Document:

EXHIBIT
10.64

July 24, 2006

Earth Biofuels, Inc.

3001 Knox Street, Suite 403

Dallas, Texas 75205

Re:  Earth Biofuels, Inc. (“the Company”) – Management Lock-Up Agreement

Dear
Sirs:

In connection with the issuance of a new series of senior convertible notes of
the Company (the “Notes”), which
Notes shall be convertible into Common Stock, par value $0.001 per share, of the Company and warrants to acquire additional shares
of Common Stock (each a “Security” and collectively, the “Securities”), pursuant to the Securities
Purchase Agreement entered by and among the Company and the investors
named on the Schedule of Buyers attached thereto (the “Buyers”),
on July 21, 2006 (the “Securities Purchase
Agreement”), the
undersigned agrees that, commencing on the date hereof and during the period
specified below (the “Lock-Up Period”),
the undersigned will not offer, sell, contract to sell, hypothecate, pledge,
grant any option to purchase, make any short sale or otherwise dispose of,
directly or indirectly, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder with respect to any
shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), owned directly by the undersigned (including
holding as a custodian) or with respect to which the undersigned has beneficial
ownership within the rules and regulations of the Securities and Exchange
Commission (collectively the “Undersigned’s
Shares”).

The
foregoing restriction is expressly agreed to preclude the undersigned or any
affiliate of the undersigned from engaging in any hedging or other transaction
which is designed to or which reasonably could be expected to lead to or result
in a sale or disposition of the Undersigned’s Shares even if the Undersigned’s
Shares would be disposed of by someone other than the undersigned.  Such prohibited hedging or other transactions
would include, without limitation, any short sale or any purchase, sale or
grant of any right (including, without limitation, any put or call option) with
respect to any of the Undersigned’s Shares or with respect to any security that
includes, relates to, or derives any significant part of its value from the
Undersigned’s Shares.

The
Lock-Up Period will commence on the date hereof and continue until one (1) year
after the Closing (as defined in the Securities Purchase Agreement); provided,
however, that notwithstanding the foregoing, the undersigned shall be
permitted to sell the Undersigned’s Shares at a price greater than $5.80 or, in an underwritten public offering, at a price no
lesser than $5.075, with gross proceeds of not less than $65 million.

Notwithstanding
the foregoing, the undersigned may transfer the Undersigned’s Shares (i) as a bona fide gift or gifts, provided that the donee or donees
thereof agree to be bound in

3001 knox street ·
suite 403 · dallas texas 75205

214.389.9800 ·
214.389.9805 facsimile

 

writing
by the restrictions set forth herein, (ii) to any trust for the direct or
indirect benefit of the undersigned or the immediate family of the undersigned,
provided that the trustee of the trust agrees to be bound in writing by the
restrictions set forth herein, and provided further that any such transfer
shall not involve a disposition for value, or (iii) if the undersigned is or
becomes subject to the reporting requirements of Section 16 of the Exchange
Act, pursuant to the terms of written trading plans in existence on the date
hereof or entered into after the date hereof designed to comply with Rule
10b5-1(c) of the Exchange Act, provided no sales or other dispositions may
occur under such plans until after the closing of trading on the date one (1)
year from the Closing.  For purposes of
this Lock-Up Agreement, “immediate family” shall mean any relationship by
blood, marriage or adoption, not more remote than first cousin.  The undersigned now has, and, except as
contemplated by clauses (i) and (ii) above, for the duration of this Lock-Up
Agreement will have, good and marketable title to the Undersigned’s Shares,
free and clear of all liens, encumbrances, and claims whatsoever.  The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company’s transfer agent and
registrar against the transfer of the Undersigned’s Shares except in compliance
with the foregoing restrictions.

The
undersigned understands and agrees that this Lock-Up Agreement is irrevocable
and shall be binding upon the undersigned’s heirs, legal representatives,
successors, and assigns.

This
Lock-Up Agreement may be executed in two counterparts, each of which shall be
deemed an original but both of which shall be considered one and the same
instrument.

This
Lock-Up Agreement will be governed by and construed in accordance with the laws
of the State of New York, without giving effect to any choice of law or
conflicting provision or rule (whether of the State of New York, or any other
jurisdiction) that would cause the laws of any jurisdiction other than the
State of New York to be applied.  In
furtherance of the foregoing, the internal laws of the State of New York will
control the interpretation and construction of this Lock-Up Agreement, even if
under such jurisdiction’s choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.

