**Exhibit 10.86**

NEITHER THIS WARRANT NORTHE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, ANDMAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF(A) AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THIS SECURITY,FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCHAPPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL ADDRESSEDAND SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION UNDER SUCH ACTAND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

July 21, 2006

**WARRANT TO PURCHASE SHARES OF COMMON STOCK**

***- of -***

**EARTH BIOFUELS, INC.**

For value received, **EARTHBIOFUELS, INC.,** a Delaware corporation (the “Company”)pursuant to the 2006 Stock Option and Award Plan of the Company, hereby grantsto **LANCE A. BAKROW**, or his registeredsuccessor or assigns (the “Holder”) the right to purchase from the Companyshares of the Common Stock of the Company (the “Common Stock”), at the optionof the Holder, upon surrender hereof at the principal office of the Company,with the subscription form attached hereto duly executed, and simultaneouspayment therefor as hereinafter provided of the Warrant Exercise Pricemultiplied by the number of shares of Common Stock for which the Warrant isexercised. The number and Warrant Exercise Price of such shares of Common Stockare subject to adjustment as provided below.

This Warrant (the “Warrant”) is duly authorized andissued by the Company. In furtherance thereof, and in consideration of thepremises, covenants, promises, representations and warranties hereinafter setforth, the Company hereby agrees as follows:

1.      Termof Warrant. Subject to the terms and conditions set forth herein, thisWarrant shall be exercisable, in whole or in part, during the term commencingon the date hereof and ending on May 31, 2011.

2.      Numberof Shares and Warrant Exercise Price. The Holder shall be entitled tosubscribe for and purchase from the Company 4,000,000 validly issued, fullypaid and non

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assessableshares (the “Warrant Shares”) of the Company’s Common Stock, par value $0.001per share, at a purchase price equal to the Warrant Exercise Price. The “WarrantExercise Price” is $0.25 per share. Contemporaneously with the issuance toHolder of this Warrant, Holder has paid to the Company the amount of $l00,000,which amount shall not constitute a pre-payment of the Warrant Exercise Price.

3.      Exerciseof Warrant.

3.1.       Durationand Exercise of Warrant. The purchase rights represented by this Warrantmay be exercised by the Holder, in whole or in part, at anytime after thedate hereof and prior to the expiration of the term of this Warrant, by thesurrender of this Warrant and the Notice of Exercise attached hereto as Exhibit Aduly executed, at the principal office of the Company (or such other office ofthe Company as it may designate by notice in writing to the Holder at theaddress of the Holder), upon payment (i) in cash, by check or by wiretransfer, (ii) by cancellation by the Holder of indebtedness of theCompany, to the Holder, or (iii) by a combination of (i) and (ii), ofthe Warrant Exercise Price multiplied by the number of shares of Common Stockto be purchased. Any notice of exercise of this Warrant may, at the election ofthe Holder, be stated to be effective upon the future effectiveness of aregistration statement with respect to the Warrant Shares.

3.2.       NetIssue Election (Cashless Exercise). The Holder may elect to receive, withoutthe payment by the Holder of any additional consideration, shares equal to thevalue of this Warrant or any portion hereof by surrender of this Warrant orsuch portion to the Company with the net issue election notice annexed heretoduly executed, at the office of the Company. Thereupon, the Company shall issueto the Holder such number of fully paid and nonassessable shares of CommonStock as is computed using the following formula:
|        | X= | Y(A-B) |   |
|--------|----|--------|--------|
|   | A  |   |

 
| Where  | X = | the number of shares to be issued to the Holder  pursuant to this Section 3.2.                                                  |
|--------|----------|--------------------------------------------------------------------------------------------------------------------------------------|
|   | Y = | the number of shares covered by this Warrant in  respect of which the net issue election is made pursuant to this  Section 3.2. |
|   | A = | the fair market value of one share of Common Stock,  as determined in accordance with the provisions of this Section 3.2.       |
|   | B = | the Purchase Price in effect under this Warrant at  the time the net issue election is made pursuant to this Section 3.2.       |

 

Forpurposes of this Section 3.2, the “fair market value” per share of theCompany’s Common Stock shall mean the last reported sale price of the CommonStock on the effective date of exercise of the net issue election, or if thelast reported sale price information is not available for such day, the averageof the mean of the closing bid and asked prices for such day.

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3.3.       Delivery of Warrant;Fractional Shares

