# **EXHIBIT10.30**

**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 COMMON STOCK**

**OF**

**EARTH BIOFUELS, INC.**
| **Issue Date: May 26, 2006** | **Warrant  No. 2** |
|------------------------------|-------------------------|

 

THISCERTIFIES that COWEN AND COMPANY, LLC or any subsequent holder hereof (the “***Holder***”), has theright to purchase from EARTH BIOFUELS, INC.,a Delaware corporation (the “***Company***”), up to 18,750 fully paid andnonassessable shares of the Company’s common stock, par value $0.001 per share(the “***Common Stock***”),subject to adjustment as provided herein, at a price per share equal to theExercise Price (as defined below), at any time and from time to time beginningon the date on which this Warrant is issued (the “***Issue Date***”) and ending at 5:00 p.m.,eastern time, on the fifth (5th) anniversary of the Issue Date or, if such day is not aBusiness Day, on the next succeeding Business Day (the “***Expiration Date***”).  This Warrant is issued pursuant to aSecurities Purchase Agreement, dated as of May 26, 2006 (the “***Securities Purchase Agreement***”).  Capitalized terms used herein and nototherwise defined shall have the respective meanings set forth in theSecurities Purchase Agreement.

1.             *EXERCISE.*

(a)           Rightto Exercise; Exercise Price.  TheHolder 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***” foreach Warrant Share purchased by the Holder upon the exercise of this Warrantshall be $3.84, subject to adjustment for the events specified in ***Section 6*** below.

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(b)           ExerciseNotice.  In order to exercise thisWarrant, the Holder shall (i) send by facsimile transmission, at any time priorto 5:00 p.m., eastern time, on the Business Day on which the Holder wishes toeffect such exercise (the “***ExerciseDate***”), to the Company an executed copy of the notice ofexercise in the form attached hereto as ***Exhibit A*** (the “***Exercise Notice***”), (ii) deliver theoriginal Warrant or a copy thereof, and (iii) in the case of a Cash Exercise(as defined below), the Exercise Price to the Company.  The Exercise Notice shall also state the nameor names in which the Warrant Shares issuable on such exercise shall beissued.  In the case of a dispute as tothe calculation 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.  Thefees of any such accountant shall be borne by the party whose calculations weremost at variance with those of such accountant.

(c)           Holderof Record.  The Holder shall, for allpurposes, be deemed to have become the holder of record of the Warrant Sharesspecified in an Exercise Notice on the Exercise Date specified therein,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)           Cancellationof Warrant.  This Warrant shall becanceled upon its exercise and, if this Warrant is exercised in part, theCompany shall, at the time that it delivers Warrant Shares to the Holderpursuant to such exercise as provided herein, issue a new warrant, and deliverto the Holder a certificate representing such new warrant, with terms identicalin all respects to this Warrant (except that such new warrant shall be exercisableinto the number of shares of Common Stock with respect to which this Warrantshall remain unexercised); *provided, however*,that the Holder shall be entitled to exercise all or any portion of such newwarrant at any time following the time at which this Warrant is exercised,regardless of whether the Company has actually issued such new warrant ordelivered to the Holder a certificate therefor.

 

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2.             *DELIVERY OF WARRANT SHARES UPON EXERCISE*.

Upon receipt of an Exercise Notice pursuant to ***Section 1*** above, theCompany shall, (A) in the case of a Cash Exercise (as defined below) no laterthan the close of business on the later to occur of (i) the third (3rd)Business Day following the Exercise Date set forth in such Exercise Notice and(ii) the date on which the Company has received payment of the Exercise Price,(B) in the case of a Cashless Exercise (as defined below), no later than theclose of business on the third (3rd) Business Day following the Exercise Dateset forth in such Exercise Notice, and (C) with respect to Warrant Shares thatare 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 a fractional Warrant Share, such fractionalWarrant Share shall be disregarded and the number of Warrant Shares issuableupon such exercise, in the aggregate, shall be the nearest whole number ofWarrant 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 theCompany an amount equal to (i) (N/365) multiplied by (ii) the aggregateExercise Price of the Warrant Shares which are the subject of such ExerciseDefault multiplied by (iii) the lower of sixteen percent (16%) and themaximum rate permitted by applicable law or by the applicable rules orregulations of any Governmental Agency (the “***Default Interest Rate***”), where “N”equals the number of days elapsed between the original Delivery Date of suchWarrant Shares and the date on which such Exercise Default has been cured.  In the event that shares of Common Stock arepurchased by or on behalf of the Holder in order to make delivery on a sale effected in anticipation of receivingWarrant Shares upon an exercise, the Holder shall have the right to receivefrom the Company, in addition to the foregoing amounts, (i) the aggregateamount paid by or on behalf of the Holder for such shares of Common Stock minus(ii) the aggregate amount of net proceeds, if any, received by the Holder fromthe sale of the Warrant Shares issued by the Company pursuant to suchexercise.  Amounts payable under this ***Section 3(a)***shall be paid to the Holder in immediately available funds on or beforethe fifth (5th) Business Day following written notice from the Holder to theCompany specifying the 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 applicableexercise shall be automatically be adjusted to the lower of (i) the ExercisePrice in effect on the Exercise Date and (ii) the lowest Exercise Priceoccurring from the first date of such Exercise Default through the date onwhich all Warrant Shares to which the Holder is entitled have been delivered inaccordance with the terms of this Warrant. The Holder shall have the right to pursue all other remedies availableto it at law or in equity (including, without limitation, a decree of specificperformance and/or injunctive relief).

