# **EXHIBIT 10.46**

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

**WARRANT**

**TO PURCHASE COMMON STOCK**

**OF**

**EARTHBIOFUELS, INC.**
| **Issue Date: June 7, 2006** | **Warrant No. 1r** |
|------------------------------|-------------------------|

 

THIS CERTIFIES that RADCLIFFE SPC, LTD. FOR AND ONBEHALF OF THE CLASS A CONVERTIBLE CROSSOVER SEGREGATED PORTFOLIO or anysubsequent holder hereof (the “***Holder***”), has the right to purchase from EARTH BIOFUELS,INC., a Delaware corporation (the “***Company***”), up to375,000 fully paid and nonassessable shares of the Company’s common stock, parvalue $0.001 per share (the “***Common Stock***”), subject to adjustment as providedherein, at a price per share equal to the Exercise Price (as defined below), atany time and from time to time beginning on the date on which this Warrant isissued (the “***Issue Date***”)and ending at 5:00 p.m., eastern time, on the fifth (5th) anniversary of the IssueDate or, if such day is not a Business Day, on the next succeeding Business Day(the “***Expiration Date***”).  This Warrant is issued pursuant to aSecurities Purchase Agreement, dated as of June 7, 2006 (the “***Securities Purchase Agreement***”).  Capitalized terms used herein and nototherwise defined shall have the respective meanings set forth in theSecurities Purchase Agreement.

1.                                       *EXERCISE.*

(a)           Right to Exercise; Exercise Price.  The Holder shall have the right to exercisethis Warrant at any time and from time to time during the period beginning onthe Issue Date and ending on the Expiration Date as to all or any part of theshares of Common Stock covered hereby (the “***Warrant Shares***”).  The “***Exercise Price***” for each Warrant Sharepurchased by the Holder upon the exercise of this Warrant shall be $2.50,subject to adjustment for the events specified in ***Section 6*** below.

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(b)           Exercise Notice.  In order to exercise this Warrant, the Holdershall (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 suchexercise (the “***ExerciseDate***”), to the Company an executed copy of the notice ofexercise in the form attached hereto as ***Exhibit A*** (the “***Exercise Notice***”), (ii) deliver theoriginal Warrant or a copy thereof, 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 nameor names in which the Warrant Shares issuable on such exercise shall beissued.  In the case of a dispute as tothe calculation of the Exercise Price or the number of Warrant Shares issuablehereunder (including, without limitation, the calculation of any adjustmentpursuant to ***Section 6***below),the Company shall promptly issue to the Holder the number of Warrant Sharesthat are not disputed and shall submit the disputed calculations to a certifiedpublic accounting firm of national recognition (other than the Company’s independentaccountants) within two (2) Business Days following the date on which theExercise Notice is delivered to the Company. The Company shall use its bestefforts to cause such accountant to calculate the Exercise Price and/or thenumber of Warrant Shares issuable hereunder and to notify the Company and theHolder of the results in writing no later than two (2) Business Days followingthe day on which such accountant received the disputed calculations (the “***Dispute Procedure***”).Such accountant’s calculation shall be deemed conclusive absent manifesterror.  The fees of any such accountantshall be borne by the party whose calculations were most at variance with thoseof such accountant.

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

(d)           Cancellation of Warrant.  This Warrant shall be canceled upon itsexercise and, if this Warrant is exercised in part, the Company shall, at thetime that it delivers Warrant Shares to the Holder pursuant to such exercise asprovided herein, issue a new warrant, and deliver to the Holder a certificaterepresenting 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 ofCommon Stock with respect to which this Warrant shall remain unexercised); *provided, however*, that the Holder shallbe entitled to exercise all or any portion of such new warrant at any timefollowing the time at which this Warrant is exercised, regardless of whetherthe Company has actually issued such new warrant or delivered to the Holder acertificate therefor.

(e)           Charter Amendment.  In the event there are insufficient shares ofCommon Stock authorized, unreserved and available for issuance upon exercise ofthis Warrant, the Company shall use its best efforts to effect an amendment ofits certificate of incorporation so as to increase the authorized shares ofCommon Stock to accommodate such exercise.

