Document:

EXHIBIT 10.52

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of July 10,
2006, is by and between Earth Biofuels, Inc., a Delaware corporation (the “Company”), and each of the entities
whose names appear on the signature pages hereof. Such entities are each
referred to herein as “Purchaser”
and, collectively, as the “Purchasers”.

The Company has agreed, on the terms and subject to
the conditions set forth in the Securities Purchase Agreement, dated as of July
10, 2006 (the “Securities Purchase Agreement”),
to issue and sell to each Purchaser named therein (A) an 8% Senior Note in the
form attached to the Securities Purchase Agreement (each, a “Note” and, collectively, the “Notes”) and (B) a warrant in the
form attached to the Securities Purchase Agreement (each, a “New  Warrant”
and, collectively, the “New  Warrants”). As additional consideration for the
execution of the Securities Purchase Agreement, each Purchaser exchanged
certain warrants for replacement warrants in the form attached to the
Securities Purchase Agreement (each, a “Replacement  Warrant”, collectively, the “Replacement
Warrants”, and together with the New
Warrants, each a “Warrant” and collectively,
the “Warrants”)

The Notes are convertible, subject to the conditions
specified in the Securities Purchase Agreement, into shares (the “Conversion Shares”) of the Company’s
common stock, par value $0.001 per share (the “Common
Stock”). The Warrants are exercisable into shares of Common Stock
(the “Warrant Shares”) in
accordance with their terms.

In order to induce each Purchaser to enter into the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended (the “Securities Act”), and under
applicable state securities laws.

In
consideration of each Purchaser entering into the Securities Purchase
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

1.             DEFINITIONS.

For purposes of this Agreement, the following terms
shall have the meanings specified:

“Business Day”
means any day other than a Saturday, a Sunday or a day on which the Commission
is closed or on which banks in the City of New York are authorized by law to be
closed.

 

“Commission”
means the Securities and Exchange Commission.

 

 

“Effective Date” means the date on
which the Registration Statement is declared effective by the Commission.

“Filing Deadline” means the date that
is the earliest of the following: (i) the date on which the Company files a
registration statement covering any of its securities issued on or after
January 1, 2006; (ii) the date on which the Company is contractually required
to file a registration statement covering any of its securities (other than the
Registrable Securities) issued after the Closing Date; and (iii) the date that
is the sixtieth (60th) calendar day following the Closing Date.

“Holder” means any person owning or
having the right to acquire, through conversion of the Notes or exercise of the
Warrants or otherwise, Registrable Securities, including initially each
Purchaser and thereafter any permitted assignee thereof.

“Registrable Securities” means the
Conversion Shares, the Warrant Shares, and any other shares of Common Stock
issuable pursuant to the terms of the Note or the Warrants, and any shares of
capital stock issued or issuable from time to time (with any adjustments) in
replacement of, in exchange for or otherwise in respect of the Conversion
Shares and the Warrant Shares.

“Registration Deadline” means the
earliest of (i) the one hundred and twentieth (120th) calendar day following the Closing
Date, (ii) the sixtieth (60th)
calendar day following the Filing Deadline, and (iii) the fifth (5th) Business Day after the Company learns
that no review of the Registration Statement will be made by the staff of the
Commission or that the staff of the Commission has no further comments on the
Registration Statement.

“Registration Period” has the meaning
set forth in Section 2(c) below.

“Registration Statement” means a
registration statement or statements prepared in compliance with the Securities
Act and pursuant to Rule 415 under the Securities Act (“Rule
415”) or any successor rule providing for the offering of
securities on a continuous or delayed basis.

Capitalized terms used herein and not otherwise
defined shall have the respective meanings specified in the Securities Purchase
Agreement.

2.             REGISTRATION.

(a)           Filing of Registration Statement.
On or before the Filing Deadline, the Company shall prepare and file with the
Commission a Registration Statement on Form SB-2 as a “shelf” registration
statement under Rule 415 covering the resale of a number of shares of
Registrable Securities equal to one hundred and fifty percent (150%) of the
number of shares of Common Stock issuable upon conversion of the Notes and
exercise of the Warrants (such number to be determined using the Conversion
Price (as defined in the Notes) and Exercise Price (as defined in the Warrants)
in effect on the date on which the Registration Statement is filed and without
regard to any restriction on such conversion or exercise). Such Registration
Statement shall state, to the extent 

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permitted
by Rule 416 under the Securities Act, that it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon the
conversion of the Notes and exercise of the Warrants in order to prevent
dilution resulting from stock splits, stock dividends or similar events. The
Company shall retain Akin, Gump, Strauss, Hauer & Feld LLP or a comparable
national law firm that is reasonably satisfactory to the Purchasers to handle
the preparation of the Registration Statement and the process of getting such
Registration Statement effective.

(b)           S-1/S-3
Registration Statement. Notwithstanding the foregoing Section
2(a), if at the Filing Deadline the Company does not meet the
eligibility requirements for filing a Registration Statement on Form SB-2, then
in each such case the Company shall instead prepare and file with the
Commission a Registration Statement meeting the foregoing requirements on Form
S-1. In the event that the Company files a Registration Statement on Form S-1
or Form SB-2, and thereafter meets the eligibility requirements to use Form S-3
for the resale of Registrable Securities by the Purchaser, the Company shall
re-file such Registration Statement, or file a new Registration Statement
covering at least the number of shares then registered on the existing
Registration Statement(s) (and not previously sold pursuant to an existing
Registration Statement or pursuant to Rule 144 under the Securities Act (“Rule 144”)), on Form S-3 as promptly
as practicable (but in no event later than thirty (30) days) after the Company
meets such requirements.

(c)           Effectiveness.
The Company shall use reasonable best efforts to cause the Registration
Statement to become effective as soon as practicable following the filing
thereof, but in no event later than the Registration Deadline. The Company
shall respond promptly to any and all comments made by the staff of the
Commission on with respect to a Registration Statement, and shall submit to the
Commission, within two (2) Business Days after the Company learns that no review
of such Registration Statement will be made by the staff of the Commission or
that the staff of the Commission has no further comments on such Registration
Statement, as the case may be, a request for acceleration of the effectiveness
of such Registration Statement to a time and date not later than two (2)
Business Days after the submission of such request. The Company will maintain
the effectiveness of each Registration Statement filed pursuant to this
Agreement until the earliest to occur of (i) the date on which all of the
Registrable Securities eligible for resale thereunder have been publicly sold
pursuant to either the Registration Statement or Rule 144, (ii) the date on
which all of the Registrable Securities remaining to be sold under such Registration
Statement (in the reasonable opinion of counsel to the Company) may be
immediately sold to the public under Rule 144(k) under the Securities Act (“Rule 144(k)”) or any successor
provision and (iii) the date that is the second (2nd) anniversary of the Effective Date (the
period beginning on the Closing Date and ending on the earliest to occur of
(i), (ii) or (iii) above being referred to herein as the “Registration
Period”).