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4.             *EXERCISELIMITATION*.

In no event shall the Holder be permitted to exercisethis Warrant, or part thereof, if, upon such exercise, the number of shares ofCommon Stock beneficially owned by the Holder (other than shares which may bedeemed beneficially owned except for being subject to a limitation on exerciseor exercise analogous to the limitation contained in this ***Section 4***), wouldexceed 4.99% of the number of shares of Common Stock then issued andoutstanding, it being the intent of the Company and the Holder that the Holdernot be deemed at any time to have the power to vote or dispose of greater than4.99% of the number of shares of Common Stock issued and outstanding at anytime. Nothing contained herein shall be deemed to restrict the right of theHolder to exercise this Warrant at such time as such exercise will not violatethe provisions of this ***Section4***.  As used herein, beneficial ownership shall bedetermined in accordance with Section 13(d) of (i) Securities Exchange Act of1934, as amended, and the rules thereunder. To the extent that the limitation contained in this ***Section 4*** applies (and without limiting any rights theCompany may otherwise have), the Company may rely on the Holder’s determinationof whether this Warrant is exercisable pursuant 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 termshereof. The Company shall have no liability to any person if the Holder’sdetermination of whether this Warrant is exercisable pursuant to the termshereof is incorrect.  The holders ofCommon Stock are to be deemed third-party beneficiaries of the limitationshereby and, accordingly, this ***Section 4***may not be amended without the consent of the holders of a majority of theshares of Common Stock then outstanding; *provided, however*,that the Holder shall have the right, upon sixty (60) days’ prior writtennotice to the Company, to waive the provisions of this ***Section4*** in the event that either a Fundamental Change or LiquidationEvent (each, as defined in the Notes) is announced or occurs, without obtainingsuch consent.

5.             *PAYMENTOF THE EXERCISE PRICE; CASHLESS EXERCISE*.

The Holder may pay the Exercise Price in either of thefollowing forms or, at the election of Holder, a combination thereof:

(a)           througha cash exercise (a “***CashExercise***”) by delivering immediately available funds, or

(b)           through a cashless exercise (a “***Cashless Exercise***”)if, following the one-year anniversary of the Issue Date, an effectiveRegistration Statement is not available for the resale of all of the WarrantShares issuable hereunder at the time an Exercise Notice is delivered to theCompany, or if the Company otherwise consents in writing.  The Holder shall effect a Cashless Exerciseby surrendering this Warrant to the Company and noting on the Exercise Noticethat the Holder wishes to effect a Cashless Exercise, upon which the Companyshall issue to the Holder a number of Warrant 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-DILUTIONADJUSTMENTS; DISTRIBUTIONS; OTHER EVENTS*.

The Exercise Priceand the number of Warrant Shares issuable hereunder shall be subject toadjustment from time to time as provided in this ***Section 6***.

(a)           Stock Splits, Stock Interests, Etc.  If, at any time on or after the Issue Date,the number of outstanding shares of Common Stock is increased by a stock split,stock dividend, combination, reclassification or other similar event, theExercise Price shall be proportionately reduced, or if the number ofoutstanding shares of Common Stock is decreased by a reverse stock split,combination, reclassification or other similar event, the Exercise Price shallbe proportionately increased. In such event, the Company shall notify theCompany’s transfer agent of such change on or before the effective date thereof.

