**EXHIBIT 10.16**

**THIS CONVERTIBLE PROMISSORY NOTE AND THE SHARES ISSUABLEUPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF1933**(THE “SECURITIES ACT”) OR ANYSECURITIES LAW OF ANY STATE OF THE UNITED STATES.  THIS CONVERTIBLE PROMISSORY NOTE AND THESHARES ISSUABLE UPON CONVERSION HEREOF MAY BEREOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THESECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO REGISTRATIONUNDER THE SECURITIES ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROMREGISTRATION.

**CONVERTIBLEPROMISSORY NOTE**
| $450,000.00 | Dallas, Texas | March 31, 2006 |
|-------------|---------------|----------------|

 

FORVALUE RECEIVED, the undersigned, Earth Biofuels, Inc., a Delaware corporation (“*Borrower*”), promises to pay to theorder of Tom Groos (“*Lender*”),the sum of Four Hundred Fifty Thousand and No/100 Dollars ($450,000.00), withinterest from the date of advancement on the unpaid balance hereof from time totime remaining unpaid at a rate of 8% per annum, in (i) lawful money of theUnited States of America or (ii) equity securities of the Borrower as providedherein, both principal and interest being payable at the address designated innumbered paragraph 15 below or at such other place as Lender may, from time totime, designate in writing.  All interestunder this Note shall be computed on the basis of the actual number of dayselapsed over an assumed year consisting of three hundred sixty-five (365) days.

Theprincipal of this Note shall mature and be due and payable on April 28, 2007.  Simple interest payable on this Note shall bepayable upon each Conversion Date (as defined below), July 28, 2006, October 28,2006, January 28, 2007, and on the maturity date, when the principal andremaining accrued but unpaid interest shall be due and payable.

Allpast due principal and accrued interest on this Note shall bear interest frommaturity until paid at the highest (non-usurious) rate for which Borrower maylegally contract under applicable law. All payments on past due principal and accrued interest hereunder shallbe payable in lawful money of the United States of America which shall be legaltender for public and private debts at the time of payment.  As used herein, the term “*Holder*” shall initially mean Lender,and shall subsequently mean each person or entity to which this Note is dulyassigned.

ThisNote evidences indebtedness incurred by Borrower for interim financing providedto Borrower.

1.                                       Conversion Option.  All or any portion of the unpaid principal ofthis Note, plus accrued interest hereon, shall be convertible, at the option ofLender, into shares of Common Stock, $0.001 par value, issued by Borrower (the “*CommonStock*”).  At the time of any such conversion ofthe aggregate of the principal amount and

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accrued interest, or a portion thereof, the rights ofthe Lender with respect to such portion of the aggregate of the principalamount and accrued interest so converted shall cease and the Lender shall bedeemed to have become the record holder of the Common Stock issuable upon suchconversion.  The Borrower covenants withthe Lender that it will at all times reserve and keep available out of itsauthorized Common Stock and solely for the purpose of conversion as providedherein, and conditionally allot to the Lender, such number of shares of CommonStock as shall then be issuable upon the conversion of this Note.  The Borrower covenants with the Lender thatall shares of Common Stock which shall be so issuable shall be duly and validlyissued as fully-paid and non-assessable.

The Common Stock into whichthis Note may be converted shall be referred to herein as the “*Conversion Shares*.”  The number of Conversion Shares shall bedetermined by dividing the Conversion Amount (defined below) by the ConversionPrice Per Share (defined below).  Uponany such conversion, the Lender shall execute any and all customary andappropriate documents to implement the foregoing.  Additionally, the Lender shall be entitled todemand registration rights and piggyback registration rights pursuant to theRegistration Rights Agreement of even date herewith, executed by Borrower andLender (“*Registration Rights Agreement*”).

1.1                                 Definitions.  Unless otherwise specified, for purposeshereof, the following terms shall have the following meanings:

1.1.1                        “*Conversion Amount*” means an amountequal to the then outstanding principal plus any accrued but unpaid interestunder this Note, or such lesser amount as Holder shall determine.

