Document:

Exhibit 10.17

June 13, 2006

PERSONAL AND CONFIDENTIAL

HPS Development, L.L.C.

c/o LOBRANO & LOBRANO, L.L.C.

147 Keating Drive

Post Office Box 208

Belle Chasse, Louisiana 70037

Telephone: (504) 433-3100

Fax: (504) 433-3103

Gentlemen:

The purpose of this Letter
of Intent is to set forth our mutual understanding in connection with the
proposed acquisition, by Earth Biofuels, Inc. (the “Purchaser”), of 50% of the membership
interest (the “Membership Interest”)
in a newly-created limited liability company (“Newco”) that is currently 100% owned by HPS Development,
L.L.C. (“HPS”). upon the
terms and conditions set forth herein. This Letter of Intent shall replace in
its entirety, the letter of intent dated April 24, 2006.

1.         The Transaction. The following is a brief summary of
the proposed transaction (the “Transaction”):

HPS will contribute to Newco, HPS’ ownership of the
following: approximately 50 acres (more or less) of ground in or near to Myrtle
Grove, Plaquemines Parish, Louisiana, together with the improvements situated
thereon, included a closed fuel ethanol distillery built by SPECTRUM in 1988
(located adjacent to the Mississippi River near New Orleans, Louisiana) and the
equipment and other assets associated with such ethanol distillery
(collectively, the “Plant”) and (2) 10 acre tracts of land adjacent
to the plant for the construction and operation of a Bio-diesel plant or
additional storage space if such projects are undertaken by Newco.

The Purchaser will purchase the Membership Interest
from HPS for consideration consisting of a combination of cash and shares of
common stock of Purchaser, as set forth in more detail below.

 

 

2.         Consideration.
The consideration for Purchaser’s acquisition of the Membership Interest from
HPS will be comprised of cash aggregating $50 million, plus shares of common
stock of Purchaser, with such amounts payable as follows:

·                                          On
or about April 24, 2006, a deposit in the amount of $3 million.

·                                          On
or about June 6, 2006 (or upon execution of this Letter of Intent), a deposit
in the amount of $2 million.

·                                          In
the event that the Purchaser and HPS (a) agree on the general terms of the
Transaction as set forth in this Letter of Intent and  (b) HPS subsequently fails to close the Transaction
(other than by reason of a withdrawal of Purchaser from the Transaction), then
the Purchaser may recover from HPS the aggregate $5 million in deposits, as
well as Purchaser’s acquisition expenses.

·                                          On
or about June 19, 2006, the amount of $2 million.

·                                          On
or about July 1, 2006, the amount of $13 million.

·                                          Upon
closing of the Transaction (anticipated to occur by August 1, 2006), the amount
of $30 million (of which $15 million shall be deposited into a separate escrow
agreement for purposes of the cost and performance warranties of HPS, described
broadly below). Also upon closing of the Transaction, the $15 million held in
escrow pending closing of the Transaction is to be released to HPS.

·                                          Upon
closing of the Transaction, the Purchaser will issue to HPS 5,829,005
restricted shares of common stock of Purchaser, said obligation to accrue on
July 1, 2006.

3.         Conditions Precedent.

In addition to the other terms and conditions to be
set forth in the Definitive Agreements, the Closing of the Transaction shall be
conditioned upon:

·                                          Receipt
of reports from each of (a) Turner Construction or another fully-bonded
construction contractor acceptable to each of Purchaser and HPS, (b) Benchmark
Technology or another fully-bonded engineering firm acceptable to each of
Purchaser and HPS and (c) ENGlobal Engineering Inc. or another fully-bonded
engineering firm acceptable to each of Purchaser and HPS; and

·                                          Receipt
of preliminary reports from Luminate or another firm acceptable to Morgan
Keegan & Company, confirming the reports of Turner Construction, Benchmark
Technology and ENGlobal Engineering Inc. to be within the budgetary

 2
 

 

 

and timeline parameters (agreed upon by Purchaser and HPS) for retrofit
of the Plant. The parties recognize and acknowledge that the receipt of
favorable reports from Luminate is a pre-condition to Morgan Keegan &
Company’s ability to secure public financing for retrofit of the Plant and,
accordingly, success of the project contemplated by the Transaction.

