exhibit10-1.htm


    
      
         


      

      
         


        
          

        

      

      
         


        
          EXECUTION
COPY

        

      

    


    AMENDMENT
AND EXCHANGE AGREEMENT

     

    AMENDMENT AND EXCHANGE
AGREEMENT (the "Agreement"), dated as of
December __, 2008, by and between Earth Biofuels, Inc., a Delaware corporation,
with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas,
Texas 75205 (the "Company") and Castlerigg PNG
Investments LLC (the "Investor").

     

    WHEREAS:

     

    A.           On
June 25, 2008, the Company and certain investors (including the Investor) (the
"Investors") each
entered into an Amendment and Exchange Agreement (collectively, the "Existing Amendment and Exchange
Agreements"), pursuant to which the Company issued to each of the
Investors, in exchange for the cancellation of certain securities and other
obligations of the Company, (a) Amended and Restated Senior Secured Convertible
Exchangeable Notes (the "Existing Series A Notes"),
convertible into shares (the "Existing Series A Conversion
Shares") of common stock of the Company, par value $0.001 per share (the
"Common Stock"), in
accordance with the terms thereof and exchangeable into common stock, par value
$0.001 per share (the "PNG
Common Stock") of PNG Ventures, Inc., a Nevada corporation ("PNG") in accordance with the
terms thereof and (b) Senior Secured Convertible Exchangeable Notes (the "Existing Series B Notes", and
together with the Existing Series A Notes, the "Existing Notes"), convertible
into shares (the "Existing
Series B Conversion Shares" and together with the Existing Series A
Conversion Shares, the "Existing Conversion Shares")
of Common Stock, in accordance with the terms thereof and exchangeable into PNG
Common Stock, in accordance with the terms thereof.

     

    B.           On
or prior to the date hereof, pursuant to (i) an Exchange Notice (as defined in
the Existing Series A Notes) to the Company electing to exchange $55,000,000 of
the Existing Series A Note of the Investor for 5,500,000 shares of PNG Common
Stock (the "Initial Exchange
Notice") and (ii) a subsequent Exchange Notice electing to exchange an
additional $1,000,000 of the Existing Series A Note of the Investor for 100,000
shares of PNG Common Stock (the "Additional Exchange Notice",
and together with the Initial Exchange Notice, the "Exchange Notices"), the
Investor exchanged $56,000,000 of the Existing Series A Note of the Investor for
5,600,000 shares of PNG Common Stock.

     

    C.           The
Company and the Investor desire to enter into this Agreement (the date the
transactions described herein are consummated, the “Exchange Date”), pursuant to
which, among other things, (i) the Company and the Investor shall (A) exchange a
portion of the outstanding principal amount of such Existing Series A Note for a
senior secured convertible note in the aggregate principal amount of $13,235,000
in form attached hereto as Exhibit A (the "Series C Note"), which shall
be convertible into Common Stock (as converted, the "Series C Conversion Shares"),
in accordance with the terms thereof and (B) decrease the remaining outstanding
principal amount of the Investor's Existing Series A Note to $5,000,000 and (ii)
the Company and the Investor shall amend and restate the Investor's Existing
Series B Note for a senior secured convertible note in the aggregate principal
amount of $1,765,000 in the form attached hereto as Exhibit B (the "Series D Notes", and together
with the Series C Notes, the "December Amendment Notes"),
which shall be convertible into Common Stock (as converted,

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    the
"Series D Conversion
Shares" and together with the Series C Conversion Shares, the "December Amendment Conversion
Shares ").

