Document:

EXHIBIT
10.22

NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THIS
SECURITY, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND SUCH APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF
COUNSEL ADDRESSED AND SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
REGISTRATION UNDER SUCH ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.

CONVERTIBLE SECURED PROMISSORY NOTE — BRIDGE LOAN

	
  $1,000,000.00

  	
   

  	
  Dallas,
  Texas, May 4, 2006

  

 

FOR VALUE RECEIVED,
EARTH BIOFUELS, INC., a Delaware corporation
having its principal place of business at 3001 Knox Street — Suite 403, Dallas,
Texas 75205-7305 (“Borrower”), hereby covenants and promises to pay to GREENWICH POWER, L.L.C., a Delaware
limited liability company having its principal place of business at 537
Steamboat Road, Greenwich, Connecticut 06830-7153 (“Lender”), or order, at Lender’s
address first above written or at such other address as Lender may designate in
writing, ONE MILLION AND NO/100 ($1,000,000.00) DOLLARS, lawful money of the
United States of America, together with simple interest thereon computed from
the date hereof at the rate of seven (7%) percent per annum, which principal
and interest shall be payable thirty (30) days after demand.

Borrower covenants and
agrees with Lender as follows:

1.Borrower will pay the indebtedness evidenced by
this Note as provided herein.

2. In the event of a default
hereunder, Lender shall have all rights and remedies of a secured party
provided by the Uniform Commercial Code in effect in the State of Delaware.

3.In the event any payment due hereunder shall not
be paid on the date when due, such payment shall bear interest at the lesser of
eighteen (18%) percent per annum or the highest lawful rate permitted under
applicable law, from the date when such payment was due until paid. In
addition, Borrower shall pay a late payment premium of five (5%) percent of any
principal or interest payment made more than three (3) days after the due date
thereof, which premium shall be paid with such late payment. This paragraph
shall not be deemed to extend or otherwise modify or amend the date when such
payments are due hereunder. The obligations of Borrower under this Note are
subject to the limitation that payments of interest shall not be required to
the extent that the charging of or the receipt of any such payment by Lender of
this Note would be contrary to the provisions of law applicable to Lender of
this

 

Note
limiting the maximum rate of interest which may be charged or collected by Lender
of this Note.

4.Borrower shall have the right to prepay the
indebtedness evidenced by this Note, in whole or in part, without penalty, at
any time upon giving Lender notice of Borrower’s intention to prepay as
hereinafter set forth.

5. At any time after the date hereof until this
Note is no longer outstanding, this Note shall be convertible into shares of Borrower’s
common stock, $0.001 par value (“Common Stock”) at the option of Lender, in
whole or in part, at any time and from time to time, at a conversion price (the
“Conversion Price”) equal to $1.086 per share, as the same may be adjusted as hereinafter
provided. The conversion of this Note shall be subject to the following terms:

a.               Lender shall effect conversions by delivering to Borrower
a notice specifying the principal amount and accrued interest of this Note to
be converted and the date on which such conversion is to be effected (a “Conversion
Date”). If no Conversion Date is specified in the notice, the Conversion Date
shall be the date that such notice is provided hereunder. Any notice of
conversion of this Note may, at the election of the holder hereof, be stated to
be effective upon the future effectiveness of a registration statement with
respect to the Conversion Shares. To effect conversions hereunder, Lender shall
not be required to physically surrender this Note to Borrower unless the entire
principal amount of this Note plus all accrued and unpaid interest hereon has
been so converted.

b.              The number of shares of Common Stock issuable
upon a conversion hereunder “Conversion Shares”) shall be the quotient obtained
by dividing (i) the outstanding principal amount and accrued interest of this
Note to be converted by (ii) the Conversion Price.

c.               Not later than three business days after any
Conversion Date, Borrower will deliver or cause to be delivered to Lender a
certificate or certificates representing the Conversion Shares. Borrower shall,
if available and if allowed under applicable securities laws, use its best
efforts to deliver any certificate or certificates required to be delivered by Borrower
under this paragraph electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If such
certificate or certificates are not delivered to or as directed by Lender by
the third business day after a Conversion Date, Lender shall be entitled by
written notice to Borrower at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event Borrower shall immediately return this Note. Moreover, if Borrower fails
for any reason to deliver to Lender such certificate or certificates by the
third business day after the Conversion Date, Borrower shall pay to Lender, in
cash, as liquidated damages and not as a penalty, for each $1,000 of principal
amount being converted, $10 per business day (increasing to $20 per business day
after ten business days after such damages

