Exhibit 10.1


 


MERGER AGREEMENT


 


BY AND AMONG


 


EARTH BIOFUELS, INC.,


 


SOUTHERN BIO FUELS, INC.,


 


SOUTHERN BIO FUELS, LLC,


 


ITS MEMBERS AND


 


OTHER RELATED INDIVIDUALS


 


Dated as of March 31, 2006


 

















 


MERGER AGREEMENT


 


THIS MERGER AGREEMENT (this
“Agreement”) is made and entered into as of March 31, 2006 by and
among Earth Biofuels, Inc., a Delaware corporation (“Earth Biofuels”),
Southern Bio Fuels, Inc., a Delaware corporation (the “Company”), Southern
Bio Fuels, LLC, a Mississippi limited liability company and the sole
stockholder of the Company (the “Stockholder”), each of the members of
the Stockholder listed on the signature pages hereof (the “Members”),
and each of the individuals listed on the signature pages hereof (the “Individuals”
and, together with the Members, the “Equity Owners”).


 


RECITALS


 


A.                                   The
Boards of Directors of each of Earth Biofuels and the Company believe it is in
the best interests of each company and their respective stockholders that Earth
Biofuels acquire the Company through the statutory merger of the Company with
and into Earth Biofuels (the “Merger”) and, in furtherance thereof, have
approved the Merger.


 


B.                                     Pursuant
to the Merger, among other things, all of the issued and outstanding shares of
common stock of the Company (the “Company Common Stock”) shall be
converted into the right to receive the consideration specified in Section 1.5.


 


C.                                     Earth
Biofuels, the Company, the Stockholder and the Equity Owners desire to make
certain representations and warranties and other agreements in connection with
the Merger.


 


NOW, THEREFORE, in
consideration of the covenants, promises, representations and warranties set
forth herein, and for other good and valuable consideration, the parties to
this Agreement hereby agree as follows:


 


ARTICLE I


 


THE MERGER


 


1.1                                 The
Merger.   At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law (the “DGCL”),
the Company shall be merged with and into Earth Biofuels, the separate
corporate existence of the Company shall cease, and Earth Biofuels shall
continue as the surviving corporation (the “Surviving Corporation”).


 


1.2                                 Effective
Time.   The closing of the Merger (the “Closing”) will
take place simultaneously with the execution of this Agreement, at the offices
of the Company’s attorneys, Watkins Ludlam Winter & Stennis, P.A.,
unless another place or time is agreed to by Earth Biofuels and the Company.  The date upon which the Closing actually
occurs is herein referred to as the “Closing Date.”  On the Closing Date, the parties hereto shall
cause the Merger to be


 

















 


consummated by filing the
appropriate Certificate of Merger with the Secretary of State of Delaware in
the form attached hereto as Exhibit A (the “Certificate of
Merger”), in accordance with the relevant provisions of the DGCL (the time
of acceptance by the Secretary of State of Delaware of such applicable filing
being referred to herein as the “Effective Time”).


 


1.3                                 Effect
of the Merger.    At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the DGCL.  At the Effective Time, all the property,
rights, privileges, powers and franchises of Earth Biofuels and the Company
shall vest in the Surviving Corporation, and all debts, liabilities,
obligations and duties of Earth Biofuels and the Company shall become the
debts, liabilities, obligations and duties of the Surviving Corporation.


 


1.4                                 Certificate
of Incorporation; Bylaws.    At the Effective Time, the
Certificate of Incorporation of Earth Biofuels, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such Certificate
of Incorporation.


 


(b)                                 At
the Effective Time, the Bylaws of Earth Biofuels, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law, the Certificate of Incorporation
and such Bylaws.


 


1.5                                 Merger
Consideration; Effect on Capital Stock  (a)                       Definitions.  For purposes of this Agreement, the following
terms shall have the meanings ascribed to them:


 


(i)             “Merger
Consideration” means the Cash Consideration and the Stock Consideration.


 


(ii)          “Cash Consideration”
means an aggregate of $2,200,000, including (A) $250,000 in cash, (B) the
Initial Promissory Note and (C) the Execution Promissory Note.


 


(iii)       “Stock Consideration”
means an aggregate of 2,933,333 shares of Earth Biofuels’ common stock, par
value $0.001 per share.


 


(iv)      “Initial Promissory Note”
means that certain promissory note, dated as of February 21, 2006, made by
Earth Biofuels and payable to the Stockholder in the principal amount of
$850,000.


 


(v)         “Execution Promissory
Note” means that certain promissory note, dated as of March 31, 2006,
made by Earth Biofuels and payable to the Stockholder in the principal amount
of $1,100,000.


 


(vi)      “Initial Payments”
means an aggregate of $293,752.78 in cash, including a payment of $43,752.78 in
cash applied to the principal of the Initial Promissory Note.


 


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(vii)   “Execution Payments”
means (A) $806,247.22 in cash, all of which shall be applied to the
remaining principal of the Initial Promissory Note, (B) the Execution
Promissory Note and (C) the Stock Consideration.