     

    D.           The
Series C Note will rank pari passu with the Existing Series A Notes that remain
outstanding after the Closing Date (as defined below) and the Series D Note will
rank pari passu with the Existing Series B Notes that remain outstanding after
the Closing Date.  The Existing Series B Notes and Series D Notes will
rank junior to the Series C Note and the Existing Series A Notes and senior to
all outstanding and future indebtedness of the Company, other than Permitted
Senior Indebtedness (as defined in the Series C Note), and each of the Existing
Notes and the December Amendment Notes will be secured by a perfected security
interest in certain of the assets of the Company and the stock, equity interests
and assets of certain of the Company's subsidiaries as evidenced by the Security
Documents (as defined in the Existing Amendment and Exchange Agreements) and
that certain Reaffirmation Agreement in the form attached hereto as Exhibit C (the "Reaffirmation
Agreement").

     

    E.           As
a closing condition to the transactions contemplated hereby, each of the other
holders of Existing Notes (the "Other Investors"), which Other
Investors, together with the Investor, hold, in the aggregate, 100% of the
principal amount of the Existing Notes outstanding as of the date hereof, are
each executing a consent to the transaction contemplated hereby in the form
attached hereto as Exhibit D
(collectively, the "Consents") and shall be
entitled to enter into agreements identical to this Agreement (the "Other Agreements", and
together with this Agreement, the "Amendments") (other than
proportional changes in the numbers reflecting the (i) different principal
amount of such Other Investor's Series C Note and (ii) different principal
amount of such Other Investor's Series D Note being issued to such Other
Investor ("Proportionate
Changes")).

     

    F.           The
amendment of the Existing Notes is being made in reliance upon the exemption
from registration provided by Section 3(a)(9) of the 1933 Act.

     

    NOW, THEREFORE, in
consideration of the foregoing recitals and the mutual promises hereinafter set
forth, the Company and the Investor hereby agree as follows:

     

    
      	
               
      

            	
              1.

            	
              EXCHANGE NOTICE
      TRANSACTIONS; EXCHANGE AND AMENDMENT AND RESTATEMENT OF
      NOTES

            


    

     

    (a)           Exchange Notice
Transactions.  Prior to the Closing Date, the Company
consummated the transactions contemplated by the Exchange Notices and a stock
certificate for 5,600,000 shares of PNG Common Stock in the name of the Investor
was delivered to the Investor.

     

    (b)           Exchange and Amendment and
Restatement.  Subject to satisfaction (or waiver) of the
conditions set forth in Sections 5 and 6 below, at the closing contemplated by
this Agreement (the "Closing"), (i) the instrument
representing the Investor's Existing Series B Note shall be cancelled upon the
issuance and delivery to the Investor of the Series D Note as provided in clause
(iv) below, (ii) the Company shall exchange a portion of the outstanding
principal amount of the Investor’s Existing Series A Note for a Series C Note in
a principal amount of $13,235,000, (iii) the remaining principal amount of the
Investor’s Existing

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Series A
Note shall be decreased to $5,000,000 and (iv) the Company shall amend and
restate the Investor’s Existing Series B Note by issuing and delivering to the
Investor a Series D Note in a principal amount equal to $1,765,000.

     

    (c)           Amendment of Investor's
Existing Series A Note.  The second sentence of Section 12(a)
of the Investor's Existing Series A Note shall be amended and restated in its
entirety as follows:

     

    "The
portion of this Note subject to redemption at a price equal to the Principal
amount pursuant to this Section 12 shall be redeemed by the Company or such
Subsidiary, as applicable, in cash in an amount equal to the product of the
Holder Pro Rata Percentage and the Mandatory Prepayment Amount (the "Mandatory Prepayment Price");
provided, however, that if such amount is greater than the sum of (i) the
outstanding Principal amount of this Note plus (ii) the amount of any accrued
but unpaid Interest on such Conversion Amount being redeemed and accrued and
unpaid Late Charges, if any, with respect to such Conversion Amount and Interest
(the “Outstanding
Amount”) on the Mandatory Prepayment Date, then the Mandatory Prepayment
Price shall equal the Outstanding Amount."

     

    The
foregoing amendment to the Investor's Existing Series A Note shall become
effective at such time as the Company receives Consents, duly executed by the
other holders of the Existing Series A Notes constituting the Required Holders
(as defined in the Existing Series A Notes), containing identical amendments to
Section 12(a) of such holders' Existing Series A Notes.