The Buyers shall be intended third party beneficiaries
of this Agreement to the same extent as if they were parties hereto, and shall
be entitled to enforce the provisions hereof.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ DENNIS G.
  MCLAUGHLIN, III

  	
   

  
	
   

  	
  Dennis G.
  McLaughlin, III

  
	
   

  	
  Chief Executive
  OfficerEXHIBIT 10.65

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  ANY TRANSFEREE OF THIS WARRANT SHOULD
CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 7(d) HEREOF.

EARTH
BIOFUELS, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.: 3

Number of Shares of Common Stock: 1,357,759

Date
of Issuance: July 24, 2006 (“Issuance Date”)

Earth Biofuels,
Inc., a Delaware corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, COWEN AND
COMPANY, LLC, the registered holder hereof or its permitted assigns
(the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York time, on the Expiration
Date (as defined below), ONE MILLION, THREE HUNDRED FIFTY-SEVEN THOUSAND, SEVEN
HUNDRED FIFTY-NINE (1,357,759) fully paid nonassessable shares of Common Stock
(as defined below) (the “Warrant Shares”).  Except as otherwise defined herein,
capitalized terms in this Warrant shall have the meanings set forth in Section
15.  This Warrant is one of the Warrants
to purchase Common Stock (the “SPA Warrants”)
issued pursuant to Section 1 of that certain Securities Purchase Agreement,
dated as of July 24, 2006 (the “Subscription
Date”), by and among the Company and the investors (the “Buyers”) referred to therein (the “Securities Purchase Agreement”).

1.     EXERCISE OF WARRANT.

(a)   Mechanics of Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the Holder on any day on or after the date
hereof, in whole or in part, by (i) delivery

 

of a written
notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this
Warrant (accompanied by the attached Warrant Shares Exercise Log) to the
Company (with a copy to its legal counsel) and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of
immediately available funds or (B) by notifying the Company that this Warrant
is being exercised pursuant to a Cashless Exercise (as defined in Section
1(d)).  The Holder shall not be required
to deliver the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares.  On or before the first (1st) Business Day following the date on which
the Company has received each of the Exercise Notice and the Aggregate Exercise
Price (or notice of a Cashless Exercise) (the “Exercise
Delivery Documents”), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company’s transfer agent (the “Transfer
Agent”).  For purposes hereof,
any Exercise Delivery Documents delivered on or after 5:00 p.m., New York City
time shall be deemed to have been delivered on the next Business Day.  On or before the third (3rd) Business Day following the date on
which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall (X) if legends are
not required to be placed on certificates of Common Stock pursuant to the
Securities Purchase Agreement and provided that the Transfer Agent is
participating in The Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program, upon the request of the Holder,
credit such aggregate number of Warrant Shares to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account
with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise which certificates shall not bear any restrictive legends unless
required pursuant to Section 2(g) of the Securities Purchase Agreement.  Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited
to the Holder’s DTC account or the date of delivery of the certificates
evidencing such Warrant Shares as the case may be.  If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant
Shares represented by this Warrant submitted for exercise is greater than the
number of Warrant Shares being acquired upon an exercise, then the Company
shall as soon as practicable and in no event later than three Business Days
after any exercise and at its own expense, issue subject to such prior exercise
a new Warrant (in accordance with Section 7(d)) representing the right to
purchase the number of Warrant Shares purchasable immediately prior to such
exercise under this Warrant, less the number of Warrant Shares with respect to
which this Warrant is exercised.  No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. 
The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant.

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(b)   Exercise Price.  For purposes of this Warrant, “Exercise Price” means $2.90, subject to adjustment as
provided herein.

(c)   Company’s Failure to
Timely Deliver Securities.  If within
three (3) Trading Days after the Company’s receipt of the facsimile copy of a
Exercise Notice the Company shall fail to issue and deliver a certificate to
the Holder and register such shares of Common Stock on the Company’s share
register or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise hereunder, and if on or after such Trading Day the Holder purchases (in
an open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Trading
Days after the Holder’s request and in the Holder’s discretion, either (i) pay
cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Warrant
Shares) shall terminate, or (ii) promptly honor its obligation to deliver to
the Holder a certificate or certificates or if legends are not required to be
placed on certificates of Common Stock pursuant to the Securities Purchase
Agreement, provided that the Transfer Agent is participating in DTC Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of Warrant Shares to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account
with DTC through its Deposit Withdrawal Agent Commission system and pay cash to
the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock, times (B) the Closing
Bid Price on the date of exercise.