1.1.2                        “*Conversion Price Per Share*”means a price per share of Common Stock equal to the lower of (i) $0.50 pershare or (ii) 70% of the volume weighted average price per share of the CommonStock (“*VWAP*”).  Notwithstanding the foregoing, the price setforth in part (i) of the preceding sentence shall be lowered from $0.50 pershare to $0.30 per share if both of the following shall have occurred withinthe 10-month time frame commencing 60 days from the date of this note andending 12 months from the date of this note: (A) the VWAP shall have fallen below $0.50 per share and (B) Borrowershall have more than 200,000,000 shares of Common Stock issued andoutstanding.  The VWAP shall be determinedas follows:  (x) the daily volumeweighted average price of the Common Stock for such date on the OTC BulletinBoard as reported by Bloomberg Financial L.P. (based on a trading day from 9:30a.m. Eastern Time to 4:02 p.m. Eastern Time); (y) if the Common Stock isnot then listed or quoted on the OTC Bulletin Board and if prices for theCommon Stock are then reported in the “Pink Sheets” published by the PinkSheets, LLC (or a similar organization or agency succeeding to its functions ofreporting prices), the most recent bid price per share of the Common Stock soreported; or (z) in all other cases, the fair market value of a share of CommonStock as determined by an independent appraiser selected in good faith by theHolder and reasonably acceptable to the Borrower.

1.2                                 ConversionProcedures.

1.2.1                        Holder mayexercise its conversion right by giving written notice (in the form attached hereto,the “*Conversion Notice*”)to the Borrower of the exercise of such right. The conversion of this Note (or such portion thereof as Holder shalldetermine)

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will be deemedto have been effected as of the date of receipt of the Conversion Notice (the “*Conversion Date*”).  If Holder has exercised its conversion right,the outstanding principal (or such portion thereof as Holder shall determine)and any accrued but unpaid interest under this Note shall be automaticallyconverted into such number of shares of the Common Stock to be issued byBorrower equaling the quotient of (i) the Conversion Amount, and (ii) theConversion Price Per Share.

1.2.2                        Withinfive business days of the Conversion Date, the Holder shall surrender this Noteat the principal office of the Borrower, for replacement or cancellation.

1.2.3                        Withinfive business days of the surrender of the Note by Holder, the Borrower willdeliver to the converting Holder (a) a certificate or certificates representingConversion Shares and (b) a replacement note for the unconverted principalbalance (if any) of this Note.  Borroweragrees that its issuance of this Note shall constitute full authority to itsofficers, agents, and transfer agents who are charged with the duty ofexecuting and issuing stock certificates to execute and issue the necessarycertificates for shares of Common Stock upon the conversion of this Note.

1.2.4                        On theConversion Date, the rights of the Holder of this Note to receive payment ofsuch portion of the principal and interest as Holder has converted hereunderwill cease and the person or persons in whose name or names any certificate orcertificates for Conversion Shares are to be issued upon such conversion willbe deemed to have become the holder or holders of record of the sharesrepresented thereby.

1.2.5                        Theissuance of certificates for the Conversion Shares will be made without chargeto the Holder for any issuance tax in respect thereof or other cost incurred bythe Borrower in connection with such conversion and the related issuance ofConversion Shares.

1.2.6                        If anyfractional interest in Conversion Shares would, except for the provisions ofthis Section 1, be deliverable upon any conversion of this Note, in lieu ofdelivering the fractional share therefor, the number of Conversion Shares shallbe rounded to the nearest whole number.

2.                                       Adjustment of Conversion PricePer Share.  The Conversion Price Per Share, the number ofConversion Shares, and the number and kind of shares or other securities to beissued upon conversion determined pursuant to Section 1.2, shall be subject toadjustment from time to time upon the happening of certain events while thisconversion right remains outstanding, as follows:

2.2.1                        Merger, Sale of Assets. If the Borrower at any time shall consolidate with or merge into or sellor convey all or substantially all its assets to any other corporation, thisNote, as to the unpaid principal portion thereof and accrued interest thereon,shall thereafter be deemed to evidence the right to purchase such number andkind of shares or other securities and property as would have been issuable ordistributable on account of such consolidation, merger, sale or conveyance,upon or with respect to the securities

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subjectto the conversion or purchase right immediately prior to such consolidation,merger, sale or conveyance.  Theforegoing provision shall similarly apply to successive transactions of asimilar nature by any such successor or purchaser.  Without limiting the generality of theforegoing, the anti-dilution provisions of this Section shall apply to suchsecurities of such successor or purchaser after any such consolidation, merger,sale or conveyance.