(f)            Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock uponexercise of this Warrant if the issuance of such shares of Common Stock wouldexceed that number of shares of Common Stock which the Company may

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issue upon exercise of this Warrant without breachingthe Company’s obligations under the rules or regulations of the PrincipalMarket (the “Exchange Cap”), except that such limitation shall not apply in theevent that the Company (A) obtains the approval of its shareholders as requiredby the applicable rules of the Principal Market for issuances of shares ofCommon Stock in excess of such amount or (B) obtains a written opinion fromoutside counsel to the Company that such approval is not required, whichopinion shall be reasonably satisfactory to the holders of the Warrantrepresenting at least a majority of the shares of Common Stock underlying theWarrants then outstanding issued under the Securities Purchase Agreement. Until such approval or written opinion is obtained, no Purchaser shall beissued, upon exercise of any Warrants, shares of Common Stock in an amountgreater than the product of the Exchange Cap multiplied by a fraction, thenumerator of which is the total number of shares of Common Stock issued to suchPurchaser pursuant to the Securities Purchase Agreement on the Issuance Dateand the denominator of which is the aggregate number of shares of Common Stockissued to the Purchasers pursuant to the Securities Purchase Agreement on theIssuance Date (with respect to each Purchaser, the “Exchange Cap Allocation”“). In the event that any Purchaser shall sell or otherwise transfer any of suchPurchaser’s Warrants, the transferee shall be allocated a pro rata portion ofsuch Purchaser’s Exchange Cap Allocation, and the restrictions of the priorsentence shall apply to such transferee with respect to the portion of theExchange Cap Allocation allocated to such transferee.  In the event thatany holder of Warrants shall exercise all of such holder’s Warrants into anumber of shares of Common Stock which, in the aggregate, is less than suchholder’s Exchange Cap Allocation, then the difference between such holder’sExchange Cap Allocation and the number of shares of Common Stock actuallyissued to such holder shall be allocated to the respective Exchange CapAllocations of the remaining holders of Warrants on a pro rata basis inproportion to the shares of Common Stock underlying the Warrants then held byeach such holder.  In the event that the Company is prohibited fromissuing any Warrant Shares for which an Exercise Notice has been received as aresult of the operation of this Section 1(f), the Company shall pay cash inexchange for cancellation of such Warrant Shares, at a price per Warrant Shareequal to the difference between the closing sale price and the Exercise Priceas of the date of the attempted exercise.

2.             *DELIVERY OFWARRANT SHARES UPON EXERCISE*.

Upon receipt of anExercise Notice pursuant to ***Section 1*** above, the Company shall, (A) in the case of aCash Exercise (as defined below) no later than the close of business on thelater to occur of (i) the third (3rd) Business Day following the Exercise Dateset forth in such Exercise Notice and (ii) the date on which the Company hasreceived 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 ofthe 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 WarrantShares as shall be determined as provided herein. The Company shall effectdelivery of Warrant Shares to the Holder, as long as the Company’s designatedtransfer 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 Transferprogram (“***FAST***”),by crediting the account of the Holder or

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its nominee at DTC (as specified in the applicableExercise Notice) with the number of Warrant Shares required to be delivered, nolater than the close of business on such Delivery Date. In the event that theTransfer Agent is not a participant in FAST, or if the Holder so specifies inan Exercise Notice or otherwise in writing on or before the Exercise Date, theCompany shall effect delivery of Warrant Shares by delivering to the Holder orits nominee physical certificates representing such Warrant Shares, no laterthan the close of business on such Delivery Date.  If any exercise would create a fractionalWarrant Share, such fractional Warrant Share shall be disregarded and thenumber of Warrant Shares issuable upon such exercise, in the aggregate, shallbe the nearest whole number of Warrant Shares. Warrant Shares delivered to the Holder shall not contain any restrictivelegend unless such legend is required pursuant to the terms of the SecuritiesPurchase Agreement.