(a)           This Warrant shall bedeemed to have been exercised immediately prior to the close of business on thedate of its surrender for exercise as provided above, and the person entitledto receive the shares of Common Stock issuable upon such exercise shall betreated for all purposes as the holder of record of such shares as of the closeof business on such date (the “Exercise Date”). Not later than three businessdays after any Exercise Date, the Company will deliver or cause to be deliveredto the Holder a certificate or certificates representing the Warrant Shares.The Company shall, if available and if allowed under applicable securitieslaws, use its best efforts to deliver any certificate or certificates requiredto be delivered by the Company under this paragraph electronically through theDepository Trust Corporation or another established clearing corporationperforming similar functions. If such certificate or certificates are notdelivered to or as directed by the Holder by the third business day after aExercise Date, The Holder shall be entitled by written notice to the Company atany time on or before its receipt of such certificate or certificatesthereafter, to rescind such exercise, in which event the Company shallimmediately return this Warrant. Moreover, if the Company fails for any reasonto deliver to the Holder such certificate or certificates by the third businessday after the Exercise Date, the Company shall pay to the Holder, in cash, asliquidated damages and not as a penalty, 1% per business day of the fair marketvalue of the Warrant Shares (increasing to 2% per business day after tenbusiness days after such damages begin to accrue) for each business day untilsuch certificates are delivered. Such liquidated damages are intended solely tocompensate the Holder for the delay in issuing such certificates and in no wayshall be construed to relieve the Company of its obligation to issue anddeliver such certificates or in lieu of any other remedies to compel deliveryof such certificates. The Company’s obligations to issue and deliver theWarrant Shares upon exercise of this Warrant in accordance with the terms hereofare absolute and unconditional, irrespective of any action or inaction by theHolder to enforce the same, any waiver or consent with respect to any provisionhereof, the recovery of any judgment against any person or any action toenforce the same, or any setoff, counterclaim, recoupment, limitation ortermination, or any breach or alleged breach by the Holder or any other personof any obligation to the Company or any violation or alleged violation of lawby the Holder or any other person, and irrespective of any other circumstancewhich might otherwise limit such obligation of the Company to the Holder inconnection with the issuance of such Warrant Shares. In the event that theHolder shall elect exercise this Warrant in whole or in any part, the Companymay not refuse exercise based on any claim that the Holder or anyone associatedor affiliated with the Holder has been engaged in any violation of law,agreement or for any other reason, unless an injunction from a court, onnotice, restraining and or enjoining exercise of all or part of this Warrantshall have been sought and obtained and the Company posts a surety bond for thebenefit of the Holder in the amount of 150% of the fair market value of theWarrant Shares, which is subject to the injunction, which bond shall remain ineffect until the completion of litigation of the dispute and the proceeds ofwhich shall be payable to the Holder to the extent it obtains judgment. In theabsence of an injunction precluding the same, the Company shall issue WarrantShares upon a properly noticed exercise.

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Nothing herein shalllimit the Holder’s right to other remedies for the Company’s failure to deliverWarrant Shares within the period specified herein, and the Holder shall havethe right to pursue all remedies available to it at law or in equity includingwithout limitation a decree of specific performance and/or injunctive relief.The exercise of any such rights shall not prohibit the Holder from seeking toenforce damages pursuant to any other provision hereof or under applicable law.In the alternative and at the Holder’s election, if the Company fails for anyreason to deliver to the Holder such certificate or certificates by the thirdbusiness day after the Exercise date, and if after such third business day theHolder is required by its brokerage firm to purchase (in an open markettransaction or otherwise) Common Stock to deliver in satisfaction of a sale bythe Holder of the Warrant Shares which the Holder anticipated receiving uponsuch conversion (a “Buy-In”), then the Company shall (i) pay in cash to theHolder (in addition to any other remedies available to or elected by theHolder) the amount by which (x) the Holder’s total purchase price (includingbrokerage commissions, if any) for the Common Stock so purchased exceeds (y)the product of (l) the aggregate number of shares of Common Stock that such theHolder anticipated receiving from the exercise at issue multiplied by (2) theactual sale price of the Common Stock at the time of the sale (includingbrokerage commissions, if any) giving rise to such purchase obligation and (ii)at the option of the Holder, either reissue this Warrant in amount equal to theattempted conversion or deliver to the Holder the number of shares of CommonStock that would have both issued had the Company timely complied with itsdelivery requirements hereunder.

(b)           No fractional shares orscrip representing fractional shares shall be issued upon the exercise of thisWarrant, but in lieu of such fractional shares, the Company shall deliver tothe Holder one whole share.

4.      Replacementof Warrant. On receipt of evidence reasonably satisfactory to the Companyof the loss, theft, destruction, or mutilation of this Warrant and, in the caseof loss, theft, or destruction, on delivery of an indemnity agreementreasonably satisfactory in form and substance to the Company or, in the case ofmutilation, on surrender and cancellation of this Warrant, the Company shallexecute and deliver, in lieu of this Warrant, a new warrant of like tenor andamount.

5.      Rightsof Stockholders. Until the Warrant shall have been exercised and the sharesof Common Stock purchasable upon the exercise hereof shall have been issued,nothing contained herein shall be construed to confer upon the Holder, as such,any of the rights of a stockholder of the Company or any right to vote upon anymatter submitted to stockholders at any meeting thereof, or to give or withholdconsent to any corporate action, or to receive dividends or subscription rightsor the like, except as may be otherwise provided herein or in the Note andWarrant Purchase Agreement.

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6.      Divisibilityof Warrant; Transfer of Warrant.

(a)           Subject to theprovisions of this Section 6, this Warrant may be divided into no more than ten(10) warrants of one thousand (1,000) shares or multiples thereof, uponsurrender at the principal office of the Company, without charge to anyWarrantholder. Upon such division, the Warrants may be transferred of record asthe then Warrantholder may specify without charge to such Warrantholder (otherthan any applicable transfer taxes). In addition, subject to the provisions ofthis Section 6, the Warrantholder shall also have the right to transfer thisWarrant in its entirety to any person or entity; provided,however,that any such transfer is in compliance with any and all applicable securitieslaws and is exempt from registration.

(b)           The Company willmaintain a register (the “Warrant Register”) containing the name and address ofthe Holder. The Holder may change its address as shown on the Warrant Registerby written notice to the Company requesting such change. Any notice or writtencommunication required or permitted to be given to the Holder may be deliveredor given by mail to such Holder as shown on the Warrant Register and at theaddress shown on the Warrant Register. Until this Warrant is transferred on theWarrant Register, the Company may treat the Holder as shown on the WarrantRegister as the absolute owner of this Warrant for all purposes, notwithstandingany notice to the contrary.

(c)           The Warrant and theCommon Stock shall not be transferable except upon the conditions specified inthis Section 6, which conditions are intended to ensure compliance with theprovisions of the Act. Each holder of this Warrant or Common Stock issuablehereunder will cause any proposed transferee of the Warrant and the CommonStock to agree to take and hold such securities subject to the provisions andupon the conditions specified in this Section 6.

