### **EXHIBIT10.53**

**THIS NOTE AND THE SECURITIES ISSUABLE UPONCONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAYNOT BE OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER SUCH ACTAND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO,OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATESECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE.**

**THIS NOTE DOES NOT REQUIREPHYSICAL SURRENDER HEREOF IN ORDER TO EFFECT A PARTIAL PAYMENT, REDEMPTION ORCONVERSION HEREOF. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTEMAY BE LESS THAN THE PRINCIPAL AMOUNT SHOWN BELOW.**

#### **EARTHBIOFUELS, INC.**

**8% SENIOR CONVERTIBLE NOTE**

**New York,New York                                                                                                                                                                $5,000,000**

**IssueDate: July 11, 2006**

**FOR VALUERECEIVED,**EARTH BIOFUELS, INC.,****aDelaware corporation (the “***Company***”),hereby promises to pay to the order of CASTLERIGGMASTER INVESTMENTS LTD. or its permitted successors or assigns (the “***Holder***”) the sum of FIVE MILLION AND00/100 DOLLARS ($5,000,000) in same day funds, on or before the Maturity Date(as defined below). Upon the occurrence of the Conversion Trigger Event (asdefined below), the Holder may convert principal of and interest accrued onthis Note into shares (“***Conversion Shares***”)of the Company’s common stock, par value $.001 per share (the “***Common Stock***”), on the terms setforth herein.

TheCompany has issued this Note pursuant to a Securities Purchase Agreement, datedas of July 10, 2006 (the “***Securities PurchaseAgreement***”). The Notes issued by the Company pursuant to theSecurities Purchase Agreement, including this Note, are collectively referredto herein as the “***Notes***”.

Thefollowing terms shall apply to this Note:

1.             *DEFINITIONS*.

“***Approved Stock Plan***” means anyemployee benefit plan which has been approved by the Board of Directors of theCompany (including a majority of the independent

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members of theBoard), pursuant to which the Company’s securities may be issued to anyemployee, officer, director or consultant for services provided to the Company.

“***Business Day***” means any day otherthan a Saturday, a Sunday or a day on which the New York Stock Exchange isclosed or on which banks are authorized by law to close in New York, New York.

“***Change of Control***” means theexistence or occurrence of any of the following: (a) the sale, conveyance ordisposition of all or substantially all of the assets of the Company; (b) theeffectuation of a transaction or series of transactions in which more thanfifty percent (50%) of the voting power of the Company is disposed of; (c) theconsolidation, merger or other business combination of the Company with or intoany other entity, immediately following which the prior stockholders of theCompany fail to own, directly or indirectly, at least fifty percent (50%) ofthe surviving entity; (d) a transaction or series of transactions in which anyPerson or group acquires more than fifty percent (50%) of the voting equity ofthe Company; and (e) the Continuing Directors do not at any time constitute atleast a majority of the Board of Directors of the Company.

“***Common Stock Equivalent***” means,collectively, Options and Convertible Securities.

“***Continuing Director***” means at anydate a member of the Company’s Board of Directors (i) who was a member of suchboard on the date of the Securities Purchase Agreement or (ii) who wasnominated or elected by at least a majority of the directors who wereContinuing Directors at the time of such nomination or election or whoseelection to the Company’s Board of Directors was recommended or endorsed by atleast a majority of the directors who were Continuing Directors at the time ofsuch nomination or election or such lesser number comprising a majority of anominating committee if authority for such nominations or elections has beendelegated to a nominating committee whose authority and composition have beenapproved by at least a majority of the directors who were continuing directorsat the time such committee was formed.

“***Conversion Price***” means, as of anydate, the lower of the Fixed Conversion Price and the Floating Conversion Priceon such date, subject to adjustment as provided herein.

“***Conversion Trigger Event***” meansthat, as of the Initial Maturity Date, this Note has not been repaid in fulleither (i) in cash or (ii) through an Exchange effected in accordance with ***Section 2(c)*** below.

“***Convertible Securities***”****meansany stock or securities (other than Options) of the Company convertible into orexercisable or exchangeable for Common Stock**.**

“***Debt***” means as to any Person at anytime: (a) all indebtedness, liabilities and obligations of such Person forborrowed money; (b) all indebtedness, liabilities and obligations of such Personto pay the deferred purchase price of Property or services, except tradeaccounts payable of such Person arising in the ordinary course of business thatare not past due by more than 90 days; (c) all capital lease obligations ofsuch Person; (d) all Debt of others guaranteed by such Person; (e) allindebtedness, liabilities and obligations secured by a Lien (other than aPermitted Lien) existing on Property owned by such Person, whether or not theindebtedness, liabilities or

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obligations securedthereby have been assumed by such Person or are non-recourse to such Person;(f) all reimbursement obligations of such Person (whether contingent orotherwise) in respect of letters of credit, bankers’ acceptances, surety orother bonds and similar instruments; and (g) all liabilities and obligations ofsuch Person to redeem or retire shares of capital stock of such Person (otherthan the Company’s obligation to redeem the Securities under the circumstancesspecified therein). Debt shall not include any liability for (i) federal,state, local or other taxes imposed by a Governmental Authority, (ii)endorsements of negotiable instruments for deposit or collection or similartransactions in the ordinary course of business or (iii) any indebtedness thathas been fully and finally defeased in accordance with the terms of thedocuments governing such indebtedness.

