Document:

EXHIBIT
10.7

INTERCOMPANY CREDIT AGREEMENT

This INTERCOMPANY CREDIT AGREEMENT (this “Agreement”) by and between Apollo
Resources International, Inc., a Utah corporation (“ARI”), and Earth Biofuels,
Inc, a Delaware corporation (“EBF”), is effective as of January 1, 2006.

ARTICLE I

DEFINITIONS

SECTION 1.01 DEFINITIONS. The following terms, as used herein, have the
following meanings:

(a)
 “ADVANCE” means, an advance by ARI, as
applicable, pursuant to Section 2.01 or 2.02, which shall include, without
limitation, advances by ARI to EBF or on behalf of ARI and amounts owed by EBF
and its Subsidiaries for fees, costs and expenses between the parties.

(b)  “EBF BALANCE” means, with respect to an
Interest Period, the net daily balance of funds owed by EBF to ARI as set forth
in the intercompany account maintained by EBF pursuant to Section 2.05 hereof.

(c)  “CODE” means, the Internal Revenue Code of
1986 as amended.

(d)  “ARI BALANCE” means, with respect to an
Interest Period, the net daily balance of funds owed by EBF to ARI as set forth
in the intercompany account maintained by ARI pursuant to Section 2.05 hereof.

(e)  “ERISA” means, the Employee Retirement Income
Security Act of 1974, together with all amendments from time to time thereto.

(f)  “ERISA AFFILIATE” means, any trade or
business (whether or not incorporated) which is under common control with EBF
within the meaning of the regulations promulgated under the Internal Revenue
Code of 1986 as amended.

(g)  “EVENT OF DEFAULT” means, any material
default of the terms of this Agreement.

(h)  “INDEBTEDNESS” means, with respect to any
Person at any time, without duplication, all obligations of such Person which,
in accordance with generally accepted accounting principles, consistently
applied, should be classified as liabilities on a consolidated balance sheet of
such Person prepared in accordance with generally accepted accounting
principles, consistently applied, but in any event shall include: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services (other than accounts payable on normal payment terms to
suppliers incurred in the ordinary course of business), (f) all obligations of
others secured by any Lien on property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, (g) all
capitalized lease obligations of such Person, (h) all obligations of any
partnership or joint venture as to which such Person is or may become
personally liable, (i) all guarantees by such Person of Indebtedness of others,
and (j) all contingent obligations of such Person.

 

(i)  “INTEREST PERIOD” means, the period
commencing on the date of an Advance and ending on the date the Advance is
paid.

(j)  “INTEREST RATE” has the meaning ascribed to
it in Section 2.02.

(k)  “INVESTMENT” means, any investment in any
Person, whether by means of share purchase, capital contribution, loan or
otherwise; in determining from time to time the amount of Investments, share
purchases and capital contributions shall be taken at the original cost thereof
regardless of any subsequent appreciation or depreciation therein and loans shall
be taken at the principal amount thereof remaining unpaid.

(l)  “LIEN” means, any security interest,
mortgage, pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument, in, of, or on any of the assets or properties, now owned
or hereafter acquired, of EBF or any Subsidiary, whether arising by agreement
or operation of law.

(m)  “PERSON” means, any natural person,
corporation, partnership, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or
other capacity.

(n)  “SUBSIDIARY” means, any corporation a
majority of the shares of the outstanding stock of which have ordinary voting
power for the election of directors is owned by EBF, either directly or through
one or more of its Subsidiaries.

ARTICLE II

ADVANCES AND CASH MANAGEMENT

SECTION 2.01 ADVANCES FROM ARI TO EBF.  
Any funds of ARI and its Subsidiaries that are not required to meet the
daily cash requirements of ARI and its Subsidiaries will be transferred to EBF
through a concentration account on a daily basis as an Advance hereunder and/or
applied, at the discretion of ARI, to decrease the outstanding balance of
Advances from EBF pursuant to Section 2.02, as applicable.  Any funds transferred from ARI to EBF will be
deemed as either an Advance to EBF, if there are no outstanding Advances from EBF
to ARI, or a decrease of Advances from EBF to ARI, if such Advances exist.  Any interest payable by EBF on an Advance
from ARI (other than interest payable upon or after termination of this
Agreement) shall be treated (effective as of the first day of the following
Interest Period) as an Advance from ARI for the purposes of this
Agreement.  Each Advance by ARI under
this Section 2.01 shall be deemed to be made by ARI notwithstanding the fact
that such Advance may involve cash of one or more Subsidiaries of ARI. All
funds which constitute Advances to EBF pursuant to this Section 2.01(and not
decreases in Advances from EBF to ARI) shall bear interest at the Interest Rate
provided for in Section 2.02.