(d)           Each certificate representing(i) this Warrant, (ii) the Common Stock and (iii) any other securities issuedin respect to the Common Stock upon any stock split, stock dividend,recapitalization, merger, consolidation or similar event, shall (unlessotherwise permitted by the provisions of this Section 6 or unless suchsecurities have been registered under the Act) be stamped or otherwiseimprinted with a legend substantially in the following form (in addition to anylegend required under applicable state securities laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FORINVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD ORTRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDERSAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

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(e)           The Holder of thisWarrant and each person to whom this Warrant is subsequently transferredrepresents and warrants to the Company (by acceptance of such transfer) that itwill not transfer the Warrant (or Common Stock issuable upon exercise hereof)except (i) to an affiliate, (ii) pursuant to an effective registrationstatement under the Act, or (iii) upon the Company’s reasonable determination,upon advice of counsel to the Company, that no applicable securities laws wouldbe violated as a result of such transfer. The Company may require an opinion ofcounsel acceptable to the Company to the effect that such transfer (whether bysale, encumbrance, assignment or otherwise) may be effected withoutregistration under the Act.

7.      RegistrationRights. Upon exercise of this Warrant for Common Stock, the Company shalltake whatever action necessary such that the Holder shall be entitled toexercise, together with all other holders of registrable shares possessingregistration rights under the Registration Rights Agreement between the partiesof even date herewith the rights of registration granted under the RegistrationRights Agreement to the holders of Common Stock, if any.

8.      Sharesto be Fully Paid; Reservation of Shares. The Company covenants and agreesthat all shares of Common Stock which may be issued upon the exercise of therights represented by this Warrant will, upon issuance, be duly authorized,validly issued, fully paid and nonassessable and free from all preemptiverights of any stockholder and free of all taxes, liens and charges with respectto the issue thereof. The Company further covenants and agrees that during theperiod within which the rights represented by this Warrant may be exercised,the Company will at all times have authorized and reserved, for the purpose ofissue or transfer upon exercise of the purchase rights conveyed by thisWarrant, a sufficient number of shares of authorized but unissued Common Stock,or other securities and property, when and as required to provide for theexercise of the rights represented by this Warrant. The Company will take allaction as may be necessary or advisable to assure that such shares of CommonStock may be issued as provided herein without violation of any applicable lawor regulation, or of any requirements of any domestic securities exchange uponwhich the Common Stock may be listed.

9.      Amendments.This Warrant may be amended only with the written consent of the Holder. Nowaiver of or exceptions to any term, condition or provision of this Warrant, inany one or more instances, shall be deemed or construed as a further orcontinuing waiver of any such term, condition or provision.

10.    Adjustments;Anti-Dilution. The number of Warrant Shares purchasable hereunder and theWarrant Exercise Price are subject to adjustment from time to time as follows:

(a)           Merger, Sale ofAssets, Etc. If at any time, while this Warrant, or any portion thereof, isoutstanding and unexpired there shall be (i) a reorganization (other than acombination, reclassification, exchange or subdivision of shares otherwiseprovided for herein), (ii) a merger or consolidation of the Company with orinto another corporation in

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which the Companyis not the surviving entity, or a reverse triangular merger in which theCompany is the surviving entity but the shares of the Company’s capital stockoutstanding immediately prior to the merger are converted by virtue of themerger into other property, whether in the form of securities, cash, orotherwise, or (iii) a sale or transfer of the Company’s properties and assetsas, or substantially as, an entirely to any other person, and if, as a part ofsuch reorganization, merger, consolidation, sale or transfer, provisions aremade so that the holders of capital stock are thereafter entitled to receiveshares of stock or other securities or property of the successor corporationresulting from such reorganization, merger, consolidation, sale or transfer, theCompany shall then ensure that the Holder also shall be entitled to shares ofstock or other securities or property of the successor corporation resultingfrom such reorganization, consolidation, merger, sale or transfer as if thisWarrant had been exercised in full immediately prior to such reorganization,merger, consolidation, sale or transfer, all subject to further adjustment asprovided in this Section 10. The obligations of this Section 10 shall similarlyapply to successive reorganizations, consolidations, mergers, sales andtransfers and to the stock or securities of any other corporation which are atthe time receivable upon the exercise of this Warrant. If the per shareconsideration payable to the Holder for shares in connection with any such transactionis in a form other than cash or marketable securities, then the value of suchconsideration shall be jointly determined by the Company and the Holder. In allevents, appropriate adjustment shall be made in the application of theprovisions of this Warrant with respect to the rights and interests of theHolder after the transaction, to the end that the provisions of this Warrantshall be applicable after that event, as near as reasonably may be, in relationto any shares or other property deliverable after that event upon exercise ofthis Warrant.

(b)           Reclassification,Etc. If the Company, at any time while this Warrant, or any portionthereof, remains outstanding and unexpired, by reclassification of securitiesor otherwise, intends to change any of the securities as to which purchaserights under this Warrant exist into the same or a different number ofsecurities of any other class or classes, this Warrant shall thereafterrepresent the right to acquire such number and kind of securities as would havebeen issuable as the result of such change with respect to the securities whichwere subject to the purchase rights under this Warrant immediately prior tosuch reclassification or other change and the number of Warrant Sharespurchasable hereunder shall be appropriately adjusted, all subject to furtheradjustment as provided in this Section 10.

(c)           Split, Subdivisionor Combination of Shares. If the Company at any time while this Warrant, orany portion thereof, remains outstanding and unexpired shall split, subdivideor combine the securities as to which purchase rights under this Warrant exist,into a different number of securities of the same class, the Company warrantsthat the number of Warrant Shares purchasable hereunder shall be proportionatelyadjusted.

(d)           Adjustments forDividends in Stock or Other Securities or Property.

