Exhibit 4.3


 


THIS WARRANT AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY
NOT BE OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO,
OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE OR TRANSFER.


 


WARRANT


 


TO PURCHASE COMMON STOCK


 


OF


 


EARTH BIOFUELS, INC.


 


	
  Issue Date: May 26,
  2006

  	
   

  	
  Warrant No. 1

  



 


THIS CERTIFIES
that EVOLUTION MASTER FUND,
LTD or any subsequent holder hereof (the “Holder”), has the
right to purchase from EARTH BIOFUELS, INC., a Delaware corporation (the “Company”), up to 750,000 fully paid and
nonassessable shares of the Company’s common stock, par value $0.001 per share
(the “Common Stock”),
subject to adjustment as provided herein, at a price per share equal to the
Exercise Price (as defined below), at any time and from time to time beginning
on the date on which this Warrant is issued (the “Issue Date”) and ending at 5:00 p.m.,
eastern time, on the fifth (5th) anniversary of the Issue Date or, if
such day is not a Business Day, on the next succeeding Business Day (the “Expiration Date”). This
Warrant is issued pursuant to a Securities Purchase Agreement, dated as of May 26, 2006 (the “Securities Purchase Agreement”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Securities Purchase Agreement.


 


1.             EXERCISE.


 


(a)           Right to
Exercise; Exercise Price. The Holder shall have the right to exercise this
Warrant at any time and from time to time during the period beginning on the
Issue Date and ending on the Expiration Date as to all or any part of the
shares of Common Stock covered hereby (the “Warrant Shares”). The “Exercise Price” for
each Warrant Share purchased by the


 

















 


Holder upon the exercise of this Warrant shall be $3.84, subject to
adjustment for the events specified in Section 6 below.


 


(b)           Exercise Notice.
In order to exercise this Warrant, the Holder shall (i) send by facsimile
transmission, at any time prior to 5:00 p.m., eastern time, on the Business Day
on which the Holder wishes to effect such exercise (the “Exercise Date”), to
the Company an executed copy of the notice of exercise in the form attached
hereto as Exhibit A
(the “Exercise Notice”),
(ii) deliver the original Warrant, and (iii) in the case of a Cash Exercise (as
defined below), the Exercise Price to the Company. The Exercise Notice shall also state
the name or names in which the Warrant Shares issuable on such exercise shall
be issued. In the case of a dispute as to the calculation of the
Exercise Price or the number of Warrant Shares issuable hereunder (including,
without limitation, the calculation of any adjustment pursuant to Section 6 below), the
Company shall promptly issue to the Holder the number of Warrant Shares that
are not disputed and shall submit the disputed calculations to a certified
public accounting firm of national recognition (other than the Company’s
independent accountants) within two (2) Business Days following the date on
which the Exercise Notice is delivered to the Company. The Company shall use
its best efforts to cause such accountant to calculate the Exercise Price
and/or the number of Warrant Shares issuable hereunder and to notify the
Company and the Holder of the results in writing no later than two (2) Business
Days following the day on which such accountant received the disputed
calculations (the “Dispute
Procedure”). Such accountant’s calculation shall be deemed
conclusive absent manifest error. The fees of any such accountant shall be
borne by the party whose calculations were most at variance with those of such
accountant.


 


(c)           Holder of Record.
The Holder shall, for all purposes, be deemed to have become the holder of
record of the Warrant Shares specified in an Exercise Notice on the Exercise
Date specified therein, irrespective of the date of delivery of such Warrant
Shares. Except as specifically provided herein, nothing in this Warrant shall
be construed as conferring upon the Holder hereof any rights as a stockholder
of the Company prior to the Exercise Date.


 


(d)           Cancellation of
Warrant. This Warrant shall be canceled upon its exercise and, if this
Warrant is exercised in part, the Company shall, at the time that it delivers
Warrant Shares to the Holder pursuant to such exercise as provided herein,
issue a new warrant, and deliver to the Holder a certificate representing such
new warrant, with terms identical in all respects to this Warrant (except that
such new warrant shall be exercisable into the number of shares of Common Stock
with respect to which this Warrant shall remain unexercised); provided, however, that the Holder shall
be entitled to exercise all or any portion of such new warrant at any time
following the time at which this Warrant is exercised, regardless of whether
the Company has actually issued such new warrant or delivered to the Holder a
certificate therefor.