     

    (d)           Ratifications.

     

    (i)           Existing Transaction
Documents.  Each of the Existing Transaction Documents and the
Existing Amendment and Exchange Agreement is, and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects, except as
otherwise amended hereby or in accordance herewith.

     

    (ii)           Security
Documents.  The Security Documents which assign or pledge to
the holders of Existing Notes, or Sandell Asset Management Corp, as collateral
agent, or to grant to the holders of Existing Notes, or Castlerigg PNG
Investments LLC, as collateral agent, a security interest in or lien on, any
collateral as security for the obligations of the Company from time to time
existing in respect of the Existing Notes, such pledge, assignment and/or grant
of the security interest or lien are hereby ratified and confirmed in all
respects, and shall apply with respect to the obligations under the December
Amendment Notes and the Existing Notes.

     

    (e)           Closing
Date.  The date and time of the Closing (the "Closing Date") shall be 10:00
a.m., New York Time, on the date hereof, subject to notification of satisfaction
(or waiver) of the conditions to the Closing set forth in Sections 5 and 6 below
(or such other time and date as is mutually agreed to by the Company and the
Investor).  The

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Closing
shall occur on the Closing Date at the offices of Schulte Roth & Zabel LLP,
919 Third Avenue, New York, New York 10022.

     

    (f)           Delivery.  On
the Closing Date, (i) the Company shall issue and deliver to the Investor
the Investor's December Amendment Notes, duly executed on behalf of the Company
and registered in the name of the Investor, and (ii) the Investor's
Existing Notes shall be cancelled.  The Investor hereby covenants to
use its reasonable best efforts to deliver its cancelled Existing Notes to the
Company or its agents no later than thirty (30) days after the Closing
Date.

     

    (g)           Holding
Period.

     

    (i)           For
the purposes of Rule 144, the Company acknowledges that the holding period of
the December Amendment Notes (including the corresponding December Amendment
Conversion Shares) may be tacked onto the holding period of the Existing Notes
(including the corresponding Existing Conversion Shares) and the Company agrees
not to take a position contrary to this Section 1(e).  The Company
agrees to take all actions, including, without limitation, the issuance by its
legal counsel of any necessary legal opinions, necessary to issue the December
Amendment Conversion Shares without restriction and not containing any
restrictive legend without the need for any action by the Investor.

     

    (ii)           So
long as the Investor owns any December Amendment Notes or December Amendment
Conversion Shares (collectively the "December Amendment
Securities") or any capital stock of the Company issued or issuable with
respect to the December Amendment Securities as a result of any stock split,
stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the December Amendment Notes
(the "Registrable
Securities"), with a view to making available to the Investor the
benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investor to sell
securities of the Company to the public without registration ("Rule 144"), the Company agrees
to:

     

    (1)          make
and keep public information available, as those terms are understood and defined
in Rule 144;

     

    (2)          file
with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and

     

    (3)          furnish
to the Investor so long as the Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has
complied with the reporting requirements of Rule 144, the 1933 Act and the 1934
Act, (ii) a copy of the most recent annual report of the Company and such other
reports and documents so filed by the Company (but

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    only if
such reports are not publicly available on the EDGAR system), and (iii) such
other information as may be reasonably requested to permit the Investor to sell
such securities pursuant to Rule 144 without registration.