“***Default Interest Rate***” means thelower of sixteen (16%) and the maximum rate permitted by applicable law or bythe applicable rules or regulations of any governmental agency or of any stockexchange or other self-regulatory organization having jurisdiction over theCompany or the trading of its securities.

“***Exchange***” means that all outstandingprincipal of and interest (and other amounts) accrued on this Note have beenexchanged for the securities issued in a New Offering on a dollar-for-dollarbasis and otherwise with the same terms granted to other purchasers in the NewOffering.

“***Fixed Conversion Price***” means thegreater of (i) the Floor Price and (ii) seventy five percent (75%) of theMarket Price on the Initial Maturity Date; in either case, subject toadjustment as provided herein.

“***Floating Conversion Price***” means, asof any date, the greater of (i) the Floor Price and (ii) seventy five percent(75%) of the Market Price on such date; in either case, subject to adjustmentas provided herein.

“***Floor Price***” means the least of (i)$1.00, (ii) the lowest floor price for any conversion or exercise price in anyother security of the Company issued after the date hereof, and (iii) thelowest per share consideration for which the Company issues or sells, or inaccordance with ***Section 5(e)(ii)***is deemed tohave issued or sold, any shares of Common Stock.

“***Governmental Authority***” means anynation or government, any state, provincial or political subdivision thereofand any entity exercising executive, legislative, judicial, regulatory oradministrative functions of or pertaining to government, including withoutlimitation any stock exchange, securities market or self-regulatoryorganization.

“***Initial Maturity Date***” means theninetieth (90th)calendar day following the Issue Date.

“***Issue Date***” means the date on whichthis Note is issued pursuant to the Securities Purchase Agreement.

“***Lien***” and “***PermittedLien***” shall have the respective meanings set forth in theSecurities Purchase Agreement.

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“***Liquidation Event***” means the (x)institution of any insolvency or bankruptcy proceedings, or any receivership,liquidation, reorganization or other similar proceedings in connectiontherewith, relative to the Company, the Company Subsidiaries or to its or theircreditors, as such, or to its or their assets, or (y) the dissolution or otherwinding up of the Company or the Company Subsidiaries, whether voluntary orinvoluntary and whether or not involving insolvency or bankruptcy proceedings,or (z) any assignment for the benefit of creditors or any marshalling of thematerial assets or material liabilities of the Company or any CompanySubsidiary.

“***Major Transaction***” means a merger, consolidation,business combination, tender offer, exchange of shares, recapitalization,reorganization, redemption or other similar event, as a result of which sharesof Common Stock shall be changed into the same or a different number of sharesof the same or another class or classes of stock or securities or other assetsof the Company or another entity or the Company shall sell all or substantiallyall of its assets.

“***Market Price***” means, as of aparticular date, the lower of (i) the average of daily VWAP for each of thefive (5) consecutive Trading Days occurring immediately prior to (but notincluding) such date and (ii) the daily VWAP on the Trading Day occurringimmediately prior to (but not including) such date.

“***Maturity Date***” means the InitialMaturity Date and, if the Holder exercises the Maturity Extension Option, theSubsequent Maturity Date.

“***Maturity Extension Option***” has themeaning set forth in ***Section 2(b)***below.

“***New Offering***” means a privateoffering and sale by the Company of its equity securities with gross cashproceeds to the Company of at least the principal amount of this Note.

“***Obligations***” shall have the meaningset forth in ***Section 2(a)*** below.

“***Options***”means any rights, warrants or options to subscribe for, purchase or receive CommonStock or Convertible Securities.

“***Person***”means any individual, corporation, trust, association, company, partnership,joint venture, limited liability company, joint stock company, GovernmentalAuthority or other entity.

“***Principal Market***” means the principalsecurities exchange or market on which the Common Stock is listed or traded.

“***Registrable Securities***” has themeaning set forth in the Registration Rights Agreement.

“***Registration RightsAgreement***” means the agreement between the Holder and the Companypursuant to which the Company has agreed to register the shares of Common Stockissuable under the Notes and the Warrants.

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“***Registration Statement***”means the Registration Statement (as defined in the Registration RightsAgreement) covering the resale of the Conversion Shares issuable under thisNote.

“***Subsequent Maturity Date***” means theone hundred and eightieth (180th) calendar day following the Issue Date.

“***Trading Day***”means a Business Day on which shares of Common Stock is purchased and sold on thePrincipal Market.

“***VWAP***” on aTrading Day means the volume weighted average price of the Common Stock forsuch Trading Day on the Principal Market as reported by Bloomberg FinancialMarkets or, if Bloomberg Financial Markets is not then reporting such prices,by a comparable reporting service of national reputation selected by theHolders and reasonably satisfactory to the Company. If VWAP cannot becalculated for the Common Stock on such Trading Day on any of the foregoingbases, then the Company shall submit such calculation to an independentinvestment banking firm of national reputation reasonably acceptable to theInvestors, and shall cause such investment banking firm to perform suchdetermination and notify the Company and the Investors of the results ofdetermination no later than two (2) Business Days from the time suchcalculation was submitted to it by the Company. All such determinations shallbe appropriately adjusted for any stock dividend, stock split or other similartransaction during such period.