(i)            If while this Warrant,or any portion hereof, remains outstanding and unexpired, holders of CommonStock shall have received, or, on or after the 

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record date fixed for the determination of eligiblestockholders, shall have become entitled to receive, without payment therefor,cash of the Company by way of dividend, then and in each case, the WarrantExercise Price shall be reduced by adding the amount of cash of the Companywhich such holder would have received had it been the Holder of record of thesecurity on the date such dividend was paid to the numerator used to calculatethe Warrant Exercise Price as set forth in Section 2 of this Warrant;

(ii)           If while this Warrant,or any portion hereof, remains outstanding and unexpired, holders of CommonStock shall have received, or, on or after the record date fixed for thedetermination of eligible stockholders, shall have become entitled to receive,without payment therefor, other or additional stock or other securities orproperty (other than cash) of the Company by way of dividend, then and in eachcase, this Warrant shall represent the right to acquire, in addition to thenumber of shares of the security receivable upon exercise of this Warrant, andwithout payment of any additional consideration therefor, the amount of suchother or additional stock or other securities or property (other than cash) ofthe Company which such holder would hold on the date of such exercise of thisWarrant on the date thereof and had thereafter, during the period from the datehereof to and including the date of such exercise, retained such shares and/orall other additional stock available by it as aforesaid during such period,giving effect to all appropriate adjustments provided by this Section 10.

(e)           Certificate as toAdjustments; No Impairment. Upon the occurrence of each adjustment orreadjustment pursuant to this Section 10, the Company shall promptly computesuch adjustment or readjustment in accordance with the terms hereof and furnishto the Holder a certificate setting forth such adjustment or readjustment andthe facts upon which such adjustment or readjustment is based. At any time uponwritten request of the Holder, the Company shall furnish to the Holder a likecertificate setting forth: (a) a description of all such adjustments andreadjustments; (b) the Warrant Exercise Price at the time in effect; and (c)the number of shares which at the time would be received upon the exercise ofthe Warrant. The Company will not, by any voluntary action, avoid or seek toavoid the observance or performance of any of the terms to be observed orperformed hereunder, but will at all times in good faith assist in the carryingout of all the provisions of this Section 10 and in the taking of all suchaction as may be necessary or advisable to protect the rights of the Holderagainst impairment.

11.    Representationsand Warranties of the Company. The Company hereby represents and warrantsto the Holder as follows:

(a)           Corporate Power andAuthorization. The Company has all requisite corporate power and authorityto issue this Warrant and to perform each of its obligations hereunder. Allcorporate action on the part of the Company, its directors and stockholdersnecessary or advisable for the authorization, execution, delivery andperformance by the

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Company of this Warranthas been taken. This Warrant is a valid and binding obligation of the Company,enforceable in accordance with its terms.

(b)           Offering.  Theoffer, issuance and sale of the Warrant is, and the issuance of shares ofCommon Stock upon exercise of the Warrant will be, exempt from the registrationrequirements of the Act, and are exempt from the qualification requirements ofany applicable state securities laws; and neither the Company nor anyone actingon its behalf will take any action hereafter that would cause the loss of suchexemptions.

(c)           Binding Effect.  ThisWarrant shall be binding upon any corporation succeeding the Company by merger,consolidation or acquisition of all or substantially all of the Company’sassets. All of the obligations of the Company relating to the shares of CommonStock issuable upon the exercise of this warrant shall survive the exercise andtermination of this Warrant. All of the agreements of the Company shall inureto the benefit of the successors and assigns of the Holder hereof. The Companywill, at the time of exercise of this Warrant whether in whole or in part,acknowledge in writing its continuing obligation to the Holder hereof inrespect of any rights (including, without limitation, any right to registrationof the shares of Common Stock) to which the Holder hereof shall continue to beentitled after such exercise in accordance with this Warrant; provided, thatthe failure of the Company to make any such acknowledgement shall not affectthe continuing obligation of the Company to the Holder hereof in respect ofsuch rights.

12.    Miscellaneous.

(a)           Failure to Act andWaiver. No failure or delay by the Holder to requite the performance of anyterm or terms of this Warrant or to exercise any right or remedy shallconstitute a waiver of any such term or of any right, nor shall such delay orfailure preclude the Holder from exercising any such right or remedy at anylater time or times.

(b)           Consent toJurisdiction. The Company hereby agrees and consents that any action,suit or proceeding arising out of this Warrant shall be brought exclusively inany appropriate state or federal court in the New York County, New York, at thesole election of the Holder hereof, and by the issuance and execution of thisWarrant the Company irrevocably consents to the jurisdiction of each suchcourt. Trial by jury in any action, proceeding or counterclaim with respecthereto is hereby waived.

(c)           Governing Law.IN ALL RESPECTS, INCLUDING ALL MATTERS OR CONSTRUCTION, VALIDITY ANDPERFORMANCE, THIS WARRANT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BEGOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATEOF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUTREGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLELAWS OF THE UNITED STATES OF AMERICA.

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IN WITNESSWHEREOF, the Company has caused this Warrant to be executed by its dulyauthorized officer as of the date first above written.
|   | EARTH BIOFUELS, INC. |
|--------|----------------------|
|   |                 |
|   |                 |
|   | BY:                  | /s/ Dennis G. McLaughlin, III |   |
|   |                 | Dennis G.  McLaughlin, III |   |
|   |                 | President |   |

 

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**EXHIBIT A**

NOTICE OF EXERCISE

To:  Earth Biofuels, Inc.

(A)          Theundersigned hereby elects to purchase                  sharesof the Common Stock of Earth Biofuels, Inc. (“Common Stock”) pursuant tothe terms of the attached Warrant, and tenders herewith payment of the purchaseprice of such shares in full.