 


(viii)                                                “Plant”
means that certain biodiesel refinery that was previously owned by the
Stockholder and located in Pearl, Mississippi. 
The Plant currently is located in Durant, Oklahoma on the premises of
Earth Biofuels.


 


(b)                                 Conversion
of Company Common Stock.  Subject to
the terms and conditions of this Agreement, at the Effective Time, by virtue of
the Merger and without any further action on the part of Earth Biofuels, the
Company, the Stockholder, or the Equity Owners, the Company Common Stock issued
and outstanding in the Stockholder’s name immediately prior to the Effective
Time will at the Effective Time be canceled and extinguished and shall be converted
into and exchanged for the right to receive the Merger Consideration.


 


(c)                                  Acknowledgement
Regarding Payment of Merger Consideration. 
The Company, the Stockholder and the Equity Owners acknowledge that
Earth Biofuels (i) has previously made the Initial Payments to the
Stockholder and (ii) is making the Execution Payments to the Stockholder
concurrently with its execution of this Agreement.


 


(d)                                 Capital
Stock of Earth Biofuels.  Subject to
the terms and conditions of this Agreement, at the Effective Time, by virtue of
the Merger and without any further action on the part of Earth Biofuels, the
Company, the Stockholder or the Equity Owners, each share of Common Stock of
Earth Biofuels issued and outstanding immediately prior to the Effective Time
shall represent one validly issued, fully paid and nonassessable share of
Common Stock of the Surviving Corporation. 
Each stock certificate of Earth Biofuels evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital
stock of the Surviving Corporation.


 


1.6                                 Payment
of Remaining Merger Consideration; Surrender of Certificates.  (a)                                  Payment
of Remaining Merger Consideration.  At
the Effective Time, Earth Biofuels shall make available to the Stockholders,
for exchange in accordance with this Article I, the Execution Payments
payable on the Closing Date pursuant to Section 1.5.


 


(b)                                 Exchange
Procedures.  Upon surrender by the
Stockholder of one or more certificates that immediately prior to the Effective
Time represented outstanding shares of Company Common Stock that were converted
into the right to receive the Merger Consideration pursuant to Section 1.5
(a “Certificate”), the Stockholder shall be entitled to receive in
exchange therefor the applicable Execution Payments pursuant to Section 1.5
and the Certificate so surrendered shall forthwith be canceled.  Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Company
Common Stock will be deemed, from and after the Effective Time, to evidence
only the right to receive the Merger Consideration in respect of each such
share.


 


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1.7                                 No
Further Ownership Rights in Company Common Stock.    The
Merger Consideration delivered in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of Company Common Stock that
were outstanding immediately prior to the Effective Time.  If, after the Effective Time, Certificates
are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article I.


 


1.8                                 Taking
of Necessary Action; Further Action.    If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company, the officers and directors of the
Surviving Corporation are fully authorized in the name of the Company and the
Surviving Corporation or otherwise to take, and will take, all such lawful and
necessary and/or desirable action so long as such action is consistent with
this Agreement.


 


ARTICLE II


 


REPRESENTATIONS
AND WARRANTIES OF THE COMPANY,


THE
STOCKHOLDER AND THE EQUITY OWNERS


 


Except as disclosed in a
disclosure schedule document of even date herewith and delivered by the
Company, the Stockholder and the Equity Owners to Earth Biofuels prior to the
execution and delivery of this Agreement and referring to the representations
and warranties in this Agreement (the “Disclosure Schedule”), the
Company, the Stockholder and the Equity Owners jointly and severally represent
and warrant to Earth Biofuels that the statements set forth in this Article II
are true, correct and complete as of the date of this Agreement and will be
true, correct and complete as of the Effective Time.


 


2.1                                 Organization,
Standing and Power.    The Company is a corporation
duly organized, validly existing and in good standing under the laws of Delaware.  The Company has the corporate power to own
its properties and to carry on its business as now being conducted and as
proposed to be conducted.  There is no
jurisdiction, other than Mississippi and Oklahoma, in which the Company owns
any property or in which it has any employees, offices or operations.  The Company has delivered a true and correct
copy of its Certificate of Incorporation and Bylaws, each as amended to date,
to Earth Biofuels.  The Company is not in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws.  The Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity.


 


2.2                                 Capital
Structure.    (a)                          The
authorized capital stock of the Company consists of 10,000 shares of Company
Common Stock, of which 10,000 are issued and outstanding.  The capital stock of the Company is held solely
by the Stockholder.  There are no other
outstanding shares of capital stock or voting securities of the Company.  All outstanding shares of Company Common


 


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Stock
are duly authorized, validly issued, fully paid and non-assessable.  All outstanding shares of Company Common
Stock are free and clear of all liens, charges, claims, security interests or
other encumbrances of any sort (“Liens”) and are not subject to
preemptive rights or rights of first refusal created by statute, the Certificate
of Incorporation or Bylaws of the Company or any agreement to which the Company
is a party or by which the Company is bound.


 


(b)                                 The
Stockholder owns all the outstanding shares of record of capital stock of the
Company.