“***Warrants***”means the warrants issued pursuant to the Securities Purchase Agreement.

All definitions contained in this Note are equallyapplicable to the singular and plural forms of the terms defined. The words “hereof”,“herein” and “hereunder” and words of similar import referring to this Noterefer to this Note as a whole and not to any particular provision of this Note.Any capitalized term used but not defined herein has the meaning specified inthe Securities Purchase Agreement.

2.             *MATURITY DATE; EXTENSIONOF MATURITY.*

(a)           InitialMaturity Date. On the Initial Maturity Date, and subject to the MaturityExtension Option (as defined below), the Company shall pay to the Holder allprincipal of and interest (and other amounts) accrued on this Note(collectively, the “***Obligations***”) either (i) incash or (ii) to the extent permitted through an Exchange in accordance with ***Section 2(c)*** below.

(b)           SubsequentMaturity Date; Extension. In the event that the Company does not pay theentire amount of the Obligations on the Initial Maturity Date either (i) incash or (ii) to the extent permitted through an Exchange in accordance with ***Section 2(c)*** below, the Holder shallhave the option to extend the Maturity Date as to all or any part of theObligations from the Initial Maturity Date to the Subsequent Maturity Date (the“***Maturity Extension Option***”). If theHolder exercises the Maturity Extension Option, the Obligations shall becomedue on the Subsequent Maturity Date instead of the Initial Maturity Date, and Interest(and any other amounts) shall continue to accrue hereon through the full andfinal payment (through cash or an Exchange) of all

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Obligations.In order to exercise the Maturity Extension Option, the Holder must deliverwritten notice thereof no later than the fifth (5th) Business Day prior to the InitialMaturity Date specifying the amount of Obligations to which the MaturityExtension Option applies. If the Holder does not exercise the MaturityExtension Option, the Obligations shall be deemed due and payable on theInitial Maturity Date. Any Obligations (including accrued and unpaid Interest)not paid in full when due shall bear interest at the Default Interest Rate fromthe due date through the date on which payment in full is made.

(c)           Exchange.The Company must deliver written notice of the Exchange (including the proposeddate and expected gross proceeds thereof) to the Holder at least five (5)Business Days (the “***Exchange Notice Date***”) priorto the closing date of the New Offering (the “***ExchangeDate***”). In order to pay the Obligations through an Exchange, theCompany must have received notice from the Holder at least one (1) Business Dayprior to the ExchangeDate that such Holder has elected to have the Obligations paid through anExchange (an “***Exchange Election***”). On theExchange Date, if the Holder has made an Exchange Election, this Note shall beautomatically exchanged for a portion of the securities issued in a NewOffering, such Exchange to be effected on a dollar-for-dollar basis sothat each dollar of Obligations (including all Interest accrued through theExchange Date) shall be deemed payment for the securities issued in the NewOffering on the same terms and conditions granted to other purchasers in theNew Offering. Unless and until an Exchange occurs (or payment in full of allObligations is made in cash), the Holder shall have all of its rights andremedies hereunder (including without limitation its right to convert this Noteif the Conversion Trigger Event has occurred) through the Exchange Date (or thedate on which payment in full is made).

(d)           Remediesfor Non-payment. Until all Obligations have been paid in full, either incash or through an Exchange effected in accordance with ***Section2(c)*** above, the Holder shall have all rights and remedies setforth in this Note and the other Transaction Documents and which it mayotherwise have under any law or in equity with respect to amounts due andunpaid hereunder. The Holder and its permitted successors and assigns shall beentitled to enforce such rights specifically, to recover damages by reason ofany non-payment of the Obligations when due or the breach of any provision ofthis Note or the Transaction Documents and to exercise all other rights grantedby law or in equity, if available. The Company recognizes and agrees that inthe event that it fails to perform, observe, or discharge any or all of itsobligations under this Note, any remedy at law may prove to be inadequaterelief to the Holder and, therefore, the Holder shall be entitled to seektemporary and permanent injunctive relief in any such case without thenecessity of proving actual damages and without posting a bond or othersecurity.

3.             *INTEREST.*

ThisNote shall bear interest on the unpaid principal amount hereof (“***Interest***”) at an annual rate equalto eight percent (8%); *provided, however,*thatif a New Offering is not completed within sixty (60) calendar days followingthe Issue Date, Interest shall be computed at an annual rate of twelve percent(12%), such computation to be retroactive to the Issue Date as though Interesthad accrued from such date at an annual rate of twelve percent. Interest shallbe computed on the basis of a 360-day year and calculated using the actualnumber of days elapsed since the Issue Date, and if not timely paid as providedherein, compounded monthly until paid.

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4*.             CONVERSION*.

 

(a)           Right to Convert. If theConversion Trigger Event occurs, the Holder shall have the right to convert, atany time thereafter and from time to time until the Obligations are paid infull, (i) all or any part of the outstanding and unpaid principal amount ofthis Note and (ii) at the Holder’s option, in its sole discretion, all or anypart of unpaid Interest (and any other amounts) accrued hereon, into suchnumber of fully paid and non-assessable Conversion Shares as is determined inaccordance with the terms hereof (a “***Conversion***”).