 


2.             DELIVERY OF WARRANT SHARES UPON EXERCISE.


 


Upon receipt of an Exercise Notice pursuant to Section 1 above, the
Company shall, (A) in the case of a Cash Exercise (as defined below) no later
than the close of business on the later to occur of (i) the third (3rd)
Business Day following the Exercise Date set forth in such Exercise


 


2

















 


Notice and (ii) the date on which the Company has received payment of
the Exercise Price, (B) in the case of a Cashless Exercise (as defined below),
no later than the close of business on the third (3rd) Business Day following
the Exercise Date set forth in such Exercise Notice, and (C) with respect to
Warrant Shares that are the subject of a Dispute Procedure, the close of
business on the third (3rd) Business Day following the
determination made pursuant to Section 1(b) (each of the dates specified in (A), (B) or
(C) being referred to as a “Delivery Date”), issue and deliver or cause to be
delivered to the Holder the number of Warrant Shares as shall be determined as
provided herein. The Company shall effect delivery of Warrant Shares to the
Holder, as long as the Company’s designated transfer agent or co-transfer agent
in the United States for the Common Stock (the “Transfer Agent”) participates in the
Depository Trust Company (“DTC”)
Fast Automated Securities Transfer program (“FAST”), by crediting the account of the
Holder or its nominee at DTC (as specified in the applicable Exercise Notice)
with the number of Warrant Shares required to be delivered, no later than the
close of business on such Delivery Date. In the event that the Transfer Agent
is not a participant in FAST, or if the Holder so specifies in an Exercise
Notice or otherwise in writing on or before the Exercise Date, the Company
shall effect delivery of Warrant Shares by delivering to the Holder or its
nominee physical certificates representing such Warrant Shares, no later than
the close of business on such Delivery Date. If any exercise would create a
fractional Warrant Share, such fractional Warrant Share shall be disregarded
and the number of Warrant Shares issuable upon such exercise, in the aggregate,
shall be the nearest whole number of Warrant Shares. Warrant Shares delivered
to the Holder shall not contain any restrictive legend unless such legend is
required pursuant to the terms of the Securities Purchase Agreement.


 


3.             FAILURE TO DELIVER WARRANT SHARES.


 


(a)           In the event that the Company fails
for any reason (other than as a result of the Holder’s failure, in the case of
a Cash Exercise (as defined below), to pay the aggregate Exercise Price for the
Warrant Shares being purchased) to deliver to the Holder the number of Warrant
Shares specified in the applicable Exercise Notice (without any restrictive
legend to the extent permitted by the terms of the Securities Purchase
Agreement) on or before the second (2nd) Business Day following the Delivery
Date therefor (an “Exercise
Default”), the Holder shall have the right to received from the
Company an amount equal to (i) (N/365) multiplied by (ii) the aggregate
Exercise Price of the Warrant Shares which are the subject of such Exercise
Default multiplied by (iii) the lower of sixteen percent (16%) and the
maximum rate permitted by applicable law or by the applicable rules or
regulations of any Governmental Agency (the “Default Interest Rate”), where “N”
equals the number of days elapsed between the original Delivery Date of such Warrant
Shares and the date on which such Exercise Default has been cured. In the event
that shares of Common Stock are purchased by or on behalf of the Holder in
order to make delivery on a sale effected in anticipation of receiving Warrant
Shares upon an exercise, the Holder shall have the right to receive from the
Company, in addition to the foregoing amounts, (i) the aggregate amount paid by
or on behalf of the Holder for such shares of Common Stock minus (ii)
the aggregate amount of net proceeds, if any, received by the Holder from the
sale of the Warrant Shares issued by the Company pursuant to such exercise. Amounts
payable under this Section
3(a) shall be paid to the Holder in immediately available funds
on or before the fifth (5th) Business Day following written notice from the
Holder to the Company specifying the amount owed to it by the Company pursuant
to this Section 3(a).