SECTION 2.02 INTEREST.

(a)  Subject to the other provisions of this
Section 2.03, interest shall accrue on Advances at the rate (the “Interest Rate”)
of seven per cent (7%). Interest shall be calculated on the basis of a 360 day
year for the actual number of days elapsed. 
Interest payments for Interest Periods ending (i) prior to the termination
of this Agreement shall be treated as Advances pursuant to Sections 2.01

 

and
2.02 herein, as applicable, on the first day of the following Interest Period
and (ii) on the termination of this Agreement shall be payable immediately
(each an “Interest Payment”).

(b)  The interest payable by EBF under this
Agreement shall be calculated by multiplying the Interest Rate by the EBF
Balance for the applicable days in the Interest Period.  The interest payable by ARI under this
Agreement shall be calculated by multiplying the Interest Rate by ARI Balance
for the applicable days in the Interest Period. 
The Interest Payment required to be made by each party is independent of
the Interest Payment required to be paid by the other party, and interest may
be paid by both EBF and ARI for any given Interest Period.  EBF shall calculate the amount of interest
payable by both EBF and ARI for each Interest Period and, upon request, shall
provide notice thereof to ARI, together with supporting calculations.

(c)  All calculations shall be performed by EBF.

SECTION 2.03  REPAYMENT.  During the term of this Agreement, all Advances
received by ARI from EBF shall be offset against and shall be treated as repaid
to the extent of any Advances made by such party.  Repayments can be made at any time by either party
with interest payable up to the date of repayment.  No prepayment penalty may be levied.  Upon termination of this Agreement, any
Advances that have not theretofore been repaid, together with accrued interest,
will be payable in full immediately following termination of this Agreement.

SECTION 2.04  INTERCOMPANY
ACCOUNT.  EBF shall maintain a ledger in which
all ARI Advances and all repayments of such Advances shall be recorded.  EBF shall give ARI access, during normal
business hours, to such ledger and the other records relating to Advances and
payments made with respect thereto. EBF shall have until the 30th day following
the end of each Interest Period to make any calculations required to be made by
it under the provisions of this Agreement.

SECTION 2.05 TRANSFERS OF FUNDS. 
All transfers of funds between EBF and ARI will be initiated by EBF
Treasury.  All funds will be transferred
through intercompany accounts, or as otherwise agreed by the parties.

SECTION 2.06 TAXES.  If ARI or EBF
shall be required by law to deduct any tax from or in respect of any sum
payable hereunder to the other party: (a) as soon as such party is aware that
any such deduction, withholding or payment of a tax is required, or of any
change in any such requirement, it shall notify the other party; (b) such party
shall make such deductions, or pay such tax, before any interest or penalty
becomes payable; (c) such party shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with applicable law;
and (d) within thirty (30) days after paying such tax, such party shall deliver
to the other party satisfactory evidence of that deduction, withholding or
payment and (where remittance is required) of the remittance thereof to the
relevant taxing or other authority.

SECTION 2.07 USURY. All agreements between the parties, whether now existing
or hereafter arising and whether written or oral, are hereby limited so that in
no contingency, whether by reason of demand for payment or acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged or
received by either party exceed the maximum amount permissible under applicable
law. If, from any circumstance whatsoever, interest would otherwise be payable
to either party in excess of the maximum lawful amount, the interest payable to
such party shall be reduced to the maximum amount permitted under applicable
law; and if from any circumstance either party shall ever receive anything of
value deemed interest by applicable law in excess of the maximum lawful amount,
an amount equal to any excessive interest shall be

 

applied
to the reduction of the principal hereof and not to the payment of interest, or
if such excessive interest exceeds the unpaid balance of principal hereof such
excess shall be refunded to the party deemed to have made such payment.  All interest paid or agreed to be paid to
either party shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full period until payment in
full of the principal (including the period of any renewal or extension hereof)
so that the interest hereon for such full period shall not exceed the maximum
amount permitted by applicable law. This paragraph shall control all agreements
between the parties.