 


(c)                                  Except
as disclosed on Schedule 2.2(c) of the Disclosure Schedule,
the Company has not issued any options, warrants, calls, rights, commitments or
agreements of any character to which the Company is a party or by which it is
bound, obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement.


 


2.3                                 Authority,
Conflicts, Consents.   (a)   Subject only to
the requisite approval of the Merger and this Agreement by the board of
directors of the Company and the Stockholder, the Company has all requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.  The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary corporate
action on the part of the Company.  This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms.


 


(b)                                 The
execution and delivery of this Agreement by the Company does not, and the
consummation of the transactions contemplated hereby will not, conflict with,
or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any benefit under (any such event,
a “Conflict”) (i) any provision of the Certificate of Incorporation
or Bylaws of the Company, as amended, or (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any of its properties or assets.


 


(c)                                  No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality (“Governmental Entity”) is
required in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger as provided in Section 1.2, and (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state or federal securities
laws.  Schedule 2.3(c) of
the Disclosure Schedule sets forth a full and complete list of all
necessary consents, waivers and approvals of third parties that are required to
be obtained by the Company in connection with the consummation by the Company 


 


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of the transactions
contemplated hereby (other than the consents, waivers and approvals excluded by
clauses (i) and (ii) above).


 


2.4                                 No
Liabilities.    Except as disclosed on Schedule 2.4
of the Disclosure Schedule, the Company does not have any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement
of any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements prepared in
accordance with generally accepted accounting principles).


 


2.5                                 Plant.  (a)   The only asset of the
Company is the Plant.


 


(b)                                 The
Company has good and valid title to the Plant, free and clear of any Liens.


 


(c)                                  The
Plant (i) is adequate for the conduct of the business of the Company as
currently conducted, (ii) is in good operating condition, subject to
normal wear and tear, and (iii) has been regularly and reasonably
maintained.


 


(d)                                 The
Plant has received all approvals of Governmental Entities and all Company
Authorizations (as defined below) required in connection with the operation
thereof and has been consistently operated and maintained in accordance with
applicable laws, rules and regulations and applicable industry best
practices and standards, including those regarding efficiency.


 


(e)                                  Schedule 2.5(e) describes
all alterations to Earth Biofuel’s premises that will be necessary to operate
the Plant in accordance with all applicable laws, rules and regulations
and applicable industry best practices and standards.


 


(f)                                    Schedule 2.5(f) hereof
describes the personnel that will be required by Earth Biofuels to operate the
Plant in accordance with all applicable laws, rules and regulations and
applicable industry best practices and standards.


 


2.6                                 Agreements,
Contracts and Commitments.    Except as set forth in Schedule 2.6
of the Disclosure Schedule, the Company does not have any obligations under, is
not a party to, nor is it or any of its assets or properties bound by any
agreement, contract or commitment.


 


2.7                                 Governmental
Authorization.    Schedule 2.7 of the Disclosure
Schedule accurately lists each consent, license, permit, grant or other
authorization issued to the Stockholder or to the Company by a Governmental
Entity (i) pursuant to which the Stockholder operated or held any interest
in any of its properties or pursuant to which the Company currently operates or
holds any interest in any of its properties or (ii) that is required for
the operation of the Company’s business or the holding of any such interest
(herein collectively called “Company Authorizations”).  The Company Authorizations are in full force
and effect and constitute all of the authorizations required to permit the Company
to operate or conduct its business or hold any interest in its properties or
assets.


 


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2.8                                 Minute
Books.    The minute books of the Company made
available to counsel for Earth Biofuels are the only minute books of the
Company and contain an accurate and complete summary of all transactions
approved by the directors (or committees thereof) and stockholders since the
time of incorporation of the Company.


 


2.9                                 Environmental
Matters.   (a)    To the knowledge of
the Company, the Stockholder and the Equity Owners, no substance that is
regulated by any federal, state or local governmental authority or that has
been designated by any such authority to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment (herein, a “Hazardous
Material”) is present in, on or under any property that the Company or the
Stockholder has at any time owned, operated, occupied or leased (herein, a “Facility”),
except as permitted by and managed in accordance with applicable law.


 


(b)                                 Neither
the Company nor the Stockholder has transported, stored, used, disposed of,
manufactured, released or exposed its employees or any other person to
Hazardous Materials (“Hazardous Materials Activity”) in violation of any
applicable federal, state or local statute, rule, regulation, order or law.


 


(c)                                  To
the knowledge of the Company and the Stockholder, the Company and the
Stockholder are and at all times have been in material compliance with all
federal, state and local laws relating to emissions, discharges, releases or
threatened releases of Hazardous Materials.


 


(d)                                 No
action, proceeding, permit revocation, writ, injunction or claim is pending or
threatened, concerning the Hazardous Materials Activities of the Company or the
Stockholder and/or any Facility, and neither the Company nor the Stockholder is
aware of any fact or circumstance that could involve the Company or the
Stockholder in any environmental litigation or impose any environmental
liability upon the Company or the Stockholder.