(b)           Conversion Notice. In order toconvert principal of (and, if the Holder so elects, Interest accrued on) thisNote, the Holder shall send by facsimile transmission, at any time prior to5:00 p.m., eastern time, on the Business Day on which the Holder wishes toeffect such Conversion (the “***Conversion Date***”),a properly completed notice of conversion to the Company, in the form set forthon ***Annex I*** hereto, stating the amountof principal (and accrued Interest, if applicable) to be converted and acalculation of the number of shares of Common Stock issuable upon suchConversion (a “***Conversion Notice***”). TheConversion Notice shall also state the name or names (with address) in whichthe shares of Common Stock that are issuable on such conversion shall be issued.The Holder shall not be required to physically surrender this Note to theCompany in order to effect a Conversion. The Company shall maintain a recordshowing, at any given time, the unpaid principal amount of this Note and thedate of each Conversion or other payment of principal hereof. The Holder shallamend ***Annex II*** hereto upon any suchConversion or payment of principal to reflect the unpaid principal amounthereof. In the case of a dispute as to the number of Conversion Shares issuableupon a Conversion (including without limitation as a result of adjustments tothe Fixed Conversion Price made in accordance with ***Section4*** below), the Company shall promptly issue to the Holder thenumber of Conversion Shares that are not disputed and shall submit the disputedcalculations to a certified public accounting firm of national recognition(other than the Company’s independent accountants) within two (2) Business Daysof receipt of the Holder’s Conversion Notice. The Company shall use its bestefforts to cause such accountants to calculate the Fixed Conversion Price asprovided herein and to notify the Company and the Holder of the results inwriting no later than two (2) Business Days following the day on which suchaccountant received the disputed calculations (the “***DisputeProcedure***”). Such accountant’s calculation shall be deemedconclusive absent manifest error. The fees of any such accountant shall beborne by the party whose calculations are most at variance with those of suchaccountant.

(c)           Number of Conversion Shares;Conversion Price. The number of Conversion Shares to be delivered by theCompany pursuant to a Conversion shall be equal to the principal amount of(and, if the Holder so elects, Interest and any other amounts accrued on) thisNote being converted divided by the Conversion Price in effect on theConversion Date.

(d)           Delivery of Common Stock UponConversion. Upon receipt of a Conversion Notice, the Company shall, nolater than the close of business on the third (3rd) Business Day following theConversion Date set forth in such Conversion Notice (the “***DeliveryDate***”), issue and deliver or cause to be delivered to the Holderthe number of Conversion Shares determined pursuant to ***Section3(c)*** above, *provided*, *however*, that any Conversion Shares that are the subject ofa Dispute Procedure shall be delivered no later than the close of business onthe third (3rd) Business Day following the determination made pursuant thereto.The Company shall effect delivery of Conversion Shares to the Holder, as longas the Company’s designated transfer agent or co-transfer agent in the UnitedStates for the Common Stock (the “***Transfer Agent***”)participates in the Depository Trust Company (“***DTC***”)Fast Automated Securities Transfer program (“***FAST***”),by

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crediting theaccount of the Holder or its nominee at DTC (as specified in the applicableConversion Notice) with the number of Conversion Shares required to bedelivered, no later than the close of business on such Delivery Date. In theevent that the Transfer Agent is not a participant in FAST or if the Holder sospecifies in a Conversion Notice or otherwise in writing on or before theConversion Date, the Company shall effect delivery of Conversion Shares bydelivering to the Holder or its nominee physical certificates representing suchConversion Shares, no later than the close of business on such Delivery Date.If any Conversion would create a fractional Conversion Share, such fractionalConversion Share shall be disregarded and the number of Conversion Sharesissuable upon such Conversion, in the aggregate, shall be the nearest wholenumber of Conversion Shares. Conversion Shares delivered to the Holder shallnot contain any restrictive legend unless such legend is required pursuant tothe terms of the Securities Purchase Agreement.

(e)           Failure to Deliver ConversionShares.

(i)            In the event that the Company failsfor any reason to deliver to the Holder the number of Conversion Sharesspecified in a Conversion Notice (without any restrictive legend to the extentpermitted by the terms of the Securities Purchase Agreement) on or before thesecond (2nd)Business Day following the Delivery Date therefor (a “***ConversionDefault***”), the Holder shall have the right to receive from theCompany an amount equal to (i) (N/365) multiplied by (ii) the principalamount of, and any Interest accrued on, this Note represented by the ConversionShares which remain the subject of such Conversion Default multiplied by(iii) the Default Interest Rate, where “N” equals the number of days elapsedbetween the original Delivery Date of such Conversion Shares and the date onwhich such Conversion Default has been cured. In the event that shares ofCommon Stock are purchased by or on behalf of the Holder in order to makedelivery on a sale effected in anticipation of receiving Conversion Shares upona Conversion, the Holder shall have the right to receive from the Company, in additionto the foregoing amounts, (i) the aggregate amount paid by or on behalf of theHolder for such shares of Common Stock minus (ii) the aggregate amountof net proceeds, if any, received by the Holder from the sale of the ConversionShares issued by the Company pursuant to such Conversion. Amounts payable underthis ***Section 4(e)(i)*** shall be paid to theHolder in immediately available funds on or before the fifth (5th) Business Dayfollowing written notice from the Holder to the Company specifying the amountowed to it by the Company pursuant to this ***Section 4(e)(i)***.