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begin
to accrue) for each business day until such certificates are delivered. Borrower’s
obligations to issue and deliver the Conversion Shares upon conversion of this
Note in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by Lender to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by Lender or any other person of any obligation to Borrower or any
violation or alleged violation of law by Lender or any other person, and
irrespective of any other circumstance which might otherwise limit such obligation
of Borrower to Lender in connection with the issuance of such Conversion
Shares. In the event that Lender shall elect to convert any or all of the
outstanding principal and accrued interest hereof, Borrower may not refuse
conversion based on any claim that Lender or anyone associated or affiliated
with Lender has been engaged in any violation of law, agreement or for any
other reason, unless an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of this Note shall have been sought and obtained
and Borrower posts a surety bond for the benefit of Lender in the amount of
150% of the principal amount of this Note outstanding, which is subject to the
injunction, which bond shall remain in effect until the completion of
litigation of the dispute and the proceeds of which shall be payable to Lender
to the extent it obtains judgment. In the absence of an injunction precluding
the same, Borrower shall issue Conversion Shares upon a properly noticed
conversion. Nothing herein shall limit Lender’s right to pursue additional remedies
for Borrower’s failure to deliver Conversion Shares within the period specified
herein, and Lender shall have the right to pursue all remedies available to it
at law or in equity including without limitation a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not prohibit Lender
from seeking to enforce damages pursuant to any other provision hereof or under
applicable law. In the alternative and at Lender’s election, if Borrower fails
for any reason to deliver to Lender such certificate or certificates by the
third business day after the Conversion Date, and if after such third business day
Lender is required by its brokerage firm to purchase (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by Lender
of the Conversion Shares which Lender anticipated receiving upon such
conversion (a “Buy-In”), then Borrower shall (i) pay in cash to Lender (in addition
to any other remedies available to or elected by Lender) the amount by which
(x) Lender’s total purchase price (including brokerage commissions, if any) for
the Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Lender anticipated receiving from
the conversion at issue multiplied by (2) the actual sale price of the Common
Stock at the time of the sale (including brokerage commissions, if any) giving
rise to such purchase obligation and (ii) at

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the
option of Lender, either reissue Notes in principal amount equal to the principal
amount of the attempted conversion or deliver to Lender the number of shares of
Common Stock that would have been issued had Borrower timely complied with its
delivery requirements hereunder.

d.              Borrower covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of the Notes, as
herein provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than Lender not less than such number of
shares of the Common Stock as shall be issuable upon the conversion of the
outstanding principal and accrued interest amount of this Note.  Borrower covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if a registration statement
is then effective under the Securities Act, registered for public sale in
accordance with such registration statement.

e.               Upon a conversion hereunder Borrower shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock but Lender shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.

f.                 The issuance of certificates for shares of the
Common Stock on conversion of this Note shall be made without charge to Lender
hereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate.

g.              If Borrower, at any time while this Note is
outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii)
combines (including by way of reverse stock split) outstanding shares of Common
Stock into a smaller number of shares, or (iv) issues by reclassification of
shares of the Common Stock any shares of capital stock of Borrower, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.

h.              If Borrower or any subsidiary thereof, as
applicable, at any time while this Note is outstanding, shall sell, grant any
option to purchase or offer, sell or grant any right to reprice its securities,
or otherwise dispose of or issue any Common Stock or Common Stock equivalents
entitling any person to acquire shares of Common Stock, at an effective price
per share less than the then Conversion Price (such lower price, the “Base
Conversion Price,” and such 

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issuances
collectively, a “Dilutive Issuance”), as adjusted hereunder, then the
Conversion Price shall be reduced to equal the Base Conversion Price. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  Anything in this Note to the
contrary notwithstanding, Borrower shall not be required to make any adjustment
to the Conversion Price in connection with (i) securities issued pursuant to
the conversion or exercise of convertible or exercisable securities issued or
outstanding on or prior to the date hereof, (ii) the shares of Common Stock
issuable upon the exercise of warrants issued to Lender, (iii) Common Stock
issued or options to purchase Common Stock granted or issued pursuant to
Borrower’s stock option and award plans, or (iv) an anticipated issuance of
securities of Borrower in connection with Borrower’s investment in an
agricultural conglomerate, provided such issuances do not exceed 7,500,000
shares (with any increase therein to be approved by Lender, such approval not
to be unreasonably withheld).