(b)           Major Transactions.  If, at any time after the Issue Date, anyMajor Transaction shall occur, then the Holder shall thereafter have the rightto receive upon exercise, in lieu of the shares of Common Stock otherwiseissuable, such shares of publicly traded stock, securities and/or otherproperty as would have been issued or payable upon such Major Transaction withrespect to or in exchange for the number of shares of Common Stock which wouldhave been issuable upon exercise had such Major Transaction not taken place(without giving effect to any limitations on such exercise contained in thisWarrant or the Securities Purchase Agreement). Notwithstanding the foregoing,following a Major Transaction in which all or substantially all of theoutstanding Common Stock of the Company is exchanged for, converted into,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-Scholes Value” means the value of theunexercised portion of this Warrant calculated using the Black-Scholes OptionPricing Model determined as of the day immediately following the publicannouncement of the applicable Triggering Event and reflecting (i) a risk-freeinterest rate corresponding to the U.S. Treasury rate for a period equal to theremaining term of this Warrant as of the date of such request and (ii) anexpected volatility equal to the lesser of (a) the 100 day volatility obtainedfrom the HVT function on Bloomberg or (b) a volatility of 60.  The Company shall not effect any MajorTransaction unless (i) the Holder has received written notice of suchtransaction at least thirty (30) days prior thereto (which period shall beincreased to sixty one (61) days if, at such time, without giving effect to thelimitation on exercise contained in ***Section 4*** hereof, the Holder wouldbeneficially own more than 4.9% of the Common Stock then outstanding, and the

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Holder hasnotified the Company in writing of such circumstance) but in no event laterthan fifteen (15) days prior to the record date for the determination ofstockholders entitled to vote with respect thereto; *provided*, *however*,that the Company shall publicly disclose the material terms of any such MajorTransaction on or before the date on which it delivers notice of a MajorTransaction to the Holder, and (ii) the resulting successor or acquiring entity(if not the Company) assumes by written instrument (in form and substancereasonable satisfactory to the Holder) the obligations of the Company underthis Warrant.  The above provisions shallapply regardless 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 time after the Issue Date, theCompany declares or makes any distribution of cash or any other assets (orrights to acquire such assets) to holders of Common Stock, including withoutlimitation any dividend or distribution to the Company’s stockholders in shares(or rights to acquire shares) of capital stock of a subsidiary) (a “***Distribution***”), theCompany 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 of the Distribution Notice, theHolder shall promptly (but in no event later than three (3) Business Days)notify the Company whether it has elected (A) to receive the same amount andtype of assets (including, without limitation, cash) being distributed asthough the Holder were, on the Determination Date, a holder of a number ofshares of Common Stock into which this Warrant is exercisable as of suchDetermination Date (such number of shares to be determined without givingeffect to any limitations on such exercise) or (B) upon any exercise of thisWarrant on or after the Distribution Date, to reduce the Exercise Priceapplicable to such exercise by reducing the Exercise Price in effect on theBusiness Day immediately preceding the Record Date by an amount equal to thefair market value of the assets to be distributed divided by the numberof shares of Common Stock as to which such Distribution is to be made, suchfair market value to be reasonably determined in good faith by the independentmembers of the Company’s Board of Directors. Upon receipt of such election notice from the Holder, the Company shalltimely effectuate the transaction or adjustment contemplated in the foregoing ***clause (A) or (B)***, asapplicable.****** If the Holder does not notify the Company ofits election pursuant to the preceding sentence on or prior to theDetermination Date, the Holder shall be deemed to have elected clause (A) ofthe preceding sentence.

(d)           Convertible Securities; Options.  If, at any time after the Issue Date, theCompany issues Convertible Securities or Options to the record holders of theCommon Stock, whether or not such Convertible Securities or Options areimmediately convertible, exercisable or exchangeable, then the Holders shall beentitled, upon any exercise of this Warrant after the date of record fordetermining stockholders entitled to receive such Convertible Securities orOptions (or if no such record is taken, the date on which such ConvertibleSecurities or Options are issued), to receive the aggregate number ofConvertible Securities or Options which the Holder would have received withrespect to the shares of Common Stock issuable upon such exercise (withoutgiving effect to any limitations on such exercise contained in this Warrant or 

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the SecuritiesPurchase Agreement) had the Holder been the holder of such shares of CommonStock on the record date for the determination of stockholders entitled toreceive such Convertible Securities or Options (or if no such record is taken,the date on which such Convertible Securities or Options were issued).

