment schedule or other form of assignment hereafter executed
by each Company shall be deemed to include the foregoing grant, whether or not
the same appears therein. 

 

(b)  Each
Company hereby (i) authorizes Laurus to file any financing statements,
continuation statements or amendments thereto that (x) indicate the Collateral
(1) as all assets and personal property of such Company or words of similar
effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Article 9 of the UCC of such jurisdiction, or (2) as
being of an equal or lesser scope or with greater detail, and (y) contain any
other information required by Part 5 of Article 9 of the UCC for the sufficiency
or filing office acceptance of any financing statement, continuation statement
or amendment and (ii) ratifies its authorization for Laurus to have filed any
initial financial statements, or amendments thereto if filed prior to the date
hereof. Each Company acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement without the prior written consent of Laurus and agrees that
it will not do so without the prior written consent of Laurus, subject to such
Company’s rights under Section 9-509(d)(2) of the UCC.

 

(c)  Each
Company hereby grants to Laurus an irrevocable, non-exclusive license
(exercisable upon the termination of this Agreement due to an occurrence and
during the continuance of an Event of Default without payment of royalty or
other compensation to such Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by such
Company, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this Agreement and the payment in
full of all Obligations.

 

7.  Representations,
Warranties and Covenants Concerning the Collateral. Each
Company represents, warrants (each of which such representations and warranties
shall be deemed repeated upon the making of each request for a Loan and made as
of the time of each and every Loan hereunder) and covenants as
follows:

 

6

(a)  all of
the Collateral (i) is owned by it free and clear of all Liens (including any
claims of infringement) except those in Laurus’ favor and Permitted Liens and
(ii) is not subject to any agreement prohibiting the granting of a Lien or
requiring notice of or consent to the granting of a Lien.

 

(b)  it shall
not encumber, mortgage, pledge, assign or grant any Lien in any Collateral or
any other assets to anyone other than Laurus and except for Permitted
Liens.

 

(c)  the Liens
granted pursuant to this Agreement, upon completion of the filings and other
actions listed on Schedule
7(c) (which,
in the case of all filings and other documents referred to in said Schedule,
have been delivered to Laurus in duly executed form) constitute valid perfected
security interests in all of the Collateral in favor of Laurus as security for
the prompt and complete payment and performance of the Obligations, enforceable
in accordance with the terms hereof against any and all of its creditors and
purchasers and such security interest is prior to all other Liens in existence
on the date hereof.

 

(d)  no
effective security agreement, mortgage, deed of trust, financing statement,
equivalent security or Lien instrument or continuation statement covering all or
any part of the Collateral is or will be on file or of record in any public
office, except those relating to Permitted Liens.

 

(e)  it shall
not dispose of any of the Collateral whether by sale, lease or otherwise except
for the sale of Inventory in the ordinary course of business and for the
disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out Equipment having an aggregate fair market value of
not more than $50,000 and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Laurus’ first priority security interest or are used to repay Loans or to pay
general corporate expenses, or (ii) following the occurrence of an Event of
Default which continues to exist the proceeds of which are remitted to Laurus to
be held as cash collateral for the Obligations.

 

(f)  it shall
defend the right, title and interest of Laurus in and to the Collateral against
the claims and demands of all Persons whomsoever, and take such actions,
including (i) all actions necessary to grant Laurus “control” of any
Investment Property, Deposit Accounts, Letter-of-Credit Rights or electronic
Chattel Paper owned by it, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus’ request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by it (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank), (iii) notification
of Laurus’ interest in Collateral at Laurus’ request, and (iv) the institution
of litigation against third parties as shall be prudent in order to protect and
preserve its and/or Laurus’ respective and several interests in the Collateral.

 

7

(g)  it shall
promptly, and in any event within five (5) Business Days after the same is
acquired by it, notify Laurus of any commercial tort claim (as defined in the
UCC) acquired by it and unless otherwise consented by Laurus, it shall enter
into a supplement to this Agreement granting to Laurus a Lien in such commercial
tort claim.

 

(h)  it shall
place notations upon its Books and Records and any of its financial statements
to disclose Laurus’ Lien in the Collateral.

 

(i)  if it
retains possession of any Chattel Paper or Instrument with Laurus’ consent, upon
Laurus’ request such Chattel Paper and Instruments shall be marked with the
following legend: “This writing and obligations evidenced or secured hereby are
subject to the security interest of Laurus Master Fund, Ltd.”

 

(j)  it shall
perform in a reasonable time all other steps requested by Laurus to create and
maintain in Laurus’ favor a valid perfected first Lien in all Collateral subject
only to Permitted Liens.

 

(k)  it shall
notify Laurus promptly and in any event within three (3) Business Days after
obtaining knowledge thereof (i) of any event or circumstance that, to its
knowledge, would cause Laurus to consider any then existing Account and/or
Inventory as no longer constituting an Eligible Account or Eligible Inventory,
as the case may be; (ii) of any material delay in its performance of any of its
obligations to any Account Debtor; (iii) of any assertion by any Account Debtor
of any material claims, offsets or counterclaims; (iv) of any allowances,
credits and/or monies granted by it to any Account Debtor; (v) of all material
adverse information relating to the financial condition of an Account Debtor;
(vi) of any material return of goods; and (vii) of any loss, damage or
destruction of any of the Collateral.

 

(l)  all
Eligible Accounts (i) represent complete bona fide transactions which require no
further act under any circumstances on its part to make such Accounts payable by
the Account Debtors, (ii) are not subject to any present, future contingent
offsets or counterclaims, and (iii) do not represent bill and hold sales,
consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of such Company. It
has not made, nor will it make, any agreement with any Account Debtor for any
extension of time for the payment of any Account, any compromise or settlement
for less than the full amount thereof, any release of any Account Debtor from
liability therefor, or any deduction therefrom except a discount or allowance
for prompt or early payment allowed by it in the ordinary course of its business
consistent with historical practice and as previously disclosed to Laurus in
writing.

 

(m)  it shall
keep and maintain its Equipment in good operating condition, except for ordinary
wear and tear, and shall make all necessary repairs and replacements thereof so
that the value and operating efficiency shall at all times be maintained and
preserved. It shall not permit any such items to become a Fixture to real estate
or accessions to other personal property.

 

(n)  it shall
maintain and keep all of its Books and Records concerning the Collateral at its
executive offices listed in Schedule
12(bb).

 

8

(o)  it shall
maintain and keep the tangible Collateral at the addresses listed in
Schedule
12(bb),
provided, that it may change such locations or open a new location, provided
that it provides Laurus at least thirty (30) days prior written notice of such
changes or new location and (ii) prior to such change or opening of a new
location where Collateral having a value of more than $50,000 will be located,
it executes and delivers to Laurus such agreements as Laurus may request,
including landlord agreements, mortgagee agreements and warehouse agreements,
each in form and substance satisfactory to Laurus.

 

(p)  Schedule
7(p) lists
all banks and other financial institutions at which it maintains deposits and/or
other accounts, and such Schedule correctly identifies the name, address and
telephone number of each such depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number. It
shall not establish any depository or other bank account with any financial
institution (other than the accounts set forth on Schedule
7(p)) without
Laurus’ prior written consent.

 

(q)  All
Inventory manufactured by it in the United States of America shall be produced
in accordance with the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders related thereto or
promulgated thereunder.

 

8.  Payment
of Accounts. 

 

(a)  Each
Company will irrevocably direct all of its present and future Account Debtors
and other Persons obligated to make payments constituting Collateral to make
such payments directly to the lockboxes maintained by such Company (the
“Lockboxes”) with
The Bank of Tampa or such other financial institution accepted by Laurus in
writing as may be selected by such Company (the “Lockbox
Bank”)
pursuant to the terms of pursuant
to the terms of those certain agreements entered into by and among the Lockbox
Bank, the Companies and/or Laurus. On or
prior to the Closing Date, each Company shall and shall cause the Lockbox Bank
to enter into all such documentation acceptable to Laurus pursuant to which,
among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox on a
daily basis and deposit all checks received therein to an account designated by
Laurus in writing and (b) comply only with the instructions or other directions
of Laurus concerning the Lockbox. All of each Company’s invoices, account
statements and other written or oral communications directing, instructing,
demanding or requesting payment of any Account of any Company or any other
amount constituting Collateral shall conspicuously direct that all payments be
made to the Lockbox or such other address as Laurus may direct in writing. If,
notwithstanding the instructions to Account Debtors, any Company receives any
payments, such Company shall immediately remit such payments to Laurus in their
original form with all necessary endorsements. Until so remitted, such Company
shall hold all such payments in trust for and as the property of Laurus and
shall not commingle such payments with any of its other funds or
property.

 

(b)  At
Laurus’ election, following the occurrence of an Event of Default which is
continuing, Laurus may notify each Company’s Account Debtors of Laurus’ security
interest in the Accounts, collect them directly and charge the collection costs
and expenses thereof to Company’s and the Eligible Subsidiaries joint and
several account.

 

9.  Collection
and Maintenance of Collateral.

 

9

(a)  Laurus
may verify each Company’s Accounts from time to time, but not more often than
once every six (6) months, unless an Event of Default has occurred and is
continuing, utilizing an audit control company or any other agent of
Laurus.

 

(b)  Proceeds
of Accounts received by Laurus will be deemed received on the Business Day after
Laurus’ receipt of such proceeds in good funds in dollars of the United States
of America to an account designated by Laurus. Any amount received by Laurus
after 12:00 noon (New York time) on any Business Day shall be deemed
received on the next Business Day.

 

(c)  As Laurus
receives the proceeds of Accounts of any Company, it shall (i) apply such
proceeds, as required, to amounts outstanding under the Notes, and (ii) remit
all such remaining proceeds (net of interest, fees and other amounts then due
and owing to Laurus hereunder) to Company Agent (for the benefit of the
applicable Companies) upon request (but no more often than once a day).
Notwithstanding the foregoing, following the occurrence and during the
continuance of an Event of Default, Laurus, at its option, may (a) apply such
proceeds to the Obligations in such order as Laurus shall elect, (b) hold all
such proceeds as cash collateral for the Obligations and each Company hereby
grants to Laurus a security interest in such cash collateral amounts as security
for the Obligations and/or (c) do any combination of the foregoing.

 

10.  Inspections
and Appraisals. At all
times during normal business hours, Laurus, and/or any agent of Laurus shall
have the right to (a) have access to, visit, inspect, review, evaluate and make
physical verification and appraisals of each Company’s properties and the
Collateral, (b) inspect, audit and copy (or take originals if necessary) and
make extracts from each Company’s Books and Records, including management
letters prepared by the Accountants, and (c) discuss with each Company’s
directors, principal officers, and independent accountants, each Company’s
business, assets, liabilities, financial condition, results of operations and
business prospects. Each Company will deliver to Laurus any instrument necessary
for Laurus to obtain records from any service bureau maintaining records for
such Company. If any internally prepared financial information, including that
required under this Section is unsatisfactory in any manner to Laurus, Laurus
may request that the Accountants review the same.