     

    (h)           Disclosure of Transactions
and Other Material Information.  On or before 8:30 a.m., New
York City time, on the first Business Day following the date of this Agreement,
the Company shall issue a press release and file a Current Report on Form 8-K
describing the terms of the transactions contemplated by this Agreement in the
form required by the 1934 Act and attaching the material Transaction Documents
not previously filed (including, without limitation, this Agreement (and all
schedules to this Agreement), the Reaffirmation Agreement and the form of the
December Amendment Notes) (including all attachments, the "8-K Filing").  From
and after the filing of the 8-K Filing with the SEC, the Investor shall not be
in possession of any material, nonpublic information received from the Company,
any of its Subsidiaries or any of its respective officers, directors, employees
or agents, that is not disclosed in the 8-K Filing.  The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide the
Investor with any material, nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of the Investor or as may be required under
the terms of the Transaction Documents.  If the Investor has, or
believes it has, received any such material, nonpublic information regarding the
Company or any of its Subsidiaries, it shall provide the Company with written
notice thereof.  The Company shall, within five (5) Trading Days (as
defined in the December Amendment Note) of receipt of such notice, make public
disclosure of such material, nonpublic information.  In the event of a
breach of the foregoing covenant by the Company, any of its Subsidiaries, or any
of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein or in the Transaction Documents,
the Investor shall have the right to make a public disclosure, in the form of a
press release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or
agents.  The Investor shall not have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents for any such disclosure.  Subject to the
foregoing, neither the Company, its Subsidiaries nor the Investor shall issue
any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of the Investor, to make any press release
or other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) the Investor shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its
release).  Without the prior written consent of the Investor, neither
the Company nor any of its Subsidiaries or affiliates shall disclose the name of
the Investor in any filing, announcement, release or otherwise, unless such
disclosure is required by law, regulation or the Principal Market.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    2.           MANDATORY
CONVERSION RIGHT.

     

    The
Investor and the Company agree that, with respect to the Investor’s Existing
Series A Note, the Company shall have the following right of Mandatory
Conversion.  Capitalized terms used and not otherwise defined in this
Section 2 shall have the meanings ascribed to them in the Investor’s Existing
Series A Note:

    


    (a)           Mandatory
Conversion.  The Company shall have the right to require the
Investor to convert all, or any portion, of the Conversion Amount then remaining
under its Existing Series A Note, provided there has been no Equity Conditions
Failure (as defined below), into fully paid, validly issued and nonassessable
shares of Common Stock in accordance with this Section 2 at the Mandatory
Conversion Rate (as defined below) as of the Mandatory Conversion Date (as
defined below) with respect to the Conversion Amount (a "Mandatory
Conversion").  The Company may exercise its right to require
conversion under this Section 2 by delivering a written notice thereof by
facsimile and overnight courier the Investor (the "Mandatory Conversion Notice"
and the date the Investor receives such notice by facsimile is referred to as
the "Mandatory Conversion
Notice Date").  The Mandatory Conversion Notice shall be
irrevocable.  The Mandatory Conversion Notice shall state (i) the
Trading Day selected for the Mandatory Conversion in accordance with this
Section 2, which Trading Day shall be at least five (5) Trading Days following
the Mandatory Conversion Notice Date (the "Mandatory Conversion Date"),
(ii) the aggregate Conversion Amount of the Existing Series A Note subject to
mandatory conversion from the Investor, (iii) the number of shares of Common
Stock to be issued to the Investor on the Mandatory Conversion Date (the “Mandatory Conversion Shares”)
and (iv) that there has been no Equity Conditions
Failure.  Contemporaneously with the issuance of the Mandatory
Conversion Shares to the Investor on the applicable Mandatory Conversion Date,
the Company shall deliver to the Investor a certificate (the "Mandatory Conversion
Certification") signed by the Chief Financial Officer of the Company
certifying that since the Mandatory Conversion Notice Date, there has been no
Equity Conditions Failure; provided, that to the extent the Company is unable to
deliver the foregoing Mandatory Conversion Certification (a "Mandatory Conversion Conditions
Failure"), such Mandatory Conversion Certification shall instead state
that the conditions have not been met and that such Mandatory Conversion Notice
is revoked and null and void; provided, further, that a failure by the Company
to deliver a Mandatory Conversion Certification to the Investor shall be deemed
to be a Mandatory Conversion Conditions Failure (unless waived by the
Investor).  All Conversion Amounts converted by the Investor after the
Mandatory Conversion Notice Date shall reduce the Conversion Amount of the
Investor’s Existing Series A Note required to be converted on the Mandatory
Conversion Date.  The mechanics of conversion set forth in Section
3(c) of the Investor’s Existing Series A Note shall apply to any Mandatory
Conversion as if the Company and the Transfer Agent had received from the
Investor on the Mandatory Conversion Date a Conversion Notice with respect to
the Conversion Amount being converted pursuant to the Mandatory
Conversion.