i.                  If Borrower, at any time while this Note is
outstanding, shall distribute to all holders of Common Stock (and not to Lender
under this Note) evidences of its indebtedness or assets (including cash and
cash dividends) or rights or warrants to subscribe for or purchase any security,
then in each such case the Conversion Price shall be adjusted by multiplying
such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the volume weighted average price of
the Common Stock for such date (or the nearest preceding date) determined as of
the record date mentioned above, and of which the numerator shall be such volume
weighted average price on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the board of directors of Borrower in good faith.

j.                  If, at any time while this Note is outstanding, (i)
Borrower effects any merger or consolidation of Borrower with or into another entity,
(ii) Borrower effects any sale of all or substantially all of its assets in one
or a series of related transactions, (iii) any tender offer or exchange offer
(whether by Borrower or another person) is completed pursuant to which holders
of Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (iv) Borrower effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property (any such case, a “Fundamental Transaction”), then upon any subsequent
conversion of this Note, Lender shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion immediately
prior to the occurrence of such Fundamental Transaction, the same kind and
amount 

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of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one share of Common Stock.

k.               Whenever the Conversion Price is adjusted as
herein provided, Borrower shall promptly mail to Lender a notice setting forth
the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.

l.                  If (i) Borrower shall declare a dividend (or any
other distribution) on the Common Stock; (ii) Borrower shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (iii)
Borrower shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (iv) the approval of any stockholders of Borrower shall
be required in connection with any reclassification of the Common Stock, any
consolidation or merger to which Borrower is a party, any sale or transfer of
all or substantially all of the assets of Borrower, of any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or property;
(v) Borrower shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of Borrower; or (vi) Borrower intends
to pay all or any portion of the principal or accrued interest of this Note, then,
in each case, Borrower shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Note, and shall cause to be
mailed to Lender, at least ten calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which holders
of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange. Lender is entitled to convert this Note during the ten-day
period commencing the date of such notice to the effective date of the event
triggering such notice.

m.            Upon conversion of this Note in whole or in any
part, Borrower shall take whatever action is necessary such that the Holder
shall be entitled to exercise, together with all other holders of registrable
shares possessing registration rights under the Registration Rights Agreement
between the parties of even date herewith, the rights of registration granted
under the Registration Rights Agreement to the holders of such Common Stock.

 6
 

 

6. Borrower, and all guarantors, endorsers and
sureties of this Note, hereby waive presentment for payment, demand, protest,
notice of protest, notice of nonpayment, and notice of dishonor of this Note. Borrower
and all guarantors, endorsers and sureties consent that Lender at any time may
extend the time of payment of all or any part of the indebtedness secured
hereby, or may grant any other indulgences.

7. Any notice or demand required or permitted to be
made or given hereunder shall be deemed sufficiently made and given if given by
personal service or by the mailing of such notice or demand by certified or
registered mail, return receipt requested, or by overnight courier service
providing for proof of delivery, addressed, if to Borrower, at Borrower’s address
first above written, with a copy to Roger A. Crabb, Esq., Scheef & Stone,
L.L.P., 5956 Sherry Lane — Suite 1400, Dallas, Texas 75225-8031; or if to Lender,
at Lender’s address first above written, with a copy in like manner to Hilary
B. Miller, Esq., 112 Parsonage Road, Greenwich, Connecticut 06830-3942. Either
party may change its address by like notice to the other party.

8. Borrower shall pay all costs and expenses of
collection of the indebtedness represented by this Note, and all costs and
expenses of enforcing Borrower’s other obligation sunder this Note, including in
each case reasonable attorneys’ fees and disbursements.

9. If any provision or portion of this Note is
declared or found by any court or tribunal of competent jurisdiction to be
unenforceable or void, such provision shall be deemed severed and stricken from
this Note, and the remaining provisions and portions hereof shall continue in
full force and effect.

10. This note arises from a purely commercial
transaction, and the proceeds hereof are not to be used primarily for a
personal, household or consumer purpose.

11. No default or failure of Lender under the terms
of the Commitment Letter of even date herewith or any other agreement between
the parties shall constitute a defense to Borrower’s obligations under this
Note, the same being separate and independent covenants in all respects. Borrower
shall unconditionally pay and perform this Note notwithstanding any breach or
alleged breach by Lender of any other obligation of Lender to Borrower. Borrower
hereby agrees that it will never assert that it is entitled to an offset,
defense or counterclaim, or stay of execution of any judgment, with respect to
this Note based on any act or omission of Lender.