 

11.  Financial
Reporting. Company
Agent will deliver, or cause to be delivered, to Laurus each of the following,
which shall be in form and detail acceptable to Laurus:

 

(a)  As soon
as available, and in any event within ninety (90) days after the end of each
fiscal year of EFTI, each Company’s audited financial statements with a report
of independent certified public accountants of recognized standing selected by
EFTI and acceptable to Laurus (the “Accountants”), which
annual financial statements shall include each Company’s balance sheet as at the
end of such fiscal year and the related statements of each Company’s income,
retained earnings and cash flows for the fiscal year then ended, prepared, if
Laurus so requests, on a consolidating and consolidated basis to include all
Subsidiaries and Affiliates of each Company, all in reasonable detail and
prepared in accordance with GAAP, together with (i) if and when available,
copies of any management letters prepared by the Accountants; and (ii) a
certificate of EFTI’s President, Chief Executive Officer or Chief Financial
Officer stating that such financial statements have been prepared in accordance
with GAAP and whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder and, if so, stating in reasonable detail
the facts with respect thereto;

 

10

(b)  As soon
as available and in any event within forty five (45) days after the end of each
quarter, an unaudited/internal balance sheet and statements of income, retained
earnings and cash flows of each Company as at the end of and for such quarter
and for the year to date period then ended, prepared, if Laurus so requests, on
a consolidating and consolidated basis to include all Subsidiaries and
Affiliates of each Company, in reasonable detail and stating in comparative form
the figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of EFTI’s President, Chief Executive Officer or
Chief Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto; 

 

(c)  Within
thirty (30) days after the end of each month (or more frequently if Laurus so
requests), agings of each Company’s Accounts, unaudited trial balances and their
accounts payable and a calculation of each Company’s Accounts, Eligible
Accounts, Inventory and/or Eligible Inventory, provided, however, that if Laurus
shall request the foregoing information more often than as set forth in the
immediately preceding clause, each Company shall have thirty (30) days from each
such request to comply with Laurus’ demand; and

 

(d)  Promptly
after (i) the filing thereof, copies of EFTI’s most recent registration
statements and annual, quarterly, monthly or other regular reports which EFTI
files with the Securities and Exchange Commission (the “SEC”), and
(ii) the issuance thereof, copies of such financial statements, reports and
proxy statements as EFTI shall send to its stockholders.

 

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

 

12.  Additional
Representations and Warranties. Each
Company hereby represents and warrants to Laurus as follows (which
representations and warranties are supplemented by, and subject to, EFTI’s
filings under the Exchange Act made prior to the date of this Agreement
(collectively, the “Exchange
Act Filings”),
copies of which have been provided to Laurus:

 

(a)  Organization,
Good Standing and Qualification. It and
each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. It and each of its
Subsidiaries has the corporate, limited liability company or partnership, as the
case may be, power and authority to own and operate its properties and assets
and, insofar as it is or shall be a party thereto, to (i) execute and deliver
this Agreement and the Ancillary Agreements, (ii) to issue the Notes and the
shares of Common Stock issuable upon conversion of the Notes (the “Note
Shares”), (iii)
to issue and sell the Option and the shares of Common Stock issuable upon
conversion of the Option (the “Option
Shares”), (iv)
to issue the Warrants and the shares of Common Stock issuable upon conversion of
the Warrants (the “Warrant
Shares”), and
to (v) carry out the provisions of this Agreement and the Ancillary Agreements
and to carry on its business as presently conducted. It and each of its
Subsidiaries is duly qualified and is authorized to do business and is in good
standing as a foreign corporation, partnership or limited liability company, as
the case may be, in all jurisdictions in which the nature or location of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so has not had, or could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.

 

11

(b)  Subsidiaries. Each of
its direct and indirect Subsidiaries, the direct owner of each such Subsidiary
and its percentage ownership thereof, is set forth on Schedule
12(b). Each
Subsidiary of the Parent that does not own any assets (other than immaterial
assets) or have any significant operations is designated in Schedule 12(b) as an
“Inactive Subsidiary”. 

 

(c)  Capitalization;
Voting Rights.

 

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

 

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

 

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

 

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

 

12

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

 

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

 

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

 

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

 

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

 

(f)  Agreements;
Action. Except
as set forth on Schedule
12(f) or as
disclosed in any Exchange Act Filings:

 

(i)  There are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which it or any of its Subsidiaries is a
party or to its knowledge by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, it or any of its
Subsidiaries in excess of $50,000 (other than obligations of, or payments to, it
or any of its Subsidiaries arising from purchase or sale agreements entered into
in the ordinary course of business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from it (other
than licenses arising from the purchase of “off the shelf” or other standard
products); or (iii) provisions restricting the development, manufacture or
distribution of its or any of its Subsidiaries’ products or services; or (iv)
indemnification by it or any of its Subsidiaries with respect to infringements
of proprietary rights.

 

13

(ii)  Since
December 31, 2004 (the “Balance
Sheet Date”)
neither it nor any of its Subsidiaries has: (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock; (ii) incurred any indebtedness for money borrowed
or any other liabilities (other than ordinary course obligations) individually
in excess of $100,000 or, in the case of indebtedness and/or liabilities
individually less than $100,000, in excess of $250,000 in the aggregate; (iii)
made any loans or advances to any Person not in excess, individually or in the
aggregate, of $250,000, other than ordinary advances for travel expenses; or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its Inventory in the ordinary course of business.

 

(iii)  For the
purposes of subsections (i) and (ii) of this Section 12(f), all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same Person (including Persons it or any of its
applicable Subsidiaries has reason to believe are affiliated therewith or with
any Subsidiary thereof) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

14

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

 

(g)  Obligations
to Related Parties. Except
as set forth on Schedule
12(g), neither
it nor any of its Subsidiaries has any obligations to their respective officers,
directors, stockholders or employees other than:

 

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

 

(ii)  reimbursement
for reasonable expenses incurred on its or its Subsidiaries’
behalf;

 

(iii)  for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by its
and its Subsidiaries’ Board of Directors, as applicable); and

 

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

 

Except as
described above or set forth on Schedule
12(g), none of
its officers, directors or, to the best of its knowledge, key employees or
stockholders, any of its Subsidiaries or any members of their immediate
families, are indebted to it or any of its Subsidiaries, individually or in the
aggregate, in excess of $100,000 or have any direct or indirect ownership
interest in any Person with which it or any of its Subsidiaries is affiliated or
with which it or any of its Subsidiaries has a business relationship, or any
Person which competes with it or any of its Subsidiaries, other than passive
investments in publicly traded companies (representing less than one percent
(1%) of such company) which may compete with it or any of its Subsidiaries.
Except as described above, none of its officers, directors or stockholders, or
any member of their immediate families, is, directly or indirectly, interested
in any material contract with it or any of its Subsidiaries and no agreements,
understandings or proposed transactions are contemplated between it or any of
its Subsidiaries and any such Person. Except as set forth on Schedule
12(g), neither
it nor any of its Subsidiaries is a guarantor or indemnitor of any indebtedness
of any other Person.

 

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

 

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

 

(ii)  any
resignation or termination of any of its or its Subsidiaries’ officers, key
employees or groups of employees; 

 

15

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

 

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

 

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

 

(vi)  any
direct or indirect material loans made by it or any of its Subsidiaries to any
of its or any of its Subsidiaries’ stockholders, employees, officers or
directors, other than advances made in the ordinary course of
business;

 

(vii)  any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder; 

 

(viii)  any
declaration or payment of any dividend or other distribution of its or any of
its Subsidiaries’ assets;

 

(ix)  any labor
organization activity related to it or any of its Subsidiaries;

 

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

 

(xi)  any sale,
assignment or transfer of any Intellectual Property or other intangible
assets;

 

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

 

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

 

(xiv)  any
arrangement or commitment by it or any of its Subsidiaries to do any of the acts
described in subsection (i) through (xiii) of this Section 12(h).

 

(i)  Title
to Properties and Assets; Liens, Etc. Except
as set forth on Schedule 12(i), it and
each of its Subsidiaries has good and marketable title to their respective
properties and assets, and good title to its leasehold interests, in each case
subject to no Lien, other than Permitted Liens.

 

16

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

 

(j)  Intellectual
Property.

 

(i)  It and
each of its Subsidiaries owns or possesses sufficient legal rights to all
Intellectual Property necessary for their respective businesses as now conducted
and, to its knowledge as presently proposed to be conducted, without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to its or any of its Subsidiary’s
Intellectual Property, nor is it or any of its Subsidiaries bound by or a party
to any options, licenses or agreements of any kind with respect to the
Intellectual Property of any other Person other than such licenses or agreements
arising from the purchase of “off the shelf” or standard products.

 

(ii)  Neither
it nor any of its Subsidiaries has received any communications alleging that it
or any of its Subsidiaries has violated any of the Intellectual Property or
other proprietary rights of any other Person, nor is it or any of its
Subsidiaries aware of any basis therefor.

 

(iii)  Neither
it nor any of its Subsidiaries believes it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by it or any of its Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to it or any of its Subsidiaries.

 

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

 

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

 

17

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

 

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

 

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

 

Neither
it nor any of its Subsidiaries has any knowledge of any liability of any tax to
be imposed upon its properties or assets as of the date of this Agreement that
is not adequately provided for. 

 

(n)  Employees. Except
as set forth on Schedule
12(n), neither
it nor any of its Subsidiaries has any collective bargaining agreements with any
of its employees. There is no labor union organizing activity pending or, to its
knowledge, threatened with respect to it or any of its Subsidiaries. Except as
disclosed in the Exchange Act Filings or on Schedule
12(n), neither
it nor any of its Subsidiaries is a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To its knowledge, none of its or any of its Subsidiaries’
employees, nor any consultant with whom it or any of its Subsidiaries has
contracted, is in violation of any term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, it or any of its Subsidiaries
because of the nature of the business to be conducted by it or any of its
Subsidiaries; and to its knowledge the continued employment by it and its
Subsidiaries of their present employees, and the performance of its and its
Subsidiaries contracts with its independent contractors, will not result in any
such violation. Neither it nor any of its Subsidiaries is aware that any of its
or any of its Subsidiaries’ employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency that
would interfere with their duties to it or any of its Subsidiaries. Neither it
nor any of its Subsidiaries has received any notice alleging that any such
violation has occurred. Except for employees who have a current effective
employment agreement with it or any of its Subsidiaries, none of its or any of
its Subsidiaries’ employees has been granted the right to continued employment
by it or any of its Subsidiaries or to any material compensation following
termination of employment with it or any of its Subsidiaries. Except as set
forth on Schedule 12(n), neither
it nor any of its Subsidiaries is aware that any officer, key employee or group
of employees intends to terminate his, her or their employment with it or any of
its Subsidiaries, as applicable, nor does it or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee or
group of employees.

 

18

(o)  Registration
Rights and Voting Rights. Except
as set forth on Schedule 12(o) and
except as disclosed in Exchange Act Filings, neither it nor any of its
Subsidiaries is presently under any obligation, and neither it nor any of its
Subsidiaries has granted any rights, to register any of its or any of its
Subsidiaries’ presently outstanding securities or any of its securities that may
hereafter be issued. Except as set forth on Schedule 12(o) and
except as disclosed in Exchange Act Filings, to its knowledge, none of its or
any of its Subsidiaries’ stockholders has entered into any agreement with
respect to its or any of its Subsidiaries’ voting of equity
securities.

 

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

 

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

 

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

 

(ii)  any
petroleum products or nuclear materials.

 

19

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

 

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

 

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

 

(u)  SEC
Reports and Financial Statements. Except
as set forth on Schedule 12(u), it and
each of its Subsidiaries has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act. EFTI has furnished
Laurus with copies of: (i) its Annual Report on Form 10-KSB for its fiscal year
ended December 31, 2003; and (ii) its Quarterly Reports on Form 10-QSB for its
fiscal quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, and
the Form 8-K filings which it has made during its fiscal years 2004 and 2005 to
date (collectively, the “SEC
Reports”).
Except as set forth on Schedule
12(u), each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed) and fairly present in all
material respects the financial condition, the results of operations and cash
flows of EFTI and its Subsidiaries, on a consolidated basis, as of, and for, the
periods presented in each such SEC Report.

 

(v)  Listing. EFTI’s
Common Stock is traded on the Principal Market and satisfies and at all times
hereafter will satisfy all requirements for the continuation of such trading.
EFTI has not received any notice that its Common Stock will be ineligible to
trade on the Principal Market or that its Common Stock does not meet all
requirements for such trading.