 


3

















 


(b)           In addition to its rights under Section 3(a) above,
upon an Exercise Default, the Exercise Price applicable to the applicable
exercise shall be automatically be adjusted to the lower of (i) the Exercise
Price in effect on the Exercise Date and (ii) the lowest Exercise Price
occurring from the first date of such Exercise Default through the date on
which all Warrant Shares to which the Holder is entitled have been delivered in
accordance with the terms of this Warrant. The Holder shall have the right to
pursue all other remedies available to it at law or in equity (including, without
limitation, a decree of specific performance and/or injunctive relief).


 


4.             EXERCISE LIMITATION.


 


In no event shall the Holder be permitted to exercise this Warrant, or
part thereof, if, upon such exercise, the number of shares of Common Stock
beneficially owned by the Holder (other than shares which may be deemed
beneficially owned except for being subject to a limitation on exercise or
exercise analogous to the limitation contained in this Section 4), would
exceed 4.99% of the number of shares of Common Stock then issued and
outstanding, it being the intent of the Company and the Holder that the Holder
not be deemed at any time to have the power to vote or dispose of greater than
4.99% of the number of shares of Common Stock issued and outstanding at any
time. Nothing contained herein shall be deemed to restrict the right of the
Holder to exercise this Warrant at such time as such exercise will not violate
the provisions of this Section
4. As used herein, beneficial ownership shall be determined in accordance
with Section 13(d) of (i) Securities Exchange Act of 1934, as amended, and the
rules thereunder. To the extent that the limitation contained in this Section 4 applies
(and without limiting any rights the Company may otherwise have), the Company may
rely on the Holder’s determination of whether this Warrant is exercisable
pursuant to the terms hereof, the Company shall have no obligation whatsoever
to verify or confirm the accuracy of such determination, and the submission of
an Exercise Notice by the Holder shall be deemed to be the Holder’s
representation that this Warrant is exercisable pursuant to the terms hereof. The
Company shall have no liability to any person if the Holder’s determination of
whether this Warrant is exercisable pursuant to the terms hereof is incorrect. The
holders of Common Stock are to be deemed third-party beneficiaries of the
limitation imposed hereby and, accordingly, this Section 4 may not be amended without the
consent of the holders of a majority of the shares of Common Stock then
outstanding; provided, however, that the Holder shall have the
right, upon sixty (60) days’ prior written notice to the Company, to waive the
provisions of this Section
4 in the event that either a Fundamental Change or Liquidation
Event (each, as defined in the Notes) is announced or occurs, without obtaining
such consent.


 


5.                                       PAYMENT OF THE EXERCISE PRICE; CASHLESS EXERCISE.


 


The Holder may pay the Exercise Price in either of the following forms
or, at the election of Holder, a combination thereof:


 


(a)           through a cash
exercise (a “Cash
Exercise”) by delivering immediately available funds, or


 


(b)           through a cashless exercise (a “Cashless Exercise”)
if, following the one-year anniversary of the Issue Date, an effective
Registration Statement is not available for the resale


 


4

















 


of all of the
Warrant Shares issuable hereunder at the time an Exercise Notice is delivered
to the Company, or if the Company otherwise consents in writing. The Holder
shall effect a Cashless Exercise by surrendering this Warrant to the Company
and noting on the Exercise Notice that the Holder wishes to effect a Cashless
Exercise, upon which the Company shall issue to the Holder a number of Warrant
Shares determined as follows:


 


	
   

  	
   

  	
  X = Y x (A-B)/A

  
	
   

  	
   

  	
   

  
	
  where:

  	
   

  	
  X = the number of Warrant Shares to be
  issued to the Holder;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Y = the
  number of Warrant Shares with respect to which this Warrant is being
  exercised;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A = the Market Price as of the Exercise
  Date; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  B = the Exercise Price.