 


2.10                           Brokers’
and Finders’ Fees.    The Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders’
fees or agents’ commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.


 


2.11                           Insurance.    Schedule 2.11
hereof sets forth a complete list of all policies of or binders for fire,
liability, worker’s compensation and other forms of insurance owned or held by
the Company or the Stockholder.  All such
policies, or binders thereof, are in full force and effect, all premiums with
respect thereto have been paid, and no notice of cancellation or termination
has been received with respect to any such policy or binder.  Such policies or binders (a) are
sufficient for compliance with all requirements of law currently applicable to
the Company and the Stockholder and of all agreements to which the Company or the
Stockholder is a party or by which any of them is bound; (b) are in such
amounts and types of coverage as are customarily maintained by businesses of
the size and type as the Company’s or the Stockholder’s; (c) provide
insurance coverage adequate for the assets and present operations of the
Company; (d) will remain in full force and effect through the Effective
Time without the payment of additional premiums; and (e) will not in any
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement.  The
Company has not been


 


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refused any insurance
with respect to its assets or operations, nor has its coverage been limited, by
any insurance carrier to which it has applied for any such insurance or with
which it has carried insurance during the last five years.


 


2.12                           Compliance
with Laws.    Each of the Company and the Stockholder
has complied in all material respects with, is not in material violation of,
and has not received any notices of violation with respect to, any foreign,
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, assets or
properties.


 


2.13                           Complete
Copies of Materials.    The Company has delivered or
made available to Earth Biofuels true and complete copies of each agreement,
contract, commitment or other document that is referred to in the Disclosure Schedule or
that has been requested in writing by Earth Biofuels or its counsel.


 


2.14                           Representations
Complete.    None of the representations or warranties
made herein by the Company, the Stockholder or the Equity Owners (as modified
by the Disclosure Schedule), nor any statement made in any schedule or
certificate furnished by the Company, the Stockholder or the Equity Owners pursuant
to this Agreement, contains or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which they were
made, not misleading.


 


2.15                           Disclosure
Schedule.    The Disclosure Schedule has been
prepared by the Company, the Stockholder and the Equity Owners and dated and
delivered on the date of this Agreement. 
All warranties and representations made by the Company, the Stockholder and
the Equity Owners are qualified by the Disclosure Schedule.  The Company, the Stockholder and the Equity
Owners shall disclose in the Disclosure Schedule each item of information
in each separate section in which such item may reasonably be required to
be disclosed.


 


ARTICLE III


 


REPRESENTATIONS
AND WARRANTIES OF EARTH BIOFUELS


 


Earth Biofuels represents
and warrants to the Company, the Stockholder and the Equity Owners as follows:


 


3.1                                 Organization,
Standing and Power.    Earth Biofuels is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.  Earth Biofuels has
the corporate power to own its properties and to carry on its business as now
being conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets, financial condition, or results of
operations of Earth Biofuels or the ability of Earth Biofuels to consummate the
transactions contemplated hereby.


 


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3.2                                 Authority.    Earth
Biofuels has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Earth Biofuels.  This Agreement has been duly executed and
delivered by Earth Biofuels and constitutes the valid and binding obligations
of Earth Biofuels, enforceable in accordance with its terms.  The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of any provision of, the charter
documents of Earth Biofuels.  No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity, is required by or with respect to Earth Biofuels
in connection with the execution and delivery of this Agreement by Earth
Biofuels or the consummation by Earth Biofuels of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger with the
Secretary of State of Delaware, and (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable state and federal securities laws, the laws of any foreign
country and federal antitrust laws.


 


ARTICLE IV


 


REPRESENTATIONS
AND WARRANTIES OF THE STOCKHOLDER

AND THE EQUITY OWNERS


 


The Stockholder and the Equity
Owners jointly and severally represent and warrant to Earth Biofuels that:


 


4.1                                 Authorization.    The
Stockholder has full power and authority to enter into this Agreement, and this
Agreement constitutes the valid and legally binding obligation of the Stockholder,
enforceable in accordance with its terms.


 


4.2                                 Ownership.  The Stockholder is the holder of record and
legal owner of all of the Company Common Stock. 
Such Company Common Stock is free and clear of any Liens.


 


4.3                                 Stock
Consideration


 


(a)                                  The
Stockholder will acquire and hold the Stock Consideration (the “Shares”)
for investment for its account only and not with a view to, or for resale in
connection with, any “distribution” thereof within the meaning of the
Securities Act of 1933, as amended (the “Securities Act”).


 


(b)                                 The
Stockholder understands that the Shares will not be registered under the Securities
Act by reason of a specific exemption therefrom and that the Shares must be
held indefinitely, unless they are subsequently registered under the Securities
Act or the Stockholder obtains an opinion of counsel, in form and substance
satisfactory to Earth Biofuels and its counsel, that such registration is not
required.  The Stockholder further
acknowledges and understands that Earth Biofuels is under no obligation to
register the Shares.


 


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(c)                                  The
Stockholder is aware of the adoption of Rule 144 by the Securities and
Exchange Commission under the Securities Act, which permits limited public
resales of securities acquired in a non-public offering, subject only to the
satisfaction of certain conditions.