3.             *FAILURE TO DELIVERWARRANT SHARES*.

(a)           Inthe event that the Company fails for any reason (other than as a result of theHolder’s failure, in the case of a Cash Exercise (as defined below), to pay theaggregate Exercise Price for the Warrant Shares being purchased) to deliver tothe Holder the number of Warrant Shares specified in the applicable ExerciseNotice (without any restrictive legend to the extent permitted by the terms ofthe 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 receive from the Company an amount equal to(i) (N/365) multiplied by (ii) the aggregate Exercise Price of theWarrant Shares which are the subject of such Exercise Default multiplied by(iii) the lower of sixteen percent (16%) and the maximum rate permitted byapplicable law or by the applicable rules or regulations of any GovernmentalAgency (the “***DefaultInterest Rate***”), where “N” equals the number of days elapsedbetween the original Delivery Date of such Warrant Shares and the date on whichsuch Exercise Default has been cured.  Inthe event that shares of Common Stock are purchased by or on behalf of theHolder in order to make delivery ona 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 theforegoing amounts, (i) the aggregate amount paid by or on behalf of the Holderfor such shares of Common Stock minus (ii) the aggregate amount of netproceeds, if any, received by the Holder from the sale of the Warrant Sharesissued by the Company pursuant to such exercise.  Amountspayable under this ***Section3(a)***shall be paid tothe Holder in immediately available funds on or before the fifth (5th) BusinessDay following written notice from the Holder to the Company specifying theamount owed to it by the Company pursuant to this ***Section 3(a)***.

(b)           Inaddition to its rights under ***Section 3(a)*** above, upon an Exercise Default, theExercise Price applicable to the applicable exercise shall be automatically beadjusted to the lower of (i) the Exercise Price in effect on the Exercise Dateand (ii) the lowest Exercise Price occurring from the first date of suchExercise Default through the date on which all Warrant Shares to which theHolder is entitled have been delivered in accordance with the terms of thisWarrant.  The Holder shall have the rightto pursue all other remedies available to it at law or in equity (including, withoutlimitation, a decree of specific performance and/or injunctive relief).

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4.             *EXERCISE LIMITATION*.

In no event shall theHolder be permitted to exercise this Warrant, or part thereof, if, upon suchexercise, the number of shares of Common Stock beneficially owned by the Holder(other than shares which may be deemed beneficially owned except for beingsubject to a limitation on exercise or exercise analogous to the limitationcontained in this ***Section4***), would exceed 4.99% of the number of shares of CommonStock then issued and outstanding, it being the intent of the Company and theHolder that the Holder not be deemed at any time to have the power to vote ordispose of greater than 4.99% of the number of shares of Common Stock issuedand outstanding at any time. Nothing contained herein shall be deemed torestrict the right of the Holder to exercise this Warrant at such time as suchexercise will not violate the provisions of this ***Section 4***.  As usedherein, beneficial ownership shall be determined in accordance with Section13(d) of (i) Securities Exchange Act of 1934, as amended, and the rulesthereunder.  To the extent that thelimitation contained in this ***Section 4***applies (and without limiting any rights the Company may otherwise have), theCompany may rely on the Holder’s determination of whether this Warrantis exercisable pursuant to the terms hereof,the Company shall have no obligation whatsoever to verify or confirm theaccuracy of such determination, and the submission of an Exercise Notice by theHolder shall be deemed to be the Holder’s representation that this Warrant isexercisable pursuant to the terms hereof.  The Company shall have noliability to any person if the Holder’s determination of whether this Warrantis exercisable pursuant to the terms hereof is incorrect.

5.                                       *PAYMENT OF THE EXERCISE PRICE; CASHLESS EXERCISE*.