  



 


It is intended
and acknowledged that the Warrant Shares issued in a Cashless Exercise
transaction shall be deemed to have been acquired by the Holder, and the
holding period for the Warrant Shares required by Rule 144 shall be deemed to
have been commenced, on the Issue Date.


 


6.             ANTI-DILUTION
ADJUSTMENTS; DISTRIBUTIONS; OTHER EVENTS.


 


The Exercise Price and the
number of Warrant Shares issuable hereunder shall be subject to adjustment from
time to time as provided in this Section 6.


 


(a)           Stock Splits, Stock Interests, Etc.
If, at any time on or after the Issue Date, the number of outstanding shares of
Common Stock is increased by a stock split, stock dividend, combination,
reclassification or other similar event, the Exercise Price shall be
proportionately reduced, or if the number of outstanding shares of Common Stock
is decreased by a reverse stock split, combination, reclassification or other
similar event, the Exercise Price shall be proportionately increased. In such
event, the Company shall notify the Company’s transfer agent of such change on
or before the effective date thereof.


 


(b)           Major Transactions. If, at any
time after the Issue Date, any Major Transaction shall occur, then the Holder
shall thereafter have the right to receive upon exercise, in lieu of the shares
of Common Stock otherwise issuable, such shares of stock, securities and/or
other property as would have been issued or payable upon such Major Transaction
with respect to or in exchange for the number of shares of Common Stock which
would have been issuable upon exercise had such Major Transaction not taken
place (without giving effect to any limitations on such exercise contained in
this Warrant or the Securities Purchase Agreement). The Company shall not effect
any Major Transaction unless (i) the Holder has received written notice of such
transaction at least thirty (30) days prior thereto (which period shall be
increased to sixty one (61) days if, at such time, without giving effect to the
limitation on exercise contained in Section 4 hereof, the Holder would
beneficially own more than 4.9% of the Common Stock then outstanding, and the
Holder has notified the Company in writing of such


 


5

















 


circumstance) but in no event later than fifteen (15) days prior to the
record date for the determination of stockholders entitled to vote with respect
thereto; provided, however, that the Company shall publicly
disclose the material terms of any such Major Transaction on or before the date
on which it delivers notice of a Major Transaction to the Holder, and (ii) the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument (in form and substance reasonable satisfactory to the Holder) the
obligations of the Company under this Warrant. The above provisions shall apply
regardless of whether or not there would have been a sufficient number of
shares of Common Stock authorized and available for issuance upon exercise of
this Warrant as of the date of such transaction, and shall similarly apply to
successive Major Transactions.


 


(c)           Distributions. If, at any time
after the Issue Date, the Company declares or makes any distribution of cash or
any other assets (or rights to acquire such assets) to holders of Common Stock,
including without limitation any dividend or distribution to the Company’s
stockholders in shares (or rights to acquire shares) of capital stock of a
subsidiary) (a “Distribution”),
the Company shall deliver written notice of such Distribution (a “Distribution Notice”)
to the Holder at least fifteen (15) days prior to the earlier to occur of (i)
the record date for determining stockholders entitled to such Distribution (the
“Record Date”)
and (ii) the date on which such Distribution is made (the “Distribution Date”)(the
earlier of such dates being referred to as the “Determination Date”). Upon receipt of
the Distribution Notice, the Holder shall promptly (but in no event later than
three (3) Business Days) notify the Company whether it has elected (A) to
receive the same amount and type of assets (including, without limitation,
cash) being distributed as though the Holder were, on the Determination Date, a
holder of a number of shares of Common Stock into which this Warrant is
exercisable as of such Determination Date (such number of shares to be
determined without giving effect to any limitations on such exercise) or (B)
upon any exercise of this Warrant on or after the Distribution Date, to reduce
the Exercise Price applicable to such exercise by reducing the Exercise Price
in effect on the Business Day immediately preceding the Record Date by an
amount equal to the fair market value of the assets to be distributed divided
by the number of shares of Common Stock as to which such Distribution is to
be made, such fair market value to be reasonably determined in good faith by
the independent members of the Company’s Board of Directors. Upon receipt of
such election notice from the Holder, the Company shall timely effectuate the
transaction or adjustment contemplated in the foregoing clause (A) or (B), as
applicable. If the Holder does not notify the Company of its election pursuant
to the preceding sentence on or prior to the Determination Date, the Holder
shall be deemed to have elected clause (A) of the preceding sentence.