(B)           Inexercising this Warrant, the undersigned hereby confirms and acknowledges thatthe shares of Common Stock are being acquired solely for the account of theundersigned and not as a nominee for any other party, and for investment, andthat the undersigned will not offer, sell, or otherwise dispose of any suchshares of Common Stock except under circumstances that will not result in aviolation of the Securities Act of 1933, as amended, or any state securitieslaws.

(C)           Pleaseissue a certificate or certificates representing the purchased shares of CommonStock in the name of the undersigned or in such other name as is specifiedbelow:
|      |   |   |
|------|--------|--------|
| Name |

 

(D)          Pleaseissue a new Warrant for the unexercised portion of the attached Warrant in thename of the undersigned or in such other name as is specified below:
| Date   |      |   |
|--------|-----------|--------|
|   | Name      |   |
|   |      |   |
|   |      |   |
|   | Signature |   |

 

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FORM OF NET ISSUEELECTION(To be signed only on net issue exercise of the Warrant)

The undersigned,the holder of the within Warrant, hereby irrevocably elects to exercise thisWarrant with respect to                      sharesof Common Stock of Earth Biofuels, Inc., pursuant to the net issuanceprovisions set forth in this Warrant, and requests that the certificates forthe number of shares of Common Stock issuable pursuant this Warrant afterapplication of the net issuance formula to such                       sharesto be issued in the name of, and delivered to                ,Federal Taxpayer Identification Number                                  ,whose address is                                           .
| Dated  |      |   |   |
|--------|-----------|--------|--------|
|   |
|   |      |
|   |      |
|   |      |
|   |      |
|   | (Address) |
|        |           |        |        |  |

 

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**REGISTRATION RIGHTS AGREEMENT**

THISREGISTRATION RIGHTS AGREEMENT (“Agreement”) is made and entered into as of the21st day of July, 2006, by and between **EARTH BIOFUELS, INC.**,a Delaware corporation having its principal place of business at 3001 KnoxStreet — Suit 403, Dallas, Texas 75205-7305 (the “Company”), and **LANCE A. BAKROW**, whose officeaddress is 537 Steamboat Road, Greenwich, Connecticut 06830-7153 (the “Holder”).

RECITALS:

A.Contemporaneously with the execution hereof, the Holder is purchasing from theCompany (i) a warrant to purchase 4,000,000 (subject to adjustment) shares ofthe Company’s common stock, $0.001 par value (the “Common Stock”) as thereinprovided (the shares of Common Stock issuable upon exercise of the said warrantare hereinafter referred to as the “Shares”).

B. TheHolder has requested, and the Company has agreed, as a condition to the Holder’sobligation to acquire the said warrant, to register the Shares under theSecurities Act, upon the terms, and subject to the conditions, hereinafter setforth.

NOW,THEREFORE, in consideration of the premises and the mutual covenants andagreements contained herein and other good, valuable and sufficientconsideration, the receipt and adequacy of which are hereby acknowledge, theparties hereto, intending to be legally bound, hereby agree as follows:

*1.*Demand Registration. The Company agrees that the Company will, not laterthan sixty (60) days following the date on which it receives a request thereforby the Holder, file a registration statement (the “Registration Statement”)with the Securities and Exchange Commission (“Commission”) relating to theShares. Such Registration Statement may, at the election of the Holder, be inconnection with an underwritten public offering of the Shares and inappropriate form therefor. The company shall use its best efforts to cause suchRegistration Statement promptly to become effective under the Securities Actand to qualify the same under the blue sky laws of such states as mayberequested. Provided that such registration enables the Holder to dispose ofsubstantially all of the Shares, the company shall be obligated to effectregistration and qualification pursuant to a request of the Holder no more thanonce; in the event that such registration does not enable the Holder to disposeof substantially all of the Shares, the Company shall cause Earth to effectuatenot less than one additional such registration upon like request by the Holder.

*2.*Incidental Registration. If at any time the Company proposes to registerany equity securities under the Securities Act for its own account or for theaccount of any of its stock-holders, the Company shall, each such time, givethe Purchaser not less than twenty (20) days’ written notice of such proposedregistration. Upon the written request of the Holder, given within twenty (20)days after receipt of any such notice from the Company, the Company shall causeto be included in such registration all of the Shares the Holder requests be

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registered in suchregistration. There shall be no restriction with respect to the number of timesthe Holder may request such incidental registration.

*3.*Expenses. All of its costs and expenses of the registration andqualifications pursuant to this Agreement shall be borne by the Company. Suchcosts and expenses shall include, without limitation, the fees and expenses ofcounsel for the Company and of its accountants, one counsel for the Holder andall other costs, fees and expenses of the Company incident to the preparation,printing and filing under the Securities Act of the registration statement andall amendments and supplements thereto, the cost of furnishing copies of eachpreliminary prospectus, each final prospectus and each amendment or supplementthereto to underwriters, dealers and other purchasers of the Shares and thecosts and expenses (including fees and disbursements of counsel) incurred inconnection with the qualification of the Shares under the blue sky laws ofvarious jurisdictions. The Company shall not, however, pay any underwritingdiscount or commissions to the extent related to the sale of Shares sold in anyregistration and qualification.

*4.*Procedures.

(a)The Company will keep the Holder advised in writing as to the initiation ofproceedings for such registration and qualification and as to the completionthereof, and will advise the Holder, upon request, of the progress of suchproceedings.

(b)The Company will keep the registration and qualifications under this Agreementeffective (and in compliance with the Securities Act) by such action as may benecessary or appropriate until such time, if any as the Shares shall have beensold. The Company’s obligations under this Section 4(b) shall include, withoutlimitation, the filing of post-effective amendments and supplements to anyregistration statement or prospectus necessary to keep the RegistrationStatement current and the further qualification under any applicable blue skyor other state securities laws to permit such sale or distribution, all asrequested by the Holder. The Company will immediately notify the Holder at anytime when a prospectus relating thereto is required to be delivered under theSecurities Act, of the happening of any event as a result of which theprospectus included in such Registration Statement, as then in effect, includesan untrue statement of a material fact or omits to state any material factrequired to be stated therein or necessary to make the statements therein notmisleading in light of the circumstances then existing.