 


(d)                                 The
Stockholder will not sell, transfer or otherwise dispose of the Shares in
violation of the Securities Act, the Securities Exchange Act of 1934, as
amended, or the rules promulgated thereunder, including Rule 144
under the Securities Act.


 


(e)                                  The
Stockholder has been furnished with, and has had access to, such information as
it considers necessary or appropriate for deciding whether to invest in the
Shares, and the Stockholder has had an opportunity to ask questions and receive
answers from Earth Biofuels regarding the terms and conditions of the issuance
of the Shares.


 


ARTICLE V


 


REPRESENTATIONS
AND WARRANTIES OF THE EQUITY OWNERS


 


Each Equity Owner hereby
severally, but not jointly, represents and warrants to Earth Biofuels that:


 


5.1                                 Authorization.  Such Equity Owner has full power and
authority to enter into this Agreement, and this Agreement constitutes the
valid and legally binding obligation of such Equity Owner, enforceable in
accordance with its terms.


 


5.2                                 Ownership.  The Members are the sole owners of the
Stockholder.


 


ARTICLE VI


 


ADDITIONAL
AGREEMENTS


 


6.1                                 Confidentiality.    Each
of the parties hereto hereby agrees to keep confidential such information or
knowledge obtained pursuant to the negotiation and execution of this Agreement
or the effectuation of the transactions contemplated hereby (“Confidential
Information”); provided, however, that the foregoing shall
not apply to information or knowledge that (a) a receiving party can
demonstrate was already lawfully in its possession prior to the disclosure
thereof by the other party, (b) is generally known to the public at the
time of first disclosure to the receiving party, (c) became known to the
public through no fault of such receiving party or its employees, (d) is
later lawfully acquired by such receiving party from other sources without any
obligation of confidentiality, or (e) is developed independently by either
party without reference to, or specific knowledge of, the other party’s
Confidential Information.  The receiving
party may disclose Confidential Information to the extent such disclosure is
required by applicable law or government regulation, or by order of court or
government agency with subpoena powers, provided that such receiving party
shall give the other party prior notice of such requirement to disclose and a
reasonable opportunity to object or take other available action, including the
seeking of a protective order.  The
receiving party shall cooperate with the reasonable requests of the other party
in connection with any such objections, action or protective order.


 


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6.2                                 Public
Disclosure.    Unless otherwise required by law, the
parties hereto agree that they shall not make any public disclosure, by means
of the issuance of any reports, statements, releases or other public
disclosure, or any other third party public disclosure, relating to the terms
and conditions of this Agreement and the transactions contemplated hereby, except
for (a) after the Merger, an announcement by Earth Biofuels that
the parties have effected the transactions contemplated herein (disclosing only
the nature but not the specific terms of the transaction), (b) following
the disclosure noted in clause (a), an announcement by the Company, the
language of which has been pre-approved in writing by Earth Biofuels
(disclosing only the nature but not the specific terms of the transaction), (c) such
disclosures as may be required by applicable law and public listing and
disclosure requirements, and (d) such other disclosures as the parties
shall mutually agree.


 


6.3                                 Further
Assurances.    Each of the parties to this Agreement
shall use all commercially reasonable efforts to effectuate the transactions
contemplated hereby.  Each party hereto,
at the reasonable request of another party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.


 


ARTICLE VII


 


INDEMNIFICATION


 


7.1                                 Survival
of Representations and Warranties. 
All representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement, shall survive the Merger for a
period of one (1) year after the Closing Date.


 


7.2                                 Indemnification
by the Members.


 


(a)                                  Company
Indemnification Losses.  Subject to Section 7.4
hereof, the Members, jointly but not severally, shall indemnify, save and hold
harmless Earth Biofuels and its subsidiaries, directors, officers, employees,
affiliates, agents and assigns (each an “indemnified party”), from and
against any and all liabilities, obligations, judgments, penalties, fines,
costs or expenses (including attorneys fees and consultants fees) incurred by
an indemnified party in connection with, arising out of, resulting from or
incident to the following (the “Company Indemnification Losses”), to the
extent of each such Member’s percentage ownership of the Stockholder as of the
date hereof multiplied by the Merger Consideration:


 


(i)             any breach of any
representation or warranty made by the Company in Article II of this
Agreement or in any exhibit, certificate, instrument or agreement delivered by
such party pursuant hereto or thereto; or


 


(ii)          any breach of any
covenant or agreement made by the Company in this Agreement or in any
certificate, instrument or agreement delivered by such party pursuant hereto or
thereto.