 


(d)           Convertible Securities; Options.
If, at any time after the Issue Date, the Company issues Convertible Securities
or Options to the record holders of the Common Stock, whether or not such
Convertible Securities or Options are immediately convertible, exercisable or
exchangeable, then the Holders shall be entitled, upon any exercise of this
Warrant after the date of record for determining stockholders entitled to
receive such Convertible Securities or Options (or if no such record is taken,
the date on which such Convertible Securities or Options are issued), to
receive the aggregate number of Convertible Securities or Options which the
Holder would have received with respect to the shares of Common Stock issuable
upon such exercise (without giving effect to any limitations on such exercise
contained in this Warrant or the Securities Purchase Agreement) had the Holder
been the holder of such shares of Common


 


6

















 


Stock on the record date for the determination of stockholders entitled
to receive such Convertible Securities or Options (or if no such record is
taken, the date on which such Convertible Securities or Options were issued).


 


(e)           Dilutive Issuances.


 


(i)            Adjustment Upon Dilutive Issuance.
If, at any time after the Issue Date, the Company issues or sells, or in
accordance with Section
6(e)(ii) is deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share less than the
Exercise Price on the date of such issuance or sale (or deemed issuance or
sale) (a “Dilutive
Issuance”), then the Exercise Price shall be adjusted as
follows:


 


(A)          if such Dilutive Issuance occurs on or
prior to the eighteen (18) month anniversary of the Issue Date, then effective
immediately upon such Dilutive Issuance, the Exercise Price shall be adjusted
so as to equal the consideration received or receivable by the Company (on a
per share basis) for the additional shares of Common Stock so issued, sold or deemed
issued or sold in such Dilutive Issuance (which, in the case of a deemed
issuance or sale, shall be calculated in accordance with Section 6(e)(ii)
below). Notwithstanding the foregoing, no adjustment shall be made pursuant to
this Section 6(e)(i)(A)
if such adjustment would result in an increase in the Exercise Price.


 


(B)           if such Dilutive
Issuance occurs after the eighteen (18) month anniversary of the Issue Date,
then effective immediately upon the Dilutive Issuance, the Exercise Price shall
be adjusted so as to equal an amount determined by multiplying such Exercise
Price by the following fraction:


 


N0 + N1


N0 + N2


 


where:


 


N0 =                         the number of shares of Common
Stock outstanding immediately prior to such Dilutive Issuance (without taking
into account any Convertible Securities or Options, including the Notes and
Warrants);


 


N1 =                        the
number of shares of Common Stock which the aggregate consideration, if any,
received or receivable by the Company for the total number of such additional
shares of Common Stock so issued, sold or deemed issued or sold in such
Dilutive Issuance (which, in the case of a deemed issuance or sale, shall be
calculated in accordance with Section 6(e)(ii) below) would purchase at the Exercise
Price in effect immediately prior to such Dilutive Issuance; and


 


N2 =                         the number of such additional
shares of Common Stock so issued, sold or deemed issued or sold in such
Dilutive Issuance.


 


7

















 


Notwithstanding
the foregoing, no adjustment shall be made pursuant hereto if such adjustment
would result in an increase in the Exercise Price.


