**EXHIBIT10.55**

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

**WARRANT**

**TO PURCHASE COMMONSTOCK**

**OF**

**EARTH BIOFUELS,INC.**
| **Issue Date: July 11, 2006** | **Warrant No. 2** |
|-------------------------------|------------------------|

 

THIS CERTIFIESthat CASTLERIGG MASTER INVESTMENTS LTD. or any subsequent holder hereof (the “***Holder***”), has theright to purchase from EARTH BIOFUELS, INC., a Delaware corporation (the “***Company***”), up to 750,000fully paid and nonassessable shares of the Company’s common stock, par value$0.001 per share (the “***CommonStock***”), subject to adjustment as provided herein, at a priceper share equal to the Exercise Price (as defined below), at any time and fromtime to time beginning on the date on which this Warrant is issued (the “***Issue Date***”) andending at 5:00 p.m., eastern time, on the fifth (5th) anniversary of the Issue Date or, ifsuch day is not a Business Day, on the next succeeding Business Day (the “***Expiration Date***”). ThisWarrant is issued pursuant to a Securities Purchase Agreement, dated as of July10, 2006 (the “***SecuritiesPurchase 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 exercise this Warrant at any time and from timeto time during the period beginning on the Issue Date and ending on theExpiration Date as to all or any part of the shares of Common Stock coveredhereby (the “***WarrantShares***”). The “***Exercise Price***” for each Warrant Share purchased by theHolder upon the exercise of this Warrant shall be $2.50, subject to adjustmentfor the events specified in ***Section 6*** below.

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(b)           Exercise Notice. In order toexercise this Warrant, the Holder shall (i) send by facsimile transmission, atany time prior to 5:00 p.m., eastern time, on the Business Day on which theHolder wishes to effect such exercise (the “***Exercise Date***”), to the Company anexecuted copy of the notice of exercise in the form attached hereto as ***Exhibit A*** (the “***Exercise Notice***”),(ii) deliver the original Warrant or a copy thereof, and (iii) in the case of aCash Exercise (as defined below), the Exercise Price to the Company. TheExercise Notice shall also state the name or names in which the Warrant Sharesissuable on such exercise shall be issued. In the case of a dispute as to thecalculation 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’sindependent accountants) within two (2) Business Days following the date onwhich the Exercise Notice is delivered to the Company. The Company shall useits best efforts to cause such accountant to calculate the Exercise Priceand/or the number of Warrant Shares issuable hereunder and to notify theCompany and the Holder of the results in writing no later than two (2) BusinessDays following the day on which such accountant received the disputedcalculations (the “***DisputeProcedure***”). Such accountant’s calculation shall be deemedconclusive absent manifest error. The fees of any such accountant shall beborne by the party whose calculations were most at variance with those of suchaccountant.

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

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

(e)           Charter Amendment. In theevent there are insufficient shares of Common Stock authorized, unreserved andavailable for issuance upon exercise of this Warrant, the Company shall use itsbest efforts to effect an amendment of its certificate of incorporation so asto increase the authorized shares of Common 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 issue uponexercise of this Warrant without breaching the Company’s obligations under therules 

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or regulations of the Principal Market (the “ExchangeCap”), except that such limitation shall not apply in the event that theCompany (A) obtains the approval of its shareholders as required by theapplicable rules of the Principal Market for issuances of shares of CommonStock in excess of such amount or (B) obtains a written opinion from outsidecounsel to the Company that such approval is not required, which opinion shallbe reasonably satisfactory to the holders of the Warrant representing at leasta majority of the shares of Common Stock underlying the Warrants thenoutstanding issued under the Securities Purchase Agreement. Until suchapproval or written opinion is obtained, no Purchaser shall be issued, uponexercise of any Warrants, shares of Common Stock in an amount greater than theproduct of the Exchange Cap multiplied by a fraction, the numerator of which isthe total number of shares of Common Stock issued to such Purchaser pursuant tothe Securities Purchase Agreement on the Issuance Date and the denominator ofwhich is the aggregate number of shares of Common Stock issued to thePurchasers pursuant to the Securities Purchase Agreement on the Issuance Date(with respect to each Purchaser, the “Exchange Cap Allocation”“). In theevent that any Purchaser shall sell or otherwise transfer any of such Purchaser’sWarrants, the transferee shall be allocated a pro rata portion of suchPurchaser’s Exchange Cap Allocation, and the restrictions of the prior sentenceshall apply to such transferee with respect to the portion of the Exchange CapAllocation allocated to such transferee. In the event that any holder ofWarrants shall exercise all of such holder’s Warrants into a number of sharesof Common Stock which, in the aggregate, is less than such holder’s ExchangeCap Allocation, then the difference between such holder’s Exchange CapAllocation and the number of shares of Common Stock actually issued to suchholder shall be allocated to the respective Exchange Cap Allocations of theremaining holders of Warrants on a pro rata basis in proportion to the sharesof Common Stock underlying the Warrants then held by each such holder. Inthe event that the Company is prohibited from issuing any Warrant Shares forwhich an Exercise Notice has been received as a result of the operation of thisSection 1(f), the Company shall pay cash in exchange for cancellation of suchWarrant Shares, at a price per Warrant Share equal to the difference betweenthe closing sale price and the Exercise Price as of the date of the attemptedexercise.