12.This Note may not be changed or terminated
orally, but only by an agreement in writing signed by the party against whom
enforcement of any change, modification, termination, waiver, or discharge is
sought. This Note shall be construed and enforced in accordance with the substantive
laws of the State of Delaware without regard to conflict of law principles. Borrower
hereby consents and submits to the exclusive personal and subject matter jurisdiction
of the state and federal courts located in New York County, New York for
purposes of any action or proceeding related to this Note. Trial by jury in any
action, proceeding or counterclaim arising hereunder is hereby waived. An
electronic facsimile of this Note shall be valid as an original.

 7
 

 

IN WITNESS WHEREOF, Borrower has executed this Note on the date
first above written.

	
  

  	
   

  	
  EARTH BIOFUELS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ DENNIS G. MCLAUGHLIN, III

  	
   

  
	
   

  	
   

  	
   

  	
  Dennis G. McLaughlin, III

  
	
   

  	
   

  	
   

  	
  Its President

  

 

PAYMENT AND ALL PERFORMANCES DUE UNDER THIS NOTE ARE UNCONDITIONALLY
GUARANTEED BY APOLLO INTERNATIONAL RESOURCES, INC. PURSUANT TO A SEPARATE
INSTRUMENT DELIVERED CONTEMPORANEOUSLY HEREWITH.

 8Exhibit 10.23

NEITHER
THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THIS
SECURITY, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND SUCH APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF
COUNSEL ADDRESSED AND SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
REGISTRATION UNDER SUCH ACT AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.

May
4, 2006

WARRANT TO PURCHASE SHARES OF COMMON STOCK

- of -

EARTH
BIOFUELS, INC.

For
value received, EARTH BIOFUELS, INC.,
a Delaware corporation (the “Company”), hereby grants to GREENWICH
POWER, L.L.C., or its registered successor or assigns (the “Holder”)
the right to purchase from the Company shares of the Common Stock of the
Company (the “Common Stock”), at the option of the Holder, upon surrender
hereof at the principal office of the Company, with the subscription form
attached hereto duly executed, and simultaneous payment therefor as hereinafter
provided of the Warrant Exercise Price multiplied by the number of shares of
Common Stock for which the Warrant is exercised. The number and Warrant
Exercise Price of such shares of Common Stock are subject to adjustment as
provided below.

This
Warrant (the “Warrant”) is duly authorized and issued by the Company. In furtherance
thereof, and in consideration of the premises, covenants, promises,
representations and warranties hereinafter set forth, the Company hereby agrees
as follows:

1.    Term of Warrant. Subject to the
terms and conditions set forth herein, this Warrant shall be exercisable, in whole
or in part, during the term commencing on the date hereof and ending on May 31,
2011.

 

2.    Number of Shares and Warrant Exercise
Price. The Holder shall be entitled to subscribe for and purchase from the
Company 920,810 validly issued, fully paid and non assessable shares (the “Warrant
Shares”) of the Company’s Common Stock, par value $0.001 per share, at a
purchase price equal to the Warrant Exercise Price. The “Warrant Exercise Price”
is the lesser of (a) $2 per share or (b) 80% of the average of the last
reported sale prices of the Common Stock on each trading day during the thirty
(30) consecutive calendar days immediately preceding the effective date of
exercise, or if the last reported sale price information is not available for
such days, the average of the mean of the closing bid and asked prices for such
day (the “Determination Period”).  The
Holder covenants that during the Determination Period, Holder shall refrain
from trading in, or entering into short positions or other derivative transactions
relating to, shares of common stock of the Company.

3.    Exercise of Warrant.

3.1.                              Duration and Exercise of Warrant. The purchase rights represented by this
Warrant may be exercised by the Holder, in whole or in part, at any time after
the date hereof and prior to the expiration of the term of this Warrant, by the
surrender of this Warrant and the Notice of Exercise attached hereto as Exhibit
A duly executed, at the principal office of the Company (or such other office
of the Company as it may designate by notice in writing to the Holder at the
address of the Holder), upon payment (i) in cash, by check or by wire transfer,
(ii) by cancellation by the Holder of indebtedness of the Company, to the
Holder, or (iii) by a combination of (i) and (ii), of the Warrant Exercise
Price multiplied by the number of shares of Common Stock to be purchased. Any
notice of exercise of this Warrant may, at the election of the Holder, be
stated to be effective upon the future effectiveness of a registration statement
with respect to the Warrant Shares.