(d)           Registration
Default. If (i) the Registration Statement is not filed on or before the
Filing Deadline or declared effective by the Commission on or before the
Registration Deadline, (ii) after a Registration Statement has been declared
effective by the Commission, sales of Registrable Securities (other than such
Registrable Securities as are then freely saleable pursuant to Rule 144(k))
cannot be made by a Holder under a Registration Statement for any reason not
within the exclusive control of such Holder, or (iii) an amendment or
supplement to a Registration Statement, or a new registration statement,
required to be filed pursuant to the terms of Section
3(j) below, is not filed on or before the date required by such
section (each of the foregoing clauses (i), 

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(ii) and (iii) being referred to herein as a “Registration Default”), the Company
shall make cash payments to each Holder equal to such Holder’s pro rata share (based on the aggregate number of Registrable
Securities then held by or issuable to such Holder as of the occurrence of the
Registration Deadline) equal to one percent (1%) of the aggregate Purchase
Price paid by such Holder for such Holder’s Note and Warrants for each thirty
(30) day period (pro rated for partial periods) in which a Registration Default
exists, up to a maximum of four percent (4%) of the aggregate Purchase Price
paid by such Holder for such Holder’s Note and Warrants; provided,
however, that such maximum shall be increased to six percent (6%) of
the aggregate Purchase Price paid by such Holder if the Registration Statement
is not filed on or before August 31, 2006. Notwithstanding any provision of
this Agreement to the contrary, the Company shall be permitted to suspend the
Registration Statement for one or more periods (provided that the aggregate
length of such suspension shall not exceed ten (10) consecutive Business Days
or an aggregate of twenty (20) Business Days in any 365 day period, with at
least thirty calendar days between each such suspension) the actions required
under Section 2(a) of this
Agreement to the extent that the Board of Directors of the Company concludes
reasonably and in good faith that the disclosure of information in the
prospectus is not in the best interest of the Company. Each such payment
required to be made under this Section 2(d)
shall be made within five (5) Business Days following the last day of each
calendar month in which a Registration Default exists. Any such payment shall
be in addition to any other remedies available to each Holder at law or in
equity, whether pursuant to the terms hereof, the Securities Purchase
Agreement, the Notes, or otherwise.

(e)           Allocation of Conversion Shares
and Warrant Shares. The initial number of Conversion Shares and Warrant
Shares included in any Registration Statement and each increase in the number
thereof included therein shall be allocated pro rata among
the Holders based on the aggregate number of Registrable Securities issuable to
each Holder at the time the Registration Statement covering such initial number
of Registrable Securities or increase thereof is declared effective by the
Commission (such number to be determined using the Conversion Price or Exercise
Price, as applicable, in effect at such time and without regard to any
restriction on the ability of a Holder to convert such Holder’s Note or
exercise such Holder’s Warrant as of such date). In the event that a Holder
sells or otherwise transfers any of such Holder’s Registrable Securities, each
transferee shall be allocated the portion of the then remaining number of
Registrable Securities included in such Registration Statement allocable to the
transferor.

(f)            Registration
of Other Securities. During the period beginning on the date hereof and
ending on the Effective Date, the Company shall refrain from filing any
registration statement (other than (i) a Registration Statement filed
hereunder, (ii) a registration statement on Form S-8 with respect to stock
option plans and agreements and stock plans currently in effect and disclosed
in the Securities Purchase Agreement or the schedules thereto, or (iii) a
registration statement on Form S-4 with respect to an acquisition or other
business combination involving the Company.

3.             OBLIGATIONS
OF THE COMPANY.

In
addition to performing its obligations hereunder, including without limitation
those pursuant to Section 2 above, the Company shall, with respect to each
Registration Statement:

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(a)           prepare
and file with the Commission such amendments and supplements to such
Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to comply with the provisions of the
Securities Act or to maintain the effectiveness of such Registration Statement
during the Registration Period, or as may be reasonably requested by a Holder
in order to incorporate information concerning such Holder or such Holder’s
intended method of distribution;

(b)           at such time following the Closing
that the Company is eligible to do so, use commercially reasonable efforts to
secure the listing on the Principal Market of all Registrable Securities
issuable upon conversion of the Notes and exercise of the Warrants, and at any
Holder’s request, provide such Holder with reasonable evidence thereof;

(c)           so long as a Registration Statement
is effective covering the resale of the applicable Registrable Securities owned
by a Holder, furnish to each Holder such number of copies of the prospectus
included in such Registration Statement, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of such Holder’s Registrable Securities;

(d)           use
commercially reasonable efforts to register or qualify the Registrable
Securities under the securities or “blue sky” laws of such jurisdictions within
the United States as shall be reasonably requested from time to time by a
Holder, and do any and all other acts or things which may reasonably be
necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such jurisdiction;

(e)           notify
each Holder immediately after becoming aware of the occurrence of any event
(but shall not, without the prior written consent of such Holder, disclose to
such Holder any facts or circumstances constituting material non-public
information) as a result of which the prospectus included in such Registration
Statement, as then in effect, contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, and as promptly as practicable prepare and file with
the Commission and furnish to each Holder a reasonable number of copies of a
supplement or an amendment to such prospectus as may be necessary so that such prospectus
does not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;

(f)            use
commercially reasonable efforts to prevent the issuance of any stop order or
other order suspending the effectiveness of such Registration Statement and, if
such an order is issued, to use commercially reasonable efforts obtain the
withdrawal thereof at the earliest possible time and to notify each Holder in
writing of the issuance of such order and the resolution thereof;

(g)           furnish to each Holder, on the date
that such Registration Statement, or any successor registration statement,
becomes effective, a letter, dated such date, signed by an officer of 

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or counsel to the Company and addressed to such
Holder, confirming such effectiveness and, to the knowledge of such counsel,
the absence of any stop order;

(h)           provide to each Holder and its
representatives the reasonable opportunity to conduct a reasonable inquiry of
the Company’s financial and other records during normal business hours and make
available during normal business hours and with reasonable advance notice its
officers, directors and employees for questions regarding information which
such Holder may reasonably request in order to fulfill any due diligence
obligation on its part;

(i)            permit
counsel for each Holder to review such Registration Statement and all
amendments and supplements thereto, and any comments made by the staff of the
Commission concerning such Holder and/or the transactions contemplated by the
Transaction Documents and the Company’s responses thereto, within a reasonable
period of time prior to the filing thereof with the Commission (or, in the case
of comments made by the staff of the Commission, within a reasonable period of
time following the receipt thereof by the Company); and