2.             *DELIVERYOF WARRANT 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 thedetermination 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 bedelivered to the Holder the number of Warrant Shares as shall be determined asprovided herein. The Company shall effect delivery of Warrant Shares to theHolder, as long as the Company’s designated transfer agent or co-transfer agentin the United States for the Common Stock (the “***Transfer Agent***”) participates in theDepository Trust Company (“***DTC***”)Fast Automated Securities Transfer program (“***FAST***”), by crediting the account of theHolder or its nominee at DTC (as specified in the applicable Exercise Notice)with the number of Warrant 

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Shares required to be delivered, no later than theclose of business on such Delivery Date. In the event that the Transfer Agentis not a participant in FAST, or if the Holder so specifies in an ExerciseNotice or otherwise in writing on or before the Exercise Date, the Companyshall effect delivery of Warrant Shares by delivering to the Holder or itsnominee physical certificates representing such Warrant Shares, no later thanthe close of business on such Delivery Date. If any exercise would create afractional Warrant Share, such fractional Warrant Share shall be disregardedand the number of Warrant Shares issuable upon such exercise, in the aggregate,shall be the nearest whole number of Warrant Shares. Warrant Shares deliveredto the Holder shall not contain any restrictive legend unless such legend isrequired pursuant to the terms of the Securities Purchase Agreement.

3.             *FAILURETO DELIVER WARRANT SHARES*.

(a)           In the event that the Company failsfor any reason (other than as a result of the Holder’s failure, in the case ofa Cash Exercise (as defined below), to pay the aggregate Exercise Price for theWarrant Shares being purchased) to deliver to the Holder the number of WarrantShares specified in the applicable Exercise Notice (without any restrictivelegend to the extent permitted by the terms of the Securities PurchaseAgreement) on or before the second (2nd) Business Day following the DeliveryDate therefor (an “***ExerciseDefault***”), the Holder shall have the right to receive from the Companyan amount equal to (i) (N/365) multiplied by (ii) the aggregate ExercisePrice of the Warrant Shares which are the subject of such Exercise Default multipliedby (iii) the lower of sixteen percent (16%) and the maximum rate permittedby applicable 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. In the event that shares of Common Stockare purchased by or on behalf of the Holder in order to make delivery on a saleeffected in anticipation of receiving Warrant Shares upon an exercise, theHolder 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. Amounts payable under this ***Section 3(a)*** shall bepaid to the Holder in immediately available funds on or before the fifth (5th)Business Day following written notice from the Holder to the Company specifyingthe amount owed to it by the Company pursuant to this ***Section 3(a)***.

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

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4.             *EXERCISELIMITATION*.

In noevent shall the Holder be permitted to exercise this Warrant, or part thereof,if, upon such exercise, the number of shares of Common Stock beneficially ownedby the Holder (other than shares which may be deemed beneficially owned exceptfor being subject to a limitation on exercise or exercise analogous to thelimitation contained in this ***Section 4***), would exceed 4.99% of the number ofshares of Common Stock then issued and outstanding, it being the intent of theCompany and the Holder that the Holder not be deemed at any time to have thepower to vote or dispose of greater than 4.99% of the number of shares ofCommon Stock issued and outstanding at any time. Nothing contained herein shallbe deemed to restrict the right of the Holder to exercise this Warrant at suchtime as such exercise 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 the limitation contained in this ***Section 4*** applies(and without limiting any rights the Company may otherwise have), the Companymay rely on the Holder’s determination of whether this Warrant is exercisablepursuant to the terms hereof, the Company shall have no obligation whatsoeverto verify or confirm the accuracy of such determination, and the submission ofan Exercise Notice by the Holder shall be deemed to be the Holder’srepresentation that this Warrant is exercisable pursuant to the terms hereof. TheCompany shall have no liability to any person if the Holder’s determination ofwhether this Warrant is exercisable pursuant to the terms hereof is incorrect.