(ii)           In addition to its rights under ***Section 4(e)(i)*** above, upon aConversion Default, the Conversion Price applicable to the applicableConversion shall be automatically be adjusted to the lower of (i) theConversion Price in effect on the Conversion Date and (ii) the lowestConversion Price occurring from the first date of such Conversion Defaultthrough the date on which all Conversion Shares to which the Holder is entitledhave been delivered in accordance with the terms of this Note. The Holder shallhave the right to pursue all other remedies available to it at law or in equity(including, without limitation, a decree of specific performance and/orinjunctive relief).

(f)            Limitations on Right to Convert.In no event shall the Holder be permitted to convert principal of or Intereston this Note if,upon such conversion, (x) the number of Conversion Shares to be issued pursuantto such Conversion plus (y) the number of shares of Common Stockbeneficially owned by the Holder (other than Common Stock which may be deemedbeneficially owned except for being subject to a limitation on conversion orexercise analogous to the limitation

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contained in this ***Section 4(f)***) would exceed 4.99% ofthe number of shares of Common Stock then issued and outstanding, it being theintent of the Company and the Holder that the Holder not be deemed at any timeto have the power to vote or dispose of greater than 4.99% of the number ofshares of Common Stock issued and outstanding at any time. Nothing containedherein shall be deemed to restrict the right of the Holder to convert suchexcess principal amount at such time as such Conversion will not violate theprovisions of this ***Section4(f)***. As used herein,beneficial ownership shall be determined in accordance with Section 13(d) ofthe Securities Exchange Act of 1934, as amended, and the rules thereunder. Tothe extent that the limitation contained in this ***Section4(f)***applies (and without limiting any rights the Company may otherwise have), theCompany may rely on the Holder’s determination of whether this Note isconvertible pursuant to the terms hereof, the Company shall have no obligationwhatsoever to verify or confirm the accuracy of such determination, and thesubmission of a Conversion Notice by the Holder shall be deemed to be theHolder’s representation that this Note is convertible pursuant to the termshereof. The Company shall have no liability to any person if the Holder’sdetermination of whether this Note is convertible pursuant to the terms hereofis incorrect.

5.             *ADJUSTMENTS TO FIXEDCONVERSION PRICE*.

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

(b)           Major Transactions. If, at anytime after the Issue Date, any Major Transaction shall occur, then the Holdershall thereafter have the right to receive upon Conversion, in lieu of theshares of Common Stock otherwise issuable, such shares of publicly tradedstock, securities and/or other property as would have been issued or payableupon such Major Transaction with respect to or in exchange for the number ofshares of Common Stock which would have been issuable upon Conversion had suchMajor Transaction not taken place (without giving effect to any limitations onsuch Conversion contained in this Note or the Securities Purchase Agreement).The Company shall not effect any Major Transaction unless (i) the Holder hasreceived written notice of such transaction at least thirty (30) days prior thereto(which period shall be increased to sixty one (61) days if, at such time,without giving effect to the limitation on conversion contained in ***Section 4(f)*** hereof, the Holderwould beneficially own more than 4.9% of the Common Stock then outstanding, andthe Holder has notified the Company in writing of such circumstance) but in noevent later than fifteen (15) days prior to the record date for thedetermination of stockholders entitled to vote with respect thereto; *provided*, *however*, thatthe 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 Note (including, without limitation, the obligation to make payments ofInterest accrued but unpaid through the date of such consolidation, merger orsale and accruing thereafter). The above provisions shall apply regardless ofwhether or not there would have been a sufficient number of shares of CommonStock authorized and available

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for issuance uponconversion of this Note as of the date of such transaction, and shall similarlyapply to successive Major Transactions.

(c)           Distributions. If, at any timeafter the Issue Date, the Company declares or makes any distribution of cash orany other assets (or rights to acquire such assets) to holders of Common Stock,including without limitation any dividend or distribution to the Company’sstockholders in shares (or rights to acquire shares) of capital stock of asubsidiary) (a “***Distribution***”),the Company shall deliver written notice of such Distribution (a “***Distribution Notice***”) to theHolder at least fifteen (15) days prior to the earlier to occur of (i) therecord date for determining stockholders entitled to such Distribution (the “***Record Date***”) and (ii) the date onwhich such Distribution is made (the “***Distribution Date***”)(theearlier of such dates being referred to as the “***DeterminationDate***”). Upon receipt of the Distribution Notice, the Holdershall promptly (but in no event later than three (3) Business Days) notify theCompany whether it has elected (A) to receive the same amount and type ofassets (including, without limitation, cash) being distributed as though theHolder were, on the Determination Date, a holder of a number of shares ofCommon Stock into which this Note is convertible as of such Determination Date(such number of shares to be determined without giving effect to anylimitations on such conversion) or (B) upon any exercise of this Note on orafter the Distribution Date, to reduce the Conversion Price applicable to suchconversion by reducing the Conversion Price in effect on the Business Dayimmediately preceding the Record Date by an amount equal to the fair marketvalue of the assets to be distributed divided by the number of shares ofCommon Stock as to which such Distribution is to be made, such fair marketvalue to be reasonably determined in good faith by the independent members ofthe Company’s Board of Directors. Upon receipt of such election notice from theHolder, the Company shall timely effectuate the transaction or adjustmentcontemplated in the foregoing ***clause (A) or (B)***,as applicable. If the Holder does not notify the Company of its electionpursuant to the preceding sentence on or prior to the Determination Date, theHolder shall be deemed to have elected clause (A) of the preceding sentence.