ARTICLE III

COVENANTS OF EBF

Until
the repayment of all Advances under this Agreement, EBF will:

SECTION 3.01  CORPORATE
EXISTENCE.  Maintain, and, except as
provided in Section 3.7 hereof, cause each Subsidiary to maintain, (a) its
corporate existence in good standing under the laws of the jurisdiction of its incorporation,
(b) its right to transact business in each jurisdiction in which the character
of the properties owned or leased by it or the business conducted by it makes
such qualification necessary and the failure to so qualify would permanently
preclude EBF or such Subsidiary from enforcing its rights with respect to any
material assets or expose EBF or such Subsidiary to any material liability and
(c) conduct and operate its business in a lawful manner as presently conducted.

SECTION 3.02  COMPLIANCE WITH
LAWS, ETC.  Comply, and cause each Subsidiary
to comply, in all material respects with all applicable laws, rules,
regulations and orders (including without limitation Regulation X of the Board
of Governors of the Federal Reserve System), such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent contested in good faith by appropriate proceedings and for
which adequate reserves have been established.

SECTION 3.03  INSURANCE.  Maintain, and cause each Subsidiary to maintain,
in full force and effect insurance comparable to present policies in amounts
and risks covered plus such additional insurance, if any, as may from time to
time be required to provide coverage customarily maintained by similarly
situated companies.

ARTICLE IV

ADMINISTRATION

SECTION 4.01 LIMITATIONS ON LIABILITY. 
Neither party shall have any liability under this Agreement (including
any liability for its own negligence) for damages, losses or expenses
(including expenses or higher interest rates incurred in order to obtain
alternative financing sources) suffered by the other party or its Subsidiaries
as a result of the performance or non-performance of such party’s obligations
hereunder, unless such damages, losses or expenses are caused by or arise out
of the willful misconduct or gross negligence of such party or a breach by such
party.  In no event shall either party
have any liability to the other party for indirect, incidental or consequential
damages that such other party or its Subsidiaries or any third party may incur
or experience on account of the performance or non-performance of such party’s

 

obligations
hereunder. The provisions of this Section 4.01 shall survive any termination of
this Agreement.

SECTION 4.02 TERM OF THE AGREEMENT. 
This Agreement commences on the effective date of this Agreement as set
forth above and will continue in effect until December 1, 2012. Notwithstanding
the foregoing, this Agreement may be sooner terminated, without liability to the
terminating party:

(a)  after five years (5) by either party, upon 90
days’ notice to the other party, if ARI ceases to own, directly or indirectly,
50% or more of the outstanding stock of EBF;

(b)  by either party, immediately upon notice to
the other party, if (i) that other party makes a general assignment of all or
substantially all of its assets for the benefit of its creditors; (ii) that
other party applies for, consents to or acquiesces in the appointment of a
receiver, trustee, custodian or liquidator for its business or all or substantially
all of its assets; (iii) that other party files, or consents to or acquiesces
in a petition seeking relief or reorganization under any bankruptcy or
insolvency laws; or (iv) a petition seeking relief or reorganization under any
bankruptcy or insolvency laws is filed against that other party and is not
dismissed within 90 days after it was filed;

(c)  by either party, immediately upon notice to
the other party, if that other party’s material breach of this Agreement
continues uncured or uncorrected for 30 days after both the nature of that
breach and the necessary cure or correction has been agreed upon by the parties
or otherwise determined by the dispute resolution procedure described in Section
3.01; provided that if the parties agree or it is determined by the dispute
resolution procedure that the material breach is not capable of being cured or
corrected, the termination shall be effective immediately upon notice;

(d)  by either party, immediately upon notice to
the other party, if it determines that performance of its rights or obligations
under this Agreement is or becomes illegal;

(e)  by either party, immediately upon notice to
the other party, if payments made by the other party are subject to any
deduction or withholding for or on account of any tax, unless the other party
agrees to increase its payments such that, after all required deductions have been
made, the party receives a net amount equal to the sum it would have received
had no such deductions been made; or

(f)  by either party, immediately upon notice to
the other party, if it determines that its compliance with any law or
regulation or any guideline or request from any central bank or governmental or
regulatory authority would create a cost or increase the cost of providing
credit under this Agreement, unless the other party agrees to pay amounts
sufficient to indemnify for such cost or increase in cost.