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

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

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

(b)           througha cashless exercise (a “***CashlessExercise***”) if, following the one-year anniversary of the IssueDate, an effective Registration Statement is not available for the resale ofall of the Warrant Shares issuable hereunder at the time an Exercise Notice isdelivered to the Company, or if the Company otherwise consents in writing. TheHolder shall effect a Cashless Exercise by surrendering this Warrant to theCompany and noting on the Exercise Notice that the Holder wishes to effect aCashless Exercise, upon which the Company shall issue to the Holder a number ofWarrant 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-DILUTION ADJUSTMENTS; DISTRIBUTIONS; OTHEREVENTS*.

The Exercise Price and the number of Warrant Sharesissuable hereunder shall be subject to adjustment from time to time as providedin this ***Section 6***.

(a)           Stock Splits, Stock Interests, Etc.If, at any time on or after the Issue Date, the number of outstanding shares ofCommon Stock 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)           Major Transactions. If, at anytime after the Issue Date, any Major Transaction shall occur, then the Holdershall thereafter have the right to receive upon exercise, in lieu of the sharesof Common 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 such exercisecontained in this Warrant or the Securities Purchase Agreement). Notwithstandingthe foregoing, following a Major Transaction in which all or substantially allof the outstanding Common Stock of the Company is exchanged for, convertedinto, acquired for or constitutes the right to receive solely cash (a “TriggeringEvent”), at the written request of the Holder delivered before the 30th dayafter such Triggering Event, the Company (or the successor entity) shallpurchase this Warrant from the Holder by paying to the Holder, within five daysafter such request, cash in an amount equal to the Black-Scholes Value (asdefined below) of the remaining unexercised portion of this Warrant. “Black-ScholesValue” means the value of the unexercised portion of this Warrant calculatedusing the Black-Scholes Option Pricing Model determined as of the dayimmediately following the public announcement of the applicable TriggeringEvent and reflecting (i) a risk-free interest rate corresponding to the U.S.Treasury rate for a period equal to the remaining term of this Warrant as ofthe date of such request and (ii) an expected volatility equal to the lesser of(a) the 100 day volatility obtained from the HVT function on Bloomberg or (b) avolatility of 60. 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, theHolder would beneficially own more than 4.9% of the Common Stock thenoutstanding, and the 

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Holder has notified the Company in writing of suchcircumstance) but in no event later than fifteen (15) days prior to the recorddate for the determination of stockholders entitled to vote with respectthereto; *provided*, *however*, that the Company shall publiclydisclose the material terms of any such Major Transaction on or before the dateon which it delivers notice of a Major Transaction to the Holder, and (ii) theresulting successor or acquiring entity (if not the Company) assumes by writteninstrument (in form and substance reasonable satisfactory to the Holder) theobligations of the Company under this Warrant. The above provisions shall applyregardless of whether or not there would have been a sufficient number ofshares of Common Stock authorized and available for issuance upon exercise ofthis Warrant as of the date of such transaction, and shall similarly apply tosuccessive Major Transactions.

(c)           Distributions. If, at any timeafter the Issue Date, the Company declares or makes any distribution of cash orany other assets (or rights to acquire such assets) to holders of Common Stock,including without limitation any dividend or distribution to the Company’sstockholders in shares (or rights to acquire shares) of capital stock of asubsidiary) (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***”)(theearlier of such dates being referred to as the “***Determination Date***”). Upon receipt ofthe Distribution Notice, the Holder shall promptly (but in no event later thanthree (3) Business Days) notify the Company whether it has elected (A) to receivethe same amount and type of assets (including, without limitation, cash) beingdistributed as though the Holder were, on the Determination Date, a holder of anumber of shares of Common Stock into which this Warrant is exercisable as ofsuch Determination Date (such number of shares to be determined without givingeffect to any limitations on such exercise) or (B) upon any exercise of this Warranton or after the Distribution Date, to reduce the Exercise Price applicable tosuch exercise 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. Upon receipt of such election notice from theHolder, the Company shall timely effectuate the transaction or adjustmentcontemplated in the foregoing ***clause (A) or (B)***, as applicable. If the Holder does notnotify the Company of its election pursuant to the preceding sentence on orprior to the Determination Date, the Holder shall be deemed to have electedclause (A) of the preceding sentence.