3.2.                              Net Issue Election (Cashless Exercise). The Holder may elect to receive, without
the payment by the Holder of any additional consideration, shares equal to the
value of this Warrant or any portion hereof by surrender of this Warrant or
such portion to the Company with the net issue election notice annexed hereto
duly executed, at the office of the Company. Thereupon, the Company shall issue
to the Holder such number of fully paid and nonassessable shares of Common
Stock as is computed using the following formula:

	
   

  	
  X = Y (A-B)

  	
   

  
	
   

  	
  A

  	
   

  

 

	
  Where

  	
   

  	
  X =

  	
   

  	
  the number of shares to be issued to the Holder
  pursuant to this Section 3.2.

  
	
   

  	
   

  	
  Y =

  	
   

  	
  the number of shares covered by this Warrant in
  respect of which the net issue election is made pursuant to this Section 3.2.

  
	
   

  	
   

  	
  A =

  	
   

  	
  the fair market value of one share of Common Stock,
  as determined in accordance with the provisions of this Section 3.2.

  
	
   

  	
   

  	
  B =

  	
   

  	
  the Purchase Price in effect under this Warrant at
  the time the net issue 

  

 

 2
 

 

election is made pursuant to
this Section 3.2.

For
purposes of this Section 3.2, the “fair market value” per share of the Company’s
Common Stock shall mean the last reported sale price of the Common Stock on the
effective date of exercise of the net issue election, or if the last reported
sale price information is not available for such day, the average of the mean
of the closing bid and asked prices for such day.

3.3.                              Delivery of Warrant; Fractional Shares

(a)                                  This
Warrant shall be deemed to have been exercised immediately prior to the close
of business on the date of its surrender for exercise as provided above, and
the person entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the holder of record of such
shares as of the close of business on such date (the “Exercise Date”). Not
later than three business days after any Exercise Date, the Company will
deliver or cause to be delivered to the Holder a certificate or certificates
representing the Warrant Shares. The Company shall, if available and if allowed
under applicable securities laws, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
paragraph electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If such
certificate or certificates are not delivered to or as directed by the Holder
by the third business day after a Exercise Date, The Holder shall be entitled
by written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such exercise, in which
event the Company shall immediately return this Warrant. Moreover, if the
Company fails for any reason to deliver to the Holder such certificate or certificates
by the third business day after the Exercise Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, 1% per business
day of the fair market value of the Warrant Shares (increasing to 2% per
business day after ten business days after such damages begin to accrue) for
each business day until such certificates are delivered. The Company’s
obligations to issue and deliver the Warrant Shares upon exercise of this
Warrant in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other person of any obligation to the Company or
any violation or alleged violation of law by the Holder or any other person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Warrant Shares. In the event that the Holder shall elect exercise this Warrant
in whole or in any part, the Company may not refuse exercise based on any claim
that the Holder or anyone associated or affiliated with the Holder has been
engaged in any violation of law, agreement or for any other reason, unless an
injunction from a court, on notice, restraining and or enjoining exercise of
all or part of this Warrant shall have been sought and obtained and the Company
posts a surety bond for the benefit of the Holder in the amount of 150% of the
fair market value of the Warrant

 3
 

 

Shares, which
is subject to the injunction, which bond shall remain in effect until the
completion of litigation of the dispute and the proceeds of which shall be
payable to the Holder to the extent it obtains judgment. In the absence of an
injunction precluding the same, the Company shall issue Warrant Shares upon a
properly noticed exercise. Nothing herein shall limit the Holder’s right to
other remedies for the Company’s failure to deliver Warrant Shares within the
period specified herein, and the Holder shall have the right to pursue all
remedies available to it at law or in equity including without limitation a
decree of specific performance and/or injunctive relief. The exercise of any
such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other provision hereof or under applicable law. In the
alternative and at the Holder’s election, if the Company fails for any reason
to deliver to the Holder such certificate or certificates by the third business
day after the Exercise date, and if after such third business day the Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such conversion (a “Buy-In”),
then the Company shall (i) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of shares of Common Stock that such the Holder anticipated receiving from the
exercise at issue multiplied by (2) the actual sale price of the Common Stock
at the time of the sale (including brokerage commissions, if any) giving rise
to such purchase obligation and (ii) at the option of the Holder, either
reissue this Warrant in amount equal to the attempted conversion or deliver to
the Holder the number of shares of Common Stock that would have been issued had
the Company timely complied with its delivery requirements hereunder.