     

    (b)           Definitions. For
purposes of this Section 2, (a) "Equity Conditions" shall mean the Equity
Conditions set forth in the Series C Note, (b) an “Equity Conditions Failure”
shall mean that on any day during the period commencing ten (10) Trading Days
prior to the applicable Mandatory Conversion Notice Date through the applicable
Mandatory Conversion Date, the Equity Conditions have not been satisfied (or
waived in writing by the

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Investor)
and (c) "Mandatory Conversion Price" means, as of any Mandatory Conversion Date,
$0.025, subject to adjustment as provided in the Investor’s Existing Series A
Note; provided, however, that following the consummation of the Reverse Split as
defined in the Company's Definitive Information Statement on Schedule 14C filed
with the Commission on March 11, 2008, the Mandatory Conversion Price shall be
$0.50 (as may be further adjusted as provided in the Investor’s Existing Series
A Note).

     

    
      	
               
      

            	
              3.

            	
              AMENDMENTS TO
      TRANSACTION DOCUMENTS.

            


    

     

    (a)           Each
Transaction Document (as defined in the Existing Amendment and Exchange
Agreement) is hereby amended as follows:

     

    (i)           All
references in the Existing Primary Securities Purchase Agreement (as defined in
the Existing Amendment and Exchange Agreement) to "this Agreement", "hereto",
"hereof", "hereunder" or words of like import referring to the Existing Primary
Securities Purchase Agreement shall mean the Existing Primary Securities
Purchase Agreement as amended by the Existing Amendment and Exchange Agreements
and the Amendments.

     

    (ii)           All
references in the other Transaction Documents to the "Securities Purchase
Agreement", "thereto", "thereof", "thereunder" or words of like import referring
to the Existing Primary Securities Purchase Agreement shall mean the Existing
Primary Securities Purchase Agreement as amended by the Existing Amendment and
Exchange Agreements and the Amendments.

     

    (iii)           All
references to "Conversion Shares" are hereby amended and restated to mean
"Amended and Restated Conversion Shares (as defined in those certain Amendment
Agreements, dated June 25, 2008, by and between the Company and the parties
thereto (the "Amendment
Agreements")), the Series B Conversion Shares (as defined in the
Amendment Agreements), and the December Amendment Conversion Shares (as defined
in that certain Amendment and Exchange Agreement, dated December 12, 2008, by
and between the Company and Castlerigg PNG Investments LLC (the "December Amendment
Agreement"));

     

    (iv)           All
references to "Notes" are hereby amended and restated to mean "Amended and
Restated Primary Notes (as defined in the Amendment Agreements), the Series B
Notes (as defined in the Amendment Agreements) and the December Amendment Notes
(as defined in the December Amendment Agreement)";

     

    (v)           The
defined term "Transaction Documents" is hereby amended to include the December
Amendment Agreement, the Reaffirmation Agreement and the December Amendment
Notes.

     

    
      	
               
      

            	
              4.

            	
              REPRESENTATIONS AND
      WARRANTIES

            


    

     

    (a)           Investor
Representations.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (i)           The
Investor hereby represents and warrants to the Company as to the December
Amendment Notes being issued to the Investor hereunder as set forth in Section 2
of the Existing Primary Securities Purchase Agreement (as amended hereby) as if
such representations and warranties were made as of the date hereof (except for
representations and warranties that speak as of a specific date, which shall
remain true and correct as of such specific date) and set forth in their
entirety in this Agreement.