 


11

















 


(b)                                 Stockholder
Indemnification Losses.  Subject to Section 7.4
hereof, the Members, jointly but not severally, shall indemnify, save and hold
harmless each indemnified party from and against any and all liabilities,
obligations, judgments, penalties, fines, costs or expenses (including
attorneys fees and consultants fees) incurred by an indemnified party in
connection with, arising out of, resulting from or incident to the following
(the “Stockholder Indemnification Losses”), to the extent of each such Member’s
percentage ownership of the Stockholder as of the date hereof multiplied by the
Merger Consideration:


 


(i)                         any
breach of any representation or warranty made by the Stockholder in Article II
or Article IV of this Agreement or in any exhibit, certificate, instrument
or agreement delivered by such party pursuant hereto or thereto; or


 


(ii)                      any breach
of any covenant or agreement made by the Stockholder in this Agreement or in
any certificate, instrument or agreement delivered by such party pursuant
hereto or thereto.


 


(c)                                  Member
Indemnification Losses.  Subject to Section 7.4
hereof, the Members, individually, shall indemnify, save and hold harmless each
indemnified party from and against any and all liabilities, obligations,
judgments, penalties, fines, costs or expenses (including attorneys fees and
consultants fees) incurred by an indemnified party in connection with, arising
out of, resulting from or incident to the following (the “Member
Indemnification Losses”), to the extent of such Member’s percentage
ownership of the Stockholder as of the date hereof multiplied by the Merger
Consideration:


 


(i)                                     any
breach of any representation or warranty made by such Equity Owner in Article V
of this Agreement or in any exhibit, certificate, instrument or agreement
delivered by such Equity Owner pursuant hereto; or


 


(ii)                                  any
breach of any covenant or agreement made by such Equity Owner in this Agreement
or in any certificate, instrument or agreement delivered by such Equity Owner
pursuant hereto.


 


The terms “Company
Indemnification Losses,”,” “Stockholder Indemnification Losses”
and “Member Indemnification Losses” as used in this Section 7.2 are
not limited to matters asserted by third parties against any indemnified party,
but include Company Indemnification Losses, Stockholder Indemnification Losses
and Member Indemnification Losses incurred or sustained by an indemnified party
in the absence of third party claims. 
Payments by any indemnified party of amounts for which such indemnified
party is indemnified hereunder shall not be a condition precedent to recovery.


 


Earth Biofuels
agrees to notify the Members of any Company Indemnification Losses, Stockholder
Indemnification Losses, Member Indemnification Losses, claims or
misrepresentations, breaches or other matters covered by this Article VII
upon discovery or receipt of notice thereof.


 


12

















 


7.3                                 Indemnification
Procedure.


 


(a)                                  Defense
of Claim.  If a claim for Company
Indemnification Losses, Stockholder Indemnification Losses and/or Member
Indemnification Losses (a “Claim”) is to be made by a party entitled to
indemnification hereunder against the indemnifying party, the party claiming
such indemnification shall give written notice (a “Claim Notice”) to the
indemnifying party as soon as practicable after the party entitled to
indemnification becomes aware of any fact, condition or event that may give
rise to Company Indemnification Losses, Stockholder Indemnification Losses
and/or Member Indemnification Losses for which indemnification may be sought
under this Article VII.  If any
lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event within fifteen
(15) calendar days after the service of the citation or summons).  The failure of any indemnified party to give
timely notice hereunder for any purpose shall not affect rights to
indemnification hereunder, except to the extent that the indemnifying party has
been damaged by such failure.  After such
notice, except as provided in the following sentence, if the indemnifying party
shall acknowledge in writing to the indemnified party that the indemnifying
party shall be obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects at its own cost, risk and expense, (i) to take
control of the defense and investigation of such lawsuit or action, (ii) to
employ and engage attorneys of its own choice but, in any event, reasonably
acceptable to the indemnified party, to handle and defend the same unless the
named parties to such action or proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and the
indemnified party has been advised in writing by counsel that there may be one
or more legal defenses available to such indemnified party that are different
from or additional to those available to the indemnifying party, in which event
the indemnified party shall be entitled, at the indemnifying party’s cost, risk
and expense, to separate counsel of its own choosing (provided, however,
in no event shall the indemnifying party be obligated to engage more than one (1) additional
counsel) and (iii) to compromise or settle such lawsuit or action, which
compromise or settlement shall be made only with the written consent of the
indemnified party, such consent not to be unreasonably withheld.


 


(b)                                 Cooperation.  With respect to any lawsuit or action for
which indemnity is sought under Section 7.3(a), the indemnified party
shall cooperate in all reasonable respects with the indemnifying party and its
representatives (including, without limitation, its attorneys) in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party
may, at its own cost, participate in negotiations, arbitrations and the
investigation, trial and defense of such lawsuit or action and any appeal arising
therefrom.  The parties shall cooperate
with each other in any notifications to insurers.


 


If the indemnifying party
fails to assume the defense of such lawsuit or action within fifteen (15)
calendar days after receipt of the Claim Notice, the indemnified party against
which such lawsuit or action has been asserted will (upon delivering notice to
such effect to the indemnifying party) have the right to undertake, at the
indemnifying party’s cost and expense, the defense, compromise or settlement of
such lawsuit or action on behalf of and for the account


 


13

















 


and
risk of the indemnifying party; provided, however, that such
lawsuit or action shall not be compromised or settled without the written
consent of the indemnifying party, which consent shall not be unreasonably
withheld or delayed.