SECTION 4.03  RENEWAL.  The parties may consent to successive
one-year renewal terms.  If EBF wishes to
renew the term of this Agreement, it shall provide notice to ARI of that desire
by November 15, 2007 and the same date of each subsequent year. If ARI consents
to such renewal, it shall provide notice to EBF of that concurrence by November
20, 2007 of that year. If no notice of desire to renew or subsequent consent is
given, this Agreement will terminate when the then current term expires.

 

 

SECTION 4.04  NO THIRD-PARTY
BENEFICIEBFES.  Nothing expressed or implied
in this Agreement shall be construed to give any person or entity other than the
parties hereto any legal or equitable rights hereunder.

SECTION 4.05  ENTIRE
AGREEMENT.  This Agreement constitutes
the entire agreement of the parties on this subject.  This Agreement replaces and supersedes any
prior agreement or understanding of the parties, whether written or oral, on
this subject not expressed or referred to in this Agreement.

SECTION 4.06  AMENDMENT.  This Agreement may not be amended except by a
written instrument signed by the parties hereto.

SECTION 4.07 WAIVERS.  Either
party hereto may (a) extend the time for performance of any of the obligations
or other act of the other party or (b) waive compliance with any of the
agreements contained herein. No waiver of any term shall be construed as a
waiver of the same term in any other situation or a waiver of any other term of
this Agreement. The failure of any party to assert any of its rights hereunder
will not constitute a waiver of any such rights.

SECTION 4.08  SEVERABILITY.  If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy,
such provision shall be deemed severable and all other provisions of this
Agreement shall nevertheless remain in full force and effect.

SECTION 4.09  HEADINGS.  Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.

SECTION 4.10 
NOTICES.  All notices and other
communications hereunder shall be in writing or by telecopy, and shall be
deemed to have been duly made when delivered in person or sent by telecopy,
same day or overnight courier, or 72 hours after having been deposited in the
United States registered or certified mail return receipt requested, postage
prepaid, to a party at the address last known.

SECTION 4.11  GOVERNING LAW.  This Agreement shall be governed by and construed
in accordance with the substantive laws of the State of Texas, without giving
effect to any choice-of-law rules that may require the application of the laws
of another jurisdiction.

SECTION 4.12  CHANGES IN
LAW.  If at any time due to the adoption
of any law, rule, regulation, treaty or directive, or any change therein or in
the interpretation or administration thereof by any court, central bank, governmental
authority, agency or instrumentality, or comparable agency charged with the
interpretation or administration thereof, or for any other reason arising
subsequent to the date of this Agreement, it shall become unlawful or
impossible for ARI to make any Advance, the obligation of ARI to provide such
Advances shall, upon the happening of such event, forthwith be suspended for
the duration of such illegality or impossibility.  If any such event shall make it unlawful or
impossible for ARI to continue any Advances previously made by it hereunder, ARI
shall, upon the happening of such event, notify EBF thereof in writing, and EBF
shall, at the time notified by ARI, repay such Advances in full, together with
accrued interest thereon.

 

SECTION 4.13  COUNTERPARTS. This
Agreement may be signed in any number of counterparts, with the same effect as
if all signatories had signed the same document.  All counterparts shall be construed together
to constitute one, and the same, document.

IN
WITNESS WHEREOF, EBF and ARI have caused this Agreement to be executed as of
the date first above written.

APOLLO
RESOURCES

INTERNATIONAL, INC.