(e)           Dilutive Issuances.

(i)            Adjustment Upon Dilutive Issuance.  If, at any time after the Issue Date, theCompany issues or sells, or in accordance with ***Section 6(e)(ii)***is deemed to haveissued or sold, any shares of Common Stock for no consideration or for aconsideration per share less than the Exercise Price on the date of suchissuance or sale (or deemed issuance or sale) (a “***Dilutive Issuance***”), then the ExercisePrice 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 to this ***Section 6(e)(i)(A)*** if such adjustmentwould result in an increase in the Exercise Price.

(B)           if such Dilutive Issuance occursafter the 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:

## **N****0 + N****1**

## **N****0 + N****2**

where:

N0 =        thenumber of shares of Common Stock outstanding immediately prior to such DilutiveIssuance (without taking into account any Convertible Securities or Options,including the Notes and Warrants);

N1 =        thenumber of shares of Common Stock which the aggregate consideration, if any,received or receivable by the Company for the total number of such additionalshares of Common Stock so issued, sold or deemed issued or sold in suchDilutive Issuance (which, in the case of a deemed issuance or sale, shall becalculated in accordance with ***Section 6(e)(ii)*** below) would purchase at the ExercisePrice in effect immediately prior to such Dilutive Issuance; and

N2 =        the number of such additional shares of Common Stock soissued,

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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 ofdetermining the adjusted Exercise Price under ***Section 6(e)(i)***, the following will beapplicable:

(A)          Issuance Of Options.  If the Company issues or sells any Options, whetheror not immediately exercisable, and the price per share for which Common Stockis issuable upon the exercise of such Options (and the price of any conversionof Convertible 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. To the extent that shares of Common Stock or Convertible Securities arenot delivered pursuant to such Options, upon the expiration or termination ofsuch Options, the Exercise Price shall be readjusted to the Exercise Price thatwould then be in effect had the adjustments made upon the issuance of suchOptions been made on the basis of delivery of only the number of shares of CommonStock actually delivered.

(B)           Issuance Of Convertible Securities.  If the Company issues or sells anyConvertible Securities, whether or not immediately convertible, exercisable orexchangeable, and the price per share for which Common Stock is issuable uponsuch conversion, exercise or exchange is less than the Exercise Price in effecton the date of issuance or sale of such Convertible Securities, then themaximum total number of shares of Common Stock issuable upon the conversion,exercise or exchange of all such Convertible Securities shall, as of the dateof the issuance or sale of such Convertible Securities, be deemed to beoutstanding and to have been issued and sold by the Company for such price pershare. If the Convertible Securities so issued or sold do not have afluctuating conversion or exercise price or exchange ratio, then for thepurposes of the immediately preceding sentence, the “price per share for whichCommon Stock is issuable upon such conversion, exercise or exchange” shall bedetermined by dividing (A) the total amount, if any, received or receivable bythe Company as consideration for the issuance or sale of all such ConvertibleSecurities, plus the minimum aggregate 

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amount of additional consideration, if any, payable tothe Company upon the conversion, exercise or exchange thereof (determined inaccordance with the calculation method set forth in this ***Section 6(e)(ii)(B)***)at the time such Convertible Securities first become convertible, exercisableor exchangeable, by (B) the maximum total number of shares of Common Stockissuable upon the exercise, conversion or exchange of all such ConvertibleSecurities. If the Convertible Securities so issued or sold have a fluctuatingconversion or exercise price or exchange ratio (a “***Variable Rate Convertible Security***”),then for purposes of the first sentence of this ***Section 6(e)(ii)(B)***, the “price pershare for which Common Stock is issuable upon such conversion, exercise orexchange” shall be deemed to be the lowest price per share which would beapplicable (assuming all holding period and other conditions to any discountscontained in such Variable Rate Convertible Security have been satisfied) ifthe conversion price of such Variable Rate Convertible Security on the date ofissuance or sale thereof were equal to the actual conversion price on such date(or such higher minimum conversion price if such Variable Rate ConvertibleSecurity is subject to a minimum conversion price) (the “***Assumed Variable Market Price***”),and, further, if the conversion price of such Variable Rate ConvertibleSecurity at any time or times thereafter is less than or equal to the AssumedVariable Market Price last used for making any adjustment under this ***Section 6(e)*** withrespect to any Variable Rate Convertible Security, the Exercise Price in effectat such time shall be readjusted to equal the Exercise Price which would haveresulted if the Assumed Variable Market Price at the time of issuance of theVariable Rate Convertible Security had been equal to the actual conversionprice of such Variable Rate Convertible Security existing at the time of theadjustment required by this sentence; *provided,however*, that if the conversion or exercise price or exchange ratioof a Convertible Security may fluctuate solely as a result of provisionsdesigned to protect against dilution, such Convertible Security shall not bedeemed to be a Variable Rate Convertible Security.  No further adjustment to the Exercise Priceshall be made upon the actual issuance of such Common Stock upon conversion,exercise or exchange of such Convertible Securities.

