**Exhibit 10.17**

June 13, 2006

***PERSONAL AND CONFIDENTIAL***

HPS Development, L.L.C.c/o LOBRANO & LOBRANO, L.L.C.147 Keating DrivePost Office Box 208Belle Chasse, Louisiana 70037Telephone: (504) 433-3100Fax: (504) 433-3103

**Gentlemen:**

The purpose of this Letterof Intent is to set forth our mutual understanding in connection with theproposed acquisition, by Earth Biofuels, Inc. (the “*Purchaser*”), of 50% of the membershipinterest (the “*Membership Interest*”)in a newly-created limited liability company (“*Newco*”) that is currently 100% owned by HPS Development,L.L.C. (“*HPS*”). upon theterms and conditions set forth herein. This Letter of Intent shall replace inits entirety, the letter of intent dated April 24, 2006.

1.         The Transaction. The following is a brief summary ofthe proposed transaction (the “*Transaction*”):

HPS will contribute to Newco, HPS’ ownership of thefollowing: approximately 50 acres (more or less) of ground in or near to MyrtleGrove, Plaquemines Parish, Louisiana, together with the improvements situatedthereon, included a closed fuel ethanol distillery built by SPECTRUM in 1988(located adjacent to the Mississippi River near New Orleans, Louisiana) and theequipment and other assets associated with such ethanol distillery(collectively, the “*Plant*”)**and (2) 10 acre tracts of land adjacentto the plant for the construction and operation of a Bio-diesel plant oradditional storage space if such projects are undertaken by Newco.

The Purchaser will purchase the Membership Interestfrom HPS for consideration consisting of a combination of cash and shares ofcommon stock of Purchaser, as set forth in more detail below.

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2.         Consideration.The consideration for Purchaser’s acquisition of the Membership Interest fromHPS will be comprised of cash aggregating $50 million, plus shares of commonstock of Purchaser, with such amounts payable as follows:

·                                          Onor about April 24, 2006, a deposit in the amount of $3 million.

·                                          Onor about June 6, 2006 (or upon execution of this Letter of Intent), a depositin the amount of $2 million.

·                                          Inthe event that the Purchaser and HPS (a) agree on the general terms of theTransaction as set forth in this Letter of Intent *and*(b) HPS subsequently fails to close the Transaction(other than by reason of a withdrawal of Purchaser from the Transaction), thenthe Purchaser may recover from HPS the aggregate $5 million in deposits, aswell as Purchaser’s acquisition expenses.

·                                          Onor about June 19, 2006, the amount of $2 million.

·                                          Onor about July 1, 2006, the amount of $13 million.

·                                          Uponclosing of the Transaction (anticipated to occur by August 1, 2006), the amountof $30 million (of which $15 million shall be deposited into a separate escrowagreement for purposes of the cost and performance warranties of HPS, describedbroadly below). Also upon closing of the Transaction, the $15 million held inescrow pending closing of the Transaction is to be released to HPS.

·                                          Uponclosing of the Transaction, the Purchaser will issue to HPS 5,829,005restricted shares of common stock of Purchaser, said obligation to accrue onJuly 1, 2006.

3.         Conditions Precedent.

In addition to the other terms and conditions to beset forth in the Definitive Agreements, the Closing of the Transaction shall beconditioned upon:

·                                          Receiptof reports from each of (a) Turner Construction or another fully-bondedconstruction contractor acceptable to each of Purchaser and HPS, (b) BenchmarkTechnology or another fully-bonded engineering firm acceptable to each ofPurchaser and HPS and (c) ENGlobal Engineering Inc. or another fully-bondedengineering firm acceptable to each of Purchaser and HPS; and

·                                          Receiptof preliminary reports from Luminate or another firm acceptable to MorganKeegan & Company, confirming the reports of Turner Construction, BenchmarkTechnology and ENGlobal Engineering Inc. to be within the budgetary

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and timeline parameters (agreed upon by Purchaser and HPS) for retrofitof the Plant. The parties recognize and acknowledge that the receipt offavorable reports from Luminate is a pre-condition to Morgan Keegan &Company’s ability to secure public financing for retrofit of the Plant and,accordingly, success of the project contemplated by the Transaction.

·                                          Contemporaneouslywith the closing of the Transaction, HPS shall have agreed to lend Newco fundssufficient to commence the retrofit of the Plant, with the full and promptrepayment thereof to originate from the public financing underwritten by MorganKeegan & Company, the proceeds of which are anticipated to be availablewithin two to three months of closing of the Transaction.

HPS covenants that it will engage Turner Construction, BenchmarkTechnology and ENGlobal Engineering Inc. (or comparable caliber companiesacceptable to each of Purchaser and Morgan Keegan *&*Company, as contemplated in this Letter of Intent) forand on behalf of Newco. The costs of such engagements are to be initiallyunderwritten by HPS, with the full and prompt repayment thereof to originatefrom the public financing underwritten by Morgan Keegan & Company.

HPS further covenants that, in order to further the public financingunderwritten by Morgan Keegan & Company, it will give Purchaser and MorganKeegan & Company full access to the documentation, communications and otherreporting of Turner Construction, Benchmark Technology and ENGlobal EngineeringInc. (or comparable caliber companies acceptable to each of Purchaser andMorgan Keegan & Company).

4.         Definitive Purchase Agreement. The Purchaser and HPSwill negotiate in good faith to execute the Definitive Agreements, containingcustomary terms and conditions which shall contain terms consistent with theterms of this Letter of Intent as well as comprehensive representations andwarranties, covenants, conditions, provisions for indemnification and survivaland other customary terms. Purchaser’s counsel shall draft all DefinitiveAgreements and all other agreements necessary to consummate the Transaction.The Definitive Agreements and all other such agreements must be satisfactory tothe parties to such agreements.