     

    (b)           Company
Representations.

     

    (i)           The
Company represents and warrants to the Investor as set forth in Section 3 of
each of the Existing Primary Securities Purchase Agreement as if such
representations and warranties were made as of the date hereof (except for
representations and warranties that speak as of a specific date, which shall
remain true and correct as of such specific date, and except as set forth in a
Disclosure Schedule attached hereto) and set forth in their entirety in this
Agreement.  Such representations and warranties to the transactions
thereunder and the securities issued thereby are hereby deemed for purposes of
this Agreement to be references to the transactions hereunder and the issuance
of the securities hereby, references therein to "Closing Date" being deemed
references to the Closing Date as defined in Section 1(d) above, and references
to "the date hereof" being deemed references to the date of this
Agreement.

     

    (c)           No Event of
Default.  Except as set forth in Schedule 3(c)
attached hereto, the Company represents and warrants to the Investor that after
giving effect to the terms of this Agreement and the Other Agreements, no
Default or Event of Default (as defined in the Existing Series A Notes) shall
have occurred and be continuing as of the date hereof.

     

    
      	
               
      

            	
              5.

            	
              CONDITIONS TO
      COMPANY'S OBLIGATIONS
HEREUNDER.

            


    

     

    The
obligations of the Company to the Investor hereunder are subject to the
satisfaction of each of the following conditions, provided that these conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion by providing the Investor with prior written notice
thereof:

    


    (a)           The
Investor shall have executed this Agreement and delivered the same to the
Company.

     

    (b)           Each
of the Other Investors shall have duly executed and delivered a
Consent.

     

    
      	
               
      

            	
              6.

            	
              CONDITIONS TO
      INVESTOR'S OBLIGATIONS
HEREUNDER.

            


    

     

    The
obligations of the Investor hereunder are subject to the satisfaction of each of
the following conditions, provided that these conditions are for the Investor's
sole benefit and may be waived by the Investor at any time in its sole
discretion by providing the Company with prior written notice
thereof:

    


    (a)           The
Company shall have duly executed and delivered to the Investor (i) this
Agreement, (ii) the Series C Notes (allocated in such principal amounts as
the

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Investor
shall request) being issued to the Investor at the Closing pursuant to this
Agreement and (iii) the Series D Notes (allocated in such principal amounts as
the Investor shall request) being issued to the Investor at the Closing pursuant
to this Agreement.

     

    (b)           Each
of the Company and its Subsidiaries shall have duly executed and delivered to
the Investor the Reaffirmation Agreement.

     

    (c)           The
Company shall have delivered to the Investor a certificate, in the form attached
hereto as Exhibit E,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions approving the transactions contemplated hereby as adopted by
the Board in a form reasonably acceptable to the Investor, (ii) the Certificate
of Incorporation and (iii) the Bylaws, each as in effect as of the
Closing.

     

    (d)           Each
of the Investors (other than the Investor) shall have duly executed and
delivered to the Investor a Consent.

     

    (e)           The
Investor shall have received the opinions of JPF Securities Law, LLC, the
Company's outside counsel, dated as of the Closing Date, in substantially the
form of Exhibit F
attached hereto.

     

    (f)           The
Company shall have delivered to the Investor a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit G attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.

     

    (g)           On
or prior to the fifth (5th) calendar day after the date hereof, the Company
shall have delivered to the Investor a letter from the Company's transfer agent
certifying the number of shares of Common Stock outstanding as of a date within
five days of the Closing Date.

     

    (h)           The
Company shall have delivered to the Investor a certificate (or a fax or pdf copy
of such certificate) evidencing the formation and good standing of the Company
and each of its Subsidiaries in such entity's jurisdiction of formation issued
by the Secretary of State (or comparable office) of such jurisdiction, as of a
date within ten (10) days of the Closing Date.