·                                          Contemporaneously
with the closing of the Transaction, HPS shall have agreed to lend Newco funds
sufficient to commence the retrofit of the Plant, with the full and prompt
repayment thereof to originate from the public financing underwritten by Morgan
Keegan & Company, the proceeds of which are anticipated to be available
within two to three months of closing of the Transaction.

HPS covenants that it will engage Turner Construction, Benchmark
Technology and ENGlobal Engineering Inc. (or comparable caliber companies
acceptable to each of Purchaser and Morgan Keegan & Company, as contemplated in this Letter of Intent) for
and on behalf of Newco. The costs of such engagements are to be initially
underwritten by HPS, with the full and prompt repayment thereof to originate
from the public financing underwritten by Morgan Keegan & Company.

HPS further covenants that, in order to further the public financing
underwritten by Morgan Keegan & Company, it will give Purchaser and Morgan
Keegan & Company full access to the documentation, communications and other
reporting of Turner Construction, Benchmark Technology and ENGlobal Engineering
Inc. (or comparable caliber companies acceptable to each of Purchaser and
Morgan Keegan & Company).

4.         Definitive Purchase Agreement. The Purchaser and HPS
will negotiate in good faith to execute the Definitive Agreements, containing
customary terms and conditions which shall contain terms consistent with the
terms of this Letter of Intent as well as comprehensive representations and
warranties, covenants, conditions, provisions for indemnification and survival
and other customary terms. Purchaser’s counsel shall draft all Definitive
Agreements and all other agreements necessary to consummate the Transaction.
The Definitive Agreements and all other such agreements must be satisfactory to
the parties to such agreements.

5.         Access. HPS shall make available all information
(financial or otherwise) reasonably requested by or on behalf of the Purchaser,
its financing sources and their respective representatives in connection with
their due diligence review of HPS and the Plant, including at all reasonable
times and upon reasonable notice, access to HPS’ books, records, facilities,
properties, officers, and key employees.

 3
 

 

 

6.         Governance.

Newco’s Operating Agreement shall reflect the following ownership and
management structure:

A total of 1000 Units of Membership Interest, owned as follows:

	
  

  	
   

  	
  Class A

  Voting Units

  	
   

  	
  Class B

  Non-Voting Units

  	
   

  	
  Total Units of

  Membership Interest

  	
   

  
	
  Purchaser

  	
   

  	
  3

  	
   

  	
  497

  	
   

  	
  500

  	
   

  
	
  HPS

  	
   

  	
  3

  	
   

  	
  497

  	
   

  	
  500

  	
   

  
	
  TOTAL

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  1000

  	
   

  

Profits, losses, and distributions shall be allocated
pro-rata to the holders of respective Units of Membership Interest regardless
of class, and the separate classes of Units shall have only the following
differences:

·                                          Each
Class A Voting Unit shall be entitled to one vote, and shall further be
entitled to elect one manager (equivalent to a board of directors); thus, if
there are 6 outstanding Class A Voting Units, there shall be 6 managers.

·                                          The
Operating Agreement shall prohibit Newco from issuing any additional Units of Membership
Interest without the prior unanimous written consent of all of the Class A
Voting Units.

·                                          Management
decisions (including day-to-day operating decisions) shall be made by an
Operating Committee comprised of three managers (at least one of whom is a
manager elected by Purchaser), one to be appointed by HPS and one jointly
appointed with all of whose decisions shall be by consensus of all Operating
Committee members; provided, however, that “Major
Decisions” (as defined in Exhibit A) shall require unanimity
of all of the managers.

7.         HPS Warranties.

Cost Warranty: HPS shall
warrant that the Retrofit Expenses of the Plant will not exceed $40 million.
Retrofit Expenses shall mean those expenses necessary to cause the Plant to
produce a minimum of 60 million gallons (subject to agreed upon deviation) of
marketable ethanol per year, on an annualized basis. Accrual of the Retrofit
Expenses shall terminate upon completion of the Retrofit, per contract
provisions. Should the Retrofit Expenses be $40 million or less, Purchaser
shall immediately consent to a release to HPS of $7.5 million of the funds held
in the HPS Warranty Escrow (herein so called). In the event that the Retrofit
Expenses exceed $40 million, payments to HPS from the

 4
 

 

 

HPS Warranty Escrow shall
be reduced dollar for dollar by the excess Retrofit Expenses over $40 million,
such reduction not to exceed $7.5 million.