 (d)          ConvertibleSecurities; Options. If, at any time after the Issue Date, the Companyissues Convertible Securities or Options to the record holders of the CommonStock, whether or not such Convertible Securities or Options are immediatelyconvertible, exercisable or exchangeable, then the Holders shall be entitled,upon any Conversion of this Note after the date of record for determiningstockholders entitled to receive such Convertible Securities or Options (or ifno such record is taken, the date on which such Convertible Securities orOptions are issued), to receive the aggregate number of Convertible Securitiesor Options which the Holder would have received with respect to the shares ofCommon Stock issuable upon such conversion (without giving effect to anylimitations on such Conversion contained in this Note or 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, the Company issues or sells, or inaccordance with ***Section 5(e)(ii)***is deemed tohave issued or sold, any shares of Common Stock for no consideration or for aconsideration per share less than the Fixed Conversion Price on the date ofsuch issuance or sale (or deemed issuance or sale) (a

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“***Dilutive Issuance***”), then theFixed Conversion Price shall be adjusted so as to equal the considerationreceived or receivable by the Company (on a per share basis) for the 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 5(e)(ii)***below). Notwithstanding the foregoing, no adjustment shall be made pursuanthereto if such adjustment would result in an increase in the Fixed ConversionPrice.

(ii)           Effect On Fixed Conversion PriceOf Certain Events. For purposes of determining the adjusted FixedConversion Price under ***Section 5(e)(i)***,the following will be applicable:

(A)          Issuance Of Options. If theCompany issues or sells any Options, whether or not immediately exercisable,and the price per share for which Common Stock is issuable upon the exercise ofsuch Options (and the price of any conversion of Convertible Securities, ifapplicable) is less than the Fixed Conversion Price in effect on the date ofissuance or sale of such Options, then the maximum total number of shares ofCommon Stock issuable upon the exercise of all such Options (assuming fullconversion, exercise or exchange of Convertible Securities, if applicable)shall, as of the date of the issuance or sale of such Options, be deemed to beoutstanding and to have been issued and sold by the Company for such price pershare. For purposes of the preceding sentence, the “price per share for whichCommon Stock is issuable upon the exercise of such Options” shall be determinedby dividing (x) the total amount, if any, received or receivable by the Companyas consideration for the issuance or sale of all such Options, plus the minimumaggregate amount of additional consideration, if any, payable to the Companyupon the exercise of all such Options, plus, in the case of ConvertibleSecurities issuable upon the exercise of such Options, the minimum aggregateamount of additional consideration payable upon the conversion, exercise orexchange thereof (determined in accordance with the calculation method setforth in ***Section 5(e)(ii)(B)*** below) atthe time such Convertible Securities first become convertible, exercisable orexchangeable, by (y) the maximum total number of shares of Common Stockissuable upon the exercise of all such Options (assuming full conversion,exercise or exchange of Convertible Securities, if applicable). No furtheradjustment to the Fixed Conversion Price shall be made upon the actual issuanceof such Common Stock upon the exercise of such Options or upon the conversion,exercise or exchange of Convertible Securities issuable upon exercise of suchOptions.

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

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amount, if any, received or receivable by the Companyas consideration for the issuance or sale of all such Convertible Securities,plus the minimum aggregate amount of additional consideration, if any, payableto the Company upon the conversion, exercise or exchange thereof (determined inaccordance with the calculation method set forth in this ***Section5(e)(ii)(B)***) at the time such Convertible Securities firstbecome convertible, exercisable or exchangeable, by (B) the maximum totalnumber of shares of Common Stock issuable upon the exercise, conversion orexchange of all such Convertible Securities. If the Convertible Securities soissued or sold have a fluctuating conversion or exercise price or exchangeratio (a “***Variable Rate ConvertibleSecurity***”), then for purposes of the first sentence of this ***Section 5(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 5(e)*** with respect to anyVariable Rate Convertible Security, the Fixed Conversion Price in effect atsuch time shall be readjusted to equal the Fixed Conversion Price which wouldhave resulted if the Assumed Variable Market Price at the time of issuance ofthe Variable 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 ratio of a ConvertibleSecurity may fluctuate solely as a result of provisions designed to protectagainst dilution, such Convertible Security shall not be deemed to be aVariable Rate Convertible Security. No further adjustment to the FixedConversion Price shall be made upon the actual issuance of such Common Stockupon conversion, exercise or exchange of such Convertible Securities.

(C)           Change In Option Price OrConversion Rate. If there is a change at any time in (x) the amount ofadditional consideration payable to the Company upon the exercise of anyOptions; (y) the amount of additional consideration, if any, payable to theCompany upon the conversion, exercise or exchange of any ConvertibleSecurities; or (z) the rate at which any Convertible Securities are convertibleinto or exercisable or exchangeable for Common Stock (in each such case, otherthan under or by reason of provisions designed to protect against dilution),the Fixed Conversion Price in effect at the time of such change shall bereadjusted to the Fixed Conversion Price which would have been in effect atsuch time had such Options or Convertible Securities still outstanding providedfor such changed additional consideration or changed conversion, exercise orexchange rate, as the case may be, at the time initially issued or sold.