     

    (i)           The
Company shall have delivered to the Investor a certificate (or a fax or pdf copy
of such certificate) evidencing the Company's qualification as a foreign
corporation and good standing issued by the Secretary of State of Delaware,
which is the only jurisdiction in which the Company conducts business and is
required to so qualify, as of a date within ten (10) days of the Closing
Date.

     

    (j)           The
Company shall have delivered to the Investor a certified copy of the Certificate
of Incorporation as certified by the Secretary of State of the State of Delaware
(or a fax or pdf copy of such certificate) within ten (10) days of the Closing
Date.

     

    (k)           The
representations and warranties of the Company in Section 4(b) shall be
true and correct in all material respects (except for those representations and
warranties

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date.  The Investor shall have received a
certificate, executed by the Chief Executive Officer or Chief Financial Officer
of the Company, dated as of the Closing Date, to the foregoing effect in the
form attached hereto as Exhibit
H.

     

    (l)           The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by
falling below the minimum listing maintenance requirements of the Principal
Market.

     

    (m)           The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities, including,
without limitation, any approvals or notifications required by the Principal
Market.

     

    
      	
               
      

            	
              7.

            	
              TERMINATION.

            


    

     

    In the
event that the Closing does not occur by January 5, 2009, due to the Company's
or the Investor's failure to satisfy the conditions set forth in Sections 5 and
6 hereof (and the nonbreaching party's failure to waive such unsatisfied
conditions(s)), the nonbreaching party shall have the option to terminate their
obligations to consummate the transactions contemplated hereby at the close of
business on such date without liability of any party to any other
party.

    


    
      	
               
      

            	
              8.

            	
              MISCELLANEOUS.

            


    

     

    (a)           Counterparts.  This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

     

    (b)           Headings.  The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

     

    (c)           Severability.  If
any provision of this Agreement is prohibited by law or otherwise determined to
be invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the
parties.  The parties will endeavor in good faith negotiations to
replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s).

     

    (d)           Governing Law; Jurisdiction;
Jury Trial.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.  If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.  EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

     

    (e)           No Third Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

     

    (f)           Further
Assurances.  Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

     

    (g)           No Strict
Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any
party.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (h)           Entire Agreement; Effect on
Prior Agreements; Amendments.  Except for the Existing
Transaction Documents (in each case, to the extent any such Existing Transaction
Document is not amended by this Agreement), this Agreement supersedes all other
prior oral or written agreements between the Investor, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters.  No
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Investor and to the extent that Other
Investors may be affected thereby, by the holders of a majority of the principal
amount of the December Amendment Notes.  No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.  No consideration shall be offered or paid to
any Person to amend or consent to a waiver or modification of any provision of
any of the Existing Transaction Documents, the Amendments, the Security
Documents, or any of the December Amendment Securities unless the same
consideration also is offered to all of the holders of December Amendment
Notes.  The Company has not, directly or indirectly, made any
agreements with any of the Investors relating to the terms or conditions of the
transactions contemplated by the Existing Transaction Documents except as set
forth in the Existing Transaction Documents.

     

    (i)           Notices.  Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered:  (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile 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

     

    Copy to
(for informational purposes only):

     

    JPF
Securities Law, LLC

     

    17111
Kenton Drive

     

    Suite
100B

     

    Cornelius,
NC 28031

     

    Telephone:  (704)
897-8334

     

    Facsimile:   (888)
608-5705

     

    Attention:  Jared
P. Febbroriello, Esq.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    If to the
Investor, to its address and facsimile number set forth in the Existing Primary
Securities Purchase Agreement, with copies to the Investor's representatives as
set forth on the Existing Primary Securities Purchase Agreement or on the
signature page to this Agreement,

     

    with a
copy (for informational purposes only) to:

     

    Schulte
Roth & Zabel LLP

     

    919 Third
Avenue

     

    New York,
New York  10022

     

    Telephone:                                (212)
756-2000

     

    Facsimile:                                (212)
593-5955

     

    Attention:                                Eleazer
N. Klein, Esq.