 

20

(w)  No
Integrated Offering. Neither
it, nor any of its Subsidiaries nor any of its Affiliates, nor any Person acting
on its or their behalf, has directly or indirectly made any offers or sales of
any security or solicited any offers to buy any security (other than a
concurrent offering to Laurus under a Securities Purchase Agreement between EFTI
and Laurus dated as of the date hereof (as amended, modified or supplemented
from time to time, the “Securities Purchase Agreement”) under circumstances that
would cause the offering of the Securities pursuant to this Agreement or any
Ancillary Agreement to be integrated with prior offerings by it for purposes of
the Securities Act which would prevent it from issuing the Securities pursuant
to Rule 506 under the Securities Act, or any applicable exchange-related
stockholder approval provisions, nor will it or any of its Affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.

 

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

 

(y)  Dilution. It
specifically acknowledges that EFTI’s obligation to issue the shares of Common
Stock upon conversion of the Notes and exercise of the Warrants and the Option
is binding upon EFTI and enforceable regardless of the dilution such issuance
may have on the ownership interests of other shareholders of EFTI. 

 

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

 

21

(aa)  Company
Name; Locations of Offices, Records and Collateral.
Schedule 12(aa) sets
forth each Company’s name as it appears in official filings in the state of its
organization, the type of entity of each Company, the organizational
identification number issued by each Company’s state of organization or a
statement that no such number has been issued, each Company’s state of
organization, and the location of each Company’s chief executive office,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept (including in each case the county
of such locations) and, except as set forth in such Schedule
12(aa), such
locations have not changed during the preceding twelve months. As of the Closing
Date, during the prior five years, except as set forth in Schedule
12(aa), no
Company has been known as or conducted business in any other name (including
trade names). Each Company has only one state of organization.

 

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

 

13.  Covenants. Each
Company, as applicable, covenants and agrees with Laurus as
follows:

 

(a)  Stop-Orders. It
shall advise Laurus, promptly after it receives notice of issuance by the SEC,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of any securities of
EFTI, or of the suspension of the qualification of the Common Stock of EFTI for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.

 

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

 

22

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

 

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

 

(e)  Use of
Funds. It
shall use the proceeds of the Loans for general working capital purposes
only.

 

(f)  Access
to Facilities. It
shall, and shall cause each of its Subsidiaries to, permit any representatives
designated by Laurus (or any successor of Laurus), upon reasonable notice and
during normal business hours, at Company’s expense and accompanied by a
representative of Company Agent (provided that no such prior notice shall be
required to be given and no such representative shall be required to accompany
Laurus in the event Laurus believes such access is necessary to preserve or
protect the Collateral or following the occurrence and during the continuance of
an Event of Default), to:

 

(i)  visit and
inspect any of its or any such Subsidiary’s properties;

 

(ii)  examine
its or any such Subsidiary’s corporate and financial records (unless such
examination is not permitted by federal, state or local law or by contract) and
make copies thereof or extracts therefrom; and

 

(iii)  discuss
its or any such Subsidiary’s affairs, finances and accounts with its or any such
Subsidiary’s directors, officers and Accountants.

 

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

 

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

 

23

(h)  Insurance. It
shall bear the full risk of loss from any loss of any nature whatsoever with
respect to the Collateral. It and each of its Subsidiaries shall keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar business similarly situated as it and
its Subsidiaries; and it and its Subsidiaries shall maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner which it
and/or such Subsidiary thereof reasonably believes is customary for companies in
similar business similarly situated as it and its Subsidiaries and to the extent
available on commercially reasonable terms. It and each of its Subsidiaries will
jointly and severally bear the full risk of loss from any loss of any nature
whatsoever with respect to the assets pledged to Laurus as security for its
obligations hereunder and under the Ancillary Agreements. At its own cost and
expense in amounts and with carriers reasonably acceptable to Laurus, it and
each of its Subsidiaries shall (i) keep all their insurable properties and
properties in which they have an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to it or the respective Subsidiary’s
including business interruption insurance; (ii) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to it and
its Subsidiaries’ insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or
jointly with others at any time have access to its or any of its Subsidiaries
assets or funds either directly or through governmental authority to draw upon
such funds or to direct generally the disposition of such assets; (iii) maintain
public and product liability insurance against claims for personal injury, death
or property damage suffered by others; (iv) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any state
or jurisdiction in which it or any of its Subsidiaries is engaged in business;
and (v) furnish Laurus with (x) copies of all policies and evidence of the
maintenance of such policies at least thirty (30) days before any expiration
date, (y) excepting its and its Subsidiaries’ workers’ compensation policy,
endorsements to such policies naming Laurus as “co-insured” or “additional
insured” and appropriate loss payable endorsements in form and substance
satisfactory to Laurus, naming Laurus as lenders loss payee, and (z) evidence
that as to Laurus the insurance coverage shall not be impaired or invalidated by
any act or neglect of any Company or any of its Subsidiaries and the insurer
will provide Laurus with at least thirty (30) days notice prior to cancellation.
It shall instruct the insurance carriers that in the event of any loss
thereunder, the carriers shall make payment for such loss to Laurus and not to
any Company or any of its Subsidiaries and Laurus jointly. If any insurance
losses are paid by check, draft or other instrument payable to any Company
and/or any of its Subsidiaries and Laurus jointly, Laurus may endorse, as
applicable, such Company’s and/or any of its Subsidiaries’ name thereon and do
such other things as Laurus may deem advisable to reduce the same to cash.
Laurus is hereby authorized to adjust and compromise claims. All loss recoveries
received by Laurus upon any such insurance may be applied to the Obligations, in
such order as Laurus in its sole discretion shall determine or shall otherwise
be delivered to Company Agent for the benefit of the applicable Company and/or
its Subsidiaries. Any surplus shall be paid by Laurus to Company Agent for the
benefit of the applicable Company and/or its Subsidiaries, or applied as may be
otherwise required by law. Any deficiency thereon shall be paid, as applicable,
by Companies and their Subsidiaries to Laurus, on demand.

 

24

(i)  Intellectual
Property. It
shall, and shall cause each of its Subsidiaries to, maintain in full force and
effect its corporate existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.

 

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

 

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

 

(l)  Required
Approvals. It
shall not, and shall not permit any of its Subsidiaries to, without the prior
written consent of Laurus, (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt) whether secured or unsecured other than
each Company’s indebtedness to Laurus and as set forth on Schedule 13(l)(i) attached
hereto and made a part hereof; (ii) cancel any debt owing to it in excess of
$100,000 in the aggregate during any 12 month period; (iii) assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except the endorsement of negotiable
instruments by it or its Subsidiaries for deposit or collection or similar
transactions in the ordinary course of business; (iv) directly or indirectly
declare, pay or make any dividend or distribution on any class of its Stock or
apply any of its funds, property or assets to the purchase, redemption or other
retirement of any of its or its Subsidiaries’ Stock outstanding on the date
hereof, or issue any preferred stock; (v) purchase or hold beneficially any
Stock or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including any partnership or joint venture,
except (x) travel advances, (y) loans to its and its Subsidiaries’ officers and
employees not exceeding at any one time an aggregate of $25,000, and (z) loans
to its existing Subsidiaries so long as such Subsidiaries are designated as
either a co-borrower hereunder or has entered into such guaranty and security
documentation required by Laurus, including, without limitation, to grant to
Laurus a first priority perfected security interest in substantially all of such
Subsidiary’s assets to secure the Obligations; (vi) create or permit to exist
any Subsidiary, other than any Subsidiary in existence on the date hereof and
listed in Schedule
12(b) unless
such new Subsidiary is a wholly-owned Subsidiary and is designated by Laurus as
either a co-borrower or guarantor hereunder and such Subsidiary shall have
entered into all such documentation required by Laurus, including, without
limitation, to grant to Laurus a first priority perfected security interest in
substantially all of such Subsidiary’s assets to secure the Obligations; (vii)
directly or indirectly, prepay any indebtedness (other than to Laurus and in the
ordinary course of business), or repurchase, redeem, retire or otherwise acquire
any indebtedness (other than to Laurus and in the ordinary course of business)
except to make scheduled payments of principal and interest thereof; (viii)
enter into any merger, consolidation or other reorganization with or

 

25

into any
other Person or acquire all or a portion of the assets or Stock of any Person or
permit any other Person to consolidate with or merge with it, unless
(1) such Company is the surviving entity of such merger or consolidation,
(2) no Event of Default shall exist immediately prior to and after giving effect
to such merger or consolidation, (3) such Company shall have provided
Laurus copies of all documentation relating to such merger or consolidation and
(4) such Company shall have provided Laurus with at least thirty (30) days’
prior written notice of such merger or consolidation; (ix) materially change the
nature of the business in which it is presently engaged; (x) become subject to
(including, without limitation, by way of amendment to or modification of) any
agreement or instrument which by its terms would (under any circumstances)
restrict its or any of its Subsidiaries’ right to perform the provisions of this
Agreement or any of the Ancillary Agreements; (xi) change its fiscal year or
make any changes in accounting treatment and reporting practices without prior
written notice to Laurus except as required by GAAP or in the tax reporting
treatment or except as required by law; (xii) enter into any transaction with
any employee, director or Affiliate, except in the ordinary course on
arms-length terms; (xiii) bill Accounts under any name except the present name
of such Company; or (xiv) sell, lease, transfer or otherwise dispose of any of
its properties or assets, or any of the properties or assets of its
Subsidiaries, except for (1) the sale of Inventory in the ordinary course of
business and (2) the disposition or transfer in the ordinary course of business
during any fiscal year of obsolete and worn-out Equipment and only to the extent
that (x) the proceeds of any such disposition are used to acquire replacement
Equipment which is subject to Laurus’ first priority security interest or are
used to repay Loans or to pay general corporate expenses, or (y) following the
occurrence of an Event of Default which continues to exist, the proceeds of
which are remitted to Laurus to be held as cash collateral for the
Obligations.

 

(m)  Reissuance
of Securities. EFTI
shall reissue certificates representing the Securities without the legends set
forth in Section 39 below at such time as:

 

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

 

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

 

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

 

(n)  Opinion. On the
Closing Date, it shall deliver to Laurus an opinion acceptable to Laurus from
each Company’s legal counsel. Each Company will provide, at Companies’ expense,
such other legal opinions in the future as are reasonably necessary for the
conversion of the Notes and the exercise of the Warrants and the
Option.

 

(o)  Legal
Name, etc. It
shall not, without providing Laurus with 30 days prior written notice, change
(i) its name as it appears in the official filings in the state of its
organization, (ii) the type of legal entity it is, (iii) its organization
identification number, if any, issued by its state of organization, (iv) its
state of organization or (v) amend its certificate of incorporation, by-laws or
other organizational document. 

 

26

(p)  Compliance
with Laws. The
operation of each of its and each of its Subsidiaries’ business is and shall
continue to be in compliance in all material respects with all applicable
federal, state and local laws, rules and ordinances, including to all laws,
rules, regulations and orders relating to taxes, payment and withholding of
payroll taxes, employer and employee contributions and similar items,
securities, employee retirement and welfare benefits, employee health and safety
and environmental matters.

 

(q)  Notices. It and
each of its Subsidiaries shall promptly inform Laurus in writing of: (i) the
commencement of all proceedings and investigations by or before and/or the
receipt of any notices from, any governmental or nongovernmental body and all
actions and proceedings in any court or before any arbitrator against or in any
way concerning any event which could reasonably be expected to have singly or in
the aggregate, a Material Adverse Effect; (ii) any change which has had, or
could reasonably be expected to have, a Material Adverse Effect; (iii) any Event
of Default or Default; and (iv) any default or any event which with the passage
of time or giving of notice or both would constitute a default under any
agreement for the payment of money to which it or any of its Subsidiaries is a
party or by which it or any of its Subsidiaries or any of its or any such
Subsidiary’s properties may be bound the breach of which would have a Material
Adverse Effect.

 

(r)  Margin
Stock. It
shall not permit any of the proceeds of the Loans made hereunder to be used
directly or indirectly to “purchase” or “carry” “margin stock” or to repay
indebtedness incurred to “purchase” or “carry” “margin stock” within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. 