(c)Without limiting any other provision hereof, in connection with anyregistration of Shares under this Agreement, the Company will use its bestefforts to comply with the securities Act, the Securities Exchange Act of 1934,as amended (the “Exchange Act”), and all applicable rules and regulations ofthe Commission.

(d) Inconnection with any registration of Shares under this Agreement, the Companywill provide, if appropriate, a transfer agent and registrar for the Shares notlater than the effective date of such Registration Statement.

(e) Inconnection with any registration of Shares under this Agreement, the Companywill, if requested by the underwriters for any Shares included in suchregistration, enter into

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an underwriting agreementwith such underwriters for such offering, such agreement to contain suchrepresentations and warranties by the Company and such other terms andprovisions as are customarily contained in underwriting agreements with respectto secondary distributions, including, without limitation, provisions relatingto indemnification and contribution.

*5.*Indemnification. The Company will indemnify and hold harmless the Holderand each person, if any, who controls the Holder within the meaning of theSecurities Act against any losses, claims, damages or liabilities, joint orseveral, and expenses (including reasonable attorneys’ fees and expenses andreasonable costs of investigation) to which the Holder or such controllingperson may be subject, under the Securities Act or otherwise, insofar as anythereof arise out of or are based upon (i) any untrue statement or allegeduntrue statement of a material fact contained in (A) the Registration Statementunder which the Holder’s Shares were registered under the Securities Actpursuant to this Agreement, any prospectus or preliminary prospectus containedtherein, or any amendment or supplement thereto or (B) any other documentincident to the registration of the Shares under the Securities Act or thequalification of the Shares under any state securities laws applicable to theCompany, (ii) the omission or alleged omission to state in any item referred toin the preceding clause (i) a material fact required to be stated therein ornecessary to make the statements therein not misleading, or (iii) any violationor alleged violation by the Company of the Securities Act, the Exchange Act orany other federal or state securities law, rule or regulation applicable to theCompany and relating to action or inaction by the Company in connection withany such registration or qualification, except insofar as such losses, claims,damages, liabilities or expenses arise out of or are based upon any untruestatement or alleged untrue statement or omission or alleged omission basedupon information furnished to the Company in writing by the Holder expresslyfor use therein (with respect to which information the Holder shall soindemnify and hold harmless the Company, any underwriter for the Company endeach person, if any, who controls the Company or such underwriter within themeaning of the Securities Act).

*6.*Notices. Any notice or demand required or permitted to be made or givenhereunder shall be deemed sufficiently made and given if given by personalservice or by the mailing of such notice or demand by certified or registeredmail, return receipt requested, or by overnight courier service providing forproof of delivery, addressed, if to the Company, at the Company’s address firstabove written, with a copy to Roger A. Crabb, Esq., Scheef & Stone, L.L.P.,5956 Sherry Lane — Suite 1400, Dallas, Texas 75225-8031; or if to the Holder,at the Holder’s address first above written, with a copy in like manner toHillary B. Miller, Esq. 112 Parsonage Road, Greenwich, Connecticut 06830-3942.Either party may change its address by like notice to the other party.

*7.*Governing Law: Forum. This Agreement shall be construed end enforced inaccordance with the substantive laws of the State of New York without regard toconflict of law principles. Each party hereby consents and submits to theexclusive personal and subject matter jurisdiction of the state and federalcourts located in New York County, New York for

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purposes of stay actionor proceeding related to this Agreement Trial by jury in any action arising,proceeding or counterclaim arising hereunder is hereby waived.

*8.*Binding Effect; Assignment: Third Party Beneficiaries. This Agreementshall be binding upon the parties and their respective successors and assignsand shall inure to the benefit of the parties and their respective successorsand assigns. No person (including, without limitation, any employee of a party)shall be, or be deemed to be, a third party beneficiary of this Agreement.

*9.*Miscellaneous. This Agreement constitutes the entire contract betweenthe parties with respect to the subject matter hereof and cancels andsupersedes all of the previous contracts, commitments, representations,warranties and understandings (whether oral or written) by, between or amongthe parties with respect to the subject matter hereof. No addition to, and nocancellation, renewal, extension, modification or amendment of, this Agreementshall be binding upon a party unless such addition, cancellation, renewal,extension, modification or amendment is set forth in a written instrument whichstates that it adds to, amends, cancels, renews, extends or modifies thisAgreement and has been approved by all of the parties hereto. No waiver of anyprovision of this Agreement shall be binding upon a party unless such waiver isexpressly set forth in a written instrument which is executed and delivered bysuch party or on behalf of such party by an officer of, or attorney-in-factfor, such party. Such waiver shall be effective only to the extent specificallyset forth in such written instrument. Neither the exercise (from time to timeand at any time) by a party of, nor the delay or failure (at any time or forany period of time) to exercise, any right, power or remedy shall constitute awaiver of the right to exercise, or impair, limit or restrict the exercise of,such right, power or remedy or any other right, power or remedy at any time andfrom time to time thereafter. No waiver of any right, power or remedy of aparty shall be deemed to be a waiver of any other right, power or remedy ofsuch party or shall, except to the extent so waived, impair, limit or restrictthe exercise of such right, power or remedy. If any provision of this Agreementshall hereafter be held to be invalid, unenforceable or illegal, in whole or inpart, in any jurisdiction under any circumstances for any reason, (i) suchprovision shall be reformed to the minimum extent necessary to cause suchprovision to be valid enforceable and legal while preserving the intent of theparties as expressed in, and the benefits to the parties provided by, thisAgreement or (ii) if such provision cannot be so reformed, such provision shallbe severed from this Agreement and an equitable adjustment shall be made tothis Agreement (including, without limitation, addition of necessary furtherprovisions to this Agreement) so as to give effect, to the intent as soexpressed and the benefits so provided. Such holding shall not affect or impairthe validity, enforceability or legality of such provision in any otherjurisdiction or under any other circumstances. Neither such holding nor suchreformation or severance shall affect or impair the legality, validity orenforceability of any other provision of this Agreement.