Performance Warranty: HPS warrants that the Plant
shall produce a minimum of 60 million gallons (subject to agreed upon
deviation) of marketable ethanol per year, on an annualized basis, with such
measurement to commence 90 days following the initial date of production.
Should such measure deviate from the stated production level, HPS will have
breached its warranty and Purchaser shall be entitled to a distribution from
the HPS Warranty Escrow based on a sliding scale related to the magnitude of
deviation. The parties intend that the structure of this HPS Performance
Warranty shall mirror the performance warranty required of the contractors
engaged to effect the Retrofit.

In the event HPS does not receive distribution of the
full $15 million residing in the HPS Warranty Escrow, HPS shall be entitled to
reimbursement from Newco to the extent Newco is successful in securing payment
from a contractor or pursuant to a performance bond supplied by a contractor.

8.         Confidentiality. The parties shall use best efforts
to maintain, and shall cause their employees and agents to use best efforts to
maintain, any confidential information received from the other party as
confidential.

We look forward to working further with you and moving
ahead with the Transaction.

	
  Very truly yours,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EARTH BIOFUELS, INC.,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Dennis McLaughlin

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dennis McLaughlin

  	
   

  	
   

  
	
   

  	
   

  	
  President & CEO

  	
   

  	
   

  
								

 

 5
 

 

 

Agreed to and Accepted

this 13 day of June, 2006:

 

 

	
  HPS DEVELOPMENT, LLC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John Paul

  	
   

  	
   

  
	
   

  	
   

  	
  John Paul, Manager

  	
   

  
	
   

  	
   

  	
   

  	
   

  
						

 

	
  By:

  	
  /s/ William A.
  Hurst

  	
   

  	
   

  
	
   

  	
   

  	
  William A. Hurst, Manager

  	
   

  
					

 

 

	
  By:

  	
  /s/ Kennett F. Stewart

  	
   

  	
   

  
	
   

  	
   

  	
  Kennett
  F. Stewart, Manager

  	
   

  
					

 

 6
 

 

 

Exhibit A

Major Decisions are the
following:

·                            The
dissolution and winding-up of Newco;

·                            The
sale, exchange, lease, mortgage, assignment, pledge or other transfer of, or
the granting of a security interest in, all
or substantially all of the assets of Newco;

·                            The
merger or consolidation of Newco;

·                            The
filing of a petition for relief under the Federal Bankruptcy Code or under any similar state or federal statutory scheme;

·                            A
material change in the nature of Newco’s business;

·                            The
issuance of an interest in Newco to any Person and the admission of any Person
as a Member, except as otherwise provided in the Operating Agreement; and

·                            Any
amendment of the Operating Agreement.

 

 7EXHIBIT 10.18

AGREEMENT

BY AND BETWEEN

EARTH BIOFUELS, INC.

AND

HPS DEVELOPMENT, L.L.C.

This
Agreement is made as of the dates set forth below, and is effective as to each
party as of their respective dates of execution, by and between HPS
Development, L.L.C. a Louisiana limited liability company domiciled in
Plaquemines Parish, Louisiana (hereafter sometimes referred to as “HPS”),
represented herein by its duly authorized Managers William Hurst, John Paul,
and Kennett Stewart, and Earth Biofuels, Inc., a Delaware corporation with its
principal place of business in Dallas, Texas (hereafter sometimes referred to
as “EB”), represented herein by its duly authorized President and Chief
Executive Officer Dennis G. McLaughlin, III. HPS and EB are sometimes collectively
referred to as the “Parties.”

RECITALS:

WHEREAS, pursuant to
Letter of Intent dated April 24, 2006, (LOI 1) the Parties agreed to pursue in
good faith a transaction in which EB would acquire a 50% interest in the former
Mississippi River Alcohol Company ethanol plant (sometimes referred to as “Plant”)
in exchange for cash and stock consideration to HPS and further advances to a
yet to be formed entity, said advances to be used to retrofit the Plant;

WHEREAS, pursuant to a
second letter of intent dated June 13, 2006 (LOI 2), the Parties further
clarified the due dates of the payments and other terms and conditions of the
transaction;

WHEREAS, the Parties
wish to establish certain additional binding obligations between them as a
basis upon which to proceed with the transaction;

NOW
THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the
parties covenant and agree as follows:

1.                                      ACKNOWLEDGMENT
OF RECEIPT OF PAYMENTS FROM EB

The
Parties confirm that EB has made the following payments to HPS (as of August 1,
2006) pursuant to LOI 1 and LOI 2:

	
  

  	
   

  	
  Date

  	
   

  	
  Amount Paid

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  a.