5.         Access. HPS shall make available all information(financial or otherwise) reasonably requested by or on behalf of the Purchaser,its financing sources and their respective representatives in connection withtheir due diligence review of HPS and the Plant, including at all reasonabletimes and upon reasonable notice, access to HPS’ books, records, facilities,properties, officers, and key employees.

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6.         Governance.

Newco’s Operating Agreement shall reflect the following ownership andmanagement structure:

A total of 1000 Units of Membership Interest, owned as follows:
|           | ** ** | **Class A  Voting Units** | ** ** | **Class B  Non-Voting Units** | ** ** | **Total Units of  Membership Interest** | ** ** |
|-----------|------------|-------------------------------------|------------|-----------------------------------------|------------|--------------------------------------------------------|------------|
| Purchaser |       | 3                                   |       | 497                                     |       | 500                                                    |       |
| HPS       |       | 3                                   |       | 497                                     |       | 500                                                    |       |
| TOTAL     |       |                                |       |                                    |       | 1000                                                   |       |

Profits, losses, and distributions shall be allocatedpro-rata to the holders of respective Units of Membership Interest regardlessof class, and the separate classes of Units shall have only the followingdifferences:

·                                          EachClass A Voting Unit shall be entitled to one vote, and shall further beentitled to elect one manager (equivalent to a board of directors); thus, ifthere are 6 outstanding Class A Voting Units, there shall be 6 managers.

·                                          TheOperating Agreement shall prohibit Newco from issuing any additional Units of MembershipInterest without the prior unanimous written consent of all of the Class AVoting Units.

·                                          Managementdecisions (including day-to-day operating decisions) shall be made by anOperating Committee comprised of three managers (at least one of whom is amanager elected by Purchaser), one to be appointed by HPS and one jointlyappointed with all of whose decisions shall be by consensus of all OperatingCommittee members; provided, however, that *“MajorDecisions”*(as defined in Exhibit A) shall require unanimityof all of the managers.

7.         HPS Warranties.

Cost Warranty: HPS shallwarrant that the Retrofit Expenses of the Plant will not exceed $40 million.Retrofit Expenses shall mean those expenses necessary to cause the Plant toproduce a minimum of 60 million gallons (subject to agreed upon deviation) ofmarketable ethanol per year, on an annualized basis. Accrual of the RetrofitExpenses shall terminate upon completion of the Retrofit, per contractprovisions. Should the Retrofit Expenses be $40 million or less, Purchasershall immediately consent to a release to HPS of $7.5 million of the funds heldin the HPS Warranty Escrow (herein so called). In the event that the RetrofitExpenses exceed $40 million, payments to HPS from the

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HPS Warranty Escrow shallbe reduced dollar for dollar by the excess Retrofit Expenses over $40 million,such reduction not to exceed $7.5 million.

Performance Warranty: HPS warrants that the Plantshall produce a minimum of 60 million gallons (subject to agreed upondeviation) of marketable ethanol per year, on an annualized basis, with suchmeasurement to commence 90 days following the initial date of production.Should such measure deviate from the stated production level, HPS will havebreached its warranty and Purchaser shall be entitled to a distribution fromthe HPS Warranty Escrow based on a sliding scale related to the magnitude ofdeviation. The parties intend that the structure of this HPS PerformanceWarranty shall mirror the performance warranty required of the contractorsengaged to effect the Retrofit.

In the event HPS does not receive distribution of thefull $15 million residing in the HPS Warranty Escrow, HPS shall be entitled toreimbursement from Newco to the extent Newco is successful in securing paymentfrom a contractor or pursuant to a performance bond supplied by a contractor.

8.         Confidentiality. The parties shall use best effortsto maintain, and shall cause their employees and agents to use best efforts tomaintain, any confidential information received from the other party asconfidential.

We look forward to working further with you and movingahead with the Transaction.
| Very truly yours,     |                  |                |
|-----------------------|-----------------------|---------------------|
|                  |                  |                |   |   |
| EARTH BIOFUELS, INC., |                  |                |
|                  |                  |                |   |
|                  |                  |                |   |   |
| By:                   | /s/ Dennis McLaughlin |                |   |   |
|                  |                  | Dennis McLaughlin   |   |   |
|                  |                  | President & CEO |   |   |
|                       |                       |                     |  |  |  |  |  |

 

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Agreed to and Acceptedthis 13 day of June, 2006:

 

 
| HPS DEVELOPMENT, LLC |          |
|----------------------|---------------|
|                 |          |
|                 |          |   |   |
| By:                  | /s/ John Paul |   |   |
|                 |          | John Paul, Manager |   |
|                 |          |   |   |
|                      |               |  |  |  |  |

 
| By:    | /s/ William A.  Hurst |                      |   |
|--------|-----------------------|---------------------------|--------|
|   |                  | William A. Hurst, Manager |   |
|        |                       |                           |        |  |

 

 
| By:    | /s/ Kennett F. Stewart |                         |   |
|--------|------------------------|------------------------------|--------|
|   |                   | Kennett  F. Stewart, Manager |   |
|        |                        |                              |        |  |

 

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**Exhibit A**

Major Decisions are thefollowing:

·                            Thedissolution and winding-up of Newco;

·                            Thesale, exchange, lease, mortgage, assignment, pledge or other transfer of, orthe granting of a security interest in, allor substantially all of the assets of Newco;

·                            Themerger or consolidation of Newco;

·                            Thefiling of a petition for relief under the Federal Bankruptcy Code or under any similar state or federal statutory scheme;

·                            Amaterial change in the nature of Newco’s business;

·                            Theissuance of an interest in Newco to any Person and the admission of any Personas a Member, except as otherwise provided in the Operating Agreement; and

·                            Anyamendment of the Operating Agreement.

 

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