 

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

 

(t)
Authorization and Reservation of Shares. EFTI
shall, on and after the sixtieth (60th) day
following the Closing Date, have authorized and reserved a sufficient number of
shares of Common Stock to provide for the conversion of the Notes and exercise
of the Warrants and the Option.

 

14.  Further
Assurances. At any
time and from time to time, upon the written request of Laurus and at the sole
expense of Companies, each Company shall promptly and duly execute and deliver
any and all such further instruments and documents and take such further action
as Laurus may request (a) to obtain the full benefits of this Agreement and the
Ancillary Agreements, (b) to protect, preserve and maintain Laurus’ rights in
the Collateral and under this Agreement or any Ancillary Agreement, and/or (c)
to enable Laurus to exercise all or any of the rights and powers herein granted
or any Ancillary Agreement.

 

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15.  Representations,
Warranties and Covenants of Laurus. Laurus
hereby represents, warrants and covenants to each Company as
follows:

 

(a)  Requisite
Power and Authority. Laurus
has all necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and the Ancillary Agreements and to carry out
their provisions. All corporate action on Laurus’ part required for the lawful
execution and delivery of this Agreement and the Ancillary Agreements have been
or will be effectively taken prior to the Closing Date. Upon their execution and
delivery, this Agreement and the Ancillary Agreements shall be valid and binding
obligations of Laurus, enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights,
and (b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.

 

(b)  Investment
Representations. Laurus
understands that the Securities are being offered pursuant to an exemption from
registration contained in the Securities Act based in part upon Laurus’
representations contained in this Agreement, including, without limitation, that
Laurus is an “accredited investor” within the meaning of Regulation D under the
Securities Act. Laurus has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Notes to be issued to it under this Agreement and
the Securities acquired by it upon the conversion of the Notes.

 

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

 

(d)  Investment
for Own Account. The
Securities are being issued to Laurus for its own account for investment only,
and not as a nominee or agent and not with a view towards or for resale in
connection with their distribution.

 

(e)  Laurus
Can Protect Its Interest. Laurus
represents that by reason of its, or of its management’s, business and financial
experience, Laurus has the capacity to evaluate the merits and risks of its
investment in the Notes, and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement, and the
Ancillary Agreements. Further, Laurus is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Ancillary Agreements.

 

(f)  Accredited
Investor. Laurus
represents that it is an accredited investor within the meaning of Regulation D
under the Securities Act.

 

28

(g)  Shorting. Neither
Laurus nor any of its Affiliates or investment partners has, will, or will cause
any Person, to directly engage in “short sales” of EFTI’s Common Stock as long
as any Minimum Borrowing Note shall be outstanding.

 

(h)  Patriot
Act. Laurus
certifies that, to the best of Laurus’ knowledge, Laurus has not been
designated, and is not owned or controlled, by a “suspected terrorist” as
defined in Executive Order 13224. Laurus seeks to comply with all applicable
laws concerning money laundering and related activities. In furtherance of those
efforts, Laurus hereby represents, warrants and covenants that: (i) none of the
cash or property that Laurus will use to make the Loans has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no disbursement by Laurus to any Company to the extent
within Laurus’ control, shall cause Laurus to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. Laurus shall promptly notify
the Company Agent if any of these representations ceases to be true and accurate
regarding Laurus. Laurus agrees to provide the Company any additional
information regarding Laurus that the Company deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities. Laurus understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus’ investment in EFTI. Laurus further
understands that EFTI may release information about Laurus and, if applicable,
any underlying beneficial owners, to proper authorities if EFTI, in its sole
discretion, determines that it is in the best interests of EFTI in light of
relevant rules and regulations under the laws set forth in subsection (ii)
above.

 

(i)  Limitation
on Acquisition of Common Stock.
Notwithstanding anything to the contrary contained in this Agreement, any
Ancillary Agreement, or any document, instrument or agreement entered into in
connection with any other transaction entered into by and between Laurus and any
Company (and/or Subsidiaries or Affiliates of any Company), Laurus shall not
acquire stock in EFTI (including, without limitation, pursuant to a contract to
purchase, by exercising an option or warrant, by converting any other security
or instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in EFTI, or otherwise,
and such options, warrants, conversion or other rights shall not be exercisable)
to the extent such stock acquisition would cause any interest (including any
original issue discount) payable by any Company to Laurus not to qualify as
portfolio interest, within the meaning of Section 881(c)(2) of the Internal
Revenue Code of 1986, as amended (the “Code”) by
reason of Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code (the “Stock
Acquisition Limitation”). The
Stock Acquisition Limitation shall automatically become null and void without
any notice to any Company upon the earlier to occur of either (a) EFTI’s
delivery to Laurus of a Notice of Redemption (as defined in the Notes) or (b)
the existence of an Event of Default at a time when the average closing price of
the Common Stock as reported by Bloomberg, L.P. on the Principal Market for the
immediately preceding five trading days is greater than or equal to 150% of the
Fixed Conversion Price (as defined in the Notes).

 

29

16.  Power
of Attorney. Each
Company hereby appoints Laurus, or any other Person whom Laurus may designate as
such Company’s attorney, with power to: (i) endorse such Company’s name on any
checks, notes, acceptances, money orders, drafts or other forms of payment or
security that may come into Laurus’ possession; (ii) sign such Company’s name on
any invoice or bill of lading relating to any Accounts, drafts against Account
Debtors, schedules and assignments of Accounts, notices of assignment, financing
statements and other public records, verifications of Account and notices to or
from Account Debtors; (iii) verify the validity, amount or any other matter
relating to any Account by mail, telephone, telegraph or otherwise with Account
Debtors; (iv) do all things necessary to carry out this Agreement, any Ancillary
Agreement and all related documents; and (v) on or after the occurrence and
during the continuation of an Event of Default, notify the post office
authorities to change the address for delivery of such Company’s mail to an
address designated by Laurus, and to receive, open and dispose of all mail
addressed to such Company. Each Company hereby ratifies and approves all acts of
the attorney. Neither Laurus, nor the attorney will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law, except for
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable so long as Laurus has a security interest and until the
Obligations have been fully satisfied.

 

17.  Term
of Agreement. Laurus’
agreement to make Loans and extend financial accommodations under and in
accordance with the terms of this Agreement or any Ancillary Agreement shall
continue in full force and effect until the expiration of the Term. At Laurus’
election following the occurrence of an Event of Default, Laurus may terminate
this Agreement. The termination of the Agreement shall not affect any of Laurus’
rights hereunder or any Ancillary Agreement and the provisions hereof and
thereof shall continue to be fully operative until all transactions entered
into, rights or interests created and the Obligations have been irrevocably
disposed of, concluded or liquidated. Notwithstanding the foregoing, Laurus
shall release its security interests promptly upon irrevocable payment to it of
all Obligations if each Company shall have (i) provided Laurus with an executed
release of any and all claims which such Company may have or thereafter have
under this Agreement and all Ancillary Agreements and (ii) paid to Laurus an
early payment fee in an amount equal to (1) three percent (3%) of the Capital
Availability Amount if such payment occurs prior to the first anniversary of the
Closing Date, (2) two percent (2%) of the Capital Availability Amount if
such payment occurs on or after the first anniversary of the Closing Date and
prior to the second anniversary of the Closing Date and (3) one percent (1%) of
the Capital Availability Amount if such termination occurs thereafter during the
Term; such fee being intended to compensate Laurus for its costs and expenses
incurred in initially approving this Agreement or extending same. Such early
payment fee shall be due and payable jointly and severally by Companies to
Laurus upon termination by acceleration of this Agreement by Laurus due to the
occurrence and continuance of an Event of Default.

 

18.  Termination
of Lien. The
Liens and rights granted to Laurus hereunder and any Ancillary Agreements and
the financing statements filed in connection herewith or therewith shall
continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that any Company’s account may from time to time be
temporarily in a zero or credit position, until all of the Obligations have been
paid indefeasibly or performed in full after the termination of this Agreement.
Laurus shall not be required to send termination statements to any Company, or
to file them with any filing office, unless and until this Agreement and the
Ancillary Agreements shall have been terminated in accordance with their terms
and all Obligations indefeasibly paid in full in immediately available
funds.

 

30

19.  Events
of Default. The
occurrence of any of the following shall constitute an “Event
of Default”:

 

(a)  failure
to make payment of any of the Obligations when required hereunder, and, in any
such case, such failure shall continue for a period of three (3) days following
the date upon which any such payment was due; 

 

(b)  failure
by any Company or any of its Subsidiaries to pay any taxes when due unless such
taxes are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been provided on such Company’s and/or
such Subsidiary’s books;

 

(c)  failure
to perform under, and/or committing any breach of, in any material respect, this
Agreement, which failure or breach shall continue for a period of fifteen (15)
days after the occurrence thereof;

 

(d)  any
representation, warranty or statement made by any Company or any of its
Subsidiaries hereunder, in any Ancillary Agreement, any certificate, statement
or document delivered pursuant to the terms hereof, or in connection with the
transactions contemplated by this Agreement should at any time be false or
misleading in any material respect; 

 

(e)  the
occurrence of any default or event of default (or similar term) under any
indebtedness of the Company or any of its Subsidiaries which permits the holder
of such indebtedness to accelerate such indebtedness, solely to the extent that
the principal amount of any such indebtedness exceeds, when taken together,
$500,000 in the aggregate;

 

(f)  an
attachment or levy is made upon any Company’s assets having an aggregate value
in excess of $100,000 or a judgment is rendered against any Company’s property
involving a liability of more than $100,000 which shall not have been vacated,
discharged, stayed or bonded within thirty (30) days from the entry
thereof;

 

(g)  any
change in any Company’s or any of its Subsidiary’s condition or affairs
(financial or otherwise) which in Laurus’ reasonable, good faith opinion, could
reasonably be expected to have a Material Adverse Effect; 

 

(h)  any Lien
created hereunder or under any Ancillary Agreement for any reason ceases to be
or is not a valid and perfected Lien having a first priority
interest;

 

(i)  any
Company or any of its Subsidiaries shall (i) apply for, consent to or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing;

 

31

(j)  any
Company or any of its Subsidiaries shall admit in writing its inability, or be
generally unable to pay its debts as they become due or cease operations of its
present business;

 

(k)  any
Company directly or indirectly sells, assigns, transfers, conveys, or suffers or
permits to occur any sale, assignment, transfer or conveyance of any assets of
such Company or any interest therein, except as permitted herein;

 

(l)  any
“Person” or “group” (as such terms are defined in Sections 13(d) and 14(d) of
the Exchange Act, as in effect on the date hereof) is or becomes the “beneficial
owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act),
directly or indirectly, of 35% or more on a fully diluted basis of the then
outstanding voting equity interest of the Company (other than a “Person” or
“group” that beneficially owns 35% or more of such outstanding voting equity
interests of the Company on the date hereof) or (ii) the Board of Directors of
the Company shall cease to consist of a majority of the Board of Directors of
the Company on the date hereof (or directors appointed by a majority of the
Board of Directors in effect immediately prior to such appointment);

 

(m)  the
indictment or threatened indictment of any Company or any of its Subsidiaries or
any executive officer of any Company or any of its Subsidiaries under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceeding against any Company or any of its Subsidiaries or any executive
officer of any Company or any of its Subsidiaries pursuant to which statute or
proceeding penalties or remedies sought or available include forfeiture of any
of the property of any Company or any of its Subsidiariesa a; 

 

(n)  an Event
of Default shall occur under and as defined in any Note, any other Ancillary
Agreement, the Securities Purchase Agreement or any Related Agreement referred
to in the Securities Purchase Agreement;

 

(o)  any
Company or any of its Subsidiaries shall breach any term or provision of any
Ancillary Agreement to which it is a party, in any material which is not cured
within any applicable cure or grace period;

 

(p)  any
Company or any of its Subsidiaries attempts to terminate, challenges the
validity of, or its liability under any Ancillary Agreement, or any proceeding
shall be brought to challenge the validity, binding effect of any Ancillary
Agreement or any Ancillary Agreement ceases to be a valid, binding and
enforceable obligation of such Company or any of its Subsidiaries (to the extent
such Persons are a party thereto);

 

32

(q)  an SEC
stop trade order or Principal Market trading suspension of the Common Stock
shall be in effect for five (5) consecutive days or five (5) days during a
period of ten (10) consecutive days, excluding in all cases a suspension of all
trading on a Principal Market, provided that EFTI shall not have been able to
cure such trading suspension within thirty (30) days of the notice thereof or
list the Common Stock on another Principal Market within sixty (60) days of such
notice; or

 

(r)  EFTI’s
failure to deliver Common Stock to Laurus pursuant to and in the form required
by the Notes and this Agreement, if such failure to deliver Common Stock shall
not be cured within three (3) Business Days or any Company is required to issue
a replacement Note to Laurus and such Company shall fail to deliver such
replacement Note within ten (10) Business Days.