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

(a)           through a cash exercise (a “***Cash Exercise***”) bydelivering immediately available funds, or

(b)           through a cashless exercise (a “***Cashless Exercise***”)if, following the one-year anniversary of the Issue Date, an effectiveRegistration Statement is not available for the resale of all of the WarrantShares issuable hereunder at the time an Exercise Notice is delivered to theCompany, or if the Company otherwise consents in writing.  The Holder shall effect a Cashless Exerciseby surrendering this Warrant to the Company and noting on the Exercise Notice thatthe Holder wishes to effect a Cashless Exercise, upon which the Company shallissue 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; |

 

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|        | A = the Market Price as of the Exercise Date; and |
|--------|---------------------------------------------------|
|   |                                              |
|   | B = the Exercise Price.                           |
|   |                                              |

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

6.             *ANTI-DILUTIONADJUSTMENTS; DISTRIBUTIONS; OTHER EVENTS*.

The Exercise Priceand the number of Warrant Shares issuable hereunder shall be subject toadjustment from time to time as provided in this ***Section 6***.

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

(b)           MajorTransactions.  If, at any time afterthe Issue Date, any Major Transaction shall occur, then the Holder shallthereafter have the right to receive upon exercise, in lieu of the shares ofCommon Stock otherwise issuable, such shares of publicly traded stock,securities and/or other property as would have been issued or payable upon suchMajor Transaction with respect to or in exchange for the number of shares ofCommon Stock which would have been issuable upon exercise had such MajorTransaction not taken place (without giving effect to any limitations on suchexercise contained in this Warrant or the Securities Purchase Agreement).Notwithstanding the foregoing, following a Major Transaction in which all orsubstantially all of the outstanding Common Stock of the Company is exchangedfor, converted into, acquired for or constitutes the right to receive solelycash (a “Triggering Event”), at the written request of the Holder deliveredbefore the 30th day after such Triggering Event, the Company (or the successorentity) shall purchase this Warrant from the Holder by paying to the Holder,within five days after such request, cash in an amount equal to theBlack-Scholes Value (as defined below) of the remaining unexercised portion ofthis Warrant.  “Black-Scholes Value”means the value of the unexercised portion of this Warrant calculated using theBlack-Scholes Option Pricing Model determined as of the day immediatelyfollowing the public announcement of the applicable Triggering Event andreflecting (i) a risk-free interest rate corresponding to the U.S. Treasuryrate for a period equal to the remaining term of this Warrant as of the date ofsuch request and (ii) an expected volatility equal to the lesser of (a) the 100day volatility obtained from the HVT function on Bloomberg or (b) a volatilityof 60.  The Company shall not effect anyMajor Transaction unless (i) the Holder has received written notice of suchtransaction at least thirty (30) days prior thereto (which period shall beincreased to sixty one (61) days if, at such time, without giving effect to thelimitation on exercise contained in ***Section 4*** hereof, the Holder wouldbeneficially own more than 4.9% of the Common Stock then outstanding, and the

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Holderhas notified the Company in writing of such circumstance) but in no event laterthan fifteen (15) days prior to the record date for the determination ofstockholders entitled to vote with respect thereto; *provided*, *however*,that the Company shall publicly disclose the material terms of any such MajorTransaction on or before the date on which it delivers notice of a MajorTransaction to the Holder, and (ii) the resulting successor or acquiring entity(if not the Company) assumes by written instrument (in form and substancereasonable satisfactory to the Holder) the obligations of the Company underthis Warrant.  The above provisions shallapply regardless of whether or not there would have been a sufficient number ofshares of Common Stock authorized and available for issuance upon exercise of thisWarrant as of the date of such transaction, and shall similarly apply tosuccessive Major Transactions.