(D)          Calculation Of ConsiderationReceived. If any Common Stock, Options or Convertible Securities are issuedor sold for cash, the consideration received therefor will be the amountreceived by the Company therefor. In case any Common Stock, Options orConvertible Securities are issued or sold for a consideration part or all of which

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shall be other than cash, including in the case of astrategic or similar arrangement in which the other entity will provideservices to the Company, purchase services from the Company or otherwiseprovide intangible consideration to the Company, the amount of theconsideration other than cash received by the Company (including the netpresent value of the consideration expected by the Company for the provided orpurchased services) shall be the fair market value of such consideration. Incase any Common Stock, Options or Convertible Securities are issued inconnection with any merger or consolidation in which the Company is thesurviving corporation, the amount of consideration therefor will be deemed tobe the fair market value of such portion of the net assets and business of thenon-surviving corporation as is attributable to such Common Stock, Options orConvertible Securities, as the case may be. The independent members of theCompany’s Board of Directors shall calculate reasonably and in good faith,using standard commercial valuation methods appropriate for valuing suchassets, the fair market value of any consideration.

(iii)          Exceptions To Adjustment Of FixedConversion Price. Notwithstanding the foregoing, no adjustment to the FixedConversion Price shall be made pursuant to this ***Section5(e)*** upon the issuance of any Excluded Securities.

(iv)          Notice Of Adjustments. Upon theoccurrence of each adjustment or readjustment of the Fixed Conversion Pricepursuant to this ***Section 5(e)*** resulting in achange in the Fixed Conversion Price by more than one percent (1%), or anychange in the number or type of stock, securities and/or other propertyissuable upon Conversion of this Note, 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,readjustment or change is based. The Company shall, upon the written request atany time of the Holder, furnish to the Holder a like certificate setting forth(i) such adjustment, readjustment or change, (ii) the Fixed Conversion Price atthe time in effect and (iii) the number of shares of Common Stock and theamount, if any, of other securities or property which at the time would bereceived upon Conversion of this Note.

6.             *EVENTS OF DEFAULT;ACCELERATION.*

(a)           Acceleration. In the eventthat an Event of Default (as defined below) or a Change of Control occurs, theHolder shall have the right, upon written notice to the Company (an “***Acceleration Notice***”), to requirethat all or any portion of the unpaid principal amount of this Note, plus allaccrued and unpaid Interest (and any other amounts) thereon, plus an amountequal to twenty percent (20%) of the principal amount of this Note, beimmediately paid in full in cash. The Acceleration Notice shall specify thedate on which all Obligations must be paid, (the “***AccelerationDate***”), which date may be the Business Day on which theAcceleration Notice is delivered to the Company, and the amount of principaland Interest (and other amounts) to be accelerated. The Holder must deliver anAcceleration Notice no later than the close of business on the thirtieth (30th) Business Day immediatelyfollowing the Business Day on which an Event of Default is no longercontinuing; *provided*, *however*,that with respect to a Change of Control, the Holder must deliver anAcceleration Notice no later than the close of business on the thirtieth (30th)Business Day following thedate on which the Change of Control is effected or when it is publiclyannounced, whichever is later. The Company will make public disclosure of anEvent of Default, consistent with the

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requirements ofForm 8-K. Additionally, the Company will make public disclosure of anyprepayment of this Note.

(b)           Payment. Upon delivery of anAcceleration Notice to the Company, the Company shall pay all outstandingObligations in full on the Acceleration Date. If the Company fails to pay the Obligationsin full on the Acceleration Date, the Holder shall be entitled to interestthereon at the Default Interest Rate from the Acceleration Date until the dateon which all Obligations have been paid in full.

(c)           Events of Default. Each of thefollowing events shall be deemed an “***Event of Default***”:

(i)            a Liquidation Event occurs or ispublicly announced;

(ii)           the Company breaches or providesnotice of its intent to breach, in a material respect, any covenant or othermaterial term or condition of this Note (including without limitation anypayment obligation thereunder) or any other Transaction Document, including butnot limited to the Company’s failure to deliver Conversion Shares and WarrantShares on or before the required delivery date therefor;

(iii)          any representation or warranty made bythe Company in this Note or any other Transaction Document was inaccurate ormisleading in any material respect as of the date such representation orwarranty was made; and

(iv)          a default occurs or is declared, orany amounts are accelerated, under or with respect to any instrument thatevidences Debt of the Company or any of its Subsidiaries in a principal amountexceeding $100,000.

7.             *PREPAYMENT.*

TheCompany shall be entitled to prepay principal of and interest (and any otheramounts) accrued on this Note, at any time without the prior written consent ofthe Holder, either in cash or, if the Holder so elects in accordance with ***Section 2(c)***, through an Exchange; *provided*, *however*, that,except as otherwise permitted by this ***Section 7***,if the Holder exercises the Maturity Extension Option, the Company may notprepay this Note prior to the Subsequent Maturity Date without the priorconsent of the Holder, which consent may be withheld for any reason (or noreason) in the Holder’s sole discretion. If the Holder does not elect to participate in the Exchange and (x) theCompany receives gross proceedsless than $40 million from any New Offering on or after the Initial MaturityDate or (y) the Company receives gross proceeds greater than $40 million fromany New Offering at any time, the Company must prepay this Note in full and incash on the date the New Offering is consummated or within two (2) BusinessDays thereafter.