 

20.  Remedies.
Following the occurrence of an Event of Default, Laurus shall have the right to
demand repayment in full of all Obligations, whether or not otherwise due. Until
all Obligations have been fully satisfied, Laurus shall retain its Lien in all
Collateral. Laurus shall have, in addition to all other rights provided herein
and in each Ancillary Agreement, the rights and remedies of a secured party
under the UCC, and under other applicable law, all other legal and equitable
rights to which Laurus may be entitled, including the right to take immediate
possession of the Collateral, to require each Company to assemble the
Collateral, at Companies’ joint and several expense, and to make it available to
Laurus at a place designated by Laurus which is reasonably convenient to both
parties and to enter any of the premises of any Company or wherever the
Collateral shall be located, with or without force or process of law, and to
keep and store the same on said premises until sold (and if said premises be the
property of any Company, such Company agrees not to charge Laurus for storage
thereof), and the right to apply for the appointment of a receiver for such
Company’s property. Further, Laurus may, at any time or times after the
occurrence of an Event of Default, sell and deliver all Collateral held by or
for Laurus at public or private sale for cash, upon credit or otherwise, at such
prices and upon such terms as Laurus, in Laurus’ sole discretion, deems
advisable or Laurus may otherwise recover upon the Collateral in any
commercially reasonable manner as Laurus, in its sole discretion, deems
advisable. The requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to Company Agent at Company Agent’s address as shown in
Laurus’ records, at least ten (10) days before the time of the event of which
notice is being given. Laurus may be the purchaser at any sale, if it is public.
In connection with the exercise of the foregoing remedies, Laurus is granted
permission to use all of each Company’s Intellectual Property. The proceeds of
sale shall be applied first to all costs and expenses of sale, including
attorneys’ fees, and second to the payment (in whatever order Laurus elects) of
all Obligations. After the indefeasible payment and satisfaction in full of all
of the Obligations, and after the payment by Laurus of any other amount required
by any provision of law, including Section 9-608(a)(1) of the UCC (but only
after Laurus has received what Laurus considers reasonable proof of a
subordinate party’s security interest), the surplus, if any, shall be paid to
Company Agent (for the benefit of the applicable Companies) or its
representatives or to whosoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct. Companies shall remain jointly
and severally liable to Laurus for any deficiency. In addition, Companies shall
jointly and severally pay Laurus a liquidation fee (“Liquidation
Fee”) in the
amount of five percent (5%) of the actual amount collected in respect of each
Account outstanding at any time during a Liquidation Period”. For purposes
hereof, “Liquidation
Period” means a
period: (i) beginning on the earliest date of (x) an event referred to in
Section 19(i) or 19(j), or (y) the cessation of any Company’s business; and (ii)
ending on the date on which Laurus has actually received all Obligations due and
owing it under this Agreement and the Ancillary Agreements. The Liquidation Fee
shall be paid on the date on which Laurus collects the applicable Account by
deduction from the proceeds thereof. Each Company and Laurus acknowledge that
the actual damages that would be incurred by Laurus after the occurrence of an
Event of Default would be difficult to quantify and that such Company and Laurus
have agreed that the fees and obligations set forth in this Section and in this
Agreement would constitute fair and appropriate liquidated damages in the event
of any such termination.

 

33

21.  Waivers. To the
full extent permitted by applicable law, each Company hereby waives (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all of this Agreement and
the Ancillary Agreements or any other notes, commercial paper, Accounts,
contracts, Documents, Instruments, Chattel Paper and guaranties at any time held
by Laurus on which such Company may in any way be liable, and hereby ratifies
and confirms whatever Laurus may do in this regard; (b) all rights to notice and
a hearing prior to Laurus’ taking possession or control of, or to Laurus’
replevy, attachment or levy upon, any Collateral or any bond or security that
might be required by any court prior to allowing Laurus to exercise any of its
remedies; and (c) the benefit of all valuation, appraisal and exemption laws.
Each Company acknowledges that it has been advised by counsel of its choices and
decisions with respect to this Agreement, the Ancillary Agreements and the
transactions evidenced hereby and thereby. 

 

22.  Expenses.
Companies shall jointly and severally pay all of Laurus’ reasonable
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and the Ancillary Agreements, and in
connection with the prosecution or defense of any action, contest, dispute, suit
or proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement. Companies shall also
jointly and severally pay all of Laurus’ reasonable fees, charges, out-of-pocket
costs and expenses, including fees and disbursements of counsel and appraisers,
in connection with (a) the preparation, execution and delivery of any waiver,
any amendment thereto or consent proposed or executed in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements, (b)
Laurus’ obtaining performance of the Obligations under this Agreement and any
Ancillary Agreements, including, but not limited to, the enforcement or defense
of Laurus’ security interests, assignments of rights and Liens hereunder as
valid perfected security interests, (c) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of any Collateral, (d) any
appraisals or re-appraisals of any property (real or personal) pledged to Laurus
by any Company or any of its Subsidiaries as Collateral for, or any other Person
as security for, the Obligations hereunder and (e) any consultations in
connection with any of the foregoing. Companies shall also jointly and severally
pay Laurus’ customary bank charges for all bank services (including wire
transfers) performed or caused to be performed by Laurus for any Company or any
of its Subsidiaries at any Company’s or such Subsidiary’s request or in
connection with any Company’s loan account with Laurus. All such costs and
expenses together with all filing, recording and search fees, taxes and interest
payable by Companies to Laurus shall be payable on demand and shall be secured
by the Collateral. If any tax by any Governmental Authority is or may be imposed
on or as a result of any transaction between any Company and/or any Subsidiary
thereof, on the one hand, and Laurus on the other hand, which Laurus is or may
be required to withhold or pay, Companies hereby jointly and severally
indemnifies and holds Laurus harmless in respect of such taxes, and Companies
will repay to Laurus the amount of any such taxes which shall be charged to
Companies’ account; and until Companies shall furnish Laurus with indemnity
therefor (or supply Laurus with evidence satisfactory to it that due provision
for the payment thereof has been made), Laurus may hold without interest any
balance standing to each Company’s credit and Laurus shall retain its Liens in
any and all Collateral.

 

34

23.  Assignment
By Laurus. Laurus
may assign any or all of the Obligations together with any or all of the
security therefor to any Person which is not a competitor of any Company and any
such transferee shall succeed to all of Laurus’ rights with respect thereto.
Upon such transfer, Laurus shall be released from all responsibility for the
Collateral to the extent same is assigned to any transferee. Laurus may from
time to time sell or otherwise grant participations in any of the Obligations
and the holder of any such participation shall, subject to the terms of any
agreement between Laurus and such holder, be entitled to the same benefits as
Laurus with respect to any security for the Obligations in which such holder is
a participant. Each Company agrees that each such holder may exercise any and
all rights of banker’s lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though such Company were directly
indebted to such holder in the amount of such participation.

 

24.  No
Waiver; Cumulative Remedies. Failure
by Laurus to exercise any right, remedy or option under this Agreement, any
Ancillary Agreement or any supplement hereto or thereto or any other agreement
between or among any Company and Laurus or delay by Laurus in exercising the
same, will not operate as a waiver; no waiver by Laurus will be effective unless
it is in writing and then only to the extent specifically stated. Laurus’ rights
and remedies under this Agreement and the Ancillary Agreements will be
cumulative and not exclusive of any other right or remedy which Laurus may
have.

 

25.  Application
of Payments. Each
Company irrevocably waive the right to direct the application of any and all
payments at any time or times hereafter received by Laurus from or on such
Company’s behalf and each Company hereby irrevocably agrees that Laurus shall
have the continuing exclusive right to apply and reapply any and all payments
received at any time or times hereafter against the Obligations hereunder in
such manner as Laurus may deem advisable notwithstanding any entry by Laurus
upon any of Laurus’ books and records.

 

26.  Indemnity. Each
Company hereby jointly and severally indemnify and hold Laurus, and its
respective affiliates, employees, attorneys and agents (each, an “Indemnified
Person”),
harmless from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses of any kind or nature whatsoever
(including attorneys’ fees and disbursements and other costs of investigation or
defense, including those incurred upon any appeal) which may be instituted or
asserted against or incurred by any such Indemnified Person as the result of
credit having been extended, suspended or terminated under this Agreement or any
of the Ancillary Agreements or with respect to the execution, delivery,
enforcement, performance and administration of, or in any other way arising out
of or relating to, this Agreement, the Ancillary Agreements or any other
documents or transactions contemplated by or referred to herein or therein and
any actions or failures to act with respect to any of the foregoing, except to
the extent that any such indemnified liability is finally determined by a court
of competent jurisdiction to have resulted solely from such Indemnified Person’s
gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO ANY COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.

 

35

27.  Revival.
Companies further agree that to the extent any Company makes a payment or
payments to Laurus, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then, to
the extent of such payment or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continued in full force and effect as if
said payment had not been made.

 

28.  Borrowing
Agency Provisions. 

 

(a)  Each
Company hereby irrevocably designates Company Agent to be its attorney and agent
and in such capacity to borrow, sign and endorse notes, and execute and deliver
all instruments, documents, writings and further assurances now or hereafter
required hereunder, on behalf of such Company, and hereby authorizes Laurus to
pay over or credit all loan proceeds hereunder in accordance with the request of
Company Agent.

 

(b)  The
handling of this credit facility as a co-borrowing facility with a borrowing
agent in the manner set forth in this Agreement is solely as an accommodation to
Companies and at their request. Laurus shall not incur any liability to any
Company as a result thereof. To induce Laurus to do so and in consideration
thereof, each Company hereby indemnifies Laurus and holds Laurus harmless from
and against any and all liabilities, expenses, losses, damages and claims of
damage or injury asserted against Laurus by any Person arising from or incurred
by reason of the handling of the financing arrangements of Companies as provided
herein, reliance by Laurus on any request or instruction from Company Agent or
any other action taken by Laurus with respect to this Paragraph 28.

 

(c)  All
Obligations shall be joint and several, and Companies shall make payment upon
the maturity of the Obligations by acceleration or otherwise, and such
obligation and liability on the part of Companies shall in no way be affected by
any extensions, renewals and forbearance granted by Laurus to any Company,
failure of Laurus to give any Company notice of borrowing or any other notice,
any failure of Laurus to pursue to preserve its rights against any Company, the
release by Laurus of any Collateral now or thereafter acquired from any Company,
and such agreement by any Company to pay upon any notice issued pursuant thereto
is unconditional and unaffected by prior recourse by Laurus to any Company or
any Collateral for such Company’s Obligations or the lack thereof.

 

(d)  Each
Company expressly waives any and all rights of subrogation, reimbursement,
indemnity, exoneration, contribution or any other claim which such Company may
now or hereafter have against the other or other Person directly or contingently
liable for the Obligations, or against or with respect to any other’s property
(including, without limitation, any property which is Collateral for the
Obligations), arising from the existence or performance of this Agreement, until
all Obligations have been indefeasibly paid in full and this Agreement has been
irrevocably terminated.