(c)           Distributions.  If, at any time after the Issue Date, theCompany declares or makes any distribution of cash or any other assets (orrights to acquire such assets) to holders of Common Stock, including withoutlimitation any dividend or distribution to the Company’s stockholders in shares(or rights to acquire shares) of capital stock of a subsidiary) (a “***Distribution***”), theCompany 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***”)(theearlier of such dates being referred to as the “***Determination Date***”).  Upon receipt of the Distribution Notice, theHolder shall promptly (but in no event later than three (3) Business Days) notifythe Company whether it has elected (A) to receive the same amount and type ofassets (including, without limitation, cash) being distributed as though theHolder were, on the Determination Date, a holder of a number of shares ofCommon Stock into which this Warrant is exercisable as of such DeterminationDate (such number of shares to be determined without giving effect to anylimitations on such exercise) or (B) upon any exercise of this Warrant on orafter the Distribution Date, to reduce the Exercise Price applicable to suchexercise by reducing the Exercise Price in effect on the Business Dayimmediately preceding the Record Date by an amount equal to the fair marketvalue of the assets to be distributed divided by the number of shares ofCommon Stock as to which such Distribution is to be made, such fair marketvalue to be reasonably determined in good faith by the independent members ofthe Company’s Board of Directors.  Uponreceipt of such election notice from the Holder, the Company shall timely effectuatethe transaction or adjustment contemplated in the foregoing ***clause (A) or (B)***, asapplicable.****** If the Holder does not notify the Company ofits election pursuant to the preceding sentence on or prior to theDetermination Date, the Holder shall be deemed to have elected clause (A) ofthe preceding sentence.

(d)           ConvertibleSecurities; Options.  If, at any timeafter the Issue Date, the Company issues Convertible Securities or Options tothe record holders of the Common Stock, whether or not such ConvertibleSecurities or Options are immediately convertible, exercisable or exchangeable,then the Holders shall be entitled, upon any exercise of this Warrant after thedate of record for determining stockholders entitled to receive suchConvertible Securities or Options (or if no such record is taken, the date onwhich such Convertible Securities or Options are issued), to receive theaggregate number of Convertible Securities or Options which the Holder wouldhave received with respect to the shares of Common Stock issuable upon suchexercise (without giving effect to any limitations on such exercise containedin this Warrant or

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theSecurities Purchase Agreement) had the Holder been the holder of such shares ofCommon Stock on the record date for the determination of stockholders entitledto receive such Convertible Securities or Options (or if no such record istaken, the date on which such Convertible Securities or Options were issued).

(e)           DilutiveIssuances.

(i)            AdjustmentUpon Dilutive Issuance.  If, at anytime after the Issue Date, the Company issues or sells, or in accordance with ***Section 6(e)(ii)***isdeemed to have issued or sold, any shares of Common Stock for no considerationor for a consideration per share less than the Exercise Price on the date ofsuch 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 orprior to the eighteen (18) month anniversary of the Issue Date, then effectiveimmediately upon such Dilutive Issuance, the Exercise Price shall be adjustedso as to equal the consideration received or receivable by the Company (on aper share basis) for the additional shares of Common Stock so issued, sold ordeemed issued or sold in such Dilutive Issuance (which, in the case of a deemedissuance 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 adjustmentwould result in an increase in the Exercise Price.

(B)           if such Dilutive Issuance occursafter the eighteen (18) month anniversary of the Issue Date, then effectiveimmediately upon the Dilutive Issuance, the Exercise Price shall be adjusted soas to equal an amount determined by multiplying such Exercise Price by thefollowing fraction:

## **N****0 + N****1**

## **N****0 + N****2**

where:

N0 =                         the number of shares of CommonStock outstanding immediately prior to such Dilutive Issuance (without takinginto account any Convertible Securities or Options, including the Notes andWarrants);

N1 =                        the number of shares of CommonStock which the aggregate consideration, if any, received or receivable by theCompany for the total number of such additional shares of Common Stock soissued, sold or deemed issued or sold in such Dilutive Issuance (which, in thecase 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 suchDilutive Issuance; and

N2 =                         the number of such additionalshares of Common Stock so issued,

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sold or deemedissued or sold in such Dilutive Issuance.