 


In the event the
indemnified party assumes the defense of the lawsuit or action, the indemnified
party will keep the indemnifying party reasonably informed of the progress of
any such defense, compromise or settlement. 
The indemnifying party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Article VII and for any final
judgment (subject to any right of appeal) and the indemnifying party agrees to
indemnify and hold harmless an indemnified party from and against any Company
Indemnification Losses, Stockholder Indemnification Losses and/or Member
Indemnification Losses by reason of such settlement or judgment.


 


7.4                                 Limitation
on Indemnification.  The
indemnification obligations with respect to any item described above in Section 7.2
shall be limited to an aggregate dollar amount not to exceed $440,000.  No individual Member shall bear
indemnification obligations with respect to any item described in Section 7.2
in an aggregate dollar amount that exceeds the product of (a) such Member’s
percentage ownership of the Stockholder as of the date hereof and (b) the
Merger Consideration.


 


7.5                                 Indemnification
by Individuals.  To the extent that
an Individual owns all or any part of the equity interests of one or more
Members, such Individual also shall be responsible for the indemnification
obligations of such Member(s) pursuant to this Article VII.


 


ARTICLE VIII


 


AMENDMENT
AND WAIVER


 


Except as is otherwise
required by applicable law, this Agreement may be amended at any time by
execution of an instrument in writing signed by Earth Biofuels, the Company,
the Stockholder and the Equity Owners.


 


ARTICLE IX


 


GENERAL
PROVISIONS


 


9.1                                 Notices.   All
notices and other communications required or permitted hereunder shall be in
writing, shall be effective when given, and shall in any event be deemed to be
given upon receipt or, if earlier, (a) five (5) days after deposit
with the U.S. Postal Service or other applicable postal service, if delivered
by first class mail, postage prepaid, (b) upon delivery, if delivered by
hand, (c) one (1) business day after the business day of deposit with
Federal Express or similar overnight courier, freight prepaid or (d) one (1) business
day after the business day of confirmed facsimile transmission, if delivered by
facsimile transmission with copy by first


 


14

















 


class mail, postage
prepaid, and shall be addressed to the address set forth below (or at such
other address as a party may designate by ten (10) days’ advance written
notice to the other party pursuant to the provisions above):


 


(a)                                  if
to Earth Biofuels or the Surviving Corporation, to:


 


Earth
Biofuels, Inc.


3001
Knox Street, Suite 403


Dallas,
TX 75205


Attention:
Dennis McLaughlin and Tommy Johnson


Facsimile
No.: 214-389-9806


 


with a
copy to:


 


Scheef &
Stone, L.L.P.


5956
Sherry Lane, Suite 1400


Dallas,
Texas  75225


Attention:
Roger A. Crabb


Facsimile
No.: 214-706-4242


 


(b)                                 if
to the Company, to:


 


Southern
Bio Fuels, Inc.


142
St. Andrews


Jackson,
Mississippi  39211


Attention:
Dean A. Blackwell


Facsimile
No.: 601-932-2911


 


with a
copy to:


 


Watkins
Ludlam Winter & Stennis, P.A.


633
North State Street (39202)


P.O. Box
427


Jackson,
Mississippi  39205-0427


Attention:
David B. Grishman


Facsimile
No.: 601-949-4804


 


(c)                                  If
to the Stockholder, to:


 


Southern
Bio Fuels, LLC


142
St. Andrews


Jackson,
Mississippi  39211


Attention:
Dean A. Blackwell


Facsimile
No.: 601-932-2911


 


15

















 


with a
copy to:


 


Watkins
Ludlam Winter & Stennis, P.A.


633
North State Street (39202)


P.O. Box
427


Jackson,
Mississippi  39205-0427


Attention:
David B. Grishman


Facsimile
No.: 601-949-4804


 


(d)                                 if
to an Equity Owner, the address or facsimile number for such Equity Owner set
forth on the signature pages hereto.


 


9.2                                 Interpretation.    Any
reference to the Company’s “knowledge” shall mean the actual knowledge of the
Company’s executive officers after due inquiry, which may be satisfied by
consultation with the Company’s executive officers and other key personnel as
said executive officers or the Company deems appropriate.  Any reference to the Stockholder’s “knowledge”
shall mean the actual knowledge of the Stockholder’s executive officers after
due inquiry, which may be satisfied by consultation with the Stockholder’s
executive officers and other key personnel as said executive officers or the
Stockholder deems appropriate.  Any
reference to an Equity Owner’s “knowledge” shall mean the actual knowledge of
such Equity Owner after due inquiry.  The
words “include,” “includes” and “including” when used herein shall be deemed in
each case to be followed by the words “without limitation.”  The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.


 


9.3                                 Counterparts.    This
Agreement may be executed in one or more counterparts (including by means of
telecopier), all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.


 


9.4                                 Entire
Agreement; Assignment.    This Agreement, the schedules
and exhibits hereto, and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; and (b) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided, except that Earth Biofuels may assign its respective rights and
delegate its respective obligations hereunder to its respective affiliates.