(j)            in the event that, at any time, the
number of shares available under the Registration Statement is insufficient to
cover one hundred and twenty-five percent (125%) of the Registrable Securities
issuable under the Notes and Warrants (such number to be determined using the
Conversion Price or Exercise Price, as applicable, in effect at such time and
without regard to any restriction on the ability of any Holder to convert such
Holder’s Note or exercise such Holder’s Warrant) the Company shall promptly
amend such Registration Statement or file a new registration statement, in any
event as soon as practicable, but not later than the tenth (10th) day following notice from a
Holder of the occurrence of such event, so that such Registration Statement or
such new registration statement, or both, covers no less than one hundred and
fifty percent (150%) of the Registrable Securities eligible for resale
thereunder and issuable under the Notes and Warrants (such number to be
determined using the Conversion Price or Exercise Price, as applicable, in
effect at the time of such amendment or filing and without regard to any
restriction on the ability of any Holder to convert such Holder’s Note or
exercise such Holder’s Warrant). The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. Any Registration Statement
filed pursuant to this Section 3(j)
shall state that, to the extent permitted by Rule 416 under the Securities Act,
such Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Note and
exercise of the Warrants in order to prevent dilution resulting from stock
splits, stock dividends or similar events. Unless and until such amendment or
new Registration Statement becomes effective, each Holder shall have the rights
described in Section 2(d) above.

4.             OBLIGATIONS
OF EACH HOLDER.

In connection with the registration of Registrable
Securities pursuant to a Registration Statement, each Holder shall:

(a)  timely furnish to the Company (i) a completed
Shareholder Questionnaire and (ii) such information in writing regarding itself
and the intended method of disposition of such 

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Registrable Securities as the Company shall reasonably
request in order to effect the registration thereof;

(b)  upon
receipt of any notice from the Company of the happening of any event of the
kind described in Sections 3(e) or 3(f), immediately discontinue any
sale or other disposition of such Registrable Securities pursuant to such
Registration Statement until the filing of an amendment or supplement as
described in Section 3(e) or withdrawal of
the stop order referred to in Section 3(f),
and use commercially reasonable efforts to maintain the confidentiality of such
notice and its contents;

(c)  to the
extent required by applicable law, deliver a prospectus to the purchaser of
such Registrable Securities;

(d)  notify the
Company when it has sold all of the Registrable Securities held by it; and

(e)  notify the Company in the event that any
information supplied by such Holder in writing for inclusion in such
Registration Statement or related prospectus is untrue or omits to state a
material fact required to be stated therein or necessary to make such
information not misleading in light of the circumstances then existing;
immediately discontinue any sale or other disposition of such Registrable
Securities pursuant to such Registration Statement until the filing of an
amendment or supplement to such prospectus as may be necessary so that such
prospectus does not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
and use commercially reasonable efforts to assist the Company as may be
appropriate to make such amendment or supplement effective for such purpose.

5.             INDEMNIFICATION.

In the event that any Registrable Securities are
included in a Registration Statement under this Agreement:

(a)           To the extent permitted by law, the
Company shall indemnify and hold harmless each Holder, the officers, directors,
employees, agents and representatives of such Holder, and each person, if any,
who controls such Holder within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”), against any losses, claims, damages, liabilities or
reasonable out-of-pocket expenses (whether joint or several) (collectively,
including reasonable legal expenses or other expenses reasonably incurred in connection
with investigating or defending same, “Losses”),
insofar as any such Losses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in such
Registration Statement under which such Registrable Securities were registered,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Subject to the provisions of Section
5(c) below, the Company will reimburse such Holder, and each
such officer, director, employee, agent, representative or controlling person,
for any reasonable legal expenses or other out-of-pocket expenses as reasonably

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incurred by any such entity or person in connection
with investigating or defending any Loss; provided, however,
that the foregoing indemnity shall not apply to amounts paid in settlement of
any Loss if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
obligated to indemnify any person for any Loss to the extent that such Loss
arises out of or is based upon (i) any disclosure or any omission or alleged
omission (to state a material fact required to be stated therein or necessary
to make statements therein not misleading) that is based upon or in conformity
with written information furnished (or not furnished, in the case of an
omission) by such person expressly for use in such Registration Statement or
(ii) a failure of such person to deliver or cause to be delivered the final
prospectus contained in the Registration Statement and made available by the
Company, if such delivery is required by applicable law.

(b)           To
the extent permitted by law, each Holder who is named in such Registration
Statement as a selling shareholder, acting severally and not jointly, shall
indemnify and hold harmless the Company, the officers, directors, employees,
agents and representatives of the Company, and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, against any Losses to the extent (and only to the extent) that any such
Losses arise out of or are based upon (i) any disclosure or any omission or
alleged omission (to state a material fact required to be stated therein or
necessary to make statements therein not misleading) that is based upon or in
conformity with written information furnished (or not furnished, in the case of
an omission) by such person expressly for use in such Registration Statement,
or (ii) a failure of such Holder to deliver or cause to be delivered the final
prospectus contained in the Registration Statement and made available by the
Company, if such delivery is required under applicable law. Subject to the
provisions of Section 5(c) below, such
Holder will reimburse any legal or other expenses as reasonably incurred by the
Company and any such officer, director, employee, agent, representative, or
controlling person, in connection with investigating or defending any such
Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any such Loss if
such settlement is effected without the consent of such Holder (which consent
shall not be unreasonably withheld); and provided, further,
that, in no event shall any indemnity under this Section
5(b) exceed the net proceeds resulting from the sale of the
Registrable Securities sold by such Holder under such Registration Statement.

(c)           Promptly after receipt by an
indemnified party under this Section 5 of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 5, promptly deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have the
right to participate in and to assume the defense thereof with counsel selected
by the indemnifying party and reasonably acceptable to the indemnified party; provided, however, that an indemnified party shall have the
right to retain its own counsel, with the reasonably incurred fees and expenses
of one such counsel for all indemnified parties to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate under applicable standards of
professional conduct due to actual or potential conflicting interests between
such indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the delivery of notice of any such action, to the
extent prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any 

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liability to the indemnified party under this Section
5 with respect to such action, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 5 or with respect to
any other action unless the indemnifying party is materially prejudiced as a
result of not receiving such notice.