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

(ii)           EffectOn Exercise Price Of Certain Events. For purposes of determining the adjusted Exercise Price under ***Section 6(e)(i)***, thefollowing 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 whichCommon Stock is issuable upon the exercise of such Options (and the price ofany conversion of Convertible Securities, if applicable) is less than theExercise Price in effect on the date of issuance or sale of such Options, thenthe maximum total number of shares of Common Stock issuable upon the exerciseof all such Options (assuming full conversion, exercise or exchange ofConvertible Securities, if applicable) shall, as of the date of the issuance orsale of such Options, be deemed to be outstanding and to have been issued andsold by the Company for such price per share. For purposes of the precedingsentence, the “price per share for which Common Stock is issuable upon theexercise of such Options” shall be determined by dividing (x) the total amount,if any, received or receivable by the Company as consideration for the issuanceor sale of all such Options, plus the minimum aggregate amount of additionalconsideration, if any, payable to the Company upon the exercise of all suchOptions, plus, in the case of Convertible Securities issuable upon theexercise of such Options, the minimum aggregate amount of additionalconsideration 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 ofCommon Stock issuable upon the exercise of all such Options (assuming fullconversion, exercise or exchange of Convertible Securities, if applicable). Nofurther adjustment to the Exercise Price shall be made upon the actual issuanceof such Common Stock upon the exercise of such Options or upon the conversion,exercise or exchange of Convertible Securities issuable upon exercise of suchOptions.

(B)           Issuance Of Convertible Securities.  If the Company issues or sells anyConvertible Securities, whether or not immediately convertible, exercisable orexchangeable, and the price per share for which Common Stock is issuable uponsuch conversion, exercise or exchange is less than the Exercise Price in effecton the date of issuance or sale of such Convertible Securities, then the maximumtotal number of shares of Common Stock issuable upon the conversion, exerciseor exchange of all such Convertible Securities shall, as of the date of theissuance or sale of such Convertible Securities, be deemed to be outstandingand to have been issued and sold by the Company for such price per share. Ifthe Convertible Securities so issued or sold do not have a fluctuatingconversion or exercise price or exchange ratio, then for the purposes of theimmediately preceding sentence, the “price per share for which Common Stock isissuable upon such conversion, exercise or exchange” shall be determined bydividing (A) the total amount, if any, received or receivable by the Company asconsideration for the issuance or sale of all such Convertible Securities, plusthe minimum aggregate

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amount of additionalconsideration, if any, payable to the Company upon the conversion, exercise orexchange thereof (determined in accordance with the calculation method setforth in this ***Section6(e)(ii)(B)***) at the time such Convertible Securities firstbecome convertible, exercisable or exchangeable, by (B) the maximum totalnumber of shares of Common Stock issuable upon the exercise, conversion orexchange of all such Convertible Securities. If the Convertible Securities soissued or sold have a fluctuating conversion or exercise price or exchangeratio (a “***Variable RateConvertible Security***”), then for purposes of the first sentenceof this ***Section6(e)(ii)(B)***, the “price per share for which Common Stock isissuable upon such conversion, exercise or exchange” shall be deemed to be thelowest price per share which would be applicable (assuming all holding periodand other conditions to any discounts contained in such Variable RateConvertible Security have been satisfied) if the conversion price of suchVariable Rate Convertible Security on the date of issuance or sale thereof wereequal to the actual conversion price on such date (or such higher minimumconversion price if such Variable Rate Convertible Security is subject to aminimum conversion price) (the “***Assumed Variable Market Price***”), and, further, if theconversion price of such Variable Rate Convertible Security at any time ortimes thereafter is less than or equal to the Assumed Variable Market Pricelast used for making any adjustment under this ***Section 6(e)*** with respect to anyVariable Rate Convertible Security, the Exercise Price in effect at such timeshall be readjusted to equal the Exercise Price which would have resulted ifthe Assumed Variable Market Price at the time of issuance of the Variable RateConvertible Security had been equal to the actual conversion price of suchVariable Rate Convertible Security existing at the time of the adjustmentrequired by this sentence; *provided, however*,that if the conversion or exercise price or exchange ratio of a ConvertibleSecurity may fluctuate solely as a result of provisions designed to protectagainst dilution, such Convertible Security shall not be deemed to be aVariable Rate Convertible Security.  Nofurther adjustment to the Exercise Price shall be made upon the actual issuanceof such Common Stock upon conversion, exercise or exchange of such ConvertibleSecurities.

