**EXHIBIT10.25**
| Re: |   | LETTER OF INTENT |   | May 13, 2006 |
|-----|--------|------------------|--------|--------------|

 
| Ben Cowart                          |
|-------------------------------------|
| Jason Gehrig                        |
| 2323 Clearlake City Blvd., #180-184 |
| Houston, TX 77062                   |

 

Gentlemen :

Please accept thisLetter of Intent (“LOI”) as the basis upon which Earth Biofuels, Inc. (the “Company”),is prepared to enter into substantive negotiations with you to achieve thepurposes and goals as described herein.

EXCEPT FORPROVISIONS IN THIS DOCUMENT RELATED TO THE $500,000 DEPOSIT AND ANY EXPENDITURESRELATED THERETO, NOTHING CONTAINED IN THIS LOI SHALL ACT TO CREATE ANY LEGALOBLIGATION WHATSOEVER OF ANY NATURE, EITHER IN LAW OR IN EQUITY, AMONG THEPARTIES HERETO OR OTHERWISE BINDING UPON EITHER OF SUCH PARTIES EITHER TO THEOTHER PARTY OR TO ANY THIRD PARTY. NO OBLIGATIONS OF ANY NATURE SHALL BECREATED UNLESS AND UNTIL DEFINITIVE DOCUMENTS HAVE BEEN FULLY EXECUTED ANDPROPERLY DELIVERED ACCORDING TO THE TERMS THEREIN.

**1.****                                      TheParties**

The Parties tothis proposed transaction shall consist of the Company, which may also bereferred to as the “Acquiror” and Vertex Energy, LP [verify – Vertex Energy isnot the general partner of Vertex Processing, according to Texas state publicrecords.  The GP is VTX, Inc.], which mayalso be referred to as the “Seller”.  Thesubject “Target” Company is Vertex Processing, LP.

**2.****                                      TheTransaction**

Seller owns 100%of the equity interests in a company (named Vertex Processing, LP) which owns achemical processing facility (the “Plant”) which resides on approximately 11acres leased by Seller adjacent to the Houston Ship Channel in Houston, TX.  The parties envision the , Acquiror purchasinga 51% equity interest in Vertex Processing from the current owner, VertexEnergy, LP.  The intent of both partiesis to create a structure that would allow Acquiror to consolidate theoperations, in accordance with GAAP, with it’s financial statements.

**3.****                                      TheConsideration**

In return, andSubject to terms and conditions that will be more fully described in definitivedocuments, the Acquiror shall pay to the Seller consideration as follows:

·                      $500,000cash deposit paid to Seller upon execution of this LOI. Seller is entitled toutilize such deposit for the sole purpose of converting Seller’s Plant to themanufacture of Biodiesel fuel, during the period prior to the execution of theParties’ anticipated definitive agreements. Such expenditures incurred are non-refundable in the event ofnon-execution of the definitive agreements. Any remaining funds not utilized are refundable in the event definitiveagreements are not executed within 60 days of the execution of this LOI.   .

·                      $2,000,000 paidto Seller  at closing.

·                      1,500,000shares of restricted “144”“ shares of common stock in the Company (OTCBB: EBOF)at the Closing.

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·                      Acquiror willagree to become an obligor of the $947,500 existing senior bank indebtednesscurrently owed by Vertex Processing, L.P., with Acquiror’s financial exposureto be limited to the extent of Acquiror’s percentage ownership interest inTarget.

·                      Seller and Acquiroragree to each pay $850,000.00 cash at closing, to pay off the existing $1.5million bank line of credit in the name of Vertex Energy, L.P, and to which theTarget also has access for working capital purposes.  The parties agree that within 120 days afterexecution of the definitive agreements, the  Target will establish its own bankingrelationship and credit facilities in its own name to replace the existing one.  EBOF shall guarantee the prospective line ofcredit with third party lenders.

**4.****                                      Non-Transferability**

Consistent withthe restricted status of the shares of stock to be delivered to Seller, Sellershall not be allowed to sell, barter, encumber or otherwise hypothecate the Companycommon stock at any time subsequent to the execution of the definitiveagreements except in accordance with Rule 144, provided, however, that any suchdisposition is subject to the absolute right of Acquiror to exercise its firstright of refusal to re-acquire its Stock.

**5.****                                      TheOther Terms**

Additionally,Acquiror agrees to fund the necessary improvements to the facility to quicklyachieve a minimum biodiesel production rate of 10 million gallons peryear.  This funding is not to exceed $650,000.

In the eventcapital requirements are in excess of $650,000 the equity owners of the Targetwill bear such costs on a pro-rata basis.

180 days from thedate of the Closing, Seller, at its sole discretion, has the option to requireAcquiror to “buy back” the above mentioned 1,500,000 shares of restricted “144”common stock of the Company at a purchase price of $2,000,000.

The parties shallwork together in good faith to conclude any and all other issues and mattersthat will be memorialized in definitive documents, including but not limitedto, the resulting financing, ownership and management structure of the Company.

**6.****                                      NoBinding Agreement**

EXCEPT FORPROVISIONS IN THIS DOCUMENT RELATED TO THE $500,000 DEPOSIT AND ANY EXPENDITURESRELATED THERETO, NOTHING CONTAINED IN THIS LOI SHALL ACT TO CREATE ANY LEGALOBLIGATION WHATSOEVER OF ANY NATURE, EITHER IN LAW OR IN EQUITY, AMONG THEPARTIES HERETO OR OTHERWISE BINDING UPON EITHER OF SUCH PARTIES EITHER TO THEOTHER PARTY OR TO ANY THIRD PARTY. NO OBLIGATIONS OF ANY NATURE SHALL BECREATED UNLESS AND UNTIL DEFINITIVE DOCUMENTS HAVE BEEN FULLY EXECUTED ANDPROPERLY DELIVERED ACCORDING TO THE TERMS THEREIN.

The terms as describedherein shall remain available to you for a period that expires at 5:00 PM,Dallas time, on or before May    13       ,2006.

If the above termsaccurately reflect your understanding of our conversations and mutual intent,please so indicate by your execution in the space provided below. The Companyshall then cause definitive documents to be prepared for your review andconsideration.

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We look forward toworking with you.

Very truly yours,
| /s/ DARREN L. MILES                                                                             |   |
|-------------------------------------------------------------------------------------------------|--------|
| Darren L. Miles                                                                                 |
| Chief Financial Officer                                                                         |
| Earth Biofuels, Inc.                                                                            |
|                                                                                            |
| UNDERSTOOD AND AGREED THIS     13    DAY  OF MAY, 2006. |
|                                                                                            |
|                                                                                            |
| /s/ Ben Cowart                                                                                  |   |
| VTX, Inc., General Partner of Vertex Energy, LP, by:                                            |
| Ben Cowart, President of VTX, Inc.                                                              |
|                                                                                                 |        |  |

 

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