(d)           In
the event that the indemnity provided in Sections 5(a) or
5(b) is unavailable or insufficient
to hold harmless an indemnified party for any reason, the Company and each
Holder agree, severally and not jointly, to contribute to the aggregate Losses
to which the Company or such Holder may be subject in such proportion as is
appropriate to reflect the relative fault of the Company and such Holder in
connection with the statements or omissions which resulted in such Losses; provided, however, that in no case shall such Holder be
responsible for any amount in excess of the net proceeds resulting from the
sale of the Registrable Securities sold by it under the Registration Statement.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or by such
Holder. The Company and each Holder agree that it would not be just and
equitable if contribution were determined by pro
rata allocation or any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 5(d),
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation. For purposes of this
Section 5, each person who controls a Holder within the meaning of either the
Securities Act or the Exchange Act and each officer, director, employee, agent
or representative of such Holder shall have the same rights to contribution as
such Holder, and each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act and each officer, director,
employee, agent or representative of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this Section 5(d).

(e)           The
obligations of the Company and each Holder under this Section 5 shall
survive the conversion of the Note and exercise of the Warrants in full, the
completion of any offering or sale of Registrable Securities pursuant to a
Registration Statement under this Agreement, or otherwise.

6.             REPORTS.

With a view to making available to each Holder the
benefits of Rule 144 and any other similar rule or regulation of the Commission
that may at any time permit such Holder to sell securities of the Company to
the public without registration, the Company agrees to:

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

(b)           file
with the Commission in a timely manner all reports and other documents required
of the Company under the Exchange Act; and

(c)           furnish to such Holder, so long as
such Holder owns any Registrable Securities, promptly upon written request (i)
a written statement by the Company, if true, that it has 

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complied with the reporting requirements of Rule 144
and the Exchange Act, (ii) to the extent not publicly available through the
Commission’s EDGAR database, a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company with the Commission, and (iii) such other information as may be
reasonably requested by such Holder in connection with such Holder’s compliance
with any rule or regulation of the Commission which permits the selling of any
such securities without registration.

7.             MISCELLANEOUS.

(a)           Expenses
of Registration. Except as otherwise provided in the Securities Purchase
Agreement, all reasonable expenses, other than underwriting discounts and
commissions and fees and expenses of counsel and other advisors to each Holder,
incurred in connection with the registrations, filings or qualifications
described herein, including (without limitation) all registration, filing and
qualification fees, printers’ and accounting fees, the fees and disbursements
of counsel for the Company, and the fees and disbursements incurred in
connection with the opinion and letter described in Section
3(g) hereof, shall be borne by the Company.

(b)           Amendment;
Waiver. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended or waived except pursuant to a written instrument
executed by the Company and the Holders of at least two-thirds (2/3) of the
Registrable Securities into which all of the Note and Warrants then outstanding
are convertible or exercisable (without regard to any limitation on such
conversion or exercise). Any amendment or waiver effected in accordance with
this Section 6(b) shall be binding upon
each Holder, each future Holder and the Company. The failure of any party to
exercise any right or remedy under this Agreement or otherwise, or the delay by
any party in exercising such right or remedy, shall not operate as a waiver
thereof.

(c)           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

  
	
   

  
	
   

  	
  with a copy (for
  informational purposes only) to:

  
	
   

  
	
   

  	
  Scheef &
  Stone, LLP

  
				

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  Telephone: 

  	
  214.706.4200

  
	
   

  	
  Facsimile: 

  	
  214.706.4242

  
	
   

  	
  Attention:

  	
   Roger A. Crabb, Esq.

  

 

and if to the
Holder, to the address and facsimile number as to which the Holder has notified
the Company in writing. 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.

(d)           Assignment.
Upon the transfer of any Note, Warrants or Registrable Securities by a Holder,
the rights of such Holder hereunder with respect to such securities so
transferred shall be assigned automatically to the transferee thereof, and such
transferee shall thereupon be deemed to be a “Holder” for purposes of this
Agreement, as long as: (i) the Company is, within a reasonable period of time
following such transfer, furnished with written notice of the name and address
of such transferee, (ii) the transferee agrees in writing with the Company to
be bound by all of the provisions hereof, and (iii) such transfer is made in
accordance with the applicable requirements of the Securities Purchase
Agreement, the Notes or the Warrants, as applicable.

(e)           Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed
an original, and all of which together shall be deemed one and the same
instrument. This Agreement, once executed by a party, may be delivered to any
other party hereto by facsimile transmission.

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

(g)           Holder of Record.
A person is deemed to be a Holder whenever such person owns or is deemed to own
of record such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the record owner of such
Registrable Securities.

(h)           Entire Agreement.
This Agreement and the other Transaction Documents constitute the entire
agreement among the parties hereto with respect to the subject matter hereof
and thereof. There are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein and therein. This Agreement
and the other Transaction Documents supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.

(i)            Headings.
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.

 11
 

 

 

(j)            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.

[Signature Pages to Follow]

 12

 

IN WITNESS WHEREOF, the
undersigned have executed this Registration Rights Agreement as of the date
first-above written.

	
  EARTH BIOFUELS, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ DENNIS G. MCLAUGHLIN, III

  	
   

  	
   

  
	
   

  	
  Name: Dennis G. McLaughlin, III

  	
   

  
	
   

  	
  Title: Chief Executive Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  CASTLERIGG MASTER INVESTMENTS LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ PATRICK T. BURKE

  	
   

  	
   

  
	
   

  	
  Name: Patrick T. Burke

  	
   

  
	
   

  	
  Title: Senior Managing DirectorEXHIBIT
10.53

THIS NOTE AND THE SECURITIES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY
NOT BE OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO,
OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE.

THIS NOTE DOES NOT REQUIRE
PHYSICAL SURRENDER HEREOF IN ORDER TO EFFECT A PARTIAL PAYMENT, REDEMPTION OR
CONVERSION HEREOF. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE
MAY BE LESS THAN THE PRINCIPAL AMOUNT SHOWN BELOW.

EARTH
BIOFUELS, INC.

8% SENIOR CONVERTIBLE NOTE

New York,
New York                                                                                                                                                                $5,000,000

Issue
Date: July 11, 2006

FOR VALUE
RECEIVED, EARTH BIOFUELS, INC., a
Delaware corporation (the “Company”),
hereby promises to pay to the order of CASTLERIGG
MASTER INVESTMENTS LTD. or its permitted successors or assigns (the “Holder”) the sum of FIVE MILLION AND
00/100 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 (as
defined below), the Holder may convert principal of and interest accrued on
this Note into shares (“Conversion Shares”)
of the Company’s common stock, par value $.001 per share (the “Common Stock”), on the terms set
forth herein.

The
Company has issued this Note pursuant to a Securities Purchase Agreement, dated
as of July 10, 2006 (the “Securities Purchase
Agreement”). The Notes issued by the Company pursuant to the
Securities Purchase Agreement, including this Note, are collectively referred
to herein as the “Notes”.