(C)           Change In Option Price OrConversion Rate.  If there is achange at any time in (x) the amount of additional consideration payable to theCompany upon the exercise of any Options; (y) the amount of additionalconsideration, if any, payable to the Company upon the conversion, exercise orexchange of any Convertible Securities; or (z) the rate at which anyConvertible Securities are convertible into or exercisable or exchangeable forCommon Stock (in each such case, other than under or by reason of provisionsdesigned to protect against dilution), the Exercise Price in effect at the timeof such change shall be readjusted to the Exercise Price which would have beenin effect at such time had such Options or Convertible Securities stilloutstanding provided for such changed additional consideration or changedconversion, exercise or exchange rate, as the case may be, at the timeinitially issued or sold.

(D)          Calculation Of ConsiderationReceived.  If any Common Stock,Options or Convertible Securities are issued or sold for cash, theconsideration received therefor will be the amount received by the Companytherefor. In case any Common Stock, Options or Convertible Securities areissued or sold for a consideration part or all of which shall be other thancash, including in the case of a strategic or similar arrangement in which theother entity will provide services to the Company, purchase

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services from the Companyor otherwise provide intangible consideration to the Company, the amount of theconsideration other than cash received by the Company (including the netpresent value of the consideration expected by the Company for the provided orpurchased services) shall be the fair market value of such consideration. Incase any Common Stock, Options or Convertible Securities are issued inconnection with any merger or consolidation in which the Company is thesurviving corporation, the amount of consideration therefor will be deemed tobe the fair market value of such portion of the net assets and business of thenon-surviving corporation as is attributable to such Common Stock, Options orConvertible Securities, as the case may be. The independent members of theCompany’s Board of Directors shall calculate reasonably and in good faith,using standard commercial valuation methods appropriate for valuing suchassets, the fair market value of any consideration.

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

(iv)          NoticeOf Adjustments.  Upon the occurrenceof 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%), orany change in the number or type of stock, securities and/or other propertyissuable upon exercise of this Warrant, the Company, at its expense, shallpromptly compute such adjustment, readjustment or change and prepare andfurnish to the Holder a certificate setting forth such adjustment, readjustmentor change and showing in detail the facts upon which such adjustment, readjustmentor change is based.  The Company shall,upon the written request at any time of the Holder, furnish to the Holder alike certificate setting forth (i) such adjustment, readjustment or change,(ii) the Exercise Price at the time in effect and (iii) the number of shares ofCommon Stock and the amount, if any, of other securities or property which atthe 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 madepursuant to this ***Section6***, the Holder of this Warrant shall, upon exercise of thisWarrant, become entitled to receive securities or assets (other than CommonStock) then, wherever appropriate, all references herein to shares of CommonStock shall be deemed to refer to and include such shares and/or othersecurities or assets; and thereafter the number of such shares and/or othersecurities or assets shall be subject to adjustment from time to time in amanner and upon terms as nearly equivalent as practicable to the provisions ofthis ***Section 6***.  Any adjustment made herein that results in adecrease in the Exercise Price shall also effect a proportional increase in thenumber of shares of Common Stock into which this Warrant is exercisable.

7.             *MISCELLANEOUS*.

(a)           Failureto Exercise Rights not Waiver.  Nofailure or delay on the part of the Holder in the exercise of any power, rightor privilege hereunder shall operate as a waiver thereof, nor shall any singleor partial exercise of any such power, right or privilege preclude any

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otheror further exercise thereof. All rights and remedies of the Holder hereunderare cumulative and not exclusive of any rights or remedies otherwise available.In the event that the Company breaches any of its obligations hereunder toissue Warrant Shares or pay any amounts as and when due, the Company shall bearall costs incurred by the Holder in collecting such amount, including withoutlimitation reasonable legal fees and expenses.

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

 

if to the Company:

 

EarthBiofuels, Inc.

3001Knox Street, Suite 403,

Dallas,Texas 75205

Telephone:  214.389.9800

Facsimile:          214.389.9806

Attention:       Dennis McLaughlin

 

with a copy (forinformational purposes only) to:

 

Scheef& Stone, LLP

Telephone:  214.706.4200

Facsimile:          214.706.4242

Attention:       Roger A. Crabb, Esq.