2.2.2                        Reclassification.  Ifthe Borrower at any time shall, by reclassification or otherwise, change the CommonStock into the same or a different number of securities of any class or classesthat may be issued or outstanding, this Note, as to the unpaid principalportion thereof and accrued interest thereon, shall thereafter be deemed toevidence the right to purchase an adjusted number of such securities and kindof securities as would have been issuable as the result of such change withrespect to the Common Stock immediately prior to such reclassification or otherchange.

2.2.3                        Stock Splits, Combinations and Dividends.  If the shares of Common Stock are subdividedor combined into a greater or smaller number of shares of Common Stock, or if adividend is paid on the Common Stock in shares of Common Stock, the ConversionPrice shall be proportionately reduced in case of subdivision of shares orstock dividend or proportionately increased in the case of combination ofshares, in each such case by the ratio which the total number of shares ofCommon Stock outstanding immediately after such event bears to the total numberof shares of Common Stock outstanding immediately prior to such event.

Whenever the Conversion PricePer Share is adjusted pursuant to this Section 2.2, the Borrower shall promptlymail to the Holder a notice setting forth the Conversion Price Per Share aftersuch adjustment and setting forth a brief statement of the facts requiring suchadjustment.

3.                                       Optional Prepayment.  This Note may be prepaid by Borrower in wholeor in part without the consent of the Lender and without prepayment penalty ofany kind.

4.                                       Default; Remedies.  For the purposes of this Agreement, an Eventof Default (herein so called) shall have occurred if (i) Borrower shall fail topay when due any principal of or interest on this Note, and such failure shallcontinue for a period of ten (10) days after the due date, (ii) Borrower shallhave failed to perform any covenant or other obligation contained herein or inthe Registration Rights Agreement, and such failure shall continue for a periodof ten (10) business days after Lender shall have given Borrower written noticeof such failure, (iii) Borrower shall commence a voluntary case or otherproceeding seeking liquidation or reorganization with respect to itself or itsdebts under any bankruptcy, insolvency or other similar law now or hereafter ineffect or seeking the appointment of a trustee, receiver, liquidator, custodianor other similar official of it or any substantial part of its property, orshall consent to any such relief or to the appointment of or taking possessionby any such official in an involuntary case or other proceeding commencedagainst it, or shall make a general assignment for the benefit of creditors,and such case or other proceeding shall remain undismissed and unstayed for aperiod of 30 consecutive days; or (iv) an involuntary case or other proceedingshall be commenced against Borrower seeking liquidation, reorganization orother relief with respect to it or its debts under any bankruptcy, insolvencyor other similar now or hereafter in

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effect or seeking the appointment of a trustee,liquidator, receiver, custodian or other similar official of it or anysubstantial part of its property, and such involuntary case or other proceedingshall remain undismissed and unstayed for a period of 60 consecutive days.

IfBorrower fails or refuses to pay any part of the principal of or interest uponthis Note as the same becomes due, or upon the occurrence of an Event ofDefault hereunder, then in any such event the Holder hereof may, at its option(i) declare the entire unpaid balance of principal and accrued interest onthis Note to be immediately due and payable without notice, (ii) reduceany claim to judgment, and/or (iii) demand, pursue and enforce any of Lender’srights and remedies, pursuant to any applicable law or agreement.  Each right and remedy available to Lendershall be cumulative of and in addition to each other such right andremedy.  No delay on the part of Lenderin the exercise of any right or remedy available to Lender shall operate as awaiver thereof, nor shall any single or partial exercise thereof preclude otheror further exercise thereof or exercise of any other such right or remedy.