(d)   Cashless Exercise.  Notwithstanding
anything contained herein to the contrary, if a Registration Statement (as
defined in the Registration Rights Agreement) covering the Warrant Shares that
are the subject of the Exercise Notice (the “Unavailable
Warrant Shares”) is not available for the resale of such Unavailable
Warrant Shares at any time during which such Registration Statement is required
in accordance with the Registration Rights Agreement, the Holder may, in its
sole discretion during such time, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to
the Company upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the “Net Number” of shares of
Common Stock determined according to the following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

B

For purposes of the foregoing formula:

A= the total number of shares with respect to which
this Warrant is then being exercised.

B= the Closing Sale Price of the shares of Common
Stock (as reported by Bloomberg) on the date immediately preceding the date of
the Exercise Notice.

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C= the Exercise Price then in effect for the
applicable Warrant Shares at the time of such exercise.

(e)   Disputes.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall promptly issue to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance
with Section 12.

(f)    Limitations on
Exercises. 

(1)           Beneficial Ownership.  The Company shall not effect the exercise of
this Warrant, and the Holder shall not have the right to exercise this Warrant,
to the extent that after giving effect to such exercise, such Person (together
with such Person’s affiliates) would beneficially own in excess of 4.99% of the
shares of Common Stock outstanding immediately after giving effect to such
exercise.  For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by
such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of
Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such
Person and its affiliates (including, without limitation, any convertible notes
or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company’s most recent Form 10-KSB, Form 10-QSB, Current
Report on Form 8-K or other public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or the Transfer Agent setting
forth the number of shares of Common Stock outstanding.  For any reason at any time, upon the written
request of the Holder, the Company shall within one Business Day confirm in
writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including the SPA
Securities and the SPA Warrants, by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was
reported. By written notice to the Company, the Holder may from time to time
increase or decrease the Maximum Percentage to any other

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percentage not in excess of
9.99% specified in such notice; provided that (i) any such increase will not be
effective until the sixty-first (61st) day after such notice is delivered to
the Company, and (ii) any such increase or decrease will apply only to the
Holder and not to any other holder of SPA Warrants.

(2)           Market
Regulation.  The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this Warrant,
and the Holder of this Warrant shall not have the right to receive upon
exercise of this Warrant any shares of Common Stock, if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue upon exercise, redemption or conversion, as applicable,
of the SPA Warrants and SPA Securities or otherwise without breaching the
Company’s obligations under the rules or regulations of the applicable Eligible
Market (the number of shares which may be issued without violating such rules
and regulations, the “Exchange Cap”),
except that such limitation shall not apply in the event that the Company (A)
obtains the approval of its stockholders as required by the applicable rules of
the applicable Eligible Market for issuances of shares of Common Stock in
excess of such amount or (B) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the Required Holders.  Unless and until such approval or written
opinion is obtained, no Buyer shall be issued in the aggregate, upon exercise
or conversion, as applicable, of any SPA Warrants or SPA Securities, shares of
Common Stock in an amount greater than the product of the Exchange Cap multiplied
by a fraction, the numerator of which is the total number of shares of Common
Stock underlying the SPA Warrants issued to such Buyer pursuant to the
Securities Purchase Agreement on the Issuance Date and the denominator of which
is the aggregate number of shares of Common Stock underlying the SPA Warrants
issued to the Buyers pursuant to the Securities Purchase Agreement on the
Issuance Date (with respect to each Buyer, the “Exchange Cap
Allocation”).  In the event
that any Buyer shall sell or otherwise transfer any of such Buyer’s SPA
Warrants, the transferee shall be allocated a pro rata portion of such Buyer’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee.  In the
event that any holder of SPA Warrants shall exercise all of such holder’s SPA
Warrants into a number of shares of Common Stock which, in the aggregate, is
less than such holder’s Exchange Cap Allocation, then the difference between
such holder’s Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective Exchange
Cap Allocations of the remaining holders of SPA Warrants on a pro rata basis in
proportion to the shares of Common Stock underlying the SPA Warrants then held
by each such holder.