The
following terms shall apply to this Note:

1.             DEFINITIONS.

“Approved Stock Plan” means any
employee benefit plan which has been approved by the Board of Directors of the
Company (including a majority of the independent

 1
 

 

 

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

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

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

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

“Continuing Director” means at any
date a member of the Company’s Board of Directors (i) who was a member of such
board on the date of the Securities Purchase Agreement or (ii) who was
nominated or elected by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Company’s Board of Directors was recommended or endorsed by at
least a majority of the directors who were Continuing Directors at the time of
such nomination or election or such lesser number comprising a majority of a
nominating committee if authority for such nominations or elections has been
delegated to a nominating committee whose authority and composition have been
approved by at least a majority of the directors who were continuing directors
at the time such committee was formed.

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

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

“Convertible Securities” means
any stock or securities (other than Options) of the Company convertible into or
exercisable or exchangeable for Common Stock.

“Debt” means as to any Person at any
time: (a) all indebtedness, liabilities and obligations of such Person for
borrowed money; (b) all indebtedness, liabilities and obligations of such Person
to pay the deferred purchase price of Property or services, except trade
accounts payable of such Person arising in the ordinary course of business that
are not past due by more than 90 days; (c) all capital lease obligations of
such Person; (d) all Debt of others guaranteed by such Person; (e) all
indebtedness, liabilities and obligations secured by a Lien (other than a
Permitted Lien) existing on Property owned by such Person, whether or not the
indebtedness, liabilities or

 2
 

 

 

obligations secured
thereby have been assumed by such Person or are non-recourse to such Person;
(f) all reimbursement obligations of such Person (whether contingent or
otherwise) in respect of letters of credit, bankers’ acceptances, surety or
other bonds and similar instruments; and (g) all liabilities and obligations of
such Person to redeem or retire shares of capital stock of such Person (other
than the Company’s obligation to redeem the Securities under the circumstances
specified 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 similar
transactions in the ordinary course of business or (iii) any indebtedness that
has been fully and finally defeased in accordance with the terms of the
documents governing such indebtedness.

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

“Exchange” means that all outstanding
principal of and interest (and other amounts) accrued on this Note have been
exchanged for the securities issued in a New Offering on a dollar-for-dollar
basis and otherwise with the same terms granted to other purchasers in the New
Offering.

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

“Floating Conversion Price” means, as
of 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 adjustment
as provided herein.

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

“Governmental Authority” means any
nation or government, any state, provincial or political subdivision thereof
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including without
limitation any stock exchange, securities market or self-regulatory
organization.

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

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

“Lien” and “Permitted
Lien” shall have the respective meanings set forth in the
Securities 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 connection
therewith, relative to the Company, the Company Subsidiaries or to its or their
creditors, as such, or to its or their assets, or (y) the dissolution or other
winding up of the Company or the Company Subsidiaries, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Company or any Company
Subsidiary.

“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 shares
of Common Stock shall be changed into the same or a different number of shares
of the same or another class or classes of stock or securities or other assets
of the Company or another entity or the Company shall sell all or substantially
all of its assets.

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

“Maturity Date” means the Initial
Maturity Date and, if the Holder exercises the Maturity Extension Option, the
Subsequent Maturity Date.

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

“New Offering” means a private
offering and sale by the Company of its equity securities with gross cash
proceeds to the Company of at least the principal amount of this Note.

“Obligations” shall have the meaning
set forth in Section 2(a) below.

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

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

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

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

“Registration Rights
Agreement” means the agreement between the Holder and the Company
pursuant to which the Company has agreed to register the shares of Common Stock
issuable under the Notes and the Warrants.

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“Registration Statement”
means the Registration Statement (as defined in the Registration Rights
Agreement) covering the resale of the Conversion Shares issuable under this
Note.

“Subsequent Maturity Date” means the
one 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 the
Principal Market.

“VWAP” on a
Trading Day means the volume weighted average price of the Common Stock for
such Trading Day on the Principal Market as reported by Bloomberg Financial
Markets or, if Bloomberg Financial Markets is not then reporting such prices,
by a comparable reporting service of national reputation selected by the
Holders and reasonably satisfactory to the Company. If VWAP cannot be
calculated for the Common Stock on such Trading Day on any of the foregoing
bases, then the Company shall submit such calculation to an independent
investment banking firm of national reputation reasonably acceptable to the
Investors, and shall cause such investment banking firm to perform such
determination and notify the Company and the Investors of the results of
determination no later than two (2) Business Days from the time such
calculation was submitted to it by the Company. All such determinations shall
be appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.

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

All definitions contained in this Note are equally
applicable to the singular and plural forms of the terms defined. The words “hereof”,
“herein” and “hereunder” and words of similar import referring to this Note
refer 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 in
the Securities Purchase Agreement.

2.             MATURITY DATE; EXTENSION
OF MATURITY.

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

(b)           Subsequent
Maturity Date; Extension. In the event that the Company does not pay the
entire amount of the Obligations on the Initial Maturity Date either (i) in
cash or (ii) to the extent permitted through an Exchange in accordance with Section 2(c) below, the Holder shall
have the option to extend the Maturity Date as to all or any part of the
Obligations from the Initial Maturity Date to the Subsequent Maturity Date (the
“Maturity Extension Option”). If the
Holder exercises the Maturity Extension Option, the Obligations shall become
due 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 and
final payment (through cash or an Exchange) of all

 5
 

 

 

Obligations.
In order to exercise the Maturity Extension Option, the Holder must deliver
written notice thereof no later than the fifth (5th) Business Day prior to the Initial
Maturity Date specifying the amount of Obligations to which the Maturity
Extension Option applies. If the Holder does not exercise the Maturity
Extension Option, the Obligations shall be deemed due and payable on the
Initial Maturity Date. Any Obligations (including accrued and unpaid Interest)
not paid in full when due shall bear interest at the Default Interest Rate from
the 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 proposed
date and expected gross proceeds thereof) to the Holder at least five (5)
Business Days (the “Exchange Notice Date”) prior
to the closing date of the New Offering (the “Exchange
Date”). In order to pay the Obligations through an Exchange, the
Company must have received notice from the Holder at least one (1) Business Day
prior to the Exchange
Date that such Holder has elected to have the Obligations paid through an
Exchange (an “Exchange Election”). On the
Exchange Date, if the Holder has made an Exchange Election, this Note shall be
automatically exchanged for a portion of the securities issued in a New
Offering, such Exchange to be effected on a dollar-for-dollar basis so
that each dollar of Obligations (including all Interest accrued through the
Exchange Date) shall be deemed payment for the securities issued in the New
Offering on the same terms and conditions granted to other purchasers in the
New Offering. Unless and until an Exchange occurs (or payment in full of all
Obligations is made in cash), the Holder shall have all of its rights and
remedies hereunder (including without limitation its right to convert this Note
if the Conversion Trigger Event has occurred) through the Exchange Date (or the
date on which payment in full is made).