(d)           Convertible Securities; Options.If, at any time after the Issue Date, the Company issues Convertible Securitiesor Options to the record holders of the Common Stock, whether or not suchConvertible Securities or Options are immediately convertible, exercisable orexchangeable, then the Holders shall be entitled, upon any exercise of thisWarrant after the date of record for determining stockholders entitled toreceive such Convertible Securities or Options (or if no such record is taken,the date on which such Convertible Securities or Options are issued), toreceive the aggregate number of Convertible Securities or Options which theHolder would have received with respect to the shares of Common Stock issuableupon such exercise (without giving effect to any limitations on such exercisecontained in this Warrant or 

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the Securities Purchase Agreement) had the Holder beenthe holder of such shares of Common Stock on the record date for thedetermination of stockholders entitled to receive such Convertible Securitiesor Options (or if no such record is taken, the date on which such ConvertibleSecurities 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 inaccordance with ***Section6(e)(ii)***is deemed to have issued or sold, any shares of CommonStock for no consideration or for a consideration per share less than the ExercisePrice 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 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 tothis ***Section 6(e)(i)(A)***if such adjustment would result in an increase in the Exercise Price.

(B)           if such Dilutive Issuance occurs afterthe 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:
|   | 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, |
|        |              |  |  |

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|  |   | sold or deemed issued or sold in such Dilutive  Issuance. |
|--|--------|-----------------------------------------------------------|

 

Notwithstanding theforegoing, no adjustment shall be made pursuant hereto if such adjustment wouldresult in an increase in the Exercise Price.

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

(A)          IssuanceOf Options. If the Company issues or sells any Options, whether or notimmediately exercisable, and the price per share for which Common Stock isissuable upon the exercise of such Options (and the price of any conversion ofConvertible Securities, if applicable) is less than the Exercise Price ineffect on the date of issuance or sale of such Options, then the maximum totalnumber of shares of Common Stock issuable upon the exercise of all such Options(assuming full conversion, exercise or exchange of Convertible Securities, ifapplicable) shall, as of the date of the issuance or sale of such Options, bedeemed to be outstanding and to have been issued and sold by the Company forsuch price per share. For purposes of the preceding sentence, the “price pershare for which Common Stock is issuable upon the exercise of such Options”shall be determined by dividing (x) the total amount, if any, received orreceivable by the Company as consideration for the issuance or sale of all suchOptions, plus the minimum aggregate amount of additional consideration, if any,payable to the Company upon the exercise of all such Options, plus, inthe case of Convertible Securities issuable upon the exercise of such Options,the minimum aggregate amount of additional consideration payable upon theconversion, exercise or exchange thereof (determined in accordance with thecalculation method set forth in ***Section 6(e)(ii)(B)*** below) at the time such ConvertibleSecurities first become convertible, exercisable or exchangeable, by (y) themaximum total number of shares of Common Stock issuable upon the exercise ofall such Options (assuming full conversion, exercise or exchange of ConvertibleSecurities, if applicable). No further adjustment to the Exercise Price shallbe made upon the actual issuance of such Common Stock upon the exercise of suchOptions or upon the conversion, exercise or exchange of Convertible Securitiesissuable upon exercise of such Options.

(B)           Issuance Of Convertible Securities.If the Company issues or sells any Convertible Securities, whether or notimmediately convertible, exercisable or exchangeable, and the price per sharefor which Common Stock is issuable upon such conversion, exercise or exchangeis less than the Exercise Price in effect on the date of issuance or sale ofsuch Convertible Securities, then the maximum total number of shares of CommonStock issuable upon the conversion, exercise or exchange of all suchConvertible Securities shall, as of the date of the issuance or sale of suchConvertible Securities, be deemed to be outstanding and to have been issued andsold by the Company for such price per share. If the Convertible Securities soissued or sold do not have a fluctuating conversion or exercise price orexchange ratio, then for the purposes of the immediately preceding sentence,the “price per share for which Common Stock is issuable upon such conversion,exercise or exchange” shall be determined by dividing (A) the total amount, ifany, received or receivable by the Company as consideration for the issuance orsale of all such Convertible Securities, plus the minimum aggregate 