     

    or to
such other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such
change.  Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

     

    (j)           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns in accordance
with the terms of the Securities Purchase Agreement.

     

    (k)           Survival.  Unless
this Agreement is terminated under Section 7, the representations and warranties
of the Company and the Investor contained herein and the agreements and
covenants set forth herein shall survive the Closing.

     

    (l)           Remedies.  The
Investor and each holder of the December Amendment Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law.  Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by
law.  Furthermore, the Company recognizes that in the event that it
fails to perform, observe, or discharge any or all of its obligations under this
Agreement, any remedy at law may prove to be inadequate relief to the
Investor.  The Company therefore agrees that the Investor shall be
entitled to seek temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages and without posting a bond or
other security.

     

    (m)           Independent Nature of
Investor's Obligations and Rights.  The obligations of the
Investor under any Existing Transaction Document, several and not joint
with

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    the
obligations of any Other Investor, and the Investor shall not be responsible in
any way for the performance of the obligations of any Other Investor under any
Existing Transaction Documents.  Nothing contained herein or in any
other Existing Transaction Documents, and no action taken by the Investor
pursuant hereto, shall be deemed to constitute the Investor and Other Investors
as a partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Investor and Other Investors are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Existing Transaction Documents.  The
Company and the Investor confirm that the Investor has independently
participated in the negotiation of the transactions contemplated hereby with the
advice of its own counsel and advisors.  The Investor shall be
entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of any other
Existing Transaction Documents, and it shall not be necessary for any Other
Investor to be joined as an additional party in any proceeding for such
purpose.

     

    (n)           Most Favored
Nation.  The Company hereby represents and warrants as of the
date hereof and covenants and agrees from and after the date hereof that none of
the terms offered to any Person with respect to any amendment, settlement or
waiver (each a "Settlement
Document") relating to the terms, conditions and transactions
contemplated hereby, is or will be more favorable to such Person than those of
the Investor and this Agreement shall be, without any further action by the
Investor or the Company, deemed amended and modified in an economically and
legally equivalent manner such that the Investor shall receive the benefit of
the more favorable terms contained in such Settlement
Document.  Notwithstanding the foregoing, the Company agrees, at its
expense, to take such other actions (such as entering into amendments to the
Transaction Documents) as the Investor may reasonably request to further
effectuate the foregoing.

     

    [Signature
Page Follows]


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    


    IN WITNESS WHEREOF, the
Investor and the Company have caused their respective signature page to this
Agreement to be duly executed as of the date first written above.

     

    


     

    
      	
              COMPANY:

               

            
	
              EARTH
      BIOFUELS, INC.

              By:

              Name:

              Title:

            
	 
      


    

    


     


    
      
        
          
            	 
      	 
      	 
      


          

          [Signature
Page to Amendment and Exchange Agreement]

        

         


      

      
         


        
          

        

      

      
         


      

    


    IN WITNESS WHEREOF, the
Investor and the Company have caused their respective signature page to this
Agreement to be duly executed as of the date first written above.

     

    


     

    
      	
              INVESTOR:

               

            
	
              CASTLERIGG
      PNG INVESTMENTS LLC

              By:
      Castlerigg Master Investments Ltd.,

                       its
      managing member and sole

                       member

               

               

              By:

              Name:

              Title:

            
	
              Copy
      to:

               

              Schulte
      Roth & Zabel LLP

              919
      Third Avenue

              New
      York, New York  10022

              Telephone:                                (212)
      756-2000

              Facsimile:                                (212)
      593-5955

              Attention:                                Eleazer
      N. Klein, Esq.

               

            
	 
      


    

    


     

    


     

    


    


    


    


    


    



    
      
        
          
            	
                     

                  	 
      	 
      


          

          [Signature
Page to Amendment Agreement]