  	
   

  	
  4/27/2006

  	
   

  	
  $

  	
  1 million

  	
   

  
	
  b.

  	
   

  	
  5/11/2006

  	
   

  	
  $

  	
  1 million

  	
   

  
	
  c.

  	
   

  	
  6/02/2006

  	
   

  	
  $

  	
  1 million

  	
   

  

 

 

	
  d.

  	
   

  	
  6/13/2006

  	
   

  	
  $

  	
  2 million

  	
   

  
	
  e.

  	
   

  	
  6/19/2006

  	
   

  	
  $

  	
  2 million

  	
   

  
	
  f.

  	
   

  	
  7/12/2006

  	
   

  	
  $

  	
  2 million

  	
   

  
	
  g.

  	
   

  	
  7/25/2006

  	
   

  	
  $

  	
  3 million

  	
   

  
	
   

  	
   

  	
  TOTAL

  	
   

  	
  $

  	
  12
  million

  	
   

  

 

2.                                      AMENDED
PAYMENT SCHEDULE

EB
agrees that the following payment schedule applies for payments due by EB to
HPS and shall supersede and replace the payment schedule set forth in LOI 2:

	
  a.

  	
   

  	
  $10 million due
  upon execution of this Agreement;

  	
   

  
	
  b.

  	
   

  	
  $5 million due
  on or before August 31, 2006;

  	
   

  
	
  c.

  	
   

  	
  $4 million due on
  or before September 15, 2006;

  	
   

  
	
  d.

  	
   

  	
  $4 million due
  on or before September 30, 2006;

  	
   

  
	
  e.

  	
   

  	
  $15 million (to
  be deposited in escrow) due on or before October 30, 2006.

  	
   

  

 

3.                                      CLOSING

The
closing of all transactions contemplated by LOI 1 and LOI 2 (with the exception
of the Morgan Keegan financing (or other acceptable third party financing),
which shall occur as soon as reasonably possible) shall occur on or before
October 30, 2006.

4.                                      ACKNOWLEDGMENT
OF ONGOING NEGOTIATIONS AND OBLIGATION TO NEGOTIATE IN GOOD FAITH

The
Parties confirm and acknowledge the continuing negotiations of definitive
documentation necessary to close the contemplated transactions, including, but
not limited to, a Purchase Agreement and an Operating Agreement for South
Louisiana Ethanol, L.L.C. The Parties further agree to negotiate in good faith
the final provisions of such definitive documentation.

5.                                      TERMINATION

a.                                       Reasons
for Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated at any time after the date
hereof but not later than the Closing:

i.                                          by
the mutual consent of HPS and Earth Biofuels;

ii.                                       at
the election of Earth Biofuels if the Closing has not occurred by October 30,
2006 because of the acts or omissions of HPS;

iii.                                    at
the election of HPS if the Closing has not occurred by October 30, 2006;

iv.                                   at
the election of HPS if EB fails to meet any of the payment deadlines in Section
2 above;

 

v.                                      upon
the failure of EB and HPS to agree to terms and conditions of final and definitive
agreements, after negotiating in good faith. The failure of either party to
agree to terms and conditions already negotiated between the parties (whether
verbally or in writing), except as modified in this Agreement shall be deemed
negotiation in bad faith by such party.

In
the event of any termination pursuant to Section 5(a) hereof, written notice
thereof shall forthwith be given to the other Parties and the transactions
contemplated hereby shall thereupon be terminated, without further action by
the Parties.

b.                                      Procedure
Upon and Effect of Termination.

i.                                          In
the event of any termination pursuant to Section 5(a)(i), as mutually agreed by
the Parties.

ii.                                       In
the event of any termination pursuant to Sections 5(a)(iii), or (iv), or in the
event of a termination pursuant to Section 5(a)(v), provided HPS has negotiated
in good faith, the effect of such termination shall be as set forth in Section
5(c), below.

iii.                                    In
the event of any termination pursuant to Section 5(a)(ii), or in the event of a
termination pursuant to Section 5(a)(v) (provided HPS has negotiated in bad
faith), HPS shall return all previous payments made by EB to HPS. HPS shall
have 90 days from the date of termination to return such payments.