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(g)           Insufficient Authorized Shares.  If at any time while any of the Warrants
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to 130% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of the Warrants then
outstanding  (the “Required
Reserve Amount”)
(an “Authorized Share Failure”), then the Company shall
immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Warrants then outstanding.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock.  In connection
with such meeting, the Company shall provide each stockholder with a proxy
statement and shall use its best efforts to solicit its stockholders’ approval
of such increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

2.     ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  The Exercise Price and the number of Warrant
Shares shall be adjusted from time to time as follows:

(a)   Adjustment upon Issuance of
shares of Common Stock.  If and
whenever on or after the Subscription Date the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share
(the “New Issuance Price”)
less than a price equal to the Exercise Price in effect immediately prior to
such issue or sale or deemed issuance or sale (the “Applicable
Price” and the foregoing a “Dilutive Issuance”),
then immediately after such Dilutive Issuance, the Exercise Price then in
effect shall be reduced to an amount equal to the New Issuance Price.  Upon each such adjustment of the Exercise
Price hereunder, the number of Warrant Shares shall be adjusted to the number of
shares of Common Stock determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.  For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:

(i)            Issuance of Options.  If the Company in any manner grants any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such
Option is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the granting or sale of such Option for such price per share.  For purposes of this Section 2(a)(i),

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the “lowest price per share for
which one share of Common Stock is issuable upon exercise of any such Options
or upon conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of such Option” shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company with respect to
any one share of Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities.

(ii)           Issuance
of Convertible Securities.  If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share.  For the purposes of this Section 2(a)(ii),
the “lowest price per share for which one share of Common Stock is issuable
upon the conversion, exercise or exchange” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security.  No further
adjustment of the Exercise Price or number of Warrant Shares shall be made upon
the actual issuance of such shares of Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or sale.

(iii)          Change
in Option Price or Rate of Conversion. 
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase

 7
 

 

price, additional consideration or increased
or decreased conversion rate, as the case may be, at the time initially
granted, issued or sold.  For purposes of
this Section 2(a)(iii), if the terms of any Option or Convertible Security that
was outstanding as of the date of issuance of this Warrant are increased or decreased
in the manner described in the immediately preceding sentence, then such Option
or Convertible Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such increase or decrease. 
No adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then in effect or
a decrease in the number of Warrant Shares.

(iv)          Calculation
of Consideration Received.  In case
any Option is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued the difference of (x) the aggregate
fair market value of such Options and other securities issued or sold in such
integrated transaction, less (y) the fair market value of the securities other
than such Option, issued or sold in such transaction and the other securities
issued or sold in such integrated transaction will be deemed to have been
issued or sold for the balance of the consideration received by the
Company.  If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the gross
amount raised by the Company; provided, however, that such gross amount is not
greater than 110% of the net amount received by the Company therefor.  If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Closing Sale Price of such security on the date of receipt.  If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities,
as the case may be.  The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the Required Holders.  If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will
be determined within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly selected by

 8
 

 

the Company and the Required Holders.  The determination of such appraiser shall be
final and binding upon all parties absent manifest error and the fees and expenses
of such appraiser shall be borne by the Company.

(v)           Record
Date.  If the Company takes a record
of the holders of shares of Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in shares of
Common Stock, Options or in Convertible Securities or (B) to subscribe for
or purchase shares of Common Stock, Options or Convertible Securities, then
such record date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.

(b)   Adjustment upon
Subdivision or Combination of Common Stock. 
If the Company at any time on or after the Subscription Date subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased.  If the
Company at any time on or after the Subscription Date  combines (by combination, reverse stock split
or otherwise) one or more classes of its outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of Warrant
Shares will be proportionately decreased. 
Any adjustment under this Section 2(b) shall become effective at the
close of business on the date the subdivision or combination becomes effective.

(c)   Other Events.  If any event occurs of the type contemplated
by the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company’s Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of Warrant Shares so as to protect the rights of
the Holder; provided that no such adjustment pursuant to this Section 2(c) will
increase the Exercise Price or decrease the number of Warrant Shares as otherwise
determined pursuant to this Section 2.