 

	
  By:

  	
  /s/ DENNIS G. MCLAUGHLIN, III

  	
   

  
	
   

  	
  Dennis G.
  McLaughlin, III

  
	
   

  	
  Chief Executive
  Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  EARTH BIOFUELS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ DARREN MILES

  	
   

  
	
  Name: Darren Miles

  
	
  Title: Chief Financial OfficerEXHIBIT
10.8

REGISTRATION
RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of January 27, 2006, is
made by and between Earth Biofuels, Inc., a Delaware corporation (the “Company”), and Tom Groos (the “Investor”).

WHEREAS:

A.            In connection with
the Convertible Promissory Note in the principal amount of $250,000 of even
date herewith by and between the Company and the Investor (the “Note”), the Company has agreed to issue to the Investor
shares of the Company’s common stock (the “Common Stock”)
upon the terms and subject to the limitations and conditions set forth in the Note;
and

B.            To induce the Investor
to execute the Note, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (collectively, the “1933 Act”),
and applicable state securities laws;

NOW,
THEREFORE, in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Investor hereby agree as follows:

1.             DEFINITIONS.

As used in this Agreement,
the following terms shall have the following meanings:

(i)            “Investor”
means the Investor and any transferee or assignee who agrees to become bound by
the provisions of this Agreement in accordance with Section 9 hereof.

(ii)           “register,” “registered,”
and “registration” refer to a
registration effected by preparing and filing a Registration Statement in compliance
with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any
successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration of
effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the “SEC”).

(iii)         “Registrable Securities”
means the all of the shares of Common Stock issued or issuable upon conversion
pursuant to the Note.

(iv)          “Registration Statement” means a registration statement of the
Company under the 1933 Act.

 

2.             REGISTRATION.

a.             Mandatory
Registration. The
Investor shall be entitled to make written request for registration of the
Registrable Securities, no later than 90 days following conversion of the Note.
Provided that the Investor has made a timely request therefore, the Company
shall effect the registration of the Registrable Securities. Within forty-five
(45) days of receipt of written request from the Investor, the Company shall file
with the SEC a Registration Statement to effect the registration of the
Registrable Securities that the Company has been requested to register for
disposition as described in the request of the Investor.

b.             Piggy-Back
Registrations. Subject
to the last sentence of this Section 2(b), if at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall determine
to file with the SEC a Registration Statement relating to an offering for its
own account or the account of others under the 1933 Act of any of its equity
securities (other than on Form S-4 or Form S-8 relating
to equity securities to be issued solely in connection with any acquisition of
any entity or business or equity securities issuable in connection with stock
option or other employee benefit plans), the Company shall send to the Investor
written notice of such determination and, if within fifteen (15) days after the
effective date of such notice, the Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities the Investor requests to be registered. If an offering
in connection with which the Investor is entitled to registration under this Section 2(b) is
an underwritten offering, then the Investor shall, unless otherwise agreed by
the Company, offer and sell such Registrable Securities in an underwritten
offering using the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and conditions as other shares
of Common Stock included in such underwritten offering. Notwithstanding
anything to the contrary set forth herein, the registration rights of the Investor
pursuant to this Section 2(b) shall only be available in the event
the Company fails to timely file, obtain effectiveness or maintain effectiveness
of any Registration Statement to be filed pursuant to Section 2(a) in
accordance with the terms of this Agreement.

c.             Eligibility
for Form SB-2. The Company represents and warrants that it meets the requirements
for the use of SB-2 for registration of the sale by the Investor of the
Registrable Securities.  The Company
agrees to file all reports required to be filed by the Company with the SEC in
a timely manner so as to remain eligible or become eligible, as the case may
be, and thereafter to maintain its eligibility, for the use of Form SB-2.