5.                                       Representations, Warranties andCovenants of Borrower.  Borrower represents and warrants thatBorrower has authority and has obtained all approvals and consents necessary toenter into this Note and Borrower’s execution, delivery, and performance ofthis Note will not violate or conflict with the terms of Borrower’s Certificateof Incorporation.  Borrower will use ofthe proceeds of this Note for development of Borrower’s biodiesel plant locatedin Durant, Oklahoma, and for fees associated with this Note.  Subjectto the provisions of Regulation FD, upon request of Lender, Borrower shallprovide to Lender such information and materials as Lender may request,including unaudited monthly and quarterly and audited yearly financialstatements, an annual budget, internal management documents, reports ofoperations, reports of adverse developments, copies of any management letters,communications with shareholders or directors, press releases and registrationstatements, and access to all senior managers.

6.               Representationsand Warranties of Lender.

6.1  Suitability.  The Lender is an “accredited investor” assuch term is defined in Regulation D issued by the Securities and ExchangeCommission, and such Lender’s financial condition is such that it is able tobear the economic risk of its investment in the Note. Lender has such knowledgeand experience in financial and business matters as is necessary to make aninvestment in the Note.

6.2  Purchase for Own Account.  This Note is being acquired by Lender forinvestment purposes only and not with a view to the distribution of all or anypart thereof.  Lender has no present intentionof selling, transferring, disposing or granting any participation in the Noteand is not a party to any contract, agreement or understanding that wouldresult in any such sale, transfer or disposition of all or any portion of thisNote.

7.                                       No Waiver; Cumulative Rights.  No delay on the part of the Holder of thisNote in the exercise of any power or right under this Note shall operate as awaiver thereof, nor shall a single or partial exercise of any power or rightpreclude other or further exercise thereof or the exercise of any other poweror right.

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8.                                       Waiver.  Borrower waives demand, presentment, protest,notice of dishonor, notice of nonpayment, notice of intention to accelerate,notice of acceleration, notice of protest and any and all lack of diligence ordelay in collection or the filing of suit hereon which may occur, and agrees toall extensions and partial payments, before or after maturity, withoutprejudice to the Holder hereof.

9.                                       Collection Costs.  In the event that, upon an Event of Default,any amount under this Note is collected in whole or in part through suit,arbitration or mediation, then and in any such case there shall be added to theunpaid principal balance hereof all costs of collection, (including, but notlimited to, reasonable attorneys’ fees and expenses) whether or not suit isfiled.

10.                                 Governing Law.  This Note shall begoverned by and construed in accordance with the laws of the State of Texas.  In the event of a dispute involving this Noteor any other instruments executed in connection herewith, the partiesirrevocably agree that exclusive venue for such dispute shall lie in any courtof competent jurisdiction in Dallas County, Texas, and the parties waive anyclaim that such forum is inappropriate or inconvenient.

11.                                 Headings.  The headings of thesections of this Note are inserted for convenience of reference only and shallnot be deemed to constitute a part hereof.

12.                                 Usury.  All agreementsbetween Borrower and the Holder of this Note, whether now existing or hereafterarising and whether written or oral, are expressly limited so that in nocontingency or event whatsoever, whether by acceleration of the maturity ofthis Note or otherwise, shall the amount paid, or agreed to be paid, to the Holderhereof for the use, forbearance or detention of the money to be loanedhereunder or otherwise, exceed the maximum amount permissible under applicablelaw.  If from any circumstanceswhatsoever fulfillment of any provision of this Note, at the time performanceof such provision shall be due, shall involve transcending the limit ofvalidity prescribed by law, then *ipso facto,*theobligation to be fulfilled shall be reduced to the limit of such validity, andif from any such circumstances the Holder of this Note shall ever receiveanything of value as interest or deemed interest by applicable law under thisNote or otherwise in an amount that would exceed the highest lawful rate, suchamount that would be excessive interest shall be applied to the reduction ofthe principal amount owing under this Note, and not to the payment of interest,or if such excessive interest exceeds the unpaid balance of principal of thisNote, such excess shall be refunded to Borrower.  In determining whether or not the interestpaid or payable with respect to any indebtedness of Borrower to the Holderhereof, under any specific contingency, exceeds the highest lawful rate,Borrower and the Holder hereof shall, to the maximum extent permitted byapplicable law, (i) characterize any nonprincipal payment as an expense, fee orpremium rather than as interest, (ii) amortize, prorate, allocate and spreadthe total amount of interest throughout the full term of such indebtedness sothat the actual rate of interest on account of such indebtedness is uniform throughoutthe term thereof, and/or (iii) allocate interest between portions of suchindebtedness, to the end that no such portion shall bear interest at a rategreater than that permitted by law.  Theterms and provisions of this paragraph shall control and supersede every otherconflicting provision of all agreements between Borrower and the Holder hereof.