3.     RIGHTS UPON DISTRIBUTION OF ASSETS.  If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case:

(a)   any Exercise Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to

 9
 

 

receive the
Distribution shall be reduced, effective as of the close of business on such
record date, to a price determined by multiplying such Exercise Price by a
fraction of which (i) the numerator shall be the Closing Bid Price of the shares
of Common Stock on the trading day immediately preceding such record date minus
the value of the Distribution (as determined in good faith by the Company’s
Board of Directors) applicable to one share of shares of Common Stock, and (ii)
the denominator shall be the Closing Bid Price of the shares of Common Stock on
the trading day immediately preceding such record date; and

(b)   the number of Warrant Shares
shall be increased to a number of shares equal to the number of shares of
Common Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding paragraph (a); provided that in
the event that the Distribution is of shares of Common Stock (or common stock)
(“Other Shares of Common
Stock”) of a company whose common shares are traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other Shares of Common Stock in lieu
of an increase in the number of Warrant Shares, the terms of which shall be
identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Shares of Common Stock that
would have been payable to the Holder pursuant to the Distribution had the
Holder exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this
paragraph (b).

4.     PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a)   Purchase Rights.  In addition to any adjustments pursuant to
Section 2 above, if at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
shares of Common Stock (the “Purchase
Rights”), then the Holder will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
the Holder could have acquired if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant (without regard
to any limitations on the exercise of this Warrant) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of shares of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.

(b)   Fundamental Transactions.  The Company shall not enter into or be party to a Fundamental
Transaction unless (i)  the Successor Entity assumes in writing all of the
obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section (4)(b) pursuant to
written agreements in form and substance reasonably satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Warrants in exchange for
such Warrants a
security of the Successor
Entity evidenced by a written instrument substantially similar in form
and substance to this Warrant,
including, without

 10

 

 

limitation, an
adjusted exercise price equal to the value for the shares of Common Stock
reflected by the terms of such Fundamental Transaction, and exercisable for a
corresponding number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and reasonably satisfactory to the Required Holders and (ii) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose
common stock is quoted on or listed for trading on an Eligible Market.  Upon
the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Warrant with the same effect as if such Successor Entity had been
named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) issuable
upon the exercise of the Warrant
prior to such Fundamental Transaction, such shares of the publicly traded common stock (or
its equivalent) of the Successor Entity (including its Parent Entity) which the
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Warrant been converted immediately prior to
such Fundamental Transaction, as adjusted in accordance with the provisions of
this Warrant.  In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a “Corporate
Event”), the Company shall make appropriate provision to insure that
the Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the shares of the Common Stock (or
other securities, cash, assets or other property) issuable upon the exercise of
the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of such Fundamental Transaction had the Warrant been exercised
immediately prior to such Fundamental Transaction.  The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and
Corporate Events and shall be applied without regard to any limitations on the
exercise of this Warrant.

(c)           Notwithstanding the foregoing and the
provisions of Section 4(b) above, in the event of a Change of Control, if the
Holder has not exercised the Warrant in full prior to the consummation of the
Change of Control, then the Holder shall have the right to require such
Successor Entity to purchase this Warrant from the Holder by paying to the
Holder, simultaneously with the consummation of the Change of Control and in
lieu of the warrant referred to in Section 4(b) cash in the amount equal to the
value of the remaining unexercised portion of this Warrant on the date of such
consummation, which value shall be determined by use of the Black-Scholes
Option Pricing Model reflecting (i) a risk-free interest rate corresponding to
the U.S. Treasury rate for a period equal to the remaining term of this Warrant
as of such date of request and (ii) an expected volatility equal to the 100 day
volatility obtained from the HVT function on Bloomberg; provided that if such
function yields a volatility (x) less

 11
 

 

than 50%, the
expected volatility shall be equal to 50% and (y) greater than 80%, the
expected volatility shall be equal to 80%.

5.     NONCIRCUMVENTION. 
The Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Incorporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of arrangement,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, and will at all times in good faith carry out all the provisions of
this Warrant and take all action as may be required to protect the rights of
the Holder.  Without limiting the
generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, (ii) shall take all such
actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA
Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of Common Stock, solely for
the purpose of effecting the exercise of the SPA Warrants, 130% of the number
of shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).