3.             OBLIGATIONS
OF THE COMPANY.

In
connection with the registration of the Registrable Securities, the Company
shall have the following obligations:

a.             The Company shall keep the Registration
Statement effective pursuant to Rule 415 at all times until such date as
is the earlier of (i) the date on which all of the Registrable Securities
have been sold and (ii) the date on which the Registrable Securities (in
the opinion of counsel to the Investor) may be immediately sold to the public
without registration or restriction (including, without limitation, as to
volume by the holder thereof) under the 1933 Act (the “Registration
Period”), which Registration Statement (including any amendments
or

 2
 

 

supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein,
or necessary to make the statements therein not misleading.

b.             The Company shall prepare and file with the
SEC such amendments (including post-effective amendments) and supplements to
the Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition thereof as set forth in the
Registration Statement.

c.             The Company shall furnish to the Investor (i) promptly
(but in no event more than two (2) business days) after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company, one copy of each Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, and (ii) promptly (but in no event more than two (2) business
days) after the Registration Statement is declared effective by the SEC, such
number of copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as the Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by the Investor. The Company will immediately notify the Investor
by facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly (but in no event more than
five (5) business days) respond to any and all comments received from the
SEC (which comments shall promptly be made available to the Investor upon
request), with a view towards causing each Registration Statement or any
amendment thereto to be declared effective by the SEC as soon as practicable,
shall promptly file an acceleration request as soon as practicable (but in no
event more than two (2) business days) following the resolution or
clearance of all SEC comments or, if applicable, following notification by the
SEC that any such Registration Statement or any amendment thereto will not be
subject to review and shall promptly file with the SEC a final prospectus as
soon as practicable (but in no event more than two (2) business days)
following receipt by the Company from the SEC of an order declaring the Registration
Statement effective.

d.             The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or “blue sky” laws of such jurisdictions in the
United States as the Investor reasonably requests, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv) take
all other actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however,
that the Company shall not be required in connection therewith or as a
condition thereto to (a) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3(d), (b) subject
itself to general taxation in any such jurisdiction, (c) file a general

 3
 

 

consent to service of
process in any such jurisdiction, or (d) provide any undertakings that
cause the Company undue expense or burden.

e.             As promptly as practicable after becoming
aware of such event, the Company shall notify the Investor of the happening of
any event, of which the Company has knowledge, as a result of which the
prospectus included in any Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to any Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to the
Investor as the Investor may reasonably request.

f.              The Company shall use its best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of
any Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify the Investor
of the issuance of such order and the resolution thereof.

g.             The Company shall take all other reasonable
actions necessary to expedite and facilitate disposition by the Investor of
Registrable Securities pursuant to a Registration Statement.

4.             OBLIGATIONS
OF THE INVESTOR.

In
connection with the registration of the Registrable Securities, the Investor
shall have the following obligations:

a.             The Investor shall furnish to the Company
such information regarding himself, the Registrable Securities held by him and
the intended method of disposition of the Registrable Securities held by him as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least three (3) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify the Investor of the information the Company requires
from the Investor.

b.             The Investor agrees to cooperate with the
Company as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder.

c.             The Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in Section 3(e) or
3(f), the Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until the Investor’s receipt of the copies of a supplemented or
amended prospectus and, if so directed by the Company, the Investor shall
deliver to the Company or destroy (and deliver to the Company a certificate of
destruction) all copies in the Investor’ possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such notice.

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5.             EXPENSES OF REGISTRATION.

All
reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant
to Sections 2 and 3, including, without limitation, all registration, listing
and qualification fees, printers and accounting fees, and the fees and
disbursements of counsel for the Company, shall be borne by the Company.

6.             INDEMNIFICATION.

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

a.             To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) the Investor who holds such
Registrable Securities and (ii) the directors, officers, partners,
employees, agents and each person who controls the Investor within the meaning
of the 1933 Act or the Securities Exchange Act of 1934, as amended (the “1934 Act”), if any, (each, an “Indemnified Person”), against any
joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced or threatened, in
respect thereof, “Claims”) to
which any of them may become subject insofar as such Claims arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or the omission or alleged omission
to state therein a material fact required to be stated or necessary to make the
statements therein not misleading; (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or contained
in the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading; or (iii) any violation or
alleged violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, “Violations”). The Company
shall reimburse the Indemnified Person, promptly as such expenses are incurred
and are due and payable, for any reasonable legal fees or other reasonable
expenses incurred by the Indemnified Person in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person expressly for use in connection with the
preparation of such Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
prior written consent of the Company, which consent shall not be unreasonably
withheld; and (iii) with respect to any preliminary prospectus, shall not
inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, such
corrected prospectus was timely made available by the Company pursuant to Section 3(c) hereof,
and the Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a Violation and such