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amount of additional consideration, if any, payable to the Company uponthe conversion, exercise or exchange thereof (determined in accordance with thecalculation method set forth in this ***Section 6(e)(ii)(B)***) at the time such ConvertibleSecurities first become convertible, exercisable or exchangeable, by (B) themaximum total number of shares of Common Stock issuable upon the exercise,conversion or exchange of all such Convertible Securities. If the ConvertibleSecurities so issued or sold have a fluctuating conversion or exercise price orexchange ratio (a “***VariableRate Convertible Security***”), then for purposes of the firstsentence of 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 a minimumconversion price) (the “***AssumedVariable Market Price***”), and, further, if the conversion priceof such Variable Rate Convertible Security at any time or times thereafter isless than or equal to the Assumed Variable Market Price last used for making anyadjustment under this ***Section6(e)*** with respect to any Variable Rate Convertible Security, theExercise Price in effect at such time shall be readjusted to equal the ExercisePrice which would have resulted if the Assumed Variable Market Price at the timeof issuance of the Variable Rate Convertible Security had been equal to theactual conversion price of such Variable Rate Convertible Security existing atthe time of the adjustment required by this sentence; *provided, however*, that if the conversionor exercise price or exchange ratio of a Convertible Security may fluctuatesolely as a result of provisions designed to protect against dilution, suchConvertible Security shall not be deemed to be a Variable Rate ConvertibleSecurity. No further adjustment to the Exercise Price shall be made upon theactual issuance of such Common Stock upon conversion, exercise or exchange ofsuch Convertible Securities.

(C)           ChangeIn 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 exerciseof any Options; (y) the amount of additional consideration, if any, payable tothe Company upon the conversion, exercise or exchange of any ConvertibleSecurities; or (z) the rate at which any Convertible Securities are convertibleinto or exercisable or exchangeable for Common Stock (in each such case, otherthan 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 tothe Exercise Price which would have been in effect at such time had suchOptions or Convertible Securities still outstanding provided for such changedadditional consideration or changed conversion, exercise or exchange rate, asthe case may be, at the time initially issued or sold.

(D)          Calculation Of ConsiderationReceived. If any Common Stock, Options or Convertible Securities are issuedor sold for cash, the consideration received therefor will be the amountreceived by the Company therefor. In case any Common Stock, Options orConvertible Securities are issued or sold for a consideration part or all ofwhich shall be other than cash, including in the case of a strategic or similararrangement in which the other entity will provide services to the Company,purchase 

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services from the Company or otherwise provide intangible considerationto the Company, the amount of the consideration other than cash received by theCompany (including the net present value of the consideration expected by theCompany for the provided or purchased services) shall be the fair market valueof such consideration. In case any Common Stock, Options or ConvertibleSecurities are issued in connection with any merger or consolidation in whichthe Company is the surviving corporation, the amount of consideration thereforwill be deemed to be the fair market value of such portion of the net assetsand business of the non-surviving corporation as is attributable to such CommonStock, Options or Convertible Securities, as the case may be. The independentmembers of the Company’s Board of Directors shall calculate reasonably and ingood faith, using standard commercial valuation methods appropriate for valuingsuch assets, the fair market value of any consideration.

(iii)          Exceptions To Adjustment Of ExercisePrice. Notwithstanding the foregoing, no adjustment to the Exercise Priceshall be made pursuant to this ***Section 6(e)*** upon the issuance of any ExcludedSecurities.

 (iv)         NoticeOf Adjustments. Upon the occurrence of each adjustment or readjustment ofthe Exercise Price pursuant to this ***Section 6(e)*** resulting in a change in the ExercisePrice by more than one percent (1%), or any change in the number or type ofstock, 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 certificatesetting forth such adjustment, readjustment or change and showing in detail thefacts upon which such adjustment, readjustment or change is based. The Companyshall, upon the written request at any time of the Holder, furnish to theHolder a like certificate setting forth (i) such adjustment, readjustment orchange, (ii) the Exercise Price at the time in effect and (iii) the number ofshares of Common Stock and the amount, if any, of other securities or propertywhich 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 anadjustment 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 toshares of Common Stock shall be deemed to refer to and include such sharesand/or other securities or assets; and thereafter the number of such sharesand/or other securities or assets shall be subject to adjustment from time totime in a manner and upon terms as nearly equivalent as practicable to theprovisions of this ***Section6***. Any adjustment made herein that results in a decrease in theExercise Price shall also effect a proportional increase in the number ofshares of Common Stock into which this Warrant is exercisable.