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8.             *MISCELLANEOUS.*

(a)           Failure to Exercise Rights notWaiver. No failure or delay on the part of the Holder in the exercise ofany power, right or privilege hereunder shall operate as a waiver thereof, norshall any single or partial exercise of any such power, right or privilegepreclude any other or further exercise thereof. All rights and remedies of theHolder hereunder are cumulative and not exclusive of any rights or remediesotherwise available. In the event that the Company does not pay any amount ofthe Obligations when such amount becomes due (either in cash or through anExchange in accordance with ***Section******2(c)***), 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 Note must be in writing and will be deemed to have beendelivered: (i) upon receipt, when delivered personally; (ii) upon receipt, whensent by facsimile (provided confirmation of transmission is mechanically orelectronically generated and kept on file by the sending party); or (iii) oneBusiness 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 change to, or waiver of any provision of, this Note maybe made unless such amendment, modification or change is (A) set forth inwriting and is signed by the Company and the Holder and (B) agreed to inwriting by the holders of at least sixty-six percent (66%) of the unpaidprincipal amount of the Notes, it being

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understood that,notwithstanding anything to the contrary contained in any Note, upon thesatisfaction of the conditions described in (A) and (B) above, each Note(including any Note held by the Holder who did not execute the agreementspecified in (B) above) shall be deemed to incorporate any amendment,modification, change or waiver effected thereby as of the effective datethereof.

(d)           Transfer of Note. The Holdermay sell, transfer or otherwise dispose of all or any part of this Note(including without limitation pursuant to a pledge) to any person or entity aslong as such sale, transfer or disposition is the subject of an effectiveregistration statement under the Securities Act of 1933, as amended, andapplicable state securities laws, or is exempt from registration thereunder,and is otherwise made in accordance with the applicable provisions of the SecuritiesPurchase Agreement. From and after the date of any such sale, transfer ordisposition, the transferee hereof shall be deemed to be the holder of a Notein the principal amount acquired by such transferee, and the Company shall, aspromptly as practicable, issue and deliver to such transferee a new Noteidentical in all respects to this Note, in the name of such transferee. TheCompany shall be entitled to treat the original Holder as the holder of thisentire Note unless and until it receives written notice of the sale, transferor disposition hereof.

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

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

(g)           Successors and Assigns. Theterms and conditions of this Note shall inure to the benefit of and be bindingupon the 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 Note except as specifically required or permittedpursuant to the terms hereof.

(h)           Usury. This Note is subject tothe express condition that at no time shall the Company be obligated orrequired to pay interest hereunder at a rate which could subject the Holder toeither civil or criminal liability as a result of being in excess of themaximum interest rate which the Company is permitted by applicable law tocontract or agree to pay. If by the terms of this Note, the Company is atany time required or obligated to pay interest hereunder at a rate in excess ofsuch maximum rate, the rate of interest under this Note shall be deemed to beimmediately reduced to such maximum rate and the interest payable shall becomputed at such maximum rate and all prior interest payments in excess of suchmaximum rate shall be applied and shall be deemed to have been payments inreduction of the principal balance of this Note.

[Signature Page to Follow]

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IN WITNESS WHEREOF, the Company has caused this Noteto be signed in its name by its duly authorized officer on the date first abovewritten.
| **EARTH BIOFUELS, INC.**              |
|---------------------------------------|
| ** **                            |
| ** **                            |
| By:                                   |   /s/  DENNIS G. MCLAUGHLIN, III |   |
|  Name: Dennis G. McLaughlin, III |
|  Title:Chief Executive Officer   |

 

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ANNEX I

**NOTICE OFCONVERSION**

The undersigned hereby elects to convert principal of the 8% SeniorConvertible Note (the “***Note***”)issued by EARTH BIOFUELS, INC. (the “***Company***”)into shares of common stock (“***Common Stock***”)of the Company according to the terms and conditions of the Note. Capitalizedterms used herein and not otherwise defined shall have the respective meaningsset forth in the Note.

 
|        | Date of Conversion:                             |   |
|--------|-------------------------------------------------|--------|
|   |                                            |   |
|   | Principal Amount of  Note to be Converted:      |   |
|   |                                            |   |
|   | Amount of Interest  to be Converted:            |   |
|   |                                            |   |
|   | Number of Shares of  Common Stock to be Issued: |   |
|   |                                            |   |
|   | Name of Holder:                                 |   |
|   |                                            |   |
|   | Address:                                        |   |
|   |                                            |   |
|   |                                            |   |
|   |                                            |   |
|   |                                            |   |
|   | Signature:                                      |   |
|   |                                            | Name:  |
|   |                                            | Title: |
|        |                                                 |        |  |  |  |  |

 

Holder Requests Delivery to be made: (check one)

**o**                                   By Delivery of Physical Certificates to the AboveAddress

**o**                                   Through Depository Trust Corporation

(Account                                                        )

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ANNEX II

Schedule ofDecreasesof Principal Amount
| **Principal** | ** ** | **Amount of** | ** ** | ** ** | ** ** |
|---------------|------------|--------------------|------------|------------|------------|
| **Balance**   | ** ** | **Decrease**       | ** ** | **Date**   | ** ** |
| $5,000,000    |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |
|          |       |               |       |       |       |

r

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