(b)                                 No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant, but in lieu of such fractional shares, the
Company shall deliver to the Holder one whole share.

4.    Replacement of Warrant. On receipt
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of loss, theft, or
destruction, on delivery of an indemnity agreement reasonably satisfactory in
form and substance to the Company or, in the case of mutilation, on surrender
and cancellation of this Warrant, the Company shall execute and deliver, in
lieu of this Warrant, a new warrant of like tenor and amount.

5.    Rights of Stockholders. Until the
Warrant shall have been exercised and the shares of Common Stock purchasable
upon the exercise hereof shall have been issued, nothing contained herein shall
be construed to confer upon the Holder, as such, any of the rights of a
stockholder of the Company or any right to vote upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive dividends or subscription rights or the like,
except as may be otherwise provided herein or in the Note and Warrant Purchase
Agreement.

 4
 

 

6.    Divisibility of Warrant; Transfer of
Warrant.

(a)                                  Subject
to the provisions of this Section 6, this Warrant may be divided into no more
than ten (10) warrants of one thousand (1,000) shares or multiples thereof,
upon surrender at the principal office of the Company, without charge to any
Warrantholder. Upon such division, the Warrants may be transferred of record as
the then Warrantholder may specify without charge to such Warrantholder (other
than any applicable transfer taxes). In addition, subject to the provisions of
this Section 6, the Warrantholder shall also have the right to transfer this Warrant
in its entirety to any person or entity; provided, however, that
any such transfer is in compliance with any and all applicable securities laws
and is exempt from registration.

(b)                                 The
Company will maintain a register (the “Warrant Register”) containing the name
and address of the Holder. The Holder may change its address as shown on the
Warrant Register by written notice to the Company requesting such change. Any
notice or written communication required or permitted to be given to the Holder
may be delivered or given by mail to such Holder as shown on the Warrant
Register and at the address shown on the Warrant Register. Until this Warrant
is transferred on the Warrant Register, the Company may treat the Holder as
shown on the Warrant Register as the absolute owner of this Warrant for all
purposes, notwithstanding any notice to the contrary.

(c)                                  The
Warrant and the Common Stock shall not be transferable except upon the
conditions specified in this Section 6, which conditions are intended to ensure
compliance with the provisions of the Act. Each holder of this Warrant or
Common Stock issuable hereunder will cause any proposed transferee of the
Warrant and the Common Stock to agree to take and hold such securities subject
to the provisions and upon the conditions specified in this Section 6.

(d)                                 Each
certificate representing (i) this Warrant, (ii) the Common Stock and (iii) any
other securities issued in respect to the Common Stock upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of this Section 6 or unless such
securities have been registered under the Act) be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under applicable state securities laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 5
 

 

(e)                                  The
Holder of this Warrant and each person to whom this Warrant is subsequently
transferred represents and warrants to the Company (by acceptance of such
transfer) that it will not transfer the Warrant (or Common Stock issuable upon
exercise hereof) except (i) to an affiliate, (ii) pursuant to an effective
registration statement under the Act, or (iii) upon the Company’s reasonable
determination, upon advice of counsel to the Company, that no applicable
securities laws would be violated as a result of such transfer. The Company may
require an opinion of counsel acceptable to the Company to the effect that such
transfer (whether by sale, encumbrance, assignment or otherwise) may be effected
without registration under the Act.

7.    Registration Rights. Upon exercise
of this Warrant for Common Stock, the Company shall take whatever action
necessary such that the Holder shall be entitled to exercise, together with all
other holders of registrable shares possessing registration rights under the
Registration Rights Agreement between the parties of even date herewith the
rights of registration granted under the Registration Rights Agreement to the
holders of Common Stock, if any.

8.    Shares to be Fully Paid; Reservation of
Shares. The Company covenants and agrees that all shares of Common Stock
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable and free from all preemptive rights of any stockholder and free
of all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved, for the purpose of issue or transfer upon
exercise of the purchase rights conveyed by this Warrant, a sufficient number
of shares of authorized but unissued Common Stock, or other securities and property,
when and as required to provide for the exercise of the rights represented by
this Warrant. The Company will take all action as may be necessary or advisable
to assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of any domestic securities exchange upon which the Common Stock may be listed.