 


(ii)           Effect On Exercise Price Of
Certain Events. For purposes of determining the adjusted Exercise Price
under Section 6(e)(i),
the following will be applicable:


 


(A)          Issuance Of
Options. If the Company issues or sells any Options, whether or not
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options (and the price of any conversion of
Convertible Securities, if applicable) is less than the Exercise Price in
effect on the date of issuance or sale of such Options, then the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion, exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the “price per
share for which Common Stock is issuable upon the exercise of such Options”
shall be determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale of all such
Options, plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion, exercise or exchange thereof (determined in accordance with the
calculation method set forth in Section 6(e)(ii)(B) below) at the time such Convertible
Securities first become convertible, exercisable or exchangeable, by (y) the
maximum total number of shares of Common Stock issuable upon the exercise of
all such Options (assuming full conversion, exercise or exchange of Convertible
Securities, if applicable). No further adjustment to the Exercise Price shall be
made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon the conversion, exercise or exchange of Convertible Securities
issuable upon exercise of such Options. To the extent that shares of Common Stock or Convertible Securities
are not delivered pursuant to such Options, upon the expiration or termination
of such Options, the Exercise Price shall be readjusted to the Exercise Price
that would then be in effect had the adjustments made upon the issuance of such
Options been made on the basis of delivery of only the number of shares of
Common Stock actually delivered.


 


(B)           Issuance Of
Convertible Securities. If the Company issues or sells any Convertible
Securities, whether or not immediately convertible, exercisable or exchangeable,
and the price per share for which Common Stock is issuable upon such
conversion, exercise or exchange is less than the Exercise Price in effect on
the date of issuance or sale of such Convertible Securities, then the maximum
total number of shares of Common Stock issuable upon the conversion, exercise
or exchange of all such Convertible Securities shall, as of the date of the
issuance or sale of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. If
the Convertible Securities so issued or sold do not have a fluctuating
conversion or exercise price or exchange ratio, then for the purposes of the
immediately preceding sentence, the “price per share for which Common Stock is 


 


8

















 


issuable upon
such conversion, exercise or exchange” shall be determined by dividing (A) the
total amount, if any, received or receivable by the Company as consideration
for the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion, exercise or exchange thereof (determined in accordance
with the calculation method set forth in this Section 6(e)(ii)(B)) at the time such
Convertible Securities first become convertible, exercisable or exchangeable,
by (B) the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities. If the
Convertible Securities so issued or sold have a fluctuating conversion or
exercise price or exchange ratio (a “Variable Rate Convertible Security”), then
for purposes of the first sentence of this Section 6(e)(ii)(B), the “price per share for
which Common Stock is issuable upon such conversion, exercise or exchange”
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Variable Rate Convertible Security have been satisfied) if the conversion
price of such Variable Rate Convertible Security on the date of issuance or
sale thereof were equal to the actual conversion price on such date (or such
higher minimum conversion price if such Variable Rate Convertible Security is
subject to a minimum conversion price) (the “Assumed Variable Market Price”), and,
further, if the conversion price of such Variable Rate Convertible Security at
any time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 6(e) with
respect to any Variable Rate Convertible Security, the Exercise Price in effect
at such time shall be readjusted to equal the Exercise Price which would have
resulted if the Assumed Variable Market Price at the time of issuance of the
Variable Rate Convertible Security had been equal to the actual conversion
price of such Variable Rate Convertible Security existing at the time of the
adjustment required by this sentence; provided,
however, that if the conversion or exercise price or exchange ratio
of a Convertible Security may fluctuate solely as a result of provisions
designed to protect against dilution, such Convertible Security shall not be
deemed to be a Variable Rate Convertible Security. No further adjustment to the
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion, exercise or exchange of such Convertible Securities.


 


(C)           Change In Option
Price Or Conversion Rate. If there is a change at any time in (x) the
amount of additional consideration payable to the Company upon the exercise of
any Options; (y) the amount of additional consideration, if any, payable to the
Company upon the conversion, exercise or exchange of any Convertible Securities;
or (z) the rate at which any Convertible Securities are convertible into or
exercisable or exchangeable for Common Stock (in each such case, other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change shall be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion, exercise or exchange rate, as the case may
be, at the time initially issued or sold.