 

36

(e)  Companies
represent and warrant to Laurus that (i) Companies have one or more common
shareholders, directors and officers, (ii) the businesses and corporate
activities of Companies are closely related to, and substantially benefit, the
business and corporate activities of Companies, (iii) the financial and other
operations of Companies are performed on a combined basis as if Companies
constituted a consolidated corporate group, (iv) Companies will receive a
substantial economic benefit from entering into this Agreement and will receive
a substantial economic benefit from the application of each Loan hereunder, in
each case, whether or not such amount is used directly by any Company and (v)
all requests for Loans hereunder by the Company Agent are for the exclusive and
indivisible benefit of Companies as though, for purposes of this Agreement,
Companies constituted a single entity.

 

29.  Notices. Any
notice or request hereunder may be given to any Company, Company Agent or Laurus
at the respective addresses set forth below or as may hereafter be specified in
a notice designated as a change of address under this Section. Any notice or
request hereunder shall be given by registered or certified mail, return receipt
requested, hand delivery, overnight mail or telecopy (confirmed by mail).
Notices and requests shall be, in the case of those by hand delivery, deemed to
have been given when delivered to any officer of the party to whom it is
addressed, in the case of those by mail or overnight mail, deemed to have been
given three (3) Business Days after the date when deposited in the mail or with
the overnight mail carrier, and, in the case of a telecopy, when
confirmed.

 

	
      Notices
      shall be provided as follows:
	 
	
      If
      to Laurus:
	
      Laurus
      Master Fund, Ltd.

	
       
	
      c/o
      Laurus Capital Management, L.L.C.

	
       
	
      825
      Third Avenue 14th Fl.

	
       
	
      New
      York, New York 10022

	
       
	
      Attention:
      John E. Tucker, Esq.

	
       
	
      Telephone:
      (212) 541-4434

	
       
	
      Telecopier:
      (212) 541-5800

	 	 
	
      If
      to any Company, 
	 
	
      or
      Company Agent:
	
      EarthFirst
      Technologies, Incorporated

	
       
	
      2515
      E. Hanna Ave.

	 	
      Tampa,
      Florida 33610

	 	 
	 	
      Attention:
      Chief Financial Officer

	
       
	 
      Facsimile:
      (813) 238-8490

	
      With
      a copy to:
	
      Darrin
      M. Ocasio, Esq.

	
       
	Sichenzia
      Ross Friedman Ference LLP
	
      1
	
      065
      Avenue of the Americas

	 	
      New
      York, NY 10018

	 	Facsimile:
      212-930-9725

 

37

or such
other address as may be designated in writing hereafter in accordance with this
Section 29 by such Person.

 

30.  Governing
Law, Jurisdiction and Waiver of Jury Trial. 

 

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

 

(b)  EACH
COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY, ON THE ONE HAND,
AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT
LAURUS AND EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE
TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW
YORK; AND FURTHER PROVIDED, THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS.
EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY HEREBY WAIVES
ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM
NON CONVENIENS. EACH
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO COMPANY AGENT AT THE ADDRESS SET FORTH IN SECTION 29 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY AGENT’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.

 

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

 

38

31.  Limitation
of Liability. Each
Company acknowledges and understands that in order to assure repayment of the
Obligations hereunder Laurus may be required to exercise any and all of Laurus’
rights and remedies hereunder and agrees that, except as limited by applicable
law, neither Laurus nor any of Laurus’ agents shall be liable for acts taken or
omissions made in connection herewith or therewith except for actual bad
faith.

 

32.  Entire
Understanding. This
Agreement and the Ancillary Agreements contain the entire understanding among
each Company and Laurus as to the subject matter hereof and thereof and any
promises, representations, warranties or guarantees not herein contained shall
have no force and effect unless in writing, signed by each Company’s and Laurus’
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged.

 

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

 

34.  Captions. All
captions are and shall be without substantive meaning or content of any kind
whatsoever.

 

35.  Counterparts;
Telecopier Signatures. This
Agreement may be executed in one or more counterparts, each of which shall
constitute an original and all of which taken together shall constitute one and
the same agreement. Any signature delivered by a party via telecopier
transmission shall be deemed to be any original signature hereto.

 

36.  Construction. The
parties acknowledge that each party and its counsel have reviewed this Agreement
and that the normal rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments, schedules or exhibits
thereto.

 

37.  Publicity. Each
Company hereby authorizes Laurus to make appropriate announcements of the
financial arrangement entered into by and among each Company and Laurus,
including, without limitation, announcements which are commonly known as
tombstones, in such publications and to such selected parties as Laurus shall in
its sole and absolute discretion deem appropriate, or as required by applicable
law.

 

39

38.  Joinder. It is
understood and agreed that any Person that desires to become a Company
hereunder, or is required to execute a counterpart of this Agreement after the
date hereof pursuant to the requirements of this Agreement or any Ancillary
Agreement, shall become a Company hereunder by (a) executing a Joinder Agreement
in form and substance satisfactory to Laurus, (b) delivering supplements to such
exhibits and annexes to this Agreement and the Ancillary Agreements as Laurus
shall reasonably request and (c) taking all actions as specified in this
Agreement as would have been taken by such Company had it been an original party
to this Agreement, in each case with all documents required above to be
delivered to Laurus and with all documents and actions required above to be
taken to the reasonable satisfaction of Laurus.

 

39.  Legends. The
Securities shall bear legends as follows;

 

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

 

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

 

(b)  Any
shares of Common Stock issued pursuant to conversion of the Notes or exercise of
the Warrants, shall bear a legend which shall be in substantially the following
form until such shares are covered by an effective registration statement filed
with the SEC:

 

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

 

40

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

 

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

 

[Balance
of page intentionally left blank; signature page follows.]

41

IN
WITNESS WHEREOF, the parties have executed this Security Agreement as of the
date first written above.

 

	 	 	 
	 	
      EARTHFIRST
      TECHNOLOGIES, INCORPORATED

	 
 	 
 	 
 
		By:  	/s/ John Stanton

	 	
      

    
	 	
      Name:
      John Stanton

	 	
      Title:
      President

	 	 	 
	 	
      ELECTRIC
      MACHINERY ENTERPRISES, INC.

	 
 	 
 	 
 
		By:  	/s/ John Stanton

	 	
      

    
	 	
      Name:
      John Stanton

	 	
      Title:
      President

	 	 	 
	 	EARTHFIRST
      RESOURCES, INC.
	 
 	 
 	 
 
		By:  	/s/ John Stanton

	 	
      

    
	 	
      Name:
      John Stanton

	 	
      Title:
      President

 

42

 

	 	 	 
	 	
      WORLD
      ENVIRONMENTAL SOLUTIONS COMPANY,
    INC.

	 
 	 
 	 
 
		By:  	/s/ John Stanton 
	 	
      

    
	 	
      Name:
      John Stanton

	 	
      Title:
      President

	 	 	 
	 	
      EARTHFIRST
      INVESTMENTS, INC.

	 
 	 
 	 
 
		By:  	/s/ John Stanton 
	 	
      

    
	 	
      Name:
      John Stanton

	 	
      Title:
      President

	 	 	 
	 	
      EM
      ENTERPRISE RESOURCES, INC.

	 
 	 
 	 
 
		By:  	/s/ John Stanton 
	 	
      

    
	 	
      Name:
      John Stanton

	 	
      Title:
      President

	 	 	 
	 	
      EME
      MODULAR STRUCTURES, INC.

	 
 	 
 	 
 
		By:  	/s/ John Stanton 
	 	
      

    
	 	
      Name:
      John Stanton

	 	
      Title:
      President

	 	 	 
	 	
      LAURUS
      MASTER FUND, LTD. 

	 
 	 
 	 
 
		By:  	/s/ Eugene Grin 
	 	
      

    
	 	
      Name:
      Eugene Grin 

	 	
      Title:
      Director

 

 

43

Annex
A - Definitions

 

“Account
Debtor” means
any Person who is or may be obligated with respect to, or on account of, an
Account.

 

“Accountants” has the
meaning given to such term in Section 11(a).

 

“Accounts” means
all “accounts”, as such term is defined in the UCC, now owned or hereafter
acquired by any Person, including: (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by Chattel Paper or Instruments) (including any such
obligations that may be characterized as an account or contract right under the
UCC); (b) all of such Person’s rights in, to and under all purchase orders or
receipts for goods or services; (c) all of such Person’s rights to any goods
represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing. 

 

“Accounts
Availability” means
the amount of Loans against Eligible Accounts Laurus may from time to time make
available to Company Agent up to the sum of (a) forty percent (40%) of Eligible
Accounts related to completed portions of long-term contract work recognized
under the “percentage of completion” accounting method plus (b)
ninety percent (90%) of all other Eligible Accounts not consisting of completed
portions of long-term contract work recognized under the “percentage of
completion” accounting method.

 

“Affiliate” means,
with respect to any Person, (a) any other Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person or (b) any other Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.

 

“Ancillary
Agreements” means
the Notes, the Warrants, the Registration Rights Agreements, each Security
Document and all other agreements, instruments, documents, mortgages, pledges,
powers of attorney, consents, assignments, contracts, notices, security
agreements, trust agreements and guarantees whether heretofore, concurrently, or
hereafter executed by or on behalf of any Company, any of its Subsidiaries or
any other Person or delivered to Laurus, relating to this Agreement or to the
transactions contemplated by this Agreement or otherwise relating to the
relationship between or among any Company and Laurus, as each of the same may be
amended, supplemented, restated or otherwise modified from time to
time.

 

2

“Available
Minimum Borrowing” has the
meaning given such term in Section 2(a)(i).

 

“Balance
Sheet Date” has the
meaning given such term in Section 12(f)(ii).

 

“Books
and Records” means
all books, records, board minutes, contracts, licenses, insurance policies,
environmental audits, business plans, files, computer files, computer discs and
other data and software storage and media devices, accounting books and records,
financial statements (actual and pro forma), filings with Governmental
Authorities and any and all records and instruments relating to the Collateral
or otherwise necessary or helpful in the collection thereof or the realization
thereupon.

 

“Business
Day” means a
day on which Laurus is open for business and that is not a Saturday, a Sunday or
other day on which banks are required or permitted to be closed in the State of
New York.

 

“Capital
Availability Amount” means
$5,000,000.

 

“Charter” has the
meaning given such term in Section 12(c)(iv).

 

“Chattel
Paper” means
all “chattel paper,” as such term is defined in the UCC, including electronic
chattel paper, now owned or hereafter acquired by any Person.

 

“Closing
Date” means
the date on which any Company shall first receive proceeds of the initial Loans
or the date hereof, if no Loan is made under the facility on the date
hereof.

 

“Code” has the
meaning given such term in Section 15(i).

 

“Collateral” means
all of each Company’s property and assets, whether real or personal, tangible or
intangible, and whether now owned or hereafter acquired, or in which it now has
or at any time in the future may acquire any right, title or interests including
all of the following property in which it now has or at any time in the future
may acquire any right, title or interest:

 

(a)  all
Inventory;

 

(b)  all
Equipment;

 

(c)  all
Fixtures;

 

(d)  all
General Intangibles;

 

(e)  all
Accounts;

 

(f)  all
Deposit Accounts, other bank accounts and all funds on deposit
therein;

 

2

(g)  all
Investment Property;

 

(h)  all
Stock;

 

(i)  all
Chattel Paper;

 

(j)  all
Letter-of-Credit Rights;

 

(k)  all
Instruments;

 

(l)  all
commercial tort claims set forth on Schedule
1(A);

 

(m)  all Books
and Records;

 

(n)  all
Intellectual Property;

 

(o)  all
Supporting Obligations including letters of credit and guarantees issued in
support of Accounts, Chattel Paper, General Intangibles and Investment
Property;

 

(p)  (i) all
money, cash and cash equivalents and (ii) all cash held as cash collateral to
the extent not otherwise constituting Collateral, all other cash or property at
any time on deposit with or held by Laurus for the account of any Company
(whether for safekeeping, custody, pledge, transmission or otherwise);
and

 

(q)  all
products and Proceeds of all or any of the foregoing, tort claims and all claims
and other rights to payment including (i) insurance claims against third parties
for loss of, damage to, or destruction of, the foregoing Collateral and (ii)
payments due or to become due under leases, rentals and hires of any or all of
the foregoing and Proceeds payable under, or unearned premiums with respect to
policies of insurance in whatever form.