(d)           Remedies
for Non-payment. Until all Obligations have been paid in full, either in
cash or through an Exchange effected in accordance with Section
2(c) above, the Holder shall have all rights and remedies set
forth in this Note and the other Transaction Documents and which it may
otherwise have under any law or in equity with respect to amounts due and
unpaid hereunder. The Holder and its permitted successors and assigns shall be
entitled to enforce such rights specifically, to recover damages by reason of
any non-payment of the Obligations when due or the breach of any provision of
this Note or the Transaction Documents and to exercise all other rights granted
by law or in equity, if available. The Company recognizes and agrees that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under this Note, any remedy at law may prove to be inadequate
relief to the Holder and, therefore, the Holder 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.

3.             INTEREST.

This
Note shall bear interest on the unpaid principal amount hereof (“Interest”) at an annual rate equal
to eight percent (8%); provided, however, that
if a New Offering is not completed within sixty (60) calendar days following
the 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 Interest
had accrued from such date at an annual rate of twelve percent. Interest shall
be computed on the basis of a 360-day year and calculated using the actual
number of days elapsed since the Issue Date, and if not timely paid as provided
herein, compounded monthly until paid.

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4.             CONVERSION.

 

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

(b)           Conversion Notice. In order to
convert principal of (and, if the Holder so elects, Interest accrued on) this
Note, the Holder shall send by facsimile transmission, at any time prior to
5:00 p.m., eastern time, on the Business Day on which the Holder wishes to
effect such Conversion (the “Conversion Date”),
a properly completed notice of conversion to the Company, in the form set forth
on Annex I hereto, stating the amount
of principal (and accrued Interest, if applicable) to be converted and a
calculation of the number of shares of Common Stock issuable upon such
Conversion (a “Conversion Notice”). The
Conversion Notice shall also state the name or names (with address) in which
the 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 the
Company in order to effect a Conversion. The Company shall maintain a record
showing, at any given time, the unpaid principal amount of this Note and the
date of each Conversion or other payment of principal hereof. The Holder shall
amend Annex II hereto upon any such
Conversion or payment of principal to reflect the unpaid principal amount
hereof. In the case of a dispute as to the number of Conversion Shares issuable
upon a Conversion (including without limitation as a result of adjustments to
the Fixed Conversion Price made in accordance with Section
4 below), the Company shall promptly issue to the Holder the
number of Conversion Shares that are not disputed and shall submit the disputed
calculations to a certified public accounting firm of national recognition
(other than the Company’s independent accountants) within two (2) Business Days
of receipt of the Holder’s Conversion Notice. The Company shall use its best
efforts to cause such accountants to calculate the Fixed Conversion Price as
provided herein and to notify the Company and the Holder of the results in
writing no later than two (2) Business Days following the day on which such
accountant received the disputed calculations (the “Dispute
Procedure”). Such accountant’s calculation shall be deemed
conclusive absent manifest error. The fees of any such accountant shall be
borne by the party whose calculations are most at variance with those of such
accountant.

(c)           Number of Conversion Shares;
Conversion Price. The number of Conversion Shares to be delivered by the
Company 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) this
Note being converted divided by the Conversion Price in effect on the
Conversion Date.

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

 7
 

 

 

crediting the
account of the Holder or its nominee at DTC (as specified in the applicable
Conversion Notice) with the number of Conversion Shares required to be
delivered, no later than the close of business on such Delivery Date. In the
event that the Transfer Agent is not a participant in FAST or if the Holder so
specifies in a Conversion Notice or otherwise in writing on or before the
Conversion Date, the Company shall effect delivery of Conversion Shares by
delivering to the Holder or its nominee physical certificates representing such
Conversion Shares, no later than the close of business on such Delivery Date.
If any Conversion would create a fractional Conversion Share, such fractional
Conversion Share shall be disregarded and the number of Conversion Shares
issuable upon such Conversion, in the aggregate, shall be the nearest whole
number of Conversion Shares. Conversion Shares delivered to the Holder shall
not contain any restrictive legend unless such legend is required pursuant to
the terms of the Securities Purchase Agreement.

(e)           Failure to Deliver Conversion
Shares.

(i)            In the event that the Company fails
for any reason to deliver to the Holder the number of Conversion Shares
specified in a Conversion Notice (without any restrictive legend to the extent
permitted by the terms of the Securities Purchase Agreement) on or before the
second (2nd)
Business Day following the Delivery Date therefor (a “Conversion
Default”), the Holder shall have the right to receive from the
Company an amount equal to (i) (N/365) multiplied by (ii) the principal
amount of, and any Interest accrued on, this Note represented by the Conversion
Shares which remain the subject of such Conversion Default multiplied by
(iii) the Default Interest Rate, where “N” equals the number of days elapsed
between the original Delivery Date of such Conversion Shares and the date on
which such Conversion Default has been cured. In the event that shares of
Common Stock are purchased by or on behalf of the Holder in order to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
a Conversion, the Holder shall have the right to receive from the Company, in addition
to the foregoing amounts, (i) the aggregate amount paid by or on behalf of the
Holder for such shares of Common Stock minus (ii) the aggregate amount
of net proceeds, if any, received by the Holder from the sale of the Conversion
Shares issued by the Company pursuant to such Conversion. Amounts payable under
this Section 4(e)(i) shall be paid to the
Holder in immediately available funds on or before the fifth (5th) Business Day
following written notice from the Holder to the Company specifying the amount
owed 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 a
Conversion Default, the Conversion Price applicable to the applicable
Conversion shall be automatically be adjusted to the lower of (i) the
Conversion Price in effect on the Conversion Date and (ii) the lowest
Conversion Price occurring from the first date of such Conversion Default
through the date on which all Conversion Shares to which the Holder is entitled
have been delivered in accordance with the terms of this Note. The Holder shall
have the right to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).

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

 8
 

 

 

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

5.             ADJUSTMENTS TO FIXED
CONVERSION PRICE.

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

(b)           Major Transactions. If, at any
time after the Issue Date, any Major Transaction shall occur, then the Holder
shall thereafter have the right to receive upon Conversion, in lieu of the
shares of Common Stock otherwise issuable, such shares of publicly traded
stock, securities and/or other property as would have been issued or payable
upon such Major Transaction with respect to or in exchange for the number of
shares of Common Stock which would have been issuable upon Conversion had such
Major Transaction not taken place (without giving effect to any limitations on
such Conversion contained in this Note or the Securities Purchase Agreement).
The Company shall not effect any Major Transaction unless (i) the Holder has
received 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 Holder
would beneficially own more than 4.9% of the Common Stock then outstanding, and
the Holder has notified the Company in writing of such circumstance) but in no
event later than fifteen (15) days prior to the record date for the
determination of stockholders entitled to vote with respect thereto; provided, however, that
the Company shall publicly disclose the material terms of any such Major
Transaction on or before the date on which it delivers notice of a Major
Transaction to the Holder, and (ii) the resulting successor or acquiring entity
(if not the Company) assumes by written instrument (in form and substance
reasonable satisfactory to the Holder) the obligations of the Company under
this Note (including, without limitation, the obligation to make payments of
Interest accrued but unpaid through the date of such consolidation, merger or
sale and accruing thereafter). The above provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of Common
Stock authorized and available

 9
 

 

 

for issuance upon
conversion of this Note as of the date of such transaction, and shall similarly
apply to successive Major Transactions.