6.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  Except as otherwise specifically provided
herein, the Holder, solely in such Person’s capacity as a holder of this
Warrant, shall not be entitled to vote or receive dividends or be deemed the
holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in
such Person’s capacity as the Holder of this Warrant, any of the rights of a
shareholder of the Company or any right to vote, give or withhold consent to
any corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
shareholder of the Company, whether such liabilities are asserted by the
Company or by creditors of the Company. 
Notwithstanding this Section 6, the Company shall provide the Holder
with copies of the same notices and other information given to the shareholders
of the Company generally, contemporaneously with the giving thereof to the
shareholders.

7.     REISSUANCE OF WARRANTS.

(a)   Transfer of Warrant.  If this Warrant is to be transferred, the
Holder shall surrender this Warrant to the Company, whereupon the Company will
subject to the satisfaction of the transfer provisions of the Securities
Purchase Agreement forthwith issue and deliver upon the order of the Holder a
new Warrant (in accordance with Section 7(d)), registered in the name of the
registered transferee or assignee, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less then the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with

 12
 

 

Section 7(d))
to the Holder representing the right to purchase the number of Warrant Shares
not being transferred.

(b)   Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company
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, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase
the Warrant Shares then underlying this Warrant.

(c)   Exchangeable for Multiple
Warrants.  This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the Holder at the time of such surrender; provided, however, that no Warrants
for fractional shares of Common Stock shall be given.

(d)   Issuance of New Warrants.  Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the
number of Warrant Shares then underlying this Warrant), (iii) shall have an
issuance date, as indicated on the face of such new Warrant which is the same
as the Issuance Date, and (iv) shall have the same rights and conditions as
this Warrant.

8.     NOTICES.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement.  The
Company shall provide the Holder with prompt written notice of all actions
taken pursuant to this Warrant, including in reasonable detail a description of
such action and the reason therefore. 
Without limiting the generality of the foregoing, the Company will give
written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen days prior to the date
on which the Company closes its books or takes a record (A) with respect to any
dividend or distribution upon the shares of Common Stock, (B) with respect to
any grants, issuances or sales of any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property to holders of shares
of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

9.     AMENDMENT AND WAIVER. 
No term of this Warrant may be amended, modified or waived unless
pursuant to a writing signed by the Company and the Required

 13
 

 

Holders; provided that no such action may increase the
exercise price of any SPA Warrant or decrease the number of shares or class of
stock obtainable upon exercise of any SPA Warrant without the written consent
of the Holder.  No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the SPA Warrants then outstanding.

10.   GOVERNING LAW.  This Warrant shall be governed by and
construed and enforced in accor­dance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.

11.   CONSTRUCTION; HEADINGS.  This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against
any person as the drafter hereof.  The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.

12.   DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within two Business Days of receipt of
the Exercise Notice giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Company
are unable to agree upon such determination or calculation of the Exercise
Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two Business Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment
bank selected by the Company and approved by the Holder  or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the results
no later than ten Business Days from the time it receives the disputed
determinations or calculations.  Such
investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

13.   REMEDIES, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF.  The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and the other Transaction Documents, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder
right to pursue actual damages for any failure by the Company to comply with
the terms of this Warrant.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate.  The Company therefore
agrees that, in the event of any such breach or threatened breach, the holder
of this Warrant shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.

 14
 

 

14.   TRANSFER.  This Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company, except as may otherwise be required by
Section 2(f) of the Securities Purchase Agreement.

15.   CERTAIN DEFINITIONS.  For purposes of this Warrant, the following
terms shall have the following meanings:

(a)   “Bloomberg” means Bloomberg Financial Markets.

(b)   “Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

(c)   “Change of Control” means any Fundamental Transaction other
than (i) any
reorganization, recapitalization or reclassification of the Common Stock or
business combination in which the Company is the publicly traded surviving
entity in which the holders of the Company’s voting power immediately prior to
such reorganization, recapitalization or reclassification or business
combination continue after such reorganization, recapitalization or
reclassification or business combination to hold publicly traded securities
and, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities
(except where Apollo Resources International or its affiliates becomes
the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 70% or greater of the aggregate Voting Stock of the
Company),
or (ii) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Company.

(d)   “Closing Bid Price” and “Closing Sale Price”
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market,
as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the
closing trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing
bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or
the Closing Sale Price, as the case may be, of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 12.  All
such determinations to be appropriately adjusted for any

 15
 

 

stock
dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.