c.                                       In
the event of a termination described in Section 5(b)(ii), the following terms
and provisions apply:

i.                                          HPS
shall be entitled to retain $5 million as a termination fee;

ii.                                       HPS
shall deliver to EB a standard form promissory note, in the principal amount of
all payments made by EB to HPS, less the $5 million termination fee, payable
quarterly over seven years, said payments to begin the first full quarter after
beginning operations at the Plant, bearing no interest except in the case of
default by HPS.

iii.                                    HPS
shall use its best efforts to secure third party financing, with commercially
reasonable terms and conditions, as early as reasonably possible, in an amount
sufficient to pay EB the remaining principal on the note described in Section
5(c)(ii) above, or in such amount as HPS can reasonably borrow pursuant to
commercially reasonable terms and conditions.

d.                                      The
remedies set forth in this Section 5 shall be the exclusive remedies available
to the Parties in the event of termination.

 

6.                                      INTEREST
ON ADVANCES BY HPS TO SOUTH LOUISIANA ETHANOL, L.L.C. (SLE)

EB
agrees that HPS may make one or more loans to SLE, with simple interest not to
exceed 10%, which loans shall be a permitted liability of SLE and shall be
repaid by SLE to HPS upon closing of Morgan Keegan or other third party
financing.

7.                                      MISCELLANEOUS.

a.                                       No
Third-Party Beneficiaries. This Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective successors
and permitted assigns.

b.                                      Entire
Agreement. This Agreement (including the documents referred to herein)
constitutes the entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they related in any way to the subject matter hereof.

c.                                       Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original but all of which together will constitute one and the
same instrument.

d.                                      Headings.
The section headings contained in this Agreement are inserted for convenience
only and shall not affect in any way the meaning or interpretation of this
Agreement.

e.                                       Notices.
All notices, requests, demands, claims, and other communications hereunder will
be in writing. Any notice, request, demand, claim, or other communication
hereunder shall be deemed duly given if (and then two business days after) it
is sent by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient. Any Party may send any
notice, request, demand, claim, or other communication hereunder to the
intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no such notice, request, demand,
claim, or other communication shall be deemed to have been duly given unless
and until it actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.

f.                                         Governing
Law, Venue and Jurisdiction. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Louisiana
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Louisiana or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Louisiana.

 

g.                                      Amendments
and Waivers. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by the Parties. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.

h.                                      Severability.
Any term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity or enforceability
of the offending term or provision in any other situation or in any other
jurisdiction.

i.                                          Construction.
The Parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties
and no presumption or burden of proof shall arise favoring or disfavoring any
Party by virtue of the authorship of any of the provisions of this Agreement.

j.                                          Specific
Performance. Each of the Parties acknowledges and agrees that the other
Parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Parties shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce specifically this Agreement
and the terms and provisions hereof, in addition to any other remedy to which they
may be entitled, at law or in equity.

k.                                       Facsimile
Signatures. This agreement may be executed by facsimile signature, which
shall be deemed to be an original.

The
Parties hereto have executed this Agreement on the dates set forth below.

	
  

  	
   

  	
  EARTH BIOFUELS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Dennis G.
  McLaughlin, III

  
	
  Date:

  	
  8/02/06

  	
   

  	
   

  	
  BY: DENNIS G.
  MCLAUGHLIN, III

  
	
   

  	
   

  	
  TITLE: CHIEF EXECUTIVE
  OFFICER

  
					

 

 

	
  

  	
   

  	
  HPS DEVELOPMENT, L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  8/3/06

  	
   

  	
   

  	
  /s/ William Hurst

  
	
   

  	
   

  	
  BY: WILLIAM
  HURST

  
	
   

  	
   

  	
  TITLE: MANAGER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  8/3/06

  	
   

  	
   

  	
   

  	
  /s/ John Paul

  
	
   

  	
   

  	
  BY: JOHN PAUL

  
	
   

  	
   

  	
  TITLE: MANAGER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  8/3/06

  	
   

  	
   

  	
   

  	
  /s/ Kenneth Stewart

  
	
   

  	
   

  	
  BY: KENNETT
  STEWART

  
	
   

  	
   

  	
  TITLE: MANAGER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: 

  	
  8/2/06

  	
   

  	
   

  	
   

  	
  /s/ Darren Miles

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  BY: DARREN MILES

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