*10.*Remedies. The rights, powers and remedies of the parties set forthherein for a breach of or default under this Agreement are cumulative and inaddition to, and not in lieu of, any rights or remedies that any party mayotherwise have under this Agreement, at law or in equity. The partiesacknowledge that the Shares are unique, and that any violation of this

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Agreement cannot becompensated for by damages alone. Accordingly, in addition to all of the otherremedies which may be available hereunder or under applicable law, any partyshall have the right to any equitable relief which may be appropriate to remedya breach or threatened breach by any other party hereunder, including, withoutlimitation, the right to enforce specifically the terms of this Agreement byobtaining injunctive relief in respect of any violation or non-performancehereof, and any party shall have the right to seek recovery of and be awardedattorneys’ fees and expenses in any proceeding with respect to this Agreementas reasonably determined by the court in which such proceeding is brought.

*11.*Headings;Counterparts. The headings set forth in this Agreement have been insertedfor convenience of reference only, shall not be considered a part of thisAgreement and shall not limit, modify or affect in any way the meaning orinterpretation of this Agreement. This Agreement may be signed in any number ofcounterparts, each of which (when executed and delivered) shall constitute anoriginal instrument, but all of which together shall constitute one and thesame instrument. It shall not be necessary when making proof of this Agreementto account for any counterparts other than a sufficient number of counterpartswhich, when taken together, contain signatures of all of the parties. Aphotocopy or electronic facsimile of this Agreement or any signature hereonshall be valid as an original.

IN WITNESSWHEREOF, the parties have duly executed and delivered this Agreement as of thedate first above written.
| EARTH BIOFUELS, INC. |                           |
|----------------------|--------------------------------|
|                 |                           |
|                 |                           |
| By:                  | /s/ Dennis G.  McLaughlin, III |   |   |   |
|                 | Dennis G.  McLaughlin, III     |   | Lance A. Bakrow |
|                 | Its President                  |   |   |

 

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**CONSULTING AGREEMEN****T**

**THIS CONSULTING AGREEMENT**(the “Agreement”), made and entered into this21st day of July, 2006, by and between **EARTHBIOFUELS, INC.**, a Delawarecorporation having its principal place of business at 3001 Knox Street — Suite403, Dallas, Texas 75205-7305 (the “Company”), and **LANCE A.BAKROW**, whose office address is 537 Steamboat Road, Greenwich,Connecticut 06830-7153 (“Consultant”),

Witnesseth:

WHEREAS, Consultant desiresto provide professional services to the Company in connection with its businessstrategy and operations, and the Company desires to engage Consultant toperform such services.

NOW, THEREFORE, inconsideration of the premises and covenants contained herein and intending tobe legally bound, the parties hereby agree as follows:

**ArticleI — SERVICES**

**Section1.01 —**Appointmentof Consultant.Subject to the terms and conditions of this Agreement, the Company hereby hiresand employs Consultant as a non-exclusive provider of professional serviceswith respect to the Company’s business strategy and operations, and Consultanthereby accepts such employment. Consultant shall devote so much of hisoccupational time and efforts to the business of the Company as Consultantshall determine in his sole discretion.

**Section1.02 —**Non-Exclusivity. Nothing in this Agreement shall precludethe Company from engaging other consultants to perform similar services, norshall it preclude Consultant from performing similar services for others.Consultant may engage in and possess interests in other business ventures andinvestment opportunities of every kind and description, independently or withothers, including serving as a consultant or investor in other businesses withactivities similar to those of the Company. The Company shall not have anyrights in or to such ventures or opportunities or the income or profitstherefrom.

**Section1.03 —**Indemnification. Consultant shall be entitled to indemnityfrom the Company for any liability incurred and/or for any act performed by himwithin the scope of his engagement under this Agreement, and/or for any actomitted to be performed, except for his gross negligence or willful misconduct,which indemnification shall include all reasonable expenses incurred, includingreasonable legal and other professional fees and expenses. To the fullestextent permitted by applicable law, expenses (including, without limitation,reasonable attorneys’ fees, disbursements, fines and amounts paid insettlement) incurred by Consultant in defending any claim, demand, action, suitor proceeding relating to or arising out of their performance of his dutiesshall, from time to time, be advanced by the Company prior to the final dispositionof such claim, demand, action, suit or proceeding upon receipt by the Companyof an undertaking by or on behalf of Consultant to repay such amount if itshall ultimately be determined by a court of competent jurisdiction thatConsultant is not entitled to be indemnified as authorized herein. Consultant’sduty of care in the discharge of

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**his duties to the Company is limited to refrainingfrom engaging in grossly negligent conduct, intentional misconduct, or aknowing violation of law.**

**Section1.04 —**IndependentContractors.  The relationship between the parties establishedby this Agreement is that of independent contractors, and nothing contained inthis Agreement shall be construed to: (a) give either party the power to director control the day-to-day activities of the other; (b) constitute the partiesas partners, joint ventures, co-owners or otherwise as participants in a jointor common undertaking; or (c) allow Consultant to create or assume anyobligation on behalf of the Company for any purpose whatsoever.

**ArticleII — PAYMENT**

**Section2.01 —**Compensation.  Inconsideration of Consultant’s professional services under this Agreement, theCompany shall pay Consultant a professional services fee at the rate of $1 peryear.