(e)   “Common Stock” means (i) the Company’s shares of Common
Stock, par value $0.001 per share, and (ii) any share capital into which
such Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.

(f)    “Convertible Securities” means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock.

(g)   “Eligible Market” means the Principal Market, the American
Stock Exchange, The New York Stock Exchange, Inc., the Nasdaq National Market.

(h)   “Expiration Date” means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

(i)    “Fundamental Transaction” means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock (not including any shares of Voting Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Voting Stock (not including any
shares of Voting Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party
to, such stock purchase agreement or other business combination), or (v)
reorganize, recapitalize or reclassify its Common Stock or (vi) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the Exchange Act) (other than Apollo Resources International) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 50% of the aggregate Voting Stock of the
Company, or (vii) Apollo Resources International ceases to be the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of at least 50% of the aggregate Voting Stock of the Company, or
(viii) Apollo Resources International or its affiliates becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 70% or greater of the aggregate Voting Stock of the Company.

(j)    “Options”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.

(k)   “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security

 16
 

 

is quoted or
listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

(l)    “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

(m)  “Principal Market” means OTC Bulletin Board.

(n)   “Registration Rights Agreement” means that certain
registration rights agreement by and among the Company and the Buyers.

(o)   “Required Holders” means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.

(p)   “SPA Securities” means the Notes issued pursuant to the
Securities Purchase Agreement.

(q)   “Successor Entity” means the Person (or, if so elected by the Required Holders, the Parent
Entity) formed by, resulting from or surviving any Fundamental Transaction or
the Person (or, if so elected by the Required Holders, the Parent Entity) with
which such Fundamental Transaction shall have been entered into.

[Signature Page Follows]

 17

 

IN WITNESS WHEREOF, the Company has caused
this Warrant to Purchase Common Stock to be duly executed as of the Issuance
Date set out above.

 

	
  

  	
  EARTH BIOFUELS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  

  	
  By:

  	
  /s/ DENNIS G. MCLAUGHLIN, III

  	
   

  
	
   

  	
  Name:

  	
  Dennis G. McLaughlin, III

  
	
   

  	
  Title: Chief Executive Officer

  

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

WARRANT TO PURCHASE COMMON STOCK

EARTH BIOFUELS, INC.

The undersigned holder hereby exercises the right to
purchase                         
of the shares of Common Stock (“Warrant
Shares”) of Earth Biofuels, Inc., a Delaware corporation (the “Company”), evidenced by the attached
Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

1.             Form
of Exercise Price.  The Holder intends
that payment of the Exercise Price shall be made as:

a “Cash Exercise” with respect to                            
Warrant Shares; and/or

a “Cashless Exercise” with respect to                            
Warrant Shares.

2.             Payment
of Exercise Price.  In the event that the
holder has elected a Cash Exercise with respect to some or all of the Warrant
Shares to be issued pursuant hereto, the holder shall pay the Aggregate
Exercise Price in the sum of $                           
to the Company in accordance with the terms of the Warrant.

3.             Delivery
of Warrant Shares.  The Company shall
deliver to the holder                  
Warrant Shares in accordance with the terms of the Warrant.

4.             By
its delivery of this Exercise Notice, the undersigned represents and warrants
to the Company that in giving effect to the exercise evidenced hereby the
Holder will not beneficially own in excess of the number of shares of Common
Stock (determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934) permitted to be owned under Section 1(f)(1) of this Warrant to
which this notice relates.

Date:                           ,

	
   

  	
   

  
	
  Name of Registered Holder

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
			

 

 

ACKNOWLEDGMENT

The
Company hereby acknowledges this Exercise Notice and, if applicable, hereby
directs Nevada Agency and Trust Company to
issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated July    , 2006 from the
Company and acknowledged and agreed to by Nevada Agency and Trust Company.

	
  

  	
  EARTH BIOFUELS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Warrant Shares Exercise Log

	
  Date

  	
   

  	
  Number of Warrant

  Shares Available to be

  Exercised

  	
   

  	
  Number of Warrant Shares

  Exercised

  	
   

  	
  Number of

  Warrant Shares

  Remaining to

  be Exercised

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00109-of-00352.parquet"}]]