7.             *MISCELLANEOUS*.

(a)           Failure to Exercise Rights notWaiver. No failure or delay on the part of the Holder in the exercise ofany power, right or privilege hereunder shall operate as a waiver thereof, norshall any single or partial exercise of any such power, right or privilegepreclude any other or further exercise thereof. All rights and remedies of theHolder hereunder are cumulative and not exclusive of any rights or remediesotherwise available. In the event that the Company 

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breaches any of its obligations hereunder to issueWarrant Shares or pay any amounts as and when due, the Company shall bear allcosts 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 to be givenunder the terms of this Warrant must be in writing and will be deemed to havebeen delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,when sent by facsimile (provided confirmation of transmission is mechanicallyor electronically generated and kept on file by the sending party); or (iii)one Business Day after deposit with an overnight courier service, in each caseproperly addressed to the party to receive the same. The addresses andfacsimile 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, tothe address and facsimile number as to which the Holder has notified theCompany in writing. Written confirmation of receipt (A) given by the recipientof such notice, consent, waiver or other communication, (B) mechanically orelectronically generated by the sender’s facsimile machine containing the time,date, recipient facsimile number and an image of the first page of suchtransmission or (C) provided by an overnight courier service shall berebuttable evidence of personal service, receipt by facsimile or receipt froman 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 Warrantmay be made unless such amendment, modification or change is set forth inwriting and is signed by the Company and the Holder.

(d)           Transfer of Warrant. TheHolder 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 aslong as such sale, transfer or disposition is the subject of an effectiveregistration statement under the Securities Act of 1933, as amended, andapplicable state securities laws, or is exempt from registration thereunder, andis otherwise made in accordance with the applicable provisions of theSecurities Purchase Agreement. From and after the date of any such sale,transfer or disposition, the transferee hereof shall be deemed to be the holderof 

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the portion of this Warrant acquired by suchtransferee, and the Company shall, as promptly as practicable, issue anddeliver 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 originalHolder as the holder of this entire Warrant unless and until it receiveswritten notice of the sale, transfer or disposition hereof.

(e)           Lost or Stolen Warrant. Uponreceipt by the Company of evidence of the loss, theft, destruction ormutilation of this Warrant, and (in the case of loss, theft or destruction) ofindemnity or security reasonably satisfactory to the Company, and uponsurrender and cancellation of this Warrant, if mutilated, the Company shallexecute and deliver to the Holder a new Warrant identical in all respects tothis Warrant.

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

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

(h)           Taxes. The issue of stockcertificates on exercises of this Warrant shall be made without charge to theexercising Holder for any tax in respect of the issue thereof. The Companyshall not, however, be required to pay any tax which may be payable in respectof any transfer involved in the issue and delivery of stock in any name otherthan that of the Holder of any Warrant exercised, and the Company shall not berequired to issue or deliver any such stock certificate unless and until theperson or persons requesting the issue thereof shall have paid to the Companythe amount of such tax or shall have established to the reasonable satisfactionof the Company that such tax has been paid.

[Signature Page to Follow]

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

 
|        | EARTH BIOFUELS, INC. |
|--------|----------------------|
|   |                 |
|   |                 |
|   | By:                  | /s/ Dennis McLaughlin, III |   |
|   |                 | Name: Dennis 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.    Form ofExercise Price.  The Holder intends thatpayment of the Exercise Price shall be made as:

              aCash Exercise with respect to                                 Warrant Shares; and/or

              aCashless 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 “accredited investor” as that term isdefined in Rule 501 of Regulation D, and that it is acquiring the WarrantsShares solely for its own account, and not with a present view to the publicresale or distribution of all or any part thereof, except pursuant to salesthat are registered under the Securities Act or are exempt from the registrationrequirements of the Securities Act; provided, however, that, inmaking such representation, the Holder does not agree to hold the WarrantsShares for any minimum or specific term and reserves the right to sell,transfer or otherwise dispose of the Warrants Shares at any time in accordancewith the provisions of the Warrant and with Federal and state securities lawsapplicable to such sale, transfer or disposition.

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