**Section2.02 —**Reimbursementof Expenses. TheCompany will reimburse Consultant for all reas­onable, ordinary and neces­sarytravel, subsistence and lodging expenses incurred by Consultant in carrying outhis duties under this Agreement. Consultant shall present the Company fromtime to time with an itemized statement of such expens­es in such form as theCompany may request.

**Section2.03 —**Termsof Payment.  Payment of the fees and expenses set forth inthis Article shall be due and payable to Consultant by the Company not laterthan thirty (30) days following receipt by the Company of Consultant’s invoicetherefor.

**ArticleIII — TERM AND TERMINATION**

**Section3.01 —**Term. This Agreement shall last for five (5)years from the date hereof. No compensation of any kind shall be payable to theCompany or Consultant upon the expiration of this Agreement except asspecifically provided herein.

**Section3.02 —**Termination. Should either party fail to comply with thematerial terms and conditions of this Agreement the other party may terminatethis Agreement upon thirty (30) days written notice of the failure, providedthat the failure to comply is not cured within that period. This Agreementshall also terminate upon the bankruptcy or insolvency of either party.  The rights and remedies provided in thisSection shall be in addition to any other rights and remedies available at law,in equity, or provided by this Agreement.

**ArticleIV — GENERAL**

**Section4.01 —**NoInsider Information. TheCompany shall not, and shall cause each of its subsidiaries and each of theirrespective officers, directors, employees and agents, not to, provide Consultantwith any material, nonpublic information regarding the Company or any of itssubsidiaries without the express written consent of Consultant. In the event ofa breach of the foregoing covenant by the Company, and provided that theCompany shall have failed (following proper written request therefor) to makean appropriate public disclosure consistent with the requirements of RegulationFD, Consultant shall have the right to make a public disclosure, in the form ofa press release, public advertisement or otherwise, of such

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**material, nonpublic information without the priorapproval by the Company. Consultant shall not have any liability to the Companyfor any such disclosure.**

**Section4.02 —**Notices.  Anynotice or demand required or permitted to be made or given hereunder shall bedeemed sufficiently made and given if given by personal service or by themailing of such notice or demand by certified or registered mail, returnreceipt requested, or by overnight courier service providing for proof of delivery,addressed, if to the Company, at the Company’s address first above written,with a copy to Roger A. Crabb, Esq., Scheef & Stone, L.L.P., 5956 SherryLane — Suite 1400, Dallas, Texas 75225-8031; or if to Consultant, atConsultant’s address first above written, with a copy in like manner to HilaryB. Miller, Esq., 112 Parsonage Road, Greenwich, Connecticut 06830-3942. Eitherparty may change its address by like notice to the other party..

**Section4.03 —**GoverningLaw.  This Agreement shall be governed by, interpretedunder, and construed and enforced in accordance with the internal laws of theState of New York without regard to conflict of laws principles.  The sole forums for resolving disputesarising under or relating to this Agreement shall be the State and FederalCourts located in of the State of New York, and the parties hereby consent andsubmit to the exclusive jurisdiction of such courts and agree that venue shallbe in New York County, New York. Trial by jury in any action, proceeding or counterclaimarising hereunder or related hereto is hereby waived.

**Section4.04 —**Assignment. Except as otherwise provided herein, this Agreement together with allexhibits or modification now and hereafter made a part hereof shall be bindingon the respective parties and their respective heirs, executors, administrators,legal representatives, successors and assigns. Consultant shall not have the right to assign or delegate this Agreementor any of Consultant’s rights or obligations hereunder to any third party, withoutthe Company’s prior written consent in each instance, which consent the Companymay withhold at its sole discretion.

**Section4.05 —**Titlesand Headings.  Titles and headings of sections of thisAgreement are for convenience of reference only and shall not affect theconstruction of any provision of this Agreement.

**Section4.06 —**Waiverand Invalidity.  No waiver of any breach of this Agreementshall be effective unless made in writing. If any term or provision of this Agreement is found to be invalid or unenforceableunder any applicable statute or rule of law, then that provision notwithstanding,this Agreement shall remain in full force and effect and such provision shallbe deleted.  Without limiting the foregoing,in the event any remedy hereunder is determined to have failed of its essentialpurpose, the parties intend that all limitations of liability and remedies andall exclusions of damages provided for in this agreement shall remain in fullforce and effect.

**Section4.07 —**ForceMajeure.  Neither party shall be liable for failure ordelay in performance of any obligation under this Agreement, except the makingof payments hereunder, if such failure or delay is caused by circumstancesbeyond the control of the party

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**concerned, including, without limitations, failuresresulting from fires, accidents, labor stoppages, war, inability to securematerials or labor, government acts or acts of God.**

**Section4.08 —**EntireAgreement.  This Agreement constitutes the exclusive statementof the agreement between the parties concerning the subject matter hereof.  No addition to or modification of anyprovisions of this Agreement shall be binding unless made in writing and signedby duly authorized representatives of the parties.

**Section4.09 —**Counterparts.  ThisAgreement may be executed in multiple counterparts, each of which shall bedeemed an original and all of which together shall constitute one instrument.An electronic facsimile or photocopy of this Agreement or any signature hereonshall be deemed an original for all purposes.

**IN WITNESS WHEREOF**, the parties hereto have caused thisAgreement to be executed by their duly authorized representatives.
| EARTH BIOFUELS, INC.                  | CONSULTANT:               |
|---------------------------------------|---------------------------|
|                                  |                      |
|                                  |                      |
| By:                                   | /s/ Dennis G.  McLaughlin |   |   |   |
| Dennis G. McLaughlin, III             |                      | LANCE A. BAKROW |   |
| Chairman and  Chief Executive Officer |                      |

 

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