 


9.5                                 Severability.    In
the event that any provision of this Agreement or the application thereof, becomes
or is declared by a court of competent jurisdiction to be illegal, void or
unenforceable, the remainder of this Agreement will continue in full force and
effect and the application of such provision to other persons or circumstances
will be interpreted so as reasonably to effect the intent of the parties
hereto.  The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will


 


16

















 


achieve,
to the extent possible, the economic, business and other purposes of such void
or unenforceable provision.


 


9.6                                 Other
Remedies.    Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.


 


9.7                                 Governing
Law.    This Agreement shall be governed by and
construed in accordance with the laws of the State of Mississippi, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.


 


9.8                                 Rules of
Construction.    The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.


 


9.9                                 Fees
and Expenses.  Except as provided
below, each party (including the Equity Owners) shall be solely responsible for
the payment of its own fees and expenses.


 


10.10                     Dispute
Resolution.  In the event of any
dispute, claim or controversy arising out of or relating to this Agreement or
the breach, termination, enforcement, interpretation or validity thereof,
including the determination of the scope or applicability of this agreement to
arbitrate (each, a “Dispute”), the parties to such Dispute shall use
their best efforts to settle such Dispute. 
To this effect, the parties to such Dispute shall consult and negotiate
with each other in good faith and, recognizing their mutual interests, attempt
to reach a just and equitable solution satisfactory to such parties.  If such parties do not reach a solution
within a period of fifteen (15) days (or such longer period as such parties
mutually agree in writing), then, upon notice by any party to the other parties
involved in the Dispute, the Dispute shall be determined by arbitration in
Dallas, Texas before one arbitrator.  The
arbitration shall be administered by JAMS pursuant to its Streamlined
Arbitration Rules and Procedures. 
Judgment on the award may be entered in any court having
jurisdiction.  This clause shall not
preclude the parties from seeking provisional remedies in aid of arbitration
from a court of appropriate jurisdiction. 
The arbitrator may, in the award, allocate all or part of the costs of
the arbitration, including the fees of the arbitrator and the reasonable
attorneys’ fees of the prevailing party.


 


17

















 


IN WITNESS WHEREOF, Earth
Biofuels, the Company, the Stockholder, the Members and the Individuals have
caused this Agreement to be signed as of the date first written above.


 


	
   

  	
  EARTH
  BIOFUELS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SOUTHERN
  BIO FUELS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Dean
  A. Blackwell

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SOUTHERN
  BIO FUELS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Dean
  A. Blackwell

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MEMBERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  Dean
  Blackwell and Affiliates, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Dean
  A. Blackwell

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  142
  Saint Andrews

  
	
   

  	
  Jackson,
  Mississippi 39211

  
	
   

  	
  Attention:
  Dean A. Blackwell

  
	
   

  	
  Facsimile
  No.: 601-932-2911

  
							



 

















 


	
   

  	
  Trey
  Co Engineering, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Robert
  L. Fleming, III

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  1510
  Chambers Street

  
	
   

  	
  Vicksburg,
  Mississippi 39180

  
	
   

  	
  Attention:
  Robert L. Fleming, III

  
	
   

  	
  Facsimile
  No.:

  
	
   

  	
   

  
	
   

  	
  MRG
  Enterprises, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Steven
  K. Dickerson

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  P.O. Box
  1249

  
	
   

  	
  Kosciusko,
  Mississippi 39090

  
	
   

  	
  Attention:
  Steven K. Dickerson

  
	
   

  	
  Facsimile
  No.: 662-289-3313

  
	
   

  	
   

  
	
   

  	
  KNS
  Biodiesel, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Kanwal
  S. Nair

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  2039
  Petit Bois Street

  
	
   

  	
  Jackson,
  Mississippi 39211

  
	
   

  	
  Attention:
  Kanwal S. Nair

  
	
   

  	
  Facsimile
  No.:

  
						



 

















 


	
   

  	
  Golden
  Tiger Lipids, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Timothy
  T. Coursey

  
	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
  320
  West Wood Court

  
	
   

  	
  Madison,
  Mississippi 39110

  
	
   

  	
  Attention:
  Timothy T. Coursey

  
	
   

  	
  Facsimile
  No.:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  William
  A. Stewart

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  4
  Prescott Walk NE

  
	
   

  	
  Atlanta,
  Georgia 30307

  
	
   

  	
  Facsimile
  No.: 770-424-3399

  
	
   

  	
   

  
	
   

  	
  INDIVIDUALS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Dean
  A. Blackwell

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  142
  Saint Andrews

  
	
   

  	
  Jackson,
  Mississippi 39211

  
	
   

  	
  Facsimile
  No.: 601-932-2911

  
							



 

















 


	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Robert
  L. Fleming, III

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  1510
  Chambers Street

  
	
   

  	
  Vicksburg,
  Mississippi 39180

  
	
   

  	
  Facsimile
  No.:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Steven
  K. Dickerson

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
  P.O. Box
  1249

  
	
   

  	
  Kosciusko,
  Mississippi 39090

  
	
   

  	
  Facsimile
  No.: 662-289-3313