 

“Common
Stock” means
the shares of stock representing EFTI’s common equity interests.

 

“Company
Agent” means
EFTI.

 

“Contract
Rate” has the
meaning given such term in the respective Note. 

 

“Default” means
any act or event which, with the giving of notice or passage of time or both,
would constitute an Event of Default.

 

“Deposit
Accounts” means
all “deposit accounts” as such term is defined in the UCC, now or hereafter held
in the name of any Person, including, without limitation, the
Lockboxes.

 

“Disclosure
Controls” has the
meaning given such term in Section 12(f)(iv).

 

“Documents” means
all “documents”, as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including all bills of lading, dock
warrants, dock receipts, warehouse receipts, and other documents of title,
whether negotiable or non-negotiable.

 

3

“Eligible
Accounts” means
each Account of each Company which conforms to the following criteria: (a)
shipment of the merchandise or the rendition of services has been completed; (b)
no return, rejection or repossession of the merchandise has occurred;
(c) merchandise or services shall not have been rejected or disputed by the
Account Debtor and there shall not have been asserted any offset, defense or
counterclaim; (d) continues to be in full conformity with the representations
and warranties made by such Company to Laurus with respect thereto; (e) Laurus
is, and continues to be, satisfied with the credit standing of the Account
Debtor in relation to the amount of credit extended; (f) there are no facts
existing or threatened which are likely to result in any adverse change in an
Account Debtor’s financial condition; (g) is documented by an invoice in a form
approved by Laurus and shall not be unpaid more than ninety (90) days from
invoice date; (h) not more than twenty-five percent (25%) of the unpaid amount
of invoices due from such Account Debtor remains unpaid more than ninety (90)
days from invoice date; (i) is not evidenced by chattel paper or an instrument
of any kind with respect to or in payment of the Account unless such instrument
is duly endorsed to and in possession of Laurus or represents a check in payment
of an Account; (j) the Account Debtor is located in the United States;
provided,
however, Laurus
may, from time to time, in the exercise of its sole discretion and based upon
satisfaction of certain conditions to be determined at such time by Laurus, deem
certain Accounts as Eligible Accounts notwithstanding that such Account is due
from an Account Debtor located outside of the United States; (k) Laurus has a
first priority perfected Lien in such Account and such Account is not subject to
any Lien other than Permitted Liens; (l) does not arise out of transactions
with any employee, officer, director, stockholder or Affiliate of any Company;
(m) is payable to such Company; (n) does not arise out of a bill and hold sale
prior to shipment and does not arise out of a sale to any Person to which such
Company is indebted; (o) is net of any returns, discounts, claims, credits and
allowances; (p) if the Account arises out of contracts between such Company, on
the one hand, and the United States, on the other hand, any state, or any
department, agency or instrumentality of any of them, such Company has so
notified Laurus, in writing, prior to the creation of such Account, and there
has been compliance with any governmental notice or approval requirements,
including compliance with the Federal Assignment of Claims Act; (q) is a good
and valid account representing an undisputed bona fide indebtedness incurred by
the Account Debtor therein named, for a fixed sum as set forth in the invoice
relating thereto with respect to an unconditional sale and delivery upon the
stated terms of goods sold by such Company or work, labor and/or services
rendered by such Company; (r) does not arise out of progress billings prior to
completion of the order (other than Accounts in respect of completed portions of
long-term contract work recognized under the “percentage of completion”
accounting method); (s) the total unpaid Accounts from such Account Debtor does
not exceed twenty-five percent (25%) of all Eligible Accounts; (t) such
Company’s right to payment is absolute and not contingent upon the fulfillment
of any condition whatsoever; (u) such Company is able to bring suit and enforce
its remedies against the Account Debtor through judicial process; (v) does not
represent interest payments, late or finance charges owing to such Company, and
(w) is otherwise satisfactory to Laurus as determined by Laurus in the exercise
of its sole discretion. In the event any Company requests that Laurus include
within Eligible Accounts certain Accounts of one or more of such Company’s
acquisition targets, Laurus shall at the time of such request consider such
inclusion, but any such inclusion shall be at the sole option of Laurus and
shall at all times be subject to the execution and delivery to Laurus of all
such documentation (including, without limitation, guaranty and security
documentation) as Laurus may require in its sole discretion.

 

4

“Eligible
Inventory” means
Inventory owned by a Company which Laurus, in its sole and absolute discretion,
determines: (a) is subject to a first priority perfected Lien in favor of Laurus
and is subject to no other Liens whatsoever (other than Permitted Liens); (b) is
located on premises with respect to which Laurus has received a landlord or
mortgagee waiver acceptable in form and substance to Laurus; (c) is not in
transit; (d) is in good condition and meets all standards imposed by any
governmental agency, or department or division thereof having regulatory
Governmental Authority over such Inventory, its use or sale including the
Federal Fair Labor Standards Act of 1938 as amended, and all rules, regulations
and orders thereunder; (e) is currently either usable or salable in the normal
course of such Company’s business; (f) is not placed by such Company on
consignment or held by such Company on consignment from another Person; (g) is
in conformity with the representations and warranties made by such Company to
Laurus with respect thereto; (h) is not subject to any licensing, patent,
royalty, trademark, trade name or copyright agreement with any third parties;
(i) does not require the consent of any Person for the completion of
manufacture, sale or other disposition of such Inventory and such completion,
manufacture or sale does not constitute a breach or default under any contract
or agreement to which such Company is a party or to which such Inventory is or
may be subject; (j) is not work-in-process; (k) is covered by casualty insurance
acceptable to Laurus and under which Laurus has been named as a lender’s loss
payee and additional insured; and (l) not to be ineligible for any other
reason.

 

“Eligible
Subsidiary” means
each Subsidiary of EFTI set forth on Exhibit
A hereto,
as the same may be updated from time to time with Laurus’ written
consent.

 

“Equipment” means
all “equipment” as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including any and all machinery,
apparatus, equipment, fittings, furniture, Fixtures, motor vehicles and other
tangible personal property (other than Inventory) of every kind and description
that may be now or hereafter used in such Person’s operations or that are owned
by such Person or in which such Person may have an interest, and all parts,
accessories and accessions thereto and substitutions and replacements
therefor.

 

“ERISA” has the
meaning given such term in Section 12(bb).

 

“Event
of Default” means
the occurrence of any of the events set forth in Section 19. 

 

“Exchange
Act” means
the Securities Exchange Act of 1934, as amended.

 

“Exchange
Act Filings” has the
meaning given such term in Section 12.

 

“Financial
Reporting Controls” has the
meaning given such term in Section 12(f)(v).

 

“Fixtures” means
all “fixtures” as such term is defined in the UCC, now owned or hereafter
acquired by any Person.

 

5

“Formula
Amount” has the
meaning given such term in Section 2(a)(i).

 

“GAAP” means
generally accepted accounting principles, practices and procedures in effect
from time to time in the United States of America.

 

“General
Intangibles” means
all “general intangibles” as such term is defined in the UCC, now owned or
hereafter acquired by any Person including all right, title and interest that
such Person may now or hereafter have in or under any contract, all Payment
Intangibles, customer lists, Licenses, Intellectual Property, interests in
partnerships, joint ventures and other business associations, permits,
proprietary or confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge, know-how,
Software, data bases, data, skill, expertise, experience, processes, models,
drawings, materials, Books and Records, Goodwill (including the Goodwill
associated with any Intellectual Property), all rights and claims in or under
insurance policies (including insurance for fire, damage, loss, and casualty,
whether covering personal property, real property, tangible rights or intangible
rights, all liability, life, key-person, and business interruption insurance,
and all unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments, rights to received
dividends, distributions, cash, Instruments and other property in respect of or
in exchange for pledged Stock and Investment Property, and rights of
indemnification.

 

“Goods” means
all “goods”, as such term is defined in the UCC, now owned or hereafter acquired
by any Person, wherever located, including embedded software to the extent
included in “goods” as defined in the UCC, manufactured homes, standing timber
that is cut and removed for sale and unborn young of animals.

 

“Goodwill” means
all goodwill, trade secrets, proprietary or confidential information, technical
information, procedures, formulae, quality control standards, designs, operating
and training manuals, customer lists, and distribution agreements now owned or
hereafter acquired by any Person.

 

“Governmental
Authority” means
any nation or government, any state or other political subdivision thereof, and
any agency, department or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.

 

“Instruments” means
all “instruments”, as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including all certificated securities
and all promissory notes and other evidences of indebtedness, other than
instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.

 

“Intellectual
Property” means
any and all patents, trademarks, service marks, trade names, copyrights, trade
secrets, Licenses, information and other proprietary rights and
processes.

 

“Inventory” means
all “inventory”, as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including all inventory, merchandise,
goods and other personal property that are held by or on behalf of such Person
for sale or lease or are furnished or are to be furnished under a contract of
service or that constitute raw materials, work in process, finished goods,
returned goods, or materials or supplies of any kind, nature or description used
or consumed or to be used or consumed in such Person’s business or in the
processing, production, packaging, promotion, delivery or shipping of the same,
including all supplies and embedded software.

 

6

“Inventory
Availability” means
the amount of Loans against Eligible Inventory Laurus may from time to time make
available to Companies up to the lesser of (a) fifty percent (50%) of the value
of Companies’ Eligible Inventory (calculated on the basis of the lower of cost
or market, on a first-in first-out basis) and (b) $500,000.

 

“Investment
Property” means
all “investment property”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located.

 

“Letter-of-Credit
Rights” means
“letter-of-credit rights” as such term is defined in the UCC, now owned or
hereafter acquired by any Person, including rights to payment or performance
under a letter of credit, whether or not such Person, as beneficiary, has
demanded or is entitled to demand payment or performance.

 

“License” means
any rights under any written agreement now or hereafter acquired by any Person
to use any trademark, trademark registration, copyright, copyright registration
or invention for which a patent is in existence or other license of rights or
interests now held or hereafter acquired by any Person.

 

“Lien” means
any mortgage, security deed, deed of trust, pledge, hypothecation, assignment,
security interest, lien (whether statutory or otherwise), charge, claim or
encumbrance, or preference, priority or other security agreement or preferential
arrangement held or asserted in respect of any asset of any kind or nature
whatsoever including any conditional sale or other title retention agreement,
any lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement under the UCC
or comparable law of any jurisdiction.

 

“Loans” has the
meaning given such term in Section 2(a)(i) and shall include all other
extensions of credit hereunder and under any Ancillary Agreement.

 

“Lockboxes” has the
meaning given such term in Section 8(a).

 

“Material
Adverse Effect” means a
material adverse effect on (a) the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of any Company or
any of its Subsidiaries (taken individually or as a whole), (b) any Company’s or
any of its Subsidiary’s ability to pay or perform the Obligations in accordance
with the terms hereof or any Ancillary Agreement, (c) the value of the
Collateral, the Liens on the Collateral or the priority of any such Lien or (d)
the practical realization of the benefits of Laurus’ rights and remedies under
this Agreement and the Ancillary Agreements.

 

“Minimum
Borrowing Amount” means
$1,000,000.

 

“Minimum
Borrowing Notes” means
that certain Secured Convertible Minimum Borrowing Note dated as of the Closing
Date made by Companies in favor of Laurus evidencing the Minimum Borrowing
Amount and each other Secured Convertible Minimum Borrowing Note made by
Companies in favor of Laurus which evidences the Minimum Borrowing Amount, as
each of the same may be amended, supplemented, restated and/or otherwise
modified from time to time.