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

 (d)          Convertible
Securities; Options. If, at any time after the Issue Date, the Company
issues Convertible Securities or Options to the record holders of the Common
Stock, whether or not such Convertible Securities or Options are immediately
convertible, exercisable or exchangeable, then the Holders shall be entitled,
upon any Conversion of this Note after the date of record for determining
stockholders entitled to receive such Convertible Securities or Options (or if
no such record is taken, the date on which such Convertible Securities or
Options are issued), to receive the aggregate number of Convertible Securities
or Options which the Holder would have received with respect to the shares of
Common Stock issuable upon such conversion (without giving effect to any
limitations on such Conversion contained in this Note or the Securities
Purchase Agreement) had the Holder been the holder of such shares of Common
Stock on the record date for the determination of stockholders entitled to
receive 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 in
accordance with Section 5(e)(ii) is deemed to
have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Fixed Conversion Price on the date of
such issuance or sale (or deemed issuance or sale) (a

 10
 

 

 

“Dilutive Issuance”), then the
Fixed Conversion Price shall be adjusted so as to equal the consideration
received or receivable by the Company (on a per share basis) for the additional
shares of Common Stock so issued, sold or deemed issued or sold in such
Dilutive Issuance (which, in the case of a deemed issuance or sale, shall be
calculated in accordance with Section 5(e)(ii)
below). Notwithstanding the foregoing, no adjustment shall be made pursuant
hereto if such adjustment would result in an increase in the Fixed Conversion
Price.

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

(A)          Issuance Of Options. If the
Company issues or sells any Options, whether or not immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options (and the price of any conversion of Convertible Securities, if
applicable) is less than the Fixed Conversion Price in effect on the date of
issuance or sale of such Options, then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion, exercise or exchange of Convertible Securities, if applicable)
shall, as of the date of the issuance or sale of such Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the “price per share for which
Common Stock is issuable upon the exercise of such Options” shall be determined
by dividing (x) the total amount, if any, received or receivable by the Company
as consideration for the issuance or sale of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion, exercise or
exchange thereof (determined in accordance with the calculation method set
forth in Section 5(e)(ii)(B) below) at
the time such Convertible Securities first become convertible, exercisable or
exchangeable, by (y) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion,
exercise or exchange of Convertible Securities, if applicable). No further
adjustment to the Fixed Conversion Price shall be made upon the actual issuance
of such Common Stock upon the exercise of such Options or upon the conversion,
exercise or exchange of Convertible Securities issuable upon exercise of such
Options.

(B)           Issuance Of Convertible Securities.
If the Company issues or sells any Convertible Securities, whether or not
immediately convertible, exercisable or exchangeable, and the price per share
for which Common Stock is issuable upon such conversion, exercise or exchange
is less than the Fixed Conversion Price in effect on the date of issuance or
sale of such Convertible Securities, then the maximum total number of shares of
Common Stock issuable upon the conversion, exercise or exchange of all such
Convertible Securities shall, as of the date of the issuance or sale of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. If the Convertible Securities so
issued or sold do not have a fluctuating conversion or exercise price or
exchange 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

 11
 

 

 

amount, if any, received or receivable by the Company
as consideration for the issuance or sale of all such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion, exercise or exchange thereof (determined in
accordance with the calculation method set forth in this Section
5(e)(ii)(B)) at the time such Convertible Securities first
become convertible, exercisable or exchangeable, by (B) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. If the Convertible Securities so
issued or sold have a fluctuating conversion or exercise price or exchange
ratio (a “Variable Rate Convertible
Security”), then for purposes of the first sentence of this Section 5(e)(ii)(B), the “price per
share for which Common Stock is issuable upon such conversion, exercise or
exchange” shall be deemed to be the lowest price per share which would be
applicable (assuming all holding period and other conditions to any discounts
contained in such Variable Rate Convertible Security have been satisfied) if
the conversion price of such Variable Rate Convertible Security on the date of
issuance or sale thereof were equal to the actual conversion price on such date
(or such higher minimum conversion price if such Variable Rate Convertible
Security is subject to a minimum conversion price) (the “Assumed Variable Market Price”),
and, further, if the conversion price of such Variable Rate Convertible
Security at any time or times thereafter is less than or equal to the Assumed
Variable Market Price last used for making any adjustment under this Section 5(e) with respect to any
Variable Rate Convertible Security, the Fixed Conversion Price in effect at
such time shall be readjusted to equal the Fixed Conversion Price which would
have resulted if the Assumed Variable Market Price at the time of issuance of
the Variable Rate Convertible Security had been equal to the actual conversion
price of such Variable Rate Convertible Security existing at the time of the
adjustment required by this sentence; provided, however,
that if the conversion or exercise price or exchange ratio of a Convertible
Security may fluctuate solely as a result of provisions designed to protect
against dilution, such Convertible Security shall not be deemed to be a
Variable Rate Convertible Security. No further adjustment to the Fixed
Conversion Price shall be made upon the actual issuance of such Common Stock
upon conversion, exercise or exchange of such Convertible Securities.

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

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

 12
 

 

 

shall be other than cash, including in the case of a
strategic or similar arrangement in which the other entity will provide
services to the Company, purchase services from the Company or otherwise
provide intangible consideration to the Company, the amount of the
consideration other than cash received by the Company (including the net
present value of the consideration expected by the Company for the provided or
purchased services) shall be the fair market value of such consideration. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to
be the fair market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The independent members of the
Company’s Board of Directors shall calculate reasonably and in good faith,
using standard commercial valuation methods appropriate for valuing such
assets, the fair market value of any consideration.

