Document:

Exhibit
10.84

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.: A-02r

Number of Shares
of Common Stock: 103,448 

Date of Issuance:
August 11, 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, WHALEHAVEN CAPITAL FUND LTD., 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 the date hereof, but not
after 11:59 p.m., New York time, on the Expiration Date (as defined below), ONE
HUNDRED THREE THOUSAND, FOUR HUNDRED FORTY-EIGHT (103,448) 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 August 11, 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, 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.  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 

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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 [Insert in
Additional Warrant: Notwithstanding any provision of this Warrant to
the contrary, no more than the Maximum Eligibility Number of Warrant Shares
shall be exercisable hereunder.]

(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)

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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.

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 

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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 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 

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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.

(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 

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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), 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.

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(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 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, 

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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 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.

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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 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

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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 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.

 11
 

 

(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 and 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 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.

 12

 

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
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 

 13
 

 

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 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 

 14
 

 

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.   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 

 15
 

 

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 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 

 16
 

 

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)           
[Insert in Additional Warrant: “Maximum Eligibility Number” means initially
zero and shall be increased each time the Company elects a Mandatory Conversion
(as defined in the Notes) pursuant to the Holders’ Notes by an amount equal to
50% of the number of Conversion Shares (as defined in the Securities Purchase
Agreement) issued in connection with such Mandatory Conversion.]

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

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

(m)  “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.

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

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

(p)   “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.

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

(r)    “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:

  	
   

  
	
   

  	
  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 Registrar & Transfer Co. to
issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated August     , 2006
from the Company and acknowledged and agreed to by Registrar & Transfer Co.

	
  

  	
  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 ExercisedExhibit 10.85

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.: A-01a

Number of Shares of Common Stock: 86,207 

Date
of Issuance: August 11, 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, GUNDYCO ITF EXCALIBUR LIMITED
PARTNERSHIP, 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 the date hereof, but not
after 11:59 p.m., New York time, on the Expiration Date (as defined below),
EIGHTY-SIX THOUSAND, TWO HUNDRED SEVEN (86,207) 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 August 11, 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, 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.  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 

 2
 

 

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 [Insert in Additional Warrant: Notwithstanding
any provision of this Warrant to the contrary, no more than the Maximum
Eligibility Number of Warrant Shares shall be exercisable hereunder.]

(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)

 3
 

 

 

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.

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 

 4
 

 

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 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 

 5
 

 

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.

(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 

 6
 

 

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), 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.

 7
 

 

(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 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, 

 8
 

 

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 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.

 9

 

 

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 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 

 10
 

 

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 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.

 11
 

 

(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 and 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 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.

 12
 

 

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 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 

 13
 

 

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 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 

 14
 

 

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.   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 

 15
 

 

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 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.

15.2.        “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 

 16
 

 

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.

(a)           [Insert in Additional Warrant: “Maximum Eligibility Number” means initially
zero and shall be increased each time the Company elects a Mandatory Conversion
(as defined in the Notes) pursuant to the Holders’ Notes by an amount equal to
50% of the number of Conversion Shares (as defined in the Securities Purchase
Agreement) issued in connection with such Mandatory Conversion.]

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

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

(d)   “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.

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

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

(g)   “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.

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

(i)    “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 Registrar & Transfer Co. to
issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated August   , 2006 from the
Company and acknowledged and agreed to by Registrar & Transfer Co.

	
   

  	
  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

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