(C)           Change In Option Price OrConversion Rate.  If there is achange at any time in (x) the amount of additional consideration payable to theCompany upon the exercise of any Options; (y) the amount of additionalconsideration, if any, payable to the Company upon the conversion, exercise orexchange of any Convertible Securities; or (z) the rate at which anyConvertible Securities are convertible into or exercisable or exchangeable for CommonStock (in each such case, other than under or by reason of provisions designedto protect against dilution), the Exercise Price in effect at the time of suchchange shall be readjusted to the Exercise Price which would have been ineffect at such time had such Options or Convertible Securities stilloutstanding provided for such changed additional consideration or changedconversion, exercise or exchange rate, as the case may be, at the timeinitially issued or sold.

(D)          Calculation Of Consideration Received.  If any Common Stock, Options or ConvertibleSecurities are issued or sold for cash, the consideration received thereforwill be the amount received by the Company therefor. In case any Common Stock,Options or Convertible Securities are issued or sold for a consideration partor all of which shall be other than cash, including in the case of a strategicor similar arrangement in which the other entity will provide services to theCompany, purchase

 

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services from the Company or otherwise provideintangible consideration to the Company, the amount of the consideration otherthan cash received by the Company (including the net present value of theconsideration expected by the Company for the provided or purchased services)shall be the fair market value of such consideration. In case any Common Stock,Options or Convertible Securities are issued in connection with any merger orconsolidation in which the Company is the surviving corporation, the amount ofconsideration therefor will be deemed to be the fair market value of suchportion of the net assets and business of the non-surviving corporation as isattributable to such Common Stock, Options or Convertible Securities, as thecase may be. The independent members of the Company’s Board of Directors shallcalculate reasonably and in good faith, using standard commercial valuationmethods appropriate for valuing such assets, the fair market value of anyconsideration.

(iii)          Exceptions To Adjustment Of ExercisePrice.  Notwithstanding theforegoing, no adjustment to the Exercise Price shall be made pursuant to this ***Section 6(e)*** upon theissuance of any Excluded Securities.

 (iv)         NoticeOf Adjustments.  Upon the occurrenceof each adjustment or readjustment of the Exercise Price pursuant to this ***Section 6(e)***resulting in a change in the Exercise Price by more than one percent (1%), orany change in the number or type of stock, securities and/or other propertyissuable upon exercise of this Warrant, the Company, at its expense, shallpromptly compute such adjustment, readjustment or change and prepare andfurnish to the Holder a certificate setting forth such adjustment, readjustmentor change and showing in detail the facts upon which such adjustment, readjustmentor change is based.  The Company shall,upon the written request at any time of the Holder, furnish to the Holder alike certificate setting forth (i) such adjustment, readjustment or change,(ii) the Exercise Price at the time in effect and (iii) the number of shares ofCommon Stock and the amount, if any, of other securities or property which atthe time would be received upon exercise of this Warrant.

(v)           Adjustments; Additional Shares,Securities or Assets.  In the eventthat at any time, as a result of an adjustment made pursuant to this ***Section 6***, the Holderof this Warrant shall, upon exercise of this Warrant, become entitled toreceive securities or assets (other than Common Stock) then, whereverappropriate, all references herein to shares of Common Stock shall be deemed torefer to and include such shares and/or other securities or assets; andthereafter the number of such shares and/or other securities or assets shall besubject to adjustment from time to time in a manner and upon terms as nearlyequivalent as practicable to the provisions of this ***Section 6***.  Any adjustment made herein that results in adecrease in the Exercise Price shall also effect a proportional increase in thenumber of shares of Common Stock into which this Warrant is exercisable.

7.             *MISCELLANEOUS*.