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

(iv)          Notice Of Adjustments. Upon the
occurrence of each adjustment or readjustment of the Fixed Conversion Price
pursuant to this Section 5(e) resulting in a
change in the Fixed Conversion Price by more than one percent (1%), or any
change in the number or type of stock, securities and/or other property
issuable upon Conversion of this Note, the Company, at its expense, shall
promptly compute such adjustment, readjustment or change and prepare and
furnish to the Holder a certificate setting forth such adjustment, readjustment
or change and showing in detail the facts upon which such adjustment,
readjustment or change is based. The Company shall, upon the written request at
any time of the Holder, furnish to the Holder a like certificate setting forth
(i) such adjustment, readjustment or change, (ii) the Fixed Conversion Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon Conversion of this Note.

6.             EVENTS OF DEFAULT;
ACCELERATION.

(a)           Acceleration. In the event
that an Event of Default (as defined below) or a Change of Control occurs, the
Holder shall have the right, upon written notice to the Company (an “Acceleration Notice”), to require
that all or any portion of the unpaid principal amount of this Note, plus all
accrued and unpaid Interest (and any other amounts) thereon, plus an amount
equal to twenty percent (20%) of the principal amount of this Note, be
immediately paid in full in cash. The Acceleration Notice shall specify the
date on which all Obligations must be paid, (the “Acceleration
Date”), which date may be the Business Day on which the
Acceleration Notice is delivered to the Company, and the amount of principal
and Interest (and other amounts) to be accelerated. The Holder must deliver an
Acceleration Notice no later than the close of business on the thirtieth (30th) Business Day immediately
following the Business Day on which an Event of Default is no longer
continuing; provided, however,
that with respect to a Change of Control, the Holder must deliver an
Acceleration Notice no later than the close of business on the thirtieth (30th)Business Day following the
date on which the Change of Control is effected or when it is publicly
announced, whichever is later. The Company will make public disclosure of an
Event of Default, consistent with the

 13
 

 

 

requirements of
Form 8-K. Additionally, the Company will make public disclosure of any
prepayment of this Note.

(b)           Payment. Upon delivery of an
Acceleration Notice to the Company, the Company shall pay all outstanding
Obligations in full on the Acceleration Date. If the Company fails to pay the Obligations
in full on the Acceleration Date, the Holder shall be entitled to interest
thereon at the Default Interest Rate from the Acceleration Date until the date
on which all Obligations have been paid in full.

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

(i)            a Liquidation Event occurs or is
publicly announced;

(ii)           the Company breaches or provides
notice of its intent to breach, in a material respect, any covenant or other
material term or condition of this Note (including without limitation any
payment obligation thereunder) or any other Transaction Document, including but
not limited to the Company’s failure to deliver Conversion Shares and Warrant
Shares on or before the required delivery date therefor;

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

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

7.             PREPAYMENT.

The
Company shall be entitled to prepay principal of and interest (and any other
amounts) accrued on this Note, at any time without the prior written consent of
the 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 not
prepay this Note prior to the Subsequent Maturity Date without the prior
consent of the Holder, which consent may be withheld for any reason (or no
reason) in the Holder’s sole discretion. If the Holder does not elect to participate in the Exchange and (x) the
Company receives gross proceeds
less than $40 million from any New Offering on or after the Initial Maturity
Date or (y) the Company receives gross proceeds greater than $40 million from
any New Offering at any time, the Company must prepay this Note in full and in
cash on the date the New Offering is consummated or within two (2) Business
Days thereafter.

 14
 

 

 

8.             MISCELLANEOUS.

(a)           Failure to Exercise Rights not
Waiver. No failure or delay on the part of the Holder in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof. All rights and remedies of the
Holder hereunder are cumulative and not exclusive of any rights or remedies
otherwise available. In the event that the Company does not pay any amount of
the Obligations when such amount becomes due (either in cash or through an
Exchange in accordance with Section  2(c)), the Company shall bear all
costs incurred by the Holder in collecting such amount, including without
limitation reasonable legal fees and expenses.

(b)           Notices. Any notices,
consents, waivers or other communications required or permitted to be given
under the terms of this Note 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

  
	
   

  	
   

  	
   

  
	
  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 the
Holder, to the address and facsimile number as to which the Holder has notified
the Company in writing. 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.

(c)           Amendments. No amendment,
modification or other change to, or waiver of any provision of, this Note may
be made unless such amendment, modification or change is (A) set forth in
writing and is signed by the Company and the Holder and (B) agreed to in
writing by the holders of at least sixty-six percent (66%) of the unpaid
principal amount of the Notes, it being

 15
 

 

 

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

(d)           Transfer of Note. The Holder
may 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 as
long as such sale, transfer or disposition is the subject of an effective
registration statement under the Securities Act of 1933, as amended, and
applicable state securities laws, or is exempt from registration thereunder,
and is otherwise made in accordance with the applicable provisions of the Securities
Purchase Agreement. From and after the date of any such sale, transfer or
disposition, the transferee hereof shall be deemed to be the holder of a Note
in the principal amount acquired by such transferee, and the Company shall, as
promptly as practicable, issue and deliver to such transferee a new Note
identical in all respects to this Note, in the name of such transferee. The
Company shall be entitled to treat the original Holder as the holder of this
entire Note unless and until it receives written notice of the sale, transfer
or disposition hereof.

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

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

(g)           Successors and Assigns. The
terms and conditions of this Note shall inure to the benefit of and be binding
upon the respective successors (whether by merger or otherwise) and permitted
assigns of the Company and the Holder. The Company may not assign its rights or
obligations under this Note except as specifically required or permitted
pursuant to the terms hereof.

(h)           Usury. This Note is subject to
the express condition that at no time shall the Company be obligated or
required to pay interest hereunder at a rate which could subject the Holder to
either civil or criminal liability as a result of being in excess of the
maximum interest rate which the Company is permitted by applicable law to
contract or agree to pay. If by the terms of this Note, the Company is at
any time required or obligated to pay interest hereunder at a rate in excess of
such maximum rate, the rate of interest under this Note shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of this Note.

[Signature Page to Follow]

 16
 

 

 

IN WITNESS WHEREOF, the Company has caused this Note
to be signed in its name by its duly authorized officer on the date first above
written.

	
  EARTH BIOFUELS, INC.

  
	
   

  
	
   

  
	
  By:

  	
    /s/
  DENNIS G. MCLAUGHLIN, III

  	
   

  
	
   Name: Dennis G. McLaughlin, III

  
	
   Title:Chief Executive Officer

  

 

 17

 

 

ANNEX I

NOTICE OF
CONVERSION

The undersigned hereby elects to convert principal of the 8% Senior
Convertible 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. Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set 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 Above
Address

o                                   Through Depository Trust Corporation

(Account                                                        )

 

 

ANNEX II

Schedule of

Decreases

of Principal Amount

	
  Principal

  	
   

  	
  Amount of

  	
   

  	
   

  	
   

  
	
  Balance

  	
   

  	
  Decrease

  	
   

  	
  Date

  	
   

  
	
  $5,000,000

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

r

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