 

7

“NASD” has the
meaning given such term in Section 13(b).

 

“Note
Shares” has the
meaning given such term in Section 12(a).

 

“Notes” means
the Minimum Borrowing Notes and the Revolving Note made by Companies in favor of
Laurus in connection with the transactions contemplated hereby, as each of the
same may be amended, supplemented, restated and/or otherwise modified from time
to time.

 

“Obligations” means
all Loans, all advances, debts, liabilities, obligations, covenants and duties
owing by each Company and each of its Subsidiaries to Laurus (or any corporation
that directly or indirectly controls or is controlled by or is under common
control with Laurus) of every kind and description (whether or not evidenced by
any note or other instrument and whether or not for the payment of money or the
performance or non-performance of any act), direct or indirect, absolute or
contingent, due or to become due, contractual or tortious, liquidated or
unliquidated, whether existing by operation of law or otherwise now existing or
hereafter arising including any debt, liability or obligation owing from any
Company and/or each of its Subsidiaries to others which Laurus may have obtained
by assignment or otherwise and further including all interest (including
interest accruing at the then applicable rate provided in this Agreement after
the maturity of the Loans and interest accruing at the then applicable rate
provided in this Agreement after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, whether
or not a claim for post-filing or post-petition interest is allowed or allowable
in such proceeding), charges or any other payments each Company and each of its
Subsidiaries is required to make by law or otherwise arising under or as a
result of this Agreement, the Ancillary Agreements or otherwise, together with
all reasonable expenses and reasonable attorneys’ fees chargeable to Companies’
or any of their Subsidiaries’ accounts or incurred by Laurus in connection
therewith.

 

“Option” shall
mean that certain Option to purchase up to 24,570,668shares of Common Stock in
connection with the consummation of the transactions set forth in this Agreement
and the Securities Purchase Agreement.

 

“Payment
Intangibles” means
all “payment intangibles” as such term is defined in the UCC, now owned or
hereafter acquired by any Person, including, a General Intangible under which
the Account Debtor’s principal obligation is a monetary obligation.

 

“Permitted
Liens” means
(a) Liens of carriers, warehousemen, artisans, bailees, mechanics and
materialmen incurred in the ordinary course of business securing sums not
overdue; (b) Liens incurred in the ordinary course of business in connection
with worker’s compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (i) not
overdue or (ii) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of the Companies and
their Subsidiaries, as applicable, in conformity with GAAP; (c) Liens in
favor of Laurus; (d) Liens for taxes (i) not yet due or (ii) being diligently
contested in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the Companies and
their Subsidiaries, as applicable, in conformity with GAAP; provided, that, the
Lien shall have no effect on the priority of Liens in favor of Laurus or the
value of the assets in which Laurus has a Lien; (e) Purchase Money Liens
securing Purchase Money Indebtedness to the extent permitted in this Agreement
and (f) Liens specified on Schedule
2
hereto.

 

8

“Person” means
any individual, sole proprietorship, partnership, limited liability partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including any instrumentality, division, agency, body or department thereof),
and shall include such Person’s successors and assigns.

 

“Principal
Market” means
the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market
System, American Stock Exchange or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock).

 

“Proceeds” means
“proceeds”, as such term is defined in the UCC and, in any event, shall include:
(a) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to any Company or any other Person from time to time with respect to any
Collateral; (b) any and all payments (in any form whatsoever) made or due and
payable to any Company from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, governmental authority, bureau or agency (or any person
acting under color of governmental authority); (c) any claim of any Company
against third parties (i) for past, present or future infringement of any
Intellectual Property or (ii) for past, present or future infringement or
dilution of any trademark or trademark license or for injury to the goodwill
associated with any trademark, trademark registration or trademark licensed
under any trademark License; (d) any recoveries by any Company against third
parties with respect to any litigation or dispute concerning any Collateral,
including claims arising out of the loss or nonconformity of, interference with
the use of, defects in, or infringement of rights in, or damage to, Collateral;
(e) all amounts collected on, or distributed on account of, other Collateral,
including dividends, interest, distributions and Instruments with respect to
Investment Property and pledged Stock; and (f) any and all other amounts, rights
to payment or other property acquired upon the sale, lease, license, exchange or
other disposition of Collateral and all rights arising out of
Collateral.

 

“Purchase
Money Indebtedness” means
(a) any indebtedness incurred for the payment of all or any part of the purchase
price of any fixed asset, including indebtedness under capitalized leases, (b)
any indebtedness incurred for the sole purpose of financing or refinancing all
or any part of the purchase price of any fixed asset, and (c) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).

 

9

“Purchase
Money Lien” means
any Lien upon any fixed assets that secures the Purchase Money Indebtedness
related thereto but only if such Lien shall at all times be confined solely to
the asset the purchase price of which was financed or refinanced through the
incurrence of the Purchase Money Indebtedness secured by such Lien and only if
such Lien secures only such Purchase Money Indebtedness.

 

“Registration
Rights Agreements” means
that certain Minimum Borrowing Note Registration Rights Agreement dated as of
the Closing Date by and between EFTI and Laurus and each other registration
rights agreement by and between EFTI and Laurus, as each of the same may be
amended, modified and supplemented from time to time.

 

“Revolving
Note” means
that certain Secured Revolving Note dated as of the Closing Date made by
Companies in favor of Laurus in the original principal amount of $5,000,000, as
the same may be amended, supplemented, restated and/or otherwise modified from
time to time.

 

“SEC” means
the Securities and Exchange Commission.

 

“SEC
Reports” has the
meaning given such term in Section 12(u).

 

“Securities” means
the Notes and the Warrants and the shares of Common Stock which may be issued
pursuant to conversion of such Notes in whole or in part or exercise of such
Warrants.

 

“Securities
Act” has the
meaning given such term in Section 12(r).

 

“Security
Documents” means
all security agreements, mortgages, cash collateral deposit letters, pledges and
other agreements which are executed by any Company or any of its Subsidiaries in
favor of Laurus.

 

“Software” means
all “software” as such term is defined in the UCC, now owned or hereafter
acquired by any Person, including all computer programs and all supporting
information provided in connection with a transaction related to any
program.

 

“Stock” means
all certificated and uncertificated shares, options, warrants, membership
interests, general or limited partnership interests, participation or other
equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity whether voting or nonvoting,
including common stock, preferred stock, or any other “equity security” (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the SEC under the Securities Exchange Act of 1934).

 

“Subsidiary” means,
with respect to any Person, (i) any other Person whose shares of stock or other
ownership interests having ordinary voting power (other than stock or other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors or other governing body of
such other Person, are owned, directly or indirectly, by such Person or (ii) any
other Person in which such Person owns, directly or indirectly, more than 50% of
the equity interests at such time.

 

10

“Supporting
Obligations” means
all “supporting obligations” as such term is defined in the UCC.

 

“Term” means
the Closing Date through the close of business on the day immediately preceding
the third anniversary of the Closing Date, subject to acceleration at the option
of Laurus upon the occurrence of an Event of Default hereunder or other
termination hereunder.

 

“UCC” means
the Uniform Commercial Code as the same may, from time to time be in effect in
the State of New York; provided, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of, or
remedies with respect to, Laurus’ Lien on any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State of
New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions of this Agreement
relating to such attachment, perfection, priority or remedies and for purposes
of definitions related to such provisions; provided further, that to the extent
that UCC is used to define any term herein or in any Ancillary Agreement and
such term is defined differently in different Articles or Divisions of the UCC,
the definition of such term contained in Article or Division 9 shall
govern.

 

“Warrant
Shares” has the
meaning given such term in Section 12(a).

 

“Warrants” means
that certain Common Stock Purchase Warrant dated as of the Closing Date made by
EFTI in favor of Laurus and each other warrant made by EFTI in favor Laurus, as
each of the same may be amended, restated, modified and/or supplemented from
time to time.

 

11

Exhibit
A

 

Eligible
Subsidiaries

 

Electric
Machinery Enterprises, Inc., a Florida corporation

EarthFirst
Resources, Inc., a Florida corporation

World
Environmental Solutions Company, Inc., a Florida corporation

EarthFirst
Investments, Inc., a Florida corporation

EM
Enterprise Resources, Inc., a Florida corporation

EME
Modular Structures, Inc., a Florida corporation

 

 

Exhibit
B

 

Borrowing
Base Certificate

 

[To be
inserted]

 

 

SECURITY
AGREEMENT

 

LAURUS
MASTER FUND, LTD.

 

 

 

EARTHFIRST
TECHNOLOGIES, INCORPORATED

 

 

 

and

 

 

certain
Subsidiaries of EARTHFIRST TECHNOLOGIES, INCORPORATED

 

Dated:
March30, 2005

 

 

	 	 	
      Page

	
      1.
	
      General
      Definitions and Terms; Rules of Construction.
	
      1

	 	 	 
	
      2.
	
      Loan
      Facility
	
      2

	 	 	 
	
      3.
	
      Repayment
      of the Loans
	
      4

	 	 	 
	
      4.
	
      Procedure
      for Loans
	
      4

	 	 	 
	
      5.
	
      Interest
      and Payments.
	
      5

	 	 	 
	
      6.
	
      Security
      Interest.
	
      6

	 	 	 
	
      7.
	
      Representations,
      Warranties and Covenants Concerning the Collateral
	
      7

	 	 	 
	
      8.
	
      Payment
      of Accounts.
	
      9

	 	 	 
	
      9.
	
      Collection
      and Maintenance of Collateral.
	
      10

	 	 	 
	
      10.
	
      Inspections
      and Appraisals
	
      10

	 	 	 
	
      11.
	
      Financial
      Reporting
	
      11

	 	 	 
	
      12.
	
      Additional
      Representations and Warranties
	
      11

	 	 	 
	
      13.
	
      Covenants
	
      22

	 	 	 
	
      14.
	
      Further
      Assurances
	
      29

	 	 	 
	
      15.
	
      Representations,
      Warranties and Covenants of Laurus.
	
      29

	 	 	 
	
      16.
	
      Power
      of Attorney
	
      31

	 	 	 
	
      17.
	
      Term
      of Agreement
	
      31

	 	 	 
	
      18.
	
      Termination
      of Lien
	
      31

	 	 	 
	
      19.
	
      Events
      of Default
	
      32

	 	 	 
	
      20.
	
      Remedies
	
      34

	 	 	 
	
      21.
	
      Waivers
	
      35

	 	 	 
	
      22.
	
      Expenses
	
      35

 

i

	 	 	
      Page(s)

	
      23.
	
      Assignment
      By Laurus
	
      36

	 	 	 
	
      24.
	
      No
      Waiver; Cumulative Remedies
	
      36

	 	 	 
	
      25.
	
      Application
      of Payments
	
      36

	 	 	 
	
      26.
	
      Indemnity
	
      36

	 	 	 
	
      27.
	
      Revival
	
      37

	 	 	 
	
      28.
	
      Borrowing
      Agency Provisions
	
      37

	 	 	 
	
      29.
	
      Notices
	
      38

	 	 	 
	
      30.
	
      Governing
      Law, Jurisdiction and Waiver of Jury Trial
	
      39

	 	 	 
	
      31.
	
      Limitation
      of Liability
	
      40

	 	 	 
	
      32.
	
      Entire
      Understanding
	
      40

	 	 	 
	
      33.
	
      Severability
	
      40

	 	 	 
	
      34.
	
      Captions
	
      40

	 	 	 
	
      35.
	
      Counterparts;
      Telecopier Signatures
	
      40

	 	 	 
	
      36.
	
      Construction
	
      40

	 	 	 
	
      37.
	
      Publicity
	
      41

	 	 	 
	
      38.
	
      Joinder
	
      41

	 	 	 
	
      39.
	
      Legends
	
      41

 

ii

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