9.    Amendments. This Warrant may be
amended only with the written consent of the Holder. No waiver of or exceptions
to any term, condition or provision of this Warrant, in any one or more
instances, shall be deemed or construed as a further or continuing waiver of
any such term, condition or provision.

10.    Adjustments; Anti-Dilution. The
number of Warrant Shares purchasable hereunder and the Warrant Exercise Price
are subject to adjustment from time to time as follows:

(a)                                  Merger,
Sale of Assets, Etc. If at any time, while this Warrant, or any portion
thereof, is outstanding and unexpired there shall be (i) a reorganization
(other than a combination, reclassification, exchange or subdivision of shares
otherwise provided for herein), (ii) a merger or consolidation of the Company
with or into another corporation in 

 6
 

 

which the
Company is not the surviving entity, or a reverse triangular merger in which
the Company is the surviving entity but the shares of the Company’s capital
stock outstanding immediately prior to the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company’s properties and assets
as, or substantially as, an entirety to any other person, and if, as a part of
such reorganization, merger, consolidation, sale or transfer, provisions are
made so that the holders of capital stock are thereafter entitled to receive
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer,
the Company shall then ensure that the Holder also shall be entitled to shares
of stock or other securities or property of the successor corporation resulting
from such reorganization, consolidation, merger, sale or transfer as if this
Warrant had been exercised in full immediately prior to such reorganization,
merger, consolidation, sale or transfer, all subject to further adjustment as
provided in this Section 10. The obligations of this Section 10 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation which are at
the time receivable upon the exercise of this Warrant. If the per share
consideration payable to the Holder for shares in connection with any such
transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be jointly determined by the Company and the
Holder. In all events, appropriate adjustment shall be made in the application
of the provisions of this Warrant with respect to the rights and interests of
the Holder after the transaction, to the end that the provisions of this
Warrant shall be applicable after that event, as near as reasonably may be, in
relation to any shares or other property deliverable after that event upon
exercise of this Warrant.

(b)                                 Reclassification,
Etc. If the Company, at any time while this Warrant, or any portion
thereof, remains outstanding and unexpired, by reclassification of securities
or otherwise, intends to change any of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant immediately prior to
such reclassification or other change and the number of Warrant Shares
purchasable hereunder shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 10.

(c)                                  Split,
Subdivision or Combination of Shares. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, into a different number of securities of the same class, the
Company warrants that the number of Warrant Shares purchasable hereunder shall
be proportionately adjusted.

(d)                                 Adjustments
for Dividends in Stock or Other Securities or Property.

(i)                                     If while this Warrant, or any portion hereof,
remains outstanding and unexpired, holders of Common Stock shall have received,
or, on or after the record 

 7
 

 

date fixed for the
determination of eligible stockholders, shall have become entitled to receive,
without payment therefor, cash of the Company by way of dividend, then and in
each case, the Warrant Exercise Price shall be reduced by adding the amount of
cash of the Company which such holder would have received had it been the
Holder of record of the security on the date such dividend was paid to the
numerator used to calculate the Warrant Exercise Price as set forth in Section
2 of this Warrant;

(ii)                                  If while this Warrant, or any portion hereof,
remains outstanding and unexpired, holders of Common Stock shall have received,
or, on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company which such
holder would hold on the date of such exercise had it been the Holder of record
of the security receivable upon exercise of this Warrant on the date thereof
and had thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to all
appropriate adjustments provided by this Section 10.

(e)                                  Certificate
as to Adjustments; No Impairment. Upon the occurrence of each adjustment or
readjustment pursuant to this Section 10, the Company shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
to the Holder a certificate setting forth such adjustment or readjustment and
the facts upon which such adjustment or readjustment is based. At any time upon
written request of the Holder, the Company shall furnish to the Holder a like
certificate setting forth: (a) a description of all such adjustments and
readjustments; (b) the Warrant Exercise Price at the time in effect; and (c)
the number of shares which at the time would be received upon the exercise of
the Warrant. The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or performed
hereunder, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 10 and in the taking of all such action as
may be necessary or advisable to protect the rights of the Holder against
impairment.