(a)           Failure to Exercise Rights notWaiver.  No failure or delay on thepart of the Holder in the exercise of any power, right or privilege hereundershall operate as a waiver thereof, nor shall any single or partial exercise ofany such power, right or privilege preclude any 

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other or furtherexercise thereof. All rights and remedies of the Holder hereunder arecumulative and not exclusive of any rights or remedies otherwise available. Inthe event that the Company 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 theHolder, to the address and facsimile number as to which the Holder has notifiedthe Company in writing. Written confirmation of receipt (A) given by therecipient of such notice, consent, waiver or other communication, (B)mechanically or electronically generated by the sender’s facsimile machinecontaining the time, date, recipient facsimile number and an image of the firstpage of such transmission or (C) provided by an overnight courier service shallbe rebuttable evidence of personal service, receipt by facsimile or receiptfrom an overnight courier service in accordance with clause (i), (ii) or (iii)above, respectively.

(c)           Amendments.  No amendment, modification or other changeto, or waiver of any provision of, this Warrant may be made unless suchamendment, modification or change is set forth in writing and is signed by theCompany and the Holder.

(d)           Transfer of Warrant.  The Holder may sell, transfer or otherwisedispose of all or any part of this Warrant (including without limitationpursuant to a pledge) to any person or entity as long as such sale, transfer ordisposition is the subject of an effective registration statement under theSecurities Act of 1933, as amended, and applicable state securities laws, or isexempt from registration thereunder, and is otherwise made in accordance 

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with theapplicable provisions of the Securities Purchase Agreement.  From and after the date of any such sale,transfer or disposition, the transferee hereof shall be deemed to be the holderof the portion of this Warrant acquired by such transferee, and the Companyshall, as promptly as practicable, issue and deliver to such transferee a newWarrant identical in all respects to this Warrant, in the name of suchtransferee. The Company shall be entitled to treat the original Holder as theholder of this entire Warrant unless and until it receives written notice ofthe sale, transfer or disposition hereof.

(e)           Lost or Stolen Warrant.  Upon receipt by the Company of evidence ofthe loss, theft, destruction or mutilation of this Warrant, and (in the case ofloss, theft or destruction) of indemnity or security reasonably satisfactory tothe Company, and upon surrender and cancellation of this Warrant, if mutilated,the Company shall execute and deliver to the Holder a new Warrant identical inall respects to this Warrant.

(f)            Governing Law.  This Warrant shall be governed by andconstrued in accordance with the laws of the State of New York applicable to contracts made and to be performedentirely within the State of New York.

(g)           Successorsand Assigns.  The terms andconditions of this Warrant shall inure to the benefit of and be binding uponthe respective successors (whether by merger or otherwise) and permittedassigns of the Company and the Holder. The Company may not assign its rights orobligations under this Warrant except as specifically required or permittedpursuant to the terms hereof.

                (h)           Taxes.  Theissue of stock certificates on exercises of this Warrant shall be made withoutcharge to the exercising Holder for any tax in respect of the issuethereof.  The Company shall not, however,be required to pay any tax which may be payable in respect of any transferinvolved in the issue and delivery of stock in any name other than that of theHolder of any Warrant exercised, and the Company shall not be required to issueor deliver any such stock certificate unless and until the person or personsrequesting the issue thereof shall have paid to the Company the amount of suchtax or shall have established to the reasonable satisfaction of the Companythat such tax has been paid.

[Signature Page to Follow]

 

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IN WITNESSWHEREOF, the Company has duly executed and delivered this Warrant as of theIssue Date.
|   | EARTH BIOFUELS, INC. |
|--------|----------------------|
|   |                 |   |
|   |                 |   |
|   | By:                  | /s/ DENNIS G. MCLAUGHLIN, III |   |
|   |                 | Name: Dennis G. 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                 of the 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.             Formof Exercise Price.  The Holder intendsthat payment of the Exercise Price shall be made as:

       a CashExercise with respect to                  Warrant Shares; and/or

       a CashlessExercise 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 a CashExercise 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 “accreditedinvestor” as that term is defined in Rule 501 of Regulation D, and that it isacquiring the Warrants Shares solely for its own account, and not with apresent view to the public resale or distribution of all or any part thereof,except pursuant to sales that are registered under the Securities Act or areexempt from the registration requirements of the Securities Act; provided,however, that, in making such representation, the Holder does not agree to hold the Warrants Shares forany minimum or specific term and reserves the right to sell, transfer orotherwise dispose of the Warrants Shares at any time in accordance with theprovisions of the Warrant and with Federal and state securities laws applicableto such sale, transfer or disposition.

 

                

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