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13.                                 Successors and Assigns.  All of thestipulations, promises and agreements in this Note made by or on behalf ofBorrower shall bind the successors and assigns of Borrower, whether soexpressed or not, and inure to the benefit of the successors and assigns ofBorrower and Lender.  Any assignee ofBorrower or Lender shall agree in writing prior to the effectiveness of suchassignment to be bound by the provisions hereof.  The Lender from time to time also may sell toone or more financial institutions, institutional investors or other persons aparticipation interest in all or any undivided portion of the rights, powers,privileges, remedies and interests of the Lender under this Note.

14.                                 Severability.  In the event any oneor more of the provisions contained in this Note shall for any reason be heldto be invalid, illegal or unenforceable in any respect, such invalidity,illegality or unenforceability shall not affect any other provision hereof, andthis Note shall be construed as if such invalid, illegal or unenforceableprovision had never been contained herein.

15.                                 Notices.  All notices andother communications hereunder shall be in writing or by telecopy, and shall bedeemed to have been duly made when delivered in person or sent by telecopy,same day or overnight courier, or 72 hours after having been deposited in theUnited States registered or certified mail return receipt requested, postageprepaid, to a party at the address set forth below (which may be changed inaccordance with these notice procedures):

If to Lender:

Name:  Tom Groos

Address:161 Ottawa St. NW, Suite 502

GrandRapids, Michigan 49503

Fax number: (616) 831-6454

If to Borrower:

Earth Biofuels, Inc.

3001 Knox Street, Suite 403

Dallas, TX  75205

Fax Number: (214) 389-9805

Attention:  ChiefExecutive Officer

With a copy to:

Roger A. Crabb

Scheef & Stone, LLP

5956 Sherry Lane, Suite 1400

Dallas, TX 75225

Faxnumber:  (214) 706-4242

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THIS NOTE REPRESENTS THE FINAL AGREEMENT BETWEENBORROWER AND LENDER CONCERNING THE MATTERS HEREIN AND MAY NOT BE CONTRADICTEDBY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THEPARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THEPARTIES.

INWITNESS WHEREOF, the undersigned have executed this Convertible Promissory Noteon and as of the date first set forth above.
| *** *** | ***BORROWER:***         |
|--------------|-------------------------|
|         |                    |
|         | EARTH BIOFUELS, INC.    |
|         |                    |
|         |                    |
|         | By:                     | /s/ DENNIS G. MCLAUGHLIN, III |   |
|         | Name:                   | Dennis G. McLaughlin, III |
|         | Title:                  | Chief Executive Officer |
|         |                    |
|         |                    |
| *** *** | ***LENDER:***           |
|         |                    |
|         | Tom Groos               |
|         |                    |
|         |                    |
|         | /s/ TOM GROOS           |   |
|         | Tom Groos, individually |
|              |                         |  |  |  |

 

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FORM OF

NOTICE OFCONVERSION

(To be Executed bythe Registered Holder in order to Convert the Note)

The undersigned herebyirrevocably elects to convert $450,000.00 of the principal amount of the aboveNote into shares of Common Stock of Earth Biofuels, Inc. according to theconditions of such Note, as of the date written below.
| Date of Conversion           |                         |   |
|------------------------------|------------------------------|--------|
|                         |                         |
| Applicable Conversion Price: | $0.50                        |
|                         |                         |
|                         |                         |
| Signature:                   |                         |   |
|                         |                         |
| Printed Name:                | Tom Groos                    |
|                         |                         |
| Address:                     | 161 Ottawa St. NW, Suite 502 |
|                         | Grand Rapids, Michigan 49503 |
|                              |                              |        |  |  |  |  |  |

 

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