 


(D)          Calculation Of
Consideration Received. If any Common Stock, Options or Convertible
Securities are issued or sold for cash, the consideration received therefor
will be the amount received by the Company therefor. In case any Common


 


9

















 


Stock, Options
or Convertible Securities are issued or sold for a consideration part or all of
which shall be other than cash, including in the case of a strategic or similar
arrangement in which the other entity will provide services to the Company,
purchase services from the Company or otherwise provide intangible
consideration to the Company, the amount of the consideration other than cash received
by the Company (including the net present value of the consideration expected
by the Company for the provided or purchased services) shall be the fair market
value of such consideration. In case any Common Stock, Options or Convertible
Securities are issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration therefor
will be deemed to be the fair market value of such portion of the net assets
and business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The independent
members of the Company’s Board of Directors shall calculate reasonably and in
good faith, using standard commercial valuation methods appropriate for valuing
such assets, the fair market value of any consideration.


 


(iii)          Exceptions To Adjustment Of
Exercise Price. Notwithstanding the foregoing, no adjustment to the
Exercise Price shall be made pursuant to this Section 6(e) upon the issuance of any
Excluded Securities.


 


(iv)          Notice Of Adjustments. Upon the
occurrence of each adjustment or readjustment of the Exercise Price pursuant to
this Section 6(e)
resulting in a change in the Exercise Price by more than one percent (1%), or
any change in the number or type of stock, securities and/or other property
issuable upon exercise of this Warrant, the Company, at its expense, shall
promptly compute such adjustment, readjustment or change and prepare and
furnish to the Holder a certificate setting forth such adjustment, readjustment
or change and showing in detail the facts upon which such adjustment,
readjustment or change is based. The Company shall, upon the written request at
any time of the Holder, furnish to the Holder a like certificate setting forth
(i) such adjustment, readjustment or change, (ii) the Exercise Price at the
time in effect and (iii) the number of shares of Common Stock and the amount,
if any, of other securities or property which at the time would be received
upon exercise of this Warrant.


 


(v)           Adjustments; Additional Shares,
Securities or Assets. In the event that at any time, as a result of an
adjustment made pursuant to this Section 6, the Holder of this Warrant shall,
upon exercise of this Warrant, become entitled to receive securities or assets
(other than Common Stock) then, wherever appropriate, all references herein to
shares of Common Stock shall be deemed to refer to and include such shares
and/or other securities or assets; and thereafter the number of such shares
and/or other securities or assets shall be subject to adjustment from time to
time in a manner and upon terms as nearly equivalent as practicable to the
provisions of this Section
6. Any adjustment made herein that results in a decrease in the
Exercise Price shall also effect a proportional increase in the number of
shares of Common Stock into which this Warrant is exercisable.


 


10

















 


7.             MISCELLANEOUS.


 


(a)           Failure
to Exercise Rights not Waiver. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such
power, right or privilege preclude any other or further exercise thereof. All
rights and remedies of the Holder hereunder are cumulative and not exclusive of
any rights or remedies otherwise available. In the event that the Company
breaches any of its obligations hereunder to issue Warrant Shares or pay any
amounts as and when due, the Company shall bear all costs incurred by the
Holder in collecting such amount, including without limitation reasonable legal
fees and expenses.


 


(b)           Notices.
Any notices, consents, waivers or other communications required or permitted to
be given under the terms of this Warrant must be in writing and will be deemed
to have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:


 


	
   

  	
   

  	
  if to the
  Company:

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Earth
  Biofuels, Inc.

  
	
   

  	
  3001 Knox
  Street, Suite 403,

  
	
   

  	
  Dallas,
  Texas 75205

  
	
   

  	
  Telephone:

  	
  214.389.9800

  
	
   

  	
  Facsimile:

  	
  214.389.9806

  
	
   

  	
  Attention:

  	
  Dennis
  McLaughlin

  
	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  with a copy
  (for informational purposes only) to:

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Scheef &
  Stone, LLP

  
	
   

  	
  Telephone:

  	
  214.706.4200

  
	
   

  	
  Facsimile:

  	
  214.706.4242

  
	
   

  	
  Attention:

  	
  Roger A.
  Crabb, Esq.