 

and ifto the Holder, to the address and facsimile number as to which the Holder hasnotified the Company in writing. Written confirmation of receipt (A) given bythe recipient of such notice, consent, waiver or other communication, (B)mechanically or electronically generated by the sender’s facsimile machinecontaining the time, date, recipient facsimile number and an image of the firstpage of such transmission or (C) provided by an overnight courier service shallbe rebuttable evidence of personal service, receipt by facsimile or receiptfrom an overnight courier service in accordance with clause (i), (ii) or (iii)above, respectively.

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

(d)           Transferof Warrant.  The Holder may sell,transfer or otherwise dispose of all or any part of this Warrant (includingwithout limitation pursuant to a pledge) to any person or entity as long assuch sale, transfer or disposition is the subject of an effective registrationstatement under the Securities Act of 1933, as amended, and applicable statesecurities laws, or is exempt from registration thereunder, and is otherwisemade in accordance

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withthe 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 holderof the portion of this Warrant acquired by such transferee, and the Companyshall, as promptly as practicable, issue and deliver to such transferee a newWarrant identical in all respects to this Warrant, in the name of suchtransferee. The Company shall be entitled to treat the original Holder as theholder of this entire Warrant unless and until it receives written notice ofthe sale, transfer or disposition hereof.

(e)           Lostor Stolen Warrant.  Upon receipt bythe Company of evidence of the loss, theft, destruction or mutilation of thisWarrant, and (in the case of loss, theft or destruction) of indemnity orsecurity reasonably satisfactory to the Company, and upon surrender andcancellation of this Warrant, if mutilated, the Company shall execute anddeliver to the Holder a new Warrant identical in all respects to this Warrant.

(f)            GoverningLaw.  This Warrant shall be governedby and construed in accordance with the laws of the State of New York applicable to contracts made and to be performedentirely within the State of New York.

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

(h)           Taxes.  The issue of stock certificates on exercisesof this Warrant shall be made without charge to the exercising Holder for anytax in respect of the issue thereof.  TheCompany shall not, however, be required to pay any tax which may be payable inrespect of any transfer involved in the issue and delivery of stock in any nameother than that of the Holder of any Warrant exercised, and the Company shallnot be required to issue or deliver any such stock certificate unless and untilthe person or persons requesting the issue thereof shall have paid to theCompany the amount of such tax or shall have established to the reasonablesatisfaction of the Company that such tax has been paid.

[Signature Page toFollow]

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IN WITNESSWHEREOF, the Company has duly executed and delivered this Warrant as of theIssue Date.
|   |                 |
|--------|----------------------|
|        | EARTH BIOFUELS, INC. |
|   |                 |
|   |                 |
|   | By:                  | /s/ DENNIS G. MCLAUGHLIN, III |   |
|   |                 | Name: Dennis G. McLaughlin, III |
|   |                 | Title: Chief Executive Officer |

 

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EXHIBIT A to WARRANT

EXERCISE NOTICE

The undersigned Holder hereby irrevocably exercisesthe right to purchase                 ofthe shares of Common Stock (“Warrant Shares”) of EARTH BIOFUELS, INC.evidenced by the attached Warrant (the “Warrant”).  Capitalized terms used herein and nototherwise defined shall have the respective meanings set forth in the Warrant.

1.             Formof Exercise Price.  The Holder intendsthat 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 aCash Exercise with respect to some or all of the Warrant Shares to be issuedpursuant 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 Holderrepresents to the Company that it is an “accreditedinvestor” as that term is defined in Rule 501 of Regulation D, and that it isacquiring the Warrants Shares solely for its own account, and not with apresent 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 areexempt 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 forany minimum or specific term and reserves the right to sell, transfer orotherwise dispose of the Warrants Shares at any time in accordance with theprovisions of the Warrant and with Federal and state securities laws applicableto such sale, transfer or disposition.

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