 5
 

 

Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person.

b.             In connection with any Registration Statement
in which the Investor are participating, the Investor agrees to indemnify, hold
harmless and defend, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such shareholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively
and together with an Indemnified Person, an “Indemnified
Party”), against any Claim to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation by such Investor, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that such
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.

c.             Promptly after receipt by an Indemnified
Person or Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action), such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however,
that an Indemnified Person or Indemnified Party shall have the right to retain
its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal
counsel for the Indemnified Persons or the Indemnified Parties, as applicable,
and such legal counsel shall be selected by the Investor if the Investor is
entitled to indemnification

 6
 

 

hereunder, or the Company,
if the Company is entitled to indemnification hereunder, as applicable. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under
this Section 6, except to the extent that the indemnifying party is
actually prejudiced in its ability to defend such action. The indemnification
required by this Section 6 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.

7.             CONTRIBUTION.

To
the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section 6
to the fullest extent permitted by law; provided, however, that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section 6,
(ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation, and (iii)contribution
(together with any indemnification or other obligations under this Agreement)
by any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.

8.             REPORTS
UNDER THE 1934 ACT.

With
a view to making available to the Investor the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investor to sell securities of the
Company to the public without registration (“Rule 144”),
the Company agrees to:

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

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

c.             furnish to the Investor so long as the Investor
owns Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements
of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may
be reasonably requested to permit the Investor to sell such securities pursuant
to Rule 144 without registration.

 7
 

 

9.             ASSIGNMENT OF REGISTRATION
RIGHTS.

The
rights under this Agreement shall be automatically assignable by the Investor
to any transferee of all or any portion of the Note if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of the name and
address of such transferee or assignee, (iii) at or before the time the
Company receives the written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein, and (iv) such transferee
shall be an “accredited investor” as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.

10.          AMENDMENT
OF REGISTRATION RIGHTS.

Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with written consent of the Company and the Investor. Any
amendment or waiver effected in accordance with this Section 10 shall be
binding upon the Investor and the Company.

11.          MISCELLANEOUS.

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

b.             All notices and other communications hereunder
shall be in writing or by telecopy, and shall be deemed to have been duly made
when delivered in person or sent by telecopy, same day or overnight courier, or
72 hours after having been deposited in the United States registered or
certified mail return receipt requested, postage prepaid, to a party at the
address set forth below (which may be changed in accordance with these notice
procedures):

If to
the Company:

Earth Biofuels, Inc.

3001 Knox Street, Suite 403

Dallas, TX 75205

Fax Number: (214) 389-9805

Attention:  Chief Executive Officer

With a
copy to:

Roger A. Crabb

Scheef & Stone, LLP

5956 Sherry Lane, Suite 1400

Dallas, TX 
75225

Fax
number:  (214) 706-4242

 8
 

 

If to the Investor:

Tom Groos

161 Ottawa St. NW, Suite 502

Grand Rapids, Michigan 49503

Fax number: (616)
831-6454

c.             Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising
such right or remedy, shall not operate as a waiver thereof.

d.              This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas. In the event of a dispute
involving this Agreement or any other instruments executed in connection
herewith, the parties irrevocably agree that exclusive venue for such dispute
shall lie in any court of competent jurisdiction in Dallas County, Texas, and
the parties waive any claim that such forum is inappropriate or inconvenient.

e.             In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof.

f.              This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof. There
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.

g.             Subject to the requirements of Section 9
hereof, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns.

h.             The headings in this Agreement are for
convenience of reference only and shall not form part of, or affect the
interpretation of, this Agreement.

i.              This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties.
This Agreement, once executed by a party, may be delivered to the other parties
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.

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

 9
 

 

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

 

	
  EARTH BIOFUELS, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ DENNIS G.
  MCLAUGHLIN, III

  	
   

  
	
  Name:

  	
  Dennis G.
  McLaughlin, III

  
	
  Title:

  	
  Chief Executive Officer

  
	
   

  
	
   

  
	
  TOM GROOS

  
	
   

  
	
   

  
	
  /s/ TOM GROOS

  	
   

  
	
  Tom Groos, individually

  
				

 

 10

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