  
						



 


and if to the Holder, to the
address and facsimile number as to which the Holder has notified the Company in
writing. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii)
above, respectively.


 


(c)           Amendments.
No amendment, modification or other change to, or waiver of any provision of,
this Warrant may be made unless such amendment, modification or change is set
forth in writing and is signed by the Company and the Holder.


 


11

















 


(d)           Transfer
of Warrant. The Holder may sell, transfer or otherwise dispose of all or
any part of this Warrant (including without limitation pursuant to a pledge) to
any person or entity as long as such sale, transfer or disposition is the subject
of an effective registration statement under the Securities Act of 1933, as
amended, and applicable state securities laws, or is exempt from registration
thereunder, and is otherwise made in accordance with the applicable provisions
of the Securities Purchase Agreement. From and after the date of any such sale,
transfer or disposition, the transferee hereof shall be deemed to be the holder
of the portion of this Warrant acquired by such transferee, and the Company
shall, as promptly as practicable, issue and deliver to such transferee a new
Warrant identical in all respects to this Warrant, in the name of such
transferee. The Company shall be entitled to treat the original Holder as the
holder of this entire Warrant unless and until it receives written notice of
the sale, transfer or disposition hereof.


 


(e)           Lost
or Stolen Warrant. Upon receipt by the Company of evidence of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of indemnity or security reasonably satisfactory to the
Company, and upon surrender and cancellation of this Warrant, if mutilated, the
Company shall execute and deliver to the Holder a new Warrant identical in all
respects to this Warrant.


 


(f)            Governing
Law. This Warrant shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within the State of New York.


 


(g)           Successors and Assigns. The
terms and conditions of this Warrant shall inure to the benefit of and be
binding upon the respective successors (whether by merger or otherwise) and
permitted assigns of the Company and the Holder. The Company may not assign its
rights or obligations under this Warrant except as specifically required or permitted
pursuant to the terms hereof.


 


(h)           Taxes. The issue of
stock certificates on exercises of this Warrant shall be made without charge to
the exercising Holder for any tax in respect of the issue thereof. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of stock in any name other
than that of the Holder of any Warrant exercised, and the Company shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the reasonable satisfaction
of the Company that such tax has been paid.


 


[Signature Page to Follow]


 


12

















 


IN WITNESS WHEREOF, the Company has duly
executed and delivered this Warrant as of the Issue Date.


 


 


	
   

  	
  EARTH BIOFUELS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 

















 


EXHIBIT A to WARRANT


 


EXERCISE NOTICE


 


The undersigned Holder hereby irrevocably exercises the right to
purchase               
of the shares of Common Stock (“Warrant Shares”) of EARTH BIOFUELS, INC.
evidenced by the attached Warrant (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.


 


1.             Form of Exercise
Price. The Holder intends that payment of the Exercise Price shall be made as:


 


          a Cash
Exercise with respect to                                  
Warrant Shares; and/or


 


          a Cashless
Exercise with respect to                                      
Warrant Shares, as permitted by Section 5(b) of the attached Warrant.


 


2.             Payment of Exercise
Price. In the event that the Holder has elected a Cash Exercise with respect to
some or all of the Warrant Shares to be issued pursuant hereto, the Holder
shall pay the sum of $                          
to the Company in accordance with the terms of the Warrant.


 


	
  Date:

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
   

  
	
  Name of Registered Holder

  	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
					



 


By tendering this Exercise Notice, the Holder represents to the Company
that it is an “accredited investor” as that term is defined in Rule 501 of
Regulation D, and that it is acquiring the Warrants Shares solely for its own
account, and not with a present view to the public resale or distribution of
all or any part thereof, except pursuant to sales that are registered under the
Securities Act or are exempt from the registration requirements of the
Securities Act; provided, however, that, in making such
representation, the Holder does not agree to hold the Warrants Shares for any
minimum or specific term and reserves the right to sell, transfer or otherwise
dispose of the Warrants Shares at any time in accordance with the provisions of
the Warrant and with Federal and state securities laws applicable to such sale,
transfer or disposition.