11.    Representations and Warranties of the
Company. The Company hereby represents and warrants to the Holder as
follows:

(a)                                  Corporate
Power and Authorization. The Company has all requisite corporate power and
authority to issue this Warrant and to perform each of its obligations hereunder.
All corporate action on the part of the Company, its directors and stockholders
necessary or advisable for the authorization, execution, delivery and
performance by the 

 8
 

 

Company of
this Warrant has been taken. This Warrant is a valid and binding obligation of
the Company, enforceable in accordance with its terms.

(b)                                 Offering.
The offer, issuance and sale of the Warrant is, and the issuance of shares of
Common Stock upon exercise of the Warrant will be, exempt from the registration
requirements of the Act, and are exempt from the qualification requirements of
any applicable state securities laws; and neither the Company nor anyone acting
on its behalf will take any action hereafter that would cause the loss of such
exemptions.

(c)                                  Binding
Effect. This Warrant shall be binding upon any corporation succeeding the
Company by merger, consolidation or acquisition of all or substantially all of
the Company’s assets. All of the obligations of the Company relating to the
shares of Common Stock issuable upon the exercise of this Warrant shall survive
the exercise and termination of this Warrant. All of the agreements of the
Company shall inure to the benefit of the successors and assigns of the Holder
hereof. The Company will, at the time of exercise of this Warrant whether in
whole or in part, acknowledge in writing its continuing obligation to the
Holder hereof in respect of any rights (including, without limitation, any
right to registration of the shares of Common Stock) to which the Holder hereof
shall continue to be entitled after such exercise in accordance with this
Warrant; provided, that the failure of the Company to make any such
acknowledgement shall not affect the continuing obligation of the Company to
the Holder hereof in respect of such rights.

12.    Miscellaneous.

(a)                                  Failure
to Act and Waiver. No failure or delay by the Holder to require the
performance of any term or terms of this Warrant or to exercise any right or
remedy shall constitute a waiver of any such term or of any right, nor shall
such delay or failure preclude the Holder from exercising any such right or
remedy at any later time or times.

(b)                                 Consent
to Jurisdiction. The Company hereby agrees and consents that any action,
suit or proceeding arising out of this Warrant shall be brought exclusively in
any appropriate state or federal court in the New York County, New York, at the
sole election of the Holder hereof, and by the issuance and execution of this
Warrant the Company irrevocably consents to the jurisdiction of each such
court. Trial by jury in any action, proceeding or counterclaim with respect
hereto is hereby waived.

(c)                                  Governing
Law. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS WARRANT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.

 9
 

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly
authorized officer as of the date first above written.

	
  

  	
   

  	
  EARTH BIOFUELS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ DENNIS G. MCLAUGHLIN, III

  	
   

  
	
   

  	
   

  	
   

  	
  Dennis G.
  McLaughlin, III

  
	
   

  	
   

  	
   

  	
  President

  

 

 10

 

EXHIBIT A

NOTICE OF EXERCISE

To:          Earth
Biofuels, Inc.

(A)          The undersigned hereby elects to
purchase                            
shares of the Common Stock of Earth Biofuels, Inc. (“Common Stock”) pursuant
to the terms of the attached Warrant, and tenders herewith payment of the
purchase price of such shares in full.

(B)           In exercising this Warrant, the
undersigned hereby confirms and acknowledges that the shares of Common Stock
are being acquired solely for the account of the undersigned and not as a
nominee for any other party, and for investment, and that the undersigned will
not offer, sell, or otherwise dispose of any such shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act
of 1933, as amended, or any state securities laws.

(C)           Please issue a certificate or
certificates representing the purchased shares of Common Stock in the name of
the undersigned or in such other name as is specified below:

	
  

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  

 

(D)          Please issue a new Warrant for the
unexercised portion of the attached Warrant in the name of the undersigned or
in such other name as is specified below:

	
  

  	
   

  	
   

  
	
  Date

  	
   

  	
  Name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  

 

 

FORM
OF NET ISSUE ELECTION

(To be signed only on net issue exercise of the Warrant)

The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant with respect to                                  shares
of Common Stock of Earth Biofuels, Inc., pursuant to the net issuance
provisions set forth in this Warrant, and requests that the certificates for
the number of shares of Common Stock issuable pursuant this Warrant after
application of the net issuance formula to such                          
shares to be issued in the name of, and delivered to                        ,
Federal Taxpayer Identification Number                         ,
whose address is                                           .

	
  Dated

  	
   

  	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Address)

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